<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1998
Registration No. 333-46815
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------------
AMNEX, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 11-2790221
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
6 Nevada Drive
Lake Success, New York 11042
(516) 326-2540
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive
Offices)
---------------------
Alan J. Rossi
Chairman and Chief Executive Officer
AMNEX, Inc.
6 Nevada Drive
Lake Success, New York 11042
(516) 326-2540
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
-----------
Copies to:
Joseph W. Bartlett, Esq.
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
(212) 468-8000
----------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------- ---------------------------- ---------------------- ---------------------- ------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to Offering Price Aggregate Offering Amount of
Securities to be Registered be Registered Per Unit(1) Price Registration Fee(3)
--------------------------- ------------- ---------------- ------------------ -------------------
<S> <C> <C> <C> <C>
8 1/2% Convertible Subordinated $15,000,000 100% $15,000,000.00 $4,425.00
Notes Due 2002
Common Shares, $0.001 par 17,339,355(2) $2.00(1) $23,904,408.00(3) $7,051.80(4)
value per share
Common Shares, $0.001 par 505,177(5) $2.16(5) $ 1,091,182.32 $ 321.90
value per share
Total $39,995,590.32 $11,798.70(4)
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the
registration fee, based on the average of the high and low prices
for the Common Stock as reported on the Nasdaq SmallCap Market on
February 17, 1998, in accordance with Rule 457(c).
(2) Shares of Common Stock which may be offered pursuant to this Registration
Statement consisting of (i) 5,387,151 shares issuable upon conversion of
the Notes, (ii) 3,153,154 shares issuable upon conversion of 1,750 shares
of Series M Convertible Preferred Stock and (iii) 1,121,615 shares issuable
upon exercise of the Warrants. For purposes of estimating the number of
shares of Common Stock to be included in this Registration Statement in
respect to the Series M Convertible Preferred Stock (the "Series M
Preferred Stock"), the Company calculated 200% of the number of shares of
Common Stock issuable in connection with the conversion of the Series M
Convertible Preferred stock and the exercise of the warrants issuable in
connection therewith (the "Preferred Warrants"). In addition to the shares
set forth in the table, the amount to be registered includes an
indeterminate number of shares issuable upon conversion of or in respect of
the Series M Convertible Preferred Stock and the Warrants, as such number
may be adjusted as a result of stock splits, stock dividends and
antidilution provisions (including floating rate conversion prices) in
accordance with Rule 416.
(3) Pursuant to Rule 457(i) there is no filing fee with respect to the
5,387,157 shares of Common Stock issuable on conversion of the Notes
because no additional consideration will be received in connection with the
exercise of the conversion privilege.
(4) A registration fee of $11,476.80 was paid on February 24, 1998.
(5) Estimated solely for the purpose of computing the amount of the
registration fee, based on the average of the high and low prices for the
Common Stock as reported on the Nasdaq Small Cap Market on April 23, 1998
in accordance with Rule 457(e)
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME AND REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
AMNEX, INC.
$15,000,000 8 1/2% Convertible Subordinated Notes
Due 2002
17,844,532 Common Shares
This prospectus (the "Prospectus") relates to (a) $15,000,000 aggregate
principal amount of 8 1/2% Convertible Subordinated Notes due 2002 (the "Notes")
of AMNEX, Inc., a New York corporation (together with its subsidiaries, "AMNEX"
or the "Company"); (b) 5,387,157 common shares, par value $.001 per share, of
the Company (the "Common Shares") initially issuable upon conversion of the
Notes (the "Note Conversion Shares"); (c) 3,153,154 Common Shares which are
initially issuable upon conversion of the 1,750 Preferred Shares, Series M par
value $.001 per share of the Company (the "Series M Preferred Shares") (the
"Preferred Conversion Shares"); (d) 1,121,615 Common Shares initially issuable
upon exercise of the Note Warrants, the Preferred Warrants and the Galesi
Warrants (each as defined herein and collectively, the "Warrants") (the "Warrant
Shares"); (e) 8,182,606 Common Shares issued (i) pursuant to the Common Stock
Purchase Agreements, (ii) to Francisco Galesi upon conversion of indebtedness
owed by the Company to Mr. Galesi and (iii) pursuant to the Company's
acquisition of certain assets of Teleplus, Inc. and their acquisition of 80% of
the outstanding shares of National Business Exchange, Inc. ("NBE")
(collectively, the "Common Investor Shares"); and (f) such indeterminate number
of additional Common Shares as may become issuable upon (i) conversion of the
Notes as a result of adjustment to the conversion price, (ii) conversion of the
Series M Preferred Shares as a result of adjustment to the conversion price, and
(iii) exercise of the Note Warrants, the Preferred Warrants or the Galesi
Warrants (collectively, the "Warrants") as a result of adjustment to the
exercise price (collectively, the "Additional Shares"). (The Note Shares, the
Preferred Conversion Shares, the Warrant Shares, the Common Investor Shares and
the Additional Shares are hereafter referred to collectively as, the "Shares").
The Notes and Note Warrants were issued and sold in transactions exempt
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), to persons each of which was reasonably believed by HSBC
Securities, Inc. (the "Initial Purchaser") to be either a "qualified
institutional buyer" (as defined in Rule 144A promulgated under the Securities
Act) or an institution that is an "accredited investor" (as such term is defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) (an "Accredited
Institutional Investor"), or outside the United States to certain persons in
offshore transactions in reliance on Regulation S under the Securities Act. The
Series M Preferred Shares and Preferred Warrants were issued and sold in
transactions exempt from the registration requirements of the Securities Act
pursuant to either Section 4(2) of the Securities Act or Regulation D under the
Securities Act to persons each of which was reasonably believed by the Company
to be an Accredited Institutional Investor. The Common Investor Shares and
Galesi Warrants were issued and sold in transactions exempt from the Securities
Act to persons each of which was reasonably believed by the Company to be an
"accredited investor" (as such term is defined in Rule 501(a) under the
Securities Act). See "Plan of Distribution."
The Notes are convertible into Common Shares at any time at or before
maturity, unless previously redeemed, at a conversion price of $2.7844 per
share, subject to adjustment in certain events (the "Conversion Price"). See
"Description of Notes -- Conversion." The Common Shares are traded on the Nasdaq
SmallCap Market under the symbol AMXI. On April 23, 1998 the last sale price
reported on the Nasdaq SmallCap Market was $2.125 per share.
The Notes do not provide for a sinking fund. The Notes are redeemable at
the option of the Company, in whole or in part, at any time on or after
September 25, 2000 at 100% of the principal amount thereof, together with
accrued interest. The Notes are redeemable at the option of the holders upon a
Designated Event (as defined herein) at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest subject to certain restrictions
and conditions. See "Description of Notes -- Repurchase at Option of Holders."
The Notes are unsecured obligations of the Company and are subordinated to
all present and future Senior Indebtedness (as defined herein) of the Company
and will be effectively subordinated to all indebtedness and other liabilities
of subsidiaries of the Company. As of December 31, 1997 the Company had
approximately $32,391,000 of indebtedness that would have constituted Senior
Indebtedness. The Indenture (as defined herein) does not restrict the incurrence
of any other indebtedness or liabilities by the Company or its subsidiaries. See
"Description of Notes -- Subordination of Notes."
(continued on next page)
---------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is April 29, 1998
<PAGE>
For a description of certain tax consequences to holders of the Notes and
the Shares, see "Certain United States Federal Tax Consequences."
The Notes and the Shares are being registered to permit public secondary
trading by the holders thereof from time to time after the date of the
Prospectus of (i) the Notes and, upon conversion, the underlying Common Shares,
(ii) upon conversion of the Series M Preferred Shares or exercise of the
Warrants, the underlying Common Shares and (iii) the Common Shares by the
Selling Securityholders which directly hold Common Shares. The Company has
agreed, among other things, to bear all expenses (other than underwriting
discounts and selling commissions) in connection with the registration and sale
of the Notes and the Shares covered by this Prospectus.
Upon their original issuance, the Notes became eligible for trading in the
Private Offerings, Resales, and Trading through Automatic Linkages ("PORTAL")
Market. However the Notes sold pursuant to this Prospectus will no longer be
eligible for trading on the PORTAL Market. No assurance can be given that an
active market for the Notes will develop or as to the liquidity or
sustainability of any such market. See "Risk Factors -- Absence of Trading
Market for the Notes; Possible Volatility of Note and Common Share Prices."
The Notes and the Shares are to be offered and sold for the account of the
holders thereof (with the holders of the Warrants (as defined herein) and the
Series M Preferred Shares, collectively, the "Selling Securityholders").
The Company will not receive any of the proceeds from the sale of the Notes
or the Shares by the Selling Securityholders. The Notes and the Shares may be
offered by the Selling Securityholders or their respective pledgees, donees,
transferees or other successors in interest in negotiated transactions or
otherwise, at market prices prevailing at the time of sale or at negotiated
prices. In addition, the Shares may be offered from time to time through
ordinary brokerage transactions on the Nasdaq SmallCap Market. See "Plan of
Distribution." The Selling Securityholders may be deemed to be "Underwriters" as
defined in the Securities Act. If any broker-dealers are used by the Selling
Securityholders, any commissions paid to broker-dealers and, if broker-dealers
purchase any Notes or Shares as principals, any profit received by such
broker-dealers on the resale of the Notes or Shares, may be deemed to be
underwriting discounts or commission under the Securities Act. In addition, any
profits realized by the Selling Securityholders may be deemed to be underwriting
commissions.
- -------------------------------------------------------------------------------
<PAGE>
Information in this Prospectus contains forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995, as
amended (the "Reform Act"). These statements can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," or "continue" or the negative thereof or other comparable
terminology. Certain other factors noted under the heading "Risk Factors" and
throughout this Prospectus constitute cautionary statements identifying
important factors with respect to any such forward-looking statements, including
certain risks and uncertainties, that could cause the Company's actual results
to differ materially from those contained in any such forward-looking
statements.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, the Company files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information can be inspected and copied at
the public reference facilities maintained by the Commission at its office at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549-1004,
and at the Commission's regional offices at 7 World Trade Center, Suite 1300,
New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. Copies of such materials can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004, at prescribed rates. The Commission also maintains
a website (http://www.sec.gov) containing reports, proxy statements and other
information of registrants, including the Company, that file electronically with
the Commission. In addition, the Company's Common Shares are quoted on the
Nasdaq SmallCap Market and reports, proxy statements and other information
concerning the Company can be inspected at the Nasdaq Stock Market, Inc., 1735 K
Street, N.W., Washington, D.C. 20006-1506 and are available upon request, free
of charge, at the office of the paying agent for the Notes in Luxembourg,
Kredietbank S.A. Luxembourgeoise, 43 Boulevard Royal, L-2955 Luxembourg, R.C.
Luxembourg B 6395.
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein, together with all amendments, schedules and exhibits, referred to
as the "Registration Statement") filed by the Company with the Commission under
the Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement and certain parts are omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Notes and Shares offered hereby, reference is
made to such Registration Statement. Statements contained in this Prospectus as
to the contents of any contract or other document referred to are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit or incorporated by reference
into the Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 000-17158) pursuant to the Exchange Act are incorporated
herein by reference:
(1) the Company's Annual Report on Form 10-K for the fiscal years
ended December 31, 1997;
(2) the Company's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1997;
(3) the Company's Current Reports on Form 8-K dated May 3, 1997,
May 28, 1997, June 3, 1997, June 18, 1997, July 30, 1997, September 11, 1997,
December 24, 1997 and February 4, 1998.
(4) the Company's definitive Proxy Statement filed in connection
with the 1997 Annual Meeting of Shareholders dated May 14, 1997; and
(5) the description of the Company's Common Shares contained in
the Company's Registration Statement on Form 10, as amended.
2
<PAGE>
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering of the
Notes and Common Shares hereunder shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of the filing of such
reports and documents. The Company hereby undertakes to provide without charge
to each person, including any beneficial owner, to whom a copy of this
Prospectus is delivered, upon written or oral request of such person a copy of
any or all of the foregoing documents incorporated herein by reference
(exclusive of exhibits, unless such exhibits are specifically incorporated by
reference into such documents). Requests for such documents should be submitted
in writing to the Chief Financial Officer at the corporate headquarters of the
Company at 6 Nevada Drive, Lake Success, New York 11042 or by telephone at (516)
326-2540 or Kredietbank S.A. Luxembourgeoise, 43, Boulevard Royal L-2955
Luxembourg, R.C. Luxembourg B 6395, the Luxembourg paying agent for the Notes.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein modified or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of the Registration Statement or this
Prospectus.
3
<PAGE>
RISK FACTORS
An investment in the securities offered hereby is speculative in
nature, involves a high degree of risk and should not be made by an investor who
cannot afford the loss of his entire investment. The following risk factors
should be considered carefully in addition to the other information contained or
incorporated by reference in this Prospectus before purchasing the Notes or the
Shares offered hereby. In addition to the historical information contained
herein, the discussion in this Prospectus contains certain forward-looking
statements, within the meaning of Section 27A of the Securities Act and Section
27E of the Exchange Act, that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Prospectus should be read as being applicable
to all related forward-looking statements wherever they appear in this
Prospectus. The Company's actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include those discussed below as well as those cautionary statements and other
factors set forth elsewhere or incorporated by reference herein.
Recent Results of Operations. The Company incurred a net loss in 1997
of $13,310,000 based upon revenues of $116,498,000 compared to a net loss in
1996 of $4,248,000 based upon revenues of $117,142,000.
The results for 1997 includes a first quarter restructuring charge
totaling $1,400,000. The first quarter restructuring charge related to the
Company's plan, which is complete, to close certain of its facilities and
eliminate redundant functions. Furthermore, the third quarter includes a
$2,158,000 write-off related to a joint venture investment, $1,310,000 in
charges related to local exchange carriers and customer receivables, and a
$1,315,000 provision established for dial-around compensation.
During the fourth quarter of 1996, the Company began to analyze the
future realizable value of certain assets, including certain receivables,
intangible assets and investments. The Company determined that the value of
these assets has been permanently impaired or otherwise deemed worthless in
large part as a result of changes in the telecommunications industry resulting
from the enactment of the Telecommunications Act of 1996 (the
"Telecommunications Act") and other regulatory action. The charges resulting
from such determination totaled approximately $7,248,000 before income taxes.
Pursuant to SFAS 121, "Accounting for the Impairment of Long-Lived Assets and
Assets to be Disposed of," $3,716,000 was recognized as an impairment loss, and
a write-down to the estimated future realizable value of customer advances and
other receivables of $3,532,000 was incurred.
Recent Shift in Business Focus. The Company is currently shifting its
focus from its core domestic operator services business to higher margin
telecommunications services. The new focus includes emphasis upon 1+ Coin,
direct dial, calling card and billing services, payphone ownership and
operation, and exporting its core competencies to international markets.
Further, the shift in business focus is intended to enable the Company to
exploit certain market niches created by the passage of the Telecommunications
Act. Due to the Company's lack of a long operating history with respect to these
new services, an evaluation of the long-term prospects of such business lines is
difficult to make.
Regulatory and Legislative Uncertainty. The Company is subject to
regulation by the Federal Communications Commission (the "FCC") and the public
service or utilities commissions of the various states (each, a "PUC") in which
the Company operates, and, in the case of international services, by foreign
regulatory authorities. Regulatory actions have had, and are expected to
continue to have, an effect on the Company's results of operations and financial
condition. The Company generally must obtain and maintain certificates of public
convenience and necessity from regulatory authorities in jurisdictions in which
it offers services. In most of these jurisdictions, the Company must publish and
maintain its rates, charges and terms and conditions of service (commonly known
as tariffs) in order to provide telecommunications services. There can be no
assurance that the FCC or any other regulatory authority will not raise material
issues with regard to the Company's compliance with applicable regulations or
that actions of regulatory authorities will not have a material adverse effect
on the Company.
The Company believes that the Telecommunications Act offers many
opportunities to the Company as described herein. Some of these opportunities
are or may be subject to significant change as a result of court decisions
and/or subsequent actions of federal or state regulatory authorities. In
particular, on July 1, 1997, the U.S. Court of Appeals for
4
<PAGE>
the District of Columbia Circuit (the "Court") remanded certain portions of the
FCC's September 1996 dial around compensation ruling (the "1996 Payphone Order")
to the FCC for reconsideration. These issues included, among other things, the
manner in which the FCC established the dial-around compensation for 800
subscriber and access code calls, the manner in which the FCC established the
interim dial-around compensation plan and the basis upon which IXCs (as
hereinafter defined) would be required to compensate payphone service providers
("PSPs"). On September 16, 1997, the Court clarified that it had vacated certain
portions of the FCC's 1996 Payphone Order, including the dial-around
compensation rate.
In accordance with the Court's mandate, on October 9, 1997, the FCC
adopted and released its Second Report and Order in the same docket, FCC 97-371
(the "1997 Payphone Order"). This order addressed the per-call compensation rate
for subscriber 800 and access code calls that originate from payphones in light
of the decision of the Court which vacated and remanded certain portions of the
FCC's 1996 Payphone Order. The FCC concluded that the rate for per-call
compensation for subscriber 800 and access code calls from payphones is the
deregulated local coin rate adjusted for certain cost differences. Accordingly,
the FCC established a rate of $0.284 ($0.35 - $0.066) per call for the first two
years of per-call compensation (October 7, 1997 through October 6, 1999). The
IXCs are required to pay this per-call amount to PSPs, including the Company,
beginning October 7, 1997. After the first two years of per-call compensation,
the market-based local coin-rate, adjusted for certain costs defined by the FCC
as $0.066 per call, is the surrogate for the per-call rate for subscriber 800
and access code calls. These new rule provisions were made effective as of
October 7, 1997.
