SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-------------------------------
( ) 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
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
101 Park Avenue, New York, New York 10178
(Address of principal executive offices) (Zip Code)
Registrant's telephone number (212) 867-0166
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
(Title of class)
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. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: $109,103,230 as of February 14, 1997
(APPLICABLE ONLY TO REGISTRANTS 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 Section 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 REGISTRANTS)
Indicate the number of shares outstanding of the registrant's common stock,
as of the latest practicable date: 28,121,328 shares outstanding as of February
28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
Item 1. BUSINESS
(a) General Development of Business.
AMNEX, Inc. ("AMNEX"), through its operating subsidiaries (AMNEX and its
consolidated subsidiaries collectively, the "Company"), provides a variety of
telecommunications services for operator-assisted ("0+") and direct-dialed long
distance ("1+") telephone calls transmitted throughout the Unites States on the
Company's network and to and from international points, as well as related
billing services. The Company focuses on selected niche telecommunications
markets where it believes it can enter and operate profitably.
In June 1996, AMNEX acquired all of the outstanding stock of Capital
Network System, Inc. ("CNSI"), a telecommunications company engaged in the
provision of 0+ calling services primarily to American and Canadian tourists
traveling in Mexico. CNSI is also engaged in the provision of 1+ and 0+ services
in the United States where, prior to its acquisition, it competed with AMNEX's
domestic telecommunications subsidiary, American Network Exchange, Inc. ("ANEI")
(see Item 1(c) hereof).
In September 1996, AMNEX acquired 80% of the outstanding stock of National
Business Exchange, Inc., now known as National Billing Exchange ("NBE"), which
provides various billing services to telecommunications companies, including the
ability to place billing transactions on the local telephone company bill page
(see Item 1(c) hereof).
In November 1996, AMNEX's wholly-owned subsidiary, Crescent Public
Communications Inc. ("Crescent"), acquired certain assets of Coastal Telecom
Payphone Company, Inc. ("Coastal Telecom"), Garden State Telephone Installation
& Service Co., Inc. ("Garden State") and BEK Tel, Inc. ("BEK Tel"), all of which
were New Jersey-based private pay telephone route operators and customers of
ANEI. From September 1996 to March 1997, Crescent also acquired certain assets
of several smaller pay telephone route operators in the New York area. Further,
in March 1997, Crescent, through an 80%-owned subsidiary, Sun Tel North America,
Inc. ("Sun Tel"), acquired certain assets of Sun Tel Inc., a Florida-based
private pay telephone route operator. All such companies provided services of
the same nature as Crescent (see Items 1(c) and 7 hereof).
In October 1996, the Company realigned its management structure to reflect
its different lines of business. Three operating divisions were established at
the subsidiary level: TelCom, PubCom and Billing. Common corporate functions
were assigned to the holding company level. Each of the three divisions has
responsibility for specific lines of business and its own profit and loss.
The TelCom Division provides international and domestic 1+ and 0+
telecommunications services; the PubCom Division owns and operates private pay
telephones and provides telecommunications network management services to the
hospitality industry; and the Billing Division provides billing services for
telecommunications-related products. Common corporate functions at the parent
level include human resources, information services, network and operations,
legal and regulatory, corporate finance and accounting, and business
development. This organizational structure is also intended to enable the
Company to exploit certain market niches created by the passage of
telecommunications reform legislation in early 1996 (see Item 1(c) hereof).
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The Company's strategy is (i) to develop telecommunications products and
services which will enable it to provide the consumer with "end-to-end"
services, while controlling the flow of traffic to its network through the
ownership of customer access equipment, (ii) to continue to pursue vertical
integration of new and/or additional services with the Company's existing
markets to reduce its infrastructure costs and secure its customer base and
(iii) to expand through the acquisition of businesses that are either providers
of traffic to its network or providers of the underlying services utilized by
the Company. Additional consideration is given to those enterprises operating in
markets where regulatory changes are taking place or are anticipated.
Reference is made to Item 7 hereof for a discussion of a Preferred Share
financing consummated by the Company during 1996.
AMNEX is a New York corporation which was organized on March 15, 1985. Its
principal executive offices are located at 101 Park Avenue, New York, New York
10178 (telephone number (212) 867-0166) (see Item 2 hereof).
(b) Financial Information About Industry Segments.
Not applicable.
(c) Narrative Description of Business.
Industry Background
The long distance transmission and operator service provider industries
evolved principally as a result of the new competitive opportunities created by
the court-ordered divestiture by American Telephone and Telegraph ("AT&T") of
its local operating companies (the "BOCs"). As discussed under "Government
Regulation-Federal Regulation," the Telecommunications Act of 1996 (the "1996
Act") has further accelerated the development of local and long distance
competition.
In 1981, AT&T removed tariff restrictions that prohibited resale and
sharing of Message Telecommunications Service ("MTS") and Wide Area Telephone
Service ("WATS"). This led to an explosion of new entrants into the long
distance telecommunications business, primarily as resellers. In 1982, the
Department of Justice ("DOJ") and AT&T agreed to the terms of the Modification
of Final Judgment ("MFJ") under which AT&T divested itself of all its BOCs. As
part of the divestiture, the BOCs were organized into seven separate regions and
seven Regional Holding Companies ("RBOCs") were created. The BOCs, and other
independent companies which provide local telephone service, are generally
referred to as local exchange carriers ("LECs").
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At divestiture, the United States was divided into 197 Local Access
Transport Areas ("LATAs"). AT&T was given the right to handle interLATA long
distance service and was permitted to handle intraLATA long distance service
where allowed by the applicable state regulatory authority. Conversely, the BOCs
were given the right to handle intraLATA service, but were prohibited from the
interLATA market. Such differentiation was substantially modified by the 1996
Act (see "Government Regulation-Federal Regulation").
The MFJ also required the BOCs to provide all interexchange or long
distance carriers ("IXCs") with access to their local telephone exchange
facilities which is "equal in type, quality and price" to that provided to AT&T.
This was accomplished through the filing of access tariffs at the Federal
Communications Commission (the "FCC") and at state public utilities commissions.
Under these access tariffs, all IXCs, including AT&T, pay charges to the LECs
for access to local telephone lines at both the originating and terminating ends
of all long distance calls. Access charges represent the single largest
component of most IXCs' cost of service. The BOCs, and subsequently all other
LECs, also were required to conduct a presubscription process allowing business
and residential consumers to select their long distance carriers. The 1996 Act
continues these equal access obligations.
A June 1984 decision of the FCC permitted the sale and installation of
privately owned and operated pay telephones, known as COCOTs. Such decision
ended the 100 year monopoly of the LECs in this area, and paved the way for the
development of the independent payphone industry. LECs were required to provide
dial tone connections for COCOTs and, subsequently, blocking and screening
services intended to deter fraudulent usage of such phones. As a result of the
passage of the 1996 Act and its nondiscrimination provisions, the independent
payphone industry is expected to achieve parity in cost structure with LEC-owned
payphones (see "Government Regulation-Federal Regulation-Domestic
Operations-1996 Act").
An October 1988 federal district court (the "Court") ruling required the
BOCs, and subsequently the LECs owned by GTE Corporation ("GTOCs"), to conduct
another presubscription process for the public pay telephones they owned. Since
such phones are owned by BOCs and GTOCs, the Court determined that the owner of
the premises on which the public pay telephone was located (the "Site Owner")
rather than the owner of the phones should select the long distance service
provider. Several other LECs have introduced similar programs, including Site
Owner selection of the long distance service provider. The 1996 Act provides for
the continued participation of the Site Owner in the long distance service
provider selection process and allows for the Company to continue its efforts in
this current core business.
In May 1990, the Court required the BOCs to provide equal access for long
distance calls which are paid for by coins deposited in their public pay
telephones ("1+ Coin"). To this end, the BOCs were directed to file equal access
plans with the DOJ and the 1984 waiver under which such calls were being routed
automatically to AT&T was to be terminated within one year. Under the terms of
the equal access plans, AT&T was permitted to continue to accept 1+ Coin service
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directly from the public pay telephones presubscribed to other IXCs, but only
until such time as the presubscribed carrier designated either itself or another
carrier to handle the traffic. Based on this ruling, ANEI and CNSI are entitled
to receive the 1+ Coin traffic from all public pay telephones for which they
have been selected to provide 0+ services and any other IXC may designate ANEI
(instead of AT&T) to carry the 1+ Coin traffic originating at public telephones
for which it is the presubscribed long distance carrier. This market niche,
which is currently being exploited by ANEI as it deploys its 1+ Coin service
nationally, will continue to be available under the 1996 Act.
Equally significant, the 1996 Act, as well as recent actions on both the
federal and state levels, will eventually open up the local exchange, and to the
extent not already mandated, the intraLATA market, to full competition. As a
result of the 1996 Act, all states are required to adopt rules establishing
local competition and defining how the LECs are to open up their networks to
their competitors (see "Government Regulation-Federal Regulation-Domestic
Operations-1996 Act").
Organization and Structure; Business Direction
The Company, through its operating subsidiaries, is a provider of
telecommunications and related billing services for telephone calls transmitted
throughout the United States and to and from international points. Approximately
70% of the Company's revenues for the fiscal year ended December 31, 1996 were
derived from its provision of operator services at public and private pay
telephones; approximately 10% from the provision of telecommunications services
to hotels and other hospitality locations in Mexico; and approximately 20% from
the ownership and operation of private pay telephones, the provision of
telecommunications network management services to the hospitality industry, and
the provision of telecommunications services with regard to 1+ Coin, travel card
and residential and commercial 1+ calls and other revenues (see "Business
Units").
During 1996, the Company completed certain steps to shift the focus of its
future direction away from its core operator services business, which
represented virtually all of the Company's revenues in 1994, 90% of the total
revenues in 1995, and, as previously noted, 70% in 1996, and towards other
telecommunications business which generate lower revenue per call than operator
services, but have higher profit margins.
Prior to the adoption of the 1996 Act (see "Government Regulation-Federal
Regulation-Domestic Operations-1996 Act"), management of the Company believed
that the then pending legislation would improve margins and create opportunities
as barriers to market entry and regulatory obstacles were removed. Based on such
belief, in October 1995 and in advance of these legislative changes, the Company
acquired Crescent. This acquisition represented the Company's entry into the
ownership of private payphones, a business which the Company anticipated was
ripe to undergo radical positive regulatory change. As a direct result of the
the 1996 Act, the FCC adopted new rules expanding both the eligible class of
calls and the level of compensation paid by IXCs to independent payphone
providers ("IPPs") such as Crescent. Such new rules positively affect the
revenues from this part of the Company's business (see "Government
Regulation-Federal Regulation-Domestic Operations-1996 Act").
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In order to expand its ownership of private payphones, in November 1996,
Crescent acquired certain assets of Coastal Telecom, Garden State and BEK Tel.
Through this transaction, approximately 4,300 telephone stations with locations
primarily in the state of New Jersey were acquired, bringing the Company's
domestic phone count to 6,300. A series of subsequent acquisitions increased
this total to 7,500 at March 31, 1997. By the end of 1997, the Company expects
to own and operate approximately 12,000 telephone stations throughout the United
States.
Similarly, in late 1995, management identified the 1+ Coin business as a
viable one for it to enter. This service allows the consumer to make long
distance coin calls from LEC-owned and operated pay telephones using the long
distance provider selected by the Site Owner. Prior to the Company's entry into
this business, only AT&T provided this service. To date, the Company has signed
up approximately 600,000 phones for this service.
In an effort to take advantage of emerging opportunities in the
international telecommunications market, as well as improve operating
efficiencies, in June 1996, AMNEX acquired CNSI. CNSI's primary business is the
provision of 0+ calling services to, among others, American and Canadian
tourists traveling in Mexico. The market penetration of CNSI has made its
hospitality customer base second only in size to that of Telmex, the Mexican
stated-owned telecommunications company. This business was a logical extension
of the Company's domestic operator service and will utilize a common
infrastructure. As part of the Company's international expansion, CNSI's
business gives the Company a customer base in a deregulating international
telecommunications market, where newly-deregulated services can be sold (see
"Government Regulation-Federal Regulation-International"). In addition, the
Company was able to utilize a common platform for CNSI's domestic operations and
those of ANEI, providing further opportunity for cost reduction and improved
efficiency.
In January 1997, AMNEX acquired a minority equity position in Galesi
Telecom International, Inc. ("GTI") (see Item 13 (a) hereof), a privately-owned
telecommunications holding company with operations in Sweden and Germany. The
transaction also contemplates the development of operating agreements and joint
marketing efforts in the deregulating European market. In addition, between
December 1996 and February 1997, CNSI, through its subsidiary, Capital Network
Mexico ("CNM"), entered into a series of agreements with InvestCom S. A. de C.V.
("InvestCom"), a licensed Mexican telecommunications carrier, which allows CNM
to resell intraMexico 1+ service to its customers in Mexico. Additional
agreements are under negotiation which, if entered into, will further expand the
Company's relationship with InvestCom. By virtue of these international
relationships, the Company believes that it is well positioned to participate in
the flow of traffic between Mexico, the United States and Europe. The Company
intends to expand these relationships in 1997.
Further, the Company has identified several underlying services, including
billing services, which many competitors in the newly-deregulated marketplace
will require to support new product deployment. Accordingly, in September 1996,
to better position itself to supply these billing services needs, AMNEX acquired
80% of the outstanding stock of NBE, which currently provides its
telecommunications company customers with the ability to place their billing
transactions on the local telephone company bill. This service unit is expected
to grow as more competitors begin to provide the new telecommunications services
authorized by the 1996 Act.
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The Company is also planning to enter the local exchange market by
providing dial tone and local calling services ("Local Service") for public
access lines (initially, in the New York City area). The Company intends to
enter the Local Service market by either reselling the LEC's services or by
purchasing unbundled network elements and constructing its own service
offerings. This provides the Company with another opportunity to further
vertically integrate its service offerings and control the flow of traffic to
its network (see "Government Regulation-Federal Regulation-Domestic
Operations-1996 Act").
Business Units
To better manage its businesses, in October 1996, the Company realigned its
management structure. Three operating divisions were established, and common
corporate functions were assigned to the holding company level. Each of the
three divisions, TelCom, PubCom and Billing, has profit and loss responsibility
for specific business operations of the Company. The TelCom Division, through
ANEI and CNSI, provides domestic operator services, long distance transmission
services and travel card services to telephone users and also provides domestic
support to the Company's international operations. Through CNSI, CNM and AMNEX
International, Inc. ("AII"), the TelCom Division also provides international
operator services, provides long distance transmission services in Mexico
(currently as a sales representative for InvestCom) and acts as a carriers'
carrier or international gateway providing bulk transport of traffic between the
United States and international points. The PubCom Division, through Crescent,
Sun Tel and American Hotel Exchange, Inc. ("AHE"), owns and operates private pay
telephones and provides telecommunications products and network management
services to the hospitality industry. The Billing Division, through NBE,
provides billing and collection services to telecommunications companies for
telecommunications-related transactions.
TelCom Division
Domestic
The TelCom Division is responsible for developing and maintaining the
Company's domestic telecommunications services businesses described under
"Business Units" above. In 1996, this division had revenues of approximately
$91,200,000 derived from operator services provided at payphone and hospitality
locations and from its 1+ direct-dial long distance products. The following is
the approximate breakdown of 1996 revenue from the provision of such
telecommunciations services:
Payphones $71,000,000
Hospitality 11,000,000
1+ Direct Dial 9,200,000
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TOTAL $91,200,000
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Marketing and Customers
Domestic operations have experienced a decrease in revenue since 1995 from
the IPP and LEC base primarily due to slow sales growth throughout the industry.
This industry-wide slowdown is due to market uncertainties and an increase in
"dial around" calling (as discussed below). Sales efforts and promotional
advances which have traditionally driven new sales growth were substantially
reduced by the industry in 1996, due in large part to the uncertainty created by
the threat of FCC rate caps being implemented (see "Government
Regulation-Federal Regulation- Domestic Operations-Other Applicable
Regulations"). This had the effect of flattening domestic operations growth.
However, hospitality operations continued to reflect improved results in 1996,
even though "dial around" and other competitive pressures have slowed growth.
Given the current market conditions and the more stable state of the
regulatory environment (see "Government Regulation-Federal Regulation"), the
Company is planning to implement a targeted IPP sales program which includes
advances and faster commission payments to the IPPs than its competitors. The
Company believes this will enable it to capture new market share in this area,
but no assurances can be given in regard thereto.
"Dial around" calling programs such as 1-800-CALL-ATT and 1-800-COLLECT
continued to take calls away from the Company's existing phone base (see
"Competition-TelCom Division-Domestic"). In 1994, calls per phone per month
averaged 13; by 1995 calls per phone per month were 12; in 1996, calls per phone
per month had dropped to 10. Alternative dialing plans such as carrier
proprietary calling cards and prepaid cards are expected to continue to apply
pressure on the calls generated per phone. ANEI has itself begun providing "dial
around" services in markets in which "dial around" calling has had negative
effects. The Company anticipates these new services will result in a shift of
revenues in future periods, although no assurances can be given that such
efforts will be successful.
The TelCom Division's operator services are being marketed to private
payphone owners, Site Owners and RBOCs, as well as to hotels, motels,
condominium developments, health care institutions, educational institutions and
correctional facilities, primarily in areas where it has established network
facilities. ANEI currently has originating access available in part or all of 31
of the 48 contiguous states plus the District of Columbia. ANEI has arrangements
in place to provide its services on a nationwide basis, by using other carriers,
such as MCI, to originate calls in areas where ANEI does not have its own
network facilities. Such standard practice in the 1+ industry allows ANEI to
provide its own services where technologically and economically feasible and to
otherwise resell the facilities of other IXCs (see "Switching Equipment and
Network").
ANEI and CNSI market their services through a nationwide network of
independent sales agents and dealers with whom they have entered into
contractual arrangements as well as through their own direct combined sales
force. Such arrangements with agents and dealers afford them the opportunity to
receive commissions based on a percentage of revenues generated by the calls
routed over the Company's network by the agent's or dealer's subscribers.
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ANEI's and CNSI's revenues are subject to seasonal variations. Many of the
payphones located in the Southeast produce substantially higher call volumes in
winter months than at other times during the year, while the payphones located
in the Northeast and Midwest produce their highest call volumes during the
summer months. In an effort to reduce the effects of seasonality and properly
utilize network capacity, the TelCom Division has focused its marketing efforts
on obtaining a better geographic balance for its payphone business, and
increasing its hospitality and condominium customer bases, which tend to have
calling volumes that are less subject to seasonal variation.
The TelCom Division also markets its services through participation in
trade shows and advertisements in trade publications.
During the fiscal year ended December 31, 1996, ANEI's customer, National
Telecom USA, Inc. ("National"), and its affiliate, The Keystone Corporation,
collectively accounted for approximately 21% of the Company's revenues.
Reference is made to Item 13(a) hereof for a discussion of an agreement entered
into in February 1997 between ANEI and National pursuant to which, among other
matters, ANEI was selected as the exclusive provider of telecommunications
services to phones owned, leased or otherwise controlled by National during the
ten year term of the agreement.
Operator Services
ANEI provides 24 hour, seven-day-a-week live and automated operator
services for telephone calls placed over its network. These services allow
transient users at pay telephones and at locations such as hotels, motels,
condominium developments, health care institutions, educational institutions and
correctional facilities to complete calls on a collect, third party or
person-to-person basis, or to charge such calls to a commercial credit card or
telephone company calling card.
ANEI's switching system receives all "0" dialed calls from phones
subscribed to its network and completes the calls over a state-of-the-art leased
communications network (see "Switching Equipment and Network"). ANEI's equipment
and personnel at its switch and operator center sites furnish all operator
functions, both live and automated, necessary to complete and bill a particular
call. In providing such services, ANEI utilizes Signaling System Seven ("SS7")
which speeds call processing for its customers. ANEI's ability to offer
customized greetings, such as through its bilingual operator staff, further
enhances its service offerings. ANEI has retained an unaffiliated third-party to
validate billing numbers prior to call completion to reduce the risk of fraud
(see "Revenues; Billing Arrangements").
ANEI also provides live and automated operator services for CNSI's domestic
and international operator-assisted traffic.
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Direct Dial
As a long distance provider, ANEI solicits small to medium-sized
businesses, pay phone owners, hotels and hospitals and competes with providers
such as AT&T, MCI, Sprint and a number of regional carriers. ANEI's product
offerings are competitively priced, with higher volume and long-term contract
customers receiving greater discounts.
In 1996, ANEI expanded sales to other IXCs. It is contemplated that this
wholesale market segment will continue to be expanded in 1997 with targeted
carriers, debit card providers and international calling companies. The
infrastructure of network, customer service, billing and collection is in place
to support new growth. The wholesale market segment generates lower gross
margins than ANEI's traditional service offerings; however, since selling,
general and administrative expenses with regard to the wholesale market are
substantially lower, operating profits are generally comparable.
ANEI's message telecommunications services ("MTS") include both flat rated
and mileage sensitive rate plans and can be accessed on a 1+ basis, or by
dialing 10XXX, 950 or 800 numbers. In lieu of call by call dialing, 950 and 800
access can also be achieved through either the installation of a high speed
dialer or the programming of other customer premise equipment. Such process
allows calls to access the ANEI network via its 10XXX, 950 or 800 numbers. The
customer's multi-digit security code is then passed on to a local ANEI switch
for call clearance. ANEI's 800 service allows its customers to offer inbound
toll free calling to their own customers.
Telephone Travel Card
ANEI offers an enhanced travel card service marketed as the AMNEX Edge(R),
which has been designed to meet the needs of the business and non-business
traveler. The card allows the customer to access the ANEI network from any touch
tone phone in the United States and Canada by dialing an 800 number. Once the
authorization code associated with the travel card has passed validation, the
customer can select from a menu of basic and enhanced calling features,
including direct-dialed calling, conference calling, message delivery service
and an array of informational services. Live operator assistance is also
available, if required by the caller. Various levels of fraud protection and
management summary reports are also offered to enable the user to maintain cost
control of calling card expenses.
In 1996, ANEI expanded its travel card program through affinity marketing
programs and was successful in obtaining contracts with American Automobile
Association of America franchisees throughout the country for a custom travel
card to be marketed to its members. ANEI will seek to expand this segment in
1997.
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Switching Equipment and Network
ANEI is a switched reseller, whose network includes Stromberg-Carlson
Digital Central Office switches located in Orlando, Florida and New York, New
York. The interconnectivity of the network's switches, coupled with ANEI's
advanced SS7 operating technology, ensure uniformity and a high grade of
service. ANEI has back-up systems which, in the event of a power outage or
equipment malfunction, provide several layers of redundancy and route diversity
to continue call processing. These systems include back-up battery power at both
switch locations and a back-up generator system at the operator center.
The maintenance and repair of the network is handled by highly trained and
experienced technicians at each switch site. The technicians on site are
coordinated and supported by Network Control Center ("NCC") personnel in
Orlando, six days a week between 6:00 A.M. and midnight, and are on call 24
hours a day, seven days a week, to handle transmission, equipment, and switching
problems. The NCC is also capable of contacting ANEI's underlying carriers for
trouble resolution at any time.
The ANEI network also provides domestic origination and termination to the
Company's other subsidiaries.
ANEI believes that its network flexibility, and the low incremental cost to
expand capacity, allow it to adequately service its customers throughout the
country. However, in connection with the Company's ongoing business plans and
decentralization efforts, the TelCom Division is examining the feasibility of
outsourcing all or a significant portion of its switching and network
requirements to one or more unrelated third parties (see Item 7 hereof).
Revenues; Billing Arrangements
Revenues of both ANEI and CNSI consist of flat fees for the use of their
operator services and per minute of usage charges for the use of their network
services. Their operating expenses include the commissions payable to agents,
IPPs and Site Owners, the transmission charges of the LECs and IXCs, validation,
billing and collection charges and operator costs.
Both ANEI and CNSI contract with an unaffiliated third party billing agent,
OAN Services, Inc. ("OAN") to perform billing on their behalf. ANEI also
contracts with a second unaffiliated third party billing agent, Zero Plus
Dialing, Inc. ("ZPDI"). ANEI and CNSI calculate the charges for calls carried
over their shared network and forward the call records to the billing agents.
The records are then processed and forwarded to the appropriate billing LEC. The
billing LECs collect the amount due from the end user and remit payment to the
billing agents, which, in turn, remit payment to ANEI or CNSI. Such payments to
ANEI or CNSI are net of billing and collection fees charged by the LECs, as well
as a provision for uncollectible accounts and a per transaction fee for the
billing agent's services. During 1997, the Company intends to consolidate all
billing services through NBE's billing agreements. Such action would result in
reduced costs in 1998 and better control and management of the billing process.
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ANEI utilizes a combination of in-house and outsourced billing systems to
bill and collect calls made by its 800, travel card and direct dial customers.
This direct billing process was designed to bill known customers with recurring
monthly direct dial and travel card services.
International
The TelCom Division's international operations are conducted through CNSI,
its subsidiaries and AII. CNSI is currently deriving revenues from hospitality
services in Mexico and, to a substantially lesser degree, the Caribbean and
Europe. AII is a newly-formed international carrier operation which seeks to
enter into direct agreements with other carriers for the transport of
international voice and data traffic.
Mexico is one of the largest telecommunications partners with the United
States. It is also a critical arena for the Company. Through CNSI, the Company
services over 1,500 locations in Mexico by providing hospitality-based
telecommunications services primarily to American and Canadian customers
traveling abroad. CNSI's subsidiary, CNM, intends to market 1+ domestic and
international long distance service in Mexico to CNSI's existing customer base.
The Company believes that it can effectively sell newly-deregulated long
distance services to its existing customer base and also to new customers
throughout Mexico.
AII, a licensed international carrier, has reached an agreement with
InvestCom, one of eight authorized carriers in Mexico, for the carriage and
transportation of international traffic in and out of Mexico. This will allow
CNSI to sell, and AII to carry, Mexican-originated long distance domestic and
international traffic.
As with the TelCom Division's domestic revenues, the division's
international revenues consist of flat fees for the use of its operator services
and per minute of usage charges for the use of its network services. Operating
expenses include the commissions payable to its agents, IPPs and Site Owners,
the transmission charges of the local Mexican and United States carriers,
validation, billing and collection charges and operator costs. CNSI also
contracts with OAN to perform billing on its behalf for calls originated
overseas but billed in the United States and Canada.
Marketing and Customers
CNSI markets its international services through a network of independent
sales agents with whom it has entered into contractual arrangements as well as
through its own direct sales force. Such arrangements with agents afford them
the opportunity to receive commissions based on a percentage of revenues
generated by the calls routed over CNSI's network by the agent's subscribers.
Since a majority of CNSI's subscribers are hotels in tourist areas, revenues are
affected by seasonal variations. Many of the hotels serviced by CNSI produce
substantially higher call volumes in winter months (when tourism in Mexico is at
its peak) than at other times during the year.
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Several countries are experiencing telecommunication reform similar to that
which has transpired in the United States. Many of these new foreign
telecommunication competitors will, in all likelihood, be looking to secure a
United States partner that can provide expertise to enhance entry in their
domestic markets. Mexico and Europe, in the early stages of telecommunications
reform, have large markets and provide the Company the ability to become a true
international carrier. The Company intends to find ways to leverage domestic
capabilities to provide similar services in foreign countries. Additionally, the
Company expects to sell international voice service to both second tier carriers
and direct customers.
PubCom Division
The PubCom Division is developing the Company's premise equipment and
services business. The unit seeks to integrate the delivery of the hardware,
local dial tone, telecommunications network management and calling services
required to service the needs of specific vertical markets. Currently, the
division is pursuing two markets: the hospitality business (through AHE) and
private pay telephones (through Crescent and Sun Tel). The PubCom Division has
recently been expanded to include ANEI's 1+ Coin business.
Typically, IPPs deploy payphones and sell calling services to the public at
a profit. By owning both the instrument and the network, the Company derives the
benefits of being both an IPP and a network provider. Revenue and earnings are
derived from both the ownership of the payphones and the network. Controlling
the customer location helps eliminate customer turnover and the high expenses
usually associated with sales, marketing and responding to competitive
pressures. The same is true for the hospitality market.
Recent regulatory decisions opening up the local exchange market complement
the Company's plans for this area of its operations and provide opportunities to
further reduce costs and add local service minutes to the network (see
"Government Regulation - Federal Regulation- Domestic Operations-1996 Act").
These changes were anticipated and played an early role in formulating the
Company's PubCom Division strategy.
PBX/Program
Started in 1994, the Company's PBX program, provided through the Company's
AHE subsidiary, has shown steady growth. The PBX program was the first attempt
by the Company to secure long-term control of telecommunications services at
hotel and other hospitality properties. AHE supplies the equipment,
telecommunications network management and calling services for all of the hotel
property's needs on an exclusive basis. By controlling the dial tone, AHE can
secure the telecommunications revenue from its customer's locations for various
business units of the Company. Additional services, including payphones and
debit cards, also can be deployed at these hotels, if desirable.
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AHE has primarily marketed its services to small to medium-sized hotels (20
to 150 rooms). The PBX program is now in place in over 600 hotel and motel
properties in New York, New Jersey, Florida, Colorado and California. By
utilizing refurbished telephone systems and purchasing in large quantities, the
Company is able to enjoy low capital costs when equipping a location with a
relatively fast pay back. ANEI is currently providing 0+ service to these
properties, but expects to provide all telecommunications services to these
properties (including local service) beginning in 1997. Since hospitality room
occupancy levels are at a historic high, AHE's revenues should benefit.
Private Payphones
In 1995, the Company acquired Crescent, an owner and operator of private
payphones, in order to obtain private pay telephone locations and thus gain
control of such locations' telecommunications services and reduce the costs
associated with paying commissions to private payphone owners. The acquisition
included approximately 1,850 telephones. In November 1996, Crescent acquired
certain assets of Coastal Telecom, Garden State, and BEK Tel, including
approximately 4,300 phones. Additionally, certain assets of several other
companies were subsequently acquired which contributed an additional 1,300
phones. As a result of these acquisitions, at March 31, 1997, the Company owned
and operated a total of approximately 7,500 phones in the New York, New Jersey
and Philadelphia corridor as well as in Florida.
Most PubCom Division management functions are centrally located in the
Company's Lake Success, New York facility (see Item 2 hereof). Technicians at
the data center continually monitor payphone functionality, alarms, operating
statistics, revenue production and other diagnostic data. Expansion within
existing service areas results in significant reductions in selling, general and
administrative expenses as a result of consolidating newly-acquired operations.
The centralized facility also allows for the efficient and economical
provision of back office functions such as the analysis of telephone bills,
inventory control, equipment refurbishing and ordering, accounts
payable/accounts receivable, sales, acquisition analysis, training, field
dispatch and customer service. Field technical and coin handling functions are
performed at regional dispatch centers located strategically in close proximity
to the concentration of phones they support.
The Company intends to continue to expand its payphone base, with growth
expected to be focused on the Northeast, Southeast and Mid-Atlantic areas.
Regional concentrations of traffic allow the Company to use its network
efficiently and provide a strong competitive advantage for Crescent over other
IPPs.
In addition to growth through acquisitions, Crescent regularly identifies
and evaluates new sites for private payphones, or COCOTs. Typical locations for
COCOTs include hotels, motels, health care institutions, airports, educational
institutions, dining establishments, office and government buildings, and retail
stores and shopping malls. Crescent seeks to enter into a long-term location
agreement (generally five to ten years) with the business owner or site manager
pursuant to which the Location Owner would supply the space and electricity for
the COCOT and would be entitled to receive a commission based upon phone
utilization. Crescent installs, maintains and repairs the equipment, collects
the coins from the phone coin vaults and pays phone line charges. Crescent's
services are marketed through an internal sales force as well as through
independent representatives.
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As an IPP, Crescent derives commission revenues and "dial around"
compensation (see "Government Regulation-Federal Regulation-PubCom Division")
from the long distance and operator-assisted, non-coin calls made from its
phones. ANEI provides its operator-assisted and interexchange services at
Crescent's phones.
1+ Coin Service
ANEI has entered into agreements with most RBOCs which allow it to process
interexchange coin calls placed from any LEC payphone at which ANEI is the
presubscribed interLATA carrier. The agreements allow ANEI to provide these same
services at phones served by other IXCs that designate ANEI as their 1+ Coin
carrier. At present, the service encompasses six RBOC regions covering 31
states. ANEI expects full deployment of the 1+ Coin service by the end of 1997.
ANEI began to deploy its 1+ Coin service for interLATA calls in the third
quarter of 1995, a service which previously only AT&T provided.
The Company's strategy in this market niche has been to offer 1+ Coin
service to those IXCs that currently provide long distance services to the site
where LEC pay telephones are located. ANEI has already signed definitive
agreements with the two largest operator service providers ("OSPs") in the LEC
pay phone market as well as with substantially all other IXCs operating in that
marketplace. ANEI currently has 600,000 LEC payphones under contract for 1+ Coin
service with approximately one-half of such payphones located in areas where
ANEI currently provides such service.
Billing Division
NBE is currently a value-added reseller of OAN billing and collection
services (see "Revenues; Billing Arrangements"). NBE has been positioned to
become a direct provider of billing and collection services in the LEC, direct
and credit card billing environments. In order to accomplish this goal, NBE has
re-engineered its out-clearing and remittance accounting software to meet the
increased requirements of providing direct services. Additional software
programming with regard to the systems is being undertaken.
NBE has grown fairly rapidly over the past six months, particularly in the
1+ area. This is due in part to the implementation of special service messaging
("SSM") in the areas serviced by the GTOCs and Pacific Bell. SSM service allows
enhanced telecommunications services ( e.g., paging charges, Internet usage
charges or monthly service fees) to be billed on the local telephone bill. This
service is provided through direct LEC contracts and not through OAN. As part of
its marketing plan, NBE intends to market the service, as well as the provision
of billing for Internet, paging, cellular and other similar services. NBE has
also developed and deployed the systems necessary to support a new billing
technology called invoice ready billing ("IRB") that greatly enhances the
presentation of the billing information for its clients. NBE intends to market
its IRB product to paging, Internet, cellular and personal communications
services companies. The Company intends to use NBE to provide billing services
to its other operating divisions in order to reduce its own billing costs and
enhance NBE's profitability through economies of scale.
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NBE is positioned well for growth in the next few years (as billing becomes
more complex) due to the changing number and nature of telecommunications
services providers. The long-term strategy of the Company is for NBE to become a
universal billing provider, providing direct billing to the end user for new
full service providers, utilities and cable companies, as well as providing LEC
and credit card billing.
Competition
TelCom Division
Domestic
The Company experiences formidable competition from AT&T, which dominates
the long distance and operator service businesses, as well as from MCI, Sprint,
LDDS WorldCom and various other third tier carriers providing both 1+ and 0+
services. AT&T and others currently provide long distance operator services on
calls from BOC and GTOC-owned pay phones and have, and can be expected to
retain, a significant share of this market. Further, the Company is aware of
numerous other companies engaged in the operator services business, either
directly or through other entities, some of which have significantly greater
resources than the Company. Carriers other than ANEI and AT&T are also free to
enter the 1+ Coin market, although the Company does not anticipate that they
will expend the capital and strategic resources necessary to enter this market
niche.
In addition to AT&T, the LECs have significantly greater resources and
experience than the Company and may find opportunities in the operator services
business that would adversely affect the Company. For instance, several RBOCs
offer their operator services on a wholesale basis to other operator service
providers. In addition, the 1996 Act allows them to enter the interLATA
marketplace over time (see "Government Regulation- Federal Regulation-Domestic
Operations-1996 Act") and, subject to FCC review, to participate in the
selection of the interLATA and intraLATA carrier at their own payphones. The
BOCs can be expected to aggressively market their operator services in
competition with ANEI, CNSI and other providers as early as the second quarter
of 1997.
Finally, some IXCs, notably MCI and AT&T, have introduced specialized
operator service products such as 1-800-COLLECT and 1-800-CALL ATT which compete
with a portion of ANEI's and CNSI's domestic operator services offerings. The
Company believes that these "dial around" services have had an adverse impact on
its revenues; however, since the payphone operator is entitled to receive "dial
around" compensation from the long distance service provider on certain types of
calls, the Company's payphone operations receive a revenue stream from these
types of calls (see "Government Regulation-Federal Regulation-Domestic
Operations-1996 Act").
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The Company believes that the primary area of competition with AT&T and
others relates to the commissions and surcharges paid to Site Owners or lessors
of telephone locations for interstate calls, the enhanced services available to
users at such locations, the quality of service provided and the rates charged
to end users (see "Government Regulation").
International
There are currently hundreds of United States carriers terminating
international traffic on a resale basis. Previously, most of this traffic was
carried over the networks of the larger facilities-based carriers, AT&T, MCI,
Sprint, and LDDS WorldCom. However, the international switched voice and data
environment is changing rapidly. Operating agreements between facilities- based
United States carriers and their international counterparts historically have
controlled both the flow of traffic and rates for the IMTS market. Parallel
accounting rates and settlements were set by the FCC and international treaties
in a monopoly environment and prevented both foreign and United States carriers
from negotiating cost-based agreements. With the advent of competition in
foreign countries, however, new carriers have emerged. These carriers are
seeking United States partners capable of terminating United States-bound
traffic in a cost effective manner. Since the existing dominant carriers are
reluctant to deal with these new carriers and sacrifice the high revenues they
enjoy from the current arrangement, opportunities exist for new entrants.
Numerous companies currently compete with CNSI in the Mexican hospitality
industry, and major carriers such as MCI, AT&T and several RBOCs have received,
or are partners in companies which have received, licenses to carry intra-Mexico
traffic. As in the domestic market, these carriers have significantly greater
resources than the Company and may find opportunities that would adversely
affect operating results. Nevertheless, the Company believes that the
opportunities are large enough that it will be able to sell the
newly-deregulated services to its existing base and build on its strategic
relationship with InvestCom.
PubCom Division
Crescent competes primarily with the LECs in its service territories in the
identification of new sites for private payphones. However, a number of other
IPPs also market competitive services in Crescent's current market areas.
Crescent believes that the primary area of competition relates to the
commissions paid to the Site Owners and the quality of service provided.
Billing Division
The market is currently dominated by three major clearinghouses: OAN, ZPDI,
and Integretel. These companies provide billing of 1+, 0+, and 900 services, and
limited billing for enhanced services. The investment in infrastructure, LEC
contracts and systems to provide these services has been high and has generally
been a barrier to entry. Moreover, the approach taken by the major
clearinghouses has limited their processing capabilities to message-based
billing. Thus, the contracts currently held by the clearinghouses are inadequate
to function in the emerging marketplace of IRB/SMS billing. By contrast, with
its multi-product platform, NBE is positioned to process current and future
marketplace transactions in addition to addressing the needs of the IRB/SMS
marketplace.
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While the major companies such as AT&T, MCI and the RBOCs are expected to
provide their own billing services, the emerging competitive marketplace should
provide opportunities for clearinghouses, such as NBE, that can offer
state-of-the-art, customized billing services to new entrants and others, such
as cable and electric companies, that lack experience in telecommunications
billing forms and inquiry operations.
Government Regulation
Federal Regulation
Domestic Operations
Long distance and operator service companies such as ANEI and CNSI are
considered interstate common carriers by the FCC and are, therefore, subject to
the jurisdiction of the FCC under the Communications Act of 1934 (the "1934
Act") and 1996 Act. Under the 1934 Act, long distance and operator service
companies must charge just and reasonable rates and cannot engage in
unreasonable practices or unreasonable discrimination. Commencing in 1983, the
FCC substantially deregulated the interstate activities of non-dominant
interexchange resellers such as ANEI and CNSI. As discussed below, the 1996 Act
continues this trend, giving the FCC new powers to deregulate the industry and
open new markets.
1996 Act
The 1996 Act, signed into law on February 8, 1996, represents the most
significant reform of the 1934 Act undertaken by Congress since the original law
was adopted.
First and foremost to the Company, the 1996 Act gives the private payphone
industry the parity it has long sought with the payphones provided by the BOCs.
In response to IPP concerns, the statute prohibits a BOC from (1) subsidizing
its own payphone services with revenues from its local exchange services, and
(2) discriminating between BOC-provided and independently-provided payphones.
Furthermore, the 1996 Act required the FCC to complete a rulemaking proceeding
addressing payphone issues within nine months from the date of enactment. The
legislation broadened the scope of previous compensation proceedings in two
respects: first, compensation must apply to all payphone providers, including
LECs, not just to private payphone providers as before; second, the FCC must
adopt compensation rules including all types of calls (except emergency and
telecommunications relay service calls) to ensure payphone providers are "fairly
compensated for each and every completed intrastate and interstate call."
Previously, the FCC had ordered compensation only for "access code" calls (e.g.,
1-800, 10XXX, etc.).
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Another significant issue the FCC was required to address was the right of
the BOCs to solicit Site Owners to select the carrier that will provide
interLATA services from the payphone. Prior to the 1996 Act, this issue was
irrelevant because the BOCs were prohibited from offering interLATA services.
Now, with the possibility of BOC entry into the interLATA market, whether and
how a BOC may provide service at its own payphones is an issue. The 1996 Act
grants the BOCs "the same right that independent payphone providers have" to
negotiate with the Site Owner, but enables the FCC to eliminate this right if it
is not in the public interest. The statute makes it clear, however, that the
Site Owner is the ultimate decision-maker with respect to the interLATA carrier.
Nothing in the 1996 Act, however, impairs existing contracts relating to
payphone services.
As a result of the above statutory requirements, and in a series of orders
released in the fourth quarter of 1996, the FCC established a new rate and
mechanism for "dial around" compensation. During the one year period commencing
November 6, 1996, IPPs are entitled to receive $45.85 per phone per month.
During the following one year period, they will be entitled to receive $.35 per
call on all originating access code calls as well as all toll-free calls
originating at their payphones. Thereafter, IPPs will be entitled to receive the
market-based rate established at the time for local calls. The foregoing will
positively impact Crescent's operations.
In order to fund these payments, however, the FCC has ordered IXCs,
including ANEI, to contribute the additional "dial around" compensation for the
IPPs. During the first year, only carriers with 1995 revenues in excess of $100
million (including ANEI) are required to contribute to the compensation pool.
Since the obligation is based on relative revenues, ANEI's share is $0.0689597
per phone per month. After the first year, each IXC, regardless of revenue, will
be obligated to pay on a per-call basis. LECs will also be eligible for
compensation once they have terminated the subsidies for their payphones and had
their comparably efficient interconnection ("CEI") plans approved by the FCC. In
spite of the payments required to be made by ANEI, and viewed in terms of the
current base of approximately 7,500 phones, "dial around" compensation is
anticipated to have a substantial positive impact on the Company's earnings.
However, if a substantial number of LECs are eligible for payphone compensation
during the year while per phone compensation is in place, the difference between
the amount received by Crescent and paid by ANEI will decrease, although the
Company believes the net result will still be materially positive.
Once per call compensation is in place, carriers to whom payphone calls are
routed will be responsible for tracking each compensable call and remitting
per-call compensation to the IPP. The carrier has the option of performing the
function itself or contracting out these functions to another party, such as a
LEC or clearinghouse. The FCC placed certain reporting and verification
requirements on the carrier for the first two years.
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In addition, the FCC ordered states to ensure that payphone competition is
promoted. To this end, each state was required to examine and modify its
regulations applicable to payphones and IPPs, removing, in particular, those
rules that impose market entry or exit requirements. In the one year period
before per-call compensation is effective, states may continue to set the local
coin rate. After this interim period, however, local coin rates will be
deregulated and IPPs may charge market-based prices.
Since subsidies from basic exchange and exchange access revenues will be
discontinued, incumbent LEC payphones will be treated as deregulated and
detariffed equipment. The FCC concluded that such equipment should be unbundled
from LEC underlying transmission service in order to prevent improper
cross-subsidization, but LECs do not have to provide their payphones through a
structurally separate affiliate. AT&T must similarly detariff its payphones.
Once the BOCs reclassify their phones and terminate all subsidies, so long as
they do not otherwise receive compensation for 0+ calls made from their
payphones, they may receive per call compensation; thus, ANEI will be required
to pay per-call compensation on all 0+ calls originating from LEC phones.
In an order released in September 1996 and affirmed in November, 1996, the
FCC also granted the BOCs the right to negotiate with the Site Owner for the
selection of the interLATA carriers for their payphones effective when their CEI
plans have been submitted to and approved by the FCC. In so ruling, the FCC
denied the petitions for reconsideration filed by IXCs urging that the FCC
exercise its right under the 1996 Act to find that BOC participation in the
selection of an interLATA carrier was not in the public interest. Instead, the
FCC affirmed its earlier decision that, since the payphone industry is
competitive and characterized by low barriers to entry, the BOCs were
effectively prevented from exercising market power in the provision of payphone
services. The FCC found that allowing BOCs to participate in the selection would
not be equivalent to providing long distance service, as its order granted them
no more than the right to participate as a contractual intermediary between a
Site Owner and a third party interLATA carrier. The FCC also indicated that many
long-term agreements currently exist between the Site Owner and the OSP, like
ANEI, and that the existence of these enforceable agreements will ensure
continued availability of choice. Finally, the FCC affirmed that the 1996 Act
grandfathers all contracts in effect as of February 8, 1996, and emphasized that
the Site Owner's right to choose the carrier should be protected from unjust and
unreasonable practices, including interference with pre-existing arrangements
between Site Owners and OSPs, as well as conduct which is unduly coercive of the
Site Owner's right to choose the carrier for the payphones on its premises. As a
result of the FCC's order, the BOCs, and in particular Bell South, are expected
to begin to negotiate with Site Owners for the selection of a long distance
carrier beginning in the third quarter of 1997.
Based upon the FCC's ruling, local call rates in most jurisdictions are
expected to rise in October 1997. Moreover, the required removal of local
exchange subsidiaries from the LEC payphone operations, including the monthly
line charges paid by Crescent, are expected to result in lower monthly line
costs and usage charges by the end of 1997. This is expected to have a
materially positive impact on the PubCom Division's earnings. However, several
IXCs, as well as some state public utility commissions, have challenged the
FCC's decision in court, arguing both that the "dial around" compensation rate
level is too high, and that the FCC exceeded its authority by preempting state
regulation of the local coin rate. There can be no assurance that the court will
affirm the FCC's decision in all respects and that the "dial around"
compensation rate levels and regulatory structure put in place by the FCC will
be the final rate structure applicable to the Company's operations.
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Equally important are the 1996 Act's provisions for the opening of the
intraLATA market to full competition. The new law prohibits state or local
requirements that may have the effect of prohibiting or precluding competitive
entry of a telecommunications service provider into the local market. The 1996
Act also enables RBOCs to enter interLATA markets, within and outside of their
existing service regions. The RBOCs were authorized to begin providing interLATA
services in markets outside of their current regions upon enactment of the law.
The RBOCs must still obtain state authority, as discussed below, to provide
intrastate, interLATA services in the same way as any other prospective
competitors, including ANEI.
Before providing in-region services, the RBOCs must first overcome a number
of legal and regulatory hurdles. At a minimum, an RBOC must fulfill the
requirements of a competitive checklist for interconnection. Additionally, the
RBOC must demonstrate to the FCC that, in each state where it seeks to provide
interLATA service, it has entered into one or more binding agreements, approved
by the state, to provide interconnection to a competing facilities-based service
provider serving both commercial and residential subscribers. The FCC is
required to make a determination that RBOC interLATA market entry is in the
public interest. In reaching its determination, the FCC must consult with the
DOJ whose input will have "substantial" though not "preclusive" effect, and with
the relevant state. Upon receipt of interLATA authority, the RBOC must provide
interLATA services through a structurally separate affiliate for a period of at
least three years from the time authority is granted.
The 1996 Act also allows the FCC to forebear from applying certain
regulations to some classes of telecommunications carriers. Prior to the
enactment of the 1996 Act, the FCC's forbearance policies suffered a series of
setbacks as the Federal courts concluded on several occasions that the FCC's
policy exceeded its 1934 Act authority. Therefore, the 1996 Act is a significant
step forward for the FCC because it not only permits the FCC to forbear, but
mandates forbearance under certain circumstances. Since passage of the 1996 Act,
the FCC has already begun to exercise this authority, adopting rules eliminating
tariffs for many domestic services and proposing changes to expedite and
streamline the complaint process. Although the FCC's detariffing order was
appealed and a stay issued, this will have little practical impact on the
Company since all tariffs are still in place and effective.
The 1996 Act also gave the FCC six months from enactment to promulgate the
interconnection and access rules necessary to open the local market to
competition. Each state may continue to adopt and enforce its own local
interconnection and access rules, so long as the rules are not inconsistent with
the 1996 Act. The statute relies on negotiated interconnection and access
agreements between incumbent LECs and new entrants, but maintains a role for the
states to approve interconnection agreements and arbitrate settlements if so
requested.
In August 1996, the FCC completed the required rule making under the 1996
Act which established the standards for interconnection of the incumbent LEC
networks with those of the new competitors. Among other things, the FCC adopted
uniform, nationwide pricing rules and required that competitors be allowed to
purchase unbundled network service elements and combine them in any manner they
choose in order to provide local exchange service. The FCC ruled that such
interconnection rates should be based on total element long run incremental cost
("TELRIC"), a forward looking cost methodology that does not generally include
the embedded costs associated with monopoly service. In addition, the FCC
adopted certain proxy rates, including resale discount rates, that states were
required to apply in arbitration and interconnection proceedings in the event
they were unable to, or chose not to, engage in the cost studies required by the
TELRIC methodology.
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The FCC's order was appealed by various state public utility commissions as
well as LECs, and the associated request for stay of the FCC's rules was granted
by the United States Court of Appeals for the Eighth Circuit. As a result, the
FCC's pricing rules and the so-called "pick and choose" provisions have been
stayed pending final decision of such court. A decision is expected in 1997.
Despite the stay, most states and state arbitrators have followed the FCC's
preferred pricing methodology and adopted resale discounts comparable to the
proxy rates announced by the FCC. Thus, the stay has had little practical
negative effect on the economics of the local service market for new entrants.
However, there can be no assurance given as to the final decision of the appeals
court and any reversal by such court of the FCC's pro-competitive policy could
have a material adverse effect on the Company's ability to effectively enter the
local exchange market.
Other Applicable Regulations
In 1990, the Telephone Operator Consumer Services Improvement Act of 1990
("TOCSIA") was signed into law. TOCSIA amended the 1934 Act by imposing a number
of requirements on all carriers providing interstate operator services,
including ANEI, CNSI, AT&T and the LECs. These requirements include, among other
matters, the identification of the OSP and the end user's right to access other
carriers. In 1992, the FCC advised Congress of its determination that no further
regulation of the operator service industry, including rate regulation, was
necessary at that time.
As discussed under "Industry Background", in 1988, the Court held that Site
Owners should be permitted to select the presubscribed IXCs for all calls
originated by dialing "0" from such telephones. However, some industry members
are supporting adoption of billed party preference whereby all calls of the type
handled by ANEI and CNSI would be routed directly to the IXC of the billed
party, and not through OSPs. Since 1992, the FCC has been considering whether or
not to adopt such a system for all payphones and has sought public comments on a
variety of issues related to its implementation and costs. The majority of
parties filing comments opposed the implementation of billed party preference,
citing its high costs, long (two to three year) implementation time, technical
drawbacks, consumer inconvenience and potential network disruptions as factors
which outweighed any perceived benefits. Although the FCC is not expected to
adopt this proposal, if adopted, it would have a material adverse effect on the
Company's operator service business.
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In February 1995, the National Association of Attorney Generals filed a
Petition for Rulemaking with the FCC, proposing additional branding disclosures
by some OSPs. Comments on this petition were consolidated with comments on an ex
parte filing made by a broad industry coalition proposing that the FCC adopt a
rate ceiling on 0+ calls. The proposal would adopt a benchmark rate on a simple
per minute basis, without regard to time of day, distance or whether the call
was handled on an automated or live basis, or made with a calling card or
collect. This ceiling was proposed as an alternative to billed party preference,
contending that it could be implemented more quickly and much less expensively.
In October 1996, the FCC requested additional comment in this proceeding,
this time seeking comment on still a different proposal which would require all
providers of operator services at aggregator locations to disclose orally, to
the party to be billed, the rate for the call before connecting the call. Most
industry commentors agreed that it was not technically feasible to disclose the
specific rate for the call, but it was feasible to disclose the availability of
a rate quote and how to obtain one. This proposal is still pending, although FCC
action is expected in April or May 1997.
The Company believes the adoption of a disclosure mechanism along the lines
proposed by the industry would not have an adverse impact on the overall
profitability of its operator services product. However, there can be no
assurances the FCC will not adopt specific disclosure requirements or rate cap
levels which would adversely affect the volume and/or profitability of the
Company's interstate operator services.
In December, 1996, the FCC instituted a rulemaking proceeding designed to
comprehensively revise the rate structure for, and pricing of, interstate access
services. The proceeding looks at both the access charge and price cap rules.
The rulemaking offers two possible approaches for reducing access charges,
establishing a transition to more cost-based charges and deregulating incumbent
LEC services as competition develops. The first approach would rely on potential
and actual competition to drive down access prices; the FCC would not prescribe
any particular reductions and would relax the existing access pricing and price
cap rules in response to the development of competition. The second approach is
a prescriptive one under which the FCC would specify the nature and timing of
changes to the existing rate levels. Specific proposals are requested, as is
comment on whether the two approaches should be combined. The notice also
includes proposals for a series of reforms to the access charge rate structure
rules, including changes to the common line, local switching and transport
elements. Finally, while refusing to take any action at this time to impose
access charges on information service providers or the Internet, the FCC did
issue a notice of inquiry on whether it should, in addition to access charge
reform, also consider actions related to these users. In particular, it
requested comment on how to effectively create incentive for the deployment of
services and facilities to allow efficient transport of data traffic.
While the industry attempts to influence the final design and
implementation of access charges, it is anticipated the Company will enjoy lower
access costs in the future. However, there can be no assurances that the FCC
will not adopt access charge rules which might have an adverse impact on the
Company. The FCC plans to adopt final rules in this area in April 1997.
22
<PAGE>
International Operations
Despite its deregulation of a substantial portion of the domestic long
distance market, the FCC has continued to assert more rigorous regulation over
international telecommunications services, requiring that carriers obtain
certificates of public convenience and necessity and file tariffs. In addition,
United States carriers were required to comply with the FCC's International
Settlements Policy ("ISP") which specified certain bilateral accounting rates to
which carriers must adhere. The ISP prevents foreign carriers from
discriminating among United States carriers and requires the equal division of
accounting rates, non-discriminatory treatment of United States carriers and
proportionate return of inbound traffic. The fundamentals of this regulatory
structure had not changed even after the entry of United States carriers into
the IMTS market.
In December 1996, the FCC adopted rules intended to introduce a more
flexible framework for regulating accounting rules, relying on competitive
forces to determine termination costs and efficient resource allocation, when
appropriate. Specifically, the FCC authorized United States carriers to propose
methods to pay for terminating international calls other than by the traditional
prescribed method of bilateral accounting rates. Subject to certain competitive
safeguards, the FCC will now permit carriers to enter into alternative pay
arrangements with foreign carriers in countries (currently, only Canada, Sweden,
New Zealand and the United Kingdom) that satisfy the FCC's so-called equivalent
competitive opportunities ("ECO") test. Alternative arrangements will also be
considered in non-ECO countries where the United States carrier can demonstrate
that the deviation will promote market-oriented pricing and competition while
precluding abuse of market power by the foreign carrier. The FCC's approach is
intended to stimulate competition, allow United States carriers to respond more
rapidly to changing conditions in the global telecommunications market, and
reduce call termination costs. The Company's associations with carriers in ECO
countries or ECO-candidate countries are intended to position it to take maximum
advantage of these new regulatory initiatives and enable it to enjoy those
benefits on an immediate basis.
In another late 1996 order, the FCC proposed revisions to its existing
accounting rate benchmark ranges. Such revisions were intended to update the
benchmarks to reflect recent technological improvements and their associated
cost reductions, as well as recognize market structure changes. The FCC believes
that, as long as accounting rates remain above costs, foreign countries will be
reluctant to introduce competition. Thus, the proposed revisions to and updating
of the published accounting rate benchmarks are intended to achieve rates which
more closely reflect costs and reinforce the FCC's commitment to the development
of global IMTS competition.
PubCom Division
Current federal regulations require that IPPs offer unrestricted access
from their phones by unblocking all major forms of access to other OSPs (10XXX,
950-XXXX and 1-800- NXX-XXXX). Additional regulatory requirements include
provisions which require the posting of certain consumer information and the
prompt routing of emergency calls, and prohibit the payment of commissions by
OSPs at locations which block unrestricted access.
23
<PAGE>
The FCC has also adopted rules pursuant to which IPPs are entitled to
receive compensation for some "dial around" calls that are made to other
operator or long distance service providers through the dialing of an access
code. The 1996 Act reinforced these rules, and required the FCC to expand the
scope of such rules and take certain actions to ensure the termination of
subsidies to LEC-owned payphone operations (see "Government Regulation-Federal
Regulation- Domestic Operations-1996 Act").
State Regulation
TelCom Division
ANEI and CNSI are currently authorized to provide intrastate interexchange
telecommunications services on a resale basis in 45 states pursuant to
certificates of public convenience and necessity obtained from various state
public utility commissions, or commerce departments, or because no such
certificate is required. Rate caps are in effect in most states in which they
provide services. Rate caps are expected to be introduced in New Jersey during
the second quarter of 1997. In addition, virtually all the states which regulate
the provision of operator services have their own set of guidelines, similar to
those required on the federal level, with which providers must comply.
The passage of the 1996 Act should open up new intrastate opportunities for
ANEI and CNSI in that it will force those states that currently prohibit the
provision of intraLATA services and/or which have found the provision of
competitive operator services not to be in the public interest to open up these
markets. In fact, the FCC has already preempted the State of Connecticut's
prohibition on private payphones and similar petitions are expected to be
favorably viewed.
All states will now have to consider the introduction of competition for
the provision of local exchange services. Many states are moving to order the
implementation of intraLATA presubscription (1+ intraLATA equal access). Most
states have already ordered the implementation of this technology, and more are
expected to follow suit in the next year.
Further, from time to time, various state legislatures may consider a
variety of regulatory measures which could affect the manner, terms and
conditions under which ANEI or CNSI could provide service in such states. While
no major initiatives are known to be currently underway, there can be no
assurances that such proposals will not be considered or adopted in the future.
If implemented in particular states, such proposals could have a materially
adverse impact on the profitability of the Company's service in such states.
24
<PAGE>
PubCom Division
New York, New Jersey, Florida and Pennsylvania, the states in which
Crescent operates, currently regulate the provision of telephone service from
COCOTs. Such regulation includes quality of service standards, reporting
requirements and caps on rates for local and long distance calls made by
depositing coins. COCOT owners are also subject to certain posting requirements
relating to the provision of consumer information, including a number which can
be called to obtain a refund for lost coins and to report an out of service
condition. While Crescent believes that it is in compliance with all such rules
and that compliance with any requirements adopted by the state commission will
have no material adverse impact on its operations, there can be no assurances
that the regulatory agencies will not adopt additional regulations which will
adversely affect the profitability of its services. In particular, the New
Jersey Board of Regulatory Commissioners is expected to implement new rules in
May 1997 which will, among other things, limit the rates to be charged from
payphones. However, given the Company's vertical structure, the availability of
a hardship waiver and the Board's stated intention to address concurrently the
issues surrounding removal of subsidies from the line charges and usage rates
paid by IPPs to the LECs, the limitations are not expected to have a materially
adverse impact, although no assurances can be given in this regard.
In late 1995, the City of New York adopted legislation relating to the
registry, permitting and franchising of all pay telephones installed on the city
streets. Implementing regulations were adopted by the New York Department of
Information Technology and Telecommunications in March 1996. The rules require
that all payphones installed on the city streets, including payphones owned by
NYNEX, comply with certain siting, maintenance and operational requirements.
These include provisions requiring that "0-" calls, i.e. calls dialed with only
the digit "0", be directed to an OSP certified to handle emergency calls (such
as ANEI). The rules contain monetary penalties in the event of certain classes
of violations and provide for removal of the phone under certain circumstances.
Most significantly, however, the rules contain a grandfather provision relating
to the siting requirements for already installed phones.
Crescent has already made the requisite interim permit and registry filings
and paid all applicable fees for the approximately 1,680 phones it has on the
city streets. The majority of Crescent's phones qualified for the grandfather
provisions and no additional work is expected to be needed to bring them into
compliance with the new rules. Crescent believes that any deficiencies relating
to phones whose installations were not grandfathered have been cured by
rerunning wires or obtaining requisite approval. Crescent has also applied for
the necessary city franchise and permanent permit authority. While Crescent
believes that all its phones are in compliance with the new regulations and that
it will be issued a franchise, there can be no assurances given in this regard
and failure to obtain the necessary franchise and permits for a large number of
Crescent's phones would have a material adverse effect on its operations.
In addition, several municipalities in New Jersey currently require that
IPPs obtain a franchise for certain of their phone locations. Crescent believes
that it is currently in compliance with any applicable rules.
25
<PAGE>
Employees
As of March 22, 1997, the Company had 397 full-time employees and 25
part-time employees, including 146 telephone operators. In addition, the Company
hires certain support staff through temporary employment agencies and currently
employees 25 such workers at its operator center in Orlando and 38 in Mexico.
None of the Company's employees is subject to a collective bargaining agreement.
Reference is made to Item 7 hereof for a discussion of a certain
restructuring plan pursuant to which certain of the Company's core operating
functions would be realigned or outsourced.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales.
Not applicable.
Item 2. PROPERTIES
The executive offices of the Company are located at 101 Park Avenue, New
York, New York where approximately 4,200 square feet of space are rented under a
sublease expiring in October 1997. The approximate base annual rental for such
premises is $128,000. The Company anticipates seeking other space in New York
City upon the expiration of the sublease.
ANEI's corporate office, data processing operations and Florida switch site
are located at 100 West Lucerne Circle, Orlando, Florida, where it occupies
approximately 28,000 square feet of space pursuant to various leases. Certain of
such leases expire between 1998 and 1999; others have expired and are being
renegotiated. The approximate aggregate base annual rental for such premises is
currently $540,000.
The Florida operator center is located at 1516 Colonial Drive, Orlando,
Florida where ANEI occupies approximately 13,400 square feet of space pursuant
to a lease which expires in 1998. The lease provides for a current base annual
rental of approximately $185,000.
ANEI's New York switch site is located at 60 Hudson Street, New York, New
York where the Company occupies approximately 5,700 square feet of space
pursuant to a lease that expires in 2001 and provides for a current base annual
rental of $171,000. The Company is renting an additional 5,000 square feet of
space at the same location, pursuant to leases that expire in 2001. The current
annual rental for the additional space is approximately $107,000. Such rent
increases periodically to a yearly maximum of approximately $116,000. A
substantial portion of the above space is currently being subleased by the
Company at market rates.
Crescent's corporate office and operations are located at 6 Nevada Drive,
Lake Success, New York where it rents approximately 23,300 feet of space under a
lease expiring in 2007 and providing for a current base annual rental of
approximately $128,000 (with a fixed increase of approximately $5,800 per year
for the term of the lease).
26
<PAGE>
CNSI's and NBE's operations are currently located at 600 Congress Avenue,
Austin, Texas, where CNSI has rented approximately 40,400 square feet of space
under a lease which expires in 2000 and provides for a current base annual
rental of $153,300. CNSI and NBE occupy approximately 21,500 square feet of the
total leased premises. The remaining space has been or is intended to be
subleased at market rates. The lease contains an option to renew for a five year
term with certain specified increases in the base annual rental. The Company is
currently considering whether certain CNSI functions can be performed at ANEI's
Orlando, Florida facility (see Item 7 hereof).
The Company believes that its premises are adequate to meet its needs.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
(a) Market Information.
AMNEX's Common Shares are traded in the Nasdaq SmallCap Market (Nasdaq
Symbol: AMXI). The following table sets forth, for the periods indicated, the
high and low bid prices for AMNEX's Common Shares, as reported by Nasdaq:
High Low
1995 Calendar Year
First Quarter $3.75 $2.50
Second Quarter 3.06 2.38
Third Quarter 5.63 2.56
Fourth Quarter 4.94 3.25
1996 Calendar Year
First Quarter $4.31 $2.88
Second Quarter 4.12 3.25
Third Quarter 3.88 2.81
Fourth Quarter 3.63 2.56
27
<PAGE>
The above quotations represent interdealer prices without retail markups,
markdowns or commissions and may not necessarily represent actual transactions.
(b) Holders.
As of December 31, 1996, there were 1,075 holders of record of Common
Shares of AMNEX.
(c) Dividends.
AMNEX has neither declared nor paid any dividends on its Common Shares
since inception and the Board of Directors does not contemplate the payment of
dividends in the foreseeable future. Any decision as to the future payment of
dividends will depend on the earnings and financial position of the Company and
such other factors as the Board of Directors deems relevant.
In February 1993, AMNEX issued 356,000 Series B Preferred Shares. 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, cumulative dividends at the rate of $.40 per share per annum, and no
more. Subject to the requirements of applicable law, dividends on the Series B
Preferred Shares are payable annually in cash or, at the option of the Board of
Directors, but subject to the requirements of applicable law, in Common Shares.
AMNEX has paid dividends to the holders of the Series B Preferred Shares through
the period ended April 30, 1995. There are currently 72,450 Series B Preferred
Shares issued and outstanding, the remainder having been converted into Common
Shares.
In August 1994, AMNEX issued 1,413,337 Series D Preferred Shares. The
holders of the Series D Preferred Shares, in preference to the holders of the
Common Shares, are entitled to receive, when and as declared by the Board of
Directors, cumulative dividends at the rate of $.25 per share per annum, and no
more. Subject to the requirements of applicable law, dividends on the Series D
Preferred Shares are payable annually in cash or, at the option of the Board of
Directors, but subject to the requirements of applicable law, in Common Shares
of AMNEX. To date, no dividends have been paid to the holders of the Series D
Preferred Shares and no such holders have converted such shares into Common
Shares.
Between April 1995 and June 1995, AMNEX issued an aggregate of 1,085,000
Series E Preferred Shares. 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, cumulative dividends at the rate of
$.225 per share per annum, and no more. Subject to the requirements of
applicable law, dividends on the Series E Preferred Shares are payable annually
in cash or, at the option of the Board of Directors, but subject to the
requirements of applicable law, in Common Shares of AMNEX. To date, no dividends
have been paid to the holders of the Series E Preferred Shares. There are
currently 1,035,000 Series E Preferred Shares issued and outstanding, the
remainder having been converted into Common Shares.
28
<PAGE>
In September 1996, AMNEX issued 100,000 Series G Preferred Shares. The
holders of the Series G Preferred Shares, in preference to the holders of the
Common Shares, are entitled to receive, when and as declared by the Board of
Directors, cumulative dividends at the rate of $1.00 per share per annum, and no
more. Subject to the requirements of applicable law, dividends on the Series G
Preferred Shares are payable at the time of conversion of the Series G Preferred
Shares, in cash or, at the option of AMNEX, but subject to the requirements of
applicable law, in Common Shares or additional Series G Preferred Shares (which
AMNEX is required to immediately convert into Common Shares). There are
currently 16,250 Series G Preferred Shares issued and outstanding, the remainder
having been converted into Common Shares.
(d) Recent Sales of Unregistered Securities.
During the fiscal year ended December 31, 1996, AMNEX issued or sold the
following equity securities other than in transactions registered under the
Securities Act of 1933, as amended (the "Securities Act"):
(i) Effective January 1996, AMNEX issued 50,000 Common Shares to
Trinkaus & Burkhardt (Schweiz) AG upon conversion of an equal number of
Series E Preferred Shares. Such Common Shares were issued pursuant to the
exemption from registration provided by Section 3(a)(9) of the Securities
Act as the Common Shares were a security exchanged by AMNEX 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 1996, AMNEX issued 245,000 Common Shares to certain
executive officers (see Item 11(a) hereof) and a consultant pursuant to its
1996 Restricted Stock Grant Plan. Such Common Shares were issued pursuant
to the exemption from registration provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving any public
offering.
(iii) Effective June 1996, in connection with the acquisition of all
the issued and outstanding capital stock of CNSI, AMNEX issued to various
individuals 4,099,086 Common Shares and two-year warrants for the purchase
of an aggregate of 400,000 Common Shares at an exercise price of $4.51 per
share. Such Common Shares and warrants were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act
as a transaction by an issuer not involving any public offering.
(iv) Effective July 1996, AMNEX issued 44,643 Common Shares to Spring
Technology Corp. upon conversion of a certain promissory note in the
principal amount of $150,000, together with accrued interest thereon. Such
Common Shares were issued pursuant to the exemption from registration
provided by Section 3(a)(9) of the Securities Act as the Common Shares were
a security exchanged by AMNEX with its existing promissory noteholder and
no commission or other remuneration was paid or given, directly or
indirectly, for soliciting such exchange.
29
<PAGE>
(v) Effective August 1996, in consideration of certain consulting and
advisory services rendered, AMNEX granted to Robb, Peck McCooey Clearing
Corporation a three-year warrant for the purchase of 50,000 Common Shares
at an exercise price of $3.0625 per share. Such warrant was issued pursuant
to the exemption from registration provided by Section 4(2) of the
Securities Act as a transaction by an issuer not involving any public
offering.
(vi) Effective September 1996, AMNEX sold 100,000 Series G Preferred
Shares to Southbrook International Investments, Ltd. ("Southbrook") at a
purchase price of $20.00 per share. The Series G Preferred Shares are
convertible into Common Shares at a conversion price generally equal to the
lesser of $3.5125 per share or 80% of the average per share market value
for the five trading days immediately preceding conversion. In
consideration of the purchase of the Series G Preferred Shares,
concurrently therewith, AMNEX issued to Southbrook and its designee
five-year warrants for the purchase of 225,000 and 50,000 Common Shares at
exercise prices of $5.29 and $3.53 per share, respectively. Such Series G
Preferred Shares and warrants were issued pursuant to the exemption from
registration provided by Section 4(2) of the Securities Act as a
transaction by an issuer not involving any public offering.
(vii) Effective September 1996, AMNEX issued an aggregate of 550,725
Common Shares to James E. Everingham and Daryl A. Frame in connection with
its acquisition of 80% of the outstanding capital stock of NBE. Such Common
Shares were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act as a transaction by an issuer not
involving any public offering.
(viii) Between September 1996 and December 1996, AMNEX issued an
aggregate of 245,742 Common Shares to designees of Coastal Communications
of America, Inc. ("CCOA") in connection with Crescent's acquisition of
certain assets of CCOA. Such Common Shares were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act
as a transaction by an issuer not involving any public offering.
(ix) Effective October 1996, AMNEX sold an aggregate of 75,000 Common
Shares to certain individuals, including Kenneth G. Baritz, Chairman of the
Board of the Company (25,000 Common Shares), and other employees, at a
purchase price of $3.00 per share, such price being equal to the market
value of the Common Shares at the time of the purchase agreement. Such
Common Shares were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act as a transaction by an
issuer not involving any public offering.
(x) Effective November 1996, AMNEX issued an aggregate of 2,098,373
shares to designees of Coastal Telecom, Garden State and BEK Tel in
connection with the acquisition of certain assets of such companies. Such
Common Shares were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act as a transaction by an
issuer not involving any public offering.
30
<PAGE>
(xi) Effective December 1996, AMNEX issued 195,808 Common Shares to
Southbrook upon the conversion of 21,250 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 a security exchanged by AMNEX with its existing preferred shareholder
and no commission or other remuneration was paid or given, directly or
indirectly, for soliciting such exchange.
Item 6. SELECTED FINANCIAL DATA
The following financial information with respect to the Company as of
December 31, 1996, 1995, 1994, 1993 and 1992 and for the years then ended has
been derived from the Company's audited consolidated financial statements for
such years. The consolidated balance sheets as of December 31, 1996 and 1995,
the related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1996, 1995 and 1994 and auditor's report
with regard thereto are included in Item 14(a) hereof.
Effective August 1992, the business of Eastern Pay Phones, Inc. ("Eastern")
was sold. In addition, in October 1992, the operations of AMNEX Interactive,
which had previously taken over the operations of Communications Technologies,
Inc. ("COMTEC"), were discontinued. Accordingly, the operations of Eastern and
COMTEC are reflected in the Statement of Operations Data as discontinued
operations.
Effective October 4, 1995, the Company purchased all of the issued and
outstanding common shares of Crescent Communications, Inc ("CCI"), which
subsequently merged with Crescent. The acquisition was accounted for using the
purchase method of accounting. Accordingly, the results of operations for
Crescent have been included in the Statement of Operations Data from the date of
acquisition.
Effective June 30, 1996, the Company acquired all of the outstanding common
shares of CNSI. The acquisition was accounted for using the purchase method of
accounting. Accordingly, the results of operations of CNSI have been included in
the Statement of Operations Data from the date of acquisition.
Effective September 30, 1996, the Company acquired 80% of the outstanding
common shares of NBE. The acquisition was accounted for using the purchase
method of accounting. Accordingly, the results of operations for NBE have been
included in the Statement of Operations Data from the date of acquisition.
31
<PAGE>
Effective November 20, 1996, Crescent acquired certain assets, including
approximately 4,300 pay telephones, from Coastal Telecom, Garden State and BEK
Tel. The acquisition was accounted for using the purchase method of accounting.
Accordingly, the Statement of Operations Data includes operating results from
the date of acquisition.
The information set forth below should be read in conjunction with the
consolidated financial statements of the Company and related notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included as Item 7 hereof.
Statement of Operations Data
(in thousands, except share data)
<TABLE>
Year Ended December 31,
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $117,142 $105,890 $108,737 $55,519 $38,799
Income (loss) from
continuing operations (4,248) 1,431 541 98 (3,814)
Income from discontinued
operations -- --- --- --- 190(1)
Net income (loss) (4,248) 1,431 541 98 (3,623)
Net income (loss)
available for Common
Shares (2) (5,264) 888 250 (36) (3,623)
Net income (loss) per
Common Share from
continuing operations
available for Common
Shares:
Primary (2) (.23) .05 .02 (.01) (1.79)
Fully Diluted (.23) .05 .02 (.01) (.69)
Net income per Common
Share from discontinued
operations:
Primary --- --- --- --- .09(1)
Fully Diluted --- --- --- --- .03(1)
Net income (loss)
available for
Common Shares
per Common
Share:
Primary (2) (.23) .05 .02 (.01) (1.70)
Fully Diluted (.23) .05 .02 (.01) (0.66)
Weighted average number of
shares outstanding:
Primary 23,274,219 19,416,497 13,522,815 6,915,449 2,136,668
Fully Diluted 23,274,219 19,416,497 13,522,815 6,915,449 5,528,913
</TABLE>
32
<PAGE>
<TABLE>
Balance Sheet Data
(in thousands)
<CAPTION>
December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $90,515 $49,580 $39,773 $27,815 $19,182
Working capital
(deficiency) (4,994) 531 (3,114) (6,420) (12,034)
Long-term
obligations 22,972 6,302 767 642 1,558
Shareholders'
equity (deficit) 33,320 20,392 12,870 6,477 (935)
</TABLE>
(1) Includes $1,307 net gain on disposal of discontinued operations.
(2) Gives effect in 1996, 1995, 1994 and 1993 to $616, $543, $291 and $134,
respectively, in Preferred Share dividend accruals. Also gives effect
in 1996 to $400 in deemed dividends with respect to the Series G
Preferred Shares.
33
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
consolidated operations and financial condition. The discussion should be read
in conjunction with the Company's consolidated financial statements and notes
thereto. The consolidated balance sheets of the Company as of December 31, 1996
and 1995 and the related consolidated statements of operations, shareholders'
equity and cash flows for the years ended December 31, 1996, 1995 and 1994 are
included in Item 14(a) hereof.
Results of Operations
Year Ended December 31, 1996 compared with Year Ended December 31, 1995
Future Realizable Value of Certain Assets; Contemplated Plan of Restructuring
During the fourth quarter of 1996, the Company began to analyze the future
realizable value of certain assets, including (i) certain receivables, (ii)
certain intangible assets relating to certain customer agreements and (iii)
certain investments. The Company has determined that the value of these assets
has been permanently impaired substantially due to changes in the Company's
industry resulting from the enactment of the 1996 Act and other regulatory
action. The charges resulting from such determination, which totaled $7,248,000
before income taxes, give effect to the implementation of SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ($3,716,000) and a write down to estimated future realizable
value of customer advances and other receivables ($3,532,000).
In addition and as part of an overall Company reorganization, the Company
embarked in the first quarter of 1997 on a plan of restructuring. This
restructuring plan, which resulted from an extensive strategic review of the
Company's assets, product offerings and competitive position in light of the
1996 Act and related regulatory action, is designed to streamline the Company's
provision of telecommunication services, improve efficiencies and increase
competitiveness. Such plan contemplates the closure of certain of the Company's
facilities and the payment of employee termination benefits. The implementation
of the Company's restructuring plan will in all likelihood result in a
significant reduction in selling, general and administrative expenses, but also
the incurrence of a significant restructuring charge. The Company is also
examining the feasibility of outsourcing all or a significant portion of its
switching and network requirements to one or more unrelated third parties.
Operational Results
Total Company revenues increased from approximately $105,890,000 in 1995 to
approximately $117,142,000 in 1996, an increase of 10.6%. Current trends in the
domestic operator services industry continue to show weakness as discussed more
fully in the prior year's analysis below and as reflected in a decrease in such
revenues from approximately $96,700,000 (91.5% of revenues) in 1995 to
approximately $82,000,000 (70.0% of revenues) in 1996. Because of this
historical and anticipated future trend, the Company continued its planned
revenue shift by developing and acquiring revenue sources from product lines
other than domestic operator services. During 1996, development of the 1+ Coin
operations continued and this service produced revenues of $4,200,000 in
contrast with insignificant revenues during 1995. In addition, revenues from
acquisitions, described under "Acquisitions" below, offset declines in revenues
from domestic operator services as follows: (i) revenues for the six months of
CNSI's operations were approximately $11,200,000; (ii) NBE revenues for the
three months of operations in 1996 were approximately $534,000; and (iii)
revenues from the 4,300 pay phones purchased in the November 1996 Coastal
Telecom/Garden State/BEK Tel acquisition were approximately $1,000,000. In
addition, revenues from other business lines increased as follows: (i) Crescent
had revenues of $5,600,000 in 1996 compared to $1,400,000 during the three
months of operations included in 1995; (ii) AHE had revenues of $1,600,000 in
1996 compared with $1,500,000 in 1995; and (iii) 1+ long distance revenues were
$9,200,000 in 1996 compared to $5,500,000 in 1995.
34
<PAGE>
Cost of sales, as a percentage of revenues, was 80.1% and 81.9% for the
years ended December 31, 1996 and 1995, respectively. This decrease is
attributable for the most part to reduced bad debts, collection costs and
operator center costs. For 1996, there was 29.8% decrease in the cost of bad
debts and collections due to a shift to the customer of the burden of bad debt
risk and a 16.7% decrease in operator center costs primarily due to synergies of
combining the operations of the two operator centers of CNSI and ANEI. In
addition, the decrease reflects the Company's reduced dependence on domestic
operator service revenues and relatively high costs associated therewith.
Commission expense increased by 14.8% in 1996 as compared to a revenue increase
of 10.6%. This was due to the payment of relatively high commissions on domestic
operator services which the Company determined was required to maintain its
domestic operator services base of customers.
Selling, general and administrative expenses, as a percentage of revenues,
were 14.1% and 11.5%, respectively, for the years ended December 31, 1996 and
1995. The increase in 1996 over 1995 related directly to the acquisition of CNSI
which had significant redundant selling, general and administrative expenses. As
part of the CNSI consolidation and integration plan, a significant portion of
these costs, which approximated $1,500,000 per annum, were specifically targeted
for reduction or elimination. In addition, professional fees increased by
$600,000 between 1995 and 1996 and are attributable to the 1996 acquisitions and
the significant growth of the Company. These costs are expected to be reduced in
1997.
Interest expense was $2,730,000 and $2,044,000 for the years ended December
31, 1996 and 1995, respectively. The increase in 1996 over 1995 was due to
additional capital lease obligations of the integrated services product lines
and loans obtained in connection with the Crescent acquisition in October 1995.
Furthermore, it reflects approximately $462,000 of interest for CNSI,
represented by short-term and long-term borrowing assumed as part of that
acquisition.
35
<PAGE>
Year Ended December 31, 1995 compared with Year Ended December 31, 1994
Revenues declined by 3% from 1994 to 1995 primarily due to the current
trends impacting the operator services industry, including (i) increases in the
number of consumers who use "dial around" services, i.e., the use of access
numbers to reach their carrier of choice, rather than dialing "0+" and utilizing
the services of the operator services company who services the telephone and
(ii) the continued efforts by governmental regulatory agencies to establish
maximum rates which may be charged for 0+ calls. During 1995, the Company also
implemented stricter fraud control measures which resulted in reduced revenues.
Such measures, however, resulted in increased profits through the reduction of
bad debt and related costs. The total number of calls processed increased by 11%
in 1995 to 26,300,000 while the minutes billed increased by 1.5% to 125,000,000
in 1995. Revenues did not increase correspondingly since the increase in calls
and minutes related to 1+ calls which have lower rates than 0+ calls.
In order to combat the effects of "dial around" and rate caps, as well as
the high commission expenses associated with operator services, during 1995, the
Company's management established goals to strategically position the Company in
new businesses which will lower its cost of sales, improve profit margins and
secure its customer base. As a result, the Company began to shift its selling
focus to new higher profit margin services while it converts its current
operator services offering to the provision of transaction-based, wholesale
services in the COCOT business and presubscription business (in which the Site
Owner preselects the long-distance service provider). These new services, which
were offered initially during 1995, include hospital services, network
management services, and 1+ Coin services. Although growth in the number of
COCOT and presubscription phones providing operator services leveled out during
1995 as a result of this process, the Company's income before taxes increased to
approximately $1,760,000 for 1995, a 44% increase over 1994. In addition, the
Company's return on revenues (income before taxes divided by revenues) increased
to 1.7% in 1995 from 1.1% in 1994.
Cost of sales, as a percentage of revenues, decreased by approximately 1.6%
(from 83.5% to 81.9%) between 1994 and 1995. Such decrease was due primarily to
a reduction in commission expense which, as a percentage of revenues, decreased
from 50.2% to 47.5%. Network costs increased, as a percentage of revenues, from
13.0% to 14.5% between 1994 and 1995. Commission expenses decreased as a result
of the Company's shifting into new higher profit margin services for which
commissions, as a percentage of revenue, are lower, as well as due to the
renegotiation of unprofitable customer commission agreements. Network expense
increased due to an increase in fixed network costs resulting from a slight
increase in fixed network cost rates and the expansion of the 1+ Coin fixed
network.
Selling, general and administrative costs decreased approximately $490,000
between 1994 and 1995 due to the change in mix of business activities and
management's cost reduction initiatives, and remained fairly consistent as a
percentage of revenues at 11.6% and 11.5%, respectively.
36
<PAGE>
Interest expense for 1995 was approximately $2,044,000 as compared to
approximately $1,793,000 for 1994. This increase was due primarily to the cost
of financing for equipment procured for AHE and for the acquisition of Crescent
in the fourth quarter.
Liquidity and Capital Resources
The Company had a net working capital deficiency of approximately
$4,994,000 as of December 31, 1996 as compared to a working capital surplus of
approximately $531,000 as of December 31, 1995. This change was primarily the
result of increases in the short-term portion of long-term debt and capital
leases associated with the CNSI and Coastal Telecom/Garden State/BEK Tel
acquisitions. In addition, costs related to acquisitions, both paid and accrued
during 1996, negatively impacted working capital during the second half of 1996.
These net working capital deficiencies were offset by certain financings,
including the sale and issuance of Preferred Shares during 1996 and long-term
debt financing (each as discussed below).
Trade receivables at December 31, 1996 were approximately $19,311,000 as
compared to approximately $17,080,000 at December 31, 1995. 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 IXCs. Trade receivables decreased by approximately $8,726,000
between December 31, 1995 and 1996 (without giving effect to the acquisitions
that occurred during 1996).
The Company currently has in place lending agreements with its billing and
collection agents pursuant to which it is currently provided advances of up to
$27,600,000 at any one time based upon eligible receivables. Such eligible
receivables are purchased by the lenders, 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 2%. At December 31,
1996, the approximate amount due to the lenders was $10,898,000. The lending
agreements expire in February 2000.
In September 1996, the Company obtained proceeds of $2,000,000 through the
sale of an aggregate of 100,000 Series G Preferred Shares at a price of $20 per
share. The Series G Preferred Shares have the following rights and preferences,
among others: (i) 5% cumulative dividend payable, at the time of conversion, in
cash or, at the option of the Company and subject to the requirements of
applicable law, in Common Shares or Series G Preferred Shares of the Company;
(ii) voting rights, with the number of votes equaling the number of Common
Shares issuable at the original issue date of the Series G Preferred Shares upon
conversion of such shares; (iii) the right to convert each share into Common
Shares of the Company at a conversion price equal to the lesser of (a) $3.5125
per share and (b) 80% of the average per share market value for the five trading
days immediately preceding the conversion date, subject to reduction under
certain circumstances; and (iv) a liquidation preference of $20 per share plus
an amount equal to accrued but unpaid dividends.
37
<PAGE>
As part of the Series G Preferred Share purchase agreement, up to an
additional $8,000,000 of Preferred Share financing is available to the Company
during the period ending September 30, 1997, subject to the satisfaction of
certain conditions. Such conditions include, without limitation, the requirement
that between June 30, 1996 and the date of funding no event shall have occurred
which in the judgment of the purchaser of the Series G Preferred Shares had a
material adverse effect on the Company (see "Results of Operations") and that
Messrs. Baritz and Izzo shall have remained substantially in their then current
function under their then current managerial positions with AMNEX without a
material diminution of managerial responsibilities. As discussed in Item 10
hereof, in March 1997, Mr. Baritz replaced Mr. Izzo as Chief Executive Officer
of AMNEX and Mr. Izzo assumed the position of President of the Company's PubCom
Division.
During 1996, the Company obtained debt financing in the aggregate amount of
approximately $9,500,000, including approximately $4,000,000 required to
consummate the acquisition of Coastal Telecom/Garden State/BEK Tel assets
described below under "Acquisitions". The Company's obligation to repay such
approximate $9,500,000 in debt financing, plus an additional $2,500,000
refinanced during 1996, is secured by the grant of a security interest in, among
other assets, approximately 6,000 private payphones. As of December 31, 1996,
substantially all of such aggregate $12,000,000 of indebtedness was outstanding
and was payable over a five year period, together with interest at the
approximate rate of between 10.5% and 11.9% per annum. As of March 31, 1997, the
Company had approximately 1,500 payphones not subject to such security interest.
The Company is currently seeking additional debt financing with regard to such
presently unencumbered phones. No assurances can be given that any such
financing will be obtained.
In addition, the Company is contemplating an offering of convertible debt
securities in order to raise a significant amount of additional funds. The
proceeds of any such financing are intended to be used to repurchase certain
outstanding convertible securities, and provide funds for acquisitions and any
short-term working capital needs. There can be no assurances given that the
Company will undertake such offering or, if undertaken, that it will be able to
successfully conclude such financing. It is contemplated that, if the financing
is undertaken, the securities offered will not be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and neither such
securities nor the underlying Common Shares may be offered or sold in the United
States absent registration under the Securities Act or an exemption from the
registration requirements thereof.
The Company maintains various office, operations and computer facilities
under operating and capital leases. As of December 31, 1996, the Company's
minimum commitments for the following 12 months under noncancelable operating
leases was approximately $977,000. The Company anticipates that such
commitments will be met through operating profits.
The Company expects that normal recurring capital expenditures will be
approximately $1,000,000 for 1997 and anticipates that cash flow from operations
and asset-based financing will provide the funding required. No assurances can
be given that these sources will provide adequate funding for such capital
expenditures or that such capital expenditures will actually be made.
38
<PAGE>
Acquisitions
CNSI
Effective June 30, 1996, AMNEX acquired all of the outstanding common
shares of CNSI. Pursuant to the acquisition agreement, as amended (the "CNSI
Acquisition Agreement"), AMNEX issued to the former shareholders of CNSI an
aggregate of 4,099,086 Common Shares (the "CNSI Acquisition Shares") and
two-year warrants for the purchase of an aggregate of 400,000 Common Shares of
the Company at an exercise price of $4.51 per share. Of the CNSI Acquisition
Shares, 1,861,802 are being held in escrow and will be available (i) to effect a
reduction of the purchase price in the event that the negative working capital
of CNSI as of the closing date and certain other amounts payable as of such date
exceeded a certain threshold amount as provided for in the CNSI Acquisition
Agreement and (ii) to indemnify AMNEX against certain breaches of the CNSI
Acquisition Agreement as set forth therein. In March 1997, AMNEX sent a notice
seeking indemnification under the CNSI Acquisition Agreement.
Concurrently with the closing, AMNEX advanced to CNSI cash in the
approximate amount of $1,000,000. Such proceeds were used by CNSI to pay certain
employee separation costs.
The CNSI acquisition enabled the Company to enter the international
telecommunications market. See Item 1 hereof.
The acquisition was accounted for as a purchase. Accordingly, the results
of operations of CNSI have been included in the financial statements, included
herein as Item 14(a), from the date of acquisition.
Teleplus
On August 31, 1996, Teleplus assigned to AMNEX all of its rights under its
Dealer Agreement with CNSI in exchange for 1,052,336 Common Shares. Of such
shares, 526,168 were issued effective as of January 30, 1997 and 526,168 are
issuable on January 30, 1998. The Teleplus transaction was done in furtherance
of the Company's goal to reduce commission expenses payable to independent sales
agents.
NBE
Effective September 30, 1996, AMNEX acquired 80% of the outstanding common
shares of NBE for 550,725 Common Shares. The Company believes that NBE should
provide significant synergies to the existing cost structure of ANEI, while
providing a new and expanding business in the billing and collection niche
markets. See Item 1 hereof.
The acquisition was accounted for as a purchase. Accordingly, the results
of operations of NBE have been included in the financial statements, included
herein as Item 14(a), from the date of acquisition.
39
<PAGE>
Coastal Telecom et al.
Effective November 20, 1996, pursuant to an Asset Purchase Agreement (the
"Coastal Acquisition Agreement"), Crescent acquired certain assets owned by
Coastal Telecom, Garden State and BEK Tel (collectively, the "Coastal Assets"),
including 4,300 pay telephones located primarily in the State of New Jersey.
The aggregate consideration payable in connection with the acquisition of
the Coastal Assets was $10,410,000, payable to the extent of $3,010,000 in cash,
2,098,373 Common Shares and the assumption of approximately $2,200,000 in
liabilities.
Pursuant to the Coastal Acquisition Agreement, the holders of the common
shares acquired (the "Coastal Acquisition Shares") have been granted certain
piggyback registration rights as well as certain rights to require that AMNEX
repurchase up to $3,250,000 in market value of the Coastal Acquisition Shares in
the event AMNEX does not file a registration statement within certain time
periods as set forth in the Coastal Acquisition Agreement and the Coastal
Acquisition Shares are not otherwise sold.
The Coastal Assets were acquired in furtherance of the Company's goal of
significantly increasing its ownership of payphone assets.
Recent Federal Legislation
As discussed in Item 1(c) hereof, in February 1996, the 1996 Act was signed
into law. The new statute is intended to promote competition in both the local
and long distance markets. Prior to enactment, the RBOCs could not sell long
distance service or manufacture equipment. Although such activities are now
permitted, before RBOCs may enter the long distance market, they must comply
with a number of requirements that are designed to prevent them from unfairly
using their market power to compete against the smaller industry participants.
The law also calls for the FCC to further define, implement and oversee the new
rules. The Company believes that its current activities are no more or less at
risk, as a result of the new law, than they were before the law was passed. The
Company additionally believes that it is well positioned to take advantage of
some of the provisions in the new law.
Subsequent Events
On January 7, 1997, the Company entered into a Stock Exchange Agreement
with Francesco Galesi pursuant to which the Company acquired 10% of the
outstanding capital stock of GTI in exchange for Series L Preferred Shares of
the Company and warrants for the purchase of Series L Preferred Shares. See Item
13(a) hereof.
40
<PAGE>
On February 25, 1997, the Company entered into a joint venture agreement
with Community Network Services Inc., MicroTel Communications Corporation and
other entities related to them for the purpose of conducting telecommunications
operations with regard to international 1+ calls. In connection with the
transaction, the Company converted approximately $2,250,000 of indebtedness into
preferred shares of the joint venture entity and agreed to make working capital
loans to the joint venture entity in an aggregate amount of up to $1,200,000
during the initial six month term of the agreement.
On February 28, 1997, the Company entered into a Renewal and Modification
Agreement with National with regard to the redefinition of the customer
relationship between the parties. Under the terms of the Renewal and
Modification Agreement, the Company has been appointed the exclusive provider of
various services to private payphones owned, leased or otherwise controlled by
National. See Items 1 and 13(a) hereof.
On March 1, 1997, Crescent acquired certain assets from Sun Tel Inc. (the
"Sun Tel Assets") including approximately 600 pay telephones located in Florida,
for an aggregate purchase price of $1,068,000 and the grant to a designee of Sun
Tel Inc. of a 20% equity interest in the Crescent subsidiary that purchased the
Sun Tel Assets.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 hereof.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in accountants due to disagreements on accounting and
financial disclosure during the twenty-four month period ended December 31,
1996.
41
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Directors and Executive Officers
The following persons are the Directors and executive officers of the
Company:
Name Age Position
---- --- --------
Kenneth G. Baritz 40 Chairman, Chief Executive Officer and Director
Peter M. Izzo, Jr. 45 President of PubCom Division and Director
Michael V. Dettmers 51 Chief Operating Officer and Director
Kevin D. Griffo 36 President of TelCom Division
John Kane 44 Executive Vice President for Business Development
Amy S. Gross 41 Vice President - General Counsel and Secretary
Richard L. Stoun 40 Vice President - Finance, Treasurer and Chief
Accounting Officer
Francesco Galesi 66 Director
Kenneth G. Baritz was elected Chief Executive Officer of the Company in
March 1997. Mr. Baritz has also served as the Company's Chairman since January
1994 and as a Director of the Company since October 1992. Mr. Baritz served from
October 1989 through December 1993 as a Vice President of Bear, Stearns & Co.,
Inc., an investment banking firm. From April 1987 to October 1989, he was a Vice
President of Shearson Lehman Brothers, also an investment banking firm. In 1994,
without admitting or denying that he had committed any violations, Mr. Baritz
consented to a censure and a 90 day suspension from employment with a New York
Stock Exchange member firm for conduct inconsistent with just and equitable
principles of trading involving certain brokerage transactions completed in 1989
and 1991. Mr. Baritz is on the Board of Directors of a number of privately-held
companies.
Peter M. Izzo, Jr. has served as President of the Company's PubCom Division
since March 1997 and as a Director of the Company since October 1992. Mr. Izzo
previously served as the Company's President from October 1992 to March 1997 and
as its Chief Executive Officer from August 1993 to March 1997. From May 1991 to
October 1992, Mr. Izzo served as President of Peconic Communications, a provider
of pay phones and interconnect equipment. He served as Vice President of New
Product Development for the Company during 1991. Prior thereto and from 1989,
42
<PAGE>
Mr. Izzo was associated with ANEI, the Company's wholly-owned subsidiary, last
serving as Executive Vice President - Operations. During 1987 and 1988, Mr. Izzo
was Vice President of Network Operations at Elcotel, a manufacturer of private
pay phones. He previously served as Director of Operations for TFN, Inc., an
interexchange carrier, and was employed for 15 years with New York Telephone
Company.
Michael V. Dettmers was elected Chief Operating Officer of the Company in
March 1997 and has served as a Director of the Company since May 1994. From
March 1995 to March 1997, Mr. Dettmers provided consulting services to a number
of clients, including the Company, in the area of organizational design and
development. Prior thereto and from January 1988, he served as President of
Dettmers Industries Inc., a manufacturer of interior products for business
aircraft. From 1980 to 1991, he also served as President of Execucorp Inc., a
management consulting firm.
Kevin D. Griffo has served as President of ANEI since June 1996 and
President of the Company's TelCom Division since March 1997. Mr. Griffo
previously served ANEI as its Chief Operating Officer from December 1995 and
General Manager from January 1995. From February 1996 to September 1996, Mr.
Griffo also served as Chief Operating Officer of the Company. Prior to joining
ANEI and from August 1992, Mr. Griffo served as Regional Vice President for
LDDS, an interexchange carrier. From September 1983 to August 1992, Mr. Griffo
was Chief Operating Officer of Tele-Fibernet, an interexchange carrier.
John Kane has served as the Company's Executive Vice President for Business
Development since March 1997, having previously served in such position from
February 1996 to September 1996 and in the same position for ANEI from June 1995
to February 1996. Mr. Kane served as Chief Operating Officer of the Company from
October 1996 to March 1997. From September 1992 to May 1995, Mr. Kane served as
Senior Vice President - Operations for WCT Communications, Inc., an
interexchange carrier. He served from May 1992 to March 1993 as President of
Computer Calling Technology, Inc., an interexchange carrier. Prior thereto and
from April 1987, Mr. Kane served as Vice President and General Manager of First
Phone of New England, Inc., an interexchange carrier.
Amy S. Gross has served as Vice President - General Counsel and Secretary
of the Company since June 1992. Prior thereto and from June 1989, she served as
General Counsel - Regulatory for the Company. From 1985 until June 1989, Ms.
Gross was affiliated with NYNEX Service Company, serving as a member of its
legal department and later as a staff director responsible for product
development and regulatory planning.
Richard L. Stoun joined ANEI in January 1996 as Senior Vice President -
Finance. He was elected Vice President - Finance, Treasurer and Chief Accounting
Officer of the Company in February 1996. From November 1992 to January 1996, Mr.
Stoun served as Senior Vice President - Finance and Treasurer of Signature
Flight Support Corporation ("Signature"), a provider of aviation services for
commercial and general aviation markets. Prior thereto and from August 1985, he
was Vice President - Finance and Treasurer of Page Avjet Corp., a company
engaged in a business similar to Signature. Mr. Stoun is a certified public
accountant who previously served with the independent accounting firm of
Deloitte Haskins and Sells.
43
<PAGE>
Francesco Galesi has served as a Director of the Company since January
1997. Since 1969, Mr. Galesi has served as Chairman of the Galesi Group, which
includes companies engaged in telecommunications, manufacturing, real estate and
logistic management. Mr. Galesi is also currently a Director of Walden
Residential Properties, Inc., a real estate company, and WorldCom, Inc., a
telecommunications company, each of whose shares are publicly traded. Mr. Galesi
also serves on the Board of Directors of a number of privately-held companies.
See Item 13(a) hereof.
Each Director will hold office until the next Annual Meeting of
Shareholders and until his successor is elected and qualified or his earlier
resignation or removal. Each executive officer will hold office until the
meeting of the Board of Directors following the next Annual Meeting of
Shareholders and until his or her successor is elected or appointed and
qualified or his or her earlier resignation or removal.
There is no family relationship among any of the Company's executive
officers and Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
To the Company's knowledge, based solely on a review of copies of Forms 3,
4 and 5 furnished to the Company and written representations that no other
reports were required, during the fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to the Company's officers,
Directors and 10% shareholders were complied with.
Item 11. EXECUTIVE COMPENSATION
(a) Summary Compensation Table.
The following table sets forth certain information for the fiscal years
ended December 31, 1996, 1995 and 1994 concerning the compensation of Peter M.
Izzo, Jr., then Chief Executive Officer of the Company, and the Company's four
most highly compensated executive officers (other than Mr. Izzo) during the 1996
fiscal year:
44
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------------------------ -------------------------------------
Awards Payouts
------------------------- -------
Common
Restricted Shares
Name and Principal Other Annual Stock Underlying LTIP All Other
Position Year Salary Bonus Compensation Award(s) Options Payouts Compensation
- ------------------ ---- -------- ------- ------------ -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Peter M. Izzo, Jr. 1996 $223,424 -- -- $320,625(2) 325,000(3) -- $2,178(4)
President and Chief 1995 $200,000 $52,083 -- -- 300,000 -- $2,000(4)
Executive Officer(1) 1994 $200,204 $36,204 -- -- -- -- --
Kenneth G. Baritz 1996 $166,935 -- -- $168,750(2) 300,000(3) -- $1,187(4)
Chairman of the 1995 $132,687 $17,601 -- -- -- -- --
Board(5) 1994 $120,061 -- -- -- -- -- --
John Kane 1996 $154,403 $23,000(8) -- $84,375(2) 275,000(3) -- --
Chief Operating 1995 $80,384(7) $32,000(8) -- -- 75,000 -- --
Officer(6) 1994 -- -- -- -- -- -- --
Kevin D. Griffo 1996 $116,592 -- -- $84,375(2) 200,000(3) -- $690(4)
President of American 1995 $110,415 -- -- -- 50,000 -- --
Network Exchange, Inc. 1994 -- (9) -- -- -- -- -- --
Richard L. Stoun 1996 $110,146 -- -- -- 100,000 -- $22,500(10)
Vice President - 1995 -- (10 -- -- -- -- -- --
Finance, Treasurer 1994 -- -- -- -- -- -- --
and Chief Accounting
Officer
</TABLE>
- ----------
(1) Effective March 1997, Mr. Izzo assumed the position of President of
the Company's PubCom Division.
(2) In May 1996, the following persons received awards of the following
number of restricted Common Shares: Mr. Izzo - 95,000; Mr. Baritz -
50,000; Mr. Kane - 25,000; and Mr. Griffo - 25,000. Such shares vest
to the extent of one-tenth thereof each year, subject to continued
employment and subject to acceleration under certain circumstances.
Dividends are payable with respect to such shares. As of December 31,
1996, no restricted shares had vested and such shares had the
following respective values: Mr. Izzo - $290,938; Mr. Baritz -
$153,125; Mr. Kane - $76,563; and Mr. Griffo - $76,563.
(3) Of such number of shares underlying options, the following number are
subject to shareholder approval of both an increase in the number of
authorized Common Shares generally and an increase in the number of
Common Shares authorized for issuance under AMNEX's 1992 Stock Option
Plan (the "1992 Plan"): Mr. Izzo - 250,000; Mr. Baritz - 250,000; Mr.
Kane - 50,000; and Mr. Griffo - 100,000.
45
<PAGE>
(4) Represents Company matching contributions for its 401(k) plan.
(5) Effective March 1997, Mr. Baritz was elected Chief Executive Officer
of the Company.
(6) Effective March 1997, Mr. Kane assumed the position of Executive Vice
President for Business Development.
(7) Mr. Kane joined the Company in June 1995.
(8) The bonus paid to Mr. Kane for 1995 and 1996 was based on the
development of the Company's 1+ Coin business. See Item 1(c) hereof.
(9) Mr. Griffo joined the Company in January 1995.
(10) Mr. Stoun joined the Company in January 1996. The amount under "All
Other Compensation" for 1996 represents a "signing bonus" paid in 1997
to Mr. Stoun following his completion of one year of continuous
employment with the Company.
(b) Option Grants Table.
The following table sets forth certain information concerning individual
grants of stock options during the fiscal year ended December 31, 1996:
<TABLE>
Potential Realizable
Value at Assumed Annual
Rates of Stock Price
Appreciation for Option
Individual Grants Term (1)
- ------------------------------------------------------------------------------- -----------------------
<CAPTION>
Number of
Common
Shares Percent of Total
Underlying Options Granted
Options to Employees in Exercise Expiration
Name Granted Fiscal Year Price Date 5% 10%
---- ------- ----------- ----- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Peter M. Izzo, Jr. 75,000(2) 3.2% $3.375 05/23/01 $69,934 $154,535
Peter M. Izzo, Jr. 250,000(3) 10.5% $2.75 12/20/01 $189,944 $419,726
Kenneth G. Baritz 50,000(2) 2.1% $3.375 05/23/01 $46,623 $103,024
Kenneth G. Baritz 250,000(3) 10.5% $2.75 12/20/01 $189,944 $419,726
John Kane 100,000(4) 4.2% $3.25 02/12/01 $89,792 $198,416
John Kane 25,000(5) 1.1% $3.375 05/23/01 $23,311 $51,512
John Kane 100,000(6) 4.2% $2.875 11/08/01 $79,431 $175,522
John Kane 50,000(3) 2.1% $2.75 12/20/01 $37,989 $83,945
Kevin D. Griffo 100,000(7) 4.2% $3.25 02/12/01 $89,792 $198,416
Kevin D. Griffo 100,000(3) 4.2% $2.75 12/20/01 $75,977 $167,890
Richard L. Stoun 100,000(7) 4.2% $3.25 02/12/01 $89,792 $198,416
</TABLE>
46
<PAGE>
- ----------
(1) The potential realizable value is calculated based on the term of the
option at the time of grant (five years). Stock price appreciation of
5% and 10% is assumed pursuant to rules promulgated by the Securities
and Exchange Commission (the "SEC") and does not represent the
Company's prediction of its stock price performance.
(2) The options are exercisable to the extent of one-third thereof
effective as of May 23, 1997, 1998 and 1999. See Item 11(e) hereof.
(3) The options are exercisable to the extent of one-third thereof
effective as of December 20, 1997, 1998 and 1998 and are subject to
shareholder approval of an increase in the number of authorized Common
Shares generally and an increase in the number of Common Shares
authorized for issuance under the 1992 Plan. See Item 11(e) hereof.
(4) The options are exercisable to the extent of one-eighth thereof
effective June 1, 1996, one-sixth thereof effective February 12, 1997,
one-eighth thereof effective June 1, 1997, one-twelfth thereof
effective February 12, 1998 and one-half thereof effective June 1,
1998. See Item 11(e) hereof.
(5) The options are exercisable to the extent of one-third thereof
effective February 12, 1998 and two-thirds thereof effective February
12, 1999. See Item 11(e) hereof.
(6) The options are exercisable to the extent of one-third thereof
effective as of November 8, 1997, 1998 and 1999. See Item 11(e)
hereof.
(7) The options are exercisable to the extent of one-third effective as of
February 12, 1997, 1998 and 1999. See Item 11(e) hereof.
