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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): December 24, 1997
AMNEX, INC.
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(Exact name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
New York 0-27898 11-2790221
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(State or Other Jurisdiction (Commission File No.) (IRS Employer Identification No.)
of Incorporation)
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6 Nevada Drive, Lake Success, New York 11042
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(Address of Principal Executive Offices) (Zip Code)
(516) 326-2540
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(Registrant's Telephone Number, Including Area Code)
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INFORMATION TO BE INCLUDED IN REPORT
Item 5. Other Events.
Issuance of Preferred Stock and Warrants
General Terms. The Registrant entered into two Securities Purchase
Agreements, dated December 24, 1997 and January 26, 1998 (the "Preferred Stock
Purchase Agreements"), containing substantially identical terms for the
purchase by two different institutional investors (the "Preferred Investors")
of 1,000 and 750 shares, respectively (the "Preferred Shares"), of the
Registrant's Series M Convertible Preferred Stock (the "Preferred Stock") for
an aggregate purchase price of $1,000,000 and $750,000, respectively. The
Preferred Stock has the terms set forth in the Certificate of Certificate of
Amendment to the Certificate of Incorporation of AMNEX, Inc. as originally
filed in the State of New York on December 24, 1997 and as amended and
restated through filing in the State of New York on January 26, 1998 (the
"Certificate of Amendments"). The Preferred Investors were also issued 40,000
warrants and 30,000 warrants (the "Preferred Investor Warrants"),
respectively, to purchase shares of common stock, $.01 par value per share, of
the Registrant (the "Common Stock"). The Preferred Stock and the Warrants were
issued on the respective dates of the Preferred Stock Purchase Agreements
(each, an "Issue Date").
Tanner Unman Securities, Inc. was issued 35,000 warrants to purchase
shares of Common Stock (the "Tanner Unman Warrants") as consideration for its
services as placement agent for the Registrant with respect to the Preferred
Stock. The Registrant also reimbursed Tanner Unman for certain expenses
incurred in connection with the negotiation, preparation, execution, delivery
and performance of the Preferred Stock Purchase Agreements.
Conversion; Certain Adjustments. Commencing 181 days following the
Issue Date, each share of Preferred Stock is convertible, at the option of the
holder thereof subject to the limitations described below, into the number of
shares of Common Stock obtained by dividing (i) the sum of $1,000 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 the Common Stock 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 shares of Common Stock (or other securities
receivable by a holder of Common Stock upon a consolidation or merger had the
Preferred Stock been converted prior to such consolidation or merger) into
which the Preferred Stock are convertible is subject to adjustment in certain
events, such as the payment of stock dividends, recapitalizations,
reclassifications and restructuring of the Registrant and in connection with
certain mergers and consolidations involving the Registrant.
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:
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Percentage Time Period
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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
Such restrictions do not apply if (i) on the conversion date, the
closing sale price of the Common Stock is greater than or equal to $2.65, (ii)
the Registrant announces its intention to merge or consolidate with, or sell
all or substantially all of its assets to, another corporation, (iii) the
Registrant delivers an Optional Redemption Notice (as defined below), or (iv)
the Registrant does not execute a certain proposed contract referred to in the
Securities Purchase Agreements within sixty days following the Issue Date.
So long as the Registration Statement is effective and there is not
then a continuing Mandatory Redemption Event (as defined below), each Series M
Preferred Share issued and outstanding on the fifth anniversary, subject to
certain extensions, will automatically be converted into Common Stock on such
date.
Redemption. In the event that any holder of Preferred Stock gives the
Registrant notice of an election to convert such Preferred Stock into Common
Stock (each, an "Optional Redemption Notice"), in the event that the last sale
price of the Common Stock is less than $1.25 per share, the Registrant may
elect, at its option, to redeem any or part of the outstanding Preferred Stock
with respect to which such election has been given, multiplied by 130% of the
greater of (a) 110% of the volume weighted average of the bid price of the
Common Stock for all transactions the trading day immediately preceding the
date that conversion is elected (the "Closing Price") or (b) $1.20 in cash.
In addition, if any of the following events (each, a "Mandatory
Redemption Event") shall occur:
(i) The Registrant fails to issue Common Stock to the holders of
Preferred Stock upon valid exercise by the holders of their
conversion rights (with certain exceptions if the Registrant
is using all commercially reasonable efforts to authorize a
sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or to cause its transfer
agent to transfer (electronically or in certified form) any
certificate for shares of Common Stock issued to the holders
upon conversion of the Preferred Stock as and when required
by the terms and provisions of the Preferred Stock, the
Registration Rights Agreements (as defined below), fails to
remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate
for any shares of Common Stock issued to the holders of
Preferred Stock upon conversion thereof as and when required
by the terms and provisions of the Preferred Stock, the
Preferred Stock Purchase Agreements or the Registration
Rights Agreements, or fails to fulfill its obligations
pursuant to Sections 4(c), 4(e), 4(h), 4(i), 4(j) or 5 of
the Preferred Stock Purchase Agreements (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;
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(ii) The Registrant fails to obtain effectiveness with the
Commission of the Registration Statement (as defined below)
prior to April 30, 1998 or such Registration Statement
lapses in effect (or sales otherwise cannot be made
thereunder), whether by reason of the Registrant's failure
to amend or supplement the prospectus included therein in
accordance with the Registration Rights Agreements for more
than fifteen (15) consecutive trading days, except in the
case of an Allowed Delay (as defined in the Registration
Rights Agreements), 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 Registrant 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;
(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 Registrant or any subsidiary of
the Registrant;
(v) The Registrant shall fail to maintain the listing of the
Common Stock 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
Registrant 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 Registrant shall immediately notify
the holders of Preferred Stock) 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 Preferred Stock by written notice (the
"Mandatory Redemption Notice") to the Registrant of such Mandatory Redemption
Event, or upon the occurrence of any Mandatory Redemption Event specified in
subparagraphs (iii) or (iv), the Registrant shall purchase each holder's
Preferred Stock for any amount per share equal to the number of shares of
Common Stock issuable upon conversion of such shares in accordance with the
terms and provisions of the Preferred Stock, 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 Registrant 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 Preferred Stock shall have the right at any time, so
long as the Mandatory Redemption Event continues, to require the Registrant,
upon written notice, to immediately issue, in lieu of the Mandatory Redemption
Amount, with respect to each outstanding Preferred Stock held by such holder,
the number of shares of Common Stock equal to the Mandatory Redemption Amount
divided by the Conversion Price then in effect.
If the Preferred Stock ceases to be convertible as a result of
certain limitations described in the terms and provisions of the Preferred
Stock (a "19.99% Redemption Event"), and the Registrant has not prior to, or
within thirty days of, the date that such 19.99% Redemption Event arises, (i)
obtained approval of the issuance
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of the additional shares of Common Stock by the requisite vote of the holders
of the then-outstanding Common Stock (not including any Common Stock held by
present or former holders of Preferred Stock that were issued upon conversion
of Preferred Stock) or (ii) received other permission pursuant to Nasdaq
Requirement 4460(i) allowing the Registrant to resume issuances of Common
Stock upon conversion of Preferred Stock or the Common Stock is 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 Registrant shall be obligated to redeem immediately all of the then
outstanding Preferred Stock.
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 Registrant has the right, exercisable on not less
than ninety (90) prior written notice to the holders of Preferred Stock, to
redeem, in whole or in part, the outstanding Preferred Stock.
Exercise of Warrants. The Preferred Investor Warrants and the Tanner
Unman Warrants are each exercisable for a period of five years from the Issue
Date (the "Exercise Period") at an exercise price of $2.65 per share. During
the Exercise Period, the exercise price and the number of shares of Common
Stock issuable upon exercise of the Preferred Investor Warrants and the Tanner
Unman Warrants is subject to adjustment on certain events, such as the payment
of stock dividends, recapitalizations, reclassifications and restructuring of
the Registrant and in connection with certain mergers and consolidations
involving the Registrant.
Issuance of Common Stock and Warrants
General Terms. Between January 14, 1998 and January 26, 1998, the
Registrant entered into a series of Stock Purchase Agreements with
substantially identical terms (the "Common Stock Purchase Agreements") with a
small group of institutional investors (the "Common Stock Investors") pursuant
to which the Common Stock Investors purchased Common Stock. The Common Stock
Investors purchased a total of 1,363,637 shares of Common Stock at price of
$1.10 per share and a total of 3,017,242 shares of Common Stock at a price of
$1.16 per share (collectively, the "Investor Common Shares"). The Registrant
also issued 2,758,620 shares of Common Stock (with the Investor Common Shares,
the "Common Shares") and warrants to purchase an additional 750,000 shares of
Common Stock (the "Galesi Warrants" and, together with the Preferred Investor
Warrants and the Tanner Unman Warrants, the "Warrants") to Mr. Francesco
Galesi, a director of the Registrant, on the conversion of $3,200,000 of
outstanding indebtedness of the Registrant to Mr. Galesi.
Exercise of Warrants. The Galesi Warrants are each exercisable for a
period of five years from the Issue Date (the "Exercise Period") at an
exercise price of $1.50 per share. During the Exercise Period, the exercise
price and the number of shares of Common Stock issuable upon exercise of the
Galesi Warrants and the Tanner Unman Warrants is subject to adjustment on
certain events, such as the payment of stock dividends, recapitalizations,
reclassifications and restructuring of the Registrant and in connection with
certain mergers and consolidations involving the Registrant.
Exemption from Registration; Use of Proceeds
The Preferred Shares and Preferred Investor Warrants issued on
January 26, 1998 were offered and sold pursuant to Rule 506 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Act"). Only one
purchaser participated in such offering (only two purchasers, the Preferred
Investors, have
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purchased shares of the Preferred Stock) and such purchaser was an "accredited
investor" as defined in Regulation D promulgated under the Act.
The Preferred Shares issued on January 26, 1998, the Common Shares
and the Warrants (except for the Preferred Investor Warrants issued on January
26, 1998) were all offered and sold in a private placement pursuant to
provisions of Section 4(2) of the Act. The Preferred Stock and Preferred
Investor Warrants were offered to the Preferred Stock Investors, each of which
is an accredited investor, and a limited number of additional persons, each of
whom was also an accredited investor. The Common Stock and Warrants were
offered to the Common Stock Investors, each of which is an accredited
investor, and a limited number of additional persons, each of whom was also an
accredited investor. The Registrant will utilize the net proceeds from the
sale of the Preferred Stock, Common Stock and Warrants for working capital and
general corporate purposes.
Registration Rights.
The Registrant agreed, pursuant to the Common Stock Purchase
Agreements, to use its best efforts to prepare and file, by January 29, 1998,
a registration statement with respect to the Common Shares (together with the
registration statement referred to below, the "Registration Statement"). The
Registrant also agreed, pursuant to Registration Rights Agreements, dated as
of December 24, 1997 and January 26, 1998 (the "Registration Rights
Agreements"), to file a registration statement with respect to the shares of
Common Stock issuable upon conversion of the Preferred Shares and exercise of
the Preferred Investor Warrants and the Tanner Unman Warrants on or prior to
the date which is 20 days after the Issue Date. The Registrant has also agreed
to register the shares of Common Stock issued to Mr. Galesi and the shares of
Common Stock issuable upon exercise of the Galesi Warrants.
Reference to Agreements
The above discussion is qualified in its entirety by the Certificate
of Designations, Preferred Stock Purchase Agreements, the Registration Rights
Agreements, the forms of Warrants and the Common Stock Purchase Agreements.
All of the above documents are attached as exhibits to this report.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma financial Information.
Not applicable.
(c) Exhibits.
Exhibit No. Description
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3.1 Certificate of Amendment to the
Certificate of Incorporation of
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AMNEX, Inc., filed with the Secretary
of State of New York on January 26,
1998.
10.1 Securities Purchase Agreement, dated as
of January 26, 1998, between AMNEX,
Inc. and Fourteen Hill Capital, L.P.,
including schedule of differences
between such agreement and the
Securities Purchase Agreement, dated as
of December 24, 1997, among AMNEX, Inc.
and Pangaea Fund Ltd.
10.2 Registration Rights Agreement, dated as
of January 26, 1998, between AMNEX,
Inc. and Fourteen Hill Capital, L.P.,
including schedule of differences
between such agreement and the
Registration Rights Agreement, dated as
of December 24, 1997, among AMNEX, Inc.
and Pangaea Fund Ltd.
10.3 Form of Warrant, dated as of January
26, 1998, issued to Fourteen Hill
Capital, L.P., including schedule of
differences between such Form of
Warrant and the Form of Warrant, dated
as of December 24, 1997, issued to
Pangaea Fund Ltd.
10.4 Form of Warrant, dated as of January
26, 1998, issued to Tanner Unman
Securities, Inc., including schedule of
differences between such Form of
Warrant and the Form of Warrant, dated
as of December 24, 1997, issued to
Tanner Unman Securities, Inc.
10.5 Form of Stock Purchase Agreement
between AMNEX, Inc. and the Investor
named therein, including schedule of
differences between such agreement and
(i) the Stock Purchase Agreement, dated
January 14, 1998, between AMNEX, Inc.
and Granite Associates, L.P., (ii) the
Stock Purchase Agreement, dated January
16, 1998, among AMNEX, Inc., Victor
Ventures LLC and Brea Group, Inc.,
(iii) the Stock Purchase Agreement,
dated January 22, 1998, between AMNEX,
Inc. and Nicholas Forstmann, and (iv)
the Stock Purchase Agreement, dated
January 26, 1998, between AMNEX, Inc.
and AMN Investments, L.L.C.
10.6 Form of Warrant, dated as of January
26, 1998, issued to Francesco Galesi.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMNEX, Inc.
By /s/ Alan J. Rossi
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Alan J. Rossi
Chief Executive Officer
Date: January 27, 1998
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EXHIBIT INDEX
Exhibit No. Description
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3.1 Amendment to the Certificate of Incorporation of AMNEX,
Inc., filed with the Secretary of State of New York on
January 26, 1998.
10.1 Securities Purchase Agreement, dated as of January 26,
1998, between AMNEX, Inc. and Fourteen Hill Capital,
L.P., including schedule of differences between such
agreement and the Securities Purchase Agreement, dated
as of December 24, 1997, among AMNEX, Inc. and Pangaea
Fund Ltd.
10.2 Registration Rights Agreement, dated as of January 26,
1998, between AMNEX, Inc. and Fourteen Hill Capital,
L.P., including schedule of differences between such
agreement and the Registration Rights Agreement, dated
as of December 24, 1997, among AMNEX, Inc. and Pangaea
Fund Ltd.
10.3 Form of Warrant, dated as of January 26, 1998, issued to
Fourteen Hill Capital, L.P., including schedule of
differences between such Form of Warrant and the Form of
Warrant, dated as of December 24, 1997, issued to
Pangaea Fund Ltd.
10.4 Form of Warrant, dated as of January 26, 1998, issued to
Tanner Unman Securities, Inc., including schedule of
differences between such Form of Warrant and the Form of
Warrant, dated as of December 24, 1997, issued to Tanner
Unman Securities, Inc.
10.5 Form of Stock Purchase Agreement between AMNEX, Inc. and
the Investor named therein, including schedule of
differences between such agreement and (i) the Stock
Purchase Agreement, dated January 14, 1998, between
AMNEX, Inc. and Granite Associates, L.P., (ii) the Stock
Purchase Agreement, dated January 16, 1998, among AMNEX,
Inc., Victor Ventures LLC and Brea Group, Inc., (iii)
the Stock Purchase Agreement, dated January 22, 1998,
between AMNEX, Inc. and Nicholas Forstmann, and (iv) the
Stock Purchase Agreement, dated January 26, 1998,
between AMNEX, Inc. and AMN Investments, L.L.C.
10.6 Form of Warrant, dated as of January 26, 1998, issued to
Francesco Galesi.
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Exhibit 3.1
CERTIFICATE OF AMENDMENT
OF
AMNEX, INC.
Pursuant to Section 805 of the Business Corporation Law, the undersigned,
being the Chairman of the Board and Secretary, respectively,of AMNEX, Inc.
(the "Corporation"), DO HEREBY CERTIFY AND SET FORTH:
1. The name of the Corporation is AMNEX, Inc. The Corporation was
formed under the name NY-TEL Communications, Inc.
2. The Certificate of Incorporation of the Corporation was filed by
the Department of State on March 15, 1985.
3. The Certificate of Incorporation is hereby amended by the
deletion and restatement of provision stating the number,
designation, relative rights, preferences and limitation of a
series of Preferred Shares, $.001 par value, as fixed by the
Board of Directors.
4. The Foregoing amendment to the Certificate of Incorporation is
effected by deleting Section (k) to Article (4) thereof and
adding the following Section (k) to Article (4) thereof:
"(k) Series M Convertible Preferred Shares. A series of Preferred
Shares is hereby created, to be limited in amount to 2,000 of the
5,000,000 authorized Preferred Shares. The designation, relative
rights, powers, preferences, qualifications, and limitations are as
follows:
I. Designation and Amount
The designation of this series, which consists of 2,000 shares of
Preferred Stock, is Series M Convertible Preferred Stock (the "Series M
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
II. Rank
The Series M Preferred Stock shall rank (i) prior to the
Corporation's common stock, $.001 par value per share (the "Common Stock");
(ii) prior to any class or series of capital stock of the Corporation
hereafter created (unless, with the consent of the holders of two-thirds of
the Series M Preferred Stock obtained in accordance with Article VIII hereof,
such class or series of capital stock specifically, by its terms, ranks senior
to or pari passu with the Series M Preferred Stock) (collectively, with the
Common Stock, "Junior Securities"); (iii) pari passu with any class or series
of capital stock of the Corporation hereafter created (with the consent of the
holders of two-thirds of the Series M Preferred Stock obtained in accordance
with Article VIII hereof) specifically ranking, by its terms, on parity with
the Series M Preferred Stock ("Pari Passu Securities"); and (iv) junior to any
class or series of capital stock of the Corporation hereafter created (with
the consent of the holders of two-thirds of the Series M Preferred Stock
obtained in accordance with Article VIII hereof) specifically ranking, by its
terms, senior to the Series M Preferred Stock ("Senior Securities"), in each
case as to distribution of assets and payments upon liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary.
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III. Dividends
The holders of the Series M Preferred Stock shall be
entitled to cumulative dividends at the rate of 5% of the Stated Value per
annum from the date of issuance of the Series M Preferred Stock (the "Issue
Date"), payable when, as and if declared, quarterly on March 31, June 30,
September 30 and December 31 to the holders of the Series M Preferred Stock.
Dividends shall accrue whether or not such dividends are declared by the Board
of Directors and until actually paid to the holders of the Series M Preferred
Stock, provided that no interest shall be payable on such accumulated
dividends. In no event, so long as any dividends on the shares of Series M
Preferred Stock shall remain unpaid, shall any dividend whatsoever be declared
or paid upon, nor shall any distribution be made upon, any shares of Junior
Securities or Pari Passu Securities, nor shall any shares of Junior Securities
or Pari Passu Securities be purchased or redeemed by the Corporation nor shall
any moneys be paid to or made available for a sinking fund for the purchase or
redemption of any Junior Securities or Pari Passu Securities (other than a
distribution of Junior Securities or Pari Passu Securities), without, in each
such case, first paying all accrued and unpaid dividends to the holders of the
Series M Preferred Stock or obtaining the written consent of the holders of a
majority of the outstanding shares of Series M Preferred Stock, voting
together as a class.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under
the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its
property, or make an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or if a
decree or order for relief in respect of the Corporation shall be entered by a
court having jurisdiction in the premises in an involuntary case under the
Federal bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of thirty (30) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (each such event being considered a "Liquidation Event"), no
distribution shall be made to the holders of any shares of capital stock of
the Corporation (other than Senior Securities) upon liquidation, dissolution
or winding up unless prior thereto, the holders of shares of Series M
Preferred Stock, subject to Article VI, shall have received the Liquidation
Preference (as defined in Article IV.C) with respect to each share. If upon
the occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series M Preferred Stock and holders of
Pari Passu Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets
and funds of the Corporation legally available for distribution to the Series
M Preferred Stock and the Pari Passu Securities shall be distributed ratably
among such shares in proportion to the ratio that the Liquidation Preference
payable on each such share bears to the aggregate liquidation preference
payable on all such shares. Any assets and funds remaining after distribution
to the Series M Preferred Stock and the Pari Passu Securities may be
distributed to the holders of Junior Securities.
B. At the option of any holder of Series M Preferred Stock,
the sale, conveyance or disposition of all or substantially all of the assets
of the Corporation (or all or substantially all of the assets of the pay
telephone operations of the Corporation), the effectuation by the Corporation
of a transaction or series of related transactions in which more than 50% of
the voting power of the Corporation is disposed of, or the consolidation,
merger or other business combination of the Corporation with or into any other
Person (as defined below) or Persons when the Corporation is not the survivor
or the Corporation shall sell or convey all or substantially all of its assets
(including, without limitation, the sale or conveyance of any division of the
Corporation) shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute upon consummation of such
<PAGE>
transaction an amount equal to 130% of the Liquidation Preference with respect
to each outstanding share of Series M Preferred Stock in accordance with and
subject to the terms of this Article IV or (ii) be treated pursuant to Article
VI.C(b) hereof. "Person" shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.
C. For purposes hereof, the "Liquidation Preference" with
respect to a share of the Series M Preferred Stock shall mean an amount equal
to the sum of (i) the Stated Value thereof plus (ii) all accrued and unpaid
dividends. The liquidation preference with respect to any Pari Passu
Securities shall be as set forth in the Certificate of Designation filed in
respect thereof.
V. Redemption
A. If any of the following events (each, a "Mandatory
Redemption Event") shall occur:
(i) The Corporation fails to issue shares of Common
Stock to the holders of Series M Preferred Stock upon exercise by the holders
of their conversion rights in accordance with the terms of this Certificate of
Designation (for a period of at least thirty (30) days if such failure is
solely as a result of the circumstances governed by the second paragraph of
Article VI.F below and the Corporation is using all commercially reasonable
efforts to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or to cause its transfer agent to transfer
(electronically or in certificated form) any certificate for shares of Common
Stock issued to the holders upon conversion of the Series M Preferred Stock as
and when required by this Certificate of Designation or the Registration
Rights Agreements, dated as of December 24, 1997 and January 26, 1998, by and
among the Corporation and the other signatories thereto (collectively, the
"Registration Rights Agreement"), fails to remove any restrictive legend (or
to withdraw any stop transfer instructions in respect thereof) on any
certificate or any shares of Common Stock issued to the holders of Series M
Preferred Stock upon conversion of the Series M Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase
Agreements dated as of December 24, 1997 and January 26, 1998, by and between
the Corporation and the other signatories thereto (collectively, the "Purchase
Agreement") or the 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 Corporation fails to obtain effectiveness
with the Securities and Exchange Commission (the "SEC") of the Registration
Statement (as defined in the Registration Rights Agreement) 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
Registration Rights Agreement for more than fifteen (15) consecutive trading
days, except in the case of an Allowed Delay (as defined in the Registration
Rights Agreement), which Allowed Delay shall not exceed thirty (30)
consecutive trading days (or an aggregate of forty-five (45) trading days) in
any twelve (12) month period after such Registration Statement becomes
effective;
(iii) The Corporation shall make an assignment for
the benefit of creditors, or apply for or consent 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 trustee shall otherwise be appointed;
(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
Corporation or any subsidiary of the Corporation;
<PAGE>
(v) The Corporation shall fail to maintain the
listing of the Common Stock on the Nasdaq SmallCap Market ("SmallCap"), 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;
(vi) Any money judgment shall be entered or filed
against the Corporation 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 Corporation shall immediately notify
the holders of Series M Preferred Stock) 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 Stock by written
notice (the "Mandatory Redemption Notice") to the Corporation of such
Mandatory Redemption Event, or upon the occurrence of any Mandatory Redemption
Event specified in subparagraphs (iii) or (iv), the Corporation shall purchase
each holder's shares of Series M Preferred Stock for an amount per share equal
to the number of shares of Common Stock issuable upon conversion of such
shares in accordance with Article VI below (treating the Trading Day (as
defined in Article VI.B.) immediately preceding the date of payment of the
Mandatory Redemption Amount (the "Mandatory Redemption Date") as the
"Conversion Date" (as defined in Article VI.B(a)) unless the Mandatory
Redemption Event arises as a result of a breach in respect of a specific
Conversion Date in which case such Conversion Date shall be the Conversion
Date), multiplied by 110% of the greater of (a) the Closing Price (as defined
in Article VI.A(b)) for the Common Stock on such "Conversion Date" 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
Corporation fails to pay the Mandatory Redemption Amount for each share within
five (5) 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 Stock shall have
the right at any time, so long as the Mandatory Redemption Event continues, to
require the Corporation, upon written notice, to immediately issue (in
accordance with and subject to the terms of Article VI below), in lieu of the
Mandatory Redemption Amount, with respect to each outstanding share of Series
M Preferred Stock held by such holder, the number of shares of Common Stock of
the Corporation equal to the Mandatory Redemption Amount divided by the
Conversion Price then in effect.
B. If the Series M Preferred Stock ceases to be convertible
as a result of the limitations described in the second paragraph of Article
VI.A below (a "19.99% Redemption Event"), and the Corporation has not prior
to, or within thirty (30) days of, the date that such 19.99% Redemption Event
arises, (i) obtained approval of the issuance of the additional shares of
Common Stock by the requisite vote of the holders of the then-outstanding
Common Stock (not including any shares of Common Stock held by present or
former holders of Series M Preferred Stock that were issued upon conversion of
Series M Preferred Stock) or (ii) received other permission pursuant to Nasdaq
Requirement 4460(i) allowing the Corporation to resume issuances of shares of
Common Stock upon conversion of Series M Preferred Stock or the Corporation's
Common Stock is 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 Corporation shall be obligated to redeem
immediately all of the then outstanding Series M Preferred Stock, in
accordance with this Article V.B. An irrevocable Redemption Notice shall be
delivered promptly to the holders of Series M Preferred Stock at their
registered address appearing on the records of the Corporation and shall state
(1) that 19.99% of the Outstanding Common Amount (as defined in Article VI.A)
has been issued upon exercise of the Series M Preferred Stock, (2) that the
Corporation is obligated to redeem all of the outstanding Series M Preferred
Stock and (3) the Mandatory Redemption Date, which shall be a date within five
(5) business days of the date of the Redemption Notice. On the Mandatory
Redemption Date, the Corporation shall make payment of the Mandatory
Redemption Amount (as defined in Article V.A. above) in cash.
C. Notwithstanding anything to the contrary contained in
this Article V, so long as (i) no Mandatory Redemption Event shall have
occurred and be continuing and (ii) the Registration Statement
<PAGE>
is then in effect and has been in effect and sales can be made thereunder for
at least one hundred twenty (120) days prior to the Optional Redemption Date
(as defined below) then at any time after the Issue Date, the Corporation
shall have the right, exercisable on not less than ninety (90) prior written
notice to the holders of Series M Preferred Stock, to redeem, in whole or in
part, the outstanding shares of Series M Preferred Stock in accordance with
this Article V. Any notice of redemption hereunder (an "Optional Redemption")
shall be delivered to the holders of Series M Preferred Stock at their
registered addresses appearing on the books and records of the Corporation and
shall state (1) that the Corporation is exercising its right to redeem the
number of shares of Series M Preferred Stock issued on the Issue Date set
forth in such notice and (2) the date of redemption (the "Optional Redemption
Notice"). On the date fixed for redemption (the "Optional Redemption Date"),
the Corporation shall make payment of the Optional Redemption Amount (as
defined below) to or upon the order of the holders as specified by the holders
in writing to the Corporation at least one (1) business day prior to the
Optional Redemption Date. If the Corporation exercises its right to redeem the
Series M Preferred Stock, the Corporation shall make payment to the holders of
an amount in cash (the "Optional Redemption Amount") per share equal to the
number of shares of Common Stock issuable upon conversion of such shares in
accordance with Article VI. below (treating the Trading Day (as defined in
Article VI. B) immediately preceding the Optional Redemption Date as the
"Conversion Date" (as defined in Article VI. B (a)), multiplied by 130% of the
greater of (a) the Closing Price (as defined in Article VI.A(b)) for the
Common Stock on such "Conversion Date" or (b) $1.20. Notwithstanding notice of
an Optional Redemption, the holders shall at all times prior to the Optional
Redemption Date maintain the right to convert all or any shares of Series M
Preferred Stock in accordance with Article VI and any shares of Series M
Preferred Stock so converted after receipt of an Optional Redemption Notice
and prior to the Optional Redemption Date set forth in such notice and payment
of the aggregate Optional Redemption Amount shall be deducted from the shares
of Series M Preferred Stock which are otherwise subject to redemption pursuant
to such notice.
VI. Conversion at the Option of the Holder
A. (a) Subject to the conversion schedule set forth in
Article VI.A(b) below, each holder of shares of Series M Preferred Stock may,
at its option, at any time and from time to time, upon surrender of the
certificates therefor, convert any or all of its shares of Series M Preferred
Stock into Common Stock as follows (an "Optional Conversion"). Each share of
Series M Preferred Stock shall be convertible into such number of fully paid
and nonassessable shares of Common Stock as is determined by dividing (1) the
sum of (a) the Stated Value thereof plus (b) all accrued and unpaid dividends,
by (2) the then effective Conversion Price (as defined below); provided,
however, that, unless the holder delivers a waiver in accordance with the
immediately following sentence, in no event (other than pursuant to the
Automatic Conversion (as defined herein)) shall a holder of shares of Series M
Preferred Stock be entitled to convert any such shares in excess of that
number of shares upon conversion of which the sum of (x) the number of shares
of Common Stock beneficially owned by the holder and its affiliates (other
than shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series M Preferred
Stock) and (y) the number of shares of Common Stock issuable upon the
conversion of the shares of Series M Preferred Stock with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by a holder and such holder's affiliates of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the proviso to the
immediately preceding sentence, (i) beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in
clause (x) of such proviso and (ii) a holder may waive the limitations set
forth therein by written notice to the Corporation upon not less than
sixty-one (61) days prior written notice (with such waiver taking effect only
upon the expiration of such sixty-one (61) day notice period). Notwithstanding
the foregoing, in the event that the Closing Price (as defined herein) of the
Common Stock is less than $1.25 on the day on which the Notice of Conversion
(as defined herein) is sent to the Corporation, the Corporation shall have the
option of either: (i) delivering to the converting Holder shares of Common
Stock based upon the Conversion Price on the Conversion Date applicable to
such Notice of Conversion, as specified in Article VI.E(b) hereof, or (ii)
delivering to the converting Holder (x) an amount equal to 110% of the volume
weighted average of the bid price of the Common Stock for all trades occurring
on the Trading Day (as defined herein) immediately
<PAGE>
preceding the Conversion Date multiplied by the number of shares as to which
the Corporation elects to redeem from the Holder in cash rather than in shares
of Common Stock and (y) such number of shares of Common Stock representing the
remainder of the shares of Common Stock to be issued upon conversion of the
Preferred Stock as specified in the Notice of Conversion, both to be delivered
at the time specified in Article VI.E(b) hereof.
(b) (i) Each holder of shares of Series M Preferred
Stock may convert only up to that percentage of the aggregate Stated Value of
all shares of Series M Preferred Stock received by such holder on the Issue
Date specified below 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
; provided, however, that the restrictions on conversion set forth above shall
not apply, and each holder of Series M Preferred Stock shall be entitled to
convert all or any of the shares of Series M Preferred Stock pursuant to
Article VI.A(a), if: (i) on the Conversion Date, the Closing Price (as defined
herein) of the Common Stock is greater than or equal to the Fixed Conversion
Price (as defined in Article VI.B(a)); (ii) the Corporation publicly announces
its intention to merge or consolidate with, or sell all or substantially all
of its assets to, another corporation; (iii) the Corporation delivers to the
holders of Series M Preferred Stock an Optional Redemption Notice pursuant to
Article V.C; or (iv) the Corporation does not execute the Proposed Contract
(as defined in the Purchase Agreement) within sixty (60) days following the
Issue Date. "Closing Price," as of any date, means the last sale price of the
Common Stock on the Nasdaq SmallCap Market as reported by Bloomberg Financial
Markets or an equivalent, reliable reporting service mutually acceptable to
and hereafter designated by the holders of a majority in interest of the
shares of Series M Preferred Stock and the Borrower ("Bloomberg") or, if the
Nasdaq SmallCap Market is not the principal trading market for such security,
the last sale price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last sale price of such
security in the over-the-counter market on the electronic bulletin board for
such security as reported by Bloomberg, or, if there is no last sale price of
such security or in the over-the-counter market on the electronic bulletin
board for such security or in any of the foregoing manners, the average of the
bid prices of any market makers for such security as reported in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Price cannot be
calculated for such security on such date in the manner provided above, the
Closing Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of shares of Series M
Preferred Stock being converted for which the calculation of the Closing Price
is required in order to determine the Conversion Price of such Series M
Preferred Stock.
