10-K

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K
(Mark One)
       (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1996
                         -------------------------------

     ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
                        For the transition period from to

                         Commission file number 0-17158

                                   AMNEX, INC.

             (Exact name of registrant as specified in its charter)
      New York                                           11-2790221
 (State or other jurisdiction of                        (I.R.S Employer
  incorporation or organization)                        Identification No.)

  101 Park Avenue, New York, New York                      10178
 (Address of principal executive offices)               (Zip Code)

Registrant's telephone number    (212) 867-0166

Securities registered pursuant to Section 12(b) of the Act:

     Title of each class              Name of each exchange on which registered
            None

Securities registered pursuant to Section 12(g) of the Act:

                          Common Stock, $.001 par value
                                (Title of class)

     Indicate  by check mark  whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]







     State the aggregate market value of the voting stock held by non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days: $109,103,230 as of February 14, 1997

             (APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
                  PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

     Indicate by check mark whether the  registrant  has filed all documents and
reports  required  to be  filed by  Section  12,  13 or 15(d) of the  Securities
Exchange Act of 1934 subsequent to the  distribution of securities  under a plan
confirmed by a court. Yes No .

                   (APPLICABLE ONLY TO CORPORATE REGISTRANTS)

     Indicate the number of shares outstanding of the registrant's common stock,
as of the latest practicable date:  28,121,328 shares outstanding as of February
28, 1997

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None





                                     PART I

Item 1.  BUSINESS

     (a)      General Development of Business.

     AMNEX, Inc.  ("AMNEX"),  through its operating  subsidiaries (AMNEX and its
consolidated subsidiaries  collectively,  the "Company"),  provides a variety of
telecommunications  services for operator-assisted ("0+") and direct-dialed long
distance ("1+") telephone calls transmitted  throughout the Unites States on the
Company's  network  and to and from  international  points,  as well as  related
billing  services.  The  Company  focuses on selected  niche  telecommunications
markets where it believes it can enter and operate profitably.

     In June  1996,  AMNEX  acquired  all of the  outstanding  stock of  Capital
Network  System,  Inc.  ("CNSI"),  a  telecommunications  company engaged in the
provision of 0+ calling  services  primarily  to American and Canadian  tourists
traveling in Mexico. CNSI is also engaged in the provision of 1+ and 0+ services
in the United States where,  prior to its acquisition,  it competed with AMNEX's
domestic telecommunications subsidiary, American Network Exchange, Inc. ("ANEI")
(see Item 1(c) hereof).

     In September 1996, AMNEX acquired 80% of the outstanding  stock of National
Business Exchange,  Inc., now known as National Billing Exchange ("NBE"),  which
provides various billing services to telecommunications companies, including the
ability to place billing  transactions on the local telephone  company bill page
(see Item 1(c) hereof).

     In  November  1996,  AMNEX's  wholly-owned   subsidiary,   Crescent  Public
Communications  Inc.  ("Crescent"),  acquired  certain assets of Coastal Telecom
Payphone Company, Inc. ("Coastal Telecom"),  Garden State Telephone Installation
& Service Co., Inc. ("Garden State") and BEK Tel, Inc. ("BEK Tel"), all of which
were New  Jersey-based  private pay telephone  route  operators and customers of
ANEI. From September 1996 to March 1997,  Crescent also acquired  certain assets
of several smaller pay telephone route operators in the New York area.  Further,
in March 1997, Crescent, through an 80%-owned subsidiary, Sun Tel North America,
Inc.  ("Sun Tel"),  acquired  certain  assets of Sun Tel Inc.,  a  Florida-based
private pay telephone route operator.  All such companies  provided  services of
the same nature as Crescent (see Items 1(c) and 7 hereof).

     In October 1996, the Company realigned its management  structure to reflect
its different lines of business.  Three operating  divisions were established at
the subsidiary level:  TelCom,  PubCom and Billing.  Common corporate  functions
were  assigned to the holding  company  level.  Each of the three  divisions has
responsibility for specific lines of business and its own profit and loss.

     The  TelCom  Division  provides   international  and  domestic  1+  and  0+
telecommunications  services;  the PubCom Division owns and operates private pay
telephones and provides  telecommunications  network management  services to the
hospitality  industry;  and the Billing  Division  provides billing services for
telecommunications-related  products.  Common corporate  functions at the parent
level include human  resources,  information  services,  network and operations,
legal  and  regulatory,   corporate   finance  and   accounting,   and  business
development.  This  organizational  structure  is also  intended  to enable  the
Company  to  exploit   certain   market   niches   created  by  the  passage  of
telecommunications reform legislation in early 1996 (see Item 1(c) hereof).





     The Company's  strategy is (i) to develop  telecommunications  products and
services  which  will  enable  it to  provide  the  consumer  with  "end-to-end"
services,  while  controlling  the flow of traffic to its  network  through  the
ownership  of customer  access  equipment,  (ii) to continue to pursue  vertical
integration  of new  and/or  additional  services  with the  Company's  existing
markets to reduce its  infrastructure  costs and  secure its  customer  base and
(iii) to expand through the acquisition of businesses that are either  providers
of traffic to its network or providers of the  underlying  services  utilized by
the Company. Additional consideration is given to those enterprises operating in
markets where regulatory changes are taking place or are anticipated.

     Reference  is made to Item 7 hereof for a discussion  of a Preferred  Share
financing consummated by the Company during 1996.

     AMNEX is a New York corporation  which was organized on March 15, 1985. Its
principal  executive offices are located at 101 Park Avenue,  New York, New York
10178 (telephone number (212) 867-0166) (see Item 2 hereof).

    (b)      Financial Information About Industry Segments.

             Not applicable.

    (c)      Narrative Description of Business.

     Industry Background

     The long distance  transmission and operator  service  provider  industries
evolved principally as a result of the new competitive  opportunities created by
the court-ordered  divestiture by American  Telephone and Telegraph  ("AT&T") of
its local  operating  companies  (the "BOCs").  As discussed  under  "Government
Regulation-Federal  Regulation," the  Telecommunications  Act of 1996 (the "1996
Act")  has  further  accelerated  the  development  of local  and long  distance
competition.

     In 1981,  AT&T  removed  tariff  restrictions  that  prohibited  resale and
sharing of Message  Telecommunications  Service  ("MTS") and Wide Area Telephone
Service  ("WATS").  This  led to an  explosion  of new  entrants  into  the long
distance  telecommunications  business,  primarily as  resellers.  In 1982,  the
Department of Justice  ("DOJ") and AT&T agreed to the terms of the  Modification
of Final Judgment  ("MFJ") under which AT&T divested  itself of all its BOCs. As
part of the divestiture, the BOCs were organized into seven separate regions and
seven Regional  Holding  Companies  ("RBOCs") were created.  The BOCs, and other
independent  companies  which provide  local  telephone  service,  are generally
referred to as local exchange carriers ("LECs").

                                        2






     At  divestiture,  the  United  States  was  divided  into 197 Local  Access
Transport  Areas  ("LATAs").  AT&T was given the right to handle  interLATA long
distance  service and was permitted to handle  intraLATA  long distance  service
where allowed by the applicable state regulatory authority. Conversely, the BOCs
were given the right to handle intraLATA  service,  but were prohibited from the
interLATA market. Such  differentiation  was substantially  modified by the 1996
Act (see "Government Regulation-Federal Regulation").

     The MFJ  also  required  the  BOCs to  provide  all  interexchange  or long
distance  carriers  ("IXCs")  with  access  to their  local  telephone  exchange
facilities which is "equal in type, quality and price" to that provided to AT&T.
This was  accomplished  through  the  filing of access  tariffs  at the  Federal
Communications Commission (the "FCC") and at state public utilities commissions.
Under these access  tariffs,  all IXCs,  including AT&T, pay charges to the LECs
for access to local telephone lines at both the originating and terminating ends
of all  long  distance  calls.  Access  charges  represent  the  single  largest
component of most IXCs' cost of service.  The BOCs, and  subsequently  all other
LECs, also were required to conduct a presubscription  process allowing business
and residential  consumers to select their long distance carriers.  The 1996 Act
continues these equal access obligations.

     A June 1984  decision of the FCC  permitted  the sale and  installation  of
privately  owned and operated pay  telephones,  known as COCOTs.  Such  decision
ended the 100 year monopoly of the LECs in this area,  and paved the way for the
development of the independent payphone industry.  LECs were required to provide
dial tone  connections  for COCOTs and,  subsequently,  blocking  and  screening
services  intended to deter fraudulent usage of such phones.  As a result of the
passage of the 1996 Act and its  nondiscrimination  provisions,  the independent
payphone industry is expected to achieve parity in cost structure with LEC-owned
payphones    (see     "Government     Regulation-Federal     Regulation-Domestic
Operations-1996 Act").

     An October 1988 federal  district court (the "Court")  ruling  required the
BOCs, and subsequently the LECs owned by GTE Corporation  ("GTOCs"),  to conduct
another  presubscription process for the public pay telephones they owned. Since
such phones are owned by BOCs and GTOCs,  the Court determined that the owner of
the premises on which the public pay  telephone  was located (the "Site  Owner")
rather  than the owner of the phones  should  select the long  distance  service
provider.  Several other LECs have introduced  similar programs,  including Site
Owner selection of the long distance service provider. The 1996 Act provides for
the  continued  participation  of the Site  Owner in the long  distance  service
provider selection process and allows for the Company to continue its efforts in
this current core business.

     In May 1990,  the Court  required the BOCs to provide equal access for long
distance  calls  which  are paid  for by coins  deposited  in their  public  pay
telephones ("1+ Coin"). To this end, the BOCs were directed to file equal access
plans with the DOJ and the 1984 waiver  under which such calls were being routed
automatically  to AT&T was to be terminated  within one year. Under the terms of
the equal access plans, AT&T was permitted to continue to accept 1+ Coin service

                                        3




directly from the public pay  telephones  presubscribed  to other IXCs, but only
until such time as the presubscribed carrier designated either itself or another
carrier to handle the traffic.  Based on this ruling, ANEI and CNSI are entitled
to receive the 1+ Coin  traffic  from all public pay  telephones  for which they
have been selected to provide 0+ services and any other IXC may  designate  ANEI
(instead of AT&T) to carry the 1+ Coin traffic  originating at public telephones
for which it is the  presubscribed  long  distance  carrier.  This market niche,
which is  currently  being  exploited  by ANEI as it deploys its 1+ Coin service
nationally, will continue to be available under the 1996 Act.

     Equally  significant,  the 1996 Act, as well as recent  actions on both the
federal and state levels, will eventually open up the local exchange, and to the
extent not already mandated,  the intraLATA  market,  to full competition.  As a
result of the 1996 Act,  all states are  required  to adopt  rules  establishing
local  competition  and defining  how the LECs are to open up their  networks to
their  competitors  (see  "Government   Regulation-Federal   Regulation-Domestic
Operations-1996 Act").

     Organization and Structure; Business Direction

     The  Company,  through  its  operating  subsidiaries,   is  a  provider  of
telecommunications  and related billing services for telephone calls transmitted
throughout the United States and to and from international points. Approximately
70% of the Company's  revenues for the fiscal year ended  December 31, 1996 were
derived  from its  provision  of  operator  services  at public and  private pay
telephones;  approximately 10% from the provision of telecommunications services
to hotels and other hospitality  locations in Mexico; and approximately 20% from
the  ownership  and  operation  of private  pay  telephones,  the  provision  of
telecommunications  network management services to the hospitality industry, and
the provision of telecommunications services with regard to 1+ Coin, travel card
and  residential  and  commercial  1+ calls and other  revenues  (see  "Business
Units").

     During 1996, the Company  completed certain steps to shift the focus of its
future  direction  away  from  its  core  operator  services   business,   which
represented  virtually all of the Company's  revenues in 1994,  90% of the total
revenues in 1995,  and, as  previously  noted,  70% in 1996,  and towards  other
telecommunications  business which generate lower revenue per call than operator
services, but have higher profit margins.

     Prior to the adoption of the 1996 Act (see  "Government  Regulation-Federal
Regulation-Domestic  Operations-1996  Act"),  management of the Company believed
that the then pending legislation would improve margins and create opportunities
as barriers to market entry and regulatory obstacles were removed. Based on such
belief, in October 1995 and in advance of these legislative changes, the Company
acquired  Crescent.  This  acquisition  represented the Company's entry into the
ownership of private  payphones,  a business which the Company  anticipated  was
ripe to undergo radical positive  regulatory  change.  As a direct result of the
the 1996 Act, the FCC adopted new rules  expanding  both the  eligible  class of
calls  and the  level  of  compensation  paid by  IXCs to  independent  payphone
providers  ("IPPs")  such as  Crescent.  Such new rules  positively  affect  the
revenues   from  this  part  of  the   Company's   business   (see   "Government
Regulation-Federal Regulation-Domestic Operations-1996 Act").

                                        4




     In order to expand its ownership of private  payphones,  in November  1996,
Crescent  acquired certain assets of Coastal Telecom,  Garden State and BEK Tel.
Through this transaction,  approximately 4,300 telephone stations with locations
primarily  in the state of New Jersey  were  acquired,  bringing  the  Company's
domestic  phone count to 6,300.  A series of subsequent  acquisitions  increased
this total to 7,500 at March 31, 1997. By the end of 1997,  the Company  expects
to own and operate approximately 12,000 telephone stations throughout the United
States.

     Similarly,  in late 1995,  management  identified the 1+ Coin business as a
viable  one for it to enter.  This  service  allows  the  consumer  to make long
distance coin calls from  LEC-owned and operated pay  telephones  using the long
distance provider selected by the Site Owner.  Prior to the Company's entry into
this business,  only AT&T provided this service. To date, the Company has signed
up approximately 600,000 phones for this service.

     In  an  effort  to  take  advantage  of  emerging   opportunities   in  the
international   telecommunications   market,   as  well  as  improve   operating
efficiencies,  in June 1996, AMNEX acquired CNSI. CNSI's primary business is the
provision  of 0+ calling  services  to,  among  others,  American  and  Canadian
tourists  traveling  in  Mexico.  The  market  penetration  of CNSI has made its
hospitality  customer  base second  only in size to that of Telmex,  the Mexican
stated-owned  telecommunications  company. This business was a logical extension
of  the  Company's   domestic   operator  service  and  will  utilize  a  common
infrastructure.  As  part  of  the  Company's  international  expansion,  CNSI's
business  gives the  Company a  customer  base in a  deregulating  international
telecommunications  market,  where  newly-deregulated  services can be sold (see
"Government  Regulation-Federal  Regulation-International").  In  addition,  the
Company was able to utilize a common platform for CNSI's domestic operations and
those of ANEI,  providing  further  opportunity  for cost reduction and improved
efficiency.

     In  January  1997,  AMNEX  acquired a minority  equity  position  in Galesi
Telecom International,  Inc. ("GTI") (see Item 13 (a) hereof), a privately-owned
telecommunications  holding company with  operations in Sweden and Germany.  The
transaction also contemplates the development of operating  agreements and joint
marketing  efforts in the  deregulating  European market.  In addition,  between
December 1996 and February 1997, CNSI,  through its subsidiary,  Capital Network
Mexico ("CNM"), entered into a series of agreements with InvestCom S. A. de C.V.
("InvestCom"),  a licensed Mexican telecommunications  carrier, which allows CNM
to  resell  intraMexico  1+  service  to its  customers  in  Mexico.  Additional
agreements are under negotiation which, if entered into, will further expand the
Company's  relationship  with  InvestCom.   By  virtue  of  these  international
relationships, the Company believes that it is well positioned to participate in
the flow of traffic  between Mexico,  the United States and Europe.  The Company
intends to expand these relationships in 1997.

     Further, the Company has identified several underlying services,  including
billing services,  which many competitors in the  newly-deregulated  marketplace
will require to support new product deployment.  Accordingly, in September 1996,
to better position itself to supply these billing services needs, AMNEX acquired
80%  of  the   outstanding   stock  of  NBE,   which   currently   provides  its
telecommunications  company  customers  with the ability to place their  billing
transactions on the local telephone  company bill. This service unit is expected
to grow as more competitors begin to provide the new telecommunications services
authorized by the 1996 Act.

                                        5




     The  Company  is also  planning  to enter  the  local  exchange  market  by
providing  dial tone and local  calling  services  ("Local  Service") for public
access  lines  (initially,  in the New York City area).  The Company  intends to
enter the Local  Service  market by either  reselling  the LEC's  services or by
purchasing   unbundled   network  elements  and  constructing  its  own  service
offerings.  This  provides  the  Company  with  another  opportunity  to further
vertically  integrate  its service  offerings and control the flow of traffic to
its   network   (see    "Government    Regulation-Federal    Regulation-Domestic
Operations-1996 Act").

     Business Units

     To better manage its businesses, in October 1996, the Company realigned its
management  structure.  Three operating  divisions were established,  and common
corporate  functions  were assigned to the holding  company  level.  Each of the
three divisions,  TelCom, PubCom and Billing, has profit and loss responsibility
for specific business  operations of the Company.  The TelCom Division,  through
ANEI and CNSI, provides domestic operator services,  long distance  transmission
services and travel card services to telephone users and also provides  domestic
support to the Company's international  operations.  Through CNSI, CNM and AMNEX
International,  Inc.  ("AII"),  the TelCom Division also provides  international
operator  services,  provides  long  distance  transmission  services  in Mexico
(currently  as a sales  representative  for  InvestCom)  and acts as a carriers'
carrier or international gateway providing bulk transport of traffic between the
United States and international  points. The PubCom Division,  through Crescent,
Sun Tel and American Hotel Exchange, Inc. ("AHE"), owns and operates private pay
telephones  and  provides  telecommunications  products  and network  management
services  to the  hospitality  industry.  The  Billing  Division,  through  NBE,
provides  billing and collection  services to  telecommunications  companies for
telecommunications-related transactions.

         TelCom Division

              Domestic

     The TelCom  Division is  responsible  for developing  and  maintaining  the
Company's  domestic   telecommunications  services  businesses  described  under
"Business  Units" above.  In 1996,  this division had revenues of  approximately
$91,200,000  derived from operator services provided at payphone and hospitality
locations and from its 1+ direct-dial long distance  products.  The following is
the   approximate   breakdown  of  1996  revenue  from  the  provision  of  such
telecommunciations services:

                           Payphones           $71,000,000
                           Hospitality          11,000,000
                           1+ Direct Dial        9,200,000
                                                ----------
                           TOTAL               $91,200,000
                                                ==========


                                        6




                  Marketing and Customers

     Domestic  operations have experienced a decrease in revenue since 1995 from
the IPP and LEC base primarily due to slow sales growth throughout the industry.
This  industry-wide  slowdown is due to market  uncertainties and an increase in
"dial  around"  calling (as  discussed  below).  Sales  efforts and  promotional
advances  which have  traditionally  driven new sales growth were  substantially
reduced by the industry in 1996, due in large part to the uncertainty created by
the   threat   of   FCC   rate   caps   being   implemented   (see   "Government
Regulation-Federal     Regulation-    Domestic    Operations-Other    Applicable
Regulations").  This had the effect of flattening  domestic  operations  growth.
However,  hospitality  operations continued to reflect improved results in 1996,
even though "dial around" and other competitive pressures have slowed growth.

     Given  the  current  market  conditions  and the more  stable  state of the
regulatory  environment (see "Government  Regulation-Federal  Regulation"),  the
Company is planning to implement a targeted  IPP sales  program  which  includes
advances and faster  commission  payments to the IPPs than its competitors.  The
Company  believes  this will enable it to capture new market share in this area,
but no assurances can be given in regard thereto.

     "Dial around" calling  programs such as  1-800-CALL-ATT  and  1-800-COLLECT
continued  to take  calls  away  from the  Company's  existing  phone  base (see
"Competition-TelCom  Division-Domestic").  In 1994,  calls  per  phone per month
averaged 13; by 1995 calls per phone per month were 12; in 1996, calls per phone
per  month  had  dropped  to 10.  Alternative  dialing  plans  such  as  carrier
proprietary  calling  cards and prepaid  cards are expected to continue to apply
pressure on the calls generated per phone. ANEI has itself begun providing "dial
around"  services in markets in which  "dial  around"  calling has had  negative
effects.  The Company  anticipates  these new services will result in a shift of
revenues  in future  periods,  although  no  assurances  can be given  that such
efforts will be successful.

     The TelCom  Division's  operator  services  are being  marketed  to private
payphone  owners,  Site  Owners  and  RBOCs,  as  well  as  to  hotels,  motels,
condominium developments, health care institutions, educational institutions and
correctional  facilities,  primarily in areas where it has  established  network
facilities. ANEI currently has originating access available in part or all of 31
of the 48 contiguous states plus the District of Columbia. ANEI has arrangements
in place to provide its services on a nationwide basis, by using other carriers,
such as MCI,  to  originate  calls in  areas  where  ANEI  does not have its own
network  facilities.  Such standard  practice in the 1+ industry  allows ANEI to
provide its own services where  technologically and economically feasible and to
otherwise  resell the  facilities  of other IXCs (see  "Switching  Equipment and
Network").

     ANEI and CNSI  market  their  services  through  a  nationwide  network  of
independent   sales  agents  and  dealers  with  whom  they  have  entered  into
contractual  arrangements  as well as through  their own direct  combined  sales
force.  Such arrangements with agents and dealers afford them the opportunity to
receive  commissions  based on a percentage  of revenues  generated by the calls
routed over the Company's network by the agent's or dealer's subscribers.

                                        7




     ANEI's and CNSI's revenues are subject to seasonal variations.  Many of the
payphones located in the Southeast produce  substantially higher call volumes in
winter months than at other times during the year,  while the payphones  located
in the  Northeast  and Midwest  produce  their  highest call volumes  during the
summer months.  In an effort to reduce the effects of  seasonality  and properly
utilize network capacity,  the TelCom Division has focused its marketing efforts
on  obtaining  a  better  geographic  balance  for its  payphone  business,  and
increasing its hospitality and  condominium  customer bases,  which tend to have
calling volumes that are less subject to seasonal variation.

     The TelCom  Division  also markets its services  through  participation  in
trade shows and advertisements in trade publications.

     During the fiscal year ended December 31, 1996,  ANEI's customer,  National
Telecom USA, Inc.  ("National"),  and its affiliate,  The Keystone  Corporation,
collectively   accounted  for  approximately  21%  of  the  Company's  revenues.
Reference is made to Item 13(a) hereof for a discussion of an agreement  entered
into in February 1997 between ANEI and National  pursuant to which,  among other
matters,  ANEI was  selected as the  exclusive  provider  of  telecommunications
services to phones owned, leased or otherwise  controlled by National during the
ten year term of the agreement.

                  Operator Services

     ANEI  provides  24  hour,  seven-day-a-week  live  and  automated  operator
services  for  telephone  calls placed over its network.  These  services  allow
transient  users at pay  telephones  and at  locations  such as hotels,  motels,
condominium developments, health care institutions, educational institutions and
correctional  facilities  to  complete  calls  on  a  collect,  third  party  or
person-to-person  basis, or to charge such calls to a commercial  credit card or
telephone company calling card.

     ANEI's   switching  system  receives  all  "0"  dialed  calls  from  phones
subscribed to its network and completes the calls over a state-of-the-art leased
communications network (see "Switching Equipment and Network"). ANEI's equipment
and  personnel  at its switch and  operator  center  sites  furnish all operator
functions, both live and automated,  necessary to complete and bill a particular
call. In providing such services,  ANEI utilizes  Signaling System Seven ("SS7")
which  speeds  call  processing  for its  customers.  ANEI's  ability  to  offer
customized  greetings,  such as through its bilingual  operator  staff,  further
enhances its service offerings. ANEI has retained an unaffiliated third-party to
validate  billing  numbers prior to call  completion to reduce the risk of fraud
(see "Revenues; Billing Arrangements").

     ANEI also provides live and automated operator services for CNSI's domestic
and international operator-assisted traffic.


                                        8







                  Direct Dial

     As  a  long  distance   provider,   ANEI  solicits  small  to  medium-sized
businesses,  pay phone owners,  hotels and hospitals and competes with providers
such as AT&T,  MCI,  Sprint and a number of regional  carriers.  ANEI's  product
offerings are competitively  priced,  with higher volume and long-term  contract
customers receiving greater discounts.

     In 1996,  ANEI expanded sales to other IXCs. It is  contemplated  that this
wholesale  market  segment  will  continue to be expanded in 1997 with  targeted
carriers,   debit  card  providers  and  international  calling  companies.  The
infrastructure of network,  customer service, billing and collection is in place
to support  new growth.  The  wholesale  market  segment  generates  lower gross
margins than ANEI's  traditional  service  offerings;  however,  since  selling,
general and  administrative  expenses  with regard to the  wholesale  market are
substantially lower, operating profits are generally comparable.

     ANEI's message telecommunications  services ("MTS") include both flat rated
and  mileage  sensitive  rate  plans and can be  accessed  on a 1+ basis,  or by
dialing 10XXX, 950 or 800 numbers. In lieu of call by call dialing,  950 and 800
access can also be  achieved  through  either the  installation  of a high speed
dialer or the  programming of other  customer  premise  equipment.  Such process
allows calls to access the ANEI network via its 10XXX,  950 or 800 numbers.  The
customer's  multi-digit  security  code is then passed on to a local ANEI switch
for call  clearance.  ANEI's 800 service  allows its  customers to offer inbound
toll free calling to their own customers.

                  Telephone Travel Card

     ANEI offers an enhanced travel card service  marketed as the AMNEX Edge(R),
which has been  designed  to meet the  needs of the  business  and  non-business
traveler. The card allows the customer to access the ANEI network from any touch
tone phone in the United  States and Canada by dialing an 800  number.  Once the
authorization  code associated with the travel card has passed  validation,  the
customer  can  select  from a menu  of  basic  and  enhanced  calling  features,
including  direct-dialed calling,  conference calling,  message delivery service
and an  array  of  informational  services.  Live  operator  assistance  is also
available,  if required by the caller.  Various  levels of fraud  protection and
management  summary reports are also offered to enable the user to maintain cost
control of calling card expenses.

     In 1996, ANEI expanded its travel card program through  affinity  marketing
programs and was  successful in obtaining  contracts  with  American  Automobile
Association  of America  franchisees  throughout the country for a custom travel
card to be marketed  to its  members.  ANEI will seek to expand this  segment in
1997.



                                        9





                  Switching Equipment and Network

     ANEI is a  switched  reseller,  whose  network  includes  Stromberg-Carlson
Digital  Central Office switches  located in Orlando,  Florida and New York, New
York.  The  interconnectivity  of the  network's  switches,  coupled with ANEI's
advanced  SS7  operating  technology,  ensure  uniformity  and a high  grade  of
service.  ANEI has  back-up  systems  which,  in the event of a power  outage or
equipment malfunction,  provide several layers of redundancy and route diversity
to continue call processing. These systems include back-up battery power at both
switch locations and a back-up generator system at the operator center.

     The  maintenance and repair of the network is handled by highly trained and
experienced  technicians  at each  switch  site.  The  technicians  on site  are
coordinated  and  supported  by Network  Control  Center  ("NCC")  personnel  in
Orlando,  six days a week  between 6:00 A.M.  and  midnight,  and are on call 24
hours a day, seven days a week, to handle transmission, equipment, and switching
problems.  The NCC is also capable of contacting ANEI's underlying  carriers for
trouble resolution at any time.

     The ANEI network also provides domestic  origination and termination to the
Company's other subsidiaries.

     ANEI believes that its network flexibility, and the low incremental cost to
expand  capacity,  allow it to adequately  service its customers  throughout the
country.  However,  in connection with the Company's  ongoing business plans and
decentralization  efforts,  the TelCom  Division is examining the feasibility of
outsourcing  all  or  a  significant   portion  of  its  switching  and  network
requirements to one or more unrelated third parties (see Item 7 hereof).

                  Revenues; Billing Arrangements

     Revenues  of both ANEI and CNSI  consist  of flat fees for the use of their
operator  services and per minute of usage  charges for the use of their network
services.  Their operating  expenses include the commissions  payable to agents,
IPPs and Site Owners, the transmission charges of the LECs and IXCs, validation,
billing and collection charges and operator costs.

     Both ANEI and CNSI contract with an unaffiliated third party billing agent,
OAN  Services,  Inc.  ("OAN") to  perform  billing  on their  behalf.  ANEI also
contracts  with a second  unaffiliated  third  party  billing  agent,  Zero Plus
Dialing,  Inc.  ("ZPDI").  ANEI and CNSI calculate the charges for calls carried
over their shared  network and forward the call  records to the billing  agents.
The records are then processed and forwarded to the appropriate billing LEC. The
billing LECs  collect the amount due from the end user and remit  payment to the
billing agents,  which, in turn, remit payment to ANEI or CNSI. Such payments to
ANEI or CNSI are net of billing and collection fees charged by the LECs, as well
as a provision  for  uncollectible  accounts and a per  transaction  fee for the
billing  agent's  services.  During 1997, the Company intends to consolidate all
billing services through NBE's billing  agreements.  Such action would result in
reduced costs in 1998 and better control and management of the billing process.

                                       10






     ANEI utilizes a combination of in-house and outsourced  billing  systems to
bill and collect calls made by its 800,  travel card and direct dial  customers.
This direct billing  process was designed to bill known customers with recurring
monthly direct dial and travel card services.

              International

     The TelCom Division's  international operations are conducted through CNSI,
its subsidiaries and AII. CNSI is currently  deriving  revenues from hospitality
services in Mexico and, to a  substantially  lesser  degree,  the  Caribbean and
Europe.  AII is a newly-formed  international  carrier  operation which seeks to
enter  into  direct   agreements  with  other  carriers  for  the  transport  of
international voice and data traffic.

     Mexico is one of the largest  telecommunications  partners  with the United
States.  It is also a critical arena for the Company.  Through CNSI, the Company
services  over  1,500   locations  in  Mexico  by  providing   hospitality-based
telecommunications   services  primarily  to  American  and  Canadian  customers
traveling  abroad.  CNSI's  subsidiary,  CNM,  intends to market 1+ domestic and
international  long distance service in Mexico to CNSI's existing customer base.
The  Company  believes  that  it can  effectively  sell  newly-deregulated  long
distance  services  to its  existing  customer  base and  also to new  customers
throughout Mexico.

     AII, a licensed  international  carrier,  has  reached  an  agreement  with
InvestCom,  one of eight  authorized  carriers in Mexico,  for the  carriage and
transportation  of international  traffic in and out of Mexico.  This will allow
CNSI to sell, and AII to carry,  Mexican-originated  long distance  domestic and
international traffic.

     As  with  the  TelCom   Division's   domestic   revenues,   the  division's
international revenues consist of flat fees for the use of its operator services
and per minute of usage charges for the use of its network  services.  Operating
expenses  include the commissions  payable to its agents,  IPPs and Site Owners,
the  transmission  charges  of the local  Mexican  and United  States  carriers,
validation,  billing  and  collection  charges  and  operator  costs.  CNSI also
contracts  with OAN to  perform  billing  on its  behalf  for  calls  originated
overseas but billed in the United States and Canada.

                  Marketing and Customers

     CNSI markets its  international  services  through a network of independent
sales agents with whom it has entered into  contractual  arrangements as well as
through its own direct sales force.  Such  arrangements  with agents afford them
the  opportunity  to  receive  commissions  based on a  percentage  of  revenues
generated  by the calls routed over CNSI's  network by the agent's  subscribers.
Since a majority of CNSI's subscribers are hotels in tourist areas, revenues are
affected by seasonal  variations.  Many of the hotels  serviced by CNSI  produce
substantially higher call volumes in winter months (when tourism in Mexico is at
its peak) than at other times during the year.

                                       11




     Several countries are experiencing telecommunication reform similar to that
which  has  transpired  in  the  United  States.   Many  of  these  new  foreign
telecommunication  competitors  will, in all likelihood,  be looking to secure a
United  States  partner  that can provide  expertise  to enhance  entry in their
domestic markets.  Mexico and Europe, in the early stages of  telecommunications
reform,  have large markets and provide the Company the ability to become a true
international  carrier.  The Company  intends to find ways to leverage  domestic
capabilities to provide similar services in foreign countries. Additionally, the
Company expects to sell international voice service to both second tier carriers
and direct customers.

         PubCom Division

     The PubCom  Division is  developing  the  Company's  premise  equipment and
services  business.  The unit seeks to integrate  the delivery of the  hardware,
local dial tone,  telecommunications  network  management  and calling  services
required to service  the needs of  specific  vertical  markets.  Currently,  the
division is pursuing two markets:  the  hospitality  business  (through AHE) and
private pay telephones  (through  Crescent and Sun Tel). The PubCom Division has
recently been expanded to include ANEI's 1+ Coin business.

     Typically, IPPs deploy payphones and sell calling services to the public at
a profit. By owning both the instrument and the network, the Company derives the
benefits of being both an IPP and a network  provider.  Revenue and earnings are
derived from both the ownership of the  payphones  and the network.  Controlling
the customer  location helps eliminate  customer  turnover and the high expenses
usually   associated  with  sales,   marketing  and  responding  to  competitive
pressures. The same is true for the hospitality market.

     Recent regulatory decisions opening up the local exchange market complement
the Company's plans for this area of its operations and provide opportunities to
further  reduce  costs  and  add  local  service  minutes  to the  network  (see
"Government  Regulation - Federal Regulation-  Domestic  Operations-1996  Act").
These  changes  were  anticipated  and played an early role in  formulating  the
Company's PubCom Division strategy.

                  PBX/Program

     Started in 1994, the Company's PBX program,  provided through the Company's
AHE subsidiary,  has shown steady growth.  The PBX program was the first attempt
by the Company to secure  long-term  control of  telecommunications  services at
hotel  and  other   hospitality   properties.   AHE  supplies   the   equipment,
telecommunications  network management and calling services for all of the hotel
property's  needs on an exclusive  basis.  By controlling the dial tone, AHE can
secure the telecommunications  revenue from its customer's locations for various
business  units of the Company.  Additional  services,  including  payphones and
debit cards, also can be deployed at these hotels, if desirable.



                                       12




     AHE has primarily marketed its services to small to medium-sized hotels (20
to 150  rooms).  The PBX  program  is now in place in over 600  hotel  and motel
properties  in New York,  New  Jersey,  Florida,  Colorado  and  California.  By
utilizing refurbished telephone systems and purchasing in large quantities,  the
Company is able to enjoy low  capital  costs when  equipping  a location  with a
relatively  fast pay back.  ANEI is  currently  providing  0+  service  to these
properties,  but  expects to provide  all  telecommunications  services to these
properties  (including local service)  beginning in 1997. Since hospitality room
occupancy levels are at a historic high, AHE's revenues should benefit.

                  Private Payphones

     In 1995, the Company  acquired  Crescent,  an owner and operator of private
payphones,  in order to obtain  private pay  telephone  locations  and thus gain
control  of such  locations'  telecommunications  services  and reduce the costs
associated with paying  commissions to private payphone owners.  The acquisition
included  approximately  1,850 telephones.  In November 1996,  Crescent acquired
certain  assets  of  Coastal  Telecom,  Garden  State,  and BEK  Tel,  including
approximately  4,300  phones.  Additionally,  certain  assets of  several  other
companies  were  subsequently  acquired which  contributed  an additional  1,300
phones. As a result of these acquisitions,  at March 31, 1997, the Company owned
and operated a total of  approximately  7,500 phones in the New York, New Jersey
and Philadelphia corridor as well as in Florida.

     Most PubCom  Division  management  functions are  centrally  located in the
Company's  Lake Success,  New York facility (see Item 2 hereof).  Technicians at
the data center continually monitor payphone  functionality,  alarms,  operating
statistics,  revenue  production and other  diagnostic  data.  Expansion  within
existing service areas results in significant reductions in selling, general and
administrative expenses as a result of consolidating newly-acquired operations.

     The  centralized  facility  also allows for the  efficient  and  economical
provision of back office  functions  such as the  analysis of  telephone  bills,
inventory    control,    equipment    refurbishing   and   ordering,    accounts
payable/accounts  receivable,   sales,  acquisition  analysis,  training,  field
dispatch and customer service.  Field technical and coin handling  functions are
performed at regional dispatch centers located  strategically in close proximity
to the concentration of phones they support.

     The Company  intends to continue to expand its payphone  base,  with growth
expected  to be focused on the  Northeast,  Southeast  and  Mid-Atlantic  areas.
Regional  concentrations  of  traffic  allow  the  Company  to use  its  network
efficiently and provide a strong  competitive  advantage for Crescent over other
IPPs.

     In addition to growth through  acquisitions,  Crescent regularly identifies
and evaluates new sites for private payphones,  or COCOTs. Typical locations for
COCOTs include hotels, motels, health care institutions,  airports,  educational
institutions, dining establishments, office and government buildings, and retail
stores and shopping  malls.  Crescent  seeks to enter into a long-term  location
agreement  (generally five to ten years) with the business owner or site manager
pursuant to which the Location Owner would supply the space and  electricity for
the  COCOT and would be  entitled  to  receive a  commission  based  upon  phone
utilization.  Crescent installs,  maintains and repairs the equipment,  collects
the coins from the phone coin  vaults  and pays phone line  charges.  Crescent's
services  are  marketed  through  an  internal  sales  force as well as  through
independent representatives.

                                       13




     As  an  IPP,  Crescent  derives  commission   revenues  and  "dial  around"
compensation (see "Government  Regulation-Federal  Regulation-PubCom  Division")
from the long  distance  and  operator-assisted,  non-coin  calls  made from its
phones.  ANEI  provides  its  operator-assisted  and  interexchange  services at
Crescent's phones.

                  1+ Coin Service

     ANEI has entered into  agreements with most RBOCs which allow it to process
interexchange  coin  calls  placed  from any LEC  payphone  at which ANEI is the
presubscribed interLATA carrier. The agreements allow ANEI to provide these same
services  at phones  served by other IXCs that  designate  ANEI as their 1+ Coin
carrier.  At  present,  the service  encompasses  six RBOC  regions  covering 31
states.  ANEI expects full deployment of the 1+ Coin service by the end of 1997.
ANEI  began to  deploy  its 1+ Coin  service  for  interLATA  calls in the third
quarter of 1995, a service which previously only AT&T provided.

     The  Company's  strategy  in this  market  niche  has been to offer 1+ Coin
service to those IXCs that currently  provide long distance services to the site
where  LEC pay  telephones  are  located.  ANEI has  already  signed  definitive
agreements with the two largest operator service  providers  ("OSPs") in the LEC
pay phone market as well as with  substantially all other IXCs operating in that
marketplace. ANEI currently has 600,000 LEC payphones under contract for 1+ Coin
service with  approximately  one-half of such  payphones  located in areas where
ANEI currently provides such service.

         Billing Division

     NBE is  currently a  value-added  reseller  of OAN  billing and  collection
services (see  "Revenues;  Billing  Arrangements").  NBE has been  positioned to
become a direct  provider of billing and collection  services in the LEC, direct
and credit card billing environments.  In order to accomplish this goal, NBE has
re-engineered  its out-clearing and remittance  accounting  software to meet the
increased  requirements  of  providing  direct  services.   Additional  software
programming with regard to the systems is being undertaken.

     NBE has grown fairly rapidly over the past six months,  particularly in the
1+ area. This is due in part to the  implementation of special service messaging
("SSM") in the areas  serviced by the GTOCs and Pacific Bell. SSM service allows
enhanced  telecommunications  services ( e.g.,  paging  charges,  Internet usage
charges or monthly  service fees) to be billed on the local telephone bill. This
service is provided through direct LEC contracts and not through OAN. As part of
its marketing plan, NBE intends to market the service,  as well as the provision
of billing for Internet,  paging,  cellular and other similar services.  NBE has
also  developed  and  deployed  the systems  necessary  to support a new billing
technology  called  invoice  ready  billing  ("IRB") that  greatly  enhances the
presentation of the billing  information for its clients.  NBE intends to market
its IRB  product to  paging,  Internet,  cellular  and  personal  communications
services  companies.  The Company intends to use NBE to provide billing services
to its other  operating  divisions in order to reduce its own billing  costs and
enhance NBE's profitability through economies of scale.

                                       14




     NBE is positioned well for growth in the next few years (as billing becomes
more  complex)  due to the  changing  number  and  nature of  telecommunications
services providers. The long-term strategy of the Company is for NBE to become a
universal  billing  provider,  providing  direct billing to the end user for new
full service providers,  utilities and cable companies, as well as providing LEC
and credit card billing.

     Competition

         TelCom Division

              Domestic

     The Company experiences  formidable  competition from AT&T, which dominates
the long distance and operator service businesses,  as well as from MCI, Sprint,
LDDS  WorldCom and various other third tier  carriers  providing  both 1+ and 0+
services.  AT&T and others currently  provide long distance operator services on
calls  from BOC and  GTOC-owned  pay  phones and have,  and can be  expected  to
retain,  a significant  share of this market.  Further,  the Company is aware of
numerous  other  companies  engaged in the operator  services  business,  either
directly or through other  entities,  some of which have  significantly  greater
resources  than the Company.  Carriers other than ANEI and AT&T are also free to
enter the 1+ Coin market,  although the Company  does not  anticipate  that they
will expend the capital and strategic  resources  necessary to enter this market
niche.

     In addition to AT&T,  the LECs have  significantly  greater  resources  and
experience than the Company and may find  opportunities in the operator services
business that would adversely  affect the Company.  For instance,  several RBOCs
offer their operator  services on a wholesale  basis to other  operator  service
providers.  In  addition,  the  1996 Act  allows  them to  enter  the  interLATA
marketplace over time (see "Government  Regulation- Federal  Regulation-Domestic
Operations-1996  Act")  and,  subject  to  FCC  review,  to  participate  in the
selection of the  interLATA and intraLATA  carrier at their own  payphones.  The
BOCs  can  be  expected  to  aggressively  market  their  operator  services  in
competition  with ANEI,  CNSI and other providers as early as the second quarter
of 1997.

     Finally,  some IXCs,  notably  MCI and AT&T,  have  introduced  specialized
operator service products such as 1-800-COLLECT and 1-800-CALL ATT which compete
with a portion of ANEI's and CNSI's domestic  operator services  offerings.  The
Company believes that these "dial around" services have had an adverse impact on
its revenues;  however, since the payphone operator is entitled to receive "dial
around" compensation from the long distance service provider on certain types of
calls,  the Company's  payphone  operations  receive a revenue stream from these
types  of  calls   (see   "Government   Regulation-Federal   Regulation-Domestic
Operations-1996 Act").

                                       15




     The Company  believes  that the primary area of  competition  with AT&T and
others relates to the  commissions and surcharges paid to Site Owners or lessors
of telephone  locations for interstate calls, the enhanced services available to
users at such locations,  the quality of service  provided and the rates charged
to end users (see "Government Regulation").

              International

     There  are  currently  hundreds  of  United  States  carriers   terminating
international  traffic on a resale basis.  Previously,  most of this traffic was
carried over the networks of the larger  facilities-based  carriers,  AT&T, MCI,
Sprint, and LDDS WorldCom.  However,  the international  switched voice and data
environment is changing rapidly.  Operating agreements between facilities- based
United States carriers and their  international  counterparts  historically have
controlled  both the flow of  traffic  and rates for the IMTS  market.  Parallel
accounting rates and settlements were set by the FCC and international  treaties
in a monopoly  environment and prevented both foreign and United States carriers
from  negotiating  cost-based  agreements.  With the  advent of  competition  in
foreign  countries,  however,  new carriers  have  emerged.  These  carriers are
seeking  United  States  partners  capable of  terminating  United  States-bound
traffic in a cost effective  manner.  Since the existing  dominant  carriers are
reluctant to deal with these new carriers and  sacrifice  the high revenues they
enjoy from the current arrangement, opportunities exist for new entrants.

     Numerous companies  currently compete with CNSI in the Mexican  hospitality
industry,  and major carriers such as MCI, AT&T and several RBOCs have received,
or are partners in companies which have received, licenses to carry intra-Mexico
traffic.  As in the domestic market,  these carriers have significantly  greater
resources  than the  Company  and may find  opportunities  that would  adversely
affect  operating   results.   Nevertheless,   the  Company  believes  that  the
opportunities   are   large   enough   that  it   will  be  able  to  sell   the
newly-deregulated  services  to its  existing  base and  build on its  strategic
relationship with InvestCom.

         PubCom Division

     Crescent competes primarily with the LECs in its service territories in the
identification of new sites for private  payphones.  However,  a number of other
IPPs also  market  competitive  services in  Crescent's  current  market  areas.
Crescent  believes  that  the  primary  area  of  competition   relates  to  the
commissions paid to the Site Owners and the quality of service provided.

         Billing Division

     The market is currently dominated by three major clearinghouses: OAN, ZPDI,
and Integretel. These companies provide billing of 1+, 0+, and 900 services, and
limited billing for enhanced  services.  The investment in  infrastructure,  LEC
contracts and systems to provide these  services has been high and has generally
been  a  barrier  to  entry.   Moreover,   the  approach   taken  by  the  major
clearinghouses  has  limited  their  processing  capabilities  to  message-based
billing. Thus, the contracts currently held by the clearinghouses are inadequate
to function in the emerging  marketplace of IRB/SMS billing.  By contrast,  with
its  multi-product  platform,  NBE is positioned  to process  current and future
marketplace  transactions  in  addition to  addressing  the needs of the IRB/SMS
marketplace.

                                       16





     While the major  companies  such as AT&T, MCI and the RBOCs are expected to
provide their own billing services, the emerging competitive  marketplace should
provide   opportunities  for  clearinghouses,   such  as  NBE,  that  can  offer
state-of-the-art,  customized billing services to new entrants and others,  such
as cable and electric  companies,  that lack  experience  in  telecommunications
billing forms and inquiry operations.

     Government Regulation

         Federal Regulation

              Domestic Operations

     Long  distance and  operator  service  companies  such as ANEI and CNSI are
considered interstate common carriers by the FCC and are, therefore,  subject to
the  jurisdiction  of the FCC under the  Communications  Act of 1934 (the  "1934
Act") and 1996 Act.  Under the 1934 Act,  long  distance  and  operator  service
companies  must  charge  just  and   reasonable   rates  and  cannot  engage  in
unreasonable practices or unreasonable  discrimination.  Commencing in 1983, the
FCC  substantially   deregulated  the  interstate   activities  of  non-dominant
interexchange  resellers such as ANEI and CNSI. As discussed below, the 1996 Act
continues  this trend,  giving the FCC new powers to deregulate the industry and
open new markets.

                  1996 Act

     The 1996 Act,  signed  into law on February  8, 1996,  represents  the most
significant reform of the 1934 Act undertaken by Congress since the original law
was adopted.

     First and foremost to the Company,  the 1996 Act gives the private payphone
industry the parity it has long sought with the payphones  provided by the BOCs.
In response to IPP concerns,  the statute  prohibits a BOC from (1)  subsidizing
its own payphone  services with revenues from its local exchange  services,  and
(2) discriminating  between BOC-provided and  independently-provided  payphones.
Furthermore,  the 1996 Act required the FCC to complete a rulemaking  proceeding
addressing  payphone  issues within nine months from the date of enactment.  The
legislation  broadened  the scope of previous  compensation  proceedings  in two
respects:  first,  compensation must apply to all payphone providers,  including
LECs, not just to private  payphone  providers as before;  second,  the FCC must
adopt  compensation  rules  including all types of calls  (except  emergency and
telecommunications relay service calls) to ensure payphone providers are "fairly
compensated  for each and  every  completed  intrastate  and  interstate  call."
Previously, the FCC had ordered compensation only for "access code" calls (e.g.,
1-800, 10XXX, etc.).

                                       17



     Another  significant issue the FCC was required to address was the right of
the BOCs to  solicit  Site  Owners  to select  the  carrier  that  will  provide
interLATA  services  from the  payphone.  Prior to the 1996 Act,  this issue was
irrelevant  because the BOCs were prohibited from offering  interLATA  services.
Now, with the  possibility of BOC entry into the interLATA  market,  whether and
how a BOC may provide  service at its own  payphones  is an issue.  The 1996 Act
grants the BOCs "the same right that  independent  payphone  providers  have" to
negotiate with the Site Owner, but enables the FCC to eliminate this right if it
is not in the public  interest.  The statute makes it clear,  however,  that the
Site Owner is the ultimate decision-maker with respect to the interLATA carrier.
Nothing  in the 1996  Act,  however,  impairs  existing  contracts  relating  to
payphone services.

     As a result of the above statutory requirements,  and in a series of orders
released  in the fourth  quarter  of 1996,  the FCC  established  a new rate and
mechanism for "dial around" compensation.  During the one year period commencing
November  6, 1996,  IPPs are  entitled  to  receive  $45.85 per phone per month.
During the following one year period,  they will be entitled to receive $.35 per
call on all  originating  access  code  calls  as well  as all  toll-free  calls
originating at their payphones. Thereafter, IPPs will be entitled to receive the
market-based  rate  established at the time for local calls.  The foregoing will
positively impact Crescent's operations.

     In  order  to fund  these  payments,  however,  the FCC has  ordered  IXCs,
including ANEI, to contribute the additional "dial around"  compensation for the
IPPs.  During the first year, only carriers with 1995 revenues in excess of $100
million  (including ANEI) are required to contribute to the  compensation  pool.
Since the obligation is based on relative  revenues,  ANEI's share is $0.0689597
per phone per month. After the first year, each IXC, regardless of revenue, will
be  obligated  to pay on a  per-call  basis.  LECs  will  also be  eligible  for
compensation once they have terminated the subsidies for their payphones and had
their comparably efficient interconnection ("CEI") plans approved by the FCC. In
spite of the  payments  required to be made by ANEI,  and viewed in terms of the
current base of  approximately  7,500  phones,  "dial  around"  compensation  is
anticipated  to have a substantial  positive  impact on the Company's  earnings.
However, if a substantial number of LECs are eligible for payphone  compensation
during the year while per phone compensation is in place, the difference between
the amount  received by Crescent  and paid by ANEI will  decrease,  although the
Company believes the net result will still be materially positive.

     Once per call compensation is in place, carriers to whom payphone calls are
routed will be  responsible  for tracking  each  compensable  call and remitting
per-call  compensation  to the IPP. The carrier has the option of performing the
function itself or contracting  out these functions to another party,  such as a
LEC  or  clearinghouse.  The  FCC  placed  certain  reporting  and  verification
requirements on the carrier for the first two years.



                                       18





     In addition,  the FCC ordered states to ensure that payphone competition is
promoted.  To this end,  each  state was  required  to  examine  and  modify its
regulations  applicable to payphones and IPPs,  removing,  in particular,  those
rules that  impose  market  entry or exit  requirements.  In the one year period
before per-call compensation is effective,  states may continue to set the local
coin  rate.  After  this  interim  period,  however,  local  coin  rates will be
deregulated and IPPs may charge market-based prices.

     Since  subsidies from basic exchange and exchange  access  revenues will be
discontinued,  incumbent  LEC  payphones  will be  treated  as  deregulated  and
detariffed equipment.  The FCC concluded that such equipment should be unbundled
from  LEC  underlying   transmission   service  in  order  to  prevent  improper
cross-subsidization,  but LECs do not have to provide their payphones  through a
structurally  separate  affiliate.  AT&T must similarly  detariff its payphones.
Once the BOCs  reclassify  their phones and terminate all subsidies,  so long as
they  do not  otherwise  receive  compensation  for 0+  calls  made  from  their
payphones,  they may receive per call compensation;  thus, ANEI will be required
to pay per-call compensation on all 0+ calls originating from LEC phones.

     In an order released in September 1996 and affirmed in November,  1996, the
FCC also  granted  the BOCs the right to  negotiate  with the Site Owner for the
selection of the interLATA carriers for their payphones effective when their CEI
plans have been  submitted  to and  approved by the FCC.  In so ruling,  the FCC
denied the  petitions  for  reconsideration  filed by IXCs  urging  that the FCC
exercise  its right  under the 1996 Act to find  that BOC  participation  in the
selection of an interLATA carrier was not in the public interest.  Instead,  the
FCC  affirmed  its  earlier  decision  that,  since  the  payphone  industry  is
competitive  and   characterized  by  low  barriers  to  entry,  the  BOCs  were
effectively  prevented from exercising market power in the provision of payphone
services. The FCC found that allowing BOCs to participate in the selection would
not be equivalent to providing long distance service,  as its order granted them
no more than the right to  participate as a contractual  intermediary  between a
Site Owner and a third party interLATA carrier. The FCC also indicated that many
long-term  agreements  currently  exist between the Site Owner and the OSP, like
ANEI,  and that  the  existence  of these  enforceable  agreements  will  ensure
continued  availability of choice.  Finally,  the FCC affirmed that the 1996 Act
grandfathers all contracts in effect as of February 8, 1996, and emphasized that
the Site Owner's right to choose the carrier should be protected from unjust and
unreasonable  practices,  including interference with pre-existing  arrangements
between Site Owners and OSPs, as well as conduct which is unduly coercive of the
Site Owner's right to choose the carrier for the payphones on its premises. As a
result of the FCC's order,  the BOCs, and in particular Bell South, are expected
to begin to  negotiate  with Site Owners for the  selection  of a long  distance
carrier beginning in the third quarter of 1997.

     Based upon the FCC's  ruling,  local call rates in most  jurisdictions  are
expected  to rise in  October  1997.  Moreover,  the  required  removal of local
exchange  subsidiaries from the LEC payphone  operations,  including the monthly
line  charges paid by  Crescent,  are  expected to result in lower  monthly line
costs  and  usage  charges  by the  end of  1997.  This  is  expected  to have a
materially positive impact on the PubCom Division's earnings.  However,  several
IXCs, as well as some state public  utility  commissions,  have  challenged  the
FCC's decision in court,  arguing both that the "dial around"  compensation rate
level is too high,  and that the FCC exceeded its authority by preempting  state
regulation of the local coin rate. There can be no assurance that the court will
affirm  the  FCC's   decision  in  all  respects  and  that  the  "dial  around"
compensation  rate levels and regulatory  structure put in place by the FCC will
be the final rate structure applicable to the Company's operations.


                                       19





     Equally  important  are the 1996 Act's  provisions  for the  opening of the
intraLATA  market  to full  competition.  The new law  prohibits  state or local
requirements  that may have the effect of prohibiting or precluding  competitive
entry of a  telecommunications  service provider into the local market. The 1996
Act also enables RBOCs to enter interLATA  markets,  within and outside of their
existing service regions. The RBOCs were authorized to begin providing interLATA
services in markets  outside of their current regions upon enactment of the law.
The RBOCs must still obtain state  authority,  as  discussed  below,  to provide
intrastate,  interLATA  services  in  the  same  way as  any  other  prospective
competitors, including ANEI.

     Before providing in-region services, the RBOCs must first overcome a number
of legal  and  regulatory  hurdles.  At a  minimum,  an RBOC  must  fulfill  the
requirements of a competitive checklist for interconnection.  Additionally,  the
RBOC must  demonstrate  to the FCC that, in each state where it seeks to provide
interLATA service, it has entered into one or more binding agreements,  approved
by the state, to provide interconnection to a competing facilities-based service
provider  serving  both  commercial  and  residential  subscribers.  The  FCC is
required to make a  determination  that RBOC  interLATA  market  entry is in the
public interest.  In reaching its  determination,  the FCC must consult with the
DOJ whose input will have "substantial" though not "preclusive" effect, and with
the relevant state. Upon receipt of interLATA  authority,  the RBOC must provide
interLATA services through a structurally  separate affiliate for a period of at
least three years from the time authority is granted.

     The  1996  Act  also  allows  the FCC to  forebear  from  applying  certain
regulations  to  some  classes  of  telecommunications  carriers.  Prior  to the
enactment of the 1996 Act, the FCC's  forbearance  policies suffered a series of
setbacks as the Federal  courts  concluded on several  occasions  that the FCC's
policy exceeded its 1934 Act authority. Therefore, the 1996 Act is a significant
step  forward  for the FCC because it not only  permits the FCC to forbear,  but
mandates forbearance under certain circumstances. Since passage of the 1996 Act,
the FCC has already begun to exercise this authority, adopting rules eliminating
tariffs  for many  domestic  services  and  proposing  changes to  expedite  and
streamline  the  complaint  process.  Although the FCC's  detariffing  order was
appealed  and a stay  issued,  this will  have  little  practical  impact on the
Company since all tariffs are still in place and effective.

     The 1996 Act also gave the FCC six months from  enactment to promulgate the
interconnection  and  access  rules  necessary  to  open  the  local  market  to
competition.  Each  state  may  continue  to adopt  and  enforce  its own  local
interconnection and access rules, so long as the rules are not inconsistent with
the 1996 Act.  The  statute  relies on  negotiated  interconnection  and  access
agreements between incumbent LECs and new entrants, but maintains a role for the
states to approve  interconnection  agreements  and arbitrate  settlements if so
requested.

     In August 1996,  the FCC  completed the required rule making under the 1996
Act which  established  the standards for  interconnection  of the incumbent LEC
networks with those of the new competitors.  Among other things, the FCC adopted
uniform,  nationwide  pricing rules and required that  competitors be allowed to
purchase  unbundled network service elements and combine them in any manner they
choose in order to  provide  local  exchange  service.  The FCC ruled  that such
interconnection rates should be based on total element long run incremental cost
("TELRIC"),  a forward looking cost methodology that does not generally  include
the embedded  costs  associated  with  monopoly  service.  In addition,  the FCC
adopted certain proxy rates,  including resale discount rates,  that states were
required to apply in arbitration  and  interconnection  proceedings in the event
they were unable to, or chose not to, engage in the cost studies required by the
TELRIC methodology.

                                       20




     The FCC's order was appealed by various state public utility commissions as
well as LECs, and the associated request for stay of the FCC's rules was granted
by the United States Court of Appeals for the Eighth Circuit.  As a result,  the
FCC's  pricing rules and the so-called  "pick and choose"  provisions  have been
stayed  pending  final  decision of such court.  A decision is expected in 1997.
Despite the stay,  most states and state  arbitrators  have  followed  the FCC's
preferred  pricing  methodology and adopted resale  discounts  comparable to the
proxy  rates  announced  by the FCC.  Thus,  the stay has had  little  practical
negative  effect on the economics of the local service  market for new entrants.
However, there can be no assurance given as to the final decision of the appeals
court and any reversal by such court of the FCC's  pro-competitive  policy could
have a material adverse effect on the Company's ability to effectively enter the
local exchange market.

                  Other Applicable Regulations

     In 1990, the Telephone  Operator Consumer Services  Improvement Act of 1990
("TOCSIA") was signed into law. TOCSIA amended the 1934 Act by imposing a number
of  requirements  on  all  carriers  providing   interstate  operator  services,
including ANEI, CNSI, AT&T and the LECs. These requirements include, among other
matters,  the identification of the OSP and the end user's right to access other
carriers. In 1992, the FCC advised Congress of its determination that no further
regulation of the operator  service  industry,  including rate  regulation,  was
necessary at that time.

     As discussed under "Industry Background", in 1988, the Court held that Site
Owners  should be  permitted  to  select  the  presubscribed  IXCs for all calls
originated by dialing "0" from such telephones.  However,  some industry members
are supporting adoption of billed party preference whereby all calls of the type
handled  by ANEI and CNSI  would be  routed  directly  to the IXC of the  billed
party, and not through OSPs. Since 1992, the FCC has been considering whether or
not to adopt such a system for all payphones and has sought public comments on a
variety of issues  related to its  implementation  and costs.  The  majority  of
parties filing comments opposed the  implementation  of billed party preference,
citing its high costs, long (two to three year)  implementation  time, technical
drawbacks,  consumer  inconvenience and potential network disruptions as factors
which  outweighed  any perceived  benefits.  Although the FCC is not expected to
adopt this proposal,  if adopted, it would have a material adverse effect on the
Company's operator service business.


                                       21





     In February  1995, the National  Association  of Attorney  Generals filed a
Petition for Rulemaking with the FCC, proposing  additional branding disclosures
by some OSPs. Comments on this petition were consolidated with comments on an ex
parte filing made by a broad industry  coalition  proposing that the FCC adopt a
rate ceiling on 0+ calls.  The proposal would adopt a benchmark rate on a simple
per minute basis,  without  regard to time of day,  distance or whether the call
was  handled  on an  automated  or live  basis,  or made with a calling  card or
collect. This ceiling was proposed as an alternative to billed party preference,
contending that it could be implemented more quickly and much less expensively.

     In October 1996, the FCC requested  additional  comment in this proceeding,
this time seeking comment on still a different  proposal which would require all
providers of operator  services at aggregator  locations to disclose orally,  to
the party to be billed,  the rate for the call before  connecting the call. Most
industry commentors agreed that it was not technically  feasible to disclose the
specific rate for the call, but it was feasible to disclose the  availability of
a rate quote and how to obtain one. This proposal is still pending, although FCC
action is expected in April or May 1997.

     The Company believes the adoption of a disclosure mechanism along the lines
proposed  by the  industry  would  not have an  adverse  impact  on the  overall
profitability  of  its  operator  services  product.  However,  there  can be no
assurances the FCC will not adopt specific  disclosure  requirements or rate cap
levels  which would  adversely  affect the volume  and/or  profitability  of the
Company's interstate operator services.

     In December,  1996, the FCC instituted a rulemaking  proceeding designed to
comprehensively revise the rate structure for, and pricing of, interstate access
services.  The  proceeding  looks at both the access charge and price cap rules.
The  rulemaking  offers two possible  approaches  for reducing  access  charges,
establishing a transition to more cost-based charges and deregulating  incumbent
LEC services as competition develops. The first approach would rely on potential
and actual  competition to drive down access prices; the FCC would not prescribe
any particular  reductions and would relax the existing access pricing and price
cap rules in response to the development of competition.  The second approach is
a  prescriptive  one under which the FCC would  specify the nature and timing of
changes to the existing rate levels.  Specific  proposals are  requested,  as is
comment  on whether  the two  approaches  should be  combined.  The notice  also
includes  proposals for a series of reforms to the access charge rate  structure
rules,  including  changes to the common line,  local  switching  and  transport
elements.  Finally,  while  refusing  to take any  action at this time to impose
access charges on  information  service  providers or the Internet,  the FCC did
issue a notice of inquiry on whether it should,  in  addition  to access  charge
reform,  also  consider  actions  related  to these  users.  In  particular,  it
requested  comment on how to effectively  create incentive for the deployment of
services and facilities to allow efficient transport of data traffic.

     While  the   industry   attempts  to   influence   the  final   design  and
implementation of access charges, it is anticipated the Company will enjoy lower
access costs in the future.  However,  there can be no  assurances  that the FCC
will not adopt  access  charge  rules which might have an adverse  impact on the
Company. The FCC plans to adopt final rules in this area in April 1997.