(c) Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Value Table.
The following table sets forth certain information concerning the value of
unexercised options as of December 31, 1996:
<TABLE>
<CAPTION>
Number of Common Shares
Underlying Unexercised Options at Value of Unexercised in-the-Money
December 31, 1996 Options at December 31, 1996
Name Exercisable/Unexercisable Exercisable/Unexercisable
---- ------------------------- -------------------------
<S> <C> <C>
Peter M. Izzo, Jr. 415,000 / 325,000 (1) $60,938 / $78,125
Kenneth G. Baritz 100,000 / 300,000 (1) $6,250 / $78,125
John Kane 50,000 / 300,000 (1) $16,406 / $50,781
Kevin D. Griffo 25,000 / 225,000 (1) -0- / $31,250
Richard L. Stoun -0- / 100,000 -0- / -0-
</TABLE>
- ----------
(1) The number of Common Shares underlying unexercisable options as of
December 31, 1996 include the following number that are subject to
shareholder approval of an increase in the number of authorized Common
Shares generally and an increase in the number of Common Shares
authorized for issuance under the 1992 Plan: Mr. Izzo - 250,000; Mr.
Baritz - 250,000; Mr. Kane - 50,000; and Mr. Griffo - 100,000.
47
<PAGE>
No options were exercised by any of the foregoing persons during the fiscal
year ended December 31, 1996.
(d) Compensation of Directors.
Directors are not entitled to receive a fee for their services in such
capacity. However, see Item 11(f) hereof for a discussion of certain consulting
services performed by Mr. Dettmers during 1996.
(e) Employment Contracts; Termination of Employment and
Change-in-Control Arrangements.
AMNEX is a party to employment agreements with Messrs. Izzo, Baritz, Kane
and Griffo that provide for, among other matters, the following: (i) an initial
term ending on June 25, 1997 (except that for Mr. Izzo the initial term ends on
June 25, 1998 and for Mr. Kane the initial term ends on October 1, 1998); (ii)
minimum annual compensation as follows: Mr. Izzo - $240,000; Mr. Baritz -
$190,000; Mr. Kane - $180,000; and Mr. Griffo - $150,000; (iii) the entitlement
by such persons to an annual bonus as follows: Mr. Izzo - 3% of the Company's
consolidated pre-tax profits; Mr. Baritz - 1% of the Company's consolidated
pre-tax profits; and Messrs. Kane and Griffo participation in a bonus pool equal
to an aggregate of 3% of the Company's consolidated pre-tax profits (but for Mr.
Kane in no event less than 1% of such profits); and (iv) the entitlement by such
persons to a severance payment equal to generally the greater of one year's
minimum annual salary and the employee's total compensation for the previous 12
months (except that, for Mr. Izzo, the figures are two years and 24 months,
respectively) in the event the executive officer's employment is terminated
without cause, he resigns for good reason or his employment is terminated
following a change in control of AMNEX (as defined in the respective employment
agreements).
All stock options held by Messrs. Izzo, Baritz, Kane, Griffo and Stoun will
vest upon a change in control of AMNEX (as defined in their respective stock
option agreements). Once and to the extent the options vest, whether by passage
of time or upon a change in control, they will not terminate notwithstanding
termination of employment for any reason. See Item 12 hereof.
The restricted Common Shares granted to Messrs. Izzo, Baritz, Kane and
Griffo in 1996 (see Item 11(a) hereof) will vest in the event the executive
officer's employment is terminated without cause, he resigns for good reason or
his employment is terminated following a change in control of AMNEX (as defined
in AMNEX's 1996 Restricted Stock Grant Plan).
(f) Compensation Committee Interlocks and Insider Participation.
During the fiscal year ended December 31, 1996, Mr. Dettmers provided
management consulting services to the Company and received the following
compensation: (i) $130,000; and (ii) a stock option under the 1992 Plan (subject
to shareholder approval of an increase in the number of authorized Common Shares
generally and an increase in the number of Common Shares authorized for issuance
under the 1992 Plan) for the purchase of 50,000 Common Shares at an exercise
price of $2.75 per share.
48
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) and (b) Security Ownership of Certain Beneficial Owners; Security
Ownership of Management.
Common Shares
The following table sets forth, to the knowledge of AMNEX based solely upon
records available to it, certain information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Common Shares (i) by each person who AMNEX
believes may be considered under the rules and regulations of the SEC to be the
beneficial owner of more than 5% of its outstanding Common Shares, (ii) by each
present Director, (iii) by each person listed in Item 11(a) hereof and (iv) by
all present executive officers and Directors as a group:
Name of Management Person
and Name and Address of Number of Shares Approximate
Beneficial Owner Beneficially Owned(1) Percentage of Class
---------------- --------------------- -------------------
Spring Technology Corp. (2) 3,835,356 (3)(4) 12.2%
Robert A. Rowland
1122 Colorado Street
Austin, Texas 2,474,891 (5) 8.8%
Mellon Bank Corporation
Mellon Bank, N.A.
The Dreyfus Corporation
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA 1,742,000(6) 6.2%
Cofinvest 97 Ltd. (2) 1,723,617(3)(7) 6.1%
Brian E. King
675 Morris Avenue
Springfield, New Jersey 1,682,989 6.0%
Peter M. Izzo, Jr. 512,040(8) 1.8%
Kenneth G. Baritz 359,000(9) 1.3%
Kevin D. Griffo 108,334(10) *
John Kane 98,166(11) *
Richard L. Stoun 33,334(12) *
Michael V. Dettmers 15,000(12) *
Francesco Galesi -0-(13) -
All executive officers and
Directors as a group (8 persons) 1,188,905(8)(9)(10) 4.1%
(11)(12)(13)
(14)
----------
* Less than 1%.
(1) Except as they relate to a particular shareholder, does not give
effect to the possible issuance of up to approximately 17,000,000
Common Shares pursuant to the exercise of outstanding options and
warrants or the conversion of certain outstanding promissory notes and
Preferred Shares (certain of which are exercisable or convertible only
in the event of, among other matters, an increase in the number of
authorized Common Shares generally and an increase in the number of
Common Shares authorized for issuance under the 1992 Plan) or pursuant
to contractual commitments.
49
<PAGE>
(2) Address is c/o Friedli Corporate Finance AG ("Friedli AG"),
Freigutstrausse 5, Zurich, Switzerland.
(3) AMNEX has been advised by Friedli AG that, to its knowledge, the
Common Shares reflected above as being beneficially owned by Spring
Technology Corp. ("Spring") and Cofinvest 97 Ltd. ("Cofinvest") are
held by such entities as nominees for certain overseas banking
institutions which, in turn, hold such securities as nominees for the
benefit of others (the "Ultimate Common Beneficial Owners"). AMNEX has
been advised further by Friedli AG that, to its knowledge, none of the
Ultimate Common Beneficial Owners is the beneficial owner of more than
5% of the outstanding Common Shares. See Item 13(a) hereof.
(4) Includes 632,500 and 152,500 Common Shares issuable pursuant to the
conversion of Series B Preferred Shares and Series F Preferred Shares,
respectively, and 2,849,480 Common Shares issuable pursuant to the
conversion of outstanding indebtedness (including accrued interest).
AMNEX believes that Friedli AG may have the right to cause the
conversion of such Series B Preferred Shares and indebtedness into
Common Shares.
(5) Includes 222,205 Common Shares issuable pursuant to currently
exercisable warrants. Of the 2,252,686 other Common Shares
beneficially owned by Mr. Rowland, 1,035,250 are currently held in
escrow as security for indemnification claims that may be brought in
connection with AMNEX's acquisition of CNSI and other related
entities. See Item 7 hereof.
(6) Based upon Schedule 13G filed with the SEC. Pursuant to the Schedule
13G, (i) of the reported shares, each of Mellon Bank Corporation and
Mellon Bank, N.A. has sole voting power over 1,742,000 shares, sole
dispositive power over 42,000 shares and shared dispositive power over
1,700,000 shares, and The Dreyfus Corporation has sole voting power
and shared dispositive power over 1,700,000 shares; (ii) all of the
reported shares are beneficially owned by Mellon Bank Corporation and
its direct or indirect subsidiaries in their various fiduciary
capacities; (iii) no one individual account holds an interest of 5% or
more; and (iv) the filing of the Schedule 13G should not be construed
as an admission that Mellon Bank Corporation or its direct or indirect
subsidiaries are, for purposes of Section 13(d) or 13(g) of the
Securities and Exchange Act of 1934, the beneficial owners of any of
the reported shares.
(7) Includes 127,402 Common Shares issuable pursuant to the conversion of
Series D Preferred Shares and 356,415 Common Shares issuable pursuant
to the conversion of certain outstanding indebtedness (including
accrued interest). AMNEX believes that Friedli AG may have the right
to cause the conversion of such Preferred Shares and indebtedness into
Common Shares.
(8) Includes (i) 95,000 Common Shares held pursuant to a restricted Common
Share grant which vests to the extent of one-tenth each year,
commencing May 23, 1997, subject to continued employment and subject
to acceleration under certain circumstances, and (ii) 415,000 Common
Shares issuable pursuant to currently exercisable options.
(9) Includes (i) 50,000 shares held pursuant to a restricted Common Share
grant which vests to the extent of one-tenth each year, commencing May
23, 1997, subject to continued employment and subject to acceleration
under certain circumstances, and (ii) 125,000 Common Shares issuable
pursuant to currently exercisable options and warrants.
50
<PAGE>
(10) Represents (i) 25,000 shares held pursuant to a restricted Common
Share grant which vests to the extent of one-tenth each year,
commencing May 23, 1997, subject to continued employment and subject
to acceleration under certain circumstances, and (ii) 83,334 Common
Shares issuable pursuant to currently exercisable options.
(11) Includes (i) 25,000 shares held pursuant to a restricted Common Share
grant which vests to the extent of one-tenth each year, commencing May
23, 1997, subject to continued employment and subject to acceleration
under certain circumstances, and (ii) 66,666 Common Shares issuable
pursuant to currently exercisable options.
(12) Represents Common Shares issuable pursuant to currently exercisable
options.
(13) Excludes 1,500,000 Common Shares issuable upon the conversion of
100,000 outstanding Series L Preferred Shares of AMNEX held by Mr.
Galesi, which Series L Preferred Shares are mandatorily convertible
into such Common Shares in the event AMNEX shall increase its number
of authorized Common Shares to permit such conversion, as well as to
satisfy other outstanding rights to acquire Common Shares. Also
excludes 1,500,000 Common Shares issuable upon the exercise of a
certain warrant held by Mr. Galesi for the purchase of 100,000 Series
L Preferred Shares of AMNEX, which warrant is exercisable for the
purchase of 1,500,000 Common Shares in the event the aforementioned
increase in authorized Common Shares is theretofore accomplished. See
Item 13(a) hereof.
(14) Includes (i) 25,000 shares held pursuant to a restricted Common Share
grant which vests to the extent of one-tenth each year, commencing May
23, 1997, subject to continued employment and subject to acceleration
under certain circumstances, and (ii) 38,000 Common Shares issuable
pursuant to currently exercisable options.
Series B Preferred Shares
The following table sets forth, to the knowledge of AMNEX based solely upon
records available to it, certain information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series B Preferred Shares (i) by each person
who AMNEX believes may be considered under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series B Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:
51
<PAGE>
Name of Management Person
and Name and Address of Number of Shares Approximate
Beneficial Owner Beneficially Owned(1) Percentage of Class
---------------- --------------------- -------------------
Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland 724,500(2) 100%
Spring Technology Corp.
c/o Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland 632,500(3) 87.3%
Banca Novara
Usteristrasse 9
Postfach
Zurich, Switzerland 92,000(3) 12.7%
Peter M. Izzo, Jr. -0- --
Kenneth G. Baritz -0- --
Kevin D. Griffo -0- --
John Kane -0- --
Richard L. Stoun -0- --
Michael V. Dettmers -0- --
Francesco Galesi -0- --
All executive officers and Directors
as a group (8 persons) -0- --
- ----------
(1) Holders of Series B Preferred Shares are entitled to ten votes for
each Series B Preferred Share held.
(2) AMNEX believes that Friedli AG or an affiliate thereof may have the
right to vote and dispose of, or otherwise control, all of the
outstanding Series B Preferred Shares. Friedli AG does not own any
Series B Preferred Shares of record and AMNEX has been advised by
Friedli AG that it disclaims beneficial ownership of such shares.
(3) AMNEX has been advised by Friedli AG that, to its knowledge, the
Series B Preferred Shares reflected above as being beneficially owned
by Spring and Banca Novara are held by such entities either as
nominees for certain overseas banking institutions which, in turn,
hold such securities as nominees for the benefit of others, or as
nominees for the benefit of others. See Item 13(a) hereof.
52
<PAGE>
Series D Preferred Shares
The following table sets forth, to the knowledge of AMNEX based solely upon
records available to it, certain information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series D Preferred Shares (i) by each person
who AMNEX believes may be considered under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series D Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:
Name of Management Person
and Name and Address of Number of Shares Approximate
Beneficial Owner Beneficially Owned(1) Percentage of Class
---------------- --------------------- -------------------
Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland 1,413,337(2) 100%
Experta Treuhand AG
Posttach 970
Zurich, Switzerland 365,000(3) 25.8%
Logitech Corp. (4) 343,334(3) 24.3%
Barclays Bank (Schweiz) AG
Schutzengasse 21
Zurich, Switzerland 203,500(3) 14.4%
Eagle Growth Ltd. (4) 199,100(3) 14.1%
Cofinvest 97 Ltd. (4) 127,402(3) 9.0%
Bordier & Cie (4) 110,000(3) 7.8%
Peter M. Izzo, Jr. -0- --
Kenneth G. Baritz -0- --
Kevin D. Griffo -0- --
John Kane -0- --
Richard L. Stoun -0- --
Michael V. Dettmers -0- --
Francesco Galesi -0- --
All executive officers and Directors
as a group (8 persons) -0- --
- ----------
(1) Holders of Series D Preferred Shares are entitled to six votes for
each Series D Preferred Share held.
(2) AMNEX believes that Friedli AG or an affiliate thereof may have the
right to vote and dispose of, or otherwise control, all of the
outstanding Series D Preferred Shares. Friedli AG does not own any
Series D Preferred Shares of record and AMNEX has been advised by
Friedli AG that it disclaims beneficial ownership of such shares.
(3) AMNEX has been advised by Friedli AG that, to its knowledge, the
Series D Preferred Shares reflected above as being beneficially owned
by Experta Treuhand AG, Logitech Corp. ("Logitech"), Barclays Bank
(Schweiz) AG, Eagle Growth Ltd., Cofinvest and Bordier & Cie are held
by such entities either as nominees for certain overseas banking
institutions which, in turn, hold such securities as nominees for the
benefit of others, or as nominees for the benefit of others. See Item
13(a) hereof.
(4) Address is c/o Friedli Corporate Finance AG, Freigutstrausse 5,
Zurich, Switzerland.
53
<PAGE>
Series E Preferred Shares
The following table sets forth, to the knowledge of AMNEX based solely upon
records available to it, certain information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series E Preferred Shares (i) by each person
who AMNEX believes may be considered under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series E Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:
Name of Management Person
and Name and Address of Number of Shares Approximate
Beneficial Owner Beneficially Owned(1) Percentage of Class
---------------- -------------------- -------------------
Friedli Corporate Finance AG (2)
Freigutstrausse 5
Zurich, Switzerland 1,035,000(2) 100%
I.A.A.C. International
Automotive Advisors Corp.,
Panama(3) 360,000(4) 34.8%
Hans-Juergen Benze
100 Jericho Quad
Jericho, New York 215,000 20.8%
Finanzverwaltung Des Kantons Zurich
Vermogensverwaltung
Walcheplatz 1
Zurich, Switzerland 200,000(4) 19.3%
Infidar AG (3) 75,000(4) 7.2%
Experta Trustee Co., Ltd.(3) 60,000(4) 5.8%
Stephan Wullinger
c/o Reich, a division of Fahnenstock
and Company Inc.
780 Third Avenue
New York, New York 55,000 5.3%
Peter M. Izzo, Jr. -0- --
Kenneth G. Baritz -0- --
Kevin D. Griffo -0- --
John Kane -0- --
Richard L. Stoun -0- --
Michael V. Dettmers -0- --
Francesco Galesi -0- --
All executive officers and Directors as
a group (8 persons) -0- --
- ---------
(1) Holders of Series E Preferred Shares are entitled to one vote for each
Series E Preferred Share held.
(2) AMNEX believes that Friedli AG or an affiliate thereof may have the
right to vote and dispose of, or otherwise control, all of the
outstanding Series E Preferred Shares. Friedli AG does not own any
Series E Preferred Shares of record and AMNEX has been advised by
Friedli AG that it disclaims beneficial ownership of such shares.
(3) Address is c/o Friedli Corporate Finance AG, Freigutstrausse 5,
Zurich, Switzerland.
(4) AMNEX has been advised by Friedli AG that, to its knowledge, the
Series E Preferred Shares reflected above as being beneficially owned
by I.A.A.C. International Automotive Advisors Corp., Panama,
Finanzverwaltung Des Kantons Zurich, Infidar AG, and Experta Trustee
Co., Ltd. are held by such entities either as nominees for certain
overseas banking institutions which, in turn, hold such securities as
nominees for the benefit of others, or as nominees for the benefit of
others. See Item 13(a) hereof.
54
<PAGE>
Series F Preferred Shares
The following table sets forth, to the knowledge of AMNEX based solely upon
records available to it, certain information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series F Preferred Shares (i) by each person
who AMNEX believes may be considered under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series F Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:
Name of Management Person
and Name and Address of Number of Shares Approximate
Beneficial Owner Beneficially Owned(1) Percentage of Class
---------------- ------------------ -------------------
Spring Technology Corp.(2) 152,500(3) 36.7%
Joyce Ltd.(2) 150,000(3) 36.1%
Logitech Corp. (2) 105,250(3) 25.3%
Peter M. Izzo, Jr. -0- --
Kenneth G. Baritz -0- --
Kevin D. Griffo -0- --
John Kane -0- --
Richard L. Stoun -0- --
Michael V. Dettmers -0- --
Francesco Galesi -0- --
All executive officers and Directors
as a group (8 persons) -0- --
- ----------
(1) Holders of Series F Preferred Shares are entitled to one vote for each
Series F Preferred Share held.
(2) Address is c/o Friedli Corporate Finance AG, Freigutstrausse 5,
Zurich, Switzerland.
(3) AMNEX has been advised by Friedli AG that, to its knowledge, the
Series F Preferred Shares reflected above as being beneficially owned
by Spring, Joyce Ltd. and Logitech are held by such entities as
nominees for certain overseas banking institutions which, in turn,
hold such securities as nominees for the benefit of others. See Item
13(a) hereof.
55
<PAGE>
Series G Preferred Shares
The following table sets forth, to the knowledge of AMNEX based solely upon
records available to it, certain information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series G Preferred Shares (i) by each person
who AMNEX believes may be considered under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series G Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:
Name of Management Person
and Name and Address of Number of Shares Approximate
Beneficial Owner Beneficially Owned(1) Percentage of Class
---------------- -------------------- -------------------
Southbrook International
Investments Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
New York, New York 27,500 100%
Peter M. Izzo, Jr. -0- --
Kenneth G. Baritz -0- --
Kevin D. Griffo -0- --
John Kane -0- --
Richard L. Stoun -0- --
Michael V. Dettmers -0- --
Francesco Galesi -0- --
All executive officers and
Directors as a
group (8 persons) -0- --
- ----------
(1) Holders of Series G Preferred Shares are entitled to approximately
5.69 votes for each Series G Preferred Share held.
Series L Preferred Shares
The following table sets forth, to the knowledge of AMNEX based solely upon
records available to it, certain information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series L Preferred Shares (i) by each person
who AMNEX believes may be considered under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series L Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:
56
<PAGE>
Name of Management Person
and Name and Address of Number of Shares Approximate
Beneficial Owner Beneficially Owned(1) Percentage of Class
---------------- --------------------- -------------------
Francesco Galesi
c/o Galesi Group
Rotterdam Industrial Park
Wescott Road, Building 6
Schenectady, New York 200,000(2) 100%
Peter M. Izzo, Jr. -0- --
Kenneth G. Baritz -0- --
Kevin D. Griffo -0- --
John Kane -0- --
Richard L. Stoun -0- --
Michael V. Dettmers -0- --
All executive officers
and Directors as
a group (8 persons) 200,000(2) 100%
- ----------
(1) Holders of Series L Preferred Shares are entitled to 15 votes for each
Series L Preferred Share held.
(2) Includes 100,000 Series L Preferred Shares issuable pursuant to
currently exercisable warrants. See Item 13(a) hereof.
(c) Changes in Control.
Reference is made to Item 13 hereof.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others.
Galesi
57
<PAGE>
Pursuant to a Stock Exchange Agreement, dated as of January 7, 1997,
between AMNEX and Francesco Galesi, AMNEX acquired from Mr. Galesi 10% of the
outstanding capital stock of GTI, 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 AMNEX which have the following
rights and preferences: (a) the right to receive dividends on an equal basis
with the holders of AMNEX's Common Shares; (b) voting rights based on the number
of Common Shares into which the Series L Preferred Shares are convertible; (c)
the mandatory conversion of the Series L Preferred Shares 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 AMNEX pursuant
to which there shall be authorized a sufficient number of Common Shares for
issuance upon the conversion of the Series L Preferred Shares as well as upon
the exercise of all outstanding purchase, exchange or conversion rights for the
acquisition of Common Shares; and (d) a liquidation preference, on an equal
basis with the holders of the other series of Preferred Shares, of an aggregate
of $4,545,000; (ii) Mr. Galesi was issued a warrant for the purchase of 100,000
Series L Preferred Shares of AMNEX (the "Warrant Preferred Shares") (or, if the
above Certificate of Amendment is filed, 1,500,000 Common Shares (the "Warrant
Common Shares")) for an aggregate exercise price of $4,545,000 (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 GTI are at least $12,500,000); (iii)
Mr. Galesi was granted certain registration rights with regard to the Conversion
Shares and Warrant Common Shares (or, if the Certificate of Amendment shall not
have theretofore been filed, the Series L Preferred Shares and Warrant Preferred
Shares); (iv) Mr. Izzo was elected a Director of GTI; (v) Mr. Galesi was elected
a Director of AMNEX; (vi) Mr. Galesi agreed that he would utilize GTI 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 AMNEX pursuant to the transaction; and (viii) Mr.
Galesi granted AMNEX certain "tag along" rights with regard to the sale of GTI
capital stock acquired.
Friedli
Pursuant to an Agreement, dated as of January 13, 1997, among AMNEX,
Friedli AG, Friedli Corporate Finance Inc. and Peter Friedli (collectively, the
"Friedli Group") (the "Friedli Agreement"), the Friedli Group has agreed to use
its best efforts to cause certain securityholders of AMNEX (the "Holders") to
sell, under certain circumstances and upon certain terms as set forth therein,
up to 9,000,000 Common Shares of AMNEX (either through the sale of Common Shares
held by such securityholders or following the conversion into Common Shares of
certain promissory notes and Preferred Shares of AMNEX held by them) (see Item
12 hereof).
Pursuant to the Friedli Agreement, AMNEX has agreed, under certain
circumstances and subject to the conditions set forth therein, that it will (i)
repurchase any convertible securities that were subject to the provisions of the
Friedli Agreement, at an effective as converted purchase price of $3.50 per
share, to the extent the underlying Common Shares are not sold pursuant to the
Friedli Agreement; (ii) pay to the holders of the Preferred Shares of AMNEX that
are subject to the provisions of the Agreement a cash payment in lieu of accrued
dividends; (iii) pay to Friedli AG, in settlement of any and all claims of the
Friedli Group for consulting, advisory, investment banking or similar or related
fees and expenses, the sum of $375,000; (iv) agree to offer to the holders of
AMNEX's Series F Preferred Shares the right to exchange such shares for an equal
number of Series K Preferred Shares of AMNEX, the only difference between such
series being that the Series K Preferred Shares would have a conversion price of
$3.50 per share in contrast with the $5.00 per share conversion price for the
Series F Preferred Shares; and (v) agree to redeem certain outstanding
promissory notes of AMNEX in the aggregate principal amount of $1,400,000 that
are due in October 1999 and are payable to certain clients of the Friedli Group
in connection with AMNEX's acquisition of Crescent. In addition, pursuant and
subject to the terms of the Friedli Agreement, the parties agreed to exchange
mutual general releases under certain circumstances (the AMNEX release to
include, among others, the Holders). The Friedli Agreement is subject to
termination under certain circumstances.
58
<PAGE>
National
Effective February 28, 1997, ANEI entered into a Renewal and Modification
Agreement (the "Renewal Agreement") with National with regard to a certain Prime
COCOT Aggregator Agreement (the "Aggregator Agreement") and a certain Settlement
Agreement previously entered into between the parties. AMNEX has been advised
that Brian E. King ("King"), a principal shareholder of AMNEX (see Item 12
hereof), is the President and sole shareholder of National.
Pursuant to the Aggregator Agreement, National, which owns, leases or
otherwise controls private payphones (the "National Phones") and is an
aggregator of long distance and operator-assisted traffic generated by the
National Phones, engaged ANEI as the principal provider of direct dial long
distance and operator-assisted services (collectively, "Services") to the
National Phones. Pursuant to the Settlement Agreement, the parties settled
certain claims made against each other with respect to the Aggregator Agreement.
Pursuant to the Renewal Agreement, as amended, among other matters, (i) the
term of the Aggregator Agreement was extended through February 28, 2007, subject
to earlier termination under certain circumstances, (ii) ANEI was engaged as the
exclusive provider of Services to the National Phones; (iii) ANEI assumed
National's obligation to provide certain services and administrative support,
and pay commissions and other compensation, to National's customers; (iv) ANEI
was given the exclusive right to manage the business and operations of National;
(v) ANEI agreed to pay to National a minimum amount of $2,250,000; (vi) ANEI
agreed to pay to National a reduced monthly payment equal to the greater of
$7,500 or .5% of Billed Revenues (as defined in the Renewal Agreement) during
the initial three years of the Renewal Agreement term, subject to adjustment at
the end of such period; (vii) ANEI was granted a right of first refusal by King
with regard to business opportunities for the reselling of long distance and
operator-assisted traffic generated by private pay phones; and (viii) the
parties settled all outstanding liabilities and obligations under the Settlement
Agreement.
Contemporaneously with the execution of the Renewal Agreement, the Company
purchased certain furniture and equipment from National for a purchase price of
$160,000 and entered into a five-year lease with an entity affiliated with King
that provides for a rental of $72,000 per year.
59
<PAGE>
The Company believes that the terms of the Renewal Agreement and related
transactions were no more favorable to National and King than those that the
Company would have offered to other parties.
(b) Certain Business Relationships.
Reference is made to Item 11(f) hereof for a discussion of a consulting
arrangement between the Company and Mr. Dettmers.
(c) Indebtedness of Management.
In January 1997, the Company loaned $150,000 to Kevin D. Griffo, President
of the Company's TelCom Division. The loan is repayable, together with interest
at the rate of 5.77% per annum, to the extent of one-half of any and all
bonuses, and all amounts due upon termination of employment, that are payable to
him, but, in any event, within five years from the date of the loan. As security
for the repayment of the loan, Mr. Griffo has pledged to the Company all of his
right, title and interest in and to the 25,000 restricted Common Shares
previously granted to him (see Item 11(a) hereof) as well as any and all Common
Shares that may be issued to him upon his exercise of options to purchase such
shares.
(d) Transactions with Promoters.
Not applicable.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements of the Company are included
herein:
Independent Auditor's Report F1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F2
Consolidated Statements of Operations for the years ended F4
December 31, 1996, 1995 and 1994
Consolidated Statements of Shareholders' Equity for the years F5 - F6
ended December 31, 1996, 1995 and 1994
60
<PAGE>
Consolidated Statements of Cash Flows for the years ended F7 - F9
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements F10 - F27
2. Financial Statement Schedules
Schedule II: Valuation and Qualifying Accounts
3. Exhibits
Exhibit Number Description of Exhibit
2.1 Amended and Restated Asset Purchase Agreement, dated as of
October 4, 1995, among Crescent, CCI, AMNEX and Friedli AG (the
"Crescent Asset Purchase Agreement")1
2.2 Letter agreement, dated as of October 4, 1995, among AMNEX,
Crescent, CCI and Friedli AG pursuant to which, among other
matters, the Crescent Asset Purchase Agreement was declared null
and void1
2.3 Letter agreement, dated as of October 4, 1995, among AMNEX,
Crescent, the stockholders of CCI and Friedli AG, among others1
2.4 Stock Purchase Agreement, dated as of April 26, 1996, among
AMNEX, Robert A. Rowland, Delajane Rowland, Donald D. Simmons, C.
Michael Moehle, Barbara Ann Cromwell, Ellen E. Wood, Daniel N.
Matheson, Capital Network System, Inc., Capital Network
International, Inc., Capital Network Mexico, S.A. de C.V., and
Point to Point Communications Company (the "CNSI Stock Purchase
Agreement")2
2.5 First Amendment to the CNSI Stock Purchase Agreement, dated as of
June 28, 1996, by and among the parties thereto as well as Sirrom
Capital Corporation and Spectrum Global Telecommunications Pty
Limited2
--------
1Denotes document filed as an exhibit to AMNEX's Current Report on Form 8-K
for an event dated October 4, 1995, as amended (File No. 0-17158), and
incorporated herein by reference.
2Denotes document filed as an exhibit to AMNEX's Current Report on Form 8-K
for an event dated June 28, 1996, as amended (File No. 0-17158), and
incorporated herein by reference.
61
<PAGE>
2.6 Asset Purchase Agreement, dated as of August 31, 1996, by and among
Teleplus, Inc. and AMNEX3
2.7 Asset Purchase Agreement, dated as of November 8, 1996, among AMNEX,
Crescent, Coastal Telecom, BEK Tel, Garden State and King (the
"Coastal Asset Purchase Agreement")4
2.8 Supplement and modification letter, dated as of November 20, 1996, to
the Coastal Asset Purchase Agreement among the parties thereto4
2.9 Stock Purchase Agreement, dated as of September 30, 1996, by and among
AMNEX, National Business Exchange, Inc., James E. Everingham and Daryl
A. Frame
3.1 Certificate of Amendment of Certificate of Incorporation of AMNEX
filed December 30, 1996
3.2 Restated Certificate of Incorporation of AMNEX, as amended
3.3 Amendment to By-Laws of AMNEX
3.4 By-Laws of AMNEX, as amended
4.1 Specimen of certificate evidencing Common Shares of AMNEX5
10.1 Agreements of Lease between AMNEX and Hudson Telegraph Associates6
10.2 Agreement of Sublease, dated as of December 7, 1993, between
International Paper Company and AMNEX6
- --------
3Denotes documents filed as a exhibit to AMNEX's Quarterly Report on Form
10-Q for the period ended September 30, 1996 (File No. 0-17158) and incorporated
herein by reference.
4Denotes documents filed as an exhibit to AMNEX's Current Report on Form
8-K for an event dated November 20, 1996 (File No. 0-17158) and incorporated
herein by reference.
5Denotes document filed as an exhibit to AMNEX's Registration Statement on
Form S-4 (File No. 33-32693) and incorporated herein by reference.
6Denotes document filed as an exhibit to AMNEX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (File No. 0-17158) and incorporated
herein by reference.
62
<PAGE>
10.3 Lease, dated August 24, 1990, between Global Motor Inns, Inc., d/b/a
Lucerne Plaza and ANEI7
10.4 Agreement of Lease, dated December 18, 1996, between We're Associates
Company and Crescent
10.5 1992 Stock Option Plan, as amended
10.6 Amended and Restated 1996 Restricted Stock Grant Plan
10.7 Employment Agreement, dated as of June 25, 1996, between AMNEX and
Peter M. Izzo, Jr.8
10.8 Employment Agreement, dated as of June 25, 1996, between AMNEX and
Kenneth G. Baritz8
10.9 Employment Agreement, dated as of June 25, 1996, between AMNEX and
Kevin D. Griffo
10.10 Employment Agreement, dated as of October 1, 1996, between AMNEX and
John Kane
10.11 Provision in Stock Option Agreements between AMNEX and each of Peter
M. Izzo, Jr., Kenneth G. Baritz, John Kane, Kevin D. Griffo, Richard
L. Stoun and Michael V. Dettmers8
10.12 Security Agreement, dated as of October 4, 1995, by and among Lyon
Credit Corporation ("Lyon"), ANEI and Crescent
10.13 Amendment to Security Agreement, dated as of December 28, 1995, by and
among Lyon, ANEI and Crescent
10.14 Second Amendment to Security Agreement, dated as of November 15, 1996,
by and among Lyon, ANEI and Crescent
10.15 Consolidated, Renewed, and Restated Promissory Note, dated as of
November 15, 1996, from Crescent and ANEI to Lyon in the principal
amount of $7,000,000
- --------
7Denotes document filed as an exhibit to AMNEX's Registration Statement on
Form S-1 (File No. 33-24141) and incorporated herein by reference.
8Denotes document filed as an exhibit to AMNEX's Quarterly Report on Form
10-Q for the period ended June 30, 1996 (File No. 0-17158) and incorporated
herein by reference.
63
<PAGE>
10.16 Master Lease, dated as of October 10, 1995, between Southbridge
Financial Corp ("Southbridge") and AHE
10.17 Convertible Preferred Stock Purchase Agreement, dated as of September
19, 1996, between AMNEX and Southbrook3
10.18 Loan and Security Agreement, dated December 18, 1996, by and between
Crescent and Southbridge
10.19 Stock Exchange Agreement, dated as of January 7, 1997, between AMNEX
and Francesco Galesi
10.20 Warrant, dated January 7, 1997, issued to Francesco Galesi
10.21 Agreement, dated as of January 13, 1997, by and among AMNEX, Friedli
AG, Friedli Corporate Finance Inc. and Peter Friedli
10.22 Renewal and Modification Agreement, dated as of February 28, 1997,
between ANEI and National
10.23 Letter Agreement, dated as of March 1, 1997, among AMNEX, National and
King with regard to the Renewal and Modification Agreement
11 Statement of Computation of Per Share Earnings
21 Subsidiaries
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
One report on Form 8-K was filed by AMNEX during the three months ended
December 31, 1996 as follows:
Date of Report: November 20, 1996
Items Reported: 2 and 7
64
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders AMNEX, INC.
We have audited the accompanying consolidated balance sheets of AMNEX, INC. and
Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1996. Our audit also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMNEX,
INC. and Subsidiaries at December 31, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
April 4, 1997
F-1
<PAGE>
<TABLE>
AMNEX, INC.
<CAPTION>
Consolidated Balance Sheets
(In thousands, except share data)
December 31
------------------------------------
<S> <C> <C>
1996 1995
------------------------------------
Assets
Current assets:
Cash 4,947 $ 94
------------------------------------
Trade receivables, less allowance for doubtful accounts of $2,757 in
1996 and $2,954 in 1995 19,311 17,080
------------------------------------
Parts inventory 739 289
------------------------------------
Deferred income taxes 1,791 121
------------------------------------
Note receivable -- 1,291
------------------------------------
Customer advances 2,414 3,940
------------------------------------
Deposits and other current assets 861 602
------------------------------------
Total current assets 30,063 23,417
Property and equipment, net 23,851 11,595
------------------------------------
Deposits and other 1,543 3,952
------------------------------------
Intangible assets, net 5,947 1,361
------------------------------------
Goodwill, net 29,955 9,255
------------------------------------
Total assets $ 91,359 $ 49,580
====================================
F-2
</TABLE>
<PAGE>
<TABLE>
December 31
1996 1995
-------------------------------------
Liabilities and shareholders' equity
Current liabilities:
<S> <C> <C>
Short-term debt $ 11,498 $11,865
-------------------------------------
Accounts payable 3,651 4,266
-------------------------------------
Accrued expenses 7,733 1,488
-------------------------------------
Accrued network expenses 1,975 904
-------------------------------------
Accrued commissions 3,169 2,062
-------------------------------------
Accrued taxes payable 1,406 808
-------------------------------------
Due to related party 1,198 --
-------------------------------------
Current portion of capital lease obligations 2,179 756
-------------------------------------
Current portion of long-term debt 2,248 737
-------------------------------------
Total current liabilities 35,057 22,886
Capital lease obligations 2,668 2,170
-------------------------------------
Long-term debt 13,530 4,132
-------------------------------------
Minority interest 10 --
-------------------------------------
Compensation payable 894 _-
-------------------------------------
Obligations under non-compete agreement 2,630 -
-------------------------------------
Common stock subject to redemption 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 in 1996 and 1995 (liquidation
preference $362) 362 362
-------------------------------------
Series D Preferred Stock, authorized 1,413,337 shares, issued and
outstanding 1,413,337 shares in 1996 and 1995 (liquidation
preference $3,533) 3,533 3,533
-------------------------------------
Series E Preferred Stock, authorized 1,085,000 shares, issued and
outstanding 1,035,000 shares in 1996 and 1,085,000 shares in 1995
(liquidation preference $2,911 in 1996 and $3,052 in 1995) 2,911 3,052
-------------------------------------
Series F Preferred Stock, authorized 415,250 shares, issued and outstanding
415,250 shares in 1996 and 1995 (liquidation
preference $2,076) 2,076 2,076
-------------------------------------
Series G Preferred Stock, authorized 145,000 shares, issued and
outstanding 78,750 shares in 1996 (liquidation preference $1,575) 1,179 --
-------------------------------------
Common stock, $.001 par; authorized 40,000,000, issued 26,897,892 in
1996 and 19,484,030 shares in 1995 27 19
-------------------------------------
Capital in excess of par value 56,093 39,963
-------------------------------------
Accumulated deficit (32,385) (28,137)
-------------------------------------
33,796 20,868
-------------------------------------
Less 18,250 common shares held in treasury, at cost (476) (476)
-------------------------------------
Total shareholders' equity 33,320 20,392
-------------------------------------
Total liabilities and shareholders' equity $ 91,359 $49,580
=====================================
</TABLE>
F-3
See accompanying notes.
<PAGE>
<TABLE>
AMNEX, INC.
<CAPTION>
Consolidated Statements of Operations
(In thousands, except share data)
Year ended December 31
1996 1995 1994
--------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 117,142 $ 105,890 $ 108,737
--------------------------------------------------------------------
Costs and expenses:
Cost of sales 93,863 86,766 90,831
--------------------------------------------------------------------
Selling, general and administrative 16,473 12,145 12,635
--------------------------------------------------------------------
Depreciation and amortization 6,054 3,175 2,252
--------------------------------------------------------------------
Impairment of long-lived assets 3,716 -- --
--------------------------------------------------------------------
Interest expense 2,730 2,044 1,793
--------------------------------------------------------------------
122,836 104,130 107,511
--------------------------------------------------------------------
Income (loss) before income taxes and
minority interest (5,694) 1,760 1,226
--------------------------------------------------------------------
Minority interest 1 -- --
--------------------------------------------------------------------
Income (loss) before income taxes (5,693) 1,760 1,226
--------------------------------------------------------------------
Provision (benefit) for income taxes (1,445) 329 685
--------------------------------------------------------------------
Net income (loss) $ (4,248) $ 1,431 $ 541
====================================================================
Deemed dividend on Series G Preferred 400 -- --
Stock
Preferred share dividends 616 543 291
--------------------------------------------------------------------
Net income (loss) available for common $ (5,264) $ 888 $ 250
shares ====================================================================
Net income (loss) per common share $ (0.23) $ 0.05 $ 0.02
====================================================================
Weighted average number of shares
outstanding used in computing net income
(loss) per common share 23,274,219 19,416,497 13,522,815
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
AMNEX, INC.
Consolidated Statements of Shareholders' Equity
<CAPTION>
Years ended December 31, 1996, 1995 and
1994 (In thousands, except share data)
Common Stock Preferred Preferred Preferred Preferred Preferred
$.001 Par Value Stock Stock Stock Stock Stock
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Amount Series B Series C Series D Series E Series F
------------------------------------------------------------------------------------------------
Balance, December 31, 1993 10,186,523 $10.0 $1,666
Issuance of common shares 150,000
Issuance of preferred share 60,099
dividend
Issuance of common shares 100,000
Exercise of stock options 28,833
Sale of preferred shares $3,000
Issuance of preferred share
dividend
Exchange of preferred shares (3,000) $3,000
Conversion of debentures 5,629,222 6.0
Conversion of preferred shares 2,000,000 2.0 (1,000)
Conversion of debentures 533
Shares issuable to customer
------------------------------------------------------------------------------------------------
Net income
------------------------------------------------------------------------------------------------
Balance, December 31, 1994 18,154,677 18.0 666 3,533
------------------------------------------------------------------------------------------------
Issuance of common shares 125,000
------------------------------------------------------------------------------------------------
Issuance of common shares 100,000
------------------------------------------------------------------------------------------------
Exercise of stock options 471,853
------------------------------------------------------------------------------------------------
Conversion of preferred shares 607,500 1.0 (304)
------------------------------------------------------------------------------------------------
Sale of preferred shares $3,052
------------------------------------------------------------------------------------------------
Exercise of warrants 25,000
------------------------------------------------------------------------------------------------
Issuance of preferred share
dividend
------------------------------------------------------------------------------------------------
Issuance of preferred shares for
acquisition $2,076
------------------------------------------------------------------------------------------------
Net income
------------------------------------------------------------------------------------------------
Balance, December 31, 1995 19,484,030 19.0 362 3,533 3,052 2,076
------------------------------------------------------------------------------------------------
Issuance of common shares and
warrants for acquisitions 6,993,926 7.5
------------------------------------------------------------------------------------------------
Issuance of common shares 75,000 0.1
------------------------------------------------------------------------------------------------
Exercise of stock options 54,485 0.1
------------------------------------------------------------------------------------------------
Conversion of preferred shares 50,000 0.1 (141)
------------------------------------------------------------------------------------------------
Conversion of debt 44,643
------------------------------------------------------------------------------------------------
Issuance of preferred stock
------------------------------------------------------------------------------------------------
Conversion of preferred shares 195,808 0.2
------------------------------------------------------------------------------------------------
Net loss
------------------------------------------------------------------------------------------------
Balance, December 31, 1996 26,897,892 $27.0 $362 $ - $3,533 $2,911$ $2,076
================================================================================================
</TABLE>
F-5
<PAGE>
<TABLE>
AMNEX, INC.
Consolidated Statements of Shareholders' Equity (continued)
<CAPTION>
Years ended December 31, 1996, 1995 and
1994 (In thousands, except share data)
Preferred Capital in Common Total
Stock Excess of Stock Accumulated Treasury Shareholders
<S> <C> <C> <C> <C> <C> <C>
Series G Par Value Issuable Deficit Stock Equity
-----------------------------------------------------------------------------------------------
Balance, December 31, 1993 $ 34,723 $ 544 $ (29,990) $(476) $ 6,477
-----------------------------------------------------------------------------------------------
Issuance of common shares 507 507
-----------------------------------------------------------------------------------------------
Issuance of preferred share 225 (225)
dividend
Issuance of common shares 319 (319)
Exercise of stock options 43 43
Sale of preferred shares (344) 2,656
Issuance of preferred share (75) (75)
dividend
Exchange of preferred shares
Conversion of debentures 1,807 1,813
Conversion of preferred shares 998
Conversion of debentures 533
Shares issuable to customer 375 375
-----------------------------------------------------------------------------------------------
Net income 541 541
-----------------------------------------------------------------------------------------------
Balance, December 31, 1994 38,278 375 (29,524) (476) 12,870
-----------------------------------------------------------------------------------------------
Issuance of common shares 375 (375)
-----------------------------------------------------------------------------------------------
Issuance of common shares 419 419
-----------------------------------------------------------------------------------------------
Exercise of stock options 978 978
-----------------------------------------------------------------------------------------------
Conversion of preferred shares 303
-----------------------------------------------------------------------------------------------
Sale of preferred shares (428) 2,624
-----------------------------------------------------------------------------------------------
Exercise of warrants 38 38
-----------------------------------------------------------------------------------------------
Issuance of preferred share (44) (44)
dividend
-----------------------------------------------------------------------------------------------
Issuance of preferred shares for
acquisition 2,076
-----------------------------------------------------------------------------------------------
Net income 1,431 1,431
-----------------------------------------------------------------------------------------------
Balance, December 31, 1995 39,963 (28,137) (476) 20,392
-----------------------------------------------------------------------------------------------
Issuance of common shares and
warrants for acquisitions 14,650 14,658
-----------------------------------------------------------------------------------------------
Issuance of common shares 225 225
-----------------------------------------------------------------------------------------------
Exercise of stock options 137 137
-----------------------------------------------------------------------------------------------
Conversion of preferred shares 141
-----------------------------------------------------------------------------------------------
Conversion of debt 156 156
-----------------------------------------------------------------------------------------------
Issuance of preferred stock $1,604 396 2,000
-----------------------------------------------------------------------------------------------
Conversion of preferred shares (425) 425
-----------------------------------------------------------------------------------------------
Net loss (4,248) (4,248)
-----------------------------------------------------------------------------------------------
Balance, December 31, 1996 $1,179 $56,093 $ - $(32,385) $(476) $33,320
===============================================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
<TABLE>
AMNEX, INC.
Consolidated Statements of Cash Flows
<CAPTION>
Years Ended December 31, 1996, 1995 and 1994 (In
thousands, except share data)
1996 1995 1994
----------------------------------------------------------
Cash flows from operating activities
<S> <C> <C> <C>
Net income (loss) $ (4,248) $ 1,431 $ 541
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 6,054 3,175 2,252
Compensation expense 50 -- --
Provision for losses on receivables (1,539) (259) 1,656
Deferred income taxes (1,670) 179 (97)
Gain on sale of assets (1,675) - -
Impairment of long-lived assets 3,716 -- --
Changes in assets and liabilities:
Trade receivables 8,726 4,019 (9,270)
Parts inventory (109) 9 --
Note receivable 1,291 (1,291) --
Customer advances, deposits and other current assets 1,587 (3,048) (595)
Deposits and other assets 379 (737) (100)
Accounts payable and accrued expenses (6,570) (1,817) 3,162
----------------------------------------------------------
Net cash provided by (used in) operating activities 5,992 1,661 (2,451)
----------------------------------------------------------
Cash flows from investing activities
Purchase of businesses, net of cash acquired (4,365) (1,996) --
----------------------------------------------------------
Purchase of contracts (759) (923) --
----------------------------------------------------------
Proceeds on sale of assets 2,542 -- --
----------------------------------------------------------
Expenditures for property and equipment (2,770) (1,743) (3,644)
----------------------------------------------------------
Net cash used in investing activities (5,352) (4,662) (3,644)
----------------------------------------------------------
Cash flows from financing activities
Proceeds from sale of Preferred Shares 2,000 2,624 2,656
----------------------------------------------------------
Payments on related party debt (146) -- --
----------------------------------------------------------
Proceeds from the exercise of warrants -- 38 --
----------------------------------------------------------
Proceeds from issuance of convertible notes and debentures -- 325 --
----------------------------------------------------------
Proceeds from the sale of common stock 362 978 43
----------------------------------------------------------
Borrowings (repayments) under revolving credit, net (5,543) (3,655) 5,234
----------------------------------------------------------
Payments on long-term debt (3,018) (217) (524)
--------------------------------------------------------
Proceeds from long-term debt 12,000 2,757 --
----------------------------------------------------------
Principal payments under capital lease obligations (1,442) (304) (693)
----------------------------------------------------------
Dividends paid -- (44) (75)
----------------------------------------------------------
Net cash provided by financing activities 4,213 2,502 6,641
----------------------------------------------------------
Net increase (decrease) in cash 4,853 (499) 546
----------------------------------------------------------
Cash at beginning of year 94 593 47
----------------------------------------------------------
Cash at end of year $4,947 $ 94 $ 593
==========================================================
See accompanying notes.
</TABLE>
F-7
<PAGE>
AMNEX, INC.
Consolidated Statements of Cash Flows (continued)
Supplemental disclosure of cash flow information:
(In thousands, except share data)
Year ended December 31, 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. The Company issued 6,993,926 Common Shares and warrants to purchase 400,000
Common Shares upon acquisitions.
3. The Company issued 44,643 Common Shares pursuant to the conversion of $150
of debt plus accrued interest thereon.
4. The Company issued 195,808 Common Shares pursuant to the conversion of
21,250 Series G Preferred Shares.
5. Interest of approximately $2,646 was paid.
6. Income taxes of approximately $465 were paid.
7. Capital lease obligations incurred to acquire property and equipment were
approximately $1,978.
Year ended December 31, 1995
1. The Company issued 607,500 Common Shares pursuant to the conversion of
60,750 Series B Preferred Shares.
2. The Company issued 415,250 Series F Preferred Shares as partial
consideration for the acquisition of CCI.
3. Convertible Promissory Notes for $1,550 were issued as partial
consideration for the acquisition of CCI.
4. The Company issued 225,000 Common Shares under equity participation
agreements of which 125,000 Common Shares were issuable at December 31,
1994.
5. Interest of $2,076 was paid.
6. Income taxes of approximately $302 were paid.
7. Capital lease obligations incurred to acquire property and equipment were
$2,334.
F-8
<PAGE>
AMNEX, INC.
Consolidated Statements of Cash Flows (continued)
Year ended December 31, 1994
(In thousands, except share data)
1. $700 of principal of the Company's debentures was converted into 280,000
Common Shares.
2. The Company issued 2,000,000 Common Shares pursuant to the conversion of
200,000 Series B Preferred Shares.
3. $900 of principal and $166 of interest of notes payable were converted into
5,330,555 Common Shares.
4. $700 of principal and $47 of interest of notes payable were converted into
298,667 Common Shares.
5. $500 of principal and $33 of interest of notes payable were converted into
213,314 Series D Preferred Shares.
6. 125,000 Common Shares were issuable under equity participation agreements.
7. Interest of approximately $1,836 was paid.
8. Income taxes of approximately $0 were paid.
9. Capital lease obligations incurred to acquire property and equipment were
$732.
See accompanying notes.
F-9
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements
Years ended December 31, 1996, 1995 and 1994
(In Thousands, except share data)
1. Summary of Significant Accounting Policies
Organization and Business
AMNEX, INC., through its wholly-owned subsidiaries, American Network Exchange,
Inc. (ANEI), American Hotel Exchange, Inc. (AHE), Crescent Public Communications
Inc. (Crescent) including the operations of Coastal, Capital Network Systems,
Inc. (CNSI), and Hospital TeleServices, Inc., and its majority-owned subsidiary,
National Billing Exchange, Inc. (NBE), (collectively, the Company), provides a
variety of telecommunications services including operator-assisted (0+), long
distance (1+) and local pay phone services, primarily in the northeastern part
of the U.S. and in Mexico. ANEI and CNSI are subject to regulation by the
Federal Communications Commission (FCC) and the various State Public Utility
Commissions (PUCS) for a majority of the services it provides.
Basis of Presentation
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and its majority-owned subsidiary. All intercompany
balances and transactions have been eliminated.
Revenue Recognition
The Company records revenues as calls are placed. It submits billing information
related to operator assisted calls to its billing and collection agents which in
turn submit the records to the telephone companies with which they have billing
arrangements.
Parts Inventory
Inventory, which consists primarily of pay phone equipment replacement parts, is
stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided for using the straight-line method. Leased equipment and leasehold
improvements are amortized over the shorter of the life of the lease or the
service lives of the equipment and improvements.
Estimated useful lives are as follows: equipment, furniture and fixtures--5
years, installed telephone and related equipment--10 years, leasehold
improvements--5 years, and leased equipment--5 or 7 years.
F-10
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Intangibles and Goodwill
In connection with the acquisitions of pay telephone businesses and through
various other agreements entered into, certain contracts to provide
telecommunications services to pay phones, covenants not to compete and dealer
agreements were obtained. The contracts and the covenants are amortized over
their estimated remaining lives. Accumulated amortization at December 31, 1996
and 1995 was approximately $907 and $117, respectively.
Goodwill represents the excess of the purchase price over the fair value of net
assets acquired and is being amortized on a straight line basis over 15 years.
Amortization expense for 1996, 1995 and 1994 was approximately $1,500, $758 and
$720, respectively. Accumulated amortization at December 31, 1996 and 1995 was
approximately $5,700 and $4,200, respectively.
Impairment Loss on Long-Lived Assets
In accordance with FASB Statement No. 121, "Accounting for the Impairment of
Long- Lived Assets and Assets to be Disposed of", the Company records impairment
losses on long-lived assets used in operations when events and circumstances
indicate that the assets might be impaired and the undiscounted cash flows
estimated to be generated by those assets are less than the carrying amount of
those assets.
In connection with the enactment of the Telecommunications Act of 1996 and other
regulatory actions, the Company evaluated the ongoing value of certain existing
contracts and agreements to provide telecommunications services, and other
investments. Based on this evaluation, the Company determined that certain
assets, substantially related to rights acquired to provide long distance
services to certain pay phones, with a carrying amount if $3,176 were impaired
and, accordingly, were written off in the fourth quarter of 1996. Fair value was
based on estimated future cash flows to be generated, discounted at a market
rate of interest.
Fair Value of Financial Instruments
The Company's management believes the carrying amounts of cash and cash
equivalents, accounts receivable and short-term and long-term debt approximate
their fair values.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration of
credit risk are primarily cash and accounts receivable. The Company places its
cash in accounts with several major financial institutions. Concentration of
credit risk with respect to accounts receivable are generally diversified due to
a large number of customers comprising the Company's
F-11
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
customer base. Accordingly, the Company believes that their accounts receivable
credit risk exposure is limited and appropriately provided for.
Stock Options
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees". However, as
more fully described in Note 10, pro forma information as required under FASB
Statement No. 123, "Accounting for Stock Based Compensation", has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement.
Net Income (Loss) per Common Share
Net income (loss) per Common Share is computed on the basis of the weighted
average number of Common Shares outstanding, including Common Share equivalents.
In connection with the Company's sale of Series G Preferred Shares, in 1996, the
Company has recorded a deemed preferred dividend as a reduction in earnings
available to common shareholders (see Note 9). The effect of the conversion of
Preferred Shares and conversion of notes on the calculation of net income (loss)
per share is anti-dilutive and therefore excluded from the computation of net
income (loss) per share.
Statements of Cash Flows
For purposes of the Statements of Cash Flows, the Company considers all
short-term investments with a maturity of three months or less at the date of
purchase to be cash equivalents.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Prior Year Amounts
Certain prior year amounts were reclassified to conform with the current year
presentation.
F-12
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
2. Acquisitions
Effective October 4, 1995, Crescent purchased 100% of the issued and outstanding
common stock of CCI, a company which owned, operated and maintained pay phones,
for total consideration of $5,884, as follows: (i) a 10% promissory note in the
amount of $1,550 (the "Note") with interest payable semi-annually, commencing
December 31, 1995, and the balance due on October 4, 1999 (subject to
acceleration in the event of a change in control of the Company, as defined in
the Note); (ii) 415,250 Series F Preferred Shares of the Company; and (iii)
$2,258 in cash. The purchase price exceeded the fair value of the assets
acquired by approximately $2,295, which was recorded as goodwill.
Effective June 30, 1996, the Company acquired 100% of the common stock of CNSI,
a telecommunications company engaged in the business of providing 0+ calling
services primarily in Mexico. The purchase price aggregated $18,034, including
cash of $1,094, 4,099,086 shares of unregistered common stock valued at $10,401,
and warrants valued at $380, and liabilities assumed of $6,159. The purchase
price exceeded the book value of net assets acquired by $20,439, which has been
recorded as goodwill.
Effective September 30, 1996, the Company acquired 80% of the common stock of
NBE, a provider of billing and collection services to telecommunications
companies, for 550,725 shares of unregistered Common Stock having a value of
$1,330. The purchase price exceeded net assets acquired by $1,641, which has
been recorded as goodwill.
Effective November 20, 1996, pursuant to an Asset Purchase Agreement with, among
others, Coastal Telecom Payphone Company, Inc. (collectively "Coastal"), the
Company acquired, among other assets, approximately 4,300 pay telephones located
primarily in New Jersey. The Asset Purchase Agreement provides for an aggregate
consideration of $10,410, including cash of $3,010 and 2,098,373 shares of
unregistered common stock valued at $5,200, and liabilities assumed of $2,200.
The total purchase price was allocated to net assets acquired. The Company also
granted certain piggyback registration rights for the shares issued as well as
certain rights to require that the Company repurchase up to $3,250 in market
value of the shares in the event the Company does not file a registration
statement within a certain period of time. Such amount has been recorded as
common stock subject to redemption.
The aforementioned acquisitions have been included in the Statement of
Operations from their respective dates of acquisition. The acquisitions were
accounted for under the purchase method.
The pro forma unaudited results of operations for the twelve months ended
December 31, 1996, 1995 and 1994 assuming the consummation of the aforementioned
1996 acquisitions as of the beginning of 1996 and 1995 and the 1995 acquisition
as of the beginning of 1994 are as follows:
F-13
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
2. Acquisitions (continued)
1996 1995 1994
--------------------------------
Revenues $151,245 $148,592 $113,373
Net income (loss) (5,433) (561) 657
Net income (loss) per common share $(0.23) $(0.03) $0.03
During 1996, the Company acquired other unrelated pay telephones in a series of
acquisitions and issued 245,742 of its unregistered Common Stock valued at $597.
The effect of these acquisitions was not deemed material to the unaudited
proforma results of operations presented above.
In addition to the acquisitions above, on August 31, 1996, Teleplus assigned to
the Company its Dealer Agreement with CNSI in exchange for cash and
unregistered, issuable common stock aggregating $4,130, including cash of $1,500
and 1,052,336 shares valued at $2,630. The unregistered common stock is issuable
to Teleplus as follows: 526,168 issuable on January 30, 1997 and 526,168
issuable on January 30, 1998. The total purchase price has been included in
intangibles and recorded as an obligation under non-compete agreement,
representing the sellers obligation to the Company prior to issuance of the
common shares.
3. Note Receivable and Customer Advances
The Company has advances due from customers for amounts advanced to customers
for usage of the Company's services prior to delivery of service. The advances
are recouped as deductions from commissions otherwise payable to customers over
the life of the applicable customer agreement.
Included in "Deposits and other assets" at December 31, 1995 are the long-term
portion of advances to customers of approximately $492.
4. Property and Equipment, Net
Property and equipment, at cost, consists of the following at December 31:
1996 1995
----------------------------------
Equipment, furniture and fixtures $10,341 $ 9,684
----------------------------------
Installed telephone and related equipment 18,704 3,414
----------------------------------
Leasehold improvements 933 750
----------------------------------
Leased equipment 6,354 7,049
----------------------------------
36,332 20,897
----------------------------------
Accumulated depreciation and amortization 12,481 9,302
----------------------------------
Property and equipment, net $23,851 $ 11,595
==================================
F-14
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
5. Short-Term Debt
Short-term debt consists of the following at December 31:
==================================
1996 1995
----------------------------------
----------------------------------
Asset based lending agreements (a) $10,898 $11,365
----------------------------------
10% Notes payable (b) 500 500
----------------------------------
11% Note payable (c) 100 --
----------------------------------
$11,498 $11,865
==================================
(a) The Company has credit facilities in the form of asset based lending
agreements with its billing and collection agents, which provide for
advances up to $27,600 (with recourse) based upon eligible operator service
and direct dial receivables. Interest is at prime (8.25% and 8.5% at
December 31, 1996 and 1995, respectively) plus 2%. The agreements expire in
February 2000.
(b) During 1992 and 1993, the Company borrowed $1,500 from certain overseas
investors. The notes payable are due on demand, bear interest at 10% per
annum and are convertible including accrued interest, at $.20 per share.
The Company may repay the loans, subject to the payment of a 10% premium of
the principal amount repaid and subject to the right of the holders to
exercise their conversion right. In May 1993, an aggregate of $100 of the
loan was converted into 500,000 shares of Common Stock. In September 1994,
$900 principal amount and $166 of accrued interest thereon was converted
into 5,330,555 Common Shares. These notes are collateralized by all of the
outstanding shares of ANEI.
(c) In connection with the acquisition of CNSI, the Company assumed a note.
Interest at 11% is payable monthly. The outstanding principal balance,
together with any unpaid or accrued interest is due January 1997.
Substantially all of the Company's assets serve as collateral under the terms of
the short and long-term debt agreements and capital lease obligations.
F-15
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
6. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following at December 31:
=======================================
<S> <C> <C>
1996 1995
---------------------------------------
10.52% Secured Promissory Note, with interest and
principal payments of $151 payable in 60 monthly
installments commencing January 1, 1997 (b) $ 6,910 $ --
---------------------------------------
11.91% Secured Promissory Note, with interest and
principal payments of $111 in 60 monthly installments
commencing February 1, 1997 5,000 --
---------------------------------------
10% Convertible Promissory Notes, due October 1999
with interest payable semi-annually on June 30 and
December 31, convertible at $3.50 per common share 1,400 1,550
(a)
---------------------------------------
12.5% Secured Promissory Note, with interest only
payable monthly; principal due November 30, 1998 1,000 --
---------------------------------------
12.5% Secured Promissory Note, with interest only
payable monthly; principal due January 31, 1999 1,000 --
---------------------------------------
8% Convertible Promissory Note, due May 1997 with interest payable
semi-annuallyon June 30 and December 31, convertible at $2.8125
per Common Share 325 325
---------------------------------------
Auto loans with interest rate ranging from 7.47% to
10.25%; maturing March 1997 through October 1997 72 --
---------------------------------------
13% Note Payable, with interest and principal payments
of $2 payable in 50 monthly installments commencing
March 1, 1996 71 --
---------------------------------------
9.97% Senior Secured Note Payable, with interest and
principal payments of $63 payable in 48 monthly
installments commencing November 1995 (b) -- 2,371
---------------------------------------
9.97% Senior Secured Note Payable, with interest and
principal payments of $13 payable in 48 monthly
installments commencing February 1996 (b) -- 500
---------------------------------------
12% Note Payable to stockholder; consists of an
unsecured note with interest and principal of $21 due -- 123
quarterly
---------------------------------------
15,778 4,869
---------------------------------------
Less current maturities 2,248 737
---------------------------------------
$ 13,530 $ 4,132
=======================================
</TABLE>
F-16
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
6. Long-Term Debt (continued)
(a) During 1996, $150 of the Promissory Note, plus accrued interest thereon,
was converted to 44,643 Common Shares at $3.50 per share.
(b) During 1996, contemporaneously with the Coastal acquisition, certain notes
payable were refinanced with the 10.52% secured promissory note.
The aggregate principal maturities of long-term debt at December 31, 1996 are as
follows:
=======================
Principal
Amount Due
-----------------------
Year:
1997 $ 2,248
-----------------------
1998 3,135
-----------------------
1999 4,784
-----------------------
2000 2,646
-----------------------
2001 (and thereafter) 2,965
-----------------------
$ 15,778
=======================
7. Obligations Under Capital Leases
The Company has entered into various capital leases for the acquisition of
telecommunication and office equipment at interest rates varying from 12% to 13%
with terms ranging from three to five years. The leases are collateralized by
the respective equipment with a cost of $5,467 and accumulated depreciation of
$2,567 at December 31, 1996. Depreciation of assets under capitalized leases is
included in depreciation expense.
The following is a schedule of future minimum lease payments under capital
leases together with the present value of the net minimum lease payments as of
December 31, 1996:
Year Amount
-----------
1997 $2,569
-----------
1998 1,736
-----------
1999 1,090
-----------
2000 93
-----------
Total future minimum lease payments 5,488
-----------
Less amounts representing interest 641
-----------
Present value of net future minimum payments 4,847
-----------
Less current portion 2,179
-----------
Noncurrent portion $2,668
===========
F-17
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
8. Income Taxes
At December 31, 1996, the Company has available net operating loss carryforwards
of approximately $11,987 that expire through the year 2008. Approximately
$10,500 of the net operating loss carryforwards may be subject to limitations
under the change in ownership and consolidated return provisions of the Internal
Revenue Code. The Company has not recorded any future benefit related to the
utilization of this net operating loss carryforward.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets as
of December 31 are as follows:
1996 1995
-----------------------------------
Deferred tax liabilities:
-----------------------------------
Tax over book depreciation $ (1,124) $ (687)
-----------------------------------
Deferred tax assets:
-----------------------------------
Net operating loss carryforwards 4,555 4,660
-----------------------------------
Tax over book basis in impaired assets 2,248 --
-----------------------------------
Amortization of intangibles 148 106
-----------------------------------
AMT credit carryforward 137 -
-----------------------------------
Valuation allowance (4,173) (3,958)
-----------------------------------
Net deferred tax assets $ 1,791 $ 121
===================================
The provision for income taxes for the years ended December 31, 1996, 1995 and
1994 consist of the following:
1996 1995 1994
------------------------------------------------------
Current:
------------------------------------------------------
Federal $ 45 $ 50 $ 582
------------------------------------------------------
State 180 100 200
------------------------------------------------------
225 150 782
------------------------------------------------------
Deferred:
------------------------------------------------------
Federal (1,406) 160 (97)
------------------------------------------------------
State (264) 19 --
------------------------------------------------------
(1,670) 179 (97)
------------------------------------------------------
$ (1,445) $ 329 $ 685
======================================================
F-18
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
8. Income Taxes (continued)
The reconciliation of income taxes computed at U.S. federal statutory rates to
income tax expense (benefit) for the years ended December 31, 1996, 1995 and
1994 are as follows:
1996 1995 1994
---------------------------------------
---------------------------------------
Provision at federal statutory rate of
34% $ (1,935) $ 598 $ 417
---------------------------------------
Non deductible goodwill amortization 475 278 245
---------------------------------------
State income taxes, net of federal tax
benefit (55) 79 132
---------------------------------------
Other 3 47 (109)
---------------------------------------
Net change in valuation allowance 67 - -
---------------------------------------
Utilization of net operating loss - (673) --
---------------------------------------
$ (1,445) $ 329 $685
=======================================
9. Shareholders' Equity
Common Stock
During 1993 and 1994, the Company entered into equity participation agreements
with certain customers under which Common Shares and/or warrants for the
purchase of Common Shares are issued for achieving and maintaining certain
revenue levels. In 1994, 250,000 Common Shares were issued (valued at $3.19 to
$3.38 per share). In 1995, Common Shares of 125,000 and 100,000 were issued
(valued at $3.00 and $4.1875 per share, respectively).
The value ascribed to the Common Shares issued under the equity participation
agreements were recorded as deferred assets and amortized over the remaining
life of the particular customers' agreement. For the years ended December 31,
1996, 1995 and 1994, the Company charged approximately $442, $249 and $165,
respectively, to operations representing a pro rata portion of the estimated
cost of the shares issued. In addition, included in the 1996 impairment of
long-lived assets expense is $679 related to these equity participation
agreements that the Company no longer considers realizable.
In 1996, 75,000 Common Shares were issued, at the then current market price of
$3.00 per share, to certain employees of the Company, including the Chairman.
In May 1996 the Company committed to issue 245,000 Common Shares to certain
officers, directors and a consultant to the Company. The shares are to be held
by the Company and released annually on a pro rata basis over ten years. The
recipients forfeit future releases if they are terminated with cause, as
defined, among other matters. Any shares still held by the
F-19
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
9. Shareholders' Equity (continued)
Company are released upon a change of control, as defined. The value ascribed to
the 245,000 Common Shares was $894,000, the market value at the date of
commitment, which has been recorded as unearned compensation, and is being
amortized on a straight-line basis over ten years.
At December 31, 1996, approximately 15,000,000 of the Company's Common Shares
were reserved for issuance under stock option plans, warrant agreements, Common
Stock issuable (see below), for conversions of preferred stock and convertible
debt and in connection with acquisitions.
At December 31, 1996, the Company had 1,052,336 shares of Common Stock issuable
(526,168 shares in 1997 and 526,168 shares in 1998).
Preferred Shares
The holders of the Series B Preferred Shares are entitled to ten votes for each
Series B Preferred Share held. The shares are redeemable at the Company's option
at $6.50 per share plus cumulative dividends in arrears (subject to the prior
exercise of the conversion right by the holder). Series B Preferred Shares are
convertible into Common Shares at a conversion rate of 10:1. The holders of the
Series B Preferred Shares are entitled to receive cumulative dividends at the
rate of $.40 per share per annum. The Company has the option of paying such
dividend in cash or in Common Shares having a value equal to the closing selling
price of the Common Shares on the day immediately preceding the date on which
such dividend is declared.
In January 1994, 60,099 Common Shares of the Company were distributed to the
holders of the 333,200 Series B Preferred Shares. In June 1994, the Company paid
a cash dividend of $75 to the holders of Series B Preferred Shares for the
period December 1, 1993 through June 30, 1994. In July 1994, 200,000 of Series B
Preferred Shares converted into 2,000,000 Common Shares. In May and November
1995, an aggregate of 60,750 of the Company's Series B Preferred Shares were
converted into 607,500 shares of the Company's Common Stock. In June 1995, the
Company paid a cash dividend of $44 to the holders of record of the Series B
Preferred Shares for the period July 1, 1994 through April 30, 1995.
In April and May 1994, the Company received net proceeds of approximately $2,656
through the sale of an aggregate of 1,090,910 Series C Preferred Shares at a
purchase price of $2.75 per share. The Series C Preferred Shares were
convertible into Common Shares in the absolute and sole discretion of the
holders at a conversion price of $2.75 per share.
F-20
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
9. Shareholders' Equity (continued)
In August 1994, the holders of the Series C Preferred Shares of the Company
exchanged such shares, on a 1.1-for-1 basis, for an aggregate of 1,200,003
Series D Preferred Shares of the Company. Neither the Company nor the holders of
the Series D Preferred Shares have any right of redemption with regard thereto.
The holders of the Series D Preferred Shares are entitled to receive, when and
as declared by the Board of Directors of the Company, cumulative dividends at
the rate of 10% per annum payable in cash or Common Shares of the Company. The
Series D Preferred Shares have a fixed liquidation preference of $2.50 per share
and are convertible into Common Shares on a one-for-one basis at $2.50 per
share. The holders of the Series D Preferred Shares are entitled to six votes
for each Series D Preferred Share held. Contemporaneously with such exchange,
the Company issued an additional 213,334 Series D Preferred Shares upon
conversion of $500 principal amount of Notes and $33 of interest thereon at a
conversion price of $2.50 per share.
In April and May 1995, the Company received gross proceeds of approximately
$3,052 through the sale of an aggregate of 1,085,000 Series E Preferred Shares
at a purchase price of $2.8125 per share. The Series E Preferred Shares have the
following rights and preferences, among others: (i) 8% dividend payable in cash
or in Common Shares of the Company; (ii) voting rights of one vote per share and
(iii) the right to convert each share into one Common Share of the Company at a
conversion price of $2.8125 per share, subject to certain antidilution
adjustments. In January 1996, 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 of
the Company's Common Shares.
In October 1995, the Company issued 415,250 Series F Preferred Shares (valued at
$5.00 per share) as partial consideration for the acquisition of CCI. The Series
F Preferred Shares have the following rights and preferences, among others: (i)
dividends on a pari passu basis with the holders of the Common Shares; (ii)
voting rights of one vote per share; (iii) the right to convert each share into
one Common Share of the Company at a conversion price of $5.00 per share,
subject to certain antidilution adjustments; (iv) an adjustment of the
conversion price on October 10, 1997 to the average market price of Common
Shares, as defined, during the ten trading days prior to such time (but to not
less than $3.50 per share) if such average market price is then below $5.00 per
share; and (v) a liquidation preference of $5.00 per share. At any time, the
Company has the right to redeem the outstanding Series F Preferred Shares on
thirty days notice at a redemption price of $5.00 per share (subject to the
conversion rights of the holders of the Series F Preferred Shares).
F-21
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
9. Shareholders' Equity (continued)
In September 1996, the Company received net proceeds of $2,000 through the sale
of an aggregate of 100,000 Series G Preferred Shares at $20 per share. In
connection with the issuance of the Series G Preferred Shares, the Company
incurred costs in the form of warrants valued at $396 to purchase 275,000 Common
Shares of the Company. The Series G Preferred Shares have the following rights
and preferences, among others; (i) 5% cumulative dividend payable in cash or, at
the option of the Board of Directors of the Company, in Common Shares or
additional Series G Preferred Shares of the Company, only upon conversion of the
Series G Preferred Shares; (ii) voting rights, with the number of votes equaling
approximately
5.7:1 relative to Common Shares for each Series G Preferred Share held; (iii)
the right to convert each share into Common Shares of the Company at a
conversion price generally equal to the lesser of (a) $3.5125 or (b) 80% of the
average per share market value for the five trading days immediately preceding
the conversion; and (iv) a liquidation preference of $20 per share plus an
amount equal to accrued but unpaid dividends per share.
The guaranteed discount at the date of issuance on conversion of $400 was deemed
to be a dividend for purposes of calculating net loss available to common
stockholders. The dividend is being recognized on a pro rata basis over the
period beginning with the issuance of the shares to the first date that
conversion can occur. Conversion was permissible effective December 13, 1996.
This one time, non-cash charge only impacts the calculation of earnings per
share related to the Common Shares.
In December 1996, the holder of an aggregate of 21,250 of the Company's Series G
Preferred Shares elected to convert such shares into 195,808 of the Company's
Common Shares.
Cumulative dividends in arrears at December 31, 1996 and 1995 were approximately
$1,340 and $726, respectively.
Stock Options
The Company's 1987 Stock Option Plan (the 1987 Plan) provides for the granting
of options to employees (including officers and directors) and non-employee
Directors of, and certain consultants and advisors to, the Company. Such options
are intended to be either incentive stock options or nonstatutory stock options.
Incentive stock options may be granted to employees of the Company. Nonstatutory
stock options may be granted to employees or non-employee Directors of, and
certain consultants and advisors to, the Company. The total number of Common
Shares reserved for issuance under the 1987 Plan is 93,750.
F-22
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
9. Shareholders' Equity (continued)
In 1992, the Company adopted and the shareholders approved the 1992 Stock Option
Plan (the "1992 Plan" and collectively with the 1987 Plan, the "Plans"). In
1995, the shareholders approved an increase in the number of shares authorized
to be issued under the 1992 Plan from 1,500,000 to 2,250,000 Common Shares.
Subject to shareholder approval, in 1996 the number of shares authorized to be
issued under the 1992 Plan was increased to 4,250,000 Common Shares.
The 1992 Plan provides for the granting of options to employees (including
officers and directors) and non-employee Directors of, and certain consultants
and advisors to, the Company. Such options are intended to be either incentive
stock options or nonstatutory stock options. Incentive stock options may be
granted to employees of the Company. Nonstatutory stock options may be granted
to employees or non-employee Directors of, and certain consultants and advisors
to, the Company. As of December 31, 1996, the total number of Common Shares
reserved for issuance under the 1992 Plan is 3,697,130. Approximately 1,695,000
of these shares are subject to shareholder approval.
The exercise price of all incentive stock options granted under the Plans, and
all nonstatutory stock options granted under the Plans to officers, directors
and 10% shareholders of the Company (Insiders), must be at least equal to the
fair market value of such shares on the date of the grant or in the case of
incentive stock options granted to the holder of 10% or more of the Company's
Common Shares, at least 110% of the fair market value of such shares on the date
of the grant. The maximum exercise period for which incentive stock options may
be granted, and nonstatutory options may be granted to Insiders, is ten years
(five years in the case of incentive stock options granted to a 10%
shareholder). The option price and exercise period for nonstatutory stock
options to persons other than Insiders shall be determined by the Board or Stock
Option Committee in its sole discretion.
The following table represents the changes in outstanding stock options under
the Plans (of which approximately 618,000, 260,000 and 743,000 were exercisable
at December 31, 1996, 1995 and 1994, respectively).
<TABLE>
1996 1995 1994
--------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year ($1.50 to $4.25
per share) 1,109,371 1,224,044 845,187
--------------------------------------------------------------
Granted ($2.25 to $4.25 per share) 2,370,000 480,000 417,900
--------------------------------------------------------------
Exercised ($1.50 to $3.00 per share) (54,485) (471,853) (28,833)
--------------------------------------------------------------
Cancelled ($1.50 to $4.25 per share) (156,498) (122,820) (10,210)
--------------------------------------------------------------
Outstanding at end of year ($1.50 to $4.25 per
share) 3,268,388 1,109,371 1,224,044
==============================================================
</TABLE>
F-23
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
9. Shareholders' Equity (continued)
Stock Based Compensation
Pro forma information regarding net income (loss) and earnings (loss) per share
is required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1995
and 1996:
Assumption 1996 1995
- ----------------------------------------------------------------------------
Risk-free rate 6% 6%
- ----------------------------------------------------------------------------
Dividend yield 0% 0%
- ----------------------------------------------------------------------------
Volatility factor of the expected market
price of the Company's common stock .50 .50
Average life 3 3
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the vesting period of the options. The Company's
pro forma information is as follows:
1996 1995
---------------------------
Pro forma net income (loss) $(4,446) $1,426
Pro forma net income (loss) per share (0.24) 0.05
The weighted average fair value of options granted during the year ended
December 31, 1996 and 1995 were $1.27 and $1.67, respectively. The
weighted-average exercise price of options exercisable as of December 31, 1996
was $2.75 per share. The weighted-average remaining contractual life of those
options is 3.8 years.
F-24
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
9. Shareholders' Equity (continued)
Warrants
In 1993, the Company entered into an agreement with National Telecom USA, Inc.
(NTI) which provided for, based upon the achievement of certain revenue levels,
the issuance of a maximum of 450,000 Common Shares and warrants to purchase up
to 725,000 Common Shares at the market price at the date of issuance. During
1995, 1994 and 1993, the Company issued warrants to NTI for the purchase of
175,000, 250,000 and 300,000 Common Shares, respectively. In November 1995, the
Company entered into an agreement with NTI, whereby NTI agreed to place in
escrow the aforementioned warrants and granted the Company the right to cause
the sale of such warrants whereby the first $800 of the proceeds are applied to
reduce advances due. As further disclosed in Note 15, the Company in February
1997 entered into a substantially new contract with NTI, whereby the warrants
were tendered to the Company in settlement of $800 of advances outstanding from
NTI.
In June 1996, in connection with the CNSI acquisition (see Note 2), the Company
issued warrants to purchase 400,000 Common Shares at $4.51 per share. The
warrants are exercisable through June 1998.
In August 1996, the Company issued a warrant to purchase 50,000 Common Shares at
$3.06 per share in exchange for consulting services. The warrant is exercisable
through August 1999.
In September 1996, in connection with the sale of the Series G Preferred Shares,
the Company issued warrants to purchase 225,000 Common Shares at an exercise
price of $5.29 and 50,000 Common Shares at an exercise price of $3.53. The
warrants are exercisable through September 2001.
The following table represents the changes in outstanding warrants all of which
are exercisable:
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
--------------------------------------------------------------
Outstanding at beginning of period ($0.50 to
$120.00 per warrant) 1,922,569 1,737,569 743,319
--------------------------------------------------------------
Issued ($0.50 to $5.29 per warrant) 725,000 210,000 1,000,000
--------------------------------------------------------------
Exercised ($1.50 per warrant) -- (25,000) --
--------------------------------------------------------------
Expired/Canceled ($20.00 to $120.00 per
warrant) (7,569) -- (5,750)
--------------------------------------------------------------
Outstanding at end of period ($0.50 to
$120.00 per warrant) 2,640,000 1,922,569 1,737,569
==============================================================
</TABLE>
F-25
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
10. Related Party Transactions
During 1994, the Company entered into a management agreement with CCI pursuant
to which ANEI provided certain management and administrative services on behalf
of CCI, for a fee equal to ANEI's cost. CCI agreed to use the services of ANEI
and was paid commissions of approximately $63 per month, beginning in June 1994
through the date the Company acquired CCI. The Company believes that the
commission amounts paid to CCI were no more favorable to it than those payable
to other customers. The Company had been advised that the shareholders of CCI
may be shareholders of the Company.
As part of the CNSI acquisition, the Company assumed note agreements with a
former majority shareholder of CNSI who became a principal shareholder of the
Company, in the amounts of $1,049 and $149. The interest on the notes are paid
monthly at a rate of 10.5%.
The notes mature on July 15, 1997 with a balloon payment.
11. Major Customers
Two customers, controlled by the same group, accounted for 21%, 41% and 38% of
the Company's revenues for the years ended December 31, 1996, 1995 and 1994,
respectively.
12. Leases
The Company maintains office, operations, and computer facilities under various
operating leases. The minimum annual lease payments are as follows:
1997 $ 977
1998 964
1999 926
2000 926
2001 921
Thereafter 893
--------------------
$5,607
====================
The leases also provide for payment of real estate taxes and operating expenses.
Rent expense for the years ended December 31, 1996, 1995 and 1994 was
approximately $1,673, $1,251 and $1,165, respectively.
F-26
<PAGE>
AMNEX, INC.
Notes To Consolidated Financial Statements (continued)
13. Retirement Plan
The Company has a retirement plan 401(k) covering all eligible employees. The
annual provisions for the years ended December 31, 1996, 1995 and 1994 were
approximately $62, $68 and $47, respectively.
14. Commitments and Contingencies
The Company is a party to litigation in the normal course of business which
management does not believe will have a material impact on the financial
statements of the Company.
15. Subsequent Events
On January 7, 1997, the Company entered into a Stock Exchange Agreement with
Francesco Galesi, which involves the transfer to the Company of shares of Common
Stock of Galesi Telecom International, Inc. ("GTI") representing ten percent of
the issued and outstanding capital stock of GTI, in exchange for shares of
Series L Preferred Stock and warrants to purchase Common Shares of the Company.
On February 25, 1997, the Company entered into a joint venture agreement with
Community Network Services, Microtel Communications Corporation and other
entities affiliated with them (collectively "Manghir Group"), whereby certain
telecommunications contracts and licenses of Manghir Group were contributed to
the joint venture and the Company has committed financial, operational and
managerial assistance.
On February 28, 1997, the Company entered into a Renewal and Modification
Agreement with NTI with regard to redefinition of the customer relationship
between the parties. Under the terms of the Renewal and Modification Agreement,
the Company accepts and assumes, among others, the right and obligation to
become the exclusive provider of various services.
The Company committed to pay NTI consideration totaling $3,050.
On March 1, 1997, the Company entered into an Asset Purchase Agreement with Sun
Tel, Inc. with regard to the acquisition of, among other assets, approximately
600 pay telephones located in Florida. The Asset Purchase Agreement provides for
an aggregate purchase price for the assets acquired of $1,680 and the grant to
the seller of a 20% interest in Sun Tel North America, Inc., the purchaser of
the acquired assets.
F-27
<PAGE>
<TABLE>
AMNEX, INC.Schedule II
Valuation and Qualifying Accounts
<CAPTION>
Years ended December 31, 1996, 1995 and 1994
(In thousands)
Column A Column B Column C Column D Column E
Additions
---------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
(2)
Balance at (1) Charged to Balance at
beginning Charged to other Deductions end of
Description of period costs and accounts described (a) period
expenses described
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1996 $2,954 $7,432 $(7,629) $2,757
Year ended December 31, 1995 3,213 7,328 (7,587) 2,954
Year ended December 31, 1994 1,557 7,854 (6,198) 3,213
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Amounts charged off.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
April 15, 1997 By: /s/ Kenneth G. Baritz
---------------------
Kenneth G. Baritz, Chairman
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Chairman and Chief Executive
Officer (Principal Executive and
/s/Kenneth G. Baritz Financial Officer) April 15, 1997
- ----------------------
Kenneth G. Baritz
President, PubCom Division
/s/Peter M. Izzo, Jr. and Director April 15, 1997
- ----------------------
Peter M. Izzo, Jr.
Chief Operating Officer
/s/Michael V. Dettmers and Director April 15, 1997
- ----------------------
Michael V. Dettmers
Vice President - Finance,
Treasurer and Chief Accounting
Officer (Principal Accounting
/s/Richard L. Stoun Officer) April 15, 1997
- ----------------------
Richard L. Stoun
/s/Francesco Galesi Director April 15, 1997
- ----------------------
Francesco Galesi
<PAGE>
EXECUTION COPY
STOCK PURCHASE AGREEMENT
Dated as of September 30, 1996
by and among
AMNEX, INC.
and
NATIONAL BUSINESS EXCHANGE, INC.
and
James E. Everingham,
a selling shareholder
and
Daryl A. Frame,
a selling shareholder
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. Certain Definitions............................................. 1
SECTION 2. Purchase of Shares.............................................. 6
2.1. Purchase of Shares............................... 6
SECTION 3. Consideration for the Shares.................................... 6
3.1. Amount of Purchase Price......................... 6
3.2. Payment of Purchase Price........................ 6
SECTION 4. Representations and Warranties of NBE and the
Selling Shareholders............................. 7
4.1. Good Standing.................................... 7
4.2. Articles of Incorporation; By-Laws; Minute
Books............................................ 7
4.3. Authorization.................................... 8
4.4. Authorized Capitalization........................ 8
4.5. Financial Statements............................. 9
4.6. Records and Books of Account..................... 10
4.7. Liabilities...................................... 10
4.8. Tax Returns...................................... 10
4.9. Provision for Taxes.............................. 11
4.10. Title to Assets; Liens and Encumbrances............... 12
4.11. Trademarks, Service Marks, Trade Names,
Patents and Copyrights........................... 13
4.12. Insurance Policies.................................... 14
4.13. Contracts............................................. 14
4.14. Labor Relations....................................... 16
4.15. Legal Proceedings..................................... 17
4.16. Court Orders.......................................... 17
4.17. Compliance With Law; Permits and Licenses............. 17
4.18. Actions Not in Ordinary Course........................ 18
4.19. No Change............................................. 19
4.20. Accounts Receivable................................... 19
4.21. Certain Transactions.................................. 19
4.22. Employee Benefits..................................... 20
4.23. Governmental Approvals................................ 22
40860174
<PAGE>
4.24. Investment Intent..................................... 22
4.25. Restricted Securities............................ 23
4.26. Secrecy and Noncompetition Agreements................. 24
4.27. No Omissions.......................................... 24
4.28. Shareholder and Voting Agreements..................... 25
4.29. Employees............................................. 25
SECTION 5. Representations and Warranties of Buyer......................... 25
5.1. Good Standing.................................... 25
5.2. Authorization.................................... 25
5.3. AMNEX Shares..................................... 26
5.4. Purchase for Investment.......................... 26
5.5. No Omissions..................................... 28
SECTION 6. Employment Agreements........................................... 28
SECTION 7. Consents........................................................ 28
SECTION 8. Deliveries of NBE and Selling Shareholders...................... 28
8.1. Stock Certificates..................................... 29
8.2. Opinion of Counsel..................................... 29
8.3. Closing Date Balance Sheet............................. 29
8.4. Other Deliveries....................................... 29
SECTION 9. Deliveries of Buyer on the Closing Date......................... 29
9.1. Opinion of Counsel..................................... 29
9.2. Stock Certificates..................................... 29
9.3. Other Deliveries....................................... 29
SECTION 10. Registration Rights.......................................... 29
10.1. Required Registration................................. 29
10.2. Procedure for Registration............................ 32
10.3. Piggyback Registration................................ 32
10.4. Indemnification by Buyer.............................. 34
10.5. Indemnification by the Selling Shareholders
................................................ 36
10.6. Holdback Agreement.................................... 38
SECTION 11. Moving Expenses; Billing Agreements with
LECs................................................... 38
11.1. Moving Expenses.................................. 39
11.2. Billing Agreements with LECs..................... 39
SECTION 12. Board of Directors; Voting and Lock-Up
Agreement.............................................. 39
12.1. Board of Directors.................................... 39
12.2. Voting and Lock-up Agreement.......................... 40
<PAGE>
Page
SECTION 13. Buyer's Call Right............................................. 42
13.1. Buyer's Call Right; Valuation of Remaining
Shares............................................42
13.2. Exercise of Buyer's Call Right.........................43
13.3. Sale Event Differential................................43
SECTION 14. Indemnification................................................ 44
14.1. Indemnification by NBE and the Selling
Shareholders..................................... 44
14.2. Indemnification by Buyer.............................. 45
14.3. Procedures for Indemnification........................ 45
14.4. Escrow Agreement...................................... 46
SECTION 15. Survival of Representations; Effect of
Certificates................................................. 46
SECTION 16. No Broker; Expenses............................................ 46
SECTION 17. Notices........................................................ 47
SECTION 18. Miscellaneous.................................................. 48
18.1. Entire Agreement...................................... 48
18.2. Governing Law; Arbitration............................ 49
18.3. Benefit of Parties; Assignment........................ 50
18.4. Pronouns.............................................. 51
18.5. Headings.............................................. 51
18.6. Counterparts 51
18.7. Further Assurances.................................... 51
18.8. Good Faith and Fair Dealing............................51
<PAGE>
AGREEMENT dated as of September 30, 1996, by and among AMNEX,
Inc., a New York corporation ("Buyer"), National Business Exchange, Inc., a
California corporation ("NBE"), James Everingham ("Everingham") and Daryl A.
Frame ("Frame") and both Everingham and Frame, each a "Selling Shareholder" and
together "Selling
Shareholders").
W I T N E S E T H:
WHEREAS, the Selling Shareholders are the owners of all the
issued and outstanding shares of capital stock of NBE ("NBE Stock"); and
WHEREAS, Buyer desires to purchase from Everingham 408 shares
of NBE Stock and from Frame 220 shares of NBE Stock representing in the
aggregate 80% (the "Shares") of all of the issued and outstanding shares of NBE
Stock; and the Selling Shareholders desire to sell to Buyer, the Shares, upon
the terms and conditions and for the purchase price hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants
contained herein and for other good and valuable consideration set forth herein,
the parties hereto agree as follows:
SECTION 1. Certain Definitions. For purposes of this
Agreement, the following terms shall have the respective meanings set forth
below:
"Actions" mean any claims, actions, suits, proceedings and
investigations, whether at law, in equity or in admiralty or before any court,
arbitrator, arbitration panel or Governmental Authority.
"Affiliate" of a party means any Person which, directly or
indirectly, controls, is controlled by or is under common control with such
party.
"Assets" means all the assets, properties, rights and business
of NBE of every kind and description, wherever located, including, without
limitation, all property, tangible or intangible, real, personal or mixed, and
whether or not reflected on the Balance Sheet.
"Balance Sheet" means the balance sheet of NBE at July 31,
1996 referred to in paragraph 4.5 hereof.
"Business" means the existing and prospective business,
operations, facilities and other Assets, financial condition, results of
operations, finances, markets, products, competitive position, and customers and
customer relations of NBE.
"Balance Sheet Date" means July 31, 1996.
<PAGE>
"Closing" means the closing of the transactions contemplated
hereby, which shall take place simultaneously with the execution and delivery of
this Agreement on the first above written.
"Closing Date" means the date first above written.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Contracts" mean all contracts, agreements, indentures,
licenses, leases, commitments, plans, arrangements, sales orders and purchase
orders of every kind, whether written or oral.
"Court Order" means any judgment, decree, injunction, order,
decision, directive, regulation or ruling of any Governmental Authority that is
binding on any Person or its property under Law.
"Damages" mean losses, liabilities, costs, damages, claims,
taxes and expenses (including reasonable attorneys fees and disbursements).
"Default" means (i) a material breach of or material default
under any Contract, (ii) the occurrence of an event that with the passage of
time or the giving of notice or both would constitute a material breach of or
material default under any Contract, or (iii) the occurrence of an event that
with or without the passage of time or the giving of notice or both would
give rise to a right of termination, renegotiation or acceleration under
any Contract.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.
"GAAP" means generally accepted United States accounting
principles.
"Governmental Authority" means any agency, instrumentality,
department, commission, court, tribunal or board of any government, whether
foreign or domestic and whether national, federal, state, provincial or local.
"Laws" mean laws, statutes, rules, regulations, codes, orders,
ordinances, judgments, injunctions, decrees and policies.
"Liabilities" mean debts, liabilities, obligations,
guarantees, indemnities, duties and responsibilities of any kind and
description, whether absolute or contingent, monetary or non-monetary, direct or
indirect, known or unknown or matured or unmatured, or of any other nature.
<PAGE>
"Licenses" means licenses, franchises, permits,
easements, rights and other authorizations.
"Lien" means any security interest, lien, mortgage, claim,
charge, pledge, restriction, equitable interest or encumbrance of any nature.
"Person" means any natural person, corporation, business
trust, joint venture, association, company, firm, partnership, or other entity
or government or Governmental Authority.
"Proprietary Right" means any trade name, trademark, service
mark, patent or copyright and any application for any of the foregoing.
"Registration Statement" means an appropriate shelf
registration statement pursuant to Rule 415 under the Securities Act.
"Returns" mean all returns, declarations, reports, estimates,
information returns and statements required to be filed with or supplied to any
taxing authority in connection with any Taxes.
"Sale Event" means any one of the following events: (i)
any sale or exchange of fifty percent (50%) or more of the issued
and outstanding common stock of Buyer to any Person that is not an
Affiliate of Buyer, (ii) any sale by NBE of all or substantially all of the
assets of NBE to any Person that is not an Affiliate of Buyer, (iii) any sale or
exchange of fifty percent (50%) or more of the issued and outstanding stock of
NBE on a fully diluted basis to any Person that is not an Affiliate of Buyer,
(iv) any sale of all or substantially all of the assets of Buyer to any Person
that is not an Affiliate of Buyer or, (v) with respect to either of the Selling
Shareholders, the termination of Selling Shareholder's employment by NBE
pursuant to the Employment Agreement entered into the date hereof with such
Selling Shareholder.
"Securities Act" means the Securities Act of 1933, as
amended.
"Taxes" mean all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts, excise, real
and personal property, sales, transfer, license, payroll and franchise taxes,
imposed by any Governmental Authority and shall include any interest, penalties
or additions to tax attributable to any of the foregoing.
<PAGE>
SECTION 2. Purchase of Shares.
2.1. Purchase of Shares. Based upon and subject to the terms,
agreements, warranties, representations and conditions of this Agreement, the
Selling Shareholders hereby agree to sell, convey, transfer, assign and deliver
to Buyer on the Closing Date, and Buyer hereby agrees to buy and accept on the
Closing Date, the Shares.
SECTION 3. Consideration for the Shares.
3.1. Amount of Purchase Price. The total consideration
(the "Purchase Price") to be paid by Buyer for the Shares shall be
$1,900,000.
3.2. Payment of Purchase Price.
(a) Concurrently with the execution hereof, Buyer
is paying to each of the Selling Shareholders their pro rata portion of the
Purchase Price, by the issuance and delivery by Buyer to Everingham of 357,796
shares of Common Stock of Buyer, $.001 par value per share, and to Frame of
192,929 shares of Common Stock of Buyer, $.001 par value per share
(collectively, the "AMNEX Shares") . Such numbers of shares have been determined
by averaging the closing share price as reflected in the "Close" column in the
NASDAQ/Wall Street Journal Quotation of Buyer's Common Stock for the 90 trading
days preceding the date of this Agreement, as reported by the Nasdaq Stock
Market.
(b) Until such time as the AMNEX Shares are
registered under the Securities Act pursuant to Section 10 hereof, the AMNEX
Shares shall be unregistered and subject to certain trading restrictions which
shall be as set forth in Rule 144 promulgated under the Securities Act.
SECTION 4. Representations and Warranties of NBE and the
Selling Shareholders. NBE and the Selling Shareholders, jointly and severally,
hereby warrant and represent to and agree with Buyer as follows:
4.1. Good Standing. NBE is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
has full power and authority to own, lease and operate its properties and assets
and to conduct the Business as now being conducted. NBE is duly qualified or
licensed to do business as a foreign corporation, and is in good standing, in
all jurisdictions where the character of the properties it owns, leases or
operates, or the conduct of the Business, requires such qualification or
licensing, except where the failure to be so qualified would not have a material
adverse effect on the Business.
<PAGE>
NBE does not have any subsidiaries and has not made any investments in or own
any securities of any other Person.
4.2. Articles of Incorporation; By-Laws; Minute Books. NBE has
heretofore delivered to Buyer true and complete copies of NBE's Articles of
Incorporation and By-Laws, as in effect on the date hereof. The minute books,
stock books and stock transfer records of NBE, true and complete copies of which
have been made available to Buyer, contain true and complete minutes and records
of all issuances and transfers of capital stock of NBE and of all minutes and
records of all meetings, proceedings and other actions of the shareholders,
Board of Directors and/or committees of the Board of Directors of NBE from its
date of incorporation and all such meetings, proceedings and actions have been
duly, legally and properly held or taken.
4.3. Authorization. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of NBE,
and all other corporate action of NBE and the Selling Shareholders,
including all shareholder approvals, authorizations and
ratifications, necessary to authorize the execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby have been taken. This Agreement constitutes the valid and
binding obligation of NBE enforceable against it in accordance with its terms.
The execution and delivery of this Agreement by NBE and the consummation of the
transactions contemplated hereby will not (a) require the consent of any lender,
trustee or security holder of NBE, or of any other Person, (b) result in a
Default under any Contract, (c) violate any Law or Court Order or (d) require
the obtaining by NBE of any License. The Articles of Incorporation and By-Laws
of NBE do not conflict with or restrict the execution and delivery of this
Agreement by NBE or the consummation of the transactions contemplated hereby.
4.4. Authorized Capitalization. The authorized capital stock
of NBE consists solely of 10,000 shares of Common Stock, no par value, of which
785 shares of Common Stock (constituting all of the issued and outstanding
shares of such capital stock) are validly issued and outstanding, fully paid and
nonassessable, and owned beneficially and of record by the Selling Shareholders.
The Shares are owned beneficially and of record by the Selling Shareholders,
free and clear of all Liens and Buyer will receive good and marketable title to
the Shares, free and clear of all Liens. There are not outstanding any
Contracts, warrants, options
<PAGE>
or rights (pre-emptive or otherwise) or other securities, plans or agreements
which give the holder or any other Person the right to purchase or otherwise
acquire (whether from NBE, any Selling Shareholder or Affiliate of any of them)
any NBE Shares or any securities convertible into, exchangeable or exercisable
for any NBE Shares or under which any such warrant, option, right or security
may be issued in the future. No shares of NBE Stock have been issued in
violation of any Contracts or Laws, including the Securities Act, or the
securities or blue sky laws of any country, state, territory or other
jurisdiction (whether foreign or domestic).
4.5. Financial Statements. NBE has delivered to the Buyer the
unaudited balance sheets of NBE as at July 31, 1996, together with the related
statements of income, retained earnings and cash flows for the period ended July
31, 1996, together with the notes thereto (collectively, the "Historical
Financial Statements"). The Historical Financial Statements in each case are
true and complete with respect to each item therein and have been prepared in
conformity with GAAP heretofore adopted by, and applied consistently with the
past practices of, NBE and fairly present the financial position, results of
operations and changes in financial
position of NBE as at, or for the periods ended on, such dates. Since the
Balance Sheet Date, NBE has conducted its business in a consistent manner
without change of policy or procedure, including, without limitation, its
practices in connection with the treatment of expenses, burdens, valuations of
inventory and selling and purchasing policies.
4.6. Records and Books of Account. Since the Balance
Sheet Date, the records and books of account of NBE have been
regularly kept and maintained in conformity with GAAP consistently
applied.
4.7. Liabilities. On the Balance Sheet Date, except as set
forth on Schedule 4.7 there were no Liabilities of NBE (including, but not
limited to, Liabilities for Taxes relating to any period prior to the Balance
Sheet Date) other than those Liabilities disclosed or provided for on the
Balance Sheet. On the date hereof, there are no other Liabilities of NBE except
(i) those incurred since the Balance Sheet Date, in the ordinary course of the
business of NBE, and not in violation of or in conflict with any of the terms,
agreements, warranties, representations and conditions of NBE contained in this
Agreement which do not in the aggregate exceed the liabilities set forth on the
Balance Sheet by more than $5,000, and (ii) those set forth in Schedule 4.7
hereto.
<PAGE>
4.8. Tax Returns. NBE has timely filed (subject to
permitted extensions), or caused to be timely filed, all Returns required to be
filed by NBE, and all such Returns are complete and accurate and comply in all
respects with all applicable Laws. NBE has delivered to Buyer true and complete
copies of all Returns filed by NBE for each of its past five fiscal years ended
December 31, 1995. NBE's Returns have not been audited by the U.S. Internal
Revenue Service or any other Governmental Authority, nor is any such audit
scheduled or pending. NBE has not requested any, and there are no outstanding,
waivers or extensions of time relating to the filing of any Return. Any
deficiency assessments with respect to NBE's Returns have been paid by NBE. NBE
has not given any waivers or comparable consents to the application of the
statute of limitations to any Taxes or Returns, nor is any such waiver or
consent outstanding. There are no tax sharing or similar agreements or any other
agreements with respect to any Taxes paid or payable by NBE. NBE has not been a
member of any affiliated group as defined in Section 1504(a) of the Code
(determined without regard to the exceptions contained in Section 1504(b) of the
Code) at any time during the consistency period as defined in Section
338(h)(4) of the Code ending immediately prior to the Closing. NBE has not, at
any time, consented under Section 341(f)(1) of the Code to have the provisions
of Section 341(f)(2) of the Code apply to any sale of its stock. NBE has not
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A) of the Code.
4.9. Provision for Taxes. NBE has timely paid and through the
Closing Date will have timely paid, all Taxes due and payable on or before such
date. NBE has, and through the Closing Date will have, established on its books
and records reserves that are adequate for the payment of all Taxes attributable
to any period (or portion of a period) or event occurring on or before the
Closing Date, but which are not due and payable on or before the Closing Date.
The provisions for Taxes of NBE shown on the Balance Sheet are sufficient for
the payment of all such Taxes not theretofore paid, whether or not disputed, for
the period then ended and for all periods prior thereto. The provision for
employment withholding and payroll taxes made by NBE through the Closing Date
will be adequate to pay all unpaid liabilities for such taxes through the
Closing Date and NBE has, and through the Closing Date will have, within the
time and in the manner prescribed, withheld from employees' wages and paid
over to the proper Governmental Authority all amounts required to be so
withheld and paid over under all applicable Laws.
4.10. Title to Assets; Liens and Encumbrances. NBE is the
owner of, and has good and marketable title to, all of the Assets reflected on
the Balance Sheet in the categories set forth therein and to all of the assets
acquired by NBE since the Balance Sheet Date, free and clear of all Liens except
for (a) receivables collected in the ordinary course of business of NBE since
the Balance Sheet Date, and (b) the Liens, if any, set forth on the Balance
Sheet or on Schedule 4.10 hereto (the "Permitted Liens"). NBE does not own any
real property. NBE has one lease for real property consisting of approximately
1,500 square feet of office space in Pasadena, California.
4.11. Trademarks, Service Marks, Trade Names, Patents
and Copyrights. Schedule 4.11 hereto sets forth a true and
complete list of all Proprietary Rights used by NBE in the conduct
of the Business. Each such Proprietary Right is owned by NBE and
is not subject to any license, royalty arrangement or dispute. No
other Proprietary Rights are used in or are necessary for the
conduct of the Business. To the knowledge of NBE and the Selling Shareholders,
none of such Proprietary Rights nor any trade secret, customer list or know-how
used by NBE infringes any Proprietary Right or other such right of any other
Person. To the knowledge of NBE and the Selling Shareholders, no Proprietary
Right or trade secret, customer list or know-how used by any other Person
infringes or conflicts with any Proprietary Right heretofore or presently used
by NBE. No claim has been asserted or, to NBE and the Selling Shareholders'
knowledge, threatened, by any Person with respect to the ownership, validity,
license or use of, or any infringement resulting from, any of the Proprietary
Rights used by NBE or the provision or sale of any services by NBE and, to NBE
and the Selling Shareholders' knowledge, there is no basis for any such claim.
To the knowledge of NBE and the Selling Shareholders, no trademark, service mark
or trade name used by NBE, infringes any trademark, service mark or trade name
of others in the United States of America or any other country in which such
trademark, service mark or trade name is used by NBE. To the knowledge of NBE
and the Selling Shareholders, no shareholder, officer, director or employee of
NBE or any Affiliate owns or has any interest in any Proprietary Rights or any
trade secret, invention or process, if any, used by NBE in connection with the
Business.
<PAGE>
4.12. Insurance Policies. Schedule 4.12 hereto sets forth a
true and complete list and description (including face amount of policy, name of
insured, carrier, premium, expiration date and whether it is a "claims made" or
an "occurrence" policy) of all insurance policies held by NBE. True and complete
copies of all such policies have heretofore been provided by NBE to Buyer. All
such policies are in amounts customarily deemed to be adequate, and cover all
risks customarily insured against, in the type of business conducted by NBE and
all premiums due to the date hereof on such policies have been paid in full. All
pending claims, if any, made against NBE which are covered by insurance are
being defended by the appropriate insurance companies and are described on
Schedule 4.12 hereto. To the knowledge of NBE and the Selling Shareholders, NBE
has not failed to give any notice or present any claim under any such policy in
a timely fashion. Such insurance to the date hereof has, and to the Closing Date
will have, (a) been maintained in full force and effect and (b) not been
canceled or changed except to extend the maturity dates thereof. No policy of
NBE has been canceled by the issuer thereof, nor have the premiums on any such
policy been increased over the prior period.
4.13. Contracts. Schedule 4.13 hereto sets forth each of the
following Contracts to which NBE is a party or subject to or bound by: (i)
lease; (ii) royalty, distribution, agency, territorial or license agreement;
(iii) Contract (for employment or otherwise) with any present or former officer,
employee, director or shareholder (or any Affiliate of any such officer,
employee, director or shareholder) or any professional person or firm,
consultant, independent contractor or advertising firm or agency; (iv) Contract
or collective bargaining agreement with any labor union or representative of
employees; (v) Contract guaranteeing the payment or performance of the
obligations of others; (vi) Contract pursuant to which indebtedness may be
incurred; (vii) group health or life insurance, pension, profit sharing,
retirement, medical, bonus, incentive, severance, stock option or purchase plan
or other similar benefit plan in effect with respect to its employees or others;
(viii) Contract limiting the freedom of NBE to engage in any line of business or
to compete with any Person; (ix) Contract not entered into in the ordinary
course of business which involves $5,000 or more and is not cancelable without
penalty within 30 days; (x) any Contract which may have a potential adverse
impact on the Business of NBE; (xi) any shareholders' agreement, joint
venture agreement or other Contract with respect to the operation or management
of any entity; (xii) Contracts involving $5,000 or more for the purchase of, or
payment for, supplies or products or services; (xiii) Contracts involving $5,000
or more to sell or supply products or to perform services; or (xiv) any other
Contract that involves payments by or to NBE at a rate of $5,000 or more per
annum. Schedule 4.13 hereto contains a true and complete description of the
terms and conditions of each Contract to which NBE is a party or to which it is
subject or by which it is bound that involves an annualized rate of $5,000 or
more and which is not in writing. True and complete copies of all Contracts
listed on Schedule 4.13 have heretofore been made available by NBE to Buyer.