In addition, the 1997 Payphone Order tentatively concluded that the
same $0.284 per call rate adopted on a going-forward basis should also govern
compensation obligations during the period from November 7, 1996 through October
6, 1997, and that PSPs (as hereinafter defined) are entitled to compensation for
all access code and subscriber 800 calls during this period. The FCC stated that
the manner in which the payment obligation of the IXCs for the period from
November 7, 1996 through October 6, 1997 will be allocated among the IXCs will
be addressed in a subsequent order.
Based on the FCC's tentative conclusion in the 1997 Payphone Order, the
Company adjusted the amounts of dial-around compensation previously recorded
related to the period from November 7, 1996 through September 30, 1997 from the
initial $45.85 rate to $37.20 ($0.284 per call multiplied by 131 calls). As a
result of this adjustment, the provision recorded in the third quarter for
reduced dial-around compensation was approximately $1,315,000.
Based on the information available, the Company believes that the
minimum amount it is entitled to as fair compensation under the Telecom Act for
the period from November 7, 1996 through October 7, 1997 is $37.20 per payphone
per month and the Company, based on the information available to it, does not
believe that it is reasonably possible that the amount will be materially less
than $37.20 per payphone per month. While the amount of $0.284 per call
constitutes the Company's position of the appropriate level of fair
compensation, certain IXCs have asserted in the past, are asserting and are
expected to assert in the future that the appropriate level of fair compensation
should be lower than $0.284 per call. In a letter to the FCC dated August 15,
1997, AT&T stated its intention to make dial-around payments to PSPs based on
its imputed rate of $0.12 per call until the FCC issues a new order setting the
level of fair compensation.
Dependence on Additional Capital for Growth; Acquisition Integration;
Management of Growth. As part of the Company's overall strategy to increase its
ownership of private payphones, the Company will consider various acquisition
opportunities from time to time. This Offering will not result in any net
proceeds to the Company which would be available for such purposes. See "Use of
Proceeds." Accordingly, these opportunities will, in all likelihood, require the
Company to obtain additional financing from banks or other financial
institutions or to undertake debt or equity financing. No assurance can be given
that the Company will be able to obtain such financing or, if obtained, that
such financing would be upon commercially reasonable terms. Additionally, equity
financing would result in a dilution of existing shareholders of the Company,
which may be significant. If debt financing ultimately proves to be available,
any borrowing may subject the Company to various risks traditionally associated
with the incurring of indebtedness, including the risks of interest rate
fluctuations and insufficiency of cash flow to pay principal and interest. In
addition, to the extent the Company does acquire any business, there can be no
assurance that the Company will successfully integrate the operations of the
acquired business with those of the Company, or that all of the benefits
expected from such integration will be realized. Any delays or unexpected costs
incurred in connection with such integration could have an adverse effect on the
combined company's business, operating results or financial condition.
Furthermore, there can be no assurance that the
5
<PAGE>
operations, management and personnel of the combined company will be compatible
or that the Company will not experience the loss of key personnel. In most
cases, an acquisition may be consummated without seeking and obtaining
shareholder approval, in which case, the shareholders will not have an
opportunity to review the financial statements of an acquisition candidate.
Although the Company will endeavor to evaluate the risks inherent in any
particular acquisition, there can be no assurance that the Company will properly
ascertain or assess such risks.
Dependence Upon Executive Officers. The Company has entered into
employment agreements with certain of its executive officers that provide for an
initial term of between one and two years. Due to the expertise of the Company's
executive officers in the telecommunications industry, the loss of the services
of one or more of its executive officers could have a material adverse effect on
the business and operations of the Company. In addition, although the agreements
prohibit the executive officers from interfering with, among other things,
customer relationships of the Company for a period of one year following the
expiration of the term, none of the agreements contains non-competition
provisions. The Company's success will also depend in part on its ability to
attract and retain other qualified and skilled employees. There can be no
assurance that the Company will be able to identify, hire or retain such
employees. The Company's inability to identify, hire or retain qualified
personnel could have a material adverse effect on the Company's operations or
financial condition.
Technological Change and New Services. The telecommunications industry
is characterized by rapid technological change, frequent new service
introductions and evolving industry standards. The Company believes that its
future success will depend on its ability to anticipate such changes and to
offer market responsive services that meet these evolving industry standards on
a timely basis. The effect of technological change upon the Company's business
cannot be predicted, and there can be no assurance that the Company will be able
to anticipate such changes or, if anticipated, that it will have sufficient
resources to make the investments necessary to acquire new technology or
introduce new services to satisfy an expanded range of customer needs.
Seasonal Variations in Revenues. The Company's revenues, and thus its
potential earnings, are affected by holiday and seasonal variations. A
substantial portion of the Company's revenues is generated from payphones, most
of which are outdoors. Accordingly, call volume from payphone usage declines
during the fall and winter months in the Company's northeast and midwest
markets, while call volume in the southeast declines during the summer months.
Similarly, a substantial portion of the Company's international revenues are
derived from tourist locations in Mexico which experience higher usage during
the winter holiday season.
Competition. The telecommunications industry is, and can be expected
to remain, highly competitive. The Company's TelCom Division experiences
competition from AT&T Corp. ("AT&T"), MCI Communications, Inc. ("MCI"), Sprint
Corporation ("Sprint"), WorldCom, Inc. ("WorldCom") and other long distance
carriers including, in Mexico, Telefonos de Mexico, S.A. de C.V. The Company's
PubCom Division competes with owners of private (i.e., not owned by a local
exchange carrier ("LEC")) - owned pay phones ("IPP"), such as Peoples Telephone
Company and PhoneTel Technologies, Inc., and LECs. The Company's Billing
Division competes primarily with two major clearinghouses which currently
dominate the billing services market: Billing Information Concepts Inc. ("BIC")
(formerly known as Zero Plus Dialing, Inc.) and OAN Services, Inc. ("OAN").
Service Interruptions; Equipment Failures. The Company's business
requires transmission and switching facilities and other equipment to be
operational 24 hours per day, 365 days per year. Interexchange carriers
("IXCs"), including the Company, have on occasion experienced and may in the
future experience temporary service interruptions or equipment failures, in some
cases resulting from causes beyond their control, including power failures,
fires, floods or other natural disasters at switching facilities, failures
caused by unanticipated hardware or software defects or work stoppages or other
personnel related problems. Any such event experienced by the Company would
impair the Company's ability to service its customers and could have a material
adverse effect on the Company's business, operating results and financial
condition.
6
<PAGE>
International Operations. The Company's international operations are
subject to a number of risks which could materially affect the Company's
business, operating results and financial condition, including unexpected
changes in regulatory requirements, the burden of complying with a variety of
foreign laws, the imposition of, or increase in, tariffs, difficulties in
staffing and managing foreign operations, greater difficulty in accounts
receivable collection, potentially adverse tax consequences, and potential
political and economic instability.
Subordination of Notes. The Notes are unsecured and subordinated in
right of payment in full to all existing and future Senior Indebtedness. As a
result of such subordination, in the event of bankruptcy, liquidation or
reorganization of the Company, or upon the acceleration of any Senior
Indebtedness, the assets of the Company will be available to pay obligations on
the Notes only after all Senior Indebtedness had been paid in full, and there
may not be sufficient assets remaining to pay amounts due on any or all of the
Notes then outstanding. Moreover, holders of Common Shares would only receive
the assets remaining after payment of all indebtedness and preferred shares. The
Notes are effectively subordinated to the liabilities, including trade payables,
of the Company's subsidiaries. The Company expects from time to time to incur
indebtedness constituting Senior Indebtedness. The Indenture does not prohibit
or limit the incurrence of additional Senior Indebtedness by the Company or the
incurrence of additional indebtedness or liabilities by the Company or its
subsidiaries. The incurrence of additional indebtedness or liabilities by the
Company or its subsidiaries could adversely affect the Company's ability to pay
its obligations on the Notes. As of December 31, 1997, the Company had
approximately $32,391,000 of Senior Indebtedness outstanding, and the
indebtedness and all other liabilities of the Company (excluding intercompany
indebtedness) were approximately $40,638,000.
The Notes are obligations exclusively of AMNEX, Inc. and not of its
subsidiaries. AMNEX, Inc. is a holding company with no operations independent of
its subsidiaries. AMNEX, Inc.'s cash flow and ability to service debt, including
the Notes, is dependent upon the earnings of its subsidiaries and the payment of
dividends or the making of loans or advances to AMNEX, Inc. by its subsidiaries.
In addition, the payment of dividends and the making of loans and advances to
AMNEX, Inc. by the subsidiaries, not all of which are wholly-owned, may be
subject to statutory, contractual or other restrictions, are dependent upon the
earnings of those subsidiaries and are subject to various business
considerations. See "Description of Notes--Subordination of Notes."
Limitations on Repurchase of Notes Upon Occurrence of Designated Event.
Upon a Designated Event, which includes a Change of Control or a Termination of
Trading (each as defined), each holder of Notes will have certain rights, at the
holder's option, to require the Company to repurchase all or a portion of such
holder's Notes. If a Designated Event were to occur, there can be no assurance
that the Company would have sufficient funds to pay the repurchase price for all
Notes tendered by the holders thereof. Any future credit agreements or other
agreements relating to other indebtedness (including Senior Indebtedness) to
which the Company becomes a party may contain provisions which prohibit the
Company from repurchasing any Notes and also may provide that a Designated
Event, as well as certain other events with respect to the Company or its
subsidiaries, would constitute an event of default thereunder. In the event a
Designated Event occurs at a time when the Company is prohibited from
repurchasing Notes, the Company could seek the consent of its lenders to the
repurchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company would remain prohibited from repurchasing Notes. In such
case, the Company's failure to repurchase tendered Notes would constitute an
Event of Default (as defined) under the Indenture, which would, in turn,
constitute a further default under the existing credit agreements and may
constitute a default under the terms of other indebtedness that the Company may
enter into from time to time. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to the holders of
Notes. See "Description of Notes--Repurchase at Option of the Holders."
Common Shares Eligible for Future Sale; Potential for dilution. The
sale of a substantial number of the Common Shares in the public market could
adversely affect the market price of the Common Shares and the Notes. Certain
persons have and will have the right to sell a substantial number of Common
Shares publicly. See "Description of Capital Stock--Registration Rights".
As of February 23, 1998, 1,750 shares of the Company's Series M
Convertible Preferred Stock (the "Series M Preferred Stock") were issued and
outstanding. Each share of the Series M Preferred Stock is convertible into such
number of shares of Common Stock as is determined by dividing the stated value
($1,000) of the share of Series M Preferred Stock (as such value is increased by
a premium based on the number of days the Series M Preferred Stock is
7
<PAGE>
held) by the then current Conversion Price (which is determined by reference to
the then current market price). If converted on February 23, 1998, the Series M
Preferred Stock would have been convertible into approximately 3,153,154 shares
of Common Stock, but this number of shares could prove to be significantly
greater in the event of a decrease in the trading price of the Common Stock.
Purchasers of Common Stock could therefore experience substantial dilution of
their investment upon conversion of the Series M Preferred Stock. The shares of
Series M Preferred Stock are not registered and may be sold only if registered
under the Securities Act or sold in accordance with an applicable exemption from
registration, such as Rule 144. the shares of Common Stock into which the Series
M Preferred Stock may be converted are being registered pursuant to this
Registration Statement.
As of February 23, 1998, warrants to purchase 105,000 shares of Common
stock issued to the purchasers of the Series M Preferred Stock and exercisable
over the next five years at a price of $2.65 (as may be adjusted from time to
time under certain antidilution provisions) were outstanding. The shares of
Common Stock issuable upon exercise of these warrants are being registered
pursuant to this Registration Statement.
As of February 23, 1998, 3,200,000 shares of Common Stock were reserved
for issuance upon conversion of the Series M Preferred Stock and exercise of the
Preferred Warrants.
Absence of a Trading Market for the Notes; Possible Volatility of Note
and Common Share Prices. Upon their original issuance, the Notes became eligible
for trading on the PORTAL Market. The Notes sold pursuant to this Prospectus,
however, will no longer be eligible for trading on the PORTAL Market. There can
be no assurance that an active trading market for the Notes will develop or as
to the liquidity or sustainability of any such market, the ability of the
holders to sell their Notes or the price at which holders of the Notes will be
able to sell their Notes. Future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
operating results, the price of the Company's Common Shares and the market for
similar securities. The Company does not intend to apply for listing of the
Notes on any securities exchange or quotation system.
If a market for the Notes were to develop, the Notes could trade at
prices that may be higher or lower than their initial offering price depending
upon many factors, including prevailing interest rates, the Company's operating
results and the markets for similar securities. Historically, the market for
non-investment grade debt has been subject to disruptions that have caused
substantial volatility in the prices of securities similar to the Notes. There
can be no assurance that, if a market for the Notes were to develop, such a
market will not be subject to similar disruptions. The liquidity of, and trading
market for, the Notes and the Common Shares may also be materially and adversely
affected by declines in the market for debt and equity securities generally.
Such a decline may materially and adversely affect such liquidity and trading
independent of the financial performance of, and prospects for, the Company. In
addition, the market price of the Common Shares has varied significantly and may
be volatile depending on news announcements or changes in general market
conditions. In particular, news announcements regarding quarterly results of
operations, competitive developments, litigation or governmental regulatory
actions impacting the Company may adversely affect the Common Share price. Any
decrease in the market price of the Common Shares would adversely affect the
market price of the Notes. See "Description of Notes" and "Plan of
Distribution."
8
<PAGE>
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for each of the
periods indicated is as follows:
RATIO OF EARNINGS TO FIXED CHARGES (in 000's)
<TABLE>
<CAPTION>
For year Ended December 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated pretax income $(3,814) $273 $1,226 $1,760 $(5,694) $(13,030)
(loss) from continuing
operations
Interest 1,168 1,185 1,793 2,044 2,730 3,913
Interest portion of rental 333 300 384 413 552 671
expense
========== ========= ========== ========= ========== ==========
Earnings (2,313) 1,758 3,403 4,217 (2,412) (8,446)
========== ========= ========== ========= ========== ==========
Interest 1,168 1,185 1,793 2,044 2,730 3,913
Interest portion of rental 333 300 384 413 552 671
expense
---------- --------- ---------- --------- ---------- ----------
Fixed charges 1,501 1,485 2,177 2,457 3,282 4,584
========== ========= ========== ========= ========== ==========
Ratio of Earnings to Fixed def 1.18x 1.56x 1.72x def def
Charges(1)
</TABLE>
- ------------------------------
(1) The coverage deficiency for 1992, 1996 and 1997, was approximately
$3,814,000, $5,694,000 and $13,030,000, respectively.
For purposes of computing the ratio of earnings to fixed charges,
earnings consist of income before taxes plus fixed charges. Fixed charges
consist of interest expense incurred, including capital leases, amortization of
interest costs and the portion of rental expense under operating leases deemed
by the Company to be representative of the interest factor. Earnings were not
sufficient to cover fixed charges for fiscal 1992, 1996 and 1997 by
approximately $3,814,000, $5,694,000 and $13,030,000, respectively.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Notes or the Shares by the Selling Securityholders. See "Selling
Securityholders" for a list of those persons and entities receiving proceeds
from sales of Notes or Shares. This Registration Statement is intended to
satisfy certain of the Company's obligations under the Note Registration Rights
Agreement, the Preferred Registration Rights Agreement and the Common Stock
Purchase Agreements.
9
<PAGE>
DIVIDEND POLICY
The Company has neither declared nor paid any dividends on the Common
Shares since inception, and the board of directors of the Company (the "Board of
Directors") does not contemplate the payment of dividends for the foreseeable
future. Any decision as to the 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.
SELLING SECURITYHOLDERS
The Notes and the Warrants issued to the Initial Purchaser pursuant to
the Warrant Agreement dated as of September 29, 1997 between the Company and the
Initial Purchaser (the "Note Warrants") were originally issued by the Company
and sold by the Initial Purchaser in a transaction exempt from the registration
requirements of the Securities Act to persons reasonably believed by such
Initial Purchaser to be "qualified institutional buyers" (as defined by Rule
144A under the Securities Act) or in transactions complying with the provisions
of Regulation S under the Securities Act. The Series M Preferred Shares were
originally issued and sold by the Company on December 24, 1997 and January 26,
1998 pursuant to certain Securities Purchase Agreements (the "Preferred Stock
Purchase Agreements"), dated as of December 24, 1997 and January 26, 1998,
between the Company and Pangaea Fund Ltd. and Fourteen Hill Capital L.P.,
respectively. The Company also issued warrants to the investors who were parties
to the Preferred Stock Purchase Agreements on December 24, 1997 and January 26,
1998 pursuant to certain Stock Purchase Warrants, dated as of December 24, 1997
and January 26, 1998, between the Company and such investors (the "Preferred
Investor Warrants") and to Tanner Unman Securities Inc. pursuant to certain
Stock Purchase Warrants, dated as of December 24, 1997 and January 26, 1998,
between the Company and Tanner Unman Securities Inc. (the "Fee Warrants" and,
together with the Preferred Investor Warrants, the "Preferred Warrants"). The
Series M Preferred Shares and Preferred Warrants were issued in transactions
exempt from the registration requirements of the Securities Act pursuant to
either Section 4(2) of the Securities Act or Regulation D under the Securities
Act to persons each of which was reasonably believed by the Company to be an
Accredited Institutional Investor. The Common Investor Shares were originally
issued and sold on January 14, 16, 22, 26 and February 4, 1998 pursuant to
certain Stock Purchase Agreements dated as of the same dates, between the
Company and the investors named therein (the "Common Stock Purchase Agreements")
to Francesco Galesi upon conversion of indebtedness owed by the Company to
Mr. Galesi and pursuant to the Company's acquisition of certain assets of
Teleplus, Inc. and 80% of the outstanding shares of NBE. The Company also issued
warrants to Mr. Galesi on January 26, 1998 (the "Galesi Warrants") pursuant to a
certain Common Stock Warrant, dated as of January 26, 1998, between the Company
and Mr. Galesi. The Common Investor Shares and Galesi Warrants were issued and
sold in transactions exempt from the Securities Act to persons each of which was
reasonably believed by the Company to be an "accredited investor" (as such term
is defined in Rule 501(a) under the Securities Act).