(c) Notwithstanding anything to the contrary
contained herein if, at any time, the aggregate number of shares of Common
Stock then issued upon conversion of the Series M Preferred Stock (including
any shares of capital stock or rights to acquire shares of capital stock
issued by the Corporation which are aggregated or integrated with the Common
Stock issued or issuable upon conversion of the Series M Preferred Stock for
purposes of such rule) equals 19.99% of the "Outstanding Common Amount" (as
hereinafter defined), the Series M Preferred Stock shall, from that time
forward, cease to be convertible into Common Stock in accordance with the
terms of this Article VI and Article VII below, unless the Corporation (i) has
obtained approval of the issuance of the Common Stock upon conversion of the
Series M Preferred Stock by a majority of the total votes cast on such
proposal, in person or by proxy, by the holders of the then-outstanding Common
Stock (not including any shares of Common Stock held by present or former
holders of Series M Preferred Stock that were issued upon conversion of Series
M Preferred Stock), or (ii) shall have otherwise obtained permission to allow
such issuances from Nasdaq in accordance with Nasdaq Requirement 4460(i) or
the Corporation's Common Stock is 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
<PAGE>
Nasdaq Stock Market. For purposes of this paragraph, "Outstanding
Common Amount" means (i) the number of shares of the Common Stock outstanding
on the date of issuance of the Series M Preferred Stock pursuant to the
Purchase Agreement plus (ii) any additional shares of Common Stock issued
thereafter in respect of such shares pursuant to a stock dividend, stock split
or similar event. The maximum number of shares of Common Stock issuable as a
result of the 19.99% limitation set forth herein is hereinafter referred to as
the "Maximum Share Amount." With respect to each holder of Series M Preferred
Stock, the Maximum Share Amount shall refer to such holder's pro rata share
thereof determined in accordance with Article X below. In the event that
Corporation obtains Stockholder Approval or the approval of The Nasdaq Stock
Market, by reason of the inapplicability of the rules of The Nasdaq Stock
Market or otherwise and concludes that it is able to increase the number of
shares to be issued above the Maximum Share Amount (such increased number
being the "New Maximum Share Amount"), the references to Maximum Share Amount,
above, shall be deemed to be, instead, references to the greater New Maximum
Share Amount. In the event that Stockholder Approval is not obtained, there
are insufficient reserved or authorized shares or a registration statement
covering the additional shares of Common Stock which constitute the New
Maximum Share Amount is not effective prior to the Maximum Share Amount being
issued (if such registration statement is necessary to allow for the public
resale of such securities), the Maximum Share Amount shall remain unchanged;
provided, however, that the Holder may grant an extension to obtain a
sufficient reserved or authorized amount of shares or of the effective date of
such registration statement. In the event that (a) the aggregate number of
shares of Common Stock issued pursuant to the outstanding Series M Preferred
Stock represents at least twenty percent (20%) of the Maximum Share Amount and
(b) the sum of (x) the aggregate number of shares of Common Stock issued upon
conversion of Series M Preferred Stock plus (y) the aggregate number of shares
of Common Stock that remain issuable upon conversion of Series M Preferred
Stock, represents at least one hundred percent (100%) of the Maximum Share
Amount (the "Triggering Event"), the Corporation will use its best efforts to
seek and obtain Stockholder Approval (or obtain such other relief as will
allow conversions hereunder in excess of the Maximum Share Amount) as soon as
practicable following the Triggering Event and before the Mandatory Redemption
Date.
B. (a) Subject to subparagraph (b) below, the "Conversion
Price" shall be the lesser of the Market Price (as defined herein) and the
Fixed Conversion Price (as defined herein), subject to adjustments pursuant to
the provisions of Article VI.C below. "Market Price" shall mean the average of
the lowest five (5) Closing Bid Prices of the Common Stock, during the thirty
(30) consecutive Trading Day period ending one (1) Trading Day prior to the
date (the "Conversion Date") the Conversion Notice is sent by a holder to the
Corporation via facsimile. "Fixed Conversion Price" shall mean $2.65. "Trading
Day" shall mean any day on which the Common Stock is traded for any period on
the Nasdaq SmallCap Market, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded. "Closing Bid
Price" means, for any security as of any date, the closing bid price on the
Nasdaq SmallCap Market as reported by Bloomberg or, if the Nasdaq SmallCap
Market is not the principal trading market for such security, the closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the closing bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if there is no closing bid price of such security
in the over-the-counter market on the electronic bulletin board for such
security or in any of the foregoing manners, the average of the bid prices of
any market makers for such security or as reported in the "pink sheets" by the
National quotation Bureau, Inc. If the Closing Bid Price cannot be calculated
for such security on such date in the manner provided above, the Closing Bid
Price shall be the fair market value as mutually determined by the Corporation
and the holders of a majority in interest of shares of Series M Preferred
Stock being converted for which the calculation of the Closing Bid Price is
required in order to determine the Conversion Price of such Series M Preferred
Stock.
(b) Notwithstanding anything contained in
subparagraph (a) of this Paragraph B to the contrary, in the event the
Corporation (i) makes a public announcement that it intends to consolidate or
merge with any other corporation (other than a merger in which the Corporation
is the surviving or continuing corporation and its capital stock is unchanged)
or sell or transfer all or substantially
<PAGE>
all of the assets of the Corporation or (ii) any person, group or entity
(including the Corporation) publicly announces a tender offer to purchase 50%
or more of the Corporation's Common Stock (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date and (y) the Conversion Price that would
otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (a) of this Article VI.B. For purposes hereof, "Adjusted
Conversion Price Termination Date" shall mean, with respect to any proposed
transaction, tender offer or removal of the majority of the Board of Directors
which a public announcement as contemplated by this subparagraph (b) has been
made, the date upon which the Corporation (in the case of clause (i) above) or
the person, group or entity (in the case of clause (ii) above) publicly
announces the termination or abandonment of the proposed transaction or tender
offer which caused this subparagraph (b) to become operative.
C. The Conversion Price shall be subject to adjustment from
time to time as follows:
(a) Adjustment to Conversion Price Due to Stock
Split, Stock Dividend, Etc. If at any time when Series M Preferred Stock is
issued and outstanding, the number of outstanding shares of Common Stock is
increased or decreased by a stock split, stock dividend, recapitalization,
combination, reclassification, rights offering below the Trading Price (as
defined below) to all holders of Common Stock or other similar event, which
event shall have taken place during the reference period for determination of
the Conversion Price for any Optional Conversion or Automatic Conversion of
the Series M Preferred Stock, then the Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend, combination,
recapitalization, reclassification or other similar event. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof.
(b) Adjustment Due to Merger, Consolidation, Etc.
If, at any time when Series M Preferred Stock is issued and outstanding and
prior to the conversion of all Series M Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization,
or other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially all of
the assets of the Corporation other than in connection with a plan of complete
liquidation of the Corporation, then the holders of Series M Preferred Stock
shall thereafter have the right to receive upon conversion of the Series M
Preferred Stock, upon the bases and upon the terms and conditions specified
herein and in lieu of the shares of Common Stock immediately theretofore
issuable upon conversion, such stock, securities or assets or any combination
thereof which the holders of Series M Preferred Stock would have been entitled
to receive in such transaction had the Series M Preferred Stock been converted
in full (without regard to any limitations on conversion contained herein)
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the
holders of Series M Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares of Common Stock issuable upon conversion of
the Series M Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities or assets thereafter deliverable
upon the conversion of Series M Preferred Stock. So long as at least 15% of
the shares of Series M Preferred Stock issued on the Issue Date are
outstanding, the Corporation shall not, without the consent of the holders of
a majority-in-interest of the Series M Preferred Stock, effect any transaction
described in this subsection (b) unless (a) it first gives, to the extent
practical, thirty (30) days' prior written notice (but in any event at least
fifteen (15) business days prior written notice) of such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the holders of Series M
Preferred Stock shall be entitled to convert the Series M Preferred Stock) and
(b) prior to the consummation thereof the resulting successor or acquiring
entity (if not the Corporation) assumes by written instrument the obligations
to deliver to each holder of Series M Preferred Stock such shares of stock,
securities or assets, as in accordance with this subsection (b), such holder
may be entitled to acquire. The
<PAGE>
above provisions shall similarly apply to successive consolidations, mergers,
sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. So long as any
Series M Preferred Stock remains outstanding, the Corporation shall not
declare or make any distribution of its assets (or rights to acquire its
assets) to holders of Common Stock as a dividend, stock repurchase, by way of
return of capital or otherwise (including any dividend or distribution to the
Corporation's shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), without
the consent of the holders of a majority of the shares of Series M Preferred
Stock, in which case the holders of Series M Preferred Stock shall be
entitled, upon any conversion of shares of Series M Preferred Stock after the
date of record for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the holder
with respect to the shares of Common Stock issuable upon such conversion had
such holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.
(d) Purchase Rights. Subject to Article III, if at
any time when any Series M Preferred Stock is issued and outstanding, the
Corporation grants, issues or sells any convertible securities or rights to
purchase stock, warrants, securities or other property (the "Purchase Rights")
pro rata to the record holders of any class of Common Stock, then the holders
of Series M Preferred Stock will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete conversion of the Series M Preferred
Stock (without regard to any limitations on conversion contained herein)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as
of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(e) Notice of Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this
Article VI.C, the Corporation, at its expense, shall promptly compute such
adjustment or readjustment and prepare and furnish to each holder of Series M
Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series M Preferred Stock, furnish to such holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price
at the time in effect and (iii) the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon conversion of a share of Series M Preferred Stock.
D. For purposes of Article VI.C(a) above, "Trading Price,"
which shall be measured as of the record date in respect of the rights
offering means (i) the average of the last reported sale prices for the shares
of Common Stock on the Nasdaq SmallCap Market as reported by Bloomberg, as
applicable, for the five (5) Trading Days immediately preceding such date, or
(ii) if the Nasdaq SmallCap Market is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as
reported by Bloomberg, or (iii) if market value cannot be calculated as of
such date on any of the foregoing bases, the Trading Price shall be the fair
market value as reasonably determined in good faith by (a) the Board of
Directors of the Corporation or, (b) at the option of a majority-in-interest
of the holders of the outstanding Series M Preferred Stock by an independent
investment bank of nationally recognized standing in the valuation of
businesses similar to the business of the Corporation.
E. In order to convert Series M Preferred Stock into full
shares of Common Stock, a holder of Series M Preferred Stock shall: (i) submit
a copy of the fully executed notice of conversion in the form attached hereto
as Exhibit A ("Notice of Conversion") to the Corporation by facsimile
dispatched on the Conversion Date (or by other means resulting in notice to
the Corporation on the Conversion Date) at the office of the Corporation or
its designated Transfer Agent for the Series M Preferred Stock that the holder
elects to convert the same, which notice shall specify the number of shares of
Series M Preferred Stock to be
<PAGE>
converted, the applicable Conversion Price and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a copy of
the first page of each certificate to be converted) prior to Midnight, New
York City time (the "Conversion Notice Deadline") on the date of conversion
specified on the Notice of Conversion; and (ii) surrender the original
certificates representing the Series M Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed, along with a copy of the
Notice of Conversion to the office of the Corporation or the Transfer Agent
for the Series M Preferred Stock as soon as practicable thereafter. The
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such conversion, unless either the Preferred
Stock Certificates are delivered to the Company or its Transfer Agent as
provided above, or the holder notifies the Corporation or its Transfer Agent
that such certificates have been lost, stolen or destroyed (subject to the
requirements of subparagraph (a) below). In the case of a dispute as to the
calculation of the Conversion Price, the Corporation shall promptly issue such
number of shares of Common Stock that are not disputed in accordance with
subparagraph (b) below. The Corporation shall submit the disputed calculations
to its outside accountant via facsimile within two (2) business days of
receipt of the Notice of Conversion. The accountant shall audit the
calculations and notify the Corporation and the holder of the results no later
than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by
the Corporation of evidence of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing shares of Series M Preferred
Stock, and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute
and deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon
the surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall issue and, within two (2) business days
after such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of agreement and indemnification pursuant to
subparagraph (a) above) (the "Delivery Period"), deliver (or cause its
Transfer Agent to so issue and deliver) to or upon the order of the holder (i)
that number of shares of Common Stock for the portion of the shares of Series
M Preferred Stock converted as shall be determined in accordance herewith and
(ii) a certificate representing the balance of the shares of Series M
Preferred Stock not converted, if any. In addition to any other remedies
available to the holder, including actual damages and/or equitable relief, the
Corporation shall pay to a holder $2,000 per day in cash for each day beyond a
two (2) day grace period following the Delivery Period that the Corporation
fails to deliver Common Stock (a "Conversion Default") issuable upon surrender
of shares of Series M Preferred Stock with a Notice of Conversion until such
time as the Corporation has delivered all such Common Stock (the "Conversion
Default Payments"). Such cash amount shall be paid to such holder by the fifth
day of the month following the month in which it has accrued or, at the option
of the holder (by written notice to the Corporation by the first day of the
month following the month in which it has accrued), shall be convertible into
Common Stock in accordance with the terms of this Article VI.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer
Agent is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder and its
compliance with the provisions contained in Article VI.A. and in this Article
VI.E., the Corporation shall use its best efforts to cause its Transfer Agent
to electronically transmit the Common Stock issuable upon conversion to the
holder by crediting the account of holder's Prime Broker with DTC through its
Deposit Withdrawal Agent Commission ("DWAC") system. The time periods for
delivery and penalties described in the immediately preceding paragraph shall
apply to the electronic transmittals described herein.
(c) No Fractional Shares. No fractional shares of
Common Stock are to be issued upon the conversion of the Series M Preferred
Stock, but the Corporation shall pay a cash adjustment in respect of any
fractional share which would otherwise be issuable in an amount equal to the
same fraction of the Conversion Price of a share of Common Stock on the date
of such conversion.
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(d) Conversion Date. The "Conversion Date" shall be
the date specified in the Notice of Conversion, provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in notice)
to the Corporation or its Transfer Agent before Midnight, New York City time,
on the Conversion Date. The person or persons entitled to receive the shares
of Common Stock issuable upon conversion shall be treated for all purposes as
the record holder or holders of such securities as of the Conversion Date and
all rights with respect to the shares of Series M Preferred Stock surrendered
shall forthwith terminate except the right to receive the shares of Common
Stock or other securities or property issuable on such conversion and except
that the holders preferential rights as a holder of Series M Preferred Stock
shall survive to the extent the corporation fails to deliver such securities.
F. A number of shares of the authorized but unissued Common
Stock sufficient to provide for the conversion of the Series M Preferred Stock
outstanding at the then current Conversion Price shall at all times be
reserved by the Corporation, free from preemptive rights, for such conversion
or exercise. As of the date of issuance of the Series M Preferred Stock,
3,200,000 authorized and unissued shares of Common Stock have been duly
reserved for issuance upon conversion of the Series M Preferred Stock (the
"Reserved Amount"). The Reserved Amount shall be increased from time to time
in accordance with the Company's obligations pursuant to Section 4(h) of the
Purchase Agreement. In addition, if the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Series M Preferred Stock
shall be convertible at the then current Conversion Price, the Corporation
shall at the same time also make proper provision so that thereafter there
shall be a sufficient number of shares of Common Stock authorized and
reserved, free from preemptive rights, for conversion of the outstanding
Series M Preferred Stock.
If at any time a holder of shares of Series M Preferred
Stock submits a Notice of Conversion, and the Corporation does not have
sufficient authorized but unissued shares of Common Stock available to effect
such conversion in accordance with the provisions of this Article VI (a
"Conversion Default"), the Corporation shall issue to the holder (or holders,
if more than one holder submits a Notice of Conversion in respect of the same
Conversion Date, pro rata based on the ratio that the number of shares of
Series M Preferred Stock then held by each such holder bears to the aggregate
number of such shares held by such holders) all of the shares of Common Stock
which are available to effect such conversion. The number of shares of Series
M Preferred Stock included in the Notice of Conversion which exceeds the
amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms
hereof until (and at the holder's option at any time after) the date
additional shares of Common Stock are authorized by the Corporation to permit
such conversion, at which time the Conversion Price in respect thereof shall
be the lesser of (i) the Conversion Price on the Conversion Default Date (as
defined below) and (ii) the Conversion Price on the Conversion Date elected by
the holder in respect thereof. The Corporation shall use its best efforts to
effect an increase in the authorized number of shares of Common Stock as soon
as possible following a Conversion Default. In addition, the Corporation shall
pay to the holder payments ("Conversion Default Payments") for a Conversion
Default in the amount of (a) (N/365), multiplied by (b) the sum of the Stated
Value plus the Premium Amount per share of Series M Preferred Stock through
the Authorization Date (as defined below), multiplied by (c) the Excess Amount
on the day the holder submits a Notice of Conversion giving rise to a
Conversion Default (the "Conversion Default Date"), multiplied by (d) .24,
where (i) N = the number of days from the Conversion Default Date to the date
(the "Authorization Date") that the Corporation authorizes a sufficient number
of shares of Common Stock to effect conversion of the full number of shares of
Series M Preferred Stock. The Corporation shall send notice to the holder of
the authorization of additional shares of Common Stock, the Authorization Date
and the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the Conversion Price, at the
holder's option, as follows:
(a) In the event the holder elects to take such
payment in cash, cash payment shall be made to holder by the fifth day of the
month following the month in which it has accrued; and
<PAGE>
(b) In the event the holder elects to take such
payment in Common Stock, the holder may convert such payment amount into
Common Stock at the Conversion Price (as in effect at the time of Conversion)
at any time after the fifth day of the month following the month in which it
has accrued in accordance with the terms of this Article VI (so long as there
is then a sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue
actual damages for the Corporation's failure to maintain a sufficient number
of authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
G. Upon the occurrence of each adjustment or readjustment of
the Conversion Price pursuant to this Article VI, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series M
Preferred Stock a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based. The Corporation shall, upon the written request at any time of any
holder of Series M Preferred Stock, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustment or readjustment,
(ii) the Conversion Price at the time in effect and (iii) the number of shares
of Common Stock and the amount, if any, of other securities or property which
at the time would be received upon conversion of a share of Series M Preferred
Stock.
H. Upon submission of a Notice of Conversion by a holder of
Series M Preferred Stock, (i) the shares covered thereby (other than the
shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount) shall be deemed
converted into shares of Common Stock and (ii) the holder's rights as a holder
of such converted shares of Series M Preferred Stock shall cease and
terminate, excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such holder because of a failure by the Corporation to comply
with the terms of this Section 4(k). Notwithstanding the foregoing, if a
holder has not received certificates for all shares of Common Stock prior to
the tenth (10th) business day after the expiration of the Delivery Period with
respect to a conversion of shares of Series M Preferred Stock for any reason,
then (unless the holder otherwise elects to retain its status as a holder of
Common Stock by so notifying the Corporation) the holder shall regain the
rights of a holder of such shares of Series M Preferred Stock with respect to
such unconverted shares of Series M Preferred Stock and the Corporation shall,
as soon as practicable, return such unconverted shares of Series M Preferred
Stock to the holder or, if such shares of Series M Preferred Stock have not
been surrendered, adjust its records to reflect that such shares of Series M
Preferred Stock have not been converted. In all cases, the holder shall retain
all of its rights and remedies (including, without limitation, the right to
receive Conversion Default Payments pursuant to Article VI.F. to the extent
required thereby for such Conversion Default and any subsequent Conversion
Default).
VII. Voting Rights
The holders of the Series M Preferred Stock have no voting
power whatsoever, except as otherwise provided by the New York Business
Corporation Law ("NYBCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide
each holder of Series M Preferred Stock with prior notification of any meeting
of the shareholders (and copies of proxy materials and other information sent
to shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
<PAGE>
proposed sale, lease or conveyance of all or substantially all of the assets
of the Corporation, or any proposed liquidation, dissolution or winding up of
the Corporation, the Corporation shall mail a notice to each holder, at least
ten (10) days prior to the record date specified therein (or thirty (30) days
prior to the consummation of the transaction or event, whichever is earlier),
of the date on which any such record is to be taken for the purpose of such
dividend, distribution, right or other event, and a brief statement regarding
the amount and character of such dividend, distribution, right or other event
to the extent known at such time.
To the extent that under the NYBCL the vote of the holders
of the Series M Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the
shares of the Series M Preferred Stock represented at a duly held meeting at
which a quorum is present or by written consent of a majority of the shares of
Series M Preferred Stock (except as otherwise may be required under the NYBCL)
shall constitute the approval of such action by the class. To the extent that
under the NYBCL holders of the Series M Preferred Stock are entitled to vote
on a matter with holders of Common Stock, voting together as one class, each
share of Series M Preferred Stock shall be entitled to a number of votes equal
to the number of shares of Common Stock into which it is then convertible
using the record date for the taking of such vote of shareholders as the date
as of which the Conversion Price is calculated. Holders of the Series M
Preferred Stock shall be entitled to notice of all shareholder meetings or
written consents (and copies of proxy materials and other information sent to
shareholders) with respect to which they would be entitled to vote, which
notice would be provided pursuant to the Corporation's bylaws and the NYBCL.
VIII. Protective Provisions
So long as at least 15% of the shares of Series M Preferred
Stock issued on the Issue Date are outstanding, the Corporation shall not,
without first obtaining the approval (by vote or written consent, as provided
by the NYBCL) of the holders of at least two-thirds of the then outstanding
shares of Series M Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series M Preferred Stock or any Senior Securities so as to
affect adversely the Series M Preferred Stock;
(b) create any new class or series of capital stock
having a preference over the Series M Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock
ranking pari passu with the Series M Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of
Series M Preferred Stock; or
(e) do any act or thing not authorized or
contemplated by this Section 4(k) which would result in taxation of the
holders of shares of the Series M Preferred Stock 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).
In the event holders of at least two-thirds of the then
outstanding shares of Series M Preferred Stock agree to allow the Corporation
to alter or change the rights, preferences or privileges of the shares of
Series M Preferred Stock, pursuant to subsection (a) above, so as to affect
the Series M Preferred Stock, then the Corporation will deliver notice of such
approved change to the holders of the Series M Preferred Stock that did not
agree to such alteration or change (the "Dissenting Holders") and Dissenting
Holders shall have the right for a period of thirty (30) days to convert
pursuant to the terms of this Section
<PAGE>
4(k) as they exist prior to such alteration or change or continue to hold their
shares of Series M Preferred Stock.
IX. Automatic Conversion
So long as the Registration is effective and there is not
then a continuing Mandatory Redemption Event, each share of Series M Preferred
issued and outstanding on the fifth (5th) anniversary of the Issue Date,
subject to any extension pursuant to the proviso set forth in Article V.A(ii)
(the "Automatic Conversion Date"), automatically shall be converted into
shares of Common Stock on such date at the then effective Conversion Price in
accordance with, and subject to, the provisions of Article VI hereof (the
"Automatic Conversion"). The Automatic Conversion Date shall be the Conversion
Date for purposes of determining the Conversion Price and the time within
which certificates representing the Common Stock must be delivered to the
holder.
X. Pro Rata Allocations
The Maximum Share Amount and the Reserved Amount (including
any increases thereto) shall be allocated by the Corporation pro rata among
the holders of Series M Preferred Stock based on the number of shares of
Series M Preferred Stock then held by each holder relative to the total
aggregate number of shares of Series M Preferred Stock then outstanding.
5. This Amendment has been adopted by the Board of Directors of the
Corporation under the authority granted to it pursuant to
Section 502 of the Business Corporation Law.
IN WITNESS WHEREOF, the undersigned have signed this Certificate as
of the 26th of January, 1998 and affirm that the statements made herein are
tru under penalty of perjury.
/s/ Alan J. Rossi
------------------------
Alan J. Rossi
Chairman of the Board
/s/ Amy S. Gross
------------------------
Amy S. Gross
Secretary
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series M Preferred Stock)
The undersigned hereby irrevocably elects to convert ______
shares of Series M Preferred Stock, represented by stock certificate No(s).
__________ (the "Preferred Stock Certificates") into shares of common stock
("Common Stock") of Amnex, Inc. (the "Corporation") according to the
conditions of the Certificate of Designation of Series M Preferred Stock, as
of the date written below. If securities are to be issued in the name of a
person other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto and is delivering herewith such certificates. No
fee will be charged to the Holder for any conversion, except for transfer
taxes, if any. A copy of each Preferred Stock Certificate is attached hereto
(or evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and
sales by the undersigned of the securities issuable to the undersigned upon
conversion of the Series M Preferred Stock shall be made pursuant to
registration of the securities under the Securities Act of 1933, as amended
(the "Act"), or pursuant to an exemption from registration under the Act.
Date of Conversion:_____________________________
Applicable Conversion Price:____________________
Number of Shares of
Common Stock to be Issued:______________________
Signature:______________________________________
Name:___________________________________________
Address:________________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series M Preferred Stock Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
<PAGE>
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January
26, 1998, by and among AMNEX, Inc., a New York corporation, with headquarters
located at 6 Nevada Drive, Lake Success, New York 11042 ("Company"), and each
of the purchasers set forth on the signature pages hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration under
Section 4(2) of the United States Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended (the "1933 Act");
B. The Company has authorized a new series of preferred stock,
designated as Series M Convertible Preferred Stock (the "Preferred Stock"),
having the rights, preferences and privileges set forth in the Certificate of
Designations, Rights and Preferences attached hereto as Exhibit "A" (the
"Certificate of Designation");
C. The Preferred Stock is convertible into shares of common stock,
$.001 par value per share, of the Company (the "Common Stock"), upon the terms
and subject to the limitations and conditions set forth in the Certificate of
Designation;
D. The Company has authorized the issuance to the Buyers of warrants,
in the form attached hereto as Exhibit "B", to purchase Thirty Thousand
(30,000) shares of Common Stock (the "Investor Warrants");
E. The Company has authorized the issuance to Tanner Unman
Securities, Inc. of warrants, in the form attached hereto as Exhibit "B", to
purchase Fifteen Thousand (15,000) shares of Common Stock (the "Fee Warrants"
and, collectively with the Investor Warrants, the "Warrants");
F. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Seven Hundred Fifty (750) shares of Preferred Stock, and (ii)
Warrants to purchase Thirty Thousand (30,000) shares of Common Stock, for an
aggregate purchase price of Seven Hundred Fifty Thousand Dollars ($750,000).
G. Each Buyer wishes to purchase, upon the terms and conditions
stated in this Agreement, the number of shares of Preferred Stock and number
of Warrants as is set forth immediately below its name on the signature pages
hereto;
H. Contemporaneous with the execution and delivery of this Agreement,
the
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<PAGE>
parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as Exhibit "C" (the "Registration
Rights Agreement"), pursuant to which the Company has agreed to provide
certain registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. The
Company shall issue and sell to each Buyer and each Buyer severally agrees to
purchase from the Company such number of shares of Series M Preferred Stock
(collectively, together with any Preferred Stock issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, the "Preferred Shares") and number of Warrants for the
aggregate purchase price (the "Purchase Price") as is set forth immediately
below such Buyer's name on the signature pages hereto. The aggregate number of
Preferred Shares to be issued at the Closing (as defined below) is Seven
Hundred Fifty (750) and the aggregate number of Warrants to be issued at the
Closing is Thirty Thousand (30,000), for an aggregate purchase price Seven
Hundred Fifty Thousand Dollars ($750,000).
b. Form of Payment. On the Closing Date (as defined
below), (i) each Buyer shall pay the Purchase Price for the Preferred Shares
and the Warrants to be issued and sold to it at the Closing (as defined below)
by wire transfer of immediately available funds to the Company, in accordance
with the Company's written wiring instructions, against delivery of duly
executed certificates representing such number of Preferred Shares and
Warrants which such Buyer is purchasing and (ii) the Company shall deliver
such certificates and Warrants duly executed on behalf of the Company, to the
Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or
waiver) of the conditions thereto set forth in Section 6 and Section 7 below,
the date and time of the issuance and sale of the Preferred Shares and the
Warrants pursuant to this Agreement (the "Closing Date") shall be 12:00 noon
Eastern Standard Time on January 27, 1998 or such other mutually agreed upon
time. The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur on the Closing Date at the offices of Morrison &
Foerster LLP, 1290 Avenue of the Americas, New York, New York, or at such
other location as may be agreed to be the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer
severally (and not jointly) represents and warrants to the Company solely as
to such Buyer that:
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<PAGE>
a. Investment Purpose. As of the date hereof, the
Buyer is purchasing the Preferred Shares and the shares of Common Stock
issuable upon conversion thereof (the "Conversion Shares") and the Warrants
and the shares of Common Stock issuable upon exercise thereof (the "Warrant
Shares" and, collectively with the Preferred Shares, Warrants and Conversion
Shares the "Securities") for its own account for investment only and not with
a present view towards the public sale or distribution thereof, except
pursuant to sales registered or exempted under the 1933 Act.
b. Accredited Investor Status. The Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the 1933 Act.
c. Reliance on Exemptions. The Buyer understands
that the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and the Buyer's compliance with, the representations, warranties,
agreements, acknowledgments and understandings of the Buyer set forth herein
in order to determine the availability of such exemptions and the eligibility
of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Securities which have been requested by the Buyer or its advisors. The Buyer
and its advisors, if any, have been afforded the opportunity to ask questions
of the Company and have received what the Buyer believes to be satisfactory
answers to any such inquiries. Neither such inquiries nor any other due
diligence investigation conducted by Buyer or any of its advisors or
representatives shall modify, amend or affect Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Buyer understands that its investment in the Securities involves a significant
degree of risk.
e. Governmental Review. The Buyer understands that
no United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or endorsement
of the Securities.
f. Transfer or Resale. The Buyer understands that
(i) except as provided in the Registration Rights Agreement, the Securities
have not been and are not being registered under the 1933 Act or any
applicable state securities laws, and may not be transferred unless (a)
subsequently included in an effective registration statement thereunder, or
(b) the Buyer shall have delivered to the Company an opinion of counsel (which
opinion shall be reasonably acceptable to the Company) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (c) or sold to an "affiliate" of the Buyer
or (d) sold pursuant to Rule 144 promulgated under the 1933 Act (or a
successor rule); (ii) any sale of such Securities made in reliance on Rule 144
may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Securities under circumstances
in which the seller (or the person through whom the sale is made) may be
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<PAGE>
deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules
and regulations of the SEC thereunder; and (iii) neither the Company nor any
other person is under any obligation to register such Securities under the
1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case, other than pursuant to
the Registration Rights Agreement). Notwithstanding the foregoing or anything
else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a bona fide margin account or other lending
arrangement.
g. Legends. The Buyer understands that the
Preferred Shares and the Warrants and, until such time as the Conversion
Shares and Warrant Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the Conversion Shares and
Warrant Shares, may bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):
"The securities represented by this certificate have not
been registered under the Securities Act of 1933, as
amended. The securities have been acquired for investment
and may not be sold, transferred or assigned in the absence
of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance
and scope reasonably acceptable to the Company, that
registration is not required under said Act or unless sold
pursuant to Rule 144 under said Act."