Except as set forth on Schedule 4.13, no Contract to which NBE is a party or to
which it is subject or by which it is bound will result in the realization of
less than normal profits of NBE. To the knowledge of NBE or the Selling
Shareholders, each of the Contracts to which NBE is a party or to which it is
subject or by which it is bound is a valid and subsisting Contract of all of the
parties thereto in full force and effect without modification. To the knowledge
of NBE or the Selling Shareholders, NBE has performed all obligations required
to be performed by it and is not in
<PAGE>
Default under any Contract to which it is a party or to which it is subject or
by which it is bound. To the knowledge of NBE or the Selling Shareholders, no
other party is in Default under any such Contract.
4.14. Labor Relations. There are no labor strikes, disputes,
slow downs, work stoppages or other labor troubles or grievances pending or, to
the knowledge of NBE or the Selling Shareholders, threatened against or
involving NBE. No unfair labor practice complaint before the National Labor
Relations Board, no discharge or grievance before the Equal Employment
Opportunity Commission and no complaint, charge or grievance of any nature
before any similar or comparable state, local or foreign agency, in any case
relating to NBE or the conduct of its business is pending or, to NBE's
knowledge, threatened. NBE has not received notice, and has no knowledge, of the
intent of any Governmental Authority responsible for the enforcement of labor or
employment laws to conduct any investigation of or relating to NBE or the
conduct of its business. To the knowledge of NBE or the Selling Shareholders, no
officer or key employee of NBE has any plans to terminate his or her employment
with NBE.
4.15. Legal Proceedings. There are no Actions (whether
or not purportedly on behalf of NBE) pending or, to the knowledge of NBE and the
Selling Shareholders, threatened against or affecting NBE or any of its
properties, rights or the Business. NBE is not in default with respect to any
Court Order.
4.16. Court Orders. There are no Court Orders issued
against, or binding on, NBE which do or may affect, limit or
control the Assets or NBE's method or manner of doing Business.
4.17. Compliance With Law; Permits and Licenses.
(a) To the knowledge of NBE and the Selling
Shareholders, NBE has complied and is in compliance with all Court Orders and
Laws of any Governmental Authority applicable to NBE, its assets or property or
its Business, including, without limitation, Laws relating to zoning, building
codes, antitrust, occupational safety and health, environmental protection and
conservation, water or air pollution, toxic and hazardous waste and substances
control, consumer product safety, product liability, hiring, wages, hours,
employee benefit plans and programs, collective bargaining and withholding and
social security taxes.
(b) NBE holds all the Licenses which are necessary for or
material to its use, occupancy or operation of the Assets or the conduct of the
Business; and no notice of violation of any
applicable zoning regulation, ordinance or other similar Law binding on NBE with
respect to the Assets or the Business has been received.
4.18. Actions Not in Ordinary Course. Except as set forth on
Schedule 4.18 hereto, since the Balance Sheet Date NBE has not, and prior to the
Closing Date NBE will not have, (i) incurred any Liability, except current
liabilities in the ordinary course of business and Liabilities incurred under
Contracts entered into in the ordinary course of business; (ii) discharged or
satisfied any Lien or paid any Liability, other than current liabilities shown
on the Balance Sheet and current liabilities incurred since the Balance Sheet
Date in the ordinary course of business; (iii) sold or transferred any assets or
written off any receivables, except for the collection of receivables in the
ordinary course of business; (iv) mortgaged, pledged or subjected to any other
Lien any of its assets or properties, other than Permitted Liens; (v) suffered
any losses or waived any rights of substantial value; (vi) except in the
ordinary course of business, granted any bonuses or commissions or increased the
compensation payable to any of its employees, directors or officers or increased
the aggregate payment of any fees; (vii) made any loans to any Persons; (viii)
declared,
<PAGE>
made, set aside or paid any dividend, distribution, or payment on, or any
purchase or redemption of, any shares of any class of its capital stock, or any
commitment therefor; (ix) made any change in any method of accounting or
auditing practice; or (x) entered into any transaction not in the ordinary
course of business or agreed (whether or not in writing) to do any of the
foregoing. From the Balance Sheet Date to the Closing Date, the business of NBE
has been and will have been operated only in the regular and ordinary course.
4.19. No Change. Since the Balance Sheet Date, there has not
been (i) any material adverse change (whether or not in the ordinary course of
business) in the Business, Assets or Liabilities of NBE as reflected on the
Balance Sheet or (ii) any damage, destruction or loss affecting the Business,
Assets, properties or rights of NBE.
4.20. Accounts Receivable. All of the accounts
receivable of NBE are actual and bona fide receivables representing
obligations for the total dollar amount thereof shown on the books
of NBE which resulted from the ordinary course of the business of
NBE. To the knowledge of NBE and the Selling Shareholders, such
receivables (net of the reserve for doubtful accounts shown on the
Balance Sheet) will be collected in full in accordance with their terms without
being subject to any recoupments, set-offs or counterclaims. No accounts
receivable have been written off since the Balance Sheet Date.
4.21. Certain Transactions. There are no sums owed to NBE,
however evidenced or denominated, by any of its present or former directors,
officers, shareholders or Affiliates. No director or officer of NBE, nor any
member of his or her immediate family or any other of his or her Affiliates,
owns or has a 10% or more ownership interest in any Person that is or was during
the last three years a party to, or in any property which is or was during the
last three years the subject of, any material Contract, business arrangement or
relationship with NBE.
4.22. Employee Benefits.
(a) Except for those plans set forth on Schedule 4.22A hereto
(the "Plans"), NBE does not maintain or contribute to any "employee benefit
plan," as that term is defined in Section 3(3) of ERISA, whether or not such
plan has been terminated.
(b) True and complete copies of all the documents embodying
the Plans, including, without limitation, the plan and trust instruments and
insurance, group annuity and other Contracts
<PAGE>
pertaining thereto and any actuarial reports obtained with respect to any Plan,
as well as the books and records of the Plans, have been furnished to Buyer.
Each Plan which is intended to comply with Section 401(a) of the Code and each
trust related thereto is, to the knowledge of NBE and the Selling Shareholders,
qualified and exempt within the meaning of Sections 401 and 501 of the Code,
respectively, and a determination letter has been received from the Internal
Revenue Service with respect to each such Plan stating that such Plan and its
related trust are qualified and exempt within the meaning of Sections 401 and
501 of the Code, respectively, and a copy of each such determination letter has
been furnished to Buyer. There has been (i) no change in any of the documents
delivered to Buyer under which each Plan is maintained and (ii) no change, since
each Plan's most recent valuation date, in the operation of the Plan which could
be expected to materially adversely affect or alter the tax status of, or
materially increase the cost of maintaining, any such Plan.
(c) With respect to the Plans, the reporting and disclosure
requirements of ERISA and the Code, as applicable, and the group health plan
continuation coverage requirements of Section 4980B of the Code and Part 6 of
Title I of ERISA, have been
fulfilled in all material respects and NBE has furnished to Buyer copies of all
filings with the Internal Revenue Service and the Department of Labor or other
applicable Governmental Authority for each Plan's most recent plan year. NBE has
never sponsored a Plan which is subject to Section 412 of the Code or Part 3 of
Title I of ERISA.
(d) Neither NBE, the Plans, any of the trusts created
thereunder, nor any trustee, administrator or other fiduciary thereof, has
engaged in a "prohibited transaction" as such term is defined in Section 4975 of
the Code or Section 406 of ERISA or otherwise taken or omitted any action which
could subject the Plans, NBE, any of the trusts created thereunder or any
trustee or administrator thereof, or any party dealing with such Plans or
trusts, to a material Tax, penalty or other Liability resulting from any
prohibited transactions under Section 406 of ERISA or Section 4975 of the Code
or otherwise, and neither NBE, any Plan, any trust created thereunder nor any
other fiduciary (within the meaning of Section 3(21) of ERISA) of any Plan or
its attendant trust has breached its fiduciary duties under Title I of ERISA in
a manner which could result in a material direct or indirect liability to NBE or
the trustee or administrator of any Plan.
<PAGE>
(e) Neither NBE nor any other "trade or business (whether or
not incorporated) which is under common control" (as such term is defined in
Section 4001 of ERISA and the regulations promulgated thereunder) with NBE has
ever (i) terminated a Plan subject to Title IV of ERISA or (ii) contributed to
any "multiemployer plan," as such term is defined in Section 3(37) of ERISA, and
neither NBE nor any such "trade or business" has effected either a "complete
withdrawal" or a "partial withdrawal," as those terms are defined in Sections
4203 and 4205, respectively, of ERISA, from any such multiemployer plan.
(f) NBE does not maintain or contribute to any "employee
welfare benefit plan" (as such term is defined in Section 3(1) of ERISA), or
other employee benefit plan or arrangement, relating to post-employment or
retirement benefits (other than an "employee pension benefit plan," as such term
is defined in Section 3(2) of ERISA).
4.23. Governmental Approvals. No governmental
authorization, approval, order, license, permit, franchise, or
consent and no registration, declaration or filing by NBE with any
Governmental Authority (including, without limitation, any filing
or registration pursuant to the Securities Act or the securities or
blue sky laws of any state or territory) is required in connection with the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
4.24. Investment Intent. The Selling Stockholders are
acquiring the AMNEX Shares for their own account and not with a present view to,
or for sale in connection with, any distribution thereof in violation of the
Securities Act. Seller consents to the placement of the following legend on each
certificate representing the AMNEX Shares and acknowledges that stop transfer
instructions will be placed with respect thereto:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE
TRANSFERRED OR SOLD UNLESS (i) A REGISTRATION STATEMENT UNDER
SUCH ACT IS THEN IN EFFECT WITH RESPECT THERETO, (ii) A
WRITTEN OPINION FROM COUNSEL FOR THE ISSUER OR OTHER COUNSEL
FOR THE HOLDER REASONABLY ACCEPTABLE TO THE ISSUER HAS BEEN
OBTAINED TO THE EFFECT THAT NO SUCH REGISTRATION IS REQUIRED
OR (iii) A 'NO ACTION' LETTER OR ITS THEN EQUIVALENT HAS BEEN
ISSUED BY THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION
WITH RESPECT TO SUCH TRANSFER OR SALE."
4.25. Restricted Securities. The Selling
Shareholders understand that the AMNEX Shares will not be
registered when issued and delivered to the Selling Shareholders
under the Securities Act for the reason that the sale provided for in this
Agreement is exempt pursuant to Section 4 of the Securities Act and that the
reliance of Buyer on such exemption is predicated in part on the Selling
Shareholders' representations set forth herein. Each of the Selling Shareholders
represents that he is experienced in evaluating companies such as Buyer, is able
to fend for himself, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of his investment,
and has the ability to suffer the total loss of his investment. Each of the
Selling Shareholders further represents that Buyer has furnished him with
Buyer's Annual Report on Form 10-K for the year ended December 31, 1995 and
subsequent reports on Form 10-Q and 8-K and that each such Selling Shareholder
has reviewed the same and has been afforded the opportunity to obtain such other
information as he has deemed necessary to evaluate his investment in AMNEX
Shares, ask questions of and receive answers from Buyer and to obtain additional
information (to the extent Buyer possessed such information or could acquire it
without unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to him or to which he had access.
<PAGE>
The Selling Shareholders understand that the AMNEX Shares may
not be sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom and that in the absence of an effective
registration statement covering the Shares or an available exemption from
registration under the Securities Act, the AMNEX Shares must be held
indefinitely.
4.26. Secrecy and Noncompetition Agreements. NBE has entered
into secrecy and noncompetition agreements in a form satisfactory to AMNEX with
the employees listed on Schedule 4.26, which persons are all of the persons with
whom NBE has entered into such agreements. To the knowledge of NBE and the
Selling Shareholders, no employee is subject to any secrecy or noncompetition
agreement with anyone other than NBE.
4.27. No Omissions. NBE and the Selling Shareholders do not
know of any facts or circumstances not disclosed to Buyer which indicate that
the Assets may be materially adversely affected or which otherwise should be
disclosed to Buyer in order to make any of the representations or warranties
made herein on the part of NBE and the Selling Shareholders not misleading in
any material respect. To the knowledge of NBE and the Selling Shareholders, no
representation or warranty by NBE and the Selling Shareholders
contained in this Agreement, and no statement contained in any Schedule,
Exhibit, certificate or other instrument furnished to Buyer under or in
connection with this Agreement, contains any untrue statement of any material
fact, or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading in any material respect.
4.28. Shareholder and Voting Agreements. There are no
shareholder or voting agreements with respect to any shares of NBE
Stock to which either of the Selling Shareholders is a party.
4.29. Employees. NBE has six full-time employees and one
part-time employee as of the date hereof.
SECTION 5. Representations and Warranties of Buyer.
Buyer warrants and represents to and agrees with NBE and the
Selling Shareholders as follows:
5.1. Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of
New York.
5.2. Authorization. The execution and delivery of this
Agreement and the Note and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of
Directors of Buyer, and all other corporate action of Buyer,
<PAGE>
including all shareholder approvals, authorizations and ratifications, necessary
to authorize the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been taken. This Agreement
constitutes a binding obligation of Buyer, enforceable against Buyer in
accordance with its terms. The execution and delivery of this Agreement by the
Buyer and the consummation of the transactions contemplated hereby will not (a)
require the consent of any lender, trustee or security holder of Buyer or of any
other Person, (b) result in a Default under any Contract, (c) violate any Law or
Court Order or (d) require the obtaining by the Buyer of any License. The
Articles of Incorporation and By-Laws of Buyer do not conflict with or restrict
the execution and delivery of this Agreement by the Buyer or the consummation of
the transactions contemplated hereby.
5.3. AMNEX Shares. The AMNEX Shares to be issued pursuant to
this Agreement, when so issued, will be duly and validly authorized and issued,
fully paid and nonassessable and will be free and clear of any Liens created by
the Buyer (other than restrictions arising under the Securities Act and state
securities laws).
5.4. Purchase for Investment. Buyer is acquiring the Shares
solely for its own account for investment and not with a view to or for the
distribution thereof in violation of the Securities Act. Buyer acknowledges that
the Shares are not registered under the Securities Act, and that such Shares may
not be transferred or sold except pursuant to the registration provisions of the
Securities Act or pursuant to an applicable exemption therefrom. Buyer
understands that the Shares will not be registered at the Closing Date under the
Securities Act for the reason that the sale provided for in this Agreement is
exempt pursuant to Section 4 of the Securities Act and that the reliance of NBE
and the Selling Shareholders on such exemption is predicated in part on Buyer's
representations set forth herein. Buyer represents that it is experienced in
evaluating companies such as NBE, is able to fend for itself, has such knowledge
and experience in financial and business matters as to be capable of evaluating
the merits and risks of its investment, and has the ability to suffer the total
loss of its investment. Buyer further represents that it has had access during
the course of the transaction and prior to its acquisition of the Shares to such
information relating to NBE as it has desired and that it has had the
opportunity to ask
<PAGE>
questions of and receive answers from NBE concerning the transaction and to
obtain additional information (to the extent NBE possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access.
Buyer understands that the Shares may not be sold, transferred
or otherwise disposed of without registration under the Securities Act or an
exemption therefrom and that in the absence of an effective registration
statement covering the Shares or an available exemption from registration under
the Securities Act, the Shares must be held indefinitely.
5.5. No Omissions. Buyer does not know of any facts or
circumstances not disclosed to NBE and the Selling Shareholders which should be
disclosed to NBE and the Selling Shareholders in order to make any of the
representations or warranties made herein on the part of the Buyer not
misleading in any material respect. To the knowledge of the Buyer, no
representation or warranty by Buyer contained in this Agreement, and no
statement contained in any Schedule, Exhibit, certificate or other instrument
furnished to NBE and the Selling Shareholders under or in connection with this
Agreement, contains any untrue statement of any material fact, or
omits to state any material fact necessary in order to make the statements
contained herein or therein not misleading in any material respect.
SECTION 6. Employment Agreements. Everingham and Frame have
entered into an employment agreement with NBE, such agreements to be in the form
of Exhibits 6.1 and 6.2 hereto containing non-competition and non-solicitation
agreements.
SECTION 7. Consents. Simultaneously with execution and
delivery of this Agreement, any and all consents required to be obtained by NBE
in connection with the transactions contemplated by this Agreement have been
obtained and are set forth on Schedule 7 hereto.
SECTION 8. Deliveries of NBE and Selling Shareholders. NBE and
the Selling Shareholders agree on the Closing Date to deliver to Buyer the
following:
8.1. Stock Certificates. Stock certificates registered
in the name of Buyer representing the Shares purchased by Buyer
hereunder.
8.2. Opinion of Counsel. An opinion of R. Rosser Cole,
Esq., counsel for NBE and the Selling Shareholders, dated as of the
Closing Date, substantially in the form set forth as Exhibit 8.2 hereto.
<PAGE>
8.3. Closing Date Balance Sheet. An unaudited balance
sheet dated as of the Closing Date.
8.4. Other Deliveries. Such other documents or
instruments as Buyer or its counsel may reasonably request.
SECTION 9. Deliveries of Buyer on the Closing Date.
Buyer agrees on the Closing Date to deliver to NBE and the Selling
Shareholders, as applicable, the following:
9.1. Opinion of Counsel. An opinion of Stroock &
Stroock & Lavan, counsel for Buyer, dated as of the Closing Date,
substantially in the form of Exhibit 9.1 hereto.
9.2. Stock Certificates. Certificates representing the
AMNEX Shares acquired by the Selling Shareholders pursuant to
paragraph 3.1 hereof.
9.3. Other Deliveries. Such other documents or
instruments as NBE or the Selling Shareholders and their counsel
may reasonably request.
SECTION 10. Registration Rights.
10.1. Required Registration. For purposes of this
Section 10.1 only, the term "Registrable Shares" shall mean the AMNEX Shares
acquired pursuant to this Agreement, provided,
however, that if such shares of AMNEX Shares owned by the Selling Shareholders
may be sold, in the opinion of counsel to Buyer, pursuant to an exemption from
the registration requirements of the Securities Act, including, without
limitation, pursuant to Rule 144 under the Securities Act, such shares shall not
be deemed to be Registrable Shares. Subject to clause (b) below (i) Buyer shall
use its reasonable best efforts to cause a Registration Statement covering
115,943 Registrable Shares (the "First Shares") to be filed with the Commission
on or prior to March 31, 1997 (the "First Date") and to become effective as soon
as reasonably practicable and to remain effective until the completion of the
distribution of the Registrable Shares to be offered or sold, but in any case
not longer than such period as is required for the intended method of
distribution, or such shorter period which will terminate when all Registrable
Shares covered by such Registration Statement have been sold or withdrawn, (ii)
Buyer shall use its reasonable best efforts to cause a Registration Statement
covering 217,391 Shares (the "Second Shares") plus, to the extent not already
sold or currently registered under a Registration Statement, the First Shares,
to be filed with the Commission on or prior to September 30, 1997 (the "Second
Date") and to become effective as soon as reasonably
<PAGE>
practicable and to remain effective until the completion of the distribution of
the Registrable Shares to be offered or sold, but in any case not longer than
such period as is required for the intended method of distribution, or such
shorter period which will terminate when all AMNEX Shares covered by such
Registration Statement have been sold or withdrawn, and (iii) Buyer shall use
its reasonable best efforts to cause a Registration Statement covering 217,391
Registrable Shares plus, to the extent not already sold or currently registered
under a Registration Statement, the First Shares and Second Shares, to be filed
with the Commission on or prior to September 30, 1998 and to become effective as
soon as reasonably practicable and to remain effective until the completion of
the distribution of the Registrable Shares to be offered or sold, but in any
case not longer than such period as is required for the intended method of
distribution, or such shorter period which will terminate when all AMNEX Shares
covered by such Registration Statement have been sold or withdrawn.
(b) If Milestone 1 as set forth on schedule 10.1 hereto has
not been achieved by the First Date, the First Shares shall not be registered
until the Second Date and, provided, further, that if Milestone 1 and Milestone
2 have been completed by June 30, 1997
(the "Early Milestone Date"), Buyer shall use its reasonable best efforts to
cause a Registration Statement covering the First Shares and Second Shares to be
filed with the Commission on or prior to 30 days following the Early Milestone
Date.
(c) Buyer shall bear all of the Costs and Expenses of such
Registration Statements. Buyer shall not be required to file any of the
foregoing Registration Statements during any period in which another
registration statement (other than on Form S-4 or Form S-8 or any successor
forms thereto) shall have been filed by Buyer and not withdrawn or has been
declared effective within the prior 90 days.
10.2. Procedure for Registration. In connection with the
filing of a Registration Statement pursuant to Section 10.1 hereof, Buyer shall
use its reasonable best efforts to qualify, as soon as reasonably practicable,
the Registrable Shares being registered for sale under the securities or
blue-sky laws of such states and jurisdictions within the United States as shall
be reasonably requested by the Selling Shareholders; provided, however, that
Buyer shall not be required in connection therewith or as a condition thereto to
qualify to do business, to become subject to taxation or to file a consent to
service of process generally in any of the aforesaid states or jurisdictions.
<PAGE>
10.3. Piggyback Registration. If at any time Buyer
shall propose the filing of a registration statement on an appropriate form
under the Securities Act of any securities of Buyer, otherwise than pursuant to
Section 10.1 hereof and other than a registration statement on Forms S-8 or S-4
or any equivalent form then in effect, and, provided, further, that the Selling
Shareholders have Registrable Shares which are required to be registered
pursuant to Section 10.1 hereof, then Buyer shall give each of the Selling
Shareholders notice of such proposed registration and shall include in any
registration statement relating to such securities all or a portion of the
Registrable Shares then owned by such Selling Shareholders, which such Selling
Shareholders shall request, by notice given by such Selling Shareholders to
Buyer within 15 days after the giving of such notice by Buyer, to be so
included; provided, however, the number of Registrable shares owned by a Selling
Shareholder to be included shall not exceed that percentage of the Registrable
Shares as would equal the percentage obtained by dividing the number of
Registrable Shares actually issued to such Selling Shareholder by the number of
shares of AMNEX Common Stock then outstanding, calculated on a
fully diluted basis to be registered as part of such offering. For example, if
Buyer has 30,000,000 shares of AMNEX Common Stock outstanding, calculated on a
fully diluted basis, and a Selling Shareholder has 3,000,000 Registrable Shares
(10%) and Buyer intends to register 3,000,000 shares of AMNEX Common Stock
(10%), then such Selling Shareholder shall have the right to piggyback 300,000
Registrable Shares (10% of the newly registered shares of common stock). In the
event of the inclusion of Registrable Shares pursuant to this Section 10.3,
Buyer shall bear all of the Costs and Expenses of such registration. In the
event the distribution of securities of Buyer covered by a Registration
Statement referred to in this Section 10.3 is to be underwritten, then Buyer's
obligation to include Registrable Shares in such Registration Statement shall be
subject, at the option of Buyer, to the following further conditions:
(a) The distribution for the account of the Selling
Shareholders shall be underwritten by the same underwriters who are underwriting
the distribution of the securities for the account of Buyer and/or any other
persons whose securities are covered by such Registration Statement, and the
Selling Shareholders will enter into an agreement with such underwriters
containing customary provisions;
(b) If the underwriting agreement entered into with
the aforesaid underwriters contains restrictions upon the sale of securities of
Buyer, other than the securities which are to be included in the proposed
distribution, for a period not exceeding 180 days from the effective date of the
Registration Statement, then such restrictions will be binding upon the Selling
Shareholders and, if requested by Buyer, the Selling Shareholders will enter
into a written agreement to that effect; and
(c) If the underwriters advise Buyer that they are
unwilling to include any or all of the Selling Shareholders' securities in the
proposed underwriting because such inclusion will interfere with the orderly
sale and distribution of the securities being offered by Buyer, then the number
of the Selling Shareholders' securities to be included will be reduced pro rata
on the basis of the number of shares owned by each of the Selling Shareholders,
or there will be no inclusion of the Selling Shareholders' securities in the
registration statement and proposed distribution, in accordance with such
statement by the underwriters.
<PAGE>
10.4. Indemnification by Buyer. Buyer will indemnify
and hold harmless the Selling Shareholders and any underwriter (as defined in
the Securities Act) (but, in the case of an underwriter, only if such
underwriter indemnifies the persons mentioned in subdivision (b) of Section 10.5
hereof in the manner set forth therein), against any losses, claims, damages or
liabilities, joint or several, to which the Selling Shareholders or any such
underwriter becomes subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof) are
caused by any untrue statement or alleged untrue statement of any material fact
contained in any preliminary prospectus (if used prior to the effective date of
the Registration Statement), or contained, on the effective date thereof, in any
Registration Statement under which AMNEX Shares were registered under the
Securities Act, the prospectus contained therein, or any amendment or supplement
thereto, or arising out of or based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and Buyer will reimburse the Selling
Shareholders and any such underwriter for any legal or other expenses reasonably
incurred by the Selling Shareholders, or underwriter in connection with
investigating or defending any such
loss, claim, damage, liability or action; provided, however, that Buyer will not
be liable to any such persons in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with information furnished to Buyer in writing
by such person expressly for inclusion in any of the foregoing documents;
provided, further, however, that the foregoing indemnity agreement is subject to
the condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any preliminary
prospectus but eliminated or remedied in the final prospectus (filed pursuant to
Rule 424 of the Securities Act), such indemnity agreement shall not inure to the
benefit of the Selling Shareholders and underwriter, broker or other person
acting on behalf of the Selling Shareholders and each other person, if any, who
controls any of the foregoing persons within the meaning of the Securities Act
from whom the person asserting any loss, claim, damage, liability or expense
purchased the AMNEX Shares which are the subject thereof, if a copy of such
final prospectus had been made available to such person and the Selling
Shareholders, underwriter, broker or other person
acting on behalf of the Selling Shareholders and such final prospectus was not
delivered to such person with or prior to the written confirmation of the sale
of such AMNEX Shares.
<PAGE>
10.5. Indemnification by the Selling Shareholders. The
Selling Shareholders shall:
(a) Furnish in writing all information to Buyer
concerning itself and its holdings of securities of Buyer as shall be
required in connection with the preparation and filing of any
Registration Statement covering any AMNEX Shares; and
(b) Indemnify and hold harmless Buyer, each of its
directors, each of its officers who has signed a Registration
Statement, each person, if any, who controls Buyer within the meaning
of the Securities Act and any underwriter (as defined in the Securities
Act) for Buyer, against any losses, claims, damages or liabilities to
which Buyer or any such director, officer, controlling person or
underwriter may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) are caused by any untrue or alleged untrue statement
of any material fact contained in any preliminary prospectus (if used
prior to the effective date of the Registration Statement) or contained
on the effective date thereof, in any Registration Statement under
which AMNEX Shares were registered under the Securities Act, the
prospectus contained therein, or any amendment or supplement thereto,
or arising out of or based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading; in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with information furnished in writing
to Buyer by the Selling Shareholders expressly for inclusion in any of
the foregoing documents, and the Selling Shareholders shall reimburse
Buyer and any such underwriter, officer, director or controlling person
for any legal or other expenses reasonably incurred by the Selling
Shareholders or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability or action. Notwithstanding the foregoing provisions
of this Section 10.5, the Selling Shareholders shall not be required to
indemnify Buyer or any such underwriter, officer, director or
controlling persons for any amount in excess of the amount of the
proceeds received by the Selling Shareholders.
10.6. Holdback Agreement. If Buyer at any time shall register
shares of stock under the Securities Act (including any registration pursuant to
Sections 10.1 or 10.3) for sale to the public (other than on Form S-4 or Form
S-8 promulgated under the Securities Act or any successor forms thereto), the
Selling Shareholders shall not sell publicly, make any short sale of, grant
publicly any option for the purchase of, or otherwise dispose publicly of, any
AMNEX Shares (other than those AMNEX Shares included in such registration
pursuant to Sections 10.1 or 10.3) without the prior written consent of Buyer
for a period designated by Buyer in writing to the Selling Shareholders, which
period shall begin not more than 10 days prior to the effectiveness of the
registration statement pursuant to which such public offering shall be made and
shall not last more than 90 days after the effective date of such registration
statement. Buyer shall obtain the agreement of any person permitted to sell
shares of stock in a registration to be bound by and to comply with this Section
10.6 as if such person was a stockholder hereunder.
<PAGE>
SECTION 11. Moving Expenses; Billing Agreements with LECs. The
parties agree that the headquarters of NBE shall be relocated from Pasadena,
California to Austin, Texas (the "Relocation") as promptly as practicable.
11.1. Moving Expenses. In order to provide for funding such
Relocation, Buyer agrees to make a capital contribution to NBE to cover (i)
reasonable moving expenses of NBE and (ii) reasonable moving expenses of NBE's
employees; provided, however, that the moving expenses for each employee shall
not exceed $15,000 and the moving expenses of NBE, including the moving expenses
for each employee, shall not exceed $100,000 in the aggregate.
11.2. Billing Agreements with LECs. NBE will proceed to
acquire billing and collection contracts from those LECs where the cost of such
agreements is justified in relation to the needs of NBE except that NBE will not
acquire any such LEC contract without the prior written consent of the Board of
Directors of NBE, including the affirmative vote of at least one of Buyer's
Appointees.
SECTION 12. Board of Directors; Voting and Lock-Up
Agreement.
12.1. Board of Directors. Upon consummation of this Agreement,
the Board of Directors shall consist of 5 persons: Peter Izzo, Amy S. Gross and
John Kane or such other persons as are nominated from time to time by Buyer
(collectively, the "Buyer's Appointees") shall be appointed to the Board of
Directors of NBE, and the Board of Directors of NBE shall consist of Buyer's
Appointees, Everingham and Frame and the parties agree to vote their shares of
NBE Stock for Buyer's Appointees, Everingham and Frame for so long as Everingham
and Frame continue to own shares of NBE Stock.
12.2. Voting and Lock-up Agreement. (a) Each Selling
Shareholder agrees that, except as otherwise provided in this
Agreement, such Selling Shareholder shall not, directly or
indirectly, sell, assign, transfer, convey, give, bequeath,
hypothecate, grant a security interest in, otherwise encumber, make
a short sale of, loan, grant any option for the purchase of, or
otherwise dispose of, voluntarily or involuntarily, the shares NBE
Stock held by such Selling Shareholder and any such transfer or
attempted transfer shall be void; provided, however, that all
provisions of this Section 12.2 shall terminate immediately in the
event of such Selling Shareholder's death. Each Selling
<PAGE>
Shareholder further agrees that in the event that NBE or any successor entity
declares a dividend or makes a distribution on NBE Stock payable in securities
or subdivides or reclassifies the NBE Stock or reorganizes, consolidates, or
merges with or into any other legal entity, then any securities issued to the
Selling Shareholder as a result of any such event shall be subject to this
Section 12.2 and shall be deemed to be such Selling Stockholder's NBE Stock.
(b) Each Selling Shareholder hereby appoints Buyer as his
proxy to exercise in person or by his nominees or proxies, the right to vote,
such Selling Shareholder's shares of NBE Stock in favor of Buyer's Appointees to
the Board of Directors of NBE. This appointment of Buyer as proxy hereunder is
irrevocable and coupled with an interest and shall survive until the earlier of:
(a) such Selling Shareholder's death or (b) the acquisition by Buyer of shares
of all of the issued and outstanding shares of NBE Stock as provided in this
Agreement. Such Selling Shareholder agrees that Buyer shall not be liable to the
Selling Shareholder for the consequences of any vote cast, or consent given, by
it, or any other action taken or omitted to be taken by it in its capacity as a
shareholder of an issuer of securities to which this Section 12.2
applies. The provisions of this Section 12.2 shall be binding on any
transferee(s) of such NBE Stock except for the shares of NBE Stock sold in
compliance with Section 10 shall be sold free and clear of the proxy granted
pursuant to this Section 12.2.
Each certificate representing securities, to which this
Section 12.2 applies, shall conspicuously bear a legend in substantially the
following form:
"The transfer of the common stock represented by this certificate is
restricted under and subject to the terms of an agreement to which the
Corporation is a party, as such agreement may be amended, supplemented,
or otherwise modified from time to time (the "Agreement"). A copy of
the Agreement is on file at the Corporation's office. The owner of this
certificate has appointed AMNEX, Inc. as his proxy to vote the shares
represented by this certificate for nomination of directors of the
Corporation. This appointment is binding on transferees. The holder of
this stock certificate, by his acceptance hereof, agrees to be bound by
all of the provisions of the Agreement."
On the Closing Date, each Selling Shareholder shall present to
the Secretary of NBE each of his certificates of shares
of NBE Stock to which this Section 12.2 applies and the Secretary shall affix
such legend thereto.
SECTION 13. Buyer's Call Right.
13.1. Buyer's Call Right; Valuation of Remaining Shares.
Subject to this Section 13, Buyer has the right (the "Buyer's Call Right"), but
not the obligation, to acquire or cause its designee to acquire all of the
issued and outstanding shares of NBE Stock held by a Selling Shareholder or his
heirs or personal representatives (the "Remaining Shares") upon the occurrence
of a Sale Event with respect to such Selling Shareholder. The value of the
Remaining Shares will be determined as follows: (a) if a Sale Event occurs
pursuant to either clause (ii) or (iii) under the definition of Sale Event, then
the value shall be based on a pro rata distribution after deducting from the
gross price to be received by NBE in such sale all capital investments
subsequent to the date hereof by Buyer in NBE, or (b) if a Sale Event occurs
pursuant to clause (i), (iv) or (v) under the definition of Sale Event, then an
independent appraiser shall be selected by mutual agreement of Selling
Shareholders, or their respective heirs or personal representatives, as the case
may be, and Buyer to establish a value of the Remaining Shares. If an
independent
<PAGE>
appraiser cannot be agreed upon by Buyer and Selling Shareholders, or their
respective heirs or personal representatives, as the case may be, within 30 days
of written notice or if Buyer and Selling Shareholders, or their respective
heirs or personal representatives, as the case may be, disagree with the
appraisal then the parties shall submit the issue to binding arbitration. The
findings of the arbitrator shall be final and binding on all parties, including
their heirs and personal representatives.
13.2. Exercise of Buyer's Call Right. The Buyer's Call Right
may be exercised in whole but not in part by Buyer delivering to each Selling
Shareholder a notice of exercise of the Buyer's Call Right duly signed by the
Buyer. The Selling Shareholders shall receive as consideration for their
Remaining Shares the valuation determined pursuant to Section 13.1. Payment for
the Remaining Shares pursuant to any exercise of the Buyer's Call Right shall be
made by Buyer in cash or by check payable to the order of each of the Selling
Shareholders for their respective Remaining Shares, upon the latter to occur of
(i) receipt by NBE or AMNEX of the consideration from the Sale Event and (ii)
determination of the value of the remaining Shares pursuant to Section 13.1.
13.3. Sale Event Differential. Buyer shall pay to a
Selling Shareholder a Sale Event Differential (as defined below) in the event
that such Selling Shareholder's Remaining Shares have been acquired pursuant to
Section 13.1 as a result of a Sale Event pursuant to clause (v) under the
definition of Sale Event, and within twelve months following the acquisition of
such Selling Shareholder's Remaining Shares a letter of intent in connection
with a Sale Event (other than pursuant to clause (v) under the definition of
Sale Event) has been entered into by Buyer or NBE. "Sale Event Differential"
means the amount, if any, by which (i) an amount calculated to be such Selling
Shareholder's pro rata distribution of the amount that would have been received
by such Selling Shareholder, if such Selling Shareholder had held such Remaining
Shares until consummation of such Sale Event (other than pursuant to clause (v)
under the definition of Sale Event) exceeds the amount received by the Selling
Shareholder upon acquisition of his Remaining Shares. In the event of a Sale
Event, the Sale Event Differential shall be paid to the Remaining Shareholder
promptly following the consummation of the Sale Event.
<PAGE>
SECTION 14. Indemnification.
14.1. Indemnification by NBE and the Selling
Shareholders. From and after the Closing, NBE and the Selling Shareholders
jointly and severally agree to indemnify Buyer against and hold it harmless from
any and all Damages which Buyer may sustain at any time by reason of (i) the
breach or inaccuracy of or failure to comply with, or the existence of any facts
resulting in the inaccuracy of, any of the warranties, representations,
conditions, covenants or agreements of NBE and the Selling Shareholders
contained in this Agreement or in any agreement or document delivered pursuant
hereto or in connection herewith, or arising out of the consummation of the
transactions contemplated hereby or (ii) any claim by a third party alleging
that this Agreement or the transactions contemplated herein interfere with or
violate any rights between such third party and NBE.
14.2. Indemnification by Buyer. From and after the Closing,
Buyer agrees to indemnify and hold each of the Selling Shareholders harmless
from and against any and all Damages which either of the Selling Shareholders
may sustain at any time by reason of the breach or inaccuracy of or failure to
comply with any warranties, representations, conditions, covenants or agreements
of Buyer contained in this Agreement or in any agreement, certificate or
document delivered pursuant to or in connection with this Agreement or arising
out of the closing of the transactions contemplated hereby.
14.3. Procedures for Indemnification. In the event that any
claim is asserted against any party hereto, or any party hereto is made a party
defendant in any action or proceeding, and such claim, action or proceeding
involves a matter which is the subject of this indemnification, then such party
(an "Indemnified Party") shall give written notice to the other party hereto
(the "Indemnifying Party") of such claim, action or proceeding, and such
Indemnifying Party shall have the right to join in the defense of said claim,
action or proceeding at such Indemnifying Party's own cost and expense and, if
the Indemnifying Party agrees in writing to be bound by and to promptly pay the
full amount of any final judgment from which no further appeal may be taken and
if the Indemnified Party is reasonably assured of the Indemnifying Party's
ability to satisfy such agreement, then at the option of the Indemnifying Party,
such Indemnifying Party may take over the defense of such claim, action or
proceeding, except that, in such case, the Indemnified Party shall have the
right to join in the defense of said claim, action or proceeding at its own cost
and expense.
<PAGE>
14.4. Escrow Agreement. Simultaneously with the execution and
delivery of this Agreement, Buyer and Selling Shareholders shall enter into the
escrow agreement attached hereto as Schedule 14.4 providing for the placement of
25% of the AMNEX Shares to be issued hereunder for a period of 24 months to
provide a method of funding any Damages sustained by Buyer for which NBE and the
Selling Shareholders have agreed to indemnify Buyer pursuant to Section 14.1
hereof.
SECTION 15. Survival of Representations; Effect of
Certificates. The parties hereto agree that all representations, warranties,
covenants, indemnifications, conditions and agreements contained herein or in
any instrument or other document delivered pursuant to this Agreement or in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement, the consummation of the transactions
contemplated hereby and any investigation or audit made by any party hereto.
SECTION 16. No Broker; Expenses. Buyer, on the one
hand, and NBE and the Selling Shareholders, on the other hand, each
represents to the other that no broker or finder has been involved
with any of the transactions relating to this Agreement. In the event of a claim
by any broker or finder that such broker or finder represented or was retained
by NBE or the Selling Shareholders, on the one hand, or Buyer, on the other
hand, in connection herewith, NBE and the Selling Shareholders (jointly and
severally) or Buyer, as the case may be, agrees to indemnify and hold the other
harmless from and against any and all Damages which may be incurred in
connection with such claim. All expenses of NBE and the Selling Shareholders
incurred in connection with matters relating to the Agreement shall be borne by
Selling Shareholders and all expenses of Buyer incurred in connection with
matters relating to this Agreement shall be borne by Buyer.
SECTION 17. Notices. All notices, requests, demands and other
communications provided for by this Agreement shall be in writing and shall be
deemed to have been given when hand delivered, when received if sent by
telecopier or by same day or overnight recognized commercial courier service or
three business days after being mailed in any general or branch office of the
United States Postal Service, enclosed in a registered or certified postpaid
envelope, addressed to the address of the parties stated below or to such
changed address as such party may have fixed by notice:
<PAGE>
To NBE and the
Selling Stockholders: National Business Exchange, Inc.
235 East Colorado Blvd.
Suite 340
Pasadena, California 91101
Fax: 818-432-5078
Attn: James E. Everingham
- copy to -
R. Rosser Cole, Esq.
200 North Maryland Avenue
Suite 302
Glendale, California 91206
Fax: 818-500-0129
To Buyer: AMNEX, Inc.
101 Park Avenue
New York, New York 10178
Fax: 212-867-1591
Attn: Amy Gross, Esq.
- copy to -
AMNEX, Inc.
100 West Lucerne Circle,
Suite 100,
Orlando, Florida 32801
Fax: 407-246-0005
Attn: John Kane
Executive Vice President
- copy to -
Stroock & Stroock & Lavan
Seven Hanover Square
New York, New York 10004-2696
Fax: 212-806-6006
Attn: Susan O. Posen, Esq.
<PAGE>
provided, that any notice of change of address shall be effective only upon
receipt.
SECTION 18. Miscellaneous.
18.1. Entire Agreement. This Agreement, including the Exhibits
and Schedules hereto, sets forth the entire agreement and understanding between
the parties and merges and supersedes all prior discussions, agreements and
understandings of every kind and nature among them as to the subject matter
hereof, and no party shall be bound by any condition, definition, warranty or
represen- tation other than as expressly provided for in this Agreement or as
may be on a date on or subsequent to the date hereof duly set forth in
writing signed by each party which is to be bound thereby. Unless otherwise
expressly defined, terms defined in the Agreement shall have the same
meanings when used in any Exhibit or Schedule and terms defined in any Exhibit
or Schedule shall have the same meanings when used in the Agreement or in
any other Exhibit or Schedule. This Agreement (including the Exhibits and
Schedules hereto) shall not be changed, modified or amended except by a
writing signed by each party to be charged and this Agreement may not be
discharged except by performance in accordance with its terms or by a writing
signed by each party to be charged.
18.2. Governing Law; Arbitration. THIS AGREEMENT AND
ITS VALIDITY, CONSTRUCTION AND PERFORMANCE SHALL BE GOVERNED IN ALL RESPECTS BY
THE LAWS OF NEW YORK, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
THE PARTIES HERETO AGREE TO ARBITRATE IN LIEU OF LITIGATION. ALL CLAIMS,
CONTROVERSIES, DISPUTES, DIFFERENCES OR QUESTIONS BETWEEN THE PARTIES HERETO
ARISING OUT OF OR RELATING TO THE PERFORMANCE, BREACH, CONSTRUCTION,
INTERPRETATION OR EFFECT OF THIS AGREEMENT OR ANY CLAUSE CONTAINED HEREIN, OR
CONCERNING ANY SUCH RIGHTS AND LIABILITIES OF THE PARTIES HERETO, SHALL BE
SUBMITTED TO BINDING ARBITRATION UNDER THE COMMERCIAL ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION. SUBJECT TO THE TERMS AND PROVISIONS SET FORTH
HEREIN, SUCH ARBITRATOR(S) SHALL HAVE FULL POWER AND AUTHORITY TO AWARD ANY AND
ALL APPROPRIATE DAMAGES AND OTHER RELIEF, INCLUDING BUT NOT LIMITED TO DAMAGES
FOR LOST PROFITS OR REVENUES, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, AND
SPECIFIC PERFORMANCE. THE ARBITRATION PROCEEDINGS SHALL TAKE PLACE IN THE CITY
OF NEW YORK, NEW YORK, AND THE JUDGMENT AND DETERMINATION OF SUCH PROCEEDINGS
SHALL BE BINDING ON ALL PARTIES HERETO. JUDGMENT UPON ANY AWARD RENDERED BY ANY
ARBITRATOR(S)
<PAGE>
APPOINTED HEREUNDER MAY BE ENTERED INTO ANY COURT HAVING COMPETENT JURISDICTION
THEREOF. ALL COSTS OF ARBITRATION SHALL BE BORNE EQUALLY BY THE ARBITRATING
PARTIES HERETO, EXCEPT FOR ATTORNEYS' FEES, AS TO WHICH EACH SUCH PARTY SHALL
BEAR ITS OWN COSTS. WITHIN FIFTEEN DAYS AFTER WRITTEN NOTICE BY ONE PARTY TO THE
OTHER PARTY OF ITS DEMAND FOR ARBITRATION, WHICH DEMAND SHALL SET FORTH THE NAME
AND ADDRESS OF ITS DESIGNATED ARBITRATOR, THE OTHER PARTY SHALL SELECT ITS
DESIGNATED ARBITRATOR AND SO NOTIFY THE DEMANDING PARTY. WITHIN FIFTEEN DAYS
THEREAFTER, THE TWO ARBITRATORS SO SELECTED SHALL SELECT THE THIRD ARBITRATOR.
THE DISPUTE SHALL BE HEARD BY THE ARBITRATORS WITHIN SIXTY DAYS AFTER SELECTION
OF THE THIRD ARBITRATOR. THE DECISION OF ANY TWO ARBITRATORS SHALL BE BINDING
UPON THE PARTIES. IN DEFAULT OF EITHER SIDE NAMING ITS ARBITRATOR AS AFORESAID
OR IN DEFAULT OF THE SELECTION OF THE SAID THIRD ARBITRATOR AS AFORESAID, THE
AMERICAN ARBITRATION ASSOCIATION SHALL DESIGNATE SUCH ARBITRATOR UPON THE
APPLICATION OF EITHER PARTY.
18.3. Benefit of Parties; Assignment. This Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns. The
Agreement may not be assigned by NBE or the Selling Shareholders
except with the prior written consent of Buyer. Nothing herein contained shall
confer or is intended to confer on any third party or entity which is not a
party to this Agreement any rights under this Agreement.
18.4. Pronouns. Whenever the context requires, the use
in this Agreement of a pronoun of any gender shall be deemed to
refer also to any other gender, and the use of the singular shall
be deemed to refer also to the plural.
18.5. Headings. The headings in the sections, para-graphs,
Schedules and Exhibits of this Agreement are inserted for convenience of
reference only and shall not constitute a part hereof. The words "herein,"
"hereof," "hereto" and "hereunder," and other words of similar import refer to
this Agreement as a whole and not to any particular provision of this Agreement.
18.6. Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
18.7. Further Assurances. Buyer, NBE and the Selling
Shareholders shall do and perform such further acts and execute and
deliver such further instruments as may be required by law or reasonably
requested by either party at such requesting party's expense to carry
out and effectuate the purposes of this Agreement.
18.8. Good Faith and Fair Dealing. The parties expressly agree
and covenant that good faith and fair dealing are an integral part of this
Agreement and no party hereto will do anything to prevent performance or receipt
of benefits by the other party.
[Signature pages follow]
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed on the day and year first above written.
NATIONAL BUSINESS EXCHANGE INC.
By:/s/
Name:
Title:
AMNEX, INC.
By:/s/
Name:
Title:
JAMES E. EVERINGHAM
/s/ James E. Everingham
DARYL A. FRAME
/s/ Daryl A. Frame
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMNEX, INC.
Under Section 805 of the Business Corporation Law
Pursuant to the provisions of Section 805 of the Business Corporation
Law, the undersigned, being the Chairman of the Board and Secretary,
respectively, of AMNEX, INC. (the "Corporation"), DO HEREBY CERTIFY AND SET
FORTH:
1. The name of the Corporation is AMNEX, Inc. The
Corporation was formed under the name NY-Tel Communications, Inc.
2. The Certificate of Incorporation of the Corporation was
filed by the Department of State on March 15, 1985.
3. The Certificate of Incorporation of the Corporation is hereby
amended by the addition of a provision stating the number, designation, relative
rights, preferences and limitations of a series of Preferred Shares, $.001 par
value, as fixed by the Board of Directors.
4. The foregoing amendment to the Certificate of
Incorporation is effected by adding the following Section (j) to
<PAGE>
Article (4) thereof:
"(j) Series L Preferred Shares. A series of Preferred Shares is hereby
created, to be limited in amount to 200,000 of the 5,000,000 authorized
Preferred Shares. The designation, relative rights, powers, preferences,
qualifications and limitations are as follows:
(i) Designation of Series. The designation of the series of
Preferred Shares created hereby shall be Series L Preferred
Shares (hereinafter the "Series L Preferred Shares").
(ii) Dividends. The holders of Series L Preferred Shares, on a pari
passu basis with the holders of the Corporation's Common
Shares (based upon the number of Common Shares into which the
Series L Preferred Shares are convertible), Series F Preferred
Shares and any other series of Preferred Shares of the
Corporation hereafter created which shall have a pari passu
right with the holders of the Common Shares to receive
dividends, shall be entitled to receive such dividends as may
be declared by the Board of Directors. Declared but unpaid
dividends shall not bear interest.
The rights of the holders of the Series L Preferred Shares
shall be junior and subordinate to the rights of the holders
of the Series A, Series B, Series C, Series D, Series E and
Series G Preferred Shares of the Corporation to receive
dividends, as well as to the right of any other series of
Preferred Shares of the Corporation hereafter created which
shall have any preferential right to receive dividends before
the holders of the Common Shares.
(iii) Voting Rights. The holders of the Series L Preferred Shares
shall be entitled to vote on all matters at all meetings of
the shareholders of the Corporation, and shall be entitled to
such number of votes for each Series L Preferred Share
entitled to vote at such meetings as is set forth below,
voting together with the holders of Common Shares, and other
Preferred Shares who are entitled to vote, if any such shares
are then outstanding, and not as a separate class, except as
required by law. The number of votes to which the holders of
the Series L Preferred Shares shall be entitled to vote for
each Series L Preferred Share shall equal the number of Common
Shares of the Corporation into which such Series L Preferred
Share would convert upon the occurrence of the Mandatory
Conversion Event(as hereinafter defined).
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<PAGE>
(iv) Redemption. The Series L Preferred Shares shall not be
subject to mandatory redemption by either the Corporation
or the holders thereof.
(v) Conversion.
(A) Mandatory Conversion Event and Price. Immediately upon the
filing with the Secretary of State of New York of the
Certificate of Amendment (as hereinafter defined) (the
"Mandatory Conversion Event"), each Series L Preferred Share
shall convert into fifteen (15) Common Shares of the
Corporation (the "Conversion Ratio"), subject to adjustment as
hereinafter set forth.
(B) Procedure. Before any holder of Series L Preferred Shares
shall be entitled to receive Common Shares upon conversion,
the holder shall surrender the certificate(s) therefor, duly
endorsed, at the principal offices of the Corporation. Subject
to the provisions hereof, effective upon the occurrence of the
Mandatory Conversion Event (the "Effective Conversion Date"),
the holder shall thereupon be deemed to be the holder of
record of the Common Shares issuable upon conversion,
notwithstanding that the stock transfer books of the
Corporation shall then be closed or that the certificate(s)
representing such Common Shares shall not then be actually
delivered to the holder. Subject to the provisions hereof,
promptly following the Effective Conversion Date, the
Corporation shall cause its transfer agent to issue and
deliver to such holder of Series L Preferred Shares a
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<PAGE>
certificate for the number of Common Shares to which the
holder shall be entitled.
(C) Adjustment of Conversion Ratio.
(i) In the event that the Corporation shall (a) pay any
dividend on its Common Shares payable in Common Shares; (b)
effect a subdivision of its outstanding shares into a greater
number of Common Shares (by reclassification, stock split or
otherwise than by payment of a dividend in Common Shares); (c)
effect a combination or consolidation of its outstanding
Common Shares into a lesser number of Common Shares (by
reclassification, reverse split or otherwise); (d) issue by
reclassification, exchange or substitution of its Common
Shares any shares of capital stock of the Corporation or
effect any other transaction having similar effect, the
Conversion Ratio in effect immediately prior to such action
shall be adjusted so that, in the event of the occurrence of
the Mandatory Conversion Event at any time after the
occurrence of any event described above, the holder shall be
entitled to receive the Common Shares to which such holder
would have been finally entitled, after giving effect to the
occurrence of such event, as if such holder had converted the
Series L Preferred Shares immediately prior to the occurrence
of such event. An adjustment made pursuant to this paragraph
(C) shall become effective immediately after the record date
in the case of a dividend and shall become effective
immediately after the effective date in the case of a
subdivision, combination, reclassification, exchange or
substitution.
(ii) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification
of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as
a result of subdivision or combination) in, outstanding Common
Shares, then the Corporation, or such successor corporation,
as the case may be, shall make appropriate provisions so that
the holder of each Series L Preferred Share then outstanding
4
<PAGE>
shall have the right to convert such share into the kind and
amount of shares or other securities and property receivable
upon such consolidation or merger by a holder of the number of
Common Shares into which such Series L Preferred Shares might
have been converted immediately prior to such consolidation or
merger.
(D) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Series L Preferred Shares. In lieu
of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay, in cash, an amount
equal to the product of (i) such fraction of a share times
(ii) the market price of one Common Share on the Effective
Conversion Date.
(E) Reservation of Shares Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out
of its authorized but unissued Common Shares, solely for the
purpose of effecting the conversion of the Series L Preferred
Shares, such number of its Common Shares as shall from time to
time be sufficient to effect the conversion of all outstanding
Series L Preferred Shares; provided, however, that nothing
contained herein shall preclude the Corporation from
satisfying its obligations in respect of the conversion of the
Series L Preferred Shares by delivery of Common Shares which
are held in the treasury of the Corporation. Notwithstanding
the foregoing, the Corporation shall not be obligated to
reserve and keep available out its authorized but unissued
Common Shares, or issue, any Common Shares to the holders of
the Series L Preferred Shares unless and until it shall have
filed with the Secretary of State of New York a Certificate of
Amendment of its Certificate of Incorporation as a result of
which there will be a sufficient number of authorized Common
Shares of the Corporation available for issuance upon the
conversion of the Series L Preferred Shares and the exercise
of any and all outstanding purchase, exchange or conversion
rights for the acquisition of Common Shares of the Corporation
(the "Certificate of Amendment").
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<PAGE>
(F) Lost, Stolen or Destroyed Certificates. In the event that
the holder shall notify the Corporation that the
certificate(s) representing Series L Preferred Shares have
been lost, stolen or destroyed and either (i) provide a
letter, in form satisfactory to the Corporation, to the effect
that he will indemnify the Corporation from any loss incurred
by it in connection therewith, and/or (ii) provide an
indemnity bond in such amount as is reasonably required by the
Corporation, the Corporation having the option of electing
either (i) or (ii) or both, the Corporation may, in its sole
discretion, accept such letter and/or indemnity bond in lieu
of the surrender of the certificate(s) as required by this
subsection (v).
(G) Statutory Restrictions. The foregoing provisions for
conversion of the Series L Preferred Shares shall be subject
to all applicable statutory limitations and restrictions.
(vi) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series L Preferred Shares
will be entitled to receive, prior and in preference to
any distribution of the assets or surplus funds of the
Corporation to the holders of any Common Shares by reason
of the ownership thereof, and on a pari passu basis with
the holders of the Series A, Series B, Series C, Series
D, Series E, Series F, and Series G Preferred Shares and
any Series H, Series I, Series J, and/or Series K
Preferred Shares hereafter authorized, an amount equal to
the fixed sum of forty-five dollars and forty-five cents
($45.45) per share and no more (the "Preferential
Amount"). If, upon the occurrence of such an event, the
assets and funds thus distributed among the holders of
Series L Preferred Shares shall be insufficient to permit
the payment to such holders of the full Preferential
Amount, then, the entire assets and funds of the
Corporation legally available for distribution to the
holders of the Series L Preferred Shares shall be
distributed ratably among such holders in accordance with
the respective amounts which would be payable on such
shares if all amounts payable thereon were paid in full.
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<PAGE>
After the payment or setting apart of the full Preferential
Amounts required to be paid to the holders of Series A, Series
B, Series C, Series D, Series E, Series F, Series G and Series
L Preferred Shares and any Series H, Series I, Series J and/or
Series K Preferred Shares hereafter authorized, the holders of
Common Shares or any other stock of the Corporation ranking in
liquidation junior to the Series A, Series B, Series C, Series
D, Series E, Series F, Series G and Series L Preferred Shares
and any Series H, Series I, Series J and/or Series K Preferred
Shares hereafter authorized, shall be entitled to receive
ratably all remaining assets or surplus funds of the
Corporation. Neither the merger or consolidation of the
Corporation, nor the sale, lease or conveyance of all or part
of its assets, shall be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation,
either voluntarily or involuntarily, within the meaning of
this section.
(vii) Sinking Fund. The Series L Preferred Shares shall not be
entitled to the benefit of any sinking fund to be applied
to their purchase or redemption."
5. This Amendment has been adopted by the Board of Directors of the
Corporation under the authority granted to it pursuant to Section 502 of the
Business Corporation Law.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned have signed this
Certificate as of the 20th day of December, 1996 and affirm that the statements
made herein are true under the penalties of perjury.
/s/Kenneth G. Baritz
Kenneth G. Baritz
Chairman of the Board
/s/Amy S. Gross
Amy S. Gross
Secretary
K:\WPDOC\CORP\AMNEX\GALESI\SERIESL3.D96
8
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
AMNEX, INC.
(AS AMENDED THROUGH DECEMBER 31, 1996)
(1) The name of the corporation is AMNEX, Inc. (the
"Corporation").
(2) The Corporation is formed to engage in any act or activity for
which corporations may be organized under the Business Corporation Law of the
State of New York, provided that it is not formed to engage in any act or
activity which requires the consent or approval of any state official,
department, board, agency, or other body without such consent or approval first
being obtained.
(3) The office of the Corporation in the State of New York shall be
located in the County of New York.
(4) (a) The aggregate number of shares of stock which the Corporation
shall have the authority to issue is Forty-five Million (45,000,000) of which
Forty Million (40,000,000) are Common Shares, $.001 par value per share, and
Five Million (5,000,000) are Preferred Shares, $.001 par value per share.
(b) The Board of Directors hereby is vested with the authority to
provide for the issuance of the Preferred Shares, at any time and from time to
time, in one or more series, each of such series to have such voting powers,
designations, preferences and
1
<PAGE>
relative participating, optional, conversion and other rights, and such
qualifications, limitations or restrictions thereon as expressly provided in the
resolution or resolutions duly adopted by the Board of Directors providing for
the issuance of such shares or series thereof. The authority which hereby is
vested in the Board of Directors shall include, but not be limited to, the
authority to provide for the following matters relating to each series of the
Preferred Shares:
(i) The designation of any series.
(ii) The number of shares initially constituting any
such series.
(iii) The increase, and the decrease, to a number not
less than the number of the outstanding shares of any such series, of the number
of shares constituting such series theretofore fixed.
(iv) The rate or rates and the times at which dividends
on the Preferred Shares or any series thereof shall be paid, and whether or not
such dividends shall be cumulative, and, if such dividends shall be cumulative,
the date or dates from and after which they shall accumulate.
(v) Whether or not the Preferred Shares or series
thereof shall be redeemable, and, if such shares shall be
2
<PAGE>
redeemable, the terms and conditions of such redemption, including but not
limited to the date or dates upon or after which such shares shall be redeemable
and the amount per share which shall be payable upon such redemption, which
amount may vary under different conditions and at different redemption dates.
(vi) The amount payable on the Preferred Shares or
series thereof in the event of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided, however, that the
holders of shares ranking senior to other shares shall be entitled to be paid,
or to have set apart for payment, not less than the liquidation value of such
shares before the holders of the Common Shares or the holders of any other
series of Preferred Shares ranking junior to such shares.
(vii) Whether or not the Preferred Shares or series
thereof shall have voting rights, in addition to the voting rights provided
by law, and, if such shares shall have such voting rights, the terms and
conditions thereof, including but not limited to the right of the holders of
such shares to vote as a separate class either alone or with the holders of
shares of one or more other class or series of Preferred Shares and the right to
have more than one vote per share.
3
<PAGE>
(viii) Whether or not a sinking fund shall be provided for
the redemption of the Preferred Shares or series thereof, and, if such a sinking
fund shall be provided, the terms and conditions thereof.
(ix) Whether or not a purchase fund shall be provided
for the Preferred Shares or series thereof, and, if such a purchase fund shall
be provided, the terms and conditions thereof.
(x) Whether or not the Preferred Shares or series
thereof shall have conversion privileges, and, if such shares shall have
conversion privileges, the terms and conditions of conversion, including
but not limited to any provision for the adjustment of the conversion rate or
the conversion price.
(xi) Any other relative rights, preferences,
qualifications, limitations and restrictions.
(c) Series A Preferred Shares. A series of Preferred Shares is
hereby created, to be limited in amount to 30,000 of the 5,000,000 authorized
but unissued Preferred Shares. The designation, relative rights, powers,
preferences, qualifications and limitations are as follows:
(i) Designation of Series. The designation of the series of
Preferred Shares created hereby shall be Series A
4
<PAGE>
Preferred Shares (hereinafter the "Series A Preferred
Shares").
(ii) Dividends.
(A) The holders of Series A Preferred Shares, in preference to
the holders of Common Shares, shall be entitled to receive,
when and as declared by the Board of Directors, dividends at
the rate of eight dollars ($8.00) per share per annum, and no
more. Subject to the requirements of applicable law, dividends
on the Series A Preferred Shares shall be payable annually,
when and as declared by the Board of Directors, commencing in
1993. Such dividends on the Series A Preferred Shares shall be
cumulative so that if all or any part of such dividends shall
not have been paid or distributed in any year, or declared and
set apart, the amount of the deficiency (without interest)
shall be paid or distributed, or declared and set apart,
before any dividend or other distribution shall be paid upon,
or declared and set apart for, Common Shares. Declared but
unpaid dividends shall not bear interest.
(B) Except as hereinafter provided and subject to the
requirements of applicable law, including, without limitation,
the obtaining of any necessary approvals or consents from the
holders of the Common Shares of the Corporation, any dividend
declared on the Series A Preferred Shares shall be paid in
cash or, at the option of the Corporation, in Common Shares of
the Corporation having a market price, on the day immediately
preceding the date on which such dividend is declared (the
"Valuation Date"), equal to the amount of the dividend. As
used herein, the term "market price" shall mean the closing
selling price or, if not available, the mean of the closing
bid and asked prices, or, if not available, the mean of the
highest bid and lowest asked prices, of the Common Shares as
quoted on a national securities exchange, or in the
over-the-counter market as reported by NASDAQ or, if not
available, by the National Quotation Bureau, Incorporated, as
the case may be, or, if there is no selling or bid or asked
price on a particular day, then the closing selling price or,
if not available, the
5
<PAGE>
mean of the closing bid and asked prices, or, if not
available, the mean of the highest bid and lowest asked prices
on the nearest trading date before that day and for which such
prices are available, and if the Common Shares are not listed
on such an exchange or traded in such a market on the
Valuation Date, then the market price shall be determined by
the Board of Directors by taking into consideration all
relevant factors, including, but not limited to, the
Corporation's net worth, prospective earning power and
dividend paying capacity.
(iii) Voting Rights. The holders of the Series A Preferred Shares
shall be entitled to vote on all matters at all meetings of
the shareholders of the Corporation, and shall be entitled to
such number of votes for each Series A Preferred Share
entitled to vote at such meetings as is set forth below,
voting together with the holders of Common Shares, and other
Preferred Shares who are entitled to vote, if any such shares
are then outstanding, and not as a separate class, except as
required by law. The number of votes to which the holders of
the Series A Preferred Shares shall be entitled to vote for
each Series A Preferred Share shall equal the number of Common
Shares of the Corporation into which such Series A Preferred
Share shall be convertible on or after October 1, 1992
(without giving effect to any reductions in the Conversion
Price, as hereinafter defined, as provided for in subsection
(v) (A) hereof).
(iv) Redemption.
(A) In the event any holder or holders of Series A Preferred
Shares shall give written notice to the Corporation of an
election to convert such shares into Common Shares of the
Corporation as provided for in subsection (v)(B)(ii) hereof
(whether or not such holder shall have theretofore surrendered
the certificate(s) representing the Series A Preferred Shares
for conversion), the Corporation may elect, at its option, by
notice given prior to any Effective Conversion Date (as
hereinafter defined) as provided in (B) below, to redeem all
or any part of the outstanding Series A Preferred
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<PAGE>
Shares with respect to which an election to convert has been
given to the Corporation at a price per share in cash equal to
one hundred thirty dollars ($130.00) (the "Redemption Price")
plus all accrued and unpaid dividends with respect to such
Series A Preferred Shares.
(B) Notice of every redemption shall be given by mailing the
same to every holder of record of any shares then to be
redeemed, prior to any Effective Conversion Date and not less
than ten (10) nor more than thirty (30) days prior to the date
fixed as the date for the redemption thereof (the "Redemption
Date"), at the respective addresses of such holders as the
same shall appear on the stock transfer books of the
Corporation. The notice described above shall state that the
shares specified in such notice will be redeemed by the
Corporation at the Redemption Price plus all accrued and
unpaid dividends on the Redemption Date, upon the surrender
for cancellation, at the place designated in such notice, of
the certificate(s) representing the shares so to be redeemed,
properly endorsed for transfer, or accompanied by a proper
instrument of assignment and transfer, and bearing all
necessary transfer tax stamps thereto affixed and cancelled
(provided, however, that such surrender shall not be required
if the holder of record shall have theretofore duly
surrendered the certificate(s) representing the Series A
Preferred Shares in accordance with the conversion provisions
set forth in subsection (v) hereof). On and after the
Redemption Date, each holder of shares called for redemption
shall be entitled to receive therefore, in cash, the
Redemption Price, plus accrued and unpaid dividends as of the
Redemption Date, upon presentation and surrender at the place
designated in such notice of the certificate(s) for shares
held by such holder and called for redemption, properly
endorsed for transfer or accompanied by proper instruments of
assignment or transfer, and bearing all necessary transfer tax
stamps thereto affixed and cancelled (provided, however, that
such surrender shall not be required if the holder of record
shall have theretofore surrendered the certificate(s)
representing the Series A Preferred Shares in accordance with
the conversion provisions set forth in subsection (v) hereof).
If the
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<PAGE>
Corporation shall give notice of redemption as aforesaid (and
unless the Corporation shall fail to pay the Redemption Price
of the shares duly presented for redemption, plus all accrued
and unpaid dividends as of the Redemption Date, in accordance
with such notice), all shares called for redemption shall be
deemed to have been redeemed on the Redemption Date, whether
or not the certificates for said shares shall be surrendered
for redemption and cancellation, and said shares so called for
redemption shall from and after said date cease to represent
any interest whatever in the Corporation or its property, and
the holders thereof shall have no rights other than the right
to receive the Redemption Price, plus all accrued and unpaid
dividends as of the Redemption Date, but without any right to
receive dividends or interest thereon from or after said date.
All Series A Preferred Shares redeemed under the provisions of
this subsection shall be forthwith retired and cancelled.
(v) Conversion.
(A) Conversion Right and Price. Subject to the Corporation's
redemption right as provided for in subsection (iv) hereof,
each Series A Preferred Share shall be convertible, at the
option of the holder thereof, at any time on or after October
1, 1992, at the office of the Corporation, into such number of
Common Shares of the Corporation as is determined by dividing
one hundred dollars ($100.00) by the Conversion Price (as
hereinafter defined). For purposes hereof, the term
"Conversion Price" shall mean twenty six and two-thirds cents
($.26 - 2/3), subject to adjustment as hereinafter set forth;
provided, however, that, in the event the Corporation's
Pre-tax Net Income (as hereinafter defined) for the twelve
(12) month period ending June 30, 1993 (the "12 Month Period")
shall not exceed one million dollars ($1,000,000), then,
effective with the determination of the Corporation's Pre-tax
Net Income for the 12 Month Period (there being no retroactive
adjustment), the Conversion Price shall instead be as follows:
(i) if the Corporation attains a Pre-tax Net Income for the 12
Month Period, but such Pre-tax Net
8
<PAGE>
Income is equal to or less than one million dollars
($1,000,000), the Conversion Price shall be twenty cents
($.20); and (ii) if the Corporation does not attain a Pre-tax
Net Income for the 12 Month Period, the Conversion Price shall
be thirteen and one-third cents ($.13 - 1/3). For purposes
hereof, the terms "Pre-tax Net Income" and "Net Loss" shall
mean the Corporation's consolidated net income or loss before
all taxes determined in accordance with generally accepted
accounting principles, as calculated by the Company's Chief
Financial Officer, except that any pre-tax effect of certain
reductions in conversion prices provided for in that certain
Agreement dated as of March 11, 1992 by and among the Company,
David A. Lyons, Steven G. Chrust and Friedli Corporate Finance
AG, shall be excluded. For purposes hereof, the Corporation's
Pre-tax Net Income or Net Loss for the fiscal quarter ending
December 31, 1992 shall be deemed equal to the difference
between the Corporation's Pre-tax Net Income or Net Loss for
the fiscal year ending December 31, 1992, as audited and
reported upon by the independent auditors of the Corporation,
and the Corporation's Pre-tax Net Income or Net Loss for the
nine (9) month period ending September 30, 1992.
(B) Procedure. Before any holder of Series A Preferred Shares
shall be entitled to receive Common Shares upon conversion,
the holder shall (i)(a) surrender the certificate(s) therefor,
duly endorsed, at the office of the Corporation and (ii) shall
give written notice to the Corporation at such office that the
holder elects to convert the same into Common Shares and shall
further state therein the number of Series A Preferred Shares
being converted. Subject to the provisions hereof, effective
thirty (30) days following the later of the receipt by the
Corporation of the certificate(s) pursuant to and in
accordance with (i) above and the written notice pursuant to
and in accordance with (ii) above (such thirtieth (30th) day
being hereinafter referred to as the "Effective Conversion
Date"), the holder shall thereupon be deemed to be the holder
of record of the Common Shares issuable upon conversion,
notwithstanding that the stock transfer books of the
Corporation shall
9
<PAGE>
then be closed or that the certificate(s) representing such
Common Shares shall not then be actually delivered to the
holder. Subject to the provisions hereof, immediately
following the Effective Conversion Date, the Corporation shall
cause its transfer agent to issue and deliver to such holder
of Series A Preferred Shares a certificate(s) for the number
of Common Shares to which the holder shall be entitled.
Notwithstanding anything hereinabove to the contrary, in the
event the Corporation shall exercise its redemption rights
pursuant to subsection (iv) hereof, the Corporation shall be
under no obligation to issue Common Shares to the holder and
the holder's sole rights shall be as set forth under such
subsection (iv).
(C) Adjustment of Conversion Price.
(i) In the event that the Corporation shall (i) pay any
dividend on its capital stock payable in Common Shares (except
with respect to the dividend payable to the holders of the
Series A Preferred Shares); (ii) effect a subdivision of its
outstanding shares into a greater number of Common Shares (by
reclassification, stock split or otherwise than by payment of
a dividend in Common Shares); (iii) effect a combination or
consolidation of its outstanding Common Shares into a lesser
number of Common Shares (by reclassification, reverse split or
otherwise); (iv) issue by reclassification, exchange or
substitution of its Common Shares any shares of capital stock
of the Corporation or effect any other transaction having
similar effect, the Conversion Price in effect immediately
prior to such action shall be adjusted so that upon the
exercise of the conversion right hereof at any time after the
occurrence of any event described above, the holder shall be
entitled to receive the Common Shares to which such holder
would have been finally entitled, after giving effect to the
occurrence of such event, as if such holder had converted the
Series A Preferred Shares immediately prior to the occurrence
of such event. An adjustment made pursuant to this paragraph
(C) shall become effective immediately after the record date
in the case of a dividend and shall become effective
immediately after the effective date in
10
<PAGE>
the case of a subdivision, combination, reclassification,
exchange or substitution.
(ii) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification
of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as
a result of subdivision or combination) in, outstanding Common
Shares, then the Corporation, or such successor corporation,
as the case may be, shall make appropriate provision so that,
subject to the Corporation's redemption rights described
hereinabove, the holder of each Series A Preferred Share then
outstanding shall have the right to convert such share into
the kind and amount of shares or other securities and property
receivable upon such consolidation or merger by a holder of
the number of Common Shares into which such Series A Preferred
Shares might have been converted immediately prior to such
consolidation or merger.
(D) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Series A Preferred Shares. In lieu
of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay, in cash, an amount
equal to the product of (1) such fraction of a share times (2)
the market price (as hereinabove defined) of one Common Share
on the Effective Conversion Date.
(E) Reservation of Shares Issuable Upon Conversion. The
Corporation shall at all times use its best efforts to reserve
and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of
the Series A Preferred Shares, such number of its Common
Shares as shall from time to time be sufficient to effect the
conversion of all outstanding Series A Preferred Shares, and
if at any time the number of authorized but unissued Common
Shares shall not be sufficient to effect the conversion of all
then outstanding Series A Preferred Shares, the
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<PAGE>
Corporation will, as its sole obligation, subject to the
requirements of applicable state law, take such corporate
action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued Common Shares to such
number of shares as shall be sufficient for such purposes;
provided, however that nothing contained herein shall preclude
the Corporation from satisfying its obligations in respect of
the conversion of the Series A Preferred Shares by delivery of
purchased Common Shares which are held in the treasury of the
Corporation.
(F) Lost, Stolen or Destroyed Certificates. In the event that
the holder shall notify the Corporation that the
certificate(s) representing Series A Preferred Shares have
been lost, stolen or destroyed and either (i) provide a
letter, in form satisfactory to the Corporation, to the effect
that he will indemnify the Corporation from any loss incurred
by it in connection therewith, and/or (ii) provide an
indemnity bond in such amount as is reasonably required by the
Corporation, the Corporation having the option of electing
either (i) or (ii) or both, the Corporation may, in its sole
discretion, accept such letter and/or indemnity bond in lieu
of the surrender of the certificate(s) as required by
subsections (iv) and (v) hereof.
(G) Statutory Restrictions. The foregoing provisions
for conversion of the Series A Preferred Shares shall be
subject to all applicable statutory limitations and
restrictions.
(vi) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series A Preferred Shares will be
entitled to receive, prior and in preference to any
distribution of the assets or surplus funds of the Corporation
to the holders of any Common Shares by reason of the ownership
thereof, an amount equal to (1) the fixed sum of one hundred
dollars ($100.00) per share and no more and (2) all accrued
and unpaid dividends due with respect to the Preferred Shares
(the "Preferential Amount"). If, upon the occurrence of such
an event, the
12
<PAGE>
assets and funds thus distributed among the holders of Series
A Preferred Shares shall be insufficient to permit the payment
to such holders of the full Preferential Amount, then, the
entire assets and funds of the Corporation legally available
for distribution shall be distributed ratably among the
holders of Series A Preferred Shares in accordance with the
respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full. After the
payment or setting apart of the full Preferential Amounts
required to be paid to the holders of Series A Preferred
Shares, the holders of Common Shares or any other stock of the
Corporation ranking in liquidation junior to the Series A
Preferred Shares shall be entitled to receive ratably all
remaining assets or surplus funds of the Corporation. Neither
the merger or consolidation of the Corporation, nor the sale,
lease or conveyance of all or part of its assets, shall be
deemed to be a liquidation, dissolution or winding up of the
affairs of the Corporation, either voluntarily or
involuntarily, within the meaning of this section.
(vii) Sinking Fund. The Series A Preferred Shares shall not be
entitled to the benefit of any sinking fund to be applied to
their purchase or redemption.
(d) Series B Preferred Shares. A series of Preferred Shares is
hereby created, to be limited in amount to 356,000 of the 5,000,000 authorized
Preferred Shares. The designation, relative rights, powers, preferences,
qualifications and limitations are as follows:
(i) Designation of Series. The designation of the series of
Preferred Shares created hereby shall be Series B Preferred
Shares (hereinafter the "Series B Preferred Shares").
(ii) Dividends.
13
<PAGE>
(A) The holders of Series B Preferred Shares, in preference to
the holders of Common Shares and on a pari passu basis with
the holders of Series A Preferred Shares, if any, shall be
entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of forty cents ($.40) per
share per annum, and no more. Subject to the requirements of
applicable law, dividends on the Series B Preferred Shares
shall be payable annually, when and as declared by the Board
of Directors, commencing in 1993. Such dividends on the Series
B Preferred Shares shall be cumulative so that if all or any
part of such dividends shall not have been paid or distributed
in any year, or declared and set apart, the amount of the
deficiency (without interest) shall be paid or distributed, or
declared and set apart, before any dividend or other
distribution shall be paid upon, or declared and set apart
for, Common Shares. Declared but unpaid dividends shall not
bear interest. For dividend purposes, Series B Preferred
Shares shall be deemed to have been issued as of the date of
issuance of the Series A Preferred Shares for which they were
exchanged.
(B) Except as hereinafter provided and subject to the
requirements of applicable law, including, without limitation,
the obtaining of any necessary approvals or consents from the
holders of the Common Shares and/or Series A Preferred Shares
of the Corporation, any dividend declared on the Series B
Preferred Shares shall be paid in cash or, at the option of
the Corporation, in Common Shares of the Corporation having a
market price, on the day immediately preceding the date on
which such dividend is declared (the "Valuation Date"), equal
to the amount of the dividend. As used herein, the term
"market price" shall mean the closing selling price or, if not
available, the mean of the closing bid and asked prices, or,
if not available, the mean of the highest bid and lowest asked
prices, of the Common Shares as quoted on a national
securities exchange, or in the over-the-counter market as
reported by NASDAQ or, if not available, by the National
Quotation Bureau, Incorporated, as the case may be, or, if
there is no selling or bid or asked price on a particular day,
then the closing selling price or, if not available, the mean
of the closing bid and asked
14
<PAGE>
prices, or, if not available, the mean of the highest bid and
lowest asked prices on the nearest trading date before that
day and for which such prices are available, and if the Common
Shares are not listed on such an exchange or traded in such a
market on the Valuation Date, then the market price shall be
determined by the Board of Directors by taking into
consideration all relevant factors, including, but not limited
to, the Corporation's net worth, prospective earning power and
dividend paying capacity.
(iii) Voting Rights. The holders of the Series B Preferred Shares
shall be entitled to vote on all matters at all meetings of
the shareholders of the Corporation, and shall be entitled to
such number of votes for each Series B Preferred Share
entitled to vote at such meetings as is set forth below,
voting together with the holders of Common Shares, and other
Preferred Shares who are entitled to vote, if any such shares
are then outstanding, and not as a separate class, except as
required by law. The number of votes to which the holders of
the Series B Preferred Shares shall be entitled to vote for
each Series B Preferred Share shall equal the number of Common
Shares of the Corporation into which such Series B Preferred
Share is convertible.
(iv) Redemption.
(A) In the event any holder or holders of Series B Preferred
Shares shall give written notice to the Corporation of an
election to convert such shares into Common Shares of the
Corporation as provided for in subsection (v)(B)(ii) hereof
(whether or not such holder shall have theretofore surrendered
the certificate(s) representing the Series B Preferred Shares
for conversion), the Corporation may elect, at its option, by
notice given prior to any Effective Conversion Date (as
hereinafter defined) as provided in (B) below, to redeem all
or any part of the outstanding Series B Preferred Shares with
respect to which an election to convert has been given to the
Corporation at a price per share in cash equal to six dollars
fifty cents ($6.50) (the
1 15
<PAGE>
"Redemption Price") plus all accrued and unpaid dividends with
respect to such Series B Preferred Shares.
(B) Notice of every redemption shall be given by mailing the
same to every holder of record of any shares then to be
redeemed, prior to any Effective Conversion Date and not less
than ten (10) nor more than thirty (30) days prior to the date
fixed as the date for the redemption thereof (the "Redemption
Date"), at the respective addresses of such holders as the
same shall appear on the stock transfer books of the
Corporation. The notice described above shall state that the
shares specified in such notice will be redeemed by the
Corporation at the Redemption Price plus all accrued and
unpaid dividends on the Redemption Date, upon the surrender
for cancellation, at the place designated in such notice, of
the certificate(s) representing the shares so to be redeemed,
properly endorsed for transfer, or accompanied by a proper
instrument of assignment and transfer, and bearing all
necessary transfer tax stamps thereto affixed and cancelled
(provided, however, that such surrender shall not be required
if the holder of record shall have theretofore duly
surrendered the certificate(s) representing the Series B
Preferred Shares in accordance with the conversion provisions
set forth in subsection (v) hereof). On and after the
Redemption Date, each holder of shares called for redemption
shall be entitled to receive therefor, in cash, the Redemption
Price, plus accrued and unpaid dividends as of the Redemption
Date, upon presentation and surrender at the place designated
in such notice of the certificate(s) for shares held by such
holder and called for redemption, properly endorsed for
transfer or accompanied by proper instruments of assignment or
transfer, and bearing all necessary transfer tax stamps
thereto affixed and cancelled (provided, however, that such
surrender shall not be required if the holder of record shall
have theretofore surrendered the certificate(s) representing
the Series B Preferred Shares in accordance with the
conversion provisions set forth in subsection (v) hereof). If
the Corporation shall give notice of redemption as aforesaid
(and unless the Corporation shall fail to pay the Redemption
Price of the shares duly presented for
16
<PAGE>
redemption, plus all accrued and unpaid dividends as of the
Redemption Date, in accordance with such notice), all shares
called for redemption shall be deemed to have been redeemed on
the Redemption Date, whether or not the certificates for said
shares shall be surrendered for redemption and cancellation,
and said shares so called for redemption shall from and after
said date cease to represent any interest whatever in the
Corporation or its property, and the holders thereof shall
have no rights other than the right to receive the Redemption
Price, plus all accrued and unpaid dividends as of the
Redemption Date, but without any right to receive dividends or
interest thereon from or after said date. All Series B
Preferred Shares redeemed under the provisions of this
subsection shall be forthwith retired and cancelled.
(v) Conversion.
(A) Conversion Right and Price. Subject to the Corporation's
redemption right as provided for in subsection (iv) hereof,
each Series B Preferred Share shall be convertible, at the
option of the holder thereof, at the office of the
Corporation, into such number of Common Shares of the
Corporation as is determined by dividing five dollars ($5.00)
by the Conversion Price (as hereinafter defined). For purposes
hereof, the term "Conversion Price" shall mean fifty cents
($.50), subject to adjustment as hereinafter set forth.
(B) Procedure. Before any holder of Series B Preferred Shares
shall be entitled to receive Common Shares upon conversion,
the holder shall (i)(a) surrender the certificate(s) therefor,
duly endorsed, at the office of the Corporation and (ii) shall
give written notice to the Corporation at such office that the
holder elects to convert the same into Common Shares and shall
further state therein the number of Series B Preferred Shares
being converted. Subject to the provisions hereof, effective
thirty (30) days following the later of the receipt by the
Corporation of the certificate(s) pursuant to and in
accordance with (i) above and the written
17
<PAGE>
notice pursuant to and in accordance with (ii) above, or such
shorter period of time as the Board of Directors shall
determine with respect to any particular conversion (such
thirtieth (30th) day or end of shorter period of time being
hereinafter referred to as the "Effective Conversion Date"),
the holder shall thereupon be deemed to be the holder of
record of the Common Shares issuable upon conversion,
notwithstanding that the stock transfer books of the
Corporation shall then be closed or that the certificate(s)
representing such Common Shares shall not then be actually
delivered to the holder. Subject to the provisions hereof,
immediately following the Effective Conversion Date, the
Corporation shall cause its transfer agent to issue and
deliver to such holder of Series B Preferred Shares a
certificate(s) for the number of Common Shares to which the
holder shall be entitled. Notwithstanding anything hereinabove
to the contrary, in the event the Corporation shall exercise
its redemption rights pursuant to subsection (iv) hereof, the
Corporation shall be under no obligation to issue Common
Shares to the holder and the holder's sole rights shall be as
set forth under such subsection (iv).
(C) Adjustment of Conversion Price.
(i) In the event that the Corporation shall (i) pay any
dividend on its capital stock payable in Common Shares (except
with respect to the dividend payable to the holders of the
Series B Preferred Shares); (ii) effect a subdivision of its
outstanding shares into a greater number of Common Shares (by
reclassification, stock split or otherwise than by payment of
a dividend in Common Shares); (iii) effect a combination or
consolidation of its outstanding Common Shares into a lesser
number of Common Shares (by reclassification, reverse split or
otherwise); (iv) issue by reclassification, exchange or
substitution of its Common Shares any shares of capital stock
of the Corporation or effect any other transaction having
similar effect, the Conversion Price in effect immediately
prior to such action shall be adjusted so that upon the
exercise of the conversion right hereof at any time after the
occurrence of any event described above, the holder shall be
entitled to receive the Common
18
<PAGE>
Shares to which such holder would have been finally entitled,
after giving effect to the occurrence of such event, as if
such holder had converted the Series B Preferred Shares
immediately prior to the occurrence of such event. An
adjustment made pursuant to this paragraph (C) shall become
effective immediately after the record date in the case of a
dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination,
reclassification, exchange or substitution.
(ii) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification
of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as
a result of subdivision or combination) in, outstanding Common
Shares, then the Corporation, or such successor corporation,
as the case may be, shall make appropriate provision so that,
subject to the Corporation's redemption rights described
hereinabove, the holder of each Series B Preferred Share then
outstanding shall have the right to convert such share into
the kind and amount of shares or other securities and property
receivable upon such consolidation or merger by a holder of
the number of Common Shares into which such Series B Preferred
Shares might have been converted immediately prior to such
consolidation or merger.
(D) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Series B Preferred Shares. In lieu
of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay, in cash, an amount
equal to the product of (i) such fraction of a share times
(ii) the market price (as hereinabove defined) of one Common
Share on the Effective Conversion Date.
(E) Reservation of Shares Issuable Upon Conversion. The
Corporation shall at all times use its best efforts to
reserve and keep available out of its authorized but
19
<PAGE>
unissued Common Shares, solely for the purpose of effecting
the conversion of the Series B Preferred Shares, such number
of its Common Shares as shall from time to time be sufficient
to effect the conversion of all outstanding Series B Preferred
Shares, and if at any time the number of authorized but
unissued Common Shares shall not be sufficient to effect the
conversion of all then outstanding Series B Preferred Shares,
the Corporation will, as its sole obligation, subject to the
requirements of applicable state law, take such corporate
action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued Common Shares to such
number of shares as shall be sufficient for such purposes;
provided, however that nothing contained herein shall preclude
the Corporation from satisfying its obligations in respect of
the conversion of the Series B Preferred Shares by delivery of
purchased Common Shares which are held in the treasury of the
Corporation.
(F) Lost, Stolen or Destroyed Certificates. In the event that
the holder shall notify the Corporation that the
certificate(s) representing Series B Preferred Shares have
been lost, stolen or destroyed and either (i) provide a
letter, in form satisfactory to the Corporation, to the effect
that he will indemnify the Corporation from any loss incurred
by it in connection therewith, and/or (ii) provide an
indemnity bond in such amount as is reasonably required by the
Corporation, the Corporation having the option of electing
either (i) or (ii) or both, the Corporation may, in its sole
discretion, accept such letter and/or indemnity bond in lieu
of the surrender of the certificate(s) as required by
subsections (iv) and (v) hereof.
(G) Statutory Restrictions. The foregoing provisions
for conversion of the Series B Preferred Shares shall be
subject to all applicable statutory limitations and
restrictions.
(vi) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series B Preferred Shares
20
<PAGE>
will be entitled to receive, prior and in preference to any
distribution of the assets or surplus funds of the Corporation
to the holders of any Common Shares by reason of the ownership
thereof, and on a pari passu basis with the holders of the
Series A Preferred Shares, if any, an amount equal to (i) the
fixed sum of five dollars ($5.00) per share and no more and
(ii) all accrued and unpaid dividends due with respect to the
Series B Preferred Shares (the "Preferential Amount"). If,
upon the occurrence of such an event, the assets and funds
thus distributed among the holders of Series B Preferred
Shares shall be insufficient to permit the payment to such
holders of the full Preferential Amount, then, the entire
assets and funds of the Corporation legally available for
distribution to the holders of the Series B Preferred Shares
shall be distributed ratably among such holders in accordance
with the respective amounts which would be payable on such
shares if all amounts payable thereon were paid in full. After
the payment or setting apart of the full Preferential Amounts
required to be paid to the holders of Series A and Series B
Preferred Shares, the holders of Common Shares or any other
stock of the Corporation ranking in liquidation junior to the
Series A and Series B Preferred Shares shall be entitled to
receive ratably all remaining assets or surplus funds of the
Corporation. Neither the merger or consolidation of the
Corporation, nor the sale, lease or conveyance of all or part
of its assets, shall be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation,
either voluntarily or involuntarily, within the meaning of
this section.
(vii) Sinking Fund. The Series B Preferred Shares shall not be
entitled to the benefit of any sinking fund to be applied to
their purchase or redemption.
(e) Series C Preferred Shares. A series of Preferred
Shares is hereby created, to be limited in amount to 1,090,910 of the 5,000,000
authorized Preferred Shares. The designation, relative rights, powers,
preferences, qualifications and limitations are as follows:
21
<PAGE>
(i) Designation of Series. The designation of the series of
Preferred Shares created hereby shall be Series C Preferred
Shares (hereinafter the "Series C Preferred Shares").
(ii) Dividends.
(A) The holders of Series C Preferred Shares, in preference to
the holders of Common Shares and on a pari passu basis with
the holders of Series A Preferred Shares and Series B
Preferred Shares, if any, shall be entitled to receive, when
and as declared by the Board of Directors, dividends at the
rate of twenty-seven and one-half cents ($.275) per share per
annum, and no more. Subject to the requirements of applicable
law, dividends on the Series C Preferred Shares shall be
payable annually, when and as declared by the Board of
Directors, commencing in 1994. Such dividends on the Series C
Preferred Shares shall be cumulative so that if all or any
part of such dividends shall not have been paid or distributed
in any year, or declared and set apart, the amount of the
deficiency (without interest) shall be paid or distributed, or
declared and set apart, before any dividend or other
distribution shall be paid upon, or declared and set apart
for, Common Shares. Declared but unpaid dividends shall not
bear interest.
(B) Except as hereinafter provided and subject to the
requirements of applicable law, including, without limitation,
the obtaining of any necessary approvals or consents from the
holders of the Common Shares and/or Series A Preferred Shares
and/or Series B Preferred Shares of the Corporation, any
dividend declared on the Series C Preferred Shares shall be
paid in cash or, at the option of the Corporation, in Common
Shares of the Corporation having a market price, on the day
immediately preceding the date on which such dividend is
declared (the "Valuation Date"), equal to the amount of the
dividend. As used herein, the term "market price" shall
22
<PAGE>
mean the closing selling price or, if not available, the mean
of the closing bid and asked prices, or, if not available, the
mean of the highest bid and lowest asked prices, of the Common
Shares as quoted on a national securities exchange, or in the
over-the-counter market as reported by NASDAQ or, if not
available, by the National Quotation Bureau, Incorporated, as
the case may be, or, if there is no selling or bid or asked
price on a particular day, then the closing selling price or,
if not available, the mean of the closing bid and asked
prices, or, if not available, the mean of the highest bid and
lowest asked prices on the nearest trading date before that
day and for which such prices are available, and if the Common
Shares are not listed on such an exchange or traded in such a
market on the Valuation Date, then the market price shall be
determined by the Board of Directors by taking into
consideration all relevant factors, including, but not limited
to, the Corporation's net worth, prospective earning power and
dividend paying capacity.
(iii) Voting Rights. The holders of the Series C Preferred Shares
shall be entitled to vote on all matters at all meetings of
the shareholders of the Corporation, and shall be entitled to
such number of votes for each Series C Preferred Share
entitled to vote at such meetings as is set forth below,
voting together with the holders of Common Shares, and other
Preferred Shares who are entitled to vote, if any such shares
are then outstanding, and not as a separate class, except as
required by law. The number of votes to which the holders of
the Series C Preferred Shares shall be entitled to vote for
each Series C Preferred Share shall equal the number of Common
Shares of the Corporation into which such Series C Preferred
Share is convertible multiplied by six (6).
(iv) Redemption. The Series C Preferred Shares shall not be
subject to mandatory redemption by either the Corporation
or the holders thereof.
23
<PAGE>
(v) Conversion.
(A) Conversion Right and Price. Each Series C Preferred Share
shall be convertible, at the option of the holder thereof, at
the office of the Corporation, into such number of Common
Shares of the Corporation as is determined by dividing two
dollars seventy-five cents ($2.75) by the Conversion Price (as
hereinafter defined). For purposes hereof, the term
"Conversion Price" shall mean two dollars seventy-five cents
($2.75), subject to adjustment as hereinafter set forth.
(B) Procedure. Before any holder of Series C Preferred Shares
shall be entitled to receive Common Shares upon conversion,
the holder shall (i)(a) surrender the certificate(s) therefor,
duly endorsed, at the office of the Corporation and (ii) shall
give written notice to the Corporation at such office that the
holder elects to convert the same into Common Shares and shall
further state therein the number of Series C Preferred Shares
being converted. Subject to the provisions hereof, effective
thirty (30) days following the later of the receipt by the
Corporation of the certificate(s) pursuant to and in
accordance with (i) above and the written notice pursuant to
and in accordance with (ii) above, or such shorter period of
time as the Board of Directors shall determine with respect to
any particular conversion (such thirtieth (30th) day or end of
shorter period of time being hereinafter referred to as the
"Effective Conversion Date"), the holder shall thereupon be
deemed to be the holder of record of the Common Shares
issuable upon conversion, notwithstanding that the stock
transfer books of the Corporation shall then be closed or that
the certificate(s) representing such Common Shares shall not
then be actually delivered to the holder. Subject to the
provisions hereof, immediately following the Effective
Conversion Date, the Corporation shall cause its transfer
agent to issue and deliver to such holder of Series C
Preferred Shares a certificate(s) for the number of Common
Shares to which the holder shall be entitled.
(C) Adjustment of Conversion Price.
(i) In the event that the Corporation shall (a) pay any
dividend on its Common Shares payable in Common Shares;
24
<PAGE>
(b) effect a subdivision of its outstanding shares into a
greater number of Common Shares (by reclassification, stock
split or otherwise than by payment of a dividend in Common
Shares); (c) effect a combination or consolidation of its
outstanding Common Shares into a lesser number of Common
Shares (by reclassification, reverse split or otherwise); (d)
issue by reclassification, exchange or substitution of its
Common Shares any shares of capital stock of the Corporation
or effect any other transaction having similar effect, the
Conversion Price in effect immediately prior to such action
shall be adjusted so that upon the exercise of the conversion
right hereof at any time after the occurrence of any event
described above, the holder shall be entitled to receive the
Common Shares to which such holder would have been finally
entitled, after giving effect to the occurrence of such event,
as if such holder had converted the Series C Preferred Shares
immediately prior to the occurrence of such event. An
adjustment made pursuant to this paragraph (C) shall become
effective immediately after the record date in the case of a
dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination,
reclassification, exchange or substitution.
(ii) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification
of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as
a result of subdivision or combination) in, outstanding Common
Shares, then the Corporation, or such successor corporation,
as the case may be, shall make appropriate provision so that
the holder of each Series C Preferred Share then outstanding
shall have the right to convert such share into the kind and
amount of shares or other securities and property receivable
upon such consolidation or merger by a holder of the number of
Common Shares into which such Series C Preferred Shares might
have been converted immediately prior to such consolidation or
merger.
25
<PAGE>
(D) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Series C Preferred Shares. In lieu
of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay, in cash, an amount
equal to the product of (i) such fraction of a share times
(ii) the market price (as hereinabove defined) of one Common
Share on the Effective Conversion Date.
(E) Reservation of Shares Issuable Upon Conversion. The
Corporation shall at all times use its best efforts to reserve
and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of
the Series C Preferred Shares, such number of its Common
Shares as shall from time to time be sufficient to effect the
conversion of all outstanding Series C Preferred Shares, and
if at any time the number of authorized but unissued Common
Shares shall not be sufficient to effect the conversion of all
then outstanding Series C Preferred Shares, the Corporation
will, as its sole obligation, subject to the requirements of
applicable state law, take such corporate action as may, in
the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares
as shall be sufficient for such purposes; provided, however
that nothing contained herein shall preclude the Corporation
from satisfying its obligations in respect of the conversion
of the Series C Preferred Shares by delivery of purchased
Common Shares which are held in the treasury of the
Corporation.
(F) Lost, Stolen or Destroyed Certificates. In the event that
the holder shall notify the Corporation that the
certificate(s) representing Series C Preferred Shares have
been lost, stolen or destroyed and either (i) provide a
letter, in form satisfactory to the Corporation, to the effect
that he will indemnify the Corporation from any loss incurred
by it in connection therewith, and/or (ii) provide an
indemnity bond in such amount as is reasonably required by the
Corporation, the Corporation having the option of electing
either (i) or (ii) or both, the Corporation may, in its sole
26
<PAGE>
discretion, accept such letter and/or indemnity bond in lieu
of the surrender of the certificate(s) as required by
subsections (iv) and (v) hereof.
(G) Statutory Restrictions. The foregoing provisions for
conversion of the Series C Preferred Shares shall be subject
to all applicable statutory limitations and restrictions.
(vi) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series C Preferred Shares will be
entitled to receive, prior and in preference to any
distribution of the assets or surplus funds of the Corporation
to the holders of any Common Shares by reason of the ownership
thereof, and on a pari passu basis with the holders of the
Series A and Series B Preferred Shares, if
any, an amount equal to (i) the fixed sum of two dollars
seventy-five ($2.75) per share and no more and (ii) all
accrued and unpaid dividends due with respect to the Series C
Preferred Shares (the "Preferential Amount"). If, upon the
occurrence of such an event, the assets and funds thus
distributed among the holders of Series C Preferred Shares
shall be insufficient to permit the payment to such holders of
the full Preferential Amount, then, the entire assets and
funds of the Corporation legally available for distribution to
the holders of the Series C Preferred Shares shall be
distributed ratably among such holders in accordance with the
respective amounts which would be payable on such shares if
all amounts payable thereon were paid in full. After the
payment or setting apart of the full Preferential Amounts
required to be paid to the holders of Series A, Series B and
Series C Preferred Shares, the holders of Common Shares or any
other stock of the Corporation ranking in liquidation junior
to the Series A, Series B and Series C Preferred Shares shall
be entitled to receive ratably all remaining assets or surplus
funds of the Corporation. Neither the merger or consolidation
of the Corporation, nor the sale, lease or conveyance of all
or part of its assets, shall be deemed to be a liquidation,
dissolution or winding up of the
27
<PAGE>
affairs of the Corporation, either voluntarily or
involuntarily, within the meaning of this section.
(vii) Sinking Fund. The Series C Preferred Shares shall not be
entitled to the benefit of any sinking fund to be applied to
their purchase or redemption.
(f) Series D Preferred Shares. A series of Preferred Shares is
hereby created, to be limited in amount to 1,413,337 of the 5,000,000 authorized
Preferred Shares. The designation, relative rights, powers, preferences,
qualifications and limitations are as follows:
(i) Designation of Series. The designation of the series of
Preferred Shares created hereby shall be Series D Preferred
Shares (hereinafter the "Series D Preferred Shares").
(ii) Dividends.
(A) The holders of Series D Preferred Shares, in preference to
the holders of Common Shares and on a pari passu basis with
the holders of Series A Preferred Shares, Series B Preferred
Shares and Series C Preferred Shares, if any, shall be
entitled to receive, when and as declared by the Board of
Directors, dividends at the rate of twenty-five cents ($.25)
per share per annum, and no more. Subject to the requirements
of applicable law, dividends on the Series D Preferred Shares
shall be payable annually, when and as declared by the Board
of Directors, commencing in 1994. Such dividends on the Series
D Preferred Shares shall be cumulative so that if all or any
part of such dividends shall not have been paid or distributed
in any year, or declared and set apart, the amount of the
deficiency (without interest) shall be paid or distributed, or
declared and set apart, before any dividend or other
distribution shall be paid upon, or declared and set apart
for, Common Shares. Declared but unpaid dividends shall not
bear interest.
28
<PAGE>
For dividend purposes, in the event Series D Preferred Shares
are issued in exchange for Series C Preferred Shares, the
Series D Preferred Shares shall be deemed to have been issued
as of the date of issuance of the Series C Preferred Shares
for which they were exchanged.
(B) Except as hereinafter provided and subject to the
requirements of applicable law, including, without limitation,
the obtaining of any necessary approvals or consents from the
holders of the Common Shares and/or Series A Preferred Shares
and/or Series B Preferred Shares and/or Series C Preferred
Shares of the Corporation, any dividend declared on the Series
D Preferred Shares shall be paid in cash or, at the option of
the Corporation, in Common Shares of the Corporation having a
market price, on the day immediately preceding the date on
which such dividend is declared (the "Valuation Date"), equal
to the amount of the dividend. As used herein, the term
"market price" shall mean the closing selling price or, if not
available, the mean of the closing bid and asked prices, or,
if not available, the mean of the highest bid and lowest asked
prices, of the Common Shares as quoted on a national
securities exchange, or in the over-the-counter market as
reported by NASDAQ or, if not available, by the National
Quotation Bureau, Incorporated, as the case may be, or, if
there is no selling or bid or asked price on a particular day,
then the closing selling price or, if not available, the mean
of the closing bid and asked prices, or, if not available, the
mean of the highest bid and lowest asked prices on the nearest
trading date before that day and for which such prices are
available, and if the Common Shares are not listed on such an
exchange or traded in such a market on the Valuation Date,
then the market price shall be determined by the Board of
Directors by taking into consideration all relevant factors,
including, but not limited to, the Corporation's net worth,
prospective earning power and dividend paying capacity.
(iii) Voting Rights. The holders of the Series D Preferred
Shares shall be entitled to vote on all matters at all
meetings of the shareholders of the Corporation, and
29
<PAGE>
shall be entitled to such number of votes for each Series D
Preferred Share entitled to vote at such meetings as is set
forth below, voting together with the holders of Common
Shares, and other Preferred Shares who are entitled to vote,
if any such shares are then outstanding, and not as a separate
class, except as required by law. The number of votes to which
the holders of the Series D Preferred Shares shall be entitled
to vote for each Series D Preferred Share shall equal the
number of Common Shares of the Corporation into which such
Series D Preferred Share is convertible multiplied by six (6).
(iv) Redemption. The Series D Preferred Shares shall not be
subject to mandatory redemption by either the Corporation
or the holders thereof.
(v) Conversion.
(A) Conversion Right and Price. Each Series D Preferred Share
shall be convertible, at the option of the holder thereof, at
the office of the Corporation, into such number of Common
Shares of the Corporation as is determined by dividing two
dollars fifty cents ($2.50) by the Conversion Price (as
hereinafter defined). For purposes hereof, the term
"Conversion Price" shall mean two dollars fifty cents ($2.50),
subject to adjustment as hereinafter set forth.
(B) Procedure. Before any holder of Series D Preferred Shares
shall be entitled to receive Common Shares upon conversion,
the holder shall (i)(a) surrender the certificate(s) therefor,
duly endorsed, at the office of the Corporation and (ii) shall
give written notice to the Corporation at such office that the
holder elects to convert the same into Common Shares and shall
further state therein the number of Series D Preferred Shares
being converted. Subject to the provisions hereof, effective
thirty (30) days following the later of the receipt by the
Corporation of the certificate(s) pursuant to and in
accordance with (i) above and the written notice pursuant to
and in accordance with (ii) above, or such shorter period of
time as the Board of Directors
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<PAGE>
shall determine with respect to any particular conversion
(such thirtieth (30th) day or end of shorter period of time
being hereinafter referred to as the "Effective Conversion
Date"), the holder shall thereupon be deemed to be the holder
of record of the Common Shares issuable upon conversion,
notwithstanding that the stock transfer books of the
Corporation shall then be closed or that the certificate(s)
representing such Common Shares shall not then be actually
delivered to the holder. Subject to the provisions hereof,
immediately following the Effective Conversion Date, the
Corporation shall cause its transfer agent to issue and
deliver to such holder of Series D Preferred Shares a
certificate(s) for the number of Common Shares to which the
holder shall be entitled.
(C) Adjustment of Conversion Price.
(i) In the event that the Corporation shall (a) pay any
dividend on its Common Shares payable in Common Shares; (b)
effect a subdivision of its outstanding shares into a greater
number of Common Shares (by reclassification, stock split or
otherwise than by payment of a dividend in Common Shares); (c)
effect a combination or consolidation of its outstanding
Common Shares into a lesser number of Common Shares (by
reclassification, reverse split or otherwise); (d) issue by
reclassification, exchange or substitution of its Common
Shares any shares of capital stock of the Corporation or
effect any other transaction having similar effect, the
Conversion Price in effect immediately prior to such action
shall be adjusted so that upon the exercise of the conversion
right hereof at any time after the occurrence of any event
described above, the holder shall be entitled to receive the
Common Shares to which such holder would have been finally
entitled, after giving effect to the occurrence of such event,
as if such holder had converted the Series D Preferred Shares
immediately prior to the occurrence of such event. An
adjustment made pursuant to this paragraph (C) shall become
effective immediately after the record date in the case of a
dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination,
reclassification, exchange or substitution.
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<PAGE>
(ii) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification
of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as
a result of subdivision or combination) in, outstanding Common
Shares, then the Corporation, or such successor corporation,
as the case may be, shall make appropriate provision so that
the holder of each Series D Preferred Share then outstanding
shall have the right to convert such share into the kind and
amount of shares or other securities and property receivable
upon such consolidation or merger by a holder of the number of
Common Shares into which such Series D Preferred Shares might
have been converted immediately prior to such consolidation or
merger.
(D) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Series D Preferred Shares. In lieu
of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay, in cash, an amount
equal to the product of (i) such fraction of a share times
(ii) the market price (as hereinabove defined) of one Common
Share on the Effective Conversion Date.