The Selling Securityholders (which term includes the holders listed in
any supplement to this Prospectus (a "Supplement") and (i) the beneficial owners
of the Notes and their transferees, pledges, donees or successors, (ii) with
respect to the Common Shares issuable upon exercise of the Warrants, the holders
of the Warrants and their respective transferees, pledgees, donees or successors
and (iii) with respect to the Common Shares issuable upon conversion of the
Series M Preferred Shares, the holders of the Series M Preferred Shares and
their respective transferors, pledgees donees or successors) may from time to
time offer and sell pursuant to this Prospectus any and all of the Notes and
Shares. Any Supplement may contain certain information with respect to the
Selling Securityholders and the respective aggregate principal amount of Notes
or Shares beneficially owned by each Selling Securityholder that may be offered
pursuant to this Prospectus. Such information will be obtained from the Selling
Securityholders and the Trustees.
Except as may be set forth in any Supplement hereto and except for
Francesco Galesi, A. Jones Yorke and Harry Thompson, who have served and
currently serve as directors of the Company and Alan Rossi, Cynthia Terrell and
Peter Izzo who have served and currently serve as officers, and in the case of
Mr. Rossi and Mr. Izzo also serve as directors, none of the Selling
Securityholders have, or within the past three years has had, any position,
office or other material relationship with the Company or its affiliates.
Because the Selling Securityholders may, pursuant to this Prospectus, offer all
or some portion of the Notes or Shares, no estimate can be given as to the
principal amount of Notes or the number of Shares issuable upon conversion of
the Notes or Series M Preferred Shares, or exercise of the Warrants that will be
held by the Selling Securityholders upon termination of any such sales. In
addition, the Selling Securityholders may have sold, transferred or otherwise
disposed of all or a portion of their Notes or Shares in transactions exempt
from the requirements of the Securities Act.
10
<PAGE>
PLAN OF DISTRIBUTION
The Notes and the Shares are being registered to permit public
secondary trading of such securities by the holders thereof from time to time
after the date of the Prospectus. The Company has agreed, among other things, to
bear all expenses, including reasonable fees and disbursements of one firm or
counsel designated to act as counsel for the Holders (other than underwriting
discounts and selling commission) in connection with the registration and sale
of the Notes and the Shares covered by this Prospectus. The Company will not
receive any of the proceeds from the offering of Notes or the Shares by the
Selling Securityholders.
The Shares being offered by the Selling Securityholders or their
respective pledgees, donees, transferees or other successors in interest, will
be sold in one or more transactions (which may involve block transactions) on
the Nasdaq SmallCap Market or on such other market on which the Common Stock may
from time to time be trading, in privately-negotiated transactions, through the
writing of options on the shares, short sales or any combination thereof. The
sale price of the public may be the market price prevailing at the time of sale,
a price related to such prevailing market price or such other price as the
Selling Stockholders determined from time to time. The Shares may also be sold
pursuant to Rule 144. The Selling Stockholders shall have the sole and absolute
discretion not to accept any purchase offer or make any sale of Shares if they
deem the purchase price to be unsatisfactory at any particular time.
The Selling Securityholders or their respective pledgees, donees,
transferees or other successors in interest, may also sell the shares directly
to market makers acting as principals and/or broker-dealers acting as agents for
themselves or their customers. Brokers acting as agents for the Selling
Securityholders will receive usual and customary commissions for brokerage
transactions, and market makers and block purchasers purchasing the Shares will
do so for their own account and at their own risk. It is possible that a Selling
Securityholder will attempt to sell shares of Common Stock in block transactions
to market makers or other purchasers at a price per share which may be below the
then market price. There can be no assurance that all or any of the Shares
offered hereby will be issued to, or sold by, the Selling Stockholders. The
Selling Stockholders and any brokers, dealers or agents, upon effecting the sale
of any of the Shares offered hereby, may be deemed "underwriters" as that term
is defined under the Securities Act or the Exchange Act, or the rules and
regulations thereunder.
Alternatively, any of the Selling Securityholders may from time to time
offer the Notes or the Shares beneficially owned by them through underwriters,
dealers or agents, who may receive compensation in the form of underwriting
discounts, commissions or concessions from the Selling Securityholders and the
purchasers of the Notes or Shares for whom they may act as agent. The aggregate
proceeds to the Selling Securityholders from the sale of the Notes or Shares
offered by them hereby will be the purchase price of such Notes or shares less
discounts and commissions, if any.
The outstanding Common Shares are listed for trading on the Nasdaq
SmallCap Market, and the Shares have been approved for listing on the Nasdaq
SmallCap Market.
The Selling Securityholders and any broker and any broker-dealers,
agents or underwriters that participate with the Selling Securityholders in the
distribution of the Notes or the Shares may be deemed to be "underwriters"
within the meaning of the Securities Act, in which event any commissions
received by such broker-dealers, agents or underwriters and any profit on the
resale of the Notes or the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
In addition, any securities covered by this Prospectus which qualify
for sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold
under Rule 144 or Rule 144A rather than pursuant to this Prospectus. There is no
assurance that any Selling Securityholder will sell any or all of the Notes or
Shares described herein, and any Selling Securityholder may transfer, devise or
gift such securities by other means not described herein.
Pursuant to the Note Registration Rights Agreement (as hereinafter
defined), the Company has agreed to indemnify the Initial Purchaser and each
Noteholder that is a Selling Securityholder, and each Noteholder that is a
Selling Securityholder has agreed to indemnify the Company, the Initial
Purchaser and each other Selling Securityholder against certain liabilities
arising under the Securities Act.
11
<PAGE>
Under the Note Registration Rights Agreement, the Company agreed to use
its best efforts to keep the registration statement of which this Prospectus is
a part effective for a period of two years from the Closing, or until the Shelf
Registration Statement is no longer required for transfer of the Notes or the
Common Shares issuable upon conversion of the Notes or exercise of the Note
Warrants. The Company may prohibit offers and sales of Notes and such Shares
pursuant to the registration statement of which this Prospectus forms a part at
any time if (i) the Commission issues any stop order suspending the
effectiveness of the Shelf Registration Statement or initiates any proceedings
for that purpose; (ii) the Company receives any notification with respect to the
suspension of the qualification of the securities included in the Shelf
Registration Statement for sale in any jurisdiction or the initiation or threat
of any proceeding for such purpose; (iii) (x) the use of this Prospectus is
suspended pursuant to the terms of the Note Registration Rights Agreement or (y)
any event occurs that requires the making of any changes in the Shelf
Registration Statement or this Prospectus so that, as of such date, the
statements therein or herein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of this Prospectus, in the light of the circumstances under
which they were made) not misleading; and (iv) the Company determines, in its
reasonable judgment, that it is advisable to suspend use of this Prospectus for
valid business reasons (not including avoidance of the Company's obligations
under the terms of the Note Registration Rights Agreement) including, among
other things, the acquisition or divestiture of assets, public filings with the
Commission, pending corporate developments and similar events. Expenses of
preparing and filing the registration statement to which this Prospectus relates
and all post-effective amendments thereto will be borne by the Company.
Pursuant to that certain Registration Rights Agreement, dated as of
December 24, 1997 between the Company Pangaea Fund Ltd. (the "Preferred
Registration Rights Agreement") whose terms are (a) incorporated by reference
into the Common Stock Purchase Agreements and (b) substantially identical to the
terms of the January 26, 1998 Registration Rights Agreement between the Company
and Fourteen Hill Capital, L.P., the Company has agreed to indemnify each of
Pangaea Fund Ltd., Granite Associates, L.P., Victory Ventures L.L.C., Brae
Group, Inc., NFAM LLC, AMN Investments, L.L.C., Fourteen Hill Capital L.P., Alan
Rossi, Francis Galesi, Peter Izzo, Cynthia Terrell, A. Jones Yorke and Harry
Thompson (collectively, the "Investors"), and each Investor has agreed to
indemnify the Company against certain liabilities arising under the Securities
Act.
Under the Preferred Registration Rights Agreement, the Company will use
its best efforts to keep this registration statement of which this Prospectus is
a part effective until the Shelf Registration Statement is no longer required
for transfer of the Common Investor Shares or the Common Shares issuable upon
conversion of the Series M Shares or upon conversion of the Preferred Warrants.
The Company may prohibit offers and sales of such Shares pursuant to the
registration statement to which this Prospectus relates at any time if (i) the
Commission issues any stop order suspending the effectiveness of the Shelf
Registration Statement or initiates any proceedings for that purpose; (ii) the
Company receives any notification with respect to the suspension of the
qualification of the securities included in the Shelf Registration Statement for
sale in any jurisdiction or the initiation or threat of any proceeding for such
purpose; (iii) any event occurs that requires the making of any changes in the
Shelf Registration Statement or this Prospectus so that, as of such date, the
statements therein or herein are not misleading and do not omit to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of this Prospectus, in the light of the circumstances under
which they were made) not misleading; and (iv) the Company determines, in its
reasonable judgment, that it is advisable to suspend use of this Prospectus for
valid business reasons (not including avoidance of the Company's obligations
under the terms of the Preferred Registration Rights Agreement) including, among
other things, the acquisition or divestiture of assets, public filings with the
Commission, pending corporate developments and similar events. Expenses of
preparing and filing the registration statement to which this Prospectus relates
and all post-effective amendments thereto will be borne by the Company.
DESCRIPTION OF NOTES
General
The Notes were issued pursuant to an Indenture, dated as of September
29, 1997 (the "Indenture"), between the Company and Marine Midland Bank, as
trustee (the "Trustee"). The following summary of certain provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions in the Indenture of
certain terms used in the following summary. The definitions of certain terms
used in the
12
<PAGE>
following summary are set forth below under "Certain Definitions." Wherever
particular sections or defined terms of the Indenture are referred to, such
sections or defined terms are incorporated herein by reference. Copies of the
Indenture are available from the Company or the Initial Purchaser upon request.
The Notes are unsecured subordinated obligations of the Company,
subordinated in right of payment to all existing and future Senior Indebtedness
of the Company to the extent set forth in the Indenture.
Principal, Maturity and Interest
The Notes bear interest from September 25, 1997, at the rate per annum
set forth on the cover page of this Prospectus, and mature on September 25,
2002. At maturity the Notes are redeemable at 100% of the principal amount,
together with accrued and unpaid interest and Liquidated Damages, if any.
Interest on the Notes is payable semiannually on March 25 and September
25 of each year (each an "Interest Payment Date"), commencing on March 25, 1998,
to holders of record at the close of business on the March 10 or September 10
(each a "Regular Record Date") immediately preceding such Interest Payment Date.
Interest is computed on the basis of a 360-day year comprised of twelve 30-day
months. If the Interest Payment Date is not a Business Day, then interest is
payable on the next succeeding Business Day. See "Certain Definitions".
Interest on the Notes accrues from the most recent date to which
interest has been paid or, if no interest has been paid, from September 25,
1997.
The Notes were issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
No Gross-Up
All payments made by the Company on the Notes are made without
withholding or deduction for, or on account of, any present or future taxes,
duties, assessments or governmental charges of whatever nature imposed or levied
by or on behalf of the jurisdiction of incorporation of the Company or any
political subdivision thereof or any authority therein or thereof having power
to tax unless the withholding or deduction of such taxes, duties, assessments or
governmental charges is required by law. If any such withholding or deduction is
required, the Company is not obliged to pay any additional amounts in respect of
such withholding or deduction.
Payment; Paying Agents, Conversion Agents and Transfer Agents
Payments with respect to principal of, premium, if any, and interest
and Liquidated Damages, if any, on the Notes will be made at the corporate trust
office of the Trustee in the Borough of Manhattan, The City of New York, at the
main office of the Paying Agent in Luxembourg, at the option of the holder and
subject to any fiscal or other laws and regulations applicable thereto, at the
office of any other Paying Agents appointed by the Company. Payments with
respect to principal of the Notes will be made only against surrender of such
Notes. Payment with respect to principal of, premium, if any, and interest and
Liquidated Damages, if any, with respect to any Note may, at the Company's
option, be made, subject to applicable laws and regulations, by U.S. dollar
check drawn on a bank in The City of New York mailed to the holders of the Notes
at their respective addresses set forth in the register of holders of Notes
provided that all payments with respect to Public Global Note (as defined
herein) and Certificated Notes (as defined) the holders of which have given wire
transfer instructions to the Company will be required to be made by wire
transfer of immediately available funds to the accounts specified by the holders
thereof. Unless such designation is revoked, any such designation made by such
person with respect to such Note will remain in effect with respect to any
future payments with respect to such Note payable to such person.
If any payment on a Note is due on a day that is, at any place of
payment, a day on which banking institutions are authorized or obligated by law
or executive order to close, then, at each such place of payment, such payment
need not be made on such day but may be made on the next succeeding day that is
not, at such place of payment, a day on which banking institutions are
authorized or obligated by law or executive order to close, with the same force
and effect as if made on the date for such payment, and no interest will accrue
for the period from and after such due date to such next
13
<PAGE>
succeeding day that is not, at such place of payment, a day on which banking
institutions are authorized or obligated by law or executive order to close.
The Indenture provides that any money paid by the Company to the
Trustee and the Paying Agents for any payment with respect to the Notes that
remains unclaimed for two years after such payment became due and payable will
be repaid to the Company, and thereafter the holder of such Notes will look only
to the Company for payments thereof as an unsecured creditor.
Subject to certain limitations set forth in the Indenture, the Company
reserves the right at any time to vary or terminate the appointment of the
Trustee, Registrar, Transfer Agent, any Conversion Agent or any Paying Agent
with or without cause and to appoint another Trustee or additional or other
Paying Agents, Registrars, Conversion Agents or Transfer Agents and to approve
any change in the specified offices through which any Paying Agent, Conversion
Agent or Transfer Agent acts, provided that the Company will at all times
maintain a Paying Agent, Conversion Agent and Registrar in the Borough of
Manhattan, The City of New York and so long as the Notes are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require, a Paying Agent, Conversion Agent and Transfer Agent in Luxembourg.
Notice of any such termination or appointment and of any changes in the
specified offices of the Paying Agents, Registrar, Conversion Agents or Transfer
Agent will be given to the holders of Notes as described in the Indenture.
Optional Redemption
The Notes are not subject to redemption prior to September 25, 2000 and
are redeemable on such date and thereafter at the option of the Company, in
whole or in part (in any integral multiple of $1,000; provided, however, that a
Restricted Certificated Note may be redeemed only in whole to the extent a
redemption in part would reduce the principal amount thereof to an amount less
than $250,000), upon not less than 30 nor more than 60 days' prior notice by
mail at 100% of the principal amount together with accrued and unpaid interest
and Liquidated Damages, if any, up to the redemption date (subject to the right
of holders of records on the relevant record date to receive interest due on an
Interest Payment Date). On and after the redemption date, interest will cease to
accrue on the Notes, or portion thereof, called for redemption.
Mandatory Redemption; Sinking Fund
The Company is not required to make mandatory redemption or sinking
fund payments with respect to the Notes.
Repurchase at the Option of Holders
Upon the occurrence of a Designated Event (as defined below), each
holder of Notes shall have the right to require the Company to repurchase all or
any part (equal to $1,000 or an integral multiple thereof) of such holder's
Notes (provided that a holder of a Restricted Certificated Note may tender for
repurchase such Note only in whole to the extent a tender in part would reduce
the principal amount thereof to an amount less than $250,000) pursuant to the
terms described below (the "Designated Event Offer") at a repurchase price equal
to 101% of the principal amount thereof, together with accrued and unpaid
interest and Liquidated Damages, if any, thereon to the Designated Event Payment
Date (the "Designated Event Payment"). Within 30 days following any Designated
Event, the Company shall mail a notice to each holder and publish notice in a
daily newspaper with general circulation in Luxembourg, in each case stating:
(1) that the Designated Event Offer is being made pursuant to the covenant
described in this paragraph and that all Notes tendered will be accepted for
payment; (2) the repurchase price and the repurchase date, which shall be no
earlier than 30 days nor later than 40 days from the date such notice is mailed
(the "Designated Event Payment Date"); (3) that any Notes not tendered or
accepted for payment will continue to accrue interest and, if applicable,
Liquidated Damages; (4) that, unless the Company defaults in the payment of the
Designated Event Payment, all Notes accepted for payment pursuant to the
Designated Event Offer shall cease to accrue interest or Liquidated Damages
after the Designated Event Payment Date; (5) that holders electing to have any
Notes repurchased pursuant to a Designated Event Offer will be required to
surrender the Notes, with the form entitled "Option of Noteholder to Elect
Purchase" on the reverse of the Notes completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Designated Event Payment Date; (6) that holders will
be entitled to withdraw their election if the Paying Agent receives,
14
<PAGE>
not later than the close of business on the second Business Day preceding the
Designated Event Payment Date, or such longer period as may be required by law,
a telegram, telex, facsimile transmission or letter setting forth the name of
the holder, the principal amount of Notes delivered for repurchase and a
statement that such holder is withdrawing his election to have such Notes
repurchased; and (7) that holders whose Notes are being repurchased only in part
will be issued new Notes equal in principal amount to the unpurchased portion of
the Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof.
The Company will comply with the requirements of Rules 13e-4 and 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent such laws and regulations are applicable in connection with the
repurchase of the Notes in connection with a Designated Event.