                                       22






              International Operations

     Despite its  deregulation  of a  substantial  portion of the domestic  long
distance market,  the FCC has continued to assert more rigorous  regulation over
international   telecommunications  services,  requiring  that  carriers  obtain
certificates of public convenience and necessity and file tariffs.  In addition,
United  States  carriers  were  required to comply with the FCC's  International
Settlements Policy ("ISP") which specified certain bilateral accounting rates to
which   carriers   must  adhere.   The  ISP  prevents   foreign   carriers  from
discriminating  among United States  carriers and requires the equal division of
accounting  rates,  non-discriminatory  treatment of United States  carriers and
proportionate  return of inbound  traffic.  The  fundamentals of this regulatory
structure  had not changed even after the entry of United  States  carriers into
the IMTS market.

     In December  1996,  the FCC  adopted  rules  intended  to  introduce a more
flexible  framework for  regulating  accounting  rules,  relying on  competitive
forces to determine  termination costs and efficient resource  allocation,  when
appropriate.  Specifically, the FCC authorized United States carriers to propose
methods to pay for terminating international calls other than by the traditional
prescribed method of bilateral  accounting rates. Subject to certain competitive
safeguards,  the FCC will now  permit  carriers  to enter into  alternative  pay
arrangements with foreign carriers in countries (currently, only Canada, Sweden,
New Zealand and the United Kingdom) that satisfy the FCC's so-called  equivalent
competitive  opportunities ("ECO") test.  Alternative  arrangements will also be
considered in non-ECO  countries where the United States carrier can demonstrate
that the deviation will promote  market-oriented  pricing and competition  while
precluding abuse of market power by the foreign  carrier.  The FCC's approach is
intended to stimulate competition,  allow United States carriers to respond more
rapidly to changing  conditions  in the global  telecommunications  market,  and
reduce call termination  costs. The Company's  associations with carriers in ECO
countries or ECO-candidate countries are intended to position it to take maximum
advantage  of these new  regulatory  initiatives  and  enable it to enjoy  those
benefits on an immediate basis.

     In another  late 1996 order,  the FCC  proposed  revisions  to its existing
accounting  rate  benchmark  ranges.  Such revisions were intended to update the
benchmarks to reflect recent  technological  improvements  and their  associated
cost reductions, as well as recognize market structure changes. The FCC believes
that, as long as accounting rates remain above costs,  foreign countries will be
reluctant to introduce competition. Thus, the proposed revisions to and updating
of the published  accounting rate benchmarks are intended to achieve rates which
more closely reflect costs and reinforce the FCC's commitment to the development
of global IMTS competition.

         PubCom Division

     Current federal  regulations  require that IPPs offer  unrestricted  access
from their phones by unblocking  all major forms of access to other OSPs (10XXX,
950-XXXX  and  1-800-  NXX-XXXX).  Additional  regulatory  requirements  include
provisions  which require the posting of certain  consumer  information  and the
prompt  routing of emergency  calls,  and prohibit the payment of commissions by
OSPs at locations which block unrestricted access.

                                       23







     The FCC has also  adopted  rules  pursuant  to which IPPs are  entitled  to
receive  compensation  for  some  "dial  around"  calls  that  are made to other
operator or long  distance  service  providers  through the dialing of an access
code.  The 1996 Act reinforced  these rules,  and required the FCC to expand the
scope of such  rules and take  certain  actions  to ensure  the  termination  of
subsidies to LEC-owned payphone  operations (see "Government  Regulation-Federal
Regulation- Domestic Operations-1996 Act").

     State Regulation

         TelCom Division

     ANEI and CNSI are currently authorized to provide intrastate  interexchange
telecommunications  services  on  a  resale  basis  in  45  states  pursuant  to
certificates  of public  convenience  and necessity  obtained from various state
public  utility  commissions,  or  commerce  departments,  or  because  no  such
certificate  is  required.  Rate caps are in effect in most states in which they
provide  services.  Rate caps are expected to be introduced in New Jersey during
the second quarter of 1997. In addition, virtually all the states which regulate
the provision of operator services have their own set of guidelines,  similar to
those required on the federal level, with which providers must comply.

     The passage of the 1996 Act should open up new intrastate opportunities for
ANEI and CNSI in that it will force those  states that  currently  prohibit  the
provision  of  intraLATA  services  and/or  which  have found the  provision  of
competitive  operator services not to be in the public interest to open up these
markets.  In fact,  the FCC has  already  preempted  the State of  Connecticut's
prohibition  on private  payphones  and  similar  petitions  are  expected to be
favorably viewed.

     All states will now have to consider the  introduction  of competition  for
the provision of local  exchange  services.  Many states are moving to order the
implementation of intraLATA  presubscription  (1+ intraLATA equal access).  Most
states have already ordered the implementation of this technology,  and more are
expected to follow suit in the next year.

     Further,  from time to time,  various  state  legislatures  may  consider a
variety  of  regulatory  measures  which  could  affect  the  manner,  terms and
conditions under which ANEI or CNSI could provide service in such states.  While
no  major  initiatives  are  known to be  currently  underway,  there  can be no
assurances  that such proposals will not be considered or adopted in the future.
If implemented  in particular  states,  such  proposals  could have a materially
adverse impact on the profitability of the Company's service in such states.




                                       24



         PubCom Division

     New  York,  New  Jersey,  Florida  and  Pennsylvania,  the  states in which
Crescent  operates,  currently  regulate the provision of telephone service from
COCOTs.  Such  regulation  includes  quality  of  service  standards,  reporting
requirements  and caps on  rates  for  local  and long  distance  calls  made by
depositing coins. COCOT owners are also subject to certain posting  requirements
relating to the provision of consumer information,  including a number which can
be  called  to obtain a refund  for lost  coins and to report an out of  service
condition.  While Crescent believes that it is in compliance with all such rules
and that compliance with any  requirements  adopted by the state commission will
have no material  adverse impact on its  operations,  there can be no assurances
that the regulatory  agencies will not adopt additional  regulations  which will
adversely  affect the  profitability  of its services.  In  particular,  the New
Jersey Board of Regulatory  Commissioners  is expected to implement new rules in
May 1997 which will,  among  other  things,  limit the rates to be charged  from
payphones.  However, given the Company's vertical structure, the availability of
a hardship waiver and the Board's stated  intention to address  concurrently the
issues  surrounding  removal of subsidies  from the line charges and usage rates
paid by IPPs to the LECs, the  limitations are not expected to have a materially
adverse impact, although no assurances can be given in this regard.

     In late 1995,  the City of New York  adopted  legislation  relating  to the
registry, permitting and franchising of all pay telephones installed on the city
streets.  Implementing  regulations  were adopted by the New York  Department of
Information  Technology and  Telecommunications in March 1996. The rules require
that all payphones  installed on the city streets,  including payphones owned by
NYNEX,  comply with certain siting,  maintenance  and operational  requirements.
These include provisions  requiring that "0-" calls, i.e. calls dialed with only
the digit "0", be directed to an OSP certified to handle  emergency  calls (such
as ANEI). The rules contain  monetary  penalties in the event of certain classes
of violations and provide for removal of the phone under certain  circumstances.
Most significantly,  however, the rules contain a grandfather provision relating
to the siting requirements for already installed phones.

     Crescent has already made the requisite interim permit and registry filings
and paid all applicable  fees for the  approximately  1,680 phones it has on the
city streets.  The majority of Crescent's  phones  qualified for the grandfather
provisions  and no  additional  work is expected to be needed to bring them into
compliance with the new rules.  Crescent believes that any deficiencies relating
to  phones  whose  installations  were  not  grandfathered  have  been  cured by
rerunning wires or obtaining requisite  approval.  Crescent has also applied for
the necessary  city  franchise and permanent  permit  authority.  While Crescent
believes that all its phones are in compliance with the new regulations and that
it will be issued a franchise,  there can be no assurances  given in this regard
and failure to obtain the necessary  franchise and permits for a large number of
Crescent's phones would have a material adverse effect on its operations.

     In addition,  several  municipalities  in New Jersey currently require that
IPPs obtain a franchise for certain of their phone locations.  Crescent believes
that it is currently in compliance with any applicable rules.

                                       25



     Employees

     As of March 22,  1997,  the  Company  had 397  full-time  employees  and 25
part-time employees, including 146 telephone operators. In addition, the Company
hires certain support staff through temporary  employment agencies and currently
employees 25 such  workers at its  operator  center in Orlando and 38 in Mexico.
None of the Company's employees is subject to a collective bargaining agreement.

     Reference  is  made  to  Item  7  hereof  for  a  discussion  of a  certain
restructuring  plan pursuant to which certain of the  Company's  core  operating
functions would be realigned or outsourced.

     (d) Financial  Information About Foreign and Domestic Operations and Export
Sales.

         Not applicable.

Item 2.  PROPERTIES

     The  executive  offices of the Company are located at 101 Park Avenue,  New
York, New York where approximately 4,200 square feet of space are rented under a
sublease  expiring in October 1997. The approximate  base annual rental for such
premises is $128,000.  The Company  anticipates  seeking other space in New York
City upon the expiration of the sublease.

     ANEI's corporate office, data processing operations and Florida switch site
are located at 100 West  Lucerne  Circle,  Orlando,  Florida,  where it occupies
approximately 28,000 square feet of space pursuant to various leases. Certain of
such leases  expire  between  1998 and 1999;  others have  expired and are being
renegotiated.  The approximate aggregate base annual rental for such premises is
currently $540,000.

     The Florida  operator  center is located at 1516 Colonial  Drive,  Orlando,
Florida where ANEI occupies  approximately  13,400 square feet of space pursuant
to a lease which expires in 1998.  The lease  provides for a current base annual
rental of approximately $185,000.

     ANEI's New York switch site is located at 60 Hudson  Street,  New York, New
York  where  the  Company  occupies  approximately  5,700  square  feet of space
pursuant to a lease that  expires in 2001 and provides for a current base annual
rental of $171,000.  The Company is renting an  additional  5,000 square feet of
space at the same location,  pursuant to leases that expire in 2001. The current
annual rental for the  additional  space is  approximately  $107,000.  Such rent
increases  periodically  to  a  yearly  maximum  of  approximately  $116,000.  A
substantial  portion of the above  space is  currently  being  subleased  by the
Company at market rates.

     Crescent's  corporate  office and operations are located at 6 Nevada Drive,
Lake Success, New York where it rents approximately 23,300 feet of space under a
lease  expiring  in 2007 and  providing  for a  current  base  annual  rental of
approximately  $128,000 (with a fixed increase of approximately  $5,800 per year
for the term of the lease).

                                       26







     CNSI's and NBE's  operations are currently  located at 600 Congress Avenue,
Austin,  Texas, where CNSI has rented  approximately 40,400 square feet of space
under a lease  which  expires in 2000 and  provides  for a current  base  annual
rental of $153,300.  CNSI and NBE occupy approximately 21,500 square feet of the
total  leased  premises.  The  remaining  space  has been or is  intended  to be
subleased at market rates. The lease contains an option to renew for a five year
term with certain specified  increases in the base annual rental. The Company is
currently  considering whether certain CNSI functions can be performed at ANEI's
Orlando, Florida facility (see Item 7 hereof).

     The Company believes that its premises are adequate to meet its needs.

Item 3.  LEGAL PROCEEDINGS

         Not applicable.

Item 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

         Not applicable.

                                     PART II

Item 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     (a) Market Information.

     AMNEX's  Common  Shares are traded in the Nasdaq  SmallCap  Market  (Nasdaq
Symbol:  AMXI). The following table sets forth, for the periods  indicated,  the
high and low bid prices for AMNEX's Common Shares, as reported by Nasdaq:

                                           High                Low
1995 Calendar Year

First Quarter                              $3.75              $2.50
Second Quarter                              3.06               2.38
Third Quarter                               5.63               2.56
Fourth Quarter                              4.94               3.25

1996 Calendar Year

First Quarter                              $4.31              $2.88
Second Quarter                              4.12               3.25
Third Quarter                               3.88               2.81
Fourth Quarter                              3.63               2.56

                                       27




     The above quotations  represent  interdealer prices without retail markups,
markdowns or commissions and may not necessarily represent actual transactions.

     (b) Holders.

     As of  December  31,  1996,  there were  1,075  holders of record of Common
Shares of AMNEX.

     (c) Dividends.

     AMNEX has neither  declared  nor paid any  dividends  on its Common  Shares
since  inception and the Board of Directors does not  contemplate the payment of
dividends in the  foreseeable  future.  Any decision as to the future payment of
dividends will depend on the earnings and financial  position of the Company and
such other factors as the Board of Directors deems relevant.

     In February  1993,  AMNEX issued  356,000  Series B Preferred  Shares.  The
holders of the Series B Preferred  Shares,  in  preference to the holders of the
Common  Shares,  are  entitled to receive,  when and as declared by the Board of
Directors,  cumulative dividends at the rate of $.40 per share per annum, and no
more.  Subject to the requirements of applicable law,  dividends on the Series B
Preferred  Shares are payable annually in cash or, at the option of the Board of
Directors,  but subject to the requirements of applicable law, in Common Shares.
AMNEX has paid dividends to the holders of the Series B Preferred Shares through
the period ended April 30, 1995.  There are currently  72,450 Series B Preferred
Shares issued and  outstanding,  the remainder having been converted into Common
Shares.

     In August  1994,  AMNEX issued  1,413,337  Series D Preferred  Shares.  The
holders of the Series D Preferred  Shares,  in  preference to the holders of the
Common  Shares,  are  entitled to receive,  when and as declared by the Board of
Directors,  cumulative dividends at the rate of $.25 per share per annum, and no
more.  Subject to the requirements of applicable law,  dividends on the Series D
Preferred  Shares are payable annually in cash or, at the option of the Board of
Directors,  but subject to the  requirements of applicable law, in Common Shares
of AMNEX.  To date,  no dividends  have been paid to the holders of the Series D
Preferred  Shares and no such  holders  have  converted  such shares into Common
Shares.

     Between  April 1995 and June 1995,  AMNEX  issued an aggregate of 1,085,000
Series E Preferred  Shares.  The holders of the Series E  Preferred  Shares,  in
preference to the holders of the Common  Shares,  are entitled to receive,  when
and as declared by the Board of Directors,  cumulative  dividends at the rate of
$.225  per  share  per  annum,  and no  more.  Subject  to the  requirements  of
applicable law,  dividends on the Series E Preferred Shares are payable annually
in cash  or,  at the  option  of the  Board of  Directors,  but  subject  to the
requirements of applicable law, in Common Shares of AMNEX. To date, no dividends
have  been paid to the  holders  of the  Series E  Preferred  Shares.  There are
currently  1,035,000  Series E  Preferred  Shares  issued and  outstanding,  the
remainder having been converted into Common Shares.

                                       28




     In September  1996,  AMNEX issued  100,000 Series G Preferred  Shares.  The
holders of the Series G Preferred  Shares,  in  preference to the holders of the
Common  Shares,  are  entitled to receive,  when and as declared by the Board of
Directors, cumulative dividends at the rate of $1.00 per share per annum, and no
more.  Subject to the requirements of applicable law,  dividends on the Series G
Preferred Shares are payable at the time of conversion of the Series G Preferred
Shares,  in cash or, at the option of AMNEX,  but subject to the requirements of
applicable law, in Common Shares or additional  Series G Preferred Shares (which
AMNEX is  required  to  immediately  convert  into  Common  Shares).  There  are
currently 16,250 Series G Preferred Shares issued and outstanding, the remainder
having been converted into Common Shares.

     (d) Recent Sales of Unregistered Securities.

     During the fiscal year ended  December 31,  1996,  AMNEX issued or sold the
following  equity  securities  other than in transactions  registered  under the
Securities Act of 1933, as amended (the "Securities Act"):

          (i)  Effective  January  1996,  AMNEX issued  50,000  Common Shares to
     Trinkaus & Burkhardt  (Schweiz)  AG upon  conversion  of an equal number of
     Series E Preferred  Shares.  Such Common Shares were issued pursuant to the
     exemption from  registration  provided by Section 3(a)(9) of the Securities
     Act as the  Common  Shares  were a  security  exchanged  by AMNEX  with its
     existing preferred  shareholder and no commission or other remuneration was
     paid or given, directly or indirectly, for soliciting such exchange.

          (ii) Effective May 1996, AMNEX issued 245,000 Common Shares to certain
     executive officers (see Item 11(a) hereof) and a consultant pursuant to its
     1996  Restricted  Stock Grant Plan. Such Common Shares were issued pursuant
     to  the  exemption  from  registration  provided  by  Section  4(2)  of the
     Securities  Act as a  transaction  by an issuer  not  involving  any public
     offering.

          (iii)  Effective June 1996, in connection  with the acquisition of all
     the issued and outstanding  capital stock of CNSI,  AMNEX issued to various
     individuals  4,099,086 Common Shares and two-year warrants for the purchase
     of an aggregate of 400,000  Common Shares at an exercise price of $4.51 per
     share.  Such  Common  Shares  and  warrants  were  issued  pursuant  to the
     exemption from registration  provided by Section 4(2) of the Securities Act
     as a transaction by an issuer not involving any public offering.

          (iv) Effective July 1996,  AMNEX issued 44,643 Common Shares to Spring
     Technology  Corp.  upon  conversion  of a  certain  promissory  note in the
     principal amount of $150,000,  together with accrued interest thereon. Such
     Common  Shares were  issued  pursuant to the  exemption  from  registration
     provided by Section 3(a)(9) of the Securities Act as the Common Shares were
     a security exchanged by AMNEX with its existing  promissory  noteholder and
     no  commission  or  other  remuneration  was  paid or  given,  directly  or
     indirectly, for soliciting such exchange.

                                       29







          (v) Effective August 1996, in consideration of certain  consulting and
     advisory  services  rendered,  AMNEX granted to Robb, Peck McCooey Clearing
     Corporation  a three-year  warrant for the purchase of 50,000 Common Shares
     at an exercise price of $3.0625 per share. Such warrant was issued pursuant
     to  the  exemption  from  registration  provided  by  Section  4(2)  of the
     Securities  Act as a  transaction  by an issuer  not  involving  any public
     offering.

          (vi) Effective  September 1996,  AMNEX sold 100,000 Series G Preferred
     Shares to Southbrook  International  Investments,  Ltd. ("Southbrook") at a
     purchase  price of $20.00 per  share.  The  Series G  Preferred  Shares are
     convertible into Common Shares at a conversion price generally equal to the
     lesser of $3.5125 per share or 80% of the average  per share  market  value
     for  the  five   trading  days   immediately   preceding   conversion.   In
     consideration   of  the   purchase  of  the  Series  G  Preferred   Shares,
     concurrently  therewith,  AMNEX  issued  to  Southbrook  and  its  designee
     five-year  warrants for the purchase of 225,000 and 50,000 Common Shares at
     exercise prices of $5.29 and $3.53 per share,  respectively.  Such Series G
     Preferred  Shares and warrants were issued  pursuant to the exemption  from
     registration   provided  by  Section  4(2)  of  the  Securities  Act  as  a
     transaction by an issuer not involving any public offering.

          (vii) Effective  September 1996,  AMNEX issued an aggregate of 550,725
     Common Shares to James E.  Everingham and Daryl A. Frame in connection with
     its acquisition of 80% of the outstanding capital stock of NBE. Such Common
     Shares were issued pursuant to the exemption from registration  provided by
     Section  4(2) of the  Securities  Act as a  transaction  by an  issuer  not
     involving any public offering.

          (viii)  Between  September  1996 and  December  1996,  AMNEX issued an
     aggregate of 245,742  Common Shares to designees of Coastal  Communications
     of America,  Inc.  ("CCOA") in connection  with  Crescent's  acquisition of
     certain  assets of CCOA.  Such Common  Shares  were issued  pursuant to the
     exemption from registration  provided by Section 4(2) of the Securities Act
     as a transaction by an issuer not involving any public offering.

          (ix) Effective  October 1996, AMNEX sold an aggregate of 75,000 Common
     Shares to certain individuals, including Kenneth G. Baritz, Chairman of the
     Board of the Company  (25,000 Common  Shares),  and other  employees,  at a
     purchase  price of $3.00 per share,  such price  being  equal to the market
     value of the  Common  Shares at the time of the  purchase  agreement.  Such
     Common  Shares were  issued  pursuant to the  exemption  from  registration
     provided  by Section  4(2) of the  Securities  Act as a  transaction  by an
     issuer not involving any public offering.

          (x) Effective  November  1996,  AMNEX issued an aggregate of 2,098,373
     shares  to  designees  of  Coastal  Telecom,  Garden  State  and BEK Tel in
     connection with the  acquisition of certain assets of such companies.  Such
     Common  Shares were  issued  pursuant to the  exemption  from  registration
     provided  by Section  4(2) of the  Securities  Act as a  transaction  by an
     issuer not involving any public offering.

                                       30







          (xi) Effective  December  1996,  AMNEX issued 195,808 Common Shares to
     Southbrook  upon the conversion of 21,250 Series G Preferred  Shares.  Such
     Common  Shares were  issued  pursuant to the  exemption  from  registration
     provided by Section  3(a)(9) of the  Securities  Act as such Common  Shares
     were a security exchanged by AMNEX with its existing preferred  shareholder
     and no  commission  or other  remuneration  was paid or given,  directly or
     indirectly, for soliciting such exchange.

Item 6.  SELECTED FINANCIAL DATA

     The  following  financial  information  with  respect to the  Company as of
December 31, 1996,  1995,  1994,  1993 and 1992 and for the years then ended has
been derived from the Company's audited  consolidated  financial  statements for
such years.  The  consolidated  balance sheets as of December 31, 1996 and 1995,
the related consolidated statements of operations, shareholders' equity and cash
flows for the years ended December 31, 1996, 1995 and 1994 and auditor's  report
with regard thereto are included in Item 14(a) hereof.

     Effective August 1992, the business of Eastern Pay Phones, Inc. ("Eastern")
was sold. In addition,  in October 1992,  the  operations of AMNEX  Interactive,
which had previously taken over the operations of  Communications  Technologies,
Inc. ("COMTEC"), were discontinued.  Accordingly,  the operations of Eastern and
COMTEC  are  reflected  in the  Statement  of  Operations  Data as  discontinued
operations.

     Effective  October 4, 1995,  the  Company  purchased  all of the issued and
outstanding  common  shares  of  Crescent  Communications,  Inc  ("CCI"),  which
subsequently  merged with Crescent.  The acquisition was accounted for using the
purchase  method of  accounting.  Accordingly,  the  results of  operations  for
Crescent have been included in the Statement of Operations Data from the date of
acquisition.

     Effective June 30, 1996, the Company acquired all of the outstanding common
shares of CNSI. The  acquisition  was accounted for using the purchase method of
accounting. Accordingly, the results of operations of CNSI have been included in
the Statement of Operations Data from the date of acquisition.

     Effective  September 30, 1996, the Company  acquired 80% of the outstanding
common  shares of NBE.  The  acquisition  was  accounted  for using the purchase
method of accounting.  Accordingly,  the results of operations for NBE have been
included in the Statement of Operations Data from the date of acquisition.


                                       31


     Effective  November 20, 1996,  Crescent acquired certain assets,  including
approximately 4,300 pay telephones,  from Coastal Telecom,  Garden State and BEK
Tel. The  acquisition was accounted for using the purchase method of accounting.
Accordingly,  the Statement of Operations Data includes  operating  results from
the date of acquisition.

     The  information  set forth below  should be read in  conjunction  with the
consolidated  financial  statements of the Company and related notes thereto and
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" included as Item 7 hereof.

                          Statement of Operations Data
                       (in thousands, except share data)


                                                    Year Ended December 31,

                                   1996            1995          1994          1993          1992
                                   ----            ----          ----          ----          ----

                                                                                 
Revenues                        $117,142         $105,890      $108,737      $55,519        $38,799

Income (loss) from
continuing operations             (4,248)           1,431           541           98         (3,814)

Income from discontinued
operations                            --              ---           ---          ---            190(1)

Net income (loss)                 (4,248)           1,431           541           98         (3,623)

Net income (loss)
available for Common
Shares (2)                        (5,264)             888           250          (36)        (3,623)

Net income (loss) per
Common Share from
continuing operations
available for Common
Shares:

Primary (2)                         (.23)             .05           .02         (.01)         (1.79)

Fully Diluted                       (.23)             .05           .02         (.01)          (.69)

Net income per Common
Share from discontinued
operations:

Primary                              ---              ---           ---          ---            .09(1)

Fully Diluted                        ---              ---           ---          ---            .03(1)

Net income (loss)
available for
Common Shares
per Common
Share:                        

Primary (2)                         (.23)             .05           .02         (.01)         (1.70)

Fully Diluted                       (.23)             .05           .02         (.01)         (0.66)

Weighted average number of
shares outstanding:

Primary                       23,274,219       19,416,497    13,522,815    6,915,449      2,136,668

Fully Diluted                 23,274,219       19,416,497    13,522,815    6,915,449      5,528,913


                                       32



                                               Balance Sheet Data
                                                 (in thousands)


                                                            December 31,

                                   1996            1995          1994          1993          1992
                                   ----            ----          ----          ----          ----

                                                                                
Total assets                     $90,515        $49,580        $39,773       $27,815       $19,182

Working capital
(deficiency)                      (4,994)           531         (3,114)       (6,420)      (12,034)

Long-term
obligations                       22,972          6,302            767           642         1,558

Shareholders'
equity (deficit)                  33,320         20,392         12,870         6,477          (935)


(1)      Includes $1,307 net gain on disposal of discontinued operations.
(2)      Gives effect in 1996, 1995, 1994 and 1993 to $616, $543, $291 and $134,
         respectively,  in Preferred Share dividend accruals.  Also gives effect
         in 1996 to $400 in  deemed  dividends  with  respect  to the  Series  G
         Preferred Shares.


                                       33





Item 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

     The following discussion and analysis provides information which management
believes  is  relevant  to an  assessment  and  understanding  of the  Company's
consolidated  operations and financial condition.  The discussion should be read
in conjunction with the Company's  consolidated  financial  statements and notes
thereto.  The consolidated balance sheets of the Company as of December 31, 1996
and 1995 and the related  consolidated  statements of operations,  shareholders'
equity and cash flows for the years ended  December 31, 1996,  1995 and 1994 are
included in Item 14(a) hereof.

Results of Operations

     Year Ended  December 31, 1996  compared  with Year Ended  December 31, 1995
Future Realizable Value of Certain Assets; Contemplated Plan of Restructuring

     During the fourth  quarter of 1996, the Company began to analyze the future
realizable  value of certain  assets,  including (i) certain  receivables,  (ii)
certain  intangible  assets  relating to certain  customer  agreements and (iii)
certain  investments.  The Company has determined that the value of these assets
has been  permanently  impaired  substantially  due to changes in the  Company's
industry  resulting  from the  enactment  of the 1996 Act and  other  regulatory
action. The charges resulting from such determination,  which totaled $7,248,000
before  income  taxes,  give  effect  to the  implementation  of  SFAS  No.  121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of"  ($3,716,000)  and a write down to estimated  future  realizable
value of customer advances and other receivables ($3,532,000).

     In addition and as part of an overall Company  reorganization,  the Company
embarked  in the  first  quarter  of  1997  on a  plan  of  restructuring.  This
restructuring  plan,  which resulted from an extensive  strategic  review of the
Company's  assets,  product  offerings and competitive  position in light of the
1996 Act and related  regulatory action, is designed to streamline the Company's
provision  of  telecommunication  services,  improve  efficiencies  and increase
competitiveness.  Such plan contemplates the closure of certain of the Company's
facilities and the payment of employee termination benefits.  The implementation
of  the  Company's  restructuring  plan  will  in  all  likelihood  result  in a
significant reduction in selling,  general and administrative expenses, but also
the  incurrence  of a  significant  restructuring  charge.  The  Company is also
examining the  feasibility  of outsourcing  all or a significant  portion of its
switching and network requirements to one or more unrelated third parties.

                  Operational Results

     Total Company revenues increased from approximately $105,890,000 in 1995 to
approximately  $117,142,000 in 1996, an increase of 10.6%. Current trends in the
domestic  operator services industry continue to show weakness as discussed more
fully in the prior year's  analysis below and as reflected in a decrease in such
revenues  from  approximately   $96,700,000  (91.5%  of  revenues)  in  1995  to
approximately   $82,000,000  (70.0%  of  revenues)  in  1996.  Because  of  this
historical  and  anticipated  future  trend,  the Company  continued its planned
revenue shift by developing  and  acquiring  revenue  sources from product lines
other than domestic operator services.  During 1996,  development of the 1+ Coin
operations  continued  and this  service  produced  revenues  of  $4,200,000  in
contrast with  insignificant  revenues  during 1995. In addition,  revenues from
acquisitions,  described under "Acquisitions" below, offset declines in revenues
from domestic operator  services as follows:  (i) revenues for the six months of
CNSI's  operations  were  approximately  $11,200,000;  (ii) NBE revenues for the
three  months of  operations  in 1996  were  approximately  $534,000;  and (iii)
revenues  from the 4,300 pay  phones  purchased  in the  November  1996  Coastal
Telecom/Garden  State/BEK Tel  acquisition  were  approximately  $1,000,000.  In
addition,  revenues from other business lines increased as follows: (i) Crescent
had  revenues of  $5,600,000  in 1996  compared to  $1,400,000  during the three
months of  operations  included in 1995;  (ii) AHE had revenues of $1,600,000 in
1996 compared with $1,500,000 in 1995; and (iii) 1+ long distance  revenues were
$9,200,000 in 1996 compared to $5,500,000 in 1995.

                                       34




     Cost of sales,  as a percentage  of  revenues,  was 80.1% and 81.9% for the
years  ended  December  31,  1996  and  1995,  respectively.  This  decrease  is
attributable  for the most  part to  reduced  bad  debts,  collection  costs and
operator  center costs.  For 1996,  there was 29.8%  decrease in the cost of bad
debts and  collections  due to a shift to the customer of the burden of bad debt
risk and a 16.7% decrease in operator center costs primarily due to synergies of
combining  the  operations  of the two  operator  centers  of CNSI and ANEI.  In
addition,  the decrease  reflects the Company's  reduced  dependence on domestic
operator  service  revenues  and  relatively  high costs  associated  therewith.
Commission  expense increased by 14.8% in 1996 as compared to a revenue increase
of 10.6%. This was due to the payment of relatively high commissions on domestic
operator  services  which the Company  determined  was  required to maintain its
domestic operator services base of customers.

     Selling,  general and administrative expenses, as a percentage of revenues,
were 14.1% and 11.5%,  respectively,  for the years ended  December 31, 1996 and
1995. The increase in 1996 over 1995 related directly to the acquisition of CNSI
which had significant redundant selling, general and administrative expenses. As
part of the CNSI  consolidation and integration  plan, a significant  portion of
these costs, which approximated $1,500,000 per annum, were specifically targeted
for  reduction or  elimination.  In  addition,  professional  fees  increased by
$600,000 between 1995 and 1996 and are attributable to the 1996 acquisitions and
the significant growth of the Company. These costs are expected to be reduced in
1997.

     Interest expense was $2,730,000 and $2,044,000 for the years ended December
31,  1996 and  1995,  respectively.  The  increase  in 1996 over 1995 was due to
additional  capital lease  obligations of the integrated  services product lines
and loans obtained in connection with the Crescent  acquisition in October 1995.
Furthermore,   it  reflects   approximately   $462,000  of  interest  for  CNSI,
represented  by  short-term  and  long-term  borrowing  assumed  as part of that
acquisition.


                                       35





     Year Ended December 31, 1995 compared with Year Ended December 31, 1994

     Revenues  declined  by 3% from 1994 to 1995  primarily  due to the  current
trends impacting the operator services industry,  including (i) increases in the
number of consumers  who use "dial  around"  services,  i.e.,  the use of access
numbers to reach their carrier of choice, rather than dialing "0+" and utilizing
the services of the operator  services  company who services the  telephone  and
(ii) the  continued  efforts by  governmental  regulatory  agencies to establish
maximum rates which may be charged for 0+ calls.  During 1995,  the Company also
implemented  stricter fraud control measures which resulted in reduced revenues.
Such measures,  however,  resulted in increased profits through the reduction of
bad debt and related costs. The total number of calls processed increased by 11%
in 1995 to 26,300,000  while the minutes billed increased by 1.5% to 125,000,000
in 1995. Revenues did not increase  correspondingly  since the increase in calls
and minutes related to 1+ calls which have lower rates than 0+ calls.

     In order to combat the effects of "dial  around" and rate caps,  as well as
the high commission expenses associated with operator services, during 1995, the
Company's management  established goals to strategically position the Company in
new  businesses  which will lower its cost of sales,  improve profit margins and
secure its customer  base.  As a result,  the Company began to shift its selling
focus to new  higher  profit  margin  services  while it  converts  its  current
operator  services  offering to the  provision of  transaction-based,  wholesale
services in the COCOT business and  presubscription  business (in which the Site
Owner preselects the long-distance service provider).  These new services, which
were  offered  initially  during  1995,  include  hospital   services,   network
management  services,  and 1+ Coin  services.  Although  growth in the number of
COCOT and presubscription  phones providing operator services leveled out during
1995 as a result of this process, the Company's income before taxes increased to
approximately  $1,760,000  for 1995, a 44% increase over 1994. In addition,  the
Company's return on revenues (income before taxes divided by revenues) increased
to 1.7% in 1995 from 1.1% in 1994.

     Cost of sales, as a percentage of revenues, decreased by approximately 1.6%
(from 83.5% to 81.9%) between 1994 and 1995.  Such decrease was due primarily to
a reduction in commission expense which, as a percentage of revenues,  decreased
from 50.2% to 47.5%. Network costs increased,  as a percentage of revenues, from
13.0% to 14.5% between 1994 and 1995.  Commission expenses decreased as a result
of the  Company's  shifting  into new higher  profit  margin  services for which
commissions,  as a  percentage  of  revenue,  are  lower,  as well as due to the
renegotiation of unprofitable  customer commission  agreements.  Network expense
increased  due to an increase in fixed  network  costs  resulting  from a slight
increase  in fixed  network  cost rates and the  expansion  of the 1+ Coin fixed
network.

     Selling,  general and administrative costs decreased approximately $490,000
between  1994 and 1995  due to the  change  in mix of  business  activities  and
management's  cost reduction  initiatives,  and remained fairly  consistent as a
percentage of revenues at 11.6% and 11.5%, respectively.


                                       36





     Interest  expense  for 1995 was  approximately  $2,044,000  as  compared to
approximately  $1,793,000 for 1994.  This increase was due primarily to the cost
of financing for equipment  procured for AHE and for the acquisition of Crescent
in the fourth quarter.

Liquidity and Capital Resources

     The  Company  had  a  net  working  capital   deficiency  of  approximately
$4,994,000 as of December 31, 1996 as compared to a working  capital  surplus of
approximately  $531,000 as of December 31, 1995.  This change was  primarily the
result of increases  in the  short-term  portion of  long-term  debt and capital
leases  associated  with the  CNSI  and  Coastal  Telecom/Garden  State/BEK  Tel
acquisitions. In addition, costs related to acquisitions,  both paid and accrued
during 1996, negatively impacted working capital during the second half of 1996.
These net  working  capital  deficiencies  were  offset by  certain  financings,
including  the sale and issuance of Preferred  Shares  during 1996 and long-term
debt financing (each as discussed below).

     Trade  receivables at December 31, 1996 were  approximately  $19,311,000 as
compared to approximately  $17,080,000 at December 31, 1995. Receivables consist
of uncollected  revenues and surcharges  which the Company bills and collects on
behalf of  itself  and its  customers  and  uncollected  revenues  for  services
provided to other IXCs. Trade receivables decreased by approximately  $8,726,000
between  December 31, 1995 and 1996 (without  giving effect to the  acquisitions
that occurred during 1996).

     The Company currently has in place lending  agreements with its billing and
collection  agents pursuant to which it is currently  provided advances of up to
$27,600,000  at any one time  based upon  eligible  receivables.  Such  eligible
receivables are purchased by the lenders, with recourse, at the approximate rate
of 76% of the gross amount thereof. The Company generally pays interest for such
advances at an  effective  rate equal to the prime rate plus 2%. At December 31,
1996, the  approximate  amount due to the lenders was  $10,898,000.  The lending
agreements expire in February 2000.

     In September 1996, the Company obtained proceeds of $2,000,000  through the
sale of an aggregate of 100,000 Series G Preferred  Shares at a price of $20 per
share.  The Series G Preferred Shares have the following rights and preferences,
among others: (i) 5% cumulative dividend payable, at the time of conversion,  in
cash or,  at the  option of the  Company  and  subject  to the  requirements  of
applicable  law, in Common  Shares or Series G Preferred  Shares of the Company;
(ii)  voting  rights,  with the  number of votes  equaling  the number of Common
Shares issuable at the original issue date of the Series G Preferred Shares upon
conversion  of such  shares;  (iii) the right to convert  each share into Common
Shares of the Company at a  conversion  price equal to the lesser of (a) $3.5125
per share and (b) 80% of the average per share market value for the five trading
days  immediately  preceding the  conversion  date,  subject to reduction  under
certain  circumstances;  and (iv) a liquidation preference of $20 per share plus
an amount equal to accrued but unpaid dividends.


                                       37





     As part of the  Series  G  Preferred  Share  purchase  agreement,  up to an
additional  $8,000,000 of Preferred  Share financing is available to the Company
during the period ending  September  30, 1997,  subject to the  satisfaction  of
certain conditions. Such conditions include, without limitation, the requirement
that between June 30, 1996 and the date of funding no event shall have  occurred
which in the judgment of the  purchaser  of the Series G Preferred  Shares had a
material  adverse effect on the Company (see "Results of  Operations")  and that
Messrs. Baritz and Izzo shall have remained  substantially in their then current
function  under their then current  managerial  positions  with AMNEX  without a
material  diminution  of  managerial  responsibilities.  As discussed in Item 10
hereof,  in March 1997, Mr. Baritz replaced Mr. Izzo as Chief Executive  Officer
of AMNEX and Mr. Izzo assumed the position of President of the Company's  PubCom
Division.

     During 1996, the Company obtained debt financing in the aggregate amount of
approximately   $9,500,000,   including  approximately  $4,000,000  required  to
consummate  the  acquisition  of  Coastal  Telecom/Garden  State/BEK  Tel assets
described  below under  "Acquisitions".  The Company's  obligation to repay such
approximate  $9,500,000  in  debt  financing,   plus  an  additional  $2,500,000
refinanced during 1996, is secured by the grant of a security interest in, among
other assets,  approximately  6,000 private payphones.  As of December 31, 1996,
substantially all of such aggregate  $12,000,000 of indebtedness was outstanding
and  was  payable  over  a five  year  period,  together  with  interest  at the
approximate rate of between 10.5% and 11.9% per annum. As of March 31, 1997, the
Company had approximately 1,500 payphones not subject to such security interest.
The Company is currently  seeking  additional debt financing with regard to such
presently  unencumbered  phones.  No  assurances  can be  given  that  any  such
financing will be obtained.

     In addition,  the Company is  contemplating an offering of convertible debt
securities  in order to raise a  significant  amount of  additional  funds.  The
proceeds of any such  financing  are intended to be used to  repurchase  certain
outstanding convertible  securities,  and provide funds for acquisitions and any
short-term  working  capital  needs.  There can be no assurances  given that the
Company will undertake such offering or, if undertaken,  that it will be able to
successfully conclude such financing.  It is contemplated that, if the financing
is  undertaken,  the  securities  offered  will  not  be  registered  under  the
Securities  Act of 1933,  as amended (the  "Securities  Act"),  and neither such
securities nor the underlying Common Shares may be offered or sold in the United
States absent  registration  under the  Securities  Act or an exemption from the
registration requirements thereof.

     The Company  maintains various office,  operations and computer  facilities
under  operating  and capital  leases.  As of December 31, 1996,  the  Company's
minimum  commitments for the following 12 months under  noncancelable  operating
leases  was  approximately   $977,000.     The  Company  anticipates  that  such
commitments will be met through operating profits.

     The Company  expects that normal  recurring  capital  expenditures  will be
approximately $1,000,000 for 1997 and anticipates that cash flow from operations
and asset-based  financing will provide the funding required.  No assurances can
be given that these  sources  will  provide  adequate  funding for such  capital
expenditures or that such capital expenditures will actually be made.

                                       38






Acquisitions

         CNSI

     Effective  June 30,  1996,  AMNEX  acquired all of the  outstanding  common
shares of CNSI.  Pursuant to the  acquisition  agreement,  as amended (the "CNSI
Acquisition  Agreement"),  AMNEX  issued to the former  shareholders  of CNSI an
aggregate  of  4,099,086  Common  Shares  (the "CNSI  Acquisition  Shares")  and
two-year  warrants for the purchase of an aggregate of 400,000  Common Shares of
the Company at an  exercise  price of $4.51 per share.  Of the CNSI  Acquisition
Shares, 1,861,802 are being held in escrow and will be available (i) to effect a
reduction of the purchase price in the event that the negative  working  capital
of CNSI as of the closing date and certain other amounts payable as of such date
exceeded a certain  threshold  amount as  provided  for in the CNSI  Acquisition
Agreement  and (ii) to  indemnify  AMNEX  against  certain  breaches of the CNSI
Acquisition  Agreement as set forth therein.  In March 1997, AMNEX sent a notice
seeking indemnification under the CNSI Acquisition Agreement.

     Concurrently  with  the  closing,  AMNEX  advanced  to  CNSI  cash  in  the
approximate amount of $1,000,000. Such proceeds were used by CNSI to pay certain
employee separation costs.

     The  CNSI  acquisition  enabled  the  Company  to enter  the  international
telecommunications market. See Item 1 hereof.

     The acquisition was accounted for as a purchase.  Accordingly,  the results
of operations of CNSI have been included in the financial  statements,  included
herein as Item 14(a), from the date of acquisition.

         Teleplus

     On August 31, 1996,  Teleplus assigned to AMNEX all of its rights under its
Dealer  Agreement  with CNSI in exchange for 1,052,336  Common  Shares.  Of such
shares,  526,168  were issued  effective  as of January 30, 1997 and 526,168 are
issuable on January 30, 1998. The Teleplus  transaction  was done in furtherance
of the Company's goal to reduce commission expenses payable to independent sales
agents.

         NBE

     Effective  September 30, 1996, AMNEX acquired 80% of the outstanding common
shares of NBE for 550,725  Common Shares.  The Company  believes that NBE should
provide  significant  synergies to the existing  cost  structure of ANEI,  while
providing a new and  expanding  business in the  billing  and  collection  niche
markets. See Item 1 hereof.

     The acquisition was accounted for as a purchase.  Accordingly,  the results
of operations of NBE have been  included in the financial  statements,  included
herein as Item 14(a), from the date of acquisition.

                                       39




         Coastal Telecom et al.

     Effective  November 20, 1996,  pursuant to an Asset Purchase Agreement (the
"Coastal  Acquisition  Agreement"),  Crescent  acquired  certain assets owned by
Coastal Telecom, Garden State and BEK Tel (collectively,  the "Coastal Assets"),
including 4,300 pay telephones located primarily in the State of New Jersey.

     The aggregate  consideration  payable in connection with the acquisition of
the Coastal Assets was $10,410,000, payable to the extent of $3,010,000 in cash,
2,098,373  Common  Shares and the  assumption  of  approximately  $2,200,000  in
liabilities.

     Pursuant to the Coastal  Acquisition  Agreement,  the holders of the common
shares  acquired (the "Coastal  Acquisition  Shares") have been granted  certain
piggyback  registration  rights as well as certain  rights to require that AMNEX
repurchase up to $3,250,000 in market value of the Coastal Acquisition Shares in
the event  AMNEX does not file a  registration  statement  within  certain  time
periods  as set  forth in the  Coastal  Acquisition  Agreement  and the  Coastal
Acquisition Shares are not otherwise sold.

     The Coastal  Assets were acquired in  furtherance  of the Company's goal of
significantly increasing its ownership of payphone assets.

Recent Federal Legislation

     As discussed in Item 1(c) hereof, in February 1996, the 1996 Act was signed
into law. The new statute is intended to promote  competition  in both the local
and long distance  markets.  Prior to  enactment,  the RBOCs could not sell long
distance  service or  manufacture  equipment.  Although such  activities are now
permitted,  before RBOCs may enter the long  distance  market,  they must comply
with a number of  requirements  that are designed to prevent them from  unfairly
using their market power to compete against the smaller  industry  participants.
The law also calls for the FCC to further define,  implement and oversee the new
rules. The Company  believes that its current  activities are no more or less at
risk, as a result of the new law, than they were before the law was passed.  The
Company  additionally  believes that it is well  positioned to take advantage of
some of the provisions in the new law.

Subsequent Events

     On January 7, 1997,  the Company  entered into a Stock  Exchange  Agreement
with  Francesco  Galesi  pursuant  to  which  the  Company  acquired  10% of the
outstanding  capital  stock of GTI in exchange for Series L Preferred  Shares of
the Company and warrants for the purchase of Series L Preferred Shares. See Item
13(a) hereof.

                                       40






     On February 25, 1997,  the Company  entered into a joint venture  agreement
with Community Network Services Inc.,  MicroTel  Communications  Corporation and
other entities related to them for the purpose of conducting  telecommunications
operations  with  regard to  international  1+  calls.  In  connection  with the
transaction, the Company converted approximately $2,250,000 of indebtedness into
preferred  shares of the joint venture entity and agreed to make working capital
loans to the joint  venture  entity in an aggregate  amount of up to  $1,200,000
during the initial six month term of the agreement.

     On February 28, 1997, the Company  entered into a Renewal and  Modification
Agreement  with  National  with  regard  to the  redefinition  of  the  customer
relationship   between  the  parties.   Under  the  terms  of  the  Renewal  and
Modification Agreement, the Company has been appointed the exclusive provider of
various services to private payphones owned,  leased or otherwise  controlled by
National. See Items 1 and 13(a) hereof.

     On March 1, 1997,  Crescent  acquired certain assets from Sun Tel Inc. (the
"Sun Tel Assets") including approximately 600 pay telephones located in Florida,
for an aggregate purchase price of $1,068,000 and the grant to a designee of Sun
Tel Inc. of a 20% equity interest in the Crescent  subsidiary that purchased the
Sun Tel Assets.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Item 14 hereof.

Item 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURE

     There were no changes in accountants due to disagreements on accounting and
financial  disclosure  during the  twenty-four  month period ended  December 31,
1996.


                                       41





                                    PART III

Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

Directors and Executive Officers

     The  following  persons are the  Directors  and  executive  officers of the
Company:

       Name            Age                    Position
       ----            ---                    --------

Kenneth G. Baritz      40      Chairman, Chief Executive Officer and Director

Peter M. Izzo, Jr.     45      President of PubCom Division and Director

Michael V. Dettmers    51      Chief Operating Officer and Director

Kevin D.  Griffo       36      President of TelCom Division

John Kane              44      Executive Vice President for Business Development

Amy S. Gross           41      Vice President - General Counsel and Secretary

Richard L. Stoun       40      Vice President - Finance, Treasurer and Chief
                               Accounting Officer

Francesco Galesi       66      Director

     Kenneth G. Baritz was  elected  Chief  Executive  Officer of the Company in
March 1997.  Mr. Baritz has also served as the Company's  Chairman since January
1994 and as a Director of the Company since October 1992. Mr. Baritz served from
October 1989 through  December 1993 as a Vice President of Bear,  Stearns & Co.,
Inc., an investment banking firm. From April 1987 to October 1989, he was a Vice
President of Shearson Lehman Brothers, also an investment banking firm. In 1994,
without  admitting or denying that he had committed any  violations,  Mr. Baritz
consented to a censure and a 90 day suspension  from  employment with a New York
Stock  Exchange  member firm for conduct  inconsistent  with just and  equitable
principles of trading involving certain brokerage transactions completed in 1989
and 1991. Mr. Baritz is on the Board of Directors of a number of  privately-held
companies.

     Peter M. Izzo, Jr. has served as President of the Company's PubCom Division
since March 1997 and as a Director of the Company since  October 1992.  Mr. Izzo
previously served as the Company's President from October 1992 to March 1997 and
as its Chief Executive  Officer from August 1993 to March 1997. From May 1991 to
October 1992, Mr. Izzo served as President of Peconic Communications, a provider
of pay phones and  interconnect  equipment.  He served as Vice  President of New
Product Development for the Company during 1991. Prior thereto and from 1989,

                                       42



Mr. Izzo was associated with ANEI, the Company's wholly-owned  subsidiary,  last
serving as Executive Vice President - Operations. During 1987 and 1988, Mr. Izzo
was Vice President of Network  Operations at Elcotel,  a manufacturer of private
pay phones.  He previously  served as Director of Operations  for TFN,  Inc., an
interexchange  carrier,  and was employed  for 15 years with New York  Telephone
Company.

     Michael V. Dettmers was elected Chief  Operating  Officer of the Company in
March 1997 and has  served as a Director  of the  Company  since May 1994.  From
March 1995 to March 1997, Mr. Dettmers provided  consulting services to a number
of clients,  including  the Company,  in the area of  organizational  design and
development.  Prior  thereto and from  January  1988,  he served as President of
Dettmers  Industries  Inc.,  a  manufacturer  of interior  products for business
aircraft.  From 1980 to 1991,  he also served as President of Execucorp  Inc., a
management consulting firm.

     Kevin D.  Griffo  has  served  as  President  of ANEI  since  June 1996 and
President  of the  Company's  TelCom  Division  since  March  1997.  Mr.  Griffo
previously  served ANEI as its Chief  Operating  Officer from  December 1995 and
General  Manager from January 1995.  From February 1996 to September  1996,  Mr.
Griffo also served as Chief Operating  Officer of the Company.  Prior to joining
ANEI and from August 1992,  Mr.  Griffo  served as Regional  Vice  President for
LDDS, an interexchange  carrier.  From September 1983 to August 1992, Mr. Griffo
was Chief Operating Officer of Tele-Fibernet, an interexchange carrier.

     John Kane has served as the Company's Executive Vice President for Business
Development  since March 1997,  having  previously  served in such position from
February 1996 to September 1996 and in the same position for ANEI from June 1995
to February 1996. Mr. Kane served as Chief Operating Officer of the Company from
October 1996 to March 1997.  From September 1992 to May 1995, Mr. Kane served as
Senior  Vice   President  -  Operations   for  WCT   Communications,   Inc.,  an
interexchange  carrier.  He served from May 1992 to March 1993 as  President  of
Computer Calling Technology,  Inc., an interexchange  carrier. Prior thereto and
from April 1987, Mr. Kane served as Vice President and General  Manager of First
Phone of New England, Inc., an interexchange carrier.

     Amy S. Gross has served as Vice  President - General  Counsel and Secretary
of the Company since June 1992.  Prior thereto and from June 1989, she served as
General  Counsel - Regulatory  for the Company.  From 1985 until June 1989,  Ms.
Gross was  affiliated  with NYNEX  Service  Company,  serving as a member of its
legal  department  and  later  as  a  staff  director  responsible  for  product
development and regulatory planning.

     Richard L. Stoun  joined ANEI in January  1996 as Senior  Vice  President -
Finance. He was elected Vice President - Finance, Treasurer and Chief Accounting
Officer of the Company in February 1996. From November 1992 to January 1996, Mr.
Stoun  served as Senior  Vice  President - Finance and  Treasurer  of  Signature
Flight Support  Corporation  ("Signature"),  a provider of aviation services for
commercial and general aviation markets.  Prior thereto and from August 1985, he
was Vice  President  - Finance  and  Treasurer  of Page Avjet  Corp.,  a company
engaged in a business  similar to  Signature.  Mr.  Stoun is a certified  public
accountant  who  previously  served  with  the  independent  accounting  firm of
Deloitte Haskins and Sells.

                                       43




     Francesco  Galesi has served as a Director  of the  Company  since  January
1997.  Since 1969, Mr. Galesi has served as Chairman of the Galesi Group,  which
includes companies engaged in telecommunications, manufacturing, real estate and
logistic  management.  Mr.  Galesi  is  also  currently  a  Director  of  Walden
Residential  Properties,  Inc., a real estate  company,  and  WorldCom,  Inc., a
telecommunications company, each of whose shares are publicly traded. Mr. Galesi
also serves on the Board of Directors of a number of  privately-held  companies.
See Item 13(a) hereof.

     Each  Director   will  hold  office  until  the  next  Annual   Meeting  of
Shareholders  and until his  successor  is elected and  qualified or his earlier
resignation  or removal.  Each  executive  officer  will hold  office  until the
meeting  of the  Board  of  Directors  following  the  next  Annual  Meeting  of
Shareholders  and  until  his or her  successor  is  elected  or  appointed  and
qualified or his or her earlier resignation or removal.

     There  is no  family  relationship  among  any of the  Company's  executive
officers and Directors.

Section 16(a) Beneficial Ownership Reporting Compliance

     To the Company's knowledge,  based solely on a review of copies of Forms 3,
4 and 5  furnished  to the Company  and  written  representations  that no other
reports were  required,  during the fiscal year ended  December  31,  1996,  all
Section  16(a)  filing  requirements   applicable  to  the  Company's  officers,
Directors and 10% shareholders were complied with.

Item 11. EXECUTIVE COMPENSATION

          (a)  Summary Compensation Table.

     The  following  table sets forth certain  information  for the fiscal years
ended December 31, 1996, 1995 and 1994  concerning the  compensation of Peter M.
Izzo, Jr., then Chief Executive  Officer of the Company,  and the Company's four
most highly compensated executive officers (other than Mr. Izzo) during the 1996
fiscal year:







                                       44





                                      Annual Compensation                    Long-Term Compensation
                              ------------------------------------  -------------------------------------
                                                                            Awards                Payouts
                                                                    -------------------------     -------
                                                                                    Common
                                                                     Restricted     Shares
Name and Principal                                    Other Annual     Stock       Underlying     LTIP       All Other              
  Position             Year     Salary        Bonus   Compensation    Award(s)      Options       Payouts   Compensation
- ------------------     ----    --------      -------  ------------    --------      -------       -------   ------------

                                                                                      
Peter M. Izzo, Jr.     1996    $223,424          --       --         $320,625(2)   325,000(3)       --        $2,178(4)
President and Chief    1995    $200,000      $52,083      --               --      300,000          --        $2,000(4)
Executive Officer(1)   1994    $200,204      $36,204      --               --          --           --            --

Kenneth G. Baritz      1996    $166,935          --       --         $168,750(2)   300,000(3)       --        $1,187(4)
Chairman of the        1995    $132,687      $17,601      --               --           --          --            --
Board(5)               1994    $120,061          --       --               --           --          --            --

John Kane              1996    $154,403      $23,000(8)   --          $84,375(2)   275,000(3)       --            --
Chief Operating        1995     $80,384(7)   $32,000(8)   --               --       75,000          --            --
Officer(6)             1994          --           --      --               --           --          --            --

Kevin D. Griffo        1996    $116,592           --      --          $84,375(2)   200,000(3)       --          $690(4)
President of American  1995    $110,415           --      --               --       50,000          --            --
Network Exchange, Inc. 1994          -- (9)       --      --               --           --          --            --

Richard L. Stoun       1996    $110,146           --      --               --      100,000          --       $22,500(10)
Vice President -       1995          -- (10       --      --               --           --          --            --
Finance, Treasurer     1994          --           --      --               --           --          --            --
and Chief Accounting
Officer


- ----------

(1)       Effective  March 1997,  Mr. Izzo  assumed the position of President of
          the Company's PubCom Division.

(2)       In May 1996, the following  persons  received  awards of the following
          number of restricted  Common Shares:  Mr. Izzo - 95,000;  Mr. Baritz -
          50,000; Mr. Kane - 25,000;  and Mr. Griffo - 25,000.  Such shares vest
          to the extent of  one-tenth  thereof  each year,  subject to continued
          employment and subject to  acceleration  under certain  circumstances.
          Dividends are payable with respect to such shares.  As of December 31,
          1996,  no  restricted  shares  had  vested  and  such  shares  had the
          following  respective  values:  Mr.  Izzo -  $290,938;  Mr.  Baritz  -
          $153,125; Mr. Kane - $76,563; and Mr. Griffo - $76,563.

(3)       Of such number of shares underlying options,  the following number are
          subject to  shareholder  approval of both an increase in the number of
          authorized  Common  Shares  generally and an increase in the number of
          Common Shares  authorized for issuance under AMNEX's 1992 Stock Option
          Plan (the "1992 Plan"): Mr. Izzo - 250,000;  Mr. Baritz - 250,000; Mr.
          Kane - 50,000; and Mr. Griffo - 100,000.

                                       45



(4)       Represents Company matching contributions for its 401(k) plan.

(5)       Effective March 1997, Mr. Baritz was elected Chief  Executive  Officer
          of the Company.

(6)       Effective  March 1997, Mr. Kane assumed the position of Executive Vice
          President for Business Development.

(7)       Mr. Kane joined the Company in June 1995.

(8)       The  bonus  paid to Mr.  Kane  for  1995  and  1996  was  based on the
          development of the Company's 1+ Coin business. See Item 1(c) hereof.

(9)       Mr. Griffo joined the Company in January 1995.

(10)      Mr.  Stoun joined the Company in January  1996.  The amount under "All
          Other Compensation" for 1996 represents a "signing bonus" paid in 1997
          to Mr.  Stoun  following  his  completion  of one  year of  continuous
          employment with the Company.

          (b)  Option Grants Table.

     The following table sets forth certain  information  concerning  individual
grants of stock options during the fiscal year ended December 31, 1996:


                                                                                      Potential Realizable
                                                                                    Value at Assumed Annual
                                                                                      Rates of Stock Price
                                                                                    Appreciation for Option
                                      Individual Grants                                     Term (1)
- -------------------------------------------------------------------------------     -----------------------

                         Number of
                         Common
                         Shares       Percent of Total
                         Underlying   Options Granted
                         Options      to Employees in    Exercise    Expiration
     Name                Granted      Fiscal Year        Price       Date               5%         10%
     ----                -------      -----------        -----       ----               --         ---
                                     
                     
                                                                                   
Peter M. Izzo, Jr.      75,000(2)         3.2%           $3.375      05/23/01        $69,934    $154,535

Peter M. Izzo, Jr.     250,000(3)        10.5%           $2.75       12/20/01       $189,944    $419,726

Kenneth G. Baritz       50,000(2)         2.1%           $3.375      05/23/01        $46,623    $103,024

Kenneth G. Baritz      250,000(3)        10.5%           $2.75       12/20/01       $189,944    $419,726

John Kane              100,000(4)         4.2%           $3.25       02/12/01        $89,792    $198,416

John Kane               25,000(5)         1.1%           $3.375      05/23/01        $23,311     $51,512

John Kane              100,000(6)         4.2%           $2.875      11/08/01        $79,431    $175,522

John Kane               50,000(3)         2.1%           $2.75       12/20/01        $37,989     $83,945

Kevin D. Griffo        100,000(7)         4.2%           $3.25       02/12/01        $89,792    $198,416

Kevin D. Griffo        100,000(3)         4.2%           $2.75       12/20/01        $75,977    $167,890

Richard L. Stoun       100,000(7)         4.2%           $3.25       02/12/01        $89,792    $198,416



                                       46



- ----------

(1)       The potential  realizable value is calculated based on the term of the
          option at the time of grant (five years).  Stock price appreciation of
          5% and 10% is assumed pursuant to rules  promulgated by the Securities
          and  Exchange  Commission  (the  "SEC")  and  does not  represent  the
          Company's prediction of its stock price performance.

(2)       The  options  are  exercisable  to the  extent  of  one-third  thereof
          effective as of May 23, 1997, 1998 and 1999. See Item 11(e) hereof.

(3)       The  options  are  exercisable  to the  extent  of  one-third  thereof
          effective as of December  20,  1997,  1998 and 1998 and are subject to
          shareholder approval of an increase in the number of authorized Common
          Shares  generally  and an  increase  in the  number of  Common  Shares
          authorized for issuance under the 1992 Plan. See Item 11(e) hereof.

(4)       The  options  are  exercisable  to the  extent of  one-eighth  thereof
          effective June 1, 1996, one-sixth thereof effective February 12, 1997,
          one-eighth  thereof  effective  June  1,  1997,   one-twelfth  thereof
          effective  February 12, 1998 and one-half  thereof  effective  June 1,
          1998. See Item 11(e) hereof.

(5)       The  options  are  exercisable  to the  extent  of  one-third  thereof
          effective  February 12, 1998 and two-thirds thereof effective February
          12, 1999. See Item 11(e) hereof.

(6)       The  options  are  exercisable  to the  extent  of  one-third  thereof
          effective  as of  November  8,  1997,  1998 and 1999.  See Item  11(e)
          hereof.

(7)       The options are exercisable to the extent of one-third effective as of
          February 12, 1997, 1998 and 1999. See Item 11(e) hereof.

          (c)  Aggregated  Option  Exercises  in Last  Fiscal  Year  and  Fiscal
               Year-End Option Value Table.

     The following table sets forth certain information  concerning the value of
unexercised options as of December 31, 1996:




                             Number of Common Shares
                        Underlying Unexercised Options at        Value of Unexercised in-the-Money
                                December 31, 1996                Options at December 31, 1996

    Name                    Exercisable/Unexercisable               Exercisable/Unexercisable
    ----                    -------------------------               -------------------------

                                                                            
Peter M. Izzo, Jr.           415,000 / 325,000 (1)                       $60,938 / $78,125

Kenneth G. Baritz            100,000 / 300,000 (1)                        $6,250 / $78,125

John Kane                     50,000 / 300,000 (1)                       $16,406 / $50,781

Kevin D. Griffo               25,000 / 225,000 (1)                           -0- / $31,250

Richard L. Stoun                 -0- / 100,000                               -0- / -0-


- ---------- 

(1)       The number of Common  Shares  underlying  unexercisable  options as of
          December  31, 1996  include the  following  number that are subject to
          shareholder approval of an increase in the number of authorized Common
          Shares  generally  and an  increase  in the  number of  Common  Shares
          authorized for issuance  under the 1992 Plan: Mr. Izzo - 250,000;  Mr.
          Baritz - 250,000; Mr. Kane - 50,000; and Mr. Griffo - 100,000.

                                       47




     No options were exercised by any of the foregoing persons during the fiscal
year ended December 31, 1996.

          (d) Compensation of Directors.

     Directors  are not  entitled  to receive a fee for their  services  in such
capacity.  However, see Item 11(f) hereof for a discussion of certain consulting
services performed by Mr. Dettmers during 1996.

          (e)  Employment    Contracts;    Termination    of   Employment    and
               Change-in-Control Arrangements.