(E) Reservation of Shares Issuable Upon Conversion. The
Corporation shall at all times use its best efforts to reserve
and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of
the Series D Preferred Shares, such number of its Common
Shares as shall from time to time be sufficient to effect the
conversion of all outstanding Series D Preferred Shares, and
if at any time the number of authorized but unissued Common
Shares shall not be sufficient to effect the conversion of all
then outstanding Series D Preferred Shares, the Corporation
will, as its sole obligation, subject to the requirements of
applicable state law, take such corporate action as may, in
the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares
as shall be sufficient
32
<PAGE>
for such purposes; provided, however that nothing contained
herein shall preclude the Corporation from satisfying its
obligations in respect of the conversion of the Series D
Preferred Shares by delivery of purchased Common Shares which
are held in the treasury of the Corporation.
(F) Lost, Stolen or Destroyed Certificates. In the event that
the holder shall notify the Corporation that the
certificate(s) representing Series D Preferred Shares have
been lost, stolen or destroyed and either (i) provide a
letter, in form satisfactory to the Corporation, to the effect
that he will indemnify the Corporation from any loss incurred
by it in connection therewith, and/or (ii) provide an
indemnity bond in such amount as is reasonably required by the
Corporation, the Corporation having the option of electing
either (i) or (ii) or both, the Corporation may, in its sole
discretion, accept such letter and/or indemnity bond in lieu
of the surrender of the certificate(s) as required by
subsections (iv) and (v) hereof.
(G) Statutory Restrictions. The foregoing provisions for
conversion of the Series D Preferred Shares shall be subject
to all applicable statutory limitations and restrictions.
(vi) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series D Preferred Shares will be
entitled to receive, prior and in preference to any
distribution of the assets or surplus funds of the Corporation
to the holders of any Common Shares by reason of the ownership
thereof, and on a pari passu basis with the holders of the
Series A, Series B and Series C Preferred Shares, if any, an
amount equal to (i) the fixed sum of two dollars fifty cents
($2.50) per share and no more and (ii) all accrued and unpaid
dividends due with respect to the Series D Preferred Shares
(the "Preferential Amount"). If, upon the occurrence of such
an event, the assets and funds thus distributed among the
holders of Series D Preferred Shares shall be insufficient to
permit the payment to such holders of the
33
<PAGE>
full Preferential Amount, then, the entire assets and funds of
the Corporation legally available for distribution to the
holders of the Series D Preferred Shares shall be distributed
ratably among such holders in accordance with the respective
amounts which would be payable on such shares if all amounts
payable thereon were paid in full. After the payment or
setting apart of the full Preferential Amounts required to be
paid to the holders of Series A, Series B, Series C and Series
D Preferred Shares, the holders of Common Shares or any other
stock of the Corporation ranking in liquidation junior to the
Series A, Series B, Series C and Series D Preferred Shares
shall be entitled to receive ratably all remaining assets or
surplus funds of the Corporation. Neither the merger or
consolidation of the Corporation, nor the sale, lease or
conveyance of all or part of its assets, shall be deemed to be
a liquidation, dissolution or winding up of the affairs of the
Corporation, either voluntarily or involuntarily, within the
meaning of this section.
(vii) Sinking Fund. The Series D Preferred Shares shall not be
entitled to the benefit of any sinking fund to be applied to
their purchase or redemption.
(g) Series E Preferred Shares. A series of Preferred Shares is
hereby created, to be limited in amount to 1,085,000 of the 5,000,000 authorized
Preferred Shares. The designation, relative rights, powers, preferences,
qualifications and limitations are as follows:
(i) Designation of Series. The designation of the series of
Preferred Shares created hereby shall be Series E Preferred
Shares (hereinafter the "Series E Preferred Shares").
(ii) Dividends.
34
<PAGE>
(A) The holders of Series E Preferred Shares, in preference to
the holders of Common Shares and on a pari passu basis with
the holders of Series A Preferred Shares, Series B Preferred
Shares, Series C Preferred Shares and Series D Preferred
Shares, if any, shall be entitled to receive, when and as
declared by the Board of Directors, dividends at the rate of
twenty-two and one-half cents ($.225) per share per annum, and
no more. Subject to the requirements of applicable law,
dividends on the Series E Preferred Shares shall be payable
annually, when and as declared by the Board of Directors,
commencing in 1996. Such dividends on the Series E Preferred
Shares shall be cumulative so that if all or any part of such
dividends shall not have been paid or distributed in any year,
or declared and set apart, the amount of the deficiency
(without interest) shall be paid or distributed, or declared
and set apart, before any dividend or other distribution shall
be paid upon, or declared and set apart for, Common Shares.
Declared but unpaid dividends shall not bear interest.
(B) Except as hereinafter provided and subject to the
requirements of applicable law, including, without limitation,
the obtaining of any necessary approvals or consents from the
holders of the Common Shares and/or Series A Preferred Shares
and/or Series B Preferred Shares and/or Series C Preferred
Shares and/or Series D Preferred Shares of the Corporation,
any dividend declared on the Series E Preferred Shares shall
be paid in cash or, at the option of the Corporation, in
Common Shares of the Corporation, the number of which shall be
equal to the amount of the dividend divided by the Conversion
Price (as hereinafter defined) then in effect.
(iii) Voting Rights. The holders of the Series E Preferred Shares
shall be entitled to vote on all matters at all meetings of
the shareholders of the Corporation, and shall be entitled to
such number of votes for each Series E Preferred Share
entitled to vote at such meetings as is set forth below,
voting together with the holders of Common Shares, and other
Preferred Shares who are entitled to vote, if any such shares
are then outstanding, and not as a separate class, except as
35
<PAGE>
required by law. The number of votes to which the holders of
the Series E Preferred Shares shall be entitled to vote for
each Series E Preferred Share shall equal the number of Common
Shares of the Corporation into which such Series E Preferred
Share is convertible.
(iv) Redemption. The Series E Preferred Shares shall not be
subject to mandatory redemption by either the Corporation
or the holders thereof.
(v) Conversion.
(A) Conversion Right and Price. Each Series E Preferred Share
shall be convertible, at the option of the holder thereof, at
the office of the Corporation, into such number of Common
Shares of the Corporation as is determined by dividing two
dollars eighty-one and one-quarter cents ($2.8125) by the
Conversion Price (as hereinafter defined). For purposes
hereof, the term "Conversion Price" shall mean two dollars
eighty-one and one-quarter cents ($2.8125), subject to
adjustment as hereinafter set forth.
(B) Procedure. Before any holder of Series E Preferred Shares
shall be entitled to receive Common Shares upon conversion,
the holder shall (i)(a) surrender the certificate(s) therefor,
duly endorsed, at the office of the Corporation and (ii) shall
give written notice to the Corporation at such office that the
holder elects to convert the same into Common Shares and shall
further state therein the number of Series E Preferred Shares
being converted. Subject to the provisions hereof, effective
thirty (30) days following the later of the receipt by the
Corporation of the certificate(s) pursuant to and in
accordance with (i) above and the written notice pursuant to
and in accordance with (ii) above, or such shorter period of
time as the Board of Directors shall determine with respect to
any particular conversion (such thirtieth (30th) day or end of
shorter period of time being hereinafter referred to as the
"Effective Conversion Date"), the holder shall thereupon be
deemed to be the holder of record of the Common Shares
issuable upon conversion, notwithstanding that the stock
transfer
36
<PAGE>
books of the Corporation shall then be closed or that the
certificate(s) representing such Common Shares shall not then
be actually delivered to the holder. Subject to the provisions
hereof, immediately following the Effective Conversion Date,
the Corporation shall cause its transfer agent to issue and
deliver to such holder of Series E Preferred Shares a
certificate(s) for the number of Common Shares to which the
holder shall be entitled.
(C) Adjustment of Conversion Price.
(i) In the event that the Corporation shall (a) pay any
dividend on its Common Shares payable in Common Shares; (b)
effect a subdivision of its outstanding shares into a greater
number of Common Shares (by reclassification, stock split or
otherwise than by payment of a dividend in Common Shares); (c)
effect a combination or consolidation of its outstanding
Common Shares into a lesser number of Common Shares (by
reclassification, reverse split or otherwise); (d) issue by
reclassification, exchange or substitution of its Common
Shares any shares of capital stock of the Corporation or
effect any other transaction having similar effect, the
Conversion Price in effect immediately prior to such action
shall be adjusted so that upon the exercise of the conversion
right hereof at any time after the occurrence of any event
described above, the holder shall be entitled to receive the
Common Shares to which such holder would have been finally
entitled, after giving effect to the occurrence of such event,
as if such holder had converted the Series E Preferred Shares
immediately prior to the occurrence of such event. An
adjustment made pursuant to this paragraph (C) shall become
effective immediately after the record date in the case of a
dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination,
reclassification, exchange or substitution.
(ii) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification
of, or change (other than a change
37
<PAGE>
in par value or from par value to no par value or from no par
value to par value, or as a result of subdivision or
combination) in, outstanding Common Shares, then the
Corporation, or such successor corporation, as the case may
be, shall make appropriate provision so that the holder of
each Series E Preferred Share then outstanding shall have the
right to convert such share into the kind and amount of shares
or other securities and property receivable upon such
consolidation or merger by a holder of the number of Common
Shares into which such Series E Preferred Shares might have
been converted immediately prior to such consolidation or
merger.
(iii) In the event, as of June 30, 1996, the Common Shares are
listed on an Exchange or traded in the OTC Market and the June
1996 Common Share Price (as hereinafter defined) does not
equal or exceed the Conversion Price then in effect, the
Conversion Price shall thereupon, effective June 30, 1996, be
reduced to equal the June 1996 Common Share Price. As used
herein, (a) the term "June 1996 Common Share Price" shall mean
the average of the "market prices" of the Common Shares of the
Corporation during the last five (5) trading days immediately
preceding June 30, 1996 and (b) the term "market price" shall
mean the closing bid price or, if not available, the highest
bid price of the Common Shares as quoted on an Exchange or in
the OTC Market, as reported by NASDAQ or, if not available, by
NQBI.
(D) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Series E Preferred Shares. In lieu
of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay, in cash, an amount
equal to the product of (i) such fraction of a share times
(ii) the market price (as hereinabove defined) of one Common
Share on the Effective Conversion Date.
(E) Reservation of Shares Issuable Upon Conversion. The
Corporation shall at all times use its best efforts to reserve
and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of
the Series E Preferred
38
<PAGE>
Shares, such number of its Common Shares as shall from time to
time be sufficient to effect the conversion of all outstanding
Series E Preferred Shares, and if at any time the number of
authorized but unissued Common Shares shall not be sufficient
to effect the conversion of all then outstanding Series E
Preferred Shares, the Corporation will, as its sole
obligation, subject to the requirements of applicable state
law, take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued
Common Shares to such number of shares as shall be sufficient
for such purposes; provided, however that nothing contained
herein shall preclude the Corporation from satisfying its
obligations in respect of the conversion of the Series E
Preferred Shares by delivery of purchased Common Shares which
are held in the treasury of the Corporation.
(F) Lost, Stolen or Destroyed Certificates. In the event that
the holder shall notify the Corporation that the
certificate(s) representing Series E Preferred Shares have
been lost, stolen or destroyed and either (i) provide a
letter, in form satisfactory to the Corporation, to the effect
that he will indemnify the Corporation from any loss incurred
by it in connection therewith, and/or (ii) provide an
indemnity bond in such amount as is reasonably required by the
Corporation, the Corporation having the option of electing
either (i) or (ii) or both, the Corporation may, in its sole
discretion, accept such letter and/or indemnity bond in lieu
of the surrender of the certificate(s) as required by the
subsection (v).
(G) Statutory Restrictions. The foregoing provisions for
conversion of the Series E Preferred Shares shall be subject
to all applicable statutory limitations and restrictions.
(vi) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series E Preferred Shares
will be entitled to receive, prior and in preference to
any distribution of the assets or surplus funds of the
39
<PAGE>
Corporation to the holders of any Common Shares by reason of
the ownership thereof, and on a pari passu basis with the
holders of the Series A, Series B, Series C and Series D
Preferred Shares, if any, an amount equal to (i) the fixed sum
of two dollars eighty-one and one-quarter cents ($2.8125) per
share and no more and (ii) all accrued and unpaid dividends
due with respect to the Series E Preferred Shares (the
"Preferential Amount"). If, upon the occurrence of such an
event, the assets and funds thus distributed among the holders
of Series E Preferred Shares shall be insufficient to permit
the payment to such holders of the full Preferential Amount,
then, the entire assets and funds of the Corporation legally
available for distribution to the holders of the Series E
Preferred Shares shall be distributed ratably among such
holders in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were
paid in full. After the payment or setting apart of the full
Preferential Amounts required to be paid to the holders of
Series A, Series B, Series C, Series D and Series E Preferred
Shares, the holders of Common Shares or any other stock of the
Corporation ranking in liquidation junior to the Series A,
Series B, Series C, Series D and Series E Preferred Shares
shall be entitled to receive ratably all remaining assets or
surplus funds of the Corporation. Neither the merger or
consolidation of the Corporation, nor the sale, lease or
conveyance of all or part of its assets, shall be deemed to be
a liquidation, dissolution or winding up of the affairs of the
Corporation, either voluntarily or involuntarily, within the
meaning of this section.
(vii) Sinking Fund. The Series E Preferred Shares shall not be
entitled to the benefit of any sinking fund to be applied to
their purchase or redemption.
(h) Series F Preferred Shares. A series of Preferred Shares is
hereby created, to be limited in amount to 415,250 of the 5,000,000 authorized
Preferred Shares. The designation, relative rights, powers, preferences,
qualifications and limitations are as follows:
40
<PAGE>
(i) Designation of Series. The designation of the series of
Preferred Shares created hereby shall be Series F Preferred
Shares (hereinafter the "Series F Preferred Shares").
(ii) Dividends.
The holders of Series F Preferred Shares, on a pari passu
basis with the holders of the Corporation's Common Shares
(based upon the number of Common Shares into which the Series
F Preferred Shares are convertible), shall be entitled to
receive such dividends as may be declared by the Board of
Directors. Declared but unpaid dividends shall not bear
interest.
The rights of the holders of the Series F Preferred Shares
shall be junior and subordinate to the rights of the holders
of the Series A, Series B, Series C, Series D and Series E
Preferred Shares of the Corporation to receive dividends, as
well as to the right of any other series of Preferred Shares
of the Corporation hereafter created which shall have any
preferential right to receive dividends before the holders of
the Common Shares.
(iii) Voting Rights. The holders of the Series F Preferred Shares
shall be entitled to vote on all matters at all meetings of
the shareholders of the Corporation, and shall be entitled to
such number of votes for each Series F Preferred Share
entitled to vote at such meetings as is set forth below,
voting together with the holders of Common Shares, and other
Preferred Shares who are entitled to vote, if any such shares
are then outstanding, and not as a separate class, except as
required by law. The number of votes to which the holders of
the Series F Preferred Shares shall be entitled to vote for
each Series F Preferred Share shall equal the number of Common
Shares of the Corporation into which such Series F Preferred
Share is convertible.
41
<PAGE>
(iv) Redemption. The Corporation may elect, at its option, at any
time and from time to time, by notice given as provided below,
to redeem all or any part of the outstanding Series F
Preferred Shares, from any or all holders thereof, at a
redemption price of five dollars ($5.00) per share (the
"Redemption Price").
If the Corporation elects to redeem all or any part of the
outstanding Series F Preferred Shares, notice of such
redemption (the "Redemption Notice") shall be given by mailing
the same to every holder of record of any shares then to be
redeemed, not less than thirty (30) prior to the date fixed as
the date for the redemption thereof (the "Redemption Date"),
at the respective addresses of such holders as the same shall
appear on the stock transfer books of the Corporation. The
Redemption Notice shall state that the shares specified in
such notice will be redeemed by the Corporation at the
Redemption Price on the Redemption Date, upon the surrender
for cancellation, at the place designated in such notice, of
the certificate(s) representing the shares so to be redeemed,
properly endorsed for transfer, or accompanied by a proper
instrument of assignment and transfer, and bearing all
necessary transfer tax stamps thereto affixed and canceled.
Following receipt of the Redemption Notice and at any time
before the Redemption Date, each holder of shares called for
redemption may elect to convert all or any part of such shares
into Common Shares of the Corporation pursuant to and in
accordance with (v) below. On and after the Redemption Date,
each holder of shares called for redemption who has not
converted such shares shall be entitled to receive therefor,
in cash, the Redemption Price upon presentation and surrender
at the place designated in such notice of the certificate(s)
for shares held by such holder and called for redemption,
properly endorsed for transfer or accompanied by proper
instruments of assignment or transfer, and bearing all
necessary transfer tax stamps thereto affixed and
42
<PAGE>
canceled. If the Corporation shall give notice of redemption
as aforesaid, all shares called for redemption and not
converted shall be deemed to have been redeemed on the
Redemption Date, whether or not the certificates for said
shares shall be surrendered for redemption and cancellation,
and said shares so called for redemption shall from and after
said date cease to represent any interest whatever in the
Corporation or its property, and the holders thereof shall
have no rights other than the right to receive the Redemption
Price, without interest thereon.
(v) Conversion.
(A) Conversion Right and Price. Each Series F Preferred Share
shall be convertible, at the option of the holder thereof, at
the office of the Corporation, into such number of Common
Shares of the Corporation as is determined by dividing five
dollars ($5.00) by the Conversion Price (as hereinafter
defined). For purposes hereof, the term "Conversion Price"
shall mean five dollars ($5.00), subject to adjustment as
hereinafter set forth.
(B) Procedure. Before any holder of Series F Preferred Shares
shall be entitled to receive Common Shares upon conversion,
the holder shall (i)(a) surrender the certificate(s) therefor,
duly endorsed, at the office of the Corporation and (ii) shall
give written notice to the Corporation at such office that the
holder elects to convert the same into Common Shares and shall
further state therein the number of Series F Preferred Shares
being converted. Subject to the provisions hereof, effective
thirty (30) days following the later of the receipt by the
Corporation of the certificate(s) pursuant to and in
accordance with (i) above and the written notice pursuant to
and in accordance with (ii) above, or such shorter period of
time as the Board of Directors shall determine with respect to
any particular conversion (such thirtieth (30th) day or end of
shorter period of time being hereinafter referred to as the
"Effective
43
<PAGE>
Conversion Date"), the holder shall thereupon be deemed to be
the holder of record of the Common Shares issuable upon
conversion, notwithstanding that the stock transfer books of
the Corporation shall then be closed or that the
certificate(s) representing such Common Shares shall not then
be actually delivered to the holder. Subject to the provisions
hereof, immediately following the Effective Conversion Date,
the Corporation shall cause its transfer agent to issue and
deliver to such holder of Series F Preferred Shares a
certificate(s) for the number of Common Shares to which the
holder shall be entitled.
(C) Adjustment of Conversion Price.
(i) In the event that the Corporation shall (a) pay any
dividend on its Common Shares payable in Common Shares; (b)
effect a subdivision of its outstanding shares into a greater
number of Common Shares (by reclassification, stock split or
otherwise than by payment of a dividend in Common Shares); (c)
effect a combination or consolidation of its outstanding
Common Shares into a lesser number of Common Shares (by
reclassification, reverse split or otherwise); (d) issue by
reclassification, exchange or substitution of its Common
Shares any shares of capital stock of the Corporation or
effect any other transaction having similar effect, the
Conversion Price in effect immediately prior to such action
shall be adjusted so that upon the exercise of the conversion
right hereof at any time after the occurrence of any event
described above, the holder shall be entitled to receive the
Common Shares to which such holder would have been finally
entitled, after giving effect to the occurrence of such event,
as if such holder had converted the Series F Preferred Shares
immediately prior to the occurrence of such event. An
adjustment made pursuant to this paragraph (C) shall become
effective immediately after the record date in the case of a
dividend and shall become effective immediately after the
effective date in the case of a subdivision, combination,
reclassification, exchange or substitution.
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<PAGE>
(ii) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification
of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as
a result of subdivision or combination) in, outstanding Common
Shares, then the Corporation, or such successor corporation,
as the case may be, shall make appropriate provision so that
the holder of each Series F Preferred Share then outstanding
shall have the right to convert such share into the kind and
amount of shares or other securities and property receivable
upon such consolidation or merger by a holder of the number of
Common Shares into which such Series F Preferred Shares might
have been converted immediately prior to such consolidation or
merger.
(iii) In the event, as of October 10, 1997, the Common Shares
are listed on a national securities exchange (an "Exchange")
or traded in the over-the-counter market (the "OTC Market")
and the October 1997 Common Share Price (as hereinafter
defined) does not equal or exceed the Conversion Price then in
effect, the Conversion Price shall thereupon, effective
October 10, 1997, be reduced to equal the October 1997 Common
Share Price. As used herein, (a) the term "October 1997 Common
Share Price" shall mean the average of the "market prices" of
the Common Shares of the Corporation during the trading days
from October 1, 1997 through October 10, 1997 and (b) the term
"market price" shall mean the closing price or, if not
available, the average of the closing bid and asked prices or,
if not available, the average of the highest bid and lowest
asked prices of the Common Shares as quoted on an Exchange or
in the OTC Market, as reported by NASDAQ or, if not available,
by the National Quotation Bureau, Incorporated; provided,
however, that, in no event shall the Conversion Price be
reduced to less than three dollars fifty cents ($3.50) per
share (subject to adjustment pursuant to the provisions of
subparagraphs (i) and (ii) of this paragraph (C)) pursuant to
the
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<PAGE>
provisions of this subparagraph (iii). Any adjustment pursuant
to the provisions of this subparagraph (iii) shall apply only
to such Series F Preferred Shares which are outstanding as of
the effective date of the adjustment and shall not apply
retroactively with respect to any Series F Preferred Shares
theretofore converted.
(D) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Series F Preferred Shares. In lieu
of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay, in cash, an amount
equal to the product of (i) such fraction of a share times
(ii) the market price (as hereinabove defined) of one Common
Share on the Effective Conversion Date.
(E) Reservation of Shares Issuable Upon Conversion. The
Corporation shall at all times use its best efforts to reserve
and keep available out of its authorized but unissued Common
Shares, solely for the purpose of effecting the conversion of
the Series F Preferred Shares, such number of its Common
Shares as shall from time to time be sufficient to effect the
conversion of all outstanding Series F Preferred Shares, and
if at any time the number of authorized but unissued Common
Shares shall not be sufficient to effect the conversion of all
then outstanding Series F Preferred Shares, the Corporation
will, as its sole obligation, subject to the requirements of
applicable state law, take such corporate action as may, in
the opinion of its counsel, be necessary to increase its
authorized but unissued Common Shares to such number of shares
as shall be sufficient for such purposes; provided, however
that nothing contained herein shall preclude the Corporation
from satisfying its obligations in respect of the conversion
of the Series F Preferred Shares by delivery of purchased
Common Shares which are held in the treasury of the
Corporation.
(F) Lost, Stolen or Destroyed Certificates. In the
event that the holder shall notify the Corporation that
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<PAGE>
the certificate(s) representing Series F Preferred Shares have
been lost, stolen or destroyed and either (i) provide a
letter, in form satisfactory to the Corporation, to the effect
that he will indemnify the Corporation from any loss incurred
by it in connection therewith, and/or (ii) provide an
indemnity bond in such amount as is reasonably required by the
Corporation, the Corporation having the option of electing
either (i) or (ii) or both, the Corporation may, in its sole
discretion, accept such letter and/or indemnity bond in lieu
of the surrender of the certificate(s) as required by this
subsection (v).
(G) Statutory Restrictions. The foregoing provisions for
conversion of the Series F Preferred Shares shall be subject
to all applicable statutory limitations and restrictions.
(vi) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series F Preferred Shares will be
entitled to receive, prior and in preference to any
distribution of the assets or surplus funds of the Corporation
to the holders of any Common Shares by reason of the ownership
thereof, and on a pari passu basis with
the holders of the Series A, Series B, Series C, Series D and
Series E Preferred Shares, if any, an amount equal to the
fixed sum of five dollars ($5.00) per share and no more (the
"Preferential Amount"). If, upon the occurrence of such an
event, the assets and funds thus distributed among the holders
of Series F Preferred Shares shall be insufficient to permit
the payment to such holders of the full Preferential Amount,
then, the entire assets and funds of the Corporation legally
available for distribution to the holders of the Series F
Preferred Shares shall be distributed ratably among such
holders in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were
paid in full. After the payment or setting apart of the full
Preferential Amounts required to be paid to the holders of
Series A, Series B, Series
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<PAGE>
C, Series D, Series E and Series F Preferred Shares, the
holders of Common Shares or any other stock of the Corporation
ranking in liquidation junior to the Series A, Series B,
Series C, Series D, Series E and Series F Preferred Shares
shall be entitled to receive ratably all remaining assets or
surplus funds of the Corporation. Neither the merger or
consolidation of the Corporation, nor the sale, lease or
conveyance of all or part of its assets, shall be deemed to be
a liquidation, dissolution or winding up of the affairs of the
Corporation, either voluntarily or involuntarily, within the
meaning of this section.
(vii) Sinking Fund. The Series F Preferred Shares shall not be
entitled to the benefit of any sinking fund to be applied to
their purchase or redemption.
(i) Series G Preferred Shares. A series of Preferred Stock is
hereby created, to be limited in amount to 145,000 of the 5,000,000 authorized
shares of Preferred Stock. The designation, relative rights, powers,
preferences, qualifications and limitations are as follows:
Section 1. Designation, Amount and Par Value. The
---------------------------------
series of Preferred Stock shall be designated as the Series G Convertible
Preferred Stock (the "Series G Preferred Stock"), and the number of shares so
designated shall be 145,000, of which 20,000 is reserved for issuance solely for
payment of stock dividends, if any, hereunder. The par value of each share of
Preferred Stock shall be $.001. Each share of Preferred Stock shall have a
stated value of $20 per share (the "Stated Value"). The Series G Preferred Stock
shall rank, with respect to dividends and distributions upon a Liquidation (as
hereinafter defined) or otherwise, pari passu with each other series of
preferred stock of the Company outstanding as of the Original Issue Date,
including without limitation the Company's Series B Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred
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<PAGE>
Stock, and shall rank pari passu with respect to dividends and distributions
upon a Liquidation or otherwise with each other series of preferred stock of the
Company hereafter created unless the terms of such other series of preferred
stock expressly states that such series ranks junior to the Series G Preferred
Stock. All such other series of preferred stock ranking pari passu with the
Series G Preferred Stock is referred to as the "Other Preferred Stock."
Section 2. Dividends.
----------------------
(a) Holders of Series G Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) equal to 5% per annum,
payable, in cash or (at the Company's option) shares of Common Stock or
additional Series G Preferred Stock, which the Company shall immediately convert
into shares of Common Stock at the Conversion Ratio (as hereinafter defined), in
arrears on the Conversion Date (as hereinafter defined) without interest.
Dividends on the Series G Preferred Stock shall accrue daily commencing the
Original Issue Date (as defined in Section 7) and shall be deemed to accrue on
such date whether or not earned or declared and whether or not there are
profits, surplus or other funds of the Company legally available for the payment
of dividends. The party that holds the Series G Preferred Stock on an applicable
record date for any dividend payment will be entitled to receive such dividend
payment and any other accrued and unpaid dividends which accrued prior to such
dividend payment date, without regard to any sale or disposition of such Series
G Preferred Stock subsequent to the applicable record date but prior to the
applicable dividend payment date. Except as otherwise provided herein, if at any
time the Company pays less than the total amount of dividends then accrued to
the Series G Preferred Stock, such payment shall be distributed ratably among
the holders of such series based upon the number of shares held by each holder.
(b) So long as any Series G Preferred Stock shall remain
outstanding, neither the Company nor any subsidiary thereof shall redeem,
purchase or otherwise acquire directly or indirectly any Junior Securities (as
defined in Section 7), nor shall the Company
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<PAGE>
directly or indirectly pay or declare any dividend or make any distribution
(other than a dividend or distribution described in Section 5) upon, nor shall
any distribution be made in respect of, any Junior Securities, nor shall any
monies be set aside for or applied to the purchase or redemption (through a
sinking fund or otherwise) of any Junior Securities unless all dividends on the
Series G Preferred Stock for all past dividend periods shall have been paid.
Section 3. Voting Rights. The holders of Series G Preferred
---------------------------
Stock shall be entitled vote on all matters for which holders of the Company's
Common Stock are entitled to vote, and shall vote together with such Common
Stock as a single class. Each share of Series G Preferred Stock shall be
entitled to the number of votes on such matters as equals the number of shares
of Common Stock issuable upon conversion of such share of Series G Preferred
Stock had such share been converted on the Original Issue Date in accordance
with the terms hereof. So long as any shares of Series G Preferred Stock are
outstanding, the Company shall not, without the affirmative vote of the holders
of a majority of the shares of the Series G Preferred Stock then outstanding,
(i) alter or change adversely the powers, preferences or rights given to the
Series G Preferred Stock (except that the foregoing shall not be construed to
limit the ability of the Company, without the vote of such holders, to grant
such voting rights or, subject to the other provisions set forth herein,
conversion rights, as it may determine with regard to shares of its capital
stock now or hereafter authorized) or (ii) authorize or create any class of
stock ranking as to dividends or distribution of assets upon a Liquidation (as
defined below) senior to, or prior to the Series G Preferred Stock.
Section 4. Liquidation. Upon any liquidation, dissolution or
-----------------------
winding-up of the Company, whether voluntary or involuntary (a "Liquidation"),
the holders of shares of Series G Preferred Stock shall be entitled to receive
out of the assets of the Company, whether such assets are capital or surplus,
for each share of Series G Preferred Stock an amount equal to the Stated Value,
plus an amount equal to accrued but unpaid dividends per share, whether declared
or not, but without interest, before any distribution or payment shall be made
to the holders of any Junior Securities, and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be
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<PAGE>
distributed shall be distributed among the holders of Series G Preferred Stock
ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of shall
be deemed a Liquidation; provided that, a consolidation or merger of the Company
with or into any other company or companies shall not be treated as a
Liquidation, but instead shall be subject to the provisions of Section 5. The
Company shall mail written notice of any such liquidation, not less than 45 days
prior to the payment date stated therein, to each record holder of Series G
Preferred Stock.
Section 5. Conversion.
-----------------------
(a) Each share of Preferred Stock shall be convertible into
shares of Common Stock at the Conversion Ratio at the option of the holder in
whole or in part at any time after the expiration of the earlier to occur of (i)
90 days after the Original Issue Date and (ii) the date that the Securities and
Exchange Commission (the "Commission") declares effective under the Securities
Act of 1933, as amended (the "Securities Act"), the registration statement (the
"Registration Statement") contemplated by the Registration Rights Agreement (the
"Registration Rights Agreement"), by and between the Company and the original
holder of Series G Preferred Stock relating to the Series G Preferred Stock and
the shares of Common Stock into which the Series G Preferred Stock is
convertible in accordance with the terms hereof. Any conversion under this
Section 5(a) shall be of a minimum amount of at least 1,000 shares of Series G
Preferred Stock. The holder shall effect conversions by surrendering the
certificate or certificates representing the shares of Series G Preferred Stock
to be converted to the Company, together with the form of conversion notice
attached hereto as Exhibit A (the "Holder Conversion Notice") in the manner set
forth in Section 5(j). Each Holder Conversion Notice shall specify the number of
shares of Series G Preferred Stock to be converted and the date on which such
conversion is to be effected, which date may not be prior to the date the holder
delivers such Notice by facsimile (the "Holder Conversion Date"). Subject to
Section 5(c) and, as to the original holder (or its sole designee), subject to
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<PAGE>
Section 3.11 of the Purchase Agreement (as defined in Section 7), each Holder
Conversion Notice, once given, shall be irrevocable. If the holder is converting
less than all shares of Series G Preferred Stock represented by the certificate
or certificates tendered by the holder with the Holder Conversion Notice, the
Company shall promptly deliver to the holder a certificate for such number of
shares as have not been converted.
(b) Provided that 10 Trading Days shall have elapsed from the
date the Commission declared the Registration Statement effective under the
Securities Act, each share of the Series G Preferred Stock shall be convertible
into shares of Common Stock at the Conversion Ratio at the option of the Company
in whole or in part at any time on or after the expiration of one year after the
Original Issue Date; provided, however, that the Company is not permitted to
deliver a Company Conversion Notice (as defined below) within 10 days of issuing
any press release or other public statement relating to such conversion. The
Company shall effect such conversion by delivering to the holders of such shares
of Series G Preferred Stock to be converted a written notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"), which Company
Conversion Notice, once given, shall be irrevocable. Each Company Conversion
Notice shall specify the number of shares of Preferred Stock to be converted and
the date on which such conversion is to be effected, which date will be at least
one Trading Day after the date the Company delivers such Notice by facsimile to
the holder (the "Company Conversion Date"). The Company shall give such Company
Conversion Notice in accordance with Section 5(j) below at least one Trading Day
before the Company Conversion Date. Any such conversion shall be effected on a
pro rata basis among the holders of Series G Preferred Stock. Upon the
conversion of shares of Series G Preferred Stock pursuant to a Company
Conversion Notice, the holders of the Series G Preferred Stock shall surrender
the certificates representing such shares at the office of the Company or of any
transfer agent for the Series G Preferred Stock or Common Stock. If the Company
is converting less than all shares of the Series G Preferred Stock, the Company
shall, upon conversion of such shares subject to such Company Conversion Notice
and receipt of the certificate or certificates representing such shares of
Series G Preferred Stock deliver to the holder or holders a certificate for such
number of shares of Series G Preferred Stock as have not been converted. Each of
a Holder
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Conversion Notice and a Company Conversion Notice is sometimes referred to
herein as a "Conversion Notice," and each of a "Holder Conversion Date" and a
"Company Conversion Date" is sometimes referred to herein as a "Conversion
Date."
(c) (i) If on any Conversion Date for any shares of Series G
Preferred Stock applicable to any conversion under Section 5(a) or 5(b), the
average Per Share Market Value of the Common Stock for the five (5) Trading Days
immediately preceding the Conversion Date exceeds 150% of the Initial Conversion
Price (as hereinafter defined), the number of shares issuable upon conversion of
such shares of Series G Preferred Stock shall be reduced by a number of shares
equal to 50% of (A) the amount by which such Per Share Market Value exceeds 150%
of the Initial Conversion Price, divided by (B) such average Per Share Market
Value, times (C) the number of shares which would otherwise be issuable upon
such conversion, but for the reduction provided for in this Section 5(c)(i).
(ii) Not later than three Trading Days after the
Conversion Date, the Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(other than those then required by law and as set forth in the Purchase
Agreement), representing the number of shares of Common Stock being acquired
upon the conversion of shares of Series G Preferred Stock and (ii) one or more
certificates representing the number of shares of Series G Preferred Stock not
converted; provided, however that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion of
any shares of Series G Preferred Stock until certificates evidencing such shares
of Series G Preferred Stock are either delivered for conversion to the Company
or any transfer agent for the Series G Preferred Stock or Common Stock, or the
holder notifies the Company that such certificates have been lost, stolen or
destroyed and provides a bond (or other adequate security reasonably acceptable
to the Company) satisfactory to the Company to indemnify the Company from any
loss incurred by it in connection therewith. The Company shall, upon request of
the holder, use its best efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section 5(c) electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. In the case of a
53
<PAGE>
conversion pursuant to a Holder Conversion Notice, if such certificate or
certificates are not delivered by the date required under this Section 5(c), the
holder shall be entitled by written notice to the Company at any time on or
before such holder's receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
(d) (i) The conversion price for each share of Series G
Preferred Stock (the "Conversion Price") in effect on any Conversion Date shall
be the lesser of (a) the average Per Share Market Value for the five (5) Trading
Days immediately preceding the Original Issuance Date (the "Initial Conversion
Price") and (b) 80% of the average Per Share Market Value for the five (5)
Trading Days immediately preceding the Conversion Date; provided, however, that
the percentage set forth in clause (b) above is subject to reduction in
accordance with the Registration Rights Agreement.
(ii) If the Company, at any time while any shares
of Series G Preferred Stock are outstanding, (a) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Junior
Securities payable in shares of its capital stock (whether payable in shares of
its Common Stock or of capital stock of any class), (b) subdivide outstanding
shares of Common Stock into a larger number of shares, (c) combine outstanding
shares of Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Initial Conversion Price designated in Section 5(d)(i)(a) shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 5(d)(ii) shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(iii) If the Company, at any time while any shares
of Series G Preferred Stock are outstanding, shall issue rights or
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<PAGE>
warrants to all holders of Common Stock (and not to the holders of the Series G
Preferred Stock) entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Initial Conversion Price designated in
Section 5(d)(i)(a) shall be multiplied by a fraction, of which the denominator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate offering
price of the total number of shares so offered would purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase Common Stock
the issuance of which resulted in an adjustment in the Initial Conversion Price
designated in Section 5(d)(i)(a) pursuant to this Section 5(d)(iii), if any such
right or warrant shall expire and shall not have been exercised, the Initial
Conversion Price designated in Section 5(d)(i)(a) shall immediately upon such
expiration be recomputed and effective immediately upon such expiration be
increased to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the provisions of this
Section 5 after the issuance of such rights or warrants) had the adjustment of
the Conversion Price made upon the issuance of such rights or warrants been made
on the basis of offering for subscription or purchase only that number of shares
of Common Stock actually purchased upon the exercise of such rights or warrants
actually exercised.
(iv) If the Company, at any time while shares of
Series G Preferred Stock are outstanding, shall distribute to all holders of
Common Stock (and not to holders of Series G Preferred Stock) evidences of its
indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Section 5(d)(iii) above) then in each
such case the Initial Conversion Price at which each share of Series G Preferred
Stock shall thereafter be convertible shall be determined by
55
<PAGE>
multiplying the Initial Conversion Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of Common Stock determined as of the record date mentioned above,
and of which the numerator shall be such Per Share Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
in good faith; provided, however that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, such fair market value shall
be determined by a nationally recognized or major regional investment banking
firm or firm of independent certified public accountants of recognized standing
(which may be the firm that regularly examines the financial statements of the
Company) (an "Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Series G Preferred Stock; and provided, further that
the Company, after receipt of the determination by such Appraiser shall have the
right to select an additional Appraiser, in which case the fair market value
shall be equal to the average of the determinations by each such Appraiser. In
either case the adjustments shall be described in a statement provided to all
holders of Preferred Stock of the portion of assets or evidences of indebtedness
so distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.
(v) All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the
case may be.
(vi) Whenever the Initial Conversion Price is
adjusted pursuant to Section 5(d)(ii),(iii), (iv) or (v), the Company shall
promptly mail to each holder of Series G Preferred Stock, a notice setting forth
the Initial Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(vii) In case of any reclassification of the
Common Stock, any consolidation or merger of the Company with or
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<PAGE>
into another person, the sale or transfer of all or substantially all of the
assets of the Company or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or property, the holders
of the Series G Preferred Stock then outstanding shall have the right thereafter
to convert such shares only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the holders of the Series G Preferred Stock shall be entitled upon
such event to receive such amount of securities or property as the shares of the
Common Stock of the Company into which such shares of Series G Preferred Stock
could have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange would have been
entitled. The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the holder of
Series G Preferred Stock the right to receive the securities or property set
forth in this Section 5(d)(vii) upon any conversion following such
consolidation, merger, sale, transfer or share exchange. This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(viii) If:
(a) the Company shall declare a dividend
(or any other distribution) on its
Common Stock; or
(b) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(c) the Company shall authorize the
granting to all holders of the
Common Stock rights or warrants to
subscribe for or purchase any shares
of capital stock of any class or of
any rights; or
(d) the approval of any stockholders of
the Company shall be required in
connection with any reclassification
of the Common Stock of the Company
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<PAGE>
(other than a subdivision or combination
of the outstanding shares of Common
Stock), any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of
the assets of the Company, or any
compulsory share exchange whereby the
Common Stock is converted into other
securities, cash or property; or
(e) the Company shall authorize the
voluntary or involuntary
dissolution, liquidation or winding-
up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of Series G Preferred Stock, and shall cause to be
mailed to the holders of Preferred Stock at their last addresses as they shall
appear upon the stock books of the Company, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding-up
is expected to become effective, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up; provided, however, that the failure to
mail such notice or any defect therein or in the mailing thereof shall not
affect the validity of the corporate action required to be specified in such
notice.
(ix) In any case in which this Section shall require
that an adjustment be made effective as of the record date for a
specified event, the Company may elect to defer until occurrence of
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such event (A) issuing to the holder, if Series G Preferred Stock is to be
converted after such record date, the Underlying Shares and other capital stock
of the Company, if any, issuable upon such conversion over and above the
Underlying Shares and other capital stock of the Company, if any, issuable upon
such conversion thereof on the basis of the Conversion Price prior to adjustment
and (B) paying to the holder any amount in cash in lieu of a fractional share
pursuant to the terms hereof, provided, however, that the Company shall deliver
to the holder a due bill or other appropriate instrument evidencing the holder's
right to receive such additional Underlying Shares, other capital stock and/or
cash upon the occurrence of the event requiring such adjustment.
(e) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially and
adversely affect the rights of the holders of Series G Preferred Stock
(different than or distinguished from the effect generally on rights of holders
of any class of the Company's capital stock) or if at any time any such
conditions are expected to arise by reason of any action contemplated by the
Company, the Company shall mail a written notice briefly describing the action
contemplated and the material adverse effects of such action on the rights of
the holders of Series G Preferred Stock at least 20 calendar days prior to the
effective date of such action, and an Appraiser selected by the holders of
majority in interest of the Series G Preferred Stock shall give its opinion as
to the adjustment, if any (not inconsistent with the standards established in
this Section 5), of the Conversion Price (including, if necessary, any
adjustment as to the securities into which shares of Series G Preferred Stock
may thereafter be convertible) and any distribution which is or would be
required to preserve without diluting the rights of the holders of shares of
Series G Preferred Stock; provided, however, that the Company, after receipt of
the determination by such Appraiser, shall have the right to select an
additional Appraiser, in which case the adjustment shall be equal to the average
of the adjustments recommended by each such Appraiser. The Board of Directors
shall make the adjustment recommended forthwith upon the receipt of such opinion
or opinions or the taking of any such action contemplated, as the case may be;
provided, however, that no such adjustment of the Conversion Price shall be made
which in the
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opinion of the Appraiser(s) giving the aforesaid opinion or opinions would
result in an increase of the Conversion Price to more than the Conversion Price
then in effect.
(f) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely for
the purpose of issuance upon conversion of Series G Preferred Stock as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the holders of Series G Preferred Stock, such
number of shares of Common Stock as shall be issuable (taking into account the
adjustments and restrictions of Section 5(b) and Section 5(d) hereof) upon the
conversion of all outstanding shares of Series G Preferred Stock, and in no
circumstances shall such reserved and available shares of Common Stock be less
than twice the number of shares of Common Stock which would be issuable upon
conversion of the Series G Preferred Stock were such conversion effected on the
Original Issue Date. The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly authorized, issued
and fully paid and nonassessable.
(g) Upon a conversion hereunder the Company shall not be
required to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. If
the Company elects not, or is unable, to make such a cash payment, the holder of
a share of Series G Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.
(h) The issuance of certificates for shares of Common Stock on
conversion of Series G Preferred Stock shall be made without charge to the
holders thereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the holder of such shares of Preferred
Stock so converted and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
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(i) Shares of Series G Preferred Stock converted into Common
Stock or redeemed pursuant to the terms hereof shall be canceled and shall have
the status of authorized but unissued shares of preferred stock.
(j) Each Holder Conversion Notice shall be given by facsimile
and by mail, postage prepaid, addressed to the attention of the Chief Financial
Officer of the Company at the facsimile telephone number and address of the
principal place of business of the Company. Each Company Conversion Notice shall
be given by facsimile and by mail, postage prepaid, addressed to each holder of
Series G Preferred Stock at the facsimile telephone number and address of such
holder appearing on the books of the Company or provided to the Company by such
holder for the purpose of such Company Conversion Notice, or if no such
facsimile telephone number or address appears or is so provided, at the
principal place of business of the holder. Any such notice shall be deemed given
and effective upon the earliest to occur of (i)(a) if such Conversion Notice is
delivered via facsimile at the facsimile telephone number specified in this
Section 5(j) prior to 6:00 p.m. (Eastern Standard Time) on any date, such date
(or, in the case of a Company Conversion Notice, the next Trading Day) or such
later date as is specified in the Conversion Notice, and (b) if such Conversion
Notice is delivered via facsimile at the facsimile telephone number specified in
this Section 5(j) after 6:00 p.m. (Eastern Standard Time) on any date, the next
date (or, in the case of a Company Conversion Notice, the next Trading Day after
such next day) or such later date as is specified in the Conversion Notice, (ii)
five days after deposit in the United States mails or (iii) upon actual receipt
by the party to whom such notice is required to be given.
Section 6. Company Redemption Option.
--------------------------------------
The Company may, at its option, redeem any outstanding and
unconverted Series G Preferred Stock on the third anniversary of the Original
Issue Date (the "Optional Redemption Date"), provided that the Company notifies
the holders thereof no later than the third business day prior to the Optional
Redemption Date of its intention to do so.
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If the Company elects to redeem such outstanding and
unconverted shares of Series G Preferred Stock, the redemption price per share
(the "Optional Redemption Price") shall equal the Conversion Price on the
Optional Redemption Date and shall be paid by the Company to the holders of such
unconverted Series G Preferred Stock on the Optional Redemption Date. If any
portion of the Optional Redemption Price shall not be paid by the Company within
7 calendar days after the Optional Redemption Date, such Optional Redemption
Price shall be increased by an amount accruing from the 7th day to the 21st day
after the Optional Redemption Date at the rate of 5% per annum, from the 22nd
day to the 60th day at 8% per annum and from the 61st day until paid at the rate
of 12% per annum. However, if any portion of the Optional Redemption Price
remains unpaid more than 7 calendar days after the Optional Redemption Date,
then the holder may elect, by written notice to the Company given within 45 days
after the Optional Redemption Date, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth in Section 5
for a conversion at the option of the holder hereof of all Series G Preferred
Shares for which the Optional Redemption Price, plus interest, has not been paid
in full (the "Unpaid Optional Redemption Shares"), in which event the Per Share
Market Price for such shares shall be the lower of the Per Share Market Price
calculated on the Optional Redemption Date and the Per Share Market Price as of
the holder's written demand for conversion, or (ii) demand that the Company
withdraw its election to force such redemption. If the holder elects option (i)
above, the Company shall within three business days of its receipt of such
election deliver to the holder the shares of Common Stock issuable upon
conversion of the Unpaid Shares subject to such holder conversion demand and
otherwise perform its obligations hereunder with respect thereto; or, if the
Holder elects option (ii) above, the Company shall promptly, and in any event
not later than three business days from receipt of holder's notice of such
election, return to the holder all of the Unpaid Optional Redemption Shares.
Section 7. Definitions. For the purposes hereof, the
-----------------------
following terms shall have the following meanings:
"Common Stock" means shares now or hereafter authorized
of the class of Common Stock, par value $.001, of the Company and
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stock of any other class into which such shares may hereafter have been
reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which
the numerator is Stated Value plus accrued but unpaid dividends (which shall not
include dividends paid upon conversion) and of which the denominator is the
Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company, except the Other Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Series G Preferred Stock regardless of the number
of transfers of any particular shares of Series G Preferred Stock and regardless
of the number of certificates which may be issued to evidence such Series G
Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The NASDAQ
SmallCap Market or other market or stock exchange on which the Common Stock has
been listed or if there is no such price on such date, then the closing bid
price on such market or exchange on the date nearest preceding such date, or (b)
if the Common Stock is not listed on The NASDAQ SmallCap Market or any market or
stock exchange, the closing bid for a share of Common Stock in the
over-the-counter market, as reported by the NASDAQ Stock Market at the close of
business on such date, or (c) if the Common Stock is not quoted on the NASDAQ
Stock Market, the closing bid price for a share of Common Stock in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions of
reporting prices), of (d) if the Common Stock is no longer reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period as determined by the holder, or
(e) if the Common Stock is no longer publicly traded the fair market value of a
share of Common Stock as determined by an Appraiser (as defined in Section
5(d)(iv) above) selected in good faith by the holders of a majority in interest
of the shares of the Series G Preferred Stock; provided, however, that the
Company, after receipt of the determination by such Appraiser, shall have the
right to select an additional Appraiser, in which
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case, the fair market value shall be equal to the average of the determinations
by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred
Stock Purchase Agreement between the Company and the original
holder of the Series G Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is
traded on The NASDAQ SmallCap Market or principal stock exchange on which the
Common Stock has been listed, or (b) if the Common Stock is not listed on The
NASDAQ SmallCap Market or any stock exchange, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the NASDAQ Stock Market,
or (c) if the Common Stock is not quoted on the NASDAQ Stock Market, a day on
which the Common Stock is quoted in the over-the-counter market as reported by
the National Quotation Bureau Incorporated (or any similar organization or
agency succeeding its functions of reporting prices).
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EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Series G Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series G
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value U.S.$.001 per share (the "Common Stock"), of AMNEX, Inc. (the "Company")
according to the conditions hereof, as of the date written below. If shares are
to be issued in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Company
in accordance therewith. No fee will be charged to the Holder for any
conversion, except for such transfer taxes, if any.
Conversion calculations: ___________________________________________________
Date to Effect Conversion
---------------------------------------------------
Number of shares of Series G Preferred
Stock to be Converted
---------------------------------------------------
Applicable Conversion Price
---------------------------------------------------
Signature
---------------------------------------------------
Name:
---------------------------------------------------
Address:
The Company undertakes to promptly upon its receipt of this conversion
notice (and, in any case prior to the time it effects the conversion requested
hereby), notify the converting holder by facsimile of the number of shares of
Common Stock outstanding on such date and the number of shares of Common Stock
which would be issuable to the holder if the conversion requested in this
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conversion notice were effected in full, whereupon, the holder may, within one
day of the notice from the Company, revoke the conversion requested hereby to
the extent that it determines that such conversion would result in it owning in
excess of 4.9% of the outstanding shares of Common Stock on such date, and the
Company shall issue to the holder one or more certificates representing shares
of Series G Preferred Stock which have not been converted as a result of this
provision. If the holder waives the applicability of this limitation by notice
to the Company delivered upon its receipt of the Company's notice regarding the
number of outstanding shares of Common Stock or if the Purchaser fails to
respond to the Company's notice within one day thereafter, the Company shall
effect in full the conversion requested in this notice.
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EXHIBIT B
AMNEX, INC.
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of AMNEX, Inc. (the "Company") hereby
notifies the addressee hereof that the Company hereby elects to exercise its
right to convert [ ] shares of its Series G Convertible Preferred Stock held by
the Holder into shares of Common Stock, par value U.S.$.001 per share (the
"Common Stock") of the Company according to the terms hereof, as of the date
written below. No fee will be charged to the Holder for any conversion
hereunder, except for such transfer taxes, if any which may be incurred by the
Company if shares are to be issued in the name of a person other than the person
to whom this notice is addressed.
Conversion calculations: ___________________________________________________
Date to Effect Conversion
---------------------------------------------------
Number of Shares of Preferred Stock
to be Converted
---------------------------------------------------
Applicable Conversion Price
---------------------------------------------------
Number of Shares of Common Stock
Outstanding as at the Close of Trading on
the Conversion Date
AMNEX, INC.
By:________________________________________________
Title:__________________________________________
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(j) Series L Preferred Shares. A series of Preferred Shares is hereby
created, to be limited in amount to 200,000 of the 5,000,000 authorized
Preferred Shares. The designation, relative rights, powers, preferences,
qualifications and limitations are as follows:
(i) Designation of Series. The designation of the series of
Preferred Shares created hereby shall be Series L Preferred
Shares (hereinafter the "Series L Preferred Shares").
(ii) Dividends. The holders of Series L Preferred Shares, on a pari
passu basis with the holders of the Corporation's Common
Shares (based upon the number of Common Shares into which the
Series L Preferred Shares are convertible), Series F Preferred
Shares and any other series of Preferred Shares of the
Corporation hereafter created which shall have a pari passu
right with the holders of the Common Shares to receive
dividends, shall be entitled to receive such dividends as may
be declared by the Board of Directors. Declared but unpaid
dividends shall not bear interest.
The rights of the holders of the Series L Preferred Shares
shall be junior and subordinate to the rights of the holders
of the Series A, Series B, Series C, Series D, Series E and
Series G Preferred Shares of the Corporation to receive
dividends, as well as to the right of any other series of
Preferred Shares of the Corporation hereafter created which
shall have any preferential right to receive dividends before
the holders of the Common Shares.
(iii) Voting Rights. The holders of the Series L Preferred Shares
shall be entitled to vote on all matters at all meetings of
the shareholders of the Corporation, and shall be entitled to
such number of votes for each Series L Preferred Share
entitled to vote at such meetings as is set forth below,
voting together with the holders of Common Shares, and other
Preferred Shares who are entitled to vote, if any such shares
are then outstanding, and not as a separate class, except as
required by law. The number of votes to which the holders of
the Series L Preferred Shares shall be entitled to vote for
each Series L Preferred Share shall equal the number of Common
Shares of the Corporation into which such Series L Preferred
Share would convert upon the occurrence of the Mandatory
Conversion Event(as hereinafter defined).
(iv) Redemption. The Series L Preferred Shares shall not be
subject to mandatory redemption by either the Corporation
or the holders thereof.
(v) Conversion.
(A) Mandatory Conversion Event and Price. Immediately upon the
filing with the Secretary of State of New York of the
Certificate of Amendment (as hereinafter defined) (the
"Mandatory Conversion Event"), each Series L Preferred Share
shall convert into fifteen (15) Common Shares of the
Corporation (the "Conversion Ratio"), subject to adjustment as
hereinafter set forth.
(B) Procedure. Before any holder of Series L Preferred Shares
shall be entitled to receive Common Shares upon conversion,
the holder shall surrender the certificate(s) therefor, duly
endorsed, at the principal offices of the Corporation. Subject
to the provisions hereof, effective upon the occurrence of the
Mandatory Conversion Event (the "Effective Conversion Date"),
the holder shall thereupon be deemed to be the holder of
record of the Common Shares issuable upon conversion,
notwithstanding that the stock transfer books of the
Corporation shall then be closed or that the certificate(s)
representing such Common Shares shall not then be actually
delivered to the holder. Subject to the provisions hereof,
promptly following the Effective Conversion Date, the
Corporation shall cause its transfer agent to issue and
deliver to such holder of Series L Preferred Shares a
certificate for the number of Common Shares to which the
holder shall be entitled.
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(C) Adjustment of Conversion Ratio.
(i) In the event that the Corporation shall (a) pay any
dividend on its Common Shares payable in Common Shares; (b)
effect a subdivision of its outstanding shares into a greater
number of Common Shares (by reclassification, stock split or
otherwise than by payment of a dividend in Common Shares); (c)
effect a combination or consolidation of its outstanding
Common Shares into a lesser number of Common Shares (by
reclassification, reverse split or otherwise); (d) issue by
reclassification, exchange or substitution of its Common
Shares any shares of capital stock of the Corporation or
effect any other transaction having similar effect, the
Conversion Ratio in effect immediately prior to such action
shall be adjusted so that, in the event of the occurrence of
the Mandatory Conversion Event at any time after the
occurrence of any event described above, the holder shall be
entitled to receive the Common Shares to which such holder
would have been finally entitled, after giving effect to the
occurrence of such event, as if such holder had converted the
Series L Preferred Shares immediately prior to the occurrence
of such event. An adjustment made pursuant to this paragraph
(C) shall become effective immediately after the record date
in the case of a dividend and shall become effective
immediately after the effective date in the case of a
subdivision, combination, reclassification, exchange or
substitution.
(ii) In case of any consolidation or merger to which the
Corporation is a party, other than a merger or consolidation
in which the Corporation is the surviving or continuing
corporation and which does not result in any reclassification
of, or change (other than a change in par value or from par
value to no par value or from no par value to par value, or as
a result of subdivision or combination) in, outstanding Common
Shares, then the Corporation, or such successor corporation,
as the case may be, shall make appropriate provisions so that
the holder of each Series L Preferred Share then outstanding
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shall have the right to convert such share into the kind and
amount of shares or other securities and property receivable
upon such consolidation or merger by a holder of the number of
Common Shares into which such Series L Preferred Shares might
have been converted immediately prior to such consolidation or
merger.
(D) Fractional Shares. No fractional Common Shares shall be
issued upon conversion of Series L Preferred Shares. In lieu
of any fractional shares to which the holder would otherwise
be entitled, the Corporation shall pay, in cash, an amount
equal to the product of (i) such fraction of a share times
(ii) the market price of one Common Share on the Effective
Conversion Date.
(E) Reservation of Shares Issuable Upon Conversion. The
Corporation shall at all times reserve and keep available out
of its authorized but unissued Common Shares, solely for the
purpose of effecting the conversion of the Series L Preferred
Shares, such number of its Common Shares as shall from time to
time be sufficient to effect the conversion of all outstanding
Series L Preferred Shares; provided, however, that nothing
contained herein shall preclude the Corporation from
satisfying its obligations in respect of the conversion of the
Series L Preferred Shares by delivery of Common Shares which
are held in the treasury of the Corporation. Notwithstanding
the foregoing, the Corporation shall not be obligated to
reserve and keep available out its authorized but unissued
Common Shares, or issue, any Common Shares to the holders of
the Series L Preferred Shares unless and until it shall have
filed with the Secretary of State of New York a Certificate of
Amendment of its Certificate of Incorporation as a result of
which there will be a sufficient number of authorized Common
Shares of the Corporation available for issuance upon the
conversion of the Series L Preferred Shares and the exercise
of any and all outstanding purchase, exchange or conversion
rights for the acquisition of Common Shares of the Corporation
(the "Certificate of Amendment").
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(F) Lost, Stolen or Destroyed Certificates. In the event that
the holder shall notify the Corporation that the
certificate(s) representing Series L Preferred Shares have
been lost, stolen or destroyed and either (i) provide a
letter, in form satisfactory to the Corporation, to the effect
that he will indemnify the Corporation from any loss incurred
by it in connection therewith, and/or (ii) provide an
indemnity bond in such amount as is reasonably required by the
Corporation, the Corporation having the option of electing
either (i) or (ii) or both, the Corporation may, in its sole
discretion, accept such letter and/or indemnity bond in lieu
of the surrender of the certificate(s) as required by this
subsection (v).
(G) Statutory Restrictions. The foregoing provisions for
conversion of the Series L Preferred Shares shall be subject
to all applicable statutory limitations and restrictions.
(vi) Liquidation Preference. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation, the holders of Series L Preferred Shares
will be entitled to receive, prior and in preference to
any distribution of the assets or surplus funds of the
Corporation to the holders of any Common Shares by reason
of the ownership thereof, and on a pari passu basis with
the holders of the Series A, Series B, Series C, Series
D, Series E, Series F, and Series G Preferred Shares and
any Series H, Series I, Series J, and/or Series K
Preferred Shares hereafter authorized, an amount equal to
the fixed sum of forty-five dollars and forty-five cents
($45.45) per share and no more (the "Preferential
Amount"). If, upon the occurrence of such an event, the
assets and funds thus distributed among the holders of
Series L Preferred Shares shall be insufficient to permit
the payment to such holders of the full Preferential
Amount, then, the entire assets and funds of the
Corporation legally available for distribution to the
holders of the Series L Preferred Shares shall be
distributed ratably among such holders in accordance with
the respective amounts which would be payable on such
shares if all amounts payable thereon were paid in full.
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After the payment or setting apart of the full Preferential
Amounts required to be paid to the holders of Series A, Series
B, Series C, Series D, Series E, Series F, Series G and Series
L Preferred Shares and any Series H, Series I, Series J and/or
Series K Preferred Shares hereafter authorized, the holders of
Common Shares or any other stock of the Corporation ranking in
liquidation junior to the Series A, Series B, Series C, Series
D, Series E, Series F, Series G and Series L Preferred Shares
and any Series H, Series I, Series J and/or Series K Preferred
Shares hereafter authorized, shall be entitled to receive
ratably all remaining assets or surplus funds of the
Corporation. Neither the merger or consolidation of the
Corporation, nor the sale, lease or conveyance of all or part
of its assets, shall be deemed to be a liquidation,
dissolution or winding up of the affairs of the Corporation,
either voluntarily or involuntarily, within the meaning of
this section.
(vii) Sinking Fund. The Series L Preferred Shares shall not be
entitled to the benefit of any sinking fund to be applied to
their purchase or redemption."
(5) No holder of any shares of the Corporation shall, because of his
ownership of shares of the Corporation, have a pre-emptive or other right to
purchase, subscribe for, or take any part of any shares of the Corporation, or
any part of any notes, debentures, bonds, or other securities convertible into
or providing for options or warrants to purchase shares of the Corporation which
are issued, offered, or sold by the Corporation after its incorporation, whether
the shares, notes, debentures, bonds, or other securities be authorized by this
certificate of incorporation or by an amended certificate duly filed and in
effect at the time of the issuance, offer, or sale of such shares, notes,
debentures, bonds, or other securities. Any part of the shares authorized by
this Certificate of Incorporation, or by an amended certificate duly filed, and
any part of any notes, debentures, bonds, or other securities convertible into
or providing for options or warrants to purchase shares of the Corporation may
at any time be issued, offered for sale, and sold or disposed of by the
Corporation, pursuant to a resolution of its Board of Directors and to such
persons and upon such terms and conditions as the Board of Directors may, in its
sole discretion, deem proper and advisable, without first offering to existing
shareholders any part of such shares, notes, debentures, bonds, or other
securities.
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(6) The Secretary of State is designated as the agent of the
Corporation upon whom process against the Corporation may be served, and the
address to which the Secretary of State shall mail a copy of any process against
the Corporation served upon him is 101 Park Avenue, New York, New York 10178,
Attention: Vice President - General Counsel.
(7) A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for damages for any breach of duty in his
capacity as a director, unless a judgment or other final adjudication adverse to
him establishes that (i) his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law or (ii) he personally
gained in fact a financial or other advantage to which he was not legally
entitled or (iii) his acts violated Section 719 of the Business Corporation Law.
Neither the amendment nor repeal of this Article 7, nor the adoption of any
provision of the Certificate of Incorporation inconsistent with this Article 7,
shall eliminate or reduce the effect of this Article 7 in respect of any matter
occurring, or any cause of action, suit or claim that but for this Article 7
would accrue or arise, prior to such amendment, repeal or adoption of an
inconsistent provision.
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ARTICLE II
MEETINGS OF SHAREHOLDERS
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 date as shall be determined
by the Board of Directors, and the shareholders shall then elect
a Board of Directors 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.
BY-LAWS
OF
AMNEX, INC.
(As Amended Through March 31, 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 date as shall be determined
by the Board of Directors, and the shareholders shall then elect
a Board of Directors 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
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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.
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.
(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.
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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.
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
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.
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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.
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.
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.
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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.
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.
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.
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.
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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.
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.
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.
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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.
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 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.
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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.
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 criminal, including an action
by or in the right of any other corporation of any type or kind, domestic or
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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
These By-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 OF LEASE
made as of this 18th day of December 1996, by and between WE'RE ASSOCIATES
COMPANY, a New York general partnership having its principal office at 100
Jericho Quadrangle, Jericho, New York 11753, hereinafter referred to as
"Landlord" and CRESCENT PUBLIC COMMUNICATIONS, INC., a New York corporation with
offices located at 101 Park Avenue, Suite 2507, New York, NY 10178, hereinafter
referred to as "Tenant".
WITNESSETH: Landlord and Tenant hereby covenant and agree as follows:
SPACE
1. Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord the space consisting of a portion of the 1st floor substantially as
shown on the rental plan initialed by the parties and made part hereof as
Exhibit 1 in the building known as 6 Nevada Drive, "C" Building, Lake Success,
New York (the "Building"), as hereinafter referred to as the "demised premises".
The parties agree that for all purposes of this lease the demised premises
consist of 23,275 of rentable square feet. Tenant shall also be permitted to
use, on a non-exclusive basis, in common with other tenants at the Building, the
common facilities of the Building. Such use of such facilities shall be subject
to such reasonable rules, regulations and procedures governing the use thereof
as Landlord shall from time to time promulgate.
TERM
2. The term of this lease (the "Demised Term") shall commence on
February 1, 1997 hereinafter referred to as the "Term Commencement Date", and
shall terminate on January 31, 2007 hereinafter referred to as the "Expiration
Date", unless earlier terminated or extended as provided herein.
Tenant may occupy all or part of the demised premises prior to
the Term Commencement Date, such occupancy shall be deemed to be under all of
the terms, covenants, and conditions of this lease, excluding the covenant to
pay rent for the period from the commencement of said use or occupancy until the
Term Commencement Date.
RENT
3. a. Subject to paragraph b of this Article, Article 8, and Article
9.d. hereof, the annual rental rate payable by Tenant shall be $128,012.50.
Tenant agrees to pay such rent in equal monthly installments each in advance on
the first day of each calendar month during the Demised Term at the office of
Landlord, except that Tenant shall pay the first monthly installment on
execution hereof. Tenant shall pay the rent as above and as hereinafter
provided, without any set off or deduction whatsoever. As used herein, the term
"Lease Year" shall mean each consecutive twelve (12) calendar month period, the
first such period commencing on the Term Commencement Date
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and ending on the day immediately preceding the first anniversary of the Term
Commencement Date; provided, however, if the Term Commencement Date shall be a
date other than the first day of a calendar month, then the first Lease Year
shall commence on the Term Commencement Date and shall end on the last day of
the month in which the first anniversary of the Term Commencement Date shall
occur.
b. The fixed annual rent set forth in paragraph a of this
Article hereof shall be increased, on each anniversary of the Term Commencement
Date throughout the demised Term (including any renewal period) by an amount
equal to Five Thousand Eight Hundred and Eighteen Dollars and Seventy-Five Cents
($5,818.75). This yearly increase shall include all prior escalations pursuant
to this Article 3.b. and shall be paid to Landlord as additional rent in equal
monthly installments. As an example, the annual rental rate shall be $133,831.25
after the first anniversary of the Term Commencement Date, and $139,650 after
the second anniversary of the Term Commencement Date.
c. If Tenant shall fail to pay when due any installment of
fixed annual rent or any payment of additional rent for a period of twenty (20)
days after such installment or payment shall have become due, Tenant shall pay
interest thereon at the lesser rate of (a) two percent (2%) per annum in excess
of the prime interest rate of Citibank, N.A., as publicly announced from time to
time or, if Citibank, N.A. shall cease to exist or announce such rate, any
similar rate designated by Landlord which is publicly announced from time to
time by any other bank in the City of New York having combined capital and
surplus in excess of One Hundred Million and legally contract to pay, from the
date when such installment or payment shall have become due to the date of the
payment thereof; and such interest shall be deemed additional rent. In addition,
Tenant shall pay to Landlord a one time late fee in the amount of five percent
(5%) of such overdue amount to compensate Landlord for its administrative costs
associated with such failure to timely pay. Such fee shall be deemed additional
rent and shall be payable immediately upon demand. This provision is in addition
to all other rights or remedies available to Landlord for nonpayment of fixed
annual rent or additional rent under this lease and at law and in equity.
USE
4. The Tenant shall use and occupy the demised premises only for
administrative and general offices and the general operation of pay telephones
and associates business and for no other purpose.
LANDLORD'S ALTERATIONS FOR TENANT, SPRINKLER MODIFICATIONS
5. a. Landlord will perform the work and make the installations as set
forth on the Estimate Sheet annexed hereto, which is sometimes hereinafter
referred to as "Landlord's Initial Construction". Tenant shall contribute the
sum of Fifty Thousand ($50,000) Dollars toward Landlord's Initial Construction
("Tenant's Contribution) and the remainder of Landlord's Initial Construction
shall be paid for by Landlord. Tenant's Contribution shall be paid by Tenant to
Landlord as additional rent within five (5) days of the Term Commencement Date.
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b. If the New York Board of Fire Underwriters or the Insurance
Services Office or any bureau, department or official of the federal, state or
city government require or recommend any changes, modifications, alterations, or
additional sprinkler heads or other equipment be made or supplied to the
existing sprinkler system and/or the sprinkler system to be installed as part of
any work to be performed by Tenant in connection with Tenant's occupancy of the
demised premises, or by reason of Tenant's use of the demised premises or of any
other reason (the "Sprinkler Modifications"), or if any Sprinkler Modifications
become necessary to present the imposition of a penalty or charge against the
full allowance for a sprinkler system in the fire insurance rate set by said
Underwriter, official or by any fire insurance company, Tenant shall, at
Tenant's sole expense, promptly make the Sprinkler Modifications as required,
whether the work involved shall be structural or non-structural in nature.
HEAT, WATER AND UTILITIES
6. The Tenant shall provide, at its sole cost and expense, fuel, heat,
air conditioning, ventilation, water, electricity and other utilities necessary
for the use and occupancy of the demised premises.
PARKING FIELD
7. Tenant shall have the right to use fifty-four (54) parking spaces
for the parking of automobiles of the Tenant, its employees and invitees, in the
parking area shown on the Parking Plan annexed hereto and made a part hereof,
subject to the Rules and Regulations now or hereafter adopted by Landlord.
Tenant shall not use nor permit any of its officers, agents or employees to use
any parking area other than as shown on the Parking Plan.
TAXES, PAYMENT OF ADDITIONAL RENT
8. a. The Tenant shall pay to the Landlord as additional rent a sum
equal to twenty-five (25%) percent of all Taxes with respect to the Building
(based on the ratio of the demised premises area of 23,275 square feet to the
Building Area of 93,100 square feet) during and applicable to the Demised Term.
b. As used in and for the purposes of this Article 8, the
following definition shall apply:
The term "taxes" shall be deemed to include all real estate
taxes and assessments, special or otherwise and sewer rents, upon or with
respect to the Building and the land allocated to it including all parking
areas (hereinafter called the "Real Property"). If, due to any change in the
method of taxation, any franchise, income, profit, sales, rental use and
occupancy, or other tax shall be substituted for, or levied against Landlord
or any owner of the Building or the Real
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Property in lieu of, any real estate taxes, assessments or sewer rents upon or
with respect to the Real Property, such tax shall be included in the term Taxes
for the purposes of this Article.
c. Tenant shall pay to Landlord as additional rent $5,909.37
per month which is its share of taxes as warranted by Landlord in subparagraph v
of this Article 8. Landlord shall render to Tenant a statement containing a
revised computation of additional rent due under this Article ("Landlord's
Statement") at any time and from time to time as such becomes due. Within twenty
(20) days after the rendition of the Landlord's Statement which shows additional
rent to be payable, Tenant shall pay to Landlord the amount of such additional
rent. On the first day of each month following rendition of each Landlord's
Statement, Tenant shall pay to Landlord, on account of the potential additional
rent, a sum equal to one-twelfth (1/12th) of the annualized additional rent last
paid by Tenant
i. Following each Landlord's Statement, Tenant shall
be debited with any additional rent shown on such Landlord's Statement to be
payable, and credited with the aggregate amount paid by Tenant in accordance
with the provisions of subsection 8.c.i above on account of the potential
additional rent.
ii. The obligations of Landlord and Tenant under the
provisions of this Article 8 with respect to any additional rent for any Lease
Year shall survive the expiration or any sooner termination of the Demised Term.
iii. In the event that Tenant challenges the amount
of additional rent payable pursuant to this Article 8, then, as a condition
precedent to the submission of a dispute as to such amount to judicial review,
and pending the determination of any dispute, Tenant shall promptly pay the
additional rent as demanded by Landlord. After such determination, any
adjustment in the disputed amount shall be made within thirty (30) days.
v. Landlord hereby warrants that the taxes applicable
to the total Building are currently follows:
1. 1996 Town Tax: $53,670.74;
2. 1996/97 School Tax: $171,061.37; and
3. 1996/97 Village Tax: $58,917.60
LANDLORD'S MAINTENANCE OF LANDSCAPING, ROADS, STREETS, PARKING AREA, AND FIRE
INSURANCE ON BUILDING
9. a. Landlord will maintain in good condition the roof of the Building
and all landscaping, curbing, sidewalks, roads (including, without limitation,
the ring-road system servicing the Lake Success Quadrangle), surface drainage
and sanitary waste disposal facilities, water mains, fire hydrants and all other
areas and facilities used in common by the occupants of the Building and Lake
Success Quadrangle and will furnish and maintain necessary outside lighting to
such areas and will generally keep clean and remove snow and sand ice therefrom:
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b. Landlord will maintain in good condition the parking area
demised to the Tenant herein, and the driveway and loading ramps serving the
demised premises, including snow removal therefrom for the demised premises.
c. Landlord shall provide insurance on the Building and
Improvements (Tenant shall insure its personal property pursuant to Article 27
hereof). Such policies shall be issued in the name of Landlord and the mortgagee
as their respective interest might appear. Tenant shall not do anything, permit
anything to be done, in or about the demised premises which shall (i) invalidate
or be in conflict with the provisions of any fire or other insurance policies
covering the Building or any property located therein, or (ii) result in a
refusal by fire insurance companies of good standing to insure the Building or
any such property in amounts reasonably satisfactory to Landlord, or (iii)
subject Landlord to any liability or responsibility for injury to any person or
property located therein at the beginning of the Demised Term or at any time
thereafter. Tenant, at Tenant's expense, shall comply with all rules, orders,
regulations, or requirements of the New York Board of Fire Underwriters and the
New York Fire Insurance Rating Organization or any similar body. Tenant shall
pay all costs, expenses, fines, penalties, or damages, which may be imposed upon
Landlord by reason of Tenant's failure to comply with the provisions of this
Article 9 and if by reason of such failure the fire insurance rate shall at the
beginning of this lease or at any time thereafter be higher than it otherwise
would be, then Tenant shall reimburse landlord, as additional rent hereunder,
for that portion of all fire insurance premiums thereafter paid by Landlord
which shall have been charged because of such failure by Tenant, and shall make
such reimbursement upon the first day of the month following such outlay by
Landlord. In any action or proceeding wherein Landlord and Tenant are parties, a
schedule or "make up" of rates applicable to the Building or property located
therein issued by the New York Fire Insurance Rating Organization, or other
similar body fixing such fire insurance rates, shall be conclusive evidence of
the facts therein stated and of the several items and charges in the fire
insurance rates then applicable to the Building or property located therein.
d. Tenant will pay to Landlord as additional rent for the
services described in Article 9(a), (b), and (c) above the sum of $25,602.50 per
year, payable in equal monthly installments of $2,133.54 as additional rent.
e. Landlord shall submit all claims as necessary under the
applicable insurance policy and shall promptly apply all insurance proceeds to
repair and restore the Building.
LANDLORD'S REPAIRS
10. Landlord shall make all structural repairs to the demised premises,
during the term of this lease with the exception of any structural repairs
required as a result of the gross negligence of Tenant, its agents, officers,
employees, patrons, or licensees. Landlord shall make all repairs to and
maintain Building heating, ventilation, and air conditioning system.
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TENANT'S REPAIRS
11. a. Tenant shall, throughout the Demised Term, take good care of the
demised premises and the fixtures and appurtenances therein and, at Tenant's
sole cost and expense, make all non-structural repairs thereto, and, as
required, non-structural replacements thereof, as and when needed to preserve
the same in good working order and condition, reasonable wear and tear,
obsolescence and damage from the elements, fire or other casualty, excepted.
Tenant shall also repair all damage to the Building caused by the moving of
Tenant's fixtures, furniture or equipment. Any repairs or replacements to be
made by Tenant shall be made with reasonable diligence, in a good and
workmanlike manner and so as not to unreasonably interfere with any other
tenant's use and occupancy of the Building. Notwithstanding the foregoing,
Tenant shall repair promptly at Tenant's sole cost and expense, to the
reasonable satisfaction of Landlord, (i) all damage or injury to any part of the
Building or to the fixtures, equipment and appurtenances thereof, excluding
structural repairs, caused by or resulting from carelessness, omission, neglect,
or improper conduct of Tenant, its agents, employees, invitees, or licensees;
and (ii) all structural repairs required as a result of the gross negligence of
Tenant, its agents, employees, invitees, or licensees.
b. Tenant shall, at its sole cost and expense, clean and
provide the maintenance for the demised premises to Landlord's reasonable
satisfaction, including, without limitation, the removal of Tenant's garbage,
refuse and trash from the demised premises and the Building in accordance with
all applicable laws. Landlord shall not be obligated at any time to clean or
have exterminated any part of the demised premises all of which Tenant shall
cause to be kept clean, free from obnoxious odors and exterminated by Tenant at
its sole cost and expense.
c. Except as provided in Article 24 hereof, there shall be no
allowance to Tenant for a diminution of rental value and no liability on the
part of Landlord by reason of inconvenience, annoyance or injury to business
arising from Landlord, Tenant or others making any repairs, alterations,
additions or improvements in or to any portion of the Building or the demised
premises, or in or to fixtures, appurtenances, or equipment thereof. Subject to
subparagraph e. of Article 9 and except as provided in Article 24, there shall
be no liability upon Landlord for failure of Landlord or others to make any
repairs, alterations, additions or improvements in or to any portion of the
Building or of the demised premises, or in or to the fixtures, appurtenances or
equipment thereof. Any repairs which Tenant may be required to carry out
pursuant to the terms hereof may, at Landlord's option, be made by Landlord at
the expense of Tenant, and the expenses thereof incurred by Landlord shall be
collectible as additional rent after the rendition of a bill or statement
therefor.
FLOOR LOADING
12. The emplacement of any equipment which will impose an evenly
distributed floor load in excess of 100 pounds per square foot shall be done
only after written permission is received from the Landlord. Such permission
will be granted only after adequate proof is furnished by a professional
engineer that such floor loading will not endanger the structure.
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FIXTURES AND INSTALLATIONS
13. All appurtenances, fixtures, improvements, additions and other
property attached to or built into the demised premises, whether by Landlord or
Tenant or others, and whether at Landlord's expense, or Tenant's expense, or the
joint expense of Landlord and Tenant, shall become and remain the property of
Landlord, and shall remain upon and be surrendered with the demised premises
unless Landlord, by notice to Tenant no later than twenty days prior to the date
fixed as the termination of this lease, elects to have them removed by Tenant,
in which event, the same shall be removed from the premises by Tenant forthwith,
at Tenant's expense. Nothing in this Article shall be construed to prevent
Tenant's removal of trade fixtures, but upon removal of any such trade fixtures
from the premises or upon removal of other installations as may be required by
Landlord, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the Building due to such removal. All property
permitted or required to be removed by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Landlord, either be retained as Landlord's property or may be
removed from the premises at Tenant's expense. Tenant shall, at Landlord's
option exercised by written notice to Tenant given no later than thirty (30)
days prior to the Expiration Date, restore the lobby being constructed by Tenant
at Tenant's entrance to the Building to the condition existing as of the date
hereof. All the outside walls of the demised premises including corridor walls
and the outside entrance doors to the demised premises, any balconies, terraces
or roofs adjacent to the demised premises, and any space in the demised premises
used for shafts, stacks, pipes, conduits, ducts or other building facilities,
and the use thereof, as well as access thereto in and through the demised
premises for the purpose of operation, maintenance, decoration and repair, are
expressly reserved to Landlord, and Landlord does not convey any rights to
Tenant therein. Notwithstanding the foregoing, Tenant shall enjoy full right of
access to the demised premises through the public entrances, public corridors
and public areas within the Building.
ALTERATIONS
14. a. Tenant shall make no alterations, installations, additions or
improvements in or to the demised premises costing in excess of $10,000 without
Landlord's prior written consent (which consent shall not be unreasonably
withheld), and then only by contractors or mechanics approved by Landlord and at
such times and in such manner as Landlord may from time to time designate.
Landlord shall have the right to make inspections of any such work being carried
out by Tenant or on Tenant's behalf at any reasonable time during the progress
of such work.
b. All installations or work done by Tenant shall be done in a
good and workmanlike manner and shall at all times comply with:
1. Laws, rules, orders and regulations of
governmental authorities having jurisdiction thereof.
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2. Rules and regulations of Landlord.
3. Plans and specifications prepared by and at the
expense of Tenant theretofore submitted to Landlord for its prior written
approval in compliance with subparagraph a of this Article. No such
installations or work shall be undertaken, started or begun by Tenant, its
agents, servants or employees, until Landlord has approved such plans and
specifications; and no amendments or additions to such plans and specifications
shall be made without the prior written consent of Landlord, and shall be
subject to Landlord's supervisory fee charge, which shall not exceed 10% of the
cost of such alteration.
Tenant agrees that it will not, either directly
or indirectly, use any contractors and/or labor and/or materials if the use of
such contractors and/or labor and/or materials would or will create any
difficulty with other contractors and/or labor engaged by Tenant or
Landlord or others in the construction, maintenance and/or operation of the
Building or any part thereof. Tenant shall, before making any alterations,
additions, installations or improvements, at its expense, obtain all permits,
approvals and certificates required by any governmental or quasi-governmental
bodies and (upon completion) certificates of final approval thereof and shall
deliver promptly duplicates of all such permits, approvals and certificates
to Landlord and Tenant agrees to carry and will cause Tenant's contractors and
sub-contractors to carry such workmen's compensation, general liability,
personal and property damage insurance as Landlord may require. At Landlord's
request, Tenant agrees to obtain and deliver to Landlord, written and
unconditional waivers of mechanic's, liens upon the real property in which the
demised premises are located, for all property in which the demised premises
are located, for all work, labor and services performed and materials
furnished in connection with such work after payment therefore, signed by all
contractors, sub-contractors, materialmen and laborers involved in such work.
Notwithstanding the foregoing, if any mechanic's lien is filed against the
demised premises, or the Building, for work claimed to have been done for, or
materials furnished to Tenant whether or not done pursuant to this Article
the same shall be discharged by Tenant within ten days thereafter, at Tenant's
expense, by filing the bond required by law.
c. Anything contained herein to the contrary notwithstanding,
Tenant shall make no alterations, declarations, installations, additions or
improvements in or to the demised premises which shall in any way affect utility
services or plumbing and electrical lines. Moreover, Landlord shall not be
deemed to have acted unreasonably for withholding consent to any alterations,
decorations, installations, additions or improvements which: (i) involve or
might affect any structural or exterior element of the Building outside the
demised premises or the Building, or (ii) will require unusual expense to
readapt the demised premises to normal office use on the expiration of the
Demised Term or increase the cost of construction or of insurance or taxes on
the Building or of the services called for hereunder unless Tenant first gives
assurances acceptable to Landlord for payment of such increased cost and that
such readoption will be made prior to the Expiration Date without expense to
Landlord.
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REQUIREMENTS OF LAW
15. a. Tenant shall not do, and shall not permit Persons Within
Tenant's Control to do, any act or thing in or upon the demised premises or the
Building which will invalidate or be in conflict with the certificate of
occupancy for the demised premises or the Building or violate any Requirements.
Tenant shall, at Tenant's sole cost and expense, take all action, including
making any required alterations necessary to comply with all Requirements
(including, but not limited to, applicable terms of the Americans With
Disabilities Act of 1990 (the "ADA"), as modified and supplemented from time to
4time) which shall impose any violation, order or duty upon Landlord or Tenant
arising from, or in connection with, the demised premises, Tenant's occupancy,
use or manner of use of the demised premises (including, without limitation, any
occupancy, use or manner of use that constitutes a "place of public
accommodation" under the ADA), or any installations in the demised premises, or
required by reason of a breach of any of Tenant's covenants or agreements under
this lease, whether or not such Requirements shall now be in effect or hereafter
enacted or issued, and whether or not any work required shall be ordinary or
extraordinary or foreseen or unforeseen at the date hereof. Notwithstanding the
preceding sentence, Tenant shall not be obligated to perform any structural
alterations necessary to comply with any Requirements, unless compliance shall
be required by reason of (I) any cause or condition arising out of any
alterations or installations in the demised premises (whether made by Tenant or
by Landlord on behalf of Tenant), or (ii) Tenant's particular use, manner of use
or occupancy on behalf of Tenant of the demised premises, or (iii) any breach of
any of Tenant's covenants or agreements under this lease, or (iv) any wrongful
act or omission by Tenant or Persons Within Tenant's Control, or (v) Tenant's
use or manner of use or occupancy of the demised premises as a "place of public
accommodation" within the meaning of the ADA.
b. Tenant covenants and agrees that Tenant shall, at Tenant's
sole cost and expense, comply at all times with all Requirements governing the
use, generation, storage, treatment and/or disposal of any "Hazardous Materials"
(as defined below), the presence of which results from or in connection with the
act or omission of Tenant or Persons Within Tenant's Control or the breach of
this lease by Tenant or Persons Within Tenant's Control. The term Hazardous
Materials shall mean any biologically or chemically active or other toxic or
hazardous wastes, pollutants or substances, including, without limitation,
asbestos, PCB, petroleum products and by-products, substances defined or listed
as "hazardous substances" or "toxic substances" or similarly identified in or
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. '9601 et seq., and as hazardous wastes under the Resource
Conservation and Recovery Act, 42 U.S.C. '6010 et seq., any chemical substance
or mixture regulated under the Toxic Substance Control Act of 1976, as amended,
15 U.S.C. 2601, et seq., any "toxic pollutant" under the Clean Water Act, 33
U.S.C. '466 et seq., as amended, any hazardous air pollutant under the Clean Air
Act, 42 U.S.C. '7401 et seq., hazardous materials identified in or pursuant to
the Hazardous Materials Transportation Act, 49 U.S.C. '1802, et seq., and any
hazardous or toxic substances or pollutant regulated under any other
Requirements. Tenant shall agree to execute, from tine to time, at Landlord's
request, affidavits, representations and the like concerning Tenant's best
knowledge and belief regarding the presence of Hazardous Materials in, on, under
or about the demised premises,
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the Building or the Real Property. Tenant shall indemnify and hold harmless all
Indemnities from and against any loss, cost, damage, liability or expense
(including attorneys' fees and disbursements) arising by reason of any clean up,
removal, remediation, detoxification action or any other activity required or
recommended of any Indemnities by any Governmental Authority by reason of the
presence in or about the Building or the demised premises of any Hazardous
Materials, as a result of or in connection with the act or omission of Tenant or
Persons Within Tenant's Control or the breach of this lease by Tenant or Persons
Within Tenant's Control. However, notwithstanding anything to the contrary
contained in this paragraph, the provisions of this paragraph shall only apply
and be limited to the extent any such failure to comply therewith is caused by
Tenant or Persons Within Tenant's Control, and shall not apply to any violation
which may have existed prior to the execution of this lease. Furthermore,
Landlord covenants and agrees that the Building and/or the demised premises do
not contain levels of asbestos containing materials or any other Hazardous
Materials above or exceeding Requirements. If at any time during the Demised
Term, or any renewals thereof, it is determined that the levels of asbestos
containing materials or any other Hazardous Materials exceed any such
Requirements, Tenant shall have the right and option to terminate this Lease
immediately upon such occurrence, with written notice to Landlord. The foregoing
covenants and indemnity shall survive the expiration or any termination of this
lease.
c. If Tenant shall receive notice of any violation of, or
defaults under, any Requirements, liens or other encumbrances applicable to the
demised premises, Tenant shall give prompt notice thereof to Landlord.
d. If any governmental license or permit shall be required for
the proper and lawful conduct of Tenant's business and if the failure to secure
such license or permit would, in any way, affect Landlord or the Building, then
Tenant, at Tenant's expense, shall promptly procure and thereafter maintain,
submit for inspection by Landlord, and at all times comply with the terms and
conditions of, each such license or permit.
e. Tenant, at Tenant's sole cost and expense and after notice
to Landlord, may contest, by appropriate proceedings prosecuted diligently and
in good faith, the legality or applicability of any Requirement affecting the
demised premises provided that: (a) neither Landlord nor any Indemnitee, shall
be subject to criminal penalties, nor shall the Real Property or any part
thereof be subject to being condemned or vacated, nor shall the certificate of
occupancy for the demised premises or the Building be suspended. or threatened
to be suspended, by reason of non-compliance or by reason of such contest; (b)
before the commencement of such contest, if Landlord or any Indemnities may be
subject to any civil fines or penalties or if Landlord may be liable to any
independent third party as a result of such non-compliance, then Tenant shall]
furnish to Landlord either (I) a bond of a surety company satisfactory to
Landlord, in form and substance reasonably satisfactory to Landlord, and in an
amount at least equal to Landlord's estimate of the sum of (A) the cost of such
compliance, (B) the penalties or fines that may accrue by reason of such
non-compliance (as reasonably estimated by Landlord) and (C) the amount of such
liability to independent third parties, and shall indemnify Landlord (and any
Indemnities) against the cost of such compliance and liability resulting from or
incurred in connection with such contest or
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non-compliance; or (ii) other security satisfactory in all respects to Landlord;
(c) such non-compliance or contest shall not constitute or result in a violation
(either with the giving of notice or the passage of time or both) of the terms
of any mortgage or superior lease affecting the Building, or if such superior
lease or mortgage conditions such non-compliance or contest upon the taking of
action or furnishing of security by Landlord, such action shall be taken or such
security shall be furnished at the expense of Tenant; and (d) Tenant shall keep
Landlord regularly advised as to the status at such proceedings.
f. For the purposes of this Article, and elsewhere in this
lease, (I) the term "Persons Within Tenant's Control" shall mean and include
Tenant, all of Tenant's respective principals, officers, agents, contractors,
servants, employees, licensees and invitees; (ii) the term "Requirements" shall
mean all present and future laws, ordinances, requirements, orders, directives,
rules and regulations of federal, state, county and city governments and of all
other governmental authorities having or claiming jurisdiction over the Real
Property; (iii) the term 'Indemnities" shall mean Landlord, its trustees,
partners, shareholders, officers, directors, employees, agents and contractors
and the managing agent, if any (and the partners, shareholders, officers,
directors and employees and contractors of such managing agent), of Landlord;
and (iv) the term "Governmental Authority" shall mean The United States of
America, the State of New York, the County of Nassau, the Village of Lake
Success, any political subdivision thereof and any agency, department,
commission, board, bureau or instrumentality of any of the foregoing, now
existing or hereafter created, having jurisdiction over the Building, the Real
Property, or any portion thereof.
END OF TERM
16. a. Upon the expiration or other termination of the Demised Term,
Tenant shall quit and surrender to Landlord the demised premises, broom clean,
in good order and condition, ordinary wear excepted, and Tenant shall remove all
of its property, and shall repair all damage to the demised premises or the
Building occasioned by such removal. Any property not removed from the premises
shall be deemed abandoned by Tenant and may be disposed of in any manner deemed
appropriate by the Landlord. Tenant expressly waives, for itself and for any
person claiming through or under Tenant, any rights which Tenant or any such
person may have under the provisions of Section 2201 of the New York Civil
Practice Law and Rules and of any successor law of like import then in force, in
connection with any holdover summary proceedings which Landlord may institute to
enforce the foregoing provisions of this Article. Tenant's obligation to observe
or perform this covenant shall survive the expiration or other termination of
the Demised Term. If the last day of the Demised Term or any removal hereof
falls on Sunday or a legal holiday, this lease shall expire on the business day
immediately preceding.
b. Tenant acknowledges that possession of the demised premises
must be surrendered to Landlord at the expiration or sooner termination of the
Demised Term. Tenant hereby agrees to indemnify and save Landlord harmless
against any and all costs, damages, claims, loss or liability resulting from
delay by Tenant in so surrendering the demised premises, including, without
limitation, any claims made by any succeeding tenant, founded on such delay. The
parties recognize
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and agree that the damage to landlord resulting from any failure by Tenant
timely to surrender possession of the demised premises as aforesaid will be
extremely substantial, will exceed the amount of monthly rent theretofore
payable hereunder, and will be impossible of accurate measurement. Tenant
therefore agrees that if possession of the demised premises is not surrendered
to landlord on or before the date of the expiration or other termination of the
Demised Term, time being of the essence with respect thereto, then, in addition
to any other remedies and/or damages otherwise available to Landlord hereunder
or at law, Tenant agrees to pay Landlord, for each month and for each portion of
any month during which Tenant holds over in the demised premises after
expiration or other termination of the Demised Term, a sum equal to two (2)
times the rent and additional rent (inclusive of escalations) that was payable
per month under this lease during the last month of the term thereof. Nothing
contained herein shall be construed to constitute Landlord's consent to Tenant
remaining in possession of the demised premises after the expiration or other
termination of the Demised Term. Landlord shall be entitled to pursue any action
necessary to recover immediate possession of the demised premises
notwithstanding Tenant's payment of the aforementioned sum. The aforesaid
provisions of this paragraph shall survive the expiration or sooner termination
of the demised Term.
QUIET ENJOYMENT
17. Landlord covenants and agrees with Tenant that upon Tenant paying
the rent and additional rent and observing and performing all the terms,
covenants and conditions on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the demised premises during the Demised Term
without hindrance or molestation by anyone claiming by or through Landlord,
subject, nevertheless, to the terms, covenants and conditions of this lease
including, but not limited to, Article 22.
SIGNS
18. Tenant may place on the outside of the Building a sign in size and
type to be approved by the Landlord which approval shall not be unreasonably
withheld and which sign shall be in conformity with applicable laws ordinances,
and regulations. Tenant shall remove such sign at the expiration or other
termination of this Lease and shall repair any damage resulting from the
installation, maintenance, or removal of the sign. The exterior of the Building
is not a part of the demised premises, and accordingly, Tenant (except pursuant
to this Article) may not place or install anything on the exterior of the
Building.
RULES AND REGULATIONS
19. Tenant and Tenant's agents, employees, visitors, and licensees
shall faithfully comply with the Rules and Regulations set forth on Schedule A
annexed hereto and made part hereof, and with such further reasonable Rules and
Regulations as Landlord at any time may make and communicate in writing to
Tenant which, in the Landlord's judgment, shall be necessary for the reputation,
safety, care or appearance of the Building and land allocated to it or the
preservation of
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good order therein, or the operation or maintenance of the Building, its
equipment and such land, or the more useful occupancy or the comfort of the
tenants or others in the Building. Landlord shall not be liable to Tenant for
the violation of any of said Rules and Regulations, or the breach of any
covenant or condition of any lease by any other tenant in the Building. Rules
and Regulations shall be uniformly applied where possible.
ASSIGNMENT AND SUBLETTING
20. a. Tenant, for itself, its successors, undertenants and assigns,
(all of the foregoing hereinafter referred to as the "Tenant") expressly
covenants that it shall not assign, mortgage or encumber this agreement, nor
underlet the demised premises or any part thereof, or license or permit the
demised premises or any part thereof to be used by others, without the prior
written consent of the Landlord in each instance (which consent shall not be
unreasonably withheld or delayed), and otherwise upon due compliance with the
provisions of this Article 20.
b. Prior to requesting the approval of Landlord to an
assignment or subletting as hereinafter provided, Tenant shall, by notice as
provided in Article 34, advise the Landlord of all the terms, covenants and
conditions of the Tenant's proposed sublease or assignment.
c. Upon Tenant's due compliance with the aforesaid provisions
of this Article 20, Landlord agrees not to unreasonably withhold its consent to
an assignment or subletting, provided that the Tenant is not then in default
under this lease and that the proposed assignee or undertenant is financially
responsible, of good reputation and engaged in a business compatible with the
business generally carried on in the Building and that the proposed assignment
or sublease would not be inconsistent with any agreement previously made with
any other tenant, and further provided that such assignee or undertenant shall
execute and deliver to Landlord an assumption agreement wherein it agrees to
perform all the obligations of the Tenant under this lease in form appropriate
for recording.
d. No assignment of this lease or underletting of the demised
premises shall release or discharge the Tenant hereunder from any of its
obligations to be performed under this lease. The consent by Landlord to an
assignment or underletting shall not in any way be construed to relieve Tenant
from obtaining the express consent in writing of Landlord to any further
assignment or underletting.
e. Anything contained in this Article 20 to the contrary
notwithstanding, Tenant, without having to obtain the consent of Landlord, may
assign this lease to any successor by merger, consolidation or sale of all or
substantially all of the assets or stock of Tenant (whether or not Tenant
survives such merger, consolidation or sale) and may sublet the demised
premises, or assign this lease, to any entity that controls, is controlled by,
or is under common control with Tenant, provided that (1) in the case of an
assignment, the net worth of the assignee (in the case of a merger,
consolidation or sale, after giving effect to such merger, consolidation or
sale), is not less than the net worth of the Tenant named herein as of the date
hereof, and (2) a copy of said assignment, in
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recordable form, containing a full assumption by the assignee of all the
Tenant's obligations hereunder, or said sublease, as the case may be, is
delivered to the Landlord prior to the effective date thereof. Tenant shall
provide Landlord with evidence reasonably satisfactory to Landlord regarding the
net worth of such assignee, where applicable.
f. Except as expressly otherwise provided in Section 20.e
hereof, the following shall be deemed an "assignment" of this lease for the
purposes of Article 20:
i. an assignment of a part interest in this lease;
ii. one or more sales or transfers, by operation of
law or otherwise, or creation of new stock or issuance of additional shares of
stock, resulting in a transfer of at least fifty-one (51%) percent of the out-
standing stock of Tenant, if Tenant is a corporation, or of any corporate
subtenant, except that the transfer of the outstanding capital stock of any
corporate tenant, or subtenant, shall be deemed not to include the sale of
such stock by persons or parties, other than those deemed "affiliates" of
Tenant within the meaning of Rule 144 promulgated under the Securities Act
of 1933, as amended, through the "over-the-counter market" or through any
recognized stock exchange;
iii. one or more sales or transfers, by operation of law or
otherwise, resulting in a transfer of at least fifty-one (51%) percent of the
total interests in Tenant, if Tenant is a partnership, or in any partnership
subtenant; or
iv. Tenant's entering into a takeover agreement affecting
this lease.
For the purposes of this Article 20, a modification, amendment or
extension of a sublease shall be deemed a sublease.
g. If Tenant assigns, sells, conveys, transfers, mortgages,
pledges or sublets this lease, the demised premises, or any portion thereof in
violation of this Article 20, or if the demised premises are occupied by anybody
other than Tenant, Landlord may collect rent from any assignee, sublessee or
anyone who claims a right to this Agreement or letting or who occupies the
demised premises, and Landlord shall apply the net amount collected to the
annual rental herein reserved; and no such collection shall be deemed a waiver
by Landlord of the covenants contained in this Article nor an acceptance by
Landlord of any such assignee, sublessee, claimant or occupant as Tenant, nor a
release of Tenant from the further performance by Tenant of the covenants
contained herein.
LANDLORD'S ACCESS TO PREMISES
21. a. Landlord or Landlord's agents shall have the right to enter
and/or pass through the demised premises at all times to examine the same, to
show them to mortgagees, ground lessors, prospective purchasers or lessees or
mortgagees of the Building, and to make such repairs, improvements or additions
as Landlord may deem necessary or desirable and Landlord shall be
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allowed to take all material into and upon and/or through said demised premises
that may be required therefor. During the one (1) year prior to the expiration
of the Demised Term, or any renewal term, Landlord may exhibit the demised
premises to prospective tenants or purchasers at all reasonable hours and
without unreasonably interfering with Tenant's business. If Tenant shall not be
personally present to open and permit an entry into said premises, at any time,
when for any reason an entry therein shall be necessary or permissible, Landlord
or Landlord's agents may enter the same by a master key, without rendering
Landlord or such agent liable therefor (if during such entry Landlord or
Landlord's agents shall accord reasonable care to Tenant's property). If during
the last month of the Demised Term, Tenant shall have removed all of Tenant's
property therefrom, Landlord may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have no
effect on this lease or Tenant's obligations hereunder.
b. Landlord shall also have the right at any time to use,
maintain and replace pipes and conduits in and through the demised premises and
to erect new pipes and conduits therein, to change the arrangement and/or
location of entrances or passageways, doors and doorways, and corridors,
elevators, stairs, toilets or other public parts of the Building, provided,
however, that Landlord shall make no change in the arrangement and/or location
of entrances or passageways or other public parts of the Building which will
adversely affect in any material manner Tenant's use and enjoyment of the
demised premises. Landlord shall also have the right, at any time, to name the
Building, to display appropriate signs and/or lettering on any or all entrances
to the Building, and to change the name, number or designation by which the
Building is commonly known.
c. Neither this lease nor any use by Tenant shall give Tenant
any right or easement to the use of any door or passage or concourse connecting
with any other building or to any public conveniences, and the use of such doors
and passages and concourse and of such conveniences may be regulated and/or
discontinued at any time and from time to time by Landlord without notice to
Tenant.
d. The exercise by Landlord or its agents of any right
reserved to Landlord in this Article shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
lease, or impose any liability upon Landlord, or its agents, or upon any lessor
under any ground or underlying lease, by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise.
e. Anything contained in this Article to the contrary
notwithstanding, any access to the demised premises by Landlord shall be subject
to reasonable prior notice (which may be verbal) except in the event of an
emergency, in which event no notice shall be necessary.
SUBORDINATION
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22. a. This lease is subject and subordinate in all respects to all ground
leases and/or underlying leases and to all mortgages which may now or
hereafter be placed on or affect such leases and/or the Real Property of which
the demised premises form a part, or any part or parts of such real property,
and/or Landlord's interest or estate therein, and to each advance made and/or
hereafter to be made under any such mortgages, and to all renewals,
modifications, consolidations, replacements and extensions thereof and all
substitution therefor. This subparagraph a. shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall execute and deliver promptly any certificate that
Landlord and/or any mortgagee and/or the lessor under any ground or underlying
lease and/or their respective successors in interest may request.
b. Without limitation of any of the provisions of this lease,
in the event that any mortgagee or its assigns shall succeed to the interest of
Landlord or of any successor-Landlord and/or shall have become lessee under a
new ground or underlying lease, then, at the option of such mortgagee, this
lease shall nevertheless continue in full force and effect and Tenant shall and
does hereby agree to attorn to such mortgagee or its assigns and to recognize
such mortgagee or its respective assigns as its Landlord.
c. Tenant shall, at any time and from time to time upon not
less than fifteen (15) days' prior notice by Landlord, execute, acknowledge and
deliver to Landlord a statement in writing certifying that this lease is
unmodified and in full force and effect (or if there have been modifications,
that the same is in full force and effect as modified and stating the
modifications), and the dates to which the rent, additional rent and other
charges have been paid in advance, if any, and stating whether or not to the
best knowledge of the signer of such certificate Landlord is in default in
performance of any covenant, agreement, term, provision or condition contained
in this lease and, if so, specifying each such default of which the signer may
have knowledge, it being intended that any such statement delivered pursuant
hereto may be relied upon by any prospective purchaser or lessee of said Real
Property or any interest or estate therein, any mortgagee or prospective
mortgagee thereof or any prospective assignee of any mortgage thereof. If, in
connection with obtaining financing or refinancing for the Building and the land
allocated to it, a banking, insurance or other recognized institutional lender
shall request reasonable modifications in this lease as a condition to such
financing, Tenant will not unreasonably withhold, delay or defer its consent
thereto, provided that such modifications do not increase the obligations of
Tenant hereunder or materially adversely affect the leasehold interest hereby
created.
d. Landlord shall use its reasonable best efforts to obtain an
agreement (a "Non-Disturbance Agreement") from The Mitsui Trust and Banking
Company Limited, the holder of the mortgage encumbering the Real Property, in
the form annexed hereto as Exhibit 2, in favor of Tenant, providing in substance
that so long as Tenant is not in default under the terms of this lease, the
right of possession of Tenant to the demised premises shall not be affected or
disturbed by such holder in the exercise of any of its rights under the mortgage
or any note secured thereby, and any sale of the Real Property pursuant to the
exercise of any rights and remedies under the mortgage or otherwise shall be
made subject to Tenant's right of possession under this lease. Such efforts
shall include making a written request to each such holder for such
Non-Disturbance
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Agreement. Landlord shall incur no liability, nor shall this lease or the
obligations of Tenant and Landlord hereunder be affected in any manner, in the
event Landlord shall be unable to obtain a Non-Disturbance Agreement from the
holder of any mortgage in favor of Tenant. Furthermore, Landlord shall not be
required to incur any expense (other than a reasonable processing fee) or pay
any consideration in order to obtain any Non-Disturbance Agreement in favor of
Tenant.
PROPERTY LOSS, DAMAGE, REIMBURSEMENT, INDEMNIFICATION
23. a. Landlord or its agents shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the Building, nor for
the loss of or damage to any property of Tenant by theft or otherwise. Landlord
or its agents shall not be liable for any injury or damage to persons or
property resulting from fire, explosion, falling plaster, steam, gas,
electricity, electrical disturbance, water, rain or snow or leaks from any part
of the Building or from the pipes, appliances or plumbing works or from the
roof, street or subsurface or from any other place or by dampness or by any
other cause of whatsoever nature, unless caused by or due to the negligence of
Landlord, its agents, servants or employees; nor shall Landlord or its agents be
liable for any such damage caused by other tenants or persons in the Building or
caused by operations in construction of any private, public or quasi public
work; nor shall Landlord be liable for any latent defect in the demised premises
or in the Building. If at any time any windows of the demised premises are
temporarily closed or darkened incident to or for the purpose of repairs,
replacements, maintenance and/or cleaning in, on, to or about the Building or
any part or parts thereof, Landlord shall not be liable for any damage Tenant
may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall reimburse and
compensate Landlord as additional rent for all expenditures made by, or damages
or fines sustained or incurred by Landlord due to non-performance or
non-compliance with or breach or failure to observe any term, covenant or
condition of this lease upon Tenant's part to be kept, observed, performed or
complied with. Tenant shall give immediate notice to Landlord in case of fire or
accidents in the demised premises or in the Building or of defects therein or in
any fixtures or equipment. Insert 23 b and c
b. Tenant shall indemnify and save harmless Landlord against
and from any and all claims by and on behalf of any person or persons, firm or
firms, corporation or corporations arising from the conduct or management of or
from any work or thing whatsoever done (other than by Landlord or its
contractors or the agents or employees of either) in and on the demised premises
during the Demised Term and during the period of time, if any, prior to the Term
Commencement Date that Tenant may have been given access to the demised premises
for the purpose of making installations, and will further indemnify and save
harmless Landlord against and from any and all claims arising from any condition
of the demised premises due to or arising from any act or omission or negligence
of Tenant or any of its agents, contractors, servants, employees, licensees or
invitees, and against and from all costs, expenses and liabilities incurred in
connection with any such claim or claims or action or proceeding brought
thereon; and in case any action or proceeding be brought against Landlord by
reason of any such claim, Tenant, upon notice from Landlord, agrees that
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Tenant, at Tenant's expense, will resist or defend such action or proceeding and
will employ counsel therefor reasonably satisfactory to Landlord. Tenant's
liability under this lease extends to the acts and omissions of any subtenant,
and any agent, contractor, employee, invitee or licensee of any subtenant.
c. Landlord shall indemnify and save harmless Tenant against
and from any and all claims by and on behalf of any person or persons, firm or
firms, corporation or corporations arising from the conduct or management of or
from any work or thing whatsoever done (other than by Tenant or its contractors
or the agents or employees of either) in and on the demised premises during the
Demised Term and during the period of time, if any, prior to the Term
Commencement Date that Tenant may have been given access to the demised premises
for the purpose of making installations, and will further indemnify and save
harmless Tenant against and from any and all claims arising from any condition
of the demised premises due to or arising from any act or omission or negligence
of Landlord or any of its agents, contractors, servants, employees, licensees or
invitees, and against and from all costs, expenses and liabilities incurred in
connection with any such claim or claims or action or proceeding brought
thereon; and in case any action or proceeding be brought against Tenant by
reason of any such claim, Landlord, upon notice from Tenant, agrees that
Landlord, at Landlord's expense, will resist or defend such action or
proceeding, and will employ counsel therefor reasonably satisfactory to Tenant.