At least one Business Day prior to the Designated Event Payment Date,
the Company shall irrevocably deposit with the Trustee or the Paying Agents in
immediately available funds an amount equal to the Designated Event Payment in
respect of all Notes or portions thereof so tendered. On the Designated Event
Payment Date, the Company will, to the extent lawful, (1) accept for payment the
Notes or portions thereof duly tendered pursuant to the Designated Event Offer,
and (2) deliver or cause to be delivered to the Trustee the Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
have been accepted for payment by the Company. The Paying Agents shall promptly
mail to each holder of Notes so accepted payment in an amount equal to the
repurchase price for such Notes, and the Trustee shall promptly authenticate and
mail to each holder a new certificate representing a Note equal in principal
amount to any unpurchased portion of the Notes surrendered, if any; provided
that each such new certificate representing a Note shall be in a principal
amount of $1,000 or an integral multiple thereof. Any Notes that are not so
accepted shall be promptly mailed or delivered by or on behalf of the Company to
the holder thereof. The Company will publicly announce the results of the
Designated Event Offer on or as soon as practicable after the Designated Event
Payment Date.
Except as described above with respect to a Designated Event, the
Indenture does not contain any other provisions that permit the holders of the
Notes to require that the Company repurchase or redeem the Notes in the event of
a takeover, recapitalization or similar restructuring.
The Designated Event repurchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and,
thus, the removal of incumbent management. The Designated Event purchase
feature, however, is not the result of management's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the
Designated Event repurchase feature was the result of negotiations between the
Company and the Initial Purchaser. Management has no current intention to engage
in a transaction involving a Designated Event, although it is possible that the
Company could decide to do so in the future. Subject to the limitations on
mergers, consolidations and sales of assets described herein, the Company could,
in the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Designated
Event under the Indenture, but that could increase the amount of Indebtedness
(including Senior Indebtedness) outstanding at such time or otherwise affect the
Company's capital structure or credit ratings. The payment of the Designated
Event Payment is subordinated to the prior payment of Senior Indebtedness as
described under "--Subordination of Notes" below.
The Company's ability to repurchase Notes upon the occurrence of a
Designated Event is subject to limitations. If a Designated Event were to occur,
there can be no assurance that the Company would have sufficient financial
resources, or would be able to arrange financing, to pay the repurchase price
for all Notes tendered by holders thereof. In addition, the terms of certain of
the Company's existing debt agreements and lease facilities prohibit the Company
from repurchasing any Notes under certain circumstances and also identify
certain events that would constitute a Change of Control, as well as certain
other events with respect to the Company or certain of its subsidiaries, which
would constitute an event of default under such debt agreements and lease
agreements. Any future credit agreements or other agreements relating to
Indebtedness of the Company (including Senior Indebtedness) may contain similar
prohibitions or restrictions on the Company's ability to effect a Designated
Event Payment. In the event a Designated Event occurs at a time when such
prohibitions or restrictions are in effect, the Company could seek the consent
of its lenders to the repurchase of Notes or could attempt to refinance the
borrowings that contain such prohibition. If the Company does not obtain such a
consent or repay such borrowings, the Company will be effectively prohibited
from repurchasing Notes. In such case, the Company's
15
<PAGE>
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture whether or not such repurchase is permitted by the subordination
provisions of the Indenture. Any such default may, in turn, cause a default
under Senior Indebtedness of the Company. Moreover, the occurrence of a Change
of Control may cause an event of default under Senior Indebtedness of the
Company. As a result, in each case, any repurchase of the Notes would, absent a
waiver, be prohibited under the subordination provisions of the Indenture until
the Senior Indebtedness is paid in full. See "--Subordination of Notes" and
"Risk Factors--Subordination of Notes."
A "Designated Event" will be deemed to have occurred upon a Change of
Control or a Termination of Trading.
A "Change of Control" will be deemed to have occurred when: (i) any
"person" or "group" (as such terms are used in Section 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3
and 13d-5 under the Exchange Act) of shares representing more than 50% of the
combined voting power of the then outstanding securities entitled to vote
generally in elections of directors of the Company ("Voting Stock"), (ii) the
Company consolidates with or merges into any other corporation, or any other
corporation merges into the Company, and, in the case of any such transaction,
the outstanding Common Shares are reclassified into or exchanged for any other
property or security, unless the stockholders of the Company immediately before
such transaction own, directly or indirectly immediately following such
transaction, at least a majority of the combined voting power of the outstanding
voting securities of the corporation resulting from such transaction in
substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, (iii) the Company conveys, transfers or
leases all or substantially all of its assets to any person (other than to one
or more wholly-owned subsidiaries of the Company) unless the stockholders of the
Company immediately before such transaction own, directly or indirectly
immediately following such transaction, at least a majority of the combined
voting power of the outstanding securities of the acquiring entity in
substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction, or (iv) any time the Continuing Directors
(as defined) do not constitute a majority of the Board of Directors of the
Company (or, if applicable, a successor corporation to the Company); provided
that a Change of Control shall not be deemed to have occurred if at least 90% of
the consideration (excluding cash payments for fractional shares) in the
transaction or transactions constituting the Change of Control consists of
shares of common stock that are, or upon issuance will be, traded on a United
States national securities exchange or approved for trading on an established
automated over-the-counter trading market in the United States and as a result
of such transaction or transactions the Notes become convertible solely into
such common stock.
The definition of Change of Control includes a phrase relating to the
lease, transfer or conveyance of "all or substantially all" of the assets of the
Company. Although there is a developing body of case law interpreting the phrase
"substantially all," there is no precise established definition of the phrase
under applicable law. Accordingly, the ability of a holder of Notes to require
the Company to repurchase such Notes as a result of a lease, transfer or
conveyance of less than all of the assets of the Company to another person or
group may be uncertain.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such board at the time of such
nomination or election.
A "Termination of Trading" will be deemed to have occurred if the
Common Shares (or other securities into which the Notes are then convertible)
are neither listed for trading on a United States national securities exchange
nor approved for trading on an established automated over-the-counter trading
market in the United States.
Selection and Notice
If less than all of the Notes are to be redeemed, selection of Notes
for redemption will be made by the Trustee in compliance with the requirements
of the principal national securities exchange, if any, on which the Notes are
listed, or, if the Notes are not so listed, on a pro rata basis, by lot or by
such method as the Trustee shall deem fair and appropriate, provided that no
Notes of $1,000 or less shall be redeemed in part. Notice of redemption shall be
published in a daily newspaper with general circulation in Luxembourg and mailed
to each holder whose Notes are to be redeemed at its registered address, in each
case, at least 30 but not more than 60 days before the redemption date. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount
16
<PAGE>
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion will be issued in the name of the holder thereof upon cancellation of
the original Note. On and after the redemption date, interest and Liquidated
Damages, if any, cease to accrue on the Notes called for redemption.
Registration Rights
Pursuant to the Registration Rights Agreement, the Company agreed for
the benefit of the holders of the Notes or the Underlying Common Shares that
are, in either case, Registrable Securities, that (i) it will, at its cost,
within 90 days after the closing of the sale of the Notes (the "Closing"), file
a shelf registration statement (the "Shelf Registration Statement"), of which
this Prospectus is a part, with the Commission with respect to resales of the
Notes and the Underlying Common Shares (collectively, the "Registrable
Securities"), (ii) the Company will use its reasonable best efforts to cause
such Shelf Registration Statement to be declared effective under the Securities
Act as soon as practicable but, in any event, within 180 days after the Closing
and (iii) the Company will keep such Shelf Registration Statement continuously
effective under the Securities Act until the earlier of (a) the second
anniversary of the date of the Closing, (b) the date on which the Notes or the
Underlying Common Shares may be sold by non-affiliates of the Company pursuant
to paragraph (k) of Rule 144 (or any successor provision) promulgated by the
Commission under the Securities Act and (c) the date as of which all the Notes
or the Underlying Common Shares have been sold pursuant to such Shelf
Registration Statement (the "Shelf Registration Period"). The Company has the
right, however, to defer the use of the prospectus which will be a part of the
Shelf Registration Statement, as more fully described below.
The Company has agreed to provide or cause to be provided to each
holder of the Notes or the Underlying Common Shares, copies of this Prospectus,
notify or cause to be notified to each such holder when the Shelf Registration
Statement for the Notes and the Underlying Common Shares has become effective
and take certain other actions as are required to permit unrestricted resales of
the Notes and the Underlying Common Shares. A holder of Notes or Underlying
Common Shares that sells such securities pursuant to a Shelf Registration
Statement will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such holder (including certain indemnification
and contribution rights or obligations).
At least three business days prior to any intended resale of the Notes
or the Underlying Common Shares, the holder thereof must notify the Company of
such intention and provide such information with respect to such holder and the
specifics of the intended resale as may be required to amend the Shelf
Registration Statement or supplement the related prospectus (a holder giving
such notice, a "Notice Holder"). Within two business days after the foregoing
notice is provided by a Notice Holder, the Company will either (i) notify such
Notice Holder that resales may proceed or file any amendment to the Shelf
Registration Statement or supplement to the related prospectus needed to ensure
that those documents, among other things, comply with the Securities Act, use
its reasonable efforts to cause any such amendment to be declared effective and
notify such Notice Holder thereof or (ii) notify such Notice Holder of the
Company's election to defer resales until further notice (a "Deferral Period")
under certain circumstances relating to issuance of a stop order by the
Commission, suspension of qualification under state law, accuracy of the
prospectus which is a part of the Shelf Registration Statement, pending
corporate developments, public filings with the Commission and similar events.
If the Company elects the option described in clause (i) of the preceding
sentence, such Notice Holder may resell Notes or the Underlying Common Shares
pursuant to the Shelf Registration Statement for a period of 45 days (with
respect to such Notice Holder, a "Selling Period") from the date notice of such
election is given and, if the Company elects the option described in clause (ii)
of the preceding sentence, such Notice Holder may resell such securities for a
Selling Period that commences at the end of the Deferral Period. The Company may
also defer until further notice a Notice Holder's existing Selling Period upon
the occurrence of the events described in clause (ii) of the second preceding
sentence; provided that upon receipt of such further notice, such Selling Period
shall be extended by the number of days elapsed prior to deferral. The Company
may not defer Selling Periods more than one time in any three-month period or
three times in any twelve-month period and no deferral shall exceed 30 days. The
Company has agreed to pay all expenses of the Shelf Registration Statement,
provide to each registered holder of Notes copies of this Prospectus, notify
each such registered holder when the Shelf Registration Statement has become
effective and take certain other actions as are required to permit, subject to
the foregoing, unrestricted resales of the Notes and the Underlying Common
Shares.
17
<PAGE>
The holders of Registrable Securities covered by the Shelf Registration
Statement who desire to do so may sell such Registrable Securities in an
underwritten offering. In any such underwritten offering, the managing
underwriters that administer the underwritten offering will be selected by, and
the underwriting arrangements with respect thereto will be approved by, the
holders of a majority of the Registrable Securities to be included in such
underwritten offering; provided, however, that (i) such managing underwriters
and underwriting arrangements must be reasonably satisfactory to the Company and
(ii) the Company shall not be obligated to arrange for more than one
underwritten offering during the Shelf Registration Period. No holder may
participate in any such underwritten offering contemplated unless such holder
(a) agrees to sell such holder's Registrable Securities in accordance with any
approved underwriting arrangements, (b) completes and executes all reasonable
questionnaires, powers of attorney, indemnities, underwriting agreements,
lock-up letters and other documents required under the terms of such approved
underwriting arrangements and (c) at least 70% of the outstanding Registrable
Securities are included in such underwritten offering. Holders participating in
any underwritten offering shall be responsible for any expenses customarily
borne by selling securityholders, including underwriting discounts and
commissions and fees and expenses of counsel to the selling securityholders and
shall reimburse the Company for the fees and disbursements of its counsel, its
independent public accountants and any printing expenses incurred in connection
with such underwritten offering.
In the event the Shelf Registration Statement is not declared effective
under the Securities Act within 180 days after the Closing, a stop order is
issued by the Commission prior to the end of the Shelf Registration Period, or
Selling Periods have been deferred more frequently or for longer periods than
are described above, the Company has agreed to pay Liquidated Damages to all
Notice Holders of Notes and Underlying Common Shares until such event is cured.
Further, if such event continues for a period in excess of 30 days, the Company
has agreed to pay Liquidated Damages to all holders of Notes and Underlying
Common Shares which are, in either case, Registrable Securities, without regard
to whether such holder is a Notice Holder. Liquidated Damages shall be
calculated, with respect to Notes held by a holder, at a rate of one-quarter of
one percent (25 basis points) per annum of the aggregate principal amount of
such Notes and, with respect to Common Shares held by a holder and issued upon
conversion of Notes, the same percentage of the aggregate principal amount of
Notes that were converted into such shares.
Conversion
The holder of any Note has the right, exercisable at any time after
December 29, 1997 (90 days following the date of original issuance thereof) and
prior to the close of business (New York time) on September 29, 2002 (the
Business Day immediately preceding the maturity date of the Notes), to convert
the principal amount thereof (or any portion thereof that is an integral
multiple of $1,000; provided, however that a holder of a Restricted Certificated
Note may convert such Note only in whole to the extent a conversion in part
would reduce the principal amount thereof to an amount less than $250,000) into
Common Shares at the Conversion Price, except that if a Note is called for
redemption, the conversion right will terminate at the close of business (New
York time) on the Business Day immediately preceding the redemption date. Except
as described below, no payment or adjustment will be made on the conversion of
any Notes for accrued and unpaid interest and Liquidated Damages, if any,
thereon or for dividends or distributions on any Underlying Common Shares
issued. If Notes not called for redemption are converted after a record date for
the payment of interest and Liquidated Damages, if any, and prior to the next
succeeding Interest Payment Date, such Notes must be accompanied by funds equal
to the interest and Liquidated Damages, if any, payable on such succeeding
payment date on the principal amount so converted. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest.
To convert a Note, a holder must (1) complete and sign a notice of
election to convert (a "Conversion Notice") substantially in the form set forth
in the Indenture (copies of which are available from the Conversion Agent in
Luxembourg or New York), (2) deliver the Conversion Notice and, in the case of
holders of Certificated Notes, the Note to be converted, to a Conversion Agent
in New York or Luxembourg, (3) furnish appropriate endorsements or transfer
documents if required by the Registrar or such Conversion Agent and (4) pay any
transfer or similar tax, if required. The Conversion Agent will present such
Conversion Notice to the Depository Trust Company ("DTC") in New York, NY, at
the Euroclear System ("Euroclear") or Cedel Bank, S.A. ("Cedel Bank") for
conversion. Upon conversion, no adjustment or payment will be made for interest,
Liquidated Damages, dividends or distributions, but if any holder surrenders a
Note for conversion after the close of business on the record date for the
payment of an installment of interest and Liquidated Damages and prior to the
opening of business on the next interest payment date, then, notwithstanding
such conversion,
18
<PAGE>
the interest and Liquidated Damages payable on such interest payment date will
be paid to the registered holder of such Note on such record date. In such
event, such Note, when surrendered for conversion, must be accompanied by
payment in funds acceptable to the Company of an amount equal to the interest
and Liquidated Damages payable on such interest payment date on the portion so
converted. The number of Common Shares issuable upon conversion of a Note is
determined by dividing the principal amount of the Note converted by the
Conversion Price in effect on the Conversion Date. No fractional shares will be
issued upon conversion but a cash adjustment will be made for any fractional
interest.
As soon as practicable after the Conversion Date (subject to the
expiration of any required waiting period following any required filing pursuant
to the provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976),
the Company will deliver to DTC, Euroclear or Cedel Bank or directly to the
holder through a Conversion Agent a certificate for the number of whole Common
Shares issuable upon the conversion and a check for any fractional share
determined pursuant to the Indenture. The person or entity in whose name the
certificate is registered shall become the shareholder of record on the
Conversion Date and, as of such date, such person's or entity's rights as a
noteholder with respect to the converted Note shall cease.
The Conversion Price is subject to adjustment upon the occurrence of
certain events, including: (i) the issuance of Common Shares as a dividend or
distribution to holders of Common Shares; (ii) the subdivision, reclassification
or combination of the outstanding Common Shares, (iii) the issuance to
substantially all holders of Common Shares of rights or warrants to subscribe
for or purchase Common Shares at a price per share, or securities convertible
into Common Shares at a conversion price per share, less than the then Current
Market Price per share, as defined; (iv) the distribution of Capital Stock of
the Company (other than Common Shares), evidences of indebtedness or other
assets (excluding cash dividends out of current or retained earnings, except as
described in clause (v) below) to all holders of Common Shares; (v) the
distribution, by dividend or otherwise, of cash to all holders of Common Shares
in an aggregate amount that, together with the aggregate of any other
distributions of cash that did not trigger a Conversion Price adjustment to all
holders of its Common Shares within the 12 months preceding the date fixed for
determining the stockholders entitled to such distribution and all Excess
Payments (as defined) in respect of each tender offer or other negotiated
transaction by the Company or any of its Subsidiaries for Common Shares
concluded within the preceding 12 months not triggering a Conversion Price
adjustment, exceeds 15% of the product of the Current Market Price per share
(determined as set forth below) on the date fixed for the determination of
shareholders entitled to receive such distribution times the number of Common
Shares outstanding on such date; (vi) payment of an Excess Payment in respect of
a tender offer or other negotiated transaction by the Company or any of its
Subsidiaries for Common Shares, if the aggregate amount of such Excess Payment,
together with the aggregate amount of cash distributions made within the
preceding 12 months not triggering a Conversion Price adjustment and all Excess
Payments in respect of each tender offer or other negotiated transaction by the
Company or any of its Subsidiaries for Common Shares concluded within the
preceding 12 months not triggering a Conversion Price adjustment, exceeds 15% of
the product of the Current Market Price per share (determined as set forth
below) on the expiration of such tender offer or the date of payment of such
negotiated transaction consideration times the number of Common Shares
outstanding on such date; and (vii) the distribution to substantially all
holders of Common Shares of rights or warrants to subscribe for securities
(other than those securities referred to in clause (iii) above). In the event of
a distribution to substantially all holders of Common Shares of rights to
subscribe for additional shares of the Company's capital stock (other than those
securities referred to in clause (iii) above), the Company may, instead of
making any adjustment in the Conversion Price, make proper provision so that
each holder of a Note who converts such Note after the record date for such
distribution and prior to the expiration or redemption of such rights shall be
entitled to receive upon such conversion, in addition to Common Shares, an
appropriate number of such rights. No adjustment of the Conversion Price will be
made until cumulative adjustments amount to one percent or more of the
Conversion Price as last adjusted.