     AMNEX is a party to employment  agreements with Messrs.  Izzo, Baritz, Kane
and Griffo that provide for, among other matters, the following:  (i) an initial
term ending on June 25, 1997  (except that for Mr. Izzo the initial term ends on
June 25, 1998 and for Mr. Kane the initial  term ends on October 1, 1998);  (ii)
minimum  annual  compensation  as follows:  Mr. Izzo -  $240,000;  Mr.  Baritz -
$190,000; Mr. Kane - $180,000; and Mr. Griffo - $150,000;  (iii) the entitlement
by such  persons to an annual bonus as follows:  Mr. Izzo - 3% of the  Company's
consolidated  pre-tax  profits;  Mr. Baritz - 1% of the  Company's  consolidated
pre-tax profits; and Messrs. Kane and Griffo participation in a bonus pool equal
to an aggregate of 3% of the Company's consolidated pre-tax profits (but for Mr.
Kane in no event less than 1% of such profits); and (iv) the entitlement by such
persons to a  severance  payment  equal to  generally  the greater of one year's
minimum annual salary and the employee's total  compensation for the previous 12
months  (except  that,  for Mr.  Izzo,  the figures are two years and 24 months,
respectively)  in the event the  executive  officer's  employment  is terminated
without  cause,  he resigns  for good  reason or his  employment  is  terminated
following a change in control of AMNEX (as defined in the respective  employment
agreements).

     All stock options held by Messrs. Izzo, Baritz, Kane, Griffo and Stoun will
vest upon a change in control of AMNEX (as  defined  in their  respective  stock
option agreements).  Once and to the extent the options vest, whether by passage
of time or upon a change in  control,  they will not  terminate  notwithstanding
termination of employment for any reason. See Item 12 hereof.

     The restricted  Common Shares  granted to Messrs.  Izzo,  Baritz,  Kane and
Griffo in 1996  (see Item  11(a)  hereof)  will vest in the event the  executive
officer's  employment is terminated without cause, he resigns for good reason or
his employment is terminated  following a change in control of AMNEX (as defined
in AMNEX's 1996 Restricted Stock Grant Plan).

          (f) Compensation Committee Interlocks and Insider Participation.

     During the fiscal year ended  December  31,  1996,  Mr.  Dettmers  provided
management  consulting  services  to the  Company  and  received  the  following
compensation: (i) $130,000; and (ii) a stock option under the 1992 Plan (subject
to shareholder approval of an increase in the number of authorized Common Shares
generally and an increase in the number of Common Shares authorized for issuance
under the 1992 Plan) for the  purchase  of 50,000  Common  Shares at an exercise
price of $2.75 per share.

                                       48


Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          (a)  and (b) Security Ownership of Certain Beneficial Owners; Security
               Ownership of Management.

Common Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the  beneficial  ownership of AMNEX's Common Shares (i) by each person who AMNEX
believes may be considered  under the rules and regulations of the SEC to be the
beneficial owner of more than 5% of its outstanding Common Shares,  (ii) by each
present  Director,  (iii) by each person listed in Item 11(a) hereof and (iv) by
all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              ---------------------      -------------------

Spring Technology Corp. (2)        3,835,356 (3)(4)               12.2%

Robert A. Rowland
1122 Colorado Street
Austin, Texas                      2,474,891 (5)                   8.8%

Mellon Bank Corporation
Mellon Bank, N.A.
The Dreyfus Corporation
One Mellon Bank Center
500 Grant Street
Pittsburgh, PA                     1,742,000(6)                    6.2%

Cofinvest 97 Ltd. (2)              1,723,617(3)(7)                 6.1%

Brian E. King
675 Morris Avenue
Springfield, New Jersey            1,682,989                       6.0%

Peter M. Izzo, Jr.                   512,040(8)                    1.8%

Kenneth G. Baritz                    359,000(9)                    1.3%

Kevin D. Griffo                      108,334(10)                    *

John Kane                             98,166(11)                    *

Richard L. Stoun                      33,334(12)                    *

Michael V. Dettmers                   15,000(12)                    *

Francesco Galesi                         -0-(13)                    -

All executive officers and
Directors as a group (8 persons)   1,188,905(8)(9)(10)             4.1%
                                            (11)(12)(13)
                                            (14)
                                                       
               ----------
 * Less  than 1%.

(1)       Except  as they  relate  to a  particular  shareholder,  does not give
          effect to the  possible  issuance  of up to  approximately  17,000,000
          Common  Shares  pursuant to the  exercise of  outstanding  options and
          warrants or the conversion of certain outstanding promissory notes and
          Preferred Shares (certain of which are exercisable or convertible only
          in the event of,  among  other  matters,  an increase in the number of
          authorized  Common  Shares  generally and an increase in the number of
          Common Shares authorized for issuance under the 1992 Plan) or pursuant
          to contractual commitments.

                                       49


(2)       Address  is  c/o  Friedli   Corporate   Finance  AG  ("Friedli   AG"),
          Freigutstrausse 5, Zurich, Switzerland.

(3)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Common Shares  reflected above as being  beneficially  owned by Spring
          Technology Corp.  ("Spring") and Cofinvest 97 Ltd.  ("Cofinvest")  are
          held by  such  entities  as  nominees  for  certain  overseas  banking
          institutions  which, in turn, hold such securities as nominees for the
          benefit of others (the "Ultimate Common Beneficial Owners"). AMNEX has
          been advised further by Friedli AG that, to its knowledge, none of the
          Ultimate Common Beneficial Owners is the beneficial owner of more than
          5% of the outstanding Common Shares. See Item 13(a) hereof.

(4)       Includes  632,500 and 152,500 Common Shares  issuable  pursuant to the
          conversion of Series B Preferred Shares and Series F Preferred Shares,
          respectively,  and 2,849,480  Common Shares  issuable  pursuant to the
          conversion of outstanding  indebtedness  (including accrued interest).
          AMNEX  believes  that  Friedli  AG may  have the  right  to cause  the
          conversion  of such Series B Preferred  Shares and  indebtedness  into
          Common Shares.

(5)       Includes   222,205  Common  Shares  issuable   pursuant  to  currently
          exercisable   warrants.   Of  the   2,252,686   other  Common   Shares
          beneficially  owned by Mr.  Rowland,  1,035,250 are currently  held in
          escrow as security for  indemnification  claims that may be brought in
          connection  with  AMNEX's   acquisition  of  CNSI  and  other  related
          entities. See Item 7 hereof.

(6)       Based upon  Schedule 13G filed with the SEC.  Pursuant to the Schedule
          13G, (i) of the reported  shares,  each of Mellon Bank Corporation and
          Mellon Bank,  N.A. has sole voting power over 1,742,000  shares,  sole
          dispositive power over 42,000 shares and shared dispositive power over
          1,700,000  shares,  and The Dreyfus  Corporation has sole voting power
          and shared  dispositive power over 1,700,000  shares;  (ii) all of the
          reported shares are beneficially  owned by Mellon Bank Corporation and
          its  direct  or  indirect  subsidiaries  in  their  various  fiduciary
          capacities; (iii) no one individual account holds an interest of 5% or
          more;  and (iv) the filing of the Schedule 13G should not be construed
          as an admission that Mellon Bank Corporation or its direct or indirect
          subsidiaries  are,  for  purposes  of  Section  13(d)  or 13(g) of the
          Securities and Exchange Act of 1934,  the beneficial  owners of any of
          the reported shares.

(7)       Includes 127,402 Common Shares issuable  pursuant to the conversion of
          Series D Preferred Shares and 356,415 Common Shares issuable  pursuant
          to the  conversion  of  certain  outstanding  indebtedness  (including
          accrued  interest).  AMNEX believes that Friedli AG may have the right
          to cause the conversion of such Preferred Shares and indebtedness into
          Common Shares.

(8)       Includes (i) 95,000 Common Shares held pursuant to a restricted Common
          Share  grant  which  vests  to the  extent  of  one-tenth  each  year,
          commencing May 23, 1997,  subject to continued  employment and subject
          to acceleration under certain  circumstances,  and (ii) 415,000 Common
          Shares issuable pursuant to currently exercisable options.

(9)       Includes (i) 50,000 shares held pursuant to a restricted  Common Share
          grant which vests to the extent of one-tenth each year, commencing May
          23, 1997, subject to continued  employment and subject to acceleration
          under certain  circumstances,  and (ii) 125,000 Common Shares issuable
          pursuant to currently exercisable options and warrants.

                                       50


(10)      Represents  (i) 25,000  shares held  pursuant to a  restricted  Common
          Share  grant  which  vests  to the  extent  of  one-tenth  each  year,
          commencing May 23, 1997,  subject to continued  employment and subject
          to acceleration  under certain  circumstances,  and (ii) 83,334 Common
          Shares issuable pursuant to currently exercisable options.

(11)      Includes (i) 25,000 shares held pursuant to a restricted  Common Share
          grant which vests to the extent of one-tenth each year, commencing May
          23, 1997, subject to continued  employment and subject to acceleration
          under certain  circumstances,  and (ii) 66,666 Common Shares  issuable
          pursuant to currently exercisable options.

(12)      Represents  Common Shares issuable  pursuant to currently  exercisable
          options.

(13)      Excludes  1,500,000  Common  Shares  issuable  upon the  conversion of
          100,000  outstanding  Series L  Preferred  Shares of AMNEX held by Mr.
          Galesi,  which Series L Preferred  Shares are mandatorily  convertible
          into such Common  Shares in the event AMNEX shall  increase its number
          of authorized  Common Shares to permit such conversion,  as well as to
          satisfy  other  outstanding  rights to  acquire  Common  Shares.  Also
          excludes  1,500,000  Common  Shares  issuable  upon the  exercise of a
          certain  warrant held by Mr. Galesi for the purchase of 100,000 Series
          L Preferred  Shares of AMNEX,  which  warrant is  exercisable  for the
          purchase of 1,500,000  Common  Shares in the event the  aforementioned
          increase in authorized Common Shares is theretofore accomplished.  See
          Item 13(a) hereof.

(14)      Includes (i) 25,000 shares held pursuant to a restricted  Common Share
          grant which vests to the extent of one-tenth each year, commencing May
          23, 1997, subject to continued  employment and subject to acceleration
          under certain  circumstances,  and (ii) 38,000 Common Shares  issuable
          pursuant to currently exercisable options.

Series B Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series B Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series B Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

                                       51


Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              ---------------------      -------------------

Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland                   724,500(2)                 100%

Spring Technology Corp.
c/o Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland                   632,500(3)                 87.3%

Banca Novara
Usteristrasse 9
Postfach
Zurich, Switzerland                    92,000(3)                 12.7%

Peter M. Izzo, Jr.                        -0-                      --

Kenneth G. Baritz                         -0-                      --

Kevin D. Griffo                           -0-                      --

John Kane                                 -0-                      --

Richard L. Stoun                          -0-                      --

Michael V. Dettmers                       -0-                      --

Francesco Galesi                          -0-                      --

All executive officers and Directors
as a group (8 persons)                    -0-                      --

- ----------

(1)       Holders of Series B  Preferred  Shares are  entitled  to ten votes for
          each Series B Preferred Share held.

(2)       AMNEX  believes  that Friedli AG or an affiliate  thereof may have the
          right  to vote  and  dispose  of,  or  otherwise  control,  all of the
          outstanding  Series B  Preferred  Shares.  Friedli AG does not own any
          Series B  Preferred  Shares of record  and AMNEX has been  advised  by
          Friedli AG that it disclaims  beneficial ownership of such shares.

(3)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Series B Preferred Shares reflected above as being  beneficially owned
          by  Spring  and  Banca  Novara  are held by such  entities  either  as
          nominees for certain  overseas  banking  institutions  which, in turn,
          hold such  securities  as nominees  for the  benefit of others,  or as
          nominees for the benefit of others. See Item 13(a) hereof.

                                       52


Series D Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series D Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series D Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              ---------------------      -------------------

Friedli Corporate Finance AG
Freigutstrausse 5
Zurich, Switzerland                 1,413,337(2)                 100%

Experta Treuhand AG
Posttach 970
Zurich, Switzerland                   365,000(3)                 25.8%

Logitech Corp. (4)                    343,334(3)                 24.3%

Barclays Bank (Schweiz) AG
Schutzengasse 21 
Zurich, Switzerland                   203,500(3)                 14.4%

Eagle Growth Ltd. (4)                 199,100(3)                 14.1%

Cofinvest 97 Ltd. (4)                 127,402(3)                  9.0%

Bordier & Cie (4)                     110,000(3)                  7.8%

Peter M. Izzo, Jr.                        -0-                      --

Kenneth G. Baritz                         -0-                      --

Kevin D. Griffo                           -0-                      --

John Kane                                 -0-                      --

Richard L. Stoun                          -0-                      --

Michael V. Dettmers                       -0-                      --

Francesco Galesi                          -0-                      --

All executive officers and Directors
as a group (8 persons)                    -0-                      --

- ----------

(1)       Holders of Series D  Preferred  Shares are  entitled  to six votes for
          each Series D Preferred Share held.

(2)       AMNEX  believes  that Friedli AG or an affiliate  thereof may have the
          right  to vote  and  dispose  of,  or  otherwise  control,  all of the
          outstanding  Series D  Preferred  Shares.  Friedli AG does not own any
          Series D  Preferred  Shares of record  and AMNEX has been  advised  by
          Friedli AG that it disclaims beneficial ownership of such shares.

(3)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Series D Preferred Shares reflected above as being  beneficially owned
          by Experta  Treuhand AG,  Logitech Corp.  ("Logitech"),  Barclays Bank
          (Schweiz) AG, Eagle Growth Ltd.,  Cofinvest and Bordier & Cie are held
          by such  entities  either as  nominees  for certain  overseas  banking
          institutions  which, in turn, hold such securities as nominees for the
          benefit of others, or as nominees for the benefit of others.  See Item
          13(a) hereof.

(4)       Address  is c/o  Friedli  Corporate  Finance  AG,  Freigutstrausse  5,
          Zurich, Switzerland.


                                       53

Series E Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series E Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series E Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)     Percentage of Class
    ----------------              --------------------      -------------------

Friedli Corporate Finance AG (2)
Freigutstrausse 5
Zurich, Switzerland                  1,035,000(2)                 100%

I.A.A.C. International
Automotive Advisors Corp.,
Panama(3)                              360,000(4)                 34.8%

Hans-Juergen Benze
100 Jericho Quad
Jericho, New York                      215,000                    20.8%

Finanzverwaltung Des Kantons Zurich
Vermogensverwaltung
Walcheplatz 1
Zurich, Switzerland                    200,000(4)                 19.3%

Infidar AG (3)                          75,000(4)                  7.2%

Experta Trustee Co., Ltd.(3)            60,000(4)                  5.8%

Stephan Wullinger
c/o Reich, a division of Fahnenstock
  and Company Inc.
780 Third Avenue
New York, New York                      55,000                     5.3%

Peter M. Izzo, Jr.                         -0-                     --

Kenneth G. Baritz                          -0-                     --

Kevin D. Griffo                            -0-                     --

John Kane                                  -0-                     --

Richard L. Stoun                           -0-                     --

Michael V. Dettmers                        -0-                     --

Francesco Galesi                           -0-                     --

All executive officers and Directors as  
a group (8 persons)                        -0-                     --
- ---------
(1)       Holders of Series E Preferred Shares are entitled to one vote for each
          Series E Preferred Share held.

(2)       AMNEX  believes  that Friedli AG or an affiliate  thereof may have the
          right  to vote  and  dispose  of,  or  otherwise  control,  all of the
          outstanding  Series E  Preferred  Shares.  Friedli AG does not own any
          Series E  Preferred  Shares of record  and AMNEX has been  advised  by
          Friedli AG that it disclaims beneficial ownership of such shares.

(3)       Address  is c/o  Friedli  Corporate  Finance  AG,  Freigutstrausse  5,
          Zurich, Switzerland.

(4)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Series E Preferred Shares reflected above as being  beneficially owned
          by  I.A.A.C.   International   Automotive   Advisors  Corp.,   Panama,
          Finanzverwaltung  Des Kantons Zurich,  Infidar AG, and Experta Trustee
          Co.,  Ltd.  are held by such  entities  either as nominees for certain
          overseas banking  institutions which, in turn, hold such securities as
          nominees for the benefit of others,  or as nominees for the benefit of
          others. See Item 13(a) hereof.
                                       54

Series F Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series F Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series F Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)   Percentage of Class
    ----------------              ------------------      -------------------

Spring Technology Corp.(2)           152,500(3)                   36.7%

Joyce Ltd.(2)                        150,000(3)                   36.1%

Logitech Corp. (2)                   105,250(3)                   25.3%

Peter M. Izzo, Jr.                       -0-                        --

Kenneth G. Baritz                        -0-                        --

Kevin D. Griffo                          -0-                        --

John Kane                                -0-                        --

Richard L. Stoun                         -0-                        --

Michael V. Dettmers                      -0-                        --

Francesco Galesi                         -0-                        --

All executive officers and Directors
as a group (8 persons)                   -0-                        --

- ----------

(1)       Holders of Series F Preferred Shares are entitled to one vote for each
          Series F Preferred Share held.

(2)       Address  is c/o  Friedli  Corporate  Finance  AG,  Freigutstrausse  5,
          Zurich, Switzerland.

(3)       AMNEX has been  advised  by  Friedli AG that,  to its  knowledge,  the
          Series F Preferred Shares reflected above as being  beneficially owned
          by Spring,  Joyce  Ltd.  and  Logitech  are held by such  entities  as
          nominees for certain  overseas  banking  institutions  which, in turn,
          hold such  securities as nominees for the benefit of others.  See Item
          13(a) hereof.

                                       55


Series G Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series G Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series G Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:

Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              --------------------       -------------------

Southbrook International 
  Investments Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
New York, New York                     27,500                     100%

Peter M. Izzo, Jr.                        -0-                      --

Kenneth G. Baritz                         -0-                      --

Kevin D. Griffo                           -0-                      --

John Kane                                 -0-                      --

Richard L. Stoun                          -0-                      --

Michael V. Dettmers                       -0-                      --

Francesco Galesi                          -0-                      --

All executive officers and
Directors as a
group (8 persons)                         -0-                      --

- ----------

(1)       Holders of Series G Preferred  Shares are  entitled  to  approximately
          5.69 votes for each Series G Preferred Share held.

Series L Preferred Shares

     The following table sets forth, to the knowledge of AMNEX based solely upon
records  available to it, certain  information as of February 28, 1997 regarding
the beneficial ownership of AMNEX's Series L Preferred Shares (i) by each person
who AMNEX believes may be considered  under the rules and regulations of the SEC
to be the beneficial owner of more than 5% of its outstanding Series L Preferred
Shares, (ii) by each present Director, (iii) by each person listed in Item 11(a)
hereof and (iv) by all present executive officers and Directors as a group:



                                       56


Name of Management Person       
 and Name and Address of          Number of Shares             Approximate
    Beneficial Owner              Beneficially Owned(1)      Percentage of Class
    ----------------              ---------------------      -------------------

Francesco Galesi
c/o Galesi Group
Rotterdam Industrial Park
Wescott Road, Building 6
Schenectady, New York                 200,000(2)                   100%

Peter M. Izzo, Jr.                        -0-                       --

Kenneth G. Baritz                         -0-                       --

Kevin D. Griffo                           -0-                       --

John Kane                                 -0-                       --

Richard L. Stoun                          -0-                       --

Michael V. Dettmers                       -0-                       --

All executive officers 
and Directors as
a group (8 persons)                   200,000(2)                   100%

- ----------

(1)       Holders of Series L Preferred Shares are entitled to 15 votes for each
          Series L Preferred Share held.

(2)       Includes  100,000  Series L  Preferred  Shares  issuable  pursuant  to
          currently exercisable warrants. See Item 13(a) hereof.

          (c) Changes in Control.

     Reference is made to Item 13 hereof.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          (a) Transactions with Management and Others.

                  Galesi



                                       57


     Pursuant  to a Stock  Exchange  Agreement,  dated as of  January  7,  1997,
between AMNEX and Francesco  Galesi,  AMNEX  acquired from Mr. Galesi 10% of the
outstanding  capital stock of GTI, a  telecommunications  company  controlled by
him. Pursuant to the terms of the Stock Exchange  Agreement,  (i) Mr. Galesi was
issued  100,000  Series L  Preferred  Shares of AMNEX  which have the  following
rights and  preferences:  (a) the right to receive  dividends  on an equal basis
with the holders of AMNEX's Common Shares; (b) voting rights based on the number
of Common Shares into which the Series L Preferred Shares are  convertible;  (c)
the mandatory  conversion of the Series L Preferred  Shares into an aggregate of
1,500,000  Common  Shares  (the  "Conversion  Shares")  upon  the  filing  of  a
Certificate of Amendment to the Certificate of  Incorporation  of AMNEX pursuant
to which there shall be  authorized  a  sufficient  number of Common  Shares for
issuance upon the  conversion  of the Series L Preferred  Shares as well as upon
the exercise of all outstanding purchase,  exchange or conversion rights for the
acquisition  of Common  Shares;  and (d) a liquidation  preference,  on an equal
basis with the holders of the other series of Preferred  Shares, of an aggregate
of $4,545,000;  (ii) Mr. Galesi was issued a warrant for the purchase of 100,000
Series L Preferred Shares of AMNEX (the "Warrant  Preferred Shares") (or, if the
above  Certificate of Amendment is filed,  1,500,000 Common Shares (the "Warrant
Common  Shares"))  for an aggregate  exercise  price of  $4,545,000  (subject to
reduction  to  zero  in the  event,  during  any  continuous  six  month  period
commencing   with  January  1,  1997  and  ending  on  December  31,  1999,  the
consolidated  revenues from operations of GTI are at least  $12,500,000);  (iii)
Mr. Galesi was granted certain registration rights with regard to the Conversion
Shares and Warrant Common Shares (or, if the  Certificate of Amendment shall not
have theretofore been filed, the Series L Preferred Shares and Warrant Preferred
Shares); (iv) Mr. Izzo was elected a Director of GTI; (v) Mr. Galesi was elected
a Director of AMNEX;  (vi) Mr.  Galesi  agreed that he would  utilize GTI as his
sole  vehicle  with  regard to the conduct of  international  telecommunications
business;  (vii) Mr.  Galesi  agreed to a two year  lock-up  with  regard to any
securities  acquired  from AMNEX  pursuant  to the  transaction;  and (viii) Mr.
Galesi  granted  AMNEX certain "tag along" rights with regard to the sale of GTI
capital stock acquired.

                  Friedli

     Pursuant  to an  Agreement,  dated as of January  13,  1997,  among  AMNEX,
Friedli AG, Friedli Corporate Finance Inc. and Peter Friedli (collectively,  the
"Friedli Group") (the "Friedli Agreement"),  the Friedli Group has agreed to use
its best efforts to cause certain  securityholders  of AMNEX (the  "Holders") to
sell, under certain  circumstances  and upon certain terms as set forth therein,
up to 9,000,000 Common Shares of AMNEX (either through the sale of Common Shares
held by such  securityholders  or following the conversion into Common Shares of
certain  promissory  notes and Preferred Shares of AMNEX held by them) (see Item
12 hereof).

     Pursuant  to  the  Friedli  Agreement,  AMNEX  has  agreed,  under  certain
circumstances and subject to the conditions set forth therein,  that it will (i)
repurchase any convertible securities that were subject to the provisions of the
Friedli  Agreement,  at an effective as  converted  purchase  price of $3.50 per
share,  to the extent the underlying  Common Shares are not sold pursuant to the
Friedli Agreement; (ii) pay to the holders of the Preferred Shares of AMNEX that
are subject to the provisions of the Agreement a cash payment in lieu of accrued
dividends;  (iii) pay to Friedli AG, in  settlement of any and all claims of the
Friedli Group for consulting, advisory, investment banking or similar or related
fees and  expenses,  the sum of $375,000;  (iv) agree to offer to the holders of
AMNEX's Series F Preferred Shares the right to exchange such shares for an equal
number of Series K Preferred Shares of AMNEX,  the only difference  between such
series being that the Series K Preferred Shares would have a conversion price of
$3.50 per share in contrast  with the $5.00 per share  conversion  price for the
Series  F  Preferred  Shares;  and  (v)  agree  to  redeem  certain  outstanding
promissory  notes of AMNEX in the aggregate  principal amount of $1,400,000 that
are due in October 1999 and are payable to certain  clients of the Friedli Group
in connection with AMNEX's  acquisition of Crescent.  In addition,  pursuant and
subject to the terms of the Friedli  Agreement,  the parties  agreed to exchange
mutual  general  releases  under  certain  circumstances  (the AMNEX  release to
include,  among  others,  the  Holders).  The  Friedli  Agreement  is subject to
termination under certain circumstances.


                                       58


                  National

     Effective  February 28, 1997, ANEI entered into a Renewal and  Modification
Agreement (the "Renewal Agreement") with National with regard to a certain Prime
COCOT Aggregator Agreement (the "Aggregator Agreement") and a certain Settlement
Agreement  previously  entered into between the parties.  AMNEX has been advised
that  Brian E. King  ("King"),  a  principal  shareholder  of AMNEX (see Item 12
hereof), is the President and sole shareholder of National.

     Pursuant to the  Aggregator  Agreement,  National,  which  owns,  leases or
otherwise   controls  private  payphones  (the  "National  Phones")  and  is  an
aggregator  of long  distance  and  operator-assisted  traffic  generated by the
National  Phones,  engaged  ANEI as the  principal  provider of direct dial long
distance  and  operator-assisted  services  (collectively,  "Services")  to  the
National  Phones.  Pursuant to the  Settlement  Agreement,  the parties  settled
certain claims made against each other with respect to the Aggregator Agreement.

     Pursuant to the Renewal Agreement, as amended, among other matters, (i) the
term of the Aggregator Agreement was extended through February 28, 2007, subject
to earlier termination under certain circumstances, (ii) ANEI was engaged as the
exclusive  provider of  Services  to the  National  Phones;  (iii) ANEI  assumed
National's  obligation to provide certain services and  administrative  support,
and pay commissions and other compensation,  to National's customers;  (iv) ANEI
was given the exclusive right to manage the business and operations of National;
(v) ANEI agreed to pay to  National a minimum  amount of  $2,250,000;  (vi) ANEI
agreed to pay to  National a reduced  monthly  payment  equal to the  greater of
$7,500 or .5% of Billed  Revenues (as defined in the Renewal  Agreement)  during
the initial three years of the Renewal Agreement term,  subject to adjustment at
the end of such period;  (vii) ANEI was granted a right of first refusal by King
with regard to business  opportunities  for the  reselling of long  distance and
operator-assisted  traffic  generated  by  private  pay  phones;  and (viii) the
parties settled all outstanding liabilities and obligations under the Settlement
Agreement.

     Contemporaneously with the execution of the Renewal Agreement,  the Company
purchased  certain furniture and equipment from National for a purchase price of
$160,000 and entered into a five-year lease with an entity  affiliated with King
that provides for a rental of $72,000 per year.



                                       59


     The Company  believes  that the terms of the Renewal  Agreement and related
transactions  were no more  favorable  to National  and King than those that the
Company would have offered to other parties.

          (b) Certain Business Relationships.

     Reference  is made to Item 11(f)  hereof for a  discussion  of a consulting
arrangement between the Company and Mr. Dettmers.

          (c) Indebtedness of Management.

     In January 1997, the Company loaned $150,000 to Kevin D. Griffo,  President
of the Company's TelCom Division. The loan is repayable,  together with interest
at the rate of  5.77%  per  annum,  to the  extent  of  one-half  of any and all
bonuses, and all amounts due upon termination of employment, that are payable to
him, but, in any event, within five years from the date of the loan. As security
for the repayment of the loan,  Mr. Griffo has pledged to the Company all of his
right,  title  and  interest  in and  to the  25,000  restricted  Common  Shares
previously  granted to him (see Item 11(a) hereof) as well as any and all Common
Shares that may be issued to him upon his  exercise of options to purchase  such
shares.

          (d) Transactions with Promoters.

     Not applicable.

                                     PART IV

Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

          (a) 1. Financial Statements

     The following consolidated financial statements of the Company are included
herein:

Independent Auditor's Report                                              F1

Consolidated Balance Sheets as of December 31, 1996 and 1995              F2

Consolidated Statements of Operations for the years ended                 F4
December 31, 1996, 1995 and 1994

Consolidated Statements of Shareholders' Equity for the years        F5 - F6
ended December 31, 1996, 1995 and 1994



                                       60



Consolidated Statements of Cash Flows for the years ended            F7 - F9
December 31, 1996, 1995 and 1994

Notes to Consolidated Financial Statements                           F10 - F27

          2. Financial Statement Schedules

     Schedule II: Valuation and Qualifying Accounts

          3. Exhibits

Exhibit Number        Description of Exhibit

  2.1          Amended  and  Restated  Asset  Purchase  Agreement,  dated  as of
               October 4, 1995,  among Crescent,  CCI, AMNEX and Friedli AG (the
               "Crescent Asset Purchase Agreement")1

  2.2          Letter  agreement,  dated as of  October 4,  1995,  among  AMNEX,
               Crescent,  CCI and  Friedli AG  pursuant  to which,  among  other
               matters,  the Crescent Asset Purchase Agreement was declared null
               and void1

   2.3         Letter  agreement,  dated as of  October 4,  1995,  among  AMNEX,
               Crescent, the stockholders of CCI and Friedli AG, among others1

   2.4         Stock  Purchase  Agreement,  dated as of April  26,  1996,  among
               AMNEX, Robert A. Rowland, Delajane Rowland, Donald D. Simmons, C.
               Michael Moehle,  Barbara Ann Cromwell,  Ellen E. Wood,  Daniel N.
               Matheson,   Capital   Network  System,   Inc.,   Capital  Network
               International,  Inc.,  Capital Network Mexico,  S.A. de C.V., and
               Point to Point  Communications  Company (the "CNSI Stock Purchase
               Agreement")2

   2.5         First Amendment to the CNSI Stock Purchase Agreement, dated as of
               June 28, 1996, by and among the parties thereto as well as Sirrom
               Capital  Corporation and Spectrum Global  Telecommunications  Pty
               Limited2

     --------

     1Denotes document filed as an exhibit to AMNEX's Current Report on Form 8-K
for an event  dated  October  4,  1995,  as  amended  (File  No.  0-17158),  and
incorporated  herein by  reference.

     2Denotes document filed as an exhibit to AMNEX's Current Report on Form 8-K
for  an  event  dated  June  28,  1996,  as  amended  (File  No.  0-17158),  and
incorporated herein by reference.



                                       61


   2.6    Asset  Purchase  Agreement,  dated as of August 31, 1996, by and among
          Teleplus, Inc. and AMNEX3

   2.7    Asset Purchase  Agreement,  dated as of November 8, 1996, among AMNEX,
          Crescent,  Coastal  Telecom,  BEK Tel,  Garden  State  and  King  (the
          "Coastal Asset Purchase Agreement")4

   2.8    Supplement and modification  letter, dated as of November 20, 1996, to
          the Coastal Asset Purchase Agreement among the parties thereto4

   2.9    Stock Purchase Agreement, dated as of September 30, 1996, by and among
          AMNEX, National Business Exchange, Inc., James E. Everingham and Daryl
          A. Frame

   3.1    Certificate  of Amendment of  Certificate  of  Incorporation  of AMNEX
          filed December 30, 1996

   3.2    Restated Certificate of Incorporation of AMNEX, as amended

   3.3    Amendment to By-Laws of AMNEX

   3.4    By-Laws of AMNEX, as amended

   4.1    Specimen of certificate evidencing Common Shares of AMNEX5

  10.1    Agreements of Lease between AMNEX and Hudson Telegraph Associates6

  10.2    Agreement  of  Sublease,   dated  as  of  December  7,  1993,  between
          International Paper Company and AMNEX6

- --------

     3Denotes  documents filed as a exhibit to AMNEX's  Quarterly Report on Form
10-Q for the period ended September 30, 1996 (File No. 0-17158) and incorporated
herein by reference.

     4Denotes  documents  filed as an exhibit to AMNEX's  Current Report on Form
8-K for an event dated  November 20, 1996 (File No.  0-17158)  and  incorporated
herein by reference.

     5Denotes document filed as an exhibit to AMNEX's Registration  Statement on
Form S-4 (File No. 33-32693) and incorporated herein by reference.

     6Denotes document filed as an exhibit to AMNEX's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 (File No. 0-17158) and  incorporated
herein by reference.



                                       62


  10.3    Lease,  dated August 24, 1990,  between Global Motor Inns, Inc., d/b/a
          Lucerne Plaza and ANEI7

  10.4    Agreement of Lease,  dated December 18, 1996, between We're Associates
          Company and Crescent

  10.5    1992 Stock Option Plan, as amended

  10.6    Amended and Restated 1996 Restricted Stock Grant Plan

  10.7    Employment  Agreement,  dated as of June 25, 1996,  between  AMNEX and
          Peter M. Izzo, Jr.8

  10.8    Employment  Agreement,  dated as of June 25, 1996,  between  AMNEX and
          Kenneth G. Baritz8

  10.9    Employment  Agreement,  dated as of June 25, 1996,  between  AMNEX and
          Kevin D. Griffo

  10.10   Employment  Agreement,  dated as of October 1, 1996, between AMNEX and
          John Kane

  10.11   Provision in Stock Option  Agreements  between AMNEX and each of Peter
          M. Izzo, Jr., Kenneth G. Baritz,  John Kane, Kevin D. Griffo,  Richard
          L. Stoun and Michael V. Dettmers8

  10.12   Security  Agreement,  dated as of October  4, 1995,  by and among Lyon
          Credit Corporation ("Lyon"), ANEI and Crescent

  10.13   Amendment to Security Agreement, dated as of December 28, 1995, by and
          among Lyon, ANEI and Crescent

  10.14   Second Amendment to Security Agreement, dated as of November 15, 1996,
          by and among Lyon, ANEI and Crescent

  10.15   Consolidated,  Renewed,  and  Restated  Promissory  Note,  dated as of
          November 15,  1996,  from  Crescent and ANEI to Lyon in the  principal
          amount of $7,000,000

- --------

     7Denotes document filed as an exhibit to AMNEX's Registration  Statement on
Form S-1 (File No. 33-24141) and incorporated herein by reference.

     8Denotes  document filed as an exhibit to AMNEX's  Quarterly Report on Form
10-Q for the period  ended June 30,  1996 (File No.  0-17158)  and  incorporated
herein by reference.



                                       63


  10.16   Master  Lease,  dated as of  October  10,  1995,  between  Southbridge
          Financial Corp ("Southbridge") and AHE

  10.17   Convertible Preferred Stock Purchase Agreement,  dated as of September
          19, 1996, between AMNEX and Southbrook3

  10.18   Loan and Security  Agreement,  dated December 18, 1996, by and between
          Crescent and Southbridge

  10.19   Stock Exchange  Agreement,  dated as of January 7, 1997, between AMNEX
          and Francesco Galesi

  10.20   Warrant, dated January 7, 1997, issued to Francesco Galesi

  10.21   Agreement,  dated as of January 13, 1997, by and among AMNEX,  Friedli
          AG, Friedli Corporate Finance Inc. and Peter Friedli

  10.22   Renewal and  Modification  Agreement,  dated as of February  28, 1997,
          between ANEI and National

  10.23   Letter Agreement, dated as of March 1, 1997, among AMNEX, National and
          King with regard to the Renewal and Modification Agreement

  11      Statement of Computation of Per Share Earnings

  21      Subsidiaries

  23      Consent of Ernst & Young LLP

  27      Financial Data Schedule

          (b) Reports on Form 8-K

     One  report on Form 8-K was filed by AMNEX  during the three  months  ended
December 31, 1996 as follows:

     Date of Report: November 20, 1996

     Items Reported: 2 and 7




                                       64

                         Report of Independent Auditors

The Board of Directors and Shareholders AMNEX, INC.

We have audited the accompanying consolidated balance sheets of AMNEX, INC. and
Subsidiaries  as of  December  31, 1996 and 1995,  and the related  consolidated
statements of  operations,  shareholders'  equity and cash flows for each of the
three years in the period ended  December 31, 1996.  Our audit also included the
financial  statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.  Our
responsibility  is to  express  an opinion  on these  financial  statements  and
schedule based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of AMNEX,
INC.  and  Subsidiaries  at  December  31, 1996 and 1995,  and the  consolidated
results of their  operations and their cash flows for each of the three years in
the period  ended  December  31,  1996 in  conformity  with  generally  accepted
accounting  principles.  Also, in our opinion,  the related financial  statement
schedule when considered in relation to the basic financial  statements taken as
a whole,  presents  fairly in all material  respects the  information  set forth
therein.



                                                            ERNST & YOUNG LLP

New York, New York
April 4, 1997


                                       F-1




                                   AMNEX, INC.

                           Consolidated Balance Sheets
                        (In thousands, except share data)

                                                                                         December 31
                                                                             ------------------------------------
                                                                                                 
                                                                                    1996              1995
                                                                             ------------------------------------
Assets
                                                                             
Current assets:
                                                                             
   Cash                                                                              4,947         $      94
                                                                             ------------------------------------
   Trade receivables, less allowance for doubtful accounts of $2,757 in
     1996 and $2,954 in 1995                                                        19,311            17,080
                                                                             ------------------------------------
   Parts inventory                                                                     739               289
                                                                             ------------------------------------
   Deferred income taxes                                                             1,791               121
                                                                             ------------------------------------
   Note receivable                                                                       --            1,291
                                                                             ------------------------------------
   Customer advances                                                                 2,414             3,940
                                                                             ------------------------------------
   Deposits and other current assets                                                   861               602
                                                                             ------------------------------------
     Total current assets                                                           30,063            23,417
                                                                             

                                                                             
     Property and equipment, net                                                    23,851            11,595
                                                                             ------------------------------------
     Deposits and other                                                              1,543             3,952
                                                                             ------------------------------------
     Intangible assets, net                                                          5,947             1,361
                                                                             ------------------------------------
     Goodwill, net                                                                  29,955             9,255
                                                                             ------------------------------------



Total assets                                                                      $ 91,359          $ 49,580
                                                                             ====================================


                                                    F-2





                                                                                        December 31
                                                                                   1996              1995
                                                                            -------------------------------------
Liabilities and shareholders' equity
Current liabilities:
                                                                                                  
   Short-term debt                                                          $      11,498           $11,865
                                                                            -------------------------------------
   Accounts payable                                                                 3,651             4,266
                                                                            -------------------------------------
   Accrued expenses                                                                 7,733             1,488
                                                                            -------------------------------------
   Accrued network expenses                                                         1,975               904
                                                                            -------------------------------------
   Accrued commissions                                                              3,169             2,062
                                                                            -------------------------------------
   Accrued taxes payable                                                            1,406               808
                                                                            -------------------------------------
   Due to related party                                                             1,198                 --
                                                                            -------------------------------------
   Current portion of capital lease obligations                                     2,179               756
                                                                            -------------------------------------
   Current portion of long-term debt                                                2,248               737
                                                                            -------------------------------------
Total current liabilities                                                          35,057            22,886
                                                                            
Capital lease obligations                                                           2,668             2,170
                                                                            -------------------------------------
Long-term debt                                                                     13,530             4,132
                                                                            -------------------------------------
Minority interest                                                                      10                 --
                                                                            -------------------------------------
Compensation payable                                                                  894                _-
                                                                            -------------------------------------
Obligations under non-compete agreement                                             2,630                 -
                                                                            -------------------------------------
Common stock subject to redemption                                                  3,250                 -
                                                                            
Commitments and contingencies
                                                                            
Shareholders' equity:
   Voting Preferred Stock, $.001 par; authorized 5,000,000 shares:
     Series B Preferred Stock, authorized 356,000 shares, issued and outstanding
       72,450 shares in 1996 and 1995 (liquidation
       preference $362)                                                               362               362
                                                                            -------------------------------------
     Series  D  Preferred  Stock,   authorized  1,413,337  shares,   issued  and
       outstanding 1,413,337 shares in 1996 and 1995 (liquidation
       preference $3,533)                                                           3,533             3,533
                                                                            -------------------------------------
     Series  E  Preferred  Stock,   authorized  1,085,000  shares,   issued  and
       outstanding 1,035,000 shares in 1996 and 1,085,000 shares in 1995
       (liquidation preference $2,911 in 1996 and $3,052 in 1995)                   2,911             3,052
                                                                            -------------------------------------
     Series F Preferred Stock, authorized 415,250 shares, issued and outstanding
       415,250 shares in 1996 and 1995 (liquidation
       preference $2,076)                                                           2,076             2,076
                                                                            -------------------------------------
     Series G Preferred Stock, authorized 145,000 shares, issued and
       outstanding 78,750 shares in 1996 (liquidation preference $1,575)            1,179                --
                                                                            -------------------------------------
   Common stock, $.001 par; authorized 40,000,000, issued 26,897,892 in
     1996 and 19,484,030 shares in 1995                                                27                19
                                                                            -------------------------------------
   Capital in excess of par value                                                  56,093            39,963
                                                                            -------------------------------------
   Accumulated deficit                                                            (32,385)          (28,137)
                                                                            -------------------------------------
                                                                                   33,796            20,868
                                                                            -------------------------------------
Less 18,250 common shares held in treasury, at cost                                  (476)             (476)
                                                                            -------------------------------------
Total shareholders' equity                                                         33,320            20,392
                                                                            -------------------------------------
Total liabilities and shareholders' equity                                              $      91,359     $49,580
                                                                            =====================================

                                      F-3
See accompanying notes.



                                               AMNEX, INC.


                                  Consolidated Statements of Operations
                                    (In thousands, except share data)

                                                                             Year ended December 31
                                                         
                                                                   1996                  1995                  1994
                                                         --------------------------------------------------------------------

                                                         
                                                                                                         
Revenues                                                       $   117,142           $  105,890            $  108,737
                                                         --------------------------------------------------------------------

                                                         
Costs and expenses:
                                                         
   Cost of sales                                                    93,863               86,766                90,831
                                                         --------------------------------------------------------------------
   Selling, general and administrative                              16,473               12,145                12,635
                                                         --------------------------------------------------------------------
   Depreciation and amortization                                     6,054                3,175                 2,252
                                                         --------------------------------------------------------------------
   Impairment of long-lived assets                                   3,716                   --                    --
                                                         --------------------------------------------------------------------
   Interest expense                                                  2,730                2,044                 1,793
                                                         --------------------------------------------------------------------
                                                                   122,836              104,130               107,511
                                                         --------------------------------------------------------------------

                                                         
Income (loss) before income taxes and
   minority interest                                                (5,694)               1,760                 1,226
                                                         --------------------------------------------------------------------
Minority interest                                                        1                   --                    --
                                                         --------------------------------------------------------------------
Income (loss) before income taxes                                   (5,693)               1,760                 1,226
                                                         --------------------------------------------------------------------
Provision (benefit) for income taxes                                (1,445)                 329                   685
                                                         --------------------------------------------------------------------
Net income (loss)                                              $    (4,248)          $    1,431            $      541
                                                         ====================================================================

                                                         
Deemed dividend on Series G Preferred                                  400                   --                    --
   Stock
                                                         
   Preferred share dividends                                           616                  543                   291
                                                         --------------------------------------------------------------------
Net income (loss) available for common                         $    (5,264)          $      888            $      250
   shares                                                ====================================================================

                                                         
   Net income (loss) per common share                          $     (0.23)          $     0.05            $     0.02
                                                         ====================================================================

Weighted average number of shares
   outstanding used in computing net income
   (loss) per common share                                       23,274,219          19,416,497            13,522,815



See accompanying notes.
                                      F-4



                                   AMNEX, INC.
                 Consolidated Statements of Shareholders' Equity

                     Years ended December 31, 1996, 1995 and
                        1994 (In thousands, except share data)

                                              Common Stock          Preferred      Preferred    Preferred    Preferred    Preferred
                                            $.001 Par Value           Stock          Stock        Stock        Stock        Stock
                                    ------------------------------------------------------------------------------------------------
                                                                                                      
                                          Shares        Amount        Series B      Series C     Series D     Series E     Series F
                                    ------------------------------------------------------------------------------------------------

Balance, December 31, 1993              10,186,523       $10.0        $1,666
 Issuance of common shares                 150,000
   Issuance of preferred share              60,099
     dividend
      Issuance of common shares            100,000
      Exercise of stock options             28,833
      Sale of preferred shares                                                      $3,000
   Issuance of preferred share
     dividend
      Exchange of preferred shares                                                  (3,000)      $3,000
      Conversion of debentures           5,629,222         6.0
      Conversion of preferred shares     2,000,000         2.0        (1,000)
      Conversion of debentures                                                                      533
      Shares issuable to customer
                                    ------------------------------------------------------------------------------------------------
      Net income
                                    ------------------------------------------------------------------------------------------------
     Balance, December 31, 1994         18,154,677        18.0           666                      3,533
                                    ------------------------------------------------------------------------------------------------
      Issuance of common shares            125,000
                                    ------------------------------------------------------------------------------------------------
      Issuance of common shares            100,000
                                    ------------------------------------------------------------------------------------------------
      Exercise of stock options            471,853
                                    ------------------------------------------------------------------------------------------------
      Conversion of preferred shares       607,500         1.0          (304)
                                    ------------------------------------------------------------------------------------------------
      Sale of preferred shares                                                                                $3,052
                                    ------------------------------------------------------------------------------------------------
      Exercise of warrants                  25,000
                                    ------------------------------------------------------------------------------------------------
   Issuance of preferred share
     dividend
                                    ------------------------------------------------------------------------------------------------
   Issuance of preferred shares for
     acquisition                                                                                                           $2,076
                                    ------------------------------------------------------------------------------------------------
 Net income
                                    ------------------------------------------------------------------------------------------------
Balance, December 31, 1995              19,484,030        19.0           362                      3,533        3,052        2,076
                                    ------------------------------------------------------------------------------------------------
   Issuance of common shares and
     warrants for acquisitions           6,993,926         7.5
                                    ------------------------------------------------------------------------------------------------
   Issuance of common shares                75,000         0.1
                                    ------------------------------------------------------------------------------------------------
   Exercise of stock options                54,485         0.1
                                    ------------------------------------------------------------------------------------------------
   Conversion of preferred shares           50,000         0.1                                                  (141)
                                    ------------------------------------------------------------------------------------------------
   Conversion of debt                       44,643
                                    ------------------------------------------------------------------------------------------------
   Issuance of preferred stock
                                    ------------------------------------------------------------------------------------------------
   Conversion of preferred shares          195,808         0.2
                                    ------------------------------------------------------------------------------------------------
   Net loss
                                    ------------------------------------------------------------------------------------------------
     Balance, December 31, 1996         26,897,892       $27.0          $362        $ -          $3,533       $2,911$      $2,076
                                    ================================================================================================

                                      F-5


                                   AMNEX, INC.

           Consolidated Statements of Shareholders' Equity (continued)

                     Years ended December 31, 1996, 1995 and
                     1994 (In thousands, except share data)

                                        Preferred       Capital in       Common                                         Total
                                          Stock         Excess of         Stock       Accumulated      Treasury      Shareholders
                                                                                                      
                                        Series G        Par Value       Issuable        Deficit          Stock          Equity
                                    -----------------------------------------------------------------------------------------------
Balance, December 31, 1993                               $ 34,723        $   544       $ (29,990)       $(476)         $  6,477
                                    -----------------------------------------------------------------------------------------------
 Issuance of common shares                                    507                                                           507
                                    -----------------------------------------------------------------------------------------------
   Issuance of preferred share                                225           (225)
     dividend
      Issuance of common shares                               319           (319)
      Exercise of stock options                                43                                                            43
      Sale of preferred shares                               (344)                                                        2,656
   Issuance of preferred share                                                               (75)                           (75)
     dividend
      Exchange of preferred shares
      Conversion of debentures                              1,807                                                         1,813
      Conversion of preferred shares                          998
      Conversion of debentures                                                                                              533
      Shares issuable to customer                                            375                                            375
                                    -----------------------------------------------------------------------------------------------
      Net income                                                                             541                            541
                                    -----------------------------------------------------------------------------------------------
     Balance, December 31, 1994                            38,278            375         (29,524)        (476)           12,870
                                    -----------------------------------------------------------------------------------------------
      Issuance of common shares                               375           (375)
                                    -----------------------------------------------------------------------------------------------
      Issuance of common shares                               419                                                           419
                                    -----------------------------------------------------------------------------------------------
      Exercise of stock options                               978                                                           978
                                    -----------------------------------------------------------------------------------------------
      Conversion of preferred shares                          303
                                    -----------------------------------------------------------------------------------------------
      Sale of preferred shares                               (428)                                                        2,624
                                    -----------------------------------------------------------------------------------------------
      Exercise of warrants                                     38                                                            38
                                    -----------------------------------------------------------------------------------------------
   Issuance of preferred share                                                               (44)                           (44)
     dividend
                                    -----------------------------------------------------------------------------------------------
   Issuance of preferred shares for
     acquisition                                                                                                          2,076
                                    -----------------------------------------------------------------------------------------------
 Net income                                                                                1,431                          1,431
                                    -----------------------------------------------------------------------------------------------
Balance, December 31, 1995                                 39,963                        (28,137)        (476)           20,392
                                    -----------------------------------------------------------------------------------------------
   Issuance of common shares and
     warrants for acquisitions                             14,650                                                        14,658
                                    -----------------------------------------------------------------------------------------------
 Issuance of common shares                                    225                                                           225
                                    -----------------------------------------------------------------------------------------------
 Exercise of stock options                                    137                                                           137
                                    -----------------------------------------------------------------------------------------------
 Conversion of preferred shares                               141
                                    -----------------------------------------------------------------------------------------------
 Conversion of debt                                           156                                                           156
                                    -----------------------------------------------------------------------------------------------
   Issuance of preferred stock           $1,604               396                                                         2,000
                                    -----------------------------------------------------------------------------------------------
      Conversion of preferred shares       (425)              425
                                    -----------------------------------------------------------------------------------------------
      Net loss                                                                            (4,248)                        (4,248)
                                    -----------------------------------------------------------------------------------------------
     Balance, December 31, 1996          $1,179           $56,093        $ -            $(32,385)       $(476)          $33,320
                                    ===============================================================================================


See accompanying notes.
                                                       F-6


                                   AMNEX, INC.

                      Consolidated Statements of Cash Flows

                Years Ended December 31, 1996, 1995 and 1994 (In
                          thousands, except share data)
                                                                      1996                1995               1994
                                                               ----------------------------------------------------------
Cash flows from operating activities
                                                                                                       
Net income (loss)                                                   $  (4,248)         $   1,431          $   541
Adjustments to reconcile net income (loss) to net
   cash provided by (used in) operating activities:
     Depreciation and amortization                                      6,054              3,175            2,252
     Compensation expense                                                  50                 --               --
     Provision for losses on receivables                               (1,539)              (259)           1,656
     Deferred income taxes                                             (1,670)              179               (97)
     Gain on sale of assets                                            (1,675)                 -                -
     Impairment of long-lived assets                                    3,716                 --               --
     Changes in assets and liabilities:
       Trade receivables                                                8,726             4,019            (9,270)
       Parts inventory                                                   (109)                9                --
       Note receivable                                                  1,291             (1,291)              --
       Customer advances, deposits and other current assets             1,587             (3,048)            (595)
       Deposits and other assets                                          379               (737)            (100)
       Accounts payable and accrued expenses                           (6,570)            (1,817)           3,162
                                                               ----------------------------------------------------------
         Net cash provided by (used in) operating activities            5,992             1,661            (2,451)
                                                               ----------------------------------------------------------
                                                               
         Cash flows from investing activities
                                                               
         Purchase of businesses, net of cash acquired                  (4,365)           (1,996)               --
                                                               ----------------------------------------------------------
         Purchase of contracts                                           (759)             (923)               --
                                                               ----------------------------------------------------------
         Proceeds on sale of assets                                     2,542                --                --
                                                               ----------------------------------------------------------
         Expenditures for property and equipment                       (2,770)           (1,743)           (3,644)
                                                               ----------------------------------------------------------
         Net cash used in investing activities                         (5,352)           (4,662)           (3,644)
                                                               ----------------------------------------------------------
                                                               
         Cash flows from financing activities
                                                               
         Proceeds from sale of Preferred Shares                         2,000             2,624             2,656
                                                               ----------------------------------------------------------
         Payments on related party debt                                  (146)               --                --
                                                               ----------------------------------------------------------
         Proceeds from the exercise of warrants                            --                38                --
                                                               ----------------------------------------------------------
         Proceeds from issuance of convertible notes and debentures        --               325                --
                                                               ----------------------------------------------------------
         Proceeds from the sale of common stock                           362               978                43
                                                               ----------------------------------------------------------
         Borrowings (repayments) under revolving credit, net           (5,543)           (3,655)            5,234
                                                               ----------------------------------------------------------
         Payments on long-term debt                                    (3,018)             (217)             (524)
                                                               --------------------------------------------------------
         Proceeds from long-term debt                                  12,000             2,757                --
                                                               ----------------------------------------------------------
         Principal payments under capital lease obligations            (1,442)             (304)             (693)
                                                               ----------------------------------------------------------
         Dividends paid                                                    --               (44)              (75)
                                                               ----------------------------------------------------------
         Net cash provided by financing activities                      4,213             2,502             6,641
                                                               ----------------------------------------------------------
                                                               
         Net increase (decrease) in cash                                4,853              (499)              546
                                                               ----------------------------------------------------------
         Cash at beginning of year                                         94               593                47
                                                               ----------------------------------------------------------
         Cash at end of year                                           $4,947          $     94           $   593
                                                               ==========================================================
See accompanying notes.

                                      F-7


                                   AMNEX, INC.

                Consolidated Statements of Cash Flows (continued)



Supplemental disclosure of cash flow information:
(In thousands, except share data)

Year ended December 31, 1996

1.   The  holder of an  aggregate  of 50,000  shares of the  Company's  Series E
     Preferred  Stock  elected to convert such shares into 50,000  shares of the
     Company's  Common Stock. 
2.   The Company issued 6,993,926 Common Shares and warrants to purchase 400,000
     Common Shares upon acquisitions.
3.   The Company issued 44,643 Common Shares  pursuant to the conversion of $150
     of debt plus accrued interest thereon.
4.   The Company  issued  195,808  Common Shares  pursuant to the  conversion of
     21,250 Series G Preferred Shares.
5.   Interest of approximately $2,646 was paid.
6.   Income taxes of approximately $465 were paid.
7.   Capital lease  obligations  incurred to acquire property and equipment were
     approximately $1,978.

Year ended December 31, 1995

1.   The Company  issued  607,500  Common Shares  pursuant to the  conversion of
     60,750 Series B Preferred Shares.

2.   The  Company  issued   415,250   Series  F  Preferred   Shares  as  partial
     consideration for the acquisition of CCI.

3.   Convertible   Promissory   Notes  for   $1,550   were   issued  as  partial
     consideration for the acquisition of CCI.

4.   The  Company  issued  225,000  Common  Shares  under  equity  participation
     agreements  of which  125,000  Common  Shares were issuable at December 31,
     1994.

5.   Interest of $2,076 was paid.

6.   Income taxes of approximately $302 were paid.

7.   Capital lease  obligations  incurred to acquire property and equipment were
     $2,334.

                                      F-8





                                   AMNEX, INC.

                Consolidated Statements of Cash Flows (continued)



Year ended December 31, 1994
(In thousands, except share data)

1.   $700 of principal of the Company's  debentures  was converted  into 280,000
     Common Shares.

2.   The Company issued  2,000,000  Common Shares  pursuant to the conversion of
     200,000 Series B Preferred Shares.

3.   $900 of principal and $166 of interest of notes payable were converted into
     5,330,555 Common Shares.

4.   $700 of principal and $47 of interest of notes payable were  converted into
     298,667 Common Shares.

5.   $500 of principal and $33 of interest of notes payable were  converted into
     213,314 Series D Preferred Shares.

6.   125,000 Common Shares were issuable under equity participation agreements.

7.   Interest of approximately $1,836 was paid.

8.   Income taxes of approximately $0 were paid.

9.   Capital lease  obligations  incurred to acquire property and equipment were
     $732.



See accompanying notes.


                                      F-9





                                   AMNEX, INC.

                   Notes To Consolidated Financial Statements
                  Years ended December 31, 1996, 1995 and 1994
                        (In Thousands, except share data)



1.   Summary of Significant Accounting Policies

Organization and Business

AMNEX, INC., through its wholly-owned  subsidiaries,  American Network Exchange,
Inc. (ANEI), American Hotel Exchange, Inc. (AHE), Crescent Public Communications
Inc.  (Crescent)  including the operations of Coastal,  Capital Network Systems,
Inc. (CNSI), and Hospital TeleServices, Inc., and its majority-owned subsidiary,
National Billing Exchange, Inc. (NBE),  (collectively,  the Company), provides a
variety of telecommunications  services including  operator-assisted  (0+), long
distance (1+) and local pay phone services,  primarily in the northeastern  part
of the U.S.  and in  Mexico.  ANEI and CNSI are  subject  to  regulation  by the
Federal  Communications  Commission  (FCC) and the various State Public  Utility
Commissions (PUCS) for a majority of the services it provides.

Basis of Presentation

The consolidated  financial  statements include the accounts of the Company, its
wholly-owned  subsidiaries and its majority-owned  subsidiary.  All intercompany
balances and transactions have been eliminated.

Revenue Recognition

The Company records revenues as calls are placed. It submits billing information
related to operator assisted calls to its billing and collection agents which in
turn submit the records to the telephone  companies with which they have billing
arrangements.

Parts Inventory

Inventory, which consists primarily of pay phone equipment replacement parts, is
stated at the lower of cost (first-in, first-out method) or market.

Property and Equipment

Property and equipment are stated at cost.  Depreciation  and  amortization  are
provided for using the  straight-line  method.  Leased  equipment  and leasehold
improvements  are  amortized  over the  shorter  of the life of the lease or the
service lives of the equipment and improvements.

Estimated  useful lives are as follows:  equipment,  furniture  and  fixtures--5
years,   installed  telephone  and  related   equipment--10   years,   leasehold
improvements--5 years, and leased equipment--5 or 7 years.


                                      F-10





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


1.   Summary of Significant Accounting Policies (continued)

Intangibles and Goodwill

In connection  with the  acquisitions  of pay telephone  businesses  and through
various   other   agreements   entered  into,   certain   contracts  to  provide
telecommunications  services to pay phones,  covenants not to compete and dealer
agreements  were  obtained.  The contracts and the covenants are amortized  over
their estimated remaining lives.  Accumulated  amortization at December 31, 1996
and 1995 was approximately $907 and $117, respectively.

Goodwill  represents the excess of the purchase price over the fair value of net
assets  acquired and is being  amortized on a straight line basis over 15 years.
Amortization expense for 1996, 1995 and 1994 was approximately  $1,500, $758 and
$720,  respectively.  Accumulated amortization at December 31, 1996 and 1995 was
approximately $5,700 and $4,200, respectively.

Impairment Loss on Long-Lived Assets

In accordance  with FASB  Statement No. 121,  "Accounting  for the Impairment of
Long- Lived Assets and Assets to be Disposed of", the Company records impairment
losses on  long-lived  assets used in operations  when events and  circumstances
indicate  that the assets  might be  impaired  and the  undiscounted  cash flows
estimated to be  generated by those assets are less than the carrying  amount of
those assets.

In connection with the enactment of the Telecommunications Act of 1996 and other
regulatory actions,  the Company evaluated the ongoing value of certain existing
contracts  and  agreements  to provide  telecommunications  services,  and other
investments.  Based on this  evaluation,  the Company  determined  that  certain
assets,  substantially  related  to rights  acquired  to provide  long  distance
services to certain pay phones,  with a carrying  amount if $3,176 were impaired
and, accordingly, were written off in the fourth quarter of 1996. Fair value was
based on estimated  future cash flows to be  generated,  discounted  at a market
rate of interest.

Fair Value of Financial Instruments

The  Company's  management  believes  the  carrying  amounts  of cash  and  cash
equivalents,  accounts  receivable and short-term and long-term debt approximate
their fair values.

Concentration of Credit Risk

Financial  instruments which potentially subject the Company to concentration of
credit risk are primarily cash and accounts  receivable.  The Company places its
cash in accounts with several major  financial  institutions.  Concentration  of
credit risk with respect to accounts receivable are generally diversified due to
a large number of customers comprising the Company's

                                      F-11





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


1. Summary of Significant Accounting Policies (continued)

customer base. Accordingly,  the Company believes that their accounts receivable
credit risk exposure is limited and appropriately provided for.

Stock Options

The  Company  accounts  for  its  stock  compensation   arrangements  under  the
provisions of APB 25,  "Accounting for Stock Issued to Employees".  However,  as
more fully  described in Note 10, pro forma  information  as required under FASB
Statement  No.  123,  "Accounting  for  Stock  Based  Compensation",   has  been
determined as if the Company had accounted for its employee  stock options under
the fair value method of that Statement.

Net Income (Loss) per Common Share

Net income  (loss) per Common  Share is  computed  on the basis of the  weighted
average number of Common Shares outstanding, including Common Share equivalents.
In connection with the Company's sale of Series G Preferred Shares, in 1996, the
Company has  recorded a deemed  preferred  dividend  as a reduction  in earnings
available to common  shareholders  (see Note 9). The effect of the conversion of
Preferred Shares and conversion of notes on the calculation of net income (loss)
per share is  anti-dilutive  and therefore  excluded from the computation of net
income (loss) per share.

Statements of Cash Flows

For  purposes  of the  Statements  of Cash  Flows,  the  Company  considers  all
short-term  investments  with a maturity of three  months or less at the date of
purchase to be cash equivalents.

Use of Estimates

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial  statements and accompanying notes.
Actual results could differ from those estimates.

Prior Year Amounts

Certain  prior year amounts were  reclassified  to conform with the current year
presentation.


                                      F-12




                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

2. Acquisitions

Effective October 4, 1995, Crescent purchased 100% of the issued and outstanding
common stock of CCI, a company which owned,  operated and maintained pay phones,
for total consideration of $5,884, as follows:  (i) a 10% promissory note in the
amount of $1,550 (the "Note") with interest  payable  semi-annually,  commencing
December  31,  1995,  and  the  balance  due on  October  4,  1999  (subject  to
acceleration  in the event of a change in control of the Company,  as defined in
the Note);  (ii) 415,250  Series F Preferred  Shares of the  Company;  and (iii)
$2,258  in cash.  The  purchase  price  exceeded  the fair  value of the  assets
acquired by approximately $2,295, which was recorded as goodwill.