The legend set forth above shall be removed and the Company
shall issue a certificate without such legend to the holder of any Security
upon which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope
reasonably acceptable to the Company, to the effect that a public sale or
transfer of such Security may be made without registration under the 1933 Act
or (c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144 under the 1933 Act (or a successor
rule thereto) without any restriction as to the number of Securities acquired
as of a particular date that can then be immediately sold. The Buyer agrees to
sell all Securities, including those represented by a certificate(s) from
which the legend has been removed, in compliance with applicable prospectus
delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and
the Registration Rights Agreement have been duly and validly authorized,
executed and delivered on behalf of the Buyer and are valid and binding
agreements of the Buyer enforceable in accordance with their terms, subject as
to enforceability to general principles of equity and to applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation and other
similar laws relating to, or affecting generally, the
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<PAGE>
enforcement of applicable creditors rights and remedies.
i. Residency. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company represents and warrants to each Buyer that, except as disclosed in the
SEC Documents (as defined herein) or in the Schedules attached hereto:
a. Organization and Qualification. The Company and
each of its Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to
carry on its business as and where now owned, leased, used, operated and
conducted. Schedule 3(a) sets forth a list of all of the subsidiaries of the
Company and the jurisdiction in which each is incorporated, certain of which
are identified on Schedule 3(a) as constituting material subsidiaries of the
Company (such material subsidiaries being referred to herein as the
"Subsidiaries"). The Company and each of its Subsidiaries is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect. "Material Adverse Effect"
means any material adverse effect on the business, properties, operations,
assets, liabilities, financial condition or results of operations of the
Company or its Subsidiaries, if any, taken as a whole, or on the transactions
contemplated hereby or by the agreements or instruments to be entered into in
connection herewith.
b. Authorization; Enforcement. (i) The Company has
all requisite corporate power and authority to file and perform its
obligations under the Certificate of Designation and to enter into and perform
this Agreement, the Registration Rights Agreement and the Warrants and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement
and the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including without limitation, the issuance of
the Preferred Shares and the Warrants and the issuance and reservation for
issuance of the Conversion Shares and Warrant Shares issuable upon conversion
or exercise thereof) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its shareholders is required, (iii) this Agreement and the
Registration Rights Agreement have been duly executed and delivered and the
Certificate of Designation has been duly filed by the Company, and (iv) each
of this Agreement and the Certificate of Designation constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement and
the Warrants, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy,
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insolvency, reorganization, moratorium, liquidation or similar laws relating
to, or affecting generally, the enforcement of creditors' rights and remedies.
c. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of (i) 70,000,000 shares of
Common Stock of which 37,583,129 shares are issued and outstanding other than
the additional 2,758,620 shares of Common Stock to be issued to Francesco
Galesi ("Galesi") on the date hereof in consideration for retirement of
$3,200,000 of Company indebtedness held by Galesi), 3,872,382 shares are
reserved for issuance pursuant to the Company's stock option plans, 12,093,772
shares are reserved for issuance pursuant to securities (other than the
Preferred Shares and the Warrants but including the warrants to purchase
750,000 shares of Common Stock issued to Galesi on the date hereof in
consideration of prior financings provided by Galesi to the Company)
exercisable for, or convertible into or exchangeable for shares of Common
Stock and 1,600,000 (1.75 times currently required) shares are reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants
(subject to adjustment pursuant to the Company's covenant set forth in Section
4(h) below); and (ii) 5,000,000 shares of preferred stock, 1,000 of which
shares are issued and outstanding. All of such outstanding shares of capital
stock are, or upon issuance will be, duly authorized, validly issued, fully
paid and nonassessable. No shares of capital stock of the Company are subject
to preemptive rights or any other similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Except as disclosed in the SEC Documents or on Schedule
3(c), as of the effective date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe for, puts, calls, rights of
first refusal, agreements, understandings, claims or other commitments or
rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries, or arrangements by which the Company or
any of its Subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its Subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement) and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued
by the Company (or in any agreement providing rights to security holders) that
will be triggered by the issuance of the Preferred Shares, the Warrants, the
Conversion Shares or Warrant Shares. The Company has furnished to the Buyer
true and correct copies of the Company's Certificate of Incorporation as in
effect on the date hereof ("Certificate of Incorporation"), the Company's
By-laws, as in effect on the date hereof (the "By-laws"), and the terms of all
securities convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto. The Company
shall provide the Buyer with a written update of this representation signed by
the Company's Chief Executive or Chief Financial Officer on behalf of the
Company as of the Closing Date.
d. Issuance of Shares. The Preferred Shares,
Conversion Shares and Warrant Shares are duly authorized and, upon issuance in
accordance with their respective terms, and the terms of this Agreement
(including the issuance of the
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Conversion Shares upon conversion of the Preferred Shares in accordance with
the Certificate of Designation and the Warrant Shares upon exercise of the
Warrants in accordance with the terms thereof) will be validly issued, fully
paid and non-assessable, and free from all taxes, liens and charges with
respect to the issue thereof and shall not be subject to preemptive rights or
other similar rights of stockholders of the Company, except as disclosed in
Schedule 3(d). The term Conversion Shares and Warrant Shares includes the
shares of Common Stock issuable upon conversion of the Preferred Shares or
exercise of the Warrants, including without limitation, such additional
shares, if any, as are issuable as a result of the events described in Section
2(c) of the Registration Rights Agreement. The Company acknowledges that its
obligation to issue Conversion Shares and Warrant Shares upon conversion of
the Preferred Shares or exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
e. No Conflicts. The execution, delivery and
performance of this Agreement, the Registration Rights Agreement and the
Warrants by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation,
the filing of the Certificate of Designation and the issuance and reservation
for issuance of the Conversion Shares and Warrant Shares) will not (i)
conflict with or result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which with
notice or lapse of time or both could become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its Subsidiaries or
by which any property or asset of the Company or any of its Subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its Subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the
Company nor any of its Subsidiaries is in default (and no event has occurred
which with notice or lapse of time or both could put the Company or any of its
Subsidiaries in default) under and, except as disclosed on Schedule 3(e),
neither the Company nor any of its Subsidiaries has taken any action or failed
to take any action that would give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company or any of its Subsidiaries is a party or by
which any property or assets of the Company or any of its Subsidiaries is
bound or affected, except for possible defaults as would not, individually or
in the aggregate, have a Material Adverse Effect. The businesses of the
Company and its Subsidiaries, if any, are not being conducted, and shall not
be conducted so long as a Buyer owns any of the Securities, in violation of
any law, ordinance or regulation of any governmental entity, except such
violations that would not, individually or in the aggregate, have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required
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under the 1933 Act and any applicable state securities laws, the Company is
not required to obtain any consent, authorization or order of, or make any
filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrants in accordance with the terms hereof or thereof. All
consents, authorizations, orders, filings and registrations which the Company
is required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of
the listing requirements of the Nasdaq SmallCap Market ("Nasdaq SmallCap") and
does not reasonably anticipate that the Common Stock will be delisted by the
Nasdaq in the foreseeable future. The Company and its Subsidiaries are unaware
of any facts or circumstances which might give rise to any of the foregoing.
f. SEC Documents, Financial Statements. Since
December 31, 1994, the Company has timely (i.e., within the time periods
prescribed under the federal securities laws, including all permissible
extension periods) filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act of 1934, as amended (the "1934 Act") (all of
the foregoing and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits) incorporated by
reference therein, being hereinafter referred to herein as the "SEC
Documents"). The Company has delivered to each Buyer true and complete copies
of the SEC Documents, except for such exhibits and incorporated documents. As
of their respective dates, the SEC Documents complied in all material respects
with the requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto. Such financial statements have been prepared in
accordance with generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, each of the Company and its Subsidiaries has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to December 31, 1996 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in
such financial statements,
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which, individually or in the aggregate, would not be reasonably likely to
have a Material Adverse Effect. Since the date of the most recent balance
sheet, each of the Company and its Subsidiaries has operated in the ordinary
course of business, consistent with past practices. No stop order suspending
the effectiveness of any registration statement filed by the Company has been
issued by SEC.
g. Absence of Certain Changes. Except as disclosed
on Schedule 3(g) or in the SEC Documents, since December 31, 1996, there has
been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition,
results of operations or prospects of the Company or any of its Subsidiaries.
h. Absence of Litigation. There is no action, suit,
claim, proceeding, inquiry or investigation before or by any court, public
board, government agency, self-regulatory organization or body pending or, to
the knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries that could have a Material
Adverse Effect. Schedule 3(h) contains a complete list and summary description
of any material pending or threatened proceeding against or affecting the
Company or any of its Subsidiaries.
i. Patents, Copyrights, etc. The Company and each
of its Subsidiaries owns or possesses the requisite licenses or rights to use
all patents, patent rights, inventions, know-how, trade secrets, trademarks,
service marks, service names, trade names and copyrights ("Intellectual
Property") necessary to enable it to conduct its business as now operated
(and, except as set forth in Schedule 3(i) hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future);
there is no claim or action by any person pertaining to, or proceeding
pending, or to the Company's knowledge threatened which challenges the right
of the Company or of a Subsidiary with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated (and, except as
set forth in Schedule 3(i) hereof, to the best of the Company's knowledge, as
presently contemplated to be operated in the future); to the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries infringe
any Intellectual Property or other rights held by any person; and the Company
is unaware of any facts or circumstances which might give rise to any of the
foregoing. The Company and each of its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of their
Intellectual Property.
j. No Materially Adverse Contracts. Neither the
Company nor any of its Subsidiaries is a party to any contract or agreement
which in the judgment of the Company's officers has or is expected to have a
Material Adverse Effect.
k. Tax Status. Except as set forth on Schedule
3(k), the Company and each of its Subsidiaries has made or filed all federal
and state income and all other tax returns, reports and declarations required
by any jurisdiction to which it is subject (unless and only to the extent that
the Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and
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<PAGE>
unreported taxes) and has paid all taxes and other governmental assessments
and charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment
of all taxes for periods subsequent to the periods to which such returns,
reports or declarations apply. There are no unpaid taxes in any material
amount claimed to be due by the taxing authority of any jurisdiction, and the
officers of the Company know of no basis for any such claim.
l. Certain Transactions. Except as set forth in the
SEC Documents or on Schedule 3(l) and except for arm's length transactions
pursuant to which the Company or any of its Subsidiaries makes payments in the
ordinary course of business upon terms no less favorable than the Company or
any of its Subsidiaries could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its Subsidiaries (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or any corporation,
partnership, trust or other entity in which any officer, director or, to the
knowledge of the Company, any such employee has a substantial interest or is
an officer, director, trustee or partner.
m. Disclosure. All information relating to or
concerning the Company or any of its Subsidiaries set forth in this Agreement
and provided to the Buyers pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in
all material respects and the Company has not omitted to state any material
fact necessary in order to make the statements made herein or therein, in
light of the circumstances under which they were made, not misleading. No
event or circumstance has occurred or exists with respect to the Company or
any of its Subsidiaries or its or their business, properties, prospects,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this
purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under the 1933 Act).
n. Acknowledgment Regarding Buyers' Purchase of
Securities. The Company acknowledges and agrees that the Buyers are acting
solely in the capacity of arm's length purchasers with respect to this
Agreement and the transactions contemplated hereby and that no Buyer is in
possession of any non-public information provided by the Company relating to
the Company, other than with respect to a proposed contract with Bell Atlantic
(the "Proposed Contract"). The Company further acknowledges that no Buyer is
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions
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contemplated hereby and any advice given by any Buyer or any of their
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Buyer's purchase
of the Securities. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
o. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited
any offers to buy any security under circumstances that would require
registration of any of the Securities under the 1933 Act or cause the offering
of the Securities pursuant to this Agreement to be integrated with prior
offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions, including, without limitation, under the
rules and regulations of the Nasdaq SmallCap Market or the Nasdaq National
Market, as applicable, nor will the Company or any of its subsidiaries take
any action or steps that would require registration of the Securities under
the 1933 Act or cause the offering of the Securities to be integrated with
other offerings.
p. No Brokers. The Company has taken no action
which would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments relating to this Agreement or the
transactions contemplated hereby, except for dealings with Tanner Unman
Securities, Inc. whose commissions and fees will be paid for by the Company.
q. Permits; Compliance. The Company and each of its
Subsidiaries is in possession of (or has applied for) all franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
(collectively, the "Company Permits"), and there is no action pending or, to
the knowledge of the Company, threatened regarding suspension or cancellation
of any of the Company Permits, other than such events which would not,
individually or in the aggregate, have a Material Adverse Effect. Neither the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Except as set forth
on Schedule 3(q), each of the Company and its Subsidiaries has complied with,
and has not received any notification with respect to possible conflicts,
defaults or violations of, any laws, ordinances, rules, regulations, orders,
judgments, injunctions, awards or decrees of any governmental entity
applicable to the Company and its Subsidiaries, except for notices relating to
possible conflicts, defaults or violations, which conflicts, defaults or
violations would not have a Material Adverse Effect.
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r. Environmental Matters.
(i) To the knowledge of the Company,
except as set forth in Schedule 3(r), there are, with respect to the Company
or any of its Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below), releases of any
material into the environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to any
common law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company's knowledge, threatened in connection
with any of the foregoing. The term "Environmental Laws" means all federal,
state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases, removal, remediation or abatement of chemicals, pollutants,
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(ii) Other than those that are or were
stored, used or disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently owned, leased
or used by the Company or any of its Subsidiaries, and no Hazardous Materials
were released or discharged on or about any real property previously owned,
leased or used by the Company or any of its Subsidiaries during the period the
property was owned, leased or used by the Company or any of its Subsidiaries,
except in the normal course of the Company's or any of its Subsidiaries'
business.
(iii) Except as set forth in Schedule
3(r), there are no underground storage tanks, asbestos-containing materials,
polychlorinated biphenyls or urea formaldehyde insulation at any real property
owned, leased or used by the Company or any of its Subsidiaries in violation
of any Environmental Law.
s. Title to Property. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except such as are
described in Schedule 3(s) or such as would not have a Material Adverse
Effect. Any real property and facilities held under lease by the Company and
its Subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as would not have a Material Adverse Effect.
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t. Insurance. The Company and each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the Company
and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business at
a cost that would not have a Material Adverse Effect.
u. Internal Accounting Controls. The Company and
each of its Subsidiaries maintain a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
v. Employee Relations. Neither the Company nor any
of its Subsidiaries is involved in any union labor dispute nor, to the
knowledge of the Company or any of its Subsidiaries, is any such dispute
threatened. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement, and the Company and its Subsidiaries believe
that relations with their employees are good. Each of the Company and its
Subsidiaries is in compliance in all material respects with the applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the regulations and published interpretations thereunder. None
of the following events has occurred or is reasonably expected to occur that
when taken together with all other such events could reasonably be expected to
result in a Material Adverse Effect: (i) any "reportable event," as defined in
Section 4043 of ERISA or the regulations issued thereunder, with respect to
any "employee pension benefit plan" as such term is defined in Section 3 of
ERISA (other than a Multiemployer Plan (as defined below)) subject to the
provisions of Title IV or ERISA or Section 412 of the Internal Revenue Code of
1986, as amended (the "Code"), or Section 302 of ERISA (a "Plan"); (ii) the
adoption of any amendment to a Plan that would require the provision of
security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA;
(iii) the existence with respect to any Plan of an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived; (iv) the filing pursuant to Section 412(d) of the Code
or Section 303(d) of ERISA of an application for a waiver of the minimum
funding standard with respect to any Plan; (v) the incurrence of any liability
under Title IV of ERISA with respect to the termination of any Plan or the
withdrawal or partial withdrawal of the Company or any of its Subsidiaries
from any Plan or "multiemployer plan" as defined in Section 4001(a)(3) of
ERISA ("Multiemployer Plan"); (vi) the receipt by the Company or any of its
Subsidiaries from the Pension Benefit Guaranty Corporation or a plan
administrator of any notice relating to the
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<PAGE>
intention to terminate any Plan or Plans or to appoint a trustee to administer
any Plan; (vii) the receipt by the Company or any of its Subsidiaries of any
notice concerning the imposition of liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA or of a
determination that a Multiemployer Plan is, or is expected to be, insolvent or
in reorganization, within the meaning of Title IV of ERISA; and (viii) the
occurrence of a "prohibited transaction" with respect to which the Company or
any of its Subsidiaries is a "disqualified person" (within the meaning of
Section 4975 of the Code) and with respect to which the Company or such
Subsidiary would be liable for the payment of an excise tax.
w. No General Solicitation. Neither the Company,
nor any of its affiliates, nor any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the 1933 Act) in connection with the offer or
sale of the Securities.
x. No Material Misstatement. None of the
representations or warranties of the Company contained herein and none of the
information contained in the Schedules hereto furnished by the Company is
false or misleading in any material respect or omits to state a material fact
necessary to make the statements herein or therein not misleading in any
material respect.
4. COVENANTS.
a. Best Efforts. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7
of this Agreement.
b. Blue Sky Laws. The Company shall, on or before
the Closing Date, take such action as the Company shall reasonably determine
is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so
taken to each Buyer on or prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3.
The Company's Common Stock is registered under Section 12(g) of the 1934 Act.
So long as any Buyer beneficially owns any of the Securities, the Company
shall timely file all reports required to be filed with the SEC pursuant to
the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company
currently meets, and will take all necessary action to continue to meet, the
"registrant eligibility" requirements set forth in the general instructions to
Form S-3.
d. Use of Proceeds. The Company shall use the
proceeds from the sale of the Preferred Shares and the Warrants in the manner
set forth in
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Schedule 4(d) attached hereto and made a part hereof and shall not, directly
or indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection
with its currently existing direct or indirect Subsidiaries).
e. Additional Equity Capital; Right of First
Refusal. Subject to the exceptions described below, so long as at least 15% of
the Preferred Shares issued on the date hereof are outstanding, the Company will
not, without the prior written consent of a majority-in-interest of the Buyers,
negotiate or contract with any party to obtain additional equity financing
(including debt financing with an equity component) that involves (A) the
issuance of Common Stock at a discount to the market price of the Common Stock
on the date of issuance, (B) the issuance of convertible securities that are
convertible into an indeterminate number of shares of Common Stock or (C) the
issuance of warrants, during the period (the "Lock-up Period") beginning on the
Closing Date and ending on the later of (i) one hundred eighty (180) days from
the Closing Date and (ii) Ninety (90) days from the date the Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective. In addition, subject to the exceptions described below, the Company
will not conduct any equity financing (including debt with an equity component)
("Future Offerings") during the period beginning on the Closing Date and ending
Three Hundred Sixty (360) days after the end of the Lock-up Period, unless it
shall have first delivered to each Buyer, at least fifteen (15) business days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof, and
providing each Buyer an option during the ten (10) day period following delivery
of such notice to purchase its pro rata share, together with any other holder of
the Company's securities with similar preemptive rights (based on the number of
Preferred Shares purchased hereunder), of the securities being offered in the
Future Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this sentence are collectively referred to as the
"Capital Raising Limitations"). The Capital Raising Limitations shall not apply
to any transaction involving issuances of (i) securities as consideration for a
merger, consolidation or sale of assets, (ii) securities in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), (iii) warrants to a financial institution in connection
with a bona fide senior lending arrangement, (iv) warrants (in an amount
determined by the Company's Board of Directors in the exercise of its reasonable
business judgment) to Francesco Galesi as consideration for prior investments in
or loans to the Company, provided that such warrants may not be exercised or
exercisable until ten (10) months after their issuance, or (v) securities in
connection with the disposition or acquisition of a business, product or license
by the Company. The Capital Raising Limitations also shall not apply to the
issuance of securities upon exercise or conversion of the Company's options,
warrants or other convertible securities outstanding as of the date hereof or to
the grant of additional options or warrants, or the issuance of additional
securities, under any director, officer or employee stock option or restricted
stock plan maintained by the Company and approved by a majority of the Company's
disinterested directors.
f. Expenses. Each party shall bear its own expenses
in
15
<PAGE>
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith, including, without limitation, attorneys' and consultants'
fees and expenses.
g. Financial Information. The Company agrees to
send the following reports to each Buyer until such Buyer transfers, assigns, or
sells all of the Securities: (i) within three (3) days after the filing with the
SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) contemporaneously with the making available or giving to the
stockholders of the Company, copies of any notices or other information
(including proxy statements) the Company makes available or gives to such
stockholders.
h. Reservation of Shares. The Company shall at all
times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion or exercise
of the outstanding Preferred Shares and Warrants and issuance of the Conversion
Shares and Warrant Shares in connection therewith (based on the Conversion Price
of the Preferred Shares or Exercise Price of the Warrants in effect from time to
time). The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of Preferred Shares and exercise of the
Warrants without the consent of each Buyer, which consent will not be
unreasonably withheld. The Company shall use its best efforts at all times to
maintain the number of shares of Common Stock so reserved for issuance at no
less than 1.75 times the number that is then actually issuable upon full
conversion of the Preferred Shares and exercise of the Warrants (based on the
Conversion Price of the Preferred Shares or Exercise Price of the Warrants in
effect from time to time). If at any time the number of shares of Common Stock
authorized and reserved for issuance is below the number of Conversion Shares
and Warrant Shares issued and issuable upon conversion of the Preferred Shares
and exercise of the Warrants (based on the Conversion Price of the Preferred
Shares or Exercise price of the Warrants then in effect), the Company will
promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of shareholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient number of
authorized shares, and using its best efforts to obtain shareholder approval of
an increase in such authorized number of shares.
i. Listing. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares and Warrant Shares from time to time issuable
upon conversion of the Preferred Shares or exercise of the Warrants. The Company
will obtain and maintain the listing and trading of its Common Stock on the
Nasdaq SmallCap Market ("SmallCap"), the Nasdaq National Market ("Nasdaq"), the
New York Stock Exchange ("NYSE"), or the American Stock
16
<PAGE>
Exchange ("AMEX") and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such exchanges, as applicable.
The Company shall promptly provide to each Buyer copies of any notices it
receives from Nasdaq regarding the continued eligibility of the Common Stock for
listing on such exchanges or quotation systems, SmallCap or any other exchange
or quotation system on which the Common Stock is then listed.
j. Corporate Existence. So long as at least fifteen
percent (15%) of Preferred Shares issued pursuant to this Agreement are
outstanding, the Company shall maintain its corporate existence and shall not,
without the consent of a majority of the holders of Preferred Shares, sell all
or substantially all of the Company's assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company's assets, where
the surviving or successor entity in such transaction (i) assumes the Company's
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose Common Stock
is listed for trading on Nasdaq, SmallCap, NYSE or AMEX.
k. No Integration. The Company has not conducted
and will not conduct any offering that will be integrated with the issuance of
the Securities solely for purposes of Rule 4460(i) of the Nasdaq Stock Market.
l. Solvency; No Qualified Opinion. The Company does
not intend to take any action that would impair its ability to pay its debts
from time to time as such debts mature. The Company did not receive a qualified
opinion from its auditors with respect to its most recent fiscal year end and
does not anticipate or know of any basis upon which its auditors might issue a
qualified opinion in respect of its current fiscal year.
5. TRANSFER AGENT INSTRUCTIONS. The Company shall issue
irrevocable instructions to its transfer agent to issue certificates,
registered in the name of each Buyer or its nominee, for the Conversion Shares
and Warrant Shares in such amounts as specified from time to time by each
Buyer to the Company upon conversion of the Preferred Shares or exercise of
the Warrants in accordance with the terms therewith (the "Irrevocable Transfer
Agent Instructions"). Prior to registration of the Conversion Shares and
Warrant Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act), will be given by the Company to its transfer agent
and that the Securities shall otherwise be freely transferable on the books
and records of the Company as and to the extent provided in this Agreement and
the Registration Rights Agreement. Nothing in this Section shall affect in any
way the Buyer's obligations and agreement set forth in Section 2(g) hereof to
comply with all applicable prospectus delivery requirements, if any, upon
17
<PAGE>
resale of the Securities. If a Buyer provides the Company with an opinion of
counsel, reasonably satisfactory to the Company in form, substance and scope,
that registration of a resale by such Buyer of any of the Securities is not
required under the 1933 Act, the Company shall permit the transfer, and, in
the case of the Conversion Shares and Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer and without any restrictive legends.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers, by vitiating the intent and purpose of
the transaction contemplated hereby. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5
will be inadequate and agrees, in the event of a breach or threatened breach
by the Company of the provisions of this Section, that the Buyers shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being
required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The
obligation of the Company hereunder to issue and sell the Preferred Shares and
Warrants to a Buyer at the Closing is subject to the satisfaction, at or
before the Closing Date of each of the following conditions thereto, provided
that these conditions are for the Company's sole benefit and may be waived by
the Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to the
Company.
b. The applicable Buyer shall have delivered the
Purchase Price in accordance with Section 1(b) above.
c. The Certificate of Designation shall have been
accepted for filing with the Secretary of State of the State of New York.
d. The representations and warranties of the
applicable Buyer shall be true and correct in all material respects as of the
date when made and as of the Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date), and the
applicable Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable Buyer at
or prior to the Closing Date.
e. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
18
<PAGE>
f. All consents, Company Permits, authorizations,
approvals, waivers and amendments required for the consummation of the
transactions contemplated by this Agreement and the Registration Rights
Agreement shall have been obtained.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The
obligation of each Buyer hereunder to purchase the Preferred Shares and Warrants
at the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
a. The Company shall have executed this Agreement
and the Registration Rights Agreement, and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer
duly executed certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and Warrants in accordance with Section 1(b)
above.
c. The Certificate of Designation shall have been
accepted for filing with the Secretary of Sate of the State of New York, and a
copy thereof certified by such Secretary of State shall have been delivered to
such Buyer.
d. The Irrevocable Transfer Agent Instructions, in
form and substance satisfactory to a majority-in-interest of the Buyers, shall
have been delivered to and acknowledged in writing by the Company's Transfer
Agent.
e. The representations and warranties of the
Company shall be true and correct in all material respects (except to the extent
that any of such representations and warranties is already qualified as to
materiality in Section 3, in which case such representations and warranties
shall be true and correct without further qualification) as of the date when
made and as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date) and the Company
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date. The
Buyer shall have received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the foregoing
effect.
f. No litigation, statute, rule, regulation,
executive order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by or in any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
g. The Conversion Shares and Warrant Shares shall
have been authorized for quotation on SmallCap or Nasdaq, as applicable, and
trading in the Common Stock on SmallCap or Nasdaq, as applicable, shall not have
been suspended by
19
<PAGE>
the SEC or NASD.
h. The Buyer shall have received an opinion of the
Company's counsel, dated as of the Closing Date, in form, scope and substance
reasonably satisfactory to the Buyer and in substantially the same form as
Exhibit "D" attached hereto.
i. The Buyer shall have received an officer's
certificate described in Section 3(c) above, dated as of the Closing Date.
j. The Company shall have delivered to such Buyer
such other documents relating to the transactions contemplated by the
Transaction Documents as such Buyer or its counsel may reasonably request.
k. All consents, Company Permits, authorizations,
approvals, waivers and amendments required for the consummation of the
transactions contemplated by this Agreement and the Registration Rights
Agreement shall have been obtained.
l. The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (i) resolutions of the Board of
Directors consistent with Section 3(b), (ii) the Certificate of Incorporation
and (iii) the Bylaws, each as in effect at the Closing.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed
by and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws. The parties hereto hereby submit
to the exclusive jurisdiction of the United States Federal Courts located in the
Southern District of New York with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
b. Counterparts; Signatures by Facsimile. This
Agreement may be executed in two or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other party.
This Agreement, once executed by a party, may be delivered to the other party
hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or
20
<PAGE>
enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and
the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be amended other than by an
instrument in writing signed by the Company and the holders of at least a
majority of the Preferred Shares then issued and outstanding. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be
given under the terms of this Agreement shall be sent by certified or registered
mail (return receipt requested) or delivered personally or by courier (including
a recognized overnight delivery service) or by facsimile and shall be effective
five days after being placed in the mail, if mailed by regular U.S. mail, or
upon receipt, if delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile, in each case addressed to a party.
The addresses for such communications shall be:
If to the Company:
AMNEX, Inc.
6 Nevada Drive
Lake Success, NY 11042
Attention: Chief Executive Officer
Facsimile: (203) 629-8959
With copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, NY 10104
Attention: Joseph W. Bartlett, Esq.
Facsimile: (212) 468-7900
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
Each party shall provide notice to the other party of any
change in address.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. The Company shall not assign this Agreement or any rights or
obligations hereunder without the prior written consent of the holders of at
least a majority of the Preferred Shares then
21
<PAGE>
issued and outstanding. A Buyer shall not assign this Agreement or any rights or
obligations hereunder without prior written consent of the Company.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The representations and warranties of
the Company and the agreements and covenants set forth in Sections 3, 4, 5, 8
and 9 and indemnification shall survive the closing hereunder for a period of
two (2) years, notwithstanding any due diligence investigation conducted by or
on behalf of the Buyers. The Company agrees to indemnify and hold harmless each
of the Buyers and all their officers, directors, employees and agents for loss,
damage, liability and expenses (including attorneys' fees) arising as a result
of or related to (a) any misrepresentation or breach of any representation or
warranty made by the Company in this Agreement, the Registration Rights
Agreement or any certificate, instrument or document delivered pursuant thereto
or (b) any breach of any covenant, agreement or obligation of the Company
contained in this Agreement, the Registration Rights Agreement or any
certificate, instrument or document delivered pursuant thereto.
j. Publicity. The Company and each of the Buyers
shall have the right to review a reasonable period of time before issuance of
any press releases, SEC, Nasdaq or NASD filings, or any other public statements
with respect to the transactions contemplated hereby; provided, however, that
the Company shall be entitled, without the prior approval of each of the Buyers,
to make any press release or SEC, Nasdaq or NASD filings with respect to such
transactions as is required by applicable law and regulations (although each of
the Buyers shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy thereof and be
given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in
this Agreement will be deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be applied
against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
22
<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company
have caused this Agreement to be duly executed as of the date first above
written.
AMNEX, INC.
By:
--------------------------------------
Name:
Title:
FOURTEEN HILL CAPITAL, L.P.
By:
--------------------------------------
RESIDENCE:
ADDRESS:
--------------------
--------------------
--------------------
--------------------
Facsimile:
Telephone:
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of Preferred Stock:
Number of Warrants: 30,000
Aggregate Purchase Price: 750,000
23
<PAGE>
ATTACHMENTS TO:
---------------
SECURITIES PURCHASE AGREEMENT
Dated as of January 26, 1998
Between
AMNEX, Inc.
and
Fourteen Hill Capital, L.P.
- - Schedule of Differences
- - Disclosure Schedules
- - Exhibit A - Certificate of Designation
- - Exhibit B - Form of Investor Warrant and Form of Fee Warrant
- - Exhibit C - Registration Rights Agreement
- - Exhibit D - Opinion of Company Counsel
24
<PAGE>
SCHEDULE OF DIFFERENCES
-----------------------
Material differences between attached Securities Purchase Agreement, dated as of
January 26, 1998, between AMNEX, Inc. and Fourteen Hill Capital, L.P. and
Securities Purchase Agreement, dated as of December 24, 1998, between AMNEX,
Inc. and Pangaea Fund Ltd.
Buyer
- -----
Pangaea Fund Ltd.
Warrants Issued to Buyer
- ------------------------
40,000
Warrants Issued to Tanner Unman Securities, Inc.
- ------------------------------------------------
20,000
Shares of Preferred Stock Purchased
- -----------------------------------
1,000
Aggregate Purchase Price
- ------------------------
$1,000,000
Expenses
- --------
The Company agreed to reimburse Tanner Unman Securities, Inc. for all expenses
incurred by it, up to $25,000 in connection with the negotiation, preparation,
execution, delivery of the Securities Purchase Agreement and other agreements
executed in connection therewith, including consulting and attorneys fees.
25
<PAGE>
DISCLOSURE SCHEDULES
--------------------
Schedule 3(a)
Subsidiaries
<TABLE>
<CAPTION>
Jurisdiction of Foreign
Company/Subsidiary Incorporation Qualifications % Owned*
- ------------------ ------------- -------------- --------
<S> <C> <C> <C>
AMNEX, Inc. New York None
American Network Exchange, Inc. Delaware See Attached 100%**
Crescent Public Communications, Inc. New York New Jersey, 100%**
(Crescent) Pennsylvania,
and Florida
Sun Tel North American, Inc. Delaware Florida 80% by Crescent**
National Billing Exchange, Inc. California Texas 80%**
Capital Network System, Inc. (CNSI) Texas See Attached 100%**
Capital Network International, Inc. (CNI) Texas None 100% by CNSI
Capital Network Mexico S.A. de C.V. United Mexican States N/A 99.98% by CNI
0.02% by AMNEX, Inc.
AMNEX International, Inc. Delaware None 100%
American Hotel Exchange, Inc. Florida None 100%
Hospital TeleServices, Inc. New York None 100%
</TABLE>
- ----------
* Ownership is by AMNEX, Inc. unless otherwise indicated.
** Material subsidiary
26
<PAGE>
<TABLE>
<S> <C> <C> <C>
Telecommunity & International Network Delaware New York 50%
Services, Inc.
Capital Network International, Sociedad Chile N/A 20% by CNI
Anonima
Point to Point Grand Cayman N/A 100% by CNI
Servicios Amnex, S.A. de C.V. United Mexican States N/A 98% by CNI
2% by AMNEX, Inc.
</TABLE>
27
<PAGE>
ANEI is qualified to do business as a foreign corporation in the
following states:
Alabama Maryland Ohio
Arizona Michigan Oklahoma
Arkansas Minnesota Pennsylvania
California Mississippi Rhode Island
Colorado Missouri South Carolina
Florida Nebraska Tennessee
Georgia Nevada Texas
Idaho New Jersey Vermont
Illinois New Mexico Virginia
Indiana New York Washington
Kansas North Carolina West Virginia
Kentucky North Dakota Wisconsin
Louisiana
CNSI is qualified to do business as a foreign corporation in the
following states:
Arizona Louisiana North Carolina
California Maryland Ohio
Colorado Massachusetts Oregon
Delaware Michigan Pennsylvania
Florida Minnesota South Carolina
Georgia Mississippi South Dakota
Idaho Missouri Utah
Illinois Montana Vermont
Indiana New Jersey Virginia
Kansas New Mexico West Virginia
Kentucky New York Wisconsin
28
<PAGE>
Schedule 3(c)
Options, Warrants, Registration Rights, etc.
(i) Outstanding options, warrants, scrip, rights to subscribe for, puts,
calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries
Options
Total number of outstanding options: approximately 3,563,198
Outstanding Warrants
Total number of outstanding warrants: 5,106,615
Put Agreements
Under the Asset Purchase Agreement, dated November 8, 1996
between AMNEX, Inc. and Cresent Public Communications Inc., Coastal Telecom
Payphone Company, Inc., BEK TEL, Inc., Garden State Telephone Installation &
Service Co., Inc. and Brian King (collectively, the "Sellers") and subject to
the terms thereof, Sellers have the right to require AMNEX to buy back a certain
amount of shares based upon AMNEX having failed to file, and if AMNEX fails to
file a registration statement within specified time periods. In no event will
the amount of shares purchased exceed $3,000,000.
Commitments
See (ii)(10) of this Schedule 3(c)
Securities Convertible in Common Stock
1. $15,000,000 8 1/2% Convertible Subordinated Notes due 2002. The
Notes are convertible at any time prior to maturity at an initial
conversion price of $2.7844 into 5,387,157 shares of common stock, plus
an indeterminate amount of shares based upon adjustments to the
conversion price.
2. Private Placement of 1,000 Shares of Series M Convertible Preferred
Stock. Under the Securities Purchase Agreement, dated as of December
24, 1997 between AMNEX, Inc. and Pangaea Fund Ltd., AMNEX issued 1,000
shares of Series M Convertible Preferred Stock, convertible into shares
of $.001 par value common stock of AMNEX, Inc.
29
<PAGE>
Right of First Refusal
1. Private Placement of 1,000 Shares of Series M Convertible Preferred
Stock. Under the Securities Purchase Agreement, AMNEX, Inc. granted
Pangaea Fund Ltd. the right to participate, on a pro-rata basis, in any
equity financing offered by AMNEX for the one year period following the
closing .
2. Stock Purchase Agreement dated as of January 14, 1998 between AMNEX,
Inc. and Granite Associates, L.P. Under the Stock Purchase Agreement
granted Granite Associates, L.P. the right to participate, on a
pro-rata basis, in offerings of securities offered by AMNEX, Inc.,
subject to certain restrictions and conditions.
3. Stock Purchase Agreement dated as of January 16, 1998 among AMNEX,
Inc., Victory Ventures LLC and Brae Group, Inc. Under the Stock
Purchase Agreement the Company granted Victory Ventures LLC and Brae
Group, Inc. the right to participate, on a pro-rata basis together with
any other holder of the Company's securities with similar preemptive
rights, in offerings of securities offered by AMNEX, Inc., subject to
certain restrictions and conditions.
4. Stock Purchase Agreement dated as of January 22, 1998 among AMNEX, Inc.
and Nicholas Forstmann Under the Stock Purchase Agreement the Company
granted Nicholas Forstmann the right to participate, on a pro-rata
basis together with any other holder of the Company's securities with
similar preemptive rights, in offerings of securities offered by AMNEX,
Inc., subject to certain restrictions and conditions.
5. Stock Purchase Agreement dated as of January 26, 1998 among AMNEX, Inc.
and AMN Investments, L.L.C. Under the Stock Purchase Agreement the
Company granted AMN Investments, L.L.C. the right to participate, on a
pro-rata basis together with any other holder of the Company's
securities with similar preemptive rights, in offerings of securities
offered by AMNEX, Inc., subject to certain restrictions and conditions.
30
<PAGE>
(ii) Registration Rights
1. HSBC Securities, Inc. ("HSBC") and Rausher Pierce & Clark ("RP&C").
In connection with the $15 million note offering, the Company issued
warrants to HSBC, the placement agent and RPC, the international sales
agent, for the purchase price 96,250 and 65,365 Common Shares,
respectively. HSBC and RPC were granted demand and piggyback
registration rights for the warrant shares.
2. National Operator Service, Inc. ("NOS").
Pursuant to an Equity Participation Plan for NOS, dated August 18,
1994, NOS was issued 100,000 Common Shares and granted a warrant for
the purchase of 50,000 Common Shares. Pursuant to the Equity
Participation Plan, NOS has piggyback registration rights with respect
to the shares and warrant shares.
3. Wall Street Consultants, Inc. ("Wall Street").
On July 7, 1994, Wall Street was granted an option to acquire 50,000
Common Shares and granted piggyback registration rights in the event of
a sale by the Company of Common Shares for cash.
4. Dominick & Dominick Incorporated ("Dominick").
On July 15, 1994, the Company granted to Dominick and certain of its
officers warrants for the purchase of 200,000 Common Shares and granted
piggyback registration rights in the event of a sale by the Company of
Common Shares for cash.
5. M.H. Myerson & Co., Inc. ("Myerson").
On July 15, 1994, the Company granted to Myerson warrants for the
purchase of 35,000 Common Shares and granted piggyback registration
rights in the event of a sale by the Company of Common Shares for cash.