The Company has agreed to notify the holders of any such adjustment to
the Conversion Price by publishing a notice in a daily newspaper with general
circulation in Luxembourg. See "--Reports; Luxembourg Notices".
If the Company reclassifies or changes its outstanding Common Shares,
or consolidates with or merges into any person or transfers or leases all or
substantially all its assets, or is a party to a merger that reclassifies or
changes its outstanding Common Shares, the Notes will become convertible into
the kind and amount of securities, cash or other assets which the holders of the
Notes would have owned immediately after the transaction if the holders had
converted the Notes immediately prior to the effectiveness of such transaction.
19
<PAGE>
The Indenture also provides that if rights, warrants or options expire
unexercised, the Conversion Price shall be readjusted to take into account the
actual number of such warrants, rights or options which were exercised.
In the Indenture, the "Current Market Price" per Common Share on any
date is deemed to be the average of the Daily Market Prices for the shorter of
(i) 30 consecutive Business Days ending on the last full Trading Day on the
exchange or market referred to in determining such Daily Market Prices prior to
the time of determination or (ii) the period commencing on the date next
succeeding the first public announcement of the issuance of such rights or
warrants or such other distribution or such negotiated transaction through such
last full Trading Day prior to the time of determination.
"Excess Payment" means the excess of (A) the aggregate of the cash and
fair market value of other consideration paid by the Company or any of its
Subsidiaries with respect to the shares acquired in the tender offer or other
negotiated transaction over (B) the Daily Market Price on the Trading Day
immediately following the completion of the tender offer or other negotiated
transaction multiplied by the number of acquired shares.
The Company from time to time may to the extent permitted by law reduce
the Conversion Price by any amount for any period of at least 20 days, in which
case the Company shall give at least 15 days' notice of such reduction, if the
Board of Directors has made a determination that such reduction would be in the
best interests of the Company, which determination shall be conclusive. The
Company may, at its option, make such reductions in the Conversion Price, in
addition to those set forth above, as it deems advisable to avoid or diminish
any income tax to holders of Common Shares resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated as
such for income tax purposes. See "Certain United States Federal Income Tax
Considerations."
Subordination of Notes
The Notes are subordinate in right of payment to all existing and
future Senior Indebtedness. The Indenture does not restrict the amount of Senior
Indebtedness or other Indebtedness of the Company or any Subsidiary of the
Company. In addition, the Notes are effectively subordinated to all indebtedness
and other liabilities of the Company's subsidiaries.
The payment of the principal of, interest on or any other amounts due
on the Notes are subordinated in right of payment to the prior payment in full
of all Senior Indebtedness of the Company. No payment on account of principal
of, redemption of, interest or Liquidated Damages on or any other amounts due on
the Notes, including, without limitation, any payments on the Designated Event
Offer, and no redemption, purchase or other acquisition of the Notes may be made
unless (i) full payment of amounts then due on all Senior Indebtedness have been
made or duly provided for pursuant to the terms of the instrument governing such
Senior Indebtedness, and (ii) at the time for, or immediately after giving
effect to, any such payment, redemption, purchase or other acquisition, there
shall not exist under any Senior Indebtedness or any agreement pursuant to which
any Senior Indebtedness has been issued, any default which shall not have been
cured or waived and which shall have resulted in the full amount of such Senior
Indebtedness being declared due and payable. In addition, the Indenture will
provide that if any of the holders of any issue of Designated Senior
Indebtedness notify (the "Payment Blockage Notice") the Company and the Trustee
that a default has occurred giving the holders of such Designated Senior
Indebtedness the right to accelerate the maturity thereof, no payment on account
of principal, redemption, interest or any other amounts due on the Notes and no
purchase, redemption or other acquisition of the Notes will be made for the
period (the "Payment Blockage Period") commencing on the date the Payment
Blockage Notice is received and ending on the earlier of (A) the date on which
such event of default shall have been cured or waived or (B) 180 days from the
date the Payment Blockage Notice is received. Notwithstanding the foregoing (but
subject to the provisions contained in the first sentence of this section),
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders shall have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the Notes after the end of such
Payment Blockage Period. Not more than one Payment Blockage Notice may be given
in any consecutive 365-day period, irrespective of the number of defaults with
respect to Senior Indebtedness during such period.
Upon any distribution of its assets in connection with any dissolution,
winding-up, liquidation or reorganization of the Company or acceleration of the
principal amount due on the Notes because of an Event of Default, all Senior
Indebtedness must be paid in full before the holders of the Notes are entitled
to any payments whatsoever.
20
<PAGE>
If payment of the Notes is accelerated because of an Event of Default,
the Company or the Trustee shall promptly notify the holders of Senior
Indebtedness or the Representative(s) for such Senior Indebtedness of the
acceleration. The Company may not make any payments on the Notes until five
Business Days after such holders or Representative(s) of Senior Indebtedness
receive notice of such acceleration and, thereafter, may make payments on the
Notes only if the subordination provisions of the Indenture otherwise permit
payment at that time.
As a result of these subordination provisions, in the event of the
Company's insolvency, holders of the Notes may recover ratably less than general
creditors of the Company.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge
with or into any person (whether or not the Company is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets unless (i) (a) the Company
is the surviving or continuing corporation or (b) the person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
corporation formed by or surviving any such consolidation or merger (if other
than the Company) or the person to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made assumes all the Obligations
of the Company, pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee, under the Notes and the Indenture; (iii) such sale,
assignment, transfer, lease, conveyance or other disposition of all or
substantially all of the Company's properties or assets shall be as an entirety
or virtually as an entirety to one corporation; (iv) immediately after such
transaction no Default or Event of Default exists; and (v) the Company or such
corporation shall have delivered to the Trustee an officers' certificate and an
opinion of counsel, each stating that such transaction and the supplemental
indenture comply with the Indenture and that all conditions precedent in the
Indenture relating to such transaction have been satisfied.
Reports; Luxembourg Notices
Whether or not required by the rules and regulations of the Commission,
so long as any Notes are outstanding, the Company will file with the Commission
and furnish to the Trustee and the holders of Notes all quarterly and annual
financial information required to be contained in a filing with the Commission
on Forms 10-Q and 10-K, including a "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and, with respect to the annual
consolidated financial statements only, a report thereon by the Company's
certified independent auditors.
Any notice to the holders of the Notes shall be validly given if
published in a daily newspaper having general circulation in Luxembourg which,
so long as the Notes are listed on the Luxembourg Stock Exchange, is expected to
be the Luxemburger Wort, or if such newspaper shall cease to be published or
timely publication in it shall not be practicable, in such other daily newspaper
as the Trustee shall deem necessary to give fair and reasonable notice to the
holders of the Notes. Any such notice shall be deemed to have been given on the
date of such publication or, if published more than once or on different dates,
on the first date on which such publication is made.
Events of Default and Remedies
The Indenture provides that each of the following constitutes an Event
of Default: (i) default for 30 days in the payment when due of interest or
Liquidated Damages on the Notes; (ii) default in payment when due of principal
on the Notes; (iii) failure by the Company to comply with the provisions
described under "Designated Event"; (iv) failure by the Company for 60 days
after the receipt of written notice to comply with certain other covenants and
agreements contained in the Indenture or the Notes; (v) default under any
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Material Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Material Subsidiaries), whether such
Indebtedness or guarantee now exists or is created after the date on which the
Notes are first authenticated and issued, which default (a) is caused by a
failure to pay when due principal of or interest or Liquidated Damages on such
Indebtedness within the grace period provided for in such Indebtedness (which
failure continues beyond any applicable grace period) (a "Payment Default") or
(b) results in the acceleration of such Indebtedness prior to its express
maturity
21
<PAGE>
without such acceleration being rescinded or annulled and, in each case, the
principal amount of any such Indebtedness, together with the principal amount of
any other such Indebtedness under which there has been a Payment Default or the
maturity of which has been so accelerated, aggregates $3,000,000 or more; (vi)
failure by the Company or any Material Subsidiary of the Company to pay final
non-appealable judgments (other than any judgment as to which a reputable
insurance company has accepted full liability) aggregating in excess of
$3,000,000, which judgments are not stayed within 60 days after their entry; and
(vii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Material Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any Material
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
By notice to the Trustee, the holders of a majority in aggregate
principal amount of the Notes then outstanding may, on behalf of the holders of
all of the Notes, waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of the Designated Event Payment or interest or Liquidated Damages
on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
Book-Entry; Delivery and Form
Notes currently held by "qualified institutional buyers" as defined in
Rule 144A under the Securities Act ("QIBs") or by persons who are not U.S.
persons who acquired such Notes in "offshore transactions" in reliance on
Regulation S under the Securities Act are currently evidenced by restricted
global notes, which were deposited with or on behalf of DTC and were registered
in the name of Cede & Co. ("Cede"), as DTC's nominee.
Notes currently held by Institutional Accredited Investors who are not
QIBs are registered in certificated form without coupons (the "Certificated
Notes") and bear a legend containing restrictions on transfer (the "Restrictive
Legend"). Any holder of a Certificated Note with a Restrictive Legend will be
deemed to have a "Restricted Certificated Note".
Any purchaser (each, a "Public Holder") of Notes pursuant to this
Prospectus will receive a beneficial interest in an unrestricted global note
(the "Public Global Note") which will be deposited with or on behalf of DTC and
registered in the name of Cede, as DTC's nominee. Except as set forth below, the
record ownership of the Public Global Note may be transferred in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
A Public Holder may hold its interest in the Public Global Note
directly through DTC if such Public Holder is a participant in DTC, or
indirectly through organizations which are participants in DTC (a "Participant"
or "Participants"). Transfers between Participants are effected in the ordinary
way in accordance with DTC rules and will be settled in same day funds. The laws
of some jurisdictions require that certain persons take physical delivery of
securities in definitive form. Consequently, the ability to transfer beneficial
interests in the Public Global Note to such persons may be limited.
Public Holders who are not Participants may beneficially own interests
in the Public Global Note held by DTC only through Participants or certain
banks, brokers, dealers, trust companies and other parties that clear through or
maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC, is
the registered owner of the Public Global Note, Cede for all purposes will be
considered the sole holder of the Public Global Note.
22
<PAGE>
Payment of interest on the redemption price or repurchase price (upon
redemption at the option of the Company or repurchase at the option of the
Holder upon a Designated Event) of the Public Global Note will be made to Cede,
the nominee for (DTC or Public Holders), as the registered owner of the Public
Global Note, by wire transfer of immediately available funds. Neither the
Company, the Trustee nor any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Public Global Note or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
With respect to any payment of interest on and the redemption price or
repurchase price (upon redemption at the option of the Company or repurchase at
the option of the Holder upon a Designated Event) of the Public Global Note,
DTC's practice is to credit Participants' accounts on the payment date therefor
with payments in amounts proportionate to their respective beneficial interests
represented by the Public Global Note as shown on the records of DTC, unless DTC
has reason to believe that it will not receive payment on such payment date.
Payments by participants to owners of beneficial interests represented by the
Public Global Note held through such Participants will be the responsibility of
such Participants, as is now the case with securities held for the accounts of
customers registered in "street name."
Because DTC can only act on behalf of participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest represented by the Public Global Note to pledge
such interest to persons or entities that do not participate in the DTC system,
or otherwise take actions in respect of such interest, may be affected by the
lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as depositary and
a successor depositary is not appointed by the Company within 90 days, the
Company will cause Notes to be issued in definitive form in exchange for the
Public Global Note.
Transfer and Exchange
A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar or the Transfer Agent may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to exchange or register
the transfer of any Note selected for redemption. Also, the Company is not
required to exchange or register the transfer of any Note for a period of 15
days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for
all purposes.
Amendment, Supplement and Waiver
Except as provided in the next succeeding paragraph, the Indenture or
the Notes may be amended or supplemented with the written consent of the holders
of at least a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes), and any existing default or compliance with any provision of the
Indenture or the Notes may be waived with the written consent of the holders of
a majority in principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may
not (with respect to any Notes held by a nonconsenting holder of Notes) (i)
reduce the amount of Notes whose holders must consent to an amendment,
supplement or waiver, (ii) reduce the principal of or change the fixed maturity
of any Note or alter the provisions with respect to the redemption of the Notes,
(iii) reduce the rate of or change the time for payment of interest on any Note,
(iv) waive a default in the payment of principal of or interest or Liquidated
Damages on any Notes (except a rescission of acceleration of the Notes by the
holders of at least a majority in aggregate principal amount of the Notes and a
waiver of the payment default that resulted from such acceleration), (v) make
any Note payable in money other than that stated in the Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders
23
<PAGE>
of Notes to receive payments of principal of or interest or Liquidated Damages
on the Notes, (vii) waive a redemption payment payable on any Note, (viii)
impair the right to convert the Notes into Common Shares, (ix) modify the
conversion or subordination provisions of the Indenture in a manner adverse to
the holders of the Notes or (x) make any change in the foregoing amendment and
waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Notes, the Company and the Trustee may amend or supplement the Indenture or the
Notes to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of Certificated Notes, to
provide for the assumption of the Company's obligations to holders of the Notes
in the case of a merger or consolidation, to make any change that would provide
any additional rights or benefits to the holders of the Notes or that does not
adversely affect the legal rights under the Indenture of any such holder, or to
comply with requirements of the Commission in order to qualify, or maintain the
qualification of, the Indenture under the TIA.
Governing Law
The Indenture and the Notes are governed by, and shall be construed in
accordance with, the law of New York. The Company has consented to the
non-exclusive jurisdiction of any court of the State of New York or any United
States federal court sitting in the Borough of Manhattan, The City of New York,
New York, United States, and any appellate court from any thereof.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
In addition, the Trustee may be deemed to have a conflicting interest
upon any Default. If the Default involves any payment of the principal of, or
interest on, the Notes, the Trustee may be forced to resign. Any such
resignation of the Trustee shall become effective only upon the appointment of a
successor trustee and such successor's acceptance of such an appointment.
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that, in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any holder of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
Replacement of the Notes
Any Note that becomes mutilated, destroyed, stolen or lost will be
replaced by the Company at the expense of the holder upon delivery to the
Trustee of such Note or evidence of the loss, theft or destruction thereof
satisfactory to the Company and the Trustee. In the case of a lost, stolen or
destroyed Note, an indemnity satisfactory to the Company and the Trustee may be
required at the expense of the holder of such Note before a replacement Note
will be issued.
Certain Definitions
Set forth below are certain defined terms used in the Indenture.
Reference is made to the Indenture for a full disclosure of all such terms, as
well as any other capitalized terms used herein for which no definition is
provided.
"Business Day" means any day that is not a Legal Holiday.
24
<PAGE>
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of equity interests in any
entity, including, without limitation, corporate stock and partnership
interests.
"Conversion Agent" means any person authorized by the Company to
convert any Notes.
"Conversion Date" means the date on which the holder satisfies all
requirements for conversion set forth in the Notes.
"Default" means any event that is or, with the passage of time or the
giving of notice or both, would be an Event of Default.
"Designated Senior Indebtedness" means (i) any Senior Indebtedness
which, as of the date of the Indenture, has an aggregate principal amount
outstanding of at least $25,000,000 and (ii) any Senior Indebtedness which, at
the date of determination, has an aggregate principal amount outstanding of, or
commitments to lend up to, at least $25,000,000 and is specifically designated
by the Company in the instrument evidencing or governing such Senior
Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect from time to time.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Indebtedness" means, with respect to any person, all obligations,
whether or not contingent, of such person (i) (a) for borrowed money (including,
but not limited to, any indebtedness secured by a security interest, mortgage or
other lien on the assets of such person which is (1) given to secure all or part
of the purchase price of property subject thereto, whether given to the vendor
of such property or to another, or (2) existing on property at the time of
acquisition thereof), (b) evidenced by a note, debenture, bond or other written
instrument, (c) under a lease required to be capitalized on the balance sheet of
the lessee under GAAP or under any lease or related document (including a
purchase agreement) which provides that such person is contractually obligated
to purchase or to cause a third party to purchase such leased property, (d) in
respect of letters of credit, bank guarantees or bankers' acceptances (including
reimbursement obligations with respect to any of the foregoing), (e) with
respect to Indebtedness secured by a mortgage, pledge, lien, encumbrance, charge
or adverse claim affecting title or resulting in an encumbrance to which the
property or assets of such person are subject, whether or not the obligation
secured thereby shall have been assumed or guaranteed by or shall otherwise be
such person's legal liability, (f) in respect of the balance of deferred and
unpaid purchase price of any property or assets and (g) under interest rate or
currency swap agreements, cap, floor and collar agreements, spot and forward
contracts and similar agreements and arrangements; (ii) with respect to any
obligation of others of the type described in the preceding clause (i) or under
clause (iii) below assumed by or guaranteed in any manner by such person or in
effect guaranteed by such person through an agreement to purchase (including,
without limitation, "take or pay" and similar arrangements), contingent or
otherwise (and the obligations of such person under any such assumptions,
guarantees or other such arrangements); and (iii) any and all deferrals,
renewals, extensions, refinancings and refundings of, or amendments,
modifications or supplements to, any of the foregoing.
"Liquidated Damages" means any liquidated damages payable pursuant to
the Registration Rights Agreement.
"Legal Holiday" means a Saturday, Sunday or a day on which banking
institutions in the State of New York or Luxembourg are not required to be open.
"Material Subsidiary" means any Subsidiary of the Company which at the
date of determination is a "significant subsidiary" as defined in Rule 1-02(w)
of Regulation S-X under the Securities Act and the Exchange Act (as such
Regulation is in effect on the date hereof).