DESTRUCTION-FIRE OR OTHER CASUALTY
24. If the demised premises shall be damaged by fire or other casualty
and if Tenant shall give prompt notice to Landlord of such damage, Landlord, at
Landlord's expense, shall promptly repair such damage. However, Landlord shall
have no obligation to repair any damage to, or to replace, Tenant's personal
property or any other property or effects of Tenant. If the entire demised
premises shall be rendered untenantable by reason of any such damage, the rent
shall abate for the period from the date of such damage to the date when such
damage shall have been repaired, and if only a part of the demised premises
shall be so rendered untenantable, the rent shall abate for such period in the
proportion which the area of the part of the demised premises so rendered
untenantable bears to the total area of the demised premises. However, if prior
to the date when all of such damage shall have been repaired any part of the
demised premises so damaged shall be rendered tenantable and shall be used or
occupied by Tenant or any person or persons claiming through or under Tenant,
then the amount by which the rent shall abate shall be equitably apportioned for
the period from the date of any such use or occupancy to the date when all such
damage shall have been repaired. Tenant hereby expressly waives the provisions
of Section 227 of the New York Real Property Law, and of any successor law of
like import then in force, and Tenant agrees that the provisions of this Article
shall govern and control in lieu thereof. Notwithstanding the foregoing
provisions of this Section, if, prior to or during the Demised Term, (i) the
demised premises shall be totally damaged or rendered wholly untenantable by
fire or other casualty, and if Landlord shall decide not to restore the demised
premises, or (ii) the Building shall be so damaged by fire or other casualty
that, in Landlord's opinion, substantial alteration, demolition, or
reconstruction of the Building shall be required (whether or not the demised
premises shall be damaged or rendered untenantable), then, in
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any of such events, Landlord at Landlord's option, may give to Tenant, within
ninety (90) calendar days after such fire or other casualty, a thirty (30)
calendar days' notice of termination of this lease and, in the event such notice
is given, this lease and the Demised Term shall come to an end and expire
(whether or not said term shall have commenced) upon the expiration of said
thirty (30) calendar days with the same effect as if the date of expiration of
said thirty (30) calendar days were the Expiration Date, the rent shall be
apportioned as of such date and any prepaid portion of rent for any period after
such date shall be refunded by Landlord to Tenant.
SUBROGATION
25. Each of the parties hereto and their successors or assigns hereby
waives any and all rights of action for negligence against the other party
hereto which may hereafter arise for damage to the premises or to property
therein resulting from any fire or other casualty of the kind covered by
standard fire insurance policies with extended coverage, regardless of whether
or not, or in what amounts, such insurance is now or hereafter carried by the
parties hereto, or either of them. The foregoing release and waiver shall be in
force only if both releasors' insurance policies contain a clause providing that
such a release or waiver shall not invalidate the insurance and also provided
that such a policy can be obtained without additional premiums. Both parties
agree to use their best efforts to obtain and maintain a waiver of subrogation
from their respective carriers if they are insured.
EMINENT DOMAIN
26. a. In the event that the whole of the demised premises shall be
lawfully condemned or taken in any manner for any public or quasi-public use,
this lease and the term and estate hereby granted shall forthwith cease and
terminate as of the date of vesting of title. In the event that only one part of
the demised premises shall be so condemned or taken, then, effective as of the
date of vesting of title, the rent hereunder shall be abated in an amount
thereof apportioned according to the area of the demised premises so condemned
or taken. In the event that only a part of the Building shall be so condemned or
taken, then (a) Landlord (whether or not the demised premises be affected) may,
at its option, terminate this lease and the term and estate hereby granted as of
the date of such vesting of title by notifying Tenant in writing of such
termination within 60 days following the date on which Landlord shall have
received notice of vesting of title, and (b) if such condemnation or taking
shall be of a substantial part of the demised premises or of a substantial part
of the means of access thereto, Tenant shall have the right, by delivery of
notice in writing to Landlord within 60 days following the date on which Tenant
shall have received notice of vesting of title, to terminate this lease and the
term and estate hereby granted as of the date of vesting of title or (c) if
neither Landlord nor Tenant elects to terminate this lease, as aforesaid, this
lease shall be and remain unaffected by such condemnation or taking, except that
the rent shall be abated to the extent, if any, hereinabove provided in this
Article 26. In the event that only a part of the demised premises shall be so
condemned or taken and this lease and the term and estate hereby granted are not
terminated as hereinbefore provided, Landlord will, at its expense, restore the
remaining portion of the demised premises as nearly as practicable to the same
condition as it was in prior to such condemnation or taking.
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b. In the event of a termination in any of the cases
hereinabove provided, this lease and the term and estate granted shall expire as
of the date of such termination with the same effect as if that were the date
hereinbefore set for the expiration of the Demised Term, and the rent hereunder
shall be apportioned as of such date.
c. In the event of any condemnation or taking hereinabove
mentioned of all or a part of the Building, Landlord shall be entitled to
receive the entire award in the condemnation proceeding, including any award
made for the value of the estate vested by this lease in Tenant, and Tenant
hereby expressly assigns to Landlord any and all right, title and interest of
Tenant now or hereafter arising in or to any such award or any part thereof, and
Tenant shall be entitled to receive no part of such award, except that the
Tenant may file a claim for any taking of removable fixtures owned by Tenant and
for moving expenses incurred by Tenant.
It is expressly understood and agreed that the provisions of this
Article 26 shall not be applicable to any condemnation or taking for
governmental occupancy for a limited period.
LIABILITY INSURANCE
27. a. Tenant will keep in force, at Tenant's expense at all times
during the Demised Term and during such other times as Tenant occupies the
demised premises or any part thereof:
i. commercial general liability insurance or comprehensive general
liability insurance with broad form endorsement with respect to the demised
premises and the operation of Tenant and any Persons under Tenant's Control in,
on or about the demised premises in which the limits of coverage shall be not
less than Five Million Dollars ($5,000,000) combined single limit per
occurrence;
ii. statutory workers' compensation coverage and employers'
liability as required by state law;
iii. business interruption insurance for a period of not less than
one year and such other insurance as Tenant deems necessary to protect its
property and its business against all perils commonly insured against by prudent
tenants;
iv. such other insurance with respect to the demised premises and
in such amounts as Landlord may from time to time reasonably require against
such other insurable hazards or risks which at the time are commonly insured
against in the case of property similar to the demised premises and used as
provided herein.
b. The foregoing limits shall be increased from time to time in the
event that Landlord, in its reasonable judgment, shall determine that the
amounts of insurance are inadequate
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to pay any claims that may be brought under the foregoing policies. All policies
required by this lease shall be written on an occurrence basis. Such policies
are to be written by a company having a general policy holder's rating of not
less than A and a rating in financial size of not less than XI, as rated in the
most current "Best's" insurance reports, and authorized and licensed to issue
such policies in the State of New York. Any such insurance required of Tenant
hereunder may be furnished by Tenant under any blanket policy carried by it,
providing the policy properly allocates the required limits to the demised
premises, or under a separate policy thereof. Each policy evidencing insurance
as required to be carried by Tenant pursuant to this Article shall contain the
following provisions and/or clauses: (i) a cross-liability clause; (ii) a
provision that such policy and the coverage carried by Landlord shall be excess
insurance; (iii) a provision including Landlord, Landlord's managing agent and
other parties (including mortgagees) designated by Landlord as additional
insureds with respect to commercial general liability insurance; (iv) a waiver
by the insurer of any right of subrogation against Landlord, its agents,
employees and representatives which arises or might arise by reason of any
payment under such policy or by reasons of any act or omission of Landlord, its
agents, employees, or representatives; (v) a severability clause; and (vi) a
provision that the insurer will not cancel, materially change, reduce aggregates
or coverage or fail to renew the coverage provided by such policy without first
giving Landlord and all additional insureds thirty (30) days' prior written
notice.
c. A copy of each paid-up policy or certificate of insurance
accompanied by original endorsements signed by the insurance company evidencing
the policies required hereunder, along with evidence of payment and
appropriately authenticated by the insurer or its authorized agent certifying
that such policy has been issued providing the coverage required by this
Article, and containing provisions specified herein, shall be delivered to
Landlord not less than fifteen (15) days prior to the earlier of (x) the Term
Commencement Date, or (y) the date Tenant shall first take possession of the
demised premises for any purpose, and, upon renewals, not less than thirty (30)
days prior to the expiration of such coverage.
d. If Tenant fails to deliver to Landlord on time any required
evidence of insurance coverage, or fails to carry any insurance required
hereunder, or by law or governmental regulations, then Landlord may (but is not
obligated to) purchase the required coverage on behalf of Tenant, as provided
above, in which event Tenant shall pay to Landlord on demand the cost of such
insurance coverage plus ten percent (10%) of the amount of such cost as a
service charge to Landlord. No such purchase by Landlord shall be deemed a
waiver of Tenant's default and Landlord may pursue its full rights and remedies
on account of such default.
DEFAULT
28. a. Upon the occurrence at any time prior to or during the
Demised Term, of any one or more of the following events (referred to as "Events
of Default"):
i. if Tenant shall fail to pay when due or within the
applicable grace period any installment of rent or additional rent, and such
default shall continue for a period of five (5) days after notice by Landlord to
Tenant of such default; or
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ii. if Tenant shall default in the observance or performance
of any term, covenant or condition of this lease on Tenant's part to be observed
or performed (other than the covenants for the payment of rent and additional
rent) and Tenant shall fail to remedy such default within ten (10) days after
notice by Landlord to Tenant of such default, or if such default is of such a
nature that it cannot be completely remedied within said period of ten (10) days
and Tenant shall not commence within said period of ten (10) days, or shall not
thereafter diligently prosecute to completion, all steps necessary to remedy
such default; or
iii. if Tenant or Tenant's guarantor hereunder (if any) shall
file a voluntary petition in bankruptcy or insolvency, or shall be adjudicated a
bankrupt or become insolvent, or shall file any petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or any future federal bankruptcy act or any
other present or future applicable federal, state or other statute or law, or
shall make an assignment for the benefit of creditors or shall seek or consent
to or acquiesce in the appointment of any trustee, receiver or liquidator of
Tenant or of all or any part of Tenant's property; or
iv. if, within thirty (30) days after the commencement of
any proceeding against Tenant, whether by the filing of a petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or other present of future applicable federal, state or other statute or
law, such proceeding shall not have been dismissed, or if, within thirty (30)
days after the appointment of any trustee, receiver or liquidator of Tenant, or
of all or any part of Tenant's property, without the consent or acquiescence
of Tenant, such appointment shall not have been vacated or otherwise discharged,
or if any execution or attachment shall be issued against Tenant or any of
Tenant's property pursuant to which the demised premises shall be taken or
occupied or attempted to be taken or occupied; or
v. if Tenant shall default in the observance or
performance of any term, covenant or condition on Tenant's part to be observed
or performed under any other lease with Landlord of space in the Building
and such default shall continue beyond any grace period set forth in such other
lease for the remedying of such default; or
vi. if the demised premises shall become vacant, deserted
or abandoned; or
vii. if Tenant's interest in this lease shall devolve upon
or pass to any person, whether by operation of law or otherwise, except as
expressly permitted under Article 20;
then, upon the occurrence, at any time prior to or during the Demised Term, of
any one or more of such Events of Default, Landlord, at any time thereafter, at
Landlord's option, may give to Tenant a five (5) days' notice of termination of
this lease and, in the event such notice is given, this lease
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and the Demised Term shall come to an end and expire (whether or not said term
shall have commenced) upon the expiration of said five (5) days with the same
effect as if the date of expiration of said five (5) days were the Expiration
Date, but Tenant shall remain liable for damages as provided in Article 29.
b. If, at any time, (I) Tenant shall be comprised of two (2)
or more persons, or (ii) Tenant's obligations under this lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
lease shall have been assigned, the word "Tenant", as used in subsection (iii)
and (iv) of Section 28.a, shall be deemed to mean any one or more of the persons
primarily or secondarily liable for Tenant's obligations under this lease. Any
moneys received by Landlord from or on behalf of Tenant during the pendency of
any proceeding of the types referred to in said subsections (iii) and (iv) shall
be deemed paid as compensation for the use and occupation of the demised
premises and the acceptance of any such compensation by Landlord shall not be
deemed an acceptance of rent or a waiver on the part of Landlord of any rights
under Section 28.a.
REMEDIES
29. a. If Tenant shall fail to pay when due or within the applicable
grace period any installment of rent or additional rent and such default shall
continue for a period of five (5) days after notice by Landlord to Tenant of
such default, or if this lease and the Demised Term shall expire and come to an
end as provided in Article 28:
i. Landlord and its agents and servants may immediately, or at
any time after such default or after the date upon which this lease and the
Demised Term shall expire and come to an end, re-enter the demised premises
or any part thereof, without notice, either by summary proceedings or by any
other applicable action or proceeding, or by force or otherwise (without being
liable to indictment, prosecution or damages therefor), and may repossess the
demised premises and dispossess Tenant and any other persons from the demised
premises and remove any and all of their property and effects from the demised
premises; and
ii. Landlord, at Landlord's option, may relet the whole or any
part or parts of the demised premises from time to time, either in the name
of Landlord or otherwise, to such tenant or tenants, for such term or terms
ending before, on or after the Expiration Date, at such rental or rentals
and upon such other conditions, which may include concessions and free rent
periods, as Landlord, in its sole discretion, may determine. Landlord shall
have no obligation to relet the demised premises or any part thereof and shall
in no event be liable for refusal or failure to relet the demised premises or
any part thereof, or, in the event of any such reletting, for refusal or failure
to collect any rent due upon any such reletting, and no such refusal or failure
shall operate to relieve Tenant of any liability under this lease or otherwise
to affect any such liability. Landlord, at Landlord's option, may make such
repairs, replacements, alterations, additions, improvements, decorations and
other physical changes in and to the demised premises as Landlord, in its
sole discretion, considers advisable or necessary in connection with any
such reletting or proposed reletting, without relieving Tenant of any
liability under this lease or otherwise affecting any such liability.
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b. Tenant, on its own behalf and on behalf of all persons
claiming through or under Tenant, including all creditors, does hereby waive any
and all rights which Tenant and all such persons might otherwise have under any
present or future law to redeem the demised premises, or to re-enter or
repossess the demised premises, or to restore the operation of this lease, after
(I) Tenant shall have been dispossessed by a judgment or by warrant of any court
or judge, or (ii) any re-entry by Landlord, or (iii) any expiration or
termination of this lease and the Demised Term, whether such dispossess,
re-entry, expiration or termination shall be by operation of law or pursuant to
the provisions of this lease. In the event of a breach or threatened breach by
Tenant, or any persons claiming through or under Tenant, of any term, covenant
or condition of this lease on Tenant's part to be observed or performed,
Landlord shall have the right to enjoin such breach and the right to invoke any
other remedy allowed by law or in equity as if re-entry, summary proceedings and
other special remedies were not provided in this lease for such breach. The
rights to invoke the remedies hereinbefore set forth are cumulative and shall
not preclude Landlord from invoking any other remedy allowed by law or in
equity.
DAMAGES
30. a. If this lease and the Demised Term shall expire and come to an
end as provided in Article 28 or by or under any summary proceeding or any other
action or proceeding, or if Landlord shall re-enter the demised premises as
provided in Article 29 or by or under any summary proceeding or any other action
or proceeding, then, in any of said events:
i. Tenant shall pay to Landlord all rent, additional rent and
other charges payable under this lease by Tenant to Landlord to the date upon
which this lease and the Demised Term shall have expired and come to an end or
to the date of re-entry upon the demised premises by Landlord, as the case may
be; and
ii. Tenant shall also be liable for and shall pay to Landlord, as
damages, any deficiency (referred to as "Deficiency") between the rent and
additional rent reserved in this lease for the period which otherwise
would have constituted the unexpired portion of the Demised Term and the net
amount, if any, of rents collected under any reletting effected pursuant to the
provisions of Section 29.a for any part of such period (first deducting from
the rents collected under any such reletting all of Landlord's expenses in
connection with the termination of this lease or Landlord's re-entry upon the
demised premises and such reletting including, but not limited to, all
repossession costs, brokerage commissions, legal expenses, attorney's fees,
alteration costs and other expenses of preparing the demised premises for such
reletting). Any such Deficiency shall be paid in monthly installments by Tenant
on the days specified in this lease for payment of installments of rent.
Landlord shall be entitled to recover from Tenant each monthly Deficiency as the
same shall arise, and no suit to collect the amount of the Deficiency for any
month shall prejudice Landlord's right to collect the Deficiency for any
subsequent month by a similar proceeding; and
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iii. At any time after the Demised Term shall have expired and
come to an end or Landlord shall have re-entered upon the demised premises, as
the case may be, whether or not Landlord shall have collected any monthly
Deficiencies as aforesaid, Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord, on demand, as and for liquidated and agreed
final damages, a sum equal to the amount by which the rent and additional rent
reserved in this lease for the period which otherwise would have constituted
the unexpired portion of the Demised Term exceeds the then fair and reasonable
rental value of the demised premises for the same period, both discounted to
present worth at the rate of four (4%) per cent per annum. If, before
presentation of proof of such liquidated damages to any court, commission or
tribunal, the demised premises, or any part thereof, shall have been relet by
Landlord for the period which otherwise would have constituted the unexpired
portion of the Demised Term, or any part thereof, the amount of rent reserved
upon such reletting shall be deemed, prima facie, to be the fair and reasonable
rental value for the part or the whole of the demised premises so relet during
the term of the reletting.
b. If the demised premises, or any part thereof, shall be
relet together with other space in the Building, the rents collected or reserved
under any such reletting and the expenses of any such reletting shall be
equitably apportioned for the purposes of this Article 30. Tenant shall in no
event be entitled to any rents collected or payable under any reletting, whether
or not such rents shall exceed the rent reserved in this lease. Solely for the
purposes of this Article, the term rent as used in Section 30.a shall mean the
rent in effect immediately prior to the date upon which this lease and the
Demised Term shall have expired and come to an end, or the date of re-entry upon
the demised premises by Landlord, as the case may be, plus any additional rent
payable pursuant to the provisions of Articles 8 & 9 for the Lease Year
immediately preceding such event. Nothing contained in Articles 28 and 29 or
this Article shall be deemed to limit or preclude the recovery by Landlord from
Tenant of the maximum amount allowed to be obtained as damages by any statute or
rule of law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in Section 30.a.
FEES AND EXPENSES
31. a. If Tenant shall default in the performance of any covenant on
Tenant's part to be performed in this lease contained, Landlord may immediately,
or at any time thereafter, without notice, perform the same for the account of
Tenant. If Landlord at any time is compelled to pay or elects to pay any sum of
money, or do any act which will require the payment of any sum of money, by
reason of the failure of Tenant to comply with any provision hereof, or, if
Landlord is compelled to or does incur any expense including reasonable
attorneys' fees, instituting, prosecuting and/or defending any action or
proceeding instituted by reason of any default of Tenant hereunder, the sum or
sums so paid by Landlord with all interest, costs and damages, shall be deemed
to be additional rent hereunder and shall be due from Tenant to Landlord on the
first day of the month following the incurring of such respective expenses, or
at Landlord's option on the first day of any subsequent month. In the event that
Landlord shall institute any such action or proceeding by reason of a default by
Tenant. hereunder, and Tenant shall thereafter cure such default before judgment
is entered in such action or proceeding, the sum of $500 shall immediately
become due and payable from Tenant
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to Landlord as and for liquidated damages on account of Landlord's attorneys'
fees and other costs and expenses in connection therewith (said sum not to be
deemed to be, or construed as, a limitation on Landlord's right to obtain
reasonable attorneys' fees in a greater amount where such default is not so
cured). Any sum of money (other than rent) accruing from Tenant to Landlord
pursuant to any provision of this lease, whether prior to or after the Term
Commencement Date, may, at Landlord's option, be deemed additional rent, and
Landlord shall have the same remedies for Tenant's failure to pay any item of
additional rent when due as for Tenant's failure to pay any installment of rent
when due. Tenant's obligations under this Article shall survive the expiration
or sooner termination of the Demised Term.
b. If any legal action or proceeding is brought by either
party against the other pertaining to or arising out of this lease, the final
prevailing party shall be entitled to recover all costs and expenses, including
reasonable attorneys' fees, incurred on account of such action or proceeding.
NO WAIVER
32. a. No act or thing done by Landlord or Landlord's agents during the
Demised Term hereby demised shall be deemed an acceptance of a surrender of said
demised premises, and no agreement to accept such surrender shall be valid
unless in writing signed by Landlord. No employee of Landlord or of Landlord's
agents shall have any power to accept the keys of said demised premises prior to
the termination of this lease. The delivery of keys to any employee of Landlord
or of Landlord's agents shall not operate as a termination of this lease or a
surrender of the demised premises. In the event of Tenant at any time desiring
to have Landlord underlet the demised premises for Tenant's account, Landlord or
Landlord's agents are authorized to receive said keys for such purposes without
releasing Tenant from any of the obligations under this lease, and Tenant hereby
relieves Landlord of any liability for loss of or damage to any of Tenant's
effects in connection with such underletting. The failure of Landlord to seek
redress for violation of, or to insist upon the strict performance of, any
covenant or condition of this lease, or any of the Rules and Regulations annexed
hereto and made a part hereof, or hereafter adopted by Landlord, shall not
prevent a subsequent act, which would have originally constituted a violation,
from having all the force and effect of an original violation. The receipt by
Landlord of rent with knowledge of the breach of any covenant of this lease
shall not be deemed a waiver of such breach. The failure of Landlord to enforce
any of the Rules and Regulations annexed hereto and made a part hereof, or
hereafter adopted against Tenant and/or any other tenant in the Building shall
not be deemed a waiver of any such Rules and Regulations. No provision of this
lease shall be deemed to have been waived by Landlord, unless such waiver be in
writing signed by Landlord. No payment by Tenant or receipt by Landlord of a
lesser amount than the monthly rent herein stipulated shall be deemed to be
other than on account of the earliest stipulated rent then owing nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy in this lease provided.
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b. Landlord's failure to render a Landlord's Statement with
respect to any Lease Year per Articles 8 & 9 shall not prejudice Landlord's
right to render a Landlord's Statement with respect to any subsequent Lease
Year. The obligations of Landlord and Tenant under the provisions of Articles 8
& 9 with respect to any additional rent for any Lease Year shall survive the
expiration or any sooner termination of the Demised Term.
WAIVER OF TRIAL BY JURY
33. To the extent such waiver is permitted by law, Landlord and Tenant
hereby waive trial by jury in any action, proceeding or counterclaim brought by
Landlord or Tenant against the other on any matter whatsoever arising out of or
in any way connected with this lease, the relationship of landlord and tenant,
the use or occupancy of the demised premises by Tenant or any person claiming
through or under Tenant, any claim of injury or damage, and any emergency or
other statutory remedy. The provisions of the foregoing sentence shall survive
the expiration or any sooner termination of the Demised Term. If Landlord
commences any summary proceeding for nonpayment of rent or otherwise to recover
possession of the demised premises, Tenant agrees not to interpose any
counterclaim of any nature or description in any such proceeding except for
compulsory counterclaims.
BILLS AND NOTICES
34. Except as otherwise expressly provided in this lease, any bills,
statements, notices, demands, requests or other communications given or required
to be given under this lease shall be effective only if rendered or given in
writing, sent by registered or certified mail (return receipt requested
optional), addressed (A) to Tenant (I) at Tenant's address set forth in this
lease if mailed prior to Tenant's taking possession of the demised premises, or
(ii) at the Building if mailed subsequent to Tenant's taking possession of the
demised premises with a copy to AMNEX, Inc., 100 West Lucerne Circle, Suite 100,
Orlando, Florida 32801-4400 Attention: V.P. Legal, or (iii) at any place where
Tenant or any agent or employee of Tenant may be found if mailed subsequent to
Tenant's vacating, deserting, abandoning or surrendering the demised premises,
or (B) to Landlord at Landlord's address set forth in this lease, or (C)
addressed to such other address as either Landlord or Tenant may designate as
its new address for such purpose by notice given to the other in accordance with
the provisions of this Article. Any such bill, statement, notice, demand,
request or other communication shall be deemed to have been rendered or given on
the date when it shall have been mailed as provided in this Article.
INABILITY TO PERFORM; INTERRUPTION OF SERVICE
35. a. If, by reason of strikes or other labor disputes, fires or other
casualty (or reasonable delays in adjustment of insurance), accidents, orders or
regulations of any Federal, State, County or Municipal authority, or any other
cause beyond Landlord's reasonable control, whether or not such other cause
shall be similar in nature to those hereinbefore enumerated, Landlord is unable
to furnish or is delayed in furnishing any utility or service required to be
furnished by
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Landlord under the provisions of this lease or any collateral instrument, or is
unable to perform or make or is delayed in performing or making any
installations, decorations, repairs, alterations, additions or improvements,
whether or not required to be performed or made under this lease or under any
collateral instrument, or is unable to fulfill or is delayed in fulfilling any
of Landlord's other obligations under this lease or any collateral instrument,
except as set forth in Article 24, no such inability or delay shall constitute
an actual or constructive eviction, in whole or in part, or impose any liability
upon Landlord or its agents by reason of inconvenience or annoyance to Tenant,
or injury to or interruption of Tenant's business, or otherwise, nor shall any
such delay or inability to perform on the part of Landlord in any way affect
this lease and the obligation of Tenant to pay rent hereunder and to perform all
of the other covenants and agreements to be performed by Tenant hereunder.
Notwithstanding any provision to the contrary, Tenant's continuing obligation
under this subparagraph a. of Article 35 to pay rent and to perform all of the
other covenants and agreements of this lease agreement shall terminate in the
event the Landlord's inability to furnish any utility or service or delay in
furnishing any utility or service, or inability to perform or make any repairs
or delay in performing or making any repairs, continues for a period of one
year.
b. Landlord reserves the right to stop the services of the air
conditioning, elevator, escalator, plumbing, electrical or other mechanical
systems or facilities in the Building when necessary by reason of accident or
emergency, or for repairs, alterations, replacements or improvements which in
the judgment of Landlord are desirable or necessary, until such repairs,
alterations, replacements or improvements shall have been completed. In the
event that Landlord is unable to complete the repairs, replacement and
improvement within a reasonable amount of time which in no event shall be less
than five (5) days, and further provided that the repair, alteration or
improvement is significantly harming or hindering Tenant's use of the demised
premises, Tenant shall be entitled to an abatement of the pro-rata share of the
annual rental rate adjusted for the percentage of the Premises not useable by
Tenant until the repairs, alterations, replacement or improvement is completed.
The exercise of such rights by Landlord shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations under this
lease, or impose any liability upon Landlord or its agents by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise, except as otherwise stated in this Article.
CONDITIONS OF LANDLORD'S LIABILITY
36. a. Tenant shall not be entitled to claim a constructive eviction
from the demised premises unless Tenant shall have first notified Landlord of
the condition or conditions giving rise thereto, and if the complaints be
justified, unless Landlord shall have failed to remedy such conditions within a
reasonable time after receipt of such notice.
b. If Landlord shall be unable to give possession of the
demised premises on any date specified for the commencement of the term by
reason of the fact that the demised premises have not been sufficiently
completed to make same ready for occupancy, or for any other reason, Landlord
shall not be subject to any liability for the failure to give possession on said
date, nor shall
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such failure in any way affect the validity of this lease or the obligations of
Tenant hereunder except that the Term Commencement Date shall be the date on
which Landlord gives possession of the demised premises to Tenant. The
provisions of this Article are intended to constitute "an express provision to
the contrary" within the meaning of Section 223-a of the New York Real Property
Law.
TENANT'S TAKING POSSESSION
37. Tenant by entering into occupancy of the premises shall be
conclusively deemed to have agreed that Landlord up to the time of such
occupancy has performed all of its obligations hereunder and that the premises
were in satisfactory condition as of the date of such occupancy, unless within
ten (l0) days after such date Tenant shall give written notice to Landlord
specifying the respects in which the same were not in such condition.
ENTIRE AGREEMENT
38. This lease contains the entire agreement between the parties and
all prior negotiations and agreements are merged herein. Neither Landlord nor
Landlord's agent or representative has made any representation, or statement, or
promise, upon which Tenant has relied regarding any matter or thing relating to
the Building, the land allocated to it, (including the Building Parking Area and
the Building C Parking Area) or the demised premises, or any other matter
whatsoever, except as is expressly set forth in this lease, including, but
without limiting the generality of the foregoing, any statement, representation
or promise as to the fitness of the demised premises for any particular use, the
services to be rendered to the demised premises or the prospective amount of any
item of additional rent. No oral or written statement, representation or promise
whatsoever with respect to the foregoing or any other matter made by Landlord,
its agents or any broker, whether contained in an affidavit, information
circular, or otherwise shall be binding upon the Landlord unless expressly set
forth in this lease. No rights, easements or licenses are or shall be acquired
by Tenant by implication or otherwise unless expressly set forth in this lease.
This lease may not be changed, modified or discharged, in whole or in part,
orally, and no executory agreement shall be effective to change, modify or
discharge, in whole or in part, this lease or any obligations under this lease,
unless such agreement is set forth in a written instrument executed by the party
against whom enforcement of the change, modification or discharge is sought. All
references in this lease to the consent or approval of Landlord shall be deemed
to mean the written consent of Landlord, or the written approval of Landlord, as
the case may be, and no consent or approval of Landlord shall be effective for
any purpose unless such consent or approval is set forth in a written instrument
executed by Landlord.
DEFINITIONS
39. The term "landlord" as used in this lease means only the owner, or
the mortgagee in possession, for the time being of the land and Building (or the
owner of a lease of the Building or of the land and Building) of which the
demised premises form a part, so that in the event of any sale or other transfer
of said land and Building or of said lease, or in the event of a lease of the
Building, or of the land and Building,
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the said Landlord shall be and hereby is entirely freed and relieved of all
covenants and obligations of Landlord hereunder, and it shall be deemed and
construed as a covenant running with the land without further agreement between
the parties or their successors in interest, or between the parties and the
purchaser or other transferee at any such sale, or the said lessee of the
Building, or of the land and Building, provided that the purchaser, transferee
or the lessee of the Building assumes and agrees to carry out any and all
covenants and obligations of Landlord hereunder. The words "re-enter",
"re-entry" and "re-entered" as used in this lease are not restricted to their
technical legal meanings. The term "business days" as used in this lease shall
exclude Saturdays, Sundays and all days observed by the State and Federal
Government as legal holidays.
The terms "person" and "persons" as used in this lease shall be
deemed to include natural persons, firms, corporations, associations and any
other private or public entities, whether any of the foregoing are acting on
their own behalf or in a representative capacity.
PARTNERSHIP TENANT
40. If Tenant is a partnership (or is comprised of two (2) or more
persons, individually and as co-partners of a partnership) or if Tenant's
interest in this lease shall be assigned to a partnership (or to two (2) or more
persons, individually and as co-partners of a partnership) pursuant to Article
20 (any such partnership and such person, being referred to in this Section as
"Partnership Tenant"), the following provisions of this Section shall apply to
such Partnership Tenant: (a) the liability of each of the parties comprising
Partnership Tenant shall be joint and several, and (b) each of the parties
comprising Partnership Tenant hereby consents in advance to, and agrees to be
bound by, any modifications of this lease which may hereafter be made and by any
notices, demand, requests or other communications which may hereafter be given,
by Partnership Tenant or by any of the parties comprising Partnership Tenant,
and (c) any bills, statements, notices, demands, requests or other
communications given or rendered to Partnership Tenant or to any of the parties
comprising Partnership Tenant shall be deemed given or rendered to Partnership
Tenant and to all such parties and shall be binding upon Partnership Tenant and
all such parties, and (d) if Partnership Tenant shall admit new partners, all of
such new partners shall, by their admission to Partnership Tenant, be deemed to
have assumed performance of all of the terms, covenants and conditions of this
lease on Tenant's part to be observed and performed, and (e) Partnership Tenant
shall give prompt notice to Landlord of the admission of any such new partners,
and upon demand of Landlord, shall cause each such new partner to execute and
deliver to Landlord an agreement in form satisfactory to Landlord, wherein each
such new partner shall assume performance of all of the terms, covenants and
conditions of this lease on Tenant's part to be observed and performed (but
neither Landlord's failure to request any such agreement nor the failure of any
such new partner to execute or deliver any such agreement to Landlord shall
vitiate the provisions of subdivision (d) of this Section).
SUCCESSORS, ASSIGNS, ETC.
41. The covenants, conditions and agreements contained in this lease
shall bind and inure to the benefit of Landlord and Tenant and their respective
heirs, distributees, executors, administrators, successors, and, except as
otherwise provided in this lease, their respective assigns.
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APPLICATION OF INSURANCE PROCEEDS, WAIVER OF SUBROGATION
42. In any case in which Tenant shall be obligated under any provisions
of this lease to pay to Landlord any loss, cost, damage, liability or expense
suffered or incurred by Landlord, Landlord shall allow to Tenant as an offset
against the amount thereof the net proceeds of any insurance collected by
Landlord for or on account of such loss, cost, damage liability or expense,
provided that the allowance of such offset does not invalidate or prejudice the
policy or policies under which such proceeds were payable. In any case in which
Landlord shall be obligated under any provisions of this lease to pay to Tenant
any loss, cost, damage, liability or expense suffered or incurred by Tenant,
Tenant shall allow to Landlord as an offset against the amount thereof the net
proceeds of any insurance collected by Tenant for or on account of such loss,
cost damage, liability or expense, provided that the allowance of such offset
does not invalidate or prejudice the policy or policies under which such
proceeds were payable.
CAPTIONS AND INDEX
43. The captions and the index at the beginning of the lease, if any,
are included only as a matter of convenience and for reference, and in no way
define, limit or describe the scope of this lease nor the intent of any
provisions thereof.
RECOVERY FROM LANDLORD
44. a. Tenant shall look solely to the estate and property of Landlord
in the land and building of which the demised premises are a part, for the
satisfaction of Tenant's remedies for the collection of a judgment (or other
judicial process) requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to any of the terms, covenants and/or
conditions of the lease to be observed and/or performed by Landlord, and no
other property or assets of such Landlord shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies.
b. With respect to any provision of this lease which provides
for Landlord's approval and/or consent, Tenant, in no event, shall be entitled
to make, nor shall Tenant make any claim, and Tenant hereby waives any claim,
for money damages; nor shall Tenant claim any money damages by way of set-off,
counterclaim or defense, based upon any claim or assertion by Tenant that
Landlord has unreasonably withheld or unreasonably delayed any such consent or
approval.
BROKER
45. Tenant represents and warrants to Landlord that Island Realty is
the sole broker who brought the demised premises to Tenant's attention and with
whom Tenant has negotiated in bringing about this lease. Tenant agrees to
indemnify, defend and save Landlord harmless of, from and against any and all
claims (and all expenses and fees, including attorneys fees, related thereto)
for commissions or compensation made by any other broker or entity, arising out
of or relating to the breach by Tenant of the foregoing representation. As, if
and when this lease shall be fully executed and unconditionally delivered by
both Landlord and Tenant, Landlord agrees to pay any commission that may be due
the above-named broker in connection with this lease in accordance with a
separate agreement between Landlord and said broker.
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MORTGAGEE'S CONSENT
46. Landlord and Tenant hereby acknowledge that this lease is subject
to Landlord's obtaining the written approval of Mitsui to this lease. Landlord
agrees to submit a copy of this lease to Mitsui for Mitsui's written approval
promptly after the execution hereof. The failure of Landlord to obtain Mitsui's
approval to this Lease shall not result in any liability from Landlord to
Tenant, or give rise to any claim in favor of Tenant against Landlord by reason
thereof. In the event that Mitsui's written approval to this Agreement is not
obtained on or before the date that is twenty (20) days after the date hereof,
then this Agreement shall automatically terminate and shall be deemed null and
void ab initio, and neither party shall have any further rights or obligations
hereunder.
NET LEASE
47. Except as may be otherwise expressly provided herein, it is the
intention, understanding, and agreement of Landlord and Tenant that this lease
is, and shall constitute a Net Net Net lease, and that Landlord shall receive
its base rent and all other additional rent without setoff deduction, or offset
for any charges or expenses incurred in the ownership, operation, maintenance or
repair of the demised premises.
SECURITY
48. Tenant has deposited with Landlord the sum of $50,000 for the
faithful performance and observance by Tenant of the terms, provisions and
conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, Landlord
may use, apply or retain the whole or any part of the security so deposited to
the extent required for the payment of any sum as to which Tenant is in default.
Landlord shall deposit Tenant's security in an interest bearing account. In the
event that Tenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this lease, the security shall be
returned to Tenant as follows: (a) $5,000 on the first anniversary of the Term
Commencement Date; (b) $5,000 on the second anniversary of the Term Commencement
Date; (c) $5,000 on the third anniversary of the Term Commencement Date; (d)
$5,000 on the fourth anniversary of the Term Commencement Date; and the
remaining $30,000 and all accrued interest after the date fixed at the end of
this lease and after delivery of entire possession of the demised premises to
Landlord. In the event of a sale of the land and Building or leasing of the
Building, Landlord shall have the right to transfer the security to the vendee
or lessee and Landlord shall thereupon be released by Tenant from all liability
for the return of such security. Tenant covenants that it will not assign or
encumber or attempt to assign or encumber the moneys deposited here as security
and that neither Landlord nor its successors or assigns shall be bound by any
such assignment, encumbrance, attempted assignment or attempted encumbrance.
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IN WITNESS WHEREOF
Landlord and Tenant have respectively signed and sealed this lease as of the day
and year first written above.
Witness for Landlord: WE'RE ASSOCIATES COMPANY
BY:/s/ Bennett Rechler
Bennett Rechler
(Print Name)
Witness for Tenant: CRESCENT PUBLIC COMMUNICATIONS, INC.
By: /s/ A.M. Scalice
A. M. Scalice
(Print Name)
President
(Title)
33
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AMNEX, INC.
1992 Stock Option Plan
1. Purpose of the Plan. The AMNEX, Inc. 1992 Stock Option Plan
(the "Plan") is intended to advance the interests of AMNEX, Inc. (the "Company")
by inducing individuals or entities of outstanding ability and potential to join
and remain with, or provide consulting or advisory services to, the Company, by
encouraging and enabling eligible employees, non-employee Directors, consultants
and advisors to acquire proprietary interests in the Company, and by providing
the participating employees, non-employee Directors, consultants and advisors
with an additional incentive to promote the success of the Company. This is
accomplished by providing for the granting of "Options," which term as used
herein includes both "Incentive Stock Options" and "Nonstatutory Stock Options,"
as later defined, to employees, non-employee Directors, consultants and
advisors.
2. Administration. The Plan shall be administered by the Board
of Directors of the Company (the "Board of Directors") or by a committee (the
"Committee") consisting of at least three (3) persons chosen by the Board of
Directors. Except as herein specifically provided, the interpretation and
construction by the Board of Directors or the Committee of any provision of the
Plan or of any Option granted under it shall be final and conclusive. The
receipt of Options by Directors, or any members of the Committee, shall not
preclude their vote on any matters in connection with the administration or
interpretation of the Plan.
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3. Shares Subject to the Plan. The stock subject to Options
granted under the Plan shall be shares of the Company's common stock, par value
$.001 per share (the "Common Stock"), whether authorized but unissued or held in
the Company's treasury, or shares purchased from stockholders expressly for use
under the Plan. The maximum number of shares of Common Stock which may be issued
pursuant to Options granted under the Plan shall not exceed in the aggregate
four million two hundred fifty thousand (4,250,000) shares, subject to
adjustment in accordance with the provisions of Section 12 hereof. The Company
shall at all times while the Plan is in force reserve such number of shares of
Common Stock as will be sufficient to satisfy the requirements of all
outstanding Options granted under the Plan. In the event any Option granted
under the Plan shall expire or terminate for any reason without having been
exercised in full or shall cease for any reason to be exercisable in whole
or in part, the unpurchased shares subject thereto shall again be available
for Options under the Plan.
4. Participation. The class of individuals that shall be
eligible to receive Options under the Plan shall be (a) with respect to
Incentive Stock Options described in Section 6 hereof, all employees (including
officers) of either the Company or any subsidiary corporation of the Company,
and (b) with respect to Nonstatutory Stock Options described in Section 7
hereof, all employees (including officers) and non-employee Directors of, or
consultants and advisors to, either the Company or any subsidiary corporation of
the Company; provided, however, that Nonstatutory
2
<PAGE>
Stock Options shall not be granted to any such consultants and advisors unless
(i) bona fide services have been or are to be rendered by such consultant or
advisor and (ii) such services are not in connection with the offer or sale of
securities in a capital raising transaction. The Board of Directors or the
Committee, in its sole discretion, but subject to the provisions of the Plan,
shall determine the employees and non-employee Directors of, and the consultants
and advisors to, the Company and its subsidiary corporations to whom Options
shall be granted, and the number of shares to be covered by each Option, taking
into account the nature of the employment or services rendered by the
individuals being considered, their annual compensation, their present and
potential contributions to the success of the Company, and such other factors as
the Board of Directors or the Committee may deem relevant.
5. Stock Option Agreement. Each Option granted under the Plan
shall be authorized by the Board of Directors or the Committee, and shall be
evidenced by a Stock Option Agreement which shall be executed by the Company and
by the individual to whom such Option is granted. The Stock Option Agreement
shall specify the number of shares of Common Stock as to which any Option is
granted, the period during which the Option is exercisable, and the option price
per share thereof.
6. Incentive Stock Options. The Board of Directors or
the Committee may grant Options under the Plan, which Options are
intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and which are
3
<PAGE>
subject to the following terms and conditions and any other terms and conditions
as may at any time be required by Section 422 of the Code (referred to herein as
an "Incentive Stock Option"):
(a) No Incentive Stock Option shall be granted to
individuals other than employees of the Company or of a subsidiary
corporation of the Company.
(b) Each Incentive Stock Option under the Plan must
be granted prior to May 26, 2002, which is within ten (10) years from the date
the Plan was adopted by the Board of Directors.
(c) The option price of the shares subject to any
Incentive Stock Option shall not be less than the fair market value of the
Common Stock at the time such Incentive Stock Option is granted; provided,
however, if an Incentive Stock Option is granted to an individual who owns, at
the time the Incentive Stock Option is granted, more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or of a
parent or subsidiary corporation of the Company, the option price of the shares
subject to the Incentive Stock Option shall be at least one hundred ten percent
(110%) of the fair market value of the Common Stock at the time the Incentive
Stock Option is granted.
(d) No Incentive Stock Option granted under the Plan
shall be exercisable after the expiration of ten (10) years from the date of its
grant. However, if an Incentive Stock Option is granted to an individual who
owns, at the time the Incentive Stock Option is granted, more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of
4
<PAGE>
a parent or subsidiary corporation of the Company, such Incentive Stock Option
shall not be exercisable after the expiration of five (5) years from the date of
its grant. Every Incentive Stock Option granted under the Plan shall be subject
to earlier termination as expressly provided in Section 10 hereof.
(e) For purposes of determining stock ownership
under this Section 6, the attribution rules of Section 425(d) of the Code shall
apply.
(f) For purposes of the Plan, fair market value
shall be determined by the Board of Directors or the Committee. If the Common
Stock is listed on a national securities exchange or traded on the
Over-the-Counter market, fair market value shall be the closing selling price
or, if not available, the closing bid price or, if not available, the high bid
price of the Common Stock quoted on such exchange, or on the Over-the-Counter
market as reported by the National Association of Securities Dealers Automated
Quotation (NASDAQ) system or if the Common Stock is not listed on NASDAQ, then
by the National Quotation Bureau, Incorporated, as the case may be, on the day
immediately preceding the day on which the Option is granted, or, if there is no
trading or bid price on that day, the closing selling price, closing bid price
or high bid price on the most recent day which precedes that day and for which
such prices are available.
7. Nonstatutory Stock Options. The Board of Directors
or the Committee may grant Options under the Plan which are not
intended to meet the requirements of Section 422 of the Code, as
5
<PAGE>
well as Options which are intended to meet the requirements of Section 422 of
the Code but the terms of which provide that they will not be treated as
Incentive Stock Options (referred to herein as a "Nonstatutory Stock Option").
Nonstatutory Stock Options which are not intended to meet those requirements
shall be subject to the following terms and conditions:
(a) A Nonstatutory Stock Option may be granted to
any individual or entity eligible to receive an Option under the Plan pursuant
to Section 4(b) hereof.
(b) The option price of the shares subject to a
Nonstatutory Stock Option shall be determined by the Board of Directors or the
Committee, in its sole discretion, at the time of the grant of the Nonstatutory
Stock Option; provided, however, that the option price of the shares subject to
a Nonstatutory Stock Option granted to a person subject to Section 16(b) of the
Securities Exchange Act of 1934, as amended (an "Insider"), shall not be less
than the fair market value of the Common Stock at the time such Nonstatutory
Stock Option is granted.
(c) A Nonstatutory Stock Option granted under the
Plan may be of such duration as shall be determined by the Board of Directors or
the Committee (subject to earlier termination as expressly provided in Section
10 hereof); provided, however, that no Nonstatutory Stock Option granted under
the Plan to an Insider shall be exercisable after the expiration of ten (10)
years from the date of its grant.
6
<PAGE>
8. Rights of Option Holders. The holder of any Option
granted under the Plan shall have none of the rights of a
stockholder with respect to the stock covered by his Option until
such stock shall be transferred to him upon the exercise of his
Option.
9. Transferability. No Option granted under the Plan
shall be transferable by the individual or entity to whom it was
granted otherwise than by Will or the laws of descent and
distribution, and, during the lifetime of such individual, shall
not be exercisable by any other person, but only by him.
10. Termination of Employment or Death.
(a) Subject to the terms of the Stock Option
Agreement, if the employment of an employee by, or the services of a
non-employee Director for, or consultant or advisor to, the Company or a
subsidiary corporation of the Company shall be terminated for cause or
voluntarily by the employee, non-employee Director, consultant or advisor, then
his or its Option shall expire forthwith. Subject to the terms of the Stock
Option Agreement, and except as provided in subsections (b) and (c) of this
Section 10, if such employment or services shall terminate for any other reason,
then such Option may be exercised at any time within three (3) months after such
termination, subject to the provisions of subsection (d) of this Section 10. For
purposes of the Plan, the retirement of an individual either pursuant to a
pension or retirement plan adopted by the Company or at the normal retirement
date prescribed from time to time by the Company shall
7
<PAGE>
be deemed to be termination of such individual's employment other than
voluntarily or for cause. For purposes of this subsection (a), an employee,
non-employee Director, consultant or advisor who leaves the employ or services
of the Company to become an employee or non-employee Director of, or a
consultant or advisor to, a subsidiary corporation of the Company or a
corporation (or subsidiary or parent corporation of the corporation) which has
assumed the Option of the Company as a result of a corporate reorganization,
etc., shall not be considered to have terminated his employment or services.
(b) Subject to the terms of the Stock Option
Agreement, if the holder of an Option under the Plan dies (i) while employed by,
or while serving as a non-employee Director for or a consultant or advisor to,
the Company or a subsidiary corporation of the Company, or (ii) within three (3)
months after the termination of his employment or services other than
voluntarily by the employee or non-employee Director, consultant or advisor, or
for cause, then such Option may, subject to the provisions of subsection (d) of
this Section 10, be exercised by the estate of the employee or non-employee
Director, consultant or advisor, or by a person who acquired the right to
exercise such Option by bequest or inheritance or by reason of the death of such
employee or non-employee Director, consultant or advisor at any time within one
(1) year after such death.
(c) Subject to the terms of the Stock Option
Agreement, if the holder of an Option under the Plan ceases
8
<PAGE>
employment or services because of permanent and total disability (within the
meaning of Section 22(e)(3) of the Code) while employed by, or while serving as
a non-employee Director for or consultant or advisor to, the Company or a
subsidiary corporation of the Company, then such Option may, subject to the
provisions of subsection (d) of this Section 10, be exercised at any time within
one (1) year after his termination of employment, termination of Directorship or
termination of consulting or advisory services, as the case may be, due to the
disability.
(d) An Option may not be exercised pursuant to this
Section 10 except to the extent that the holder was entitled to exercise the
Option at the time of termination of employment, termination of Directorship,
termination of consulting or advisory services, or death, and in any event may
not be exercised after the expiration of the Option.
(e) For purposes of this Section 10, the employment
relationship of an employee of the Company or of a subsidiary corporation of the
Company will be treated as continuing intact while he is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
Government) if such leave does not exceed ninety (90) days, or, if longer, so
long as his right to reemployment is guaranteed either by statute or by
contract.
11. Exercise of Options.
(a) Unless otherwise provided in the Stock Option
Agreement, any Option granted under the Plan shall be exercisable
9
<PAGE>
in whole at any time, or in part from time to time, prior to expiration. The
Board of Directors or the Committee, in its absolute discretion, may provide in
any Stock Option Agreement that the exercise of any Options granted under the
Plan shall be subject (i) to such condition or conditions as it may impose,
including, but not limited to, a condition that the holder thereof remain in the
employ or service of, or continue to provide consulting or advisory services to,
the Company or a subsidiary corporation of the Company for such period or
periods from the date of grant of the Option as the Board of Directors or the
Committee, in its absolute discretion, shall determine; and (ii) to such
limitations as it may impose, including, but not limited to, a limitation that
the aggregate fair market value of the Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any employee
during any calendar year (under all plans of the Company and its parent and
subsidiary corporations) shall not exceed one hundred thousand dollars
($100,000). In addition, in the event that under any Stock Option Agreement the
aggregate fair market value of the Common Stock with respect to which Incentive
Stock Options are exercisable for the first time by any employee during any
calendar year (under all plans of the Company and its parent and subsidiary
corporations) exceeds one hundred thousand dollars ($100,000), the Board of
Directors or the Committee may, when shares are transferred upon exercise of
such Options, designate those shares which shall be treated as transferred upon
exercise of an Incentive Stock Option and those shares which shall
10
<PAGE>
be treated as transferred upon exercise of a Nonstatutory Stock
Option.
(b) An Option granted under the Plan shall be
exercised by the delivery by the holder thereof to the Company at its principal
office (attention of the Secretary) of written notice of the number of shares
with respect to which the Option is being exercised. Such notice shall be
accompanied, or followed within ten (10) days of delivery thereof, by payment of
the full option price of such shares, and payment of such option price shall be
made by the holder's delivery of (i) his check payable to the order of the
Company, or (ii) previously acquired Common Stock, the fair market value of
which shall be determined as of the date of exercise, or by the holder's
delivery of any combination of the foregoing (i) and (ii).
12. Adjustment Upon Change in Capitalization.
(a) In the event that the outstanding Common Stock
is hereafter changed by reason of reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares,
reverse split, stock dividend or the like, an appropriate adjustment shall be
made by the Board of Directors or the Committee in the aggregate number of
shares available under the Plan, in the number of shares and option price per
share subject to outstanding Options, and in any limitation on exerciseability
referred to in Section 11(a)(ii) hereof which is set forth in outstanding
Incentive Stock Options. If the Company shall be reorganized, consolidated, or
merged with another
11
<PAGE>
corporation, the holder of an Option shall be entitled to receive upon the
exercise of his Option the same number and kind of shares of stock or the same
amount of property, cash or securities as he would have been entitled to receive
upon the happening of any such corporate event as if he had been, immediately
prior to such event, the holder of the number of shares covered by his Option;
provided, however, that in such event the Board of Directors or the Committee
shall have the discretionary power to take any action necessary or appropriate
to prevent any Incentive Stock Option granted hereunder which is intended to be
an "incentive stock option" from being disqualified as such under the then
existing provisions of the Code or any law amendatory thereof or supplemental
thereto.
(b) Any adjustment in the number of shares shall
apply proportionately to only the unexercised portion of the Option granted
hereunder. If fractions of a share would result from any such adjustment, the
adjustment shall be revised to the next lower whole number of shares.
13. Further Conditions of Exercise.
(a) Unless prior to the exercise of the Option the
shares issuable upon such exercise have been registered with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended, the
notice of exercise shall be accompanied by a representation or agreement of the
person or estate exercising the Option to the Company to the effect that such
shares are being acquired for investment purposes and not with a view to the
distribution thereof, or such other documentation as may be
12
<PAGE>
required by the Company, unless in the opinion of counsel to the Company such
representation, agreement or documentation is not necessary to comply with such
Act.
(b) The Company shall not be obligated to deliver
any Common Stock until it has been listed on each securities exchange on which
the Common Stock 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. The Company shall use reasonable efforts to obtain
such listing, qualification and compliance.
14. Effectiveness of the Plan. The Plan was adopted by the
Board of Directors on May 26, 1992. The Plan shall be subject to approval on or
before May 25, 1993, which is within one (1) year of adoption of the Plan by the
Board of Directors, by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon. In
the event such stockholder approval is withheld or otherwise not received on or
before the latter date, the Plan and, subject to the terms of the Stock Option
Agreement, all Options that may have been granted hereunder shall become null
and void.
15. Termination, Modification and Amendment.
(a) The Plan (but not Options previously granted
under the Plan) shall terminate on May 25, 2002, which is within ten (10) years
from the date of its adoption by the Board of Directors, or sooner as
hereinafter provided, and no Option shall be granted after termination of the
Plan.
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<PAGE>
(b) The Plan may from time to time be terminated,
modified, or amended by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon.
(c) The Board of Directors may at any time, on or
before the termination date referred to in Section 15(a) hereof, terminate the
Plan, or from time to time make such modifications or amendments to the Plan as
it may deem advisable; provided, however, that the Board of Directors shall not,
without approval by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon,
increase (except as otherwise provided by Section 12 hereof) the maximum number
of shares as to which Options may be granted hereunder, change the designation
of the employees or class of employees eligible to receive Options, or make any
other change which would prevent any Incentive Stock Option granted hereunder
which is intended to be an "incentive stock option" from disqualifying as such
under the then existing provisions of the Code or any law amendatory thereof or
supplemental thereto.
(d) No termination, modification, or amendment of
the Plan may, without the consent of the individual or entity to whom any Option
shall have been granted, adversely affect the rights conferred by such Option.
16. Not a Contract of Employment. Nothing contained in
the Plan or in any Stock Option Agreement executed pursuant hereto
shall be deemed to confer upon any individual or entity to whom an
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<PAGE>
Option is or may be granted hereunder any right to remain in the employ or
service of the Company or a subsidiary corporation of the Company or any
entitlement to any remuneration or other benefit pursuant to any consulting or
advisory arrangement.
17. Use of Proceeds. The proceeds from the sale of
shares pursuant to Options granted under the Plan shall constitute
general funds of the Company.
18. Indemnification of Board of Directors or Committee. In
addition to such other rights of indemnification as they may have, the members
of the Board of Directors or the Committee, as the case may be, shall be
indemnified by the Company to the extent permitted under applicable law against
all costs and expenses reasonably incurred by them in connection with any
action, suit, or proceeding to which they or any of them may be a party by
reason of any action taken or failure to act under or in connection with the
Plan or any rights granted thereunder and against all amounts paid by them in
settlement thereof or paid by them in satisfaction of a judgment of any such
action, suit or proceeding, except a judgment based upon a finding of bad faith.
Upon the institution of any such action, suit, or proceeding, the member or
members of the Board of Directors or the Committee, as the case may be, shall
notify the Company in writing, giving the Company an opportunity at its own cost
to defend the same before such member or members undertake to defend the same on
his or their own behalf.
19. Definitions. For purposes of the Plan, the terms
"parent corporation" and "subsidiary corporation" shall have the
15
<PAGE>
meanings set forth in Sections 425(e) and 425(f) of the Code, respectively, and
the masculine shall include the feminine and the neuter as the context requires.
20. Governing Law. The Plan shall be governed by, and
all questions arising hereunder shall be determined in accordance
with, the laws of the State of New York.
16
<PAGE>
AMNEX, INC.
AMENDED AND RESTATED
1996 RESTRICTED STOCK GRANT PLAN
1. Purpose. The AMNEX, Inc. Amended and Restated 1996 Restricted
Stock Grant Plan (the "Plan") is intended to advance the interests of AMNEX,
Inc., a New York corporation (the "Company"), by encouraging and enabling
officers, other key employees, and key consultants and advisors, upon whose
judgment, initiative and effort the Company is largely dependent for the
successful conduct of its business, to acquire and retain a proprietary interest
in the Company by ownership of its stock.
2. Definitions. For purposes of the Plan, the following terms shall
have the indicated meanings unless the context clearly indicates otherwise:
"Board" means the Board of Directors of the Company.
"Cause" means termination of the Participant's employment or
consulting or advisory relationship by the Company because of (A) conviction of,
or a plea of nolo contendere to, a felony, or another serious crime which
results or is likely to result in material injury to the Company; (B) breach of
fiduciary duty involving personal profit; (C) continued and habitual neglect to
perform material stated duties; or (D) material breach of any provision of any
employment, consulting or advisory agreement between the Participant and the
Company or any subsidiary thereof.
"CEO" means the Chief Executive Officer of the Company as of
the Initial Adoption Date.
"Chairman" means the Chairman of the Board as of the Initial
Adoption Date.
"Code" means the Internal Revenue Code of 1986, as it may be
amended from time to time.
"Committee" means the committee designated in Section 3 below
to administer the Plan.
"Common Stock" means the Company's Common Stock, par value
$.001 per share.
"Change in Control" of the Company shall be deemed to have
occurred (A) when either the CEO or Chairman is either removed as a director or
not nominated by the Board for re-election as a director of the Company; or (B)
when any nominee for election as a director of the Company contained in the
Company's Proxy Statement sent to shareholders in connection with the Board's
solicitation of proxies to be voted at any annual meeting of shareholders is not
so elected by the shareholders, except where the person elected instead of the
nominee is acceptable to the CEO
<PAGE>
and Chairman; or (C) upon any person or entity gaining ownership, directly or
indirectly, of securities that, in the aggregate, represent more than
thirty-five percent (35%) of the voting power of the Company's outstanding
securities (whether or not such securities are in fact voted); or (D) upon the
sale or disposition of fifty percent (50%) or more of the voting securities of
any of the Company's subsidiaries or all or substantially all of the assets of
any such subsidiary, except where such sale or disposition was approved by the
CEO; or (E) upon the termination of employment by the Company other than for
Cause, or the Resignation for Good Reason of, the CEO or Chairman.
"Exchange Act" means the Securities Exchange Act of 1934, as
it may be amended from time to time.
"Grant" means a grant of Shares, whether or not restricted,
pursuant to a written instrument that awards Shares to a Participant pursuant to
the Plan.
"Initial Adoption Date" means May 23, 1996.
"Non-Employee Director" means a "non-employee director", as
that term is used in Rule 16b-3 promulgated under the Exchange Act, or any
successor provision.
"Parent" means a parent corporation of the Company as defined
in section 424(e) of the Code.
"Participants" means the officers, other key employees, and
key consultants and advisors of the Company, its Subsidiaries and its Parents,
including directors of the Company who are also employees of the Company.
"Permanent Disability" means such mental or physical illness
or incapacity as shall result in the Participant being unable to render services
to the Company, its Parents or its Subsidiaries for a continuous period of
twelve (12) months.
"Plan" means this AMNEX, Inc. Amended and Restated 1996
Restricted Stock Grant Plan.
"Resignation for Good Reason" means a resignation of
employment or consulting or advisory services following the failure by the
Company to comply with any material provision of any employment, consulting or
advisory agreement with the Company or any subsidiary thereof, which failure was
not cured with thirty (30) days after a notice of noncompliance was given by the
employee, consultant or advisor to the Company.
"Shares" means shares of Common Stock which are granted to a
Participant pursuant to a Grant under the Plan.
2
<PAGE>
"Standard Restrictions" means those restrictions set forth in
Section 8(b) hereof.
"Subsidiary" means a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.
3. Administration of the Plan. The Plan shall be administered by the
Board or a committee (the "Committee") composed of not less than three (3)
persons. Only Non-Employee Directors shall be eligible to serve as members of
the Committee. The Committee shall report all action taken by it to the Board
which shall review and ratify or approve those actions which are required by law
to be so reviewed and ratified or approved by the Board. The Board or the
Committee shall have full and final authority in its discretion, subject to the
provisions of the Plan, (a) to determine the Participants, the time or times at
which Grants shall be made and the number of Shares so granted; (b) to construe
and interpret the Plan; (c) to determine the terms, restrictions and provisions
of the respective Grants, which need not be identical, including, but without
limitation, restrictions on Shares granted and the amount and terms of the
purchase price, if any, of Shares granted; and (d) to make all other
determinations and take all other actions deemed necessary or advisable for the
proper administration of the Plan. All such actions and determinations shall be
conclusively binding for all purposes and upon all persons.
4. Number of Shares Subject to the Plan. The total number of Shares
available for Grants under the Plan may not exceed in the aggregate 245,000,
subject to adjustment upon occurrence of any of the events indicated in Section
6 hereof. The Board may, from time to time, increase the number of Shares
available for grant under the Plan. The Shares to be delivered under the Grants
may consist, in whole or in part, of authorized but unissued Common Stock or
treasury Common Stock not reserved for any other purpose.
5. Lapsed Grants. If a Grant, or any portion thereof, is forfeited for
any reason, any Shares forfeited shall be available again for the making of a
later Grant hereunder.
6. Adjustment in Capitalization. In the event of any change in the
outstanding shares of Common Stock that occurs after the Initial Adoption Date
by reason of a stock dividend, stock split, reorganization, reclassification,
recapitalization, merger, consolidation, combination, exchange of shares, or
other similar change, then the aggregate number and class of shares or other
securities that may be issued or transferred pursuant to the Plan, and the
provisions, terms and conditions of each outstanding Grant affected thereby,
shall be adjusted appropriately by the Board or the Committee, whose
determination shall be conclusive.
7. Eligibility and Participation. Grantees of Grants shall be selected
by the Board or the Committee from among those Participants who are recommended
by the Chief Executive Officer of the Company and who, in the opinion of the
Board or the Committee, are key officers, other key employees or key consultants
or advisors in a position to contribute materially to the Company's continued
growth and development and to its long-term success.
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<PAGE>
8. Grants of Restricted Stock.
(a) Grant of Restricted Stock. Subject to the provisions of
Section 7, the Board or the Committee, at any time and from time to time, may
make Grants to such Participants and in such amounts as it shall determine. Each
Grant shall be made pursuant to a written instrument which must be executed by
the grantee in order to be effective.
(b) Standard Restrictions. In addition to any other applicable
provisions hereof and except as may otherwise be specifically provided in a
Grant, the following restrictions in this Section 8(b) (the "Standard
Restrictions") shall apply to Grants made by the Board or the Committee:
(i) No Shares granted pursuant to a Grant may be sold,
transferred, pledged, assigned or otherwise alienated or hypothecated until,
and to the extent that, such Shares are vested.
(ii) Shares granted pursuant to a Grant are non-vested at
the time the Grant is made, but shall, unless earlier forfeited hereunder,
vest according to the following vesting schedule:
Vested Percentage
Vesting Dates of Shares Granted
One (1) year from the date of Grant 10%
Two (2) years from the date of Grant 20%
Three (3) years from the date of Grant 30%
Four (4) years from the date of Grant 40%
Five (5) years from the date of Grant 50%
Six (6) years from the date of Grant 60%
Seven (7) years from the date of Grant 70%
Eight (8) years from the date of Grant 80%
Nine (9) years from the date of Grant 90%
Ten (10) years from the date of Grant 100%
The foregoing notwithstanding (but subject to the provisions of (iii) hereof and
subject to the discretion of the Board or the Committee), a Participant shall
forfeit all Shares not previously vested, if any, at such time as the
Participant is no longer employed by, or rendering consulting or advisory
services to, the Company or a Parent or Subsidiary. All forfeited Shares shall
be returned to the Company.
(iii) Notwithstanding any other provision of this Section
8(b) to the contrary, a Participant who has not previously forfeited any non-
vested Shares that are granted pursuant to a Grant, shall automatically have
such non-vested Shares vest upon the earlier of (a) the effective date
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<PAGE>
of a Change in Control, (b) the termination by the Company of the Participant's
employment with, or consulting or advisory services to, the Company and all
Parents and Subsidiaries other than for Cause, (c) the Resignation for Good
Reason by the Participant, and (d) the Participant's death or Permanent
Disability.
(c) Other Restrictions. Notwithstanding the Standard
Restrictions of Section 8(b) above, the Board or the Committee may impose such
other or different restrictions on any Shares granted as it may deem advisable
including, without limitation, restrictions relating to length of service,
corporate performance, attainment of individual or group performance objectives,
and federal or state securities laws, and may legend the certificates
representing restricted Shares to give appropriate notice of such restrictions.
Any such other or different restrictions shall be specifically set forth in the
Grant instrument.
(d) Holding of Restricted Shares. Certificates representing
Shares granted that are subject to restrictions shall be held by the Company or,
if the Board or the Committee so specifies, deposited with a third-party
custodian or trustee until lapse of all restrictions on the Shares. After such
lapse, certificates for such Shares (or the vested percentage of such Shares)
shall be delivered by the Company to the Participant who received the grant of
such Shares; provided, however, that the Company need not issue fractional
Shares.
(e) Rights in Restricted Shares. During any applicable period
of restriction, a Participant who has been granted Shares hereunder shall be the
record owner thereof and shall be entitled to vote such Shares and receive all
dividends and other distributions paid with respect to such Shares while they
are so restricted. However, if any such dividends or distributions are paid in
shares of Company stock during an applicable period of restriction, the shares
received shall be subject to the same restrictions as the Shares with respect to
which they were issued. Moreover, the Board or the Committee may provide in each
Grant such other restrictions, terms and conditions as it may deem advisable
with respect to the treatment and holding of any stock, cash or property that is
received in exchange for restricted Shares.
(f) Conflicting Provisions. In case of any conflict between
the provisions of this Plan and the provisions of a Grant, the provisions of
this Plan shall control.
9. Conditions to Grants. The making of any Grant and the issuance of
any Shares to a Participant shall be subject to the condition that, if at any
time the Company shall determine in its discretion that the satisfaction of
withholding tax or other withholding liabilities, or that the listing,
registration, or qualification of any Shares otherwise deliverable hereunder
upon any securities exchange or under any state or federal law, or that the
consent or approval of any regulatory body, is necessary or desirable as a
condition of, or in connection with, the delivery or purchase of Shares pursuant
hereto, then in any such event, such Grant or such issuance of Shares shall not
be effective unless such withholding, listing, registration, qualification,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to the Company.
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<PAGE>
10. Amendment, Suspension, and Termination of Plan. The Board may at
any time suspend or terminate the Plan or any portion thereof or may amend it
from time to time in such respects as the Board may deem advisable in order that
the Grants granted hereunder may conform to any change in the law or in any
other respects which the Board may deem to be in the best interests of the
Company. No Grants may be made during any suspension or after the termination of
the Plan. Except as provided in the Plan, no amendment, suspension, or
termination of the Plan shall, without the Participant's consent, alter or
impair any of the rights or obligations under any Grant theretofore granted to
such Participant under the Plan.
11. Tax Withholding. The Board or the Committee may, in its sole
discretion, (a) require a Participant to remit to the Company a cash amount
sufficient to satisfy, in whole or in part, any federal, state and local
withholding tax requirements prior to the delivery of any certificate for vested
Shares pursuant to a Grant hereunder; (b) require a Participant to satisfy, in
whole or in part, any such withholding tax requirements by having the Company,
upon any delivery of vested Shares, withhold from such Shares that number of
full Shares having a fair market value equal to the amount or portion of the
amount required or permitted to be withheld; or (c) satisfy such withholding
requirements through another lawful method.
12. Code Section 83(b) Elections. Each Participant making an election
pursuant to Section 83(b) of the Code shall, upon the making of such election,
promptly provide a copy of such election to the Company.
13. Employment. Nothing in this Plan shall interfere with or limit in
any way the right of the Company or any Parent or Subsidiary to terminate any
Participant's employment or consulting or advisory arrangement at any time, nor
confer upon any Participant any right to continue in the employ of, or render
consulting or advisory services to, the Company or any Parent or Subsidiary.
14. Effective Date of the Plan. The effective date of the Plan is May
23, 1996, the date of its adoption by the Board.
15. Term. No Grants may be made under the Plan after May 23, 2006.
The provisions of the Plan shall, however, continue to apply as to any Grants
made prior to such date.
Dated: May 23, 1996 (Amended and Restated as of March 31, 1997)
K:\WPDOC\CORP\AMNEX\STKGRT96.2
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<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN AMNEX, Inc.
AND
KEVIN D. GRIFFO
This AGREEMENT made this 25th day of June, 1996, by and between AMNEX
Inc., a New York corporation having an office in Orlando, Florida (sometimes
hereinafter referred to as "AMNEX" or the "Company") and Kevin D. Griffo
(sometimes hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, the Company desires to employ the Employee and the Employee
desires to accept employment by the Company and enter into this Agreement; and
WHEREAS, the retention of Employee's services, for and on behalf of the
Company is of material importance to the preservation and enhancement of the
value of AMNEX;
NOW, THEREFORE, in consideration of the mutual covenants herein set
forth, AMNEX and Employee do hereby agree as follows:
1. Employment. The Employee is employed as Chief Operating Officer of
the Company from the date hereof through the term of this Agreement. As Chief
Operating Officer of the Company, the Employee shall implement executive policy
and other management services on behalf of the Company as would be customarily
performed by persons serving in a similar executive capacity. As an executive,
the Employee shall be responsible for implementing the policies and directives
of the Chief Executive Officer ("CEO") and the Board of Directors and shall
report only to the CEO. During the term of this Agreement, there shall be no
material decrease in the duties and responsibilities of the Employee other than
provided herein, unless the parties otherwise agree in writing. During the term
of this Agreement, the Employee shall not be required to relocate his or her
principal place of employment beyond 50 miles from Orlando, Florida in order to
perform his services hereunder.
2. Term. The initial term of employment under this Agreement shall be for a one
year period from the date hereof. This Agreement shall be automatically renewed
or extended for one additional year on each annual anniversary date of this
Agreement, unless either the Employee or the Company gives written notice to the
other on or before the sixtieth (60th) day prior to such anniversary date. Such
initial term and all such renewal terms are collectively referred to herein as
the term of this Agreement.
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3. Standards; Devotion of Time. The Employee shall perform his duties and
responsibilities under this Agreement in accordance with such reasonable
standards as may be established from time to time by the CEO of the Company. The
reasonableness of such standards shall be measured against standards for
executive performance generally prevailing in the telecommunications services
industry. During the employment period, the Employee shall expend all of his
working time for the Company and shall devote his best efforts, energy and skill
to the services of the Company and the promotion of its interests.
4. Compensation. The Company agrees to pay the Employee during the term of this
Agreement a salary at the minimum annual rate of $150,000.00. In the event that
this Agreement is renewed or extended, the Employee's salary will be reviewed at
the time of such renewal and may be increased in an amount to be determined by
the CEO in his sole discretion. In determining the Employee's annual salary
increases, if any, the CEO may compensate the Employee for increases in the cost
of living and also provide for performance or merit increases to the extent
appropriate and when compared to the prevailing telecommunications services
industry for like executive positions. The salary of the Employee shall not be
decreased at any time during the term of this Agreement from the amount then in
effect unless the Employee otherwise agrees in writing. Participation in
deferred compensation, bonus, retirement, and other employee benefit plans and
in fringe benefits shall not reduce the salary payable to the Employee. The
salary under this Section 4 shall be payable to the Employee biweekly.
5. Bonus. During the term of this Agreement, the Employee shall be entitled to
participate with other executive employees of the Company in a bonus pool, which
pool shall be equal to 3% of AMNEX Inc.'s consolidated pre-tax profits. The pool
shall be authorized and distributed by the CEO and Chairman of the Board in
their sole discretion. No other compensation provided for in this Agreement
shall be deemed a substitute for the Employee's right to participate in such
bonus if, when and as authorized.
6. Disability. In the event of the inability of Employee to render services
hereunder during the term of the Agreement due to a disability (whether
temporary or permanent), and for so long as such disability continues, Employee
shall continue to receive Employee's salary for a period not to exceed the
remaining term of the Agreement. There shall be deducted from the amount paid to
Employee hereunder during any period of disability any amounts actually paid to
Employee pursuant to any disability insurance or other similar such program
which the Company has instituted or may institute on behalf of its employees for
the purpose of compensating Employee in the event of disability.
7. Additional Compensation and Benefits. During the term of the Agreement,
Employee will be entitled to participate in and receive the benefits of any
stock option, profit sharing, or other plans, benefits and privileges given to
employees and/or
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executives of the Company or its subsidiaries and affiliates which may come into
existence hereafter, to the extent commensurate with his then duties and
responsibilities, as fixed by the CEO, and to the extent Employee is otherwise
eligible and qualified to so participate in and receive such benefits or
privileges. The Company shall not make any changes in such plans, benefits or
privileges which would adversely affect Employee's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executives of the Company and does not result in a proportionately greater
adverse change in the rights of or benefits to Employee as compared with any
other executive of the Company. Nothing paid to Employee under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to Employee pursuant to Section 4 hereof.
Nothing herein shall be deemed to imply that Employee is entitled to receive any
stock options (notwithstanding the grant thereof to other executive employees of
the Company or its subsidiaries or affiliates), it being understood and agreed
that the grant thereof is within the sole discretion of the Board of Directors
or its Compensation Committee.
8. Expenses. The Company shall reimburse Employee or otherwise provide for or
pay for all reasonable expenses incurred by Employee in furtherance of or in
connection with the business of the Company. In addition, the Company shall
reimburse Employee for all reasonable entertainment expenses (whether incurred
at the Employee's residence, while traveling, or otherwise) subject to such
reasonable limitations as may be established by the CEO. If such expenses are
paid in the first instance by Employee, the Company will reimburse Employee
therefor in accordance with its standard expense reimbursement policy.
9. Vacations. The Employee shall be entitled to annual paid vacations in
accordance with the following schedule:
1 - 2 years of service: 3 weeks per year
3 - 5 years of service: 3 weeks plus 2 days per year
6 - 9 years of service: 4 weeks per year
10+ years of service: 5 weeks per year
The timing of paid vacations shall be scheduled in a reasonable manner by the
parties following consultation between the CEO and Employee. The Employee shall
not be entitled to receive any additional compensation from the Company on
account of his failure to take paid vacation. The Employee shall also not be
entitled to accumulate more than two weeks of unused paid vacation time from one
calendar year to the next.
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10. Termination of Employment.
(a) Definitions. For the purposes of this Agreement, the following
definitions shall apply:
(i) A "Change in Control" of the Company shall be deemed to
have occurred: (A) when either the CEO or Chairman of the Board of the Company
as of the date hereof is either removed as a director or not nominated by the
Board for re-election as a director of the Company; or (B) when any nominee for
election as a director of the Company contained in the Company's Proxy Statement
sent to shareholders in connection with the Board of Directors' solicitation of
proxies to be voted at any Annual Meeting of Shareholders shall not be so
elected by the shareholders, except where the person elected instead of the
nominee is acceptable to the CEO and Chairman as of the date hereof; or (C) upon
any person or entity gaining ownership directly or indirectly of securities
that, in the aggregate, represent over thirty-five percent (35%) of the voting
power of the Company's outstanding securities (whether or not such securities
are in fact voted); or (D) upon the sale or disposition of fifty percent (50%)
or more of the voting securities of any of the Company's subsidiaries or all or
substantially all of the assets of any such subsidiary, except where such sale
or disposition was approved by the CEO serving as of the date hereof; or (E)
upon the termination of employment by the Company other than for cause, or the
resignation for good reason of, the CEO or Chairman serving as of the date
hereof.
(ii) Termination "for cause" shall mean termination of the
Employee by the Company because of: (A) conviction of or a plea of nolo
contendere to a felony, or another serious crime which results or is likely to
result in material injury to the Company; (B) breach of fiduciary duty involving
personal profit; (C) continued and habitual neglect to perform material stated
duties; or (D) material breach of any provision of this Agreement.
(iii) Resignation "for good reason" shall mean the resignation
of his employment by the Employee following: (A) a Change in Control of the
Company which, within two years of said Change in Control, results in (i) the
assignment to Employee, without Employee's express written consent, of any
duties materially inconsistent with Employee's positions, duties,
responsibilities and status with the Company immediately prior to a Change in
Control of the Company; or (ii) a material change or reduction in Employee's
reporting responsibilities, titles or offices as in effect immediately prior to
a Change in Control of the Company; or (iii) any removal of Employee from, or
any failure to re-elect Employee to, any of such positions, except in each case
in connection with the Employee's disability or death and except under
circumstances which would permit the termination of Employee's employment for
cause; or (B) failure by the Company to comply with any material provision of
this Agreement, which failure has not been cured within thirty (30) days after a
notice of non-compliance has been given by Employee to the Company.
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<PAGE>
(b) Termination for Cause. The CEO may terminate the Employee's
employment at any time for cause. The Employee shall have no right to receive
compensation or other benefits for any period after termination for cause. If,
within thirty (30) days of receipt of notice of termination, the Employee denies
that termination for cause was warranted, the dispute shall be resolved by
submission of the claim to binding arbitration in accordance with the provisions
hereof. The parties agree that the sole determination by the arbitrators shall
be whether the termination of the Employee's employment was for cause. In the
event it is determined that such termination was without cause, Employee shall
be entitled to such relief as is provided for herein with respect thereto. If
the Employee does not deny that termination for cause was warranted within such
thirty (30) day period, the Employee's termination for cause shall be deemed to
be conclusive.
(c) Termination Without Cause. Any termination of employment by the CEO
other than termination for cause, including but not limited to, the Company's
failure to renew or extend this Agreement pursuant to Paragraph 2, (which shall
be deemed termination without cause), shall not prejudice the Employee's right
to compensation or other benefits under this Agreement. The parties acknowledge
and agree that damages which will result to Employee for termination without
cause shall be extremely difficult or impossible to establish or prove, and
agree that, unless the termination is for cause, the Company shall be obligated
to make a payment to the Employee as liquidated damages in an amount equal to
the greater of (A) one year's minimum annual salary as set forth in Section 4
hereof and (B) the Employee's total compensation hereunder for the twelve (12)
months preceding the termination, provided, however, that in the event that the
Company fails to renew or extend this Agreement and the Employee's employment
continues, then the amount payable to Employee hereunder shall not be paid until
the cessation of Employee's employment. Employee agrees that, except for such
other payments and benefits to which the Employee may be entitled as expressly
provided by the terms of this Agreement, such liquidated damages shall be in
lieu of all other claims, demands or causes of action which Employee may make by
reason of such termination. The liquidated damages amount shall not be reduced
by any compensation which the Employee may receive for any other employment with
another employer after termination of his employment with the Company. At the
election of the Company, the payment of such liquidated damages shall be made
either by a lump sum payment on the Employee's last day of employment with the
Company or over the course of the next twelve months in equal bimonthly payments
in accordance with the Company's then standard payroll policies and practices.
Such bimonthly payments shall be made by wire transfer to the bank account
designated by the Employee. The Company's failure to make each and every payment
when due and the continuance thereof for a period of five (5) days shall be a
material breach of this Agreement and the Employee shall be entitled to demand
and receive in a lump sum all unpaid liquidated damages.
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<PAGE>
(d) Termination upon Death. Employee's employment shall automatically
terminate upon Employee's death, provided, however, that the Employee's wife,
Terry Griffo, shall be entitled to receive the payments specified under Section
10 (e)(ii) hereof.
(e) Resignation for Good Reason. (i) Employee may resign his employment
hereunder for good reason upon thirty (30) days notice to the Company, stating
in his notice the basis upon which he believes that good reason exists for such
resignation.
(ii) In the event the Employee resigns, the Employee shall be
entitled to receive as a severance payment, or in lieu of a severance payment,
payment for services previously rendered to the Company, a lump sum cash payment
equal to the greater of (A) one year's minimum annual salary as set forth in
Section 4 hereof and (B) the Employee's total compensation hereunder applicable
to the twelve (12) months preceding such resignation. Payment under this section
shall be in lieu of any amount owed to the Employee as liquidated damages for
termination without cause under Section 10(c) hereof and shall be payable on the
last day of Employee's employment hereunder. However, payment under this section
shall not be reduced by any compensation which the Employee may receive from
other employment with another employer after termination from his employment
with the Company.
(f) Change in Control; Resignation Without Good Reason. If during the
term of this Agreement there is a Change in Control of the Company and the
Employee without good reason resigns his employment within one year after such
Change in Control, the Employee shall be entitled to receive a severance payment
pursuant to Section 10(e)(ii) hereof. Any such resignation shall be on thirty
(30) days notice to the Company.
(g) Other Benefits. In the event liquidated damages and/or severance
payments are payable pursuant to this Section 10, the Employee shall also be
entitled to have any allowances set forth in Section 8 hereof and Employee's
health insurance coverage continue for a period of twelve months. In the event
that any such law or plan may prevent a continuation of Employee's health
insurance for such twelve month period, the Company shall pay for Employee's
C.O.B.R.A. health coverage during such period, or, if earlier, until such time
as Employee becomes eligible to be covered by comparable insurance with another
employer. The Company shall also ensure that all insurance or other provisions
for indemnification, defense or hold harmless of officers or directors of the
Company which are in effect as of the date of the Employee's termination
continue for the benefit of the Employee with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
termination had not occurred, and until the final expiration or running of all
periods of limitation against action which may be applicable to such acts or
omissions.
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(h) Benefit Plans. Notwithstanding any other provisions of this
Agreement or of any other agreement, contract, or understanding heretofore or
hereafter entered into between the Employee and the Company, except an
agreement, contract, or understanding hereafter entered into that expressly
modifies or excludes application of this Section 10 (the "Other Agreements"),
and notwithstanding any formal or informal plan or other arrangement heretofore
or hereafter adopted by the Company for the direct or indirect provision of
compensation to the Employee (including groups of classes of participants or
beneficiaries of which the Employee is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Employee (a "Benefit Plan"), the Employee shall not have any right to
receive any payment or other benefit under this Agreement, or Other Agreement,
or any Benefit Plan if such payment or benefit, taking into account all other
payments or benefits to or for the Employee under this Agreement, all Other
Agreements, and all Benefit Plans, would cause any payment to the Employee under
this Agreement to be considered a "parachute payment" within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended. In the
event that the receipt of any such payment or benefit under this Agreement, any
Other Agreement, or any Benefit Plan would cause the Employee to be considered
to have received a parachute payment under this Agreement, then the Employee
shall have the right, in his sole discretion, to designate those payments or
benefits under this Agreement, and Other Agreements, and/or any Benefit Plans,
which should be reduced or eliminated so as to avoid having the payment to the
Employee under this Agreement be deemed to be a parachute payment.
11. Confidentiality and Non-Solicitation. The services of the Employee are
unique, extraordinary and essential to the business of the Company, especially
since the Employee shall have access to the Company's customer lists, trade
secrets and other confidential network, financial, legal and operational
information essential to the Company's business. Accordingly, during the term of
this Agreement and thereafter, the Employee agrees not to use, divulge, furnish
or make available to any person or entity any knowledge of or information with
respect to any confidential or otherwise proprietary documents, discussions,
plans, policies, procedures, activities, materials, information or data of the
Company. The Employee further agrees to refrain from engaging in any activity
whatsoever that would tend to disparage or diminish the reputation of the
Company or which would tend to have a detrimental effect upon the interests of
the Company. The Employee has executed or will execute the standard AMNEX
Employee Confidentiality Agreement, which agreement is incorporated herein by
reference and made a part hereof.
The Employee also agrees that, for a period of one (1) year following the
expiration of this Agreement, the Employee shall not, without the prior written
approval of the CEO, anywhere in the United States of America, whether
individually or as a principal, officer, employee, partner, director, agent or
representative of or consultant for any entity, (a) cause or seek to persuade
any director, officer, employee, customer, subscriber, account, agent, vendor or
supplier of, or consultant to, the Company to discontinue or
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modify to the detriment of the Company the status, employment or relationship of
such person or entity with the Company (including, without limitation, to
discontinue or modify to the detriment of the Company the use of the Company's
operator services, long-distance transmission services, 1+ Coin Services and/or
other telecommunications services); (b) hire or retain any such officer,
director or employee; (c) cause or seek to persuade any prospective customer,
subscriber or account of the Company (which at the date of cessation of
employment with the Company was then actively being solicited by the Company) to
determine not to enter into a business relationship with the Company.
The Employee acknowledges and agrees that, in the event he shall violate any of
the restrictions of this Section 11, the Company will be without an adequate
remedy at law and will therefore be entitled to enforce such restrictions by
temporary or permanent injunctive relief in any court of competent jurisdiction
without the necessity of proving damages and without any prejudice to any other
remedies which it may have at law or in equity. The Employee acknowledges and
agrees that, in addition to any other state having proper jurisdiction, any such
relief may be sought in, and for such purpose the Employee consents to
jurisdiction of, the courts of the State of Florida.
12. Assumption of Agreement. In the event of a Change in Control transaction to
which the Company is a party, the Company shall require that the acquiring or
successor entity, if any, expressly assume the obligations and entitlement of
this Agreement following such change of control. Employee shall have the right
to demand that the Company acknowledge in writing the assumption of this
Agreement, if applicable, within thirty (30) days following receipt of such
demand. Failure of the Company to so act timely in response to such demand shall
be deemed a material breach of this Agreement by the Company, thereby entitling
Employee to resign for good reason in accordance with the provisions of this
Agreement but without providing any further notice of non-compliance and
opportunity for cure.
13. Other Employment. The Employee shall not, during the term of this
Agreement, have any other paid employment other than with a subsidiary of the
Company except with the prior approval of the CEO.
14. Section Headings. The section headings used in this Agreement are included
solely for convenience and shall not affect, or be used in conjunction with, the
interpretation of this Agreement.
15. Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be deemed to have been duly given when delivered by hand or sent
by certified or registered mail, return receipt requested and postage prepaid,
overnight mail or courier or telecopier as follows:
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If to the Employee:
12770 Lone Eagle Drive
Orlando, FL 32827
If to the Company:
100 W. Lucerne Circle
Orlando, FL 32801
Attn: CEO
Telecopier Number: (407) 246-0005
or at such other address as any party shall designate by notice to the other
party given in accordance with this Paragraph 15.
16. No Waiver; Entire Agreement. Failure to insist upon strict compliance with
any of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition, nor shall any waiver or relinquishment of any
right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This Agreement
constitutes the entire agreement between the parties 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, of the parties hereto relating to the
matters set forth in this Agreement. This Agreement may be amended only by a
writing executed by the parties hereto.
17. Assignability. This Agreement is personal in nature. The Employee shall have
no right to assign or transfer this Agreement. In the event of any attempted
assignment or transfer by the executive of his duties and obligations contrary
to this paragraph, all the Employee's rights under this Agreement shall be
forfeited, and the Company shall have no further liability under this Agreement.
The Company may assign or transfer its rights under this Agreement only to a
subsidiary or affiliate of the Company so long as such assignment shall not
substantially change the current status of this Agreement or its place of
performance. No assignment by the Company shall relieve the Company of the
liabilities and responsibilities created by this Agreement, including its
responsibilities under Section 12 hereof.
18. Reformation and Severability. The Employee and the Company agree that the
agreements contained herein shall each constitute a separate agreement
independently supported by good and adequate consideration, shall each be
severable from the other provisions of the Agreement, and shall survive the
Agreement. If a court of competent jurisdiction determines that any term,
provision or portion of this Agreement is void, illegal or unenforceable, the
other terms, provisions and portions of this Agreement shall remain in full
force and effect and the terms, provisions and portions that are determined
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to be void, illegal or unenforceable shall be limited so that they shall remain
in effect to the extent permissible by law.
19. Governing Law. This Agreement shall be governed by the laws of the United
States, where applicable, and otherwise by the laws of the State of Florida,
excluding choice of law principles thereof.
20. Arbitration; Attorneys Fees. (I) Except with regard to Section 11 hereof and
any other maters that are not a proper subject of arbitration, all disputes
between the parties hereto concerning the performance, breach, construction or
interpretation of this Agreement or any portion thereof, or in any manner
arising out of this Agreement or the performance thereof, shall be submitted to
binding arbitration in accordance with the rules of the American Arbitration
Association, which arbitration shall be carried out in the manner hereinafter
set forth.
(ii) Within fifteen days after written notice by one party to the other
party of its demand for arbitration, which demand shall set forth the name and
address of its designated arbitrator, the other party shall select its
designated arbitrator and so notify the demanding party. Within fifteen days
thereafter, the two arbitrators so selected shall select the third arbitrator.
The dispute shall be heard by the arbitrators within sixty days after selection
of the third arbitrator. The decision of any two arbitrators shall be binding
upon the parties. In default of either side naming its arbitrator as aforesaid
or in default of the selection of the said third arbitrator as aforesaid, the
American Arbitration Association shall designate such arbitrator upon the
application of either party. The decision of the arbitrators shall be final and
binding upon the Company, its successors and assigns and the Employee.
(iii) The arbitration proceedings shall take place in Orlando, Florida,
and the judgment and determination of such proceedings shall be binding on all
parties hereto. Judgment upon any award rendered by the arbitrators appointed
hereunder may be entered into any court having competent jurisdiction thereof
without any right of appeal therefrom.
(iv) Each party shall pay its or his own expenses of arbitration, and
the expenses of the arbitrators and the arbitration proceeding shall be equally
shared; provided, however, that, (a) if, in the opinion of a majority of the
arbitrators, any claim of defense was unreasonable, the arbitrators may assess,
as part of their award, all or any part of the arbitration expenses of the other
party (including reasonable attorneys' fees) and of the arbitrators and the
arbitration proceeding (collectively, the "Arbitration Expenses") against the
party raising such unreasonable claim or defense, and (b) if the arbitrators
rule in favor of the Employee, then the Company shall be obligated to pay all of
the Arbitration Expenses.
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21. No Restrictions. The Employee hereby represents that neither the execution
of this Agreement nor his performance hereunder will (a) violate, conflict with
or result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under
the terms, conditions or provisions of any contract, agreement or other
instrument or obligation to which the Employee is a party, or by which he may be
bound, or (b) violate any order, judgment, writ, injunction or decree applicable
to the Employee. In the event of a breach hereof, in addition to the Company's
right to terminate this Agreement, the Employee shall indemnify the Company and
hold it harmless from and against any and all claims, losses, liabilities and
expenses (including reasonable attorney's fees) incurred or suffered in
connection with or as a result of the Company's entering into this Agreement or
employing the Employee hereunder.
22. No Third Party Beneficiaries. Except as provided for in Section 10 (d)
hereof, no person not a party to this Agreement shall have any right to enforce
any of the provisions hereof, there being no third party beneficiaries.
23. Service as Officer of Subsidiaries; Service as Director. During the
employment period, the Employee shall, if elected or appointed, serve as (a) an
officer of any subsidiaries of the Company in existence or hereafter created or
acquired and (b) a Director of the Company and/or any such subsidiaries of the
Company, in each case without any additional compensation for such services.
IN WITNESS WHEREOF, the undersigned have executed this
Agreement as of the day and year above written.
EMPLOYEE AMNEX, Inc.
By: /s/Kevin Griffo By: /s/
Name: ________________________ Name: _______________________
Date: ________________________ Date: _______________________
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EMPLOYMENT AGREEMENT
BElWEEN AMNEX, INC.
AND
JOHN KANE
This AGREEMENT made this 1st day of October, 1996, by and between AMNEX
Inc., a New York corporation having an office in Orlando, Florida (sometimes
hereinafter referred to as "AMNEX" or the "Company") and John Kane (sometimes
hereinafter referred to as "Employee").
WITNESSETH:
WHEREAS, the Company desires to employ the Employee and the Employee
desires to accept employment by the Company and enter into this Agreement; and
WHEREAS, the retention of Employee's services, for and on behalf of the
Company is of material importance to the preservation and enhancement of the
value of AMNEX;
NOW THEREFORE, in consideration of the mutual covenants herein set
forth, AMNEX and Employee do hereby agree as follows:
1. Employment. The Employee is employed as Chief Operating Officer of the
Company from the date hereof through the term of this Agreement. As Chief
Operating Officer of the Company, the Employee shall implement executive policy
and other management services on behalf of the Company as would be customarily
performed by persons serving in a similar executive capacity. As an executive,
the Employee shall be responsible for implementing the policies and directives
of the Chief Executive Offcer ("CEO") and the Board of Directors and shall
report only to the CEO. During the term of this Agreement, there shall be no
material decrease in the duties and responsibilities of the Employee other than
provided herein, unless the parties otherwise agree in writing. During the term
of this Agreement, the Employee shall not be required to relocate his principal
place of employment beyond 50 miles from Orlando, Florida in order to perform
his services hereunder.
2. Term. The initial term of employment under this Agreement shall be for a two
year period from the date hereof. This Agreement shall be automatically renewed
or extended for additional one year terms on each annual anniversary date of
this Agreement, after the second anniversary, unless either the Employee or the
Company gives written notice to the other on or before the sixtieth (60th) day
prior to such anniversary date. Such initial term and all such renewal terms are
collectively referred to herein as the term of this Agreement.
3. Standards; Devotion of Time. The Employee shall perform his duties and
responsibilities under this Agreement in accordance with such reasonable
standards as may be established from time to time by the CEO of the Company. The
reasonableness of such standards shall be measured against standards for
executive performance generally prevailing in the
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telecommunications services industry. During the employment period, the Employee
shall expend all of his working time for the Company and shall devote his best
efforts, energy and skill to the services of the Company and the promotion of
its interests.
4. Compensation. The Company agrees to pay the Employee during the term of this
Agreement a salary at the minimum annual rate of $180,000.00. In the event that
this Agreement is renewed or extended, the Employee's salary will be reviewed at
the time of such renewal and may be increased in an amount to be determined by
the CEO in his sole discretion. In determining the Employee's annual salary
increases, if any, the CEO may compensate the Employee for increases in the cost
of living and also provide for perforrnance or merit increases to the extent
appropriate and when compared to the prevailing telecommunications services
industry for like executive positions. The salary of the Employee shall not be
decreased at any time during the term of this Agreement from the amount then in
effect unless the Employee otherwise agrees in writing. Participation in
deferred compensation, bonus, retirement, and other employee benefit plans and
in fringe benefits shall not reduce the salary payable to the Employee. The
salary under this Section 4 shall be payable to the Employee biweekly.
5. Bonus. During the term of this Ageement, the Employee shall be entitled to
participate with other executive employees of the Company in a bonus pool, which
pool shall be equal to 3% of AMNEX Inc.'s consolidated pre-tax profits. However,
the Employee shall not receive less than 1% of AMNEX Inc.'s consolidated pre-tax
profits. The pool shall be authorized and distributed by the CEO and Chairman of
the Board in their sole discretion. No other compensation provided for in this
Agreement shall be deemed a substitute for the Employee's right to participate
in such bonus if, when and as authorized.
6. Disability. In the event of the inability of Employee to render services
hereunder during the term of the Agreement due to a disability (whether
temporary or permanent), and for so long as such disability continues, Employee
shall continue to receive Employee's salary for a period not to exceed the
remaining term of the Agreement. There shall be deducted from the amount paid to
Employee hereunder during any period of disability any amounts actually paid to
Employee pursuant to any disability insurance or other similar such program
which the Company has instituted or may institute on behalf of its employees for
the purpose of compensating Employee in the event of disability.
7. Additional Compensation and Benefits. During the terrn of the Agreement,
Employee will be entitled to participate in and receive the benefits of any
stock option, profit sharing, or other plans, benefits and privileges given to
employees and/or executives of the Company or its subsidiaries and affiliates
which may come into existence hereafter, to the extent commensurate with his
then duties and responsibilities, as fixed by the CEO, and to the extent
Employee is otherwise eligible and qualified to so participate in and receive
such benefits or privileges. The Company shall not make any changes in such
plans, benefits or privileges which would adversely affect Employee's rights or
benefits thereunder, unless such change occurs pursuant to a program applicable
to all executives of the Company and does not result in a proportionately
greater adverse change in the
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<PAGE>
rights of or benefits to Ennployee as compared with any other executive of the
Company. Nothing paid to Employee under any plan or arrangement presently in
effect or made available in the future shall be deemed to be in lieu of the
salary payable to Employee pursuant to Section 4 hereof. Nothing herein shall be
deemed to imply that Employee is entitled to receive any stock options
(notwithstanding the grant thereof to other executive employees of the Company
or its subsidiaries or affiliates), it being understood and agreed that the
grant thereof is within the sole discretion of the Board of Directors or its
Compensation Committee.
8. Expenses. The Company shall reimburse Employee or otherwise provide for or
pay for all reasonable expenses incurred by Employee in furtherance of or in
connection with the business of the Company. In addition, the Company shall
reimburse Employee for all reasonable entertainment expenses (whether incurred
at the Employee's residence, while traveling, or otherwise) subject to such
reasonable limitations as may be established by the CEO. If such expenses are
paid in the first instance by Employee, the Company will reimburse Employee
therefor in accordance with its standard expense reimbursement policy.
9. Vacations. The Employee shall be entitled to annual paid vacations in
accordance with the following schedule:
1 - 2 years of service: 3 weeks per year
3 - 5 years of service: 3 weeks plus 2 days per year
6 - 9 years of service: 4 weeks per year
10 + years of service: 5 weeks per year
The timing of paid vacations shall be scheduled in a reasonable manner by the
parties following consultation between the CEO and Employee. The Employee shall
not be entitled to receive any additional compensation from the Company on
account of his failure to take paid vacation. The Employee shall also not be
entitled to accumulate more than two weeks of unused paid vacation time from one
calendar year to the next.
10. Termination of Employment.
(a) Definitions. For the purposes of this Agreement, the following
definitions shall apply:
(i) A "Change in Control" of the Company shall be deemed to
have occurred: (A) when either the CEO or Chairman of the Board of the Company
as of the date hereof is either removed as a director or not nominated by the
Board for re-election as a director of the Company; or (B) when any nominee for
election as a director of the Company contained in the Company's Proxy Statement
sent to shareholders in connection with the Board of Directors' solicitation of
proxies to be voted at any Annual Meeting of Shareholders shall not be so
elected by the shareholders, except where the person elected instead of the
nominee is acceptable to the CEO and Chairman as of the date hereof; or (C) upon
any person or entity gaining ownership directly or
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<PAGE>
indirectly of securities that, in the aggregate, represent over thirty-five
percent (35%) of the voting power of the Company's outstanding securities
(whether or not such securities are in fact voted); or (D) upon the sale or
disposition of fifty percent (50%) or more of the voting securities of any of
the Company's subsidiaries or all or substantially all of the assets of any such
subsidiary, except where such sale or disposition was approved by the CEO
serving as of the date hereof; or (E) upon the termination of employment by the
Company other than for cause, or the resignation for good reason of, the CEO or
Chairman serving as of the date hereof.
(ii) Termination "for cause" shall mean termination of the
Employee by the Company because of: (A) conviction of or a plea of nolo
contendere to a felony, or another serious crime which results or is likely to
result in material injury to the Company; (B) breach of fiduciary duty involving
personal profit; (C) continued and habitual neglect to perform material stated
duties; or (D) material breach of any provision of this Agreement.
(iii) Resignation "for good reason" shall mean the resignation
of his employment by the Employee following: (A) a Change in Control of the
Company which, within two years of said Change in Control, results in (i) the
assignment to Employee, without Employee's express written consent, of any
duties materially inconsistent with Employee's positions, duties,
responsibilities and status with the Company immediately prior to a Change in
Control of the Company; or (ii) a material change or reduction in Employees
reporting responsibilities, titles or offices as in effect immediately prior to
a Change in Control of the Company; or (iii) any removal of Employee from, or
any failure to re-elect Employee to, any of such positions, except in each case
in connection with the employee's disability or death and except under
circumstances which would permit the termination of Employee's employment for
cause; or (B) failure by the Company to comply with and material provision of
this Agreement, which failure has not been cured within thirty (30) days after
the notice of non-compliance has been given by Employee to the Company.
(b) Termination for Cause. The CEO may terminate the Employee's
employment at any time for cause. The Employee shall have no right to receive
compensation or other benefits for any period after termination for cause. If,
within thirty (30) days of receipt of notice of terrnination, the Employee
denies that termination for cause was warranted, the dispute shall be resolved
by submission of the claim to binding arbitration in accordance with the
provisions hereof. The parties agree that the sole determination by the
arbitrator shall be whether the termination of the Employee's employment was for
cause. In the event it is determined that such terrnination was without cause,
Employee shall be entitled to such relief as is provided for herein with respect
thereto. If the Employee does not deny that termination for cause was wrarranted
within such thirty (30) day period, the Employee's termination for cause shall
be deemed to be conclusive.
(c) Termination Without Cause. Any termination of employment by the CEO
other than termination for cause, including but not limited to, the Company's
failure to renew or extend this Agreement pursuant to Paragraph 2, (which shall
be deemed termination without cause), shall not prejudice the Employee's right
to compensation or other benefits under this Agreement. The parties acknowledge
and agree that damages which will result to Employee for termination without
cause
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<PAGE>
shall be extremely difficult or impossible to establish or prove, and agree
that, unless the termination is for cause, the Company shall be obligated to
make a payment to the Employee as liquidated damages in an amount equal to the
greater of (A) one year's minimum annual salary as set forth in Section 4
hereof, (B) the Employee's total compensation hereunder for the twelve (12)
months preceding the termination and (C) If during the initial term, the then
remaining number of months minimum salary as set forth in Section 4 hereof,
provided, however, that in the event that the Company fails to renew or extend
this Agreement and the Employee's employment continues, then the amount payable
to Employee hereunder shall not be paid until the cessation of Employee's
employment. Employee agrees that, except for such other payments and benefts to
which the Employee may be entitled as expressly provided by the terrns of this
Agreement, such liquidated damages shall be in lieu of all other claims, demands
or causes of action which Employee may make by reason of such termination. The
liquidated damages amount shall not be reduced by any compensation which the
Employee may receive for any other employment with another employer after
termination of his employment with the Company. At the election of the Company,
the payment of such liqluidated damages shall be made either by a lump sum
payment on the Employee's last day of employment with the Company or over the
course of the next twelve months in equal bimonthly payments in accordance with
the Company's then standard payroll policies and practices. Such bimonthly
payments shall be made by wire transfer to the bank account designated by the
Employee. The Company's failure to make each and every payment when due and the
continuance thereof for a penod of five (5) days shall be a material breach of
this Agreement and the Employee shall be entitled to demand and receive in a
lump sum all unpaid liqulidated darnages.
(d) Termination Upon Death. Employee's employment shall autornatically
terminate upon Employee's death, provided, however, that the Employee's trust,
entitled John and Margaret Kane Trust dated 1/25/96 shall be entitled to receive
the payments specified under Section 10 (e)(ii) hereof.
(e) Resignation for Good Reason. (i) Employee may resign his employment
hereunder for good reason upon thirty (30) days notice to the Company, stating
in his notice the basis upon which he believes that good reason exists for such
resignation.
(ii) In the event the Ernployee resigns, the Employee shall be
entitled ta receive as a severance payment, or in lieu of a severance payment,
payment for services previously rendered to the Company, a lump surn cash
payment equal to the greater of (A) one year's minimum annual salary as set
forth in Sedion 4 hereof and (B) the Employee's total compensation hereunder
applicable to the twelve (12) months preceding such resignation. Payment under
this section shall be in lieu of any amount owed to the Employee as liquidated
damages for terrnination without cause under Section 10(c) hereof and shall be
payable on the last day of Employee's employment hereunder. However, payment
under this section shall not be reduced by any compensation which the Employee
rnay receive from other employment with another employer after termination frorn
his employment with the Company.
(f) Change in Control; Resignation Without Good Reason. If during the
term of this
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<PAGE>
Agreement there is a Change in Control of the Company and the Employee without
good reason resigns his employment within one year after such Change in Control,
the Employee shall be entitled to receive a severance payrnent pursuant to
Section 10(e)(ii) hereof. Any such resignation shall be on thirty (30) days
notice to the Company.
(g) Other Benefits. In the event liquidated damages and/or severance
payments are payable pursuant to this Section 10, the Employee shall also be
entitled to have any allowances set forth in Section 8 hereof and Employee's
health insurance coverage continue for a period of twelve months. In the event
that any such law or plan may prevent a continuation of Employee's health
insurance for such twelve month period, the Company shall pay for Employee's
C.O.B.R.A. health coverage during such period, or, if earlier, until such time
as Employee becomes eligible to be covered by comparable insurance with another
employer. The Company shall also ensure that all insurance or other provisions
for indemnification, defense or hold harmless of officers or directors of the
Company which are in effect as of the date of the Employee's termination
continue for the benefit of the Employee with respect to all of his acts and
omissions while an officer or director as fully and completely as if such
tenmination had not occurred, and until the final expiration or running of all
periods of limitation against action which may be applicable to such acts or
omissions.