6. Transaction Network Services Inc. ("TNS").
On April 3, 1996, the Company granted to TNS warrants for the purchase
of 100,000 Common Shares and granted piggyback registration rights in
the event of a sale by the Company of Common Shares.
7. Coastal Communications of America ("Coastal Communications").
In connection with the acquisitions between December 1996 and March
1997 of certain assets from Coastal Communications, the Company issued
and aggregate of 262,626 Common Shares and granted piggyback
registration rights in the event the Company filed a registration
statement for the sale by the Company of Common Shares for cash.
8. Capital Network System Inc. ("CNSI").
In connection with the Company's June 1996 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
31
<PAGE>
certain warrants issued to them and granted CNSI shareholders piggyback
registration rights in the event the Company files a registration
statement covering the sale by the Company of any securities for cash.
9. Robb, Peck, McCooey Clearing Corporation ("Robb, Peck").
The Company has agreed, upon demand, to file a registration statement
with the SEC covering the resale of an aggregate of 550,000 Common
Shares underlying certain warrants issued to Robb, Peck, and 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.
10. Teleplus, Inc.
In connection with the Company's August 1996 acquisition of certain
assets of Teleplus, the Company issued 526,168 Common Shares in January
1997, agreed to issue an additional 526,168 Common Shares in January
1998, agreed to register the resale of such Common Shares, and granted
Teleplus piggyback registration rights with respect to such Common
Shares.
11. National Billing
In connection with the Company's September 1996 acquisition of 80% of
the outstanding Common Shares of NBE, the Company issued an aggregate
of 550,725 Common Shares to the NBE shareholders, agreed to register
the resale of such Common Shares and granted the NBE shareholders
piggyback registration rights with respect to these shares.
12. Francesco Galesi
In connection with a Stock Exchange Agreement between the Company and
Francesco Galesi entered into in January 1997, the Company has 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
either outstanding (1,500,000) or are issuable pursuant to warrants
granted to him (1,500,000). In June 1997, the Company issued additional
warrants to Mr. Galesi for the purchase of up to 500,000 Common Shares
which are to be included in the registration statement to be filed
between July 1998 and October 1998.
13. Coastal Telecom Payphone Company, Inc. ("Coastal Telecom").
In connection with the Company's November 1996 acquisition of certain
assets of Coastal Telecom, Garden State Telephone Installation and
Service Co., Inc. and BEK Tel, Inc., the Company granted piggyback
registration rights with regard to the resale of 2,282,989 Common
Shares. The registration rights only apply to a sale of securities by
the Company.
14. $15,000,000 8 1/2% Convertible Subordinated Notes due 2002.
In connection with the Company's September 1997 sale of $15,000,000 8
1/2% Convertible Subordinated Notes due 2002, the Company agreed to
file a registration statement within 90 days of the closing covering
the sale of the notes and underlying Common Shares and to use
32
<PAGE>
its reasonable best efforts to cause the registration statement to be
declared effective by the SEC as soon as practible but in any event
within 180 days of the closing.
15. Private Placement of 1,000 Shares of Series M Convertible Preferred
Stock.
In connection with the Company's December 1997 sale of 1,000 shares of
Series M Convertible Preferred Stock (the "Series M Stock"), the
Company agreed to file a registration statement covering Common Stock
issuable upon (i) conversion of the shares of Series M Stock and (ii)
exercise of warrants (a) to purchase 40,000 shares of Common Stock
issued to Pangaea Fund Ltd. and (b) to purchase 20,000 shares of Common
Stock issued to Tanner Unman Securities and to use its reasonable best
efforts to cause the registration statement to be declared effective by
the SEC within 90 days of the closing.
16. Stock Purchase Agreement dated as of January 14, 1998 between AMNEX,
Inc. and Granite Associates, L.P. In connection with the Stock Purchase
Agreement, the Company agreed to use its best efforts to register the
shares of common stock issued to Granite Associates, L.P. on a
registration statement to be filed by AMNEX, Inc. on prior to January
29, 1998.
17. Stock Purchase Agreement dated as of January 16, 1998 among AMNEX,
Inc., Victory Ventures LLC and Brae Group, Inc. In connection with the
Stock Purchase Agreement, the Company agreed to to register the shares
of common stock issued to Victory Ventures LLC and Brae Group, Inc. on
a registration statement to be filed by AMNEX, Inc. on prior to January
29, 1998, or other similar registration statement prepared by AMNEX,
Inc. within 30 days of the closing.
18. Stock Purchase Agreement dated as of January 22, 1998 among AMNEX,
Inc., Nicholas Forstmann. In connection with the Stock Purchase
Agreement, the Company agreed to to register the shares of common stock
issued to Nicholas Forstmann. on a registration statement to be filed
by AMNEX, Inc. on prior to January 29, 1998, or other similar
registration statement prepared by AMNEX, Inc. within 30 days of the
closing.
19. Stock Purchase Agreement dated as of January 26, 1998 among AMNEX,
Inc., AMN Investments, L.L.C.. In connection with the Stock Purchase
Agreement, the Company agreed to to register the shares of common stock
issued to AMN Investments, L.L.C. on a registration statement to be
filed by AMNEX, Inc. on prior to January 29, 1998, or other similar
registration statement prepared by AMNEX, Inc. within 30 days of the
closing.
33
<PAGE>
(iii) Anti-dilution or price adjustment provisions contained in any
securities of the Company triggered by the issuance of the Common Stock
of the Company
None.
34
<PAGE>
Schedule 3(d)
Preemptive rights, etc.
See Schedule 3(c): Rights of First Refusal.
35
<PAGE>
Schedule 3(e)
Absence of Undisclosed Liabilities
On December 15, 1997, a billing dispute between the Company and AT&T regarding
the rates assessed pursuant to an agreement between Capital Network System,
Inc. ("CNSI") and AT&T dated October 27, 1995 culminated in termination of
certain international telecommunications services provided by AT&T, including
service to Mexico. The Company is taking immediate action to restore service,
with the ultimate goal of entering into a service agreement which reflects
current market conditions and rates which are approximately 50% of rates
charged by AT&T. Although the Company has already restored service
representing 50% of prior revenues in Mexico, there is no guarantee the
Company will be able to restore service to the Caribbean, which represented
approximately 10% of the total international services previously provided by
AT&T.
Additionally, the eventual resolution of the billing dispute between the
Company and AT&T may require the payment of past due sums in the amount of
$1.2 million. An additional sum of $3.6 million was the subject of dispute
prior to the acquisition of CNSI by the Company and is the subject of an
indemnification claim previously asserted.
36
<PAGE>
Schedule 3(g)
No Material Adverse Change
The termination of certain telecommunication services by AT&T described more
fully in Schedule 3(e) may have adverse implications, although as of the daet
of this Agreement, it is the opinion of management of the Company that
alternate sources of service will result in increased profit margins.
37
<PAGE>
Schedule 3(h)
Litigation
1. D. Faye Manghir v. AMNEX, Inc. and American Network Exchange, Inc.,
Index No. 603399/97, Supreme Court of the State of New York
On July 2, 1997, D. Faye Manghir, the holder of a 50% equity interest in the
joint venture company formed by Community Network Services, Inc., MicroTel
Communications Corp. and the Company (which holds the remaining 50% equity
interest), filed suit against the Company in the Supreme Court of the state of
New York. The suit alleges, among other things, that the Company made certain
misrepresentations and committed certain breaches under the joint venture
agreement among the parties, and seeks rescission of such agreement,
compensatory damages in the sum of $10,000.00, punitive damages in the sum of
$25,000,000, and attorneys' fees. The Company filed a motion to dismiss or in
the alternative to stay the proceeding pending arbitration and also a reply to
the plaintiff's response. Plaintiff has offered to settle this matter and the
Company is evaluating the offer.
2. Keystone Corporation, Coastal Telecom Payphone Co., Inc., BEK Tel.
Inc., Garden State Telephone Installation & Service Co., Inc., National
Telecom USA, Inc., National Telecom Hospitality USA, Inc. and Brian E.
King v. AMNEX, Inc., American Network Exchange, Inc., Crescent Public
Communications Inc. and American Hotel Exchange, Inc., Index No.
97/604764, Supreme Court o f the State of New York
On September 25, 1997, Brian King and his affiliates, National Telecom USA,
Inc., The Keystone Corporation, Coastal Telecom Payphone Company, Inc., BEK
Tel, Inc., Garden State Telephone Installation & Service Co., Inc. and
National Telecom Hospitality USA (collectively "National") filed suit against
the Company and its subsidiaries, American Network Exchange, Inc. ("ANWI"),
Crescent Public Communications Inc. ("Crescent") and American Hotel Exchange,
Inc. alleging breaches of various contracts, negligence, misappropriation of
trade secrets, conversion of various assets, fraud, negligent
misrepresentations and promissory estoppel, and seeking rescission of certain
claims, specific performance of other claims, damages in the amount of
$6,300,000, punitive damages and attorneys' fees. On September 30, 1997, the
Company and National reached an agreement of settlement of certain of the
claims. Pursuant to this settlement, on September 30, 1997, the Company paid
National $1,000,000 in cash and delivered a note in the principal amount of
$840,000 (the "National Note"). Thereafter, the Company filed a motion to
dismiss and compel arbitration or, in the alternative, to stay pending
arbitration and also a reply to plaintiffs' response.
The plaintiffs also attempted to obtain a temporary restraining order and then
a permanent injunction to stop the Company from (i) reducing temporarily their
weekly payments to reflect accrued billing and related interest costs
associated with their traffic and (ii) increasing the charge for the
underlying unbundled services the Company provides for them. The TRO was
38
<PAGE>
denied after oral argument. To date, no decision has been made on the
permanent injunction.
3. Robert A. Rowland vs. AMNEX, Inc. and Capital Network System, Inc.
("CNSI"), No. 97-07955, District Court of Travis County, Texas
In connection with the Company's June 1996 acquisition of Capital Network
System, Inc. ("CNSI"), CNSI issued a promissory note in favor of Robert A.
Rowland (the "Rowland Note"), a principal shareholder of the Company, in the
principal amount of $1,197,700 payable on July 31, 1997, with interest due on
the unpaid principal balance at a rate of 10.5% per annum. On July 11, 1997, Mr.
Rowland filed this suit. He assets several causes of action against the Company,
including enforcement of an alleged settlement agreement regarding
indemnification claims, and seeks damages in the amount of the principal and
interest due under the Rowland Note, attorneys' fees and exemplary damages in an
unstated amount. The causes of action asserted by Mr. Rowland against CNSI
relate to monies allegedly due under a consulting agreement, and damages claimed
include attorneys' fees. The Company is planning to appeal the denial of its
motion to compel arbitration and plea to abate the action and has asserted as an
affirmative defense a fraud claim against Mr. Rowland.
4. Derivative Claims Threatened by Robert A. Rowland
On August 11, 1997, the Company received a letter from counsel to Mr. Rowland
which demanded that the Board of Directors conduct an investigation into certain
matters, specifically (i) the propriety of certain transactions with Mr. Galesi
and (ii) possible mismanagement of the Company. Counsel to Mr. Rowland demanded
that suit be brought against any officer or Director of the Company for
wrongdoing, fraud, breach of fiduciary duty, self dealing, gross mismanagement
or under any other theory of liability and further stated that if his demand is
refused, Mr. Rowland will take appropriate action, including possibly a
shareholder's derivative action. On August 29, 1997, the Company advised counsel
to Mr. Rowland that the outside Directors of the Company have been requested to
investigate the assertions made.
5. Arbitration Award
A number of disputes between the Company and John Kane, a former employee, were
decided by an arbitration panel on December 8, 1997. The Company expects that
Mr. Kane will take steps to have his award in the amount of $138,704.11
confirmed by a court.
6. Dolphin USA, Inc. v. Capital Network System, Inc. and American Network
Exchange, Inc., Cause No. 96-49931, District Court of Harris County,
Texas
On September 30, 1996, Dolphin USA, Inc. ("Dolphin") brought suit against the
Company's affiliates ANEI and CNSI. The suit is based primarily on an alleged
breach of contract for the provision of long distance service. Dolphin has
requested damages in the amount of approximately $2,000,000. ANEI and CNSI have
counterclaimed for the $30,000 unpaid balance of a promissory note, which claim
is undisputed. The parties are currently engaged in discovery and the case is
currently scheduled for mediation in early February 1998 and trial in
39
<PAGE>
April 1998.
7. Midcom Communications, Inc. v. Fulfillment Enterprises, Inc. and
Capital Network System, Inc., Arbitration Hearings, Case No. 75 199 257
96
On July 24, 1997, Midcom Communications, Inc. filed a lawsuit against
Fulfillment Enterprises, Inc. ("FEI"), a CNSI subsidiary which AMNEX did not
acquire, and CNSI. Midcom alleges CNSI is jointly and severally liable for
monies due for services provided to FEI by Midcom. Midcom claims that FEI
assigned all of its obligations under a contract between Midcom and FEI to CNSI,
an alleged "affiliate" of FEI, or, alternatively, that FEI and CNSI were a
single business enterprise thereby making CNSI liable for the outstanding
invoices, totaling about $200,000.00. CNSI has filed a general denial.
8. Scorpion Enterprises, Inc. d/b/a the Wine Cellar, USA Car Rental, Auto
Security & Sound and LA Dam Limo v. Coin-Tel Communications, National
Telecom USA, Inc., Coastal Telecom Payphone, Inc., John Doe, Richard
Roe, ABC Company and DEF Corp., Docket No. UNN-L-5628-97, Superior
Court of New Jersey Law Division: Union County
Crescent acquired the assets of Coastal Telecom Payphone, Inc. ("Coastal") in
1996. This is a suit for recovery of back commissions in the total amount of
$41,000.00 allegedly owed by Coastal. The alleged liability both predates and
postdates the closing of the Coastal/Crescent transactions. To date, the
Company has not been properly served with this lawsuit.
9. James Bruen, on his own behalf, and on behalf of all persons similarly
situated, and on behalf of the general public v. Asia Pacific Telecom,
National Business Exchange, Inc., Pacific Bell, MCI Communications
Corporation and Docs I through XX. No. 985470, Superior Court of the
State of California, County of San Francisco.
NBE provides billing and collection services for various telecommunications
companies based on information provided by those companies. This is a class
action suit for injunction, restitution and other relief filed against NBE and
certain other parties concerning the wrongful billing of charges (a total of
$59.85) for Internet services, which charges the Plaintiff states were not
properly authorized. Plaintiff alleges a violation of the Consumer Legal
Remedies Act, unfair business practices, intentional misrepresentation, and
negligent misrepresentation. The only prayer for judgment affecting the Company
is that NBE be enjoined from seeking to collect monies from members of the class
on behalf of Asia Pacific, its former client.
10. Keith Maydak, as assignee for Zankle Worldwide Telecom Group, Inc.
(d/b/a Mr. Gickles, Inc.) v. American Network Exchange, Inc., Case No.
1309 C.D. 1996, Court of Common Pleas of McKeon County, Pennsylvania,
Civil Division
ANEI entered into a contract to provide telecommunications services with a
company doing business as Mr. Gickles, Inc. The Company's fraud department
determined that there were massive fraud on the account. The contractual
relationship was terminated and no additional commissions were paid. Some years
later, Keith Maydak, a former office of Mr. Gickles,
40
<PAGE>
filed suit against ANEI in Pennsylvania. The initial claim made in the lawsuit
was for $6,883.94. However, Mr. Maydak has now increased his claim to $1
million. Eventually, the Company prevailed on a motion to dismiss. Mr. Maydak
has appeal the dismissal.
11. Pennsylvania Public Commission ("PUC"), Informan Investigation Number
97.0145
In the third quarter of 1997, the PUC initiated an informan investigation into
two limited aspects of the Company's operator services operations in that state.
In response, ANEI has provided certain information and voluntarily ceased
charging a set use fee on certain local exchange carrier-owned payphones. Given
its voluntary actions, the Company does not expect that resolution of the
investigation will have a material adverse effect on its operations.
12. Default
Letter dated January 13, 1998 from Greenstein, DeLorme & Luchs, P.C., counsel to
the property manager to AMNEX, Inc., as tenant, in regard to leased premises
located at 1220 L Street, N.W., Washington, D.C. (the "Washington Site"). The
letter states that a suit has been instituted in the Landlord and Tenant Branch
of the Civil Division of the Superior Court of the District of Columbia. AMNEX
no longer maintains assets or operations at the Washington Site. On an
accelerated basis, the total sum of payments due under the lease is
approximately $15,00.
13. Summit Capital Corp. v Capital Network, Inc. No. CV98-00188, Superior
Court of the State of Arizona
The suit is for all default remedies available under an equipment lease,
including the sum of $236,148 for lease payments on an accelerated basis.
41
<PAGE>
Schedule 3(i)
Patents, Copyrights, etc.
None.
42
<PAGE>
Schedule 3(j)
See Schedules 3(e) and 3(g)
43
<PAGE>
Schedule 3(k)
Tax Returns
The following tax returns have not yet been filed. The federal tax return is
currently being reviewed by Ernst & Young and the state tax returns will be
filed upon completion of the E&Y review. During 1996 estimated federal and state
payments were made and hence no material liability exists related to these
unfiled tax returns.
1996 Income Tax Returns
AMNEX, Inc.
Florida
Federal
New York
CNSI and ANEI:
All states except the following states for which we are not required to file:
South Dakota Alaska
Delaware Washington
Wyoming
Crescent:
New Jersey Pennsylvania
New York
AHE:
Alabama New York
California Oregon
Colorado Pennsylvania
Georgia Tennessee
Idaho Utah
Kentucky Virginia
Louisiana
Massachusetts
Mississippi
New Jersey
NBE:
California,Texas
44
<PAGE>
Schedule 3(l)
Certain Transactions
1. Loan of $1,000,000 from Francesco Galesi to AMNEX, Inc. on November 26,
1997
2. Mr. Galesi caused an existing lender to AMNEX to advance an additional
$500,000 by having an entity controlled by Mr. Galesi guaranty the
additional $500,000.
45
<PAGE>
Schedule 3(q)
Permits; Compliance
See item 11 on Schedule 3(h)
46
<PAGE>
Schedule 3(r)
Environmental Matters
None.
47
<PAGE>
Schedule 3(s)
Title to Property
1,000 shares of common stock of Capital Network System, Inc. were
pledged to Sirrom Capital Corporation on June 28, 1996 as security for a
$2,000,000 loan.
48
<PAGE>
Schedule 4(d)
Use of Proceeds
General Working Capital Needs of AMNEX, Inc.
49
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATION
See Exhibit 3.1 to the Report on Form 8-K of which this Exhibit 10.1 forms a
part for the Certificate of Designation.
50
<PAGE>
EXHIBIT B
FORM OF INVESTOR WARRANT
and
FORM OF FEE WARRANT
-------------------
See Exhibit 10.3 to the Report on Form 8-K of which this Exhibit 10.1 forms a
part for the form of Investor Warrant.
See Exhibit 10.4 to the Report on Form 8-K of which this Exhibit 10.1 forms a
part for the form of Fee Warrant.
51
<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
-----------------------------
See Exhibit 10.2 to the Report on Form 8-K of which this Exhibit 10.1 forms a
part for the Registration Rights Agreement.
52
<PAGE>
EXHIBIT D
OPINION OF COMPANY COUNSEL
--------------------------
January __, 1998
Investor
Address
Re: Securities Purchase Agreement, dated January __, 1998, among
AMNEX, Inc. and the Investor named therein.
Ladies and Gentlemen:
We have acted as special counsel for AMNEX, Inc., a New York
corporation (the "Company"), in connection with the transactions contemplated
by the Securities Purchase Agreement, dated January __, 1998 among the Company
and the investors named therein (the "Securities Purchase Agreement"). This
opinion is furnished to you pursuant to Section 7(h) of the Securities
Purchase Agreement.
We have examined originals or copies of the following documents (the
"Documents"):
(i) the Securities Purchase Agreement;
(ii) the form of Stock Purchase Warrant to be issued by the Company
in connection with the Securities Purchase Agreement (the "Warrant");
(iii) the Registration Rights Agreement, dated as of January __, 1998
by and among the Company and the investors set forth therein (the
"Registration Rights Agreement"); and
(iv) the Certificate of Amendment to the Certificate of Incorporation
of the Company, filed with the New York Secretary of State on January __, 1998
(the "Certificate of Designation").
Unless otherwise defined herein, terms defined in the Documents shall have the
same meanings herein.
The opinions hereinafter expressed are subject to the following
further qualifications and exceptions:
(1) The effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws relating to or affecting the
rights of creditors generally, including, without
53
<PAGE>
limitation, laws relating to fraudulent transfers or conveyances, preferences
and equitable subordination.
(2) 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
unreasonable.
(3) We express no opinion as to the effect on the opinions expressed
herein of (a) the compliance or non-compliance of any party to the Documents
(other than the Company) with any laws or regulations applicable to it, or (b)
the legal or regulatory status or the nature of the business of any such
party.
(4) We express no opinion as to compliance by the Company with any:
(i) state securities law; (ii) antitrust law; (iii) patent law; (iv)
environmental law; and (v) bankruptcy law.
(5) The effect of judicial decisions which may permit the
introduction of extrinsic evidence to supplement the terms of the Documents or
to aid in the interpretation of the Documents.
(6) The enforceability of provisions of the Documents providing for
indemnification or contribution, to the extent such indemnification or
contribution is against public policy.
(7) The enforceability of provisions of the Documents imposing or
which could be construed as effectively imposing a penalty.
(8) The enforceability of any provision of the Documents which
purports to establish a particular court as the forum for the adjudication of
any controversy relating to the Documents.
Based upon and subject to the foregoing, we are of the opinion that:
(a) The Company is a corporation validly existing as a corporation
and in good standing under the laws of the State of New York, with full
corporate power and authority to conduct its business as described in the
Company's Annual Report on Form 10-K for its fiscal year ended December 31,
1996, as amended, and is duly qualified as a foreign corporation to do
business in each jurisdiction in which the failure to so qualify would have a
Material Adverse Effect.
(b) As of the date hereof, the authorized capital stock, of the
Company consists of 70,000,000 shares of Common Stock, $.001 par value, of
which ________ shares are issued and outstanding and (b) 5,000,000 shares of
Preferred Stock, $.001 par value, of which ___________ shares are issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. No shares of Common Stock or Preferred Stock are
subject to
54
<PAGE>
preemptive rights or any other similar rights of the stockholders of the Company
pursuant to any agreement by which the Company is bound. Except as disclosed in
in the Company's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q,
as filed with the Securities and Exchange Commission, or as set forth on
Schedule 3(c) to the Securities Purchase Agreement, (x) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries except as disclosed in the Securities Purchase Agreement, and (y)
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of its or their securities under
the 1933 Act (except the Registration Rights Agreement).
(c) Except as disclosed in the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and Quarterly Reports on Form 10-Q for
the periods ended June 30, 1997 and September 30, 1997, as the same may have
been amended, or as set forth on Schedule 3(h) to the Securities Purchase
Agreement, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body or any governmental agency or
self-regulatory organization pending or threatened against or affecting the
Company or any of its subsidiaries, wherein an unfavorable decision, ruling or
finding would have a Material Adverse Effect or which would adversely affect
the validity or enforceability of or the authority or ability of the Company
to perform its obligations under the Documents.
(d) The execution, delivery and performance of and compliance with
the Documents and the issuance of the Preferred Shares, the Warrants, and the
Registrable Securities (and the Common Stock issuable upon conversion thereof)
have not resulted and will not result in any violation of, conflict with, or
constitute a default under (or an event which with the passage of time or the
giving of notice or both would constitute a default under), any contract,
agreement, instrument, judgment or decree binding upon the Company, which,
individually or in the aggregate, would have a Material Adverse Effect.
55
<PAGE>
(e) The Company has the corporate power and authority to execute and
deliver, and to perform and observe the provisions of, the Documents, and to
issue, sell and deliver the Preferred Shares, the Warrants and the Registrable
Securities.
(f) The Documents have each been duly authorized, executed and
delivered by the Company. The Documents constitute valid and binding obligations
of the Company enforceable against the Company in accordance with their
respective terms.
(g) There are no preemptive rights required by the New York Business
Corporation Law to subscribe for or purchase Common Stock or Preferred Stock.
There are no preemptive rights to subscribe for or purchase any Preferred
Stock or Common Stock pursuant to the Company's Certificate of Incorporation
or Bylaws.
(h) The Preferred Shares have each been duly authorized. Upon payment
and delivery in accordance with the Securities Purchase Agreement, the
Preferred Shares will be validly issued, fully paid and nonassessable.
(i) The Warrants have each been duly authorized. Upon payment and
delivery in accordance with the terms thereof, the Warrants will be validly
issued, fully paid and nonassessable.
(j) The Company has reserved _______ [1.75 times] shares of Common
Stock for issuance with respect to the conversion of the Preferred Shares or the
exercise of the Warrants. Such shares of Common Stock have been duly authorized
and, when issued and delivered upon conversion of the Purchased Shares in
accordance with the Certificate of Designation, and upon exercise of the
Warrants in accordance with the terms thereof, will be validly issued, fully
paid and nonassessable.
(k) The Company meets the eligibility requirements for the use of Form
S-3 for the registration of the Conversion Shares and the Warrant Shares.
(l) The execution, delivery and performance of the Documents by the
Company are not in violation of its certificate of incorporation or by-laws.
(m) The sale and issuance of the Preferred Shares in accordance with
the terms of the Securities Purchase Agreement, and the Warrants in accordance
with the terms thereof, will not violate any federal or New York statute or
regulation applicable to the Company.
(n) No registration with, consent or approval of, notice to, or other
action by, any governmental entity is required on the part of the Company for
the execution, delivery or performance by the Company of the Documents, or for
the issuance and sale by the Company of the Preferred Shares and the Warrants,
or, if required, such registration has been made, such consent or approval has
been obtained, such notice has been given or such other appropriate action has
been taken.
56
<PAGE>
(o) The offering and sale of the Preferred Shares and the Warrants
are exempt from registration under the Securities Act of 1933, as amended.
Very truly yours,
57
<PAGE>
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of December
24, 1997, by and among AMNEX, Inc., a New York corporation, with its
headquarters located at 6 Nevada Drive, Lake Success, New York 11042 (the
"Company"), and each of the undersigned (together with their respective
affiliates and any assignee or transferee of all of their respective rights
hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) shares of its Series M
Convertible Preferred Stock (the "Preferred Stock") that are convertible into
shares (the "Conversion Shares") of the Company's common stock, par value $.001
per share (the "Common Stock"), upon the terms and subject to the limitations
and conditions set forth in the Certificate of Designations, Rights,
Preferences, Privileges and Restrictions with respect to the Preferred Stock
(the "Certificate of Designation") and (ii) warrants (the "Warrants") to acquire
30,000 shares of Common Stock issued to the Initial Investors and 15,000 shares
of Common Stock issued to Tanner Unman Securities, Inc. (collectively, the
"Warrant Shares"), upon the terms and conditions and subject to the limitations
and conditions set forth in the Warrants dated December 24, 1997; and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investors" means the Initial Investors and any
transferee or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer
to a registration effected by preparing and filing a Registration Statement or
Statements in compliance with the
<PAGE>
1933 Act and pursuant to Rule 415 under the 1933 Act or any successor rule
providing for offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement by the
United States Securities and Exchange Commission (the "SEC").
(iii) "Registrable Securities" means the Conversion
Shares and Warrant Shares issued or issuable and any shares of capital stock
issued or issuable with respect to any of the foregoing as a result of any stock
split, stock dividend, recapitalization, reclassification, exchange,
combination, merger, consolidation, distribution or similar event or otherwise.
(iv) "Registration Statement" means a registration
statement of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to the date which is twenty (20) days after the date of the Closing
under the Securities Purchase Agreement (the "Closing Date"), file with the SEC
a Registration Statement or Registration Statements (as is necessary) on Form
S-3 (or, if Form S-3 is not then available, on such form of Registration
Statement as is then available to effect a registration of the Registrable
Securities, subject to the consent of the Initial Investors, which consent will
not be unreasonably withheld) covering the resale of the Registrable Securities,
which Registration Statement(s), to the extent allowable under the 1933 Act and
the Rules promulgated thereunder (including Rule 416), shall state that such
Registration Statement(s) also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon conversion of the Preferred
Stock and exercise of the Warrants (i) to prevent dilution resulting from stock
splits, stock dividends or similar transactions or (ii) by reason of changes in
the Conversion Price of the Preferred Stock in accordance with the terms thereof
or the Exercise Price of the Warrants in accordance with the terms thereof. The
number of shares of Common Stock initially included in such Registration
Statement shall be no less than two (2) times the sum of the number of
Conversion Shares and Warrant Shares that are then issuable upon conversion of
the Preferred Stock and the exercise of the Warrants without regard to any
limitation on the Investor's ability to convert the Preferred Stock or exercise
the Warrants.
b. Underwritten Offering. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority-in-interest of the Registrable
Securities subject to such underwritten offering shall have the right to select
one legal counsel and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company.
c. Payments by the Company. The Company shall use its best
efforts to obtain
<PAGE>
effectiveness of the Registration Statement as soon as practicable. If (i) the
Registration Statement(s) covering the Registrable Securities required to be
filed by the Company pursuant to Section 2(a) hereof is not declared effective
by the SEC within ninety (90) days after the Closing Date or if, after the
Registration Statement has been declared effective by the SEC, sales cannot be
made pursuant to the Registration Statement, or (ii) the Common Stock is not
listed or included for quotation on the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange (the
"NYSE") or the American Stock Exchange (the "AMEX") after being so listed or
included for quotation, then the Company will make payments to the Investors in
such amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity). The Company shall pay to each holder of the Preferred Stock or
Registerable Securities an amount equal to the then outstanding principal amount
of the Preferred Stock (and, in the case of holders of Registerable Securities,
the principal amount of Preferred Stock from which such Registerable Securities
were converted) ("Aggregate Share Price") multiplied by the Applicable
Percentage (as defined below) times the sum of: (i) the number of months
(prorated for partial months) after the end of such 90-day period and prior to
the date the Registration Statement is declared effective by the SEC; provided,
however, that there shall be excluded from such period any delays which are
solely attributable to changes required by the Investors in the Registration
Statement with respect to information relating to the Investors, including,
without limitation, changes to the plan of distribution, or to the failure of
the Investors to conduct their review of the Registration Statement pursuant to
Section 3(h) below in a reasonably timely manner; (ii) the number of months
(prorated for partial months) that sales cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement, but excluding Allowed
Delays (as defined below)); and (iii) the number of months (prorated for partial
months) that the Common Stock is not listed or included for quotation on the
Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after
the Registration Statement has been declared effective. The term "Applicable
Percentage" means two hundredths (.02) with respect to the first thirty (30)
days of any calculation under clause (i) of the sentence in which the term is
used, and three hundredths (.03) for any other purpose. (For example, if the
Registration Statement becomes effective one (1) month after the end of such
90-day period, the Company would pay $20,000 for each $1,000,000 of Aggregate
Share Price. If thereafter, sales could not be made pursuant to the Registration
Statement for an additional period of one (1) month, the Company would pay an
additional $30,000 for each $1,000,000 of Aggregate Share Price.) Such amounts
shall be paid in cash or, at each Investor's option, may be added to the
principal amount of the Preferred Stock and thereafter be convertible into
Common Stock at the "Conversion Price" (as defined in the Certificate of
Designation) in accordance with the terms of the Preferred Stock. Any shares of
Common Stock issued upon conversion of such amounts shall be Registrable
Securities. If the Investor desires to convert the amounts due hereunder into
Registrable Securities, it shall so notify the Company in writing within five
(5) business days of the date on which such amounts are first payable in cash
and such amounts shall be so convertible (pursuant to the mechanics set forth in
the Certificate of Designation), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
<PAGE>
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (30) day period.
d. Piggy-Back Registrations. Subject to the last sentence of
this Section 2(d), if at any time prior to the expiration of the Registration
Period (as hereinafter defined) the Company proposes to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall promptly send to each Investor who is entitled
to registration rights under this Section 2(d) written notice of such intention
and of such Investor's rights under this Section 2(d) and, if within twenty (20)
days after the receipt of such notice, such Investor shall so request in
writing, the Company shall include in such Registration Statement all or any
part of the Registrable Securities such Investor requests to be registered,
except that if, in connection with any underwritten public offering for the
account of the Company the managing underwriter(s) thereof shall impose a
limitation on the number of shares of Common Stock which may be included in the
Registration Statement because, in such underwriter(s)' good faith judgment,
marketing or other factors dictate such limitation is necessary to facilitate
public distribution, then the Company shall be obligated to include in such
Registration Statement only such limited portion of the Registrable Securities
with respect to which such Investor has requested inclusion hereunder as the
underwriter shall permit. Unless required by the terms and conditions of
registration rights agreements or arrangements existing on the date hereof (and
of which the Company has made the Initial Investors aware), any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. The Investor may withdraw his request for inclusion, in whole or in
part, at any time prior to the effective date. Notwithstanding anything to the
contrary set forth herein, the registration rights of the Investors pursuant to
this Section 2(d) shall only be available in the event the Company fails to
timely file, obtain effectiveness or maintain effectiveness of the Registration
Statement to be filed pursuant to Section 2(a) in accordance with the terms of
this Agreement.
<PAGE>
e. Eligibility for Form S-3. The Company represents and
warrants that it meets and will meet the registrant eligibility and transaction
requirements for the use of Form S-3 for registration of the sale by the Initial
Investors and any other Investors of the Registrable Securities and the Company
has filed and shall file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for the use of
Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC
not later than twenty (20) days after the Closing Date, a Registration Statement
with respect to the Registrable Securities, and shall use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing, and keep the Registration
Statement effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable Securities have been
sold and (ii) the date on which the Registrable Securities (in the opinion of
counsel to the Initial Investors) may be sold without restriction (including
without limitation as to volume by each holder thereof) without registration
under the 1933 Act (the "Registration Period"), which Registration Statement
(including any amendments or supplements thereto and prospectuses contained
therein) shall not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein, or necessary to make the
statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof as set forth in the Registration Statement. In the
event the number of shares available under a Registration Statement filed
pursuant to this Agreement is insufficient to cover all of the Registrable
Securities, the Company shall amend the Registration Statement, or file a new
Registration Statement (on the short form available therefore, if applicable),
or both, so as to cover all of the Registrable Securities, in each case, as soon
as practicable, but in any event within fifteen (15) business days after the
necessity therefor arises (based on the market price of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. The provisions of Section 2(c) above shall be applicable with
respect to such obligation, with the ninety (90) days running from the day after
the date on which the Company reasonably first determines (or reasonably should
have determined) the need therefor.