Effective June 30, 1996, the Company  acquired 100% of the common stock of CNSI,
a  telecommunications  company  engaged in the  business of providing 0+ calling
services primarily in Mexico. The purchase price aggregated  $18,034,  including
cash of $1,094, 4,099,086 shares of unregistered common stock valued at $10,401,
and warrants  valued at $380, and  liabilities  assumed of $6,159.  The purchase
price exceeded the book value of net assets acquired by $20,439,  which has been
recorded as goodwill.

Effective  September 30, 1996,  the Company  acquired 80% of the common stock of
NBE, a  provider  of  billing  and  collection  services  to  telecommunications
companies,  for 550,725  shares of  unregistered  Common Stock having a value of
$1,330.  The purchase  price exceeded net assets  acquired by $1,641,  which has
been recorded as goodwill.

Effective November 20, 1996, pursuant to an Asset Purchase Agreement with, among
others,  Coastal Telecom Payphone Company, Inc.  (collectively  "Coastal"),  the
Company acquired, among other assets, approximately 4,300 pay telephones located
primarily in New Jersey.  The Asset Purchase Agreement provides for an aggregate
consideration  of  $10,410,  including  cash of $3,010 and  2,098,373  shares of
unregistered  common stock valued at $5,200, and liabilities  assumed of $2,200.
The total purchase price was allocated to net assets acquired.  The Company also
granted certain piggyback  registration  rights for the shares issued as well as
certain  rights to require  that the Company  repurchase  up to $3,250 in market
value of the  shares  in the  event  the  Company  does not file a  registration
statement  within a certain  period of time.  Such  amount has been  recorded as
common stock subject to redemption.

The  aforementioned   acquisitions  have  been  included  in  the  Statement  of
Operations from their  respective dates of acquisition.  The  acquisitions  were
accounted for under the purchase method.

The pro forma  unaudited  results  of  operations  for the twelve  months  ended
December 31, 1996, 1995 and 1994 assuming the consummation of the aforementioned
1996  acquisitions as of the beginning of 1996 and 1995 and the 1995 acquisition
as of the beginning of 1994 are as follows:


                                      F-13




                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

2.   Acquisitions (continued)
                                                 
                                          1996        1995       1994
                                        --------------------------------

Revenues                                $151,245    $148,592   $113,373
Net income (loss)                         (5,433)       (561)       657
Net income (loss) per common share       $(0.23)      $(0.03)     $0.03


During 1996, the Company  acquired other unrelated pay telephones in a series of
acquisitions and issued 245,742 of its unregistered Common Stock valued at $597.
The  effect of these  acquisitions  was not  deemed  material  to the  unaudited
proforma results of operations presented above.

In addition to the acquisitions  above, on August 31, 1996, Teleplus assigned to
the  Company  its  Dealer   Agreement   with  CNSI  in  exchange  for  cash  and
unregistered, issuable common stock aggregating $4,130, including cash of $1,500
and 1,052,336 shares valued at $2,630. The unregistered common stock is issuable
to  Teleplus  as  follows:  526,168  issuable  on January  30,  1997 and 526,168
issuable on January 30,  1998.  The total  purchase  price has been  included in
intangibles  and  recorded  as  an  obligation  under   non-compete   agreement,
representing  the sellers  obligation  to the  Company  prior to issuance of the
common shares.

3. Note Receivable and Customer Advances

The Company has advances due from  customers  for amounts  advanced to customers
for usage of the Company's  services prior to delivery of service.  The advances
are recouped as deductions from commissions  otherwise payable to customers over
the life of the applicable customer agreement.

Included in "Deposits  and other  assets" at December 31, 1995 are the long-term
portion of advances to customers of approximately $492.

4. Property and Equipment, Net

Property and equipment, at cost, consists of the following at December 31:

                                               1996                1995
                                             ----------------------------------
Equipment, furniture and fixtures              $10,341          $    9,684
                                             ----------------------------------
Installed telephone and related equipment       18,704               3,414
                                             ----------------------------------
Leasehold improvements                             933                 750
                                             ----------------------------------
Leased equipment                                 6,354               7,049
                                             ----------------------------------
                                                36,332              20,897
                                             ----------------------------------
Accumulated depreciation and amortization       12,481               9,302
                                             ----------------------------------
Property and equipment, net                    $23,851          $   11,595
                                             ==================================


                                      F-14





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

5. Short-Term Debt

Short-term debt consists of the following at December 31:

                                          ==================================
                                             1996                1995
                                          ----------------------------------

                                          ----------------------------------
Asset based lending agreements (a)          $10,898            $11,365
                                          ----------------------------------
10% Notes payable (b)                           500                500
                                          ----------------------------------
11% Note payable (c)                            100                 --
                                          ----------------------------------
                                            $11,498            $11,865
                                          ==================================

(a)  The  Company  has  credit  facilities  in the form of asset  based  lending
     agreements  with its  billing  and  collection  agents,  which  provide for
     advances up to $27,600 (with recourse) based upon eligible operator service
     and  direct  dial  receivables.  Interest  is at prime  (8.25%  and 8.5% at
     December 31, 1996 and 1995, respectively) plus 2%. The agreements expire in
     February 2000.

(b)  During 1992 and 1993,  the Company  borrowed  $1,500 from certain  overseas
     investors.  The notes  payable are due on demand,  bear interest at 10% per
     annum and are convertible  including accrued  interest,  at $.20 per share.
     The Company may repay the loans, subject to the payment of a 10% premium of
     the  principal  amount  repaid and  subject to the right of the  holders to
     exercise their  conversion  right. In May 1993, an aggregate of $100 of the
     loan was converted into 500,000 shares of Common Stock.  In September 1994,
     $900 principal  amount and $166 of accrued  interest  thereon was converted
     into 5,330,555 Common Shares.  These notes are collateralized by all of the
     outstanding shares of ANEI.

(c)  In connection  with the  acquisition of CNSI,  the Company  assumed a note.
     Interest at 11% is payable  monthly.  The  outstanding  principal  balance,
     together with any unpaid or accrued interest is due January 1997.

Substantially all of the Company's assets serve as collateral under the terms of
the short and long-term debt agreements and capital lease obligations.


                                      F-15




                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

6. Long-Term Debt



Long-term debt consists of the following at December 31:

                                                                         =======================================
                                                                                               
                                                                                 1996               1995
                                                                         ---------------------------------------
10.52% Secured Promissory Note, with interest and
   principal payments of $151 payable in 60 monthly
   installments commencing January 1, 1997 (b)                               $    6,910          $       --
                                                                         ---------------------------------------
11.91% Secured Promissory Note, with interest and
   principal payments of $111 in 60 monthly installments
   commencing February 1, 1997                                                    5,000                  --
                                                                         ---------------------------------------
10% Convertible Promissory Notes, due October 1999
   with interest payable semi-annually on June 30 and
   December 31, convertible at $3.50 per common share                             1,400               1,550
   (a)
                                                                         ---------------------------------------
12.5% Secured Promissory Note, with interest only
   payable monthly; principal due November 30, 1998                               1,000                  --
                                                                         ---------------------------------------
12.5% Secured Promissory Note, with interest only
   payable monthly; principal due January 31, 1999                                1,000                  --
                                                                         ---------------------------------------
8% Convertible Promissory Note, due May 1997 with interest payable 
   semi-annuallyon June 30 and December 31, convertible at $2.8125
   per Common Share                                                                 325                 325
                                                                         ---------------------------------------
Auto loans with interest rate ranging from 7.47% to
   10.25%; maturing March 1997 through October 1997                                  72                  --
                                                                         ---------------------------------------
13% Note Payable, with interest and principal payments
   of $2 payable in 50 monthly installments commencing
   March 1, 1996                                                                     71                  --
                                                                         ---------------------------------------
9.97% Senior Secured Note Payable, with interest and
   principal payments of $63 payable in 48 monthly
   installments commencing November 1995 (b)                                         --               2,371
                                                                         ---------------------------------------
9.97% Senior Secured Note Payable, with interest and
   principal payments of $13 payable in 48 monthly
   installments commencing February 1996 (b)                                         --                 500
                                                                         ---------------------------------------
12% Note Payable to stockholder; consists of an
   unsecured note with interest and principal of $21 due                             --                 123
   quarterly
                                                                         ---------------------------------------
                                                                                 15,778               4,869
                                                                         ---------------------------------------
Less current maturities                                                           2,248                 737
                                                                         ---------------------------------------
                                                                              $  13,530            $  4,132
                                                                         =======================================



                                      F-16





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

6. Long-Term Debt (continued)

(a)  During 1996, $150 of the Promissory  Note, plus accrued  interest  thereon,
     was converted to 44,643 Common Shares at $3.50 per share.
(b)  During 1996, contemporaneously with the Coastal acquisition,  certain notes
     payable were refinanced with the 10.52% secured promissory note.

The aggregate principal maturities of long-term debt at December 31, 1996 are as
follows:

                                    =======================
                                           Principal
                                          Amount Due
                                    -----------------------
Year:

   1997                                  $    2,248
                                    -----------------------
   1998                                       3,135
                                    -----------------------
   1999                                       4,784
                                    -----------------------
   2000                                       2,646
                                    -----------------------
   2001 (and thereafter)                      2,965
                                    -----------------------
                                         $   15,778
                                    =======================

7. Obligations Under Capital Leases

The Company has entered  into  various  capital  leases for the  acquisition  of
telecommunication and office equipment at interest rates varying from 12% to 13%
with terms ranging from three to five years.  The leases are  collateralized  by
the respective  equipment with a cost of $5,467 and accumulated  depreciation of
$2,567 at December 31, 1996.  Depreciation of assets under capitalized leases is
included in depreciation expense.

The  following is a schedule of future  minimum  lease  payments  under  capital
leases  together with the present value of the net minimum lease  payments as of
December 31, 1996:

                                                    
Year                                                  Amount
                                                    -----------
   1997                                              $2,569
                                                    -----------
   1998                                               1,736
                                                    -----------
   1999                                               1,090
                                                    -----------
   2000                                                  93
                                                    -----------
   Total future minimum lease payments                5,488
                                                    -----------
   Less amounts representing interest                   641
                                                    -----------
   Present value of net future minimum payments       4,847
                                                    -----------
   Less current portion                               2,179
                                                    -----------
   Noncurrent portion                                $2,668
                                                    ===========

                                      F-17






                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)





8. Income Taxes

At December 31, 1996, the Company has available net operating loss carryforwards
of  approximately  $11,987  that  expire  through  the year 2008.  Approximately
$10,500 of the net operating  loss  carryforwards  may be subject to limitations
under the change in ownership and consolidated return provisions of the Internal
Revenue  Code.  The Company has not recorded any future  benefit  related to the
utilization of this net operating loss carryforward.

Deferred  income  taxes  reflect  the net tax effects of  temporary  differences
between the carrying  amounts of assets and liabilities for financial  reporting
purposes and the amounts used for income tax purposes.

Significant  components of the Company's  deferred tax liabilities and assets as
of December 31 are as follows:
                                                               
                                               1996                1995
                                            -----------------------------------
Deferred tax liabilities:
                                            -----------------------------------
 Tax over book depreciation                  $   (1,124)         $    (687)
                                            -----------------------------------
Deferred tax assets:
                                            -----------------------------------
 Net operating loss carryforwards                 4,555              4,660
                                            -----------------------------------
 Tax over book basis in impaired assets           2,248                 --
                                            -----------------------------------
 Amortization of intangibles                        148                106
                                            -----------------------------------
 AMT credit carryforward                            137                  -
                                            -----------------------------------
 Valuation allowance                             (4,173)            (3,958)
                                            -----------------------------------
Net deferred tax assets                      $    1,791          $     121
                                            ===================================

The provision for income taxes for the years ended  December 31, 1996,  1995 and
1994 consist of the following:


                     1996               1995               1994
                 ------------------------------------------------------
Current:
                 ------------------------------------------------------
 Federal         $        45          $    50             $   582
                 ------------------------------------------------------
 State                   180              100                 200
                 ------------------------------------------------------
                         225              150                 782
                 ------------------------------------------------------
Deferred:
                 ------------------------------------------------------
 Federal              (1,406)             160                 (97)
                 ------------------------------------------------------
 State                  (264)              19                  --
                 ------------------------------------------------------
                      (1,670)             179                 (97)
                 ------------------------------------------------------
                 $    (1,445)         $   329             $   685
                 ======================================================


                                      F-18





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)





8. Income Taxes (continued)

The  reconciliation  of income taxes computed at U.S. federal statutory rates to
income tax expense  (benefit)  for the years ended  December 31, 1996,  1995 and
1994 are as follows:

                                            1996           1995        1994
                                         ---------------------------------------

                                         ---------------------------------------
Provision at federal statutory rate of
   34%                                   $   (1,935)      $   598     $  417
                                         ---------------------------------------
Non deductible goodwill amortization            475           278        245
                                         ---------------------------------------
State income taxes, net of federal tax
   benefit                                      (55)           79        132
                                         ---------------------------------------
Other                                             3            47       (109)
                                         ---------------------------------------
Net change in valuation allowance                67             -          -
                                         ---------------------------------------
Utilization of net operating loss                 -          (673)        --
                                         ---------------------------------------
                                          $  (1,445)      $   329       $685
                                         =======================================

9. Shareholders' Equity

Common Stock

During 1993 and 1994, the Company entered into equity  participation  agreements
with  certain  customers  under which  Common  Shares  and/or  warrants  for the
purchase  of Common  Shares are issued for  achieving  and  maintaining  certain
revenue levels.  In 1994,  250,000 Common Shares were issued (valued at $3.19 to
$3.38 per share).  In 1995,  Common  Shares of 125,000  and 100,000  were issued
(valued at $3.00 and $4.1875 per share, respectively).

The value  ascribed to the Common Shares  issued under the equity  participation
agreements  were recorded as deferred  assets and  amortized  over the remaining
life of the particular  customers'  agreement.  For the years ended December 31,
1996,  1995 and 1994, the Company  charged  approximately  $442,  $249 and $165,
respectively,  to  operations  representing  a pro rata portion of the estimated
cost of the shares  issued.  In  addition,  included in the 1996  impairment  of
long-lived  assets  expense  is  $679  related  to  these  equity  participation
agreements that the Company no longer considers realizable.

In 1996,  75,000 Common Shares were issued,  at the then current market price of
$3.00 per share, to certain employees of the Company, including the Chairman.

In May 1996 the Company  committed  to issue  245,000  Common  Shares to certain
officers,  directors and a consultant to the Company.  The shares are to be held
by the Company  and  released  annually on a pro rata basis over ten years.  The
recipients  forfeit  future  releases  if they are  terminated  with  cause,  as
defined, among other matters. Any shares still held by the


                                      F-19





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

9.   Shareholders' Equity (continued)

Company are released upon a change of control, as defined. The value ascribed to
the  245,000  Common  Shares  was  $894,000,  the  market  value  at the date of
commitment,  which has been  recorded  as  unearned  compensation,  and is being
amortized on a straight-line basis over ten years.

At December 31, 1996,  approximately  15,000,000 of the Company's  Common Shares
were reserved for issuance under stock option plans, warrant agreements,  Common
Stock issuable (see below),  for  conversions of preferred stock and convertible
debt and in connection with acquisitions.

At December 31, 1996, the Company had 1,052,336  shares of Common Stock issuable
(526,168 shares in 1997 and 526,168 shares in 1998).

Preferred Shares

The holders of the Series B Preferred  Shares are entitled to ten votes for each
Series B Preferred Share held. The shares are redeemable at the Company's option
at $6.50 per share plus  cumulative  dividends in arrears  (subject to the prior
exercise of the conversion  right by the holder).  Series B Preferred Shares are
convertible  into Common Shares at a conversion rate of 10:1. The holders of the
Series B Preferred  Shares are entitled to receive  cumulative  dividends at the
rate of $.40 per share per annum.  The  Company  has the  option of paying  such
dividend in cash or in Common Shares having a value equal to the closing selling
price of the Common  Shares on the day  immediately  preceding the date on which
such dividend is declared.

In January 1994,  60,099 Common  Shares of the Company were  distributed  to the
holders of the 333,200 Series B Preferred Shares. In June 1994, the Company paid
a cash  dividend  of $75 to the  holders  of Series B  Preferred  Shares for the
period December 1, 1993 through June 30, 1994. In July 1994, 200,000 of Series B
Preferred  Shares  converted into 2,000,000  Common Shares.  In May and November
1995,  an aggregate of 60,750 of the  Company's  Series B Preferred  Shares were
converted into 607,500 shares of the Company's  Common Stock.  In June 1995, the
Company  paid a cash  dividend  of $44 to the  holders of record of the Series B
Preferred Shares for the period July 1, 1994 through April 30, 1995.

In April and May 1994, the Company received net proceeds of approximately $2,656
through the sale of an  aggregate of  1,090,910  Series C Preferred  Shares at a
purchase  price  of  $2.75  per  share.  The  Series  C  Preferred  Shares  were
convertible  into  Common  Shares in the  absolute  and sole  discretion  of the
holders at a conversion price of $2.75 per share.




                                      F-20





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

9.   Shareholders' Equity (continued)

In August  1994,  the  holders of the Series C  Preferred  Shares of the Company
exchanged  such  shares,  on a 1.1-for-1  basis,  for an  aggregate of 1,200,003
Series D Preferred Shares of the Company. Neither the Company nor the holders of
the Series D Preferred  Shares have any right of redemption with regard thereto.
The holders of the Series D Preferred  Shares are entitled to receive,  when and
as declared by the Board of Directors of the  Company,  cumulative  dividends at
the rate of 10% per annum payable in cash or Common  Shares of the Company.  The
Series D Preferred Shares have a fixed liquidation preference of $2.50 per share
and are  convertible  into  Common  Shares on a  one-for-one  basis at $2.50 per
share.  The holders of the Series D Preferred  Shares are  entitled to six votes
for each Series D Preferred  Share held.  Contemporaneously  with such exchange,
the  Company  issued  an  additional  213,334  Series D  Preferred  Shares  upon
conversion of $500  principal  amount of Notes and $33 of interest  thereon at a
conversion price of $2.50 per share.

In April and May 1995,  the Company  received  gross  proceeds of  approximately
$3,052 through the sale of an aggregate of 1,085,000  Series E Preferred  Shares
at a purchase price of $2.8125 per share. The Series E Preferred Shares have the
following rights and preferences,  among others: (i) 8% dividend payable in cash
or in Common Shares of the Company; (ii) voting rights of one vote per share and
(iii) the right to convert  each share into one Common Share of the Company at a
conversion  price  of  $2.8125  per  share,   subject  to  certain  antidilution
adjustments. In January 1996, the holder of an aggregate of 50,000 shares of the
Company's Series E Preferred Stock elected to convert such shares into 50,000 of
the Company's Common Shares.

In October 1995, the Company issued 415,250 Series F Preferred Shares (valued at
$5.00 per share) as partial consideration for the acquisition of CCI. The Series
F Preferred Shares have the following rights and preferences,  among others: (i)
dividends  on a pari passu  basis with the  holders of the Common  Shares;  (ii)
voting rights of one vote per share;  (iii) the right to convert each share into
one  Common  Share of the  Company  at a  conversion  price of $5.00 per  share,
subject  to  certain  antidilution  adjustments;   (iv)  an  adjustment  of  the
conversion  price on October  10,  1997 to the  average  market  price of Common
Shares,  as defined,  during the ten trading days prior to such time (but to not
less than $3.50 per share) if such average  market price is then below $5.00 per
share;  and (v) a liquidation  preference of $5.00 per share.  At any time,  the
Company has the right to redeem the  outstanding  Series F  Preferred  Shares on
thirty  days  notice at a  redemption  price of $5.00 per share  (subject to the
conversion rights of the holders of the Series F Preferred Shares).



                                      F-21







                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


9.   Shareholders' Equity (continued)

In September 1996, the Company  received net proceeds of $2,000 through the sale
of an  aggregate  of 100,000  Series G  Preferred  Shares at $20 per  share.  In
connection  with the  issuance  of the Series G  Preferred  Shares,  the Company
incurred costs in the form of warrants valued at $396 to purchase 275,000 Common
Shares of the Company.  The Series G Preferred  Shares have the following rights
and preferences, among others; (i) 5% cumulative dividend payable in cash or, at
the  option of the  Board of  Directors  of the  Company,  in  Common  Shares or
additional Series G Preferred Shares of the Company, only upon conversion of the
Series G Preferred Shares; (ii) voting rights, with the number of votes equaling
approximately

5.7:1  relative to Common Shares for each Series G Preferred  Share held;  (iii)
the  right to  convert  each  share  into  Common  Shares  of the  Company  at a
conversion  price generally equal to the lesser of (a) $3.5125 or (b) 80% of the
average per share market value for the five trading days  immediately  preceding
the  conversion;  and (iv) a  liquidation  preference  of $20 per share  plus an
amount equal to accrued but unpaid dividends per share.

The guaranteed discount at the date of issuance on conversion of $400 was deemed
to be a dividend  for  purposes  of  calculating  net loss  available  to common
stockholders.  The  dividend  is being  recognized  on a pro rata basis over the
period  beginning  with the  issuance  of the  shares  to the  first  date  that
conversion can occur.  Conversion was permissible  effective  December 13, 1996.
This one time,  non-cash  charge only  impacts the  calculation  of earnings per
share related to the Common Shares.

In December 1996, the holder of an aggregate of 21,250 of the Company's Series G
Preferred  Shares  elected to convert such shares into 195,808 of the  Company's
Common Shares.

Cumulative dividends in arrears at December 31, 1996 and 1995 were approximately
$1,340 and $726, respectively.

Stock Options

The Company's  1987 Stock Option Plan (the 1987 Plan)  provides for the granting
of options to employees  (including  officers and  directors)  and  non-employee
Directors of, and certain consultants and advisors to, the Company. Such options
are intended to be either incentive stock options or nonstatutory stock options.
Incentive stock options may be granted to employees of the Company. Nonstatutory
stock  options may be granted to employees  or  non-employee  Directors  of, and
certain  consultants  and advisors  to, the Company.  The total number of Common
Shares reserved for issuance under the 1987 Plan is 93,750.




                                      F-22







                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)

9. Shareholders' Equity (continued)

In 1992, the Company adopted and the shareholders approved the 1992 Stock Option
Plan (the "1992 Plan" and  collectively  with the 1987 Plan,  the  "Plans").  In
1995, the shareholders  approved an increase in the number of shares  authorized
to be issued  under the 1992 Plan from  1,500,000 to  2,250,000  Common  Shares.
Subject to shareholder  approval,  in 1996 the number of shares authorized to be
issued under the 1992 Plan was increased to 4,250,000 Common Shares.

The 1992 Plan  provides  for the  granting  of options to  employees  (including
officers and directors) and non-employee  Directors of, and certain  consultants
and advisors to, the Company.  Such options are intended to be either  incentive
stock options or  nonstatutory  stock  options.  Incentive  stock options may be
granted to employees of the Company.  Nonstatutory  stock options may be granted
to employees or non-employee  Directors of, and certain consultants and advisors
to, the  Company.  As of December 31,  1996,  the total number of Common  Shares
reserved for issuance under the 1992 Plan is 3,697,130.  Approximately 1,695,000
of these shares are subject to shareholder approval.

The exercise price of all incentive stock options  granted under the Plans,  and
all  nonstatutory  stock options granted under the Plans to officers,  directors
and 10%  shareholders of the Company  (Insiders),  must be at least equal to the
fair  market  value of such  shares  on the date of the  grant or in the case of
incentive  stock  options  granted to the holder of 10% or more of the Company's
Common Shares, at least 110% of the fair market value of such shares on the date
of the grant.  The maximum exercise period for which incentive stock options may
be granted,  and nonstatutory  options may be granted to Insiders,  is ten years
(five  years  in  the  case  of  incentive   stock  options  granted  to  a  10%
shareholder).  The  option  price and  exercise  period for  nonstatutory  stock
options to persons other than Insiders shall be determined by the Board or Stock
Option Committee in its sole discretion.

The following  table  represents the changes in outstanding  stock options under
the Plans (of which approximately 618,000,  260,000 and 743,000 were exercisable
at December 31, 1996, 1995 and 1994, respectively).

                                                               

                                                                       1996                1995                 1994
                                                               --------------------------------------------------------------
                                                                                                        
Outstanding at beginning of year ($1.50 to $4.25
   per share)                                                         1,109,371           1,224,044             845,187
                                                               --------------------------------------------------------------
Granted ($2.25 to $4.25 per share)                                    2,370,000             480,000             417,900
                                                               --------------------------------------------------------------
Exercised ($1.50 to $3.00 per share)                                    (54,485)           (471,853)            (28,833)
                                                               --------------------------------------------------------------
Cancelled ($1.50 to $4.25 per share)                                   (156,498)           (122,820)            (10,210)
                                                               --------------------------------------------------------------
Outstanding at end of year ($1.50 to $4.25 per
   share)                                                             3,268,388           1,109,371           1,224,044
                                                               ==============================================================



                                      F-23





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


9. Shareholders' Equity (continued)

Stock Based Compensation

Pro forma information  regarding net income (loss) and earnings (loss) per share
is required by SFAS 123, and has been determined as if the Company had accounted
for its employee stock options under the fair value method of SFAS 123. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following  weighted-average  assumptions  for 1995
and 1996:

                                                               
                          Assumption               1996               1995
- ----------------------------------------------------------------------------
Risk-free rate                                      6%                 6%
- ----------------------------------------------------------------------------
Dividend yield                                      0%                 0%
- ----------------------------------------------------------------------------
  Volatility factor of the expected market 
  price of the Company's common stock               .50                .50
Average life                                        3                  3


The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the  Company's  employee  stock  options  have   characteristics   significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

For purposes of pro forma  disclosures,  the estimated fair value of the options
is amortized to expense over the vesting  period of the options.  The  Company's
pro forma information is as follows:

                                           1996            1995
                                         ---------------------------
Pro forma net income (loss)              $(4,446)         $1,426
Pro forma net income (loss) per share     (0.24)          0.05


The  weighted  average  fair  value of  options  granted  during  the year ended
December   31,   1996  and  1995  were  $1.27  and  $1.67,   respectively.   The
weighted-average  exercise price of options  exercisable as of December 31, 1996
was $2.75 per share. The  weighted-average  remaining  contractual life of those
options is 3.8 years.


                                      F-24





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


9. Shareholders' Equity (continued)

Warrants

In 1993, the Company  entered into an agreement with National  Telecom USA, Inc.
(NTI) which provided for, based upon the  achievement of certain revenue levels,
the issuance of a maximum of 450,000  Common  Shares and warrants to purchase up
to 725,000  Common  Shares at the market price at the date of  issuance.  During
1995,  1994 and 1993,  the Company  issued  warrants to NTI for the  purchase of
175,000, 250,000 and 300,000 Common Shares, respectively.  In November 1995, the
Company  entered  into an  agreement  with NTI,  whereby  NTI agreed to place in
escrow the  aforementioned  warrants  and granted the Company the right to cause
the sale of such warrants  whereby the first $800 of the proceeds are applied to
reduce  advances  due. As further  disclosed in Note 15, the Company in February
1997 entered into a  substantially  new contract with NTI,  whereby the warrants
were tendered to the Company in settlement of $800 of advances  outstanding from
NTI.

In June 1996, in connection with the CNSI  acquisition (see Note 2), the Company
issued  warrants  to  purchase  400,000  Common  Shares at $4.51 per share.  The
warrants are exercisable through June 1998.

In August 1996, the Company issued a warrant to purchase 50,000 Common Shares at
$3.06 per share in exchange for consulting services.  The warrant is exercisable
through August 1999.

In September 1996, in connection with the sale of the Series G Preferred Shares,
the Company  issued  warrants to purchase  225,000  Common Shares at an exercise
price of $5.29 and  50,000  Common  Shares at an  exercise  price of $3.53.  The
warrants are exercisable through September 2001.

The following table represents the changes in outstanding  warrants all of which
are exercisable:

                                                                                                        
                                                                       1996                1995                 1994
                                                               --------------------------------------------------------------
      Outstanding at beginning of period ($0.50 to
      $120.00 per warrant)                                         1,922,569           1,737,569             743,319
                                                               --------------------------------------------------------------
      Issued ($0.50 to $5.29 per warrant)                            725,000             210,000            1,000,000
                                                               --------------------------------------------------------------
      Exercised ($1.50 per warrant)                                       --             (25,000)                  --
                                                               --------------------------------------------------------------
      Expired/Canceled ($20.00 to $120.00 per
      warrant)                                                        (7,569)                 --              (5,750)
                                                               --------------------------------------------------------------
      Outstanding at end of period ($0.50 to
      $120.00 per warrant)                                         2,640,000           1,922,569           1,737,569
                                                               ==============================================================

                                                                                                      



                                      F-25





                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


10. Related Party Transactions

During 1994, the Company  entered into a management  agreement with CCI pursuant
to which ANEI provided certain management and administrative  services on behalf
of CCI, for a fee equal to ANEI's  cost.  CCI agreed to use the services of ANEI
and was paid commissions of approximately $63 per month,  beginning in June 1994
through  the date the  Company  acquired  CCI.  The  Company  believes  that the
commission  amounts paid to CCI were no more  favorable to it than those payable
to other  customers.  The Company had been advised that the  shareholders of CCI
may be shareholders of the Company.

As part of the CNSI  acquisition,  the Company  assumed note  agreements  with a
former  majority  shareholder of CNSI who became a principal  shareholder of the
Company,  in the amounts of $1,049 and $149.  The interest on the notes are paid
monthly at a rate of 10.5%.
The notes mature on July 15, 1997 with a balloon payment.

11. Major Customers

Two customers,  controlled by the same group,  accounted for 21%, 41% and 38% of
the  Company's  revenues for the years ended  December 31, 1996,  1995 and 1994,
respectively.

12. Leases

The Company maintains office,  operations, and computer facilities under various
operating leases. The minimum annual lease payments are as follows:

1997                                      $     977
1998                                            964
1999                                            926
2000                                            926
2001                                            921
Thereafter                                      893
                                    --------------------
                                             $5,607
                                    ====================

The leases also provide for payment of real estate taxes and operating expenses.
Rent  expense  for the  years  ended  December  31,  1996,  1995  and  1994  was
approximately $1,673, $1,251 and $1,165, respectively.


                                      F-26




                                   AMNEX, INC.

             Notes To Consolidated Financial Statements (continued)


13. Retirement Plan

The Company has a retirement  plan 401(k) covering all eligible  employees.  The
annual  provisions  for the years ended  December 31,  1996,  1995 and 1994 were
approximately $62, $68 and $47, respectively.

14. Commitments and Contingencies

The Company is a party to  litigation  in the normal  course of  business  which
management  does not  believe  will  have a  material  impact  on the  financial
statements of the Company.

15. Subsequent Events

On January 7, 1997,  the Company  entered into a Stock  Exchange  Agreement with
Francesco Galesi, which involves the transfer to the Company of shares of Common
Stock of Galesi Telecom International,  Inc. ("GTI") representing ten percent of
the issued and  outstanding  capital  stock of GTI,  in  exchange  for shares of
Series L Preferred Stock and warrants to purchase Common Shares of the Company.

On February 25, 1997,  the Company  entered into a joint venture  agreement with
Community  Network  Services,  Microtel  Communications  Corporation  and  other
entities  affiliated with them (collectively  "Manghir Group"),  whereby certain
telecommunications  contracts and licenses of Manghir Group were  contributed to
the joint  venture and the  Company has  committed  financial,  operational  and
managerial assistance.

On February  28,  1997,  the  Company  entered  into a Renewal and  Modification
Agreement  with NTI with regard to  redefinition  of the  customer  relationship
between the parties. Under the terms of the Renewal and Modification  Agreement,
the Company  accepts and assumes,  among  others,  the right and  obligation  to
become the exclusive provider of various services.
The Company committed to pay NTI consideration totaling $3,050.

On March 1, 1997, the Company entered into an Asset Purchase  Agreement with Sun
Tel, Inc. with regard to the acquisition  of, among other assets,  approximately
600 pay telephones located in Florida. The Asset Purchase Agreement provides for
an aggregate  purchase price for the assets  acquired of $1,680 and the grant to
the seller of a 20% interest in Sun Tel North  America,  Inc.,  the purchaser of
the acquired assets.


                                      F-27



                             AMNEX, INC.Schedule II

                        Valuation and Qualifying Accounts


                  Years ended December 31, 1996, 1995 and 1994
                                 (In thousands)



Column A                               Column B                 Column C                  Column D           Column E

                                                                Additions
                                                    ---------------------------------

- ----------------------------------------------------------------------------------------------------------------------------

                                                                            (2)
                                                         
                                      Balance at           (1)          Charged to                            Balance at
                                      beginning        Charged to          other           Deductions           end of
                 Description          of period         costs and        accounts         described (a)         period
                                                        expenses         described
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                                
 Allowance for doubtful accounts:
    Year ended December 31, 1996        $2,954            $7,432                             $(7,629)            $2,757
    Year ended December 31, 1995         3,213             7,328                              (7,587)             2,954
    Year ended December 31, 1994         1,557             7,854                              (6,198)             3,213
- ----------------------------------------------------------------------------------------------------------------------------




(a)  Amounts charged off.

                                     


                       
                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.


                                                AMNEX, INC.


April 15, 1997                                  By: /s/ Kenneth G. Baritz
                                                    ---------------------
                                                    Kenneth G. Baritz, Chairman
                                                    and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.

                          Chairman and Chief Executive
                          Officer (Principal Executive and
/s/Kenneth G. Baritz      Financial Officer)                  April 15, 1997
- ----------------------
Kenneth G. Baritz

                          President, PubCom Division
/s/Peter M. Izzo, Jr.     and Director                        April 15, 1997
- ----------------------
Peter M. Izzo, Jr.

                          Chief Operating Officer
/s/Michael V. Dettmers    and Director                        April 15, 1997
- ----------------------
Michael V. Dettmers

                          Vice President - Finance,
                          Treasurer and Chief Accounting
                          Officer (Principal Accounting
/s/Richard L. Stoun       Officer)                            April 15, 1997
- ----------------------
Richard L. Stoun

/s/Francesco Galesi          Director                         April 15, 1997
- ----------------------
Francesco Galesi


                                      

EX-2.9

                                                                 EXECUTION COPY














                            STOCK PURCHASE AGREEMENT

                         Dated as of September 30, 1996

                                  by and among

                                   AMNEX, INC.

                                       and

                        NATIONAL BUSINESS EXCHANGE, INC.

                                       and

                              James E. Everingham,
                              a selling shareholder

                                       and

                                 Daryl A. Frame,
                              a selling shareholder











                                TABLE OF CONTENTS

                                                                           Page


SECTION 1.  Certain Definitions.............................................  1

SECTION 2.  Purchase of Shares..............................................  6
               2.1.        Purchase of Shares...............................  6

SECTION 3.  Consideration for the Shares....................................  6
               3.1.        Amount of Purchase Price.........................  6
               3.2.        Payment of Purchase Price........................  6

SECTION 4.  Representations and Warranties of NBE and the
                           Selling Shareholders.............................  7
               4.1.        Good Standing....................................  7
               4.2.        Articles of Incorporation; By-Laws; Minute
                           Books............................................  7
               4.3.        Authorization....................................  8
               4.4.        Authorized Capitalization........................  8
               4.5.        Financial Statements.............................  9
               4.6.        Records and Books of Account..................... 10
               4.7.        Liabilities...................................... 10
               4.8.        Tax Returns...................................... 10
               4.9.        Provision for Taxes.............................. 11
               4.10.  Title to Assets; Liens and Encumbrances............... 12
               4.11.  Trademarks, Service Marks, Trade Names,
                           Patents and Copyrights........................... 13
               4.12.  Insurance Policies.................................... 14
               4.13.  Contracts............................................. 14
               4.14.  Labor Relations....................................... 16
               4.15.  Legal Proceedings..................................... 17
               4.16.  Court Orders.......................................... 17
               4.17.  Compliance With Law; Permits and Licenses............. 17
               4.18.  Actions Not in Ordinary Course........................ 18
               4.19.  No Change............................................. 19
               4.20.  Accounts Receivable................................... 19
               4.21.  Certain Transactions.................................. 19
               4.22.  Employee Benefits..................................... 20
               4.23.  Governmental Approvals................................ 22


40860174






               4.24.  Investment Intent..................................... 22
               4.25.       Restricted Securities............................ 23
               4.26.  Secrecy and Noncompetition Agreements................. 24
               4.27.  No Omissions.......................................... 24
               4.28.  Shareholder and Voting Agreements..................... 25
               4.29.  Employees............................................. 25

SECTION 5.  Representations and Warranties of Buyer......................... 25
               5.1.        Good Standing.................................... 25
               5.2.        Authorization.................................... 25
               5.3.        AMNEX Shares..................................... 26
               5.4.        Purchase for Investment.......................... 26
               5.5.        No Omissions..................................... 28

SECTION 6.  Employment Agreements........................................... 28

SECTION 7.  Consents........................................................ 28

SECTION 8.  Deliveries of NBE and Selling Shareholders...................... 28
               8.1.  Stock Certificates..................................... 29
               8.2.  Opinion of Counsel..................................... 29
               8.3.  Closing Date Balance Sheet............................. 29
               8.4.  Other Deliveries....................................... 29

SECTION 9.  Deliveries of Buyer on the Closing Date......................... 29
               9.1.  Opinion of Counsel..................................... 29
               9.2.  Stock Certificates..................................... 29
               9.3.  Other Deliveries....................................... 29

SECTION 10.    Registration Rights.......................................... 29
               10.1.  Required Registration................................. 29
               10.2.  Procedure for Registration............................ 32
               10.3.  Piggyback Registration................................ 32
               10.4.  Indemnification by Buyer.............................. 34
               10.5.  Indemnification by the Selling Shareholders
                            ................................................ 36
               10.6.  Holdback Agreement.................................... 38

SECTION 11.   Moving Expenses; Billing Agreements with
                     LECs................................................... 38
               11.1.       Moving Expenses.................................. 39
               11.2.       Billing Agreements with LECs..................... 39

SECTION 12.   Board of Directors; Voting and Lock-Up
                     Agreement.............................................. 39
               12.1.  Board of Directors.................................... 39
               12.2.  Voting and Lock-up Agreement.......................... 40





                                                                           Page




SECTION 13.  Buyer's Call Right............................................. 42
               13.1.  Buyer's Call Right; Valuation of Remaining
                           Shares............................................42
               13.2.  Exercise of Buyer's Call Right.........................43
               13.3.  Sale Event Differential................................43

SECTION 14.  Indemnification................................................ 44
               14.1.  Indemnification by NBE and the Selling
                           Shareholders..................................... 44
               14.2.  Indemnification by Buyer.............................. 45
               14.3.  Procedures for Indemnification........................ 45
               14.4.  Escrow Agreement...................................... 46

SECTION 15.  Survival of Representations; Effect of
               Certificates................................................. 46

SECTION 16.  No Broker; Expenses............................................ 46

SECTION 17.  Notices........................................................ 47

SECTION 18.  Miscellaneous.................................................. 48
               18.1.  Entire Agreement...................................... 48
               18.2.  Governing Law; Arbitration............................ 49
               18.3.  Benefit of Parties; Assignment........................ 50
               18.4.  Pronouns.............................................. 51
               18.5.  Headings.............................................. 51
               18.6.  Counterparts  51
               18.7.  Further Assurances.................................... 51
               18.8.  Good Faith and Fair Dealing............................51








                  AGREEMENT  dated as of September 30, 1996, by and among AMNEX,
Inc., a New York corporation  ("Buyer"),  National  Business  Exchange,  Inc., a
California  corporation  ("NBE"),  James Everingham  ("Everingham") and Daryl A.
Frame ("Frame") and both Everingham and Frame, each a "Selling  Shareholder" and
together "Selling
Shareholders").

                               W I T N E S E T H:

                  WHEREAS,  the Selling  Shareholders  are the owners of all the
issued and outstanding shares of capital stock of NBE ("NBE Stock"); and

                  WHEREAS,  Buyer desires to purchase from Everingham 408 shares
of NBE  Stock  and from  Frame  220  shares  of NBE  Stock  representing  in the
aggregate 80% (the "Shares") of all of the issued and outstanding  shares of NBE
Stock; and the Selling  Shareholders  desire to sell to Buyer, the Shares,  upon
the terms and conditions and for the purchase price hereinafter set forth;

                  NOW,  THEREFORE,  in  consideration  of the  mutual  covenants
contained herein and for other good and valuable consideration set forth herein,
the parties hereto agree as follows:

                  SECTION 1.  Certain Definitions.  For purposes of this
Agreement,  the  following  terms shall have the  respective  meanings set forth
below:
                  "Actions" mean any claims,  actions,  suits,  proceedings  and
investigations,  whether at law, in equity or in  admiralty or before any court,
arbitrator, arbitration panel or Governmental Authority.

                  "Affiliate"  of a party  means any Person  which,  directly or
indirectly,  controls,  is  controlled  by or is under common  control with such
party.

                  "Assets" means all the assets, properties, rights and business
of NBE of every  kind and  description,  wherever  located,  including,  without
limitation, all property,  tangible or intangible,  real, personal or mixed, and
whether or not reflected on the Balance Sheet.

                  "Balance  Sheet"  means the  balance  sheet of NBE at July 31,
1996 referred to in paragraph 4.5 hereof.

                  "Business"  means  the  existing  and  prospective   business,
operations,  facilities  and  other  Assets,  financial  condition,  results  of
operations, finances, markets, products, competitive position, and customers and
customer relations of NBE.
                  "Balance Sheet Date" means July 31, 1996.






                  "Closing" means the closing of the  transactions  contemplated
hereby, which shall take place simultaneously with the execution and delivery of
this Agreement on the first above written.

                  "Closing Date" means the date first above written.

                  "Code" means the Internal Revenue Code of 1986, as
amended.

                  "Contracts"  mean  all  contracts,   agreements,   indentures,
licenses, leases,  commitments,  plans, arrangements,  sales orders and purchase
orders of every kind, whether written or oral.

                  "Court Order" means any judgment, decree,  injunction,  order,
decision, directive,  regulation or ruling of any Governmental Authority that is
binding on any Person or its property under Law.

                  "Damages" mean losses,  liabilities,  costs, damages,  claims,
taxes and expenses (including reasonable attorneys fees and disbursements).

                  "Default" means (i) a material  breach of or material  default
under any  Contract,  (ii) the  occurrence  of an event that with the passage of
time or the giving of notice or both would constitute a material breach of or 
material default under any Contract, or (iii) the  occurrence  of an event  that
with or  without  the  passage of time or the giving  of notice  or  both  would
give  rise  to  a  right  of   termination, renegotiation or acceleration under
any Contract.

                  "ERISA" means the Employee  Retirement  Income Security Act of
1974, as amended, and the rules and regulations promulgated thereunder.

                  "GAAP" means generally accepted United States accounting
principles.

                  "Governmental  Authority"  means any agency,  instrumentality,
department,  commission,  court,  tribunal or board of any  government,  whether
foreign or domestic and whether national, federal, state, provincial or local.

                  "Laws" mean laws, statutes, rules, regulations, codes, orders,
ordinances, judgments, injunctions, decrees and policies.

                  "Liabilities"    mean   debts,    liabilities,    obligations,
guarantees,   indemnities,   duties  and   responsibilities   of  any  kind  and
description, whether absolute or contingent, monetary or non-monetary, direct or
indirect, known or unknown or matured or unmatured, or of any other nature.









                  "Licenses" means licenses, franchises, permits,
easements, rights and other authorizations.

                  "Lien" means any security  interest,  lien,  mortgage,  claim,
charge, pledge, restriction, equitable interest or encumbrance of any nature.

                  "Person"  means  any  natural  person,  corporation,  business
trust, joint venture,  association,  company, firm, partnership, or other entity
or government or Governmental Authority.

                  "Proprietary Right" means any trade name,  trademark,  service
mark, patent or copyright and any application for any of the foregoing.

                  "Registration    Statement"   means   an   appropriate   shelf
registration statement pursuant to Rule 415 under the Securities Act.

                  "Returns" mean all returns, declarations,  reports, estimates,
information  returns and statements required to be filed with or supplied to any
taxing authority in connection with any Taxes.

                  "Sale Event" means any one of the following events: (i)
any sale or exchange of fifty percent (50%) or more of the issued
and outstanding common stock of Buyer to any Person that is not an
Affiliate  of  Buyer,  (ii) any sale by NBE of all or  substantially  all of the
assets of NBE to any Person that is not an Affiliate of Buyer, (iii) any sale or
exchange of fifty percent (50%) or more of the issued and  outstanding  stock of
NBE on a fully  diluted  basis to any Person that is not an  Affiliate of Buyer,
(iv) any sale of all or  substantially  all of the assets of Buyer to any Person
that is not an  Affiliate of Buyer or, (v) with respect to either of the Selling
Shareholders,  the  termination  of  Selling  Shareholder's  employment  by  NBE
pursuant  to the  Employment  Agreement  entered  into the date hereof with such
Selling Shareholder.

                  "Securities Act" means the Securities Act of 1933, as
amended.

                  "Taxes"  mean  all  taxes,  charges,  fees,  levies  or  other
assessments, including, without limitation, income, gross receipts, excise, real
and personal property,  sales, transfer,  license,  payroll and franchise taxes,
imposed by any Governmental Authority and shall include any interest,  penalties
or additions to tax attributable to any of the foregoing.






                  SECTION 2.  Purchase of Shares.

                  2.1. Purchase of Shares.  Based upon and subject to the terms,
agreements,  warranties,  representations and conditions of this Agreement,  the
Selling Shareholders hereby agree to sell, convey, transfer,  assign and deliver
to Buyer on the Closing  Date,  and Buyer hereby agrees to buy and accept on the
Closing Date, the Shares.

                  SECTION 3.  Consideration for the Shares.

                  3.1.     Amount of Purchase Price.  The total consideration
(the "Purchase Price") to be paid by Buyer for the Shares shall be
$1,900,000.

                  3.2.     Payment of Purchase Price.

                           (a)     Concurrently with the execution hereof, Buyer
is paying to each of the  Selling  Shareholders  their pro rata  portion  of the
Purchase  Price,  by the issuance and delivery by Buyer to Everingham of 357,796
shares of  Common  Stock of Buyer,  $.001 par value per  share,  and to Frame of
192,929   shares  of  Common   Stock  of  Buyer,   $.001  par  value  per  share
(collectively, the "AMNEX Shares") . Such numbers of shares have been determined
by averaging the closing  share price as reflected in the "Close"  column in the
NASDAQ/Wall Street Journal Quotation of Buyer's Common Stock for the 90 trading
days  preceding the date of this  Agreement,  as reported by the Nasdaq Stock
Market.

                           (b)      Until such time as the AMNEX Shares are
registered  under the  Securities  Act pursuant to Section 10 hereof,  the AMNEX
Shares shall be unregistered and subject to certain trading  restrictions  which
shall be as set forth in Rule 144 promulgated under the Securities Act.

                  SECTION  4.  Representations  and  Warranties  of NBE  and the
Selling Shareholders.  NBE and the Selling Shareholders,  jointly and severally,
hereby warrant and represent to and agree with Buyer as follows:

                  4.1.  Good  Standing.  NBE is a  corporation  duly  organized,
validly existing and in good standing under the laws of the State of California,
has full power and authority to own, lease and operate its properties and assets
and to conduct the  Business as now being  conducted.  NBE is duly  qualified or
licensed to do business as a foreign  corporation,  and is in good standing,  in
all  jurisdictions  where the  character of the  properties  it owns,  leases or
operates,  or the  conduct  of the  Business,  requires  such  qualification  or
licensing, except where the failure to be so qualified would not have a material
adverse effect on the Business.









NBE does not have any  subsidiaries  and has not made any  investments in or own
any securities of any other Person.

                  4.2. Articles of Incorporation; By-Laws; Minute Books. NBE has
heretofore  delivered  to Buyer true and  complete  copies of NBE's  Articles of
Incorporation  and By-Laws,  as in effect on the date hereof.  The minute books,
stock books and stock transfer records of NBE, true and complete copies of which
have been made available to Buyer, contain true and complete minutes and records
of all  issuances  and  transfers of capital stock of NBE and of all minutes and
records of all  meetings,  proceedings  and other  actions of the  shareholders,
Board of Directors  and/or  committees of the Board of Directors of NBE from its
date of incorporation  and all such meetings,  proceedings and actions have been
duly, legally and properly held or taken.

                  4.3.     Authorization.  The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by the Board of Directors of NBE,
and all other corporate action of NBE and the Selling Shareholders,
including all shareholder approvals, authorizations and
ratifications, necessary to authorize the execution and delivery of
this Agreement and the consummation of the transactions
contemplated  hereby have been taken.  This Agreement  constitutes the valid and
binding  obligation of NBE enforceable  against it in accordance with its terms.
The execution and delivery of this Agreement by NBE and the  consummation of the
transactions contemplated hereby will not (a) require the consent of any lender,
trustee  or  security  holder of NBE,  or of any other  Person,  (b) result in a
Default  under any  Contract,  (c) violate any Law or Court Order or (d) require
the obtaining by NBE of any License.  The Articles of Incorporation  and By-Laws
of NBE do not  conflict  with or restrict  the  execution  and  delivery of this
Agreement by NBE or the consummation of the transactions contemplated hereby.

                  4.4. Authorized  Capitalization.  The authorized capital stock
of NBE consists  solely of 10,000 shares of Common Stock, no par value, of which
785 shares of Common  Stock  (constituting  all of the  issued  and  outstanding
shares of such capital stock) are validly issued and outstanding, fully paid and
nonassessable, and owned beneficially and of record by the Selling Shareholders.
The Shares are owned  beneficially  and of record by the  Selling  Shareholders,
free and clear of all Liens and Buyer will receive good and marketable  title to
the  Shares,  free  and  clear  of all  Liens.  There  are not  outstanding  any
Contracts, warrants, options









or rights  (pre-emptive or otherwise) or other  securities,  plans or agreements
which give the holder or any other  Person the right to  purchase  or  otherwise
acquire (whether from NBE, any Selling  Shareholder or Affiliate of any of them)
any NBE Shares or any securities  convertible into,  exchangeable or exercisable
for any NBE Shares or under which any such  warrant,  option,  right or security
may be  issued in the  future.  No  shares  of NBE  Stock  have  been  issued in
violation  of any  Contracts  or Laws,  including  the  Securities  Act,  or the
securities  or  blue  sky  laws  of  any  country,  state,  territory  or  other
jurisdiction (whether foreign or domestic).

                  4.5. Financial Statements.  NBE has delivered to the Buyer the
unaudited  balance sheets of NBE as at July 31, 1996,  together with the related
statements of income, retained earnings and cash flows for the period ended July
31,  1996,  together  with the  notes  thereto  (collectively,  the  "Historical
Financial  Statements").  The Historical  Financial  Statements in each case are
true and complete  with  respect to each item therein and have been  prepared in
conformity with GAAP heretofore  adopted by, and applied  consistently  with the
past  practices of, NBE and fairly  present the financial  position,  results of
operations and changes in financial
position  of NBE as at, or for the  periods  ended  on,  such  dates.  Since the
Balance  Sheet Date,  NBE has  conducted  its  business in a  consistent  manner
without  change of policy  or  procedure,  including,  without  limitation,  its
practices in connection with the treatment of expenses,  burdens,  valuations of
inventory and selling and purchasing policies.

                  4.6.     Records and Books of Account.  Since the Balance
Sheet Date, the records and books of account of NBE have been
regularly kept and maintained in conformity with GAAP consistently
applied.

                  4.7.  Liabilities.  On the Balance  Sheet Date,  except as set
forth on  Schedule  4.7 there were no  Liabilities  of NBE  (including,  but not
limited to,  Liabilities  for Taxes  relating to any period prior to the Balance
Sheet  Date)  other than those  Liabilities  disclosed  or  provided  for on the
Balance Sheet. On the date hereof,  there are no other Liabilities of NBE except
(i) those incurred  since the Balance Sheet Date, in the ordinary  course of the
business of NBE, and not in  violation of or in conflict  with any of the terms,
agreements, warranties,  representations and conditions of NBE contained in this
Agreement which do not in the aggregate  exceed the liabilities set forth on the
Balance Sheet by more than $5,000, and (ii) those set forth in Schedule 4.7
hereto.







                  4.8.     Tax Returns.  NBE has timely filed (subject to
permitted extensions),  or caused to be timely filed, all Returns required to be
filed by NBE,  and all such  Returns are complete and accurate and comply in all
respects with all applicable  Laws. NBE has delivered to Buyer true and complete
copies of all Returns  filed by NBE for each of its past five fiscal years ended
December 31,  1995.  NBE's  Returns  have not been audited by the U.S.  Internal
Revenue  Service  or any other  Governmental  Authority,  nor is any such  audit
scheduled or pending.  NBE has not requested any, and there are no  outstanding,
waivers  or  extensions  of time  relating  to the  filing  of any  Return.  Any
deficiency  assessments with respect to NBE's Returns have been paid by NBE. NBE
has not given any  waivers or  comparable  consents  to the  application  of the
statute  of  limitations  to any  Taxes or  Returns,  nor is any such  waiver or
consent outstanding. There are no tax sharing or similar agreements or any other
agreements  with respect to any Taxes paid or payable by NBE. NBE has not been a
member  of any  affiliated  group as  defined  in  Section  1504(a)  of the Code
(determined without regard to the exceptions contained in Section 1504(b) of the
Code) at any time during the consistency period as defined in Section
338(h)(4) of the Code ending  immediately prior to the Closing.  NBE has not, at
any time,  consented under Section  341(f)(1) of the Code to have the provisions
of Section  341(f)(2)  of the Code  apply to any sale of its stock.  NBE has not
been a United States real  property  holding  corporation  within the meaning of
Section  897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A) of the Code.

                  4.9.  Provision for Taxes. NBE has timely paid and through the
Closing Date will have timely paid,  all Taxes due and payable on or before such
date. NBE has, and through the Closing Date will have,  established on its books
and records reserves that are adequate for the payment of all Taxes attributable
to any period  (or  portion  of a period)  or event  occurring  on or before the
Closing  Date,  but which are not due and payable on or before the Closing Date.
The  provisions  for Taxes of NBE shown on the Balance Sheet are  sufficient for
the payment of all such Taxes not theretofore paid, whether or not disputed, for
the period then ended and for all  periods  prior  thereto.  The  provision  for
employment  withholding  and payroll  taxes made by NBE through the Closing Date
will be  adequate  to pay all  unpaid  liabilities  for such taxes  through  the
Closing Date and NBE has, and through the Closing Date will have, within the 
time and in the manner  prescribed,  withheld from  employees'  wages and paid 
over to the proper  Governmental  Authority all amounts required to be so 
withheld and paid over under all applicable Laws.

                  4.10.  Title to  Assets;  Liens and  Encumbrances.  NBE is the
owner of, and has good and marketable  title to, all of the Assets  reflected on
the Balance Sheet in the  categories  set forth therein and to all of the assets
acquired by NBE since the Balance Sheet Date, free and clear of all Liens except
for (a)  receivables  collected in the ordinary  course of business of NBE since
the Balance  Sheet  Date,  and (b) the Liens,  if any,  set forth on the Balance
Sheet or on Schedule 4.10 hereto (the "Permitted  Liens").  NBE does not own any
real property.  NBE has one lease for real property  consisting of approximately
1,500 square feet of office space in Pasadena, California.

                  4.11.  Trademarks, Service Marks, Trade Names, Patents
and Copyrights.  Schedule 4.11 hereto sets forth a true and
complete list of all Proprietary Rights used by NBE in the conduct
of the Business.  Each such Proprietary Right is owned by NBE and
is not subject to any license, royalty arrangement or dispute.  No
other Proprietary Rights are used in or are necessary for the
conduct of the Business.  To the knowledge of NBE and the Selling  Shareholders,
none of such Proprietary Rights nor any trade secret,  customer list or know-how
used by NBE  infringes  any  Proprietary  Right or other such right of any other
Person.  To the knowledge of NBE and the Selling  Shareholders,  no  Proprietary
Right or trade  secret,  customer  list or  know-how  used by any  other  Person
infringes or conflicts with any Proprietary  Right  heretofore or presently used
by NBE.  No claim has been  asserted  or, to NBE and the  Selling  Shareholders'
knowledge,  threatened,  by any Person with respect to the ownership,  validity,
license or use of, or any  infringement  resulting  from, any of the Proprietary
Rights used by NBE or the  provision  or sale of any services by NBE and, to NBE
and the Selling Shareholders'  knowledge,  there is no basis for any such claim.
To the knowledge of NBE and the Selling Shareholders, no trademark, service mark
or trade name used by NBE,  infringes any trademark,  service mark or trade name
of others in the United  States of  America  or any other  country in which such
trademark,  service  mark or trade name is used by NBE. To the  knowledge of NBE
and the Selling Shareholders,  no shareholder,  officer, director or employee of
NBE or any Affiliate owns or has any interest in any  Proprietary  Rights or any
trade secret, invention or process, if any, used by NBE in connection with the
Business. 










                  4.12.  Insurance  Policies.  Schedule 4.12 hereto sets forth a
true and complete list and description (including face amount of policy, name of
insured, carrier, premium,  expiration date and whether it is a "claims made" or
an "occurrence" policy) of all insurance policies held by NBE. True and complete
copies of all such policies have heretofore  been provided by NBE to Buyer.  All
such policies are in amounts  customarily  deemed to be adequate,  and cover all
risks customarily  insured against, in the type of business conducted by NBE and
all premiums due to the date hereof on such policies have been paid in full. All
pending  claims,  if any,  made against NBE which are covered by  insurance  are
being  defended by the  appropriate  insurance  companies  and are  described on
Schedule 4.12 hereto. To the knowledge of NBE and the Selling Shareholders,  NBE
has not failed to give any notice or present  any claim under any such policy in
a timely fashion. Such insurance to the date hereof has, and to the Closing Date
will  have,  (a) been  maintained  in full  force  and  effect  and (b) not been
canceled or changed except to extend the maturity  dates  thereof.  No policy of
NBE has been canceled by the issuer  thereof,  nor have the premiums on any such
policy been increased over the prior period.

                  4.13.  Contracts.  Schedule 4.13 hereto sets forth each of the
following  Contracts  to which NBE is a party or  subject  to or bound  by:  (i)
lease; (ii) royalty,  distribution,  agency,  territorial or license  agreement;
(iii) Contract (for employment or otherwise) with any present or former officer,
employee,  director  or  shareholder  (or any  Affiliate  of any  such  officer,
employee,   director  or  shareholder)  or  any  professional  person  or  firm,
consultant,  independent contractor or advertising firm or agency; (iv) Contract
or collective  bargaining  agreement with any labor union or  representative  of
employees;   (v)  Contract  guaranteeing  the  payment  or  performance  of  the
obligations  of others;  (vi)  Contract  pursuant to which  indebtedness  may be
incurred;  (vii)  group  health  or life  insurance,  pension,  profit  sharing,
retirement,  medical, bonus, incentive, severance, stock option or purchase plan
or other similar benefit plan in effect with respect to its employees or others;
(viii) Contract limiting the freedom of NBE to engage in any line of business or
to compete  with any Person;  (ix)  Contract  not entered  into in the  ordinary
course of business which involves  $5,000 or more and is not cancelable  without
penalty  within 30 days;  (x) any  Contract  which may have a potential  adverse
impact on the Business of NBE; (xi) any shareholders' agreement, joint
venture  agreement or other Contract with respect to the operation or management
of any entity;  (xii) Contracts involving $5,000 or more for the purchase of, or
payment for, supplies or products or services; (xiii) Contracts involving $5,000
or more to sell or supply  products or to perform  services;  or (xiv) any other
Contract  that  involves  payments  by or to NBE at a rate of $5,000 or more per
annum.  Schedule  4.13 hereto  contains a true and complete  description  of the
terms and  conditions of each Contract to which NBE is a party or to which it is
subject or by which it is bound that  involves an  annualized  rate of $5,000 or
more and which is not in  writing.  True and  complete  copies of all  Contracts
listed on Schedule  4.13 have  heretofore  been made  available by NBE to Buyer.
Except as set forth on Schedule  4.13, no Contract to which NBE is a party or to
which it is subject or by which it is bound will  result in the  realization  of
less  than  normal  profits  of  NBE.  To the  knowledge  of NBE or the  Selling
Shareholders,  each of the  Contracts  to which NBE is a party or to which it is
subject or by which it is bound is a valid and subsisting Contract of all of the
parties thereto in full force and effect without modification.  To the knowledge
of NBE or the Selling  Shareholders,  NBE has performed all obligations required
to be performed by it and is not in









Default  under any  Contract to which it is a party or to which it is subject or
by which it is bound.  To the knowledge of NBE or the Selling  Shareholders,  no
other party is in Default under any such Contract.

                  4.14. Labor Relations.  There are no labor strikes,  disputes,
slow downs, work stoppages or other labor troubles or grievances  pending or, to
the  knowledge  of  NBE or  the  Selling  Shareholders,  threatened  against  or
involving  NBE. No unfair labor  practice  complaint  before the National  Labor
Relations   Board,  no  discharge  or  grievance  before  the  Equal  Employment
Opportunity  Commission  and no  complaint,  charge or  grievance  of any nature
before any similar or comparable  state,  local or foreign  agency,  in any case
relating  to NBE  or the  conduct  of its  business  is  pending  or,  to  NBE's
knowledge, threatened. NBE has not received notice, and has no knowledge, of the
intent of any Governmental Authority responsible for the enforcement of labor or
employment  laws to  conduct  any  investigation  of or  relating  to NBE or the
conduct of its business. To the knowledge of NBE or the Selling Shareholders, no
officer or key employee of NBE has any plans to terminate his or her  employment
with NBE.

                  4.15.  Legal Proceedings.  There are no Actions (whether
or not purportedly on behalf of NBE) pending or, to the knowledge of NBE and the
Selling  Shareholders,  threatened  against  or  affecting  NBE  or  any  of its
properties,  rights or the  Business.  NBE is not in default with respect to any
Court Order.

                  4.16.  Court Orders.  There are no Court Orders issued
against, or binding on, NBE which do or may affect, limit or
control the Assets or NBE's method or manner of doing Business.

                  4.17.  Compliance With Law; Permits and Licenses.

                  (a)  To the knowledge of NBE and the Selling
Shareholders,  NBE has complied and is in  compliance  with all Court Orders and
Laws of any Governmental  Authority applicable to NBE, its assets or property or
its Business,  including,  without limitation, Laws relating to zoning, building
codes, antitrust,  occupational safety and health,  environmental protection and
conservation,  water or air pollution,  toxic and hazardous waste and substances
control,  consumer product safety,  product  liability,  hiring,  wages,  hours,
employee benefit plans and programs,  collective  bargaining and withholding and
social security taxes.