25
<PAGE>
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Paying Agent" means any person authorized by the Company to pay the
principal of or interest or Liquidated Damages on any Notes on behalf of the
Company.
"person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, limited
liability company or government or any agency or political subdivision thereof.
"Registrar" means any person authorized by the Company to (i) maintain
the register, subject to such reasonable regulations as the Company may
prescribe, in which the Company shall provide for the registration, exchange and
transfer of any Notes, and (ii) effectuate the exchange or transfer of any Notes
on behalf of the Company.
"Registration Rights Agreement" means that certain Registration Rights
Agreement dated as of September 29, 1997 relating to the Notes and Underlying
Common Shares.
"Representative" means the trustee, agent or representative (if any)
for an issue of Senior Indebtedness.
"Senior Indebtedness" means the principal of, interest on and other
amounts due on Indebtedness of the Company, whether outstanding on the date of
the Indenture or thereafter created, incurred, assumed or guaranteed by the
Company, unless, in the instrument creating or evidencing such Indebtedness or
pursuant to which such Indebtedness is outstanding, it is expressly provided
that such Indebtedness is not senior in right of payment to the Notes. Senior
Indebtedness includes, with respect to the obligations described above, interest
accruing, pursuant to the terms of such Senior Indebtedness, on or after the
filing of any petition in bankruptcy or for reorganization relating to the
Company, whether or not post-filing interest is allowed in such proceeding, at
the rate specified in the instrument governing the relevant obligation.
Notwithstanding anything to the contrary in the foregoing, Senior Indebtedness
shall not include: (a) Indebtedness of or amounts owed by the Company for
compensation to employees, or for goods, services or materials purchased in the
ordinary course of business; (b) Indebtedness of the Company to a Subsidiary of
the Company other than such Indebtedness that would be subject to a prior claim
by the lenders under the Company's existing credit facilities; or (c) any
liability for Federal, state, local or other taxes owed or owing by the Company.
"Subsidiary" of a person means any corporation, association or other
business entity of which more than 50% of the total voting power of shares of
Capital Stock entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the time
owned or controlled, directly or indirectly, by that person or one or more of
the other Subsidiaries of that person or a combination thereof.
"Transfer Agent" means any person authorized by the Company to
effectuate the exchange or transfer of any Notes on behalf of the Company.
"Underlying Common Shares" means the Common Shares into which the Notes
are convertible.
26
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The Company's authorized capital stock consists of (i) 70,000,000
Common Shares, $0.001 par value per share, and (ii) 5,000,000 Preferred Shares,
$0.001 par value per share. At March 31, 1998 there were 42,268,476 Common
Shares and 1,750 Preferred Shares issued and outstanding.
The following summary of the Company's capital stock does not purport
to be complete, and is subject to and qualified in its entirety by, the
Company's Certificate of Incorporation, as restated and amended (the
"Certificate of Incorporation").
Common Shares
Holders of Common Shares are entitled to one vote for each Common Share
held on all matters submitted to a vote of shareholders. The Common Shares do
not have cumulative voting rights. Holders of Common Shares are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors out of funds legally available therefor, subject to any
preferential dividend rights of outstanding Preferred Shares. Upon the
liquidation, dissolution or winding up of the Company, the holders of Common
Shares are entitled to receive ratably the net assets of the Company available
after the payment of all debts and other liabilities and subject to the prior
rights of any outstanding Preferred Shares. Holders of Common Shares have no
preemptive, subscription, redemption or conversion rights (except for certain
preemptive rights given to the Investors pursuant to the Common Stock Purchase
Agreement described below). The outstanding Common Shares are, and the Common
Shares issuable upon conversion of the Notes hereby will be, when issued and
paid for, validly issued, fully paid and nonassessable, subject to the
provisions of Section 630 of the New York Business Corporation Law (the "BCL").
The rights, preferences and privileges of holders of Common Shares are subject
to, and may be adversely affected by, the rights of the Series M Preferred
Shares and any series of Preferred Shares which the Company may designate and
issue in the future.
Pursuant to the Common Stock Purchase Agreement, the Company has
granted each of the Investors the right to participate, on a prorata basis
together with any other holder of the Company's securities with similar
preempitve rights (based on the number of Shares then held by such holder, in
offerings of "new securities" (as defined in the by the Company, subject to
certain terms and conditions. Such "new securities" will not include (i) Shares
issuable pursuant to exercise or conversion rights enjoyed by holders of
existing derivative securities or pursuant to existing contracts, including the
Galesi Warrants (ii) securities offered to the public pursuant to a public
offering; (iii) securities issued for the acquisition of another corporation by
the Company by merger, purchase of substantially all the assets of such
corporation or other reorganization resulting in the ownership by the Company of
not less than 51% of the voting power of such corporation; (iv) Common Shares or
options issued to employees or consultants of the Company pursuant to a stock
option plan, employee stock purchase plan, restricted stock plan or other
employee stock plan or agreement; (v) securities issued as a result of any stock
split, stock dividend or reclassification of Common Shares, distributable on a
pro rata basis to all holders of Common Share; (vi) securities issued in
connection with existing or future debt financings or other borrowings,
including securities issued in exchange for, or in connection with the repayment
of, debt, including common stock or warrants issued in connection with debt owed
to Mr. Galesi and (vii) any Common Shares or securities convertible into or
exchangeable for Common Stock issued during the period beginning on January 14,
1998 and ending on January 29, 1998.
The Common Shares trade on the Nasdaq Stock Market's SmallCap Market
under the symbol "AMXI".
Preferred Shares
The Company's Certificate of Incorporation authorizes 5,000,000 "blank
check" Preferred Shares, par value $0.001 per share, whereby the Board of
Directors of the Company shall have the authority, without further action by the
holders of the outstanding Common Shares, to issue Preferred Shares from time to
time in one or more series, to fix the number of shares constituting any series
and the stated value thereof, if different from the par value, and to fix the
terms of any such series, including dividend rights, dividend rates, conversion
or exchange rights, voting rights, rights and terms of redemption (including
sinking fund provisions), redemption price and the liquidation preference of
such series. As at
27
<PAGE>
September 30, 1997, all issued and outstanding Preferred Shares designated by
the Board of Directors of the Company had either been repurchased by the Company
or converted in accordance with their respective terms. As of January 26, 1998,
the Company issued 1,750 of its Series M Preferred Shares, having the terms and
provisions hereinafter described.
Series B Preferred Shares. The Company's Certificate of Incorporation
designates up to 356,000 Preferred Shares as Series B Preferred Shares. There
are currently no Series B Preferred Shares issued and outstanding.
Series D Preferred Shares. The Company's Certificate of Incorporation
designates up to 1,413,337 Preferred Shares as Series D Preferred Shares. There
are currently no Series D Preferred Shares issued and outstanding.
Series E Preferred Shares. The Company's Certificate of Incorporation
designates up to 1,085,000 Preferred Shares. There are currently no Series E
Preferred Shares issued and outstanding.
Series F Preferred Shares. The Company's Certificate of Incorporation
designates up to 415,250 Preferred Shares as Series F Preferred Shares. There
are currently no Series F Preferred Shares issued and outstanding.
Series G Preferred Shares. The Company's Certificate of Incorporation
designates up to 145,000 Preferred Shares as Series G Preferred Shares. There
are currently no Series G Preferred Shares issued and outstanding.
Series L Preferred Shares. The Company's Certificate of Incorporation
designates up to 100,000 Preferred Shares as Series L Preferred Shares. There
are currently no Series L Preferred Shares issued and outstanding.
Series M Convertible Preferred Shares. The Company's Certificate of
Incorporation designates up to 2,000 Preferred Shares as Series M Preferred
Shares, having the rights and preferences set forth below. There are currently
1,750 Series M Preferred Shares issued and outstanding. The holders of Series M
Preferred Shares have no preemptive rights with respect to any shares of capital
stock of the Company or any other securities of the Company convertible into, or
carrying rights or options to purchase, any such shares. The Series M Preferred
Shares are not subject to any sinking fund.
Ranking. The Series M Preferred Shares rank senior to the Common
Shares as to dividends and liquidation.
Dividends. The holders of the Series M Preferred Shares, in preference
to the holders of the Common Shares, are entitled to receive, when and as
declared by the Board of Directors, dividends at the rate of $ 50 per share per
annum, payable annually in cash. Dividends on the Series M Preferred Shares are
cumulative and, unless all accrued and unpaid dividends on the Series M
Preferred Shares have been paid, no dividends or other distributions may be paid
upon, or declared and set apart for, Common Shares without obtaining the written
consent of the holders of a majority of the then outstanding Series M Preferred
Shares, voting together as a class. Declared but unpaid dividends on the Series
M Preferred Shares shall not bear interest.
Rights on Liquidation. Upon the liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, the holders of Series M
Preferred Shares are entitled to receive, out of the assets or surplus funds of
the Company available for distribution to the shareholders, but before any
payment or distribution of assets or surplus funds is made to holders of the
Common Shares, a liquidating distribution in an amount equal to $1,000 per share
plus the value of any accrued but unpaid dividends due with respect to the
Series M Preferred Shares. In addition, upon the sale, conveyance or disposition
of all or substantially all of the assets of the Company, the effectuation by
the Company of a transaction or transactions in which more than 50% of the
voting power of the Corporation is disposed of, or consolidation, merger or
other business combination where the Company is not the survivor, the holders of
Series M Preferred Shares may, at their option, deem such event a liquidation,
dissolution or winding up of the Company and as such are entitled to receive a
liquidating distribution in an amount equal to 130% of the amount, and on the
terms, set forth above. Unless and until payment in full has been made to the
holders of the Series M Preferred Shares of the liquidating preferences to which
they are entitled, no dividend or distribution may be made to the holders of the
Common Shares or any other stock of the Company ranking in liquidation junior to
the Series M Preferred Shares.
Voting Rights. The Series M Preferred Shares have no voting power
except that the Series M Preferred Shares will vote (i) as a separate class with
respect to any matters requiring a vote by the Series M Preferred Shares as a
separate class as provided by law, (ii) together with holding Common Shares to
the extent to which they are entitled by applicable law (and shall be treated as
holding a number of Common Shares equal to the number of Common Shares into
which the Series M Preferred Shares are then convertible) and (iii) for so long
as at least 15% of the Series M Preferred Shares remain outstanding, on the
following matters (and two-thirds of the then outstanding Series M Preferred
Shares must approve each such action for the Company to take such action);
28
<PAGE>
(a) alter or change the rights, preferences or privileges
of the Series M Preferred Shares or any securities
senior thereto so as to affect adversely the Series M
Preferred Shares;
(b) create any new class or series of capital shares
having a preference over the Series M Preferred
Shares as to distribution of assets upon liquidation,
dissolution or winding up of the Company;
(c) create any new class or series of capital stock
ranking pari passu with the Series M Preferred Shares
as to distribution of assets upon liquidation,
dissolution or winding up of the Company;
(d) increase the authorized number of Series M Preferred
Shares; or
(e) do any act or thing not authorized or contemplated by
the terms and provisions of the Series M Preferred
Shares which would result in taxation of the holders
of Series M Preferred Shares under Section 305 of the
Internal Revenue Code of 1986, as amended (or any
comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
Redemption. In the event that any holder of Series M Preferred Shares
gives the Company notice of an election to convert such Series M Preferred
Shares into Common Shares, in the event that the last sale price of the Common
Shares is less than $1.25 per Common Share, the Company may elect, at its
option, to redeem any or part of the outstanding Series M Preferred Shares with
respect to which such election has been given, at a price per share equal to
130% of the greater of (a) the Closing Price (as defined in the Certificate of
Amendment to the Certificate of Incorporation designating the Series M
Preferred) or (b) $1.20 in cash.
In addition, if any of the following events (each, a "Mandatory
Redemption Event") shall occur:
(i) The Company fails to issue Common Shares to the
holders of Series M Preferred Shares upon valid exercise by the holders
of their conversion rights (with certain exceptions if the Company is
using all commercially reasonable efforts to authorize a sufficient
number of Company Common Shares as soon as practicable), fails to
transfer or to cause its transfer agent to transfer (electronically or
in certified form) any certificate for Common Shares issued to the
holders upon conversion of the Series M Preferred Shares as and when
required by the terms and provisions of the Series M Preferred Shares,
the Preferred Registration Rights Agreements, fails to remove any
restrictive legend (or to withdraw any stop transfer instructions in
respect thereof) on any certificate or any Common Shares issued to the
holders of Series M Preferred Shares upon conversion of the Series M
Preferred Shares as and when required by the terms and provisions of
the Series M Preferred Shares, the Preferred Stock Purchase Agreements
or the Preferred Registration Rights Agreement, or fails to fulfill its
obligations pursuant to Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of
the Purchase Agreement (or makes any announcement, statement or threat
that it does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any
announcement, statement or threat not to honor its obligations shall
not be rescinded) for ten (10) business days;
(ii) The Company fails to obtain effectiveness with
the Commission of the Registration Statement (as defined in the
Preferred Registration Rights Agreements) prior to April 30, 1998 or
such Registration Statement lapses in effect (or sales otherwise cannot
be made thereunder), whether by reason of the Company's failure to
amend or supplement the prospectus included therein in accordance with
the Preferred Registration Rights Agreements for more than fifteen (15)
consecutive trading days, except in the case of an Allowed Delay (as
defined in the Preferred Registration Rights Agreement), which Allowed
Delay shall not exceed thirty (30) consecutive trading days (or an
aggregate of forty-five (45) days) in any twelve (12) month period
after such Registration Statement becomes effective;
(iii) The Company makes an assignment for the benefit
of creditors, or applies for or consents to the appointment of a
receiver or trustee for it or for all or substantially all of its
property or business, or such a receiver or trustees shall otherwise be
appointed;
29
<PAGE>
(iv) Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be instituted
by or against the Company or any subsidiary of the Company;
(v) The Company shall fail to maintain the listing of
the Common Shares on the Nasdaq SmallCap Market, the Nasdaq National
Market, the New York Stock Exchange or the American Stock Exchange and
such failure shall remain uncured for at least five (5) days; or
(vi) Any money judgment shall be entered or filed
against the Company or any of its property or other assets for more
than $1,000,000, and shall remain unvacated, unbonded or unstayed for a
period of twenty (20) days;
then, upon the occurrence (of which the Company shall immediately notify the
holders of Series M Preferred Shares) and during the continuation of any
Mandatory Redemption Event specified in subparagraphs (i), (ii) or (v) at the
option of any of the holders of shares of Series M Preferred Shares by written
notice (the "Mandatory Redemption Notice") to the Company of such Mandatory
Redemption Event, or upon the occurrence of any Mandatory Redemption Event
specified in subparagraphs (iii) or (iv), the Company shall purchase each
holder's Series M Preferred Shares for any amount per share equal to the number
of Common Shares issuable upon conversion of such shares in accordance with the
terms and provisions of the Series M Preferred Shares, multiplied by 110% of the
greater of (a) the Closing Price or (b) $1.20 (the greater of such amounts being
referred to as the "Mandatory Redemption Amount").
In the case of a Mandatory Redemption Event, if the Company fails to
pay the Mandatory Redemption Amount for each share within five business days of
written notice that such amount is due and payable, then (assuming there are
sufficient authorized shares) in addition to all other available remedies, each
holder of Series M Preferred Shares shall have the right at any time, so long as
the Mandatory Redemption Event continues, to require the Company, upon written
notice, to immediately issue, in lieu of the Mandatory Redemption Amount, with
respect to each outstanding Series M Preferred Share held by such holder, the
number of Common Shares equal to the Mandatory Redemption Amount divided by the
Conversion Price (as hereinafter defined) then in effect.
If the Series M Preferred Shares cease to be convertible as a result of
certain limitations described in the terms and provisions of the Series M
Preferred Shares (a "19.99% Redemption Event"), and the Company has not prior
to, or within thirty days of, the date that such 19.99% Redemption Event arises,
(i) obtained approval of the issuance of the additional Common Shares by the
requisite vote of the holders of the then-outstanding Common Shares (not
including any Common Shares held by present or former holders of Series M
Preferred Shares that were issued upon conversion of Series M Preferred Shares)
or (ii) received other permission pursuant to Nasdaq Requirement 4460(i)
allowing the Company to resume issuances of Common Shares upon conversion of
Series M Preferred Shares or the Common Shares are not then listed on The Nasdaq
Stock Market or an exchange or quotation system that has a rule substantially
similar to Rule 4460(i) of The Nasdaq Stock Market, then the Company shall be
obligated to redeem immediately all of the then outstanding Series M Preferred
Shares.
So long as (i) no Mandatory Redemption Event shall have occurred and be
continuing and (ii) the Registration Statement is then in effect and has been in
effect and sales can be made thereunder for at least one hundred twenty (120)
days then the Company has the right, exercisable on not less than ninety (90)
prior written notice to the holders of Series M Preferred Shares, to redeem, in
whole or in part, the outstanding Series M Preferred Shares.
Conversion; Certain Adjustments. Each Series M Preferred Share is
convertible, beginning on the 181st day after the issuance thereof and subject
to the limitations described below, at the option of the holder thereof, into
the number of Common Shares obtained by dividing (i) the sum of $1000 plus all
accrued and unpaid dividends by (ii) the Conversion Price. The "Conversion
Price" is defined to mean the lesser of (x) the average of the lowest five
closing bid prices of Common Shares during the thirty consecutive trading day
period ending one trading day before the date the conversion notice was sent and
(y) $2.65. The number of Common Shares (or other securities receivable by a
holder of Common Shares upon a consolidation or merger had the Series M
Preferred Shares been converted prior to such consolidation or merger) into
which the Series M Preferred Shares are convertible is subject to adjustment in
certain events, such as the payment of stock dividends, recapitalizations,
reclassifications and restructuring of the Company and in connection with
certain mergers and consolidations involving the Company. Generally, such
adjustments are intended to ensure that holders of the Series M
30
<PAGE>
Preferred Shares shall be entitled to receive, following an event requiring
adjustments, substantially equivalent economic and other benefits which were
attributable to the Series M Preferred Shares immediately preceding any
adjustment.