(h) Benefit Plans. Notwithstanding any other provisions of this
Agreement or of any other agreement, contract, or understanding heretofore or
hereafter entered into between the Employee and the Company, except an
agreement, contract, or understanding hereafter entered into that expressly
modifies or excludes application of this Section 10 (the "Other Agreements"),
and nonwithstanding any formal or informal plan or other arrangement heretofore
or hereafter adopted by the Company for the direct or indirect provision of
compensation to the Employee (including groups of classes of participants or
beneficiaries of which the Employee is a member), whether or not such
compensation is deferred, is in cash, or is in the form of a benefit to or for
the Employee (a "Benefit Plan"), the Employee shall not have any right to
receive any payment or other benefit under this Agreement, or Other Agreement,
or any Benefit Plan if such payment or benefit, taking into account all other
payments or benefits to or for the Employee under this Agreement, all Other
Agreements, and all Benefit Plans, would cause any payment to the Employee under
this Agreement to be considered a "parachute payment" within the meaning of
Section 280G(b)(2) of the Intemal Revenue Code of 1986, as amended. In the event
that the receipt of any such payment or benefit under this Agreement, any Other
Agreement, or any Benefit Plan would cause the Employee to be considered to have
received a parachute payment under this Agreement, then the Employee shall have
the right, in his sole discretion, to designate those payments or benefts under
this Agreement, and Other Agreements, and/or any Benefit Plans, which should be
reduced or eliminated so as to avoid having the payment to the Employee under
this Agreement be deemed to be a parachute payment.
11. Confidentiality and Non-Solicitation. The services of the Employee are
unique, extraordinary and essential to the business of the Company, especially
since the Employee shall have access to the Company's customer lists, trade
secrets and other confidential network, financial, legal and operation all
information essential to the Company's business. Accordingly, during the term
of
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<PAGE>
this Agreement and thereafter, the Employee agrees not to use, divulge, furnish
or make available to any person or entity any knowledge of or inforrnation with
respect to any confidential or otherwise proprietary documents, discussions,
plans, policies, procedures, activities, materials, information or data of the
Company. The Employee further agrees to refrain from engaging in any activity
whatsoever that would tend to disparage or diminish the reputation of the
Company or which would tend to have a detrimental effect upon the interests of
the Company. The Employee has executed or will execute the standard AMNEX
Employee Confidentiality Agreement, which agreement is incorporated herein by
reference and made a part hereof.
The Employee also agrees that, for a period of one (1) year following the
expiration of this Agreement, the Employee shall not, without the prior written
approval of the CEO, anywhere in the United States of America, whether
individually or as a principal, officer, employee, partner, director, agent or
representative of or consultant for any entity, (a) cause or seek to persuade
any director, officer, employee, customer, subscriber, account, agent, vendor or
supplier of, or consultant to, the Company to discontinue or modify to the
detriment of the Company the status, employment or relationship of such person
or entity with the Company (including, without limitation, to discontinue or
modify to the detriment of the Company the use of the Company's operator
services, long-distance transmission services, 1 + Coin Services and/or other
telecommunications services); (b) hire or retain any such officer, director or
employee; (c) cause or seek to persuade any prospective customer, subscriber or
account of the Company (which at the date of cessation of employment with the
Company was then actively being solicited by the Company) to determine not to
enter into a business relationship with the Company.
The Employee acknowledges and agrees that, in the event he shall violate any of
the restrictions of this Section 11, the Company will be without an adequate
remedy at law and will therefore be entitled to enforce such restrictions by
temporary or permanent injunctive relief in any court of competent jurisdiction
without the necessity of proving damages and without any prejudice to any other
remedies which it may have at law or in equity. The Employee acknowledges and
agrees that, in addition to any other state having proper jurisdiction, any such
relief may be sought in, and for such purpose the Employee consents to
jurisdiction of, the courts of the State of Florida.
12. Assumption of Agreement. In the event of a Change in Control transaction to
which the Company is a party, the Company shall require that the acquiring or
successor entity, if any, expressly assume the obligations and entitlement of
this Agreement following such change of control. Employee shall have the right
to demand that the Company acknowledge in writing the assumption of this
Agreement, if applicable, within thirty (30) days following receipt of such
demand. Failure of the Company to so act timely in response to such demand shall
be deemed a material breach of this Agreement by the Company, thereby entitling
Employee to resign for good reason in accordance with the provisions of this
Agreement but without providing any further notice of non-compliance and
opportunity for cure.
13. Other Employment. The Employee shall not, during the term of this Agreement,
have any other paid employment other than with a subsidiary of the Company
except with the prior approval of the CEO.
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14. Section Headings. The section heading used in this Agreement are included
solely for convenience and shall not affect, or be used in conjunction with, the
interpretation of this Agreement.
15. Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be deemed to have been duly given when delivered by hand or sent
by certified or registered mail, return receipt requested and postage prepaid,
overnight mail or courier or telecopier as follows:
If to the Employee:
5818 Master Blvd.
Orlando. FL 32819
If to the Company::
100 W. Lucerne Circle
Orlando, FL 32801
Attn: CEO
Telecopier Number: (407) 246-0005
or at such other address as any party shall designate by notice to the other
party given in accordance with this Paragraph 15.
16. No Waiver; Entire Agreement. Failure to insist upon strict compliance with
any of the terrns, covenants or conditions hereof shall not be deemed a waiver
of such term, covenant or condition, nor shall any waiver or relinquishment of
any right or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times. This Agreement
constitutes the entire agreement between the parties and there are no
representations, warranties or commitrnents except as set forth herein. This
Agreement supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, of the parties hereto relating to the
matters set forth in this Agreement. This Agreement may be amended only by a
writing executed by the parties hereto.
17. Assignability. This Agreement is personal in nature. The Employee shall have
no right to assign or transfer this Agreement. In the event of any attempted
assignment or transfer by the executive of his duties and obligations contrary
to this paragraph, all the Employee's rights under this Agreement shall be
forfeited, and the Company shall have no further liability under this Agreement.
The Company may assign or transfer its rights under this Agreement only to a
subsidiary or afflliate of the Company so long as such assignment shall not
substantially change the current status of this Agreement or its place of
perforrnance. No assignment by the Company shall relieve the Company of the
liabilities and responsibilities created by this Agreement, including its
responsibilities under Section 12 hereof.
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18. Reformation and Severability. The Employee and the Company agree that the
agreements contained herein shall each constitute a separate agreement
independently supported by good and adequate consideration, shall each be
severable from the other provisions of the Agreement, and shall survive the
Agreement. If a court of competent jurisdiction determines that any term,
provision or portion of this Agreement is void, illegal or unenforceable, the
other terms, provisions and portions of this Agreement shall remain in full
force and effect and the terrns, provisions and portions that are determined to
be void, illegal or unenforceable shall be limited so that they shall remain in
effect to the extent permissible by law.
19. Governing Law. This Agreement shall be governed by the laws of the United
States, where applicable, and otherwise by the laws of the State of Florida,
excluding choice of law principles thereof.
20. Arbitration: Attorneys Fees. (i) Except with regard to Section 11 hereof and
any other maters that are not a proper subject of arbitration, all disputes
between the parties hereto concerning the performance, breach, construction or
interpretation of this Agreement or any portion thereof, or in any manner
arising out of this Agreement or the performance thereof, shall be submitted to
binding arbitration in accordance with the rules of the American Arbitration
Association, which arbitration shall be carried out in the manner hereinafter
set forth.
(ii) Within fifteen days after written notice by one party to the other
party of its demand for arbitration, which demand shall set forth the name and
address of its designated arbitrator, the other party shall select its
designated arbitrator and so notify the demanding party. Within fifteen days
thereafter, the two arbitrators so selected shall select the third arbitrator.
The dispute shall be heard by the arbitrators within sixty days after selection
of the third arbitrator. The decision of any two arbitrators shall be binding
upon the parties. In default of either side naming its arbitrator as aforesaid
or in default of the selection of the said third arbitrator as aforesaid, the
American Arbitration Association shall designate such arbitrator upon the
application of either party. The decision of the arbitrators shall be final and
binding upon the Company, its successors and assigns and the Employee.
(iii) The arbitration proceedings shall take place in Orlando, Florida,
and the judgment and determination of such proceedings shall be binding on all
parties hereto. Judgment upon any award rendered by the arbitrators appointed
hereunder may be entered into any court having competent junsdiction thereof
without any right of appeal therefrorn.
(iv) Each party shall pay its or his own expenses of arbitration, and
the expenses of the arbitrators and the arbitration proceeding shall be equally
shared; provided, however, that, (a) if, in the opinion of a majority of the
arbitrators, any claim of defense was unreasonable, the arbitrators may assess,
as part of their award, all or any part of the arbitration expenses of the other
party (including reasonable attorneys' fees) and of the arbitrators and the
arbitration proceeding
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(collectively, the "Arbitration Expenses") against the party raising such
unreasonable claim or defense, and (b) if the arbitrators rule in favor of the
Employee, then the Company shall be obligated to pay all of the Arbitration
Expenses.
21. No Restrictions. The Employee hereby represents that neither the execution
of this Agreement nor his performance hereunder will (a) violate, conflict with
or result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under
the terms, conditions or provisions of any contract, agreement or other
instrument or obligation to which the Employee is a party, or by which he may be
bound, or (b) violate any order, judgment, writ, injunction or decree applicable
to the Employee. In the event of a breach hereof, in addition to the Company's
right to terminate this Agreement, the Employee shall indemnify the Company and
hold it harmless from and against any and all claims, losses, liabilities and
expenses (including reasonable attorney's fees) incurred or suffered in
connection with or as a result of the Company's entering into this agreement or
employing the Employee hereunder.
22. No Third Party Beneficiaries. Except as provided for in Section 10(d)
hereof, no person not a party to this Agreement shall have any right to enforce
any of the provisions hereof, there being no third party beneficiaries.
23. Service as Officer of Subsidiaries; Service as Director. During the
employment period, the Employee shall, if elected or appointed, serve as (a) an
officer of any subsidiaries of the Company in existence or hereafter created or
acquired and (b) a Director of the Company and/or any such subsidiaries of the
Company, in each case without any additional compensation for such services.
IN WITNESS WHlEREOF, the undersigned have executed this agreement as of
the day and year above written.
EMPLOYEE AMNEX, INC.
By: /s/ John Kane By: /s/ Peter Izzo
Name: John Kane Name: Peter Izzo
Date: 10/1/96 Date: 10/1/96
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Execution Copy
SECURITY AGREEMENT NO. 001
This Security Agreement (the "Security Agreement"), dated as of October
4, 1995 made by and among Lyon Credit Corporation, a corporation organized and
existing under the laws of the State of Delaware, with an office address at 1266
East Main Street, Stamford, Connecticut 06902, (together with its successors and
assigns, if any, "Secured Party"), American Network Exchange, Inc. ("ANEI"), a
corporation organized and existing under the laws of the State of Delaware, and
Crescent Public Communications Inc. ("Crescent"), a corporation organized and
existing under the laws of the State of New York, each with their address at 101
Park Avenue, New York, New York 10178 (collectively, "Borrower");
W I T N E S S E T H :
1. Grant of Security Interest: To secure payment on each Note made by
Borrower in the form attached hereto as Exhibit "A" together with any extensions
or renewals thereof, and any amendments or modifications thereto (each, a "Note"
and, collectively, the "Notes"), and also to secure any and all other
indebtedness, obligation or liability of the Borrower to the Secured Party,
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter arising and no matter how acquired by Secured Party,
including, but not limited to, all future advances or loans which may be made at
the option of the Secured Party to or on behalf of Borrower (all the foregoing
hereinafter called the "Indebtedness"), Crescent hereby grants and conveys to
the Secured Party a first security interest in, and mortgages and collaterally
assigns to the Secured Party, (i) each unit of property (such unit, an "Item")
described in a Schedule in the form attached hereto as Exhibit "B" (a
"Schedule") and each unit of property constituting Replacement Equipment as
defined in Section 9 hereof, (ii) each Pay Telephone Location Agreement between
Crescent and the owner or lessee of any location on which any Item may be
located (such agreement, a "Contract"), and (iii) all products and proceeds of
each Item, if any, which Crescent may be entitled to receive, i.e., excluding
any and all non-coin revenues but including commissions receivable on non-coin
revenues and any coin revenues derived from an Item, all additions, attachments,
accessories and accessions thereto and any and all substitutions, replacements
or exchanges thereto, and any and all insurance and insurance proceeds thereof,
including, but not limited to, every permitted lease or sublease (collectively,
"Proceeds and Additions"), howsoever designated, covering all or any part
thereof (all or any of the foregoing hereinafter collectively called the
"Collateral");
TO HAVE AND TO HOLD the Collateral with the power and authority and
subject to the terms and conditions set forth in this Security Agreement.
2. Repayment: Borrower will duly and punctually pay the Indebtedness
secured by this Security Agreement in accordance with the terms of the Notes and
this Security Agreement. Payments of Indebtedness shall be made to Secured Party
at its office address stated above, except as otherwise directed by Secured
Party, and shall not be prorated for any cause or reason except as herein may be
specifically provided. Payments shall be due periodically as specified in the
applicable Note, except that in the event any month in which a payment is due
does not contain a
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numbered day equal to such payment day specified, payment shall be made on the
last day of such month. If any payment is not made within ten (10) days after
its due date, Borrower agrees to pay a late charge of five cents (5(cent)) per
dollar on, and in addition to, the amount of such payment, but not exceeding the
lawful maximum, if any.
3. Obligations Absolute: The obligations of Borrower under this
Security Agreement shall be absolute and unconditional under all circumstances
whatsoever, including, but not limited to, the existence of any claim, set-off,
defense, counterclaim or recoupment to any present or future claim of Borrower
against Secured Party under this Security Agreement or otherwise, against the
manufacturer or seller of any of the Collateral or against any other person or
entity for whatever reason. This Security Agreement shall not terminate, nor
shall the obligations of Borrower be affected, by reason of any defect in title
to, damage to or any loss or destruction of, the Collateral from whatsoever
cause, or the interference with the use thereof by any person or entity, or the
invalidity or unenforceability or lack of due authorization in respect of this
Security Agreement or any lack of right, power or authority of the Secured Party
to enter into this Security Agreement, or any failure of Secured Party to
perform any obligation of Secured Party or Borrower or any other person or
entity under this Security Agreement or any instrument or document executed in
connection herewith, or for any other cause, whether similar or dissimilar to
the foregoing, any present or future law or regulation to the contrary
notwithstanding, it being the express intention of Secured Party and Borrower
that all payments by Borrower shall be, and continue to be, payable in all
events unless the obligation to pay the same, shall be terminated pursuant to
the express provisions of his Security Agreement.
4. Representations and Warranties: Borrower represents and warrants as
of the date of this Security Agreement that: (a) Borrower is a corporation duly
organized and validly existing in good standing under the laws of its state of
organization and has the corporate power to enter into and perform its
obligations under this Security Agreement, (b) this Security Agreement has been
duly authorized, executed and delivered by Borrower and, assuming due
authorization, execution and delivery by Secured Party, is a legal, valid and
binding obligation of Borrower, enforceable in accordance with its terms except
as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors generally,
and general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law, (c) the execution and delivery
by Borrower of this Security Agreement is not, and the performance by it of its
obligations hereunder will not be, inconsistent with Borrower's articles or
certificate of incorporation or bylaws, do not and will not contravene any law,
governmental rule or regulation, judgment or order applicable to Borrower, and
do not and will not contravene any provision of, or constitute a default under,
any indenture, mortgage, contract or other instrument to which Borrower is a
party or by which it is bound, (d) no consent or approval of, giving of notice
to, registration with, or taking of any other action in respect to or by, any
federal, state or local governmental authority or agency or other entity is
required with respect to the execution, delivery and performance by Borrower of
this Security Agreement, or if any such approval, notice, registration or action
is required, it has been duly given or obtained, (e) there are no suits or
proceedings pending or threatened in court or before any commission, board or
other
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administrative agency against or affecting Borrower, which will have a material
adverse effect on the ability of Borrower to fulfill its obligations under this
Security Agreement, (f) each financial statement and other related information
furnished to Secured Party by Amnex, Inc., the parent company of Borrower
("Parent"), has been prepared in accordance with generally accepted accounting
principles and, since the date of the most recent financial statement so
delivered, there has been no material adverse change (as that term is defined in
paragraph 12 (k) below), (g) this Security Agreement shall be effective against
all creditors of Borrower under applicable law, including, without limitation,
fraudulent conveyance and bulk transfer laws, and (h) the Collateral will at all
times be used solely in the conduct of the business of Crescent and be and
remain in the possession and control of Crescent.
5. Liens: Borrower shall keep the Collateral free and clear from all
liens, charges, encumbrances and security interests of any kind ("Liens"),
except for (i) subject to clause (iv) of this Section 5, the Lien of Secured
Party, as provided in this Security Agreement, (ii) Liens for taxes either not
yet due or being contested by crescent in good faith with due diligence and by
appropriate proceedings, so long as such proceedings do not, in the opinion of
Secured Party, involve any material danger of sale, forfeiture or loss of
Collateral or any part thereof or title thereto or interest therein, (iii)
inchoate materialmen's, mechanics', workmen's, repairmen's, employees',
carriers', warehousemen's or other like Liens arising in the ordinary course of
business of Crescent and not delinquent and Crescent shall be maintaining
adequate reserves therefor and (iv) in the absence of any Event of Default
hereunder, any Lien of any third party providing financing to Borrower,
provided, that (A) Secured Party retains a perfected first priority security
interest in at least 1500 Items of Collateral and (B) each of the Contracts
related to such Items has a term which extends at least to the maturity of the
Note. Secured Party shall, at its own cost and expense, promptly take such
action as may be necessary to discharge duly all Secured Party's Liens upon full
payment and satisfaction of all Indebtedness.
6. Use and Operation: (a) Borrower shall not assign, sublet, mortgage,
hypothecate or modify any of the Collateral or any interest in this Security
Agreement, without the prior written consent of Secured Party, except that
Crescent shall have the right to modify any Item in the ordinary course of
business or for the purposes of compliance with applicable laws, rules and
regulations so long as such modification does not decrease the value, utility
and remaining useful life of such Item. Any attempt so to assign, sublet,
mortgage, hypothecate or modify any Item in violation of the preceding sentence
shall be void and without effect. Borrower shall not remove from the specified
place of Collateral any Item, except that Borrower may so remove any Item in the
ordinary course of business or for purposes of compliance with applicable laws
and regulations so long as Secured Party retains a perfected first priority
security interest in at least 1500 Items and the related Contracts and each such
related Contract has a term which extends at least to the maturity of the Note.
Notwithstanding the foregoing, in order to replace an Item, the Borrower may
remove an Item from the specified place of such Item irregardless of whether
such removal would cause the number of Items in which Secured Party retains a
perfected first priority security interest to decline to less than 1500 Items if
Borrower immediately replaces such Item in accordance with the provisions set
forth in Section 9 hereof.
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(b) Borrower will not, without the prior written consent of
Secured Party, affix or install any accessory, equipment, or device on any
Collateral if such addition will materially impair the originally intended
function or use of any such Collateral or its value in place. Borrower agrees
that each Item of Collateral shall prior to its installation be personal
property under applicable law. Borrower agrees to take such reasonable action as
shall be required by Secured Party from time to time to protect the rights and
interests of Secured Party in each such Item. Borrower will not, without the
prior written consent of Secured Party and subject to such conditions as Secured
Party may reasonably impose for its protection, affix or install any Item to or
in any other personal property except to the extent necessary in the ordinary
course of business of Crescent. Secured Party and Crescent agree that each Item
of Collateral and every part thereof shall be treated as being severed from any
real property and, even if physically attached to any real property, it is the
intention of Secured Party and Borrower that such Item (i) shall retain the
character of personal property, (ii) shall be removable, (iii) shall be treated
as personal property with respect to the rights of all persons and entities,
(iv) shall not become part of any real property, and (v) by virtue of its nature
as personal property, shall not be affected in any way by any instrument dealing
with any real property. Borrower represents that it has not entered into, and
agrees that it will not enter into, any agreement or other arrangement, without
the consent of Secured Party, which consent shall not be unreasonably withheld,
which prohibits or restricts in any manner the right of Secured Party or
Crescent to sever Items of Collateral from the real property on which they are
located, to sever Items of Collateral from any other equipment or personal
property to which such Items are attached or to remove Items of Collateral from
the place where they are then located except as may be required by applicable
laws and regulations.
7. Maintenance and Service: (a) Items of Collateral shall be used only
in the manner for which they were designed and intended and Crescent will at its
sole expense at all times maintain each Item in good operating order, repair,
condition and appearance and keep each Item protected from the elements,
ordinary wear and tear excepted. Crescent shall, if at any time requested to do
so by Secured Party, affix in a prominent position on each Item of Collateral
plates, tags or other identifying labels showing the interest of Secured Party
in the Collateral. Crescent will, at all times, operate and maintain each Item
of Collateral in accordance with (i) the standards applied by Crescent with
respect to similar equipment owned or leased by it and (ii) prudent operating
and maintenance standards and manufacturer's requirements. Borrower will not use
or operate any Item of Collateral in violation of applicable laws and
regulations (including all applicable environmental and occupational safety
laws) except as shall not have a material adverse effect on such Item or on
Borrower.
(b) Any alterations or modifications with respect to
Collateral that may at any time prior to full repayment of the Indebtedness
secured hereby be required to comply with any applicable law or any governmental
rule or regulation shall be made by Crescent as required and at the sole expense
of Crescent.
8. Reports: (i) Borrower agrees that Secured Party shall not be
responsible for any loss or damage to Borrower, its customers or any other third
parties caused by the Collateral, any failure
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thereof or defect therein, or otherwise. Nevertheless, Borrower will immediately
notify Secured Party of each personal injury or property damage to property
other than the Items, if any, valued by Crescent to be in excess of $25,000
arising out of any alleged or apparent improper manufacturing, functioning or
operation of any Item, the time, place and nature of the injury and damage, the
names and addresses of parties involved, persons injured, witnesses and owners
of property damaged, and such other information as may be known, and promptly
advise Secured Party of all correspondence, papers, notices and documents
whatsoever received by Borrower in connection with any claim or demand involving
or relating to improper manufacturing, operation or functioning of any Item or
charging Secured Party with liability therefor; (ii) Borrower will notify
Secured Party in writing within ten (10) days after it has knowledge of the
attachment of any Lien to any Collateral which lien is not expressly permitted
hereby of the full particulars thereof and of the then location of such
Collateral on such day; (iii) Borrower will notify Secured Party on a quarterly
basis in writing of the location of any Collateral moved by Borrower from the
location specified in this Security Agreement or any subsequent agreement
executed by the parties during the three months preceeding such report and
Borrower shall notify Secured Party in writing 45 days prior to any change of
its place or places of business and/or residence and/or name ; (iv) Borrower
will within the later of ninety (90) days of the close of each of its fiscal
years or five (5) business days after the date such information which is
required to be filed with the Securities and Exchange Commission ("SEC") is
actually filed therewith, deliver, or cause to be delivered, to Secured Party
Parent's consolidated balance sheet and profit and loss statement prepared in
accordance with generally accepted accounting principles and, to the extent
available, certified to by a recognized firm of certified public accountants.
Borrower will deliver, or cause to be delivered, to Secured Party, within the
later of sixty (60) days of the close of each of its fiscal quarters or five
business days after the date such information which is required to be filed with
the SEC is actually filed therewith, Parent's quarterly consolidated financial
report (which shall be in reasonable detail) prepared in accordance with
generally accepted accounting principles and certified to by the chief financial
officer of Parent or other permitted officer; (v) Crescent will permit Secured
Party to inspect and examine Collateral at such times and from time to time
during normal business hours as Secured Party may wish (and at such other times
as may be mutually agreeable) and upon reasonable prior notice, provided, that
such examination and inspection shall not unreasonably interfere with Crescent's
normal business operations; and (vi) Crescent will provide or arrange to be
provided to Secured Party (A) call activity and commission reports with regard
to the Items of Collateral no later than the 20th day of each month and (B)
revenue reports with respect to coin revenue from Items of Collateral no later
than the 15th day of each month.
9. Risk of Loss: (a) Crescent is solely responsible for the entire risk
of use and operation, and for each and every cause or hazard, and all loss and
damage to any and all Items whether arising through operation or otherwise. In
the event of damage to any Item of Collateral, Crescent, at its cost and
expense, shall promptly repair or cause to be repaired such Item, restoring it
to its previous condition or the condition in which it was required to be,
assuming Crescent had met all its obligations for maintenance of the Collateral.
Upon the occurrence of an Event of Loss (defined below) with respect to any
Item, Crescent shall, if such Event of Loss will result in there being less than
1500 Items of Collateral subject to this Security Agreement, replace the Item of
Collateral in
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respect of which such Event of Loss has occurred as provided in paragraph (c) of
this Section 9. The Borrower may only replace an Item of Collateral with
equipment that performs the same function as the Item of Collateral with respect
to which the Event of Loss has occurred, such replacement equipment to be free
and clear of all Liens (excepting those expressly agreed to by Secured Party),
and to have a fair market value, condition, remaining useful life and utility at
least equal to the Items so replaced (assuming such Item was in the condition
and repair required by the terms hereof) ("Replacement Equipment"). Provided
Borrower is not in breach or default of this Security Agreement, any proceeds of
insurance received by Secured Party with respect to any such loss shall be paid
to Crescent to the extent necessary to reimburse Crescent for costs incurred and
paid by Crescent in repairing damaged Equipment or as a credit against total
amount payable by Borrower with respect to the Collateral involved, as the case
may be, all as provided in this Security Agreement.
(b) For the purposes hereof, "Event of Loss" shall mean, with
respect to any Item of Collateral, if such Item is (i) destroyed, condemned,
irreparably damaged or damaged beyond economic repair, (ii) requisitioned for
use by a governmental entity for an indefinite period or stated period extending
beyond a period in excess of ninety (90) consecutive days or the final
installment payment date stated on the applicable Note, whichever is earlier,
(iii) the subject of an insurance settlement with respect to such Item of
Collateral on the basis of a constructive total loss, (iv) stolen or lost and
not recovered within thirty (30) days, (v) the subject of a condemnation or
requisition of title by a governmental entity, or (vi) prohibited by applicable
law from being used by Borrower for a period of ninety (90) consecutive days or
the final installment payment date on the applicable Note, whichever is earlier.
(c) The Borrower's right to replace any Item of Collateral as
provided in paragraph (a) above and Section 6(a) hereof shall be subject to the
fulfillment, at the Borrower's sole cost and expense, of the following
conditions precedent:
(A) on the date of such replacement the following
documents shall have been duly authorized, executed and delivered by the
respective party or parties thereto and shall be in full force and effect, and
an executed counterpart of each thereof shall have been delivered to the
Secured Party:
(1) a Schedule covering the Replacement
Equipment and any location agreement related thereto ("Replacement Contract");
(2) evidence of the making of such Uniform
Commercial Code financing statements and fixture filings covering the security
interests created by this Security Agreement as are deemed necessary or
desirable by counsel for the Secured Party to protect the security interest of
the Secured Party in the Replacement Equipment and such related Contract or
Replacement Contract;
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(B) on such replacement date, the Secured Party
shall receive a valid, first priority security interest in the Replacement
Equipment and such Contract or Replacement Contract free and clear of Liens
(excepting those expressly agreed to by Secured Party);
(C) the Secured Party shall have received evidence
reasonably satisfactory to it with respect to the Replacement Equipment, its
function, fair market value, condition, utility and remaining useful life.
10. Insurance: (a) Crescent, at its own cost and expense shall obtain,
maintain and shall keep the Items insured against all risks of loss or damage
from every cause whatsoever (other than vandalism or malicious mischief) in an
amount not less than the greater of actual cash value or the aggregate amount of
all unpaid Indebtedness as at any time, with such reasonable deductibles and
co-insurance (as are consistent with industry standards or as Secured Party may
approve in writing). Secured Party agrees that Crescent may self-insure against
such casualty risks for any Item of Collateral. Crescent shall also obtain and
maintain, until repayment in full of the Indebtedness, public liability
insurance covering liability for bodily injury, including death, and property
damage resulting from the purchase, ownership, leasing, maintenance, use or
operation of the Items in an amount of at least $1,000,000 with respect to each
separate Schedule hereto, or in such greater amounts as Secured Party may from
time to time require. If not self-insured, Secured Party shall be the sole named
loss-payee with respect to damage or loss to the Items and shall be a named
additional insured on the public liability insurance. All insurance shall be
with insurers and in form satisfactory to Secured Party; shall provide for at
least thirty (30) days advance written notice to Secured Party before any
cancellation or material modification thereof (or ten (10) days advance written
notice for cancellation for nonpayment of premium); shall waive any claim for
premium against Secured Party; and shall not be invalidated or the insurers
liability to or for or on behalf of Secured Party be diminished or affected by
any breach of warranty or representation or other act or omission of the
Borrower. Crescent shall deliver to Secured Party the original policy or
policies of insurance, certificates of insurance or other evidence satisfactory
to Secured Party evidencing the insurance required hereby along with proof
satisfactory to Secured Party of the payment of the premium therefor. Secured
Party may, at its option, apply proceeds of insurance, in whole or in part, to
(A) repair or replace any Item or any portion thereof, or (B) satisfy any
obligation of Borrower to Secured Party hereunder, provided that in the absence
of any Event of Default, ten (10) business days' prior written notice is given
to Crescent.
(b) Secured Party is authorized, but under no duty, to obtain
such insurance upon failure of Crescent to do so. In obtaining such insurance,
Secured Party agrees to use reasonable efforts to maintain the cost of the
premiums for such insurance to reasonable amounts. Crescent shall give immediate
written notice to the Secured Party of loss or damage to the Items reasonably
estimated by Crescent to be in excess of $1,500 per Item. Crescent hereby
irrevocably appoints the Secured Party as attorney-in-fact, coupled with an
interest, for Crescent in obtaining, adjusting and canceling any such insurance
and endorsing settlement drafts and hereby assigns to the Secured Party all sums
which may become payable under such insurance, including return premiums and
dividends, as additional security for the Indebtedness.
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11. Indemnification: Borrower hereby agrees to indemnify, save and keep
harmless Secured Party, its agents, employees, successors and assigns, from and
against any and all losses, damages (including indirect, special or
consequential), penalties, injuries, claims, actions and suits including,
without limitation, legal expenses, of whatsoever kind and nature, in contract
or tort, including, but in no way limited to, Secured Party's strict liability
in tort, unless and except to the extent Secured Party's gross negligence or
willful misconduct is the proximate cause of any such loss, damage, penalty,
injury, claim, action or suit, and Borrower shall at its own expense defend any
and all such actions, arising out of the selection, modification, purchase,
ownership, acceptance or rejection of any of the Collateral and the delivery,
possession, maintenance, use, condition (including, without limitation, latent
and other defects, whether or not discoverable by Secured Party or Borrower, and
any claim for patent, trademark or copyright infringement), or operation of any
Item of Collateral by whomsoever used or operated or arising out of or resulting
from the condition of any Item of Collateral sold or disposed of after use by
Borrower, any lessee, sublessee or employee of Borrower. The indemnities and
assumptions of liability herein provided for shall continue in full force and
effect notwithstanding the termination of this Security Agreement whether by
expiration of time, operation or law or otherwise. BORROWER AGREES THAT SECURED
PARTY SHALL NOT BE LIABLE TO BORROWER FOR ANY CLAIM CAUSED DIRECTLY OR
INDIRECTLY BY THE INADEQUACY OF ANY ITEM OF COLLATERAL FOR ANY PURPOSE OR ANY
DEFICIENCY OR DEFECT THEREIN OR THE USE OR MAINTENANCE THEREOF OR ANY REPAIRS,
SERVICING OR ADJUSTMENTS THERETO OR ANY DELAY IN PROVIDING OR FAILURE TO PROVIDE
ANY THEREOF OR ANY INTERRUPTION OR LOSS OF SERVICE OR USE THEREOF OR ANY LOSS OF
BUSINESS, ALL OF WHICH SHALL BE THE SOLE RISK AND RESPONSIBILITY OF BORROWER.
12. Default; Remedies: If any of the following (herein an "Event of
Default") shall occur: (a) Borrower shall default in the payment of Indebtedness
to Secured Party or in making any other payment hereunder or under any Note when
due, and such default shall continue for a period of ten (10) days after written
notice thereof to Borrower from Secured Party without its cure by Borrower, or
(b) Borrower shall default in the payment when due of any obligations of
Borrower (A) equal to or greater than $50,000, whether or not to Secured Party,
arising independently of this Security Agreement or any Note, and such default
shall continue for a period of ten (10) days after written notice thereof to
Borrower from Secured Party after any applicable cure period set forth in the
document creating such obligation without its cure by Borrower or (B) which
default would permit the acceleration of such obligation, or (c) Borrower shall
default in the performance of any other material covenant contained herein other
than those referred to in clause (d) herein (including any Schedule hereto), any
Certificate in respect hereof or any Note or any other document entered into in
connection with this Security Agreement and such default shall continue for ten
(10) days after written notice thereof to Borrower by Secured Party, or (d)
Crescent shall breach any of its material insurance obligations under paragraph
10 hereof, or (e) any representation or warranty made by Borrower in this
Security Agreement or any other documents entered into in connection with this
Security Agreement shall prove to be incorrect in any material respect when any
such representation or warranty was made or given, or (f) Crescent, ANEI or
Parent shall become insolvent or make an
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assignment for the benefit of creditors, or (g) Crescent, ANEI or Parent shall
apply for or consent to the appointment of a receiver, trustee or liquidator for
a substantial part of its property or such receiver, trustee or liquidator is
appointed without the application or consent of Crescent, ANEI or Parent, or (h)
a petition shall be filed by or against Crescent, ANEI or Parent under the
federal bankruptcy laws (including, without limitation, a petition for
reorganization, arrangement or extension) or under any other insolvency law or
law providing for the relief of debtors, or (i) there is, without the prior
consent of Secured Party which consent shall not be unreasonably withheld, a
change in control (defined to be a change in the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of Borrower, whether through the ownership of voting securities, by
contract or otherwise but not to include a change in the composition of the
boards of directors of Borrower), or (j) there is a material adverse change
(defined to be a decrease of at least one-third (1/3) of net worth, as
determined in accordance with generally accepted accounting principles) in
Parent's financial condition; then, to the extent permitted by applicable law,
Secured Party shall have the right to exercise any one or more of the following
remedies one or more times: (A) declare this Security Agreement in default, such
declaration being applicable to all Schedules hereunder except as specifically
excepted by Secured Party; (B) declare the entire amount of unpaid total
Indebtedness immediately due and payable; (C) declare due and payable the amount
of any indemnification hereunder if then determinable, with interest as provided
herein; (D) upon notice to any lessees or sublessees permitted pursuant to
paragraph 6(a), to obtain and retain all rentals thereafter due, paid and/or
payable; (E) without demand or legal process to enter into any premises where
the Collateral may be found and take possession of and remove the same,
whereupon all rights of Borrower in the Collateral shall terminate absolutely,
and either (i) retain all prior payments of Indebtedness and sell the Collateral
at public or private sale, with or without notice to Borrower, with or without
having the Collateral at the sale, at which sale Secured Party may purchase all
or any of the Collateral, the proceeds of such sale, less expenses of retaking,
storage, repairing and reselling, and reasonable attorneys' fees incurred by
Secured Party, to be applied to the payment of the unpaid total Indebtedness,
Borrower remaining liable for the balance of said unpaid total Indebtedness, and
any surplus thereafter remaining to be for the account of Borrower (except as
otherwise provided under applicable law) or (ii) retain the Collateral and all
prior payments of Indebtedness, in satisfaction of the remaining unpaid
Indebtedness in accordance with Section 9-505(2) of the Uniform Commercial Code
as in effect in the State of New York; (F) pursue any other remedy then
available to Secured Party at law or in equity. Borrower hereby covenants and
agrees to notify Secured Party immediately of the occurrence of any Event of
Default specified in this paragraph 12 and promptly after such occurrence
provide Secured Party with a means of access to the coin boxes of pay telephones
which constitute Items of Collateral.
13. Remedies Cumulative: Time of performance of Borrower's obligations
hereunder is of the essence. All remedies of Secured Party hereunder are
cumulative, and may, to the extent permitted by law, be exercised concurrently
or separately, and the exercise of any one remedy shall not be deemed to be an
election of such remedy to the exclusion of any other remedy or to preclude the
exercise of any other remedy at any other time. Failure on the part of the
Secured Party to exercise, or delay in exercising, any right or remedy hereunder
or Secured Party's failure at any time
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to restrict performance by Borrower of any of the provisions hereof shall not
operate as a waiver thereof; nor shall any single or partial exercise by Secured
Party of any right or remedy hereunder preclude any other further exercise
thereof or the exercise of any other right or remedy.
14. Assignment: Borrower acknowledges, understands and agrees that
Secured Party may assign this Security Agreement, any Schedule or Certificate or
any Note to any bank or any other lending institution or any other person,
organization or agency upon ten (10) days' prior written notice to Borrower, and
Borrower shall (a) recognize any such assignment, (b) accept the lawful demands
of such assignee, (c) surrender assigned Collateral only to such assignee, (d)
pay all Indebtedness payable hereunder and do any and all things required of
Borrower hereunder, notwithstanding any default of the Secured Party or the
existence of any claim, defense or offset between Borrower and Secured Party,
and (e) not require any assignee of the Security Agreement to perform any duty,
covenant or condition required to be performed by Secured Party under the terms
of this Security Agreement provided that Secured Party shall remain liable for
such performance. The obligations of Borrower shall not be subject, as against
any such assignee or transferee, to any defense, set-off or counterclaim
available to Borrower against Secured Party and any such defense, set-off or
counterclaim may be asserted only against Secured Party.
15. Filings: Borrower agrees to execute any instrument or instruments
necessary or expedient for filing, recording, perfecting, or notifying of the
interest of Secured Party upon request of, and as reasonably determined by,
Secured Party. Borrower hereby specifically authorizes Secured Party to file
financing statements not signed by Borrower or to execute same for and on behalf
of Borrower as Borrower's attorney-in-fact, irrevocably and coupled with an
interest, for such purposes. A carbon, photographic or other reproduction of the
Security Agreement or a financing statement shall be sufficient as a financing
statement for filing purposes.
16. Notes: (a) Upon ten (10) days' prior written notice by Secured
Party to Borrower that Secured Party intends to transfer any Note, Borrower
shall, in exchange for the Note to be transferred, promptly execute a new note
in the amount of the exchanged Note, naming the transferee as payee thereunder,
and deliver the same to such transferee, provided, that Secured Party
simultaneously surrenders the old Note to Crescent or ANEI.
(b) If any Note shall become mutilated or shall be destroyed,
lost or stolen, Borrower shall, upon the written request of payee under such
Note, execute and deliver in replacement thereof, the new Note payable in the
same amount and dated the same date as the Note so mutilated, destroyed, lost or
stolen, provided, that such payee delivers to Crescent or ANEI simultaneously
therewith, the mutilated Note or a signed affidavit in form reasonably
satisfactory to Crescent or ANEI stating that such Note was destroyed, lost or
stolen.
17. Borrower's Representations and Covenants Regarding Collateral.
The Borrower represents, warrants, and covenants to the Secured Party as
follows: (i) Crescent is the sole and lawful owner of all of the Collateral,
with good title thereto free of all Liens except for the rights of the Secured
Party as provided in this Security Agreement; (ii) Crescent has the power and
authority
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to, and does hereby convey to the Secured Party, a valid and perfected first
priority security interest in all of the Collateral as security for the prompt
and full payment of all of the Indebtedness; (iii) none of the Collateral, nor
any interest therein, has been previously transferred, conveyed, assigned, or
pledged by the Borrower in any manner that would result in impairment of the
Secured Party's first priority security interest in the Collateral granted to
the Secured Party pursuant hereto; (iv) the Note, this Security Agreement, each
Schedule, and the Contracts, create legal, valid, and binding obligations of the
respective parties thereto, enforceable against them in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization
or other similar laws affecting the enforceability generally of the rights of
creditors or lessors; (v) except as otherwise provided in Section 5 hereof,
Crescent shall not assign any of its rights to the Collateral, or grant a
security interest in or lien upon any thereof, to any person other than the
Secured Party without the Secured Party's prior written consent; (vi) Borrower
shall execute such financing statements, continuation financing statements, and
assignment financing statements in connection herewith as the Secured Party may
reasonably request concurrently with the delivery of the Security Agreement, and
at any time or times thereafter; (vii) Borrower shall not amend or modify any
provision of any Contract if such amendment or modification would have a
material adverse effect on Lender's rights as granted herein or on Lender's
first priority security interest therein without the prior written consent of
the Secured Party (viii) each of the Contracts is, by its terms, assignable by
Crescent (except as prohibited by applicable laws and regulations), and no
Contract provides for any claim (other than a claim for nonpayment of
commissions due thereunder) or lien by the owner of the premises on which any
Item is located on any such Item, and each Contract (other than 2 of the
Contracts) allows Crescent to remove the Collateral from the premises whenever
Crescent or its assigns feels it is necessary to do so to prevent the
deterioration of the value of the Collateral without liability or accountability
to such owner; (ix) if Crescent shall replace any item of Equipment pursuant to
Section 9 hereof, Borrower agrees that the Contract related to such Replacement
Equipment shall automatically, without further action by Borrower or Secured
Party, be assigned to Secured Party; (x) the related Contracts for at least 1500
of the Items have terms, including automatic renewals thereof, of at least
forty-eight (48) months from the date hereof; (xi) Crescent shall promptly
notify Secured Party if any Contract is terminated or is not renewed at any time
the Note secured by such Contract is outstanding;(xii) each Item of Collateral
which is a pay telephone contains an Elcotel number 4 or 5 board and constitutes
a "smart phone" as such term is currently used in the telecommunications
industry; and (xiii) the Collateral is and shall remain personal property
notwithstanding the manner in which it is, may be or become affixed to, any
premises, and title thereto shall remain at all times in Crescent, its legal
representatives, successors, agents or permitted assigns.
18. No Assumption of Obligations. By virtue of the collateral
assignment under this Security Agreement, the Secured Party will not be deemed
to have assumed (or to have agreed to perform) any of the obligations, or to be
subject to any liabilities, of the Borrower under any Contract. This Security
Agreement will not relieve the Borrower from any of the obligations or
liabilities of the Borrower under each Contract.
19. Power of Attorney. Borrower hereby names and appoints the Secured
Party as Crescent's
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true and lawful attorney-in-fact for the following purposes (all of which the
Secured Party may undertake, at any time an Event of Default has occurred and is
continuing in Crescent's name or in the Secured Party's name, without further
consent of or notice to Crescent and without affecting or impairing the
obligations of Crescent hereunder): (i) to sign Crescent's name and otherwise
endorse all checks, notes, drafts, and other receipts or remittances received or
given with respect to any obligations owing by or to Crescent under any Contract
and under the agreement with the B&C Agent (as defined in Section 20 hereof)
(collectively, the "Contract Obligations"); (ii) renew, extend, modify, perform,
release or discharge any Contract Obligation; (iii) accept full or partial
payments with respect to any of the Contract Obligations; (iv) accept new or
additional documents, instruments or agreements relating to, or in substitution
of, the Contract Obligations; (v) settle, release (by operation of law or
otherwise), compound, compromise, collect, or liquidate any of the Contract
Obligations and all security therefor (including, but not limited to, the
Collateral); (vi) consent to the transfer, release, or return of security, and
take and hold additional or substitute security for the Contract Obligations;
(vii) amend, modify, exchange, release or waive any security or guarantee for
any of the Contract Obligations; and (viii) bid and purchase at any sale,
foreclosure or other disposition of any of the Contract Obligations or any of
the security therefor.
20. Operator Service Revenues. ANEI acknowledges that it has entered
into a contractual arrangement with OAN Services, Inc. (the "B&C Agent"),
pursuant to which the B&C Agent is obligated to forward to ANEI on a regular
basis certain monies in respect of long distance operator-assisted calls which
are generated by each Item of Collateral which is a pay telephone and actually
billed and collected by the B&C Agent (the "Crescent-Derived OS Revenue"). ANEI
represents and warrants that it has directed the B&C Agent, pursuant to a letter
of direction substantially in the form of Exhibit C hereto, to forward the
Crescent-Derived OS Revenue directly to an account specified by the Secured
Party. Pursuant to the terms of a lockbox agreement with a collection agent, the
Secured Party agrees that, after deducting from such Crescent-Derived OS Revenue
the amount necessary to satisfy the monthly debt service on the Note, the
remainder shall be available to the Borrower.
21. Release of Collateral. Notwithstanding anything to the contrary
contained herein, it is expressly understood and agreed that in the event that
Borrower shall obtain financing from a third party, Secured Party shall, in the
absence of any Event of Default hereunder, release its security interest in up
to 386 Items, the Contracts with respect to such Items and all Proceeds and
Additions of such Items provided, that (i) Secured Party receives at least 30
days' prior written notice of such proposed release, (ii) Secured Party retains
a perfected first priority security interest in at least 1500 Items which have
related Contracts with terms which extend at least to the maturity of the Note
and (iii) Secured Party receives an executed copy of the commitment for such
financing. If the foregoing conditions are met, Secured Party agrees to promptly
execute and deliver, at Borrower's sole cost and expense, one or more UCC-3
financing statements and such other documents and instruments as are reasonably
necessary to effectuate such release.
22. Miscellaneous: (a) In case of failure of Borrower to comply with
any provision of this Security Agreement, Secured Party shall have the right,
but shall not be obligated, to effect such
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<PAGE>
compliance in whole or in part, and all moneys spent and expenses and
obligations incurred or assumed by Secured Party in effecting such compliance
(including but not limited to, attorneys' fees and costs incurred in attempting
to effect compliance against Borrower and/or others) shall constitute additional
Indebtedness hereby secured due to Secured Party ten (10) days after the date
Secured Party sends notice to Crescent or ANEI requesting payment. Secured
Party's effecting such compliance shall not be waiver of Borrower's default.
Interest on any payments made by Secured Party hereunder on amounts due after
Secured Party declares default under paragraph 12 and interest on any overdue
payment under paragraph 11 shall be at the default rate prescribed in the Note,
(or, if there is more than one Note, at the highest among the default rates
prescribed in such Notes), but not to exceed the maximum lawful rate. Any
provisions in this Security Agreement, any Schedule hereto or Certificate in
respect hereof which are in conflict with any statute, law or rule applicable
shall be deemed omitted, modified or altered to conform thereto.
(b) If any provision of this Security Agreement shall
contravene or be invalid under applicable law or regulation (including federal
law and regulation), such contravention or invalidity shall not affect the
entire Security Agreement, the provisions held to be invalid to be deemed
deleted or modified and the Security Agreement interpreted and construed as
though such invalid provision or provisions were not part hereof or conformed
thereto.
(c) Secured Party may give notice to Borrower or make a
request of Borrower by depositing such notice or request in the U.S. mail, first
class postage prepaid, addressed to the Borrower at its address above, an
address furnished by Borrower to Secured Party or at the option of Borrower, at
the principal place of business of Crescent (7 Mayflower Place, Floral Park, NY
11101) or the principal place of business of ANEI (100 West Lucerne Circle,
Suite 100, Orlando, FL 32801). All notices required to be given by Borrower
hereunder shall be deemed adequately given if sent by registered or certified
mail or by overnight delivery service to Secured Party at the address of Secured
Party stated herein, or at such other place as Secured Party may designate to
Borrower in writing.
(d) This Security Agreement, any addendum hereto attached and
signed by Secured Party and Borrower, any Schedule hereto and any Certificate in
respect hereof, constitute the entire agreement of the parties with respect to
the subject matter hereof. THIS SECURITY AGREEMENT, ANY VARIATION OR
MODIFICATION OF THIS SECURITY AGREEMENT, ANY WAIVER OF ANY OF ITS PROVISIONS OR
CONDITIONS AND ALL SCHEDULES SHALL NOT BE VALID UNLESS IN WRITING AND SIGNED
BY AN AUTHORIZED OFFICER OR MANAGER OF SECURED PARTY.
(e) BORROWER WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
LITIGATION ARISING HEREFROM OR IN RELATION HERETO.
(f) THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REFERENCE TO CONFLICTS OF LAW RULES.
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<PAGE>
(g) BORROWER SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY NOTE, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NONEXCLUSIVE GENERAL
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK, NEW
YORK AND APPELLATE COURTS FROM ANY THEREOF; CONSENTS THAT ANY SUCH ACTION OR
PROCEEDING MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY
NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND
AGREES NOT TO PLEAD OR CLAIM THE SAME; AND AGREES THAT SERVICE MAY BE MADE ON
BORROWER IN ANY SUCH PROCEEDING BY DELIVERING A COPY OF PROCESS TO BORROWER AT
BORROWER'S ABOVE ADDRESS, SUCH SERVICE TO BE EFFECTIVE UPON RECEIPT.
(h) With respect to the Borrower, all words used herein in the
singular shall be deemed to have been used in the plural; "Borrower" shall mean
each and any one or more of them.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Security Agreement as of the date first above written.
CRESCENT PUBLIC COMMUNICATIONS
Inc., as Borrower
By: /s/ Kenneth Baritz
Name: Kenneth Baritz
Title: Chairman
ATTEST: /s/ Renee A. Brander
Name: Renee A. Brandner
Title: Secretary
AMERICAN NETWORK EXCHANGE, Inc.
By: /s/ Kenneth Baritz
Name: Kenneth Baritz
Title: Chairman
ATTEST: /s/ Amy S. Gross
Name: Amy S. Gross
Title: Secretary
LYON CREDIT CORPORATION,
as Secured Party
By:/s/ F. S. Snipes
Name:
Title:
15
<PAGE>
SCHEDULE NO. 1 TO SECURITY AGREEMENT
Description of Collateral: See Schedule A hereto.
Collateral currently located at: The locations set forth on Schedule A hereto
Reference is made to that certain Security Agreement No. 001, dated as
of October 4, 1995 (as it may be modified or amended, now or hereafter, called
the "Security Agreement") between Lyon Credit Corporation ("Secured Party"),
American Network Exchange, Inc. and Crescent Public Communications Inc.
(collectively, "Borrower" ).
All of the terms and provisions of the Security Agreement are hereby
incorporated by reference into and made part of this Schedule to the same extent
as if fully set forth herein. Borrower and Secured Party hereby agree to be
bound by the terms and provisions, and hereby make, as if made as of the date
hereof, the representations and warranties contained in the Security Agreement
as each relates to the Collateral described above.
IN WITNESS WHEREOF, the parties hereto have executed this Schedule as
of the 4th day of October, 1995.
AMERICAN NETWORK EXCHANGE, INC., CRESCENT PUBLIC COMMUNICATIONS
as Borrower INC., as Borrower
By: /s/ Kenneth Baritz By: /s/ Kenneth Baritz
Name: Kennth Baritz Name: Kenneth Baritz
Title: Chairman Title: Chairman
Attest: /s/ Amy S. Gross By: /s/ Renee A. Brandner
Name: Amy S. Gross Name: Renee A. Brandner
Title Secretary Title: Secretary
LYON CREDIT CORPORATION,
as Secured Party
By:/s/ F. S. Snipes
Name:
Title:
AMERICAN NETWORK EXCHANGE, Inc.
By:
Name:
Title:
LYON CREDIT CORPORATION,
as Secured Party
By:/s/
Name:
Title:
16
<PAGE>
Exhibit "B" to
Security Agreement No.
SCHEDULE NO. ___ TO SECURITY AGREEMENT
Description of Collateral: Installed Pay Telephones
Collateral be located at: see attached
Reference is made to that certain Security Agreement No. ___, dated as
of ______, 19__ (as it may be modified or amended, now or hereafter, called the
"Security Agreement") between Lyon Credit Corporation ("Secured Party"),
Crescent Public Communications Inc. and American Network Exchange, Inc.
(collectively, "Borrower").
All of the terms and provisions of the Security Agreement are hereby
incorporated by reference into and made part of this Schedule to the same extent
as if fully set forth herein. Borrower and Secured Party hereby agree to be
bound by the terms and provisions, and hereby make, as if made as of the date
hereof, the representations and warranties applicable to each Borrower contained
in the Security Agreement as each relates to the Collateral described below.
IN WITNESS WHEREOF, the parties hereto have executed this Schedule as
of the ___ day of ____, 19__.
CRESCENT PUBLIC COMMUNICATIONS
Inc., as Borrower
By:
Name:
Title:
ATTEST:
Name:
Title:
18
<PAGE>
AMENDMENT TO SECURITY AGREEMENT NO. 001
AMENDMENT dated as of December 28, 1995 by and among LYON CREDIT
CORPORATION ("Secured Party"), AMERICAN NETWORK EXCHANGE, INC. ("ANEI") and
CRESCENT PUBLIC COMMUNICATIONS INC. ("Crescent" and with ANEI, collectively,
"Borrower").
RECITALS
WHEREAS, the undersigned are parties to a certain Security Agreement
No. 001 dated as of October 4, 1995 (the "Security Agreement"), pursuant to
which, among other things, subject to the terms thereof, the Borrower granted to
the Secured Party a first security interest in the Collateral (as such term is
defined in the Security Agreement) for purposes of securing payment on each
promissory note made by the Borrower in favor of the Secured Party and all other
indebtedness of the Borrower to the Secured Party; and
WHEREAS, simultaneously herewith, the Borrower is executing a new
promissory note in favor of the Secured Party, and in connection therewith, the
undersigned desire to amend the Security Agreement in accordance with clause (d)
of Section 22 thereof, in order to incorporate into the Security Agreement
certain new provisions relating thereto.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned hereby agree as follows:
1. Except as otherwise provided herein, all capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Security Agreement.
2. The original listing of Collateral ("Original List") comprising
Schedule A attached to Schedule No. 1 to the Security Agreement ("Schedule 1")
is hereby deleted in its entirety and the new listing of Collateral ("New List")
comprising Schedule A attached to Schedule No. 2 to the Security Agreement
("Schedule 2") is substituted therefor. It is understood and agreed that the New
List shall serve to collateralize both Schedule 1 and Schedule 2, each of which,
as amended hereby, shall remain in full force and effect.
3. The first sentence of Section 5 of the Security Agreement is hereby
amended to read in its entirety as follows:
Borrower shall keep the Collateral free and clear from all
liens, charges, encumbrances and security interests of any
kind ("Liens"), except for (i) the Lien of Secured Party, as
provided in this Security Agreement, (ii) Liens for taxes
either not yet due or being contested by Crescent in good
faith with due diligence and by appropriate proceedings, so
long as such proceedings do not, in the opinion of Secured
Party, involve any material danger of sale, forfeiture or loss
of Collateral or any part thereof or title thereto or interest
therein, (iii) inchoate materialmen's, mechanics', workmen's,
repairmen's, employees', carriers', warehousemen's or other
like Liens arising in the ordinary course of business of
Crescent and not delinquent and Crescent shall be maintaining
adequate reserves therefor and (iv) in the absence of any
Event of Default hereunder, any Lien of any third party,
provided, that (A) Secured Party retains a perfected first
priority security interest in at least 1866 Items of
Collateral and (B) each of the Contracts related to such
Items has a term which extends at least to the maturity of the
Note.
<PAGE>
4. The references to "1500" appearing in clause (a) of Section 6,
clause (a) of Section 9, and clause (x) of Section 17 of the Security Agreement
are hereby amended to read "1866".
5. The Security Agreement is hereby amended by deleting Section 21
thereof in its entirety and renumbering the remaining Section 22 of the Security
Agreement as Section 21.
6. Except as expressly amended herein, the terms and conditions of the
Security Agreement shall remain in full force and effect without waiver or
modification of the rights of any party thereto.
7. This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts each of which, when so
executed and delivered, shall be an original, and all such counterparts shall
together constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Amendment to be executed on its behalf by an officer thereunto duly authorized
as of the date first above written.
Borrower:
CRESCENT PUBLIC COMMUNICATIONS INC.
By:/s/
Name: Kenneth G. Baritz
Title: Chairman
Borrower:
AMERICAN NETWORK EXCHANGE, INC.
By: /s/
Name: Kenneth G. Baritz
Title: Chairman
Secured Party:
LYON CREDIT CORPORATION
By: /s/
Name: F.S. Snipes
Title: Asst. V.P.
<PAGE>
SECOND AMENDMENT TO SECURITY AGREEMENT
SECOND AMENDMENT TO SECURITY AGREEMENT ("Amendment") dated as of
November 15, 1996, by and among LYON CREDIT CORPORATION ("Secured Party"),
AMERICAN NETWORK EXCHANGE, INC. ("ANEI") and CRESCENT PUBLIC COMMUNICATIONS INC.
("Crescent" and ANEI are collectively herein, the "Borrower" ).
RECITALS
WHEREAS, the undersigned are parties to a certain Security Agreement
No. 001 dated as of October 4, 1995 (the "Original Security Agreement"),
pursuant to which, among other things and subject to the terms thereof, the
Borrower granted to the Secured Party a first security interest in the
Collateral (as such term is defined in the Security Agreement) for purposes of
securing payment on that certain Promissory Note, cated as of October 4, 1995,
in the original stated amount of $2,500,000.00 executed by Borrower and payable
to Secured Party ("First Note") and each promissory note made by the Borrower in
favor of the Secured Party and all other indebte!dness of the Borrower to the
Secured Party; and
WHEREAS, Secured Party advanced further funds to Borrower pursuant to
that Promissory Note, dated as of December 28, 1995, in the original stated
principal amount of $500,000.00 ("Second Note"). In connection with this
additional funding, the parties amended the Original Security Agreement in
accordance with that Amendment to Security Agreement, dated as of December 28,
1995 ("First Amendment") and other related amendment and loan documents; and
WHEREAS, simultaneously herewith, Borrower is refinancing the First
Note and Seconcl Note and receiving additional funds under a new Consolidated,
Renewed and Restated Promissory Note in the original stated principal amount of
$7,000,000.00 executed by Borrower in favor of the Secured Party (such
refinancing and additional funding being sometimes hereinafter referred to as
the "Loan") and other related amendment and loan documents; and in connection
therewith, the undersigned desire to amend the Original Security Agreement as
amended by the First Amendment to incorporate therein certain new conditions,
terms and additional collateral.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the undersigned hereby agree as follows:
1. The recitals set forth above are incorporated herein for all
purposes.
2. Except as otherwise provided herein, all capitalized terms used
herein without definition shall have the meanings ascribed to them in the
Security Agreement. "Security Agreement" as used herein shall mean the Original
Security Agreement as amended by the First Amendment and as amended by this
Amendment.
<PAGE>
3. Schedule No. 1 to the Original Security Agreement was wholly
restated and revised by Schedule No. 2 executed in connection with and as part
of the First Amendment. Schedule No. 2 is hereby wholly restated and replaced by
Schedule No. 3 attached hereto and incorporated herein for all purposes. It is
understood and agreed that only Schedule No. 3 shall serve as Collateral under
the Security Agreement.
4. "Note" as used in the Security Agreement shall include, without
limitation, that certain Consolidated, Renewed and Restated Promissory Note
dated as of November 15, 1996, in the original stated principal amount of
$7,000,000.00, which note shall be included, without limitation, within the
Indebtedness secured by the Security Agreement.
5. Clause (i) under Section 1 of the Security Agreement which reads as
follows "(i) each unit of property (such unit, an "Item") described in a
Schedule in the form attached hereto as Exhibit "B" (a "Schedule") and each unit
of property constituting Replacement Equipment as defined in Section 9 hereof,"
is replaced with the following:
(i) each unit of property (such unit, an "Item") having the
location and phone number set forth on and as further
described on Schedule No. 3 attached hereto ("Schedule") and
each Item constituting Replacement Equipment as defined in
Section 9 hereof ("Item" as used herein shall mean the
applicable pay telephone, together with any telephone booths,
enclosures, stations, pedestals, apparatus, circuit boards,
coin banks and any other equipment physically connected to or
installed in or with such telephones located at the addresses
set forth on the Schedule),
6. Section 5 of the Security Agreement is hereby amended to read in its
entirety as follows:
5. Liens: Borrower shall keep the Collateral free and clear
from all liens, charges, encumbrances and security interests
of any kind ("Liens"), except for (i) the Lien of Secured
Party, as provided in this Security Agreement, (ii) Liens for
taxes either not yet due or being contested by Crescent in
good faith with due diligence and by appropriate proceedings,
so long as such proceedings do not, in the opinion of Secured
Party, involve any material danger of sale, forfeiture or loss
of Collateral or any part thereof or title thereto or interest
therein, and (iii) inchoate materialmen's, mechanics',
workmen's, repairmen's, employees', carriers', warehousemen's
or other like Liens arising in the ordinary course of business
of Crescent and not delinquent and Crescent shall be
maintaining adequate reserves therefor. No additional Liens on
the Collateral shall be permitted for the benefit of any third
party or in connection with any other third party financing.
Secured Party shall, at its own cost and expense, promptly
take such action as may be necessary to discharge duly all
Secured Party's Liens upon full payment and satisfaction of
all Indebtedness. Secured Party expressly acknowledges and
agrees that for purposes of this Security Agreement including
but not limited to the provisions of this Section 5, the
Collateral consists only of 3500 Items and associated
Contracts, Proceeds and Additions as more fully defined and
2
<PAGE>
described in Section 1 hereof and the Schedule dated as of
even date herewith attached hereto as Schedule No. 3.
7. The references to "1866" appearing in clause (a) of Section 6 and
clause (a) of Section 9 of the Security Agreement are hereby amended to read
"3500."
8. Clause (x) of Section 17 of the Security Agreement is hereby
revised to read as follows:
(x) the related Contracts for at least 3500 of the Items have terms,
including automatic renewals thereof, of at least sixty (60) months
from the date hereof;
9. The following phrase is hereby deleted from Section 17 (v) "except
as otherwise provided in Section 5 hereof."
10. Clause (viii) of Section 17 of the Security Agreement is hereby
revised to read as follows:
(viii) each of the Contracts is, by its terms, assignable by Crescent
(except for Contracts covering approximately 65 Items which are
maintained in hospitals, which assignments are subject to the consent
of such hospitals and subject to applicable laws and regulations), and
no Contract provides for any claim (other than a claim for non-payment
of commissions due thereunder) or lien by the owner of the premises on
which any Item is located on any such Item, and each Contract (other
than 2 of the Contracts) allows Crescent to remove the Collateral from
the premises whenever Crescent or its assigns feels it is necessary to
do so to prevent the deterioration of the Collateral without liability
or accountability to such owner;
11. The Security Agreement is hereby amended by adding Sections 22, 23,
24, 25, 26, 27 and 28 as set forth below (currently Section 21 is the
Miscellaneous Section as the prior Section 21 "Release of Collateral" was
deleted in the First Amendment):
22. Earnest Money Fee. Borrower paid a refundable earnest
money fee (the "EMF") in the amount of $70,000.00 upon
Borrower's execution of the proposal to make the Loan. The EMF
shall be returned to Borrower within 30 days after the Loan
proceeds have been funded to Borrower (less any Expenses
incurred by Secured Party in connection with making the Loan).
Expenses as used in this Section 22 shall include, but not be
limited to, all costs of recording of liens, UCC searches,
reasonable attorneys' fees and expenses, appraisals,
reasonable travel expenses and other fees incidental to
closing of the Loan. In the event the Loan should not close
due to rejection by Borrower and/or its parent company of the
financing contemplated hereunder, Borrower acknowledges and
agrees that the EMF was fully earned by Secured Party and was
not contingent upon the execution of the Second Amendment to
Security Agreement or the making of any advance thereunder.
3
<PAGE>
23. Prepayment Fee: Loan Fee. Concurrently with the execution
of the Agreement, Borrower shall pay a non-refundable fee
("Fee") in the amount of Seventy Thousand
and No/100 Dollars ($70,000.00) to Secured Party. Borrower
acknowledges and agrees that the Fee was fully earned upon
Borrower's execution of this Agreement, and shall not be
subject to proration or rebate upon the termination of this
Agreement or repayment of the Loan. A portion of the Fee, the
calculation of which shall be determined by Secured Party, is
payable to Secured Party in connection with the prepayment
premium due to Secured Party under the First Note and Second
Note. The remainder of the Fee shall be payment to Secured
Party as consideration for making the loan and shall also
compensate Secured Party for the cost associated with the
origination, structuring, processing, approving and closing of
the transactions contemplated herein, including, but not
limited to, Secured Party's administrative, out-of-pocket,
general overhead and lost opportunity costs, but not including
any expenses for which Borrower has agreed to reimburse
Secured Party pursuant to this Security Agreement .
24. Right to Participate. Borrower acknowledges that it has
been informed that Secured Party intends to sell participation
interests in the Indebtedness to other financial institutions.
To the extent that any such participants should find
typographical, word processing or other similar errors,
Borrower agrees to correct such matters.
25. No Additional Debt on Coastal Transaction. Without
limiting Borrower's rights to use any non-Collateral property
for security for new debt for future acquisitions or
otherwise, Borrower agrees and represents and warrants to
Secured Party that no additional debt, whether through seller
financing, third party financing, or whether secured or
unsecured, shall be entered into or incurred in connection
with the purchase of the assets of Coastal Telecom Payphone
Company, Inc., BEK Tel, Inc., and Garden State Telephone
Installation & Service Co., Inc. as originally set forth in
that certain Asset Purchase Agreement, dated as of November 8,
1996.
26. Inadvertent Replacement. Without limiting or waiving any
of the other affirmative obligations of Borrower as to
maintaining the Collateral herein, Borrower agrees that the
Items of Collateral hereunder shall be maintained at the 3500
level and should Borrower have been mistaken (such mistake
must be inadvertent and in good faith) as to the term of, or
automatic renewals of, any of the Contracts causing such to
terminate prior to the maturity of the Note, Borrower shall
within ten (10) Business Days of such termination cause such
to be replaced in accordance with Section 9 (c) of this
Security Agreement.
27. Copies of Contracts. Borrower represents and warrants that
it has available in its files the Contracts and that such
shall be held in trust by Borrower for the benefit of Secured
Party. Borrower agrees that within ten (10) business days
after request by Secured Party after an Event of Default, it
shall provide the Contracts to Secured Party.
4
<PAGE>
28. Cash Flow Ratio. AMNEX, INC. is a guarantor of the
Indebtedness and parent company to each corporation comprising
Borrower. As a condition and inducement to Secured Party
refinancing and providing additional funds to Borrower,
Borrower agrees that it shall be a covenant hereunder
applicable to Borrower that AMNEX, Inc. maintain a Cash Flow
Ratio (as hereafter defined) of not less than 1.25 to 1.0.
Borrower shall provide annual certifications to Secured Party
(such shall be delivered along with the annual reports
provided under Section 8 (iv)). "Cash Flow Ratio" as used
herein is derived by dividing Net Cash Flow (as hereafter
defined) by Current Maturities of Long Debt (as hereafter
defined). "Net Cash Flow" shall mean the sum of net after tax
income (but excluding any condemnation or insurance proceeds
payable), depreciation, and amortization of intangible assets.
"Current Maturities of Long Term Debt" shall mean the sum of
the current portion of long term debt and capital leases
payable in the twelve months following the fiscal year end.
12. Borrower remakes its representations and warranties set forth in
the Security Agreement as of the date of this Amendment and reaffirms and
remakes all of its covenants and agreements as of the date of this Amendment.
13. Secured Party agrees within thirty (30) days after funding the Loan
to type legends on the First Note and Second Note stating that such have been
consolidated, renewed and restated in the Consolidated, Renewed and Restated
Note, dated as of November 15, 1996 and to provide a copy of same to Borrower or
AMNEX, Inc. but the First Note and Second Note shall be, as so marked, retained
by Secured Party until the Loan shall have been paid in full. Secured Party
intends to file new UCC-1s in connection with the Loan and agrees after receipt
of the recorded new UCC-1s to file UCC terminations as to the UCC-1s filed in
connection with Original Security Agreement and the First Amendment.
14. Except as expressly amended herein, the terms and conditions of the
Security Agreement shall remain in full force and effect without waiver or
modification of the rights of any party thereto.
15. This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts each of which, when so
executed and delivered, shall be an original, and all such counterparts shall
together constitute one of the same instrument.
[THE REMAINDER OF PAGE IS INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Second
Amendment to Security Agreement to be executed on its behalf by an officer
thereunto duly authorized as of the date first above written.
BORROWER:
CRESCENT PUBLIC COMMUNICATIONS INC.
By:/s/
Kenneth G. Baritz, Chairman
ATTEST:/s/
Renee A. Brandner, Secretary
AMERICAN NETWORK EXCHANGE, INC.,
By: /s/
Kenneth G. Baritz, Chairman
ATTEST:/s/
Amy S. Gross, Secretary
SECURED PARTY:
LYON CREDIT CORPORATION
By:/s/
Printed Name:Randall C. House
Title:VP/Division Manager
6
<PAGE>
Schedule No, 3
to Security Agreement
SCHEDULE NO. 3 TO SECURITY AGREEMENT
Description of Collateral: 3500 Pay Telephones as outlined on Schedule "A"
attached hereto and made a part hereof.
Cost of Collateral: $7,000,000.00
Collateral be located at: See Schedule "A" attached hereto and made a part
hereof.
Reference is rnade to that certain Security Agreernent No. 001, dated as
of October 4, 1995, as amended by that certain Amendment to Security Agreement,
dated as of December 28, 1995 and that certain Second Amendment to Security
Agreement, dated as of November 15, 1996 (as it may be modified or amended, now
or hereafter, called the "Security Agreement") between Lyon Credit Corporation
("Secured Party") and American Network Exchange, Inc. and Crescent Public
Communications Inc. ("Borrower").
All of the terms and provisions of the Security Agreernent are hereby
incorporated by reference into and made part of this Schedule to the same extent
as if fully set forth herein. Borrower and Secured Party hereby agree to be
bound by the terms and provisions, and hereby make, as if made as of the date
hereof, the representations and warranties contained in the Security Agreement
as each relates to the Collateral described above.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Schedule as of
the 15th day of November, 1996.
AMERICAN NETWORK EXCHANGE, INC.,
as Borrower
Attest: /s/ By:/s/
Printed Name: Amy S. Gross Kenneth G. Baritz
Title: Secretary
CRESCENT PUBLIC COMMUNICATIONS INC.
as Borrower
Attest:/s/ By:/s/
Printed Name: Renee A. Brandner Kenneth G. Baritz, Chairman
Title:Secretary
LYON CREDIT CORPORATION
as Secured Party
By:/s/
Title: V.P. Division Manager
8
<PAGE>
SCHEDULE A
Reference is made to that certain Security Agreement No. 001 dated as of October
4, 1995 as amended by the Amendment to Security Agreement, dated as of December
28, 1995, and Second Amendment to Security Agreement, dated as of November 15,
1996 (collectively, the "Security Agreement") by and among Lyon Credit
Corporation (together with its successors and assigns, if any, "Secured Party"),
American Network Exchange, Inc. ("ANEI") and Crescent Public Communications Inc.
("Crescent", and collectively with ANEI, the "Borrower"), pursuant to which
Borrower granted and conveyed to Secured Party a first security interest in, and
mortgaged and collaterally assigned to Secured Party, (i) each unit of property
(such unit, an "Item") having the location and phone number set forth on and as
further described on Attachment 1 attached hereto ("Schedule") and each Item
constituting Replacement Equipment as defined in Section 9 of the Security
Agreement ("Item" as used herein shall mean the applicable pay telephone,
together with any telephone booths, enclosures, stations, pedestals, apparatus,
circuit boards, coin banks and any other equipment physically connected to or
installed in or with such telephones located at the addresses set forth on the
Schedule), (ii) each Pay Telephone Location Agreement between Crescent and the
owner or lessee of any location on which any Item may be located, and (iii) all
products and proceeds of each Item, if any, which Crescent may be entitled to
receive, i.e., excluding any and all non-coin revenues but including commissions
receivable on non-coin revenues and any coin revenues derived from an Item, all
additions, attachments, accessories and accessions thereto and any and all
substitutions, replacements or exchanges thereto, and any and all insurance
proceeds thereof, including, but not limited to, every permitted lease or
sublease, however designated, covering all or any part thereof, (all of the
foregoing hereinafter collectively called the "Collateral").
9
<PAGE>
CONSOLIDATED, RENEWED, AND RESTATED PROMISSORY NOTE
$7,000,000.00 November 15, 1996
FOR VALUE RECEIVED, the undersigned, Crescent Public Communications
Inc., and American Network Exchange, Inc., hereinafter collectively called
"Borrower", jointly and severally promise to pay to the order of Lyon Credit
Corporation, hereinafter called "Payee", at its office located at 1266 East Main
Street, Stamford, Connecticut, 06902, or at such other place as Payee may from
time to time designate, the principal sum of Seven Million Dollars
($7,000,000.00) together with interest thereon at the rate of 10.52% per annum,
with principal and interest payable in sixty (60) consecutive monthly
installments, commencing January 1, 1997 and continuing on the same date of each
month thereafter until this Note is fully paid, each such installment in the
amount of One Hundred Fifty Thousand Five Hundred Twenty Six Dollars and Sixty
Seven Cents ($150,526.67). In addition to the normal monthly payment due
hereunder on January 1, 1997, if this Note is funded on any day prior to
December 1, 1996, Borrower shall pay, in addition to the first monthly payment
referred to above, a payment of interest only based on the interest rate charged
hereunder on the number of days such funds were outstanding prior to December 1,
1996.
The interest rate stated above is based on the corresponding term U.S.
Treasury Note Rate as of November 8, 1996 (the "Effective Date") plus 450 basis
points (i.e., 4.5%). Each Borrower and Payee agree that any change in the U.S.
Treasury Note, from the Effective Date to the date of funding of the extension
of credit evidenced by this Note, will result in a corresponding change in the
interest rate for this Note.
This note is referred to in and is entitled to the benefits of that
certain Security Agreement (hereafter defined). Borrower heretofore executed
that certain Security Agreement No. 001, dated as of October 4, 1995 (the
"Original Security Agreement") for the benefit of Payee. The Original Security
Agreement was modified pursuant to that certain Amendment to Security Agreement
No. 001, dated as of December 28, 1995 ("First Amendment"), and is concurrently
being modified by that certain Second Amendment to Security Agreement, dated as
of the date of this Note ("Second Amendment")(collectively, the Original
Security Agreement, First Amendment, and Second Amendment are herein the
"Security Agreement"). Schedule No. 1 to the Original Security Agreement was
wholly restated and replaced by Schedule No. 2 executed in connection with the
First Amendment. Schedule No. 2 is being wholly restated and replaced by
Schedule No. 3 executed as of even date herewith in connection with the Second
Amendment. Schedule No. 3 is herein the "Schedule." The Security Agreement and
Schedule encumber and grant Security interests in certain property described
therein and secure the indebtedness described herein.
All payments received in respect of this Note shall be applied, first,
to accrued interest and then to principal. The acceptance by Payee or any holder
hereof of any payment which is less than the full amount then due and owing
shall not constitute a waiver of Payee's or such holder's right to receive
payment in full at such time or at any prior or subsequent time.
<PAGE>
Borrower, if required by the Security Agreement, shall, upon the
occurrence of an "Event of Loss" (as that term is defined in the Security
Agreement) with respect to any Item of Collateral described in the Schedule,
prepay this Note by that amount an in the manner provided in the Security
Agreement.
Borrower may, on any regular installment payment date, prepay all or
any part of, the unpaid principal balance hereof together with all accrued
unpaid interest thereon to the date of such prepayment, provided that along with
and in addition to such prepayment Borrower shall pay (i) a prepayment premium
equal to a percentage of the remaining principal balance as follows:
MONTHS FEE
1-12 5%
13-24 4%
25-36 3%
37-60 2%
and (ii) any and all other sums due hereunder and/or under the Security
Agreement, and provided further, that Borrower give Secured Party at least
forty-five (45) days' prior written notice of such prepayment. If in part, any
prepayment shall be in an amount of no less than $250,000.00.
Time is of the essence hereof. If payment of any installment or any
other sum due under this Note or Security Agreement is not paid within ten (10)
days after its due date, Borrower agrees to pay a late charge of five cents
(5(cent)) per dollar on, and in addition to, the amount of each such payment,
but not exceeding the lawful maximum rate. In the event Borrower shall fail to
make any payment under this Note within ten (10) days after written notice
thereof from Secured Party or if any other "Event of Default" (as that term is
defined in the Security Agreement) shall occur, then the entire unpaid principal
balance hereof with accrued unpaid interest thereon together with all other sums
payable under this Note or the Security Agreement, shall, at the option of Payee
and without notice or demand to Borrower, become immediately due and payable,
such accelerated balance bearing interest until paid at the default rate of
fifteen percent (15%) per annum, or if prohibited by law, at such lesser rate
that is not prohibited by law.
Notwithstanding the foregoing, if at any time implementation of any
provision hereof shall cause any amount contracted for or charged herein or
collectable hereunder to exceed any applicable lawful maximum rate, then the
interest shall be limited to lawful maximum rate.
Borrower and all sureties, endorsers, guarantors and any others who may
at any time become liable for the payment hereof hereby consent to any and all
extensions of time, renewals, waivers, and modifications of, and substitutions
or releases of security or of any party primarily or secondarily liable on, this
Note or the Security Agreement or any of the terms and provision of either that
may be made, granted or consented to by Payee, and agree that suit may be
brought and maintained against any one or more of them, at the election of
Payee, without joinder of the others as parties thereto, and that Payee shall
not be required to first foreclose, proceed against, or exhaust any security
herefor in order to enforce payment by them, or any one or more of them, of this
Note. Borrower and all sureties, endorsers, guarantors or any others who may at
any time become liable
2
<PAGE>
for the payment hereof hereby severally waive: presentment, notice of
nonpayment, demand for payment, notice of dishonor, and all other notices in
connection with this Note; filing of suit; diligence in collecting on this Note
or enforcing any of the security herefor; and all benefits or valuation,
appraisement and exemption laws, and further severally agree to pay, if
permitted by law, all expenses incurred in collection, including, without
limitation, reasonable attorney's fees.
Borrower and the persons signing on Borrower's behalf represent and
warrant that the execution and delivery of this Note has been authorized by
Borrower's boards of directors and by all other necessary and appropriate
corporate and shareholder action.
This Note is transferable in accordance with the terms of the Security
Agreement.
In addition to increasing the amount of the loan to Borrower, this Note
also consolidates, renews and restates that certain (i) Promissory Note, dated
October 4, 1995, in the original stated amount of $2,500,000.00 executed by
Borrower for the benefit of Payee and (ii) Promissory Note, dated December 28,
1995, in the original stated amount of $500,000.00 executed by Borrower for the
benefit of Payee.
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT. THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, Borrower has executed this Note as of the date
first above written.
CRESCENT PUBLIC COMMUNICATIONS INC.
as Borrower
By: /s/
Kenneth G. Baritz, Chairman
ATTEST: /s/
Renee Brandner, Secretary
(Seal)
AMERICAN NETWORK EXCHANGE, INC.,
as Borrower
By: /s/
Kenneth G. Baritz, Chairman
ATTEST: /s/
Amy Gross, Secretary
(Seal)
3
<PAGE>
MASTER LEASE AGREEMENT
MASTER LEASE AGREEMENT dated as of October 10, 1995 between Southbridge
Financial Corp., a Delaware corporation ("Lessor"), and American Hotel Exchange,
Inc., a Florida corporation ("Lessee"). In Consideration of the mutual
agreements hereinafter set forth and the payment of rent as herein provided, the
parties hereto agree as follows:
1. Property Leased. Lessor hereby rents, demises and lets to Lessee all of the
tangible personal property (the "Equipment") listed on each equipment schedule
("Equipment Schedule") executed, from time to time, pursuant to this Master
Lease. Each Equipment Schedule shall be substantially in the form of Exhibit A,
shall incorporate therein all of the terms and conditions of the Master Lease,
shall contain such additional terms and conditions as Lessor and Lessee shall
agree and shall constitute a separate, distinct and independent lease and
contractual obligation of Lessee.
2. Definitions. 2.1 "Installation Date" means, as to each Item of Equipment
designated on any Equipment Schedule, the date determined in accordance with
such Equipment Schedule.
2.2. "Commencement Date" means, as to each Equipment Schedule, the Date
determined in accordance with such Equipment Schedule.
2.3. "Event of Default" has the meaning specified in Section 14 hereof.
2.4. "Item" means any individual item or items of Equipment identified
in an Equipment Schedule.
2.5. "Lease" means an Equipment Schedule as it incorporates the terms
of the Master Lease, together with any riders, supplements and amendments to
such Equipment Schedule and Master Lease.
2.6. "Manufacturer" means the manufacturer of the Equipment.
2.7. "Potential Event of Default" means any event which with the lapse
of time or the giving of notice, or both, would constitute an Event of Default.
2.8 "Guarantor" means AMNEX, Inc., the parent company of Lessee.
2.9 "Guaranty" means the guaranty of Guarantor delivered pursuant to
Section 15.11.
3. Term and Lease Termination Option. 3.1 Term. The term of the Master Lease
shall commence on the date set forth above and shall continue in effect so long
as any Equipment Schedule remains in effect. The lease term for each Item shall
commence on the Installation Date for such Item and shall continue for an
initial period ending that number of months from the Commencement Date as is
specified in the applicable Equipment Schedule (the "Initial Term"). On the
Installation Date for each Item of Equipment, Lessee shall execute and deliver
to Lessor a Certificate of Acceptance substantially in the form of Exhibit B.
3.2 Lease Termination Option. So long as no Event of Default or
Potential Event of Default shall have occurred and be continuing, Lessee shall
have the right to purchase the Equipment on an "as is, where is" basis for the
sum of $1.00. At such time, Lessor shall deliver to Lessee a Bill of Sale to
evidence such sale.
<PAGE>
4. Rent and Payment. Rent shall begin to accrue on the Installation Date and
Lessee shall pay to Lessor, as rental for the Equipment during the Initial Term,
the rent set forth in the applicable Equipment Schedule ("Rent"), which shall be
due and payable on the dates ("Rent Payment Dates") specified therein. Rent
shall be paid to Lessor at the address set forth for Lessor in the Equipment
Schedule or at such other place as Lessor shall designate in writing, or if to
an assignee of Lessor, at such place as such assignee shall designate in
writing, and shall be paid free and clear of all claims, demands or setoffs
against Lessor or such assignee or any other party. Whenever any payment (of
Rent or otherwise) is not made when due hereunder, Lessee shall pay interest on
such amount until and including the date of payment, at the lesser of (a) the
Overdue Rate specified in the applicable Equipment Schedule, and (b) the maximum
allowable rate of interest permitted by law.
5. Selection; Warranty and Disclaimer of Warranties. Lessee represents and
warrants that it selects the Equipment based on its own judgment and expressly
disclaims any reliance upon statements made by Lessor. Lessee authorizes Lessor
to insert in each Equipment Schedule the serial numbers and other identifying
data of the Equipment. Lessor warrants to Lessee that, so long as Lessee shall
not be in default of any of the provisions of the applicable Equipment Schedule,
neither Lessor nor any Assignee or Secured Party (as such terms are defined in
Section 6.3) of Lessor will disturb Lessee's quiet and peaceful possession of
the Equipment and Lessee's unrestricted use thereof for its intended purpose.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, THE DESIGN OR CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS OR CAPACITY OR DURABILITY FOR ANY PARTICULAR
PURPOSE, THE QUALITY OF THE MATERIAL OR WORKMANSHIP OF THE EQUIPMENT OR
CONFORMITY OF THE EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER OR ORDERS RELATING THERETO AND, AS TO LESSOR, LESSEE LEASES THE EQUIPMENT
"AS IS". Lessor shall not be liable, to any extent whatever, for the selection,
quality, condition, merchantability, suitability, fitness, operation or
performance of the Equipment. Without limiting the generality of the foregoing,
Lessor shall not be liable to Lessee for any liability, claim, loss, damage or
expense of any kind or nature (including strict liability in tort) caused,
directly or indirectly, by the Equipment or any inadequacy thereof for any
purpose, or any deficiency or defect therein, or the use or maintenance thereof,
or any repairs, servicing or adjustments thereto; or any delay in providing, or
failure to provide, any part thereof, or any loss of business, or any damage
whatsoever and howsoever caused except for any such loss caused directly by the
gross negligence or willful misconduct of Lessor, or its agents and
representatives. Lessor hereby appoints Lessee as Lessor's agent to assert,
during the term of the applicable Equipment Schedule, any right Lessor may have
to enforce the Manufacturer's warranties, if any; provided, however, that Lessee
shall indemnify and hold Lessor and any Assignee or Secured Party harmless from
and against any and all claims, costs, expenses, damages, losses and liabilities
incurred or suffered by it as a result of or incident to any action by Lessee in
connection therewith.
6. Title and Assignment. 6.1 Title. Nothing contained herein or in any Equipment
Schedule shall give or convey to Lessee any right, title or interest in or to
the Equipment, except as a lessee as set forth therein and Lessee represents and
agrees that Lessee shall hold the Equipment subject and subordinate to the
rights of Lessor, any Assignee and any Secured Party, and Lessee shall furnish
2
<PAGE>
Lessor with such documentation as Lessor shall reasonably request with respect
thereto. Lessor is hereby authorized by Lessee, at Lessor's expense, to cause
this Master Lease, any Equipment Schedule or any statement or other instrument
in respect of any Equipment Schedule as it may deem necessary or appropriate
showing the interest of Lessor, any Assignee and any Secured Party in the
Equipment to be filed in all jurisdictions deemed by Lessor to be necessary or
appropriate and Lessee agrees to execute and deliver Uniform Commercial Code
financing statements reasonably requested by Lessor for such purpose. Lessee, at
its expense, shall protect and defend Lessor's title as well as the interest of
any Assignee and any Secured Party against all persons claiming against or
through Lessee and shall at all times keep the Equipment free and clear from any
legal process, liens or encumbrance whatsoever (except any placed thereon by or
through Lessor) and shall give Lessor immediate written notice thereof and shall
indemnify and hold Lessor, any Assignee and any Secured Party harmless from and
against any loss caused thereby.
6.2 Sublease or Relocation by Lessee. Provided that no Event of Default
or Potential Event of Default shall have occurred and be continuing, Lessee may,
upon not less than thirty (30) days' prior written notice to Lessor, relocate
the equipment to any location within any state of the continental United States
where the Uniform Commercial Code is in effect. In the event of a relocation,
Lessee shall cooperate with Lessor in taking all reasonable measures to protect
the title of Lessor or any Assignee and the interest of any Secured Party to and
in the Equipment and the Lease. No relocation permitted hereunder shall relieve
Lessee from any of its obligations under the Lease and Lessee hereby waives any
rights it may now have or hereafter acquire to avoid any such obligation by
reason of such relocation or any circumstance arising therefrom. Lessee shall
not sublease the Equipment or assign this Lease without the prior written
consent of Lessor, which consent shall not be unreasonably withheld.
6.3 Assignment by Lessor. (a) Lessee acknowledges Lessor's intent to
have the ability to sell and assign its interest, or grant a security interest
for the purpose of securing an obligation, in and to each Equipment Schedule and
the Equipment listed therein in whole or in part to a security assignee
("Secured Party") for the purpose of securing a loan to Lessor. Lessor may also
sell and assign its rights as owner and lessor of the Equipment under any
Equipment Schedule to an assignee ("Assignee") which, at the option of Lessor or
the Assignee, may be represented by a bank or trust company acting as a trustee,
in which case such trustee shall be the Assignee. After any such assignments,
the term Lessor shall mean, as the case may be, such Assignee or trustee and any
Secured Party. Lessee hereby consents to any such assignment and shall
acknowledge such assignment or assignments as shall be designated by written
notice, substantially in the form of Exhibit C hereto, given by Lessor to Lessee
and further covenants and agrees that: (i) any Secured Party or Assignee shall
have and be entitled to exercise any and all discretions, rights and powers of
Lessor hereunder or under any Equipment Schedule, but such secured party or
Assignee shall not be obligated to perform any of the obligations of Lessor
hereunder or under any Equipment Schedule; (ii) Lessee shall pay to such Secured
Party as Assignee as shall be designated in such notice, all Rent and any and
all other amounts designated in such notice which are payable by Lessee under
any Equipment Schedule, notwithstanding any defense, counterclaim, recoupment or
setoff of whatever nature, whether by reason of breach of such Equipment
Schedule or otherwise, which it may or might now or hereafter have against
Lessor or Secured Party or any other party; (iii) Lessee will execute and
deliver such further documentation as such Secured Party or Assignee may
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<PAGE>
reasonably require to perfect or further the assignments contemplated by this
Section 6.3; and (iv) subject to and without impairment of Lessee's leasehold
rights in and to the Equipment, Lessee holds the Equipment for such Secured
Party or Assignee to the extent of such Secured Party's or Assignee's rights
therein.
(b) Notwithstanding any assignment of Lessor's rights hereunder to an Assignee,
Secured Party or any other person or entity, Lessor agrees that it shall remain
principally responsible and obligated to perform all of Lessor's obligations and
agreements hereunder. Lessee shall maintain its right to have recourse directly
against Lessor on account of any breach by Lessor of its obligations hereunder.
Each Secured Party and Assignee shall covenant that it will not disturb Lessee's
quiet and peaceful possession of such Equipment or its unrestricted use thereof
for its intended purpose during the term hereof so long as no Event of Default
has occurred and is continuing.
7. Net Lease; Taxes and Fees. 7.1 Net Lease. Each Equipment Schedule constitutes
a net lease. Lessee's obligation to pay all Rent and any and all other amounts
payable by Lessee under any Equipment Schedule shall be absolute and
unconditional and shall not be subject to any abatement, reduction, setoff,
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever, and such payments shall be and continue to be payable in all events.
7.2 Taxes and Fees. Lessee covenants and agrees to pay when due or
reimburse and indemnify and hold Lessor harmless from and against all taxes,
fees or other charges of any nature whatsoever (together with any related
interest or penalties) now or hereafter imposed or assessed during the term of
each Equipment Schedule against Lessor, Lessee or the Equipment by any federal,
state, county or local governmental authority upon or with respect to the
Equipment or upon the ordering, purchase, ownership, delivery, leasing,
possession, use, operation, return or other disposition thereof or upon the
rents, receipts or earnings arising therefrom or upon or with respect to any
Equipment Schedule (excepting only federal, state and local taxes based on or
measured by the net income of Lessor). To the extent permitted by applicable
law, Lessee shall prepare (in such manner as will show Lessor's ownership of the
Equipment) and timely file all tax returns required in connection with taxes
payable by Lessee hereunder.
8. Care, Use and Maintenance, etc. 8.1 Care, Use and Maintenance. (a) Lessee
shall, at its sole expense, at all times during the term of each Equipment
Schedule, maintain the Equipment in good operating order, repair, condition and
appearance and protect the Equipment from deterioration, other than normal wear
and tear.
(b) Lessee shall not use the Equipment for any purpose other than that for which
it was designated Lessee covenants that the Equipment will at all times be used
and operated in accordance with the Manufacturer's instructions and in
compliance with any restriction contained in the Manufacturer's warranties
regarding the Equipment and with any and all statutes, laws, ordinances and
regulations of any government agency applicable to the Equipment Lessee will
ensure, by contract or otherwise, that any Equipment affixed to real property
does not become the property of the real property owner or any party holding a
security interest therein, without the prior written consent of Lessor, and any
such Equipment that is so affixed will be affixed subject to such reasonable
conditions as Lessor may impose for its protection, and Lessee will provide
Lessor with such landlord's and mortgagee's waivers as Lessor may request in
connection therewith
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8.2 Alterations and Attachments. Lessee will not, without prior written
consent of Lessor, affix or install any accessory, equipment or device on the
Equipment leased hereunder which will either impair the originally intended
function or use of such Equipment or cannot be readily removed without causing
material damage to such Equipment. All such accessories, equipment and devices
furnished, attached or affixed to the Equipment shall thereupon become the
property of Lessor (except such as may be readily removed without causing
material damage to the Equipment)
8.3 Inspection by Lessor. Upon the request of Lessor, Lessee shall, at
reasonable times during business hours and subject to Lessee's and the
applicable property owner's or manager's normal security, safety and
confidentiality regulations, make the Equipment available to Lessor for
inspection at the place where it is normally located and shall make Lessee's log
and maintenance records pertaining to the Equipment available to Lessor for
inspection.
9. Representations and Warranties. 9.1 Representations and Warranties of Lessee.
Lessee represents, warrants and covenants that, with respect to this Master
Lease and each Equipment Schedule executed hereunder, (a) the execution,
delivery and performance thereof by Lessee have been duly authorized by all
necessary corporate action and do not conflict with Lessee's charter or by-laws
or with any indenture, contract or agreement by which it is bound, or with any
statute, judgment, decree, rule or regulation binding upon it; (b) any
individual executing this Master Lease or any documents delivered in connection
herewith on behalf of Lessee is duly authorized to do so; (c) the Master Lease
and each Equipment Schedule constitute legal, valid and binding agreements of
Lessee enforceable in accordance with their respective terms; and (d) the
Equipment is personal property and when subject to use by Lessee will not, in
accordance with Lessee's service contract with the relevant property owner or
manager, be deemed to become fixtures under applicable law.
9.2 Representations and Warranties of Lessor. Lessor represents, warrants
and covenants that, with respect to the Master Lease and each Equipment Schedule
executed hereunder, (a) the execution, delivery and performance thereof by
Lessor have been duly authorized by all necessary corporate action; (b) any
individual executing this Master Lease or any documents delivered in connection
herewith on behalf of Lessor is duly authorized to do so; and (c) the Master
Lease and each Equipment Schedule constitute legal, valid and binding agreements
of Lessor enforceable in accordance with their respective terms.
10. Delivery of Equipment. Lessee hereby assumes the full expense of
transportation to the premises designated by Lessee (including in-transit
insurance) and installation thereat of the Equipment.
11. Labeling. Lessee covenants and agrees that, upon request of Lessor, it shall
cause the Equipment to be plainly, permanently and conspicuously marked, by
stenciling or by metal tag or plate affixed thereto as supplied by Lessor,
indicating Lessor's interest in the Equipment. Lessee shall replace any such
stenciling, tag or plate which may be removed or destroyed or become illegible.
Lessee shall keep all Equipment free from any marking or labeling which might be
interpreted as a claim of ownership thereof by Lessee or any party other than
Lessor or anyone so claiming through Lessor.
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12. Loss Indemnification. Lessee shall and does hereby indemnify and hold
Lessor, any Assignee and any Secured Party harmless from and against any and all
claims, costs, expenses, damages and liabilities, including reasonable
attorneys' fees (a "Claim"), arising out of the ownership, selection,
possession, leasing, renting, operation, control, use, maintenance or delivery
of the Equipment. Notwithstanding the foregoing, Lessee shall not be responsible
under the terms of this Section 12 to a party indemnified hereunder for any
Claim occasioned by the gross negligence or willful misconduct of such
indemnified party. Lessee shall notify Lessor immediately upon its having
knowledge thereof of any Claim arising out of the alleged or improper
manufacturing, functioning or operation of any Item of Equipment, and as
promptly as practicable furnish Lessor with details thereof and copies of
documents pertaining thereto.
13. Risk of Loss and Insurance. 13.1 Risk of Loss. Lessee hereby assumes the
entire risk of loss, damage, theft or destruction of the Equipment, including
during shipment of the Equipment to Lessee, and ending upon Lessee's purchase of
the Equipment pursuant to Section 3.2, and no such loss, damage or destruction
shall relieve Lessee of any of its obligations under any Equipment Schedule
executed hereunder. In the event the Equipment is lost, damaged, destroyed or
stolen, or title thereto shall be taken by any governmental authority under
power of eminent domain or otherwise (an "Event of Loss"), Lessee shall give
Lessor immediate notice thereof if the aggregate cost of the damaged Equipment
at one location exceeds $3,000, and in any event, shall (a) have the damage
repaired at its expense, without interruption of payment of Rent, or (b) if the
Equipment so damaged cannot be repaired, or if the Equipment was lost, destroyed
or title thereto taken then, at Lessor's option, either (x) continue the Lease,
without interruption, as if not such damage had occurred, and promptly replace
the Equipment with like-kind equipment reasonably satisfactory to Lessor
("Replacement Equipment"); provided, however, that (A) Lessee transfers or
causes to be transferred to Lessor or its order (by bill of sale or other
documents necessary to effect such transfer) such Replacement Equipment, free
and clear of all security interests, liens, leases, claims, charges and
encumbrances, and (B) such Replacement Equipment has a fair market value at the
time of such replacement not less than the fair market value of the Equipment
being replaced immediately prior to the damage or destruction requiring its
replacement, or (y) on the next Rent Payment Date pay to Lessor the greater of
(i) the fair market value of any irreparably damaged Equipment, or (ii) the
Stipulated Loss Value (as set forth in the relevant Equipment Schedule)
applicable to such Lease and all Rent charges and other charges accrued and
unpaid to and including the date of such payment.
Lessee shall give Lessor notice, immediately upon its having knowledge
thereof, of any damage to, or loss or destruction of, any Equipment having an
aggregate cost at one location in excess of $3,000. All proceeds of insurance
received by Lessor or Lessee under the policy referred to in Section 13.2 shall
be applied toward the cost of repair or replacement of the Equipment or, if
applicable, to reimburse Lessee for the amount of any Stipulated Loss Value
actually paid by Lessee to Lessor. Upon replacement or payment of the fair
market value or Stipulated Loss Value as provided herein above, title to the
irreparably damaged Item or Items of Equipment shall transfer to Lessee (or
Lessee's designee as may be required under the provisions of an insurance policy
or maintenance agreement provided by Lessee with respect to the Equipment or
otherwise) on an "as is" basis, without recourse or warranty.
13.2 Insurance. (a) Lessee will, at all times prior to its purchase of
the Equipment from
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Lessor pursuant to Section 3.2, at its own expense, carry and maintain or cause
to be carried and maintained (i) property insurance with respect to the
Equipment, and (ii) public liability insurance with respect to third party
personal and property damage, in each case with no greater deductibles and at
least comparable in amounts and against risks customarily insured against by
Lessee with respect to equipment it owns or leases similar in nature to the
Equipment. Property insurance with respect to the Equipment in any event shall
be in an amount at least equal to the greater of (i) the fair market replacement
value of the Equipment, or (ii) the Stipulated Loss Value, if any, applicable to
the relevant Lease. Public liability insurance with respect to third party
personal and property damage in any event shall be for an amount not less than
$5,000,000 per occurrence. Any policies of insurance carried in accordance with
this Section 13.2 shall (i) require 30 days prior notice to Lessor, any Assignee
and any Secured Party of cancellation, invalidation or material change in
coverage, (ii) name Lessor, any Assignee and any Secured Party as additional
insured, and provide that the policy shall be treated with respect to each of
them as if it were a separate policy, (iii) provide that such insurance is
primary and without right of contribution from any other insurance which might
otherwise be available to the additional insureds, (iv) provide that in the
event of any loss payment under a property policy the proceeds thereof shall be
payable to Lessee, Lessor, any Assignee and any Secured Party as their interest
may appear, (v) expressly provide that any obligations imposed upon the insureds
(including, without limitation, the obligation to pay premiums) shall be the
obligation solely of Lessee and not the obligation of the additional insureds
and that any rights of the insurer for setoff, counterclaim or other deductions,
and any rights of subrogation against Lessor, any Assignee and any Secured
Party, are waived by such insurer, and (vi) be written by a company of
recognized responsibility which is reasonably acceptable to Lessor.
(b) On or prior to the Installation Date and thereafter not less than
five days prior to any expiration date of a policy required pursuant to this
Section 13.2, Lessee shall deliver to Lessor and any additional insureds
certificates of insurance issued by the insurers thereunder or by an insurance
broker authorized to bind such insurers evidencing the insurance maintained
pursuant to this Section 13.2; provided, however, that if the delivery of any
certificate is delayed, Lessee shall deliver an executed binder with respect
thereto and shall deliver the formal certificate upon receipt thereof.
(c) Lessee irrevocably appoints Lessor as Lessee's attorney-in-fact to
make claim for, receive payment of, and execute any and all documents that may
be required to be provided to the insurance carrier in substantiation of any
claim for loss under any insurance policy and to endorse Lessee's name to any
and all drafts or checks in payment of the loss proceeds.
(d) Notwithstanding the foregoing provisions of this Section 13.2,
Lessee may self-insure with respect to damage to the Equipment, or third party
personal and property damage, or both, provided that (i) such self-insurance is
consistent with the self-insurance practices of Lessee with respect to equipment
it owns similar in nature to the Equipment, (ii) a description of such
self-insurance practices including any limits or restrictions on coverage is
provided in writing to Lessor and any Assignee or Secured Party upon request,
and (iii) Lessor shall in its sole discretion agree to accept self-insurance in
lieu of the foregoing insurance requirements set forth in this Section 13.2.
14. Default. 14.1 Definition. The occurrence of any one or more of the following
events shall
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constitute an Event of Default under ln Equipment Schedule: (a) Lessee fails to
pay any installment of Rent or other charge payable by Lessee under such
Equipment Schedule when the same becomes due and payable and such default
continues for a period of five business days after written notice thereof to
Lessee; or (b) Lessee or Guarantor fails to perform any other term, covenant or
condition of such Equipment Schedule or any Guaranty delivered in connection
therewith, and such failure continues uncured for a period of 15 days after
written notice; or (c) with respect to either Lessee or Guarantor, the making of
an assignment by such party for the benefit of its creditors or the admission by
such party in writing of its inability to pay its debts as they become due, or
the insolvency of such party, or the filing by such party of a voluntary
petition in bankruptcy, or the adjudication of such party as a bankrupt, or the
filing by such party of any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, or the
filing of any answer by such party admitting, or the failure by such party to
deny, the material allegations of a petition filed against it for any such
relief, or the seeking or consenting by such party to, or acquiescence by such
party in, the appointment of any trustee, receiver or liquidator of such party
or of all or any substantial part of the properties of such party, to vacate
such appointment; or (d) with respect to either Lessee or Guarantor, the failure
by such party, within 45 days after the commencement of any proceeding against
such party seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, to obtain the dismissal such proceeding or, within 45 days
after the appointment, without the consent or acquiescence of such party, of any
trustee, receiver or liquidator of such party or of all or any substantial part
of the properties of such party, to vacate such appointment; or (e) any
representation or warranty made by Lessee or Guarantor herein or in any document
or certificate delivered by Lessee or Guarantor in connection herewith shall
prove to have been incorrect in any material respect when such representation or
warranty was made or given; (f) an event of default shall occur and be
continuing with respect to any other indebtedness or lease obligation of Lessee
or Guarantor having a principal or rental amount outstanding in excess of
$500,000; or (g) Lessee shall, or shall attempt to or permit any person to,
remove, sell, transfer, encumber, part with possession of, assign, relocate or
sublet any Item or Equipment (except as expressly permitted by the provisions of
this Master Lease).
14.2 Remedies. (a) upon the occurrence of any Event of Default, Lessor
may, at its option: (i) proceed by appropriate court action, either at law or in
equity, to enforce performance by Lessee of the applicable terms and covenants
of the applicable Equipment Schedule or to recover damages for the breach
thereof; (ii) by notice to Lessee terminate such Equipment Schedule; (iii)
declare immediately due and payable by Lessee, as liquidated damages for loss of
a bargain and not as a penalty, an amount equal to the greater of (A) the
present value of all sums to be paid by Lessee during the remaining Initial Term
or any Renewal Term then in effect, discounted at the Acceleration Rate set
forth in the applicable Equipment Schedule, and (B) the Stipulated Loss Value of
the Equipment as of the Rent Payment Date immediately preceding the date on
which such Event of Default occurs: (iv) take possession of the Equipment
subject to such Equipment Schedule during Lessee's normal working hours, without
demand or notice, wherever such Equipment may be located. Lessee hereby waives
any right it may have for damages occasioned by any repossession. Any taking of
possession pursuant to this subsection shall not in itself constitute
termination of any Equipment Schedule and shall not, in any event, relieve
Lessee of its obligations thereunder; and (v) enforce any of its rights against
Guarantor under the Guaranty.
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(b) Upon taking of possession of any Equipment pursuant to Section 14.2(a)(iv),
Lessor may, at its option and without notice to Lessee, lease the repossessed
Equipment to any third party on such terms and conditions as Lessor may
determine or sell such Equipment at public auction or at private sale. In the
event that Lessor leases or sells such repossessed Equipment, the Net Proceeds
(as defined below) shall first be credited to amounts due and owing by Lessee,
and shall then be used to reimburse Lessee for any liquidated damage payment
made by Lessee pursuant to Section 14.2(a)(iii). Any surplus shall be retained
by Lessor. Lessee shall remain liable for any deficiency resulting from an
excess of amounts due and owing by Lessee over Net Proceeds. As used herein,
"Net Proceeds" shall mean the sale price of the Equipment, or the aggregate rent
payable pursuant to a re-lease of the Equipment discounted at the Overdue Rate,
less all costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by Lessor as a result of Lessee's default and Lessor's
exercise of its remedies with respect thereto. In calculating Net Proceeds with
respect to a re-lease of the Equipment for a term that extends beyond the
Initial Term, only that portion of the re-lease term which does not extend
beyond the Initial Term shall be used in such calculation.
(c) Notwithstanding Lessor's choice of one or more of the remedies provided
herein, Lessee shall be liable for (i) all sums due and payable for all periods
up to and including the date on which Lessor declared an Event of Default to
exist, and (ii) all costs, charges and expenses, including reasonable attorneys'
fees and disbursements, incurred by Lessor by reason of occurrence of any Event
of Default or Lessor's exercise of its remedies hereunder. Any overdue Rent, and
any unpaid amounts payable as liquidated damages pursuant to Section
14.2(a)(iii) shall bear interest at the Overdue Rate until paid in full.
(d) No remedy, referred to herein is intended to be exclusive, but each shall be
cumulative and in addition to any other right or remedy otherwise available to
Lessor at law or in equity.
15. Miscellaneous. 15.1 Entire Agreement. Lessor and Lessee acknowledge that
there are no agreements or understanding, written or oral, between Lessor and
Lessee with respect to the Equipment, other than as set forth herein and in each
Equipment Schedule and that this Master Lease and each Equipment Schedule
contain the entire agreement between Lessor and Lessee with respect thereto.
Neither this Master Lease nor any Equipment Schedule may be altered, modified,
terminated or discharged except by a writing signed by the party against whom
such alteration, modification, termination or discharge is sought.