<PAGE>
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel (i) promptly after the same is prepared and filed with the SEC one copy
of the Registration Statement and any amendment(s) thereto, all documents
incorporated by reference and all exhibits, each preliminary prospectus and
prospectus and each amendment or supplement thereto, and, in the case of the
Registration Statement, each letter written by or on behalf of the Company to
the SEC or the staff of the SEC, and each item of correspondence from the SEC or
the staff of the SEC, in each case relating to such Registration Statement
(other than any portion of any thereof which contains information for which the
Company has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of the Registration Statement or any
post-effective amendment or supplement. The Company will promptly respond to any
and all comments received from the SEC, with a view towards causing any
Registration Statement or any amendment thereto to be declared effective by the
SEC as soon as practicable and shall promptly file an acceleration request as
soon as practicable following the resolution or clearance of all SEC comments
or, if applicable, following notification by the SEC that the Registration
Statement or any amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement
under such other securities or "blue sky" laws of such jurisdictions in the
United States any Investor reasonably requests, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, or (c) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any Registrable Securities for sale under the securities or
"blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceedings for such
purpose.
e. In the event Investors who hold a majority-in-interest of
the Registrable Securities being offered in the offering select underwriters for
the offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
<PAGE>
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event as a
result of which the prospectus included in the Registration Statement, as then
in effect, includes an untrue statement of a material fact or omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and promptly prepare a supplement or
amendment to the Registration Statement to correct such untrue statement or
omission, and deliver such number of copies of such supplement or amendment to
each Investor as such Investor may reasonably request; provided that, for not
more than thirty (30) consecutive trading days (or an aggregate of forty five
(45) trading days) in any twelve (12) month period, the Company may delay the
disclosure of material non-public information concerning the Company (as well as
prospectus or Registration Statement updating) if the Board of Directors of the
Company determines in good faith that in its reasonable business judgment such
disclosure would interfere in any material respect with any financing,
acquisition, corporate reorganization or other transaction or development
involving the Company that in the reasonable good faith business judgment of
such board is a transaction or development that is or would be material to the
Company and, in the opinion of counsel to the Company, such disclosure is not
otherwise required (an "Allowed Delay"); provided, further, that the Company
shall promptly (i) notify the Investors in writing of the existence of (but in
no event, without the prior written consent of an Investor, shall the Company
disclose to such investor any of the facts or circumstances regarding) material
non-public information giving rise to an Allowed Delay and (ii) advise the
Investors in writing to cease all sales under the Registration Statement until
the end of the Allowed Delay. Upon expiration of the Allowed Delay, the Company
shall again be bound by the first sentence of this Section 3(f) with respect to
the information giving rise thereto.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat or any proceeding
for such purpose.
h. The Company shall permit each Investor and a single firm of
counsel designated by the Initial Investors who hold a majority-in-interest of
the Registrable Securities being offered to review and comment upon the
Registration Statement and all amendments and supplements thereto (as well as
all requests for acceleration or effectiveness thereof) within a reasonable
period of time prior to their filing with the SEC, and not file any document in
a form to which such counsel reasonably objects and will not request
acceleration of the Registration Statement without prior approval of such
counsel, which consent shall not be unreasonably withheld. The sections of the
Registration Statement covering information with respect to the Investors, the
Investor's beneficial ownership of securities of the Company or the Investors
intended method of disposition of Registrable Securities shall conform to the
information provided to the Company by each of the Investors.
<PAGE>
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish,
on the date that Registrable Securities are delivered to an underwriter, if any,
for sale in connection with the Registration Statement or, if such securities
are not being sold by an underwriter, on the date of effectiveness thereof (i)
an opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of
<PAGE>
information concerning an Investor provided to the Company unless (i) disclosure
of such information is necessary to comply with federal or state securities
laws, (ii) the disclosure of such information is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (iii) the release of
such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
notice to such Investor prior to making such disclosure, and allow the Investor,
at its expense, to undertake appropriate action to prevent disclosure of, or to
obtain a protective order for, such information.
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the designation and
quotation, of all the Registrable Securities covered by the Registration
Statement on the Nasdaq or, if not eligible for the Nasdaq, on the Nasdaq
SmallCap and, without limiting the generality of the foregoing, to arrange for
at least two market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities. The Company shall pay all fees and expenses in connection with
satisfying its obligations under this Section 3(m).
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within two (2) business
days after a Registration Statement which includes Registrable Securities is
ordered effective by the SEC, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit 1 and an opinion of such counsel in the form
attached hereto as Exhibit 2.
p. The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to the Registration Statement.
<PAGE>
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least seven (7)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. In the event Investors holding a majority-in-interest of
the Registrable Securities being registered determine to engage the services of
an underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations (only with respect to violation which occur in reliance upon and in
conformity with information furnished in writing to the Company by such Investor
expressly for use in the Registration Statement for such underwritten public
offering), with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements in
usual and customary form entered into by the Company, (ii)
<PAGE>
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements, and (iii) agrees to pay its pro rata share of
all underwriting discounts and commissions and any expenses in excess of those
payable by the Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will
indemnify, hold harmless and defend (i) each Investor who holds such Registrable
Securities, (ii) the directors, officers, partners, employees, agents and each
person who controls any Investor within the meaning of the 1933 Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities, judgments, fines, penalties or charges, as well as reasonable
costs, attorneys' fees or expenses (collectively, together with actions,
proceedings or inquiries by any regulatory or self-regulatory organization,
whether commenced or threatened, in respect thereof, "Claims") to which any of
them may become subject insofar as such Claims arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of a material fact in a
Registration Statement or any post-effective amendment thereto or in any filing
made in connection with the qualification of the offering under the securities
or other "blue sky" laws of any jurisdiction in which Registrable Securities are
offered ("Blue Sky Filings") or the omission or alleged omission to state
therein a material fact required to be stated or necessary to make the
statements therein, in light of the circumstances under which the statements
therein were made, not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6(c) with respect to the
<PAGE>
number of legal counsel, the Company shall reimburse the Indemnified Person,
promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c) hereof; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "Indemnified Party"),
against any Claim to which any of them may become subject, under the 1933 Act,
the 1934 Act or otherwise, insofar as such Claim arises out of or is based upon
any Violation by such Investor, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished to the Company by such Investor expressly for use
in connection with such Registration Statement; and subject to Section 6(c) such
Investor will reimburse any legal or other expenses (promptly as such expenses
are incurred and are due and payable) reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Agreement (including this Section 6(b) and Section 7) for only that amount
of a Claim as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected
<PAGE>
on a timely basis in the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding), such
Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is
to be made against any indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof, and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the fees and expenses to be paid by the indemnifying party, if, in
the reasonable opinion of counsel retained by the indemnifying party, the
representation by such counsel of the Indemnified Person or Indemnified Party
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person or Indemnified Party and any
other party represented by such counsel in such proceeding. The indemnifying
party shall pay for only one separate legal counsel for the Indemnified Persons
or the Indemnified Parties, as applicable, and such legal counsel shall be
selected by Investors holding a majority-in-interest of the Registrable
Securities included in the Registration Statement to which the Claim relates, if
the Investors are entitled to indemnification hereunder, or the Company, if the
Company is entitled to indemnification hereunder, as applicable. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is actually prejudiced in its
ability to defend such action. The indemnifying party shall keep the Indemnified
Party or Indemnified Person fully apprised at all times as to the status of the
defense or any settlement negotiations with respect thereto. No indemnifying
party shall be liable for any settlement of any action, claim or proceeding
effected without its written consent; provided, however, that the indemnifying
party shall not unreasonably withhold, delay or condition its consent. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
d. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
<PAGE>
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
<PAGE>
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company, each
of the Initial Investors (to the extent such Initial Investor still owns
Registrable Securities) and Investors who hold a majority interest of the
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms hereof must be in writing
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five (5) days after being placed
in the mail, if mailed by regular U.S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
<PAGE>
If to the Company:
AMNEX, Inc.
6 Nevada Drive
Lake Success, New York 11042
Attention: Chief Executive Officer
Facsimile: (203) 629-8959
With copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Joseph W. Bartlett, Esq.
Facsimile: (212) 468-7900
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement. Each party
shall provide five (5) days prior notice to the other party of any change in
address, phone number or facsimile number.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of New York applicable to agreements
made and to be performed entirely within such State without regard to the
principles of conflicts of laws. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof. The parties hereto hereby submit to the exclusive jurisdiction of the
United States Federal Courts located in New York located in the Southern
District of New York with respect to any dispute arising under this Agreement or
the transactions contemplated hereby.
e. This Agreement and the Securities Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement and the
Securities Purchase Agreement supersede all prior agreements and understandings
among the parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
<PAGE>
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock then outstanding have been
converted into for Registrable Securities.
k. The language used in this Agreement will be deemed to be
the language chosen by the parties to express their mutual intent, and no rules
of strict construction will be applied against any party.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial
Investors have caused this Agreement to be duly executed as of the date first
above written.
AMNEX, INC.
By:--------------------
Name:
Title:
FOURTEEN HILL CAPITAL, L.P.
By:--------------------
Name:
Title:
<PAGE>
ATTACHMENTS TO:
REGISTRATION RIGHTS AGREEMENT
dated as of January 26, 1998
AMNEX, Inc.
and
Fourteen Hill Capital, L.P.
Attachments:
- - Schedule of Differences
- - Exhibit 1 - Irrevocable Instruction to Transfer Agent
- - Exhibit 2 - Form of Legal Opinion to Transfer Agent
<PAGE>
SCHEDULE OF DIFFERENCES
Material differences between attached Registration Rights Agreement, dated as of
January 26, 1998, between AMNEX, Inc. and Fourteen Hill Capital, L.P. and
Registration Rights Agreement dated as of December 24, 1997, between AMNEX, Inc.
and Pangaea Fund Ltd.
Initial Investors
- -----------------
Pangaea Fund Ltd.
Shares of Preferred Stock Issued
- --------------------------------
1,000
Warrants Issued to Initial Investors
- ------------------------------------
40,000
Warrants Issued to Tanner Unman Securities, Inc.
- ------------------------------------------------
20,000
Expenses of Registration
- ------------------------
The Company is responsible for the reasonable fees and disbursements of one
counsel selected by the Initial Investors in connection with the preparation of
the Registration Statement.
<PAGE>
EXHIBIT 1
IRREVOCABLE INSTRUCTION
TO
TRANSFER AGENT
[Company Letterhead]
[Date]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and
direction to you (1) to transfer or re-register (or at the holders request to
reissue to the holder thereof without any restrictive legend) the certificates
for the shares of Common Stock, par value $.0001 per share (the "Common Stock"),
of AMNEX, Inc., a New York corporation (the "Company"), represented by
certificate numbers ____ for an aggregate of _____ shares (the "Outstanding
Shares") of Common Stock presently registered in the name of ________________
(the "Investor") (which shares were previously issued upon conversion of the
Preferred Shares (as hereinafter defined) or exercise of the Warrants (as
hereinafter defined)), upon surrender of such certificates to you,
notwithstanding the legend appearing on such certificates, (2) to issue shares
(the "Conversion Shares") of Common Stock to or upon the order of the registered
holder from time to time of shares of Series M Convertible Preferred Stock of
the Company (the "Preferred Shares") upon surrender to you of a properly
completed and duly executed Notice of Conversion notwithstanding the legend
appearing on such certificates and (3) to issue shares (the "Warrant Shares") of
Common Stock to or upon the order of the registered holder from time to time of
the Warrants of the Company (the "Warrants") upon surrender to you of a properly
completed and duly executed Exercise Agreement and such Warrants notwithstanding
the legend appearing on such Warrants. The transfer or re-registration of the
certificates for the Outstanding Shares by you should be made at such time as
you are requested to do so by the record h older of the Outstanding Shares. The
certificate issued upon such transfer or re-registration should be registered in
such name as requested by the holder of record of the certificate surrendered to
you and should not bear any legend which would restrict the transfer of the
shares represented thereby. In addition, you are hereby directed to remove any
stop-transfer instruction relating to the Outstanding Shares. Certificates for
the Conversion Shares and Warrant Shares should not bear any restrictive legend
and should not be subject to any stop-transfer restriction.
Pursuant to applicable securities laws or certain agreements
between the Company and the Investor, the Investor may be prohibited during
certain limited periods of time from selling its Outstanding Shares or other
shares of Common Stock issuable upon conversion of the Preferred Shares and
exercise of the Warrant Shares under the Registration Statement; provided,
however, that such Investor may continue to sell such securities pursuant to an
exemption from registration under the Securities Act of 1933, as amended (the
"1933 Act"). The Company may,
<PAGE>
during such periods, deliver a notice to you advising you to refrain from
transferring any Outstanding Shares pursuant to such Registration Statement,
provided that such notice shall not prohibit the transfer of such shares
pursuant to an exemption from registration under the 1933 Act during such
periods.
Contemporaneous with the delivery of this letter, the Company
is delivering to you a letter of Morrison & Foerster LLP as to registration of
the Outstanding Shares and the Conversion Shares under the Securities Act of
1933, as amended.
Should you have any questions concerning this matter, please
contact me.
Very truly yours,
AMNEX, INC.
--------------------------
By:
Title:
Enclosures
cc: [Name of Investor]
<PAGE>
EXHIBIT 2
FORM OF LEGAL OPINION
TO
TRANSFER AGENT
[Date]
[Name and address
of transfer agent]
Re: AMNEX, Inc.
Ladies and Gentlemen:
We are counsel to AMNEX, Inc., a New York corporation (the "Company"),
and we understand that [Name of Investor] (the "Holder") has purchased from the
Company shares of the Company's Series M Convertible Preferred Stock (the
"Preferred Stock") and warrants (the "Warrants") that are convertible or
exercisable into the Company's Common Stock, par value $.001 per share (the
"Common Stock"). The Preferred Stock and Warrants were purchased by the Holder
and the Company pursuant to a Securities Purchase Agreement, dated as of January
__, 1998, between the Holder and the Company (the "Agreement"). Pursuant to a
Registration Rights Agreement, dated as of January __, 1998, between the Company
and the Holder (the "Registration Rights Agreement"), the Company agreed with
the Holder, among other thins, to register the Registrable Securities (as that
term is defined in the Registration Rights Agreement (under the Securities Act
of 1933, as amended (the "Securities Act"), upon the terms provided in the
Registration Rights Agreement, on ________ __, 1998, the Company filed a
Registration Statement on Form S-3 (file No. 333-__________) (the "Registration
Statement") with the Securities and Exchange Commission relating to the
Registrable Securities, which names the Holder as a selling stockholder
thereunder.
[Other introductory language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate language to be included]
Very truly yours,
cc: [Name of investor]
<PAGE>
Exhibit 10.3
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES
PURCHASE AGREEMENT DATED AS OF JANUARY 26, 1998, NEITHER THIS WARRANT
NOR ANY OF SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
Right to
Purchase
30,000
Shares of
Common
Stock, par
value $.001
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, FOURTEEN HILL CAPITAL, L.P.
or its registered assigns, is entitled to purchase from AMNEX, Inc., a New
York corporation (the "Company"), at any time or from time to time during the
period specified in Paragraph 2 hereof, Thirty Thousand (30,000) fully paid
and nonassessable shares of the Company's Common Stock, par value $.001 per
share (the "Common Stock"), at an exercise price of $2.65 per share (the
"Exercise Price"). The term "Warrant Shares," as used herein, refers to the
shares of Common Stock purchasable hereunder. The Warrant Shares and the
Exercise Price are subject to adjustment as provided in Paragraph 4 hereof.
The term Warrants means this Warrant and the other warrants issued pursuant to
that certain Securities Purchase Agreement, dated January 26, 1998, by and
among the Company and the Buyers listed on the execution page thereof (the
"Securities Purchase Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day
at the Company's principal executive offices (or such other office or agency
of the Company as
-1-
<PAGE>
it may designate by notice to the holder hereof), and upon payment to the
Company in cash, by certified or official bank check or by wire transfer for the
account of the Company of the Exercise Price for the Warrant Shares specified in
the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be
issued to the holder hereof or such holder's designee, as the record owner of
such shares, as of the close of business on the date on which this Warrant shall
have been surrendered, the completed Exercise Agreement shall have been
delivered, and payment shall have been made for such shares as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding three (3) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
2. Period of Exercise. This Warrant is exercisable at any time or
from time to time on or after the date on which this Warrant is issued and
delivered pursuant to the terms of the Securities Purchase Agreement and
before 5:00 p.m., New York City time on the fifth (5th) anniversary of the
date of issuance (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued,
fully paid, and nonassessable and free from all taxes, liens, and charges with
respect to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of
Common Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing
of the shares of Common Stock issuable upon exercise of the Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or
-2-
<PAGE>
sale of securities, or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed by it
hereunder, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such action as may
reasonably be requested by the holder of this Warrant in order to protect the
exercise privilege of the holder of this Warrant against dilution or other
impairment, consistent with the tenor and purpose of this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may validly
and legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all the Company's assets.
4. Adjustment Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from
time to time as provided in this Paragraph 4. In the event that any adjustment
of the Exercise Price as required herein results in a fraction of a cent, such
Exercise Price shall be rounded up to the nearest cent.
(a) Dividends, Etc. In case the Company shall at any time
after the date this Warrant is first issued (i) declare a dividend on the
outstanding Common Stock payable in shares of Common Stock or in rights to
acquire shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then, in each such case, the Exercise Price, and the number of Warrant Shares
issuable upon exercise of this Warrant, in effect at the time of the record
date for such dividend or of the effective date of such subdivision or
combination, shall be proportionately adjusted so that the Holder after such
time shall be entitled to receive the aggregate number and kind of shares for
such consideration which, if such Warrant had been exercised immediately prior
to such time at the then-current exercise price, he would have owned upon such
exercise and been entitled to receive by virtue of such dividend, subdivision
or combination. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock dividend,
recapitalization, reorganization, reclassification or otherwise) the shares of
Common Stock acquirable hereunder into a greater number of shares, then, after
the date of record for effecting such subdivision, the Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced.
If the Company at any time combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a smaller number of shares, then, after the date of
record for effecting such combination, the Exercise Price in effect
immediately prior to such combination will be proportionately increased.
(c) Adjustment in Number of Shares. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Paragraph 4, the number
of shares of Common Stock
<PAGE>
issuable upon exercise of this Warrant shall be adjusted by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
(d) Consolidation, Merger or Sale. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all
of the assets of the Company other than in connection with a plan of complete
liquidation of the Company, then as a condition of such consolidation, merger,
sale or conveyance, adequate provision will be made whereby the holder of this
Warrant will have the right to acquire and receive upon exercise of this
Warrant in lieu of the shares of Common Stock immediately theretofore
acquirable upon the exercise of this Warrant, such shares of stock, securities
or assets or any combination thereof receivable by a holder of the number of
shares of Common Stock for which this Warrant might have exercised immediately
prior to such consolidation, merger or sale or conveyance or, at the option of
such holder, cash in the amount of the number of shares of Common Stock
issuable upon exercise of this Warrant multiplied by the lesser of (i) $2.65
or (ii) seventy-five percent (75%) of the fair market value received in such
consolidation, merger, sale or conveyance. In any such case, the Company will
make appropriate provision to insure that the provisions of this Paragraph 4
hereof will thereafter be applicable as nearly as may be in relation to any
shares of stock or securities thereafter deliverable upon the exercise of this
Warrant. The Company will not effect any consolidation, merger or sale or
conveyance unless prior to the consummation thereof, the successor corporation
(if other than the Company) assumes by written instrument the obligations
under this Paragraph 4 and the obligations to deliver to the holder of this
Warrant such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the holder may be entitled to acquire.
(e) Distribution of Assets. In case the Company shall
declare or make any distribution of its assets (including cash) to holders of
Common Stock as a partial liquidating dividend, by way of return of capital or
otherwise, then, after the date of record for determining stockholders
entitled to such distribution, but prior to the date of distribution, the
holder of this Warrant shall be entitled upon exercise of this Warrant for the
purchase of any or all of the shares of Common Stock subject hereto, to
receive the amount of such assets which would have been payable to the holder
had such holder been the holder of such shares of Common Stock on the record
date for the determination of stockholders entitled to such distribution.
(f) Notice of Adjustment. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant,
which notice shall state the Exercise Price resulting from such adjustment and
the increase or decrease in the number of Warrant Shares purchasable at such
price upon exercise, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Such
calculation shall be certified by the chief financial officer of the Company.
(g) Minimum Adjustment of Exercise Price. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such
<PAGE>
adjustment is otherwise required to be made, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment which, together with any adjustments so carried
forward, shall amount to not less than 1% of such Exercise Price. No adjustments
shall be made pursuant to this Section 4 which would result in an increase in
the Exercise Price.
(h) No Fractional Shares. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company
shall pay a cash adjustment in respect of any fractional share which would
otherwise be issuable in an amount equal to the same fraction of the Market
Price of a share of Common Stock on the date of such exercise.
(i) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (including dividends or distributions payable in cash out of
retained earnings) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro
rata to the holders of the Common Stock any additional shares of stock of any
class or other rights;
(iii) there shall be any capital reorganization of
the Company, or reclassification of the Common Stock, or consolidation or
merger of the Company with or into, or sale of all or substantially all its
assets to, another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a
record shall be taken for determining the holders of Common Stock entitled to
receive any such dividend, distribution, or subscription rights or for
determining the holders of Common Stock entitled to vote in respect of any
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding-up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, notice of the date (or, if not then known, a
reasonable approximation thereof by the Company) when the same shall take
place. Such notice shall also specify the date on which the holders of Common
Stock shall be entitled to receive such dividend, distribution, or
subscription rights or to exchange their Common Stock for stock or other
securities or property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as the
case may be. Such notice shall be given at least 30 days prior to the record
date or the date on which the Company's books are closed in respect thereto.
Failure to give any such notice or any defect therein shall not affect the
validity of the proceedings referred to in clauses (i), (ii), (iii) and (iv)
above.
(j) Definition of Common Stock. "Common Stock," for purposes
of this Paragraph 4, includes the Common Stock, par value $.001 per share, and
any additional class of
<PAGE>
stock of the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.001 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of
this Warrant or such shares for any issuance tax or other costs in respect
thereof, provided that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no
mere enumeration herein of the rights or privileges of the holder hereof,
shall give rise to any liability of such holder for the Exercise Price or as a
shareholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Paragraph 7(e) below, provided, however, that any transfer or assignment shall
be subject to the conditions set forth in Paragraph 7(f) hereof and to the
applicable provisions of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 8 are assignable only in accordance
with the provisions of that certain Registration Rights Agreement, dated as of
January 26, 1998, by and among the Company and the other signatories thereto
(the "Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of
such new Warrants to represent the right to purchase such number of shares as
shall be designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory
in
<PAGE>
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Paragraph 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer
taxes) and all other expenses (other than legal expenses, if any, incurred by
the Holder or transferees) and charges payable in connection with the
preparation, execution, and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the person in whose
name this Warrant has been issued, as well as the name and address of each
transferee and each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the
time of the surrender of this Warrant in connection with any exercise,
transfer, or exchange of this Warrant, this Warrant (or, in the case of any
exercise, the Warrant Shares issuable hereunder), shall not be registered
under the Securities Act of 1933, as amended (the "Securities Act") and under
applicable state securities or blue sky laws, the Company may require, as a
condition of allowing such exercise, transfer, or exchange, (i) that the
holder or transferee of this Warrant, as the case may be, furnish to the
Company a written opinion of counsel, which opinion and counsel are acceptable
to the Company, to the effect that such exercise, transfer, or exchange may be
made without registration under said Act and under applicable state securities
or blue sky laws, (ii) that the holder or transferee execute and deliver to
the Company an investment letter in form and substance acceptable to the
Company and (iii) that the transferee be an "accredited investor" as defined
in Rule 501(a) promulgated under the Securities Act; provided that no such
opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to
the Company that such holder is acquiring this Warrant for investment and not
with a view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 2 of the
Registration Rights Agreement.
9. Notices. All notices, requests, and other communications required
or permitted to be given or delivered hereunder to the holder of this Warrant
shall be in writing, and shall be personally delivered, or shall be sent by
certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been
furnished to the Company by notice from such holder. All notices, requests,
and other communications required or permitted to be given or delivered
hereunder to the Company shall be in writing, and shall be personally
<PAGE>
delivered, or shall be sent by certified or registered mail or by recognized
overnight mail courier, postage prepaid and addressed, to the office of the
Company at 6 Nevada Drive, Lake Success, New York 11042 Attention: Chief
Executive Officer, or at such other address as shall have been furnished to
the holder of this Warrant by notice from the Company. Any such notice,
request, or other communication may be sent by facsimile, but shall in such
case be subsequently confirmed by a writing personally delivered or sent by
certified or registered mail or by recognized overnight mail courier as
provided above. All notices, requests, and other communications shall be
deemed to have been given either at the time of the receipt thereof by the
person entitled to receive such notice at the address of such person for
purposes of this Paragraph 9, or, if mailed by registered or certified mail or
with a recognized overnight mail courier upon deposit with the United States
Post Office or such overnight mail courier, if postage is prepaid and the
mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW. THE COMPANY
IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE UNITED STATES FEDERAL COURTS
LOCATED IN THE SOUTHERN DISTRICT OF NEW YORK WITH RESPECT TO ANY DISPUTE
ARISING HEREUNDER.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company and the
holder hereof.
(b) Descriptive Headings. The descriptive headings of the
several paragraphs of this Warrant are inserted for purposes of reference
only, and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its duly authorized officer.
AMNEX, INC.
By:
------------------------------------
Name:
Title:
Dated as of January 26, 1998
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated:
--------, ----.
To:
-----------------------------
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per
share provided by such Warrant in cash or by certified or official bank check
in the amount of $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name:
-----------------------------------
Signature:
------------------------------
Address:
---------------------------------
---------------------------------
Note: The above signature should
correspond exactly with the
name on the face of the within
Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the
name of said undersigned covering the balance of the shares purchasable
thereunder less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________________
________________________ as agent and attorney-in-fact to transfer said
Warrant on the books of the within-named corporation, with full power of
substitution in the premises.
Dated:
---------------------, ----,
In the presence of
- ------------------
Name:
-------------------------------------
Signature:
--------------------------------
Title of Signing Officer or Agent (if any):
-------------------------------------------
Address:
----------------------------------
----------------------------------
Note: The above signature should correspond
exactly with the name on the face
of the within Warrant.
<PAGE>
ATTACHMENTS TO:
FORM OF WARRANT
Dated as of January 26, 1998
issued to
Fourteen Hill Capital, L.P.
- - Schedule of Differences
<PAGE>
SCHEDULE OF DIFFERENCES
- -----------------------
Material differences between attached Stock Purchase Warrant, dated January
26, 1998, issued to Fourteen Hill Capital, L.P. and Stock Purchase Warrant,
dated December 24, 1998, issued to Pangaea Fund Ltd.
Buyer
- -----
Pangaea Fund Ltd.
Warrants Issued to Buyer
- ------------------------
40,000
<PAGE>
Exhibit 10.4
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES
PURCHASE AGREEMENT DATED AS OF JANUARY 26, 1998, NEITHER THIS WARRANT
NOR ANY OF SUCH SHARES MAY BE SOLD, OFFERED FOR SALE, ASSIGNED,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION
UNDER SUCH ACT OR AN OPINION OF COUNSEL THAT REGISTRATION IS NOT
REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER
SUCH ACT. ANY SUCH SALE, ASSIGNMENT OR TRANSFER MUST ALSO COMPLY WITH
APPLICABLE STATE SECURITIES LAWS.
Right to
Purchase
15,000
Shares of
Common
Stock, par
value $.001
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, TANNER UNMAN SECURITIES, INC.
or its registered assigns, is entitled to purchase from AMNEX, Inc., a New York
corporation (the "Company"), at any time or from time to time during the period
specified in Paragraph 2 hereof, Fifteen Thousand (15,000) fully paid and
nonassessable shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock"), at an exercise price of $2.65 per share (the "Exercise
Price"). The term "Warrant Shares," as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof. The term Warrants
means this Warrant and the other warrants issued pursuant to that certain
Securities Purchase Agreement, dated January 26, 1998, by and among the Company
and the Buyers listed on the execution page thereof (the "Securities Purchase
Agreement").
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon payment to
the Company in cash, by
<PAGE>
certified or official bank check or by wire transfer for the account of the
Company of the Exercise Price for the Warrant Shares specified in the Exercise
Agreement. The Warrant Shares so purchased shall be deemed to be issued to the
holder hereof or such holder's designee, as the record owner of such shares, as
of the close of business on the date on which this Warrant shall have been
surrendered, the completed Exercise Agreement shall have been delivered, and
payment shall have been made for such shares as set forth above. Certificates
for the Warrant Shares so purchased, representing the aggregate number of shares
specified in the Exercise Agreement, shall be delivered to the holder hereof
within a reasonable time, not exceeding three (3) business days, after this
Warrant shall have been so exercised. The certificates so delivered shall be in
such denominations as may be requested by the holder hereof and shall be
registered in the name of such holder or such other name as shall be designated
by such holder. If this Warrant shall have been exercised only in part, then,
unless this Warrant has expired, the Company shall, at its expense, at the time
of delivery of such certificates, deliver to the holder a new Warrant
representing the number of shares with respect to which this Warrant shall not
then have been exercised.
2. Period of Exercise. This Warrant is exercisable at any time or
from time to time on or after the date on which this Warrant is issued and
delivered pursuant to the terms of the Securities Purchase Agreement and before
5:00 p.m., New York City time on the fifth (5th) anniversary of the date of
issuance (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, and charges with respect
to the issue thereof.
(b) Reservation of Shares. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or
<PAGE>
performance of any of the terms to be observed or performed by it hereunder, but
will at all times in good faith assist in the carrying out of all the provisions
of this Warrant and in the taking of all such action as may reasonably be
requested by the holder of this Warrant in order to protect the exercise
privilege of the holder of this Warrant against dilution or other impairment,
consistent with the tenor and purpose of this Warrant. Without limiting the
generality of the foregoing, the Company (i) will not increase the par value of
any shares of Common Stock receivable upon the exercise of this Warrant above
the Exercise Price then in effect, and (ii) will take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock upon the exercise of this
Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Adjustment Provisions. During the Exercise Period, the Exercise
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up to the nearest cent.
(a) Dividends, Etc. In case the Company shall at any time after
the date this Warrant is first issued (i) declare a dividend on the outstanding
Common Stock payable in shares of Common Stock or in rights to acquire shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then, in each such
case, the Exercise Price, and the number of Warrant Shares issuable upon
exercise of this Warrant, in effect at the time of the record date for such
dividend or of the effective date of such subdivision or combination, shall be
proportionately adjusted so that the Holder after such time shall be entitled to
receive the aggregate number and kind of shares for such consideration which, if
such Warrant had been exercised immediately prior to such time at the
then-current exercise price, he would have owned upon such exercise and been
entitled to receive by virtue of such dividend, subdivision or combination. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(b) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(c) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the
<PAGE>
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common Stock issuable upon exercise of this Warrant immediately prior
to such adjustment and dividing the product so obtained by the adjusted Exercise
Price.
(d) Consolidation, Merger or Sale. In case of any consolidation
of the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger, sale or conveyance,
adequate provision will be made whereby the holder of this Warrant will have the
right to acquire and receive upon exercise of this Warrant in lieu of the shares
of Common Stock immediately theretofore acquirable upon the exercise of this
Warrant, such shares of stock, securities or assets or any combination thereof
receivable by a holder of the number of shares of Common Stock for which this
Warrant might have exercised immediately prior to such consolidation, merger or
sale or conveyance or, at the option of such holder, cash in the amount of the
number of shares of Common Stock issuable upon exercise of this Warrant
multiplied by the lesser of (i) $2.65 or (ii) seventy-five percent (75%) of the
fair market value received in such consolidation, merger, sale or conveyance. In
any such case, the Company will make appropriate provision to insure that the
provisions of this Paragraph 4 hereof will thereafter be applicable as nearly as
may be in relation to any shares of stock or securities thereafter deliverable
upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Paragraph 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(e) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(f) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(g) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried
<PAGE>
forward and shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried forward, shall amount
to not less than 1% of such Exercise Price. No adjustments shall be made
pursuant to this Section 4 which would result in an increase in the Exercise
Price.
(h) No Fractional Shares. No fractional shares of Common Stock
are to be issued upon the exercise of this Warrant, but the Company shall pay a
cash adjustment in respect of any fractional share which would otherwise be
issuable in an amount equal to the same fraction of the Market Price of a share
of Common Stock on the date of such exercise.
(i) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to
the holders of the Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(j) Definition of Common Stock. "Common Stock," for purposes of
this Paragraph 4, includes the Common Stock, par value $.001 per share, and any
additional class of stock of the Company having no preference as to dividends or
distributions on liquidation, provided
<PAGE>
that the shares purchasable pursuant to this Warrant shall include only shares
of Common Stock, par value $.001 per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Paragraph 4(e)
hereof, the stock or other securities or property provided for in such
Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted
to the holder hereof are transferable, in whole or in part, upon surrender of
this Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated as of January 26, 1998, by and
among the Company and the other signatories thereto (the "Registration Rights
Agreement").
(b) Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Paragraph 7(e) below, for new
Warrants of like tenor representing in the aggregate the right to purchase the
number of shares of Common Stock which may be purchased hereunder, each of such
new Warrants to represent the right to purchase such number of shares as shall
be designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
<PAGE>
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act of 1933, as amended (the "Securities Act") and under applicable state
securities or blue sky laws, the Company may require, as a condition of allowing
such exercise, transfer, or exchange, (i) that the holder or transferee of this
Warrant, as the case may be, furnish to the Company a written opinion of
counsel, which opinion and counsel are acceptable to the Company, to the effect
that such exercise, transfer, or exchange may be made without registration under
said Act and under applicable state securities or blue sky laws, (ii) that the
holder or transferee execute and deliver to the Company an investment letter in
form and substance acceptable to the Company and (iii) that the transferee be an
"accredited investor" as defined in Rule 501(a) promulgated under the Securities
Act; provided that no such opinion, letter or status as an "accredited investor"
shall be required in connection with a transfer pursuant to Rule 144 under the
Securities Act. The first holder of this Warrant, by taking and holding the
same, represents to the Company that such holder is acquiring this Warrant for
investment and not with a view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in Section 2 of the
Registration Rights Agreement.