Each holder of Preferred Stock may convert only up to that percentage
of the aggregate Stated Value of all shares of Preferred Stock received by such
holder on the Issue Date during the time period set forth opposite such
percentage:
Percentage Time Period
---------- -----------
0% 1-180 days following the Issue Date
6.66% 181-210 days following the Issue Date
13.32% 211-240 days following the Issue Date
19.98% 241-270 days following the Issue Date
100% 271 days following the Issue Date
So long as the Registration Statement (as defined in the Preferred
Registration Agreements) is effective and there is not then a continuing
Mandatory Redemption Event, each Series M Preferred Share issued and outstanding
on the fifth anniversary, subject to certain extensions, will automatically be
converted into Common Shares on such date.
Registration Rights
The Company, in addition to the registration rights with respect to the
Notes and the underlying Common Shares, has entered into several agreements, as
set forth below, that grant to certain holders of Common Shares, or warrants for
the purchase of Common Shares, "demand" registration rights (i.e., the right to
require the Company to file a registration statement with the Commission
covering the resale of their Common Shares) or "piggyback" registration rights
(i.e., the right to have their Common Shares included in certain registration
statements filed by the Company with respect to sales of securities by it or, in
some cases, on behalf of another party):
(i) In connection with the Company's acquisition of all of the
outstanding common shares of CNSI, the Company agreed to register the
resale of (i) 4,099,086 Common Shares acquired by the CNSI shareholders
and (ii) 400,000 Common Shares underlying certain warrants issued to
them. One-half of the Common Shares were to be registered by June 28,
1997 and the remaining one-half are to be registered by June 28, 1998,
unless such Common Shares may be sold pursuant to an exemption from
registration. Additionally, the Company has granted to the holders of
the foregoing Common Shares and warrants certain piggyback registration
rights in the event the Company files a registration statement covering
the sale by the Company of any securities for cash, subject to certain
conditions and limitations.
(ii) The Company has agreed, upon demand, to file a
registration statement with the Commission covering the resale of an
aggregate of 550,000 Common Shares underlying certain warrants issued
to Robb, Peck, McCooey Clearing Corporation ("Robb, Peck"). Such demand
may be made during the five year period commencing May 13, 1997.
Additionally, the Company has granted Robb, Peck certain piggyback
registration rights in the event the Company files a registration
statement covering the sale by the Company of Common Shares for cash.
These registration rights are subject to certain conditions and
limitations.
(iii) In connection with the Company's acquisition of certain
assets of Teleplus, Inc. ("Teleplus"), the Company issued 526,168
Common Shares and issued an additional 526,168 Common Shares in early
1998. The Company agreed to register the resale of the 526,168 issued
shares by August 31, 1997 and the 526,168 issuable shares by August 31,
1998. The Company also granted Teleplus certain piggyback registration
rights with respect to the Common Shares owned by, and to be issued to,
Teleplus. The piggyback registration rights are subject to certain
conditions and limitations.
(iv) In connection with the Company's acquisition of 80% of
the outstanding common shares of NBE, the Company issued an aggregate
of 550,725 Common Shares to the selling shareholders of NBE and agreed
to file registration statements covering 115,943 Common Shares on or
prior to March 31, 1997 (subject to NBE reaching certain milestones),
217,391 Common Shares on or prior to September 30, 1997 and 217,391
Common Shares on or prior to September 30, 1998. In addition, the
Company granted the holders of the Common Shares certain piggyback
31
<PAGE>
registration rights if the Company files a registration statement prior
to the foregoing dates. The piggyback registration rights are subject
to certain conditions and limitations.
(v) In connection with a stock exchange agreement between the
Company and Mr. Galesi entered into in January 1997, the Company agreed
to file a registration statement between July 1998 and October 1998
covering the resale of an aggregate of 3,000,000 Common Shares that are
outstanding or are issuable pursuant to warrants issued to Mr. Galesi.
(vi) In connection with the Company's acquisition of certain
assets of Coastal Telecom, Garden State and BEK Tel, the Company
granted certain piggyback registration rights with regard to the resale
of 2,282,989 Common Shares. The Company agreed that, in the event a
registration statement providing for such piggyback registration rights
was not filed by May 1997, the Company would repurchase, at market
value, Common Shares having an aggregate market value of $1,000,000
(unless the Common Shares were otherwise sold by the holders during the
30 day period following the outside filing date). A similar obligation
is imposed on the Company in the event a registration statement
covering such shares is not filed by November 1997 or May 1998.
(vii) In connection with the offer and sale of the Notes, the
Company granted registration rights to the Initial Purchaser with
respect to the Common Shares issuable upon the conversion of the Notes
or the exercise of the Note Warrant, which Shares are registered
pursuant to the Registration Statement of which this Prospectus forms a
part.
(viii) In connection with the Preferred Stock Purchase
Agreements and the Common Stock Purchase Agreements, the Company
granted registration rights, in accordance with the terms of the
Preferred Registration Rights Agreement, to (i) Pangaea Fund, Ltd. and
Fourteen Hill Capital, L.P., with respect to the Common Shares issuable
upon conversion of the Series M Preferred Shares and exercise of the
Preferred Investor Warrants, (ii) Tanner Unman Securities, Inc., with
respect to the Common Shares issuable upon exercise of the Fee
Warrants, (iii) Granite Associates, L.P., Victory Ventures LLC, Brae
Group, Inc., Nicholas Forstmann, and AMN Investments, L.L.C., with
respect to the Common Shares issued pursuant to the Common Stock
Purchase Agreements, and (iv) Francesco Galesi, with respect to the
Common Shares issuable upon exercise of the Galesi Warrant; all such
Common Shares are registered pursuant to the Registration Statement of
which this Prospectus forms a part.
Limitation on Liability of Directors; Indemnification
Article 7 of the Company's Certificate of Incorporation eliminates the
personal liability of directors to the Company and its shareholders for monetary
damages for breach of fiduciary duty as a director to the fullest extent
permitted by Section 402 of the Business Corporation Law of the State of New
York (the "BCL"). This provision does not eliminate or limit the liability of a
Director (i) for any breach of the Director's duty of loyalty to the Company or
its shareholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for acts or
omissions in violation of Section 719 of the BCL (with respect to unlawful
dividend payments, unlawful share purchases or redemptions, unlawful
distributions of assets to shareholders after dissolution without providing for
known liabilities, and unlawful loans to Directors under BCL Section 714 without
shareholder approval); or (iv) for any transaction from which the Director
derived an improper personal financial or other advantage.
Additionally, the Company has included in its by-laws provisions to
indemnify its Directors and officers, as permitted by Section 722 of the BCL.
The BCL provides further that the indemnification permitted thereunder shall not
be deemed exclusive of any rights to which the Directors or officers may be
entitled under the Company's by-laws, and if permitted under the Company's
Certificate of Incorporation (of which there is no provision) under any
agreement, by vote of stockholders, by vote of Directors, or otherwise.
The effect of the foregoing is to require the Company, to the extent
permitted by law, to indemnify the officers and directors of the Company for any
claim arising against such persons in their official capacities if such person
acted in good faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the Company, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.
32
<PAGE>
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain U.S. federal income
tax considerations relevant to beneficial owners (the "Owners") of the Notes or
Common Shares. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Code"), U.S. Treasury Regulations and Internal Revenue Service
("IRS") rulings and pronouncements, and judicial decisions now in effect, all of
which are subject to change at any time, and any such change may be applied
retroactively in a manner that could adversely affect an Owner of a Note or
Common Shares.
This discussion is for general information only and does not address
all aspects of U.S. federal income taxation that may be relevant to Owners of
the Notes and Common Shares. This discussion does not describe the tax
consequences arising under the laws of any foreign, state or local jurisdiction,
nor does it describe all of the tax consequences that may be relevant to
particular Owners in light of their personal circumstances, or to certain types
of Owners (such as certain financial institutions, insurance companies,
tax-exempt entities, dealers in securities, persons who hold the Notes or Common
Shares in connection with a straddle or a "hedging" or "conversion" transaction
for U.S. federal income tax purposes, or persons that have a "functional
currency" other than the U.S. dollar) who may be subject to special rules. This
discussion assumes that each Owner has acquired the Notes on their original
issuance at their original offering price and holds the Notes or the Common
Shares as capital assets within the meaning of Section 1221 of the Code.
As used herein, "U.S. Holder" means an Owner of a Note or Common Shares
who or that (i) is a citizen or resident of the United States, (i) is a
corporation, partnership or other entity taxable as a corporation or partnership
created or organized in or under the laws of the United States or political
subdivision thereof (unless, in the case of a partnership, the Treasury provides
otherwise by regulations), (iii) is an estate the income of which is subject to
U.S. federal income taxation regardless of its source, (iv) is a trust if (A) a
U.S. court is able to exercise primary supervision over the administration of
the trust and (B) one more U.S. persons have authority to control all
substantial decisions of the trust, or (v) is otherwise subject to U.S. federal
income taxation on a net income basis in respect of the Note or Common Shares.
As used herein, a "Non-U.S. Holder" means an Owner who or that is not a U.S.
Holder.
PROSPECTIVE PURCHASERS OF THE NOTES OR COMMON SHARES SHOULD CONSULT
THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THEIR PARTICIPATION IN THIS OFFERING, OWNERSHIP AND DISPOSITION
OF THE NOTES OR COMMON SHARES, INCLUDING CONVERSION OF THE NOTES, AND THE EFFECT
THAT THEIR PARTICULAR CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
U.S. Holders
Payments of Interest on the Notes. Interest paid on a Note will be
taxable to a U.S. Holder as ordinary interest income, at the time that such
interest is accrued or actually or constructively received, in accordance with
such U.S. Holder's method of accounting for U.S. federal income tax purposes.
The Notes were not issued with original issue discount within the meaning of the
Code.
Distributions on Common Shares. Distributions on Common Shares will
constitute dividends for U.S. federal income tax purposes to the extent of
current or accumulated earnings and profits of the Company as determined under
U.S. federal income tax principles. Dividends paid to U.S. Holders that are U.S.
corporations may qualify for the dividends-received deduction. Individuals,
partnerships, trusts, and certain corporations, including certain corporations
that are not U.S. Holders, are not entitled to the dividends-received deduction.
To the extent, if any, that a U.S. Holder receives a distribution on
Common Shares that would otherwise constitute a dividend for U.S. federal income
tax purposes but that exceeds current and accumulated earnings and profits of
the Company, such distribution will be treated first as a non-taxable return of
capital reducing the U.S. Holder's basis in the Common Shares. Any such
distribution in excess of the U.S. Holder's basis in the Common Shares will be
treated as a capital gain.
Sale or Exchange of Notes or Common Shares. In general, a U.S. Holder
of a Note will recognize gain or loss upon the sale, redemption, retirement or
other disposition of the Note measured by the difference between the amount of
cash and the fair market value of any property received (except to the extent
attributable to the payment of accrued but
33
<PAGE>
unpaid interest) and the U.S. Holder's adjusted tax basis in the Note. In
general, each U.S. Holder of Common Shares (including Common Shares into which
the Notes are converted) will recognize gain or loss upon the sale, exchange,
redemption or other disposition of the Common Shares under rules similar to
those applicable to the Notes. The basis and holding period of the Common Shares
received upon conversion of the Notes is discussed under "Conversion of Notes"
below. Special rules may apply to redemptions of Common Shares which may result
in the amount being treated as a dividend. The registration of the Notes in
connection with this Prospectus should not be treated as a sale or exchange of
the Notes, and, therefore, should not be taxable to a U.S. Holder of a Note. See
"Description of Notes--Registration Rights." Gain or loss on the disposition of
the Notes or Common Shares will generally be capital gain or loss and will be
long-term gain or loss if the Notes or Common Shares have been held for more
than one year at the time of such disposition. The Taxpayer Relief Act of 1997
generally reduces tax rates on capital gains recognized by noncorporate
taxpayers in respect of capital assets held for more than 18 months. U.S.
Holders are advised to consult with their own tax advisors as to the
consequences of the Taxpayer Relief Act of 1997 to their particular
circumstances.
Conversion of Notes. A U.S. Holder of a Note generally will not
recognize gain or loss on the conversion of the Note into Common Shares except
with respect to cash received in lieu of a fractional Common Share. Such U.S.
Holder's aggregate tax basis in the Common Shares received upon conversion of a
Note will equal the U.S. Holder's adjusted basis in such Note at the time of
conversion (less any portion of that basis allocable to cash received in lieu of
a fractional share). The holding period of the Common Shares received by the
U.S. Holder upon conversion of a Note will include the period during which the
U.S. Holder held such Note prior to the conversion. Cash received in lieu of a
fractional Common Share upon conversion should be treated as a payment in
exchange for such fractional share rather than as a dividend. Gain or loss
recognized on the receipt of cash paid in lieu of such fractional shares
generally will be capital gain or loss equal to the difference between the
amount of cash received and the basis allocable to the fractional shares.
Constructive Distributions. The Conversion Price of the Notes is
subject to adjustment in certain circumstances. Under Section 305(c) of the
Code, adjustments that have the effect of increasing the proportionate interest
of holders of the Notes in the assets or earnings of the Company (for example,
an adjustment following a distribution of property by the Company to its
shareholders) may in some circumstances give rise to a deemed distribution to a
U.S. Holder of a Note; similarly, a failure to adjust the conversion price of
the Notes to reflect a stock dividend or other event increasing the
proportionate interest of the holders of outstanding Common Shares can in some
circumstances give rise to a deemed distribution to U.S. Holders of such Common
Shares. Such deemed distributions will be taxable as a dividend, return of
capital or capital gain in accordance with the earnings and profits rules
discussed above under "Distributions on Common Shares."
Market Discount. The resale of Notes may be affected by the "market
discount" provisions of the Code. For this purpose, the market discount on a
Note will generally be equal to the amount, if any, by which the stated
redemption price at maturity of the Note immediately after its acquisition
exceeds the U.S. Holder's tax basis in the Note. Subject to a de minimis
exception, these provisions generally require a U.S. Holder of a Note acquired
at a market discount to treat as ordinary income any gain recognized on the
disposition of such Note to the extent of the "accrued market discount" on such
Note at the time of disposition, unless the U.S. Holder elects to include
accrued market discount in income currently. In general, market discount on a
Note will be treated as accruing on a straight-line basis over the term of such
Note, or, at the election of the U.S. Holder, under a constant yield method. A
U.S. Holder of a Note acquired at a market discount who does not elect to
include accrued market discount in income currently may be required to defer the
deduction of a portion of the interest on any indebtedness incurred or
maintained to purchase or carry the Note until the Note is disposed of in a
taxable transaction. If a U.S. Holder acquires a Note at a market discount and
receives Common Shares upon conversion of the Note, the amount of accrued market
discount not previously included in income with respect to the converted Note
through the date of conversion will be treated as ordinary income upon the
disposition of the Common Shares.
Non-U.S. Holders
Payments of Interest on the Notes. Generally, payments of interest to a
Non-U.S. Holder of a Note will not be subject to U.S. federal withholding tax;
provided that (i) such Non-U.S. Holder does not actually or constructively own
10 percent or more of the total combined voting power of all classes of stock of
the Company, (ii) such Non-U.S. Holder is not (A) a controlled foreign
corporation for U.S. tax purposes that is related to the Company through stock
ownership or
34
<PAGE>
(B) a bank that received the Note on an extension of credit, and (iii) the
Non-U.S. Holder certifies, under penalties of perjury, that it is not a U.S.
Holder (as defined in Section 7701(a)(30) of the Code) and provides its name and
address on IRS Form W-8 or a substantially similar substitute form. For purposes
of clause (ii) above, a Non-U.S. Holder of a Note would be deemed to own
constructively the Common Shares into which the Note could be converted. If
certain requirements are satisfied, the certification described in clause (iii)
above may be provided by a securities clearing organization, a bank, or other
financial institution that holds customers' securities in the ordinary course of
its trade or business. A Non-U.S. Holder that is not exempt from tax under these
rules will be subject to U.S. federal income tax withholding at a rate of 30%
(or lower treaty rate).
Distributions on Common Shares. Generally, any distribution on Common
Shares paid to a Non-U.S. Holder, to the extent of current or accumulated
earnings and profits of the Company as determined under U.S. federal income tax
principles, will be subject to withholding of U.S. federal income tax at a 30
percent rate (or lower rate provided under any applicable tax treaty, assuming
the holder of the Common Shares satisfies any certification or documentation
requirements necessary to claim the benefits of such treaty).
Conversion of Notes. A Non-U.S. Holder of a Note generally will not be
subject to U.S. federal income tax on the conversion of a Note into Common
Shares. To the extent a Non-U.S. Holder receives cash in lieu of a fractional
share on conversion, such cash may give rise to gain that would be subject to
the rules described below with respect to the sale or exchange of a Note or
Common Shares.
Sale or Exchange of Notes or Common Shares. A Non-U.S. Holder generally
will not be subject to U.S. federal income tax on gain recognized upon the sale
or other disposition (including a redemption) of a Note or Common Shares
(including the receipt of cash in lieu of a fractional share upon a conversion
of the Notes into Common Shares) unless the Non-U.S. Holder is an individual who
is present in the United States for 183 or more days in the taxable year and
certain other circumstances are present.
U.S. Estate Tax. Common Shares owned or treated as owned by an
individual who is not a citizen or resident (as specially defined for U.S.
federal estate tax purposes) of the United States at the time of death
("Nonresident Decedent") will be includible in the Nonresident Decedent's gross
estate for U.S. federal estate tax purposes, unless an applicable treaty
provides otherwise. However, a Note held by a Nonresident Decedent will not be
includible in the Nonresident Decedent's gross estate for such purposes as a
result of the Nonresident Decedent's death, provided that, at the time of death,
the Nonresident Decedent does not own, actually or constructively, 10% or more
of the total combined voting power of all classes of stock of the Company and
payments with respect to such Note would not have been effectively connected
with the conduct of a trade or business in the United States by the Nonresident
Decedent. A Nonresident Decedent's estate may be subject to U.S. federal estate
tax on property includible in the estate for U.S.
federal estate tax purposes.