                  (b) NBE holds all the  Licenses  which  are  necessary  for or
material to its use,  occupancy or operation of the Assets or the conduct of the
Business; and no notice of violation of any
applicable zoning regulation, ordinance or other similar Law binding on NBE with
respect to the Assets or the Business has been received.

                  4.18.  Actions Not in Ordinary Course.  Except as set forth on
Schedule 4.18 hereto, since the Balance Sheet Date NBE has not, and prior to the
Closing  Date NBE will not have,  (i)  incurred any  Liability,  except  current
liabilities in the ordinary  course of business and  Liabilities  incurred under
Contracts  entered into in the ordinary  course of business;  (ii) discharged or
satisfied any Lien or paid any Liability,  other than current  liabilities shown
on the Balance Sheet and current  liabilities  incurred  since the Balance Sheet
Date in the ordinary course of business; (iii) sold or transferred any assets or
written off any  receivables,  except for the  collection of  receivables in the
ordinary course of business;  (iv) mortgaged,  pledged or subjected to any other
Lien any of its assets or properties,  other than Permitted  Liens; (v) suffered
any  losses or  waived  any  rights of  substantial  value;  (vi)  except in the
ordinary course of business, granted any bonuses or commissions or increased the
compensation payable to any of its employees, directors or officers or increased
the aggregate  payment of any fees; (vii) made any loans to any Persons;  (viii)
declared,









made,  set  aside or paid any  dividend,  distribution,  or  payment  on, or any
purchase or redemption of, any shares of any class of its capital stock,  or any
commitment  therefor;  (ix) made any  change  in any  method  of  accounting  or
auditing  practice;  or (x) entered  into any  transaction  not in the  ordinary
course  of  business  or agreed  (whether  or not in  writing)  to do any of the
foregoing.  From the Balance Sheet Date to the Closing Date, the business of NBE
has been and will have been operated only in the regular and ordinary course.

                  4.19. No Change.  Since the Balance Sheet Date,  there has not
been (i) any material  adverse change  (whether or not in the ordinary course of
business)  in the  Business,  Assets or  Liabilities  of NBE as reflected on the
Balance Sheet or (ii) any damage,  destruction  or loss  affecting the Business,
Assets, properties or rights of NBE.

                  4.20.  Accounts Receivable.  All of the accounts
receivable of NBE are actual and bona fide receivables representing
obligations for the total dollar amount thereof shown on the books
of NBE which resulted from the ordinary course of the business of
NBE.  To the knowledge of NBE and the Selling Shareholders, such
receivables (net of the reserve for doubtful accounts shown on the
Balance Sheet) will be collected in full in accordance  with their terms without
being  subject  to any  recoupments,  set-offs  or  counterclaims.  No  accounts
receivable have been written off since the Balance Sheet Date.

                  4.21.  Certain  Transactions.  There  are no sums owed to NBE,
however  evidenced or  denominated,  by any of its present or former  directors,
officers,  shareholders  or  Affiliates.  No director or officer of NBE, nor any
member of his or her  immediate  family  or any other of his or her  Affiliates,
owns or has a 10% or more ownership interest in any Person that is or was during
the last three years a party to, or in any  property  which is or was during the
last three years the subject of, any material Contract,  business arrangement or
relationship with NBE.

                  4.22.  Employee Benefits.

                  (a) Except for those plans set forth on Schedule  4.22A hereto
(the  "Plans"),  NBE does not maintain or contribute  to any  "employee  benefit
plan," as that term is  defined in  Section  3(3) of ERISA,  whether or not such
plan has been terminated.

                  (b) True and complete  copies of all the  documents  embodying
the Plans,  including,  without  limitation,  the plan and trust instruments and
insurance, group annuity and other Contracts









pertaining  thereto and any actuarial reports obtained with respect to any Plan,
as well as the books and  records of the Plans,  have been  furnished  to Buyer.
Each Plan which is intended to comply with  Section  401(a) of the Code and each
trust related thereto is, to the knowledge of NBE and the Selling  Shareholders,
qualified  and exempt  within the meaning of  Sections  401 and 501 of the Code,
respectively,  and a  determination  letter has been  received from the Internal
Revenue  Service  with  respect to each such Plan stating that such Plan and its
related  trust are  qualified  and exempt within the meaning of Sections 401 and
501 of the Code, respectively,  and a copy of each such determination letter has
been  furnished to Buyer.  There has been (i) no change in any of the  documents
delivered to Buyer under which each Plan is maintained and (ii) no change, since
each Plan's most recent valuation date, in the operation of the Plan which could
be  expected  to  materially  adversely  affect or alter the tax  status  of, or
materially increase the cost of maintaining, any such Plan.

                  (c) With respect to the Plans,  the reporting  and  disclosure
requirements  of ERISA and the Code,  as  applicable,  and the group health plan
continuation  coverage  requirements  of Section 4980B of the Code and Part 6 of
Title I of ERISA, have been
fulfilled in all material  respects and NBE has furnished to Buyer copies of all
filings with the Internal  Revenue  Service and the Department of Labor or other
applicable Governmental Authority for each Plan's most recent plan year. NBE has
never  sponsored a Plan which is subject to Section 412 of the Code or Part 3 of
Title I of ERISA.

                  (d)  Neither  NBE,  the  Plans,  any  of  the  trusts  created
thereunder,  nor any trustee,  administrator  or other  fiduciary  thereof,  has
engaged in a "prohibited transaction" as such term is defined in Section 4975 of
the Code or Section 406 of ERISA or otherwise  taken or omitted any action which
could  subject  the Plans,  NBE,  any of the trusts  created  thereunder  or any
trustee  or  administrator  thereof,  or any party  dealing  with such  Plans or
trusts,  to a  material  Tax,  penalty  or other  Liability  resulting  from any
prohibited  transactions  under Section 406 of ERISA or Section 4975 of the Code
or otherwise,  and neither NBE, any Plan,  any trust created  thereunder nor any
other  fiduciary  (within the meaning of Section  3(21) of ERISA) of any Plan or
its attendant trust has breached its fiduciary  duties under Title I of ERISA in
a manner which could result in a material direct or indirect liability to NBE or
the trustee or administrator of any Plan.









                  (e) Neither NBE nor any other  "trade or business  (whether or
not  incorporated)  which is under  common  control" (as such term is defined in
Section 4001 of ERISA and the regulations  promulgated  thereunder) with NBE has
ever (i)  terminated a Plan subject to Title IV of ERISA or (ii)  contributed to
any "multiemployer plan," as such term is defined in Section 3(37) of ERISA, and
neither NBE nor any such "trade or  business"  has  effected  either a "complete
withdrawal"  or a "partial  withdrawal,"  as those terms are defined in Sections
4203 and 4205, respectively, of ERISA, from any such multiemployer plan.

                  (f) NBE does  not  maintain  or  contribute  to any  "employee
welfare  benefit  plan" (as such term is defined in Section  3(1) of ERISA),  or
other  employee  benefit plan or  arrangement,  relating to  post-employment  or
retirement benefits (other than an "employee pension benefit plan," as such term
is defined in Section 3(2) of ERISA).

                  4.23.  Governmental Approvals.  No governmental
authorization, approval, order, license, permit, franchise, or
consent and no registration, declaration or filing by NBE with any
Governmental Authority (including, without limitation, any filing
or registration pursuant to the Securities Act or the securities or
blue sky laws of any state or  territory)  is  required in  connection  with the
execution  and  delivery  of  this  Agreement  and  the   consummation   of  the
transactions contemplated hereby.

                  4.24.   Investment  Intent.   The  Selling   Stockholders  are
acquiring the AMNEX Shares for their own account and not with a present view to,
or for sale in connection  with,  any  distribution  thereof in violation of the
Securities Act. Seller consents to the placement of the following legend on each
certificate  representing the AMNEX Shares and  acknowledges  that stop transfer
instructions will be placed with respect thereto:

                  "THE  SHARES  EVIDENCED  BY THIS  CERTIFICATE  HAVE  NOT  BEEN
                  REGISTERED  UNDER  THE  SECURITIES  ACT OF 1933 AND MAY NOT BE
                  TRANSFERRED OR SOLD UNLESS (i) A REGISTRATION  STATEMENT UNDER
                  SUCH  ACT IS THEN  IN  EFFECT  WITH  RESPECT  THERETO,  (ii) A
                  WRITTEN  OPINION FROM COUNSEL FOR THE ISSUER OR OTHER  COUNSEL
                  FOR THE HOLDER  REASONABLY  ACCEPTABLE  TO THE ISSUER HAS BEEN
                  OBTAINED TO THE EFFECT THAT NO SUCH  REGISTRATION  IS REQUIRED
                  OR (iii) A 'NO ACTION' LETTER OR ITS THEN  EQUIVALENT HAS BEEN
                  ISSUED BY THE STAFF OF THE SECURITIES AND EXCHANGE  COMMISSION
                  WITH RESPECT TO SUCH TRANSFER OR SALE."


                  4.25.    Restricted Securities.  The Selling
Shareholders understand that the AMNEX Shares will not be
registered when issued and delivered to the Selling Shareholders
under the  Securities  Act for the  reason  that the sale  provided  for in this
Agreement  is exempt  pursuant to Section 4 of the  Securities  Act and that the
reliance  of  Buyer  on such  exemption  is  predicated  in part on the  Selling
Shareholders' representations set forth herein. Each of the Selling Shareholders
represents that he is experienced in evaluating companies such as Buyer, is able
to fend for himself, has such knowledge and experience in financial and business
matters as to be capable of evaluating  the merits and risks of his  investment,
and has the  ability  to suffer the total  loss of his  investment.  Each of the
Selling  Shareholders  further  represents  that  Buyer has  furnished  him with
Buyer's  Annual  Report on Form 10-K for the year ended  December  31,  1995 and
subsequent  reports on Form 10-Q and 8-K and that each such Selling  Shareholder
has reviewed the same and has been afforded the opportunity to obtain such other
information  as he has deemed  necessary  to evaluate  his  investment  in AMNEX
Shares, ask questions of and receive answers from Buyer and to obtain additional
information (to the extent Buyer possessed such  information or could acquire it
without  unreasonable effort or expense) necessary to verify the accuracy of any
information furnished to him or to which he had access.









                  The Selling Shareholders  understand that the AMNEX Shares may
not be sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom and that in the absence of an effective
registration  statement  covering  the  Shares or an  available  exemption  from
registration   under  the  Securities   Act,  the  AMNEX  Shares  must  be  held
indefinitely.

                  4.26. Secrecy and Noncompetition  Agreements.  NBE has entered
into secrecy and noncompetition  agreements in a form satisfactory to AMNEX with
the employees listed on Schedule 4.26, which persons are all of the persons with
whom NBE has  entered  into such  agreements.  To the  knowledge  of NBE and the
Selling  Shareholders,  no employee is subject to any secrecy or  noncompetition
agreement with anyone other than NBE.

                  4.27. No Omissions.  NBE and the Selling  Shareholders  do not
know of any facts or  circumstances  not disclosed to Buyer which  indicate that
the Assets may be materially  adversely  affected or which  otherwise  should be
disclosed  to Buyer in order to make any of the  representations  or  warranties
made herein on the part of NBE and the Selling  Shareholders  not  misleading in
any material respect. To the knowledge of NBE and the Selling  Shareholders,  no
representation or warranty by NBE and the Selling Shareholders
contained  in  this  Agreement,  and no  statement  contained  in any  Schedule,
Exhibit,  certificate  or  other  instrument  furnished  to  Buyer  under  or in
connection  with this Agreement,  contains any untrue  statement of any material
fact,  or  omits to  state  any  material  fact  necessary  in order to make the
statements contained herein or therein not misleading in any material respect.

         4.28.  Shareholder and Voting Agreements.  There are no
shareholder or voting agreements with respect to any shares of NBE
Stock to which either of the Selling Shareholders is a party.

         4.29.  Employees. NBE has six full-time employees and one
part-time employee as of the date hereof.

                  SECTION 5.  Representations and Warranties of Buyer.
Buyer warrants and represents to and agrees with NBE and the
Selling Shareholders as follows:

                  5.1.     Good Standing.  Buyer is a corporation duly
organized, validly existing and in good standing under the laws of
New York.

                  5.2.     Authorization.  The execution and delivery of this
Agreement and the Note and the consummation of the transactions
contemplated hereby have been duly authorized by the Board of
Directors of Buyer, and all other corporate action of Buyer,









including all shareholder approvals, authorizations and ratifications, necessary
to authorize the execution and delivery of this  Agreement and the  consummation
of  the  transactions  contemplated  hereby  have  been  taken.  This  Agreement
constitutes  a  binding  obligation  of  Buyer,  enforceable  against  Buyer  in
accordance  with its terms.  The execution and delivery of this Agreement by the
Buyer and the consummation of the transactions  contemplated hereby will not (a)
require the consent of any lender, trustee or security holder of Buyer or of any
other Person, (b) result in a Default under any Contract, (c) violate any Law or
Court  Order or (d)  require  the  obtaining  by the Buyer of any  License.  The
Articles of Incorporation  and By-Laws of Buyer do not conflict with or restrict
the execution and delivery of this Agreement by the Buyer or the consummation of
the transactions contemplated hereby.

                  5.3. AMNEX Shares.  The AMNEX Shares to be issued  pursuant to
this Agreement,  when so issued, will be duly and validly authorized and issued,
fully paid and  nonassessable and will be free and clear of any Liens created by
the Buyer (other than  restrictions  arising under the  Securities Act and state
securities laws).

                  5.4.  Purchase for  Investment.  Buyer is acquiring the Shares
solely  for its own  account  for  investment  and not with a view to or for the
distribution thereof in violation of the Securities Act. Buyer acknowledges that
the Shares are not registered under the Securities Act, and that such Shares may
not be transferred or sold except pursuant to the registration provisions of the
Securities  Act  or  pursuant  to  an  applicable  exemption  therefrom.   Buyer
understands that the Shares will not be registered at the Closing Date under the
Securities  Act for the reason that the sale  provided for in this  Agreement is
exempt  pursuant to Section 4 of the Securities Act and that the reliance of NBE
and the Selling  Shareholders on such exemption is predicated in part on Buyer's
representations  set forth herein.  Buyer  represents  that it is experienced in
evaluating companies such as NBE, is able to fend for itself, has such knowledge
and experience in financial and business  matters as to be capable of evaluating
the merits and risks of its investment,  and has the ability to suffer the total
loss of its investment.  Buyer further  represents that it has had access during
the course of the transaction and prior to its acquisition of the Shares to such
information  relating  to  NBE  as it has  desired  and  that  it  has  had  the
opportunity to ask









questions of and receive  answers from NBE  concerning  the  transaction  and to
obtain  additional  information (to the extent NBE possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access.

                  Buyer understands that the Shares may not be sold, transferred
or otherwise  disposed of without  registration  under the  Securities Act or an
exemption  therefrom  and  that  in the  absence  of an  effective  registration
statement covering the Shares or an available  exemption from registration under
the Securities Act, the Shares must be held indefinitely.

                  5.5.  No  Omissions.  Buyer  does  not  know of any  facts  or
circumstances not disclosed to NBE and the Selling  Shareholders which should be
disclosed  to NBE and the  Selling  Shareholders  in  order  to make  any of the
representations  or  warranties  made  herein  on  the  part  of the  Buyer  not
misleading  in  any  material  respect.  To  the  knowledge  of  the  Buyer,  no
representation  or  warranty  by  Buyer  contained  in  this  Agreement,  and no
statement  contained in any Schedule,  Exhibit,  certificate or other instrument
furnished to NBE and the Selling  Shareholders  under or in connection with this
Agreement, contains any untrue statement of any material fact, or
omits to state  any  material  fact  necessary  in order to make the  statements
contained herein or therein not misleading in any material respect.

                  SECTION 6.  Employment  Agreements.  Everingham and Frame have
entered into an employment agreement with NBE, such agreements to be in the form
of Exhibits 6.1 and 6.2 hereto containing  non-competition and  non-solicitation
agreements.

                  SECTION  7.  Consents.   Simultaneously   with  execution  and
delivery of this Agreement,  any and all consents required to be obtained by NBE
in connection  with the  transactions  contemplated  by this Agreement have been
obtained and are set forth on Schedule 7 hereto.

                  SECTION 8. Deliveries of NBE and Selling Shareholders. NBE and
the  Selling  Shareholders  agree on the  Closing  Date to  deliver to Buyer the
following:

                  8.1.  Stock Certificates.  Stock certificates registered
in the name of Buyer representing the Shares purchased by Buyer
hereunder.

                  8.2.  Opinion of Counsel.  An opinion of R. Rosser Cole,
Esq., counsel for NBE and the Selling Shareholders, dated as of the
Closing Date, substantially in the form set forth as Exhibit 8.2 hereto.










                  8.3.  Closing Date Balance Sheet.  An unaudited balance
sheet dated as of the Closing Date.

                  8.4.  Other Deliveries.  Such other documents or
instruments as Buyer or its counsel may reasonably request.

                  SECTION 9.  Deliveries of Buyer on the Closing Date.
Buyer agrees on the Closing Date to deliver to NBE and the Selling
Shareholders, as applicable, the following:

                  9.1.  Opinion of Counsel.   An opinion of Stroock &
Stroock & Lavan, counsel for Buyer, dated as of the Closing Date,
substantially in the form of Exhibit 9.1 hereto.

                  9.2.  Stock Certificates.  Certificates representing the
AMNEX Shares acquired by the Selling Shareholders pursuant to
paragraph 3.1 hereof.

                  9.3.  Other Deliveries.  Such other documents or
instruments as NBE or the Selling Shareholders and their counsel
may reasonably request.

                  SECTION 10.  Registration Rights.

                  10.1.  Required Registration.  For purposes of this
Section 10.1 only,  the term  "Registrable  Shares"  shall mean the AMNEX Shares
acquired pursuant to this Agreement, provided,
however,  that if such shares of AMNEX Shares owned by the Selling  Shareholders
may be sold, in the opinion of counsel to Buyer,  pursuant to an exemption  from
the  registration  requirements  of  the  Securities  Act,  including,   without
limitation, pursuant to Rule 144 under the Securities Act, such shares shall not
be deemed to be Registrable Shares.  Subject to clause (b) below (i) Buyer shall
use its  reasonable  best  efforts to cause a  Registration  Statement  covering
115,943  Registrable Shares (the "First Shares") to be filed with the Commission
on or prior to March 31, 1997 (the "First Date") and to become effective as soon
as reasonably  practicable  and to remain  effective until the completion of the
distribution  of the  Registrable  Shares to be offered or sold, but in any case
not  longer  than  such  period  as is  required  for  the  intended  method  of
distribution,  or such shorter period which will terminate when all  Registrable
Shares covered by such Registration Statement have been sold or withdrawn,  (ii)
Buyer shall use its reasonable  best efforts to cause a  Registration  Statement
covering  217,391  Shares (the "Second  Shares") plus, to the extent not already
sold or currently registered under a Registration  Statement,  the First Shares,
to be filed with the  Commission  on or prior to September 30, 1997 (the "Second
Date") and to become effective as soon as reasonably









practicable and to remain  effective until the completion of the distribution of
the  Registrable  Shares to be offered or sold,  but in any case not longer than
such period as is required  for the  intended  method of  distribution,  or such
shorter  period  which  will  terminate  when all AMNEX  Shares  covered by such
Registration  Statement  have been sold or withdrawn,  and (iii) Buyer shall use
its reasonable best efforts to cause a Registration  Statement  covering 217,391
Registrable Shares plus, to the extent not already sold or currently  registered
under a Registration Statement,  the First Shares and Second Shares, to be filed
with the Commission on or prior to September 30, 1998 and to become effective as
soon as reasonably  practicable and to remain  effective until the completion of
the  distribution  of the  Registrable  Shares to be offered or sold, but in any
case not longer  than such  period as is  required  for the  intended  method of
distribution,  or such shorter period which will terminate when all AMNEX Shares
covered by such Registration Statement have been sold or withdrawn.

                  (b) If  Milestone 1 as set forth on  schedule  10.1 hereto has
not been  achieved by the First Date,  the First Shares shall not be  registered
until the Second Date and, provided,  further, that if Milestone 1 and Milestone
2 have been completed by June 30, 1997
(the "Early  Milestone  Date"),  Buyer shall use its reasonable  best efforts to
cause a Registration Statement covering the First Shares and Second Shares to be
filed with the Commission on or prior to 30 days  following the Early  Milestone
Date.

                  (c) Buyer  shall  bear all of the Costs and  Expenses  of such
Registration  Statements.  Buyer  shall  not  be  required  to  file  any of the
foregoing   Registration   Statements   during  any  period  in  which   another
registration  statement  (other  than on Form S-4 or Form  S-8 or any  successor
forms  thereto)  shall  have been filed by Buyer and not  withdrawn  or has been
declared effective within the prior 90 days.

                  10.2.  Procedure  for  Registration.  In  connection  with the
filing of a Registration  Statement pursuant to Section 10.1 hereof, Buyer shall
use its reasonable best efforts to qualify,  as soon as reasonably  practicable,
the  Registrable  Shares  being  registered  for sale  under the  securities  or
blue-sky laws of such states and jurisdictions within the United States as shall
be reasonably requested by the Selling  Shareholders;  provided,  however,  that
Buyer shall not be required in connection therewith or as a condition thereto to
qualify to do  business,  to become  subject to taxation or to file a consent to
service of process generally in any of the aforesaid states or jurisdictions.











                  10.3.  Piggyback Registration.  If at any time Buyer
shall  propose the filing of a  registration  statement on an  appropriate  form
under the Securities Act of any securities of Buyer,  otherwise than pursuant to
Section 10.1 hereof and other than a registration  statement on Forms S-8 or S-4
or any equivalent form then in effect, and, provided,  further, that the Selling
Shareholders  have  Registrable  Shares  which  are  required  to be  registered
pursuant  to Section  10.1  hereof,  then Buyer  shall give each of the  Selling
Shareholders  notice of such  proposed  registration  and shall  include  in any
registration  statement  relating  to such  securities  all or a portion  of the
Registrable Shares then owned by such Selling  Shareholders,  which such Selling
Shareholders  shall  request,  by notice given by such Selling  Shareholders  to
Buyer  within 15 days  after  the  giving  of such  notice  by  Buyer,  to be so
included; provided, however, the number of Registrable shares owned by a Selling
Shareholder to be included shall not exceed that  percentage of the  Registrable
Shares  as would  equal  the  percentage  obtained  by  dividing  the  number of
Registrable Shares actually issued to such Selling  Shareholder by the number of
shares of AMNEX Common Stock then outstanding, calculated on a
fully diluted basis to be registered as part of such offering.  For example,  if
Buyer has 30,000,000 shares of AMNEX Common Stock  outstanding,  calculated on a
fully diluted basis, and a Selling Shareholder has 3,000,000  Registrable Shares
(10%) and Buyer  intends to  register  3,000,000  shares of AMNEX  Common  Stock
(10%),  then such Selling  Shareholder shall have the right to piggyback 300,000
Registrable  Shares (10% of the newly registered shares of common stock). In the
event of the  inclusion of  Registrable  Shares  pursuant to this Section  10.3,
Buyer  shall bear all of the Costs and  Expenses  of such  registration.  In the
event  the  distribution  of  securities  of  Buyer  covered  by a  Registration
Statement  referred to in this Section 10.3 is to be underwritten,  then Buyer's
obligation to include Registrable Shares in such Registration Statement shall be
subject, at the option of Buyer, to the following further conditions:

                            (a)  The distribution for the account of the Selling
Shareholders shall be underwritten by the same underwriters who are underwriting
the  distribution  of the  securities  for the account of Buyer and/or any other
persons whose  securities are covered by such  Registration  Statement,  and the
Selling  Shareholders  will  enter  into an  agreement  with  such  underwriters
containing customary provisions;

                           (b)  If the underwriting agreement entered into with
the aforesaid  underwriters contains restrictions upon the sale of securities of
Buyer,  other  than the  securities  which are to be  included  in the  proposed
distribution, for a period not exceeding 180 days from the effective date of the
Registration Statement,  then such restrictions will be binding upon the Selling
Shareholders  and, if requested by Buyer,  the Selling  Shareholders  will enter
into a written agreement to that effect; and

                           (c)  If the underwriters advise Buyer that they are
unwilling to include any or all of the Selling  Shareholders'  securities in the
proposed  underwriting  because such  inclusion  will interfere with the orderly
sale and distribution of the securities being offered by Buyer,  then the number
of the Selling Shareholders'  securities to be included will be reduced pro rata
on the basis of the number of shares owned by each of the Selling  Shareholders,
or there will be no inclusion  of the Selling  Shareholders'  securities  in the
registration  statement  and  proposed  distribution,  in  accordance  with such
statement by the underwriters.

                  







                    10.4.  Indemnification by Buyer.  Buyer will indemnify
and hold harmless the Selling  Shareholders  and any  underwriter (as defined in
the  Securities  Act)  (but,  in  the  case  of an  underwriter,  only  if  such
underwriter indemnifies the persons mentioned in subdivision (b) of Section 10.5
hereof in the manner set forth therein),  against any losses, claims, damages or
liabilities,  joint or several,  to which the Selling  Shareholders  or any such
underwriter becomes subject,  under the Securities Act or otherwise,  insofar as
such losses,  claims, damages or liabilities (or actions in respect thereof) are
caused by any untrue  statement or alleged untrue statement of any material fact
contained in any preliminary  prospectus (if used prior to the effective date of
the Registration Statement), or contained, on the effective date thereof, in any
Registration  Statement  under which  AMNEX  Shares  were  registered  under the
Securities Act, the prospectus contained therein, or any amendment or supplement
thereto,  or arising out of or based upon the  omission  or alleged  omission to
state therein a material fact required to be stated therein or necessary to make
the  statements  therein not  misleading;  and Buyer will  reimburse the Selling
Shareholders and any such underwriter for any legal or other expenses reasonably
incurred  by  the  Selling  Shareholders,  or  underwriter  in  connection  with
investigating or defending any such 
loss, claim, damage, liability or action; provided, however, that Buyer will not
be liable to any such persons in any such case to the extent that any such loss,
claim,  damage,  liability  or action  arises out of or is based upon any untrue
statement or alleged  untrue  statement or omission or alleged  omission made in
reliance upon and in conformity with  information  furnished to Buyer in writing
by such  person  expressly  for  inclusion  in any of the  foregoing  documents;
provided, further, however, that the foregoing indemnity agreement is subject to
the  condition  that,  insofar as it relates  to any untrue  statement,  alleged
untrue  statement,   omission  or  alleged  omission  made  in  any  preliminary
prospectus but eliminated or remedied in the final prospectus (filed pursuant to
Rule 424 of the Securities Act), such indemnity agreement shall not inure to the
benefit of the Selling  Shareholders  and  underwriter,  broker or other  person
acting on behalf of the Selling  Shareholders and each other person, if any, who
controls any of the foregoing  persons  within the meaning of the Securities Act
from whom the person  asserting any loss,  claim,  damage,  liability or expense
purchased  the AMNEX  Shares  which are the subject  thereof,  if a copy of such
final  prospectus  had  been  made  available  to such  person  and the  Selling
Shareholders, underwriter, broker or other person
acting on behalf of the Selling  Shareholders  and such final prospectus was not
delivered to such person with or prior to the written  confirmation  of the sale
of such AMNEX Shares.





                  10.5.  Indemnification by the Selling Shareholders.  The
Selling Shareholders shall:

                           (a)  Furnish  in  writing  all  information  to Buyer
         concerning  itself and its holdings of  securities of Buyer as shall be
         required  in  connection   with  the  preparation  and  filing  of  any
         Registration Statement covering any AMNEX Shares; and

                           (b) Indemnify and hold  harmless  Buyer,  each of its
         directors,   each  of  its  officers  who  has  signed  a  Registration
         Statement,  each person,  if any, who controls Buyer within the meaning
         of the Securities Act and any underwriter (as defined in the Securities
         Act) for Buyer, against any losses,  claims,  damages or liabilities to
         which  Buyer or any  such  director,  officer,  controlling  person  or
         underwriter  may become  subject under the Securities Act or otherwise,
         insofar as such losses,  claims,  damages or liabilities (or actions in
         respect  thereof) are caused by any untrue or alleged untrue  statement
         of any material fact contained in any preliminary prospectus (if used
         prior to the effective date of the Registration Statement) or contained
         on the effective  date thereof,  in any  Registration  Statement  under
         which AMNEX  Shares  were  registered  under the  Securities  Act,  the
         prospectus  contained therein,  or any amendment or supplement thereto,
         or arising  out of or based upon the  omission  or alleged  omission to
         state  therein  a  material  fact  required  to be  stated  therein  or
         necessary to make the statements  therein not misleading;  in each case
         to the extent,  but only to the extent,  that such untrue  statement or
         alleged  untrue  statement or omission or alleged  omission was made in
         reliance upon and in conformity with  information  furnished in writing
         to Buyer by the Selling Shareholders  expressly for inclusion in any of
         the foregoing  documents,  and the Selling Shareholders shall reimburse
         Buyer and any such underwriter, officer, director or controlling person
         for any legal or other  expenses  reasonably  incurred  by the  Selling
         Shareholders  or any such director,  officer or  controlling  person in
         connection  with  investigating  or  defending  any such  loss,  claim,
         damage,  liability or action.  Notwithstanding the foregoing provisions
         of this Section 10.5, the Selling Shareholders shall not be required to
         indemnify Buyer or any such underwriter, officer, director or 
         controlling  persons for any amount in excess of the amount of the
         proceeds  received by the Selling Shareholders.

                  10.6. Holdback Agreement.  If Buyer at any time shall register
shares of stock under the Securities Act (including any registration pursuant to
Sections  10.1 or 10.3) for sale to the public  (other  than on Form S-4 or Form
S-8 promulgated  under the Securities Act or any successor  forms thereto),  the
Selling  Shareholders  shall not sell  publicly,  make any short sale of,  grant
publicly any option for the purchase of, or otherwise  dispose  publicly of, any
AMNEX  Shares  (other than those  AMNEX  Shares  included  in such  registration
pursuant to Sections 10.1 or 10.3)  without the prior  written  consent of Buyer
for a period designated by Buyer in writing to the Selling  Shareholders,  which
period  shall  begin not more  than 10 days  prior to the  effectiveness  of the
registration  statement pursuant to which such public offering shall be made and
shall not last more than 90 days after the effective  date of such  registration
statement.  Buyer shall  obtain the  agreement  of any person  permitted to sell
shares of stock in a registration to be bound by and to comply with this Section
10.6 as if such person was a stockholder hereunder.









                  SECTION 11. Moving Expenses; Billing Agreements with LECs. The
parties agree that the  headquarters  of NBE shall be relocated  from  Pasadena,
California to Austin, Texas (the "Relocation") as promptly as practicable.

                  11.1.  Moving  Expenses.  In order to provide for funding such
Relocation,  Buyer  agrees  to make a capital  contribution  to NBE to cover (i)
reasonable  moving expenses of NBE and (ii) reasonable  moving expenses of NBE's
employees;  provided,  however, that the moving expenses for each employee shall
not exceed $15,000 and the moving expenses of NBE, including the moving expenses
for each employee, shall not exceed $100,000 in the aggregate.

                  11.2.  Billing  Agreements  with  LECs.  NBE will  proceed  to
acquire billing and collection  contracts from those LECs where the cost of such
agreements is justified in relation to the needs of NBE except that NBE will not
acquire any such LEC contract  without the prior written consent of the Board of
Directors  of NBE,  including  the  affirmative  vote of at least one of Buyer's
Appointees.

                  SECTION 12.  Board of Directors; Voting and Lock-Up
Agreement.

                  12.1. Board of Directors. Upon consummation of this Agreement,
the Board of Directors shall consist of 5 persons:  Peter Izzo, Amy S. Gross and
John Kane or such  other  persons  as are  nominated  from time to time by Buyer
(collectively,  the  "Buyer's  Appointees")  shall be  appointed to the Board of
Directors of NBE,  and the Board of  Directors  of NBE shall  consist of Buyer's
Appointees,  Everingham  and Frame and the parties agree to vote their shares of
NBE Stock for Buyer's Appointees, Everingham and Frame for so long as Everingham
and Frame continue to own shares of NBE Stock.

                  12.2.  Voting and Lock-up Agreement.  (a)  Each Selling
Shareholder agrees that, except as otherwise provided in this
Agreement, such Selling Shareholder shall not, directly or
indirectly, sell, assign, transfer, convey, give, bequeath,
hypothecate, grant a security interest in, otherwise encumber, make
a short sale of, loan, grant any option for the purchase of, or
otherwise dispose of, voluntarily or involuntarily, the shares NBE
Stock held by such Selling Shareholder and any such transfer or
attempted transfer shall be void; provided, however, that all
provisions of this Section 12.2 shall terminate immediately in the
event of such Selling Shareholder's death.  Each Selling









Shareholder  further  agrees that in the event that NBE or any successor  entity
declares a dividend or makes a  distribution  on NBE Stock payable in securities
or subdivides or  reclassifies  the NBE Stock or reorganizes,  consolidates,  or
merges with or into any other legal entity,  then any  securities  issued to the
Selling  Shareholder  as a result of any such  event  shall be  subject  to this
Section 12.2 and shall be deemed to be such Selling Stockholder's NBE Stock.

                    (b) Each Selling  Shareholder  hereby  appoints Buyer as his
proxy to  exercise in person or by his  nominees or proxies,  the right to vote,
such Selling Shareholder's shares of NBE Stock in favor of Buyer's Appointees to
the Board of Directors of NBE. This  appointment of Buyer as proxy  hereunder is
irrevocable and coupled with an interest and shall survive until the earlier of:
(a) such Selling  Shareholder's  death or (b) the acquisition by Buyer of shares
of all of the issued and  outstanding  shares of NBE Stock as  provided  in this
Agreement. Such Selling Shareholder agrees that Buyer shall not be liable to the
Selling  Shareholder for the consequences of any vote cast, or consent given, by
it, or any other  action taken or omitted to be taken by it in its capacity as a
shareholder of an issuer of securities to which this Section 12.2
applies.   The  provisions  of  this  Section  12.2  shall  be  binding  on  any
transferee(s)  of such NBE Stock  except  for the  shares  of NBE Stock  sold in
compliance  with  Section  10 shall be sold free and clear of the proxy  granted
pursuant to this Section 12.2.

                  Each  certificate  representing  securities,   to  which  this
Section 12.2 applies,  shall  conspicuously  bear a legend in substantially  the
following form:

         "The transfer of the common stock  represented  by this  certificate is
         restricted  under and subject to the terms of an agreement to which the
         Corporation is a party, as such agreement may be amended, supplemented,
         or otherwise  modified from time to time (the  "Agreement").  A copy of
         the Agreement is on file at the Corporation's office. The owner of this
         certificate has appointed  AMNEX,  Inc. as his proxy to vote the shares
         represented  by this  certificate  for  nomination  of directors of the
         Corporation.  This appointment is binding on transferees. The holder of
         this stock certificate, by his acceptance hereof, agrees to be bound by
         all of the provisions of the Agreement."

                  On the Closing Date, each Selling Shareholder shall present to
the Secretary of NBE each of his certificates of shares
of NBE Stock to which this Section 12.2  applies and the  Secretary  shall affix
such legend thereto.

                  SECTION 13.  Buyer's Call Right.

                  13.1.  Buyer's  Call Right;  Valuation  of  Remaining  Shares.
Subject to this Section 13, Buyer has the right (the "Buyer's Call Right"),  but
not the  obligation,  to acquire  or cause its  designee  to acquire  all of the
issued and outstanding shares of NBE Stock held by a Selling  Shareholder or his
heirs or personal  representatives  (the "Remaining Shares") upon the occurrence
of a Sale  Event  with  respect to such  Selling  Shareholder.  The value of the
Remaining  Shares  will be  determined  as follows:  (a) if a Sale Event  occurs
pursuant to either clause (ii) or (iii) under the definition of Sale Event, then
the value shall be based on a pro rata  distribution  after  deducting  from the
gross  price  to be  received  by NBE  in  such  sale  all  capital  investments
subsequent  to the date  hereof by Buyer in NBE,  or (b) if a Sale Event  occurs
pursuant to clause (i), (iv) or (v) under the definition of Sale Event,  then an
independent   appraiser  shall  be  selected  by  mutual  agreement  of  Selling
Shareholders, or their respective heirs or personal representatives, as the case
may  be,  and  Buyer  to  establish  a  value  of the  Remaining  Shares.  If an
independent









appraiser  cannot be agreed  upon by Buyer and  Selling  Shareholders,  or their
respective heirs or personal representatives, as the case may be, within 30 days
of written  notice or if Buyer and  Selling  Shareholders,  or their  respective
heirs  or  personal  representatives,  as the  case  may be,  disagree  with the
appraisal  then the parties shall submit the issue to binding  arbitration.  The
findings of the arbitrator shall be final and binding on all parties,  including
their heirs and personal representatives.

                  13.2.  Exercise of Buyer's Call Right.  The Buyer's Call Right
may be  exercised in whole but not in part by Buyer  delivering  to each Selling
Shareholder  a notice of exercise  of the Buyer's  Call Right duly signed by the
Buyer.  The  Selling  Shareholders  shall  receive  as  consideration  for their
Remaining Shares the valuation  determined pursuant to Section 13.1. Payment for
the Remaining Shares pursuant to any exercise of the Buyer's Call Right shall be
made by Buyer in cash or by check  payable  to the order of each of the  Selling
Shareholders for their respective  Remaining Shares, upon the latter to occur of
(i)  receipt by NBE or AMNEX of the  consideration  from the Sale Event and (ii)
determination of the value of the remaining Shares pursuant to Section 13.1.

                  13.3. Sale Event Differential.  Buyer shall pay to a
Selling  Shareholder a Sale Event  Differential  (as defined below) in the event
that such Selling Shareholder's  Remaining Shares have been acquired pursuant to
Section  13.1 as a result  of a Sale  Event  pursuant  to  clause  (v) under the
definition of Sale Event,  and within twelve months following the acquisition of
such Selling  Shareholder's  Remaining  Shares a letter of intent in  connection
with a Sale Event  (other than  pursuant to clause (v) under the  definition  of
Sale Event) has been  entered  into by Buyer or NBE.  "Sale Event  Differential"
means the amount,  if any, by which (i) an amount  calculated to be such Selling
Shareholder's  pro rata distribution of the amount that would have been received
by such Selling Shareholder, if such Selling Shareholder had held such Remaining
Shares until  consummation of such Sale Event (other than pursuant to clause (v)
under the definition of Sale Event)  exceeds the amount  received by the Selling
Shareholder  upon  acquisition of his Remaining  Shares.  In the event of a Sale
Event, the Sale Event  Differential  shall be paid to the Remaining  Shareholder
promptly following the consummation of the Sale Event.









                  SECTION 14.  Indemnification.

                  14.1.  Indemnification by NBE and the Selling
Shareholders.  From and  after the  Closing,  NBE and the  Selling  Shareholders
jointly and severally agree to indemnify Buyer against and hold it harmless from
any and all  Damages  which  Buyer may  sustain at any time by reason of (i) the
breach or inaccuracy of or failure to comply with, or the existence of any facts
resulting  in  the  inaccuracy  of,  any  of  the  warranties,  representations,
conditions,  covenants  or  agreements  of  NBE  and  the  Selling  Shareholders
contained in this Agreement or in any agreement or document  delivered  pursuant
hereto or in  connection  herewith,  or arising out of the  consummation  of the
transactions  contemplated  hereby or (ii) any claim by a third  party  alleging
that this Agreement or the  transactions  contemplated  herein interfere with or
violate any rights between such third party and NBE.

                  14.2.  Indemnification  by Buyer.  From and after the Closing,
Buyer agrees to  indemnify  and hold each of the Selling  Shareholders  harmless
from and against any and all Damages  which  either of the Selling  Shareholders
may sustain at any time by reason of the breach or  inaccuracy  of or failure to
comply with any warranties, representations, conditions, covenants or agreements
of Buyer contained in this Agreement or in any agreement, certificate or 
document delivered pursuant to or in connection with this Agreement or arising 
out of the closing of the transactions contemplated hereby.

                  14.3.  Procedures for  Indemnification.  In the event that any
claim is asserted against any party hereto,  or any party hereto is made a party
defendant  in any action or  proceeding,  and such claim,  action or  proceeding
involves a matter which is the subject of this indemnification,  then such party
(an  "Indemnified  Party")  shall give written  notice to the other party hereto
(the  "Indemnifying  Party")  of such  claim,  action  or  proceeding,  and such
Indemnifying  Party  shall have the right to join in the  defense of said claim,
action or proceeding at such  Indemnifying  Party's own cost and expense and, if
the Indemnifying  Party agrees in writing to be bound by and to promptly pay the
full amount of any final  judgment from which no further appeal may be taken and
if the  Indemnified  Party is  reasonably  assured of the  Indemnifying  Party's
ability to satisfy such agreement, then at the option of the Indemnifying Party,
such  Indemnifying  Party may take over the  defense  of such  claim,  action or
proceeding,  except that,  in such case,  the  Indemnified  Party shall have the
right to join in the defense of said claim, action or proceeding at its own cost
and expense.










                  14.4. Escrow Agreement.  Simultaneously with the execution and
delivery of this Agreement,  Buyer and Selling Shareholders shall enter into the
escrow agreement attached hereto as Schedule 14.4 providing for the placement of
25% of the  AMNEX  Shares to be  issued  hereunder  for a period of 24 months to
provide a method of funding any Damages sustained by Buyer for which NBE and the
Selling  Shareholders  have agreed to indemnify  Buyer  pursuant to Section 14.1
hereof.

                  SECTION   15.   Survival   of   Representations;   Effect   of
Certificates.  The parties  hereto agree that all  representations,  warranties,
covenants,  indemnifications,  conditions and agreements  contained herein or in
any  instrument or other  document  delivered  pursuant to this  Agreement or in
connection with the transactions contemplated hereby shall survive the execution
and  delivery  of  this  Agreement,   the   consummation  of  the   transactions
contemplated hereby and any investigation or audit made by any party hereto.

                  SECTION 16.  No Broker; Expenses.  Buyer, on the one
hand, and NBE and the Selling Shareholders, on the other hand, each
represents to the other that no broker or finder has been involved
with any of the transactions relating to this Agreement. In the event of a claim
by any broker or finder that such broker or finder  represented  or was retained
by NBE or the  Selling  Shareholders,  on the one hand,  or Buyer,  on the other
hand,  in connection  herewith,  NBE and the Selling  Shareholders  (jointly and
severally) or Buyer,  as the case may be, agrees to indemnify and hold the other
harmless  from  and  against  any and  all  Damages  which  may be  incurred  in
connection  with such claim.  All  expenses of NBE and the Selling  Shareholders
incurred in connection with matters  relating to the Agreement shall be borne by
Selling  Shareholders  and all  expenses of Buyer  incurred in  connection  with
matters relating to this Agreement shall be borne by Buyer.

                  SECTION 17. Notices. All notices,  requests, demands and other
communications  provided for by this Agreement  shall be in writing and shall be
deemed  to have  been  given  when  hand  delivered,  when  received  if sent by
telecopier or by same day or overnight recognized  commercial courier service or
three  business  days after being mailed in any general or branch  office of the
United States  Postal  Service,  enclosed in a registered or certified  postpaid
envelope,  addressed  to the  address  of the  parties  stated  below or to such
changed address as such party may have fixed by notice:









         To NBE and the
         Selling Stockholders:  National Business Exchange, Inc.
                                235 East Colorado Blvd.
                                Suite 340
                                Pasadena, California  91101
                                Fax:   818-432-5078
                                Attn:  James E. Everingham

                                - copy to -

                                R. Rosser Cole, Esq.
                                200 North Maryland Avenue
                                Suite 302
                                Glendale, California 91206
                                Fax:   818-500-0129



         To Buyer:              AMNEX, Inc.
                                101 Park Avenue
                                New York, New York 10178
                                Fax: 212-867-1591
                                Attn: Amy Gross, Esq.

                                - copy to -

                                AMNEX, Inc.
                                100 West Lucerne Circle,
                                Suite 100,
                                Orlando, Florida 32801
                                Fax:   407-246-0005
                                Attn:  John Kane
                                       Executive Vice President

                                - copy to -

                                Stroock & Stroock & Lavan
                                Seven Hanover Square
                                New York, New York 10004-2696
                                Fax: 212-806-6006
                                Attn: Susan O. Posen, Esq.







provided,  that any notice of change of  address  shall be  effective  only upon
receipt.

                  SECTION 18.  Miscellaneous.

                  18.1. Entire Agreement. This Agreement, including the Exhibits
and Schedules hereto, sets forth the entire agreement and understanding  between
the parties and merges and  supersedes  all prior  discussions,  agreements  and
understandings  of every kind and nature  among  them as to the  subject  matter
hereof,  and no party shall be bound by any condition,  definition,  warranty or
represen- tation other than as expressly  provided for in this Agreement or as 
may be on a  date on or  subsequent  to the date hereof  duly set forth in 
writing  signed by each party which is to be bound thereby.  Unless  otherwise 
expressly  defined, terms  defined in the  Agreement  shall have the same 
meanings when used in any Exhibit or Schedule and terms defined in any Exhibit
or Schedule  shall have the same  meanings  when used in the  Agreement or in 
any other Exhibit or Schedule.  This  Agreement  (including  the Exhibits  and 
Schedules  hereto)  shall not be changed,  modified  or  amended  except by a 
writing  signed by each party to be charged  and this  Agreement  may not be  
discharged  except by  performance  in accordance with its terms or by a writing
signed by each party to be charged.

                  18.2.  Governing Law; Arbitration.  THIS AGREEMENT AND
ITS VALIDITY,  CONSTRUCTION AND PERFORMANCE SHALL BE GOVERNED IN ALL RESPECTS BY
THE LAWS OF NEW YORK,  WITHOUT  GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
THE  PARTIES  HERETO  AGREE TO  ARBITRATE  IN LIEU OF  LITIGATION.  ALL  CLAIMS,
CONTROVERSIES,  DISPUTES,  DIFFERENCES  OR QUESTIONS  BETWEEN THE PARTIES HERETO
ARISING  OUT  OF  OR  RELATING  TO  THE   PERFORMANCE,   BREACH,   CONSTRUCTION,
INTERPRETATION  OR EFFECT OF THIS AGREEMENT OR ANY CLAUSE CONTAINED  HEREIN,  OR
CONCERNING  ANY SUCH  RIGHTS AND  LIABILITIES  OF THE PARTIES  HERETO,  SHALL BE
SUBMITTED TO BINDING  ARBITRATION UNDER THE COMMERCIAL  ARBITRATION RULES OF THE
AMERICAN ARBITRATION ASSOCIATION.  SUBJECT TO THE TERMS AND PROVISIONS SET FORTH
HEREIN,  SUCH ARBITRATOR(S) SHALL HAVE FULL POWER AND AUTHORITY TO AWARD ANY AND
ALL APPROPRIATE  DAMAGES AND OTHER RELIEF,  INCLUDING BUT NOT LIMITED TO DAMAGES
FOR LOST PROFITS OR REVENUES, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, AND
SPECIFIC PERFORMANCE.  THE ARBITRATION  PROCEEDINGS SHALL TAKE PLACE IN THE CITY
OF NEW YORK, NEW YORK, AND THE JUDGMENT AND  DETERMINATION  OF SUCH  PROCEEDINGS
SHALL BE BINDING ON ALL PARTIES HERETO.  JUDGMENT UPON ANY AWARD RENDERED BY ANY
ARBITRATOR(S)









APPOINTED HEREUNDER MAY BE ENTERED INTO ANY COURT HAVING COMPETENT  JURISDICTION
THEREOF.  ALL COSTS OF  ARBITRATION  SHALL BE BORNE  EQUALLY BY THE  ARBITRATING
PARTIES  HERETO,  EXCEPT FOR ATTORNEYS'  FEES, AS TO WHICH EACH SUCH PARTY SHALL
BEAR ITS OWN COSTS. WITHIN FIFTEEN DAYS AFTER WRITTEN NOTICE BY ONE PARTY TO THE
OTHER PARTY OF ITS DEMAND FOR ARBITRATION, WHICH DEMAND SHALL SET FORTH THE NAME
AND ADDRESS OF ITS  DESIGNATED  ARBITRATOR,  THE OTHER  PARTY  SHALL  SELECT ITS
DESIGNATED  ARBITRATOR  AND SO NOTIFY THE DEMANDING  PARTY.  WITHIN FIFTEEN DAYS
THEREAFTER,  THE TWO ARBITRATORS SO SELECTED SHALL SELECT THE THIRD  ARBITRATOR.
THE DISPUTE SHALL BE HEARD BY THE ARBITRATORS  WITHIN SIXTY DAYS AFTER SELECTION
OF THE THIRD  ARBITRATOR.  THE DECISION OF ANY TWO ARBITRATORS  SHALL BE BINDING
UPON THE PARTIES.  IN DEFAULT OF EITHER SIDE NAMING ITS  ARBITRATOR AS AFORESAID
OR IN DEFAULT OF THE SELECTION OF THE SAID THIRD  ARBITRATOR  AS AFORESAID,  THE
AMERICAN  ARBITRATION  ASSOCIATION  SHALL  DESIGNATE  SUCH  ARBITRATOR  UPON THE
APPLICATION OF EITHER PARTY.

                  18.3.  Benefit of Parties; Assignment.  This Agreement
shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.  The
Agreement may not be assigned by NBE or the Selling Shareholders
except with the prior written consent of Buyer.  Nothing herein  contained shall
confer or is  intended  to confer  on any third  party or entity  which is not a
party to this Agreement any rights under this Agreement.

                  18.4.  Pronouns.  Whenever the context requires, the use
in this Agreement of a pronoun of any gender shall be deemed to
refer also to any other gender, and the use of the singular shall
be deemed to refer also to the plural.

                  18.5.  Headings.  The headings in the sections, para-graphs,
Schedules and Exhibits of this Agreement are inserted for convenience of
reference  only and shall not  constitute  a part  hereof.  The words  "herein,"
"hereof,"  "hereto" and  "hereunder," and other words of similar import refer to
this Agreement as a whole and not to any particular provision of this Agreement.
 
                  18.6.  Counterparts.  This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.

                  18.7.  Further Assurances.  Buyer, NBE and the Selling
Shareholders shall do and perform such further acts and execute and
deliver such further instruments as may be required by law or reasonably 
requested by either party at such requesting party's expense to carry
out and effectuate the purposes of this Agreement.

                  18.8. Good Faith and Fair Dealing. The parties expressly agree
and  covenant  that good faith and fair  dealing  are an  integral  part of this
Agreement and no party hereto will do anything to prevent performance or receipt
of benefits by the other party.

                            [Signature pages follow]










                  IN WITNESS WHEREOF,  the parties have caused this Agreement to
be duly executed on the day and year first above written.

                                          NATIONAL BUSINESS EXCHANGE INC.



                                          By:/s/
                                             Name:
                                             Title:


                                          AMNEX, INC.



                                          By:/s/
                                             Name:
                                             Title:


                                          JAMES E. EVERINGHAM

                                          /s/ James E. Everingham



                                          DARYL A. FRAME

                                          /s/ Daryl A. Frame

                                        

EX-3.1

                            CERTIFICATE OF AMENDMENT

                                       OF

                          CERTIFICATE OF INCORPORATION

                                       OF

                                   AMNEX, INC.

                Under Section 805 of the Business Corporation Law


         Pursuant to the  provisions of Section 805 of the Business  Corporation
Law,  the   undersigned,   being  the  Chairman  of  the  Board  and  Secretary,
respectively,  of AMNEX,  INC. (the  "Corporation"),  DO HEREBY  CERTIFY AND SET
FORTH:

         1.       The name of the Corporation is AMNEX, Inc.  The
Corporation was formed under the name NY-Tel Communications, Inc.

         2.       The Certificate of Incorporation of the Corporation was
filed by the Department of State on March 15, 1985.

         3. The  Certificate  of  Incorporation  of the  Corporation  is  hereby
amended by the addition of a provision stating the number, designation, relative
rights,  preferences and limitations of a series of Preferred Shares,  $.001 par
value, as fixed by the Board of Directors.

         4.       The foregoing amendment to the Certificate of
Incorporation is effected by adding the following Section (j) to






Article (4) thereof:

         "(j) Series L Preferred  Shares. A series of Preferred Shares is hereby
created,  to be  limited  in  amount  to  200,000  of the  5,000,000  authorized
Preferred  Shares.  The  designation,   relative  rights,  powers,  preferences,
qualifications and limitations are as follows:

         (i)      Designation  of  Series.  The  designation  of the  series  of
                  Preferred  Shares  created  hereby shall be Series L Preferred
                  Shares (hereinafter the "Series L Preferred Shares").

         (ii)     Dividends. The holders of Series L Preferred Shares, on a pari
                  passu  basis  with the  holders  of the  Corporation's  Common
                  Shares  (based upon the number of Common Shares into which the
                  Series L Preferred Shares are convertible), Series F Preferred
                  Shares  and  any  other  series  of  Preferred  Shares  of the
                  Corporation  hereafter  created  which shall have a pari passu
                  right  with  the  holders  of the  Common  Shares  to  receive
                  dividends,  shall be entitled to receive such dividends as may
                  be declared  by the Board of  Directors.  Declared  but unpaid
                  dividends shall not bear interest.

                  The rights of the  holders of the  Series L  Preferred  Shares
                  shall be junior and  subordinate  to the rights of the holders
                  of the Series A,  Series B,  Series C,  Series D, Series E and
                  Series  G  Preferred  Shares  of the  Corporation  to  receive
                  dividends,  as well as to the  right of any  other  series  of
                  Preferred  Shares of the Corporation  hereafter  created which
                  shall have any preferential  right to receive dividends before
                  the holders of the Common Shares.

        (iii)     Voting  Rights.  The holders of the Series L Preferred  Shares
                  shall be entitled to vote on all matters at all meetings of 
                  the  shareholders of the Corporation, and shall be entitled to
                  such number of votes for each Series L Preferred Share
                  entitled  to vote at such  meetings as is set forth below,  
                  voting  together with the holders of Common  Shares, and other
                  Preferred  Shares who are entitled to vote, if any such shares
                  are then outstanding,  and not as a separate  class, except as
                  required by law.  The  number of votes to which the holders of
                  the Series L Preferred Shares shall be entitled  to vote for
                  each Series L Preferred Share shall equal the number of Common
                  Shares of the  Corporation  into which such Series L Preferred
                  Share would convert upon the occurrence of the Mandatory 
                  Conversion Event(as hereinafter defined).

                                        2





         (iv)     Redemption.  The Series L Preferred Shares shall not be
                  subject to mandatory redemption by either the Corporation
                  or the holders thereof.

         (v)      Conversion.

                  (A) Mandatory Conversion Event and Price. Immediately upon the
                  filing  with  the  Secretary  of  State  of  New  York  of the
                  Certificate  of  Amendment  (as   hereinafter   defined)  (the
                  "Mandatory  Conversion Event"),  each Series L Preferred Share
                  shall   convert  into  fifteen  (15)  Common   Shares  of  the
                  Corporation (the "Conversion Ratio"), subject to adjustment as
                  hereinafter set forth.

                  (B) Procedure.  Before any holder of Series L Preferred Shares
                  shall be entitled to receive  Common  Shares upon  conversion,
                  the holder shall surrender the certificate(s)  therefor,  duly
                  endorsed, at the principal offices of the Corporation. Subject
                  to the provisions hereof, effective upon the occurrence of the
                  Mandatory Conversion Event (the "Effective  Conversion Date"),
                  the  holder  shall  thereupon  be deemed  to be the  holder of
                  record  of  the  Common  Shares   issuable  upon   conversion,
                  notwithstanding   that  the  stock   transfer   books  of  the
                  Corporation  shall  then be closed or that the  certificate(s)
                  representing  such  Common  Shares  shall not then be actually
                  delivered  to the holder.  Subject to the  provisions  hereof,
                  promptly   following  the  Effective   Conversion   Date,  the
                  Corporation  shall  cause  its  transfer  agent to  issue  and
                  deliver to such holder of Series L Preferred Shares a

                                        3





                  certificate for the number of Common Shares to which the
                  holder shall be entitled.

                  (C)  Adjustment of Conversion Ratio.

                  (i) In the  event  that  the  Corporation  shall  (a)  pay any
                  dividend on its Common Shares  payable in Common  Shares;  (b)
                  effect a subdivision of its outstanding  shares into a greater
                  number of Common Shares (by  reclassification,  stock split or
                  otherwise than by payment of a dividend in Common Shares); (c)
                  effect  a  combination  or  consolidation  of its  outstanding
                  Common  Shares  into a lesser  number  of  Common  Shares  (by
                  reclassification,  reverse split or  otherwise);  (d) issue by
                  reclassification,  exchange  or  substitution  of  its  Common
                  Shares  any  shares of  capital  stock of the  Corporation  or
                  effect  any  other  transaction  having  similar  effect,  the
                  Conversion  Ratio in effect  immediately  prior to such action
                  shall be adjusted so that,  in the event of the  occurrence of
                  the  Mandatory   Conversion   Event  at  any  time  after  the
                  occurrence of any event described  above,  the holder shall be
                  entitled  to receive  the Common  Shares to which such  holder
                  would have been finally  entitled,  after giving effect to the
                  occurrence of such event,  as if such holder had converted the
                  Series L Preferred Shares  immediately prior to the occurrence
                  of such event.  An adjustment  made pursuant to this paragraph
                  (C) shall become effective  immediately  after the record date
                  in  the  case  of  a  dividend  and  shall  become   effective
                  immediately  after  the  effective  date  in  the  case  of  a
                  subdivision,   combination,   reclassification,   exchange  or
                  substitution.

                  (ii) In case of any  consolidation  or  merger  to  which  the
                  Corporation is a party,  other than a merger or  consolidation
                  in  which  the  Corporation  is the  surviving  or  continuing
                  corporation and which does not result in any  reclassification
                  of,  or change  (other  than a change in par value or from par
                  value to no par value or from no par value to par value, or as
                  a result of subdivision or combination) in, outstanding Common
                  Shares, then the Corporation,  or such successor  corporation,
                  as the case may be, shall make appropriate  provisions so that
                  the holder of each Series L Preferred Share then outstanding

                                        4





                  shall have the right to  convert  such share into the kind and
                  amount of shares or other  securities and property  receivable
                  upon such consolidation or merger by a holder of the number of
                  Common Shares into which such Series L Preferred  Shares might
                  have been converted immediately prior to such consolidation or
                  merger.

                  (D) Fractional  Shares.  No fractional  Common Shares shall be
                  issued upon conversion of Series L Preferred  Shares.  In lieu
                  of any fractional  shares to which the holder would  otherwise
                  be entitled,  the  Corporation  shall pay, in cash,  an amount
                  equal to the  product of (i) such  fraction  of a share  times
                  (ii) the  market  price of one Common  Share on the  Effective
                  Conversion Date.

                  (E)  Reservation  of  Shares  Issuable  Upon  Conversion.  The
                  Corporation  shall at all times reserve and keep available out
                  of its authorized but unissued  Common Shares,  solely for the
                  purpose of effecting the  conversion of the Series L Preferred
                  Shares, such number of its Common Shares as shall from time to
                  time be sufficient to effect the conversion of all outstanding
                  Series L Preferred  Shares;  provided,  however,  that nothing
                  contained   herein  shall   preclude  the   Corporation   from
                  satisfying its obligations in respect of the conversion of the
                  Series L Preferred  Shares by delivery of Common  Shares which
                  are held in the treasury of the  Corporation.  Notwithstanding
                  the  foregoing,  the  Corporation  shall not be  obligated  to
                  reserve and keep  available  out its  authorized  but unissued
                  Common Shares,  or issue,  any Common Shares to the holders of
                  the Series L Preferred  Shares  unless and until it shall have
                  filed with the Secretary of State of New York a Certificate of
                  Amendment of its Certificate of  Incorporation  as a result of
                  which there will be a sufficient  number of authorized  Common
                  Shares of the  Corporation  available  for  issuance  upon the
                  conversion  of the Series L Preferred  Shares and the exercise
                  of any and all  outstanding  purchase,  exchange or conversion
                  rights for the acquisition of Common Shares of the Corporation
                  (the "Certificate of Amendment").



                                        5





                  (F) Lost, Stolen or Destroyed Certificates.  In the event that
                  the   holder   shall   notify   the   Corporation   that   the
                  certificate(s)  representing  Series L  Preferred  Shares have
                  been  lost,  stolen or  destroyed  and  either  (i)  provide a
                  letter, in form satisfactory to the Corporation, to the effect
                  that he will indemnify the Corporation  from any loss incurred
                  by  it  in  connection  therewith,   and/or  (ii)  provide  an
                  indemnity bond in such amount as is reasonably required by the
                  Corporation,  the  Corporation  having the option of  electing
                  either (i) or (ii) or both, the  Corporation  may, in its sole
                  discretion,  accept such letter and/or  indemnity bond in lieu
                  of the  surrender  of the  certificate(s)  as required by this
                  subsection (v).

                  (G)  Statutory  Restrictions.  The  foregoing  provisions  for
                  conversion  of the Series L Preferred  Shares shall be subject
                  to all applicable statutory limitations and restrictions.

         (vi)     Liquidation Preference.  In the event of any voluntary or
                  involuntary liquidation, dissolution or winding up of the
                  Corporation, the holders of Series L Preferred Shares
                  will be entitled to receive, prior and in preference to
                  any distribution of the assets or surplus funds of the
                  Corporation to the holders of any Common Shares by reason
                  of the ownership thereof, and on a pari passu basis with
                  the holders of the Series A, Series B, Series C, Series
                  D, Series E, Series F, and Series G Preferred Shares and
                  any Series H, Series I, Series J, and/or Series K
                  Preferred Shares hereafter authorized, an amount equal to
                  the fixed sum of forty-five dollars and forty-five cents
                  ($45.45) per share and no more (the "Preferential
                  Amount").  If, upon the occurrence of such an event, the
                  assets and funds thus distributed among the holders of
                  Series L Preferred Shares shall be insufficient to permit
                  the payment to such holders of the full Preferential
                  Amount, then, the entire assets and funds of the
                  Corporation legally available for distribution to the
                  holders of the Series L Preferred Shares shall be
                  distributed ratably among such holders in accordance with
                  the respective amounts which would be payable on such
                  shares if all amounts payable thereon were paid in full.