9. Notices. All notices, requests, and other communications required
or permitted to be given or delivered hereunder to the holder of this Warrant
shall be in writing, and shall be personally delivered, or shall be sent by
certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to such holder at the address shown for such holder on
the books of the Company, or at such other address as shall have been furnished
to the Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier,
<PAGE>
postage prepaid and addressed, to the office of the Company at 6 Nevada Drive,
Lake Success, New York 11042 Attention: Chief Executive Officer, or at such
other address as shall have been furnished to the holder of this Warrant by
notice from the Company. Any such notice, request, or other communication may be
sent by facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE BODY OF LAW CONTROLLING CONFLICTS OF LAW. THE COMPANY IRREVOCABLY
CONSENTS TO THE JURISDICTION OF THE UNITED STATES FEDERAL COURTS LOCATED IN THE
SOUTHERN DISTRICT OF NEW YORK WITH RESPECT TO ANY DISPUTE ARISING HEREUNDER.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
AMNEX, INC.
By:
--------------------------------
Name:
Title:
Dated as of January 26, 1998
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated:
--------, ----.
To:
-----------------------------
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of $_________. Please issue a certificate or certificates for such shares
of Common Stock in the name of and pay any cash for any fractional share to:
Name:
--------------------------------
Signature:
---------------------------
Address:
---------------------------
---------------------------
Note: The above signature should
correspond exactly with the
name on the face of the
within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints __________________________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated:
---------------------, ----,
In the presence of
- ------------------
Name:
-----------------------------------
Signature:
-------------------------------
Title of Signing Officer or Agent (if any):
------------------------------------------
Address:
---------------------------------
---------------------------------
Note: The above signature should correspond
exactly with the name on the face
of the within Warrant.
<PAGE>
ATTACHMENTS TO:
FORM OF WARRANT
Dated as of January 26, 1998
issued to
Tanner Unman Securities
- - Schedule of Differences
<PAGE>
SCHEDULE OF DIFFERENCES
Material differences between attached Stock Purchase Warrant, dated January
26, 1998, issued to Tanner Unman Securities, Inc. and Stock Purchase Warrant,
dated December 24, 1998, issued to Tanner Unman Securities, Inc.
Warrants Issued to Buyer
- ------------------------
20,000
<PAGE>
Exhibit 10.5
AMNEX, Inc.
STOCK PURCHASE AGREEMENT
dated as of January __, 1998
by and among
AMNEX, Inc.
(the "Company"), and
the Investor named therein (the "Investor")
<PAGE>
AGREEMENT dated January __, 1998, between AMNEX, Inc., a New York
corporation (the "Company") and __________________ (the "Investor")
PREAMBLE
The Company wishes to obtain equity financing. The Investor is willing,
on the terms contained in this Agreement, to purchase Common Stock of the
Company. Capitalized terms are defined in the first Article. Exhibits are
incorporated by reference into this Agreement as though such exhibits were set
forth at the point of such reference.
ARTICLE I
DEFINED TERMS
The following terms, when used in this Agreement, have the following
meanings, unless the context otherwise indicates:
"Acceptable Currency" shall mean and include cash and any other method
of payment which will result in such payment being credited to the account of
the Company at the bank previously designated to the Investor no later than the
day immediately following the day of the Closing.
"33 Act" means the Securities Act of 1933, as amended, or any similar
federal law then in force.
"34 Act" means the Securities Exchange Act of 1934, as amended, or any
similar federal law then in force.
"Affiliate" means, with respect to any specified Person, (1) any other
Person who, directly or indirectly, owns or controls, is under common ownership
or control with, or is owned or controlled by, such specified Person, (2) any
other Person who is a director, officer or partner or is, directly or
indirectly, the beneficial owner of 10 percent or more of any class of equity
securities, of the specified Person or a Person described in clause (1) of this
paragraph, (3) another Person of whom the specified Person is a director,
officer or partner or is, directly or indirectly, the beneficial owner of 10
percent or more of any class of equity securities, (4) another Person in whom
the specified Person has a substantial beneficial interest or as to whom the
specified Person serves as trustee or in a similar capacity, or (5) any relative
or spouse of the specified Person or any of the foregoing Persons, any relative
of such spouse or any spouse of any such relative; provided, however, that at
any time after the Closing Date, the Company and the Subsidiaries on the one
hand and Seller and its Affiliates (other than the Company and the Subsidiaries)
shall not be deemed to be Affiliates of each other.
"Best Knowledge" shall mean and include (a) actual knowledge of the
Person, including, the actual knowledge of any of the officers or directors of
the Company and the administrators of any of the facilities operated by the
Company or any of its subsidiaries and (b) that knowledge
<PAGE>
which a prudent businessperson could have obtained in the management of his
business after making due inquiry, and after exercising due diligence, with
respect thereto.
"Bylaws" means the bylaws of AMNEX, Inc., as amended.
"Certificate of Incorporation" means the certificate of incorporation
of AMNEX, Inc., as originally filed with the New York Secretary of State
together with all amendments thereto.
"Closing" and "Closing Date" mean the consummation of the Company's
sale and the Investor's purchase of the Common Stock, and the date on which the
same occurs or occurred.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the $.001 par value common stock, of AMNEX, Inc.
"Current Financing Period" means the period from the date hereof
through, and including, January 29, 1998.
"Employee Benefit Plan" means any plan regulated under the Employees
Retirement and Income Supplement Act ("ERISA").
"Financial Statements" means any financial statements (including the
notes thereto) of AMNEX, Inc. certified by the Company's independent public
accountants and any such statements not so certified but containing
substantially all the information covered in such certified statements,
including a balance sheet as of the end of a fiscal period and statements of
income and retained earnings and of sources and applications of funds for such
fiscal period, together with all notes thereto.
"Holder" means the Investor (or its successors or assigns) so long as
it continues to hold Common Stock.
"Galesi" shall mean Francesco Galesi and any designee thereof.
"Independent Public Accountants" means that firm of independent
certified public accountants selected by the Company's Board of Directors.
"Material Subsidiaries" means Crescent Public Communications, Inc., Sun
Tel North America, Inc., National Billing Exchange, Inc., American Network
Exchange, Inc. and Capital Network System, Inc.
"Notes" means the 8 1/2% Convertible Subordinated Notes due 2002 issued
by the Company on September 29, 1997.
"Offering Documents" means the Company's offering memorandum dated
September 22 (as supplemented on September 29, 1997 (plus attached exhibits) in
connection with the placement by the Company of the Notes, as amended,
supplemented and updated by the Company's public filings under the `34 Act,
including the most recent Quarterly Report on Form
2
<PAGE>
10-Q, the draft Registration Statement and Exhibits on Form S-3 attached hereto
and the Disclosure Schedules.
"Qualified Holder" means the Investor, so long as it holds more than
250,000 Shares, or a transferee of the Investor or another Qualified Holder
(assuming all such transfers were made in accordance with this Agreement) who
holds more than 250,000 Shares, provided that (i) a transferee of the Investor
who, in the reasonable judgment of Company, is an actual competitor of the
Company, or a person or entity controlled by, or who controls, a competitor of
the Company may be deemed by the Company not to be a Qualified Holder; (ii) if
the Investor notifies the Company that it is a Venture Capital Operating Company
within the meaning of the Department of Labor's Final Plan Asset Regulation, 29
C.F.R. Part 2510 (Mar. 13, 1987) it shall be a Qualified Holder; and (iii) the
general and limited partners, members, officers or Affiliates of the Investor,
so long as it is a Qualified Holder, shall be Qualified Holders.
"Shares" means any shares of the Company's Common Stock.
"Subsidiary" or "Subsidiaries" of any Person means any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned or
controlled by such Person or one or more Subsidiaries of such Person.
Additional defined terms are found in the body of the following text:
The masculine form of words includes the feminine and the neuter and
vice versa, and, unless the context otherwise requires, the singular form of
words includes the plural and vice versa. The words "herein," "hereof,"
"hereunder," and other words of similar import when used in this Agreement refer
to this Agreement as a whole, and not to any particular section or subsection.
ARTICLE II
PURCHASE AND SALE TERMS
Section 2.1. Purchase and Sale. Subject to the terms of this Agreement,
the Company shall issue and sell to the Investor and the Investor shall purchase
from the Company at the Closing the number of shares of Common Stock at the
aggregate purchase price set forth opposite its name in Exhibit 2.1.
Section 2.2. Payment. The Investor shall pay the purchase price of the
Common Stock purchased by it in full at the Closing in Acceptable Currency.
Section 2.3. Transfer Legends and Restrictions. The transfer of the
Shares will be restricted in accordance with the terms hereof. Each certificate
evidencing the Shares, including any certificate issued to any transferee
thereof, shall be imprinted with legends in substantially the following form
(unless otherwise permitted under this Section or unless such
3
<PAGE>
Shares shall have been effectively registered and sold under the `33 Act and the
applicable state securities laws):
"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE `SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE OFFERED OR TRANSFERRED BY SALE, ASSIGNMENT, PLEDGE OR
OTHERWISE UNLESS (i) A REGISTRATION STATEMENT FOR THE SHARES UNDER THE
SECURITIES ACT AND OTHER APPLICABLE SECURITIES LAWS WITH RESPECT TO
SUCH SHARES IS IN EFFECT OR (ii) THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY TO THE COMPANY, TO THE EFFECT
THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT AND
OTHER APPLICABLE SECURITIES LAWS. TRANSFER OF THESE SHARES IS FURTHER
RESTRICTED AS PROVIDED IN THE STOCK PURCHASE AGREEMENT DATED AS OF
JANUARY __, 1998, A COPY OF WHICH IS AVAILABLE AT THE COMPANY'S
OFFICES."
The Holder of any Shares by acceptance thereof agrees, so long as any
legend described in this Section shall remain on the certificates evidencing
the Shares, prior to any transfer of any of the same (except for a transfer
effected pursuant to an effective registration statement under the `33 Act or
in compliance with Rule 144 or Rule 144A thereunder), to give written notice
to the Company of such Holder's intention to effect such transfer and agrees
to comply in all material respects with the provisions of this Section. Such
notice, if required, shall describe the proposed method of transfer of the
Shares in question. Upon receipt by the Company of such notice, if required,
and if in the opinion of counsel to such Holder, which opinion shall be
reasonably satisfactory to the Company, the proposed transfer may be effected
without registration under the `33 Act in compliance with Sections 4(1), 4(2)
or Rules 144 or 144A or other exemptions available thereunder and under
applicable state securities laws, then the proposed transfer may be effected;
provided, however, that in the case of any Holder which is a partnership or a
limited liability company, no such opinion of counsel shall be necessary for a
transfer by such partnership or limited liability company to a partner or
member of such partnership or limited liability company, as the case may be,
or a retired partner of such partnership who retires after the date such
partnership became a Holder, or the estate of any such partner or retired
partner, if the transferee agrees in writing to be subject to the terms of
this Section to the same extent as if such transferee were originally a
signatory to this Agreement. Upon receipt by the Company of such opinion and
of such agreement by the transferee to be bound by this Section, the Holder of
such Shares shall thereupon be entitled to transfer the same in accordance
with the terms of the notice (if any) delivered by such Holder to the Company.
Each certificate evidencing the Shares issued upon any such transfer shall
bear the legend set forth in this Section. Upon the written request of a
Holder of the Shares, the Company shall remove the foregoing legend from the
certificates evidencing such Shares and issue to such Holder new certificates
therefor, free of any transfer legend if, with such request, the Company shall
have received an opinion of counsel selected by the Holder, such opinion to be
reasonably satisfactory to the Company, to the effect that any transfers by
said Holder of such Shares may be made to the public without compliance with
either Section 5 of the '33 Act or Rule 144
4
<PAGE>
thereunder and applicable state securities laws. In no event will such legend be
removed if such opinion is based upon the "private offering" exemption of
Section 4(2) of the 33 Act.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Offering Documents furnished pursuant to
this Agreement, the Company represents and warrants to the Investors, at and as
of the Closing that:
Section 3.1. Corporate Existence. The Company is a corporation
duly incorporated, validly existing and in good standing under New York law and
has unconditional power and authority to conduct its business and own its
properties as now conducted and owned. The Company is qualified as a foreign
corporation to do business in all jurisdictions in which the nature of their
properties and business requires such qualification and in which noncompliance
with such qualification would materially affect the Company's business.
Section 3.2. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of (i) 70,000,000 shares of
Common Stock, of which 37,583,689 shares are issued and outstanding (other than
the 2,758,620 shares Common Stock to be issued to Galesi on the date hereof in
consideration for retirement of $3,200,000 of Company indebtedness held by
Galesi), approximately 3,872,382 shares are reserved for issuance pursuant to
the Company's stock option and grant plans, and 13,693,772 shares (which
includes the warrants to purchase 750,000 shares of Common Stock issued to
Galesi in consideration of prior financings provided by Galesi to the Company
and 1,600,000 shares of Common Stock reserved for issuance upon conversion of
the 750 shares of Series M Preferred Stock and the exercise of warrants to
purchase 45,000 shares of Common Stock being issued on the date hereof) are
reserved for issuance pursuant to securities exercisable with respect to
convertible into or exchangeable for shares of Common Stock; and (ii) 5,000,000
shares of preferred stock, 1,000 of which shares are issued and outstanding (and
an additional 750 shares will be issued upon execution of a Securities Purchase
Agreement of even date herewith). All of such outstanding shares of capital
stock are, or upon issuance will be, duly authorized, validly issued, fully paid
and nonassessable. Except as set forth in Schedule 3.2, no shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed on
Schedule 3.2, as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever related to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, and (ii) there are no understandings
or agreements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act except
pursuant to the Incorporated Sections (as defined herein) of the Registration
Rights Agreement (the "Registration Rights Agreement") dated December 24, 1997
5
<PAGE>
by and between the Company and Pangaea Fund, Ltd. and (iii) there are no
anti-dilution or price adjustment provisions contained in any security issued by
the Company. The Company has furnished to the Buyer true and correct copies of
the Company's Certificate of Incorporation as in effect on the date hereof
("Certificate of Incorporation"), the Company's By-laws, as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into or
exercisable for Common Stock of the company.
Section 3.3. Issuance of Shares. The Shares are duly
authorized and, upon issuance in accordance with the respective terms of this
Agreement will be validly issued, fully paid and non-assessable.
Section 3.4. Reporting Status; Eligibility to Use Form S-3.
Certain shares of the Company's Common Stock are registered under Section 12(g)
of the '34 Act. So long as the Investor or any Qualified Holder beneficially
owns any of the Shares, the Company shall timely file all reports required to be
filed with the Commission pursuant to the '34 Act, and the Company shall not
terminate its status as an issuer required to file reports under the '34 Act
even if the '34 Act or the rules and regulations thereunder would permit such
termination. The Company currently meets, and will take all necessary action to
continue to meet, the "registrant eligibility" requirements set forth in the
general instructions to Form S-3.
Section 3.5. Registration Rights and Listing. The Company
shall include the Shares purchased herewith in the registration statement to be
filed under Commission Rule 415 on Form S-3 on behalf of the holders of the
Notes and the Shares on or about January 29, 1998, shall pursue and maintain the
effectiveness of such statement as provided in the Purchase Agreement respecting
the Notes and this Agreement and shall secure the listing of such Shares upon
each national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all such Shares. The Company will obtain and
maintain the listing and trading of its Common Stock on the Nasdaq SmallCap
Market ("SmallCap"), the Nasdaq National Market ("Nasdaq"), the New York Stock
Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to the
Investor copies of any notices it receives from Nasdaq regarding the continued
eligibility of the Common Stock for listing on SmallCap or any other exchange or
quotation system on which the Common Stock is then listed. The Company
represents and warrants that it is eligible to register the Shares on Form S-3
Section 3.6. Power and Authority. The Company has
unconditional power and authority, and has taken all required corporate and
other action necessary (including stockholder approval, if necessary) to permit
it to own and hold properties to carry on its current business, to execute and
deliver this Agreement, to issue and sell the Common Stock as herein provided
and otherwise to carry out the terms of this Agreement and all other documents,
instruments, or transactions required by this Agreement, and none of such
actions will violate any provision of the Company's Bylaws or Certificate of
Incorporation, or result in the breach of or constitute a
6
<PAGE>
default under any agreement or instrument to which the Company is a party or by
which it is bound or result in the creation or imposition of any material lien,
claim or encumbrance on any Company asset. This Agreement has been duly executed
and delivered by the Company and (assuming the due authorization, execution and
delivery hereof by the Investor) constitutes the valid and binding obligation of
the Company enforceable against the Company in accordance with its terms. No
event has occurred and no condition exists which would constitute a violation of
this Agreement. Neither this Agreement nor any other gives any person rights to
terminate any agreements with the Company or otherwise to exercise rights
against the Company.
Section 3.7. SEC Documents, Financial Statements. Since
December 31, 1994, the Company has timely (i.e., within the time periods
prescribed under the federal securities laws, including all permissible
extension periods) filed all reports, schedules, forms, statements and other
documents requirement to be filed by it with the Commission pursuant to the
reporting requirements of the `34 Act (all of the foregoing and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the `34
Act and the rules and regulations of the Commission promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time they
were filed with the Commission, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. At their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the Commission with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(i) as may be otherwise indicated in such financial statements or the notes
thereof, or (ii) in the case of unaudited interim statements, to the extent they
may not include footnotes or my be condensed or summary statements) and fairly
present in all material respects the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the Company
included in the SEC Documents, each of the Company and its Subsidiaries has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to December 31, 1996 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
such financial statements, which, individually or in the aggregate, would not be
reasonably likely to have a material adverse effect. Since the date of the most
recent audited balance sheet, each of the Company and its Subsidiaries has
operated in the ordinary course of business, consistent with past practices. No
stop order suspending the effectiveness of any registration statement of filed
by the Company has been issued by Commission.
Section 3.8. Patents, Copyrights, etc. The Company and each of
its Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent rights,
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inventions, know-how, trade secrets, trademarks, services marks, service names,
tradenames and copyrights ("Intellectual Property") necessary to enable it to
conduct its business as now operated (and, except as set forth in Schedule 3.8
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future); there is no claim or action by any person pertaining
to, or proceeding pending, or the Company's knowledge threatened which
challenges the right of the Company or any of its Subsidiaries with respect to
any Intellectual Property necessary to enable it to conduct its business as now
operated (and, except as set forth in Schedule 3.8 hereof, to the best of the
Company's knowledge, as presently contemplated to be operated in the future; to
the best of the company's knowledge, neither the Company nor any of its
Subsidiaries infringe any Intellectual Property or other rights held by any
person; and the Company is unaware of any facts or circumstances which might
give rise to any of the foregoing. The Company and each of its Subsidiaries have
taken reasonable security measures to protect the secrecy, confidentiality and
value of the Intellectual Property.]
Section 3.9. Financial Condition. The Company has previously
furnished to the Investor its Financial Statements, which, together with the
footnotes thereto, are complete and substantially correct, have been prepared in
accordance with generally accepted accounting principles consistently applied,
and fairly present the consolidated financial condition of the Company and its
consolidated Subsidiaries as of the dates specified. The Financial Statements
are in accordance with the books and records of the Company as of the dates and
for the periods indicated, present fairly the financial position, results of
operations, shareholders' equity and changes in financial position of such
corporations as of the respective dates and for the respective periods
indicated, and have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis (except as
described in such statements, notes thereto and auditor reports).
Section 3.9.1. Absence of Undisclosed Liabilities. Except as
set forth on Schedule 3.9.1, as of the date on which the most recent Financial
Statement Date have been filed with the Commission (the "Financial Statements"),
neither the Company nor any of its Subsidiaries had (and on the date hereof
neither the Company nor any of its Subsidiaries has) any material liabilities
(matured or unmatured, fixed or contingent, which are not fully reflected or
provided for on the balance sheet of the Company as at the Financial Statement
Date), or any material loss contingency (as defined in Statement of Financial
Accounting Standards No. 5) whether or not required by GAAP to be shown on the
Balance Sheets, except obligations to perform under commitments incurred in the
ordinary course of business after the Financial Statement Date.
Section 3.9.2. Taxes. Except as set forth on Schedule 3.9.2,
the Company and each of its Subsidiaries has accurately, completed and filed or
will file within the time prescribed by law (including extensions of time
approved by the appropriate taxing authority) all tax returns and reports
required to be filed with the Internal Revenue Service, the State of New York,
any other states or governmental subdivisions and all foreign countries and has
paid, or made adequate provision in the Financial Statements dated the Financial
Statement Date for the payment of, all taxes, interest, penalties, assessments
or deficiencies shown to be due (or, to the knowledge of the Company, claimed by
such authority or jurisdiction to be due) on or in respect
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of such tax returns and reports. The Company knows of (a) no other federal, New
York, state, county, municipal or foreign taxes which are due and payable by the
Company which have not been so paid; (b) no other federal, New York, state,
county, municipal or foreign tax returns or reports which are required to be
filed which have not been so filed; and (c) no unpaid assessment for additional
taxes for any fiscal period or any basis thereof. Proper and accurate amounts
have been withheld by the Company from its employees for all periods in
compliance with the tax, social security and any employment withholding
provisions of applicable federal and state law. Proper and accurate, in all
material respects, federal and state returns have been filed by the Company for
all periods for which returns were due with respect to employee income tax
withholding, social security and unemployment taxes, and the amounts shown
thereon to be due and payable have been paid in full or provision therefor
included on the books of the Company in accordance with and to the extent
required by GAAP. The Company has not made any election under Section 341(f) of
the Internal Revenue Code of 1986, as amended (the "Code").
Section 3.9.3. Material Subsidiaries. Each Material Subsidiary is a
corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation; has all requisite corporate power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted, and is duly qualified as a foreign
corporation in all jurisdictions in which it is required to be so qualified.
Section 3.10. No Material Adverse Change. Except as set forth on Schedule
3.10, since the Financial Statement Date, there has been no material adverse
change in the financial or other condition, properties or business operations
of the Company or any of its Material Subsidiaries.
Section 3.11. Reporting. The Company is subject to and in compliance in all
material respects with the reporting requirements of Section 13 or Section
15(d) of the Exchange Act and the Company has timely filed all reports
required to be filed thereunder within the last 12 months. All information
relating to or concerning the Company or any of its Subsidiaries set forth in
this Agreement and provided to the Buyers pursuant to this Agreement and
otherwise in connection with the transactions contemplated hereby is true and
correct in all material respects and the Company has not omitted to state any
material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to
the Company or any of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions, which, under applicable law,
rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed (assuming for this
purposes that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company
under the 1933 Act).
Section 3.12. Litigation. Except as set forth on Schedule
3.12, there are no suits, proceedings or investigations pending or threatened
against or affecting the Company, its Subsidiaries or an officer of the Company
which could have a material adverse effect on the business, assets, or financial
condition of the Company or its Subsidiaries or the ability of any officer to
participate in the affairs of the Company, or which concern in any material way
the
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transactions contemplated by the Agreement. The foregoing includes, without
limiting its generality, actions pending or threatened (or any basis therefor
known to the Company or its Subsidiaries) involving the prior employment of any
employees or currently contemplated prospective employees of the Company or its
Subsidiaries or their use, in connection with the business of the Company or its
Subsidiaries, of any information or techniques which might be alleged to be
proprietary to their former employer(s).
Section 3.13. Licenses; Compliance with Laws, Other
Agreements, etc. The Company and each of its Subsidiaries has obtained or
applied for all franchises, permits, licenses, and other rights which it deems
necessary for the conduct of its business and it knows of no basis for the
denial of such rights in the future. Neither the Company nor its Subsidiaries is
in material violation of any order or decree of any court, or of the provisions
of any contract or agreement to which it is a party or by which it may be bound,
or, to its knowledge, of any law, order, or regulation of any governmental
authority, and neither this Agreement nor the transactions contemplated hereby
will result in any such violation.
Section 3.13.1. Government Approvals. No authorization,
consent, approval, license, qualification or formal exemption from, nor any
filing, declaration or registration with, any court, governmental agency,
regulatory authority or political subdivision thereof, any securities exchange
or any other person is required in connection with the execution, delivery or
performance by the Company of this Agreement or the business of the Company or
any of its Subsidiaries in order to consummate the transactions contemplated in
this Agreement. Except as set forth on Schedule 3.13.1, all such material
authorizations, consents, approvals, licenses, qualifications, exemptions,
filings, declarations and registrations have been obtained or made, as the case
may be, and are in full force and effect and are not the subject of any pending
or, to the knowledge of the Company, threatened attack by appeal or direct
proceeding or otherwise.
Section 3.13.2. Investment Company Act. The Company is
not, and immediately after the Closing will not be, an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act.
Section 3.14. Brokers, etc. The Company has not dealt with any
broker, finder, or other similar person in connection with the offer or sale of
the Common Stock and the transactions contemplated by this Agreement, and the
Company is not under any obligation to pay any broker's fee, finder's fee or
commission in connection with such transactions.
Section 3.15. Private Sale. The Company has not, either
directly or through any agent, offered any securities to or solicited any offers
to acquire any securities from, or otherwise approached, negotiated, or
communicated in respect of any securities with, any person in such a manner as
to require that the offer or sale of such securities (including but not limited
to the Common Stock) be registered pursuant to the provisions of Section 5 of
the `33 Act and the rules and regulations of the Commission thereunder or the
securities laws of any state and neither the Company nor anyone acting on its
behalf will take any action prior to the Closing that would cause any such
registration to be required (including, without limitation, any offer, issuance
or
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sale of any security of the Company under circumstances which might require
the integration of such security with the Common Stock under the '33 Act or the
rules and regulations of the Commission thereunder) which might subject the
offering, issuance or sale of the Common Stock to the registration provisions of
the '33 Act. The issuance of Shares of Common Stock issuable pursuant to this
Agreement are exempt from registration under the '33 Act. The Company has
complied with all federal and state securities and blue sky laws in all
issuances and purchases of its capital stock prior to and including the date
hereof and has not violated any applicable law in making such issuances and
purchases of its capital stock prior to the date hereof. Any notices required to
be filed under federal and state securities and blue sky laws prior to or
subsequent to the Closing shall be filed on a timely basis prior to or as so
required.
Section 3.16. Offering Documents. The Offering Documents, read
together and in connection with materials made available to the Investor by the
Company (whether prepared by the Company or a third party), do not contain any
untrue statement of a material fact nor do they in the aggregate omit to state
any material fact necessary to make the statement therein not misleading. The
information contained in the Offering Documents has been material to the
Investor in its decision to invest.
Section 3.16.1. Projections; Material Facts. In
connection with the transactions contemplated by this Agreement, the Company has
furnished to the Investor in certain projected budgets, financial statements and
forecasts ("Projections"). Except as limited by the next sentence, all
statements contained in the Projections are true, correct and complete in all
material respects. The Company does not represent or warrant that any
occurrences, developments or facts including, without limitation, projections,
which the Projections says will occur or eventuate after its date (or which were
otherwise furnished in writing to the Investor), will in fact occur or eventuate
after such date, but the Company represents and warrants that such occurrences,
developments or facts, including such projections, presented therein were
prepared by the Company in good faith based on its best knowledge, information
and belief. No representation or warranty by the Company contained in the
Projections (other than the projections), this Agreement or any other written
statement, information, material or certificate furnished or to be furnished to
the Investor pursuant hereto or in connection with the transactions contemplated
hereby by the Company contains any untrue statement of a material fact or omits
to state a material fact necessary to make the statements contained therein or
herein not misleading, when all are taken together as a whole (it being
understood that, in the event of any inconsistency between this Agreement and
any other writings, this Agreement shall control). The Company knows of no
information or fact which has or would have a material adverse effect on the
financial condition, business or business prospects of the Company which has not
been disclosed to the Investor. Since the respective dates as of which
information is given in the Projections, the Company knows of no material
adverse change in the business, business prospects, property, condition or
results of operations of the Company.
Section 3.17. Investigation. It shall be no defense to an
action for breach of this Agreement that the Investor or its agents have (or
have not) made investigations into the affairs of the Company or that the
Company could not have known of the misrepresentation or breach of warranty.
Damages for breach of a representation or warranty or other provision of
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this Agreement shall not be diminished by alleged tax savings resulting to the
complaining party as a result of the loss complained of.
Section 3.18. Minute Books. The minute books of the Company
contain a complete summary of all meetings of directors and stockholders since
the time of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.
Section 3.19. Environmental Matters.
Section 3.19.1. Except as set forth in Schedule 3.19, there
are, to the Company's knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local and
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases, removal, remediation or
abatement of chemicals, pollutants, contaminants, or toxic or hazardous
substances or wastes (collectively, "Hazardous Materials") into the environment,
or otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Materials, as
well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
Section 3.19.2. Other than those that are or were stored, used
or disposed of in compliance with applicable law, no Hazardous Materials are
contained on or about any real property currently owned, leased or used by the
Company or any of its Subsidiaries, and no Hazardous Materials were released or
discharged on or about any real property previously owned, leased or used by the
Company or any of its subsidiaries during the period the property was owned,
leased or used by the Company or any of its subsidiaries, except in the normal
course of the Company's or any of its Subsidiaries' business.
Section 3.19.3. Except as set forth in Schedule 3.19, there
are no underground storage tanks, asbestos-containing materials, polychlorinated
biphenyls or urea formaldehyde insulation at any real property owned, leased or
used by the Company or any of its Subsidiaries in violation of any Environmental
Law.
Section 3.20. Title to Property. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property owned by them, in each
case fee and clear of all liens, encumbrances and
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defects except such as are described in Schedule 3.20 or such as would not have
a Material Adverse Effect. Any real property and facilities held under lese by
the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.
Section 3.21. Insurance. The Company and each of its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as management of the Company
believes to be prudent and customary in the businesses in which the company and
its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has
any reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
Section 3.22. Employee Relations. Neither the Company nor any
of its subsidiaries is involved in any union labor dispute nor, to the knowledge
of the Company or any of its subsidiaries, is any such dispute threatened.
Neither the Company nor any of its subsidiaries is a party to a collective
bargaining agreement, and the Company and its subsidiaries believe that
relations with their employees are good. Each of the Company and its
subsidiaries is in compliance in all material respects with the applicable
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the regulations and published interpretations thereunder. None of
the following events has occurred or is reasonably expected to occur that when
taken together with all other such events could reasonably be expected to result
in a Material Adverse Effect: (i) any "reportable event," as defined in Section
4043 of ERISA or the regulations issued thereunder, with respect to any
"employee pension benefit plan" as such term is defined in Section 3 of ERISA
(other than a Multiemployer Plan (as defined below)) subject to the provision of
the Title IV or ERISA or Section 412 of the Internal Revenue Code of 1986, as
amended (the "Code"), or Section 302 of ERISA (a "Plan"); (ii) the adoption of
any amendment to a Plan that would require the provision of security pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA; (ii) the existence with
respect to any Plan of an "accumulated funding deficiency" (as defined in
Section 412 of the Code or Section 302 of ERISA), whether or not waived; (iv)
the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of
an application for a waiver of the minimum funding standard with respect to any
Plan; (v) the incurrence of any liability under Title IV of ERISA with respect
to the termination of any Plan or the withdrawal or partial withdrawal of the
Company or any of its subsidiaries from any Plan or "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA ("Multiemployer Plan"); (vi) the receipt
by the Company or any of its subsidiaries from the Pension Benefit Buaranty
Corporation or a plan administrator of any notice relating to the intention to
terminate any Plan or Plans or to appoint a trustee to administer any Plan;
(vii) the receopt by the Company or any of its subsidiaries of any notice
concerning the imposition of liability to a Multiemployer Plan as a result of a
complete or partial withdrawal from such Multiemployer Plan, as such terms are
defined in Part I of Subtitle E of Title IV of ERISA or of a determination that
a Multiemployer Plan is, or is expected to be, insolvent or in reorganization,
within the meaning of Title IV of ERISA; and (viii) the occurrence of a
"prohibited transaction" with respect to whicht the Company or any of its
subsidiaries is a "disqualified person" (within
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the meaning of Section 4975 of the Code) and with respect to which the Company
or such subsidiary would be liable for the payment of an excise tax.
ARTICLE IV
COVENANTS OF THE COMPANY
Section 4.1. Use of Proceeds. The Company shall use the
proceeds of the sale of the Common Stock for working capital.
Section 4.2. Rule 144. The Company covenants that at all times
it will comply with the current public information requirements of Rule
144(c)(1) under the `33 Act; and at all such times as Rule 144 is available for
use by the Investor, the Company will furnish the Investor upon request with all
information within the possession of the Company required for the preparation
and filing of Form 144.
Section 4.3. Maintenance of Corporate Existence. Unless
otherwise determined by the Board of Directors of the Company with respect to
its Material Subsidiaries, each of the Material Subsidiaries and the Company and
its will preserve, renew and keep in full force and effect, its corporate
existence, qualification in requisite jurisdictions and rights and privileges
necessary or desirable in the normal conduct of its business.
Section 4.4. Governmental Consents. The Company will obtain
all consents, approvals, licenses and permits required by federal, state, local
and foreign law to carry on its business.
Section 4.5. Further Assurances. The Company will cure
promptly any defects in the creation and issuance of the Shares, and in the
execution and delivery of this Agreement. The Company, at its expense, will
promptly execute and deliver promptly to the Investor upon request all such
other and further documents, agreements and instruments in compliance with or
pursuant to its covenants and agreements herein, and will make any recordings,
file any notices, and obtain any consents as may be necessary or appropriate in
connection therewith.
Section 4.6. Preemptive Rights.
(a) The Company hereby grants to each Qualified
Holder a right of first refusal to purchase, on a pro rata basis together with
any other holder of the Company's securities with similar preemptive rights
(based on the number of shares of Common Stock (or Common Stock equivalent) then
held by each such holder and each Qualified Holder), all or any part of New
Securities (as defined below) which the Company may, from time to time, propose
to sell and issue subject to the terms and conditions set forth below. A
Qualified Holder's pro rata share, for purposes of this subsection 4.6, shall
equal a fraction, the numerator of which is the number of shares of Common Stock
then held by such Qualified Holder or issuable upon
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conversion or exercise of any Shares, convertible securities, options, rights,
or warrants then held by such Qualified Holder, and the denominator of which is
the total number of shares of Common Stock outstanding plus the number of shares
of Common Stock issuable upon conversion or exercise of then outstanding Shares,
convertible securities, options, rights or warrants.