Information Reporting and Backup Withholding
Certain noncorporate Owners may be subject to IRS information reporting
and backup withholding at a rate of 31% on payments received with respect to the
Notes and Common Shares. Backup withholding will only be imposed where the Owner
(i) fails to furnish his taxpayer identification number ("TIN"), which, for an
individual, would ordinarily be his social security number, (ii) furnishes an
incorrect TIN, (iii) is notified by the IRS that he has failed to properly
report payments of interest or dividends, or (iv) under certain circumstances,
fails to certify, under penalties of perjury, that he has furnished a correct
TIN and has not been notified by the IRS that he is subject to backup
withholding. Notwithstanding the foregoing, the Company will institute backup
withholding with respect to interest on the Notes and dividends on the Common
Shares paid to an Owner if instructed to do so by the IRS. Owners of the Notes
and Common Shares should consult their own tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption, if applicable. However, interest paid with respect
to a Note and dividends paid with respect to Common Shares which are received by
a Non-U.S. Holder will not be subject to information reporting or backup
withholding as long as the payor has received appropriate certification
statements and provided that the payor does not have actual knowledge that the
Owner is a U.S. person.
The payment of the proceeds from the disposition of the Notes or Common
Shares to or through the U.S. office of any U.S. or foreign broker will be
subject to information reporting and possible backup withholding unless the
Owner
35
<PAGE>
certifies as to its Non-U.S. Holder status under penalties of perjury or
otherwise establishes an exemption, provided that the broker does not have
actual knowledge that the Owner is a U.S. person or that the conditions of any
other exemption are not, in fact, satisfied. The payment of the proceeds from
the disposition of a Note or Common Shares to or through a non-U.S. office of a
non-U.S. broker that is not a U.S. related person will not be subject to
information or backup withholding. For this purpose, a "U.S. related person" is
(i) a controlled foreign corporation for U.S. federal income tax purposes or
(ii) a foreign person 50% or more of whose gross income from all sources for the
three-year period ending with the close of its taxable year preceding the
payment (or for such part of the period that the broker has been in existence)
is derived from the activities that are effectively connected with the conduct
of a U.S. trade or business. In the case of the payment of proceeds from the
disposition of the Notes or Common Shares to or through a non-U.S. office of a
broker that is a U.S. related person, U.S. Treasury Regulations require
information reporting on the payment unless the broker has documentary evidence
in its files that the owner is a Non-U.S. Holder and the broker has no knowledge
to the contrary. Backup withholding will not apply to payments made through
foreign offices of a broker that is a U.S. person or a U.S. related person
(absent actual knowledge that the payee is a U.S. person).
In the case of the payment of proceeds from the disposition of the
Notes or Common Shares to or through a non-U.S. office of a broker that is a
U.S. related person, U.S. Treasury Regulations require information reporting on
the payment unless the broker has documentary evidence in its files that the
Owner is a Non-U.S. Holder and the broker has no knowledge to the contrary.
Backup withholding will not apply to payments made through foreign offices of a
broker that is a U.S. person or a U.S. related person (absent actual knowledge
that the payee is a U.S. person).
Any amounts withheld under the backup withholding rates from a payment
to a Non-U.S. Holder will be allowed as a credit against such Non-U.S. Holder's
federal income tax liability, if any, or will be refunded, provided that the
requisite procedures are followed.
Prospective Final Regulations
On October 6, 1997, new Treasury Regulation ("New Regulations") were
issued that modify the requirements imposed on a Non-U.S. Holder and certain
intermediaries for establishing the recipient's status as a Non-U.S. Holder
eligible for exception from or reduction in U.S. withholding tax and backup
withholding described above. The New Regulations are generally effective for
payments made after December 31, 1998, subject to certain transition rules.
(However, new Temporary U.S. Treasury Regulations, effective for payments made
after December 31, 1997, require some Non-U.S. Holders to satisfy certain
residency requirements when claiming the benefits of an applicable income tax
treaty.) In general, the New Regulations do not significantly alter the
substantive withholding and information reporting requirements but rather unify
current certification procedures and forms and clarify reliance standards. In
addition, the New Regulations impose more stringent conditions on the ability of
financial intermediaries acting for Non-U.S. Holders to provide certifications
on behalf of Non-U.S. Holders, which may include entering into an agreement with
the IRS to audit certain documentation with respect to such certifications.
Non-U.S. Holders should consult their own tax advisors to determine the effects
of the application of the New Regulations to their particular circumstances.
36
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the legality of the Notes and the
validity of the Shares offered hereby are being passed upon for the Company by
Morrison & Foerster LLP, New York, New York.
EXPERTS
The consolidated financial statements of AMNEX, Inc., appearing in
AMNEX, Inc.'s Annual Report (Form 10-K) for the year ended December 31, 1997
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
37
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Notes and Common Stock being registered. All amounts are
estimates except the SEC registration fee and Nasdaq listing fee.
SEC registration fee........................... $11,799
Nasdaq listing fee............................. 14,500
Printing expenses.............................. 6,000
Legal fees and expenses........................ 45,000
Accounting fees and expenses................... 17,000
Blue Sky fees and expenses..................... 0
Transfer agent fees............................ 0
Miscellaneous expenses......................... 0
-------------------
Total.................................... $88,299
===================
===================
===================
Item 15. Indemnification of Directors and Officers
Reference is made to Section 722 of the Business Corporation Law of the
State of New York (the "BCL"), which provides for indemnification of directors,
officers and other employees in certain circumstances, and to Section 402 of the
BCL, which provides for the elimination or limitation of the personal liability
for monetary damages of directors under certain circumstances. Article Seventh
of the Certificate of Incorporation of the Company eliminates the personal
liability for monetary damages of directors under certain circumstances and
provides indemnification to directors and officers of the Company to the fullest
extent permitted by the BCL. Among other things, these provisions provide
indemnification for officers and directors against liabilities for judgments in
and settlements of lawsuits and other proceedings arising against such persons
in their official capacities if such person acted in good faith and in a manner
that he reasonably believed to be in or not opposed to the best interests of the
Company and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Item 16. Exhibits
(a)......Exhibits
No. Description
1.1 Purchase Agreement, dated September 11, 1997, between the
Registrant and HSBC Securities, Inc.**
4.1 Indenture, dated as of September 29, 1997, between the Registrant
and Marine Midland Bank, as Trustee.**
4.2 Form of 8 1/2% Convertible Subordinated Note due 2002 (included in
Exhibit 4.1).**
4.3 Registration Rights Agreement, dated as of September 29, 1997,
between the Registrant and HSBC Securities, Inc.**
4.4 Form of Preferred Stock Purchase Agreement***
4.5 Form of Common Stock Purchase Agreement***
4.6 Form of Preferred Investor Warrant***
4.7 Form of Fee Warrant***
5.1 Opinion of Morrison & Foerster LLP.*
12.1 Calculation of Ratio of Earnings to Fixed Charges.*
23.1 Consent of Ernst & Young LLP.*
23.2 Consent of Morrison & Foerster LLP (included in Exhibit 5.1).*
38
<PAGE>
24.1 Powers of Attorney (included in the signature page of this
Registration Statement) (previously filed).
25.1 Statement of Eligibility of Trustee (Form T-1) (previously filed).
* Filed herewith
** Filed as an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1997
*** Filed as an Exhibit to the Company's Current Report on Form 8-K
dated December 26, 1997
Item 17. Undertakings
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table
in the effective Registration Statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement of the securities
offered, and the offering of such securities at that time to
be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the New York Business Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer, or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new registration
statement relating to the
39
<PAGE>
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Lake Success, State of New York, on April 10,
1998.
AMNEX, INC.
By: /s/ Alan J Rossi
-----------------------------------------
Alan J. Rossi
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this amendment to Registration Statement has been signed by the following
persons in the capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* President and Director April 10, 1998
- ---------------------------------------- -----------------
Peter M. Izzo, Jr.
/s/ Alan J Rossi
- ----------------------------------------
Alan J. Rossi Chairman of the Board, Chief
Executive Officer and Director
(Principal Executive Officer) April 10, 1998
-----------------
*
- ----------------------------------------
Richard L. Stoun Chief Accounting Officer
(Principal Accounting Officer) April 10, 1998
----------------
* Director
- ----------------------------------------
Francesco Galesi April 10, 1998
----------------
* Director
- ----------------------------------------
A. Jones Yorke April 10, 1998
----------------
* Director
- ----------------------------------------
Harry R. Thompson April 10, 1998
----------------
* Chief Financial Officer
- ---------------------------------------- (Chief Financial Officer)
Cynthia I. Terrell April 10, 1998
----------------
/s/ Alan J. Rossi
- ----------------------------------------
* By Alan J. Rossi, Attorney-in-Fact
</TABLE>
41
<PAGE>
===============================================================================
No dealer, sales representative, or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company. This Prospectus does not constitute an offer to sell
or a solicitation of any offer to buy any securities other than the Notes and
the Common Shares to which it relates or an offer to, or a solicitation of, any
person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create an implication that there has been no
change in the affairs of the Company or that information contained herein is
correct as of any time subsequent to the date hereof.
-------------
TABLE OF CONTENTS
Page
----
AVAILABLE INFORMATION................................2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......2
RISK FACTORS.........................................4
RATIO OF EARNINGS TO FIXED CHARGES ..................9
USE OF PROCEEDS .....................................9
DIVIDEND POLICY.....................................10
SELLING NOTEHOLDERS AND STOCKHOLDERS................10
PLAN OF DISTRIBUTION................................11
DESCRIPTION OF NOTES................................12
DESCRIPTION OF CAPITAL STOCK........................27
CERTAIN UNITED STATES FEDERAL INCOME TAX
CONSIDERATIONS...................................33
LEGAL MATTERS.......................................37
EXPERTS.............................................37
----------
===============================================================================
===============================================================================
AMNEX, INC.
$15,000,000
8 1/2% Convertible Subordinated
Notes Due 2002
17,844,532
Common Shares
----------------------
PROSPECTUS
----------------------
April 29, 1998
===============================================================================
<PAGE>
Exhibit 5.1
[MORRISON & FOERSTER LLP LETTERHEAD]
April 29,1998
AMNEX, Inc.
6 Nevada Drive
Lake Success, New York 11042
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-3 filed by AMNEX, Inc., a New York corporation (the "Company"), with the
Securities and Exchange Commission on February 24, 1998 (Registration No.
333-46815) and the Amendment No. 1 thereto filed with the Commission on
April 29, 1998 (collectively, the "Registration Statement"), relating to the
registration under the Securities Act of 1933, as amended, of (a) $15,000,000
aggregate principal amount of 8 1/2% Convertible Subordinated Notes due 2002
(the "Notes") of the Company; (b) 5,387,157 Common Shares initially issuable
upon conversion of the Notes (the "Note Conversion Shares"); (c) 3,154,154
Common Shares which are initially issuable upon conversion of the Series M
Preferred Shares issued pursuant to the Preferred Stock Purchase Agreements (the
"Preferred Conversion Shares"); (d) 1,121,615 Common Shares (the "Warrant
Shares") initially issuable upon exercise of the Note Warrants, the Preferred
Warrants and the Galesi Warrants (the "Warrants"); (e) 8,182,606 Common Shares
issued (i) pursuant to the Common Stock Purchase Agreements, (ii) to Francesco
Galesi upon conversion of indebtedness owed by the Company to Mr. Galesi and
(iii) pursuant to the Company's acquisition of certain assets of Teleplus, Inc.
and the Company's acquisition of 80% of the outstanding shares of NBE
(collectively, the "Common Investor Shares") (the Note Shares, the Preferred
Conversion Shares, the Warrant Shares and Common Investor Shares are herein
collectively referred to as the "Shares"). The Notes have been issued and sold
pursuant to the terms and conditions of, and in the forms set forth in, (i) a
purchase agreement (the "Purchase Agreement") between the Company and HSBC
Securities, Inc., as initial purchaser (the "Initial Purchaser"), and (ii) an
indenture (the "Indenture") between the Company and Marine Midland Bank, as
trustee (the "Trustee"), the forms of which are filed as Exhibits 1.1 and 4.1
respectively, to the Registration Statement.
<PAGE>
AMNEX, Inc.
April 29, 1998
This opinion is being delivered in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended.
All capitalized terms used herein and not otherwise defined shall have the
respective meanings assigned to them in the Registration Statement. The
Warrants, the Common Stock Purchase Agreements, the Preferred Stock Purchase
Agreements, the Purchase Agreement and the Indenture are collectively referred
to hereinafter as the "Transaction Documents."
As counsel to the Company, we have examined the proceedings taken by
the Company in connection with the issuance and sale by the Company of the Notes
and the Shares. In such examination, we have assumed the genuineness of all
signatures and the authenticity of all items submitted to us as originals and
the conformity with originals of all items submitted to us as copies. In making
our examination of documents executed by entities other than the Company, we
have assumed that each other entity has the power and authority to execute and
deliver, and to perform and observe the provisions of such documents, and the
due authorization by each such entity of all requisite action and the due
execution and delivery of such documents by each such entity. We have also
assumed that the Indenture has been duly authenticated by the Trustee, will be
duly qualified under the Trust Indenture Act of 1939, as amended and that the
Notes have been issued and paid for in accordace with the terms of the Purchase
Agreement and the Indenture. In addition, we have assumed that the current Board
of Directors has been validly elected and that the Series M Preferred Shares,
the Warrants and the Common Investor shares have been duly paid for. We have
also assumed that the Company has been duly organized and is validly existing
and in good standing under the laws of the State of New York, solely in reliance
upon a certificate of the secretary of the State of New York, without
independent investigation.
In connection with this opinion, we have examined originals or copies
of the Transaction Documents and of the certificate of incorporation and the
bylaws, each as amended to date, of the Company, In addition, we have examined
such records, documents, certificates of public officials and the Company, made
such inquiries of officials of the Company and considered such questions of law
as we have deemed necessary for the purpose of rendering the opinions set forth
herein.
The opinions hereinafter expressed are subject to the following
qualifications and exceptions:
(i) the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium or other similar laws relating to or affecting the rights of
creditors generally, including, without limitation, laws relating to fraudulent
transfers or conveyances, preferences and equitable subordination;
<PAGE>
AMNEX, Inc.
April 29, 1998
(ii) limitations imposed by general principles of equity upon the
availability of equitable remedies or the enforcement of provisions of the
Documents; and the effect of judicial decisions which have held that certain
provisions are unenforceable where their enforcement would violate the implied
covenant of good faith and fair dealing, or would be commercially reasonable, or
where their breach is not material; and
(iii) we express no opinion as to the enforceability of the waiver
contained in Section 4.04 of the Indenture.
Based upon and subject to the foregoing, we are of the opinion that:
(a) The Notes constitute the legal, valid and binding obligations of
the Company entitled to the benefits of the Indenture;
(b) The Common Investor Shares have been validly issued and are fully
paid and non-assessable; and
(c) The Note Conversion Shares have been duly authorized for issuance
by all necessary corporate action on the part of the Company and, when issued in
accordance with the terms of the Indenture, will be validly issued, fully paid
and non-assessable; and
(d) The Preferred Conversion Shares have been duly authorized for
issuance by all necessary corporate action on the part of the Company and, when
issued in accordance with the terms of the Company's certificate of
incorporation, will be validly issued, fully paid and non-assessable; and
(e) The Warrant Shares, issuable upon exercise of the Warrants, when
issued upon payment of the applicable exercise prices and in accordance with the
applicable warrant agreements, will be validly issued, fully paid and
non-assessable.
We express no opinion as to matters governed by laws of any
jurisdiction other than the substantive laws of the State of New York in effect
on the date hereof.
We consent to the use of this opinion as an exhibit to the
Registration Statement and further consent to all references to us in the
Registration Statement, the prospectus consituting a part thereof and any
amendment thereto.
Very truly yours,
/s/ Morrison & Foerster LLP
---------------------------
<PAGE>
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for each of the
periods indicated is as follows:
RATIO OF EARNINGS TO FIXED CHARGES (in 000's)
<TABLE>
<CAPTION>
For year Ended December 31,
-------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated pretax income $(3,814) $273 $1,226 $1,760 $(5,694) $(13,030)
(loss) from continuing
operations
Interest 1,168 1,185 1,793 2,044 2,730 3,913
Interest portion of rental 333 300 384 413 552 671
expense
---------- --------- ---------- --------- ---------- -----------
Earnings (2,313) 1,758 3,403 4,217 (2,412) (8,446)
========== ========= ========== ========= ========== ===========
Interest 1,168 1,185 1,793 2,044 2,730 3,913
Interest portion of rental 333 300 384 413 552 671
expense
---------- --------- ---------- --------- ---------- -----------
Fixed charges 1,501 1,485 2,177 2,457 3,282 4,534
========== ========= ========== ========= ========== ===========
Ratio of Earnings to Fixed def 1.18x 1.56x 1.72x def def
Charges(1)
</TABLE>
- ------------------------------
(1) The coverage deficiency for 1992, 1996 and 1997, was
approximately $3,814,000, $5,694,000 and $13,030,000, respectively.
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF ERNST & YOUNG LLP]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related prospectus of Amnex, Inc. for the
registration of $15,000,000 8-1/2% Convertible Notes due 2002 and 17,844,532
Common Shares and to the incorporation by reference therein of our report dated
March 18, 1998 with respect to the consolidated financial statements and
schedule of Amnex, Inc. included in its Annual Report (Form 10-K) for the year
ended December 31, 1997 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
New York, New York
April 23, 1998