                                        6





                  After the  payment or setting  apart of the full  Preferential
                  Amounts required to be paid to the holders of Series A, Series
                  B, Series C, Series D, Series E, Series F, Series G and Series
                  L Preferred Shares and any Series H, Series I, Series J and/or
                  Series K Preferred Shares hereafter authorized, the holders of
                  Common Shares or any other stock of the Corporation ranking in
                  liquidation junior to the Series A, Series B, Series C, Series
                  D, Series E, Series F, Series G and Series L Preferred  Shares
                  and any Series H, Series I, Series J and/or Series K Preferred
                  Shares  hereafter  authorized,  shall be  entitled  to receive
                  ratably  all   remaining   assets  or  surplus  funds  of  the
                  Corporation.  Neither  the  merger  or  consolidation  of  the
                  Corporation,  nor the sale, lease or conveyance of all or part
                  of  its  assets,   shall  be  deemed  to  be  a   liquidation,
                  dissolution  or winding up of the affairs of the  Corporation,
                  either  voluntarily  or  involuntarily,  within the meaning of
                  this section.

       (vii)      Sinking Fund.  The Series L Preferred Shares shall not be
                  entitled to the benefit of any sinking fund to be applied
                  to their purchase or redemption."

         5. This Amendment has been adopted by the Board of Directors of the 
Corporation under the authority granted to it pursuant to Section 502 of the
Business Corporation Law.





                                        7




                  IN  WITNESS   WHEREOF,   the  undersigned   have  signed  this
Certificate as of the 20th day of December,  1996 and affirm that the statements
made herein are true under the penalties of perjury.


                                             /s/Kenneth G. Baritz
                                             Kenneth G. Baritz
                                             Chairman of the Board



                                             /s/Amy S. Gross
                                             Amy S. Gross
                                             Secretary



K:\WPDOC\CORP\AMNEX\GALESI\SERIESL3.D96


                                        8

EX-3.2

                     RESTATED CERTIFICATE OF INCORPORATION

                                       OF

                                   AMNEX, INC.

                     (AS AMENDED THROUGH DECEMBER 31, 1996)

         (1)  The name of the corporation is AMNEX, Inc. (the
"Corporation").

         (2) The  Corporation  is formed to  engage in any act or  activity  for
which  corporations  may be organized under the Business  Corporation Law of the
State of New  York,  provided  that it is not  formed  to  engage  in any act or
activity  which  requires  the  consent  or  approval  of  any  state  official,
department,  board, agency, or other body without such consent or approval first
being obtained.

         (3) The  office of the  Corporation  in the State of New York  shall be
located in the County of New York.

         (4) (a) The aggregate  number of shares of stock which the  Corporation
shall have the authority to issue is Forty-five  Million  (45,000,000)  of which
Forty Million  (40,000,000)  are Common Shares,  $.001 par value per share,  and
Five Million (5,000,000) are Preferred Shares, $.001 par value per share.

             (b) The Board of Directors  hereby is vested with the  authority to
provide for the issuance of the Preferred  Shares,  at any time and from time to
time,  in one or more  series,  each of such series to have such voting  powers,
designations, preferences and

                                        1





relative  participating,   optional,  conversion  and  other  rights,  and  such
qualifications, limitations or restrictions thereon as expressly provided in the
resolution or resolutions  duly adopted by the Board of Directors  providing for
the issuance of such shares or series  thereof.  The  authority  which hereby is
vested in the Board of  Directors  shall  include,  but not be  limited  to, the
authority to provide for the  following  matters  relating to each series of the
Preferred Shares:

                       (i)   The designation of any series.

                       (ii)  The number of shares initially constituting any 
such series.

                       (iii) The increase, and the decrease, to a number not 
less than the number of the outstanding shares of any such series, of the number
of shares constituting such series theretofore fixed.

                       (iv)  The rate or rates and the times at which dividends
on the Preferred Shares or any series thereof shall be paid, and whether or not
such dividends shall be cumulative,  and, if such dividends shall be cumulative,
the date or dates from and after which they shall accumulate.

                       (v)   Whether or not the Preferred Shares or series 
thereof shall be redeemable, and, if such shares shall be

                                        2





redeemable,  the terms and  conditions  of such  redemption,  including  but not
limited to the date or dates upon or after which such shares shall be redeemable
and the amount per share  which  shall be payable  upon such  redemption,  which
amount may vary under different conditions and at different redemption dates.

                       (vi)  The amount payable on the Preferred Shares or 
series  thereof  in  the  event  of  the  voluntary or  involuntary liquidation,
dissolution or winding up of the Corporation;  provided,  however, that the 
holders of shares  ranking  senior to other shares shall be entitled to be paid,
or to have set apart for payment,  not less than the liquidation  value of such
shares  before the  holders of the Common  Shares or the holders of any other
series of Preferred Shares ranking junior to such shares.

                       (vii)  Whether or not the Preferred Shares or series  
thereof  shall have voting  rights,  in addition to the voting rights provided 
by law,  and, if such shares shall have such voting  rights,  the terms and 
conditions thereof, including but not limited to the right of the holders of
such  shares to vote as a separate  class  either  alone or with the  holders of
shares of one or more other class or series of Preferred Shares and the right to
have more than one vote per share.

                                        3





                      (viii) Whether or not a sinking fund shall be provided for
the redemption of the Preferred Shares or series thereof, and, if such a sinking
fund shall be provided, the terms and conditions thereof.

                       (ix)  Whether or not a purchase fund shall be provided 
for the Preferred Shares or series thereof,  and, if such a purchase fund shall
be provided, the terms and conditions thereof.

                       (x)  Whether or not the Preferred Shares or series 
thereof shall have  conversion  privileges,  and, if such shares shall have 
conversion  privileges,  the terms and conditions of conversion,  including
but not limited to any provision for the  adjustment of the  conversion  rate or
the conversion price.

                         (xi) Any other relative rights, preferences, 
qualifications, limitations and restrictions.

                  (c) Series A Preferred Shares. A series of Preferred Shares is
hereby  created,  to be limited in amount to 30,000 of the 5,000,000  authorized
but  unissued  Preferred  Shares.  The  designation,  relative  rights,  powers,
preferences, qualifications and limitations are as follows:

         (i)      Designation of Series.  The designation of the series of
                  Preferred Shares created hereby shall be Series A

                                        4





                  Preferred Shares (hereinafter the "Series A Preferred 
                  Shares").

         (ii)     Dividends.

                  (A) The holders of Series A Preferred Shares, in preference to
                  the  holders of Common  Shares,  shall be entitled to receive,
                  when and as declared by the Board of  Directors,  dividends at
                  the rate of eight dollars ($8.00) per share per annum,  and no
                  more. Subject to the requirements of applicable law, dividends
                  on the Series A Preferred  Shares  shall be payable  annually,
                  when and as declared by the Board of Directors,  commencing in
                  1993. Such dividends on the Series A Preferred Shares shall be
                  cumulative so that if all or any part of such dividends  shall
                  not have been paid or distributed in any year, or declared and
                  set apart,  the amount of the  deficiency  (without  interest)
                  shall  be paid or  distributed,  or  declared  and set  apart,
                  before any dividend or other  distribution shall be paid upon,
                  or declared  and set apart for,  Common  Shares.  Declared but
                  unpaid dividends shall not bear interest.

                  (B)  Except  as  hereinafter   provided  and  subject  to  the
                  requirements of applicable law, including, without limitation,
                  the obtaining of any necessary  approvals or consents from the
                  holders of the Common Shares of the Corporation,  any dividend
                  declared  on the Series A  Preferred  Shares  shall be paid in
                  cash or, at the option of the Corporation, in Common Shares of
                  the Corporation  having a market price, on the day immediately
                  preceding  the date on which such  dividend is  declared  (the
                  "Valuation  Date"),  equal to the amount of the  dividend.  As
                  used herein,  the term  "market  price" shall mean the closing
                  selling  price or, if not  available,  the mean of the closing
                  bid and asked prices,  or, if not  available,  the mean of the
                  highest bid and lowest asked  prices,  of the Common Shares as
                  quoted  on  a  national   securities   exchange,   or  in  the
                  over-the-counter  market  as  reported  by  NASDAQ  or, if not
                  available, by the National Quotation Bureau, Incorporated,  as
                  the case may be,  or, if there is no  selling  or bid or asked
                  price on a particular  day, then the closing selling price or,
                  if not available, the

                                        5





                  mean  of  the  closing  bid  and  asked  prices,  or,  if  not
                  available, the mean of the highest bid and lowest asked prices
                  on the nearest trading date before that day and for which such
                  prices are available,  and if the Common Shares are not listed
                  on  such  an  exchange  or  traded  in  such a  market  on the
                  Valuation  Date,  then the market price shall be determined by
                  the  Board of  Directors  by  taking  into  consideration  all
                  relevant   factors,   including,   but  not  limited  to,  the
                  Corporation's  net  worth,   prospective   earning  power  and
                  dividend paying capacity.

         (iii)    Voting  Rights.  The holders of the Series A Preferred  Shares
                  shall be entitled to vote on all matters at all meetings of
                  the shareholders of the Corporation, and shall be entitled to
                  such number of votes for each Series A Preferred  Share
                  entitled to vote at such  meetings as is set forth below,
                  voting  together with the holders of Common  Shares, and other
                  Preferred Shares who are entitled to vote, if any such shares
                  are then outstanding, and not as a separate class, except as
                  required by law. The number of votes to which the holders of
                  the Series A Preferred Shares  shall be entitled  to vote for
                  each Series A Preferred Share shall equal the number of Common
                  Shares of the Corporation into which such Series A Preferred
                  Share shall be convertible on or after October 1, 1992
                  (without giving effect to any reductions in the Conversion
                  Price, as hereinafter defined, as provided for in subsection
                  (v) (A) hereof).

         (iv)     Redemption.

                  (A) In the event any holder or  holders of Series A  Preferred
                  Shares  shall give  written  notice to the  Corporation  of an
                  election to convert  such  shares  into  Common  Shares of the
                  Corporation  as provided for in subsection  (v)(B)(ii)  hereof
                  (whether or not such holder shall have theretofore surrendered
                  the certificate(s)  representing the Series A Preferred Shares
                  for conversion),  the Corporation may elect, at its option, by
                  notice  given  prior  to any  Effective  Conversion  Date  (as
                  hereinafter  defined) as provided in (B) below,  to redeem all
                  or any part of the outstanding Series A Preferred

                                        6





                  Shares  with  respect to which an election to convert has been
                  given to the Corporation at a price per share in cash equal to
                  one hundred thirty dollars ($130.00) (the "Redemption  Price")
                  plus all accrued  and unpaid  dividends  with  respect to such
                  Series A Preferred Shares.

                  (B) Notice of every  redemption  shall be given by mailing the
                  same to  every  holder  of  record  of any  shares  then to be
                  redeemed,  prior to any Effective Conversion Date and not less
                  than ten (10) nor more than thirty (30) days prior to the date
                  fixed as the date for the redemption  thereof (the "Redemption
                  Date"),  at the  respective  addresses  of such holders as the
                  same  shall  appear  on  the  stock   transfer  books  of  the
                  Corporation.  The notice  described above shall state that the
                  shares  specified  in  such  notice  will be  redeemed  by the
                  Corporation  at the  Redemption  Price  plus all  accrued  and
                  unpaid  dividends on the Redemption  Date,  upon the surrender
                  for  cancellation,  at the place designated in such notice, of
                  the certificate(s)  representing the shares so to be redeemed,
                  properly  endorsed for transfer,  or  accompanied  by a proper
                  instrument  of  assignment  and  transfer,   and  bearing  all
                  necessary  transfer tax stamps  thereto  affixed and cancelled
                  (provided,  however, that such surrender shall not be required
                  if  the  holder  of  record   shall  have   theretofore   duly
                  surrendered  the  certificate(s)  representing  the  Series  A
                  Preferred Shares in accordance with the conversion  provisions
                  set  forth  in  subsection  (v)  hereof).  On  and  after  the
                  Redemption  Date,  each holder of shares called for redemption
                  shall  be  entitled  to  receive   therefore,   in  cash,  the
                  Redemption  Price, plus accrued and unpaid dividends as of the
                  Redemption Date, upon  presentation and surrender at the place
                  designated  in such  notice of the  certificate(s)  for shares
                  held  by such  holder  and  called  for  redemption,  properly
                  endorsed for transfer or accompanied by proper  instruments of
                  assignment or transfer, and bearing all necessary transfer tax
                  stamps thereto affixed and cancelled (provided,  however, that
                  such  surrender  shall not be required if the holder of record
                  shall  have   theretofore   surrendered   the   certificate(s)
                  representing  the Series A Preferred Shares in accordance with
                  the conversion provisions set forth in subsection (v) hereof).
                  If the

                                        7





                  Corporation  shall give notice of redemption as aforesaid (and
                  unless the Corporation  shall fail to pay the Redemption Price
                  of the shares duly presented for redemption,  plus all accrued
                  and unpaid  dividends as of the Redemption Date, in accordance
                  with such notice),  all shares called for redemption  shall be
                  deemed to have been redeemed on the Redemption  Date,  whether
                  or not the  certificates  for said shares shall be surrendered
                  for redemption and cancellation, and said shares so called for
                  redemption  shall from and after said date cease to  represent
                  any interest whatever in the Corporation or its property,  and
                  the holders  thereof shall have no rights other than the right
                  to receive the Redemption  Price,  plus all accrued and unpaid
                  dividends as of the Redemption  Date, but without any right to
                  receive dividends or interest thereon from or after said date.
                  All Series A Preferred Shares redeemed under the provisions of
                  this subsection shall be forthwith retired and cancelled.

         (v)      Conversion.

                  (A) Conversion Right and Price.  Subject to the  Corporation's
                  redemption  right as provided for in  subsection  (iv) hereof,
                  each Series A Preferred  Share  shall be  convertible,  at the
                  option of the holder thereof,  at any time on or after October
                  1, 1992, at the office of the Corporation, into such number of
                  Common Shares of the  Corporation as is determined by dividing
                  one hundred  dollars  ($100.00)  by the  Conversion  Price (as
                  hereinafter   defined).   For   purposes   hereof,   the  term
                  "Conversion  Price" shall mean twenty six and two-thirds cents
                  ($.26 - 2/3),  subject to adjustment as hereinafter set forth;
                  provided,  however,  that,  in  the  event  the  Corporation's
                  Pre-tax  Net Income (as  hereinafter  defined)  for the twelve
                  (12) month period ending June 30, 1993 (the "12 Month Period")
                  shall not  exceed  one  million  dollars  ($1,000,000),  then,
                  effective with the determination of the Corporation's  Pre-tax
                  Net Income for the 12 Month Period (there being no retroactive
                  adjustment), the Conversion Price shall instead be as follows:
                  (i) if the Corporation attains a Pre-tax Net Income for the 12
                  Month Period, but such Pre-tax Net

                                        8





                  Income  is  equal  to  or  less  than  one   million   dollars
                  ($1,000,000),  the  Conversion  Price  shall be  twenty  cents
                  ($.20);  and (ii) if the Corporation does not attain a Pre-tax
                  Net Income for the 12 Month Period, the Conversion Price shall
                  be thirteen  and  one-third  cents ($.13 - 1/3).  For purposes
                  hereof,  the terms  "Pre-tax  Net Income" and "Net Loss" shall
                  mean the Corporation's  consolidated net income or loss before
                  all taxes  determined in accordance  with  generally  accepted
                  accounting  principles,  as calculated by the Company's  Chief
                  Financial  Officer,  except that any pre-tax effect of certain
                  reductions in conversion  prices  provided for in that certain
                  Agreement dated as of March 11, 1992 by and among the Company,
                  David A. Lyons, Steven G. Chrust and Friedli Corporate Finance
                  AG, shall be excluded.  For purposes hereof, the Corporation's
                  Pre-tax Net Income or Net Loss for the fiscal  quarter  ending
                  December  31,  1992  shall be deemed  equal to the  difference
                  between the  Corporation's  Pre-tax Net Income or Net Loss for
                  the fiscal  year  ending  December  31,  1992,  as audited and
                  reported upon by the independent  auditors of the Corporation,
                  and the  Corporation's  Pre-tax Net Income or Net Loss for the
                  nine (9) month period ending September 30, 1992.

                  (B) Procedure.  Before any holder of Series A Preferred Shares
                  shall be entitled to receive  Common  Shares upon  conversion,
                  the holder shall (i)(a) surrender the certificate(s) therefor,
                  duly endorsed, at the office of the Corporation and (ii) shall
                  give written notice to the Corporation at such office that the
                  holder elects to convert the same into Common Shares and shall
                  further state therein the number of Series A Preferred  Shares
                  being converted.  Subject to the provisions hereof,  effective
                  thirty  (30) days  following  the later of the  receipt by the
                  Corporation   of  the   certificate(s)   pursuant  to  and  in
                  accordance  with (i) above and the written notice  pursuant to
                  and in accordance with (ii) above (such  thirtieth  (30th) day
                  being  hereinafter  referred to as the  "Effective  Conversion
                  Date"),  the holder shall thereupon be deemed to be the holder
                  of record  of the  Common  Shares  issuable  upon  conversion,
                  notwithstanding   that  the  stock   transfer   books  of  the
                  Corporation shall

                                        9





                  then be closed or that the  certificate(s)  representing  such
                  Common  Shares  shall not then be  actually  delivered  to the
                  holder.   Subject  to  the  provisions   hereof,   immediately
                  following the Effective Conversion Date, the Corporation shall
                  cause its  transfer  agent to issue and deliver to such holder
                  of Series A Preferred Shares a  certificate(s)  for the number
                  of  Common  Shares  to which  the  holder  shall be  entitled.
                  Notwithstanding  anything hereinabove to the contrary,  in the
                  event the  Corporation  shall exercise its  redemption  rights
                  pursuant to subsection (iv) hereof,  the Corporation  shall be
                  under no  obligation  to issue Common Shares to the holder and
                  the  holder's  sole  rights  shall be as set forth  under such
                  subsection (iv).

                  (C)      Adjustment of Conversion Price.

                  (i) In the  event  that  the  Corporation  shall  (i)  pay any
                  dividend on its capital stock payable in Common Shares (except
                  with  respect to the  dividend  payable to the  holders of the
                  Series A Preferred  Shares);  (ii) effect a subdivision of its
                  outstanding  shares into a greater number of Common Shares (by
                  reclassification,  stock split or otherwise than by payment of
                  a dividend in Common  Shares);  (iii) effect a combination  or
                  consolidation  of its outstanding  Common Shares into a lesser
                  number of Common Shares (by reclassification, reverse split or
                  otherwise);  (iv)  issue  by  reclassification,   exchange  or
                  substitution  of its Common Shares any shares of capital stock
                  of the  Corporation  or effect  any other  transaction  having
                  similar  effect,  the Conversion  Price in effect  immediately
                  prior  to such  action  shall  be  adjusted  so that  upon the
                  exercise of the conversion  right hereof at any time after the
                  occurrence of any event described  above,  the holder shall be
                  entitled  to receive  the Common  Shares to which such  holder
                  would have been finally  entitled,  after giving effect to the
                  occurrence of such event,  as if such holder had converted the
                  Series A Preferred Shares  immediately prior to the occurrence
                  of such event.  An adjustment  made pursuant to this paragraph
                  (C) shall become effective  immediately  after the record date
                  in  the  case  of  a  dividend  and  shall  become   effective
                  immediately after the effective date in

                                       10





                  the case of a subdivision, combination, reclassification,
                  exchange or substitution.

                  (ii) In case of any  consolidation  or  merger  to  which  the
                  Corporation is a party,  other than a merger or  consolidation
                  in  which  the  Corporation  is the  surviving  or  continuing
                  corporation and which does not result in any  reclassification
                  of,  or change  (other  than a change in par value or from par
                  value to no par value or from no par value to par value, or as
                  a result of subdivision or combination) in, outstanding Common
                  Shares, then the Corporation,  or such successor  corporation,
                  as the case may be, shall make appropriate  provision so that,
                  subject  to  the  Corporation's  redemption  rights  described
                  hereinabove,  the holder of each Series A Preferred Share then
                  outstanding  shall have the right to  convert  such share into
                  the kind and amount of shares or other securities and property
                  receivable  upon such  consolidation  or merger by a holder of
                  the number of Common Shares into which such Series A Preferred
                  Shares  might have been  converted  immediately  prior to such
                  consolidation or merger.

                  (D) Fractional  Shares.  No fractional  Common Shares shall be
                  issued upon conversion of Series A Preferred  Shares.  In lieu
                  of any fractional  shares to which the holder would  otherwise
                  be entitled,  the  Corporation  shall pay, in cash,  an amount
                  equal to the product of (1) such fraction of a share times (2)
                  the market price (as hereinabove  defined) of one Common Share
                  on the Effective Conversion Date.

                  (E)  Reservation  of  Shares  Issuable  Upon  Conversion.  The
                  Corporation shall at all times use its best efforts to reserve
                  and keep available out of its  authorized but unissued  Common
                  Shares,  solely for the purpose of effecting the conversion of
                  the  Series A  Preferred  Shares,  such  number of its  Common
                  Shares as shall from time to time be  sufficient to effect the
                  conversion of all outstanding  Series A Preferred Shares,  and
                  if at any time the number of  authorized  but unissued  Common
                  Shares shall not be sufficient to effect the conversion of all
                  then outstanding Series A Preferred Shares, the

                                       11





                  Corporation  will,  as its  sole  obligation,  subject  to the
                  requirements  of  applicable  state law,  take such  corporate
                  action as may, in the opinion of its counsel,  be necessary to
                  increase its  authorized  but unissued  Common  Shares to such
                  number  of shares as shall be  sufficient  for such  purposes;
                  provided, however that nothing contained herein shall preclude
                  the Corporation  from satisfying its obligations in respect of
                  the conversion of the Series A Preferred Shares by delivery of
                  purchased  Common Shares which are held in the treasury of the
                  Corporation.

                  (F) Lost, Stolen or Destroyed Certificates.  In the event that
                  the   holder   shall   notify   the   Corporation   that   the
                  certificate(s)  representing  Series A  Preferred  Shares have
                  been  lost,  stolen or  destroyed  and  either  (i)  provide a
                  letter, in form satisfactory to the Corporation, to the effect
                  that he will indemnify the Corporation  from any loss incurred
                  by  it  in  connection  therewith,   and/or  (ii)  provide  an
                  indemnity bond in such amount as is reasonably required by the
                  Corporation,  the  Corporation  having the option of  electing
                  either (i) or (ii) or both, the  Corporation  may, in its sole
                  discretion,  accept such letter and/or  indemnity bond in lieu
                  of  the  surrender  of  the   certificate(s)  as  required  by
                  subsections (iv) and (v) hereof.

                  (G)      Statutory Restrictions.  The foregoing provisions
                  for conversion of the Series A Preferred Shares shall be
                  subject to all applicable statutory limitations and
                  restrictions.

         (vi)     Liquidation Preference.  In the event of any voluntary or
                  involuntary  liquidation,  dissolution  or  winding  up of the
                  Corporation,  the holders of Series A Preferred Shares will be
                  entitled  to  receive,   prior  and  in   preference   to  any
                  distribution of the assets or surplus funds of the Corporation
                  to the holders of any Common Shares by reason of the ownership
                  thereof,  an amount  equal to (1) the fixed sum of one hundred
                  dollars  ($100.00)  per share and no more and (2) all  accrued
                  and unpaid  dividends due with respect to the Preferred Shares
                  (the "Preferential  Amount").  If, upon the occurrence of such
                  an event, the

                                       12





                  assets and funds thus distributed  among the holders of Series
                  A Preferred Shares shall be insufficient to permit the payment
                  to such holders of the full  Preferential  Amount,  then,  the
                  entire assets and funds of the Corporation  legally  available
                  for  distribution  shall  be  distributed  ratably  among  the
                  holders of Series A Preferred  Shares in  accordance  with the
                  respective  amounts  which  would be payable on such shares if
                  all  amounts  payable  thereon  were  paid in full.  After the
                  payment  or  setting  apart of the full  Preferential  Amounts
                  required  to be paid to the  holders  of  Series  A  Preferred
                  Shares, the holders of Common Shares or any other stock of the
                  Corporation  ranking  in  liquidation  junior to the  Series A
                  Preferred  Shares  shall be  entitled  to receive  ratably all
                  remaining assets or surplus funds of the Corporation.  Neither
                  the merger or consolidation of the Corporation,  nor the sale,
                  lease or  conveyance  of all or part of its  assets,  shall be
                  deemed to be a  liquidation,  dissolution or winding up of the
                  affairs   of   the   Corporation,    either   voluntarily   or
                  involuntarily, within the meaning of this section.

         (vii)    Sinking Fund.  The Series A Preferred Shares shall not be
                  entitled to the benefit of any sinking fund to be applied to
                  their purchase or redemption.

                  (d) Series B Preferred Shares. A series of Preferred Shares is
hereby created,  to be limited in amount to 356,000 of the 5,000,000  authorized
Preferred  Shares.  The  designation,   relative  rights,  powers,  preferences,
qualifications and limitations are as follows:

         (i)      Designation  of  Series.  The  designation  of the  series  of
                  Preferred  Shares  created  hereby shall be Series B Preferred
                  Shares (hereinafter the "Series B Preferred Shares").

         (ii)     Dividends.


                                       13





                  (A) The holders of Series B Preferred Shares, in preference to
                  the  holders of Common  Shares and on a pari passu  basis with
                  the holders of Series A  Preferred  Shares,  if any,  shall be
                  entitled  to  receive,  when and as  declared  by the Board of
                  Directors,  dividends  at the rate of forty  cents  ($.40) per
                  share per annum,  and no more.  Subject to the requirements of
                  applicable  law,  dividends  on the Series B Preferred  Shares
                  shall be payable  annually,  when and as declared by the Board
                  of Directors, commencing in 1993. Such dividends on the Series
                  B Preferred  Shares shall be  cumulative so that if all or any
                  part of such dividends shall not have been paid or distributed
                  in any year,  or  declared  and set  apart,  the amount of the
                  deficiency (without interest) shall be paid or distributed, or
                  declared   and  set  apart,   before  any  dividend  or  other
                  distribution  shall be paid upon,  or  declared  and set apart
                  for,  Common Shares.  Declared but unpaid  dividends shall not
                  bear  interest.  For  dividend  purposes,  Series B  Preferred
                  Shares  shall be deemed to have been  issued as of the date of
                  issuance of the Series A Preferred  Shares for which they were
                  exchanged.

                  (B)  Except  as  hereinafter   provided  and  subject  to  the
                  requirements of applicable law, including, without limitation,
                  the obtaining of any necessary  approvals or consents from the
                  holders of the Common Shares and/or Series A Preferred  Shares
                  of the  Corporation,  any  dividend  declared  on the Series B
                  Preferred  Shares  shall be paid in cash or, at the  option of
                  the Corporation,  in Common Shares of the Corporation having a
                  market  price,  on the day  immediately  preceding the date on
                  which such dividend is declared (the "Valuation Date"),  equal
                  to the  amount  of the  dividend.  As used  herein,  the  term
                  "market price" shall mean the closing selling price or, if not
                  available,  the mean of the closing bid and asked prices,  or,
                  if not available, the mean of the highest bid and lowest asked
                  prices,   of  the  Common  Shares  as  quoted  on  a  national
                  securities  exchange,  or in the  over-the-counter  market  as
                  reported  by NASDAQ  or,  if not  available,  by the  National
                  Quotation  Bureau,  Incorporated,  as the case may be,  or, if
                  there is no selling or bid or asked price on a particular day,
                  then the closing selling price or, if not available,  the mean
                  of the closing bid and asked

                                       14





                  prices, or, if not available,  the mean of the highest bid and
                  lowest  asked  prices on the nearest  trading date before that
                  day and for which such prices are available, and if the Common
                  Shares are not listed on such an  exchange or traded in such a
                  market on the Valuation  Date,  then the market price shall be
                  determined   by  the  Board  of   Directors   by  taking  into
                  consideration all relevant factors, including, but not limited
                  to, the Corporation's net worth, prospective earning power and
                  dividend paying capacity.

         (iii)    Voting  Rights.  The holders of the Series B Preferred  Shares
                  shall be entitled to vote on all matters at all meetings of
                  the shareholders of the Corporation, and shall be entitled to
                  such number of votes for each Series B Preferred Share
                  entitled to vote at such  meetings as is set forth below,
                  voting together with the holders of Common Shares, and other
                  Preferred Shares who are entitled to vote, if any such shares
                  are then outstanding,  and not as a separate class,  except as
                  required by law. The number of votes to which the holders of
                  the Series B Preferred Shares  shall be entitled  to vote for
                  each Series B Preferred Share shall equal the number of Common
                  Shares of the  Corporation  into which such Series B Preferred
                  Share is convertible.

         (iv)     Redemption.

                  (A) In the event any holder or  holders of Series B  Preferred
                  Shares  shall give  written  notice to the  Corporation  of an
                  election to convert  such  shares  into  Common  Shares of the
                  Corporation  as provided for in subsection  (v)(B)(ii)  hereof
                  (whether or not such holder shall have theretofore surrendered
                  the certificate(s)  representing the Series B Preferred Shares
                  for conversion),  the Corporation may elect, at its option, by
                  notice  given  prior  to any  Effective  Conversion  Date  (as
                  hereinafter  defined) as provided in (B) below,  to redeem all
                  or any part of the outstanding  Series B Preferred Shares with
                  respect to which an  election to convert has been given to the
                  Corporation  at a price per share in cash equal to six dollars
                  fifty cents ($6.50) (the

                   1                    15





                  "Redemption Price") plus all accrued and unpaid dividends with
                  respect to such Series B Preferred Shares.

                  (B) Notice of every  redemption  shall be given by mailing the
                  same to  every  holder  of  record  of any  shares  then to be
                  redeemed,  prior to any Effective Conversion Date and not less
                  than ten (10) nor more than thirty (30) days prior to the date
                  fixed as the date for the redemption  thereof (the "Redemption
                  Date"),  at the  respective  addresses  of such holders as the
                  same  shall  appear  on  the  stock   transfer  books  of  the
                  Corporation.  The notice  described above shall state that the
                  shares  specified  in  such  notice  will be  redeemed  by the
                  Corporation  at the  Redemption  Price  plus all  accrued  and
                  unpaid  dividends on the Redemption  Date,  upon the surrender
                  for  cancellation,  at the place designated in such notice, of
                  the certificate(s)  representing the shares so to be redeemed,
                  properly  endorsed for transfer,  or  accompanied  by a proper
                  instrument  of  assignment  and  transfer,   and  bearing  all
                  necessary  transfer tax stamps  thereto  affixed and cancelled
                  (provided,  however, that such surrender shall not be required
                  if  the  holder  of  record   shall  have   theretofore   duly
                  surrendered  the  certificate(s)  representing  the  Series  B
                  Preferred Shares in accordance with the conversion  provisions
                  set  forth  in  subsection  (v)  hereof).  On  and  after  the
                  Redemption  Date,  each holder of shares called for redemption
                  shall be entitled to receive therefor, in cash, the Redemption
                  Price,  plus accrued and unpaid dividends as of the Redemption
                  Date, upon  presentation and surrender at the place designated
                  in such notice of the  certificate(s)  for shares held by such
                  holder  and  called  for  redemption,  properly  endorsed  for
                  transfer or accompanied by proper instruments of assignment or
                  transfer,  and  bearing  all  necessary  transfer  tax  stamps
                  thereto affixed and cancelled  (provided,  however,  that such
                  surrender  shall not be required if the holder of record shall
                  have theretofore  surrendered the certificate(s)  representing
                  the  Series  B  Preferred   Shares  in  accordance   with  the
                  conversion  provisions set forth in subsection (v) hereof). If
                  the  Corporation  shall give notice of redemption as aforesaid
                  (and unless the  Corporation  shall fail to pay the Redemption
                  Price of the shares duly presented for

                                       16





                  redemption,  plus all accrued and unpaid  dividends  as of the
                  Redemption  Date, in accordance with such notice),  all shares
                  called for redemption shall be deemed to have been redeemed on
                  the Redemption Date,  whether or not the certificates for said
                  shares shall be surrendered  for redemption and  cancellation,
                  and said shares so called for redemption  shall from and after
                  said date cease to  represent  any  interest  whatever  in the
                  Corporation  or its  property,  and the holders  thereof shall
                  have no rights other than the right to receive the  Redemption
                  Price,  plus  all  accrued  and  unpaid  dividends  as of  the
                  Redemption Date, but without any right to receive dividends or
                  interest  thereon  from or  after  said  date.  All  Series  B
                  Preferred   Shares  redeemed  under  the  provisions  of  this
                  subsection shall be forthwith retired and cancelled.

         (v)      Conversion.

                  (A) Conversion Right and Price.  Subject to the  Corporation's
                  redemption  right as provided for in  subsection  (iv) hereof,
                  each Series B Preferred  Share  shall be  convertible,  at the
                  option  of  the   holder   thereof,   at  the  office  of  the
                  Corporation,   into  such  number  of  Common  Shares  of  the
                  Corporation as is determined by dividing five dollars  ($5.00)
                  by the Conversion Price (as hereinafter defined). For purposes
                  hereof,  the term  "Conversion  Price"  shall mean fifty cents
                  ($.50), subject to adjustment as hereinafter set forth.

                  (B) Procedure.  Before any holder of Series B Preferred Shares
                  shall be entitled to receive  Common  Shares upon  conversion,
                  the holder shall (i)(a) surrender the certificate(s) therefor,
                  duly endorsed, at the office of the Corporation and (ii) shall
                  give written notice to the Corporation at such office that the
                  holder elects to convert the same into Common Shares and shall
                  further state therein the number of Series B Preferred  Shares
                  being converted.  Subject to the provisions hereof,  effective
                  thirty  (30) days  following  the later of the  receipt by the
                  Corporation   of  the   certificate(s)   pursuant  to  and  in
                  accordance with (i) above and the written

                                       17





                  notice  pursuant to and in accordance with (ii) above, or such
                  shorter  period  of  time  as the  Board  of  Directors  shall
                  determine  with  respect to any  particular  conversion  (such
                  thirtieth  (30th) day or end of  shorter  period of time being
                  hereinafter  referred to as the "Effective  Conversion Date"),
                  the  holder  shall  thereupon  be deemed  to be the  holder of
                  record  of  the  Common  Shares   issuable  upon   conversion,
                  notwithstanding   that  the  stock   transfer   books  of  the
                  Corporation  shall  then be closed or that the  certificate(s)
                  representing  such  Common  Shares  shall not then be actually
                  delivered  to the holder.  Subject to the  provisions  hereof,
                  immediately  following  the  Effective  Conversion  Date,  the
                  Corporation  shall  cause  its  transfer  agent to  issue  and
                  deliver  to  such  holder  of  Series  B  Preferred  Shares  a
                  certificate(s)  for the  number of Common  Shares to which the
                  holder shall be entitled. Notwithstanding anything hereinabove
                  to the contrary,  in the event the Corporation  shall exercise
                  its redemption rights pursuant to subsection (iv) hereof,  the
                  Corporation  shall  be  under no  obligation  to issue  Common
                  Shares to the holder and the holder's  sole rights shall be as
                  set forth under such subsection (iv).

                  (C)      Adjustment of Conversion Price.

                  (i) In the  event  that  the  Corporation  shall  (i)  pay any
                  dividend on its capital stock payable in Common Shares (except
                  with  respect to the  dividend  payable to the  holders of the
                  Series B Preferred  Shares);  (ii) effect a subdivision of its
                  outstanding  shares into a greater number of Common Shares (by
                  reclassification,  stock split or otherwise than by payment of
                  a dividend in Common  Shares);  (iii) effect a combination  or
                  consolidation  of its outstanding  Common Shares into a lesser
                  number of Common Shares (by reclassification, reverse split or
                  otherwise);  (iv)  issue  by  reclassification,   exchange  or
                  substitution  of its Common Shares any shares of capital stock
                  of the  Corporation  or effect  any other  transaction  having
                  similar  effect,  the Conversion  Price in effect  immediately
                  prior  to such  action  shall  be  adjusted  so that  upon the
                  exercise of the conversion  right hereof at any time after the
                  occurrence of any event described  above,  the holder shall be
                  entitled to receive the Common

                                       18





                  Shares to which such holder would have been finally  entitled,
                  after giving  effect to the  occurrence  of such event,  as if
                  such  holder  had  converted  the  Series B  Preferred  Shares
                  immediately   prior  to  the  occurrence  of  such  event.  An
                  adjustment  made  pursuant to this  paragraph (C) shall become
                  effective  immediately  after the record date in the case of a
                  dividend  and shall  become  effective  immediately  after the
                  effective  date  in the  case of a  subdivision,  combination,
                  reclassification, exchange or substitution.

                  (ii) In case of any  consolidation  or  merger  to  which  the
                  Corporation is a party,  other than a merger or  consolidation
                  in  which  the  Corporation  is the  surviving  or  continuing
                  corporation and which does not result in any  reclassification
                  of,  or change  (other  than a change in par value or from par
                  value to no par value or from no par value to par value, or as
                  a result of subdivision or combination) in, outstanding Common
                  Shares, then the Corporation,  or such successor  corporation,
                  as the case may be, shall make appropriate  provision so that,
                  subject  to  the  Corporation's  redemption  rights  described
                  hereinabove,  the holder of each Series B Preferred Share then
                  outstanding  shall have the right to  convert  such share into
                  the kind and amount of shares or other securities and property
                  receivable  upon such  consolidation  or merger by a holder of
                  the number of Common Shares into which such Series B Preferred
                  Shares  might have been  converted  immediately  prior to such
                  consolidation or merger.

                  (D) Fractional  Shares.  No fractional  Common Shares shall be
                  issued upon conversion of Series B Preferred  Shares.  In lieu
                  of any fractional  shares to which the holder would  otherwise
                  be entitled,  the  Corporation  shall pay, in cash,  an amount
                  equal to the  product of (i) such  fraction  of a share  times
                  (ii) the market price (as  hereinabove  defined) of one Common
                  Share on the Effective Conversion Date.

                  (E)  Reservation of Shares Issuable Upon Conversion.  The
                  Corporation shall at all times use its best efforts to
                  reserve and keep available out of its authorized but

                                       19





                  unissued  Common  Shares,  solely for the purpose of effecting
                  the conversion of the Series B Preferred  Shares,  such number
                  of its Common  Shares as shall from time to time be sufficient
                  to effect the conversion of all outstanding Series B Preferred
                  Shares,  and if at any  time  the  number  of  authorized  but
                  unissued  Common  Shares shall not be sufficient to effect the
                  conversion of all then outstanding  Series B Preferred Shares,
                  the Corporation  will, as its sole obligation,  subject to the
                  requirements  of  applicable  state law,  take such  corporate
                  action as may, in the opinion of its counsel,  be necessary to
                  increase its  authorized  but unissued  Common  Shares to such
                  number  of shares as shall be  sufficient  for such  purposes;
                  provided, however that nothing contained herein shall preclude
                  the Corporation  from satisfying its obligations in respect of
                  the conversion of the Series B Preferred Shares by delivery of
                  purchased  Common Shares which are held in the treasury of the
                  Corporation.

                  (F) Lost, Stolen or Destroyed Certificates.  In the event that
                  the   holder   shall   notify   the   Corporation   that   the
                  certificate(s)  representing  Series B  Preferred  Shares have
                  been  lost,  stolen or  destroyed  and  either  (i)  provide a
                  letter, in form satisfactory to the Corporation, to the effect
                  that he will indemnify the Corporation  from any loss incurred
                  by  it  in  connection  therewith,   and/or  (ii)  provide  an
                  indemnity bond in such amount as is reasonably required by the
                  Corporation,  the  Corporation  having the option of  electing
                  either (i) or (ii) or both, the  Corporation  may, in its sole
                  discretion,  accept such letter and/or  indemnity bond in lieu
                  of  the  surrender  of  the   certificate(s)  as  required  by
                  subsections (iv) and (v) hereof.

                  (G)      Statutory Restrictions.  The foregoing provisions
                  for conversion of the Series B Preferred Shares shall be
                  subject to all applicable statutory limitations and
                  restrictions.

         (vi)     Liquidation Preference.  In the event of any voluntary or
                  involuntary liquidation, dissolution or winding up of the
                  Corporation, the holders of Series B Preferred Shares

                                       20





                  will be entitled to receive,  prior and in  preference  to any
                  distribution of the assets or surplus funds of the Corporation
                  to the holders of any Common Shares by reason of the ownership
                  thereof,  and on a pari passu  basis  with the  holders of the
                  Series A Preferred  Shares, if any, an amount equal to (i) the
                  fixed sum of five  dollars  ($5.00)  per share and no more and
                  (ii) all accrued and unpaid  dividends due with respect to the
                  Series B Preferred  Shares (the  "Preferential  Amount").  If,
                  upon the  occurrence  of such an event,  the  assets and funds
                  thus  distributed  among the  holders  of  Series B  Preferred
                  Shares  shall be  insufficient  to permit the  payment to such
                  holders  of the full  Preferential  Amount,  then,  the entire
                  assets  and funds of the  Corporation  legally  available  for
                  distribution  to the holders of the Series B Preferred  Shares
                  shall be distributed  ratably among such holders in accordance
                  with the  respective  amounts  which  would be payable on such
                  shares if all amounts payable thereon were paid in full. After
                  the payment or setting apart of the full Preferential  Amounts
                  required  to be paid to the  holders  of Series A and Series B
                  Preferred  Shares,  the holders of Common  Shares or any other
                  stock of the Corporation  ranking in liquidation junior to the
                  Series A and Series B  Preferred  Shares  shall be entitled to
                  receive  ratably all remaining  assets or surplus funds of the
                  Corporation.  Neither  the  merger  or  consolidation  of  the
                  Corporation,  nor the sale, lease or conveyance of all or part
                  of  its  assets,   shall  be  deemed  to  be  a   liquidation,
                  dissolution  or winding up of the affairs of the  Corporation,
                  either  voluntarily  or  involuntarily,  within the meaning of
                  this section.

         (vii)    Sinking  Fund.  The Series B Preferred  Shares shall not be
                  entitled to the  benefit of any  sinking fund to be applied to
                  their purchase or redemption.

                  (e)  Series C Preferred Shares.  A series of Preferred
Shares is hereby created, to be limited in amount to 1,090,910 of the 5,000,000 
authorized Preferred Shares.  The designation, relative rights, powers, 
preferences, qualifications and limitations are as follows:

                                       21







         (i)      Designation  of  Series.  The  designation  of the  series  of
                  Preferred  Shares  created  hereby shall be Series C Preferred
                  Shares (hereinafter the "Series C Preferred Shares").

         (ii)     Dividends.

                  (A) The holders of Series C Preferred Shares, in preference to
                  the  holders of Common  Shares and on a pari passu  basis with
                  the  holders  of  Series  A  Preferred  Shares  and  Series  B
                  Preferred Shares,  if any, shall be entitled to receive,  when
                  and as declared by the Board of  Directors,  dividends  at the
                  rate of twenty-seven  and one-half cents ($.275) per share per
                  annum, and no more.  Subject to the requirements of applicable
                  law,  dividends  on the  Series C  Preferred  Shares  shall be
                  payable  annually,  when  and  as  declared  by the  Board  of
                  Directors,  commencing in 1994. Such dividends on the Series C
                  Preferred  Shares  shall be  cumulative  so that if all or any
                  part of such dividends shall not have been paid or distributed
                  in any year,  or  declared  and set  apart,  the amount of the
                  deficiency (without interest) shall be paid or distributed, or
                  declared   and  set  apart,   before  any  dividend  or  other
                  distribution  shall be paid upon,  or  declared  and set apart
                  for,  Common Shares.  Declared but unpaid  dividends shall not
                  bear interest.

                  (B)  Except  as  hereinafter   provided  and  subject  to  the
                  requirements of applicable law, including, without limitation,
                  the obtaining of any necessary  approvals or consents from the
                  holders of the Common Shares and/or Series A Preferred  Shares
                  and/or  Series B  Preferred  Shares  of the  Corporation,  any
                  dividend  declared on the Series C Preferred  Shares  shall be
                  paid in cash or, at the option of the  Corporation,  in Common
                  Shares of the  Corporation  having a market price,  on the day
                  immediately  preceding  the date on  which  such  dividend  is
                  declared (the  "Valuation  Date"),  equal to the amount of the
                  dividend. As used herein, the term "market price" shall

                                       22





                  mean the closing selling price or, if not available,  the mean
                  of the closing bid and asked prices, or, if not available, the
                  mean of the highest bid and lowest asked prices, of the Common
                  Shares as quoted on a national securities exchange,  or in the
                  over-the-counter  market  as  reported  by  NASDAQ  or, if not
                  available, by the National Quotation Bureau, Incorporated,  as
                  the case may be,  or, if there is no  selling  or bid or asked
                  price on a particular  day, then the closing selling price or,
                  if not  available,  the  mean of the  closing  bid  and  asked
                  prices, or, if not available,  the mean of the highest bid and
                  lowest  asked  prices on the nearest  trading date before that
                  day and for which such prices are available, and if the Common
                  Shares are not listed on such an  exchange or traded in such a
                  market on the Valuation  Date,  then the market price shall be
                  determined   by  the  Board  of   Directors   by  taking  into
                  consideration all relevant factors, including, but not limited
                  to, the Corporation's net worth, prospective earning power and
                  dividend paying capacity.

         (iii)    Voting  Rights.  The holders of the Series C Preferred  Shares
                  shall be entitled to vote on all matters at all meetings of
                  the shareholders of the Corporation, and shall be entitled to
                  such number of votes for each Series C Preferred Share
                  entitled to vote at such  meetings as is set forth below,
                  voting  together with the holders of Common Shares, and other
                  Preferred Shares who are entitled to vote, if any such shares
                  are then  outstanding, and not as a separate class, except as
                  required by law. The number of votes to which the holders of
                  the Series C Preferred Shares  shall be entitled  to vote for
                  each Series C Preferred Share shall equal the number of Common
                  Shares of the Corporation into which such Series C Preferred
                  Share is convertible multiplied by six (6).

         (iv)     Redemption.  The Series C Preferred Shares shall not be
                  subject to mandatory redemption by either the Corporation
                  or the holders thereof.




                                       23




         (v)      Conversion.

                  (A) Conversion Right and Price.  Each Series C Preferred Share
                  shall be convertible,  at the option of the holder thereof, at
                  the  office of the  Corporation,  into  such  number of Common
                  Shares of the  Corporation  as is  determined  by dividing two
                  dollars seventy-five cents ($2.75) by the Conversion Price (as
                  hereinafter   defined).   For   purposes   hereof,   the  term
                  "Conversion  Price" shall mean two dollars  seventy-five cents
                  ($2.75), subject to adjustment as hereinafter set forth.

                  (B) Procedure.  Before any holder of Series C Preferred Shares
                  shall be entitled to receive  Common  Shares upon  conversion,
                  the holder shall (i)(a) surrender the certificate(s) therefor,
                  duly endorsed, at the office of the Corporation and (ii) shall
                  give written notice to the Corporation at such office that the
                  holder elects to convert the same into Common Shares and shall
                  further state therein the number of Series C Preferred  Shares
                  being converted.  Subject to the provisions hereof,  effective
                  thirty  (30) days  following  the later of the  receipt by the
                  Corporation   of  the   certificate(s)   pursuant  to  and  in
                  accordance  with (i) above and the written notice  pursuant to
                  and in accordance  with (ii) above,  or such shorter period of
                  time as the Board of Directors shall determine with respect to
                  any particular conversion (such thirtieth (30th) day or end of
                  shorter  period of time being  hereinafter  referred to as the
                  "Effective  Conversion  Date"),  the holder shall thereupon be
                  deemed  to be  the  holder  of  record  of the  Common  Shares
                  issuable  upon  conversion,  notwithstanding  that  the  stock
                  transfer books of the Corporation shall then be closed or that
                  the  certificate(s)  representing such Common Shares shall not
                  then be  actually  delivered  to the  holder.  Subject  to the
                  provisions   hereof,   immediately   following  the  Effective
                  Conversion  Date,  the  Corporation  shall cause its  transfer
                  agent  to  issue  and  deliver  to such  holder  of  Series  C
                  Preferred  Shares a  certificate(s)  for the  number of Common
                  Shares to which the holder shall be entitled.

                  (C)  Adjustment of Conversion Price.

                  (i)  In the event that the Corporation shall (a) pay any
                  dividend on its Common Shares payable in Common Shares;

                                       24





                  (b) effect a  subdivision  of its  outstanding  shares  into a
                  greater  number of Common Shares (by  reclassification,  stock
                  split or  otherwise  than by payment  of a dividend  in Common
                  Shares);  (c) effect a  combination  or  consolidation  of its
                  outstanding  Common  Shares  into a lesser  number  of  Common
                  Shares (by reclassification,  reverse split or otherwise); (d)
                  issue by  reclassification,  exchange or  substitution  of its
                  Common Shares any shares of capital  stock of the  Corporation
                  or effect any other  transaction  having similar  effect,  the
                  Conversion  Price in effect  immediately  prior to such action
                  shall be adjusted so that upon the exercise of the  conversion
                  right  hereof at any time  after the  occurrence  of any event
                  described  above,  the holder shall be entitled to receive the
                  Common  Shares to which such  holder  would have been  finally
                  entitled, after giving effect to the occurrence of such event,
                  as if such holder had converted the Series C Preferred  Shares
                  immediately   prior  to  the  occurrence  of  such  event.  An
                  adjustment  made  pursuant to this  paragraph (C) shall become
                  effective  immediately  after the record date in the case of a
                  dividend  and shall  become  effective  immediately  after the
                  effective  date  in the  case of a  subdivision,  combination,
                  reclassification, exchange or substitution.

                  (ii) In case of any  consolidation  or  merger  to  which  the
                  Corporation is a party,  other than a merger or  consolidation
                  in  which  the  Corporation  is the  surviving  or  continuing
                  corporation and which does not result in any  reclassification
                  of,  or change  (other  than a change in par value or from par
                  value to no par value or from no par value to par value, or as
                  a result of subdivision or combination) in, outstanding Common
                  Shares, then the Corporation,  or such successor  corporation,
                  as the case may be, shall make  appropriate  provision so that
                  the holder of each Series C Preferred  Share then  outstanding
                  shall have the right to  convert  such share into the kind and
                  amount of shares or other  securities and property  receivable
                  upon such consolidation or merger by a holder of the number of
                  Common Shares into which such Series C Preferred  Shares might
                  have been converted immediately prior to such consolidation or
                  merger.


                                       25





                  (D) Fractional  Shares.  No fractional  Common Shares shall be
                  issued upon conversion of Series C Preferred  Shares.  In lieu
                  of any fractional  shares to which the holder would  otherwise
                  be entitled,  the  Corporation  shall pay, in cash,  an amount
                  equal to the  product of (i) such  fraction  of a share  times
                  (ii) the market price (as  hereinabove  defined) of one Common
                  Share on the Effective Conversion Date.

                  (E)  Reservation  of  Shares  Issuable  Upon  Conversion.  The
                  Corporation shall at all times use its best efforts to reserve
                  and keep available out of its  authorized but unissued  Common
                  Shares,  solely for the purpose of effecting the conversion of
                  the  Series C  Preferred  Shares,  such  number of its  Common
                  Shares as shall from time to time be  sufficient to effect the
                  conversion of all outstanding  Series C Preferred Shares,  and
                  if at any time the number of  authorized  but unissued  Common
                  Shares shall not be sufficient to effect the conversion of all
                  then outstanding  Series C Preferred  Shares,  the Corporation
                  will, as its sole  obligation,  subject to the requirements of
                  applicable  state law, take such  corporate  action as may, in
                  the opinion of its  counsel,  be  necessary  to  increase  its
                  authorized but unissued Common Shares to such number of shares
                  as shall be sufficient  for such purposes;  provided,  however
                  that nothing  contained  herein shall preclude the Corporation
                  from  satisfying its  obligations in respect of the conversion
                  of the Series C  Preferred  Shares by  delivery  of  purchased
                  Common   Shares   which  are  held  in  the  treasury  of  the
                  Corporation.

                  (F) Lost, Stolen or Destroyed Certificates.  In the event that
                  the   holder   shall   notify   the   Corporation   that   the
                  certificate(s)  representing  Series C  Preferred  Shares have
                  been  lost,  stolen or  destroyed  and  either  (i)  provide a
                  letter, in form satisfactory to the Corporation, to the effect
                  that he will indemnify the Corporation  from any loss incurred
                  by  it  in  connection  therewith,   and/or  (ii)  provide  an
                  indemnity bond in such amount as is reasonably required by the
                  Corporation,  the  Corporation  having the option of  electing
                  either (i) or (ii) or both, the Corporation may, in its sole

                                       26





                  discretion,  accept such letter and/or  indemnity bond in lieu
                  of  the  surrender  of  the   certificate(s)  as  required  by
                  subsections (iv) and (v) hereof.

                  (G)  Statutory  Restrictions.  The  foregoing  provisions  for
                  conversion  of the Series C Preferred  Shares shall be subject
                  to all applicable statutory limitations and restrictions.

         (vi)     Liquidation Preference.  In the event of any voluntary or
                  involuntary  liquidation,  dissolution  or  winding  up of the
                  Corporation,  the holders of Series C Preferred Shares will be
                  entitled  to  receive,   prior  and  in   preference   to  any
                  distribution of the assets or surplus funds of the Corporation
                  to the holders of any Common Shares by reason of the ownership
                  thereof, and on a pari passu basis with the holders of the 
                  Series A and Series B Preferred  Shares, if 
                  any,  an  amount  equal to (i) the  fixed  sum of two  dollars
                  seventy-five  ($2.75)  per  share  and no more  and  (ii)  all
                  accrued and unpaid  dividends due with respect to the Series C
                  Preferred  Shares (the  "Preferential  Amount").  If, upon the
                  occurrence  of  such an  event,  the  assets  and  funds  thus
                  distributed  among the  holders of Series C  Preferred  Shares
                  shall be insufficient to permit the payment to such holders of
                  the full  Preferential  Amount,  then,  the entire  assets and
                  funds of the Corporation legally available for distribution to
                  the  holders  of  the  Series  C  Preferred  Shares  shall  be
                  distributed  ratably among such holders in accordance with the
                  respective  amounts  which  would be payable on such shares if
                  all  amounts  payable  thereon  were  paid in full.  After the
                  payment  or  setting  apart of the full  Preferential  Amounts
                  required  to be paid to the  holders of Series A, Series B and
                  Series C Preferred Shares, the holders of Common Shares or any
                  other stock of the Corporation  ranking in liquidation  junior
                  to the Series A, Series B and Series C Preferred  Shares shall
                  be entitled to receive ratably all remaining assets or surplus
                  funds of the Corporation.  Neither the merger or consolidation
                  of the  Corporation,  nor the sale, lease or conveyance of all
                  or part of its  assets,  shall be deemed to be a  liquidation,
                  dissolution or winding up of the

                                       27





                  affairs of the Corporation, either voluntarily or
                  involuntarily, within the meaning of this section.

         (vii)    Sinking  Fund.  The Series C Preferred  Shares shall not be
                  entitled to the benefit of any sinking fund to be applied to
                  their purchase or redemption.

                  (f) Series D Preferred Shares. A series of Preferred Shares is
hereby created, to be limited in amount to 1,413,337 of the 5,000,000 authorized
Preferred  Shares.  The  designation,   relative  rights,  powers,  preferences,
qualifications and limitations are as follows:

         (i)      Designation  of  Series.  The  designation  of the  series  of
                  Preferred  Shares  created  hereby shall be Series D Preferred
                  Shares (hereinafter the "Series D Preferred Shares").

         (ii)     Dividends.

                  (A) The holders of Series D Preferred Shares, in preference to
                  the  holders of Common  Shares and on a pari passu  basis with
                  the holders of Series A Preferred  Shares,  Series B Preferred
                  Shares  and  Series  C  Preferred  Shares,  if any,  shall  be
                  entitled  to  receive,  when and as  declared  by the Board of
                  Directors,  dividends at the rate of twenty-five  cents ($.25)
                  per share per annum, and no more.  Subject to the requirements
                  of applicable law,  dividends on the Series D Preferred Shares
                  shall be payable  annually,  when and as declared by the Board
                  of Directors, commencing in 1994. Such dividends on the Series
                  D Preferred  Shares shall be  cumulative so that if all or any
                  part of such dividends shall not have been paid or distributed
                  in any year,  or  declared  and set  apart,  the amount of the
                  deficiency (without interest) shall be paid or distributed, or
                  declared   and  set  apart,   before  any  dividend  or  other
                  distribution  shall be paid upon,  or  declared  and set apart
                  for,  Common Shares.  Declared but unpaid  dividends shall not
                  bear interest.

                                       28





                  For dividend purposes,  in the event Series D Preferred Shares
                  are issued in  exchange  for Series C  Preferred  Shares,  the
                  Series D Preferred  Shares shall be deemed to have been issued
                  as of the date of issuance  of the Series C  Preferred  Shares
                  for which they were exchanged.

                  (B)  Except  as  hereinafter   provided  and  subject  to  the
                  requirements of applicable law, including, without limitation,
                  the obtaining of any necessary  approvals or consents from the
                  holders of the Common Shares and/or Series A Preferred  Shares
                  and/or  Series B Preferred  Shares  and/or  Series C Preferred
                  Shares of the Corporation, any dividend declared on the Series
                  D Preferred  Shares shall be paid in cash or, at the option of
                  the Corporation,  in Common Shares of the Corporation having a
                  market  price,  on the day  immediately  preceding the date on
                  which such dividend is declared (the "Valuation Date"),  equal
                  to the  amount  of the  dividend.  As used  herein,  the  term
                  "market price" shall mean the closing selling price or, if not
                  available,  the mean of the closing bid and asked prices,  or,
                  if not available, the mean of the highest bid and lowest asked
                  prices,   of  the  Common  Shares  as  quoted  on  a  national
                  securities  exchange,  or in the  over-the-counter  market  as
                  reported  by NASDAQ  or,  if not  available,  by the  National
                  Quotation  Bureau,  Incorporated,  as the case may be,  or, if
                  there is no selling or bid or asked price on a particular day,
                  then the closing selling price or, if not available,  the mean
                  of the closing bid and asked prices, or, if not available, the
                  mean of the highest bid and lowest asked prices on the nearest
                  trading  date  before  that day and for which such  prices are
                  available,  and if the Common Shares are not listed on such an
                  exchange  or traded in such a market  on the  Valuation  Date,
                  then the  market  price  shall be  determined  by the Board of
                  Directors by taking into  consideration  all relevant factors,
                  including,  but not limited to, the  Corporation's  net worth,
                  prospective earning power and dividend paying capacity.

         (iii)    Voting Rights.  The holders of the Series D Preferred
                  Shares shall be entitled to vote on all matters at all
                  meetings of the shareholders of the Corporation, and

                                       29





                  shall be  entitled  to such  number of votes for each Series D
                  Preferred  Share  entitled to vote at such  meetings as is set
                  forth  below,  voting  together  with the  holders  of  Common
                  Shares,  and other Preferred  Shares who are entitled to vote,
                  if any such shares are then outstanding, and not as a separate
                  class, except as required by law. The number of votes to which
                  the holders of the Series D Preferred Shares shall be entitled
                  to vote for each  Series D  Preferred  Share  shall  equal the
                  number of Common  Shares of the  Corporation  into  which such
                  Series D Preferred Share is convertible multiplied by six (6).

         (iv)     Redemption.  The Series D Preferred Shares shall not be
                  subject to mandatory redemption by either the Corporation
                  or the holders thereof.

         (v)      Conversion.

                  (A) Conversion Right and Price.  Each Series D Preferred Share
                  shall be convertible,  at the option of the holder thereof, at
                  the  office of the  Corporation,  into  such  number of Common
                  Shares of the  Corporation  as is  determined  by dividing two
                  dollars  fifty  cents  ($2.50)  by the  Conversion  Price  (as
                  hereinafter   defined).   For   purposes   hereof,   the  term
                  "Conversion Price" shall mean two dollars fifty cents ($2.50),
                  subject to adjustment as hereinafter set forth.

                  (B) Procedure.  Before any holder of Series D Preferred Shares
                  shall be entitled to receive  Common  Shares upon  conversion,
                  the holder shall (i)(a) surrender the certificate(s) therefor,
                  duly endorsed, at the office of the Corporation and (ii) shall
                  give written notice to the Corporation at such office that the
                  holder elects to convert the same into Common Shares and shall
                  further state therein the number of Series D Preferred  Shares
                  being converted.  Subject to the provisions hereof,  effective
                  thirty  (30) days  following  the later of the  receipt by the
                  Corporation   of  the   certificate(s)   pursuant  to  and  in
                  accordance  with (i) above and the written notice  pursuant to
                  and in accordance  with (ii) above,  or such shorter period of
                  time as the Board of Directors

                                       30





                  shall  determine  with  respect to any  particular  conversion
                  (such  thirtieth  (30th) day or end of shorter  period of time
                  being  hereinafter  referred to as the  "Effective  Conversion
                  Date"),  the holder shall thereupon be deemed to be the holder
                  of record  of the  Common  Shares  issuable  upon  conversion,
                  notwithstanding   that  the  stock   transfer   books  of  the
                  Corporation  shall  then be closed or that the  certificate(s)
                  representing  such  Common  Shares  shall not then be actually
                  delivered  to the holder.  Subject to the  provisions  hereof,
                  immediately  following  the  Effective  Conversion  Date,  the
                  Corporation  shall  cause  its  transfer  agent to  issue  and
                  deliver  to  such  holder  of  Series  D  Preferred  Shares  a
                  certificate(s)  for the  number of Common  Shares to which the
                  holder shall be entitled.

                  (C)  Adjustment of Conversion Price.

                  (i) In the  event  that  the  Corporation  shall  (a)  pay any
                  dividend on its Common Shares  payable in Common  Shares;  (b)
                  effect a subdivision of its outstanding  shares into a greater
                  number of Common Shares (by  reclassification,  stock split or
                  otherwise than by payment of a dividend in Common Shares); (c)
                  effect  a  combination  or  consolidation  of its  outstanding
                  Common  Shares  into a lesser  number  of  Common  Shares  (by
                  reclassification,  reverse split or  otherwise);  (d) issue by
                  reclassification,  exchange  or  substitution  of  its  Common
                  Shares  any  shares of  capital  stock of the  Corporation  or
                  effect  any  other  transaction  having  similar  effect,  the
                  Conversion  Price in effect  immediately  prior to such action
                  shall be adjusted so that upon the exercise of the  conversion
                  right  hereof at any time  after the  occurrence  of any event
                  described  above,  the holder shall be entitled to receive the
                  Common  Shares to which such  holder  would have been  finally
                  entitled, after giving effect to the occurrence of such event,
                  as if such holder had converted the Series D Preferred  Shares
                  immediately   prior  to  the  occurrence  of  such  event.  An
                  adjustment  made  pursuant to this  paragraph (C) shall become
                  effective  immediately  after the record date in the case of a
                  dividend  and shall  become  effective  immediately  after the
                  effective  date  in the  case of a  subdivision,  combination,
                  reclassification, exchange or substitution.