(b) "New Securities" shall mean any capital stock of
the Company whether now authorized or not and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever which are, or may
become, convertible into capital stock; provided, however, that the term "New
Securities" does not include (i) the Shares issuable pursuant to the exercise or
conversion rights enjoyed by holders of existing derivative securities or
pursuant to existing contracts, including warrants issuable to Galesi as
indicated in the resolutions adopted by the Company's Board of Directors on
January 6, 1998 (the "Board Resolutions"), and the warrant shares pertaining
thereto; (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) shares of Common Stock 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 Stock, distributable on a
pro rata basis to all holders of Common Stock; (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 Galesi (the "Galesi Securities") as indicated in the Board Resolutions,
provided however that such Galesi Securities issued will not exceed (upon
issuance or conversion of warrants)1,000,000 shares of Common Stock and will not
be offered at a purchase price below $1.20 per share of Common Stock and (vii)
any Common Stock or securities convertible into or exchangeable for Common Stock
issued during the Current Financing Period.
(c) If the Company intends to issue New Securities,
it shall give each Qualified Holder written notice of such intention, describing
the type of New Securities to be issued, the price thereof and the general terms
upon which the Company proposes to effect such issuance. Each Qualified Holder
shall have fifteen (15) days from the date of any such notice to agree to
purchase all or part of its or his pro rata share of such New Securities for the
price and upon the general terms and conditions specified in the Company's
notice by giving written notice to the Company stating the quantity of New
Securities to be so purchased. Each Qualified Holder shall have a right of
overallotment such that if any Qualified Holder fails to exercise his or its
right hereunder to purchase his or its total pro rata portion of New Securities,
the other Qualified Holders may purchase such portion on a pro rata basis, by
giving written notice to the Company within five days from the date that the
Company provides written notice to the other Qualified Holders of the amount of
New Securities with respect to which such nonpurchasing Qualified Holder has
failed to exercise its or his right hereunder.
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(d) If any Qualified Holder or Qualified Holders fail
to exercise the foregoing right of first refusal with respect to any New
Securities within such 15-day period (or the additional five-day period provided
for overallotments), the Company may within 120 days thereafter sell any or all
of such New Securities not agreed to be purchased by the Qualified Holders, at a
price and upon general terms no more favorable to the purchasers thereof than
specified in the notice given to each Qualified Holder pursuant to paragraph (c)
above. In the event the Company has not sold such New Securities within such
120-day period, the Company shall not thereafter issue or sell any New
Securities without first offering such New Securities to the Qualified Holders
in the manner provided above.
Section 4.7. Financial Information. The Company agrees to send
the following reports to the Investor and/or any Qualified Holder until the
Investor and/or such Qualified Holder transfers, assigns, or sells all of the
Securities: (i) within three (3) days after the filing with the SEC, a copy of
its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and any
Current Reports on Form 8-K; (ii) within one (1) day after release, copies of
all press releases issued by the Company or any of its Subsidiaries, and (iii)
contemporaneously with the making available or giving to the stockholders of the
Company, copies of any notices or other information the Company makes available
or gives to such stockholders
Section 4.8. Issuance of Additional Common Stock.
(a) In the event that during the Current Financing
Period, the Company issues any shares of Common Stock (in addition to those
being issued pursuant hereto) or securities of any type whatsoever which are, or
may become, convertible into or exchangeable for Common Stock (other than the
750 additional shares of the Company's Series M Preferred Stock issued during
the Current Financing Period), the Company agrees that it will provide notice of
such issuance to the Investor and that:
(i) any such shares or securities shall be
issued for a purchase price per Common Stock equivalent, equal to or greater
than the price per share paid by the Investor under this Agreement; and
(ii) to the extent that any such convertible
or exchangeable securities are issued, each of the Investors shall have the
right, exercisable within five days of receipt of the notice of such issuance
from the Company, to exchange all, but not less than all, of the shares of
Common Stock purchased by such Investor pursuant hereto for the number of such
securities as may be obtained by dividing the aggregate purchase price paid by
such Investor pursuant hereto by the price per security paid by the other
purchasers thereof.
(b) In the event that at any time during the one year
period following the Closing the Company issues any shares of Common Stock (in
addition to those being issued pursuant hereto) or securities of any type
whatsoever which are, or may become convertible into or exchangeable for Common
Stock, the Company agrees that it will provide notice of such issuance to the
Investor of such issuance and that
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(i) to the extent that such shares or
securities (other than the 750 shares of the Company's Series M Preferred Stock
issued during the Current Financing Period) are issued pursuant to agreements
which contain terms that are more favorable to the purchasers of such shares
than the terms hereof, the Investor shall be entitled to the benefit of such
terms as if a party to such agreements and, to the extent inconsistent, such
terms shall be deemed to replace the terms hereof, provided that this provision
shall not entitle the Investor to designate a member of the Board of Directors
of the Company even if such right is granted to another purchaser of Common
Stock; and
(ii) to the extent that such shares or
securities are issued for a purchase price per Common Stock equivalent, less
than the price per share paid by the Investors under this Agreement, the
Investor shall have the right, exercisable within five days of receipt of the
notice of such issuance from the Company, to receive an additional number of
Shares as may be obtained by dividing the aggregate purchase price paid by the
Investor pursuant hereto by the price per security paid by the other purchasers
thereof less the number of Shares received pursuant to this Agreement, subject
to the requirements set forth in Section 4460 of the NASD Manual,
provided that the foregoing will not apply to the following securities and
transactions: (a) securities, including but not limited to warrants and options,
issued to employees, directors, consultants, agents, pursuant to employment
contracts or employee benefit programs or plans (including stock option and
restricted stock plans) and other compensatory transactions not in connection
with capital raising; (b) securities issued in connection with a stock split,
stock dividend or other similar recapitalization; (c) securities issued as a
result of the exercise of conversion rights of existing and outstanding
derivative securities, including but not limited to adjustments of such rights
by reason of anti-dilution protections; and (d) securities issued in connection
with a corporate reorganization, including a reorganization in which the Company
does not survive.
Section 4.9. Registration of Shares.
(a) The Company agrees to include the shares of
Common Stock sold to the Investor pursuant to this Agreement (i) on the Form S-3
to be filed by the Company with the Commission during the Current Financing
Period or (ii) on a separate Form S-3 to be filed by the Company with the
Commission within 30 days after the Closing Date.
(b) The Company and the Investor hereby agree that
the terms of Sections 2(d), 3, 4 , 5, 6, 7, 8 and 9 (the "Incorporated
Sections") set forth in the Registration Rights Agreement, a copy of which is
attached hereto as Exhibit 4.9 are made a part of this Agreement as if set forth
in their entirety herein and subtitling them "Investor" (as defined herein) for
the term "Initial Investor" each place it appears in the Incorporated Sections.
Section 4.10. Auditor. The Company shall retain a firm of
certified public accountants of established national reputation to audit its
books and records at least annually.
17
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Section 4.11. Termination of Covenants. The covenants of the
Company contained in this Section shall terminate, and be of no further force or
effect, at such time where an Investor holds less than 15% of the Shares issued
to such Investor on the Closing Date. Notwithstanding the foregoing, the
provisions of Section 4.09 shall remain in effect until such time as an
Investor, together with its Qualified Holder transferee(s) holds less than 15%
of the Shares issued to such Investor on the Closing Date.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
Each Investor represents and warrants to the Company, at and as of
the Closing that:
Section 5.1. Power and Authority. The Investor has full power
and authority and, if not an individual Investor, has taken all required
corporate (or trust or partnership, as the case may be) and other action
necessary to permit it to execute and deliver this Agreement, and all other
documents or instruments required by this Agreement, and to carry out the terms
of this Agreement and of all such other documents or instruments.
Section 5.2. Purchase for Investment. The Investor is
purchasing the Common Stock for investment, for its own account and not for the
account of any Employee Benefit Plan (or if such Common Stock is being acquired
for the account of any such Plan, such acquisition does not involve a nonexempt
prohibited transaction within the meaning of Section 406 of ERISA or Section
4975 of the Code) and not with a view to distribution thereof, except for
transfers permitted hereunder. The Investor understands that the Common Stock
must be held indefinitely unless it is registered under the `33 Act or an
exemption from such registration becomes available.
Section 5.3. Financial Matters. The Investor represents and
warrants to the Company that it understands that the purchase of the Shares
involves substantial risk and that its financial condition and investments are
such that it is in a financial position to hold the Shares for an indefinite
period of time and to bear the economic risk of, and withstand a complete loss
of, such Shares. In addition, by virtue of its expertise, the advice available
to it and previous investment experience, such Investor has extensive knowledge
and experience in financial and business matters, investments, securities and
private placements and the capability to evaluate the merits and risks of the
transactions contemplated by this Agreement. The Investor represents that it is
an "accredited investor" as that term is defined in Regulation D promulgated
under the '33 Act.
During the negotiation of the transactions contemplated herein, the
Investor and its representatives have been afforded full and free access to
corporate books, financial statements, records, contracts, documents, and
other information concerning the Company and to its offices and facilities,
have been afforded an opportunity to ask such questions of the Company's
officers and employees concerning the Company's business, operations,
financial condition, assets, liabilities and other relevant matters as they
have deemed necessary or desirable, and have been
18
<PAGE>
given all such information as has been requested, in order to evaluate the
merits and risks of the prospective investment contemplated herein.
Section 5.4. Brokers, etc. The Investor has not dealt with any
broker, finder, commission agent, or other similar person in connection with the
offer or sale of the Common Stock and the transactions contemplated by this
Agreement, and is under no obligation to pay any broker's fee, finder's fee, or
commission in connection with such transactions.
ARTICLE VI
THE CLOSING AND CLOSING CONDITIONS
Section 6.1. The Closing. The purchase and sale of the Common
Stock shall take place at the Closing to be held at the offices of Morrison &
Foerster LLP. 1290 Avenue of the Americas, New York, New York 10104-0012. The
Closing shall occur on January 26, 1998, or, at the Company's option, such other
date not later than January 29, 1998, as the Company and the Investor may
designate.
The obligation of the Investor to purchase the Common Stock at the
Closing shall be subject to satisfaction of the following conditions at and as
of the Closing:
Section 6.2. Issuance of Common Stock. The Company shall have
duly issued and delivered certificates to the Investor for the number shares of
the Common Stock purchased by the Investor as provided in Exhibit 2.1.
Section 6.3. Legal Opinion from Counsel for the Company. There
shall be delivered to the Investor the written opinions of Morrison & Foerster
LLP and Certilman Balin Adler & Hyman, LLP, counsel for the Company, in
substantially the form attached as Exhibit 2.4.
Section 6.4. Certificate of Officer of the Company. The
Company shall have delivered to the Investors a certificate of its chief
executive and chief financial officers, or alternatives therefor satisfactory to
counsel for the Investor, dated the date of the Closing, to the effect that the
representations and warranties of the Company are true at and as of the Closing
as if made at and as of the Closing, and that each of the conditions in this
Article 6 has been satisfied.
Section 6.5. Consents and Waivers. The Company shall have
secured a consent to the issuance from the initial purchaser of the Notes, HSBC
Securities, Inc. and a waiver of pre-emptive rights by Pangaea Fund Ltd., each
in form reasonably satisfactory to the Investors.
Section 6.6. Representations and Warranties to be True and
Correct. The representations and warranties contained in Article III shall be
true and correct on and as of the Closing Date with the same effect as though
such representations and warranties had been made on and as of such date (except
to the extent that any representations and warranties of the
19
<PAGE>
Company specifically apply to conditions existing at a particular date), and the
Company shall have certified to such effect to the Investor in writing.
Section 6.7. Performance. The Company shall have performed and
complied with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the Closing Date, and the
Company shall have certified to such effect to the Investor in writing.
Section 6.8. All Proceedings to Be Satisfactory. All corporate
and other proceedings to be taken by the Company in connection with the
transactions contemplated hereby and all documents incident thereto shall be
satisfactory in form and substance to the Investor and its special counsel, and
the Investor and said counsel shall have received all such counterpart originals
or certified or other copies of such documents as they may reasonably request.
Section 6.9. Reasonable Satisfaction of Investor and Counsel.
All instruments applicable to the issuance and sale of the Common Stock and all
proceedings taken in connection with the transactions contemplated by this
Agreement shall be reasonably satisfactory to the Investors and their counsel.
ARTICLE VII
MISCELLANEOUS
Section 7.1. Expenses. The Company and the Investor will bear
their own expenses, including legal fees, in connection with this Agreement.
Section 7.2. Remedies Cumulative. Except as herein provided,
the remedies provided herein shall be cumulative and shall not preclude
assertion by any party hereto of any other rights or the seeking of any other
remedies against the other party hereto.
Section 7.3. Brokerage. Each party hereto will indemnify and
hold harmless the others against and in respect of any claim for brokerage or
other commission relative to this Agreement or to the transaction contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
Section 7.4. Severability. Whenever possible, each provision
of this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provisions shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
Section 7.5. Parties in Interest. All covenants and agreements
contained in this Agreement by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the
20
<PAGE>
respective legal representatives, successors and assigns of the parties hereto
whether so expressed or not.
Section 7.6. Notices. Notices required under this Agreement
shall be deemed to have been adequately given if delivered in person or sent by
certified mail, return receipt requested, to the recipient at its address set
forth in Exhibit 7.6 or such other address as such party may from time to time
designate in writing.
Section 7.7. No Waiver. No failure to exercise and no delay in
exercising any right, power or privilege granted under this Agreement shall
operate as a waiver of such right, power or privilege. No single or partial
exercise of any right, power or privilege granted under this Agreement shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies provided in this Agreement
are cumulative and are not exclusive of any rights or remedies provided by law.
Section 7.8. Amendments and Waivers. Except as herein
provided, this Agreement may be modified or amended only by a writing signed by
the Company and by the Investors.
Section 7.9. Survival of Agreements, etc. All agreements,
representations and warranties contained in this Agreement or made in writing by
or on behalf of the Company or the Investor in connection with the transactions
contemplated by this Agreement shall survive the execution and delivery of this
Agreement, the Closing, and any investigation at any time made by or on behalf
of the Investor. Notwithstanding the preceding sentence, however, all such
representations (other than intentional misrepresentations) and warranties, but
no such agreements, shall expire three years after the date of this Agreement.
The Company shall indemnify and hold the Investor harmless from and against all
costs, expenses (including attorneys fees), damages or other liabilities
resulting from a material breach by the Company of any of its representations,
warranties or agreements contained herein.
Section 7.10. Construction. This Agreement shall be governed
by and construed in accordance with the procedural and substantive laws of the
State of New York without regard for its conflicts-of-laws rules. The Company
agrees that it may be served with process in the State of New York and any
action for breach of this Agreement prosecuted against it in the courts of that
State.
Section 7.11. Entire Understanding. This Agreement expresses
the entire understanding of the parties and supersedes all prior and
contemporaneous agreements and undertakings of the parties with respect to the
subject matter of this Agreement.
Section 7.12. Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original but
all of which taken together shall constitute one agreement.
Section 7.13. Assignment; No Third-Party Beneficiaries.
21
<PAGE>
(a) This Agreement and the rights hereunder shall not
be assignable or transferable by either of the Investors or the Company without
the prior written consent of the other parties hereto except, in the case of the
Investors, in accordance with the restrictions on transfer set out in this
Agreement and, in the case of the Company, by operation of law in connection
with a merger, consolidation or sale of substantially all the assets of the
Company. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns. The assignment by the either Investor on a
nonexclusive basis of any rights under this Agreement to any such transferee
shall not affect or diminish the rights or obligations of such Investor under
this Agreement and in no event shall any assignment relieve such Investor of its
obligations hereunder.
(b) This Agreement is for the sole benefit of the
parties hereto and their permitted assigns and nothing herein expressed or
implied shall give or be construed to give to any Person, other than the parties
hereto and such assigns, any legal or equitable rights hereunder.
ARTICLE VIII
TERMINATION
Section 8.1. Termination. This Agreement may be terminated at
any time prior to the Closing:
(a) by mutual consent of the Investor and the
Company;
(b) by each of the Company and the Investor if the
Closing shall not have occurred by January 29, 1998, provided that the failure
to consummate the transactions contemplated hereby is not a result of the
failure by the party so electing to terminate this Agreement to perform any of
its obligations hereunder.
Section 8.2. Effect of Termination. Except for the obligations
of Sections 7.1 and 7.3 hereof, if this Agreement shall be terminated pursuant
to Section 8.1, all obligations, representations and warranties of the parties
hereto under the Agreement shall terminate and there shall be no liability,
except for any breach of this Agreement prior to such termination, of any party
to another party.
ARTICLE IX
RIGHT OF CO-SALE
If Galesi proposes to sell any Shares ("Co-Sale Shares") to a party
or affiliated group (the "Transferee") in a transaction or series of
transactions during the twelve month period following the Closing Date
involving the sale of more than 500,000 shares or resulting in the Transferee
for the first time controlling the power to vote more than 35% of the total
votes for nominees to the Company's board of directors, Galesi shall first
give reasonable notice in reasonable detail to the Investor in sufficient time
to allow the Investor to participate in the sale on the same terms and
22
<PAGE>
conditions as Galesi. To the extent any prospective purchaser or purchasers
refuses to purchase shares or other securities from the Investor exercising
its rights of co-sale hereunder, Galesi shall not sell to such prospective
purchaser or purchasers any Shares unless and until, simultaneously with such
sale, Galesi shall purchase the offered shares or other securities from the
Investor. Notwithstanding the foregoing, the provisions of Article IX shall
not apply to (i) any pledge of Co-Sale Shares made pursuant to a bona fide
loan transaction that creates a mere security interest; (ii) any transfer to
the ancestors, descendants or spouse, employees of entities owned or
controlled, or to trusts for the benefit of such persons, of Galesi; or (iii)
any bona fide gift; provided that (A) Galesi shall inform the Investor of such
pledgee, transfer or gift prior to effecting it and (B) the pledgee,
transferee or donee shall furnish the Investor with a written agreement to be
bound by and comply with all provisions of Article IX. Such transferred
Co-Sale Shares will remain "Co-Sale Shares" hereunder, and such pledgee,
transferee or donee shall be treated as "Galesi" for purposes of this
Agreement.
Notwithstanding the foregoing, the provisions of Article IX shall not
apply to the sale of any Co-Sale Shares (a) on the open market, including
block trades, except that Galesi shall be required to provide reasonable
advance notice to the Investor of any such sales in excess of the limitations
imposed by Rule 144(e) promulgated under the 33 Act whether or not such
limitations then apply; or (b) to the public pursuant to a registration
statement filed with, and declared effective by, the Commission, provided that
the Investor shall have the right to include its Shares in any such
registration statement filed in connection with an underwritten public
offering (subject to any limitation placed by the managing underwriter on the
number of shares of Common Stock which may be included in such registration
statement).
ARTICLE X
COVENANTS OF THE INVESTOR
Section 10.1. Lock-up Period. The Investor agrees not to
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, any of the Shares beneficially owned by the Investor for a period
of 365 days from the date hereof without the prior written consent of the
Company. Notwithstanding the foregoing, the provisions of this Section 10.1
shall not apply to (i) any private sale or other disposition to any Qualified
Holder (A) not on the open market or (B) to the public pursuant to a
registration statement filed with the Commission, provided that the Qualified
Holder acquiring such Shares shall agree to be bound by the provisions of this
Section 10.1 or (ii) the sale of Co-Sale Shares pursuant to Article IX hereof.
ARTICLE XI
ARBITRATION
If at any time there shall be a dispute arising out of or relating to
any provision of this Agreement or any agreement contemplated hereby, such
dispute shall be submitted for binding and final determination by arbitration
in accordance with the regulations then obtaining of the
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<PAGE>
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) resulting from such arbitration shall be in writing, and shall be
final and binding upon all involved parties. The site of any arbitration shall
be within New York City, New York.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
under seal as of the date first above written.
AMNEX, INC.
By
-----------------------------------
Name:
Title:
INVESTOR
By
-----------------------------------
Name:
Title:
With respect to ARTICLE IX only
-------------------------------------
Francesco Galesi
25
<PAGE>
ATTACHMENTS TO:
---------------
FORM OF STOCK PURCHASE AGREEMENT
Between
AMNEX, Inc.
and
the Investors named therein
Attachments:
- - Schedule of Differences
- - Disclosure Schedule
- - Exhibit 2.1 - Schedule of Purchasers
- - Exhibit 2.4 - Opinion of Company Counsel
- - Exhibit 4.10 - Registration Rights Agreement
- - Exhibit 7.6 - Addresses for Notices
26
<PAGE>
SCHEDULE OF DIFFERENCES
-----------------------
Material differences between attached Form of Stock Purchase Agreement and the
various Stock Purchase Agreement referred to below:
<TABLE>
<CAPTION>
- ---------------------- -------------------- --------------------- --------------------- --------------------
Aggregate Purchase
Investor Date of Agreement Shares Purchased Price per Share Price
- ---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Granite Associates, January 14, 1998 1,363,637 $1.10 $1,500,000
L.P.
- ---------------------- -------------------- --------------------- --------------------- --------------------
Victory Ventures LLC January 16, 1998 1,163,794 $1.16 $1,350,000
Brea Group, Inc. 129,310 $150,000
- ---------------------- -------------------- --------------------- --------------------- --------------------
Nicholas Forstmann January 22, 1998 862,069 $1.16 $1,000,000
- ---------------------- -------------------- --------------------- --------------------- --------------------
AMN Investments, January 26, 1998 862,069 $1.16 $1,000,000
L.L.C.
- ---------------------- -------------------- --------------------- --------------------- --------------------
</TABLE>
27
<PAGE>
DISCLOSURE SCHEDULES
Schedule 3.2
Options, Warrants, Registration Rights, etc.
(i) Outstanding options, warrants, scrip, rights to subscribe for, puts,
calls, rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or
securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries
Options
Total number of outstanding options: approximately 3,563,198
Outstanding Warrants
Total number of outstanding warrants: 5,151,615
Put Agreements
Under the Asset Purchase Agreement, dated November 8, 1996 between AMNEX,
Inc. and Cresent Public Communications Inc., Coastal Telecom Payphone Company,
Inc., BEK TEL, Inc., Garden State Telephone Installation & Service Co., Inc. and
Brian King (collectively, the "Sellers") and subject to the terms thereof,
Sellers have the right to require AMNEX to buy back a certain amount of shares
based upon AMNEX having failed to file, and if AMNEX fails to file a
registration statement within specified time periods. In no event will the
amount of shares purchased exceed $3,000,000.
Commitments
See (ii)(10) of this Schedule 3.2
Securities Convertible in Common Stock
1. $15,000,000 8 1/2% Convertible Subordinated Notes due 2002. The Notes are
convertible at any time prior to maturity at an initial conversion price
of $2.7844 into 5,387,157 shares of common stock, plus an indeterminate
amount of shares based upon adjustments to the conversion price.
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<PAGE>
2. Private Placement of 1,000 Shares of Series M Convertible Preferred
Stock. Under the Securities Purchase Agreement, dated as of December 24,
1997 between AMNEX, Inc. and Pangaea Fund Ltd., AMNEX issued 1,000 shares
of Series M Convertible Preferred Stock, convertible into shares of $.001
par value common stock of AMNEX, Inc.
3. Private Placement of 750 Shares of Series M Convertible Preferred Stock.
Under the Securities Purchase Agreement, dated as of January 26, 1998
between AMNEX, Inc. and Fourteen Hill Capital, L.P., AMNEX issued 750
shares of Series M Convertible Preferred Stock, convertible into shares
of $.001 par value common stock of AMNEX, Inc.
Right of First Refusal
1. Private Placement of 1,000 Shares of Series M Convertible Preferred
Stock. Under the Securities Purchase Agreement, AMNEX, Inc. granted
Pangaea Fund Ltd. the right to participate, on a pro-rata basis, in any
equity financing offered by AMNEX for the one year period following the
closing.
2. Stock Purchase Agreement dated as of January 14, 1998 between AMNEX, Inc.
and Granite Associates, L.P. Under the Stock Purchase Agreement granted
Granite Associates, L.P. the right to participate, on a pro-rata basis, in
offerings of securities offered by AMNEX, Inc., subject to certain
restrictions and conditions.
3. Stock Purchase Agreement dated as of January 16, 1998 among AMNEX, Inc.,
Victory Ventures LLC and Brae Group, Inc. Under the Stock Purchase
Agreement the Company granted Victory Ventures LLC and Brae Group, Inc. the
right to participate, on a pro-rata basis together with any other holder of
the Company's securities with similar preemptive rights, in offerings of
securities offered by AMNEX, Inc., subject to certain restrictions and
conditions.
4. Stock Purchase Agreement dated as of January 22, 1998 among AMNEX, Inc.
and Nicholas Forstmann Under the Stock Purchase Agreement the Company
granted Nicholas Forstmann the right to participate, on a pro-rata basis
together with any other holder of the Company's securities with similar
preemptive rights, in offerings of securities offered by AMNEX, Inc.,
subject to certain restrictions and conditions.
5. Private Placement of 750 Shares of Series M Convertible Preferred Stock.
Under the Securities Purchase Agreement, AMNEX, Inc. granted Fourteen Hill
Capital, L.P. the right to participate, on a pro-rata basis, in any equity
financing offered by AMNEX for the one year period following the closing.
29
<PAGE>
(ii) Registration Rights
1. HSBC Securities, Inc. ("HSBC") and Rausher Pierce & Clark ("RP&C").
In connection with the $15 million note offering, the Company issued
warrants to HSBC, the placement agent and RPC, the international sales
agent, for the purchase price 96,250 and 65,365 Common Shares,
respectively. HSBC and RPC were granted demand and piggyback registration
rights for the warrant shares.
2. National Operator Service, Inc. ("NOS").
Pursuant to an Equity Participation Plan for NOS, dated August 18, 1994,
NOS was issued 100,000 Common Shares and granted a warrant for the purchase
of 50,000 Common Shares. Pursuant to the Equity Participation Plan, NOS has
piggyback registration rights with respect to the shares and warrant
shares.
3. Wall Street Consultants, Inc. ("Wall Street").
On July 7, 1994, Wall Street was granted an option to acquire 50,000 Common
Shares and granted piggyback registration rights in the event of a sale by
the Company of Common Shares for cash.
4. Dominick & Dominick Incorporated ("Dominick").
On July 15, 1994, the Company granted to Dominick and certain of its
officers warrants for the purchase of 200,000 Common Shares and granted
piggyback registration rights in the event of a sale by the Company of
Common Shares for cash.
5. M.H. Myerson & Co., Inc. ("Myerson").
On July 15, 1994, the Company granted to Myerson warrants for the purchase
of 35,000 Common Shares and granted piggyback registration rights in the
event of a sale by the Company of Common Shares for cash.
6. Transaction Network Services Inc. ("TNS").
On April 3, 1996, the Company granted to TNS warrants for the purchase of
100,000 Common Shares and granted piggyback registration rights in the
event of a sale by the Company of Common Shares.
7. Coastal Communications of America ("Coastal Communications").
In connection with the acquisitions between December 1996 and March 1997 of
certain assets from Coastal Communications, the Company issued and
aggregate of 262,626 Common Shares and granted piggyback registration
rights in the event the Company filed a registration statement for the sale
by the Company of Common Shares for cash.
8. Capital Network System Inc. ("CNSI").
In connection with the Company's June 1996 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 and
granted CNSI shareholders piggyback registration rights in the
30
<PAGE>
event the Company files a registration statement covering the sale by the
Company of any securities for cash.
9. Robb, Peck, McCooey Clearing Corporation ("Robb, Peck").
The Company has agreed, upon demand, to file a registration statement with
the SEC covering the resale of an aggregate of 550,000 Common Shares
underlying certain warrants issued to Robb, Peck, and 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.
10. Teleplus, Inc.
In connection with the Company's August 1996 acquisition of certain assets
of Teleplus, the Company issued 526,168 Common Shares in January 1997,
agreed to issue an additional 526,168 Common Shares in January 1998, agreed
to register the resale of such Common Shares, and granted Teleplus
piggyback registration rights with respect to such Common Shares.
11. National Billing
In connection with the Company's September 1996 acquisition of 80% of the
outstanding Common Shares of NBE, the Company issued an aggregate of
550,725 Common Shares to the NBE shareholders, agreed to register the
resale of such Common Shares and granted the NBE shareholders piggyback
registration rights with respect to these shares.
12. Francesco Galesi
In connection with a Stock Exchange Agreement between the Company and
Francesco Galesi entered into in January 1997, the Company has 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 either
outstanding (1,500,000) or are issuable pursuant to warrants granted to him
(1,500,000). In June 1997, the Company issued additional warrants to Mr.
Galesi for the purchase of up to 500,000 Common Shares which are to be
included in the registration statement to be filed between July 1998 and
October 1998.
13. Coastal Telecom Payphone Company, Inc. ("Coastal Telecom").
In connection with the Company's November 1996 acquisition of certain
assets of Coastal Telecom, Garden State Telephone Installation and Service
Co., Inc. and BEK Tel, Inc., the Company granted piggyback registration
rights with regard to the resale of 2,282,989 Common Shares. The
registration rights only apply to a sale of securities by the Company.
14. $15,000,000 8 1/2% Convertible Subordinated Notes due 2002.
In connection with the Company's September 1997 sale of $15,000,000 8 1/2%
Convertible Subordinated Notes due 2002, the Company agreed to file a
registration statement within 90 days of the closing covering the sale of
the notes and underlying Common Shares and to use its reasonable best
efforts to cause the registration statement to be declared effective by the
SEC as soon as practible but in any event within 180 days of the closing.
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<PAGE>
15. Private Placement of 1,000 Shares of Series M Convertible Preferred Stock.
In connection with the Company's December 1997 sale of 1,000 shares of
Series M Convertible Preferred Stock (the "Series M Stock"), the Company
agreed to file a registration statement covering Common Stock issuable upon
(i) conversion of the shares of Series M Stock and (ii) exercise of
warrants (a) to purchase 40,000 shares of Common Stock issued to Pangaea
Fund Ltd. and (b) to purchase 20,000 shares of Common Stock issued to
Tanner Unman Securities and to use its reasonable best efforts to cause the
registration statement to be declared effective by the SEC within 90 days
of the closing.
16. Stock Purchase Agreement dated as of January 14, 1998 between AMNEX, Inc.
and Granite Associates, L.P. In connection with the Stock Purchase
Agreement, the Company agreed to use its best efforts to register the
shares of common stock issued to Granite Associates, L.P. on a registration
statement to be filed by AMNEX, Inc. on prior to January 29, 1998.
17. Stock Purchase Agreement dated as of January 16, 1998 among AMNEX, Inc.,
Victory Ventures LLC and Brae Group, Inc. In connection with the Stock
Purchase Agreement, the Company agreed to to register the shares of common
stock issued to Victory Ventures LLC and Brae Group, Inc. on a registration
statement to be filed by AMNEX, Inc. on prior to January 29, 1998, or other
similar registration statement prepared by AMNEX, Inc. within 30 days of
the closing.
18. Stock Purchase Agreement dated as of January 22, 1998 among AMNEX, Inc.
and Nicholas Forstmann In connection with the Stock Purchase Agreement, the
Company agreed to to register the shares of common stock issued to Nicholas
Forstmann on a registration statement to be filed by AMNEX, Inc. on prior
to January 29, 1998, or other similar registration statement prepared by
AMNEX, Inc. within 30 days of the closing.
19. Private Placement of 750 Shares of Series M Convertible Preferred Stock.
In connection with the Company's January 26, 1998 sale of 750 shares of
Series M Convertible Preferred Stock (the "Series M Stock"), the Company
agreed to file a registration statement covering Common Stock issuable upon
(i) conversion of the shares of Series M Stock and (ii) exercise of
warrants (a) to purchase 30,000 shares of Common Stock issued to Fourteen
Hill Capital, L.P. and (b) to purchase 15,000 shares of Common Stock issued
to Tanner Unman Securities and to use its reasonable best efforts to cause
the registration statement to be declared effective by the SEC within 90
days of the closing.
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<PAGE>
(iii) Anti-dilution or price adjustment provisions contained in any
securities of the Company triggered by the issuance of the Common Stock of
the Company
None.
33
<PAGE>
Preemptive rights, etc.
See Rights of First Refusal.
34
<PAGE>
Schedule 3.9.1
Absence of Undisclosed Liabilities
On December 15, 1997, a billing dispute between the Company and AT&T regarding
the rates assessed pursuant to an agreement between Capital Network System, Inc.
("CNSI") and AT&T dated October 27, 1995 culminated in termination of certain
international telecommunications services provided by AT&T, including service to
Mexico. The Company is taking immediate action to restore service, with the
ultimate goal of entering into a service agreement which reflects current market
conditions and rates which are approximately 50% of rates charged by AT&T.
Although the Company has already restored service representing 50% of prior
revenues in Mexico, there is no guarantee the Company will be able to restore
service to the Caribbean, which represented approximately 10% of the total
international services previously provided by AT&T.
Additionally, the eventual resolution of the billing dispute between the Company
and AT&T may require the payment of past due sums in the amount of $1.2 million.
An additional sum of $3.6 million was the subject of dispute prior to the
acquisition of CNSI by the Company and is the subject of an indemnification
claim previously asserted.
35
<PAGE>
Schedule 3.9.2
Tax Returns
The following tax returns have not yet been filed. The federal tax return is
currently being reviewed by Ernst & Young and the state tax returns will be
filed upon completion of the E&Y review. During 1996 estimated federal and state
payments were made and hence no material liability exists related to these
unfiled tax returns.
1996 Income Tax Returns
Amnex, Inc.
Florida
Federal
New York
CNSI and ANEI:
All states except the following states for which we are not required to file:
South Dakota Alaska
Delaware Washington
Wyoming
Crescent:
New Jersey Pennsylvania
New York
AHE:
Alabama New York
California Oregon
Colorado Pennsylvania
Georgia Tennessee
Idaho Utah
Kentucky Virginia
Louisiana
Massachusetts
Mississippi
New Jersey
NBE:
California
Texas
36
<PAGE>
Schedule 3.10
No Material Adverse Change
The termination of certain telecommunication services by AT&T described more
fully in Schedule 3.7.1 may have adverse implications, although as of the daet
of this Agreement, it is the opinion of management of the Company that alternate
sources of service will result in increased profit margins.