15.2 No Waiver; Cure. No omission or delay by Lessor at any time to
exercise or enforce any right or remedy reserved to it, or to require
performance of any of the terms, covenants or provisions hereof by Lessee at any
time designated, shall be a waiver of any such right or remedy to which Lessor
is entitled, not shall it in any way affect the right of Lessor to enforce such
provisions thereafter. If Lessee fails to perform any of its obligations under
this Master Lease, Lessor or its assigns in addition to their other rights and
remedies may, at the cost and expense of Lessee, perform such obligations but
shall not be obligated to do so. All sums so paid by Lessor or its assigns shall
be immediately due and payable by Lessee upon demand and shall bear interest at
the Overdue Rate.
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15.3 Binding Nature. Each Equipment Schedule shall be binding upon, and
shall inure to the benefit of, Lessor, Lessee and their respective successors,
legal representatives and assigns, except, in the case of any Assignor or
Secured Party, to the extent set forth in Section 6.3 hereof.
15.4 Survival of Obligations. All agreements, representations and
warranties contained in the Master Lease, any Equipment Schedule or in any
document delivered pursuant hereto or in connection herewith shall be for the
benefit of Lessor and its successors and assigns and shall survive the execution
and delivery of this Master Lease and the expiration or other termination of the
Master Lease.
15.5 Notices. Any notice, request or other communication to either
party by the other as provided for herein shall be given in writing and shall be
deemed received only upon the earlier of receipt or three days after mailing if
mailed postage prepaid by registered mail to Lessor or Lessee, as the case may
be, at the address for such party set forth in the appropriate Equipment
Schedule or at such changed address as may be subsequently submitted by written
notice of either party.
15.6 Applicable Law. This Master Lease and each Equipment Schedule
shall be deemed to have been made, executed and delivered in the State of New
York and shall be governed by and construed in accordance with the internal laws
of the State of New York applicable to contracts made and to be performed
entirely within such State.
15.7 Severability. If any one or more of the provisions of the Master
Lease or any Equipment Schedule shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Master Lease and any such
Equipment Schedule shall not be affected thereby and shall be enforced to the
fullest extent permitted by law.
15.8 Counterparts. This Master Lease and any Equipment Schedule may be
executed in any number of counterparts, each of which shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument. If Lessor grants a security interest in all or any part of an
Equipment Schedule, the Equipment covered thereby and/or sums payable
thereunder, only that counterpart Equipment Schedule marked "Counterpart Number
One of ___ Counterparts" shall be effective to transfer Lessor's rights therein.
All counterparts shall bear the legend "No security interest in this Lease may
be perfected by the possession of any counterpart other than Counterpart Number
One. Only Counterpart Number One shall be deemed to be the original; all other
counterparts shall be deemed to be duplicates.
15.9 Delay in Installation. Lessee hereby assumes and shall bear the
entire risk of loss arising out of or in connection with delays, partial
performance or non-performance by the supplier of the Equipment and Lessor shall
not be liable for specific performance of this Lease or for damages if, for any
reason, any supplier delays or fails to fill or improperly fills an order.
15.10 Further Assurances. Lessee shall furnish in connection with the
execution and delivery of the Master Lease and, upon request by Lessor, in
connection with each Equipment Schedule hereunder, an opinion of counsel, a
certificate of incumbency and such other documents as Lessor may reasonably
request in form reasonably acceptable to Lessor. Lessee hereby authorizes
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Lessor to insert the serial numbers provided by the Manufacturer of any
Equipment in the Equipment Schedule, Certificate of Acceptance and UCC-l
financing statements, covering such Equipment.
15.11 Guaranty of Parent. As incentive to Lessor and any Assignee or
Secured Party to enter into each Equipment Schedule with Lessee, Lessee shall
cause its parent company, Guarantor to deliver a Guaranty substantially in the
form of Exhibit E hereto.
15.12 Additional Matters. (a) Pursuant to Section l, Lessee and Lessor
may, from time to time, mutually agree on additional terms and conditions with
respect to an Equipment Schedule which may be set forth therein or attached
thereto as "Riders" which shall be applicable to and constitute a part thereof.
(b) In the event of any conflict between the terms and conditions of this Master
Lease and the terms and conditions of any Equipment Schedule or Rider, the terms
and conditions of the Equipment Schedule or Rider shall prevail.
(c) Section headings are for convenience only and shall not be construed as part
of the Master Lease.
(d) Unless otherwise specified, references to Exhibits or Sections herein shall
be references to Exhibits or Sections of this Master Lease.
In Witness Whereof, the parties hereto have executed the Master Lease as of the
day and year first above written.
AMERICAN HOTEL EXCHANGE, INC., SOUTHBRIDGE FINANCIAL CORP.,
LESSEE LESSOR
By: /s/ Kenneth G. Baritz By: /s/ Arthur P. Freierman
Name: Kenneth G. Baritz Arthur P. Freierman
Title: Chairman President
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LOAN AND SECURITY AGREEMENT
Dated December 18, 1996
by and between
CRESCENT PUBLIC COMMUNICATIONS INC.,
as Borrower,
and
SOUTHBRIDGE FINANCIAL CORP.,
as Lender
<PAGE>
LOAN AND SECURITY AGREEMENT
AGREEMENT, dated as of , 1996, by and between CRESCENT PUBLIC
COMMUNICATIONS INC., a New York corporation ("Borrower"), having its principal
place of business at 7 Mayflower Place, Floral Park, New York 11001; and
SOUTHBRIDGE FINANCIAL CORP., a Delaware corporation ("Lender"), having its
principal place of business at 400 Madison Avenue, New York, New York 10017.
W I T N E S S E T H :
WHEREAS, Borrower has requested Lender to make a loan to Borrower and
Lender is willing to make such loan to Borrower upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto covenant and agree as follows:
ARTICLE 1. DEFINITIONS; CONSTRUCTION
1.1 Certain Definitions.
In addition to other words and terms defined elsewhere in this
Agreement, as used herein the following words and terms have the following
meanings, respectively, unless the context hereof otherwise clearly requires:
"Agreement" means this Loan and Security Agreement as amended, modified
or supplemented from time to time.
"Assignment Agreement" means the Assignment Agreement, in form and
substance satisfactory to Lender, executed by Borrower, pursuant to which
Borrower assigns to Lender and grants to Lender a Lien covering all of the Pay
Telephone Placement Agreements.
"Billing and Related Services Agreement" means (i) the Billing and
Related Services Agreement between OAN Services, Inc. (the "B&C Agent") and
American Network Exchange, Inc. dated February 1, 1995 with respect to which the
B&C Agent will arrange for accounts receivable financing and will provide
certain billing, collection and associated services or (ii) any similar
agreement now or hereafter in effect in place of such agreement with respect to
the Collateral.
"Business Day" means any day other than a Saturday, Sunday or other day
on which banking institutions are authorized or obligated to close in New York,
New Jersey, Florida or Arizona.
"Closing Date" means the date of this Agreement.
<PAGE>
"Collateral" means all assets of Borrower in which Borrower has granted
or will grant a Lien to Lender, pursuant to this Agreement or otherwise,
including those assets described and defined as Collateral in Section 6.1.
"Collection Agreement" means (i) Collection Agreement among Borrower,
Reliance Trust Company ("Agent"), and American Network Exchange, Inc. and Lender
dated December 18, 1996 pursuant to which, among other things, Agent agrees to
remit directly to Lender, via wire transfer of funds, the monthly payments and
all other amounts due under the Loan Documents; and (ii) any similar agreement
with respect to the Loan now or hereafter entered into among Borrower, Lender,
American Network Exchange Inc. and any other agent, in all cases, as the same
have heretofore or may from time to time hereafter be amended, modified or
supplemented.
"Constituent Documents" means the certificate of incorporation,
by-laws, or other similar document pursuant to which Borrower and/or the
Guarantor were organized or their affairs are governed.
"Default" means an event which with notice or lapse of time, or both,
would constitute an Event of Default.
"Equipment" means the Pay Telephones and any equipment physically
connected to or installed in or with the Pay Telephones, and any and all
accessions and additions thereto, substitutions therefor, and all replacements
thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Event of Default" means any of the Events of Default described in
Section 7.1 hereof.
"Executive Officer" means the President, the Chief Executive Officer,
or the Chief Financial Officer of Borrower elected from time to time.
"GAAP" means generally accepted accounting principles in the United
States of America (as such principles may change from time to time) applied on a
consistent basis (except for changes in application in which Borrower's and/or
Guarantor's independent certified public accountants concur), applied both to
classification of items and amounts.
"Guarantor" means AMNEX, Inc., a New York corporation.
"Guaranty" means the unconditional Guaranty of the Obligations of
Borrower to Lender, executed by the Guarantor, in form and substance
satisfactory to Lender.
"Interest Rate" means the Index Rate plus five and eighty hundredths
percent (5.80%). The "Index Rate" shall be the highest yield, as published in
The Wall Street Journal, on the first (lst) Business Day preceding the Closing
Date, for Treasury Notes having a maturity date on or closest to the Maturity
Date. Interest shall be calculated on the basis of a year of 360 days and twelve
months of thirty (30) days each and charged on a daily basis.
<PAGE>
"'Law" means any law (including common law), constitution, statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any government or governmental agency.
"Legal Requirements" means any and all present and future judicial, and
administrative rulings or decisions, and any and all present and future federal,
state, and local laws, ordinances, rules, regulations, permits and certificates,
in each case, in any way applicable to Borrower (or the ownership or use of the
Collateral or its other assets) and/or the Guarantor, or this transaction.
"Lien" means any mortgage, pledge, lien, security interest (including
without limitation any conditional sale or other title retention agreement),
grant of a leasehold, charge or other encumbrance of any nature whatsoever, and
also means the filing of or the agreement to give any financing statement or
analogous document under the UCC or analogous law of any jurisdiction.
"Loan" has the meaning given to such term in Section 2.1 hereof.
"Loan Documents" means this Agreement, the Note, the Guaranty, the
Assignment Agreement, the Insurance Letter, the Collection Agreement, and any
other agreements, instruments and documents required to be, or which are,
executed by Borrower or the Guarantor in connection with this Agreement or the
Loan (as the same may from time to time be amended, modified or supplemented).
"Maturity Date" has the meaning given to that term in Section 2.7.2
hereof.
"Note" means the promissory note of Borrower executed and delivered by
Borrower under this Agreement, in substantially the form annexed hereto as
Exhibit A with the blanks appropriately filled in.
"Obligations" means all of the indebtedness, liabilities and
obligations of every kind and nature of Borrower to Lender, whether now existing
or hereafter arising, whether or not currently contemplated, howsoever arising,
including, without limitation, all indebtedness, liabilities and obligations
arising under, in connection with or evidenced by this Agreement, the Note, the
other Loan Documents, or otherwise.
"Office", when used in connection with Lender, means its office located
at 400 Madison Avenue, New York 10017, or such other office of Lender as may be
designated in writing from time to time by Lender to Borrower.
"Pay Telephones" means the pay telephones listed on Schedule A annexed
hereto and any and all accessions and additions thereto, substitutions for, and
all replacements thereof.
"Pay Telephone Placement Agreement(s)" means each of the written or
oral agreements now or hereafter entered into (as the same have heretofore or
may from time to time hereafter be amended, modified or supplemented) between
Borrower and the owner, operator, lessee or proprietor of the Premises upon
which one or more Pay Telephones is now or hereafter located.
<PAGE>
"Person" means an individual, corporation, national banking
association, partnership, trust, unincorporated association, joint venture,
joint-stock company, government (including political subdivisions), governmental
authority or agency, or any other entity.
"Plan" means any employee benefit plan which is covered by ERISA and
which is maintained by Borrower or, in the case of a plan to which more than one
employer contributes, to which Borrower is making or accruing an obligation to
make contributions or has within the preceding five plan years made
contributions.
"Premises" means the locations at which Pay Telephones are now or
hereafter located.
"Term" means the period beginning on the Disbursement Date and ending
on the Maturity Date.
"UCC" means the Uniform Commercial Code as adopted in the State of New
York.
1.2 General Interpretive Principals.
For purposes of this Agreement, except as otherwise expressly provided
herein or unless the context otherwise requires:
(i) any pronoun used shall be deemed to cover both gender
forms as well as the neuter form;
(ii) all references to the plural shall include the singular,
the singular the plural and the part the whole;
(iii) the word "or" has the inclusive meaning frequently
identified by the phrase "and/or";
(iv) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(v) the words "herein", "hereunder" and "hereof" and similar
terms in this Agreement refer to this Agreement as a whole and not to any
particular provision of this Agreement;
(vi) references herein to "Articles", "Sections",
"Subsections", "Paragraphs", and other subdivisions without reference to a
document are to designated Articles, Sections, Subsections, Paragraphs and other
subdivisions of this Agreement;
(vii) a reference to a Subsection without further reference to
a Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(viii) the term "include" or "including" shall mean, without
limitation, by reason of enumeration; and
<PAGE>
(ix) unless otherwise provided herein, the term "satisfactory
to Lender" or "satisfaction of the Lender" or "satisfaction to counsel" or other
similar terms means satisfactory to Lender or its counsel in its sole and
absolute discretion.
ARTICLE 2. THE CREDIT
2.1 The Loan.
Subject to the terms and conditions and relying upon the
representations and warranties herein set forth, Lender agrees to make a Loan to
Borrower in the principal amount of Five Million Dollars ($5,000,000) (the
"Loan")
2.2 Use of Proceeds.
The proceeds of the Loan shall be used by Borrower to reimburse
Borrower for its payment of a portion of the purchase Price for the acquisition
of the Equipment and for working capital and other valid business purposes of
Borrower.
2.3 The Note.
The obligation of Borrower to repay the Loan and to pay interest
thereon shall be evidenced by the Note. The Note shall be dated the Closing Date
and shall be executed by Borrower and delivered to Lender on the Closing Date.
2.4 Disbursement.
Subject to the conditions set forth herein, Lender shall, on the
Closing Date, credit, by wire transfer, the amount of the Loan to the account of
Borrower or the Person or Persons specified in writing by Borrower.
2.5 Loan Account.
Lender shall maintain a loan account on its books in the name of
Borrower for the Loan in which will be recorded all payments of principal
thereof and all accruals and payments of interest thereon. The entries in the
loan account (in the absence of manifest error in the making thereof) shall be
conclusive evidence of the outstanding principal thereof and accrued interest
thereon from time to time. Lender shall provide Borrower with statements of said
account from time to time on Borrower's request.
<PAGE>
2.6 Interest Rates.
2.6.1 Interest Prior to Maturity. Prior to maturity (whether
by acceleration or otherwise) the unpaid principal amount of the Loan shall bear
interest at the Interest Rate.
2.6.2 Interest After Maturity. Commencing with the day after
the principal amount of any part of the Loan shall have become due and payable
(by acceleration or otherwise), such part of the Loan or the entire Loan (as the
case may be) shall bear interest at the daily rate of three percent (3%) per
annum above the Interest Rate (the "Default Rate").
2.6.3 Maximum Rate. Lender and Borrower intend the Loan
Documents to comply in all respects with all provisions of Law and not to
violate, in any way, any legal limitations on interest charges. Accordingly, if,
for any reason, Borrower is required to pay, or has paid, interest at a rate in
excess of the highest rate of interest which may be charged by Lender or which
Borrower may legally contract to pay under applicable law (the "Maximum Rate"),
then the Interest Rate shall be deemed to be reduced, automatically and
immediately, to the Maximum Rate, and interest payable hereunder shall be
computed and paid at the Maximum Rate and the portion of all prior payments of
interest in excess of the Maximum Rate shall be deemed to have been prepayments
of the outstanding principal of the Loan and applied to the installments in the
inverse order of their maturities.
2.7 Payments.
2.7.1 Time; Place; Manner. All payments to be made in respect
of principal, interest, or other amounts due from Borrower hereunder or under
the Note shall become due at 5:00 P.M., New York time, on the day when due
without presentment, demand, protest or notice of any kind, all of which are
hereby expressly waived. Such payments shall be made to Lender in lawful money
of the United States of America in immediately available funds.
2.7.2 Payments of Principal and Interest. The Loan, together
with interest thereon at the Interest Rate, shall be repaid in sixty (60) equal
consecutive monthly payments of principal and interest each in an amount which
will fully amortize the Loan at the Interest Rate over the Term (the date upon
which the sixtieth (60th) consecutive monthly payment of principal and interest
is scheduled to be due is hereinafter referred to as the "Maturity Date"). The
first such monthly payment of principal and interest shall be due and payable on
the first day of the second month succeeding the Closing Date and the payments
shall continue on a like day in each and every month thereafter through and
including the Maturity Date; provided that (i) if the Closing Date is the first
day of a month, the first such monthly payment of principal and interest shall
be due on the first day of the immediately succeeding month, and (ii) if the
Closing Date is not the first day of the month, Borrower shall pay, on the first
day of the month immediately succeeding the Closing Date, interest only, at the
Interest Rate, from the Closing Date to the last day of the month in which the
Closing Date occurs. Lender shall compute the amount of each payment and advise
Borrower of such amount. Each monthly payment shall be applied, first to fees,
costs and charges, if any, owing to Lender, then to interest as may be due
hereunder, and the balance of such payment shall be applied to the principal
balance of the Loan. The entire unpaid principal balance which was not payable
earlier, whether due to regularly scheduled payments, acceleration or otherwise,
together with any unpaid interest, fees, costs and charges shall be due and
payable on the Maturity Date. After the
<PAGE>
maturity of all or any part of the Loan (by acceleration or otherwise), interest
on the Loan or such part thereof shall be due and payable at the Default Rate on
demand.
2.7.3 Net Payments. All payments hereunder and under the Note
shall be made by Borrower to Lender without defense, set-off, claim or
counterclaim and without deduction for any present or future income, stamp or
other taxes, levies, imposts, deductions, charges or withholdings whatsoever
imposed, assessed, levied or collected by or for the benefit of any jurisdiction
or taxing authority. In addition, Borrower shall pay any and all taxes (stamp or
otherwise) if any, payable or determined to be payable in connection with the
execution and delivery of this Agreement, the Note and the other Loan Documents
and on all payments to be made by Borrower hereunder and under the Note and the
other Loan Documents (other than Lender's income taxes) and all taxes payable in
connection with or related to the Collateral.
2.8 Prepayments Subject to Section 5.2.1 hereof, Borrower shall not
prepay the Loan in whole or in part.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that:
3.1 Organization and Qualification.
Borrower is duly organized, validly existing and in good standing as a
corporation under the Laws of the State of New York with full power and
authority to own its properties and to transact its business as now transacted
and as contemplated to be transacted. Borrower is qualified and in good standing
to transact business in each jurisdiction where the ownership of its properties
or the transaction of its business requires such qualification. The Guarantor is
duly organized, validly existing and in good standing as a corporation under the
Laws of the State of its incorporation with full power and authority to own its
properties and to transact its business as now transacted and as contemplated to
be transacted. The Guarantor is qualified and in good standing to transact
business in each jurisdiction where the ownership of its properties or the
transaction of its business requires such qualification.
3.2 Authority and Authorization.
Borrower has full power and authority to execute, deliver and carry out
the provisions of this Agreement, the Note and the other Loan Documents to which
it is a party, to borrow hereunder and under the other Loan Documents and to
create the Liens provided for herein, and to perform its obligations hereunder
and thereunder, and all such action has been duly and validly authorized by all
necessary proceedings on its part. The Guarantor has full power and authority to
execute, deliver and carry out the provisions of the Guaranty and the other Loan
Documents to which it is a party and to perform its obligations thereunder, and
all such action has been duly and validly authorized by all necessary
proceedings on its part.
<PAGE>
3.3 Execution and-Binding Effect.
This Agreement, the Note and the other Loan Documents have been duly
and validly executed and delivered by Borrower and constitute the legal, valid
and binding obligation of Borrower enforceable in accordance with their
respective terms. The Guaranty and the other Loan Documents executed by the
Guarantor have been duly and validly executed and delivered by the Guarantor and
each constitutes the legal, valid and binding obligation of the Guarantor
executing the same, enforceable in accordance with their respective terms.
3.4 Authorizations and Filings.
Except for the filing of UCC financing statements, no authorization,
consent, approval, license, exemption or other action by, and no registration,
qualification, designation, declaration or filing with, any governmental
authority is or will be necessary or advisable in connection with the execution
and delivery of this Agreement, the Note, the Guaranty, the other Loan Documents
or the consummation by Borrower and the Guarantor of the transactions herein and
therein contemplated, or performance by Borrower and the Guarantor of or
compliance by Borrower and the Guarantor with, the terms and conditions hereof
or thereof.
3.5 Absence of Conflicts.
Neither the execution and delivery of this Agreement, the Note, the
Guaranty or the other Loan Documents, nor consummation of the transactions
herein or therein contemplated nor performance of, or compliance with the terms
and conditions hereof or thereof will (a) result in any violation or breach of
(i) the provisions of Borrower's or the Guarantor's Constituent Documents, or
(ii) any Law, or the order, rule or regulation of any court or governmental
agency or body having jurisdiction over Borrower or the Guarantor, or any of
their respective properties, or (iii) any agreement, bond, note, instrument or
indenture to which Borrower or the Guarantor is a party or pursuant to which any
of their respective properties are affected, or (b) result in the creation or
imposition of any Lien upon any property (now owned or hereafter acquired) of
Borrower or the Guarantor, except for the Lien created by this Agreement.
3.6 Financial Statements.
Borrower and the Guarantor have heretofore furnished to Lender certain
financial statements and related financial information ("Financial Statements").
Such Financial Statements (including the notes thereto) present fairly the
financial condition of Borrower or the Guarantor (as the case may be) as of the
dates of the balance sheets contained therein, and the results of their
respective operations for the periods then ended, all in conformity with GAAP on
a basis consistent with that of Financial Statements for corresponding prior
periods. Except as disclosed therein, neither Borrower nor the Guarantor has any
material contingent liabilities (including liabilities for taxes), unusual
forward or long-term commitments or unrealized or anticipated losses from
unfavorable commitments.
3.7 No Defaults.
There is no Default under the Loan Documents.
<PAGE>
3.8 Litigation.
There is no pending or, to the best of Borrower's or Guarantor's
knowledge, threatened claim or proceeding by or before any court or governmental
agency against or affecting Borrower or the Guarantor which, if adversely
decided would have a material adverse effect on the business, operations or
financial condition of Borrower or the Guarantor or on the ability of Borrower
or the Guarantor to perform their respective obligations under this Agreement,
the Note, the Guaranty or the other Loan Documents or on the Collateral.
3.9 Title to Collateral.
Borrower has good title to the Collateral, free and clear of all liens
covering the Collateral, other than the Liens granted hereunder to Lender
covering the Collateral, which are and will at all times be first perfected
Liens covering the Collateral. Borrower has good title to, or valid leasehold or
license interests in, all assets reasonably required for the conduct of its
business.
3.10 Taxes.
All tax returns required to be filed by Borrower have been properly
prepared, executed and filed. All taxes, assessments, fees and other
governmental charges upon Borrower or upon any of its properties, incomes, sales
or franchises which are due and payable have been paid except for those which,
in the aggregate do not have a material adverse effect on the business,
operations or financial condition of Borrower or Guarantor taken as a whole, or
on the Collateral. Notwithstanding the foregoing, all personal property taxes on
the Collateral, if any, have been paid.
3.11 Financial Accounting Practices.
Borrower makes and keeps books, records and accounts which, in
reasonable detail, accurately and fairly reflect Borrower's transactions and
dispositions of its assets.
3.12 Power To Carry On Business.
Borrower and the Guarantor have all requisite power and authority to
own and operate their respective properties and to carry on their businesses as
now conducted and as presently planned to be conducted.
3.13 No Material Adverse Change.
Since the date of the Financial Statements referred to in Section 3.6,
there has been no material adverse change in the business, operations or
financial condition of Borrower or the Guarantor.
3.14 Compliance with Laws.
Neither Borrower nor the Guarantor is in violation of any Law, except
for violations which
<PAGE>
in the aggregate do not have a material adverse effect on the business,
operations or financial condition of Borrower or the Guarantor taken as a whole
or on the Collateral.
3.15 Compliance with Agreements.
Neither Borrower nor the Guarantor is in default under any agreement,
bond, note, indenture or contract, except for defaults which in the aggregate do
not have a material adverse effect on the business, operation or financial
condition of Borrower or the Guarantor taken as a whole or on the Collateral.
3.16 Accurate and Complete Disclosure.
No representation or warranty made by Borrower in this Agreement and no
statement made by Borrower or the Guarantor in the Financial Statements
furnished pursuant to Section 3.6 hereof or otherwise, or any certificate,
report, exhibit or document furnished by Borrower or the Guarantor to Lender
pursuant to or in connection with this Agreement or the Loan is false or
misleading in any material respect (including by omission of material
information necessary to make such representation, warranty or statement not
misleading).
3.17 Regulations G and U.
Borrower is not engaged in the business of extending credit for the
purpose of purchasing or carrying "margin stock", as such term is used in
Regulations G or U promulgated by the Board of Governors of the Federal Reserve
System as amended from time to time No part of the proceeds of the Loan will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any "margin stock". Borrower does not own any
"margin stock".
3.18 Perfection.
Except for the filings under Article 9 of the UCC specified in Section
4.7 hereof (and continuation statements at periodic intervals), no further
filing or recording is necessary under the UCC or under any other Laws of any
jurisdiction, in order to perfect in all applicable jurisdictions the Liens of
Lender in the Collateral. Upon such filings, Lender will be granted a first
perfected Lien covering the Collateral. There are no other Liens covering the
Collateral.
3.19 Place of Business.
Both the place of business (or chief executive office if there is more
than one place of business) of Borrower and the place where it keeps its
corporate records concerning the Collateral and all of its interest in, to and
under this Agreement are located at (i) the address set forth at the beginning
of this Agreement, (ii) c/o Guarantor at 101 Park Avenue, Suite 2507, New York,
New York 10178; and (iii) 1675 Highway 34, Farmingdale, New Jersey 07727.
<PAGE>
3.20 Location of Collateral.
For all purposes, including, without limitation, perfection of security
interests therein under Article 9 of the UCC, the Collateral is deemed located
and at all times shall be located at the Premises.
3.21 Pay Telephone Placement Agreements.
(a) Borrower has delivered to Lender true, correct and
complete copies of all written Pay Telephone Placement Agreements. None of the
Pay Telephone Placement Agreements have been modified, amended or supplemented
since the date of delivery to Lender, and each is in full force and effect. No
more than [10%] of the Pay Telephone Placement Agreements are oral and the oral
agreements are on terms substantially similar to those contained in the written
agreements. Borrower, and to the best of Borrower's knowledge, the other party
to each Pay Telephone Placement Agreement is in full compliance with the
material terms of each of the Pay Telephone Placement Agreements.
(b) Not less than 95% of the Pay Telephones are ln good
operating order. All Pay Telephones are installed at Premises the owners,
operators, lessees or proprietors of which have entered into Pay Telephone
Placement Agreements (i) with Coastal Telecom Payphone Company, Inc., BEK Tel,
Inc., or Garden State Telephone Installation & Service Co., Inc., which have
duly assigned all of their right, title and interest therein to Borrower or (ii)
directly with Borrower.
(c) All of the Pay Telephone Placement Agreements are freely
assignable and Liens may be granted with respect thereto, without the consent of
the owner, operator, lessee or proprietor of the Premises which is a party to
such Pay Telephone Placement Agreement.
(d) Not less than ninety percent (90%) of the Pay Telephone
Placement Agreements have a remaining term of at least one (1) year and
approximately 1800 of the Pay Telephones have been upgraded to include either
(i) Elcotel Number 5 Board Technology or (ii) Protel, Intellical, or Ernest
Board Technology of substantially equivalent quality to Number 5 Board
Technology and the balance of the Pay Telephones will be upgraded to include
such Technology within six (6) months after the date hereof.
3.22 Billing and Related Services Agreement.
Borrower has delivered to Lender a true, correct and complete copy of
the Billing and Related Services Agreement. The Billing and Related Services
Agreement has not been amended, modified or supplemented since the date of
delivery thereof to Lender, and is in full force and effect. Borrower, and to
the best of Borrower's knowledge, all other parties to the Billing and related
Services Agreement are in full compliance with the material terms thereof and
there are no material defaults thereunder.
ARTICLE 4. CONDITIONS OF LENDING
The obligation of Lender to make the Loan hereunder is subject to the
accuracy in all material respects, as of the date hereof, of the representations
and warranties herein contained, to the
<PAGE>
performance by Borrower of its obligations to be performed hereunder on or
before the Closing Date and to the satisfaction of the following further
conditions. If all conditions contained herein are not satisfied by December 31,
1996, Lender shall have no obligation whatsoever to make the Loan and shall have
no liability for its refusal to do so.
4.1 Corporate Action.
On the Closing Date, Borrower shall deliver to Lender a certificate in
form and substance satisfactory to Lender, dated the Closing Date, signed by a
duly authorized officer of Borrower, certifying as to (a) true copies of the
Constituent Documents of Borrower and the Guarantor, all as in effect on such
date, (b) true copies of all action taken by Borrower and the Guarantor relative
to this Agreement, the Note and the other Loan Documents, and (c) the names,
true signatures and incumbency of the officer or officers of Borrower and the
Guarantor authorized to execute and deliver this Agreement, the Note and the
other Loan Documents on behalf of Borrower and the Guarantor (and Lender may
conclusively rely on such certificate unless and until a later certificate
revising the prior certificate has been furnished to Lender). Borrower shall
also deliver to Lender good standing certificates for Borrower and the Guarantor
issued by the Secretary of State of its State of incorporation and each state in
which it is required by Law to be qualified.
4.2 Opinion of Counsel.
On the Closing Date, Lender shall have received a favorable written
opinion of counsel for Borrower and the Guarantor, dated the Closing Date and in
form and substance satisfactory to Lender and its counsel, Winick & Rich, P.C.
4.3 No Change of Law or Facts.
No change shall have occurred in applicable Law or regulations
thereunder or interpretations thereof by appropriate regulatory authorities
which, in the opinion of Lender or its counsel, would make it illegal for Lender
to acquire the Note, make the Loan, or otherwise to participate in the Loan, nor
shall any facts come to the attention of Lender, concerning Borrower, its
business or financial condition which, in the opinion of Lender would increase
the risk to Lender of repayment of the Loan by Borrower.
4.4 Documents.
The following documents shall have been duly authorized, executed and
delivered by the respective party or parties thereto, shall be in form and
substance satisfactory to Lender and its counsel and shall be in full force and
effect on the Closing Date, and an executed counterpart of each thereof shall
have been delivered to Lender and its counsel:
4.4.1 this Agreement;
4.4.2 the Note;
<PAGE>
4.4.3 the Guaranty;
4.4.4 the Assignment Agreement;
4.4.5 the Collection Agreement;
4.4.6 insurance certificates or policies of insurance
evidencing the coverages required by Section 5.3 hereof;
4.4.7 other Loan Documents, if any.
4.5 Collateral. Borrower shall provide to Lender a complete description
of the Collateral, together with evidence, in form and substance satisfactory to
Lender in its sole discretion, that Borrower owns legal title to the Collateral,
free and clear of all Liens.
4.6 Financing Statements.
On the Closing Date, UCC financing statements covering the security
interest created by this Agreement in the Collateral shall have been duly
executed in form suitable for filing in the office of the Secretary of State of
the State where the Collateral is located (i.e. New York, New Jersey and
Pennsylvania) and in all other places as, in the opinion of Lender, or its
counsel, are necessary or desirable to perfect such Liens.
4.7 Licenses and Permits.
All appropriate action shall have been taken prior to the Closing Date
in order to permit consummation of the transactions contemplated herein and
hereby and enforcement of all of the terms hereof, and all licenses, permits,
waivers, exemptions, authorizations and approvals required (or, in the
reasonable opinion of Lender or its counsel, advisable) to be in effect on the
Closing Date shall have been issued and shall be in full force and effect on
such date, and copies thereof shall have been delivered to Lender.
4.8 Agreements. Borrower shall have delivered to Lender true and
correct copies of the written Pay Telephone Placement Agreements and the Billing
and Related Services Agreement.
4.9 Other Matters.
4.9.1 Lender shall have received all other agreements,
instruments, financing statements, certificates, waivers, searches, releases,
terminations, reports, confirmations, corporate or other action, opinion
letters, copies of acquisition documents, evidence of payment of obligations,
evidence of ownership of the Collateral and such other documents as Lender or
its counsel shall have reasonably requested (each in form and substance
satisfactory to Lender and its counsel), including, without limitation,
certificates of incorporation and by-laws, UCC-l financing statements, lien
waivers, credit references, consents, approvals, authorization to date
documents, casualty and liability insurance policies and endorsements related to
such insurance, and certificates, appraisals and financial statements and other
financial information.
<PAGE>
4.9.2 There shall be no Default hereunder or under the other
Loan Documents.
4.9.3 All legal matters incident to the Loan shall be
satisfactory to Lender and its counsel.
ARTICLE 5. COVENANTS
Borrower covenants that from and after the date hereof and until
payment in full of the Note and interest thereon and all other amounts due from
Borrower hereunder or under the Note or the other Loan Documents, unless Lender
shall otherwise consent in writing:
5.1 Reporting and Information Requirements.
5.1.1 Financial Statements. Borrower shall cause Guarantor to
deliver its Form 10-K and Forms 10-Q (or the equivalent) to Lender and any
assignee throughout the term of the Agreement, in no event later than one
hundred twenty (120) days after the end of its fiscal year, in the case of such
Form 10-K or ninety (90) days after the end of its fiscal quarter, in the case
of each Form 10-Q, and in each case, together with a Certificate of the Chief
Financial Officer or other appropriate officer of Guarantor demonstrating and
certifying compliance with the covenant set forth in paragraph 8(c) of the
Guaranty. Borrower shall at the same time deliver a consolidating statement of
income, retained earnings and changes in financial position of Borrower for such
fiscal period certified by the Chief Executive Officer of Borrower or an
independent certified public accountant.
5.1.2 Quarterly Pay Telephone Reports. Within fortyfive (45)
days after the end of each fiscal quarter commencing March 31, 1997, Borrower
shall furnish to Lender a written report certified by an Executive Officer,
which shall include, as of the last day of such fiscal quarter, the following on
a per Telephone basis, in form reasonably satisfactory to Lender: (a) reports
with respect to revenue generated by the Pay Telephones due to coin calls; (b)
reports with respect to non-coin calls generated by the Pay Telephones; (c)
reports with respect to expenses incurred in connection with the Pay Telephones
due to (i) commissions payable to site owners, and (ii) line charges; and (d) a
listing of the locations of the Pay Telephones, indicating which have been
relocated, if any; and (e) such other information with respect to the Pay
Telephones and Pay Telephone Placement Agreements as Lender shall reasonably
request.
5.1.3 Further Requests. Borrower will furnish to Lender as
soon as reasonably practicable such other information (financial or otherwise)
concerning Borrower, its assets or the Collateral in such form as Lender may
reasonably request.
5.1.4 Compliance Certificates. At the same time Borrower
delivers the financial statements required under the provisions of Section
5.1.1, Borrower shall furnish to Lender a certificate of an Executive Officer to
the effect-that to the best of such officer's knowledge, no Default or Event of
Default exists, or, if such cannot be so certified, specifying in reasonable
detail the exceptions, if any, to such statement.
<PAGE>
5.1.5 Monthly Certificate. Monthly, not later than the
twentieth (20th) day of each month, Borrower shall furnish, or cause to be
furnished, to Lender a certificate of an Executive Officer, in form reasonably
satisfactory to Lender, certifying and setting forth, as of the last day of the
immediately preceding month, the following: (a) the reports specified in
Sections 5.1.2(a), (b) and (c), providing the information included in such
reports for up to twelve months prior to such immediately preceding month,
commencing with information for the month of January 1997 and later; (b) a
certification that (i) no less than ninety percent (90%) of the Pay Telephones
are subject to Pay Telephone Placement Agreements, at least 90% of the
agreements are written agreements and, to the best of Borrower's knowledge, each
such agreement is enforceable in accordance with its terms and no party thereto
is in material default of the term; thereof, or, if the same cannot be so
certified, the reasons for the same and (ii) ninety percent (90%) of all Pay
Telephones are in working order.
5.1.6 Notice of Material Proceedings. Promptly upon becoming
aware thereof Borrower shall give Lender written notice of the commencement,
existence or threat of any proceeding by or before any court or administrative
agency against or affecting Borrower, the Guarantor or the Collateral which, if
adversely decided, would have a material adverse effect on the business,
operations or financial condition of Borrower or the Guarantor or on the ability
of Borrower or the Guarantor to perform its obligations under this Agreement,
the Note, or the other Loan Documents or on the Collateral.
5.1.7 Visitation. Borrower shall permit such persons as Lender
may designate to visit and inspect the Collateral and to examine the books and
records of Borrower and take copies and extracts therefrom, and to discuss its
affairs with officers of Borrower and its independent accountants, at such
reasonable times as Lender may reasonably request, upon reasonable prior notice,
provided that such visitation, inspection, examination and discussions do not
unreasonably interfere with Borrower's normal business operations.
5.1.8 Other Deliveries. Promptly upon their becoming
available, Borrower shall furnish to Lender, copies of all registration
statements of Guarantor and any amendments and supplements thereto and any
regular and periodic reports filed by Borrower or the Guarantor with any
securities exchange or with the Securities and Exchange Commission or any
governmental authority succeeding to any or all of the functions of said
commissions.
5.2 Preservation of Existence and Franchises.
5.2.1 Neither Borrower nor the Guarantor shall enter into any
merger, reorganization or consolidation in which Borrower or Guarantor is not
the surviving corporation. or wind up, liquidate or dissolve, nor agree to do
any of the foregoing. Notwithstanding the foregoing, Lender agrees not to
unreasonably withhold or delay its consent to a request by Borrower or Guarantor
to enter into a merger, reorganization or consolidation in which Borrower or
Guarantor is not the surviving corporation. In the event Lender does not grant
its consent to a proposed merger, reorganization or consolidation in which
Borrower or Guarantor is not the surviving corporation, Borrower shall have the
right, upon not less than thirty (30) days prior written notice to Lender, on
any regularly scheduled payment date occurring after the second anniversary of
the Disbursement Date, to prepay the outstanding principal balance of the Loan
in whole, but not in part, provided
<PAGE>
that Borrower shall pay to Lender, together with the principal balance of the
Loan, (i) all accrued and unpaid interest on the amount prepaid through the date
of prepayment, (ii) all outstanding fees, charges and other amounts then due
under the Loan Documents, and (iii) a prepayment fee in an amount equal to the
product of (A) the outstanding principal balance of the Loan at the time of
prepayment, times (B) the applicable percentage set forth opposite the year of
the Term in which the prepayment is made, as set forth below:
Year of Term of Loan in
Which Prepayment is Made Percentage
3 1.6
4 1.14%
5 0.7%
Once given, the notice of prepayment shall be irrevocable. Borrower shall have
no right to prepay the Loan prior to the second anniversary of the Disbursement
Date.
5.2.2 Borrower will qualify to do business and will remain in
good standing under the laws of each jurisdiction in which it is required to be
qualified by reason of the location of the properties owned or leased by it or
the conduct of its business.
5.2.3 Borrower will comply with all Laws relative to the
conduct of its business or the location of the properties owned or leased by it,
the non-compliance with which would have a material adverse effect on the
business, operations, assets or financial condition of Borrower taken as a
whole, as contemplated hereby, or the ability of Borrower to perform its
obligations under this Agreement, the Note, or the other Loan Documents and will
obtain or cause to be obtained as promptly as possible any permit, license,
consent, privilege or approval of any governmental authority and make any filing
or registration therewith which at the time shall be required with respect to
the performance of its obligations under this Agreement, the Note or the other
Loan Documents or for the operation of its business as presently conducted or as
contemplated by it, the failure of which to obtain or file or register would
have a material adverse effect on the business, operation, assets or financial
condition of the Borrower taken as a whole or in its ability to perform its
obligations to Lender.
5.2.4 Other than in connection with Borrower's compliance with
the provisions of Section 5.7 hereof, Borrower shall not convey, assign, sell,
mortgage, encumber, pledge, hypothecate, grant a security interest in, grant
options with respect to, lease or otherwise dispose of all or any part of any
legal or beneficial interest in any part or all of the Collateral or any
interest therein.
5.3 Insurance.
Borrower shall, at its own expense, maintain and deliver evidence to
Lender of such insurance required by Lender, written by insurers and in amounts
satisfactory to Lender.
<PAGE>
5.4 Payment of Taxes and Other Potential Charges.
Borrower shall pay or discharge
5.4.1 all taxes, assessments and other governmental charges or
levies imposed upon it or any of its properties, including the Collateral, or
income (including such as may arise under ERISA or any similar provision of
law), on or prior to the date on which penalties attach thereto; and
5.4.2 all lawful claims of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons which, if unpaid, might result in
the creation of a Lien upon any such property, on or prior to the date when due;
provided, that unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced, Borrower need not pay or discharge any
such tax, assessment, charge, levy, claim or current liability so long as (i)
the validity thereof is contested in good faith and by appropriate proceedings
diligently pursued, (ii) in Lender's sole judgment there is no reasonably
foreseeable risk of forfeiture of the Collateral, and (iii) such reserves or
other appropriate provisions as may be required by GAAP shall have been made
therefor, and so long as such failure to pay or discharge does not have a
material adverse effect on the business, operations or financial condition of
Borrower taken as a whole or the Collateral.
5.5 Financial Accounting Practices.
Borrower shall make and keep books, records and accounts which, in
reasonable detail, accurately and fairly reflect its business, including all
transactions and dispositions of its assets.
5.6 Compliance with Laws.
Borrower shall be in material compliance with all applicable Laws
provided, that Borrower shall not be deemed to be in violation of this Section
5.6 as a result of any failures to comply which would not result in fines,
penalties, injunctive relief or other civil or criminal liabilities which, in
the aggregate, would not materially affect the business or operations of
Borrower or the ability of Borrower to perform its obligations under this
Agreement, the Note or the other Loan Documents or the Collateral.
5.7 Maintenance of Collateral.
Borrower will maintain and preserve the Collateral in good condition
subject to ordinary wear and tear, and in good repair and working order,
promptly repairing, replacing or rebuilding any part of the Collateral which may
be destroyed by any casualty, or become damaged, worn or dilapidated; provided
that no more than five (5%) percent of the Pay Telephones may be inoperable at
any one time and Borrower shall, within forty-eight (48) hours, replace any Pay
Telephone which becomes permanently disabled or with respect to which the
related Pay Telephone Placement
<PAGE>
Agreement is terminated, with a substitute Pay Telephone of similar or better
technology and related Pay Telephone Placement Agreement satisfactory to Lender;
provided further that Lender shall automatically be granted a first and only
perfected Lien covering such replacement Pay Telephone and Pay Telephone
Placement Agreement.
5.8 Maintenance of Principal Place of Business.
Borrower shall maintain and keep its principal place of business and
chief executive office at the address set forth at the beginning of this
Agreement, and at no other location without giving Lender at least thirty (30)
days prior written notice of any move. Borrower shall maintain and keep its
records at such address and at no other location without giving Lender at least
thirty (30) days prior written notice of any move.
5.9 Certain Agreements. Borrower shall not amend, modify or alter in
any material respect or terminate or assign any interest in the Billing and
Related Services Agreement.
5.10 Pay Telephone Placement Agreements. Not less than ninety percent
(90%) of all Pay Telephones shall at all times be subject to Pay Telephone
Placement Agreements and such agreements shall be in full force and effect
during all such times. At least: 90% of the Pay Telephone Placement Agreements
will be written agreements.
5.11 Satisfaction of Certain Obligations. In the event Borrower fails
to make any payment or do any act as herein provided (including, but not limited
to, maintaining any insurance required to be maintained under the Loan Documents
or paying all taxes in accordance with the terms hereof) or there shall be a
claim or Lien asserted or filed against the Collateral which is not discharged
within thirty (30) days, Lender may, but shall not be obligated to (and without
releasing Borrower from any obligation hereunder), make all such payments and
perform all such acts or otherwise satisfy such obligations. All sums paid by
Lender in respect thereof and all costs, fees and expenses, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto, which
are incurred by Lender on account thereof, shall bear interest at the Default
Rate, shall be payable on demand by Borrower to Lender, and shall be additional
Obligations hereunder secured by the Collateral.
5.12 Cash Flow Coverage. So long as any of the Obligations remain
outstanding, Guarantor shall maintain, on a consolidated basis, Cash Flow
Coverage in excess of 1.2. Cash Flow Coverage shall be defined as earnings
before interest, taxes, depreciation and amortization, divided by the sum of the
current portion of long term debt, including the current portion of any capital
leases, interest, dividends and capital expenditures. All such item, shall be
determined in accordance with GAAP and shall be calculated on a rolling four
quarter basis.
5.13 Further Assurances.
Borrower shall cause to be done, executed, acknowledged and delivered
all and every such further act, conveyance and assurance as Lender shall require
for accomplishing the purposes of this Agreement, the Note and the other Loan
Documents. Borrower will defend and protect its title with
<PAGE>
respect to the Collateral and will indemnify Lender with respect thereto. Any
payment in respect of such indemnity shall be made directly to Lender within ten
(10) days after written demand specifying such charges in immediately available
funds. Forthwith after notice from Lender, Borrower shall promptly, without
further consideration, execute, acknowledge and deliver such further instruments
and documents and will take such other actions as Lender may deem necessary or
advisable from time to time to ensure the enforceability or priority of the
Liens granted hereby, or otherwise to confirm and carry out the intent and
purpose of this Agreement.
ARTICLE 6. SECURITY INTEREST
6.1 Security.
As security for the full and timely payment and performance of all of
the Obligations of Borrower to Lender, Borrower hereby collaterally assigns,
pledges, transfers and sets over to Lender, and hereby agrees that Lender shall
have, and hereby grants to and creates in favor of Lender, a first security
interest under the UCC subject to no other Liens, in and to the following, in
each case whether now existing or hereafter arising, now owned or hereafter
acquired, wherever located ("Collateral"):
6.1.1 All of the Pay Telephones and the other Equipment;
6.1.2 All of the Pay Telephone Placement Agreements; and
6.1.3 All accessions and additions thereto, substitutions for,
and all replacements of, any and all of the foregoing, and all proceeds paid or
payable to Borrower with respect to the foregoing, cash and non-cash, including
insurance proceeds.
6.1.4 All of the licenses, permits and governmental
authorizations relating to the Pay Telephones and Pay Telephone Placement
Agreements, to the extent the same are assignable.
6.2 Lender Has Rights and Remedies of a Secured Party.
In addition to all rights and remedies given to Lender by this
Agreement, Lender shall have all the rights and remedies of a secured party
under the UCC.
6.3 Additional Provisions Applicable to the Collateral.
Borrower shall not affix or permit the Collateral to become affixed to
real estate, and such Collateral shall remain personal property, whether or not
so affixed.
6.4 Certain Covenants.
Borrower covenants and agrees with Lender for the benefit of Lender
that:
6.4.1 Borrower has and will have good and merchantable title
to all of the Collateral,
<PAGE>
in each case as from time to time owned or acquired by it, and shall keep the
Collateral free and clear of all Liens, other than those granted to Lender.
Borrower will defend such title against the claims and demands of all Persons
whomsoever. Borrower has and will have good title to or a leasehold or license
interest in all assets reasonably required for the conduct of its business.
6.4.2 Borrower will faithfully preserve and protect Lender's
Liens in the Collateral and will, at its own cost and expense, cause said Liens
to be perfected and continued perfected, and for such purpose Borrower will from
time to time at the request of Lender and at the expense of Borrower, make,
execute, acknowledge and deliver, and file or record, or cause to be filed or
recorded, in the proper filing places, all such instruments, documents and
notices, including without limitation financing statements and continuation
statements, as Lender may deem necessary or advisable from time to time in order
to perfect and continue perfected said security interest. Borrower will do all
such other acts and things and make, execute, acknowledge and deliver all such
other instruments and documents, including without limitation further security
agreements, pledges, endorsements, assignments and notices, as Lender reasonably
may deem necessary or advisable from time to time in order to perfect and
preserve the priority of said Liens as a first and only Lien on and security
interest in the Collateral prior to the rights of all other Persons therein or
thereto.
6.4.3 Borrower will not, without the prior written consent of
Lender, (i) borrow or permit any Person to borrow against the Collateral other
than the Loan to Borrower from Lender pursuant to this Agreement; (ii) create,
incur, assume or suffer to exist any Lien with respect to any of the Collateral
except for (x) the Lien of Lender, as provided herein, (y) liens for taxes
either not yet due or being contested by Borrower or Guarantor in good faith
with due diligence and by appropriate proceedings and (z) inchoate
materialmen's, mechanics', workmen's repairmen's and other like liens arising in
the ordinary course of business where adequate reserves are maintained therefor;
(iii) permit any levy or attachment to be made against any of the Collateral
except any levy or attachment relating to this Agreement; or (iv) permit any
financing statement to be on file with respect to any of the Collateral, except
financing statements in favor of Lender. Any Lien permitted under (ii)(y) will
be discharged or bonded prior to foreclosure and prior to the imposition of any
fire, penalty or other damage against Lender.
6.4.4 Risk of loss of, damage to or destruction of the
Collateral is and shall remain upon Borrower. Borrower will insure the
Collateral as provided in Section 5.3 of this Agreement. Lender, its officers,
employees and authorized agents and its successors and assigns, are hereby
appointed attorneys-in-fact of Borrower, for the purpose of endorsing any draft
or check which may be payable to Borrower in order to collect the proceeds of
such insurance. Such appointment is irrevocable and coupled with an interest.
The proceeds of insurance shall be applied to reduction of the Obligations in
any order Lender may choose or, in Lender's reasonable discretion, to the repair
or replacement of the Collateral, or any part thereof, in which case Lender may
impose such conditions on the disbursement of the proceeds as Lender in its sole
discretion deems appropriate.
6.4.5 Upon the occurrence and during the continuation or
existence of any Event of Default, Borrower shall promptly upon written demand
by Lender make the Pay Telephone Placement Agreements and the licenses and
permits comprising the Collateral available to Lender at the place or places to
be designated by Lender. The right of Lender to have the Pay Telephone
<PAGE>
Placement Agreements and the licenses and permits comprising the Collateral
assembled and made available to it is of the essence of this Agreement and
Lender may, at its election, enforce such right in equity for specific
performance.
6.4.6 Lender shall have no duty as to the collection or
protection of the Collateral or any part thereof or any income thereon, or as to
the preservation of any rights pertaining thereto, beyond exercising reasonable
care in the custody of any Collateral actually in the possession of Lender.
Lender shall be deemed to have exercised reasonable care in the custody and
preservation of such of the Collateral as may be in its possession if it takes
such action for that purpose as Borrower shall request in writing, provided that
such requested action shall not, in the reasonable judgment of Lender, impair
Lender's security interest in the Collateral or its rights in, or the value of,
the Collateral, and provided further that such written request is received by
Lender in sufficient time to permit it to take the requested action.
ARTICLE 7. DEFAULTS
7.1 Events of Default.
The occurrence of one or more of the following described events is an
Event of Default:
7.1.1 Borrower fails to make any payment of principal of or
interest on the Note when due, and such failure continues for a period of ten
(10) days; or
7.1.2 Borrower fails to perform or observe any other covenant
or agreement to be performed or observed by it hereunder or under the other Loan
Documents and such failure continues unremedied for a period of fifteen (l5)
days after written notice of such failure has been given by Lender pursuant to
Section 8.7 hereof; or
7.1.3 Other than as provided in Section 6.4.3, Borrower
voluntarily creates, suffers to exist, incurs or assumes any Lien, security
interest, charge or encumbrance on, or with respect to, any part of or all the
Collateral, or the Liens held by Lender in and to the Collateral shall cease to
be the first perfected Lien in and to the Collateral, or Lender shall cease to
hold a first perfected Lien covering 2500 Pay Telephones; or
7.1.4 Borrower sells, assigns, leases, or otherwise disposes
of or relinquishes possession of, any Collateral, provided that (a) Borrower may
replace any Pay Telephone which becomes permanently disabled or with respect to
which the related Pay Telephone Placement Agreement is terminated, with a
substitute Pay Telephone and Pay Telephone Placement Agreement satisfactory to
Lender in accordance with Section 5.2.4 and 5.7 and (b) Lender shall
automatically be granted a first and only perfected Lien covering such
replacement Pay Telephone; or
7.1.5 any material representation or warranty made by Borrower
or the Guarantor herein or in any other Loan Document or in any document or
certificate furnished by Borrower to Lender in connection herewith or therewith
at any time while any of the Obligations remain outstanding proves to have been
incorrect in any material respect when made; or
<PAGE>
7.1.6 this Agreement or any Loan Document at any time while
the Obligations remain outstanding and for any reason ceases to be in full force
and effect or is declared by a court or governmental agency of competent
jurisdiction to be null and void; or
7.1.7 Borrower or Guarantor breaches or defaults (after giving
effect to any notice or cure periods) under the material terms of any agreement,
instrument or document with or for the benefit of FINOVA Capital Corporation
which is not a Loan Document or under any other loan, credit facility or other
financial accommodation made by FINOVA Capital Corporation to Borrower or
Guarantor, including, without limitation, all promissory notes, guarantees,
equipment leases, security agreements, mortgages and deeds of trust; or
7.1.8 Borrower or the Guarantor is convicted under any
criminal statute or there is a judgment against Borrower or the Guarantor in a
criminal or civil proceeding pursuant to which the proceedings, penalties or
judgment include forfeiture of any of the Collateral or a material portion of
the assets of Borrower or the Guarantor and enforcement of such action is not
stayed on appeal; or
7.1.9 an event of default shall occur and be continuing with
respect to any other indebtedness or lease obligation of Borrower or Guarantor
having a principal or rental amount outstanding in excess of $500,000; or
7.1.10 the Guarantor fails to perform or observe any other
covenant or agreement to be performed or observed by it under the Loan Documents
to which they are a party and such failure continues unremedied for a period of
fifteen (15) days after written notice of such failure; or
7.1.11 there is a material adverse change in the financial
condition of Borrower, the Guarantor or the Collateral;
7.1.12 a proceeding is instituted seeking a decree or order
for relief in respect of Borrower or the Guarantor in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter in
effect or for the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of Borrower or the Guarantor,
or for any substantial part of its properties or for the dissolution, winding-up
or liquidation of its affairs or any substantial part of any of its properties
and such proceeding remains undismissed or unstayed for a period of sixty (60)
consecutive days or such court enters a decree or order granting the relief
sought in such proceeding; or
7.1.13 Borrower or the Guarantor voluntarily suspends
transaction of its business, commences a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, consents
to the entry of an order for relief in an involuntary case under any such law or
consents to the appointment of or taking possession by a receiver, liquidator,
assignee, trustee, custodian, sequestrator (or other similar official) of
Borrower or the Guarantor for any substantial part of any of its properties, or
makes a general assignment for the benefit of creditors, or takes any action in
furtherance of any of the foregoing; or
<PAGE>
7.1.14 there shall be a judgment or judgments against Borrower
or the Guarantor for any amount in excess of [$100,000] in the aggregate, which
shall remain unpaid, unstayed on appeal, undischarged, unbounded or undismissed
for a period of thirty (30) days or more; or
7.1.15 Borrower fails to perform or observe any of its
covenants or agreements contained in Section 5.3 hereof or in the letter
regarding insurance requirements delivered by Borrower in connection herewith
dated December 12, 1996 (the "Insurance Letter") or any such insurance shall at
any time cease to be in full force and effect; or
7.1.16 Borrower shall have defaulted under or otherwise
breached any of the material terms of the Billing and Related Services
Agreement.
7.2 Consequences of Event of Default.
7.2.1 If an Event of Default occurs, Lender may, by notice to
Borrower, declare the unpaid principal amount of the Note and interest accrued
thereon and all other Obligations and liabilities of Borrower hereunder or under
the Note or the Loan Documents to be immediately due and payable and the same
shall thereupon become and be immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived, and an action therefor shall immediately accrue.
7.2.2 In addition, if an Event of Default occurs, Lender shall
have all rights and remedies granted herein and in the other Loan Documents and
all rights or remedies available at law including the UCC) or equity, whether as
a secured party or otherwise (including specifically those granted by the
Uniform Commercial Code as in effect in the jurisdiction or jurisdictions where
the Collateral is located) and, except as limited by Law, all remedies of Lender
(i) shall be cumulative and concurrent; (ii) may be pursued separately,
successively or concurrently against Borrower or against all or any portion of
the Collateral, at the sole discretion of Lender; (iii) may be exercised as
often as occasion therefor shall arise, it being agreed by Borrower that the
exercise or failure to exercise any rights or remedies shall in no event be
construed as a waiver or release thereof or of any other right, remedy or
recourse; and (iv) are intended to be, and shall be, nonexclusive. To the
fullest extent permitted by applicable Law, Lender may resort to the rights,
remedies and recourses set forth herein and any other security therefor in such
order and manner as Lender may elect.
7.2.3 Without limiting any of the foregoing, Borrower agrees
that (i) Lender may, with or without notice and without legal process, enter
upon any property owned, leased or otherwise under the real or apparent control
of Borrower or any agent thereof or any other location where the Collateral may
be located and disassemble, disconnect, render unusable or repossess all or any
item of the Collateral; (ii) written notice mailed to Borrower, as provided in
this Agreement for the giving of notice, shall be reasonable if given ten (10)
days prior to (a) any public sale or (b) the date after which a private sale may
be made; (iii) a sale of the Collateral may be made as a unit or in parcels and
for cash and upon terms; and (iv) Lender may buy the Collateral at any public
sale and at any private sale as permitted by the UCC.
7.2.4 Any acceleration of the Loan as a consequence of the
occurrence of an Event
<PAGE>
of Default shall be deemed a prepayment and subject to a prepayment fee of three
(3%) percent, in addition to all other amounts otherwise due under this
Agreement and the other Loan Documents.
ARTICLE 8. MISCELLANEOUS
8.1 Indemnity.
Borrower shall indemnify, defend and hold harmless Lender from and
against, and, within ten (10) days after written demand therefor, adequately
particularizing the nature and amount thereof, reimburse Lender for, all claims,
demands, liabilities, losses, damages, judgments, penalties, costs and expenses,
including, without limitation, reasonable attorneys' fees and disbursements,
which may be imposed upon, asserted against or incurred or paid by Lender, on
account of any act performed or omitted to be performed under this Agreement,
the Note or the other Loan Documents or on account of any transaction arising
out of or in any way connected with the Collateral or this Agreement, the Note
or the other Loan Documents (including, without limitation, any litigation
matter involving claims by third parties), except as a result of the willful
misconduct or gross negligence of Lender.
8.2 No Implied Waiver: Cumulative Remedies.
No course of dealing and no delay or failure of Lender in exercising
any right, power or privilege under this Agreement, the Note or any of the other
Loan Documents shall affect such right, power or privilege except as and to the
extent that the assertion of any such right, power or privilege shall be barred
by an applicable statute of limitations; nor shall any single or partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right, power or privilege preclude any further exercise thereof or of any other
right, power or privilege. The rights and remedies of Lender under this
Agreement, the Note or the other Loan Documents are cumulative and not exclusive
of any rights or remedies which Lender would otherwise have.
8.3 Taxes.
Borrower agrees to pay or reimburse Lender for any and all stamp,
document, transfer, recording or filing taxes or fees and all similar
impositions payable or hereafter reasonably determined by Lender to be payable
in connection with this Agreement, the Note or the other Loan Documents
(including but not limited to those necessary or advisable to record or to
ensure the enforceability or priority of this Agreement, the Note or the other
Loan Documents), and any other documents, instruments or transactions pursuant
to or in connection herewith, and Borrower agrees to save Lender harmless from
and against any and all present or future claims or liabilities with respect to
or resulting from any delay in paying or omission to pay any such taxes, fees or
similar impositions.
8.4 Modifications, Amendments or Waivers.
Lender and Borrower may from time to time enter into written agreements
amending,
<PAGE>
modifying or supplementing this Agreement, the note or the other Loan Documents
or changing the rights of Lender or Borrower hereunder or thereunder, and Lender
may from time to time grant waivers or consents to a departure from the due
performance of the obligations of Borrower thereunder. Any such agreement,
waiver or consent must be in writing and shall be effective only to the extent
set forth in such writing. In the case of any such waiver or consent, any Event
of Default so waived or consented to shall be deemed to be cured and not
continuing, but no such waiver or consent shall extend to any subsequent or
other Event of Default or impair any right consequent thereto.
8.5 Holidays.
Except as otherwise provided herein, whenever any payment or action to
be made or taken hereunder or the Note or any other Loan Document shall be
stated to be due on a day which is not a Business Day, such payment or action
shall be made or taken on the next following Business Day (and such day shall be
included in the calculation of interest due), unless such next succeeding
Business Day falls in a different calendar month, in which case payment or
action shall be made or taken on the next preceding Business Day.
8.6 Notices.
8.6.1 Except as otherwise provided herein, all notices and
other communications required under the terms and provisions of this Agreement,
the Note or the other Loan Documents shall be in writing and shall become
effective when delivered by hand or received by overnight courier, telex,
facsimile, telegram or registered first class mail, postage prepaid, addressed
as follows:
If to Lender, at:
Southbridge Financial Corp.
400 Madison Avenue
New York, New York 10017
Facsimile No. 212-593-0377
Attention: Arthur Freierman
President
If to Borrower, at:
Crescent Public Communications Inc.
7 Mayflower Place
Floral Park, NY 11001
Facsimile No. 516-437-0807
Attention: Anthony M. Scalice
or at such other address as either party may, from time to time, designate in
writing to the other party hereto.
<PAGE>
8.6.2 If any notice is given by telex, facsimile transmission,
or telegram, the party giving such notice shall confirm such notice by a writing
delivered by hand or overnight courier; Provided, however, that for all purposes
hereunder, notice shall be deemed effective at the time given by telex,
telecopier or telegram.
8.7 Reimbursement for Certain Expenses.
Borrower agrees to pay or cause to be paid and to save Lender harmless
against liability for the payment of all reasonable out-of-pocket costs and
expenses, including, without limitation, all reasonable counsel fees and costs,
incurred by Lender from time to time (i) arising in connection with the
negotiation, execution, delivery, and recordation of this Agreement, the Note
and the other Loan Documents, and the transactions contemplated hereby and
thereby and all recording or filing fees, (ii) relating to any requested
amendments, waivers or consents to or in connection with this Agreement, the
Note or any other Loan Document, (iii) arising in connection with Lender's
enforcement or preservation of rights under this Agreement, the Note or any
other Loan Document, including but not limited to such expenses as may be
incurred by Lender in the collection of the Note, and (iv) any other matters
relating to the Loan, Loan Documents, the Collateral or Borrower.
8.8 Governing Law.
THIS AGREEMENT, THE NOTE, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
8.9 Personal Jurisdiction and Service of Process.
BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING
AGAINST BORROWER UNDER, ARISING OUT OF, OR IN ANY MANNER RELATING TO THIS
AGREEMENT, THE NOTE OR THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN ANY STATE
COURT OF THE STATE OF NEW YORK LOCATED IN NEW YORK COUNTY OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK. BORROWER, BY ITS
EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY CONSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDING. BORROWER FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING BORROWER
MAY BRING, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT OR THE
OTHER LOAN DOCUMENTS, SHALL ONLY BE BROUGHT IN ANY STATE COURT OF THE STATE OF
NEW YORK LOCATED IN NEW YORK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK. BORROWER ALSO IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH
ACTION OR PROCEEDING BY DELIVERY THEREOF TO BORROWER IN THE
<PAGE>
MANNER PROVIDED FOR NOTICES IN THIS AGREEMENT. BORROWER HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED
ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS OR ANY SIMILAR BASIS. BORROWER SHALL NOT BE ENTITLED IN ANY SUCH
ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF
ANY STATE OTHER THAN THE STATE OF NEW YORK, UNLESS SUCH DEFENSE IS ALSO GIVEN OR
ALLOWED BY THE LAWS OF THE STATE OF NEW YORK. NOTHING HEREIN SHALL AFFECT OR
IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF LENDER TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTION OR
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
8.10 Waiver of Jury Trial.
BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY AGREEMENT, INSTRUMENT OR
DOCUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH OR THEREWITH, INCLUDING
THE LOAN DOCUMENTS.
8.11 Severability.
The provisions of this Agreement, the Note and any other Loan Document are
intended to be severable. If any such provision is held invalid or unenforceable
in whole or in part in any jurisdiction, such provision shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
8.12 Prior Understandings.
This Agreement and the other Loan Documents supersede all prior
understandings and agreements, whether written or oral, between the parties
hereto relating to the transactions provided for herein or therein.
8.13 Survival.
All representations and warranties of Borrower contained in this
Agreement or any other Loan Document or made in writing in connection herewith
or therewith shall survive the execution and delivery of this Agreement, the
Note and the other Loan Documents, any investigation or inspection by Lender,
the making of the Loan hereunder, the payment of the Note or the expiration of
this Agreement. All covenants and agreements of Borrower contained herein shall
continue in full force until payment in full of the Obligations. Borrower's
obligation to pay the principal of and interest on the Note and all such other
amounts shall be absolute and unconditional under any and all circumstances .
<PAGE>
8.14 Successors and Assigns.
This Agreement shall be binding upon and shall inure to the benefit of
Lender and Borrower and their respective successors and permitted assigns,
except that Borrower may not assign, delegate or transfer any of its rights or
obligations hereunder or any interest herein other than to Guarantor without the
written consent of Lender which Lender may withhold in its absolute discretion.
Any actual or attempted assignment by Borrower without Lender's consent shall be
null, void and of no effect whatsoever. Lender may assign or otherwise transfer
any or all of its rights, title and interests hereunder and under the Note and
the other Loan Documents in whole or in part. If Lender makes, such an
assignment, the assignee shall have all of the rights of the Lender and Borrower
shall not assert against the assignee any defense, counterclaims or setoff which
Borrower may have against Lender (although any claim Borrower might have against
the original Lender shall be preserved and may be separately pursued against
such Lender). Upon Lender giving notice to Borrower of any such assignment
Borrower shall promptly acknowledge its obligations hereunder to such assignee,
and shall comply with all written directions or demands of such assignee and
shall make all payments and perform all Obligations due hereunder as such
assignee may direct in writing and as otherwise provided herein. Borrower hereby
acknowledges that it has received written notice from Lender that Lender has
assigned all of its right, title and interest in and to the Loan Documents and
the Collateral to FINOVA Capital Corporation ("FINOVA") and FINOVA is entitled
to all of the rights and remedies hereunder of an assignee. Except to the extent
otherwise required by its context, the word "Lender" where used in this
Agreement shall mean and include the holder of the Note originally issued to
Lender, and the holder of such Note shall be bound by and have the benefits of
this Agreement to the same extent as if such holder had been a signatory hereto.
As used in this Section 8.14, "assign" shall be deemed to include a pledge, sale
of, or grant of a mortgage on, or a security interest in, any of the Collateral
or this Agreement or the other Loan Documents by Lender and the term "assignee"
shall be deemed to refer to the recipient of such pledge, sale, mortgage or
security interest.
8.15 Counterparts.
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts each of which, when so
executed and delivered by the parties, constituting an original but all such
counterparts together constituting but one and the same instrument.
8.16 Publicity.
Lender is hereby authorized to issue appropriate press releases and to
cause a tombstone to be published announcing the consummation of the
transactions contemplated in this Agreement, including the aggregate amount of
the Loan.
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed and delivered this Agreement effective as of the
day and year first above written.
<PAGE>
CRESCENT PUBLIC COMMUNICATIONS INC.,
a New York Corporation
By: /s/
Name: Peter M. Izzo, Jr.
Title: Chief Executive Officer
Federal Tax Identification No. 11-3292635
SOUTHBRIDGE FINANCIAL CORP.
By: /s/
Name: Arthur P. Freierman
Title: President
<PAGE>
STOCK EXCHANGE AGREEMENT dated as of January 7, 1997 (the
"Agreement") by and between AMNEX, INC., a New York corporation ("AMNEX"), and
FRANCESCO GALESI ("Galesi").
Upon the terms and conditions hereinafter set forth, Galesi
desires to transfer to AMNEX, and AMNEX desires to acquire from Galesi, shares
of Common Stock of Galesi Telecom International, Inc., a New York corporation
("GTI"), representing ten percent (10%) of the issued and outstanding capital
stock of GTI, in exchange for shares of Series L Preferred Stock of AMNEX.
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
EXCHANGE OF STOCK
1.1 Exchange of Stock. Simultaneously herewith, (a) Galesi is delivering to
AMNEX a certificate representing ten (10) shares (the "GTI Shares") of Common
Stock, par value $.01 per share, of GTI (the "GTI Common Stock"), duly endorsed
to AMNEX and (b) AMNEX is delivering to Galesi a certificate representing one
hundred thousand (100,000) shares of Series L Preferred Stock, par value $.001
per share, of AMNEX (the "Series L Preferred Stock") having the rights,
preferences and limitations set forth in AMNEX's Certificate of Amendment of
Certificate of Incorporation with regard thereto (the "Preferred Stock
Certificate of Amendment"), including, without limitation, the right and
obligation to convert each share of Series L Preferred Stock into fifteen (15)
shares of Common Stock, par value $.001 per share, of the Company (the "AMNEX
Common Stock") in the event of the filing by AMNEX with the Secretary of State
of New York of the Increased Authorized Capital Certificate of Amendment (as
hereinafter defined), as provided for in Section 6.1 hereof.
1.2 Warrants. In consideration of the foregoing, simultaneously herewith,
AMNEX is executing and delivering to Galesi a warrant (the "Warrant") for the
purchase of the following: (a) prior to the filing of the Increased Authorized
Capital Certificate of Amendment with the Secretary of State of New York, one
hundred thousand
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(100,000) shares of Series L Preferred Stock (the "Warrant Preferred Stock") at
an exercise price of forty-five dollars and forty-five cents ($45.45) per share
of Warrant Preferred Stock and (b) on or after the filing of the Increased
Authorized Capital Certificate of Amendment with the Secretary of State of New
York, one million five hundred thousand (1,500,000) shares of AMNEX Common Stock
(the "Warrant Common Stock" and collectively with the Warrant Preferred Stock,
the "Warrant Stock") at an exercise price of three dollars and three
cents($3.03) per share of Warrant Common Stock (the Warrant being exchangeable
for the Warrant Stock under certain circumstances as set forth therein).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF AMNEX
AMNEX makes the following representations and warranties to
Galesi:
2.1 Valid Corporate Existence. AMNEX is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York. AMNEX has
the requisite corporate power to carry on its business as now conducted and to
own its assets. AMNEX is qualified to do business as a foreign corporation in
each jurisdiction in which it is required to be so qualified, except where the
failure to be so qualified would not have a material adverse effect on AMNEX and
the AMNEX Subsidiaries (as hereinafter defined) taken as a whole. The copies of
AMNEX's Restated Certificate of Incorporation and By-laws, each as amended to
date, which have heretofore been delivered to Galesi, are true and complete
copies of such documents as now in effect.
2.2 Capitalization.
(a) The authorized capital stock of AMNEX consists of
40,000,000 shares of Common Stock, of which 27,045,964 shares are issued and
outstanding, and 5,000,000 shares of Preferred Stock, of which 72,450 shares of
Series B Preferred Stock, 1,413,337 shares of Series D Preferred Stock,
1,035,000 shares of Series E Preferred Stock, 415,250 shares of Series F
Preferred Stock and 66,250 shares of Series G Preferred Stock are issued and
outstanding. All the issued and outstanding shares of AMNEX Common Stock and
Preferred Stock have been validly issued and fully paid and are nonassessable,
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subject to the provisions of Section 630 of the Business Corporation Law
of the State of New York ("Section 630").
(b) The Series L Preferred Stock and the Warrant Preferred
Stock have been duly and validly authorized and, when issued and delivered (upon
payment in full of the exercise price in accordance with the terms of the
Warrant, with respect to the Warrant Preferred Stock), will be duly and validly
issued, fully paid and nonassessable, subject to Section 630. Subject to the
filing of the Increased Authorized Capital Certificate of Amendment, as
contemplated by Section 6.1 hereof, the shares of Common Stock issuable upon
conversion of the Series L Preferred Stock or the Warrant Preferred Stock (the
"Conversion Stock") have been duly and validly authorized and, upon conversion
in accordance with the terms of the Preferred Stock Certificate of Amendment,
will be duly and validly issued, fully paid and nonassessable, subject to
Section 630. Subject to the filing of the Increased Authorized Capital
Certificate of Amendment, the Warrant Common Stock has been duly and validly
authorized and, when issued upon payment in full of the exercise price in
accordance with the terms of the Warrant, will be duly and validly issued, fully
paid and nonassessable, subject to Section 630.
(c) Except as set forth in Schedule 2.2 attached hereto, there
are no commitments to which AMNEX is a party, or by which it is bound, calling
for the issuance, sale or other disposition of any class of securities of AMNEX
and there are no outstanding securities of AMNEX convertible into or
exchangeable for shares of AMNEX Common Stock or any other securities of AMNEX.
2.3 Subsidiaries. Schedule 2.3 attached hereto sets forth a complete list of the
names and jurisdictions of incorporation of all corporations and other business
entities owned by AMNEX (collectively, the "AMNEX Subsidiaries"). Each of the
AMNEX Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power to carry on its business as now conducted and to own
its assets. Each AMNEX Subsidiary is qualified to do business as a foreign
corporation in each jurisdiction in which it is required to be so qualified,
except where the failure to be so qualified would not have a material adverse
effect on AMNEX and the AMNEX Subsidiaries taken as a whole. Except as set forth
on Schedule 2.3, all the outstanding capital stock or other voting interests of
each of the AMNEX Subsidiaries is owned by AMNEX.
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2.4 Consents. Except for the requisite approval by AMNEX's stockholders of the
Increased Authorized Capital Certificate of Amendment, no filings with or
consents of governmental or other regulatory agencies, foreign or domestic, or
of other parties are required to be made or received by or on the part of AMNEX
to enable it to enter into and carry out this Agreement and the transactions
contemplated hereby.
2.5 Authority; Binding Nature of Agreement. AMNEX has the requisite corporate
power to enter into this Agreement and to carry out its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of AMNEX and, except for the approval of the Increased Authorized
Capital Certificate of Amendment by the stockholders of AMNEX, no other
corporate proceedings on the part of AMNEX, including, without limitation,
stockholder approval, are necessary to authorize the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby.
This Agreement constitutes the valid and binding obligation of AMNEX and is
enforceable against AMNEX in accordance with its terms.
2.6 Financial Statements. The unaudited financial statements of AMNEX at
September 30, 1996 and for the nine month period then ended, copies of which are
included in AMNEX's Form 10-Q for the period ended September 30, 1996, (a) are
true, correct and com plete, (b) are in accordance with the books and records of
AMNEX, (c) fairly present the financial position of AMNEX as of such date and
the results of its operations for such period, and (d) were prepared in
conformity with generally accepted accounting prin ciples, subject to normal
year-end audit adjustments which were not and will not be material in nature.
2.7 Liabilities. As of September 30, 1996 (the "AMNEX Balance Sheet Date"),
AMNEX had no material debts, liabilities or obligations, contingent or absolute,
inchoate or otherwise, other than those debts, liabilities and obligations
reflected, referred to or reserved against in AMNEX's balance sheet at the AMNEX
Balance Sheet Date or the footnotes thereto.
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2.8 Adverse Developments. Since the AMNEX Balance Sheet Date, there have been no
material adverse changes in the assets, operations or financial condition of
AMNEX and the AMNEX Subsidiaries taken as a whole, there has been no act or
omission on the part of AMNEX, any AMNEX Subsidiary or others which would form
the basis for the assertion against AMNEX or any AMNEX Subsidiary of any
liability or obligation that would be material to AMNEX and the AMNEX
Subsidiaries taken as a whole, no other event has occurred which could be
reasonably expected to have a materially adverse effect upon the business of
AMNEX and the AMNEX Subsidiaries taken as a whole and, except as described in
the SEC Reports (as hereinafter defined), AMNEX does not know of any development
or threatened development of a nature which could be reasonably expected to have
a materially adverse effect upon the business of AMNEX and the AMNEX
Subsidiaries taken as a whole or upon any of their assets, properties,
operations or financial condition.
2.9 Litigation; Compliance with Law. Except as set forth in Schedule 2.9
attached hereto, there are no actions, suits, proceedings or governmental
investigations relating to AMNEX or any AMNEX Subsidiary or any of their
respective properties, assets or business pending or, to the knowledge of AMNEX,
threatened, or any order, judgment, injunction, award or decree outstanding,
against AMNEX or any AMNEX Subsidiary or against or relating to any of their
respective properties, assets or business which would have a material adverse
effect on AMNEX and the AMNEX Subsidiaries taken as a whole; and, to the
knowledge of AMNEX, there has been no act or occurrence which would reasonably
be deemed to establish a basis for any such action, suit, proceeding,
governmental investigation, order, injunction or decree which would have a
material adverse effect on AMNEX and the AMNEX Subsidiaries taken as a whole.
Except as set forth in Schedule 2.9, neither AMNEX nor any AMNEX Subsidiary is
in violation of any law, regulation, ordinance, order, injunction, decree,
award, or other requirement of any governmental or other regulatory body, court
or arbitrator relating to their respective properties, assets or business, the
violation of which would have a material adverse effect on AMNEX and the AMNEX
Subsidiaries taken as a whole.
2.10 Permits and Licenses. AMNEX and the AMNEX Subsidiaries have all permits,
licenses, orders, franchises and approvals (collectively, "Permits") from all
Federal, state, local and foreign governmental and other regulatory bodies
(collectively, "Bodies") required to carry on their respective businesses as
presently conducted and to offer and sell their respective products and services
in all material respects; all such Permits are in full force and effect, and,
to the knowledge of AMNEX, no suspension or cancellation of any of such Permits
is threatened; and AMNEX and the AMNEX Subsidiaries are in compliance in all
material respects with all requirements, standards and procedures of the Bodies
which have issued such Permits.
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<PAGE>
2.11 No Breach. Neither the execution and delivery of this Agreement nor
compliance by AMNEX with any of the provisions hereof nor the consummation of
the transactions contemplated hereby will:
(a) violate or conflict with any provision of the
Restated Certificate of Incorporation or By-laws, each as amended
to date, of AMNEX;
(b) violate or result in the breach of the terms of any
agreement to which AMNEX or any AMNEX Subsidiary is a party or by which any of
them is bound, the violation or breach of which would have a material adverse
effect on AMNEX and the AMNEX Subsidiaries taken as a whole;
(c) violate any judgment, order, injunction, decree or
award against, or binding upon, AMNEX or any AMNEX Subsidiary;
(d) violate any law or regulation of any jurisdiction relating
to AMNEX or any AMNEX Subsidiary, the violation of which would have a material
adverse effect on AMNEX and the AMNEX Subsidiaries taken as a whole;
(e) result in the creation of any security interest or other
encumbrance upon any of the properties or assets of AMNEX or any AMNEX
Subsidiary, the creation of which would have a material adverse effect upon
AMNEX and the AMNEX Subsidiaries taken as a whole;
(f) result in a reduction in the exercise price of any rights,
options or warrants for the purchase of, or a reduction in the conversion or
exchange price of any convertible or exchangeable securities for the acquisition
of, shares of AMNEX Common Stock; or
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<PAGE>
(g) result in the issuance of any additional shares of AMNEX
Common Stock pursuant to any (i) rights, options or warrants, (ii) convertible
or exchangeable securities or (iii) preemptive or other similar rights.
2.12 Brokers. AMNEX has not engaged, consented to, or authorized any broker,
finder, investment banker or other third party to act on its behalf, directly or
indirectly, as a broker or finder in connection with the transactions
contemplated by this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GALESI
Galesi makes the following representations and warranties to
AMNEX with respect to itself and to GTI:
3.1 Valid Corporate Existence. GTI is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York. GTI has
the requisite corporate power to carry on its business as now conducted and to
own its assets. GTI is qualified to do business as a foreign corporation in each
jurisdiction in which it is required to be so qualified, except where the
failure to be so qualified would not have a material adverse effect on GTI and
the GTI Subsidiaries (as hereinafter defined), taken as a whole. The copies of
GTI's Certificate of Incorporation and By-laws, each as amended to date, which
have heretofore been delivered to AMNEX, are true and complete copies of such
documents as now in effect.
3.2 Capitalization.
(a) The authorized capital stock of GTI consists of 10,000
shares of Common Stock, of which 100 shares are issued and outstanding (92 of
which are owned of record and beneficially by Galesi). All the issued and
outstanding shares of GTI Common Stock have been validly issued and fully paid
and are nonassessable, subject to the provisions of Section 630.
(b) Except as set forth in Schedule 3.2 attached hereto, there
are no commitments to which GTI is a party, or by which it is bound, calling for
the issuance, sale or other disposition of any class of securities of GTI and
there are no outstanding securities of GTI convertible into or exchangeable for
shares of GTI Common Stock or any other securities of GTI.
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3.3 Subsidiaries. Schedule 3.3 attached hereto sets forth a complete list of the
names and jurisdictions of incorporation of all corporations and other business
entities owned by GTI (collectively, the "GTI Subsidiaries"). Each of the GTI
Subsidiaries is a corporation or similar entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation and has the requisite corporate or similar power to carry on its
business as now conducted and to own its assets. Each GTI Subsidiary is
qualified to do business as a foreign corporation or similar entity in each
jurisdiction in which it is required to be so qualified, except where the
failure to be so qualified would not have a material adverse effect on GTI and
the GTI Subsidiaries taken as a whole. Except as set forth on Schedule 3.3, all
the outstanding capital stock or other voting interests of each of the GTI
Subsidiaries is owned by GTI.
3.4 Consents. No filings with or consents of governmental or other regulatory
agencies, foreign or domestic, or of other parties are required to be made or
received by or on the part of Galesi or GTI to enable Galesi to enter into and
carry out this Agreement and the transactions contemplated hereby.
3.5 Authority; Binding Nature of Agreement. Galesi and GTI have the requisite
power to enter into this Agreement and to carry out their respective obligations
hereunder. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by the Board of
Directors of GTI and no other corporate proceedings on the part of GTI,
including, without limitation, stockholder approval, are necessary to authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement constitutes the valid and
binding obligation of Galesi and GTI and is enforceable in accordance with its
terms.
3.6 Financial Statements. The unaudited financial statements of GTI at August
31, 1996 and for the eight month period then ended, and the unaudited
consolidated balance sheet as of October 31, 1996 of Telit (as hereinafter
defined), copies of which are attached hereto as Schedule 3.6, (a) are true,
correct and complete, (b) are in accordance with the books and records of GTI,
(c) fairly present the financial position of GTI as of such date and the
results of its operations for such period, and (d) except as noted in Schedule
3.6, were prepared in conformity with generally accepted accounting principles,
subject to normal year-end audit adjustments which were not and will not be
material in nature.
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3.7 Liabilities. As of August 31, 1996 (the "GTI Balance Sheet Date"), GTI had
no material debts, liabilities or obligations, contingent or absolute, inchoate
or otherwise, other than those debts, liabilities and obligations reflected,
referred to or reserved against in GTI's balance sheet at the GTI Balance Sheet
Date or the footnotes thereto.
3.8 Adverse Developments. Since the GTI Balance Sheet Date, there have been no
material adverse changes in the assets, operations or financial condition of GTI
and the GTI Subsidiaries taken as a whole, there has been no act or omission on
the part of GTI any GTI Subsidiary or others which would form the basis for the
assertion against GTI or any GTI Subsidiary of any liability or obligation that
would be material to GTI and the GTI Subsidiaries taken as a whole, no other
event has occurred which could be reasonably expected to have a materially
adverse effect upon the business of GTI and the GTI Subsidiaries taken as a
whole, GTI does not know of any development or threatened development of a
nature which could be reasonably expected to have a materially adverse effect
upon the business of GTI and the GTI Subsidiaries taken as a whole or upon any
of their assets, properties, operations or financial condition.
3.9 Litigation; Compliance with Law. Except as set forth in Schedule 3.9
attached hereto, there are no actions, suits, proceedings or governmental
investigations relating to GTI or any GTI Subsidiary or any of their respective
properties, assets or business pending or, to the knowledge of GTI threatened,
or any order, judgment, injunction, award or decree outstanding, against GTI or
any GTI Subsidiary or against or relating to any of their respective properties,
assets or business which would have a material adverse effect on GTI and the GTI
Subsidiaries taken as a whole; and, to the knowledge of GTI, there has been no
act or occurrence which would reasonably be deemed to establish a basis for any
such action, suit, proceeding, governmental investigation, order, injunction or
decree which would have a material adverse effect on GTI and the GTI
Subsidiaries taken as a whole. Except as set forth in Schedule 3.9, neither GTI
nor any GTI Subsidiary is in violation of any law, regulation, ordinance,
order, injunction, decree, award, or other requirement of any governmental
or other regulatory body, court or arbitrator relating to their respective
properties, assets or business, the violation of which would have a material
adverse effect on GTI and the GTI Subsidiaries taken as a whole.
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3.10 Permits and Licenses. GTI and the GTI Subsidiaries have all Permits from
all Bodies required to carry on their respective businesses as presently
conducted and as contemplated to be conducted as set forth in the Business Plan
(as hereinafter defined) and to offer and sell their respective products and
services in all material respects; all such Permits are in full force and
effect, and, to the knowledge of GTI, no suspension or cancellation of any of
such Permits is threatened; and GTI and the GTI Subsidiaries are in compliance
in all material respects with all requirements, standards and procedures of the
Bodies which have issued such Permits.
3.11 No Breach. Neither the execution and delivery of this Agreement nor
compliance by Galesi or GTI with any of the provisions hereof nor the
consummation of the transactions contemplated hereby will:
(a) violate or conflict with any provision of the
Certificate of Incorporation or By-laws, each as amended to date,
of GTI;
(b) violate or result in the breach of the terms of any
material agreement to which Galesi, GTI or any GTI Subsidiary is a party or by
which any of them is bound, the violation or breach of which would have a
material adverse effect on GTI and the GTI Subsidiaries taken as a whole;
(c) violate any judgment, order, injunction, decree or
award against, or binding upon, GTI or any GTI Subsidiary;
(d) violate any law or regulation of any jurisdiction
relating to GTI or any GTI Subsidiary, the violation of which would have a
material adverse effect on GTI and the GTI Subsidiaries taken as a whole;
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(e) result in the creation of any security interest or other
encumbrance upon any of the properties or assets of GTI or any GTI Subsidiary,
the creation of which would have a material adverse effect upon GTI and the GTI
Subsidiaries taken as a whole;
(f) result in a reduction in the exercise price of any rights,
options or warrants for the purchase of, or a reduction in the conversion or
exchange price of any convertible or exchangeable securities for the acquisition
of, shares of GTI Common Stock; or
(g) result in the issuance of any additional shares of GTI
Common Stock pursuant to any (i) rights, options or warrants, (ii) convertible
or exchangeable securities or (iii) preemptive or other similar rights.
3.12 Brokers. Neither Galesi nor GTI has engaged, consented to, or authorized
any broker, finder, investment banker or other third party to act on its behalf,
directly or indirectly, as a broker or finder in connection with the
transactions contemplated by this Agreement.
3.13 Title to Shares. Galesi owns outright the GTI Shares, free and clear of any
and all security interests, liens, encumbrances, pledges, claims and rights of
any third party.
3.14 Business Plan. The statements contained in GTI's Business Plan, dated
November 30, 1996 (the Business Plan"), a copy of which is attached hereto as
Schedule 3.14, are true and complete in all material respects.
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ARTICLE IV
ACQUISITION OF SECURITIES
Galesi makes the following representations and warranties to
AMNEX:
4.1 Investment Representations.
(a) Galesi is acquiring the Series L Preferred Stock and the
Warrants and, in the event of a conversion of the Series L Preferred Stock
and/or an exercise of the Warrants, will be acquiring the Conversion Stock and
the Warrant Stock (the Series L Preferred Stock, Warrants, Conversion Stock and
Warrant Stock being collectively referred to as the "Securities"), for his own
account, for investment and not with a view to the resale or distribution
thereof within the meaning of the Securities Act of 1933, as amended (the
"Securities Act"). Galesi further represents and warrants that he shall not
sell, assign, encumber, or otherwise dispose of any of the foregoing securities
unless (i) a registration statement under the Securities Act with respect
thereto is in effect and the prospectus included therein meets the requirements
of Section 10 of the Securities Act, or (ii) AMNEX has received a written
opinion from its counsel that, after an investigation of the relevant facts,
such counsel is of the opinion that such proposed sale, assignment, transfer,
encumbrance or disposition does not require registration under the Securities
Act. Galesi acknowledges and agrees that the stock certificate(s) evidencing
ownership of the Securities which he receives shall bear the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state. These securities have been acquired for
investment and not for distribution or resale. They may not be sold,
assigned, mortgaged, pledged, hypothecated or otherwise transferred or
disposed of without an effective registration statement for such
securities under such Act and any applicable state securities laws
covering such securities, or an opinion of counsel to AMNEX that such
registration is not required."
(b) Galesi understands that none of the Securities have been
registered under the Securities Act or any state securities laws and, except as
provided for in Article V hereof, there is no agreement on the part of AMNEX to
register any of the Securities thereunder.
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(c) It is understood and agreed that the Securities are not
being registered under the Securities Act due to AMNEX's reliance upon Section
4(2) thereof, which section provides an exemption from registration for certain
transactions by an issuer not involving any public offering, and Galesi further
acknowledges that AMNEX's reliance thereon is predicated on his representations
and warranties contained in this Agreement.
4.2 Additional Representations.
(a) Galesi is able to bear the economic risks of an investment
in each of the Securities, including, without limitation, the risk of the loss
of part or all of his investment and the inability to sell or transfer the
Securities until such Securities are registered under the Securities Act or an
exemption from registration is available; subject, however, to AMNEX's
obligations with regard to the registration of the Conversion Stock and the
Warrant Stock under the Securities Act in accordance with Article V hereof.
(b) Galesi is an "accredited investor", as such term is
defined in Rule 501(a), promulgated under the Securities Act, or he, alone or
with his purchaser representative, if any, has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of an investment in each of the Securities. Galesi will execute and
deliver to AMNEX such documents as AMNEX may reasonably request in order to
confirm the accuracy of the foregoing. Galesi acknowledges that the acquisition
of the Securities may entail significant risks.
(c) Galesi has reviewed AMNEX's Annual Report on Form 10-K for
the year ended December 31, 1995, Forms 10-Q for the fiscal periods ended March
31, 1996, June 30, 1996 and September 30, 1996 and Forms 8-K for events dated
October 4, 1995, June 28, 1996 and November 20, 1996, each as amended
(collectively, the "SEC Reports"), and has been afforded the opportunity to
obtain such other information as Galesi requested from AMNEX in order to
evaluate the merits and risks of an investment in each of the Securities.
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ARTICLE V
REGISTRATION OBLIGATION
5.1 Registration Obligation. AMNEX agrees that, commencing no earlier than the
540th day but no later than the 630th day after the date of this Agreement,
AMNEX shall file with the Securities and Exchange Commission (the "Commission")
a registration statement under the Securities Act on Form S-3 (or, should Form
S-3 be unavailable to AMNEX, on another appropriate form) registering all of the
Conversion Stock and the Warrant Common Stock or, if the Increased Authorized
Capital Certificate of Amendment shall not have theretofore been filed with the
Secretary of State of New York, then all of the Series L Preferred Stock and
Warrant Preferred Stock (the Conversion Stock, Warrant Common Stock, Series L
Preferred Stock and Warrant Preferred Stock collectively referred to as the
"Registration Stock") under the Securities Act, and thereafter, AMNEX will use
its best efforts to (i) cause the Registration Stock to be registered, and (ii)
cause such registration statement to remain effective in order to permit the
resale to the public of the Registration Stock for a period of 180 days from the
effective date thereof.
5.2 Obligations of AMNEX. As to the registration statement referred to in
Section 5.1, AMNEX shall:
(a) prepare and file with the Commission a registration
statement on an appropriate form with respect to the Registration Stock and use
its best efforts to have such registration statement declared effective within
sixty (60) days after filing with the Commission;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
current for a period of not less than 180 days and to comply with the provisions
of Securities Act with respect to the disposition of all shares covered by such
registration statement, including such amendments and supplements as may be
necessary to reflect the intended method of disposition from time to time of the
prospective seller or sellers of Registration Stock (individually, the "Selling
Stockholder" and collectively, the "Selling Stockholders");
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(c) furnish to each Selling Stockholder such reasonable number
of copies of any prospectus (including any supplemental or preliminary
prospectus), in conformity with the requirements of the Securities Act, and such
other documents as such Selling Stockholder may reasonably request in order to
effect the offering and sale of the Registration Stock being offered and sold by
such Selling Stockholder, but only while AMNEX is required under the provisions
hereof to use its best efforts to cause the registration statement to remain
current;
(d) use its best efforts to register or qualify, not later
than the effective date of such registration statement, the Registration Stock
registered thereunder under the "blue sky" or other applicable laws of such
jurisdictions as each prospective Selling Stockholder may reasonably request, to
enable such Selling Stockholder to consummate (upon the registration statement
being declared effective by the Commission) the public sale or other disposition
in such jurisdictions of the Registration Stock owned by such Selling
Stockholder; provided, however, that in no event shall AMNEX be obligated to
qualify as a foreign corporation or as a dealer in securities or to execute or
file any general consent to service of process under the laws of any such state
where it is not at such time so qualified or subject;
(e) notify Galesi, and any other holders of shares of
Registration Stock, and confirm such notice in writing, (i) when a prospectus or
any prospectus supplement or post-effective amendment has been filed and, with
respect to a registration statement or any post-effective amendment, when the
same has become effective under the Securities Act and each applicable state
law, (ii) of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to a registration statement
or related prospectus or for additional information, (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of a registration
statement or the initiation of any proceedings for that purpose, (iv) of the
receipt by AMNEX of any notification with respect to the suspension of the
qualification or exemption from qualification of any of the Registration Stock
for sale in any jurisdiction or the initiation or threatening of any proceeding
for such purpose, (v) of the happening of any event which makes any statement
made in such registration statement or related prospectus or any document
incorporated or deemed to be incorporated therein by reference
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untrue in any material respect or that requires the making of any changes in
such registration statement, prospectus or documents so that, in the case of the
registration statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of AMNEX's reasonable determination that a
post-effective amendment to a registration amendment would be appropriate;
(f) use its commercially reasonable best efforts to obtain the
withdrawal of any order suspending the effectiveness of a registration
statement, or the lifting of any suspension of the qualification (or exemption
from qualification) of any of the Registration Stock for sale in any
jurisdiction, at the earliest practicable moment;
(g) use its commercially reasonable best efforts to cause such
Registration Stock to be registered with or approved by such other governmental
agencies or authorities as may be necessary by virtue of the business and
operations of AMNEX so as to permit Galesi to be able to freely sell, pledge or
dispose of such shares, subject to applicable restrictions relating to the fact
that Galesi is or may be an affiliate of AMNEX;
(h) use its commercially reasonable best efforts to cause all
such Registration Stock to be listed on each securities exchange on which
similar securities issued by AMNEX are then listed or quoted and on any
inter-dealer quotation system on which similar securities issued by AMNEX are
then quoted; and
(i) cooperate in any filings to be made with the
National Association of Securities Dealers, Inc.
5.3 Expenses. Except as provided below, the expenses of the registration
statement pursuant to Section 5.1, and the state qualifications related thereto
pursuant to Section 5.2(d), shall be borne by AMNEX. The expenses of any such
registration and qualifications shall include, but not be limited to (a) AMNEX's
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internal expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties); (b) to the
extent not already incurred, the fees and expenses incurred in connection with
the listing on an exchange or inter-dealer quotation system of the Registration
Stock; (c) all registration and filing fees (including, without limitation, with
respect to filings to be made with the National Association of Securities
Dealers, Inc.); (d) fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel in connection with
blue sky qualifications of the Registration Stock); (e) printing expenses and
engraving expenses; (f) fees and disbursements of counsel to AMNEX and customary
fees and expenses for independent certified public accountants retained by
AMNEX; (g) the reasonable fees and expenses of any special experts retained by
AMNEX. However, under no circumstances shall AMNEX be liable or responsible for
the fees and expenses of any Selling Stockholder, or of its counsel, incurred in
connection with any registration or for underwriting or brokerage discounts and
commissions or transfer taxes payable in connection with any sale of the
Registration Stock included in a registration statement.
5.4 Indemnification.
(a) To the extent permitted by law, AMNEX will indemnify
Galesi and each other holder of Registration Stock and each underwriter and
selling broker of the securities so registered and each of their respective
successors (collectively, "Indemnitees") against all expenses, claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances in which
they were made, or any violation by AMNEX of any rule or regulation promulgated
under the Securities Act and/or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), applicable to AMNEX and relating to action or inaction
required of AMNEX in connection with any such registration, qualification or
compliance, and will reimburse each such Indemnitee for any legal and any other
expenses
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reasonably incurred in connection with investigating, defending and/or settling
any such expense, claim, loss, damage, liability or action; provided, however,
that AMNEX will not be liable in any such case to any Indemnitee to the extent
that any such expense, claim, loss, damage or liability is caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity with written information furnished to AMNEX by an instrument duly
executed by such Indemnitee and stated to be specifically for use therein and
except that the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement (or alleged untrue statement)
or omission (or alleged omission) made in the preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the Commission at
the time the registration statement becomes effective or in the amended
prospectus filed with the Commission pursuant to Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of an
underwriter, or an Indemnitee if there is no underwriter, if a copy of the Final
Prospectus was not furnished to the person or entity asserting the loss,
liability, claim or damage by such underwriter or Indemnitee at or prior to the
time such furnishing is required by the Securities Act; provided further, that
this indemnity shall not be deemed to relieve any underwriter of any of its due
diligence obligations; and provided further, that the indemnity agreement
contained in this section shall not apply to amounts paid in settlement of any
such claim, loss, damage, liability or action if such settlement is effected
without the consent of AMNEX, which consent shall not be unreasonably withheld.
(b) To the extent permitted by law, Galesi will indemnify
AMNEX and its officers and directors and each person, if any, who controls AMNEX
within the meaning of Section 15 of the Securities Act and their respective
successors against all claims, losses, damages and liabilities or actions in
respect thereof arising out of or based on violation of any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document incident to any registration, qualification
or compliance (or in any related registration statement, notification or the
like) or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances in which they were made and will
reimburse AMNEX and each other person indemnified
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pursuant to this paragraph (b) for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action; provided, however, that this paragraph (b) shall
apply only if (and only to the extent that) such statement or omission was made
in reliance upon and in conformity with written information (including, without
limitation, written negative responses to inquiries) furnished to AMNEX by an
instrument duly executed by Galesi and stated to be specifically for use in such
prospectus, offering circular or other document (or related registration
statement, notification or the like) or any amendment or supplement thereto;
provided further, that the indemnity agreement contained in this paragraph (b)
shall not apply to amounts paid in settlement of any such claim, loss, damage,
liability or action if such settlement is effected without the consent of
Galesi, which consent shall not be unreasonably withheld; and provided further,
that the obligations of Galesi shall be limited to an amount equal to the
proceeds to Galesi of Registration Stock sold, unless such claim, loss, damage,
liability or action resulted from Galesi's fraudulent misconduct.
(c) Each party entitled to indemnification hereunder (the "indemnified
party") shall give notice to the party required to provide indemnification (the
"indemnifying party") promptly after such indemnified party has actual knowledge
of any claim as to which indemnity may be sought, and shall permit the
indemnifying party (at its expense) to assume the defense of any claim or any
litigation resulting therefrom, provided that counsel for the indemnifying
party, who shall conduct the defense of such claim or litigation, shall be
reasonably satisfactory to the indemnified party, and the indemnified party may
participate in such defense at such party's expense, and provided further, that
the omission by any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under this Agreement
except to the extent that the omission results in a failure of actual notice to
the indemnifying party and such indemnifying party is damaged solely as a result
of the failure to give notice. No indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation.
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(d) The reimbursement required by this Agreement shall be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.
(e) If the indemnification provided for in this Agreement is
unavailable to an indemnified party in respect of any losses, claims, damages,
liabilities or judgments referred to herein, then each indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or payable by such indemnified party as a result of such losses, claims,
damages, liabilities and judgments as between the indemnifying party on the one
hand and the indemnified party on the other, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and of the
indemnified party in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative fault of the indemnified party
on the one hand and of the indemnifying party on the other shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Agreement were determined
by pro rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or judgments referred to above shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim. Notwithstanding the provisions of this Agreement,
Galesi shall not be required to contribute any amount in excess of the amount by
which the total price at which the Registration Stock of Galesi were offered to
the public exceeds the amount of any damages which Galesi has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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5.5 Obligations of Galesi. As to the registration statement referred to in
Section 5.1, Galesi shall provide AMNEX with a written description of the
proposed method or methods of distribution of the Registration Stock
contemplated by Galesi and such other information as may be required by AMNEX,
and AMNEX shall include such description and other information in the
registration statement and file any and all amendments and supplements necessary
in connection therewith.
ARTICLE VI
ADDITIONAL COVENANTS
6.1 Certificate of Amendment. As soon as is reasonably practicable following the
date hereof, AMNEX will submit to its stockholders for approval a proposed
Certificate of Amendment to its Certificate of Incorporation as a result of
which there will be a sufficient number of authorized shares of Common Stock
available for issuance upon the conversion of the Series L Preferred Stock and
any Warrant Preferred Stock into the Conversion Stock, the exercise of the
Warrants for the purchase of the Warrant Common Stock, and the exercise of any
and all other outstanding purchase, exchange or conversion rights for the
acquisition of shares of AMNEX Common Stock (the "Increased Authorized Capital
Certificate of Amendment"). In the event stockholder approval is not so
obtained, AMNEX will submit the Increased Authorized Capital Certificate of
Amendment to its stockholders for approval at subsequent meetings of
stockholders of AMNEX.
6.2 Board of Directors. (a) AMNEX hereby represents that its Board of Directors
(the "AMNEX Board") has duly elected Galesi as a director of AMNEX to fill a
vacancy on the AMNEX Board, such election to be effective upon the execution and
delivery of this Agreement by the parties hereto.
(b) Galesi hereby represents that he, as sole shareholder of
GTI, or the Board of Directors of GTI (the "GTI Board") has duly elected Peter
M. Izzo, Jr. ("Izzo") as a director of GTI to fill a vacancy on the GTI Board,
such election to be effective upon the execution and delivery of this Agreement
by the parties hereto. Alternatively, at the option of Izzo, he shall be
entitled to attend, in a nonvoting observer capacity, meetings of GTI's Board of
Directors, participate in discussions of matters
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brought to the GTI Board, and obtain copies of all notices, minutes, consents,
and other material provided to GTI's directors.
(c) AMNEX agrees to indemnify Galesi as a director thereof,
and GTI and Galesi, jointly and severally, agree to indemnify Izzo as a director
of GTI, to the fullest extent permitted by applicable law.
6.3 Business Arrangements between AMNEX and GTI and TELIT. The parties
acknowledge that AMNEX, through various wholly-owned subsidiaries, provides
telecommunications services through its switch(es) located in the United States
and that GTI and its wholly-owned subsidiary, TELIT/Galesi Telecom
International, A.B. ("TELIT"), provide telecommunication services through their
switch(es) located in Europe. Each party hereto shall use its reasonable best
efforts to utilize the other party's telecommunications network system for the
termination of telephone calls in areas served by the other party's switch(es).
Additionally, Galesi shall cause TELIT to use its reasonable best efforts under
its equipment purchase agreement with Ericsson Telecom, A.B. to provide AMNEX
and/or AMNEX Subsidiaries with discounted equipment purchase prices.
6.4 Issuance of Securities. Galesi and GTI, jointly and severally, covenant and
agree that, for so long as AMNEX is a shareholder of GTI, GTI will issue its
shares of capital stock, as well as securities that are exercisable for the
purchase of, exchangeable for or convertible into shares of its capital stock,
only for a consideration that is fair and adequate.
6.5 Section 630 Indemnity. Galesi and GTI, jointly and severally, will indemnify
AMNEX and hold it harmless against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), and will reimburse AMNEX for any
legal and any other expenses reasonably incurred in connection with
investigating, defending and/or settling any such expense, claim, loss, damage,
liability or action, arising out of or based on AMNEX being allegedly subject to
liability under Section 630 as a shareholder of GTI.
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6.6 Sole International Telecommunications Vehicle.
(a) Galesi covenants and agrees that, for so long as AMNEX is
a shareholder of GTI, he shall utilize GTI as his sole vehicle with regard to
the conduct of international telecommunications business and, accordingly,
covenants and agrees that, in the event any business opportunity which relates
to international telecommunications is offered to him, either:
(i)(A) he shall first offer such opportunity to
GTI, for a reasonable period of time, on the same terms and conditions as
offered to him, (B) in the event GTI is unwilling or unable to accept such
opportunity due to a lack of financing but would otherwise accept such
opportunity and, in order for Galesi to accept such opportunity he would need to
invest funds, Galesi shall negotiate with GTI, in good faith and on an
arm's-length basis, the terms and conditions of an investment of funds by Galesi
into GTI for such purpose and (C) in the event GTI is otherwise unwilling or
unable to accept such opportunity, Galesi shall offer such opportunity to AMNEX,
or its designee, for a reasonable period of time, on the same terms and
conditions as offered to him, prior to accepting same (except that, if Izzo, as
a director of GTI, shall have voted against GTI accepting such opportunity, then
Galesi need not offer the opportunity to AMNEX or its designee); or
(ii) in the event he desires to consummate such
opportunity without following the foregoing procedures, (A) he shall offer to
contribute to GTI the business and/or assets acquired in consideration for (I)
the issuance by GTI to him of such securities of GTI as Galesi and GTI shall
agree, in good faith and on an arm's-length basis, has a value equal to the
consideration paid or payable by Galesi to the third party or (II) the transfer
by GTI to him of consideration equal to, and on the same terms as, that paid or
payable by Galesi to the third party ((I) or (II) being at the option of GTI)
and (B) in the event GTI is unwilling to acquire such business and/or assets, or
Galesi and GTI are unable to agree upon the kind or amount of GTI securities to
be issued therefor, then Galesi shall offer to AMNEX, or its designee, for a
reasonable period of time, the opportunity to acquire such business and/or
assets on the same terms and conditions as acquired by Galesi (except that, if
Izzo, as a
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director of GTI, shall have voted against GTI acquiring such business and/or
assets, as opposed to being unable to agree upon the kind or amount of GTI
securities to be issued therefor, then Galesi need not offer to transfer such
business and/or assets to AMNEX or its designee).