                                       31





                  (ii) In case of any  consolidation  or  merger  to  which  the
                  Corporation is a party,  other than a merger or  consolidation
                  in  which  the  Corporation  is the  surviving  or  continuing
                  corporation and which does not result in any  reclassification
                  of,  or change  (other  than a change in par value or from par
                  value to no par value or from no par value to par value, or as
                  a result of subdivision or combination) in, outstanding Common
                  Shares, then the Corporation,  or such successor  corporation,
                  as the case may be, shall make  appropriate  provision so that
                  the holder of each Series D Preferred  Share then  outstanding
                  shall have the right to  convert  such share into the kind and
                  amount of shares or other  securities and property  receivable
                  upon such consolidation or merger by a holder of the number of
                  Common Shares into which such Series D Preferred  Shares might
                  have been converted immediately prior to such consolidation or
                  merger.

                  (D) Fractional  Shares.  No fractional  Common Shares shall be
                  issued upon conversion of Series D Preferred  Shares.  In lieu
                  of any fractional  shares to which the holder would  otherwise
                  be entitled,  the  Corporation  shall pay, in cash,  an amount
                  equal to the  product of (i) such  fraction  of a share  times
                  (ii) the market price (as  hereinabove  defined) of one Common
                  Share on the Effective Conversion Date.

                  (E)  Reservation  of  Shares  Issuable  Upon  Conversion.  The
                  Corporation shall at all times use its best efforts to reserve
                  and keep available out of its  authorized but unissued  Common
                  Shares,  solely for the purpose of effecting the conversion of
                  the  Series D  Preferred  Shares,  such  number of its  Common
                  Shares as shall from time to time be  sufficient to effect the
                  conversion of all outstanding  Series D Preferred Shares,  and
                  if at any time the number of  authorized  but unissued  Common
                  Shares shall not be sufficient to effect the conversion of all
                  then outstanding  Series D Preferred  Shares,  the Corporation
                  will, as its sole  obligation,  subject to the requirements of
                  applicable  state law, take such  corporate  action as may, in
                  the opinion of its  counsel,  be  necessary  to  increase  its
                  authorized but unissued Common Shares to such number of shares
                  as shall be sufficient

                                       32





                  for such purposes;  provided,  however that nothing  contained
                  herein shall  preclude the  Corporation  from  satisfying  its
                  obligations  in  respect  of the  conversion  of the  Series D
                  Preferred  Shares by delivery of purchased Common Shares which
                  are held in the treasury of the Corporation.

                  (F) Lost, Stolen or Destroyed Certificates.  In the event that
                  the   holder   shall   notify   the   Corporation   that   the
                  certificate(s)  representing  Series D  Preferred  Shares have
                  been  lost,  stolen or  destroyed  and  either  (i)  provide a
                  letter, in form satisfactory to the Corporation, to the effect
                  that he will indemnify the Corporation  from any loss incurred
                  by  it  in  connection  therewith,   and/or  (ii)  provide  an
                  indemnity bond in such amount as is reasonably required by the
                  Corporation,  the  Corporation  having the option of  electing
                  either (i) or (ii) or both, the  Corporation  may, in its sole
                  discretion,  accept such letter and/or  indemnity bond in lieu
                  of  the  surrender  of  the   certificate(s)  as  required  by
                  subsections (iv) and (v) hereof.

                  (G)  Statutory  Restrictions.  The  foregoing  provisions  for
                  conversion  of the Series D Preferred  Shares shall be subject
                  to all applicable statutory limitations and restrictions.

         (vi)     Liquidation Preference.  In the event of any voluntary or
                  involuntary  liquidation,  dissolution  or  winding  up of the
                  Corporation,  the holders of Series D Preferred Shares will be
                  entitled  to  receive,   prior  and  in   preference   to  any
                  distribution of the assets or surplus funds of the Corporation
                  to the holders of any Common Shares by reason of the ownership
                  thereof, and on a pari passu basis with the  holders of the
                  Series A,  Series B and Series C Preferred Shares, if any, an
                  amount equal to (i) the fixed sum of two dollars fifty cents
                  ($2.50) per share and no more and (ii) all accrued and unpaid
                  dividends due with respect to the Series D Preferred  Shares
                  (the "Preferential Amount").  If, upon the occurrence of such
                  an event, the assets and funds thus distributed among the 
                  holders of Series D Preferred Shares shall be insufficient to
                  permit the payment to such holders of the

                                       33





                  full Preferential Amount, then, the entire assets and funds of
                  the  Corporation  legally  available for  distribution  to the
                  holders of the Series D Preferred  Shares shall be distributed
                  ratably among such holders in accordance  with the  respective
                  amounts  which  would be payable on such shares if all amounts
                  payable  thereon  were  paid in full.  After  the  payment  or
                  setting apart of the full Preferential  Amounts required to be
                  paid to the holders of Series A, Series B, Series C and Series
                  D Preferred Shares,  the holders of Common Shares or any other
                  stock of the Corporation  ranking in liquidation junior to the
                  Series A,  Series B,  Series C and Series D  Preferred  Shares
                  shall be entitled to receive  ratably all remaining  assets or
                  surplus  funds  of the  Corporation.  Neither  the  merger  or
                  consolidation  of the  Corporation,  nor the  sale,  lease  or
                  conveyance of all or part of its assets, shall be deemed to be
                  a liquidation, dissolution or winding up of the affairs of the
                  Corporation,  either voluntarily or involuntarily,  within the
                  meaning of this section.

         (vii)    Sinking  Fund.  The Series D Preferred  Shares shall not be
                  entitled to the benefit of any sinking fund to be applied to
                  their purchase or redemption.

                 (g) Series E Preferred  Shares. A series of Preferred Shares is
hereby created, to be limited in amount to 1,085,000 of the 5,000,000 authorized
Preferred  Shares.  The  designation,   relative  rights,  powers,  preferences,
qualifications and limitations are as follows:

         (i)      Designation  of  Series.  The  designation  of the  series  of
                  Preferred  Shares  created  hereby shall be Series E Preferred
                  Shares (hereinafter the "Series E Preferred Shares").

         (ii)     Dividends.


                                       34





                  (A) The holders of Series E Preferred Shares, in preference to
                  the  holders of Common  Shares and on a pari passu  basis with
                  the holders of Series A Preferred  Shares,  Series B Preferred
                  Shares,  Series C  Preferred  Shares  and  Series D  Preferred
                  Shares,  if any,  shall be entitled  to  receive,  when and as
                  declared by the Board of  Directors,  dividends at the rate of
                  twenty-two and one-half cents ($.225) per share per annum, and
                  no  more.  Subject  to the  requirements  of  applicable  law,
                  dividends  on the Series E Preferred  Shares  shall be payable
                  annually,  when and as  declared  by the  Board of  Directors,
                  commencing in 1996.  Such  dividends on the Series E Preferred
                  Shares shall be  cumulative so that if all or any part of such
                  dividends shall not have been paid or distributed in any year,
                  or  declared  and set  apart,  the  amount  of the  deficiency
                  (without  interest) shall be paid or distributed,  or declared
                  and set apart, before any dividend or other distribution shall
                  be paid upon,  or declared and set apart for,  Common  Shares.
                  Declared but unpaid dividends shall not bear interest.

                  (B)  Except  as  hereinafter   provided  and  subject  to  the
                  requirements of applicable law, including, without limitation,
                  the obtaining of any necessary  approvals or consents from the
                  holders of the Common Shares and/or Series A Preferred  Shares
                  and/or  Series B Preferred  Shares  and/or  Series C Preferred
                  Shares  and/or Series D Preferred  Shares of the  Corporation,
                  any dividend  declared on the Series E Preferred  Shares shall
                  be paid in cash  or,  at the  option  of the  Corporation,  in
                  Common Shares of the Corporation, the number of which shall be
                  equal to the amount of the dividend  divided by the Conversion
                  Price (as hereinafter defined) then in effect.

         (iii)    Voting  Rights.  The holders of the Series E Preferred  Shares
                  shall be entitled to vote on all matters at all meetings of
                  the shareholders of the Corporation, and shall be entitled to
                  such number of votes for each Series E Preferred  Share
                  entitled to vote at such  meetings as is set forth below,
                  voting together with the holders of Common Shares, and other
                  Preferred Shares who are entitled to vote, if any such shares
                  are then outstanding, and not as a separate class, except as

                                       35





                  required  by law.  The number of votes to which the holders of
                  the Series E  Preferred  Shares  shall be entitled to vote for
                  each Series E Preferred Share shall equal the number of Common
                  Shares of the  Corporation  into which such Series E Preferred
                  Share is convertible.

         (iv)     Redemption.  The Series E Preferred Shares shall not be
                  subject to mandatory redemption by either the Corporation
                  or the holders thereof.

         (v)      Conversion.

                  (A) Conversion Right and Price.  Each Series E Preferred Share
                  shall be convertible,  at the option of the holder thereof, at
                  the  office of the  Corporation,  into  such  number of Common
                  Shares of the  Corporation  as is  determined  by dividing two
                  dollars  eighty-one  and  one-quarter  cents  ($2.8125) by the
                  Conversion  Price  (as  hereinafter  defined).   For  purposes
                  hereof,  the term  "Conversion  Price"  shall mean two dollars
                  eighty-one  and  one-quarter   cents  ($2.8125),   subject  to
                  adjustment as hereinafter set forth.

                  (B) Procedure.  Before any holder of Series E Preferred Shares
                  shall be entitled to receive  Common  Shares upon  conversion,
                  the holder shall (i)(a) surrender the certificate(s) therefor,
                  duly endorsed, at the office of the Corporation and (ii) shall
                  give written notice to the Corporation at such office that the
                  holder elects to convert the same into Common Shares and shall
                  further state therein the number of Series E Preferred  Shares
                  being converted.  Subject to the provisions hereof,  effective
                  thirty  (30) days  following  the later of the  receipt by the
                  Corporation   of  the   certificate(s)   pursuant  to  and  in
                  accordance  with (i) above and the written notice  pursuant to
                  and in accordance  with (ii) above,  or such shorter period of
                  time as the Board of Directors shall determine with respect to
                  any particular conversion (such thirtieth (30th) day or end of
                  shorter  period of time being  hereinafter  referred to as the
                  "Effective  Conversion  Date"),  the holder shall thereupon be
                  deemed  to be  the  holder  of  record  of the  Common  Shares
                  issuable  upon  conversion,  notwithstanding  that  the  stock
                  transfer

                                       36





                  books of the  Corporation  shall  then be  closed  or that the
                  certificate(s)  representing such Common Shares shall not then
                  be actually delivered to the holder. Subject to the provisions
                  hereof,  immediately  following the Effective Conversion Date,
                  the  Corporation  shall cause its transfer  agent to issue and
                  deliver  to  such  holder  of  Series  E  Preferred  Shares  a
                  certificate(s)  for the  number of Common  Shares to which the
                  holder shall be entitled.

                  (C)  Adjustment of Conversion Price.

                  (i) In the  event  that  the  Corporation  shall  (a)  pay any
                  dividend on its Common Shares  payable in Common  Shares;  (b)
                  effect a subdivision of its outstanding  shares into a greater
                  number of Common Shares (by  reclassification,  stock split or
                  otherwise than by payment of a dividend in Common Shares); (c)
                  effect  a  combination  or  consolidation  of its  outstanding
                  Common  Shares  into a lesser  number  of  Common  Shares  (by
                  reclassification,  reverse split or  otherwise);  (d) issue by
                  reclassification,  exchange  or  substitution  of  its  Common
                  Shares  any  shares of  capital  stock of the  Corporation  or
                  effect  any  other  transaction  having  similar  effect,  the
                  Conversion  Price in effect  immediately  prior to such action
                  shall be adjusted so that upon the exercise of the  conversion
                  right  hereof at any time  after the  occurrence  of any event
                  described  above,  the holder shall be entitled to receive the
                  Common  Shares to which such  holder  would have been  finally
                  entitled, after giving effect to the occurrence of such event,
                  as if such holder had converted the Series E Preferred  Shares
                  immediately   prior  to  the  occurrence  of  such  event.  An
                  adjustment  made  pursuant to this  paragraph (C) shall become
                  effective  immediately  after the record date in the case of a
                  dividend  and shall  become  effective  immediately  after the
                  effective  date  in the  case of a  subdivision,  combination,
                  reclassification, exchange or substitution.

                  (ii) In case of any  consolidation  or  merger  to  which  the
                  Corporation is a party,  other than a merger or  consolidation
                  in  which  the  Corporation  is the  surviving  or  continuing
                  corporation and which does not result in any  reclassification
                  of, or change (other than a change

                                       37





                  in par  value or from par value to no par value or from no par
                  value  to  par  value,  or  as  a  result  of  subdivision  or
                  combination)   in,   outstanding   Common  Shares,   then  the
                  Corporation,  or such successor  corporation,  as the case may
                  be,  shall make  appropriate  provision  so that the holder of
                  each Series E Preferred Share then outstanding  shall have the
                  right to convert such share into the kind and amount of shares
                  or  other   securities  and  property   receivable  upon  such
                  consolidation  or merger  by a holder of the  number of Common
                  Shares into which such Series E  Preferred  Shares  might have
                  been  converted  immediately  prior to such  consolidation  or
                  merger.

                  (iii) In the event, as of June 30, 1996, the Common Shares are
                  listed on an Exchange or traded in the OTC Market and the June
                  1996 Common  Share  Price (as  hereinafter  defined)  does not
                  equal or exceed  the  Conversion  Price  then in  effect,  the
                  Conversion Price shall thereupon,  effective June 30, 1996, be
                  reduced to equal the June 1996  Common  Share  Price.  As used
                  herein, (a) the term "June 1996 Common Share Price" shall mean
                  the average of the "market prices" of the Common Shares of the
                  Corporation  during the last five (5) trading days immediately
                  preceding  June 30, 1996 and (b) the term "market price" shall
                  mean the closing bid price or, if not  available,  the highest
                  bid price of the Common  Shares as quoted on an Exchange or in
                  the OTC Market, as reported by NASDAQ or, if not available, by
                  NQBI.

                  (D) Fractional  Shares.  No fractional  Common Shares shall be
                  issued upon conversion of Series E Preferred  Shares.  In lieu
                  of any fractional  shares to which the holder would  otherwise
                  be entitled,  the  Corporation  shall pay, in cash,  an amount
                  equal to the  product of (i) such  fraction  of a share  times
                  (ii) the market price (as  hereinabove  defined) of one Common
                  Share on the Effective Conversion Date.

                  (E)  Reservation  of  Shares  Issuable  Upon  Conversion.  The
                  Corporation shall at all times use its best efforts to reserve
                  and keep available out of its  authorized but unissued  Common
                  Shares,  solely for the purpose of effecting the conversion of
                  the Series E Preferred

                                       38





                  Shares, such number of its Common Shares as shall from time to
                  time be sufficient to effect the conversion of all outstanding
                  Series E  Preferred  Shares,  and if at any time the number of
                  authorized but unissued  Common Shares shall not be sufficient
                  to effect  the  conversion  of all then  outstanding  Series E
                  Preferred   Shares,   the   Corporation   will,  as  its  sole
                  obligation,  subject to the  requirements of applicable  state
                  law, take such corporate  action as may, in the opinion of its
                  counsel,  be necessary to increase its authorized but unissued
                  Common  Shares to such number of shares as shall be sufficient
                  for such purposes;  provided,  however that nothing  contained
                  herein shall  preclude the  Corporation  from  satisfying  its
                  obligations  in  respect  of the  conversion  of the  Series E
                  Preferred  Shares by delivery of purchased Common Shares which
                  are held in the treasury of the Corporation.

                  (F) Lost, Stolen or Destroyed Certificates.  In the event that
                  the   holder   shall   notify   the   Corporation   that   the
                  certificate(s)  representing  Series E  Preferred  Shares have
                  been  lost,  stolen or  destroyed  and  either  (i)  provide a
                  letter, in form satisfactory to the Corporation, to the effect
                  that he will indemnify the Corporation  from any loss incurred
                  by  it  in  connection  therewith,   and/or  (ii)  provide  an
                  indemnity bond in such amount as is reasonably required by the
                  Corporation,  the  Corporation  having the option of  electing
                  either (i) or (ii) or both, the  Corporation  may, in its sole
                  discretion,  accept such letter and/or  indemnity bond in lieu
                  of the  surrender  of the  certificate(s)  as  required by the
                  subsection (v).

                  (G)  Statutory  Restrictions.  The  foregoing  provisions  for
                  conversion  of the Series E Preferred  Shares shall be subject
                  to all applicable statutory limitations and restrictions.

         (vi)     Liquidation Preference.  In the event of any voluntary or
                  involuntary liquidation, dissolution or winding up of the
                  Corporation, the holders of Series E Preferred Shares
                  will be entitled to receive, prior and in preference to
                  any distribution of the assets or surplus funds of the

                                       39





                  Corporation  to the holders of any Common  Shares by reason of
                  the  ownership  thereof,  and on a pari  passu  basis with the
                  holders  of the  Series  A,  Series B,  Series C and  Series D
                  Preferred Shares, if any, an amount equal to (i) the fixed sum
                  of two dollars  eighty-one and one-quarter cents ($2.8125) per
                  share and no more and (ii) all  accrued  and unpaid  dividends
                  due  with  respect  to the  Series  E  Preferred  Shares  (the
                  "Preferential  Amount").  If, upon the  occurrence  of such an
                  event, the assets and funds thus distributed among the holders
                  of Series E Preferred  Shares shall be  insufficient to permit
                  the payment to such holders of the full  Preferential  Amount,
                  then, the entire assets and funds of the  Corporation  legally
                  available  for  distribution  to the  holders  of the Series E
                  Preferred  Shares  shall be  distributed  ratably  among  such
                  holders in accordance with the respective  amounts which would
                  be payable on such shares if all amounts  payable thereon were
                  paid in full.  After the payment or setting  apart of the full
                  Preferential  Amounts  required  to be paid to the  holders of
                  Series A,  Series B, Series C, Series D and Series E Preferred
                  Shares, the holders of Common Shares or any other stock of the
                  Corporation  ranking  in  liquidation  junior to the Series A,
                  Series B,  Series C,  Series D and Series E  Preferred  Shares
                  shall be entitled to receive  ratably all remaining  assets or
                  surplus  funds  of the  Corporation.  Neither  the  merger  or
                  consolidation  of the  Corporation,  nor the  sale,  lease  or
                  conveyance of all or part of its assets, shall be deemed to be
                  a liquidation, dissolution or winding up of the affairs of the
                  Corporation,  either voluntarily or involuntarily,  within the
                  meaning of this section.

         (vii)    Sinking Fund.  The Series E Preferred Shares shall not be
                  entitled to the benefit of any sinking fund to be applied to
                  their purchase or redemption.

                  (h) Series F Preferred Shares. A series of Preferred Shares is
hereby created,  to be limited in amount to 415,250 of the 5,000,000  authorized
Preferred  Shares.  The  designation,   relative  rights,  powers,  preferences,
qualifications and limitations are as follows:




                                       40





         (i)      Designation  of  Series.  The  designation  of the  series  of
                  Preferred  Shares  created  hereby shall be Series F Preferred
                  Shares (hereinafter the "Series F Preferred Shares").

         (ii)     Dividends.

                  The  holders  of Series F  Preferred  Shares,  on a pari passu
                  basis with the  holders  of the  Corporation's  Common  Shares
                  (based upon the number of Common  Shares into which the Series
                  F  Preferred  Shares are  convertible),  shall be  entitled to
                  receive  such  dividends  as may be  declared  by the Board of
                  Directors.  Declared  but  unpaid  dividends  shall  not  bear
                  interest.

                  The rights of the  holders of the  Series F  Preferred  Shares
                  shall be junior and  subordinate  to the rights of the holders
                  of the  Series A,  Series B,  Series C,  Series D and Series E
                  Preferred Shares of the Corporation to receive  dividends,  as
                  well as to the right of any other series of  Preferred  Shares
                  of the  Corporation  hereafter  created  which  shall have any
                  preferential  right to receive dividends before the holders of
                  the Common Shares.

         (iii)    Voting  Rights.  The holders of the Series F Preferred  Shares
                  shall be entitled to vote on all matters at all meetings of
                  the shareholders of the Corporation, and shall be entitled to
                  such number of votes for each Series F Preferred Share
                  entitled to vote at such  meetings as is set forth below,
                  voting together with the holders of Common Shares, and other
                  Preferred Shares who are entitled to vote, if any such shares
                  are then outstanding, and not as a separate class,  except as
                  required by law. The number of votes to which the holders of
                  the Series F Preferred Shares shall be entitled to vote for
                  each Series F Preferred Share shall equal the number of Common
                  Shares of the Corporation into which such Series F Preferred
                  Share is convertible.




                                       41







         (iv)     Redemption.  The Corporation may elect, at its option,  at any
                  time and from time to time, by notice given as provided below,
                  to  redeem  all  or  any  part  of the  outstanding  Series  F
                  Preferred  Shares,  from  any or  all  holders  thereof,  at a
                  redemption  price  of five  dollars  ($5.00)  per  share  (the
                  "Redemption Price").

                  If the  Corporation  elects to  redeem  all or any part of the
                  outstanding   Series  F  Preferred  Shares,   notice  of  such
                  redemption (the "Redemption Notice") shall be given by mailing
                  the same to every  holder of record of any  shares  then to be
                  redeemed, not less than thirty (30) prior to the date fixed as
                  the date for the redemption  thereof (the "Redemption  Date"),
                  at the respective  addresses of such holders as the same shall
                  appear on the stock  transfer  books of the  Corporation.  The
                  Redemption  Notice  shall state that the shares  specified  in
                  such  notice  will  be  redeemed  by  the  Corporation  at the
                  Redemption  Price on the Redemption  Date,  upon the surrender
                  for  cancellation,  at the place designated in such notice, of
                  the certificate(s)  representing the shares so to be redeemed,
                  properly  endorsed for transfer,  or  accompanied  by a proper
                  instrument  of  assignment  and  transfer,   and  bearing  all
                  necessary  transfer tax stamps  thereto  affixed and canceled.
                  Following  receipt  of the  Redemption  Notice and at any time
                  before the Redemption  Date,  each holder of shares called for
                  redemption may elect to convert all or any part of such shares
                  into  Common  Shares  of the  Corporation  pursuant  to and in
                  accordance with (v) below.  On and after the Redemption  Date,
                  each  holder  of  shares  called  for  redemption  who has not
                  converted  such shares shall be entitled to receive  therefor,
                  in cash, the Redemption Price upon  presentation and surrender
                  at the place  designated in such notice of the  certificate(s)
                  for shares  held by such  holder  and  called for  redemption,
                  properly  endorsed  for  transfer  or  accompanied  by  proper
                  instruments  of  assignment  or  transfer,   and  bearing  all
                  necessary transfer tax stamps thereto affixed and




                                       42





                  canceled.  If the Corporation  shall give notice of redemption
                  as  aforesaid,  all  shares  called  for  redemption  and  not
                  converted  shall  be  deemed  to  have  been  redeemed  on the
                  Redemption  Date,  whether  or not the  certificates  for said
                  shares shall be surrendered  for redemption and  cancellation,
                  and said shares so called for redemption  shall from and after
                  said date cease to  represent  any  interest  whatever  in the
                  Corporation  or its  property,  and the holders  thereof shall
                  have no rights other than the right to receive the  Redemption
                  Price, without interest thereon.

         (v)      Conversion.

                  (A) Conversion Right and Price.  Each Series F Preferred Share
                  shall be convertible,  at the option of the holder thereof, at
                  the  office of the  Corporation,  into  such  number of Common
                  Shares of the  Corporation  as is  determined by dividing five
                  dollars  ($5.00)  by  the  Conversion  Price  (as  hereinafter
                  defined).  For purposes hereof,  the term  "Conversion  Price"
                  shall mean five  dollars  ($5.00),  subject to  adjustment  as
                  hereinafter set forth.

                  (B) Procedure.  Before any holder of Series F Preferred Shares
                  shall be entitled to receive  Common  Shares upon  conversion,
                  the holder shall (i)(a) surrender the certificate(s) therefor,
                  duly endorsed, at the office of the Corporation and (ii) shall
                  give written notice to the Corporation at such office that the
                  holder elects to convert the same into Common Shares and shall
                  further state therein the number of Series F Preferred  Shares
                  being converted.  Subject to the provisions hereof,  effective
                  thirty  (30) days  following  the later of the  receipt by the
                  Corporation   of  the   certificate(s)   pursuant  to  and  in
                  accordance  with (i) above and the written notice  pursuant to
                  and in accordance  with (ii) above,  or such shorter period of
                  time as the Board of Directors shall determine with respect to
                  any particular conversion (such thirtieth (30th) day or end of
                  shorter  period of time being  hereinafter  referred to as the
                  "Effective




                                       43





                  Conversion  Date"), the holder shall thereupon be deemed to be
                  the  holder of  record  of the  Common  Shares  issuable  upon
                  conversion,  notwithstanding  that the stock transfer books of
                  the   Corporation   shall   then  be   closed   or  that   the
                  certificate(s)  representing such Common Shares shall not then
                  be actually delivered to the holder. Subject to the provisions
                  hereof,  immediately  following the Effective Conversion Date,
                  the  Corporation  shall cause its transfer  agent to issue and
                  deliver  to  such  holder  of  Series  F  Preferred  Shares  a
                  certificate(s)  for the  number of Common  Shares to which the
                  holder shall be entitled.

                  (C)  Adjustment of Conversion Price.

                  (i) In the  event  that  the  Corporation  shall  (a)  pay any
                  dividend on its Common Shares  payable in Common  Shares;  (b)
                  effect a subdivision of its outstanding  shares into a greater
                  number of Common Shares (by  reclassification,  stock split or
                  otherwise than by payment of a dividend in Common Shares); (c)
                  effect  a  combination  or  consolidation  of its  outstanding
                  Common  Shares  into a lesser  number  of  Common  Shares  (by
                  reclassification,  reverse split or  otherwise);  (d) issue by
                  reclassification,  exchange  or  substitution  of  its  Common
                  Shares  any  shares of  capital  stock of the  Corporation  or
                  effect  any  other  transaction  having  similar  effect,  the
                  Conversion  Price in effect  immediately  prior to such action
                  shall be adjusted so that upon the exercise of the  conversion
                  right  hereof at any time  after the  occurrence  of any event
                  described  above,  the holder shall be entitled to receive the
                  Common  Shares to which such  holder  would have been  finally
                  entitled, after giving effect to the occurrence of such event,
                  as if such holder had converted the Series F Preferred  Shares
                  immediately   prior  to  the  occurrence  of  such  event.  An
                  adjustment  made  pursuant to this  paragraph (C) shall become
                  effective  immediately  after the record date in the case of a
                  dividend  and shall  become  effective  immediately  after the
                  effective  date  in the  case of a  subdivision,  combination,
                  reclassification, exchange or substitution.





                                       44





                  (ii) In case of any  consolidation  or  merger  to  which  the
                  Corporation is a party,  other than a merger or  consolidation
                  in  which  the  Corporation  is the  surviving  or  continuing
                  corporation and which does not result in any  reclassification
                  of,  or change  (other  than a change in par value or from par
                  value to no par value or from no par value to par value, or as
                  a result of subdivision or combination) in, outstanding Common
                  Shares, then the Corporation,  or such successor  corporation,
                  as the case may be, shall make  appropriate  provision so that
                  the holder of each Series F Preferred  Share then  outstanding
                  shall have the right to  convert  such share into the kind and
                  amount of shares or other  securities and property  receivable
                  upon such consolidation or merger by a holder of the number of
                  Common Shares into which such Series F Preferred  Shares might
                  have been converted immediately prior to such consolidation or
                  merger.

                  (iii) In the event,  as of October 10, 1997, the Common Shares
                  are listed on a national  securities  exchange (an "Exchange")
                  or traded in the  over-the-counter  market (the "OTC  Market")
                  and the  October  1997  Common  Share  Price  (as  hereinafter
                  defined) does not equal or exceed the Conversion Price then in
                  effect,  the  Conversion  Price  shall  thereupon,   effective
                  October 10, 1997,  be reduced to equal the October 1997 Common
                  Share Price. As used herein, (a) the term "October 1997 Common
                  Share Price" shall mean the average of the "market  prices" of
                  the Common Shares of the  Corporation  during the trading days
                  from October 1, 1997 through October 10, 1997 and (b) the term
                  "market  price"  shall  mean  the  closing  price  or,  if not
                  available, the average of the closing bid and asked prices or,
                  if not  available,  the  average of the highest bid and lowest
                  asked prices of the Common  Shares as quoted on an Exchange or
                  in the OTC Market, as reported by NASDAQ or, if not available,
                  by the  National  Quotation  Bureau,  Incorporated;  provided,
                  however,  that,  in no event  shall  the  Conversion  Price be
                  reduced to less than three  dollars  fifty  cents  ($3.50) per
                  share  (subject to  adjustment  pursuant to the  provisions of
                  subparagraphs  (i) and (ii) of this paragraph (C)) pursuant to
                  the




                                       45





                  provisions of this subparagraph (iii). Any adjustment pursuant
                  to the provisions of this subparagraph  (iii) shall apply only
                  to such Series F Preferred  Shares which are outstanding as of
                  the  effective  date of the  adjustment  and  shall  not apply
                  retroactively  with  respect to any Series F Preferred  Shares
                  theretofore converted.

                  (D) Fractional  Shares.  No fractional  Common Shares shall be
                  issued upon conversion of Series F Preferred  Shares.  In lieu
                  of any fractional  shares to which the holder would  otherwise
                  be entitled,  the  Corporation  shall pay, in cash,  an amount
                  equal to the  product of (i) such  fraction  of a share  times
                  (ii) the market price (as  hereinabove  defined) of one Common
                  Share on the Effective Conversion Date.

                  (E)  Reservation  of  Shares  Issuable  Upon  Conversion.  The
                  Corporation shall at all times use its best efforts to reserve
                  and keep available out of its  authorized but unissued  Common
                  Shares,  solely for the purpose of effecting the conversion of
                  the  Series F  Preferred  Shares,  such  number of its  Common
                  Shares as shall from time to time be  sufficient to effect the
                  conversion of all outstanding  Series F Preferred Shares,  and
                  if at any time the number of  authorized  but unissued  Common
                  Shares shall not be sufficient to effect the conversion of all
                  then outstanding  Series F Preferred  Shares,  the Corporation
                  will, as its sole  obligation,  subject to the requirements of
                  applicable  state law, take such  corporate  action as may, in
                  the opinion of its  counsel,  be  necessary  to  increase  its
                  authorized but unissued Common Shares to such number of shares
                  as shall be sufficient  for such purposes;  provided,  however
                  that nothing  contained  herein shall preclude the Corporation
                  from  satisfying its  obligations in respect of the conversion
                  of the Series F  Preferred  Shares by  delivery  of  purchased
                  Common   Shares   which  are  held  in  the  treasury  of  the
                  Corporation.

                  (F)  Lost, Stolen or Destroyed Certificates.  In the
                  event that the holder shall notify the Corporation that




                                       46





                  the certificate(s) representing Series F Preferred Shares have
                  been  lost,  stolen or  destroyed  and  either  (i)  provide a
                  letter, in form satisfactory to the Corporation, to the effect
                  that he will indemnify the Corporation  from any loss incurred
                  by  it  in  connection  therewith,   and/or  (ii)  provide  an
                  indemnity bond in such amount as is reasonably required by the
                  Corporation,  the  Corporation  having the option of  electing
                  either (i) or (ii) or both, the  Corporation  may, in its sole
                  discretion,  accept such letter and/or  indemnity bond in lieu
                  of the  surrender  of the  certificate(s)  as required by this
                  subsection (v).

                  (G)  Statutory  Restrictions.  The  foregoing  provisions  for
                  conversion  of the Series F Preferred  Shares shall be subject
                  to all applicable statutory limitations and restrictions.

         (vi)     Liquidation Preference.  In the event of any voluntary or
                  involuntary  liquidation,  dissolution  or  winding  up of the
                  Corporation,  the holders of Series F Preferred Shares will be
                  entitled  to  receive,   prior  and  in   preference   to  any
                  distribution of the assets or surplus funds of the Corporation
                  to the holders of any Common Shares by reason of the ownership
                  thereof, and on a pari passu basis with
                  the  holders of the Series A, Series B, Series C, Series D and
                  Series E  Preferred  Shares,  if any,  an amount  equal to the
                  fixed sum of five  dollars  ($5.00) per share and no more (the
                  "Preferential  Amount").  If, upon the  occurrence  of such an
                  event, the assets and funds thus distributed among the holders
                  of Series F Preferred  Shares shall be  insufficient to permit
                  the payment to such holders of the full  Preferential  Amount,
                  then, the entire assets and funds of the  Corporation  legally
                  available  for  distribution  to the  holders  of the Series F
                  Preferred  Shares  shall be  distributed  ratably  among  such
                  holders in accordance with the respective  amounts which would
                  be payable on such shares if all amounts  payable thereon were
                  paid in full.  After the payment or setting  apart of the full
                  Preferential  Amounts  required  to be paid to the  holders of
                  Series A, Series B, Series




                                       47





                  C,  Series D,  Series E and  Series F  Preferred  Shares,  the
                  holders of Common Shares or any other stock of the Corporation
                  ranking  in  liquidation  junior to the  Series  A,  Series B,
                  Series C,  Series D,  Series E and Series F  Preferred  Shares
                  shall be entitled to receive  ratably all remaining  assets or
                  surplus  funds  of the  Corporation.  Neither  the  merger  or
                  consolidation  of the  Corporation,  nor the  sale,  lease  or
                  conveyance of all or part of its assets, shall be deemed to be
                  a liquidation, dissolution or winding up of the affairs of the
                  Corporation,  either voluntarily or involuntarily,  within the
                  meaning of this section.

         (vii)    Sinking  Fund.  The Series F Preferred  Shares shall not be
                  entitled to the  benefit of any  sinking fund to be applied to
                  their purchase or redemption.

                  (i) Series G Preferred  Shares. A series of Preferred Stock is
hereby created,  to be limited in amount to 145,000 of the 5,000,000  authorized
shares  of  Preferred   Stock.  The   designation,   relative  rights,   powers,
preferences, qualifications and limitations are as follows:

                  Section 1.  Designation, Amount and Par Value.  The
                              ---------------------------------
series of  Preferred  Stock  shall be  designated  as the  Series G  Convertible
Preferred  Stock (the "Series G Preferred  Stock"),  and the number of shares so
designated shall be 145,000, of which 20,000 is reserved for issuance solely for
payment of stock dividends,  if any,  hereunder.  The par value of each share of
Preferred  Stock  shall be $.001.  Each share of  Preferred  Stock  shall have a
stated value of $20 per share (the "Stated Value"). The Series G Preferred Stock
shall rank, with respect to dividends and  distributions  upon a Liquidation (as
hereinafter  defined)  or  otherwise,  pari  passu  with  each  other  series of
preferred  stock of the  Company  outstanding  as of the  Original  Issue  Date,
including  without  limitation the Company's Series B Preferred Stock,  Series D
Preferred Stock, Series E Preferred Stock and Series F Preferred



                                       48





Stock,  and shall rank pari passu with  respect to dividends  and  distributions
upon a Liquidation or otherwise with each other series of preferred stock of the
Company  hereafter  created  unless the terms of such other  series of preferred
stock  expressly  states that such series ranks junior to the Series G Preferred
Stock.  All such other  series of  preferred  stock  ranking pari passu with the
Series G Preferred Stock is referred to as the "Other Preferred Stock."

                  Section 2.  Dividends.
                  ----------------------

                  (a) Holders of Series G  Preferred  Stock shall be entitled to
receive,  when and as declared by the Board of  Directors  out of funds  legally
available therefor,  and the Company shall pay, cumulative dividends at the rate
per share (as a percentage of the Stated Value per share) equal to 5% per annum,
payable,  in cash  or (at the  Company's  option)  shares  of  Common  Stock  or
additional Series G Preferred Stock, which the Company shall immediately convert
into shares of Common Stock at the Conversion Ratio (as hereinafter defined), in
arrears  on the  Conversion  Date (as  hereinafter  defined)  without  interest.
Dividends  on the Series G Preferred  Stock shall accrue  daily  commencing  the
Original  Issue Date (as  defined in Section 7) and shall be deemed to accrue on
such  date  whether  or not  earned or  declared  and  whether  or not there are
profits, surplus or other funds of the Company legally available for the payment
of dividends. The party that holds the Series G Preferred Stock on an applicable
record date for any dividend  payment will be entitled to receive such  dividend
payment and any other accrued and unpaid  dividends  which accrued prior to such
dividend payment date,  without regard to any sale or disposition of such Series
G Preferred  Stock  subsequent  to the  applicable  record date but prior to the
applicable dividend payment date. Except as otherwise provided herein, if at any
time the Company pays less than the total  amount of  dividends  then accrued to
the Series G Preferred  Stock,  such payment shall be distributed  ratably among
the holders of such series based upon the number of shares held by each holder.

                  (b) So long as any  Series  G  Preferred  Stock  shall  remain
outstanding,  neither the  Company  nor any  subsidiary  thereof  shall  redeem,
purchase or otherwise  acquire directly or indirectly any Junior  Securities (as
defined in Section 7), nor shall the Company



                                       49





directly  or  indirectly  pay or declare any  dividend or make any  distribution
(other than a dividend or  distribution  described in Section 5) upon, nor shall
any  distribution  be made in respect of, any Junior  Securities,  nor shall any
monies be set aside for or  applied to the  purchase  or  redemption  (through a
sinking fund or otherwise) of any Junior  Securities unless all dividends on the
Series G Preferred Stock for all past dividend periods shall have been paid.

                  Section 3.  Voting  Rights.  The holders of Series G Preferred
                  ---------------------------
Stock shall be entitled  vote on all matters for which  holders of the Company's
Common  Stock are  entitled to vote,  and shall vote  together  with such Common
Stock as a single  class.  Each  share of  Series  G  Preferred  Stock  shall be
entitled  to the number of votes on such  matters as equals the number of shares
of Common Stock  issuable  upon  conversion  of such share of Series G Preferred
Stock had such share been  converted  on the Original  Issue Date in  accordance
with the terms  hereof.  So long as any shares of Series G  Preferred  Stock are
outstanding,  the Company shall not, without the affirmative vote of the holders
of a majority  of the shares of the Series G Preferred  Stock then  outstanding,
(i) alter or change  adversely  the powers,  preferences  or rights given to the
Series G Preferred  Stock (except that the  foregoing  shall not be construed to
limit the ability of the  Company,  without the vote of such  holders,  to grant
such  voting  rights  or,  subject  to the other  provisions  set forth  herein,
conversion  rights,  as it may  determine  with  regard to shares of its capital
stock now or  hereafter  authorized)  or (ii)  authorize  or create any class of
stock ranking as to dividends or  distribution  of assets upon a Liquidation (as
defined below) senior to, or prior to the Series G Preferred Stock.

                  Section 4. Liquidation.  Upon any liquidation,  dissolution or
                  -----------------------
winding-up of the Company,  whether voluntary or involuntary (a  "Liquidation"),
the holders of shares of Series G  Preferred  Stock shall be entitled to receive
out of the assets of the  Company,  whether  such assets are capital or surplus,
for each share of Series G Preferred  Stock an amount equal to the Stated Value,
plus an amount equal to accrued but unpaid dividends per share, whether declared
or not, but without  interest,  before any distribution or payment shall be made
to the holders of any Junior Securities,  and if the assets of the Company shall
be insufficient to pay in full such amounts, then the entire assets to be



                                       50





distributed  shall be distributed  among the holders of Series G Preferred Stock
ratably in accordance with the respective  amounts that would be payable on such
shares if all amounts payable  thereon were paid in full. A sale,  conveyance or
disposition  of all or  substantially  all of the  assets of the  Company or the
effectuation  by the Company of a transaction or series of related  transactions
in which more than 50% of the voting  power of the  Company is disposed of shall
be deemed a Liquidation; provided that, a consolidation or merger of the Company
with  or  into  any  other  company  or  companies  shall  not be  treated  as a
Liquidation,  but instead  shall be subject to the  provisions of Section 5. The
Company shall mail written notice of any such liquidation, not less than 45 days
prior to the payment  date  stated  therein,  to each record  holder of Series G
Preferred Stock.

                  Section 5.  Conversion.
                  -----------------------

                  (a) Each share of Preferred  Stock shall be  convertible  into
shares of Common  Stock at the  Conversion  Ratio at the option of the holder in
whole or in part at any time after the expiration of the earlier to occur of (i)
90 days after the Original  Issue Date and (ii) the date that the Securities and
Exchange  Commission (the "Commission")  declares effective under the Securities
Act of 1933, as amended (the "Securities Act"), the registration  statement (the
"Registration Statement") contemplated by the Registration Rights Agreement (the
"Registration  Rights  Agreement"),  by and between the Company and the original
holder of Series G Preferred  Stock relating to the Series G Preferred Stock and
the  shares  of  Common  Stock  into  which  the  Series  G  Preferred  Stock is
convertible  in accordance  with the terms  hereof.  Any  conversion  under this
Section  5(a) shall be of a minimum  amount of at least 1,000 shares of Series G
Preferred  Stock.  The holder  shall  effect  conversions  by  surrendering  the
certificate or certificates  representing the shares of Series G Preferred Stock
to be converted  to the Company,  together  with the form of  conversion  notice
attached hereto as Exhibit A (the "Holder Conversion  Notice") in the manner set
forth in Section 5(j). Each Holder Conversion Notice shall specify the number of
shares of Series G Preferred  Stock to be  converted  and the date on which such
conversion is to be effected, which date may not be prior to the date the holder
delivers such Notice by facsimile  (the "Holder  Conversion  Date").  Subject to
Section 5(c) and, as to the original holder (or its sole designee), subject to



                                       51





Section  3.11 of the Purchase  Agreement  (as defined in Section 7), each Holder
Conversion Notice, once given, shall be irrevocable. If the holder is converting
less than all shares of Series G Preferred Stock  represented by the certificate
or certificates  tendered by the holder with the Holder Conversion  Notice,  the
Company shall  promptly  deliver to the holder a certificate  for such number of
shares as have not been converted.

                  (b) Provided  that 10 Trading Days shall have elapsed from the
date the Commission  declared the  Registration  Statement  effective  under the
Securities  Act, each share of the Series G Preferred Stock shall be convertible
into shares of Common Stock at the Conversion Ratio at the option of the Company
in whole or in part at any time on or after the expiration of one year after the
Original  Issue Date;  provided,  however,  that the Company is not permitted to
deliver a Company Conversion Notice (as defined below) within 10 days of issuing
any press release or other public  statement  relating to such  conversion.  The
Company shall effect such conversion by delivering to the holders of such shares
of  Series G  Preferred  Stock to be  converted  a  written  notice  in the form
attached hereto as Exhibit B (the "Company  Conversion  Notice"),  which Company
Conversion  Notice,  once given,  shall be irrevocable.  Each Company Conversion
Notice shall specify the number of shares of Preferred Stock to be converted and
the date on which such conversion is to be effected, which date will be at least
one Trading Day after the date the Company  delivers such Notice by facsimile to
the holder (the "Company  Conversion Date"). The Company shall give such Company
Conversion Notice in accordance with Section 5(j) below at least one Trading Day
before the Company  Conversion  Date. Any such conversion shall be effected on a
pro rata  basis  among  the  holders  of  Series  G  Preferred  Stock.  Upon the
conversion  of  shares  of  Series  G  Preferred  Stock  pursuant  to a  Company
Conversion  Notice,  the holders of the Series G Preferred Stock shall surrender
the certificates representing such shares at the office of the Company or of any
transfer agent for the Series G Preferred  Stock or Common Stock. If the Company
is converting less than all shares of the Series G Preferred  Stock, the Company
shall, upon conversion of such shares subject to such Company  Conversion Notice
and  receipt of the  certificate  or  certificates  representing  such shares of
Series G Preferred Stock deliver to the holder or holders a certificate for such
number of shares of Series G Preferred Stock as have not been converted. Each of
a Holder



                                       52





Conversion  Notice and a Company  Conversion  Notice is  sometimes  referred  to
herein as a "Conversion  Notice," and each of a "Holder  Conversion  Date" and a
"Company  Conversion  Date" is  sometimes  referred  to herein as a  "Conversion
Date."

                  (c) (i) If on any  Conversion  Date for any shares of Series G
Preferred  Stock  applicable to any  conversion  under Section 5(a) or 5(b), the
average Per Share Market Value of the Common Stock for the five (5) Trading Days
immediately preceding the Conversion Date exceeds 150% of the Initial Conversion
Price (as hereinafter defined), the number of shares issuable upon conversion of
such shares of Series G  Preferred  Stock shall be reduced by a number of shares
equal to 50% of (A) the amount by which such Per Share Market Value exceeds 150%
of the Initial  Conversion  Price,  divided by (B) such average Per Share Market
Value,  times (C) the number of shares which would  otherwise  be issuable  upon
such conversion, but for the reduction provided for in this Section 5(c)(i).

                      (ii)  Not later than three Trading Days after the
Conversion  Date,  the Company will deliver to the holder (i) a  certificate  or
certificates which shall be free of restrictive legends and trading restrictions
(other  than  those  then  required  by law  and as set  forth  in the  Purchase
Agreement),  representing  the number of shares of Common  Stock being  acquired
upon the  conversion of shares of Series G Preferred  Stock and (ii) one or more
certificates  representing  the number of shares of Series G Preferred Stock not
converted;  provided,  however that the Company  shall not be obligated to issue
certificates  evidencing the shares of Common Stock issuable upon  conversion of
any shares of Series G Preferred Stock until certificates evidencing such shares
of Series G Preferred  Stock are either  delivered for conversion to the Company
or any transfer agent for the Series G Preferred  Stock or Common Stock,  or the
holder  notifies the Company that such  certificates  have been lost,  stolen or
destroyed and provides a bond (or other adequate security reasonably  acceptable
to the Company)  satisfactory  to the Company to indemnify  the Company from any
loss incurred by it in connection therewith.  The Company shall, upon request of
the holder,  use its best  efforts to deliver any  certificate  or  certificates
required to be delivered by the Company  under this Section 5(c)  electronically
through  the  Depository  Trust  Corporation  or  another  established  clearing
corporation performing similar functions. In the case of a



                                       53





conversion  pursuant  to a Holder  Conversion  Notice,  if such  certificate  or
certificates are not delivered by the date required under this Section 5(c), the
holder  shall be  entitled  by written  notice to the  Company at any time on or
before such holder's receipt of such certificate or certificates thereafter,  to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.

                  (d) (i) The  conversion  price  for  each  share  of  Series G
Preferred Stock (the "Conversion  Price") in effect on any Conversion Date shall
be the lesser of (a) the average Per Share Market Value for the five (5) Trading
Days immediately  preceding the Original Issuance Date (the "Initial  Conversion
Price")  and (b) 80% of the  average  Per  Share  Market  Value for the five (5)
Trading Days immediately preceding the Conversion Date; provided,  however, that
the  percentage  set  forth in clause  (b)  above is  subject  to  reduction  in
accordance with the Registration Rights Agreement.

                      (ii)  If the Company, at any time while any shares
of Series G Preferred Stock are  outstanding,  (a) shall pay a stock dividend or
otherwise  make  a  distribution  or  distributions  on  shares  of  its  Junior
Securities  payable in shares of its capital stock (whether payable in shares of
its Common Stock or of capital stock of any class),  (b)  subdivide  outstanding
shares of Common Stock into a larger number of shares,  (c) combine  outstanding
shares  of  Common  Stock  into a  smaller  number  of  shares,  or (d) issue by
reclassification  of shares of Common  Stock any shares of capital  stock of the
Company,  the Initial Conversion Price designated in Section 5(d)(i)(a) shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock outstanding before such event and of which the denominator shall be
the  number  of shares  of  Common  Stock  outstanding  after  such  event.  Any
adjustment  made  pursuant  to this  Section  5(d)(ii)  shall  become  effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective  immediately
after  the  effective  date  in  the  case  of  a  subdivision,  combination  or
reclassification.

                      (iii)  If the Company, at any time while any shares
of Series G Preferred Stock are outstanding, shall issue rights or



                                       54





warrants to all holders of Common  Stock (and not to the holders of the Series G
Preferred  Stock)  entitling them to subscribe for or purchase  shares of Common
Stock at a price per share less than the Per Share  Market Value of Common Stock
at the record date mentioned below,  the Initial  Conversion Price designated in
Section  5(d)(i)(a) shall be multiplied by a fraction,  of which the denominator
shall be the number of shares of Common Stock  (excluding  treasury  shares,  if
any)  outstanding  on the date of issuance  of such rights or warrants  plus the
number  of  additional  shares of  Common  Stock  offered  for  subscription  or
purchase,  and of which the  numerator  shall be the  number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of shares which the  aggregate  offering
price of the total number of shares so offered would  purchase at such Per Share
Market Value. Such adjustment shall be made whenever such rights or warrants are
issued,  and shall become  effective  immediately  after the record date for the
determination  of  stockholders  entitled to receive  such  rights or  warrants.
However,  upon the  expiration of any right or warrant to purchase  Common Stock
the issuance of which resulted in an adjustment in the Initial  Conversion Price
designated in Section 5(d)(i)(a) pursuant to this Section 5(d)(iii), if any such
right or warrant  shall  expire and shall not have been  exercised,  the Initial
Conversion  Price designated in Section  5(d)(i)(a) shall  immediately upon such
expiration  be  recomputed  and effective  immediately  upon such  expiration be
increased  to the  price  which it would  have been  (but  reflecting  any other
adjustments  in the  Conversion  Price made  pursuant to the  provisions of this
Section 5 after the issuance of such rights or warrants)  had the  adjustment of
the Conversion Price made upon the issuance of such rights or warrants been made
on the basis of offering for subscription or purchase only that number of shares
of Common Stock actually  purchased upon the exercise of such rights or warrants
actually exercised.

                      (iv)     If the Company, at any time while shares of
Series G Preferred  Stock are  outstanding,  shall  distribute to all holders of
Common Stock (and not to holders of Series G Preferred  Stock)  evidences of its
indebtedness  or assets or rights or warrants to  subscribe  for or purchase any
security  (excluding those referred to in Section  5(d)(iii) above) then in each
such case the Initial Conversion Price at which each share of Series G Preferred
Stock shall thereafter be convertible shall be determined by



                                       55





multiplying  the Initial  Conversion  Price in effect  immediately  prior to the
record date fixed for  determination  of  stockholders  entitled to receive such
distribution  by a  fraction  of which  the  denominator  shall be the Per Share
Market Value of Common Stock  determined as of the record date mentioned  above,
and of which the  numerator  shall be such Per Share  Market Value of the Common
Stock on such record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Board of Directors
in good faith;  provided,  however that in the event of a distribution exceeding
ten percent (10%) of the net assets of the Company, such fair market value shall
be determined by a nationally  recognized or major regional  investment  banking
firm or firm of independent  certified public accountants of recognized standing
(which may be the firm that regularly  examines the financial  statements of the
Company) (an "Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Series G Preferred Stock;  and provided,  further that
the Company, after receipt of the determination by such Appraiser shall have the
right to select an  additional  Appraiser,  in which case the fair market  value
shall be equal to the average of the  determinations by each such Appraiser.  In
either case the  adjustments  shall be described in a statement  provided to all
holders of Preferred Stock of the portion of assets or evidences of indebtedness
so distributed  or such  subscription  rights  applicable to one share of Common
Stock.  Such adjustment shall be made whenever any such distribution is made and
shall become effective immediately after the record date mentioned above.

                      (v)     All calculations under this Section 5 shall be
made to the nearest cent or the nearest 1/100th of a share, as the
case may be.

                      (vi)    Whenever the Initial Conversion Price is
adjusted  pursuant to Section  5(d)(ii),(iii),  (iv) or (v),  the Company  shall
promptly mail to each holder of Series G Preferred Stock, a notice setting forth
the Initial  Conversion  Price after such  adjustment  and setting forth a brief
statement of the facts requiring such adjustment.

                      (vii)   In case of any reclassification of the
Common Stock, any consolidation or merger of the Company with or



                                                        56





into another  person,  the sale or transfer of all or  substantially  all of the
assets of the Company or any  compulsory  share  exchange  pursuant to which the
Common Stock is converted into other securities,  cash or property,  the holders
of the Series G Preferred Stock then outstanding shall have the right thereafter
to convert  such shares only into the shares of stock and other  securities  and
property  receivable  upon or  deemed  to be held by  holders  of  Common  Stock
following such reclassification,  consolidation, merger, sale, transfer or share
exchange, and the holders of the Series G Preferred Stock shall be entitled upon
such event to receive such amount of securities or property as the shares of the
Common Stock of the Company  into which such shares of Series G Preferred  Stock
could  have  been  converted   immediately   prior  to  such   reclassification,
consolidation,  merger,  sale,  transfer  or  share  exchange  would  have  been
entitled.  The terms of any such consolidation,  merger, sale, transfer or share
exchange  shall  include  such terms so as to  continue to give to the holder of
Series G Preferred  Stock the right to receive the  securities  or property  set
forth  in  this  Section   5(d)(vii)   upon  any   conversion   following   such
consolidation,  merger,  sale, transfer or share exchange.  This provision shall
similarly apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.

                      (viii)  If:

                              (a)     the Company shall declare a dividend
                                      (or any other distribution) on its
                                      Common Stock; or
                              (b)     the Company shall declare a special
                                      nonrecurring cash dividend on or a
                                      redemption of its Common Stock; or
                              (c)     the Company shall authorize the
                                      granting to all holders of the
                                      Common Stock rights or warrants to
                                      subscribe for or purchase any shares
                                      of capital stock of any class or of
                                      any rights; or
                              (d)     the approval of any stockholders of
                                      the Company shall be required in
                                      connection with any reclassification
                                      of the Common Stock of the Company



                                                        57





                                      (other than a subdivision  or  combination
                                      of  the   outstanding   shares  of  Common
                                      Stock),  any  consolidation  or  merger to
                                      which the Company is a party,  any sale or
                                      transfer  of all or  substantially  all of
                                      the   assets  of  the   Company,   or  any
                                      compulsory   share  exchange  whereby  the
                                      Common  Stock  is  converted   into  other
                                      securities, cash or property; or
                              (e)     the Company shall authorize the
                                      voluntary or involuntary
                                      dissolution, liquidation or winding-
                                      up of the affairs of the Company;

then the Company shall cause to be filed at each office or agency maintained for
the purpose of  conversion  of Series G Preferred  Stock,  and shall cause to be
mailed to the holders of Preferred  Stock at their last  addresses as they shall
appear upon the stock books of the Company,  at least 20 calendar  days prior to
the applicable record or effective date hereinafter  specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such  dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the  holders of Common  Stock of record to be  entitled  to
such  dividend,  distributions,   redemption,  rights  or  warrants  are  to  be
determined,  or (y) the  date on  which  such  reclassification,  consolidation,
merger, sale, transfer, share exchange,  dissolution,  liquidation or winding-up
is expected to become  effective,  and the date as of which it is expected  that
holders of Common Stock of record shall be entitled to exchange  their shares of
Common  Stock  for   securities  or  other   property   deliverable   upon  such
reclassification,   consolidation,   merger,  sale,  transfer,  share  exchange,
dissolution,  liquidation or winding-up;  provided, however, that the failure to
mail such  notice or any defect  therein  or in the  mailing  thereof  shall not
affect the  validity of the  corporate  action  required to be specified in such
notice.

                      (ix)     In any case in which this Section shall require
that an adjustment be made effective as of the record date for a
specified event, the Company may elect to defer until occurrence of



                                                        58





such  event (A)  issuing to the  holder,  if Series G  Preferred  Stock is to be
converted after such record date, the Underlying  Shares and other capital stock
of the  Company,  if any,  issuable  upon  such  conversion  over and  above the
Underlying Shares and other capital stock of the Company,  if any, issuable upon
such conversion thereof on the basis of the Conversion Price prior to adjustment
and (B) paying to the holder  any amount in cash in lieu of a  fractional  share
pursuant to the terms hereof, provided,  however, that the Company shall deliver
to the holder a due bill or other appropriate instrument evidencing the holder's
right to receive such additional  Underlying Shares,  other capital stock and/or
cash upon the occurrence of the event requiring such adjustment.

                  (e) If at any time conditions  shall arise by reason of action
taken by the  Company  which in the  opinion of the Board of  Directors  are not
adequately covered by the other provisions hereof and which might materially and
adversely  affect  the  rights  of the  holders  of  Series  G  Preferred  Stock
(different than or distinguished  from the effect generally on rights of holders
of any  class  of the  Company's  capital  stock)  or if at any  time  any  such
conditions  are  expected to arise by reason of any action  contemplated  by the
Company,  the Company shall mail a written notice briefly  describing the action
contemplated  and the material  adverse  effects of such action on the rights of
the holders of Series G Preferred  Stock at least 20 calendar  days prior to the
effective  date of such  action,  and an  Appraiser  selected  by the holders of
majority in  interest of the Series G Preferred  Stock shall give its opinion as
to the adjustment,  if any (not inconsistent  with the standards  established in
this  Section  5),  of  the  Conversion  Price  (including,  if  necessary,  any
adjustment as to the  securities  into which shares of Series G Preferred  Stock
may  thereafter  be  convertible)  and any  distribution  which  is or  would be
required to  preserve  without  diluting  the rights of the holders of shares of
Series G Preferred Stock; provided,  however, that the Company, after receipt of
the  determination  by such  Appraiser,  shall  have  the  right  to  select  an
additional Appraiser, in which case the adjustment shall be equal to the average
of the adjustments  recommended by each such  Appraiser.  The Board of Directors
shall make the adjustment recommended forthwith upon the receipt of such opinion
or opinions or the taking of any such action  contemplated,  as the case may be;
provided, however, that no such adjustment of the Conversion Price shall be made
which in the



                                       59





opinion of the  Appraiser(s)  giving the  aforesaid  opinion or  opinions  would
result in an increase of the Conversion  Price to more than the Conversion Price
then in effect.

                  (f) The Company  covenants  that it will at all times  reserve
and keep available out of its  authorized  and unissued  Common Stock solely for
the purpose of issuance upon  conversion  of Series G Preferred  Stock as herein
provided,  free from preemptive rights or any other actual  contingent  purchase
rights of persons  other  than the  holders of Series G  Preferred  Stock,  such
number of shares of Common  Stock as shall be issuable  (taking into account the
adjustments  and  restrictions of Section 5(b) and Section 5(d) hereof) upon the
conversion  of all  outstanding  shares of Series G Preferred  Stock,  and in no
circumstances  shall such reserved and available  shares of Common Stock be less
than twice the number of shares of Common  Stock which  would be  issuable  upon
conversion of the Series G Preferred Stock were such conversion  effected on the
Original Issue Date. The Company  covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly and validly  authorized,  issued
and fully paid and nonassessable.

                  (g) Upon a  conversion  hereunder  the  Company  shall  not be
required to issue stock certificates  representing fractions of shares of Common
Stock,  but may if  otherwise  permitted,  make a cash payment in respect of any
final  fraction of a share based on the Per Share Market Value at such time.  If
the Company elects not, or is unable, to make such a cash payment, the holder of
a share of Series G Preferred Stock shall be entitled to receive, in lieu of the
final fraction of a share, one whole share of Common Stock.

                  (h) The issuance of certificates for shares of Common Stock on
conversion  of Series G  Preferred  Stock  shall be made  without  charge to the
holders thereof for any  documentary  stamp or similar taxes that may be payable
in respect  of the issue or  delivery  of such  certificate,  provided  that the
Company  shall not be  required to pay any tax that may be payable in respect of
any transfer  involved in the issuance and delivery of any such certificate upon
conversion  in a name other than that of the holder of such shares of  Preferred
Stock so  converted  and the  Company  shall not be required to issue or deliver
such certificates  unless or until the person or persons requesting the issuance
thereof  shall  have paid to the  Company  the  amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.


                                       60





                  (i) Shares of Series G Preferred  Stock  converted into Common
Stock or redeemed  pursuant to the terms hereof shall be canceled and shall have
the status of authorized but unissued shares of preferred stock.

                  (j) Each Holder  Conversion Notice shall be given by facsimile
and by mail, postage prepaid,  addressed to the attention of the Chief Financial
Officer of the  Company at the  facsimile  telephone  number and  address of the
principal place of business of the Company. Each Company Conversion Notice shall
be given by facsimile and by mail, postage prepaid,  addressed to each holder of
Series G Preferred Stock at the facsimile  telephone  number and address of such
holder  appearing on the books of the Company or provided to the Company by such
holder  for  the  purpose  of  such  Company  Conversion  Notice,  or if no such
facsimile  telephone  number  or  address  appears  or is so  provided,  at  the
principal place of business of the holder. Any such notice shall be deemed given
and effective upon the earliest to occur of (i)(a) if such Conversion  Notice is
delivered  via  facsimile at the facsimile  telephone  number  specified in this
Section 5(j) prior to 6:00 p.m.  (Eastern  Standard Time) on any date, such date
(or, in the case of a Company  Conversion  Notice, the next Trading Day) or such
later date as is specified in the Conversion  Notice, and (b) if such Conversion
Notice is delivered via facsimile at the facsimile telephone number specified in
this Section 5(j) after 6:00 p.m.  (Eastern Standard Time) on any date, the next
date (or, in the case of a Company Conversion Notice, the next Trading Day after
such next day) or such later date as is specified in the Conversion Notice, (ii)
five days after deposit in the United States mails or (iii) upon actual  receipt
by the party to whom such notice is required to be given.

                  Section 6.  Company Redemption Option.
                  --------------------------------------

                  The Company  may, at its option,  redeem any  outstanding  and
unconverted  Series G Preferred  Stock on the third  anniversary of the Original
Issue Date (the "Optional Redemption Date"),  provided that the Company notifies
the holders  thereof no later than the third  business day prior to the Optional
Redemption Date of its intention to do so.