37
<PAGE>
Schedule 3.12
Litigation
1. D. Faye Manghir v. AMNEX, Inc. and American Network Exchange, Inc.,
Index No. 603399/97, Supreme Court of the State of New York
On July 2, 1997, D. Faye Manghir, the holder of a 50% equity interest in the
joint venture company formed by Community Network Services, Inc., MicroTel
Communications Corp. and the Company (which holds the remaining 50% equity
interest), filed suit against the Company in the Supreme Court of the state of
New York. The suit alleges, among other things, that the Company made certain
misrepresentations and committed certain breaches under the joint venture
agreement among the parties, and seeks rescission of such agreement,
compensatory damages in the sum of $10,000.00, punitive damages in the sum of
$25,000,000, and attorneys' fees. The Company filed a motion to dismiss or in
the alternative to stay the proceeding pending arbitration and also a reply to
the plaintiff's response. Plaintiff has offered to settle this matter and the
Company is evaluating the offer.
2. Keystone Corporation, Coastal Telecom Payphone Co., Inc., BEK Tel. Inc.,
Garden State Telephone Installation & Service Co., Inc., National Telecom
USA, Inc., National Telecom Hospitality USA, Inc. and Brian E. King v.
AMNEX, Inc., American Network Exchange, Inc., Crescent Public
Communications Inc. and American Hotel Exchange, Inc., Index No. 97/604764,
Supreme Court o f the State of New York
On September 25, 1997, Brian King and his affiliates, National Telecom USA,
Inc., The Keystone Corporation, Coastal Telecom Payphone Company, Inc., BEK Tel,
Inc., Garden State Telephone Installation & Service Co., Inc. and National
Telecom Hospitality USA (collectively "National") filed suit against the Company
and its subsidiaries, American Network Exchange, Inc. ("ANWI"), Crescent Public
Communications Inc. ("Crescent") and American Hotel Exchange, Inc. alleging
breaches of various contracts, negligence, misappropriation of trade secrets,
conversion of various assets, fraud, negligent misrepresentations and promissory
estoppel, and seeking rescission of certain claims, specific performance of
other claims, damages in the amount of $6,300,000, punitive damages and
attorneys' fees. On September 30, 1997, the Company and National reached an
agreement of settlement of certain of the claims. Pursuant to this settlement,
on September 30, 1997, the Company paid National $1,000,000 in cash and
delivered a note in the principal amount of $840,000 (the "National Note").
Thereafter, the Company filed a motion to dismiss and compel arbitration or, in
the alternative, to stay pending arbitration and also a reply to plaintiffs'
response.
The plaintiffs also attempted to obtain a temporary restraining order and then a
permanent injunction to stop the Company from (i) reducing temporarily their
weekly payments to reflect accrued billing and related interest costs associated
with their traffic and (ii) increasing the charge for the underlying unbundled
services the Company provides for them. The TRO was denied after oral argument.
To date, no decision has been made on the permanent injunction.
38
<PAGE>
3. Robert A. Rowland vs. AMNEX, Inc. and Capital Network System, Inc.
("CNSI"), No. 97-07955, District Court of Travis County, Texas
In connection with the Company's June 1996 acquisition of Capital Network
System, Inc. ("CNSI"), CNSI issued a promissory note in favor of Robert A.
Rowland (the "Rowland Note"), a principal shareholder of the Company, in the
principal amount of $1,197,700 payable on July 31, 1997, with interest due on
the unpaid principal balance at a rate of 10.5% per annum. On July 11, 1997, Mr.
Rowland filed this suit. He assets several causes of action against the Company,
including enforcement of an alleged settlement agreement regarding
indemnification claims, and seeks damages in the amount of the principal and
interest due under the Rowland Note, attorneys' fees and exemplary damages in an
unstated amount. The causes of action asserted by Mr. Rowland against CNSI
relate to monies allegedly due under a consulting agreement, and damages claimed
include attorneys' fees. The Company is planning to appeal the denial of its
motion to compel arbitration and plea to abate the action and has asserted as an
affirmative defense a fraud claim against Mr. Rowland.
4. Derivative Claims Threatened by Robert A. Rowland
On August 11, 1997, the Company received a letter from counsel to Mr. Rowland
which demanded that the Board of Directors conduct an investigation into certain
matters, specifically (i) the propriety of certain transactions with Mr. Galesi
and (ii) possible mismanagement of the Company. Counsel to Mr. Rowland demanded
that suit be brought against any officer or Director of the Company for
wrongdoing, fraud, breach of fiduciary duty, self dealing, gross mismanagement
or under any other theory of liability and further stated that if his demand is
refused, Mr. Rowland will take appropriate action, including possibly a
shareholder's derivative action. On August 29, 1997, the Company advised counsel
to Mr. Rowland that the outside Directors of the Company have been requested to
investigate the assertions made.
5. Arbitration Award
A number of disputes between the Company and John Kane, a former employee, were
decided by an arbitration panel on December 8, 1997. The Company expects that
Mr. Kane will take steps to have his award in the amount of $138,704.11
confirmed by a court.
6. Dolphin USA, Inc. v. Capital Network System, Inc. and American Network
Exchange, Inc., Case No. 96-49931, District Court of Harris County, Texas
On September 30, 1996, Dolphin USA, Inc. ("Dolphin") brought suit against the
Company's affiliates ANEI and CNSI. The suit is based primarily on an alleged
breach of contract for the provision of long distance service. Dolphin has
requested damages in the amount of approximately $2,000,000. ANEI and CNSI have
counterclaimed for the $30,000 unpaid balance of a promissory note, which claim
is undisputed. The parties are currently engaged in discovery and the case is
currently scheduled for mediation in early February 1998 and trial in April
1998.
39
<PAGE>
7. Midcom Communications, Inc. v. Fulfillment Enterprises, Inc. and Capital
Network System, Inc., Arbitration Hearings, Case No. 75 199 257 96
On July 24, 1997, Midcom Communications, Inc. filed a lawsuit against
Fulfillment Enterprises, Inc. ("FEI"), a CNSI subsidiary which AMNEX did not
acquire, and CNSI. Midcom alleges CNSI is jointly and severally liable for
monies due for services provided to FEI by Midcom. Midcom claims that FEI
assigned all of its obligations under a contract between Midcom and FEI to CNSI,
an alleged "affiliate" of FEI, or, alternatively, that FEI and CNSI were a
single business enterprise thereby making CNSI liable for the outstanding
invoices, totaling about $200,000.00. CNSI has filed a general denial.
8. Scorpion Enterprises, Inc. d/b/a the Wine Cellar, USA Car Rental, Auto
Security & Sound and LA Dam Limo v. Coin-Tel Communications, National
Telecom USA, Inc., Coastal Telecom Payphone, Inc., John Doe, Richard Roe,
ABC Company and DEF Corp., Docket No. UNN-L-5628-97, Superior Court of
New Jersey Law Division: Union County
Crescent acquired the assets of Coastal Telecom Payphone, Inc. ("Coastal") in
1996. This is a suit for recovery of back commissions in the total amount of
$41,000.00 allegedly owed by Coastal. The alleged liability both predates and
postdates the closing of the Coastal/Crescent transactions. To date, the
Company has not been properly served with this lawsuit.
9. James Bruen, on his own behalf, and on behalf of all persons similarly
situated, and on behalf of the general public v. Asia Pacific Telecom,
National Business Exchange, Inc., Pacific Bell, MCI Communications
Corporation and Docs I through XX. No. 985470, Superior Court of the State
of California, County of San Francisco.
NBE provides billing and collection services for various telecommunications
companies based on information provided by those companies. This is a class
action suit for injunction, restitution and other relief filed against NBE and
certain other parties concerning the wrongful billing of charges (a total of
$59.85) for Internet services, which charges the Plaintiff states were not
properly authorized. Plaintiff alleges a violation of the Consumer Legal
Remedies Act, unfair business practices, intentional misrepresentation, and
negligent misrepresentation. The only prayer for judgment affecting the Company
is that NBE be enjoined from seeking to collect monies from members of the class
on behalf of Asia Pacific, its former client.
10. Keith Maydak, as assignee for Zankle Worldwide Telecom Group, Inc.
(d/b/a Mr. Gickles, Inc.) v. American Network Exchange, Inc., Case No.
1309 C.D. 1996, Court of Common Pleas of McKeon County, Pennsylvania,
Civil Division
ANEI entered into a contract to provide telecommunications services with a
company doing business as Mr. Gickles, Inc. The Company's fraud department
determined that there were massive fraud on the account. The contractual
relationship was terminated and no additional commissions were paid. Some years
later, Keith Maydak, a former office of Mr. Gickles, filed suit against ANEI in
Pennsylvania. The initial claim made in the lawsuit was for $6,883.94.
However, Mr. Maydak has now increased his claim to $1 million. Eventually, the
Company prevailed on a motion to dismiss. Mr. Maydak has appeal the dismissal.
40
<PAGE>
11. Pennsylvania Public Commission ("PUC"), Informan Investigation Number
97.0145
In the third quarter of 1997, the PUC initiated an informan investigation into
two limited aspects of the Company's operator services operations in that state.
In response, ANEI has provided certain information and voluntarily ceased
charging a set use fee on certain local exchange carrier-owned payphones. Given
its voluntary actions, the Company does not expect that resolution of the
investigation will have a material adverse effect on its operations.
12. Default
Letter dated January 13, 1998 from Greenstein, DeLorme & Luchs, P.C., counsel to
the property manager to AMNEX, Inc., as tenant, in regard to leased premises
located at 1220 L Street, N.W., Washington, D.C. (the "Washington Site"). The
letter states that a suit has been instituted in the Landlord and Tenant Branch
of the Civil Division of the Superior Court of the District of Columbia. AMNEX
no longer maintains assets or operations at the Washington Site. On an
accelerated basis, the total sum of payments due under the lease is
approximately $15,00.
13. Summit Capital Corp. v Capital Network, Inc. No. CV98-00188, Superior
Court of the State of Arizona
The suit is for all default remedies available under an equipment lease,
including the sum of $236,148 for lease payments on an accelerated basis
41
<PAGE>
Schedule 3.13.1
Government Approvals
See item 11 on Schedule 3.12
42
<PAGE>
Schedule 3.19
Environmental Matters
None.
43
<PAGE>
Schedule 3.20
Title to Property
1,000 shares of common stock of Capital Network System, Inc. were pledged to
Sirrom Capital Corporation on June 28, 1996 as security for a $2,000,000 loan.
44
<PAGE>
EXHIBIT 2.1
<TABLE>
<CAPTION>
SCHEDULE OF PURCHASERS
- ---------------------- -------------------- --------------------- --------------------- --------------------
Date of Agreement Shares Purchased Price per Share Aggregate Purchase
Investor Price
- ---------------------- -------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
- ---------------------- -------------------- --------------------- --------------------- --------------------
Granite Associates, January 14, 1998 1,363,637 $1.10 $1,500,000
L.P.
- ---------------------- -------------------- --------------------- --------------------- --------------------
Victory Ventures LLC January 16, 1998 1,163,794 $1.16 $1,350,000
Brea Group, Inc. 129,310 $150,000
- ---------------------- -------------------- --------------------- --------------------- --------------------
Nicholas Forstmann January 22, 1998 862,069 $1.16 $1,000,000
- ---------------------- -------------------- --------------------- --------------------- --------------------
AMN Investments, January 26, 1998 862,069 $1.16 $1,000,000
L.L.C.
- ---------------------- -------------------- --------------------- --------------------- --------------------
</TABLE>
45
<PAGE>
EXHIBIT 2.4
OPINION OF COMPANY COUNSEL
January __, 1998
Investor
Address
Re: Securities Purchase Agreement, dated January __, 1998, among
AMNEX, Inc. and the Investor named therein.
Ladies and Gentlemen:
We have acted as special counsel for AMNEX, Inc., a New York
corporation (the "Company"), in connection with the transactions contemplated by
the Stock Purchase Agreement, dated January __, 1998 among the Company and the
investors named therein (the "Stock Purchase Agreement"). This opinion is
furnished to you pursuant to Section 6.3 of the Stock Purchase Agreement.
We have examined originals or copies of the Stock Purchase Agreement.
Unless otherwise defined herein, terms defined in the Stock Purchase Agreement
shall have the same meanings herein.
The opinions hereinafter expressed are subject to the following further
qualifications and exceptions:
(1) 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.
(2) Limitations imposed by general principles of equity upon the
availability of equitable remedies or the enforcement of provisions of the Stock
Purchase Agreement, 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
unreasonable.
(3) We express no opinion as to the effect on the opinions expressed
herein of (a) the compliance or non-compliance of any party to the Stock
Purchase Agreement (other than the Company) with any laws or regulations
applicable to it, or (b) the legal or regulatory status or the nature of the
business of any such party.
46
<PAGE>
(4) We express no opinion as to compliance by the Company with any:
(i) state securities law; (ii) antitrust law; (iii) patent law; (iv)
environmental law; and (v) bankruptcy law.
(5) The effect of judicial decisions which may permit the introduction
of extrinsic evidence to supplement the terms of the Documents or to aid in the
interpretation of the Stock Purchase Agreement.
(6) The enforceability of provisions of the Stock Purchase providing
for indemnification or contribution, to the extent such indemnification or
contribution is against public policy.
(7) The enforceability of provisions of the Stock Purchase Agreement
imposing or which could be construed as effectively imposing a penalty.
(8) The enforceability of any provision of the Stock Purchase
Agreement which purports to establish a particular court as the forum for the
adjudication of any controversy relating to the Stock Purchase Agreement.
Based upon and subject to the foregoing, we are of the opinion that:
(a) The Company is a corporation validly existing as a corporation and
in good standing under the laws of the State of New York, with full corporate
power and authority to conduct its business as described in the Company's Annual
Report on Form 10-K for its fiscal year ended December 31, 1996, as amended, and
is duly qualified as a foreign corporation to do business in each jurisdiction
in which the failure to so qualify would have a Material Adverse Effect.
(b) As of the date hereof, the authorized capital stock, of the
Company consists of 70,000,000 shares of Common Stock, $.001 par value, of which
________ shares are issued and outstanding and (b) 5,000,000 shares of Preferred
Stock, $.001 par value, of which ___________ shares are issued and outstanding.
All of such outstanding shares have been validly issued and are fully paid and
nonassessable. No shares of Common Stock or Preferred Stock are subject to
preemptive rights or any other similar rights of the stockholders of the Company
pursuant to any agreement by which the Company is bound. Except as disclosed in
in the Company's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q,
as filed with the Securities and Exchange Commission, or as set forth on
Schedule 3.2 to the Stock Purchase Agreement, (x) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or
arrangements by which the Company or any of its subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
subsidiaries except as disclosed in the Securities Purchase Agreement, and (y)
there are no agreements or arrangements under which the Company or any of its
subsidiaries is obligated to register the sale of its or their securities under
the 1933 Act (except as set forth in the Stock Purchase Agreement).
(c) Except as disclosed in the Company's Annual Report on Form 10-K
for the year
47
<PAGE>
ended December 31, 1996 and Quarterly Reports on Form 10-Q for the periods ended
June 30, 1997 and September 30, 1997, as the same may have been amended, or as
set forth on Schedule 3.12 to the Securities Purchase Agreement, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board or body or any governmental agency or self-regulatory organization
pending or threatened against or affecting the Company or any of its
subsidiaries, wherein an unfavorable decision, ruling or finding would have a
Material Adverse Effect or which would adversely affect the validity or
enforceability of or the authority or ability of the Company to perform its
obligations under the Stock Purchase Agreement.
(d) The execution, delivery and performance of and compliance with the
Documents and the issuance of the Shares have not resulted and will not result
in any violation of, conflict with, or constitute a default under (or an event
which with the passage of time or the giving of notice or both would constitute
a default under), any contract, agreement, instrument, judgment or decree
binding upon the Company, which, individually or in the aggregate, would have a
Material Adverse Effect.
(e) The Company has the corporate power and authority to execute and
deliver, and to perform and observe the provisions of, the Stock Purchase
Agreement, and to issue, sell and deliver the Shares.
(f) The Stock Purchase Agreement has been duly authorized, executed
and delivered by the Company. The Stock Purchase Agreement constitutes valid and
binding obligations of the Company enforceable against the Company in accordance
with their respective terms.
(g) There are no preemptive rights to subscribe for or purchase any
Preferred Stock or Common Stock pursuant to the Company's Certificate of
Incorporation or Bylaws.
(h) The Shares have each been duly authorized. Upon payment and
delivery in accordance with the Securities Purchase Agreement, the Shares will
be validly issued, fully paid and nonassessable.
(i) The Company meets the eligibility requirements for the use of Form
S-3 for the registration of the Shares.
(l) The execution, delivery and performance of the Stock Purchase
Agreement by the Company are not in violation of its certificate of
incorporation or by-laws.
(m) The sale and issuance of the Shares in accordance with the terms
of the Stock Purchase Agreement will not violate any federal or New York statute
or regulation applicable to the Company.
(n) No registration with, consent or approval of, notice to, or other
action by, any governmental entity is required on the part of the Company for
the execution, delivery or performance by the Company of the Stock Purchase
Agreement, or for the issuance and sale by the Company of the Shares, or, if
required, such registration has been made, such consent or
48
<PAGE>
approval has been obtained, such notice has been given or such other appropriate
action has been taken.
(o) The offering and sale of the Shares is exempt from registration under the
Securities Act of 1933, as amended.
Very truly yours,
49
<PAGE>
EXHIBIT 4.10
REGISTRATION RIGHTS AGREEMENT
See Exhibit 10.2 to the Report on Form 10-K of which this Exhibit 10.5 forms a
part for the Registration Rigths Agreement
50
<PAGE>
EXHIBIT 7.6
ADDRESSES FOR NOTICES
AMNEX, Inc.
6 Nevada Drive
Lake Success, NY 11042
Attention: Chief Executive Officer
Facsimile: (203) 629-8959
Granite Associates, L.P.
1 Cablevision Center
P.O. Box 311
Liberty, NY 12754
Victory Ventures L.L.C.
645 Madison Avenue, 22nd Floor
New York, NY 10022
Facsimile: (212) 644-5498
Brea Group, Inc.
c/o Victory Ventures L.L.C.
645 Madison Avenue, 22nd Floor
New York, NY 10022
Facsimile: (212) 644-5498
Nicholas Forstmann
767 Fifth Avenue
New York, NY 10153
AMN Investments, L.L.C.
One Liberty Lane
Hampton, NH 03842
51
<PAGE>
52
<PAGE>
Exhibit 10.6
COMMON STOCK WARRANT
The Transferability of This Warrant is
Restricted as Provided in Section 3.
Void after January 26, 2003 Right to Purchase 750,000
shares of Common Stock
(subject to adjustment)
PREAMBLE
AMNEX, Inc. (the "Company"), a New York corporation, hereby certifies
that, for value received, Francesco Galesi (such person or any subsequent
valid record and beneficial owner, "Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company at any time or from time
to time before 5:00 P.M. New York time, on January 26, 2003, fully paid and
nonassessable shares of Common Stock, par value $.001 per share, of the
Company, at the purchase price per share (the "Purchase Price") of $1.50 (the
"Initial Purchase Price"). The number and character of such shares of Common
Stock and the Purchase Price are subject to adjustment as provided herein.
This Warrant Certificate evidences the Common Stock Purchase Warrants
(the "Warrants") issued pursuant to resolutions of the Board of Directors of
the Company dated January 6, 1998 and January 14, 1998. The Warrants evidence
rights to purchase an aggregate of 750,000 shares of Common Stock of the
Company, subject to adjustment as provided in this Warrant Certificate.
1. Definitions.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" includes any corporation which shall
succeed to or assume the obligations of the Company hereunder.
(b) The term "Common Stock" includes all stock of any class or
classes (however designated) of the Company, authorized on or after the date
hereof, the holders of
<PAGE>
which shall have the right, without limitation as to amount, either to all or
to a share of the balance of current dividends and liquidating dividends after
the payment of dividends and distributions on any shares entitled to preference,
and the holders of which shall ordinarily, in the absence of contingencies, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote has been suspended by the happening of such a
contingency).
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrants, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 6 or otherwise.
(d) "Register," "registered" and "registration" shall refer to
a registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
(e) The term "Shares" means the Common Stock issued or issuable
upon exercise of the Warrants.
(f) The term "Securities Act" means the Securities Act of 1933,
or any successor federal statute, and the rules and regulations of the
Securities and Exchange Commission thereunder, all as the same shall be in
effect at the time.
(g) The term "Securities and Exchange Commission" or "Commission"
refers to the Securities and Exchange Commission or any other federal agency
then administering the Securities Act.
(h) The term "Securities Exchange Act" means the Securities
Exchange Act of 1934, or any successor federal statute, and the rules and
regulations of the Securities and Exchange Commission thereunder, all as the
same shall be in effect at the time.
2. Registration and Listing.
2.1. Registration. The Company will use its best efforts to effect as
soon as practicable the registration of all Shares on Form S-3 for purposes of
disposition by the Holders.
2.2. Listing. The Company shall secure as soon as practicable the listing
of the Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance upon exercise of this Warrant) and shall maintain,
so long as any other shares of Common Stock shall be so listed, such listing of
all Shares.
3. Restrictions on Transfer. If, at the time of any transfer or
exchange (other than a transfer or exchange not involving a change in the
beneficial ownership of such Warrant or Shares) of a
2
<PAGE>
Warrant or Shares, such Warrant or Shares shall not be registered under the
Securities Act, the Company may require, as a condition of allowing such
transfer or exchange, that the Holder or transferee of such Warrant or Shares,
as the case may be, furnish to the Company an opinion of counsel reasonably
acceptable to the Company or a "no action" or similar letter from the Securities
and Exchange Commission to the effect that such exercise, transfer or exchange
may be made without registration under the Securities Act. In the case of such
transfer or exchange and in the case of an exercise of a Warrant if the Shares
to be issued thereupon are not registered pursuant to the Securities Act, the
Company may require a written statement that such Warrant or Shares, as the case
may be, are being acquired for investment and not with a view to the
distribution thereof. The certificates evidencing the Shares issued on the
exercise of the Warrants shall, if such Shares are being sold or transferred
without registration under the Securities Act, bear a legend to the effect that
the Shares evidenced by such certificates have not been so registered.
4. Exercise of Warrants.
4.1. Exercise in Full. The Warrants may be exercised in full by
surrendering this Warrant Certificate, with the form of subscription at the end
hereof duly executed by the Holder, to the Company at its principal office. The
surrendered Warrant Certificate shall be accompanied by payment, in cash or by
certified or official bank check payable to the order of the Company, in the
amount obtained by multiplying the number of shares of Common Stock called for
on the face of this Warrant Certificate (without giving effect to any adjustment
therein) by the Purchase Price.
4.2. Partial Exercise. The Warrants may be exercised in part by surrender
of this Warrant Certificate in the manner and at the place provided in
Subsection 4.1. On any such partial exercise, subject to the provisions of
Section 3 hereof, the Company at its expense will forthwith issue and deliver to
or upon the order of the Holder a new Warrant Certificate or Certificates of
like tenor, in the name of the Holder or as the Holder may request, for the
number of shares of Common Stock (without giving effect to any adjustment
therein) equal to the number of such shares called for on the face of this
Warrant Certificate minus the number of such shares designated by the Holder in
the subscription at the end hereof.
4.3. Company Acknowledgment. The Company will, at the time of the
exercise, exchange or transfer of this Warrant, upon the request of the Holder
acknowledge in writing its continuing obligation to afford to the Holder or
transferee any rights (including, without limitation, any right to registration
of the Shares) to which the Holder or transferee shall continue to be entitled
after such exercise, exchange or transfer in accordance with the provisions of
this Warrant Certificate, provided that if the Holder shall fail to make any
such request, such failure shall not affect the continuing obligation of the
Company to afford to the Holder or transferee any such rights.
5. Delivery of Stock Certificates, Etc., on Exercise. As soon
as practicable after the exercise of this Warrant in full or in part, and in
any event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the
3
<PAGE>
name of and delivered to the Holder, or as the Holder (upon payment by the
Holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable Shares to which
the Holder shall be entitled on such exercise, plus, in lieu of any fractional
Share to which the Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then current market value of one full Share (as
computed in accordance with Subsection 6.1(c) hereof).
6. Adjustments.
6.1. Adjustment of Purchase Price. The Purchase Price hereof shall
be subject to adjustment from time to time as follows:
(a) In case the Company shall (i) pay a dividend on its Common
Stock in Common Stock, (ii) subdivide its outstanding shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a small number of
shares, then, in such an event, the Purchase Price in effect immediately prior
thereto shall be adjusted proportionately so that the adjusted Purchase Price
will bear the same relation to the Purchase Price in effect immediately prior to
any such event as the total number of shares of Common Stock outstanding
immediately prior to any such event shall bear to the total number of shares of
Common Stock outstanding immediately after such event. An adjustment made
pursuant to this subdivision (a), (i) shall become effective retroactively
immediately after the record date in the case of a dividend and (ii) shall
become effective immediately after the effective date in the case of a
subdivision or combination. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein.
(b) In case the Company shall distribute to holders of shares of
Common Stock Other Securities, evidences of its indebtedness or assets
(excluding cash dividends or distributions) or purchase rights, options or
warrants to subscribe for or purchase such Other Securities, evidences of
indebtedness or assets (excluding those referred to in subdivision (b) above),
then in each such case the Purchase Price in effect thereafter shall be
determined by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, of which the numerator shall be the total number of outstanding
shares of Common Stock multiplied by the current market price per share of
Common Stock (as determined in accordance with the provisions of subdivision (d)
below) on the record date mentioned below, less the fair market value as
determined by the Board of Directors (whose determination shall be conclusive)
of the Other Securities, assets or evidences of indebtedness so distributed or
of such rights or warrants, and of which the denominator shall be the total
number of outstanding shares of Common Stock multiplied by such current market
price per share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively immediately after
the record date for the determination of stockholders entitled to receive such
distribution.
(c) For the purpose of any computation under subdivision (b) above,
the current market price per share of Common Stock at any date shall be
deemed to be the fair
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market value as determined by the Board of Directors of the Company (whose
determination shall be conclusive).
(d) No adjustment of the Purchase Price shall be made if the amount
of such adjustment shall be less than one cent ($.01) in effect at the time such
adjustment is otherwise required to be made, but in such case any adjustment
that would otherwise be required then to be made shall be carried forward and
shall be made at the time of and together with the next subsequent adjustment,
which, together with any adjustment so carried forward, shall amount to not less
than one cent ($.01).
6.2. Adjustment of Number of Shares of Common Stock. Upon each adjustment
of the Purchase Price pursuant to subdivision (a) of Subsection 6.1, the number
of shares of Common Stock purchasable upon exercise of the Warrants shall be
adjusted to the number of shares of Common Stock, calculated to the nearest one
hundredth of a share, obtained by multiplying the number of shares of Common
Stock purchasable immediately prior to such adjustment upon the exercise of the
Warrants by the Purchase Price in effect prior to such adjustment and dividing
the product so obtained by the new Purchase Price.
6.3. Certificate of Adjustment. Whenever the Purchase Price is adjusted as
herein provided, the Company shall compute the adjusted Purchase Price in
accordance with Subsection 6.1 and shall prepare a certificate signed by its
Chairman of the Board, Vice Chairman of the Board, President or Vice President
and its principal accounting officer setting forth the adjusted Purchase Price
and showing in reasonable detail the method of such adjustment and the fact
requiring the adjustment and upon which such calculation is based, and such
certificate shall forthwith be forwarded to the Holder.
6.4. Form of Warrant Certificate. The form of this Warrant Certificate
need not be changed because of any change in the Purchase Price pursuant to this
Section 6 and any Warrant Certificate issued after such change may state the
same Purchase Price and the same number of shares of Common Stock as are stated
in this Warrant Certificate as initially issued. However, the Company may at any
time in its sole discretion (which shall be conclusive) make any change in the
form of this Warrant Certificate that it may deem appropriate and that does not
affect the substance thereof. Any Warrant Certificate thereafter issued or
countersigned, whether in exchange or substitution for an outstanding Warrant
Certificate or otherwise, may be in the form as so changed.
6.5. Reorganization. In case of any capital reorganization of the
Company, or of any reclassification of the Common Stock, the Warrants shall be
exercisable after such capital reorganization or reclassification upon the terms
and conditions specified in this Warrant Certificate, for the number of shares
of stock or other securities which the Common Stock issuable (at the time of
such capital reorganization or reclassification) upon exercise of the Warrants
would have been entitled to receive upon such capital reorganization or
reclassification if such exercise had taken place immediately prior to such
action. The subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number
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of shares of Common Stock shall not be deemed to be a reclassification of the
Common Stock of the Company for the purposes of this Subsection 6.5.
6.6. Dividends, Rights, Mergers, Liquidation, Etc. In case at any time
after the date of this Warrant Certificate:
(a) The Company shall declare a dividend (or any other distribution)
on its shares of Common Stock payable otherwise than in cash out of its
earned surplus; or
(b) The Company shall authorize the granting to the holders of
its shares of Common Stock of rights to subscribe for or purchase any shares
of capital stock of any class or of any other rights; or
(c) The Company shall authorize any consolidation or merger to
which it is a party and for which approval of any shareholders of the Company is
required, or the sale or transfer of all or substantially all of its assets or
all or substantially all of its issued and outstanding stock; or
(d) Events shall have occurred resulting in the
voluntary and involuntary dissolution, liquidation or winding up of the
Company;
then the Company shall cause notice to be sent to the Holder at least 20 days
prior (or on the date of any event specified in clause (d) above) to the
applicable record date hereinafter specified, a notice stating (1) the date on
which a record is to be taken for the purpose of such dividend, distribution or
rights, or, if a record is not to be taken, the date as of which the holders of
shares of Common Stock of record to be entitled to such dividend, distribution
or rights are to be determined or (2) the date on which such consolidation,
merger, sale, transfer, initial public offering, dissolution, liquidation or
winding up is expected to become effective, and the date as of which it is
expected that holders of shares of Common Stock of record shall be entitled to
exchange their shares for securities or other property deliverable upon such
consolidation, merger, sale, transfer, dissolution, liquidation or winding up.
Failure to give any such notice of any defect therein shall not affect the
validity of the proceedings referred to in clauses (a), (b), (c) and (d) above.
6.7. Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (and any dissolution following any transfer) referred to in
this Section 6, this Warrant Certificate shall continue in full force and effect
and the terms hereof shall be applicable to the shares of stock and other
securities and property receivable on the exercise of the Warrants after the
consummation of such reorganization, consolidation or merger or the effective
date of dissolution following any such transfer, as the case may be, and shall
be binding upon the issuer of any such stock or other securities, including, in
the case of any such transfer, the person acquiring all or substantially all of
the properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant Certificate.
7. No Dilution or Impairment. The Company will not, by amendment of its
certificate of incorporation or through any reorganization, transfer of
assets, consolidation, merger,
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dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this Warrant
Certificate, but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against dilution or
other impairment.
8. Replacement of Warrants. On receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of any Warrant
Certificate and, in the case of any such loss, theft or destruction of any
Warrant Certificate, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of
any such mutilation, on surrender and cancellation of such Warrant
Certificate, the Company at its expense will execute and deliver, in lieu
thereof, a new Warrant Certificate or Certificates of like tenor.
9. Warrant Agent. The Company may, by written notice to the Holder,
appoint an agent having an office in New York, New York, for the purpose of
issuing Shares on the exercise of the Warrants or exchanging this Warrant
Certificate pursuant to Section 4, and replacing this Warrant Certificate
pursuant to Section 8, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be made at such
office by such agent.
10. Negotiability, Etc. The Warrants are issued upon the following terms, to
all of which each holder or owner hereof by the taking hereof consents and
agrees:
(a) title to the Warrants may be transferred by endorsement (by the
Holder executing the form of assignment at the end hereof) and delivery in the
same manner as in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) any person in possession of this Warrant Certificate properly
endorsed is authorized to represent himself as absolute owner hereof and is
empowered to transfer absolute title hereto by endorsement and delivery hereof
to a bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in the Warrants in favor of each such
bona fide purchaser, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby; and
(c) until the Warrants are transferred on the books of the Company,
the Company may treat the registered holder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary.
11. Notice, Etc. All notices and other communications from the Company to
the Holder shall be mailed by first class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company in writing by
the Holder or, until the Holder furnishes to the Company an address, then to,
and at the address of, the last holder of the Warrants who has so furnished an
address to the Company.
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12. Reservation of Shares. The Company will at all times reserve for issuance
and delivery upon exercise of this Warrant all Common Shares or other shares
of capital stock of the Company (and other securities and property) from time
to time receivable upon exercise of this Warrant.
13. Miscellaneous. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought. This Warrant is being delivered in the State of New York and shall be
construed and enforced in accordance with and governed by its laws. The headings
in this Warrant Certificate are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. This Warrant Certificate is
being executed as an instrument under seal. All nouns and pronouns used herein
shall be deemed to refer to the masculine, feminine or neuter, as the identity
of the person or persons to whom reference is made herein may require.
14. Expiration. The right to exercise the Warrants shall expire at
5:00 P.M., New York time, on January 26, 2003.
Dated: January 26, 1998 AMNEX, Inc.
By:
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Name: Alan Rossi
Title: Chief Executive Officer
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SUBSCRIPTION NOTICE
The undersigned, the beneficial and registered holder of the
foregoing Warrant, hereby elects to exercise purchase rights represented by
said Warrant for, and to purchase thereunder, ___________ shares of the Common
Stock covered by such Warrant and herewith makes payment in full therefor
pursuant to Section 4 of such Warrant, and request (a) that certificates for
such shares (and any securities or other property issuable upon such exercise)
be issued in the name of and delivered to the undersigned whose address is
____________________________ and (b) if such shares shall not include all of
the shares issuable as provided in such Warrant, that a new Warrant
Certificate or Certificates of like tenor and date for the balance of the
shares issuable thereunder be delivered to the undersigned.
--------------------------------
Name:
Dated:
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ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell, assigns and transfer
unto _______________ the rights to purchase __________ shares of Common Stock
of AMNEX, Inc. represented by the foregoing Warrant and hereby appoints
__________________ attorney to transfer said rights on the books of said
corporation, with full power of substitution in the premises.
--------------------------------
Name:
Dated:
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