(b) Galesi represents and warrants that, as of the date
hereof, except as set forth on Schedule 6.6, he has no interest in or
relationship with any entity, other than GTI, which is engaged or proposes to be
engaged in the international telecommunications business and there are no
transactions pending or contemplated with regard to any such other entity.
6.7 Lock-up Agreement. Galesi covenants and agrees that, for a period of two (2)
years from the date hereof, he will not sell, transfer or otherwise dispose of
the Conversion Stock, Warrant Stock or Series L Preferred Stock without the
prior written consent of AMNEX. Notwithstanding the foregoing, Galesi may make
private transfers of any such securities provided that the transferee agrees in
writing with AMNEX to be bound by the provisions of this Section 6.7.
6.8 Tag-along Right.
(a) If Galesi shall receive a bona fide written offer from a
third party (the "Buyer") to purchase or otherwise transfer for value an
aggregate of 50% or more of the issued and outstanding GTI Common Stock, he
shall so notify AMNEX (the "Tag Along Notice") and thereupon AMNEX shall have
the right to require Galesi, as a condition to his sale of shares of GTI Common
Stock to the Buyer, to cause the Buyer to purchase such number of shares of GTI
Common Stock held by AMNEX (subject to the limitation in paragraph (b) hereof)
as it may designate by written notice ("Notice of Election") delivered to Galesi
within twenty (20) days following the date of the Tag Along Notice. Galesi shall
notify the Buyer of the requirements of this Section 6.8 and shall transmit a
copy of the Notice of Election to the Buyer. The purchase price for the shares
of GTI Common Stock designated in AMNEX's Notice of Election shall be equal to
the price per share offered by the Buyer for the shares of GTI Common Stock
subject to the offer of the Buyer. Such price offered by the Buyer shall be
deemed to include any consideration received or to be received, directly or
indirectly, by Galesi or any affiliate thereof in addition to the stated
purchase price for the shares of GTI Common Stock other than in exchange for
good, valuable and fair consideration.
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(b) In the event the Buyer is unwilling to purchase all of the
shares of GTI Common Stock set forth in the Notice of Election, then it shall
acquire that number of shares of GTI Common Stock subject to the bona fide
written offer (or greater number as the Buyer shall agree) from Galesi and AMNEX
according to their pro rata interest, which shall mean the aggregate number of
shares of GTI Common Stock to be purchased multiplied by a fraction, the
numerator of which shall equal the number of shares of GTI Common Stock offered
to be purchased by the Buyer (with respect to Galesi) or the number of shares of
GTI Common Stock set forth in the Notice of Election (with respect to AMNEX) and
the denominator of which shall equal the total number of shares of GTI Common
Stock so offered to be purchased or set forth in the Notice of Election.
(c) In the event of any sale in violation of the provisions of
this Section 6.8, at the election of AMNEX, Galesi shall purchase from AMNEX the
number of shares of GTI Common Stock as AMNEX may have designated by its Notice
of Election, at the purchase price calculated as set forth herein, and to hold
AMNEX harmless from and against any and all costs, expenses, claims, losses,
damages and liabilities, together with all reasonable costs and expenses
relating thereto (including legal and accounting fees and expenses) arising from
any violation of this Section.
6.9 Legends. The certificate representing the Series L Preferred Stock and any
certificates issued representing the Conversion Stock and Warrant Stock shall
contain a legend to reflect that they are held subject to the provisions of this
Article VI.
6.10 Further Assurances. On and after the date hereof, AMNEX Galesi and GTI
shall take all such further actions and execute and deliver all such further
instruments and documents as may be necessary or appropriate to carry out the
transactions contemplated by this Agreement.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
7.1 Expenses. Each of the parties shall bear its own expenses in connection
herewith.
7.2 Survival. The parties agree that their respective representa tions and
warranties contained in this Agreement shall survive the date hereof for a
period of two years with the exception of those set forth in Article IV hereof
which shall survive for an indefinite duration.
7.3 Publicity. The parties agree that no publicity, release or other public
announcement concerning the transactions contemplated by this Agreement shall be
issued by any party without the advance written approval of both the form and
substance of the same by AMNEX and Galesi, which approval, in the case of any
publicity, release or other public announcement required by applicable law or
regulation, shall not be unreasonably withheld or delayed. The parties agree
that this Agreement, including or excluding the schedules attached hereto, as
well as a description of the terms thereof, may be filed by AMNEX with the
Commission pursuant to the requirements of applicable law or regulation.
7.4 Entire Agreement. This Agreement, including the schedules attached hereto,
which are a part hereof, constitutes the entire agreement of the parties with
respect to the subject matter hereof. No change, modification, amendment,
addition or termination of this Agreement or any part thereof shall be valid
unless in writing and signed by AMNEX and Galesi.
7.5 Injunctive Relief. Galesi agrees that money damages would not be a
sufficient remedy for any breach of the restrictions of Section 6.6 hereof, and
that, without the necessity of proving damages and in addition to all other
available rights and remedies, AMNEX shall be entitled to specific performance
and injunctive or other equitable relief as a remedy for any such breach or
threatened breach, and Galesi further agrees to waive any requirements for the
securing or posting of any bond in connection with such remedy.
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7.6 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
Agreement shall be deemed to have been duly given or made for all purposes when
hand delivered or sent by telecopier (subject to confirmation of receipt) or
shall be deemed to have been given on the next business day when sent by
overnight courier (subject to confirmation of receipt) or on the third business
day next following when sent by certified or registered mail, return receipt
requested and postage prepaid, as follows:
If to AMNEX at:
AMNEX, Inc.
101 Park Avenue
Suite 2507
New York, NY 10178
Attention: Chairman of the Board
Telecopier Number: (212) 867-0092
with a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attention: Fred Skolnik, Esq.
Telecopier Number: (516) 296-7111
If to Galesi, at:
Galesi Group
Rotterdam Industrial Park
Westcott Road / Building 6
Schnectady, New York 12306
Telecopier Number: (518) 356-5334
with a copy to:
Steven Porter, Esq.
Galesi Group
Rotterdam Industrial Park
Westcott Road / Building 6
Schnectady, New York 12306
Telecopier Number: (518) 356-5334
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or at such other address as any party or person shall designate by notice to the
other parties in accordance with the provisions hereof.
7.7 Choice of Law. This Agreement shall be governed by, and interpreted and
construed in accordance with, the laws of the State of New York, excluding
choice of law principles thereof.
7.8 Severability. In the event any clause, section or part of this Agreement
shall be held or declared to be void, illegal or invalid for any reason, all
other clauses, sections or parts of this Agreement which can be effected without
such void, illegal or invalid clause, section or part shall nevertheless
continue in full force and effect.
7.9 Successors and Assigns; Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective heirs, legal
representatives, successors and permitted assigns; provided, however, that no
party may assign this Agreement or any portion thereof without the prior written
consent of Galesi and AMNEX.
7.10 Headings. The headings or captions in 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.
7.11 Facsimile Signatures. Signatures transmitted by telecopier shall be deemed
original signatures.
7.12 Counterpart Signatures. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
[Remainder of page intentionally left blank]
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WITNESS the execution of this Agreement as of the date first above
written.
AMNEX, INC.
By: /s/
/s/
Francesco Galesi
Agreed to:
GALESI TELECOM INTERNATIONAL, INC.
By: /s/
K:\WPDOC\CORP\AMNEX\GALESI\STOCKEX4.D96
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VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 7, 2002.
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
January 7, 1997
FOR VALUE RECEIVED, AMNEX, INC., a New York corporation (the
"Company"), hereby certifies that, in consideration of the entering into by
FRANCESCO GALESI (the "Holder") of a certain Stock Exchange Agreement of even
date with the Company (the "Agreement"), and the agreement of Galesi Telecom
International, Inc. with regard thereto, the Holder is entitled, subject to the
provisions of this Warrant, to purchase from the Company, during the period
expiring at 5:00 P.M., New York City time, on January 7, 2002, the following:
(a) prior to the filing with the Secretary of State of New York of the Increased
Authorized Capital Certificate of Amendment (as defined in the Agreement), up to
ONE HUNDRED THOUSAND (100,000) SERIES L PREFERRED SHARES of the Company (the
"Series L Preferred Shares") at a price of FORTY-FIVE DOLLARS AND FORTY-FIVE
CENTS ($45.45) per Series L Preferred Share (the "Series L Preferred Exercise
Price") and (b) on or after the filing with the Secretary of State of New York
of the Increased Authorized Capital Certificate of Amendment, up to ONE MILLION
FIVE HUNDRED THOUSAND (1,500,000) COMMON SHARES of the Company (the "Common
Shares") at a price of THREE DOLLARS AND THREE CENTS ($3.03) per Common Share
(the "Common Exercise Price" and collectively with the Series L Preferred
Exercise Price, the "Exercise Price").
The number of Series L Preferred Shares or Common Shares, as
the case may be, to be received upon the exercise of this Warrant may be
adjusted from time to time as hereinafter set forth. The Series L Preferred
Shares or Common Shares deliverable upon such exercise, and as adjusted from
time to time, are hereinafter sometimes referred to as "Warrant Stock".
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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, by 5:00 P.M.,
New York City time, on January 7, 2002, 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.
(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.
(c) Notwithstanding the foregoing but subject to
compliance by Galesi with the terms of the Agreement, this Warrant may be
exchanged for the Series L Preferred Shares or the Common Shares, as the case
may be, without the payment of the Exercise Price provided for in paragraph (a)
hereof, in the event, during any continuous six (6) calendar month period
commencing with January 1, 1997 and ending on December 31, 1999, the
consolidated revenues from operations of GTI, calculated in accordance with
generally accepted accounting principles consistently applied, equal or exceed
twelve million five hundred thousand dollars ($12,500,000).
2. Reservation of Shares. The Company will at all times
reserve for issuance and delivery upon exercise of this Warrant all Series L
Preferred Shares or Common Shares, as the case may be, or other shares of
capital stock of the Company (and other securities and property) from time to
time receivable upon exercise of this Warrant, it being understood that no
Common Shares need be reserved for issuance unless and until the Increased
Authorized Capital Certificate of Amendment is filed with the Secretary of
State of New York.
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3. Fractional Shares. The Company shall not be required to
issue certificates representing fractions of Series L Preferred Shares or 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 Series L Preferred Shares or 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 (a "Series L Preferred Event"):
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(i) declare a dividend or other
distribution on its Series L Preferred Shares payable in Series L
Preferred Shares of the Company,
(ii) subdivide the outstanding
Series L Preferred Shares pursuant to a stock split or otherwise,
(iii) combine the outstanding Series
L Preferred Shares into a smaller number of shares pursuant to a reverse split
or otherwise, or
(iv) reclassify its Series L
Preferred Shares,
then the Series L Preferred 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 Series L Preferred
Shares outstanding immediately prior to such Series L Preferred Event,
multiplied by the Series L Preferred Exercise Price in effect immediately prior
to such Series L Preferred Event by (b) the number of Series L Preferred Shares
outstanding immediately after such Series L Preferred Event. Each such
adjustment of the Series L Preferred 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 Series L Preferred Event listed above shall occur.
(b) In case the Company shall do any of the
following (a "Common 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,
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(iii) combine the outstanding Common
Shares into a smaller number of shares pursuant to a reverse split or otherwise,
or
(iv) reclassify its Common Shares,
then the Common 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 Common Event, multiplied by the Common Exercise Price in effect
immediately prior to such Common Event by (b) the number of Common Shares
outstanding immediately after such Common Event. Each such adjustment of the
Common 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 Common Event listed above shall occur.
(c) Whenever the Exercise Price is adjusted
as set forth in 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 Series L Preferred Shares
or Common Shares, as the case may be, immediately prior to such adjustment by a
fraction, of which the numerator shall be the Series L Preferred Exercise Price
or Common Exercise Price, as the case may be, immediately prior to such
adjustment and the denominator shall be the Series L Preferred Exercise Price or
Common Exercise Price, as the case may be, 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
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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; 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 such Act.
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
Series L Preferred Shares or Common Shares, as the case may be, 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
certain registration rights with regard to the Warrant Stock as
provided for in the Agreement.
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.
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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.
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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: /s/
Kenneth G. Baritz
Chairman of the Board
<PAGE>
AMNEX, INC.
WARRANT EXERCISE FORM
The undersigned hereby irrevocably elects to exercise the within Warrant
dated January 7, 1997 to the extent of purchasing of the securities of AMNEX,
Inc. indicated below. The undersigned hereby makes a payment of $ in payment
therefor.
Check applicable line:
Name of Holder
Series L Preferred Shares __
Common Shares __ 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 Series L Preferred Shares or Common Shares, as the case
may be, of AMNEX, Inc. represented by this Warrant dated January 7, 1997 to the
extent of Series L Preferred Shares or ____ Common Shares, as the case may be,
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\WARRANT3.D96
<PAGE>
AGREEMENT, dated as of January 13, 1997, by and among AMNEX,
INC. (the "Company"), FRIEDLI CORPORATE FINANCE AG ("Friedli AG"), FRIEDLI
CORPORATE FINANCE INC. ("Friedli Inc."), and PETER FRIEDLI ("Friedli" and
collectively with Friedli AG and Friedli Inc., the "Friedli Group").
-------------------
WHEREAS, Spring Technology Corp. ("Spring") is the holder of a
certain promissory note of the Company, dated March 8, 1993, in the principal
amount of four hundred fifty thousand dollars ($450,000) (the "Spring Note").
WHEREAS, Cofinvest 97 Ltd. ("Cofinvest" and collectively with
Spring, the "1993 Noteholders") is the holder of a certain promissory note of
the Company, dated July 13, 1993, in the principal amount of fifty thousand
dollars ($50,000) (the "Cofinvest Note" and collectively with the Spring Note,
the "1993 Notes").
WHEREAS, the 1993 Notes provide for the payment of interest on
the principal amount thereof at the rate of ten percent (10%) per annum, such
interest being originally payable from the following dates:
(i) with respect to the Spring Note, (a) from
February 22, 1993 with respect to the principal amount of seventy thousand
dollars ($70,000); (b) from February 23, 1993 with respect to the principal
amount of ninety-six thousand dollars ($96,000) and (c) from March 8, 1993
with respect to the principal amount of two hundred eighty-four thousand
dollars ($284,000); and
(ii) with respect to the Cofinvest Note, from
November 18, 1992.
WHEREAS, the principal amount of the 1993 Notes, together with
accrued and unpaid interest thereon, is convertible into Common Shares of the
Company at a conversion price of twenty cents ($.20) per share (the "1993 Note
Conversion Rate").
WHEREAS, Logitech Corp. ("Logitech" and collectively with the
1993 Noteholders, the "Noteholders") 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" and collectively
with the 1993 Notes, the "Notes").
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, the principal amount of the Logitech Note, together
with accrued and unpaid interest thereon, is convertible into Common Shares of
the Company at a conversion price of two dollars eighty-one and one-quarter
cents ($2.8125) per share (the "Logitech Note Conversion Rate").
WHEREAS, subject to the terms hereof, the Friedli Group has
agreed to use its best efforts to cause the 1993 Noteholders to convert the
principal amounts of the 1993 Notes, together with accrued and unpaid interest
thereon, into Common Shares of the Company at the 1993 Note Conversion Rate.
<PAGE>
WHEREAS, subject to the terms hereof, the Friedli Group has
agreed to use its best efforts to cause Logitech to convert seventy-five percent
(75%) of the principal amount of the Logitech Note, together with accrued and
unpaid interest thereon, into Common Shares of the Company at the Logitech Note
Conversion Rate.
WHEREAS, there are currently outstanding 72,450 Series B
Preferred Shares of the Company, 1,413,337 Series D Preferred Shares of the
Company and 1,035,000 Series E Preferred Shares of the Company.
WHEREAS, each Series B Preferred Share is convertible into ten
(10) Common Shares of the Company (the "Series B Conversion Rate").
WHEREAS, each Series D Preferred Share is convertible into
one (1) Common Share of the Company (the "Series D Conversion Rate").
WHEREAS, each Series E Preferred Share is convertible into one
(1) Common Share of the Company (the "Series E Conversion Rate").
WHEREAS, subject to the terms hereof, the Friedli Group has
agreed to use its best efforts to cause the holders of at least seventy-five
percent (75%) of each of the outstanding Series B Preferred Shares (the "Series
B Holders"), Series D Preferred Shares (the "Series D Holders") and Series E
Preferred Shares (the "Series E Holders" and collectively with the Series B
Holders, and the Series D Holders, the "Preferred Holders" and collectively
further with the Noteholders, the "Converting Holders") to convert their
respective Preferred Shares (the "Preferred Shares" and collectively with the
Notes, the "Converting Securities") into Common Shares at the Series B
Conversion Rate, Series D Conversion Rate or Series E Conversion Rate, as the
case may be.
WHEREAS, no party to this Agreement will receive, directly or
indirectly, any commission or other remuneration for soliciting the conversions
or exchanges contemplated hereby.
WHEREAS, subject to the terms hereof, the Friedli Group has
agreed to use its best efforts to cause (i) the Converting Holders to sell the
Underlying Shares (as hereinafter defined) and (ii) the holders of such number
of Common Shares of the Company (the "Common Holders" and collectively with the
Converting Holders, the "Holders") which, when added to the aggregate number of
Underlying Shares, equals nine million (9,000,000) Common Shares (the "Subject
Common Shares" and collectively with the Underlying Shares, the "Shares") to
sell such Subject Common Shares, in each case in accordance with the provisions
hereof.
WHEREAS, subject to the terms hereof, the Company and the
Friedli Group are willing to settle a dispute between them with regard to a
certain consulting fee claimed to be payable by the Company to Friedli AG.
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WHEREAS, subject to the terms hereof, the Company has agreed
to make a payment to the Preferred Holders in lieu of a cash dividend with
respect to the Series B, Series D and Series E Preferred Shares of the Company.
WHEREAS, subject to the terms hereof, the Company has agreed
to offer to exchange Series K Preferred Shares of the Company for the Company's
outstanding Series F Preferred Shares.
WHEREAS, subject to the terms hereof, the Company has agreed
to redeem certain outstanding promissory notes of the Company in the aggregate
principal amount of $1,400,000.
WHEREAS, each representation, warranty and agreement of the
Friedli Group in this Agreement shall be the joint and several representation,
warranty and agreement of Friedli AG, Friedli Inc. and Friedli and each
reference herein to the Friedli Group shall be deemed to refer to each of
Friedli AG, Friedli Inc. and Friedli.
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.
2. Conversion of 1993 Notes. Promptly following the execution
of this Agreement, the Friedli Group shall use its best efforts to cause each of
Spring and Cofinvest to execute and deliver to the Company an irrevocable
election to convert, in the form of Exhibit A attached hereto, the principal
amount of its respective 1993 Note, together with all accrued and unpaid
interest thereon through the day immediately preceding the date hereof, into two
million eight hundred twenty thousand five hundred seventy-five (2,820,575) and
three hundred fifty-three thousand eight hundred nineteen (353,819) Common
Shares of the Company, respectively (collectively, the "Underlying 1993 Note
Shares"), which election shall be subject to the terms hereof. In addition,
concurrently therewith, the Friedli Group shall use its best efforts to cause
Spring and Cofinvest to deliver to the Company their respective original 1993
Notes for cancellation, subject to the terms hereof.
3. Conversion of Logitech Note. Promptly following the
execution of this Agreement, the Friedli Group shall use its best efforts to
cause Logitech to execute and deliver to the Company an irrevocable election to
convert, in the form of Exhibit B attached hereto, seventy-five percent (75%) of
the principal amount of the Logitech Note, together with all accrued and unpaid
interest thereon through the day immediately preceding the date hereof, into
ninety-eight thousand four hundred eighty (98,480) Common Shares of the Company
(collectively, the
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"Underlying Logitech Note Shares"), which election shall be subject to the terms
hereof. In addition, concurrently therewith, the Friedli Group shall use its
best efforts to cause Logitech to deliver to the Company the original Logitech
Note for notation as to such conversion, subject to the terms hereof.
4. Conversion of Series B Preferred Shares. Promptly following
the execution of this Agreement, the Friedli Group shall use its best efforts to
cause each Series B Holder to execute and deliver to the Company an irrevocable
election to convert, in the form of Exhibit C attached hereto, each of its
respective Series B Preferred Shares that are contemplated to be converted into
Common Shares of the Company pursuant to the terms hereof (the "Converting
Series B Preferred Shares") into ten (10) Common Shares of the Company
(collectively, the "Underlying Series B Shares"), which election shall be
subject to the terms hereof. In addition, concurrently therewith, the Friedli
Group shall use its best efforts to cause each Series B Holder to deliver to the
Company its stock certificate(s) representing the Converting Series B Preferred
Shares for cancellation, subject to the terms hereof.
5. Conversion of Series D Preferred Shares.
(a) Promptly following the execution of this
Agreement, the Friedli Group shall use its best efforts to cause each Series D
Holder that is a Permitted Holder (as hereinafter defined) (a "Series D
Permitted Holder") to execute and deliver to the Company an irrevocable
election to convert, in the form of Exhibit D-1 attached hereto, each of its
respective Series D Preferred Shares that are contemplated to be converted into
Common Shares of the Company pursuant to the terms hereof (the "Converting
Series D Preferred Shares") into one (1) Common Share of the Company
(collectively, the "Underlying Series D Shares"), which election shall be
subject to the terms hereof. In addition, concurrently therewith, the Friedli
Group shall use its best efforts to cause each Series D Permitted Holder to
deliver to the Company its stock certificate(s) representing the Converting
Series D Preferred Shares for cancellation, subject to the terms hereof.
(b) Promptly following the receipt by any member
of the Friedli Group and a Series D Holder that is a Remaining Holder (as
hereinafter defined) (a "Series D Remaining Holder") of a Sell Request (as
hereinafter defined), as provided for in Section 8(c) hereof, the Friedli
Group shall use its best efforts to cause each such Series D Remaining Holder
to execute and deliver to the Company, promptly by telecopier transmission and
overnight mail or courier service, an irrevocable election to convert, in the
form of Exhibit D-2 attached hereto, each of its respective Converting Series
D Preferred Shares into Underlying Series D Shares, which election shall be
subject to, and shall be treated by the Company as subject to, the terms hereof
(notwithstanding anything expressly or implicitly to the contrary therein or the
absence therein of any express condition that such election is subject to the
terms of this Agreement). In addition, concurrently therewith, the Friedli
Group shall use its best efforts to cause each Series D Remaining Holder to
deliver to the Company, immediately by overnight mail or courier service,
its stock certificate(s) representing the Converting Series D Preferred Shares
for cancellation, subject to the terms hereof.
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6. Conversion of Series E Preferred Shares.
(a) Promptly following the execution of this Agreement, the Friedli Group
shall use its best efforts to cause each Series E Holder that is a Permitted
Holder (a "Series E Permitted Holder") to execute and deliver to the Company an
irrevocable election to convert, in the form of Exhibit E-1 attached hereto,
each of its respective Series E Preferred Shares that are contemplated to be
converted into Common Shares of the Company pursuant to the terms hereof (the
"Converting Series E Preferred Shares") into one (1) Common Share of the Company
(collectively, the "Underlying Series E Shares" and collectively further with
the Underlying Series B Shares, the Underlying Series D Shares, the Underlying
1993 Note Shares and the Underlying Logitech Note Shares, the "Underlying
Shares"), which election shall be subject to the terms hereof. In addition,
concurrently therewith, the Friedli Group shall use its best efforts to cause
each Series E Permitted Holder to deliver to the Company its stock
certificate(s) representing the Converting Series E Preferred Shares for
cancellation, subject to the terms hereof.
(b) Promptly following the receipt by any member of the Friedli Group
and a Series E Holder that is a Remaining Holder (a "Series E Remaining Holder")
of a Sell Request, as provided for in Section 8(c) hereof, the Friedli Group
shall use its best efforts to cause each such Series E Remaining Holder to
execute and deliver to the Company, promptly by telecopier transmission and
overnight mail or courier service, an irrevocable election to convert, in the
form of Exhibit E-2 attached hereto, each of its respective Converting Series E
Preferred Shares into Underlying Series E Shares, which election shall be
subject to, and shall be treated by the Company as subject to, the terms hereof
(notwithstanding anything expressly or implicitly to the contrary therein or the
absence therein of any express condition that such election is subject to the
terms of this Agreement). In addition, concurrently therewith, the Friedli Group
shall use its best efforts to cause each Series E Remaining Holder to deliver to
the Company, immediately by overnight mail or courier service, its stock
certificate(s) representing the Converting Series E Preferred Shares for
cancellation, subject to the terms hereof.
7. Effectiveness of Conversions; Delivery of Underlying Shares; Additional
Common Shares Issuable.
(a) The parties acknowledge and agree (on which agreement each Holder
shall be entitled specifically to rely and which agreement is intended
specifically for the benefit of the Holders (the specificity of the foregoing
not being intended to limit, and being without prejudice to, the Holders' rights
to rely on all other provisions of this Agreement and to receive the benefits
thereof)) that the elections to convert the Converting Securities into
Underlying Shares, as provided for in Sections 2 through 6 hereof (collectively,
the "Conversions"), with respect to any principal amount of any particular Note
or any particular number of Preferred Shares, shall only become effective
immediately prior to the settlement of, and shall only result in the holder's
entitlement to receive the Underlying Shares to the extent of, the sale of the
respective Underlying Shares pursuant to the provisions of Section 9 hereof;
provided, however, that a particular Conversion shall become effective earlier
in the event the holder of the Converting Security advises the Company in
writing
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that the Conversion is to become effective notwithstanding that the Underlying
Shares with respect thereto have not been sold (the "Conversion Notice"). In
such event, the Conversion shall become effective upon the date the Company
receives the Conversion Notice.
(b) The parties acknowledge and agree that, during the Sale Period (as
hereinafter defined), the certificates representing the Underlying Shares are to
be delivered directly to the Broker-Dealer(s) (as hereinafter defined), or its
designee, for sale and/or delivery as contemplated by Section 9 hereof.
(c) The parties acknowledge and agree further that, notwithstanding that,
in determining the number of Underlying Shares issuable upon Conversion of the
Notes, interest is calculated through the day immediately preceding the date
hereof, upon the effectiveness of any Conversion of the Notes, additional
validly issued, fully paid and nonassessable Common Shares (the "Additional
Common Shares") shall be issuable to the Holder thereof to give effect to the
Conversion of accrued interest from the date hereof through the day immediately
preceding the effective date of Conversion.
8. Establishment of Brokerage Accounts; Delivery of Instruments and
Documents.
(a) Promptly following the Designation Time (as hereinafter defined), the
Friedli Group shall use its best efforts to cause all of the Noteholders, Series
B Holders and Common Holders, as well as Spring, Cofinvest, Logitech, Joyce Ltd.
and Eagle Growth Ltd. (collectively, the "Principal Holders") with regard to any
and all Converting Series D Preferred Shares and Converting Series E Preferred
Shares held of record by them (the Noteholders, Series B Holders, Common Holders
and Principal Holders being collectively referred to as the "Permitted
Holders"), to establish one or more brokerage accounts (the "Accounts") with one
or more broker-dealers designated by the Company (the "Permitted Holder
Broker-Dealers") (the Friedli Group acknowledging and agreeing that the number
of Shares which are held by or issuable upon Conversion to the Permitted
Holders, and which shall be subject to the provisions of this Section 8(a),
shall not be less than five million (5,000,000) Shares) and shall use its best
efforts to cause the Permitted Holders to deliver to the Permitted Holder
Broker-Dealer(s) the following (the "Required Permitted Holder Instruments"):
(i) unlegended certificates representing the Subject Common Shares held by the
Permitted Holders and (ii) duly executed stock powers, with signatures medallion
guaranteed, covering the transfer of the Shares held by or issuable upon
Conversion to the Permitted Holders (the "Permitted Shares"). The name(s) and
address(es) of the Permitted Holder Broker-Dealer(s) shall be set forth in a
writing (the "Broker-Dealer Designation") executed and delivered by the Company
by telecopier transmission to Friedli AG by 5:00 p.m., New York City time, on
the seventh day following the date hereof (the "Designation Time"). The Company
agrees to cooperate with the Friedli Group in connection with the removal of any
legends on the certificates representing the Subject Common Shares.
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(b) Concurrently, the Friedli Group shall use its best efforts to cause
the Permitted Holders to deliver to (i) the Permitted Holder Broker-Dealer(s)
such duly executed and certified corporate resolutions and other instruments and
documentation, with signatures medallion guaranteed, as are required by the
Permitted Holder Broker-Dealer(s) in connection with the establishment of the
Accounts and to permit the Permitted Holder Broker-Dealer(s) to purchase the
Permitted Shares for their account, or sell the Permitted Shares on behalf of
the Permitted Holders, during the Sale Period in accordance with the provisions
of Section 9 hereof and (ii) the Company's transfer agent, namely Jersey
Transfer & Trust Co., the address of which is 201 Bloomfield Avenue, P.O. Box
36, Verona, New Jersey 07044, Fax (201) 239-2361 (the "Transfer Agent") such
duly executed and certified corporate resolutions, with signatures medallion
guaranteed, as are required by the Transfer Agent to permit the transfer of the
Permitted Shares ((i) and (ii) being collectively referred to as the "Required
Permitted Holder Documents").
(c) Promptly following the receipt from time to time during the Sale
Period (as hereinafter defined) by any member of the Friedli Group and any
Holder other than a Permitted Holder (such Holders being referred to
collectively as the "Remaining Holders") of a request from one or more
broker-dealers designated by the Company (the "Remaining Holder Broker-Dealers"
and collectively with the Permitted Holder Broker-Dealers, the "Broker-Dealers")
that such Remaining Holder sell any or all of its Shares (the Shares of all
Remaining Holders being collectively referred to as the "Remaining Shares") in a
manner consistent with the provisions of Section 9 hereof (a "Sell Request"),
the Friedli Group shall use its best efforts to cause each such Remaining Holder
to deliver to the Remaining Holder Broker-Dealer(s), promptly by facsimile
transmission and by overnight mail or courier service, the following: (i) an
order to sell the subject Remaining Shares or other document in lieu thereof
required by the Remaining Holder Broker- Dealer to indicate the Remaining
Holder's agreement to sell the subject Remaining Shares consistent with the Sell
Request (a "Remaining Holder Sell Order"), (ii) unlegended certificates
representing any and all Subject Common Shares held by the Remaining Holders
that would be required to be delivered pursuant to the Remaining Holder Sell
Order and (iii) duly executed stock powers, with signatures medallion
guaranteed, covering the transfer of any and all Remaining Shares held by or
issuable upon Conversion to the Remaining Holder that would be required to be
delivered pursuant to the Remaining Holder Sell Order ((i), (ii) and (iii) being
referred to as the "Required Remaining Holder Instruments" and collectively with
the Required Permitted Holder Instruments, as the "Required Instruments"). The
name(s) and address(es) of the Remaining Holder Broker-Dealer(s) shall be set
forth in a writing (the "Additional Designation") executed and delivered by the
Company by telecopier transmission to Friedli AG prior to the receipt by any
member of the Friedli Group or the Remaining Holders of the initial Sell
Request.
(d) Concurrently, the Friedli Group shall use its best efforts to cause
the Remaining Holders to deliver to (i) the Remaining Holder Broker-Dealer(s),
concurrently with their placing a Remaining Holder Sell Order, by facsimile
transmission and overnight mail or courier service, such other duly executed and
certified corporate resolutions and other instruments and documentation, with
signatures medallion guaranteed, as are required by the Remaining Holder
Broker-Dealer(s) to permit them to purchase the Remaining Shares for their
account, or to permit
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a designee of the Remaining Holder Broker-Dealer(s) to purchase the Remaining
Shares, during the Sale Period in accordance with the provisions of Section 9
hereof and (ii) the Company's Transfer Agent, promptly by facsimile transmission
and overnight mail or courier, such duly executed and certified corporate
resolutions, with signatures medallion guaranteed, as are required to permit the
transfer of the Remaining Shares ((i) and (ii) being referred to as the
"Required Remaining Holder Documents" and collectively with the Required
Permitted Holder Documents, as the "Required Documents").
(e) The parties agree that the Broker-Dealer Designation shall provide
for, in addition to the name(s) and address(es) of the Permitted Holder
Broker-Dealer(s), the minimum number of separate accounts to be established by
the Permitted Holders with each Permitted Holder Broker-Dealer, and the number
of Permitted Shares to be offered for sale to or through each Permitted Holder
Broker-Dealer.
(f) The Friedli Group shall use its best efforts to cause the Holders to
advise the Broker-Dealers to deliver to the Company copies of all Required
Instruments and all Required Documents executed and/or delivered by the Holders
to the Broker-Dealers (the "Instrument/Document Delivery Instructions") (such
advice, with regard to the Remaining Holders, to be given concurrently with the
delivery of the Required Remaining Holder Instruments and Required Remaining
Holder Documents).
9. Sale of Shares; Proceeds.
(a) The Friedli Group shall use its best efforts to cause each Permitted
Holder, concurrently with its delivery of the Required Permitted Holder
Instruments and Required Permitted Holder Documents to the Permitted Holder
Broker-Dealer(s), to place an order to sell the Permitted Shares, to or through
the Permitted Holder Broker-Dealer(s) (the "Permitted Holder Sell Orders" and
collectively with the Remaining Holder Sell Orders, the "Sell Orders"), as
expeditiously as possible, subject to the order of priority set forth in Section
9(c) hereof and the other terms set forth in this Section 9. In addition, the
Friedli Group shall use its best efforts to cause each Remaining Holder, from
time to time during the Sale Period, to sell, to or through the Remaining Holder
Broker Dealer(s), the Remaining Shares in a manner consistent with the
provisions of Section 8(c) hereof.
In no event shall the Holders be required to accept a price of less
than three dollars fifty cents ($3.50) per Share, net (the "Minimum Price");
however, if a price in excess of the Minimum Price is offered to the Holders by
the Broker-Dealer(s), directly or indirectly, for the purchase of their Shares,
the Friedli Group shall use its best efforts to cause the Holders to accept the
highest price so offered. The Friedli Group agrees with the Company that, in
consideration for the Company's agreement to repurchase, as provided for in
Section 10 hereof, and other good and valuable consideration, the receipt and
sufficiency of which the Friedli Group acknowledges, the Company shall be
entitled to receive and retain any and all net sales proceeds per Share in
excess of the Minimum Price. The Friedli Group shall use its best efforts to
cause the Holders to advise the
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Broker-Dealer(s) to pay directly to the Company any and all such excess proceeds
(the "Excess Proceeds Instructions") and to deliver to the Company copies of the
Excess Proceeds Instructions and all confirmations of orders to sell, and
confirmations of sales of, the Shares (the "Proceeds/Confirmation Delivery
Instructions") (such advice, with regard to the Remaining Holders, to be given
concurrently with the delivery of the Required Remaining Holder Instruments and
Required Remaining Holder Documents).
(b) The Friedli Group shall use its best efforts to cause the Permitted
Holders to maintain the Permitted Holder Sell Orders in effect until at least
the earlier of (the "Sale Period") (i) the repurchase of the particular
Permitted Shares pursuant to the provisions of Section 10 hereof or (ii) one
hundred twenty (120) days following the later of the date (A) all Required
Permitted Holder Instruments and all Required Permitted Holder Documents are
delivered to the Permitted Holder Broker-Dealer(s), (B) all documents and
instruments required to be delivered by the Permitted Holders to the Company in
accordance with the provisions of Sections 2 through 4, 5(a) and 6(a) hereof are
so delivered, (C) all of the Permitted Holder Sell Orders are placed, (D) the
Instrument/Document Delivery Instructions are given by the Permitted Holders to
the Permitted Holder Broker-Dealer(s), (E) the letters in the forms of Exhibits
F-1, F-2 and F-3 attached hereto (the "Holder Letters") are executed and
delivered by the Holders to the Company, (F) the Excess Proceeds Instructions
are given by the Permitted Holders to the Permitted Holder Broker-Dealer(s), (G)
the Proceeds/Confirmation Delivery Instructions are given by the Permitted
Holders to the Permitted Holder Broker-Dealer(s) and (H) the Principal Holder
Releases (as hereinafter defined) are executed and delivered to the Escrow Agent
(as hereinafter defined)((A) through (H) being referred to collectively as the
"Holder Documents").
(c) The parties agree, and the Friedli Group shall so advise the Holders
prior to their delivery of any executed Holder Documents, and the Company shall
advise the Broker- Dealers, that sales of the Shares shall be made in the
following order of priority: (i) the Subject Common Shares, (ii) the Underlying
1993 Note Shares, (iii) the Underlying Logitech Note Shares, (iv) the Underlying
Series E Shares, (v) the Underlying Series B Shares and (vi) the Underlying
Series D Shares, or as otherwise agreed in writing between the Company and
Friedli. The Company agrees that it will not issue any Underlying Shares
pursuant to any Conversion made under this Agreement unless, to its knowledge,
based upon its receipt of confirmations of sales of Shares, all Shares of a
higher priority have been sold.
10. Repurchase of Securities.
(a) In the event any of the Underlying Shares are not sold within the
Sale Period, the Friedli Group shall use its best efforts to cause the
Converting Holders to sell to the Company, and, subject to the conditions set
forth below, the Company agrees to repurchase from the Converting Holders, to
the fullest extent permitted by applicable law, any and all Converting
Securities which were not converted into Underlying Shares (the "Repurchase
Securities") at a purchase price (the "Repurchase Price") equal to the number
of Underlying Shares that would have been issued upon Conversion multiplied
by three dollars fifty cents ($3.50) per Share (the "Repurchases"). The
Repurchase Price shall be payable in cash, certified check or wire transfer to
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<PAGE>
an account designated by the particular Converting Holder at least two (2) days
in advance of the Repurchase Closing Date (as hereinafter defined). In the event
the Company is unable to repurchase all of the Repurchase Securities, subject to
the conditions hereof, it shall repurchase such of the Repurchase Securities
permitted by applicable law in the order of priority set forth in Section 9(c)
hereof.
(b) The obligation of the Company to repurchase any and all Repurchase
Securities is subject to the satisfaction of the following conditions: (i)
through and as of the Repurchase Closing Date, the Friedli Group shall have
performed all of its obligations hereunder ("Friedli Compliance"), (ii) through
and as of the Repurchase Closing Date, all of the Holders shall have done and
performed all acts with respect to which the Friedli Group has agreed to use its
best efforts to cause the Holders to do and perform hereunder through and as of
such date (including, without limitation, executing, delivering and complying
with all of the provisions of all of the Holder Documents, placing the Sell
Orders and maintaining the Permitted Holder Sell Orders in effect throughout the
Sale Period) (collectively, "Holder Compliance"), (iii) neither the Friedli
Group nor any Holder nor any Institution or Ultimate Beneficial Owner (as such
terms are hereinafter defined) nor any Affiliate of any of the foregoing shall
have commenced or maintained any action or proceeding similar in nature to the
Bader Action (as hereinafter defined) nor taken any actions which the Friedli
Group has agreed not to take pursuant to Section 12 hereof ("Bader Compliance"),
(iv) as of the Repurchase Closing Date, the representations and warranties of
the Friedli Group, and of each of the Holders as set forth in the Holder
Documents, shall be true and complete as if made at and as of such date, and (v)
on or after the date hereof and prior to the Repurchase Outside Date (as
hereinafter defined), the Company shall have obtained financing in an amount at
least equal to the Repurchase Price, which financing does not prohibit the use
thereof for making the Repurchases and is not obtained for a different
particular purpose ("Permitted Financing"); provided, however, that, if the
Company obtains Permitted Financing in an amount less than the Repurchase Price,
subject to the conditions hereof, it shall be obligated to repurchase the
Repurchase Securities, in the order of priority set forth in Section 9(c)
hereof, to the extent of the Permitted Financing received. The Company shall use
its best efforts to obtain such financing on terms reasonably satisfactory to
it.
(c) The closing of the Repurchases provided for hereunder (the
"Repurchase Closing") shall take place at the offices of the Company on such
date (the "Repurchase Closing Date") and at such time as shall be indicated in a
notice given not fewer than five (5) days in advance by the Company to the
Holders who own such Repurchase Securities, which Repurchase Closing Date shall
not be later than the day following the expiration of the Sale Period (the
"Repurchase Outside Date"). Upon the Repurchase of Repurchase Securities at the
Repurchase Closing, the Company shall be entitled to retain and cancel (or, in
the case of the Logitech Note, make appropriate notation upon and then shall
return) all certificates and instruments representing or constituting Repurchase
Securities (other than Unrepurchased Securities (as hereinafter defined)) that
were delivered to it pursuant to the provisions of Sections 2 through 6 hereof.
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(d) The parties agree that, in the event of a default on the part of the
Company in its obligation to repurchase the Repurchase Securities, as liquidated
damages and as the sole and exclusive remedy of the Friedli Group and the
Holders for such default, the Company shall be obligated to pay to the Holders
of the Repurchase Securities that were not repurchased (the "Unrepurchased
Securities") an amount (the "Liquidated Damages Amount") equal to five and four-
sevenths percent (5-4/7%) of the Repurchase Price thereof, such amount to be
payable in equal monthly installments on the last day of each month over a three
(3) year period commencing with the month in which the default occurs. In no
event shall the Liquidated Damages Amount exceed, in the aggregate for all
Holders, the sum of one million dollars ($1,000,000) (the "Cap"). In the event
the Cap is applicable, a proportionate amount of the Cap shall be payable to the
Holders of the Unrepurchased Securities, as provided for above, based upon the
respective Repurchase Price thereof. The Company hereby acknowledges and agrees
that the Liquidated Damages Amount is reasonable in light of the anticipated and
actual harm, if any, caused by such breach or default, the difficulties of proof
of loss and damage, and the inconvenience and nonfeasibility of the other
parties hereto or the Holders otherwise obtaining an adequate remedy. The
Company hereby acknowledges and agrees that the Liquidated Damages Amount is not
unreasonably large, under the circumstances, and that such amount does not
constitute, and shall not be construed as, a penalty.
(e) The certificates and instruments representing or constituting the
Converting Securities that were not repurchased and the documents executed by
the Holders with respect to the Converting Securities that were not repurchased
shall be returned to the Holders thereof by the Company no later than the
Repurchase Outside Date. The certificates and instruments representing or
constituting the Converting Securities that are returned to the Holders shall be
identical to and shall have the same rights and preferences as the certificates
and instruments representing or constituting the Notes and/or the Preferred
Shares held by the Holders on the day before execution of this Agreement.
11. Voting Rights. The holders of the Preferred Shares will
retain all voting rights with respect thereto until the effectiveness of the
Conversion and sale, or Repurchase, thereof. The holders of the Subject Common
Shares will retain all voting rights with respect thereto until the sales of
such securities are consummated and record ownership thereof is transferred. The
provisions set forth in this Agreement or any other agreement of even date shall
not alter or otherwise affect the voting rights of the Preferred Shares or the
Subject Common Shares until the effectiveness, as the case may be, of the (i)
Conversion of the Preferred Shares, (ii) Repurchase of the Preferred Shares, or
(iii) sale of the Subject Common Shares.
12. Bader Litigation. The Friedli Group agrees that, until the Repurchase
Closing Date, they will not, directly or indirectly, commence or maintain any
action or proceeding similar in nature to that certain action entitled Jorg
Bader v. Kenneth G. Baritz, Peter M. Izzo, Michael V. Dettmers and Russell K.
Burbank (the "Bader Action"), which action was dismissed without prejudice, or
otherwise encourage or assist any other person or entity to commence or maintain
any such action or proceeding.
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13. Representations and Warranties of the Friedli Group.
As a material inducement to the Company's entering into this
Agreement, the Friedli Group hereby represents, warrants, covenants and agrees
as follows:
(a) The Friedli Group has the power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution and delivery
of this Agreement and the performance by the Friedli Group of its obligations
hereunder have been duly authorized by the Board of Directors or other governing
body of Friedli AG and Friedli Inc. and, if required, their respective
shareholders in conformity with applicable law. No other corporate proceeding on
the part of Friedli AG or Friedli Inc. is necessary to authorize the execution
or delivery of this Agreement or the performance by the Friedli Group of its
obligations hereunder. This Agreement is the valid and binding obligation of,
and is enforceable in accordance with its terms against, the Friedli Group.
(b) Neither the execution, delivery or performance of this Agreement by
the Friedli Group, nor the performance by the Friedli Group 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").
(c) Neither the execution, delivery or performance of this Agreement by
the Friedli Group nor the performance by the Friedli Group 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 of Friedli AG or Friedli Inc.; (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 Friedli Group 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 Friedli Group.
(d) Each person executing this Agreement on behalf of Friedli AG and
Friedli Inc. has been duly authorized to execute and deliver this Agreement on
such entity's behalf.
(e) To the knowledge of the Friedli Group, each Holder is a nominee
holder of the securities of the Company that are registered in its name. To the
knowledge of the Friedli Group, such securities are held for the benefit of
certain banking institutions (the "Institutions"), which, in turn, hold such
securities for the benefit of others (the "Ultimate Beneficial Owners"). To the
knowledge of the Friedli Group, none of the Holders, Institutions or Ultimate
Beneficial Owners, directly or indirectly, is now, or has ever been, the
beneficial owner (as such term is defined in Section 13 of the Exchange Act and
the rules and regulations promulgated thereunder) of more than five percent (5%)
of the outstanding Common Shares of the Company.
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(f) To the knowledge of the Friedli Group, each Holder, Institution and
Ultimate Beneficial Owner acts, and has always acted, independently of all other
Holders, Institutions and Ultimate Beneficial Owners, as well as independently
of all other entities that acquired securities of the Company through the
efforts of the Friedli Group (the "Friedli Clients"), and none of the Holders,
Institutions or Ultimate Beneficial Owners acts, or has ever acted, in concert
with any other Holder, Institution, Ultimate Beneficial Owner or other Friedli
Client in connection with the acquisition, disposition or voting of any
securities of the Company.
(g) To the knowledge of the Friedli Group, the respective Converting
Securities were acquired, and have been held, pursuant to Regulation S
("Regulation S"), promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). To the knowledge of the Friedli Group, any and all
representations and certifications set forth in any subscription or purchase
agreement or representation letter relating to the acquisition of the Converting
Securities were accurate at the time made.
(h) To the knowledge of the Friedli Group, since the respective
Converting Holder's acquisition of the Converting Securities, it has not sold
short, or otherwise taken any short position with respect to, any Common Shares
of the Company.
(i) To the knowledge of the Friedli Group, the respective Converting
Holder's acquisition of the Converting Securities was not part of any
prearranged transaction to sell such securities or Underlying Shares to a
purchaser in the United States or to a "U.S. person" (as such term is defined in
Regulation S).
(j) To the knowledge of the Friedli Group, none of the Holders is now,
nor has any of them ever been, an Affiliate (as such term is defined in Rule 405
promulgated under the Securities Act) of the Company.
(k) To the knowledge of the Friedli Group, each of the Converting Holders
was at the time of its acquisition of its respective Converting Securities, and
each of them is, an "accredited investor" (as such term is defined in Rule 501
promulgated under the Securities Act).
(l) To the knowledge of the Friedli Group, each of the Converting Holders
has significant prior investment experience, including investment in non-listed
and non-registered securities, and each is able to bear the economic risk of a
conversion of the Converting Securities into the Underlying Shares.
(m) In connection with (i) the conversion of the Converting Securities
into Underlying Shares or Additional Common Shares and (ii) any exchange of the
Series F Preferred Shares of the Company for Series K Preferred Shares of the
Company, as contemplated by Section 18 hereof, no commission or other
remuneration was or will be paid or given, directly or indirectly, by the
Holders or the holders of the Series F Preferred Shares, or any Affiliate
thereof, to, or demanded or received, directly or indirectly, by, the Friedli
Group for soliciting such conversion or exchange.
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(n) To the knowledge of the Friedli Group, the Holders own the
Converting Securities and the Subject Common Shares, and, upon Conversion of the
Converting Securities, will own the Underlying Shares, free and clear of any and
all liens, pledges, security interests, claims, rights and other encumbrances
other than as contemplated by this Agreement.
(o) Upon the effectiveness of the Conversions, or Repurchases, of the
Converting Securities pursuant to Section 7 or 10 hereof, the Converting Holders
shall have no further rights with regard to the Converting Securities.
(p) As of the date hereof, there is no litigation or governmental
proceeding pending, or, to the knowledge of the Friedli Group, threatened to
restrain, invalidate, prevent, or otherwise impede any transaction contemplated
hereby, the defense of which would, in the judgment of the Company, made in good
faith and based upon the advice of counsel, involve material expense or lapse
of time that would be adverse to the interests of the Company.
(q) The representations and warranties of the Friedli Group set forth
herein are true and complete in all respects as of the date hereof and the
Friedli Group will neither take any action, nor cause or encourage the Holders
to take any action, directly or indirectly, that would cause any of such
representations and warranties to not be true and complete in all respects at
any time until the expiration of the Sale Period or the Outside Repurchase Date,
as the case may be. The Friedli Group shall use its best efforts to cause the
Holders to execute and deliver the Holder Letters to the Company.
14. Representations and Warranties of the Company. As a material inducement
to the Friedli Group's entering into this Agreement, the Company hereby
represents, warrants, covenants and agrees as follows:
(a) The Company is a corporation validly existing and in good standing
under the laws of the State of New York, and has the power and authority to
enter into this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement and the performance 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 of its
obligations hereunder. This Agreement is a valid and binding obligation of, and
is enforceable in accordance with its terms against, the Company.
(b) Neither the execution, delivery or performance of this Agreement by
the Company nor the performance 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
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approval of the Securities and Exchange Commission (the "SEC") is subject to the
accuracy of the Friedli Group's representations and warranties in paragraphs (e)
through (m) of Section 13 hereof and those set forth in paragraphs (i) through
(ix) of the Holder Letters (with respect to Exhibits F-1 and F-2) and paragraphs
(i) and (ii) of the Holder Letters (with respect to Exhibit F-3).
(c) Neither the execution, delivery or performance of this Agreement by
the Company nor the performance 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 or statutes, is subject to the accuracy of the Friedli Group's
representations in paragraphs (e) through (m) of Section 13 hereof and those set
forth in paragraphs (i) through (ix) of the Holder Letters (with respect to
Exhibits F-1 and F-2) and paragraphs (i) and (ii) of the Holder Letters (with
respect to Exhibit F-3).
(d) The person executing this Agreement on behalf of the Company has
been duly authorized to execute and deliver this Agreement on its behalf.
(e) As of the date hereof, there is no litigation or governmental
proceeding pending or, to the knowledge of the Company, threatened to restrain,
invalidate, prevent, or otherwise impede any transaction contemplated hereby,
the defense of which would, in the judgment of the Friedli Group, made in good
faith and based upon the advice of counsel, involve material expense or lapse of
time that would be adverse to the interests of the Friedli Group.
(f) The Company has not filed a petition in bankruptcy or, to its
knowledge, had an involuntary petition in bankruptcy filed against it.
(g) The Company has reserved a number of authorized and unissued
Common Shares that is not less than the total number of Common Shares issuable
upon all of the Conversions, and insofar as one or more Conversions might not
become effective immediately prior to the settlement of the sale of the
respective Underlying Shares as contemplated by this Agreement (as a result of
the provisions of the Restated Certificate of Incorporation of the Company or
otherwise) and the Board is authorized and empowered (pursuant to the provisions
of such Restated Certificate of Incorporation or otherwise) to hasten the
effectiveness of such Conversions, the Board by duly adopted resolution (the
"Conversion Board Resolution") (a certified copy of which shall be delivered to
the Friedli Group upon written request) shall act to render all Conversions
effective immediately prior to the settlement of the sale of the respective
Underlying Shares as contemplated by this Agreement.
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(h) The representations and warranties of the Company set forth herein
are true and complete in all respects as of the date hereof and the Company will
not take any action that would cause any such representations or warranties to
not be true and complete in all respects at any time until the expiration of the
Sale Period or the Outside Repurchase Date, as the case may be.
15. Release; Escrow Agreement. Simultaneously herewith,
pursuant to the terms of an Escrow Agreement of even date (the "Escrow
Agreement") among the Company, the Friedli Group and Certilman Balin Adler &
Hyman, LLP, as escrow agent (the "Escrow Agent"), the Company is executing and
delivering to the Escrow Agent, among other things, a general release of, and
covenant with respect to, among others, the Friedli Group, the Holders, the
Institutions and the Ultimate Beneficial Owners (the "Company Release"), and the
Friedli Group is executing and delivering to the Escrow Agent a general release
of, and covenant with respect to, among others, the Company and all Affiliates
of the Company (the "Friedli Group Release" and collectively with the Company
Release, the "Releases"), in the forms attached hereto as Exhibits G-1 and G-2,
respectively, which Releases and other deliveries shall be held and delivered in
accordance with the terms of the Escrow Agreement. The Friedli Group agrees to
use its best efforts to cause each of the Principal Holders to execute, and
deliver to the Escrow Agent, a general release and covenant in the form of the
Friedli Group Release (the "Principal Holder Releases"), which Principal Holder
Releases shall be held in accordance with the terms of the Escrow Agreement,
including, without limitation, the conditions for delivery to the Company
therein.
16. Payment in Lieu of Dividends. The Company agrees to pay to
the Series B Holders, Series D Holders and Series E Holders an amount (the "In
Lieu Amount") in cash that would have been payable to such Preferred Holders had
the Company declared a cash dividend or dividends covering the period(s) through
the date of Conversion of such shares or the Repurchase Closing Date, as the
case may be, in the respective amounts of the dividend preferences set forth in
the Company's Certificate of Incorporation, with regard to the Series B
Preferred Shares, the Series D Preferred Shares and the Series E Preferred
Shares. The In Lieu Amount shall be payable on the first anniversary of the
sixtieth (60th) day of the Sale Period, except that, in the event that there are
no Repurchase Securities, the In Lieu Amount shall be payable on the earlier of
(a) the expiration of the Sale Period or (b) the sale of all of the Shares
pursuant to Section 9 hereof. Notwithstanding the foregoing, the Company's
payment obligation hereunder shall be subject to and conditional upon Friedli
Compliance, Holder Compliance and Bader Compliance as of and through the date of
Conversion of such shares or the Repurchase Closing Date, as the case may be.
17. Consulting Fees. In full and complete satisfaction and settlement of
any and all claims of any nature whatsoever, whether at law, in equity or
otherwise, which the Friedli Group may have against the Company and any and all
Affiliates thereof for consulting, advisory, investment banking or similar or
related fees, or for costs and expenses incurred in connection therewith, the
Company agrees to pay to Friedli AG, and the Friedli Group hereby agrees that
Friedli AG shall accept from the Company, the aggregate sum of three hundred
seventy-five thousand dollars ($375,000) (the "Friedli Settlement Amount").
The Friedli Settlement Amount shall be
16
<PAGE>
delivered by the Company to the Escrow Agent within five (5) business days after
the Holders shall have executed and delivered all Holder Documents, including,
without limitation, the Permitted Holder Sell Orders, and shall be held in
accordance with the terms of the Escrow Agreement, including, without
limitation, the conditions for delivery to Friedli AG therein. In the event the
Friedli Settlement Amount is redelivered to the Company pursuant to the terms of
the Escrow Agreement, the Friedli Group and the Company shall have any and all
rights, powers, remedies and defenses now or hereafter existing at law or in
equity, by statute or otherwise, with respect to any and all claims of any
nature whatsoever that either may have against the other.
18. Preferred Share Exchange; Redemption of Notes.
(a) The Company agrees to irrevocably offer to the holders of the Series
F Preferred Shares of the Company, for a period of sixty (60) days commencing on
the expiration of the Sale Period (the "Exchange Period"), the right to exchange
such shares, on a one-to-one basis, for duly authorized, validly issued, fully
paid and nonassessable Series K Preferred Shares of the Company, such Series K
Preferred Shares to have the same relative rights, powers, preferences,
qualifications and limitations as the Series F Preferred Shares, except that the
term "Conversion Price", as used with respect to the Series K Preferred Shares,
shall mean three dollars fifty cents ($3.50). Notwithstanding the foregoing, the
Company's obligation to make such offer shall be subject to and conditional upon
Friedli Compliance, Holder Compliance and Bader Compliance. The Friedli Group
shall use its best efforts to cause each of the holders of the Series F
Preferred Shares to execute and deliver to the Company, in connection with the
exchange, the document attached hereto as Exhibit H, and the consummation of
such exchange, with respect to any particular holder of Series F Preferred
Shares, shall be subject to the Company's receipt of such executed document
prior to the expiration of the Exchange Period.
(b) The Company agrees to advise the registered holders of those certain
promissory notes of the Company, dated as of October 4, 1995, in the aggregate
principal amount of one million four hundred thousand dollars ($1,400,000) that
were issued in connection with the acquisition of the outstanding stock of
Crescent Communications, Inc. (the "Crescent Notes"), on or before December 31,
1997, in writing (with a copy to the Friedli Group) that it will redeem and
prepay the Crescent Notes upon its receipt of the original Crescent Notes for
cancellation, and the Company thereupon shall so redeem and prepay the Crescent
Notes. Notwithstanding the foregoing, the Company's obligation to redeem and
prepay the Crescent Notes shall be subject to and conditional upon Friedli
Compliance, Holder Compliance and Bader Compliance as of and through the
expiration date of the Sale Period.
19. Termination.
(a) The Company shall have the right to terminate all of its obligations
under this Agreement, by written notice to such effect to the Friedli Group, and
to require that the Escrow Agent redeliver the Company Release and other Company
deliveries to the Company, and the Friedli Group Release and any Principal
Holder Releases to the Friedli Group, in the event any Holder Document has not
been executed and delivered to the Permitted Holder Broker-Dealer(s),
17
<PAGE>
the Escrow Agent or the Company, as the case may be, within thirty (30) days of
the date of delivery to the Friedli Group of the Broker-Dealer Designation and
such undelivered Holder Document(s) are not so executed and delivered within
five (5) days of receipt by Friedli AG of written notice to such effect from the
Company.
(b) The Friedli Group shall have the right to terminate all of its
obligations under this Agreement, by written notice to such effect to the
Company, and to require that the Escrow Agent make the redeliveries provided
for in Section 19(a) hereof in the event any of the following shall occur and
shall not have been cured within five (5) days of receipt by the Company of
written notice to such effect from Friedli AG: (i) the Company shall not
have delivered the Broker-Dealer Designation by the Designation Time as
provided for in Section 8(a) hereof, (ii) the Company shall not have delivered
a certified copy of the Conversion Board Resolution following the request made
by the Friedli Group, as provided for in Section 14(g) hereof or (iii) the
Company shall not have delivered the Friedli Settlement Amount to the Escrow
Agent within the period provided for in Section 17 hereof.
(c) In the event of a termination of this Agreement pursuant to the
foregoing provisions of Section 19, no party shall have any liability or
obligation under this Agreement except for any breach of this Agreement that has
occurred prior to the giving of the notice of termination.
20. 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: President
Telecopier Number: (212) 867-0166
With a copy to:
Certilman Balin Adler & Hyman, LLP
90 Merrick Avenue
East Meadow, New York 11554
Attn: Fred S. Skolnik, Esq.
Telecopier Number: (516) 296-7111
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If to Friedli AG:
Freigutstrasse 5, 8002
Zurich, Switzerland
Attn: Christa Wagner
Telecopier Number: 011 411 201 7819
With a copy to:
Morris, James, Hitchens & Williams
P.O. Box 2306
222 Delaware Avenue
Wilmington, Delaware 19899
Attn: Michael J. Maimone, Esq.
Telecopier Number: (302) 571-1750
If to Friedli Inc.:
Freigutstrasse 5, 8002
Zurich, Switzerland
Attn: Peter Friedli
Telecopier Number: 011 411 201 7819
With a copy to:
Morris, James, Hitchens & Williams
P.O. Box 2306
222 Delaware Avenue
Wilmington, Delaware 19899
Attn: Michael J. Maimone, Esq.
Telecopier Number: (302) 571-1750
If to Friedli:
Freigutstrasse 5, 8002
Zurich, Switzerland
Telecopier Number: 011 411 201 7819
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<PAGE>
With a copy to:
Morris, James, Hitchens & Williams
P.O. Box 2306
222 Delaware Avenue
Wilmington, Delaware 19899
Attn: Michael J. Maimone, Esq.
Telecopier Number: (302) 571-1750
or at such other address as any party may specify by notice given to the other
parties hereto in accordance with the provisions hereof.
21. 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.
22. 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.
23. 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 Friedli Group.
24. Waiver of Breach; Partial Invalidity. The waiver by any
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 unen forceable, 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.
25. Binding Nature. This Agreement shall be binding upon the successors,
assigns and legal representatives of the parties hereto.
26. 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.
20
<PAGE>
27. 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. Unless otherwise agreed in writing by
the Company, this Agreement shall be effective only if executed and delivered by
each of the parties hereto.
28. Facsimile Signatures. Signatures transmitted by facsimile transmission
shall be deemed original signatures.
29. Third Party Beneficiary. This Agreement is for the sole
benefit of the parties hereto, the Holders and all Affiliates of the Company. No
third party (other than the Holders and Affiliates of the Company) shall have
any beneficial interest herein, directly or indirectly, nor may any third party
(other than the Holders and Affiliates of the Company) rely on the terms,
provisions, or conditions of this Agreement.
30. 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.
31. 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.
32. Specific Performance; Jurisdiction.
(a) The parties hereby acknowledge and agree that the failure of any
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 parties 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.
(b) 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
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<PAGE>
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.
33. Confidentiality.
(a) Except as otherwise required by applicable law based upon a written
opinion of counsel to the disclosing party reasonably satisfactory to the other
parties, 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 any
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 to an Affiliate thereof
or a Holder, an Institution or an Ultimate Beneficial Owner, which, prior to
such disclosure, shall have executed and delivered to the other parties hereto a
writing 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
Affiliate thereof or a Holder, 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 Confidential
Information, through no act or omission of a party, a Holder, 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.
(b) Nothing herein shall restrict the Company from disclosing publicly
this Agreement and/or the terms and conditions hereof; provided, however, that,
prior to such public disclosure, the Company shall afford Friedli an opportunity
to review and comment thereon; provided further, however, that the Company's
only obligation with respect thereto shall be to reasonably consider in good
faith any comments made.
[Remainder of page intentionally left blank.]
K:\WPDOC\CORP\AMNEX\FRIEDLI\AGREEMEN\MAIN.FIN
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
AMNEX, INC.
By:/s/
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
FRIEDLI CORPORATE FINANCE AG
By:/s/
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
FRIEDLI CORPORATE FINANCE INC.
By:/s/
Signature of Authorized Officer
Name of Authorized Officer
Title of Authorized Officer
PETER FRIEDLI
/s/
Peter Friedli, individually
K:\WPDOC\CORP\AMNEX\FRIEDLI\AGREEMEN\MAIN.FIN
<PAGE>
Renewal and Modification Agreement
This Renewal and Modification Agreement (the "Agreement") is made and
entered into as of this 28th day of February, 1997 by and between American
Network Exchange, Inc., a Delaware corporation ("AMNEX") and National Telecom
USA, Inc., a New Jersey corporation ("NTI").
Recitals
WHEREAS, AMNEX is an interexchange carrier providing both direct dial
and operator assisted services (collectively, the "Services") to subscribers at
COCOT locations throughout the United States;
WHEREAS, NTI is a Dealer and an aggregator of long distance and
operator assisted traffic generated by subscribers at such COCOT locations;
WHEREAS, NTI and AMNEX are parties to a Prime COCOT Aggregator
Agreement dated as of November 24, 1993, as amended to the date hereof (as so
amended, the "COCOT Agreement"), pursuant to which, among other things, NTI has
engaged AMNEX, and AMNEX has agreed to serve, as the principal provider of the
Services to subscribers at substantially all existing and hereafter acquired
COCOT locations of NTI and its Subaccounts;
WHEREAS, NTI and AMNEX are parties to a certain Settlement Agreement
dated November 27, 1995, as amended to the date hereof (as so amended, the
"Settlement Agreement"), pursuant to which, among other things, the parties
completely and finally resolved, compromised and settled all claims asserted and
assertable between them, and in so doing, provided for certain consideration to
be paid to each other, including but not limited to the payment of certain
additional commissions to NTI; and
WHEREAS, subject to the terms and conditions set forth herein, NTI and
AMNEX desire to amend the COCOT Agreement and the Settlement Agreement, in order
to extend and modify their relationship with one another as set forth therein
and governed thereby.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants as hereinafter contained, the parties hereby agree as follows:
- 1 -
<PAGE>
1. Definitions. Except as otherwise defined herein, all capitalized terms used
herein shall have the meanings ascribed to them in the COCOT Agreement or the
Settlement Agreement. To the extent that any term or provision of the COCOT
Agreement or the Settlement Agreement is contrary to or inconsistent with the
terms and provisions of this Agreement, the terms and provisions of this
Agreement shall control.
2. Scope of Agreement. Paragraph 1 of the COCOT Agreement, entitled "Scope of
Agreement", is hereby modified to provide that AMNEX be engaged and serve as the
exclusive (rather than principal) provider of Services to the Phones.
Accordingly, subject to AMNEX's guidelines and Applicable Laws and the terms
hereof, AMNEX shall be entitled to serve as the exclusive carrier for and handle
100% of the Calls.
3. NTI's Rights and Obligations. Paragraph 2 of the COCOT Agreement, entitled
"NTI's Rights and Obligations", is hereby modified to the extent necessary to
incorporate and fully effectuate the following provisions:
(a) NTI shall sell, market and promote only the Services of AMNEX and
shall in no event sell, market or promote the Services of any other carrier or
provider for or in respect of the Phones or Calls.
(b) NTI shall maintain its interstate tariff on file with the Federal
Communications Commission (the "Tariff") and promptly update and modify such
Tariff as may be required by Applicable Law or, if requested in writing by AMNEX
and the request is approved by NTI's counsel, within thirty (30) days after the
date of such written request. NTI shall, with the assistance of AMNEX, and in a
reasonably prompt manner, make the necessary filings to become duly certified or
authorized by the applicable regulatory authorities to provide intrastate
service within the States of New Jersey and Michigan and an additional two (2)
states to be designated by AMNEX. Where required by the applicable state
regulatory authorities, NTI shall, with AMNEX's assistance, file tariffs and,
thereafter, promptly update and modify such tariffs as may be required by
Applicable Law or, if requested in writing by AMNEX and the request is approved
by NTI's counsel, within thirty (30) days after the date of such written
request. NTI shall forward to AMNEX, via overnight mail, all regulatory
complaints within seventy two (72) hours of NTI's receipt of same.
(c) NTI shall no longer be obligated to maintain at least $1,000,000 in
monthly Combined Revenue during the Maintenance Period.
(d) NTI shall no longer be responsible for the provision of
customer services and administrative support to its Subaccounts.
(e) NTI shall no longer be responsible to pay commissions or other
compensation to, or to collect 1+ usage charges from, each of its Subaccounts.
(f) NTI shall no longer be responsible for ensuring (i) that all Phones
are programmed to route and deliver to AMNEX, in the case of operator assisted
calls, only Permitted Operator Assisted Calls, and are otherwise operated in
compliance with Applicable Laws; and (ii) that all Subaccounts comply with the
Act, the Rules, and all Applicable Laws, including the posting requirements
thereunder and the provisions thereof which prohibit the blocking of 800, 950
and 10XXX access codes of interexchange carriers other than AMNEX.
2
<PAGE>
(g) NTI shall maintain all of its books and records and provide AMNEX
with originals or copies of all of NTI's agreements, correspondence and magnetic
records as may be requested by AMNEX, for the confidential use by AMNEX as
necessary to provide the Services to the Subaccounts.
(h) NTI shall take whatever steps may be required by Applicable Law or
reasonably deemed necessary or advisable by AMNEX, in order to maintain,
preserve and protect NTI's corporate existence, business, operations and assets
from, among other things, dissolution, bankruptcy, diminution, liens, or other
adverse effects. In that connection, NTI hereby represents, warrants and
covenants with AMNEX, that it is solvent and in good standing in its state of
incorporation and shall so remain at all times during the term of the COCOT
Agreement as amended hereby. NTI further represents, warrants and covenants with
AMNEX, that all of its contracts and other assets are owned by it free and clear
of any and all liens, security interests, mortgages or other encumbrances, and
shall so remain at all times during the term of the COCOT Agreement as amended
hereby. NTI agrees to timely file any and all reports, returns and documents
necessary to effectuate the foregoing, including but not limited to any required
federal or state tax returns.
4. AMNEX's Rights and Obligations. Paragraph 3 of the COCOT Agreement, entitled
"AMNEX's Rights and Obligations", is hereby modified to the extent necessary to
incorporate and fully effectuate the following provisions:
(a) AMNEX accepts and assumes the right and obligation to
become the exclusive provider of the Services to NTI and the
Phones.
(b) AMNEX accepts and assumes the obligation of NTI to provide all
necessary and customary customer services and administrative support to the
Subaccounts. AMNEX shall use its reasonable best efforts to comply with this
obligation.
(c) AMNEX accepts and assumes the obligation of NTI to pay commissions
and other compensation to, and to collect 1+ usage charges from, each of the
Subaccounts. AMNEX shall use its reasonable best efforts to comply with this
obligation.
(d) AMNEX accepts and assumes the obligation of NTI to ensure
(i) that all Phones are programmed to route and deliver to AMNEX or
to NTI, as the case may be, for operator assisted calls, only Permitted Operator
Assisted Calls, and are otherwise operated in compliance with Applicable Laws;
and (ii) that all Subaccounts comply with the Act, the Rules, and all Applicable
Laws, including the posting requirements thereunder and the provisions thereof
which prohibit the blocking of 800, 950 and 10XXX access codes of interexchange
carriers other than AMNEX.
(e) AMNEX agrees to timely provide such data and reports as may be
reasonably required by NTI in order to maintain its records and accounting data.
(f) AMNEX agrees to respond timely and appropriately to all regulatory
complaints generated by Permitted Operator Assisted Calls made from the Phones,
in accordance with the guidelines customarily used by AMNEX and approved by
counsel for NTI.
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<PAGE>
(g) AMNEX agrees to reimburse NTI for all reasonable costs and expenses
it incurs to become duly certified to provide intrastate service within the
states of New Jersey and Michigan and the additional two (2) states designated
by AMNEX, as provided in subparagraph 3(b) hereof.
5. Compensation and Remittances. In consideration of NTI's performance of its
obligations hereunder, and subject to the terms and conditions set forth herein,
in lieu of paying NTI compensation in the manner and at the time provided for in
Paragraph 4 of the COCOT Agreement and the relevant provisions of the Settlement
Agreement (and as may exist by virtue of any existing verbal agreements,
arrangements or course of dealing), AMNEX shall pay NTI a commission, once
monthly, based upon the Billed Revenue (as defined below) generated by the
Phones during each calendar month, such Billed Revenue to be calculated based
upon the total activity of the Subaccounts for the preceding month and to be
paid to NTI by the twentieth (20th) day of the month then following. During the
period commencing March 1, 1997 and ending on February 28, 2000, the amount of
such monthly payment (the "Residual") shall be equal to the greater of $7,500 or
1/2 of 1 percent (.5%) of such Billed Revenue. The amount of the Residual shall
be subject to adjustment by AMNEX and NTI on the third anniversary of the date
hereof, it being understood and agreed that (i) the Residual is intended to
compensate NTI solely for its ongoing obligations of maintaining NTI's
regulatory certifications and authorizations, the Tariff, the state tariffs
(where applicable), NTI's books and records and NTI's corporate existence, as
set forth in and contemplated by subparagraphs 3(b), 3(g) and 3(h) hereof; and
(ii) any adjustment made to the Residual at such time shall be solely for
purposes of more accurately reflecting such intention. The Residual shall be
deemed earned by NTI so long as NTI is in full compliance with this Agreement
and such payment is not in violation of any law, rule, regulation or order with
which AMNEX is required to comply. For purposes hereof, "Billed Revenue" means
gross revenue derived from (i) completed interstate operator assisted calls
originating from the Phones and the Subaccounts or other accounts serviced by
AMNEX, which calls are billed in NTI's name and under the Tariff; and (ii)
completed intrastate operator assisted calls originating from the Phones and the
Subaccounts or other accounts serviced by AMNEX, which calls are billed in
NTI's name (and under NTI's state tariffs, where applicable).
6. Term and Termination. Paragraph 5 of the COCOT Agreement, entitled "Term and
Termination", is hereby modified to provide that the term shall commence as of
March 1, 1997 and shall continue in full force and effect for a period of ten
(10) years thereafter. Upon expiration of this initial ten (10) year term, the
COCOT Agreement, as modified by this Agreement, shall automatically renew for
successive one (1) year periods. Notwithstanding the foregoing, the COCOT
Agreement, as modified by this Agreement, may be terminated as provided in
subparagraph 5(b) and 5(c) of the COCOT Agreement. Subparagraph 5(a) shall not
apply so long as NTI remains in compliance with the terms and provisions of this
Agreement, including but not limited to the obligation to exclusively utilize
the Services of AMNEX, as provided herein.
7. Notices. Paragraph 13 of the COCOT Agreement is hereby modified by
deleting the Connecticut address as set forth therein and substituting in lieu
thereof, the Orlando address as already provided therein, but with copies to be
directed to the Vice President - Legal and Regulatory.
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<PAGE>
8. Modification to and Acknowledgements Concerning the Settlement Agreement. It
is understood and agreed that, notwithstanding anything to the contrary
contained in the Settlement Agreement, AMNEX shall no longer be obligated (i) to
pay NTI any monies for calls originated from any NTI accounts which AMNEX
transfers to MCI's network, as provided in Paragraph 2 of the Settlement
Agreement; or (ii) to pay NTI any commissions with regard to 1+ minutes billed
and collected by AMNEX and originating from NTI's accounts, as provided in
subparagraph 3(a) of the Settlement Agreement. Accordingly, the Settlement
Agreement is hereby modified to delete and exclude those portions of Paragraph 2
and subparagraph 3(a) thereof which make reference to or otherwise pertain to
such obligations of AMNEX to NTI. It is further understood and agreed that all
other monies and obligations on the part of AMNEX to be paid to NTI and to be
performed for the benefit of NTI under and in accordance with the Settlement
Agreement have been fully paid, performed, satisfied and otherwise discharged.
Accordingly, (i) the parties hereto acknowledge and agree that all consulting
fees and consideration required to be paid to NTI under Paragraph 5 of the
Settlement Agreement have been paid in full; (ii) all obligations of AMNEX under
subparagraph 6(a) of the Settlement Agreement relative to the Warrant have been
fully performed and satisfied; and (iii) all monies required to be paid under
Paragraph 7 of the Settlement Agreement with regard to the 75,000 AMNEX, Inc.
shares described therein have been paid in full. As for the Special Fund
provided for in subparagraph 6(c) of the Settlement Agreement, it is understood
and agreed that, notwithstanding anything to the contrary contained in the
Settlement Agreement, (i) such fund and the mechanics thereof shall remain in
effect for and in respect of February 1997; and (ii) commencing March 1, 1997,
such fund and all of the parties' obligations with regard thereto shall
terminate.
9. Grant of the Right and Associated Security Interest. NTI hereby irrevocably
grants to AMNEX the exclusive right to manage the business and operations of NTI
and all contracts and agreements associated therewith, including but not limited
to all contracts of NTI with, among others, any Subaccount, for the full ten
(10) year initial term of the COCOT Agreement, as amended hereby, and any and
all renewals thereof (the "Right"). The Right shall be deemed personal and
proprietary to AMNEX and coupled with an interest, and NTI hereby agrees that
the Right shall be binding upon NTI's successors and assigns and any and all
purchasers of the business, stock or assets of NTI to the same extent and degree
as NTI hereunder. In furtherance of the foregoing, and in order to secure and
protect AMNEX's interest in and to the Right, NTI hereby grants to AMNEX a first
priority lien against and security interest in all written and oral contracts,
contract rights, agreements, arrangements and related intangible rights of NTI,
including but not limited to all contracts of NTI with, among others, any
Subaccount (collectively, the "Operating Contracts"). NTI hereby represents to
AMNEX that it is the sole and absolute owner of the Operating Contracts, that
there are no existing liens, security interests or encumbrances of any kind
whatsoever upon the Operating Contracts, and covenants and agrees with AMNEX
that for so long as AMNEX retains the Grant, NTI shall not, and shall use its
best efforts to ensure that its successors, assigns and purchasers as described
above shall not, (a) create, permit or suffer to exist any such liens, security
interests or encumbrances upon any of the Operating Contracts (except for the
lien and security interest granted to AMNEX herein); or (b) sell, assign,
transfer, hypothecate or otherwise dispose of any of the Operating Contracts
without AMNEX's prior written consent. NTI agrees to defend at its sole expense
the Operating Contracts against the claims and demands of all third parties. NTI
further agrees to join with AMNEX in executing such financing statements
(including amendments thereto and continuation statements thereof) in form
satisfactory to AMNEX as AMNEX may specify, and to take such other steps as
AMNEX may reasonably direct from time to time in order to perfect and protect
AMNEX's lien and security interest as granted herein. NTI hereby irrevocably
authorizes and empowers AMNEX, on behalf of NTI, to execute and file such
financing and continuation statements and to take such other actions as AMNEX
deems necessary or advisable from time to time at NTI's expense to perfect and
continue AMNEX's lien and security interest as granted herein. In the event of
bankruptcy or similar proceedings by or against NTI or an actual or
threatened loss of the Right due to or arising out of NTI's breach of any term
hereof, AMNEX shall be entitled to proceed against, seize and otherwise recover
upon the Operating Contracts in any commercially reasonable manner in order to
compensate it for the loss of the Right. In connection with the foregoing,
simultaneously with the execution hereof, NTI is delivering to AMNEX for filing
with the Secretary of State of the State of Florida, a Form UCC-3 termination
statement, duly executed by Mark B. Arbeit, evidencing the termination and
complete release by him of his security interest in and to all contracts between
NTI and AMNEX, Inc. and all commissions, proceeds and monetary entitlements
arising therefrom.
5
<PAGE>
10. Renewal Incentive. In consideration of extension of the term of the
relationship between AMNEX and NTI as provided hereby, the grant by NTI to AMNEX
of the Right, and for such other good and valuable consideration as may be
derived from the COCOT Agreement, as modified hereby, the following aggregate
consideration (collectively, the "Special Consideration") is being paid to NTI:
(a) simultaneously with the execution hereof, AMNEX is paying the sum
of One Hundred Seventy Five Thousand Dollars ($175,000) and on or before March
31, 1997, AMNEX shall pay the sum of Four Hundred Fifty Thousand Dollars
($450,000), in each case, by wire transfer of immediately available funds to a
depository designated in writing by NTI;
(b) simultaneously with the execution hereof, AMNEX is executing and
delivering to NTI a promissory note in the aggregate principal amount of Five
Hundred Thousand Dollars ($500,000), such note to bear interest on the principal
amount thereof from time to time outstanding at the rate of ten percent (10%)
per annum and to be payable in twelve (12) equal and consecutive monthly
installments of principal and interest; and
(c) upon expiration of the NASDAQ Clearance Period (as defined in
subparagraph 11(b) below), AMNEX, Inc., the parent company of AMNEX, shall issue
and deliver to NTI or Brian E. King, its sole shareholder, or to their
designees, a total of 346,154 shares of the Common Stock of AMNEX, $.001 par
value (the "AMNEX Common Stock"), such number of shares having been calculated
based upon the average closing selling price for the AMNEX Common Stock during
the eighty two (82) day period immediately preceding the date hereof. For
purposes of this Agreement, such shares of AMNEX Common Stock shall hereinafter
be referred to collectively as the "Shares".
It is understood and agreed that the Special Compensation is being given by
AMNEX and AMNEX, Inc. to NTI in material reliance upon NTI's anticipated
compliance with the terms hereof, continuance of the Right for the full term
contemplated hereby, and is in lieu of any and all other consideration,
compensation, payments or other
monies now due and owing or hereafter alleged to be due and owing to NTI under
any and all existing agreements (whether oral or written), arrangements,
understandings or claims arising under or out of or in connection with the COCOT
Agreement or the Settlement Agreement (as it relates to NTI).
11. Acknowledgements and Agreements Concerning the Shares.
(a) It is understood and agreed that the Shares shall not be registered under
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder (collectively, the "1933 Act"). Each of NTI and Brian E.
King, for it or himself, and on behalf of its or his designees, if any,
acknowledges that the Shares are not being registered under the 1933 Act due to
AMNEX's reliance upon Section 4(2) thereof, which section provides an exemption
from registration for certain transactions by an issuer not involving any public
offering. Each of NTI and Brian E. King, for it or himself, and on behalf of its
or his designees, if any, further acknowledges that AMNEX, Inc.'s reliance
thereon is predicated on their representations and warranties contained in
Paragraph 12 below. Accordingly, each of NTI and Brian E. King understands and
will ensure that its and his designees, if any, will understand, that the Shares
must be held indefinitely unless they are subsequently registered under the 1933
Act or an exemption from such registration exists, and that the stock
certificate(s) evidencing ownership of the Shares which they receive shall bear
the following restrictive legend:
6
<PAGE>
"The shares represented by this certificate have not been registered
under the Securities Act of 1933. These shares have been acquired for
investment and not for distribution or resale. They may not be sold,
assigned, mortgaged, pledged, hypothecated, or otherwise transferred
or disposed of without an effective registration statement for such
shares under the Securities Act of 1933 or an opinion of counsel for
AMNEX that registration is not required under such Act."
(b) Notwithstanding anything to the contrary contained herein, AMNEX,
Inc. shall not be obligated to deliver any of the Shares until prior written
notice of their issuance in compliance with Rule 10b-17 promulgated under the
Securities Exchange Act of 1934 (the "1934 Act") shall have been given to NASDAQ
and the National Association of Securities Dealers, Inc. and the applicable
pre-issuance notification period therefor (the "NASDAQ Clearance Period") shall
have expired. AMNEX, Inc. agrees to cause such written notice to be given to
NASDAQ and the National Association of Securities Dealers, Inc. as soon as
reasonably practicable after the date hereof.
(c) Each of NTI and Brian E. King agrees (i) to cause its or
his designees, if any, to execute letters containing
acknowledgments, agreements and representations concerning the Shares which are
identical to the acknowledgments, agreements and representations made by it or
him in Paragraphs 11 and 12 of this Agreement (collectively, the "Designee
Letters"); and (ii) to deliver all such Designee Letters to AMNEX, Inc. prior to
the date of issuance of the Shares. The execution and delivery to AMNEX, Inc. of
a Designee Letter for each such designee, if any, shall be a condition precedent
to AMNEX, Inc.'s obligation to deliver a stock certificate issued in the name of
such designee. Accordingly, notwithstanding anything to the contrary contained
herein, AMNEX, Inc. shall not be obligated to deliver any certificate evidencing
ownership of any Shares by any designee of NTI or Brian E. King, unless and
until AMNEX shall be in receipt of a Designee Letter with respect thereto.
(d) AMNEX, Inc. warrants that upon issuance, the Shares shall be
validly issued, fully paid and nonassessable, subject to the provisions of
Section 630 of the Business Corporation Law of the State of New York, if
applicable.
12. Investment Intent; Qualification as Investor. (a) Each of NTI and Brian E.
King represents and warrants that the Shares are being acquired for its or his
own account, for investment and not with a view to the resale or distribution
thereof within the meaning of the 1933 Act. Each of NTI and Brian E. King
further represents and warrants that it and he shall not sell, assign, transfer,
encumber, or otherwise dispose of any of the Shares unless (i) a registration
statement under the 1933 Act with respect thereto is in effect and the
prospectus included therein meets the requirements of Section 10 of the 1933
Act; or (ii) AMNEX, Inc. has received a written opinion from its counsel that
after investigation of the relevant facts, such counsel is of the opinion that
such proposed sale, assignment, transfer, encumbrance or disposition does not
require registration under the 1933 Act.
7
<PAGE>
(b) Each of NTI and Brian E. King represents that AMNEX, Inc. has
furnished it and him with its recent filings with and reports to the Commission
on Form 10-K for the year ended December 31, 1995, Form 10-Q for the fiscal
periods ended March 31, 1996, June 30, 1996, and September 30, 1996, Form 8-K
and Amendment No. 1 thereto for an event dated June 28, 1996, and Form 8-K for
an event dated November 20, 1996, and that it and he have reviewed the same and
been afforded the opportunity to obtain such other information as necessary to
evaluate the investment contemplated hereby. Each of NTI and Brian E. King
Seller further represents and warrants that it and he are either an "accredited
investor" within the meaning of Rule 501(a) promulgated under the 1933 Act, or
have substantial knowledge and experience in financial and business matters and
are capable of evaluating the merits and risks associated with the acquisition
of the Shares provided for herein. Each of NTI and Brian E. King acknowledges
that such acquisition may entail significant risks.
13. Limitation of Liability; No Warranty. AMNEX MAKES NO WARRANTY, EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO THE MANAGEMENT OR OTHER SERVICES PROVIDED BY
IT HEREUNDER AND EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR WARRANTY
OF FITNESS FOR A PARTICULAR PURPOSE. AMNEX'S LIABILITY HEREUNDER SHALL BE
LIMITED TO ITS OBLIGATION TO PAY THE SPECIAL COMPENSATION AND RESIDUAL TO NTI IN
ACCORDANCE WITH THE TERMS HEREOF. NO PARTY HERETO SHALL BE LIABLE TO ANOTHER
PARTY HERETO FOR ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES OR LOSS OF ANY KIND (WHETHER OR NOT SUCH PARTY WAS ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES OR LOSS), BY REASON OF ANY ACT OR OMISSION IN ITS
PERFORMANCE UNDER THIS AGREEMENT. NOTWITHSTANDING THE FOREGOING, EACH PARTY
SHALL REMAIN LIABLE TO THE OTHER PARTY FOR ALL ACTUAL DAMAGES RESULTING FROM OR
ARISING OUT OF ITS GROSS NEGLIGENCE OR WILLFUL OR WANTON MISCONDUCT IN THE
PERFORMANCE OF, OR THE FAILURE TO PERFORM, ITS OBLIGATIONS HEREUNDER.
14. Indemnification of NTI. AMNEX shall indemnify and hold harmless NTI from and
against any claim made by a third party, which claim is based upon, arises out
of or relates to AMNEX's conduct in performing or failing to perform any of its
obligations hereunder, or to any service provided under the Tariff (or to the
extent applicable, NTI's state tariffs) pursuant to the terms and provisions of
this Agreement or on AMNEX's behalf, or for any violation, alleged violation or
complaint made by a third party regarding compliance with the Act, the Rules or
any Applicable Laws, which violation or complaint arises out of or relates to
AMNEX's conduct in performing or failing to perform any of its obligations
hereunder. For purposes of this Paragraph 14, "third party" shall include any
applicable regulatory agency or governmental authority. This indemnification
shall include, but not be limited to, reasonable attorneys' fees and
disbursements, court costs, and the amount of any monetary judgment or
settlement, including any interest, fines and penalties thereon. NTI shall
provide AMNEX with prompt notice of receipt of any such claim, together with
copies of all documentation received in connection therewith. Upon notice to NTI
that AMNEX desires to assume the defense of any legal action, complaint or
proceeding, AMNEX shall not be liable to NTI for any legal or other expense
subsequently incurred by NTI. In the event that NTI determines that there is a
reasonable probability that any claim may materially and adversely affect NTI
other than as a result of money damages, NTI shall have the right at its sole
cost and expense to defend, compromise or settle such claim. In no event,
however, shall NTI enter into any settlements or compromises with regard to any
claim without AMNEX's prior written consent, which consent shall not be
unreasonably withheld or delayed. AMNEX shall not, without NTI's prior written
consent, which consent shall not be unreasonably withheld or delayed, settle or
compromise a claim or demand or consent to the entry of a judgment against NTI
which does not include as an unconditional term thereof the giving to NTI of a
release from all liability in respect thereof.
15. Mutual Release. Subject only to the exceptions set forth herein, AMNEX
hereby releases NTI, and NTI hereby releases AMNEX, together with each such
party's respective heirs, administrators, successors, assigns, attorneys, share-
holders, officers, directors, employees, representatives and agents, from all
claims, demands, debts, obligations, liabilities, damages, actions, causes of
action and suits at law or equity of whatever kind, whether known or unknown,
anticipated or unanticipated, contingent or otherwise, that each such party
had, now has, or hereafter can, shall or may have, for anything that has
occurred up to and including the date hereof, including but not limited to any
matters relating to or arising out of the COCOT Agreement and the Settlement
Agreement (as it relates to NTI), such as, but not limited to, the distribution
of any monies deposited in the Special Fund. The only exceptions to this
release are the obligations of AMNEX and NTI under this Agreement, the
Settlement Agreement, as amended hereby, and the ZPDI Agreement.
8
<PAGE>
16. Reconciliation of Certain Calls. The regular monthly reconciliation for
payments made and compensation earned for calls made during February 1997 shall
be completed by AMNEX by March 17, 1997 and provided to NTI. Any amounts owed to
NTI shall be paid by AMNEX to NTI on or before March 21, 1997, and any amounts
owed to AMNEX shall be paid by NTI to AMNEX on or before March 24, 1997.
17. Treatment of Certain Advances and Adjustments. Pursuant to a Third Addendum
to the January 28, 1994 Telephone Agreement between NTI and Teleplex Coin Comm.
Inc. ("Teleplex"), (i) NTI has previously advanced $75,000 to Teleplex; and (ii)
there is a balance of $50,000 remaining to be advanced to Teleplex, the payment
of which is required to be made by NTI in four (4) consecutive weekly
installments of $12,500 each, commencing the date hereof. AMNEX agrees to assume
NTI's obligation to pay these four (4) weekly installments. In addition to the
aforementioned $75,000, NTI is owed $10,000 by Global Network, another customer
of NTI to which NTI previously advanced funds. Such $85,000 is scheduled to be
repaid by Teleplex and Global Network within eight (8) months from the date
hereof. It is agreed that, in lieu of passing through such monthly repayments to
NTI, AMNEX will retain them as they are received from Teleplex and Global
Network, and pay out the total sum of $85,000 to NTI under a promissory note
covering such dollar amount, which note shall be payable in full within sixty
(60) days from the date hereof. It is acknowledged and agreed that, by virtue of
an overpayment made in NTI's $70,000 monthly fee to AMNEX, which fee was
adjusted downwards as a result of the sale of Coastal Telecom Payphone Company,
Inc., an affiliate of NTI, to Crescent Public Comunications Inc., an affiliate
of AMNEX, NTI is owed $50,000. Accordingly, AMNEX agrees to repay such $50,000
to NTI by inclusion of such sum in the aforementioned sixty (60) day note.
Accordingly, simultaneously with the execution hereof, AMNEX is executing and
delivering to NTI a
promissory note in the aggregate principal amount of $135,000, such amount to be
payable in full to NTI no later than sixty (60) days from the date hereof.
18. Arrangements Concerning Mark B. Arbeit. It is understood and agreed that
Mark B. Arbeit ("Arbeit"), a senior officer of each of NTI and its affiliated
companies, will be employed by AMNEX in a similar capacity. Accordingly,
effective as of the date Arbeit's employment with AMNEX commences (which date
will be provided by AMNEX to NTI and set forth in a written employment agreement
between AMNEX and Arbeit) (the "Starting Date"), each of NTI and such affiliated
companies (consisting of The Keystone Corporation, National Telecom Hospitality
USA, Inc. and Select Tel Communications, Inc.) shall release Arbeit from any and
all of his obligations under that certain exclusive employment agreement dated
November 19, 1996 (the "Pre-existing Employment Agreement") by and among NTI,
The Keystone Corporation, National Telecom Hospitality USA, Inc., Select Tel
Communications, Inc. and Arbeit, and any non-competition or similar restrictive
agreements relating thereto (but only to the extent that such non-competition
and similar agreements restrict Arbeit's ability to comply with his obligations
under his new employment agreement with AMNEX), such release to be in writing
and in form and substance reasonably acceptable to Arbeit and AMNEX (with a copy
of same being provided to AMNEX simultaneously therewith); provided, however,
that Arbeit executes and delivers to each of NTI and such affiliated companies,
a release in form and substance reasonably acceptable to NTI and such affiliated
companies. Arbeit's employment term under the Pre-existing Employment Agreement
will terminate effective as of the Starting Date and he will thereafter be
deemed to be an exclusive employee of AMNEX.
19. Non-Contravention. (a) In furtherance of the exclusivity provisions hereof,
and in consideration of the benefits to be accrued to him hereunder, Brian E.
King, the President and sole shareholder of NTI, hereby agrees to be personally
bound by the exclusivity provisions of this Agreement to the same extent as NTI
is bound hereunder, and further agrees, for so long as the COCOT Agreement, as
amended hereby, remains in full force and effect and AMNEX retains the Right
granted to it by NTI hereunder, that he shall cause any and all business
opportunities for the reselling of long distance and operator assisted traffic
generated by COCOTs (which is the business currently conducted by NTI) that come
to his attention (collectively, "Business Opportunities", and individually, a
"Business Opportunity"), to be offered or referred to AMNEX, in accordance with
the provisions of subparagraph 19(b) below.
9
<PAGE>
(b) Brian E. King shall offer all Business Opportunities as described
above to AMNEX, as NTI's exclusive manager, and on its behalf, and AMNEX shall
have the right of first refusal with regard thereto (the "Option Right"). The
Option Right must be exercised by AMNEX, if at all, within thirty (30) days
after AMNEX receives written notice from Brian E. King that he has a Business
Opportunity (the "Notice"), which Notice shall include a summary of the
material terms thereof and copies of all correspondence from the reseller
or COCOT at issue. In the event that AMNEX elects to exercise the Option Right,
it shall do so by sending written notice thereof to Brian E. King within the
time period specified above. Upon receipt of such notice from AMNEX, Brian E.
King shall direct such Business Opportunity exclusively to AMNEX, as NTI's
exclusive manager and on its behalf, upon the terms and conditions stated in
the Notice, unless otherwise mutually agreed upon by the relevant parties.
20. Injunctive Relief. In the event of a breach by NTI or Brian E. King of the
exclusivity or non-contravention provisions hereof, it is agreed that AMNEX
shall be without an adequate remedy at law, and in addition to any other rights,
remedies or damages available to it at law or in equity, AMNEX shall be entitled
to such temporary and permanent injunctive relief as shall be necessary or
appropriate to prevent or restrain any such breach or threatened breach, without
the necessity of proving damages, without prejudice to any other remedies which
AMNEX may have at law or in equity, and without obligation to post any security
in connection therewith.
21. Effect of this Agreement. Except as expressly amended hereby, the
terms and provisions of the COCOT Agreement and the Settlement Agreement shall
remain in full force and effect without waiver or modification of the rights of
any party hereto.
22. Miscellaneous Provisions. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to
principles of conflicts of laws. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior and contemporaneous written
or oral agreements, understandings, representations, negotiations and promises
between the parties hereto concerning the subject matter hereof. No
modification, rescission or waiver of this Agreement or any provision hereof
shall be binding unless made in writing and signed by a duly authorized officer
of each party hereto. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. NTI hereby represents and
warrants to AMNEX that it has full power, authority and legal right to execute,
deliver, perform and observe the provisions of this Agreement, that in so doing,
NTI shall not contravene, be in breach of or trigger a default under, its
certificate of incorporation or bylaws or any contracts, agreements, instruments
or other documents to which it is party, and that the execution, delivery and
performance by it of this Agreement has been duly authorized by all necessary
corporate action on its part.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Renewal and
Modification Agreement to be executed as of the date first set forth above by
their respective officers thereunto duly authorized.
AMERICAN NETWORK EXCHANGE, INC.
By:/s/
Name:__________________________
Title:_________________________
AMNEX, INC. *
By:/s/
Name:__________________________
Title:_________________________
* with regard to Paragraphs 10 and 11 hereof only
NATIONAL TELECOM USA, INC.
By:/s/
Name:__________________________
Title:_________________________
/s/
- --------------------------------
Brian E. King, individually **
** with regard to Paragraphs 11, 12, 13, 19, 20 and 22 hereof only
THE KEYSTONE CORPORATION ***
NATIONAL TELECOM HOSPITALITY USA, INC. ***
SELECT TEL COMMUNICATIONS, INC. ***
By:____________________________
Brian E. King, President
*** with regard to Paragraph 18 hereof only
11
<PAGE>
March 1, 1997
Brian E. King
National Telecom USA, Inc.
675 Morris Avenue
Springfield, New Jersey 07081
Dear Mr. King:
Reference is made to that certain Renewal and Modification Agreement dated as of
February 28, 1997 (the "Renewal Agreement") by and between American Network
Exchange, Inc. ("AMNEX") and National Telecom USA, Inc. ("NTI"), pursuant to
which, among other things, AMNEX, Inc., the parent company of AMNEX, agreed to
issue and deliver to NTI or Brian E. King, its sole shareholder, or to their
designees, a total of 346,154 shares of the Common Stock of AMNEX, Inc., in
accordance with the terms and provisions of the Renewal Agreement. Such number
of shares was calculated based upon the average closing selling price for the
AMNEX, Inc. Common Stock during the eighty two (82) day period ending on
February 28, 1997, which average price was $3.25 per share.
It is acknowledged and agreed that, in lieu of issuing and delivering such
346,154 shares to NTI or Brian E. King or their designees, as aforesaid, NTI or
Brian E. King shall be entitled to receive the sum of one million one hundred
twenty five thousand dollars ($1,125,000), which sum shall be wire transferred
by AMNEX to a depository designated in writing by NTI or Brian E. King, in whole
or part, as hereinafter provided, on the earlier to occur of (i) March 31, 1997;
or (ii) the third business day following the date that AMNEX receives written
notification from NTI, Brian E. King or a broker dealer on their behalf, that
any of them has purchased shares of the AMNEX, Inc. Common Stock in the open
market (the "Settlement Date"). It is understood and agreed that the entire
$1,125,000 may be utilized on one occasion to purchase such shares, or portions
of such sum may be utilized on various occasions to purchase groupings of such
shares. If the latter approach is employed, AMNEX shall only be obligated to
wire transfer such portion of the $1,125,000 as shall be necessary to satisfy
the purchase of such shares being made on the relevant Settlement Date. In all
cases, the form of instruction letter attached hereto as Exhibit A shall be
transmitted to broker dealers purchasing such shares on NTI's or Brian E. King's
behalf.
In the event that, on or before March 31, 1997, (i) the entire sum of $1,125,000
shall have been utilized to purchase shares of AMNEX, Inc. Common Stock in the
open market; (ii) all such shares shall have been purchased on NTI's or Brian E.
King's behalf by a broker dealer of AMNEX, Inc.'s choice; and (iii) the
aggregate number of
<PAGE>
Brian E. King
National Telecom USA, Inc.
March 1, 1997
Page 2
such shares delivered to NTI and Brian E. King (collectively, the "Open Market
Shares") shall be less than 346,154, then AMNEX, Inc. shall be obligated to
issue and deliver to NTI or Brian E. King or their designees that number of
unregistered shares of the Common Stock of AMNEX, Inc. as shall equal the
difference between 346,154 and the actual aggregate number of Open Market Shares
delivered to NTI or Brian E. King. For purposes hereof, such number of
unregistered shares to be delivered to NTI or Brian E. King or their designees
shall hereinafter be referred to collectively as the "Spread Shares".
It is expressly understood and agreed that (i) no Spread Shares may be sold,
assigned, mortgaged, pledged, hypothecated or otherwise transferred or disposed
of for a period of two (2) years from the date of such delivery without the
written consent of AMNEX, Inc.; and (ii) all stock certificates evidencing
ownership of any Spread Shares shall bear a restrictive legend to such effect.
AMNEX agrees to cause the Spread Shares, if any, to be issued and delivered to
NTI or Brian E. King or their designees no later than April 30, 1997, subject to
and in accordance with, the terms and provisions of the Renewal Agreement. For
purposes of complying with any holding period mandated by Rule 144 promulgated
under the Securities Act of 1933, and for no other purpose whatsoever, the
original issuance date of the Spread Shares shall, unless otherwise provided by
law or rule, be deemed to be February 28, 1997.
It is further expressly understood and agreed that (i) no Open Market Shares may
be sold, assigned, mortgaged, pledged, hypothecated or otherwise transferred or
disposed of until March 31, 1998 without the written consent of AMNEX, Inc.; and
(ii) all stock certificates evidencing ownership of any Open Market Shares shall
bear a restrictive legend to such effect. In furtherance of the foregoing, NTI
and Brian E. King agree to execute and deliver to AMNEX, Inc.'s transfer agent
and broker dealer an instruction letter in form and substance acceptable to
AMNEX, which letter clearly authorizes such persons to issue or cause the
issuance of all stock certificates for Open Market Shares in NTI's or Brian E.
King's name with the restrictive legend described above.
Notwithstanding anything to the contrary contained herein, AMNEX shall not be
obligated to issue any Spread Shares unless NTI and Brian E. King shall have
complied with the provisions of the immediately preceding paragraph. It is
acknowledged and agreed that all representations and warranties contained in the
Renewal Agreement with respect to the 346,154 shares of AMNEX, Inc. Common Stock
shall apply with equal force and effect to the Spread Shares.
<PAGE>
Brian E. King
National Telecom USA, Inc.
March 1, 1997
Page 3
The parties agree that the terms of this letter agreement may not be modified or
waived except by a written instrument signed by the parties hereto.
If the foregoing accurately and completely sets forth our agreement with respect
to the subject matter hereof, please so indicate by signing below and returning
this letter to the undersigned.
Very truly yours,
AMNEX, INC.
By:/s/
Name:__________________________
Title:_________________________
ACKNOWLEDGED AND AGREED:
NATIONAL TELECOM USA, INC.
By:/s/
Name:__________________________
Title:_________________________
/s/ Brian E. King
- --------------------------------
Brian E. King, individually
<PAGE>
EXHIBIT A
FORM OF INSTRUCTION LETTER TO BROKER DEALER
[name of contact]
[name of broker dealer]
[street address]
[city] [state] [zipcode]
Dear ____________________:
This is to advise you that all purchases of AMNEX, Inc. Common Shares to be made
by you on behalf of National Telecom USA, Inc. or Brian E. King are to be
treated as 10b-18 purchases.
Accordingly, please ensure that such purchases are made in compliance with the
safe harbor provisions of Rule 10b-18 promulgated under the Securities Exchange
Act of 1934.
Thank you for your cooperation.
Very truly yours,
[name of transmitting person]
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS
Year ended December 31,
1996 1995 1994
---- ---- ----
(in thousands except per share data)
Primary Earnings Per Share:
<S> <C> <C> <C>
Weighted average number of shares of
Common Stock outstanding 22,498,915 18,714,369 13,169,540
Net effect of dilutive stock options and warrants
based on the treasury stock method using the average
fair market value in effectfor the period 775,304 702,128 353,275
---------- ----------- -----------
Weighted average share outstanding 23,274,219 19,416,497 13,522,815
========== ========== ==========
Net income (loss) ($4,248) $1,431 $541
Less preferred stock dividends and deemed
dividends (1,016) (543) (291)
----------- ----------- -----------
Net Income (loss) available for common
shares ($5,264) $888 $250
=========== =========== ==========
Net income (loss) per share ($0.23) $0.05 $0.02
=========== =========== ==========
Fully Diluted Earnings Per Share:
Weighted average number of shares of
Common Stock outstanding 22,498,915 18,714,369 13,169,540
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 775,304 702,128 353,275
Net effect of convertible securities 7,734,480 7,282,040 9,224,185
----------- ----------- -----------
Weighted average shares outstanding 31,008,699 26,698,537 22,747,000
========== ========== ==========
Net income (loss) ($4,248) $1,431 $541
Add interest expense on convertible debt,
net of tax 47 37 156
--------------- ------------ ------------
Net income (loss) available for common
shares ($4,201) $1,468 $697
============= ============ ============
Net income (loss) per share ($0.14) $0.06 $0.03
============== ============ ============
</TABLE>
EXHIBIT 21
SUBSIDIARIES
American Network Exchange, Inc.
Capital Network System Inc.
Capital Network International, Inc.1
Capital Network Mexico2
AMNEX International, Inc.
National Billing Exchange, Inc.3
Crescent Public Communications Inc.
American Hotel Exchange, Inc.
Sun Tel North America, Inc.4
Telecommunity & International Network Services, Inc.5
- --------
1Wholly-owned subsidiary of Capital Network System Inc.
2Wholly-owned subsidiary of Capital Network International, Inc.
380%-owned subsidiary of AMNEX, Inc.
480%-owned subsidiary of Crescent Public Communications, Inc.
550%-owned subsidiary of AMNEX, Inc.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-3 No. 33- 58084) pertaining to 20,342,770 Common Shares; (Form S-3 No.
333-15647) pertaining to 1,513,790 Common Shares; (Form S-8 No. 33-37398)
pertaining to the 1987 Stock Option Plan and (Form S-8 Nos. 33-58082, 33-90928
and 333-05659) pertaining to the 1992 Stock Option Plan with respect to
2,250,000 Common Shares of AMNEX, Inc. of our report dated April 4, 1997, with
respect to the consolidated financial statements of AMNEX, Inc. included in its
Annual Report (Form 10-K) for the year ended December 31, 1996, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
New York, New York
April 11, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> dec-31-1996
<PERIOD-START> jan-01-1996
<PERIOD-END> dec-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,947
<SECURITIES> 0
<RECEIVABLES> 24,482
<ALLOWANCES> 2,757
<INVENTORY> 739
<CURRENT-ASSETS> 30,063
<PP&E> 36,332
<DEPRECIATION> 12,481
<TOTAL-ASSETS> 91,359
<CURRENT-LIABILITIES> 35,057
<BONDS> 33,321
0
10,061
<COMMON> 56,120
<OTHER-SE> (32,861)
<TOTAL-LIABILITY-AND-EQUITY> 91,359
<SALES> 117,142
<TOTAL-REVENUES> 117,142
<CGS> 93,863
<TOTAL-COSTS> 93,863
<OTHER-EXPENSES> 26,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,730
<INCOME-PRETAX> (5,694)
<INCOME-TAX> (1,445)
<INCOME-CONTINUING> (5,694)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,248)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