                                       61





                  If  the  Company  elects  to  redeem  such   outstanding   and
unconverted  shares of Series G Preferred  Stock, the redemption price per share
(the  "Optional  Redemption  Price")  shall  equal the  Conversion  Price on the
Optional Redemption Date and shall be paid by the Company to the holders of such
unconverted  Series G Preferred  Stock on the Optional  Redemption  Date. If any
portion of the Optional Redemption Price shall not be paid by the Company within
7 calendar days after the Optional  Redemption  Date,  such Optional  Redemption
Price shall be increased by an amount  accruing from the 7th day to the 21st day
after the Optional  Redemption  Date at the rate of 5% per annum,  from the 22nd
day to the 60th day at 8% per annum and from the 61st day until paid at the rate
of 12% per annum.  However,  if any  portion of the  Optional  Redemption  Price
remains  unpaid more than 7 calendar  days after the Optional  Redemption  Date,
then the holder may elect, by written notice to the Company given within 45 days
after  the  Optional  Redemption  Date,  to  either  (i)  demand  conversion  in
accordance  with the formula and the time frame  therefor set forth in Section 5
for a  conversion  at the option of the holder  hereof of all Series G Preferred
Shares for which the Optional Redemption Price, plus interest, has not been paid
in full (the "Unpaid Optional Redemption Shares"),  in which event the Per Share
Market  Price for such shares  shall be the lower of the Per Share  Market Price
calculated on the Optional  Redemption Date and the Per Share Market Price as of
the  holder's  written  demand for  conversion,  or (ii) demand that the Company
withdraw its election to force such redemption.  If the holder elects option (i)
above,  the Company  shall  within  three  business  days of its receipt of such
election  deliver  to the  holder  the  shares of  Common  Stock  issuable  upon
conversion of the Unpaid  Shares  subject to such holder  conversion  demand and
otherwise  perform its obligations  hereunder with respect  thereto;  or, if the
Holder elects option (ii) above,  the Company shall  promptly,  and in any event
not later than three  business  days from  receipt  of  holder's  notice of such
election, return to the holder all of the Unpaid Optional Redemption Shares.

                  Section 7.  Definitions.  For the purposes hereof, the
                  -----------------------
following terms shall have the following meanings:

                  "Common Stock" means shares now or hereafter authorized
of the class of Common Stock, par value $.001, of the Company and



                                       62





stock of any  other  class  into  which  such  shares  may  hereafter  have been
reclassified or changed.

                  "Conversion  Ratio" means,  at any time, a fraction,  of which
the numerator is Stated Value plus accrued but unpaid dividends (which shall not
include  dividends  paid upon  conversion)  and of which the  denominator is the
Conversion Price at such time.

                  "Junior  Securities"  means  the  Common  Stock  and all other
equity securities of the Company, except the Other Preferred Stock.

                  "Original  Issue  Date"  shall  mean  the  date  of the  first
issuance of any shares of the Series G Preferred Stock  regardless of the number
of transfers of any particular shares of Series G Preferred Stock and regardless
of the number of  certificates  which may be issued to  evidence  such  Series G
Preferred Stock.

                  "Per Share Market Value" means on any particular  date (a) the
closing  bid  price  per share of the  Common  Stock on such date on The  NASDAQ
SmallCap  Market or other market or stock exchange on which the Common Stock has
been  listed or if there is no such price on such  date,  then the  closing  bid
price on such market or exchange on the date nearest preceding such date, or (b)
if the Common Stock is not listed on The NASDAQ SmallCap Market or any market or
stock   exchange,   the  closing  bid  for  a  share  of  Common  Stock  in  the
over-the-counter  market, as reported by the NASDAQ Stock Market at the close of
business  on such date,  or (c) if the Common  Stock is not quoted on the NASDAQ
Stock  Market,  the  closing  bid  price  for a share  of  Common  Stock  in the
over-the-counter   market  as  reported  by  the   National   Quotation   Bureau
Incorporated (or similar  organization or agency  succeeding to its functions of
reporting  prices),  of (d) if the  Common  Stock is no longer  reported  by the
National  Quotation  Bureau  Incorporated  (or  similar  organization  or agency
succeeding to its functions of reporting prices),  then the average of the "Pink
Sheet" quotes for the relevant conversion period as determined by the holder, or
(e) if the Common Stock is no longer  publicly traded the fair market value of a
share of Common  Stock as  determined  by an  Appraiser  (as  defined in Section
5(d)(iv)  above) selected in good faith by the holders of a majority in interest
of the shares of the  Series G  Preferred  Stock;  provided,  however,  that the
Company,  after receipt of the  determination by such Appraiser,  shall have the
right to select an additional Appraiser, in which



                                       63





case, the fair market value shall be equal to the average of the  determinations
by each such Appraiser.

                  "Person" means a corporation,  an association,  a partnership,
organization,  a business, an individual,  a government or political subdivision
thereof or a governmental agency.

                  "Purchase Agreement" means the Convertible Preferred
Stock Purchase Agreement between the Company and the original
holder of the Series G Preferred Stock.

                  "Trading  Day"  means (a) a day on which the  Common  Stock is
traded on The NASDAQ  SmallCap  Market or principal  stock exchange on which the
Common  Stock has been  listed,  or (b) if the Common Stock is not listed on The
NASDAQ SmallCap Market or any stock exchange, a day on which the Common Stock is
traded in the  over-the-counter  market, as reported by the NASDAQ Stock Market,
or (c) if the Common  Stock is not quoted on the NASDAQ Stock  Market,  a day on
which the Common Stock is quoted in the  over-the-counter  market as reported by
the National  Quotation  Bureau  Incorporated  (or any similar  organization  or
agency succeeding its functions of reporting prices).



                                       64





                                    EXHIBIT A
                              NOTICE OF CONVERSION
                            AT THE ELECTION OF HOLDER

(To be Executed by the Registered Holder
in order to Convert shares of Series G Preferred Stock)

The  undersigned  hereby  elects  to  convert  the  number of shares of Series G
Convertible  Preferred Stock indicated  below,  into shares of Common Stock, par
value U.S.$.001 per share (the "Common Stock"),  of AMNEX,  Inc. (the "Company")
according to the conditions  hereof, as of the date written below. If shares are
to be issued in the name of a person  other than  undersigned,  the  undersigned
will pay all  transfer  taxes  payable with  respect  thereto and is  delivering
herewith such  certificates and opinions as reasonably  requested by the Company
in  accordance  therewith.  No fee  will  be  charged  to  the  Holder  for  any
conversion, except for such transfer taxes, if any.

Conversion calculations:   ___________________________________________________
                            Date to Effect Conversion

                           ---------------------------------------------------
                           Number of shares of Series G Preferred
                              Stock to be Converted

                           ---------------------------------------------------
                           Applicable Conversion Price

                           ---------------------------------------------------
                           Signature

                           ---------------------------------------------------
                           Name:

                           ---------------------------------------------------
                           Address:


         The Company  undertakes to promptly upon its receipt of this conversion
notice (and, in any case prior to the time it effects the  conversion  requested
hereby),  notify the  converting  holder by facsimile of the number of shares of
Common Stock  outstanding  on such date and the number of shares of Common Stock
which would be issuable to the holder if the conversion requested in this



                                       65





conversion notice were effected in full,  whereupon,  the holder may, within one
day of the notice from the Company,  revoke the conversion  requested  hereby to
the extent that it determines that such conversion  would result in it owning in
excess of 4.9% of the  outstanding  shares of Common Stock on such date, and the
Company shall issue to the holder one or more certificates  representing  shares
of Series G Preferred  Stock which have not been  converted  as a result of this
provision.  If the holder waives the  applicability of this limitation by notice
to the Company  delivered upon its receipt of the Company's notice regarding the
number  of  outstanding  shares  of Common  Stock or if the  Purchaser  fails to
respond to the  Company's  notice within one day  thereafter,  the Company shall
effect in full the conversion requested in this notice.



                                       66





                                    EXHIBIT B

                                   AMNEX, INC.

                             NOTICE OF CONVERSION AT
                           THE ELECTION OF THE COMPANY


The undersigned in the name and on behalf of AMNEX,  Inc. (the "Company") hereby
notifies the  addressee  hereof that the Company  hereby  elects to exercise its
right to convert [ ] shares of its Series G Convertible  Preferred Stock held by
the Holder  into  shares of Common  Stock,  par value  U.S.$.001  per share (the
"Common  Stock") of the Company  according to the terms  hereof,  as of the date
written  below.  No fee  will  be  charged  to the  Holder  for  any  conversion
hereunder,  except for such transfer  taxes, if any which may be incurred by the
Company if shares are to be issued in the name of a person other than the person
to whom this notice is addressed.


Conversion calculations:   ___________________________________________________
                            Date to Effect Conversion

                           ---------------------------------------------------
                           Number of Shares of Preferred Stock
                           to be Converted

                           ---------------------------------------------------
                           Applicable Conversion Price

                           ---------------------------------------------------
                           Number of Shares of Common Stock
                           Outstanding as at the Close of Trading on
                           the Conversion Date


                           AMNEX, INC.


                           By:________________________________________________

                              Title:__________________________________________





                                       67


         (j) Series L Preferred  Shares. A series of Preferred Shares is hereby
created,  to be  limited  in  amount  to  200,000  of the  5,000,000  authorized
Preferred  Shares.  The  designation,   relative  rights,  powers,  preferences,
qualifications and limitations are as follows:
         (i)      Designation  of  Series.  The  designation  of the  series  of
                  Preferred  Shares  created  hereby shall be Series L Preferred
                  Shares (hereinafter the "Series L Preferred Shares").

         (ii)     Dividends. The holders of Series L Preferred Shares, on a pari
                  passu  basis  with the  holders  of the  Corporation's  Common
                  Shares  (based upon the number of Common Shares into which the
                  Series L Preferred Shares are convertible), Series F Preferred
                  Shares  and  any  other  series  of  Preferred  Shares  of the
                  Corporation  hereafter  created  which shall have a pari passu
                  right  with  the  holders  of the  Common  Shares  to  receive
                  dividends,  shall be entitled to receive such dividends as may
                  be declared  by the Board of  Directors.  Declared  but unpaid
                  dividends shall not bear interest.

                  The rights of the  holders of the  Series L  Preferred  Shares
                  shall be junior and  subordinate  to the rights of the holders
                  of the Series A,  Series B,  Series C,  Series D, Series E and
                  Series  G  Preferred  Shares  of the  Corporation  to  receive
                  dividends,  as well as to the  right of any  other  series  of
                  Preferred  Shares of the Corporation  hereafter  created which
                  shall have any preferential  right to receive dividends before
                  the holders of the Common Shares.

         (iii)    Voting  Rights.  The holders of the Series L Preferred  Shares
                  shall be entitled to vote on all matters at all meetings of 
                  the shareholders of the Corporation, and shall be entitled to
                  such number of votes for each Series L Preferred Share 
                  entitled to vote at such  meetings as is set forth below,  
                  voting  together with the holders of Common  Shares, and other
                  Preferred  Shares who are entitled to vote, if any such shares
                  are then outstanding, and not as a separate  class,  except as
                  required by law.  The  number of votes to which the holders of
                  the Series L Preferred Shares shall be entitled to vote for 
                  each Series L Preferred Share shall equal the number of Common
                  Shares of the Corporation into which such Series L Preferred
                  Share would convert upon the occurrence of the Mandatory 
                  Conversion Event(as hereinafter defined).

         (iv)     Redemption.  The Series L Preferred Shares shall not be
                  subject to mandatory redemption by either the Corporation
                  or the holders thereof.

         (v)      Conversion.

                  (A) Mandatory Conversion Event and Price. Immediately upon the
                  filing  with  the  Secretary  of  State  of  New  York  of the
                  Certificate  of  Amendment  (as   hereinafter   defined)  (the
                  "Mandatory  Conversion Event"),  each Series L Preferred Share
                  shall   convert  into  fifteen  (15)  Common   Shares  of  the
                  Corporation (the "Conversion Ratio"), subject to adjustment as
                  hereinafter set forth.

                  (B) Procedure.  Before any holder of Series L Preferred Shares
                  shall be entitled to receive  Common  Shares upon  conversion,
                  the holder shall surrender the certificate(s)  therefor,  duly
                  endorsed, at the principal offices of the Corporation. Subject
                  to the provisions hereof, effective upon the occurrence of the
                  Mandatory Conversion Event (the "Effective  Conversion Date"),
                  the  holder  shall  thereupon  be deemed  to be the  holder of
                  record  of  the  Common  Shares   issuable  upon   conversion,
                  notwithstanding   that  the  stock   transfer   books  of  the
                  Corporation  shall  then be closed or that the  certificate(s)
                  representing  such  Common  Shares  shall not then be actually
                  delivered  to the holder.  Subject to the  provisions  hereof,
                  promptly   following  the  Effective   Conversion   Date,  the
                  Corporation  shall  cause  its  transfer  agent to  issue  and
                  deliver to such holder of Series L Preferred Shares a
                  certificate for the number of Common Shares to which the
                  holder shall be entitled.
                  
                                        68



                  (C)  Adjustment of Conversion Ratio.

                  (i) In the  event  that  the  Corporation  shall  (a)  pay any
                  dividend on its Common Shares  payable in Common  Shares;  (b)
                  effect a subdivision of its outstanding  shares into a greater
                  number of Common Shares (by  reclassification,  stock split or
                  otherwise than by payment of a dividend in Common Shares); (c)
                  effect  a  combination  or  consolidation  of its  outstanding
                  Common  Shares  into a lesser  number  of  Common  Shares  (by
                  reclassification,  reverse split or  otherwise);  (d) issue by
                  reclassification,  exchange  or  substitution  of  its  Common
                  Shares  any  shares of  capital  stock of the  Corporation  or
                  effect  any  other  transaction  having  similar  effect,  the
                  Conversion  Ratio in effect  immediately  prior to such action
                  shall be adjusted so that,  in the event of the  occurrence of
                  the  Mandatory   Conversion   Event  at  any  time  after  the
                  occurrence of any event described  above,  the holder shall be
                  entitled  to receive  the Common  Shares to which such  holder
                  would have been finally  entitled,  after giving effect to the
                  occurrence of such event,  as if such holder had converted the
                  Series L Preferred Shares  immediately prior to the occurrence
                  of such event.  An adjustment  made pursuant to this paragraph
                  (C) shall become effective  immediately  after the record date
                  in  the  case  of  a  dividend  and  shall  become   effective
                  immediately  after  the  effective  date  in  the  case  of  a
                  subdivision,   combination,   reclassification,   exchange  or
                  substitution.

                  (ii) In case of any  consolidation  or  merger  to  which  the
                  Corporation is a party,  other than a merger or  consolidation
                  in  which  the  Corporation  is the  surviving  or  continuing
                  corporation and which does not result in any  reclassification
                  of,  or change  (other  than a change in par value or from par
                  value to no par value or from no par value to par value, or as
                  a result of subdivision or combination) in, outstanding Common
                  Shares, then the Corporation,  or such successor  corporation,
                  as the case may be, shall make appropriate  provisions so that
                  the holder of each Series L Preferred Share then outstanding

                                       69





                  shall have the right to  convert  such share into the kind and
                  amount of shares or other  securities and property  receivable
                  upon such consolidation or merger by a holder of the number of
                  Common Shares into which such Series L Preferred  Shares might
                  have been converted immediately prior to such consolidation or
                  merger.

                  (D) Fractional  Shares.  No fractional  Common Shares shall be
                  issued upon conversion of Series L Preferred  Shares.  In lieu
                  of any fractional  shares to which the holder would  otherwise
                  be entitled,  the  Corporation  shall pay, in cash,  an amount
                  equal to the  product of (i) such  fraction  of a share  times
                  (ii) the  market  price of one Common  Share on the  Effective
                  Conversion Date.

                  (E)  Reservation  of  Shares  Issuable  Upon  Conversion.  The
                  Corporation  shall at all times reserve and keep available out
                  of its authorized but unissued  Common Shares,  solely for the
                  purpose of effecting the  conversion of the Series L Preferred
                  Shares, such number of its Common Shares as shall from time to
                  time be sufficient to effect the conversion of all outstanding
                  Series L Preferred  Shares;  provided,  however,  that nothing
                  contained   herein  shall   preclude  the   Corporation   from
                  satisfying its obligations in respect of the conversion of the
                  Series L Preferred  Shares by delivery of Common  Shares which
                  are held in the treasury of the  Corporation.  Notwithstanding
                  the  foregoing,  the  Corporation  shall not be  obligated  to
                  reserve and keep  available  out its  authorized  but unissued
                  Common Shares,  or issue,  any Common Shares to the holders of
                  the Series L Preferred  Shares  unless and until it shall have
                  filed with the Secretary of State of New York a Certificate of
                  Amendment of its Certificate of  Incorporation  as a result of
                  which there will be a sufficient  number of authorized  Common
                  Shares of the  Corporation  available  for  issuance  upon the
                  conversion  of the Series L Preferred  Shares and the exercise
                  of any and all  outstanding  purchase,  exchange or conversion
                  rights for the acquisition of Common Shares of the Corporation
                  (the "Certificate of Amendment").



                                       70





                  (F) Lost, Stolen or Destroyed Certificates.  In the event that
                  the   holder   shall   notify   the   Corporation   that   the
                  certificate(s)  representing  Series L  Preferred  Shares have
                  been  lost,  stolen or  destroyed  and  either  (i)  provide a
                  letter, in form satisfactory to the Corporation, to the effect
                  that he will indemnify the Corporation  from any loss incurred
                  by  it  in  connection  therewith,   and/or  (ii)  provide  an
                  indemnity bond in such amount as is reasonably required by the
                  Corporation,  the  Corporation  having the option of  electing
                  either (i) or (ii) or both, the  Corporation  may, in its sole
                  discretion,  accept such letter and/or  indemnity bond in lieu
                  of the  surrender  of the  certificate(s)  as required by this
                  subsection (v).

                  (G)  Statutory  Restrictions.  The  foregoing  provisions  for
                  conversion  of the Series L Preferred  Shares shall be subject
                  to all applicable statutory limitations and restrictions.

         (vi)     Liquidation Preference.  In the event of any voluntary or
                  involuntary liquidation, dissolution or winding up of the
                  Corporation, the holders of Series L Preferred Shares
                  will be entitled to receive, prior and in preference to
                  any distribution of the assets or surplus funds of the
                  Corporation to the holders of any Common Shares by reason
                  of the ownership thereof, and on a pari passu basis with
                  the holders of the Series A, Series B, Series C, Series
                  D, Series E, Series F, and Series G Preferred Shares and
                  any Series H, Series I, Series J, and/or Series K
                  Preferred Shares hereafter authorized, an amount equal to
                  the fixed sum of forty-five dollars and forty-five cents
                  ($45.45) per share and no more (the "Preferential
                  Amount").  If, upon the occurrence of such an event, the
                  assets and funds thus distributed among the holders of
                  Series L Preferred Shares shall be insufficient to permit
                  the payment to such holders of the full Preferential
                  Amount, then, the entire assets and funds of the
                  Corporation legally available for distribution to the
                  holders of the Series L Preferred Shares shall be
                  distributed ratably among such holders in accordance with
                  the respective amounts which would be payable on such
                  shares if all amounts payable thereon were paid in full.

                                       71





                  After the  payment or setting  apart of the full  Preferential
                  Amounts required to be paid to the holders of Series A, Series
                  B, Series C, Series D, Series E, Series F, Series G and Series
                  L Preferred Shares and any Series H, Series I, Series J and/or
                  Series K Preferred Shares hereafter authorized, the holders of
                  Common Shares or any other stock of the Corporation ranking in
                  liquidation junior to the Series A, Series B, Series C, Series
                  D, Series E, Series F, Series G and Series L Preferred  Shares
                  and any Series H, Series I, Series J and/or Series K Preferred
                  Shares  hereafter  authorized,  shall be  entitled  to receive
                  ratably  all   remaining   assets  or  surplus  funds  of  the
                  Corporation.  Neither  the  merger  or  consolidation  of  the
                  Corporation,  nor the sale, lease or conveyance of all or part
                  of  its  assets,   shall  be  deemed  to  be  a   liquidation,
                  dissolution  or winding up of the affairs of the  Corporation,
                  either  voluntarily  or  involuntarily,  within the meaning of
                  this section.

          (vii)   Sinking Fund.  The Series L Preferred Shares shall not be 
                  entitled to the benefit of any sinking fund to be applied to 
                  their purchase or redemption."

         (5) No holder of any shares of the  Corporation  shall,  because of his
ownership of shares of the  Corporation,  have a  pre-emptive  or other right to
purchase,  subscribe for, or take any part of any shares of the Corporation,  or
any part of any notes,  debentures,  bonds, or other securities convertible into
or providing for options or warrants to purchase shares of the Corporation which
are issued, offered, or sold by the Corporation after its incorporation, whether
the shares, notes, debentures,  bonds, or other securities be authorized by this
certificate  of  incorporation  or by an amended  certificate  duly filed and in
effect  at the  time of the  issuance,  offer,  or sale of such  shares,  notes,
debentures,  bonds, or other  securities.  Any part of the shares  authorized by
this Certificate of Incorporation,  or by an amended certificate duly filed, and
any part of any notes,  debentures,  bonds, or other securities convertible into
or providing for options or warrants to purchase  shares of the  Corporation may
at any  time be  issued,  offered  for  sale,  and  sold or  disposed  of by the
Corporation,  pursuant to a  resolution  of its Board of  Directors  and to such
persons and upon such terms and conditions as the Board of Directors may, in its
sole discretion,  deem proper and advisable,  without first offering to existing
shareholders  any  part of such  shares,  notes,  debentures,  bonds,  or  other
securities.




                                       72






         (6)  The Secretary of State is designated as the agent of the 
Corporation upon whom process against the Corporation may be served, and the 
address to which the Secretary of State shall mail a copy of any process against
the Corporation served upon him is 101 Park Avenue, New York, New York 10178, 
Attention:  Vice President - General Counsel.

         (7) A director of the Corporation shall not be personally liable to the
Corporation  or its  shareholders  for  damages  for any  breach  of duty in his
capacity as a director, unless a judgment or other final adjudication adverse to
him  establishes  that (i) his acts or  omissions  were in bad faith or involved
intentional  misconduct  or a  knowing  violation  of law or (ii) he  personally
gained  in fact a  financial  or other  advantage  to  which he was not  legally
entitled or (iii) his acts violated Section 719 of the Business Corporation Law.
Neither  the  amendment  nor repeal of this  Article 7, nor the  adoption of any
provision of the Certificate of Incorporation  inconsistent with this Article 7,
shall  eliminate or reduce the effect of this Article 7 in respect of any matter
occurring,  or any cause of action,  suit or claim  that but for this  Article 7
would  accrue or  arise,  prior to such  amendment,  repeal  or  adoption  of an
inconsistent provision.






                                       73

EX-3.3

                                   ARTICLE II

                            MEETINGS OF SHAREHOLDERS

Section 2.        Annual Meeting

                  The annual  meeting of  shareholders  shall be held on the 3rd
Tuesday in June of each year, if not a legal  holiday,  and, if a legal holiday,
then on the next business day thereafter, or on such date as shall be determined
by   the  Board  of  Directors,  and  the  shareholders  shall  then  elect
a Board of Directors and transact such other business as may properly be brought
before the meeting.  To be properly  brought before an annual meeting,  business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by, at the direction of or upon authority granted by the Board of Directors, (b)
otherwise  brought  before the meeting by, at the direction of or upon authority
granted by the Board of  Directors,  or (c)  subject to ARTICLE  II,  Section 10
hereof,  otherwise  properly  brought before the meeting by a  shareholder.  For
business to be properly  brought before an annual meeting by a shareholder,  the
shareholder must have given timely notice thereof in writing to the Secretary of
the  Company.  To be timely,  a  shareholder's  notice  must be  received at the
principal  executive  offices of the Company not less than 60 days nor more than
90 days prior to the meeting;  provided,  however,  that, in the event that less
than 70 days'  notice of the date of the  meeting is given to  shareholders  and
public  disclosure of the meeting date,  pursuant to a press release,  is either
not made or is made less than 70 days prior to the meeting date,  then notice by
the  shareholder  to be timely must be so  received  not later than the close of
business  on the tenth day  following  the  earlier of (a) the day on which such
notice of the date of the annual meeting was mailed to  shareholders  or (b) the
day on which any such public disclosure was made.
                
                  A  shareholder's  notice to the Secretary must set forth as to
each matter the  shareholder  proposes to bring before the annual  meeting (a) a
brief  description  of the  business  desired  to be  brought  before the annual
meeting, and the reasons for conducting such business at the annual meeting, (b)
the name and address,  as they appear on the Company's books, of the shareholder
proposing such business, (c) the class and number of shares of the Company which
are beneficially owned by the shareholder,  and (d) any material interest of the
shareholder  in such  business.  Notwithstanding  anything in the By-Laws to the
contrary,  but subject to ARTICLE II,  Section 10 hereof,  no business  shall be
conducted at an annual  meeting  except in accordance  with the  procedures  set
forth in this Section 2. The Chairman of an annual meeting  shall,  if the facts
warrant,  determine  and declare to the meeting  that  business was not properly
brought before the meeting in accordance  with the provisions of this Section 2,
and, if he should so determine, he shall so declare to the meeting, and any such
business not properly brought before the meeting shall not be transacted.

EX-3.4

                                     BY-LAWS

                                       OF

                                   AMNEX, INC.

                      (As Amended Through March 31, 1997)

                                    ARTICLE I

                                     OFFICES

Section 1.        Principal Office

                  The principal  office of the  Corporation  shall be in City of
New York, County of New York, State of New York.

Section 2.        Additional Offices

                  The  Corporation  may also have offices and places of business
at such other  places,  within or without the State of New York, as the Board of
Directors may from time to time determine or the business of the Corporation may
require.

                                   ARTICLE II

                            MEETINGS OF SHAREHOLDERS

Section 1.        Time and Place

                  The annual meeting of the  shareholders of the Corporation and
all special  meetings of shareholders  may be held at such time and place within
or without the State of New York as shall be stated in the notice of the meeting
or in a duly executed waiver of notice thereof.

Section 2.        Annual Meeting

                  The annual  meeting of  shareholders  shall be held on the 3rd
Tuesday in June of each year, if not a legal  holiday,  and, if a legal holiday,
then on the next business day thereafter, or on such date as shall be determined
by   the  Board  of  Directors,  and  the  shareholders  shall  then  elect
a Board of Directors and transact such other business as may properly be brought
before the meeting.  To be properly  brought before an annual meeting,  business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by, at the direction of or upon authority granted by the Board of Directors, (b)
otherwise  brought  before the meeting by, at the direction of or upon authority
granted by the Board of  Directors,  or (c)  subject to ARTICLE  II,  Section 10
hereof,  otherwise  properly  brought before the meeting by a  shareholder.  For
business to be properly  brought before an annual meeting by a shareholder,  the
shareholder must have given timely notice thereof in writing to the Secretary of
the  Company.  To be timely,  a  shareholder's  notice  must be  received at the
principal  executive  offices of the Company not less than 60 days nor more than
90 days prior to the meeting;  provided,  however,  that, in the event that less
than 70 days'  notice of the date of the  meeting is given to  shareholders  and
public  disclosure of the meeting date,  pursuant to a press release,  is either
not made or is made less than 70 days prior to the meeting date,  then notice by
the  shareholder  to be timely must be so  received  not later than the close of
business  on the tenth day  following  the  earlier of (a) the day on which such
notice of the date of the annual meeting was mailed to  shareholders  or (b) the
day on which any such public disclosure was made.
                
                  A  shareholder's  notice to the Secretary must set forth as to
each matter the  shareholder  proposes to bring before the annual  meeting (a) a
brief  description  of the  business  desired  to be  brought  before the annual
meeting, and the reasons for conducting such business at the annual meeting, (b)
the name and address,  as they appear on the Company's books, of the shareholder
proposing such business, (c) the class and number of shares of the Company which

                                       1


are beneficially owned by the shareholder,  and (d) any material interest of the
shareholder  in such  business.  Notwithstanding  anything in the By-Laws to the
contrary,  but subject to ARTICLE II,  Section 10 hereof,  no business  shall be
conducted at an annual  meeting  except in accordance  with the  procedures  set
forth in this Section 2. The Chairman of an annual meeting  shall,  if the facts
warrant,  determine  and declare to the meeting  that  business was not properly
brought before the meeting in accordance  with the provisions of this Section 2,
and, if he should so determine, he shall so declare to the meeting, and any such
business not properly brought before the meeting shall not be transacted.

Section 3.        Notice of Annual Meeting

                  Written  notice  of the  place,  date and  hour of the  annual
meeting of shareholders shall be given personally or by mail to each shareholder
entitled to vote  thereat,  not less than ten (10) nor more than fifty (50) days
prior to the meeting.

Section 4.        Special Meetings

                  Special meetings of the shareholders, for any purposes, unless
otherwise  prescribed  by law or by the  Certificate  of  Incorporation,  may be
called  by  the  President,  Chairman  of  the  Board  or  any  Director  of the
Corporation.  Such  request  shall state the purpose or purposes of the proposed
meetings.

Section 5.        Notice of Special Meeting

                  Written notice of a special  meeting of  shareholders  stating
the place,  date and hour of the meeting,  the purpose or purposes for which the
meeting is called,  and by or at whose  direction it is being  issued,  shall be
given  personally or by mail to each shareholder  entitled to vote thereat,  not
less than ten (10) nor more than fifty (50) days prior to the meeting.

Section 6.        Quorum

                  Except  as   otherwise   provided   by  the   Certificate   of
Incorporation, the holders of a majority of the shares of the Corporation issued
and  outstanding  and entitled to vote  thereat  shall be necessary to and shall
constitute  a quorum for the  transaction  of  business  at all  meetings of the
shareholders.  If  a  quorum  shall  not  be  present  at  any  meeting  of  the
shareholders,  the  shareholders  entitled to vote thereat  present in person or
represented  by proxy shall have power to adjourn the meeting  from time to time
until a quorum shall be present. At any such adjourned meeting at which a quorum
may be present,  any business may be transacted which might have been transacted
at the meeting as originally called.

Section 7.        Voting

                  (a) At any  meeting  of the  shareholders,  every  shareholder
having the right to vote shall be entitled to vote in person or by proxy. Except
as otherwise  provided in the  Certificate of  Incorporation,  each  shareholder
shall have one (1) vote for each share of stock  having  voting  power  which is
registered in his name on the books of the Corporation.

                  (b) Except as otherwise  provided by law or by the Certificate
of Incorporation  or these By-Laws,  all elections of Directors shall be decided
by a  plurality  of the votes cast and all other  matters  shall be decided by a
majority of the votes cast.

                  (c) At each  meeting of the  shareholders,  the polls shall be
opened and closed,  the proxies  and ballots  shall be received  and be taken in
charge,  and all questions touching the qualification of voters, the validity of
proxies and the  acceptance or rejection of votes shall be decided by one (1) or
more inspectors.  Such inspector(s) shall be appointed by the Board of Directors
or the chairman of the meeting.  If, for any reason, any inspector(s)  appointed
shall fail to attend or refuse or be unable to serve, inspectors in place of any
so failing to attend or refusing or unable to serve shall be  appointed  in like
manner.  Such  inspector(s),  before  entering  upon the  discharge of his/their
duties,  shall be sworn faithfully to execute the duties of inspector(s) at such
meeting with strict impartiality and according to the best of his/their ability,
and the oath so taken shall be subscribed by him/them.

                                       2


Section 8.        Proxies

                  A proxy,  to be valid,  shall be  executed  in  writing by the
shareholder  or by his  attorney-in-fact.  No proxy  shall be  valid  after  the
expiration of eleven (11) months from the date thereof unless otherwise provided
in the proxy.  Every proxy shall be revocable at the pleasure of the shareholder
executing it, except in those cases where an  irrevocable  proxy is permitted by
law.

Section 9.        Consents

                  Whenever  by any  provision  of law or of the  Certificate  of
Incorporation  or of these By-Laws the vote of shareholders at a meeting thereof
is required or permitted to be taken in connection  with any  corporate  action,
the  meeting  and  vote  of  shareholders  may be  dispensed  with  if  all  the
shareholders  who would  have  been  entitled  to vote  upon the  action if such
meeting were held shall consent in writing to such corporate action being taken.
Nothing  in this  Section  9 shall be  construed  so as to alter or  modify  any
provision of law under which the written consent of the holders of less than all
outstanding shares is sufficient for corporate action.

Section 10.       Notice and Qualification of Shareholder Nominees to
                  Board

                  Only  persons  who  are  nominated  in  accordance   with  the
procedures  set forth in this  Section 10 shall be  qualified  for  election  as
Directors.  Nominations of persons for election to the Board of Directors of the
Company may be made at a meeting of  shareholders  by or at the direction of the
Board of Directors or by any shareholder of the Company entitled to vote for the
election of Directors at the meeting who complies with the  procedures set forth
in this Section 10. In order for persons  nominated  to the Board of  Directors,
other  than  those  persons  nominated  by or at the  direction  of the Board of
Directors,  to be qualified to serve on the Board of Directors,  such nomination
shall be made  pursuant  to timely  notice in  writing to the  Secretary  of the
Company. To be timely, a shareholder's  notice must be received at the principal
executive  offices  of the  Company  not less than 60 days nor more than 90 days
prior to the meeting;  provided,  however,  that, in the event that less than 70
days'  notice of the date of the  meeting  is given to  shareholders  and public
disclosure of the meeting date,  pursuant to a press release, is either not made
or is made less  than 70 days  prior to the  meeting  date,  then  notice by the
shareholder  to be  timely  must be so  received  not  later  than the  close of
business  on the tenth day  following  the  earlier of (a) the day on which such
notice of the date of the meeting was mailed to  shareholders  or (b) the day on
which such public disclosure was made.

                  A shareholder's  notice to the Secretary must set forth (a) as
to each  person  whom the  shareholder  proposes  to  nominate  for  election or
re-election  as a Director (i) the name,  age,  business  address and  residence
address of such person,  (ii) the  principal  occupation  or  employment of such
person,  (iii)  the  class  and  number  of  shares  of the  Company  which  are
beneficially  owned by such  person and (iv) any other  information  relating to
such  person that is required to be  disclosed  in  solicitation  of proxies for
election  of  Directors,  or is  otherwise  required,  in each case  pursuant to
Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended
from time to time  (including,  without  limitation,  such  documentation  as is
required by Regulation  14A to confirm that such person is a bona fide nominee);
and (b) as to the  shareholder  giving the notice (i) the name and  address,  as
they appear on the Company's  books, of such  shareholder and (ii) the class and
number  of  shares  of  the  Company  which  are  beneficially   owned  by  such
shareholder.  At the request of the Board of Directors,  any person nominated by
the Board of Directors for election as a Director shall furnish to the Secretary
of the Company  that  information  required  to be set forth in a  shareholder's
notice of nomination which pertains to the nominee. No person shall be qualified
for election as a Director of the Company  unless  nominated in accordance  with
the  procedures set forth in this Section 10. The Chairman of the meeting shall,
if the facts warrant, determine and declare to the meeting that a nomination was
not made in accordance  with  procedures  prescribed by the By-Laws,  and, if he
should so  determine,  he shall so declare  to the  meeting,  and the  defective
nomination shall be disregarded.

                                       3


                                   ARTICLE III

                                    DIRECTORS

Section 1.        Number; Tenure

                  (a) The number of Directors  constituting  the entire Board of
Directors  shall be fixed from time to time by resolution of the Board but shall
not be less than three (3),  except that where all the shares of the Corporation
are owned  beneficially and of record by less than three (3)  shareholders,  the
number of  Directors  may be less than three (3) but not less than the number of
shareholders.

                  (b)  Directors  shall be elected at the annual  meeting of the
shareholders,  except as provided  in Section 3 of this  Article  III,  and each
Director  shall be elected to serve until his successor has been elected and has
qualified.

Section 2.        Resignation; Removal

                  Any  Director  may resign at any time.  The Board of Directors
may remove a Director for cause. Any or all of the Directors may be removed with
or without cause by a vote of the shareholders. These provisions for the removal
of Directors apply to the extent permitted by the laws of the State of New York.

Section 3.        Vacancies

                  If any vacancies  occur in the Board of Directors by reason of
the death, resignation,  retirement,  disqualification or removal from office of
any Director with or without cause or if any new directorships are created,  the
Directors  then in office  may  choose  successors,  or fill the  newly  created
directorships,  and the  Directors  so chosen  shall hold office  until the next
annual  meeting of the  shareholders  and until their  successors  shall be duly
elected and qualified, unless sooner displaced.

Section 4.        Executive Committee and Other Committees

                  The Board of Directors, by resolution adopted by a majority of
the entire Board,  may designate  from among its members an Executive  Committee
and  other  committees,  each  consisting  of  three  or more  Directors,  which
committees  shall serve at the pleasure of the Board of Directors.  The Board of
Directors may designate one or more  Directors as alternate  members of any such
committee,  who may replace any absent member or members of such committee.  The
Board of Directors, by resolution adopted by a majority of the entire Board, may
remove a member of any such  committee  with or  without  cause.  To the  extent
provided in said resolution and to the extent permitted by the laws of the State
of New York,  each such committee  shall have and may exercise the powers of the
Board of Directors.  Each of such  committees  shall keep regular minutes of its
proceedings and shall report thereon to the Board from time to time as required.

                                   ARTICLE IV

                              MEETINGS OF THE BOARD

Section 1.        Place

                  The Board of Directors of the  Corporation  may hold meetings,
both regular and special, either within or without the State of New York.

Section 2.        Regular Meetings

                  Regular meetings of the Board of Directors may be held without
notice at such time and at such place as shall  from time to time be  determined
by the Board.

                                       4


Section 3.        Special Meetings

                  Special  meetings of the Board of  Directors  may be called by
the Chairman of the Board or the  President,  and, upon the written demand of at
least two (2) Directors,  shall be called by the Secretary,  in each case on one
(1) day's notice to each  Director,  either  personally,  by overnight  mail, by
telegram, by telecopier or by telephone.

Section 4.        Quorum

                  At all meetings of the Board of  Directors,  a majority of the
Directors  then in office,  shall be  necessary  to  constitute a quorum for the
transaction of business.  If a quorum shall not be present at any meeting of the
Board of Directors,  a majority of the Directors present thereat may adjourn the
meeting from time to time until a quorum shall be present.  One (1) day's notice
of any such adjournment shall be given, either personally, by mail, by telegram,
by telecopier  or by telephone to each Director who was not present and,  unless
announced at the meeting, to the other Directors.

Section 5.        Action of the Board

                  Unless  otherwise  required by law,  the vote of a majority of
the  Directors  present at the time of the vote,  if a quorum is present at such
time, shall be the act of the Board.

Section 6.        Participation in Meeting by Electronic Means

                  Any one or more  members  of the  Board  of  Directors  or any
committee  thereof may participate in a meeting of the Board of Directors or any
committee  thereof by means of a conference  telephone or similar  communication
equipment allowing all persons  participating in such meeting to hear each other
at the same time.  Participation  by such means  shall  constitute  presence  in
person at such meeting.

Section 7.        Action in Lieu of Meeting

                  Any action  required or  permitted to be taken by the Board of
Directors or any committee thereof may be taken without a meeting if all members
of the Board of Directors or the committee consent in writing to the adoption of
a resolution  authorizing  the action.  The resolution and the written  consents
thereto by the members of the Board of  Directors  or  committee  shall be filed
with the minutes of the proceedings of the Board of Directors or committee.

Section 8.        Compensation

                  Directors,  as such,  shall not receive any stated  salary for
their  services,  but, by resolution of the Board of Directors,  a fixed fee and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board;  provided,  however, that nothing herein contained
shall be construed to preclude any Director from serving the  Corporation in any
other capacity and receiving compensation therefor.

                                    ARTICLE V

                                     NOTICES

Section 1.        Form; Delivery

                  Notices  to  Directors  and  shareholders  shall be in writing
(except as provided herein) and may be delivered  personally or by mail or, with
respect to Directors only, by telegram,  telecopier or telephone. Such notice is
deemed to be given,  if by mail,  when deposited in the United States mail, with
postage  thereon  prepaid  and, if by  telegram,  when  ordered or, if a delayed
delivery is ordered,  as of such delayed  delivery time,  and, if by telecopier,
when  transmitted and directed to Directors at their addresses as they appear on
the records of the Corporation.

                                       5


Section 2.        Waiver

                  Whenever a notice is required to be given by any statute,  the
Certificate  of  Incorporation  or these  By-Laws,  a waiver thereof in writing,
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to such notice. In addition,
any  shareholder  attending  a  meeting  of  shareholders  in person or by proxy
without  protesting  prior to the  conclusion  of the meeting the lack of notice
thereof to him, and any  Director  attending a meeting of the Board of Directors
or  committee  thereof  without  protesting  prior  to  the  meeting  or at  its
commencement  such lack of notice  shall be  conclusively  deemed to have waived
notice of such meeting.

                                   ARTICLE VI

                                    OFFICERS

Section 1.        Officers

                  The  officers  of the  Corporation  shall be a Chairman of the
Board, a President,  one or more Vice-Presidents,  a Secretary, a Treasurer, and
such other officers as may be determined by the Board of Directors.

Section 2.        Authority and Duties

                  All officers, as between themselves and the Corporation, shall
have such authority and perform such duties in the management of the Corporation
as may be provided in these By-Laws,  or, to the extent not so provided,  by the
Board of Directors.

Section 3.        Term of Office; Removal

                  All officers  shall be elected by the Board of  Directors  and
shall hold office for such time as may be prescribed  by the Board.  Any officer
or agent  elected or appointed by the Board may be removed with or without cause
at any time by the Board.

Section 4.        Compensation

                  The  compensation of all officers of the Corporation  shall be
fixed by the Board of Directors,  and the compensation of agents shall either be
so fixed or shall be fixed by officers thereunto duly authorized.  The fact that
any officer is a Director  shall not preclude him from  receiving a salary as an
officer, or from voting upon the resolution providing the same.

Section 5.        Vacancies

                  If an  office  becomes  vacant  for any  reason,  the Board of
Directors may fill the vacancy. Any officer so appointed or elected by the Board
shall serve only until the unexpired term of his predecessor  shall have expired
unless re-elected by the Board.

Section 6.        The Chairman of the Board

                  The  Chairman  of the  Board of  Directors  shall be the Chief
Executive  Officer of the  Corporation;  he shall preside at all meetings of the
Board of  Directors  and  shareholders;  he shall be  ex-officio a member of all
standing committees and shall perform such other duties as from time to time may
be assigned to him by the Board of Directors.

Section 7.        The President

                  The  President  shall be the Chief  Operating  Officer  of the
Corporation;  he shall have  general  and active  management  and control of the
day-to-day  business and affairs of the  Corporation,  subject to the control of
the Board of  Directors,  and shall see that all orders and  resolutions  of the
Board are carried into effect.

                                       6


Section 8.        The Vice-President

                  The  Vice-President  or,  if  there  be  more  than  one,  the
Vice-Presidents in the order of their seniority or in any other order determined
by the Board of Directors, shall, in the absence or disability of the President,
perform the duties and exercise the powers of the President, and shall generally
assist the President and perform such other duties as the Board, the Chairman of
the Board or the President shall prescribe.

Section 9.        The Secretary

                  The  Secretary  shall  attend  all  meetings  of the  Board of
Directors  and all  meetings  of the  shareholders  and record all votes and the
minutes  of all  proceedings  in a book to be kept for that  purpose  and  shall
perform like duties for the standing committees when required. He shall give, or
cause to be given,  notice  of all  meetings  of the  shareholders  and  special
meetings of the Board,  and shall perform such other duties as may be prescribed
by  the  Board,  the  Chairman  of  the  Board  or the  President,  under  whose
supervision  he  shall  act.  He  shall  keep in safe  custody  the  seal of the
Corporation and, when authorized by the Board,  affix the same to any instrument
requiring it and,  when so affixed,  it shall be attested by his signature or by
the signature of the Treasurer or an Assistant Treasurer or Assistant Secretary.
He shall keep in safe custody the certificate books and shareholder  records and
such other books and records as the Board may direct and shall perform all other
duties incident to the office of the Secretary.

Section 10.       The Assistant Secretary

                  During  the  absence  or  disability  of  the  Secretary,  any
Assistant Secretary,  or if there be more than one, the one so designated by the
Secretary or by the Board of Directors,  shall have all the powers and functions
of the Secretary.

Section 11.       The Treasurer

                  The Treasurer shall have the care and custody of the corporate
funds and other valuable effects,  including securities, and shall keep full and
accurate  accounts of  receipts  and  disbursements  in books  belonging  to the
Corporation and shall deposit all monies and other valuable  effects in the name
and to the credit of the  Corporation in such  depositories as may be designated
by the  Board of  Directors.  The  Treasurer  shall  disburse  the  funds of the
Corporation  as may be ordered by the Board,  taking  proper  vouchers  for such
disbursements,  and shall render the  Directors,  at the regular  meeting of the
Board,  or whenever they may require it, an account of all his  transactions  as
Treasurer and of the financial condition of the Corporation.

Section 12.       The Assistant Treasurer

                  During  the  absence  or  disability  of  the  Treasurer,  any
Assistant Treasurer,  or if there be more than one, the one so designated by the
Treasurer or by the Board of Directors,  shall have all the powers and functions
of the Treasurer.

Section 13.       Bonds

                  In case the Board of Directors  shall so require,  any officer
or agent of the Corporation  shall give the Corporation a bond for such term, in
such sum and with such surety or sureties as shall be  satisfactory to the Board
for  the  faithful  performance  of  the  duties  of his  office,  and  for  the
restoration to the Corporation, in case of his death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever  kind  in  his  possession  or  under  his  control  belonging  to  the
Corporation.

                                       7


                                  ARTICLE VIII

                               SHARE CERTIFICATES

Section 1.        Form; Signature

                  The  certificates  for shares of the  Corporation  shall be in
such form as shall be determined by the Board of Directors and shall be numbered
consecutively  and entered in books of the Corporation as they are issued.  Each
certificate shall exhibit the registered  holder's name and the number and class
of shares,  and shall be signed by the Chairman of the Board, the President or a
Vice-President  and by the Treasurer or an Assistant  Treasurer or the Secretary
or an  Assistant  Secretary,  and shall  bear the seal of the  Corporation  or a
facsimile  thereof.  Where any such certificate is  counter-signed by a transfer
agent, or registered by a registrar,  the signature of any such officer may be a
facsimile signature. In case any officer who signed or whose facsimile signature
or signatures  was placed on any such  certificate  shall have ceased to be such
officer before such certificate is issued,  it may nevertheless be issued by the
Corporation  with the same  effect  as if he were  such  officer  at the date of
issue.

Section 2.        Lost Certificates

                  The Board of Directors may direct a new share  certificate  or
certificates   to  be  issued  in  place  of  any  certificate  or  certificates
theretofore  issued by the  Corporation  alleged to have been lost or  destroyed
upon  the  making  of an  affidavit  of that  fact by the  person  claiming  the
certificate  to be lost or  destroyed.  When  authorizing  such  issue  of a new
certificate or certificates, the Board may, in its discretion and as a condition
precedent to the issuance  thereof,  require the owner of such lost or destroyed
certificate  or  certificates,   or  his  legal  representative,   to  give  the
Corporation  a bond in such sum as it may direct as indemnity  against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.

Section 3.        Registration of Transfer

                  Upon surrender to the Corporation or any transfer agent of the
Corporation  of a certificate  for shares duly endorsed or accompanied by proper
evidence of  succession,  assignment  or authority to transfer,  it shall be the
duty of the Corporation or such transfer agent to issue a new certificate to the
person entitled  thereto,  cancel the old certificate and record the transaction
upon its books.

Section 4.        Registered Shareholders

                  Except as otherwise  provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive  dividends or other  distributions and to vote as
such owner, and to hold liable for calls and assessments a person  registered on
its  books as the owner of  shares,  and  shall  not be found to  recognize  any
equitable  or legal  claim to or interest in such share or shares on the part of
any other person, whether or not it has actual or other notice thereof.

Section 5.        Record Date

                  For the purpose of determining  the  shareholders  entitled to
notice of or to vote at any meeting of shareholders or any adjournment  thereof,
or to express consent to or dissent from any proposal without a meeting,  or for
the  purpose of  determining  shareholders  entitled  to receive  payment of any
dividend or the allotment of any rights,  or for the purpose of any other action
affecting  the  interest of  shareholders,  the Board of  Directors  may fix, in
advance,  a record  date.  Such date  shall not be more than fifty (50) nor less
than ten (10) days before the date of any such meeting, nor more than fifty (50)
days prior to any other action.

                  In each such case,  except as otherwise  provided by law, only
such  persons as shall be  shareholders  of record on the date so fixed shall be
entitled to notice of, and to vote at, such meeting and any adjournment thereof,
or to express such consent or dissent, or to receive payment of such dividend or
such allotment or rights,  or otherwise to be recognized as shareholders for the
related purpose,  notwithstanding  any registration or transfer of shares on the
books of the Corporation after any such record date so fixed.


                                    8


                                   ARTICLE IX

                               GENERAL PROVISIONS

Section 1.        Fiscal Year

                  The  fiscal  year  of  the  Corporation   shall  be  fixed  by
resolution of the Board of Directors.

Section 2.        Dividends

                  Dividends  upon the capital  stock of the  Corporation  may be
declared by the Board of Directors at any regular or special  meeting and may be
paid in cash,  in property,  in shares of the capital  stock or any  combination
thereof, subject to the provisions of the laws of the State of New York.

Section 3.        Reserves

                  Before payment of any dividend,  there may be set aside out of
any funds of the  Corporation  available for  dividends  such sum or sums as the
Directors  from time to time, in their  absolute  discretion,  think proper as a
reserve  fund  to  meet  contingencies,  or  for  equalizing  dividends,  or for
repairing  or  maintaining  any property of the  Corporation,  or for such other
purposes as the Board shall deem conducive to the interests of the  Corporation,
and the Board may modify or abolish  any such  reserve in the manner in which it
was created.

Section 4.        Check

                  All checks or demands  for money and notes of the  Corporation
shall be signed by such  officer or officers or such other  person or persons as
the Board of Directors may from time to time designate.

Section 5.        Seal

                  The corporate  seal shall have  inscribed  thereon the name of
the Corporation,  the year of its organization and the words "Corporate Seal New
York". The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or otherwise reproduced.

                                    ARTICLE X

                                 INDEMNIFICATION

Section 1.        Actions by or in the right of the Corporation

                  Any  person  made,  or  threatened  to be made,  a party to an
action by or in the right of the  Corporation to procure a judgment in its favor
by reason of the fact that he, his testator or  intestate,  is or was a Director
or  officer  of the  Corporation,  or is or was  serving  at the  request of the
Corporation  as a Director  or officer of any other  corporation  of any type or
kind, domestic or foreign, of any partnership,  joint venture,  trust,  employee
benefit  plan or other  enterprise,  shall  be  indemnified  by the  Corporation
against amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred by him in connection with the defense or
settlement  of such action,  or in  connection  with an appeal  therein,  to the
fullest extent permitted by the laws of State of New York.

Section 2.        Action or Proceeding Other than by or in the Right
                  of the Corporation

                  Any  person  made,  or  threatened  to be made,  a party to an
action or proceeding  (other than one by or in the right of the  Corporation  to
procure a judgment in its favor), whether civil or criminal, including an action
by or in the right of any other  corporation  of any type or kind,  domestic  or

                                       9


foreign,  or any  partnership,  joint venture,  trust,  employee benefit plan or
other enterprise, which any Director or officer of the Corporation served in any
capacity at the request of the  Corporation,  by reason of the fact that he, his
testator or intestate,  was a Director or officer of the Corporation,  or served
such other corporation, partnership, joint venture, trust, employee benefit plan
or other  enterprise in any capacity,  shall be indemnified  by the  Corporation
against judgments,  fines,  amounts paid in settlement and reasonable  expenses,
including  attorney's fees actually and necessarily incurred as a result of such
action or proceeding,  or any appeal therein, to the fullest extent permitted by
the laws of the State of New York.

Section 3.        Opinion of Counsel

                  In taking any action or making any  determination  pursuant to
this  Article,  the Board of Directors and each  Director,  officer or employee,
whether or not interested in any such action or determination,  may rely upon an
opinion of counsel selected by the Board.

Section 4.        Other Indemnification; Limitation

                  The  Corporation's  obligation under this Article shall not be
exclusive or in limitation  of, but shall be in addition to, any other rights to
which any such person may be entitled by (i) a resolution of shareholders,  (ii)
a  resolution   of  Directors   or  (iii)  an  agreement   providing   for  such
indemnification. All of the provisions of this Article X of the By-Laws shall be
valid only to the extent permitted by the Certificate of  Incorporation  and the
laws of the State of New York.

                                   ARTICLE XI

                                   AMENDMENTS

Section 1.        Power to Amend

                  These  By-Laws  shall be subject to amendment  or repeal,  and
additional  By-Laws  may be  adopted,  either by the Board of  Directors  at any
regular  or  special  meeting  of the Board or by  written  consent in lieu of a
meeting,  or by the  shareholders  at any  regular  or  special  meeting  of the
shareholders, or by written consent in lieu of a meeting.

                                       10

EX-10.4

                               AGREEMENT OF LEASE

made as of this 18th day of  December  1996,  by and  between  WE'RE  ASSOCIATES
COMPANY,  a New York  general  partnership  having its  principal  office at 100
Jericho  Quadrangle,  Jericho,  New  York  11753,  hereinafter  referred  to  as
"Landlord" and CRESCENT PUBLIC COMMUNICATIONS, INC., a New York corporation with
offices located at 101 Park Avenue, Suite 2507, New York, NY 10178,  hereinafter
referred to as "Tenant".

         WITNESSETH:   Landlord and Tenant hereby covenant and agree as follows:

SPACE

         1.  Landlord  hereby  leases to Tenant,  and Tenant  hereby leases from
Landlord the space  consisting  of a portion of the 1st floor  substantially  as
shown on the  rental  plan  initialed  by the  parties  and made part  hereof as
Exhibit 1 in the building known as 6 Nevada Drive,  "C" Building,  Lake Success,
New York (the "Building"), as hereinafter referred to as the "demised premises".
The  parties  agree that for all  purposes  of this lease the  demised  premises
consist of 23,275 of rentable  square  feet.  Tenant  shall also be permitted to
use, on a non-exclusive basis, in common with other tenants at the Building, the
common facilities of the Building.  Such use of such facilities shall be subject
to such reasonable rules,  regulations and procedures  governing the use thereof
as Landlord shall from time to time promulgate.

TERM

         2. The term of this  lease  (the  "Demised  Term")  shall  commence  on
February 1, 1997 hereinafter  referred to as the "Term  Commencement  Date", and
shall terminate on January 31, 2007  hereinafter  referred to as the "Expiration
Date", unless earlier terminated or extended as provided herein.

                  Tenant may occupy all or part of the demised premises prior to
the Term  Commencement  Date,  such occupancy shall be deemed to be under all of
the terms,  covenants,  and conditions of this lease,  excluding the covenant to
pay rent for the period from the commencement of said use or occupancy until the
Term Commencement Date.

RENT

         3. a.  Subject to paragraph b of this  Article,  Article 8, and Article
9.d.  hereof,  the annual  rental rate payable by Tenant  shall be  $128,012.50.
Tenant agrees to pay such rent in equal monthly  installments each in advance on
the first day of each  calendar  month  during the Demised Term at the office of
Landlord,  except  that  Tenant  shall  pay the  first  monthly  installment  on
execution  hereof.  Tenant  shall  pay the  rent  as  above  and as  hereinafter
provided,  without any set off or deduction whatsoever. As used herein, the term
"Lease Year" shall mean each consecutive  twelve (12) calendar month period, the
first such period commencing on the Term Commencement Date

                                        1





and ending on the day  immediately  preceding the first  anniversary of the Term
Commencement Date;  provided,  however, if the Term Commencement Date shall be a
date  other than the first day of a calendar  month,  then the first  Lease Year
shall  commence on the Term  Commencement  Date and shall end on the last day of
the month in which the first  anniversary  of the Term  Commencement  Date shall
occur.

                  b. The  fixed  annual  rent set forth in  paragraph  a of this
Article hereof shall be increased,  on each anniversary of the Term Commencement
Date  throughout the demised Term  (including  any renewal  period) by an amount
equal to Five Thousand Eight Hundred and Eighteen Dollars and Seventy-Five Cents
($5,818.75).  This yearly increase shall include all prior escalations  pursuant
to this Article 3.b. and shall be paid to Landlord as  additional  rent in equal
monthly installments. As an example, the annual rental rate shall be $133,831.25
after the first  anniversary of the Term  Commencement  Date, and $139,650 after
the second anniversary of the Term Commencement Date.

                  c. If Tenant  shall  fail to pay when due any  installment  of
fixed annual rent or any payment of additional  rent for a period of twenty (20)
days after such  installment or payment shall have become due,  Tenant shall pay
interest  thereon at the lesser rate of (a) two percent (2%) per annum in excess
of the prime interest rate of Citibank, N.A., as publicly announced from time to
time or, if  Citibank,  N.A.  shall  cease to exist or announce  such rate,  any
similar rate  designated by Landlord  which is publicly  announced  from time to
time by any  other  bank in the City of New York  having  combined  capital  and
surplus in excess of One Hundred  Million and legally  contract to pay, from the
date when such  installment  or payment shall have become due to the date of the
payment thereof; and such interest shall be deemed additional rent. In addition,
Tenant  shall pay to Landlord a one time late fee in the amount of five  percent
(5%) of such overdue amount to compensate Landlord for its administrative  costs
associated with such failure to timely pay. Such fee shall be deemed  additional
rent and shall be payable immediately upon demand. This provision is in addition
to all other rights or remedies  available to Landlord for  nonpayment  of fixed
annual rent or additional rent under this lease and at law and in equity.

USE
         4. The  Tenant  shall use and  occupy  the  demised  premises  only for
administrative  and general offices and the general  operation of pay telephones
and associates business and for no other purpose.

LANDLORD'S ALTERATIONS FOR TENANT, SPRINKLER MODIFICATIONS

         5. a. Landlord will perform the work and make the  installations as set
forth on the Estimate  Sheet  annexed  hereto,  which is  sometimes  hereinafter
referred to as "Landlord's  Initial  Construction".  Tenant shall contribute the
sum of Fifty Thousand ($50,000) Dollars toward Landlord's  Initial  Construction
("Tenant's  Contribution) and the remainder of Landlord's  Initial  Construction
shall be paid for by Landlord.  Tenant's Contribution shall be paid by Tenant to
Landlord as additional rent within five (5) days of the Term Commencement Date.

                                        2







                  b. If the New York Board of Fire Underwriters or the Insurance
Services Office or any bureau,  department or official of the federal,  state or
city government require or recommend any changes, modifications, alterations, or
additional  sprinkler  heads  or  other  equipment  be made or  supplied  to the
existing sprinkler system and/or the sprinkler system to be installed as part of
any work to be performed by Tenant in connection with Tenant's  occupancy of the
demised premises, or by reason of Tenant's use of the demised premises or of any
other reason (the "Sprinkler Modifications"),  or if any Sprinkler Modifications
become  necessary to present the  imposition of a penalty or charge  against the
full  allowance for a sprinkler  system in the fire  insurance  rate set by said
Underwriter,  official  or by any  fire  insurance  company,  Tenant  shall,  at
Tenant's sole expense,  promptly make the Sprinkler  Modifications  as required,
whether the work involved shall be structural or non-structural in nature.

HEAT, WATER AND UTILITIES

         6. The Tenant shall provide, at its sole cost and expense,  fuel, heat,
air conditioning,  ventilation, water, electricity and other utilities necessary
for the use and occupancy of the demised premises.

PARKING FIELD

         7. Tenant shall have the right to use  fifty-four  (54) parking  spaces
for the parking of automobiles of the Tenant, its employees and invitees, in the
parking area shown on the Parking  Plan  annexed  hereto and made a part hereof,
subject to the Rules and  Regulations  now or  hereafter  adopted  by  Landlord.
Tenant shall not use nor permit any of its officers,  agents or employees to use
any parking area other than as shown on the Parking Plan.

TAXES, PAYMENT OF ADDITIONAL RENT

         8. a. The Tenant  shall pay to the  Landlord as  additional  rent a sum
equal to  twenty-five  (25%)  percent of all Taxes with  respect to the Building
(based on the ratio of the demised  premises  area of 23,275  square feet to the
Building Area of 93,100 square feet) during and applicable to the Demised Term.

                  b.  As used in and for the purposes of this Article 8, the 
following definition shall apply:

                  The term "taxes" shall be deemed to include all real estate 
taxes and assessments,  special or otherwise and sewer rents,  upon or with 
respect to the Building and the land  allocated to it including all parking 
areas (hereinafter called the "Real  Property").  If, due to any change in the
method of taxation, any franchise,  income,  profit,  sales, rental use and 
occupancy, or other tax shall be  substituted  for,  or  levied against Landlord
or any  owner of the Building or the Real

                                        3





Property in lieu of, any real estate taxes,  assessments  or sewer rents upon or
with respect to the Real Property,  such tax shall be included in the term Taxes
for the purposes of this Article.

                  c. Tenant shall pay to Landlord as additional  rent  $5,909.37
per month which is its share of taxes as warranted by Landlord in subparagraph v
of this  Article 8.  Landlord  shall  render to Tenant a statement  containing a
revised  computation  of  additional  rent due under this  Article  ("Landlord's
Statement") at any time and from time to time as such becomes due. Within twenty
(20) days after the rendition of the Landlord's Statement which shows additional
rent to be payable,  Tenant shall pay to Landlord the amount of such  additional
rent.  On the first day of each month  following  rendition  of each  Landlord's
Statement,  Tenant shall pay to Landlord, on account of the potential additional
rent, a sum equal to one-twelfth (1/12th) of the annualized additional rent last
paid by Tenant

                           i.  Following each Landlord's Statement, Tenant shall
be debited with any additional rent shown on such Landlord's  Statement to be 
payable,  and credited with the aggregate  amount paid by Tenant in accordance
with the provisions of subsection 8.c.i above on account of the potential 
additional rent.

                           ii.  The obligations of Landlord and Tenant under the
provisions of this Article 8 with respect to any  additional  rent for any Lease
Year shall survive the expiration or any sooner termination of the Demised Term.

                           iii. In the event that Tenant challenges the amount
of additional rent payable  pursuant  to this  Article 8, then,  as a  condition
precedent to the submission  of a dispute as to such amount to judicial  review,
and pending the determination  of any dispute,  Tenant shall promptly pay the 
additional rent as demanded by Landlord.  After such determination, any 
adjustment in the disputed amount shall be made within thirty (30) days.

                           v. Landlord hereby warrants that the taxes applicable
to the total Building are currently follows:

                              1.      1996 Town Tax: $53,670.74;
                              2.      1996/97 School Tax: $171,061.37; and
                              3.      1996/97 Village Tax: $58,917.60

LANDLORD'S MAINTENANCE OF LANDSCAPING, ROADS, STREETS, PARKING AREA, AND FIRE
INSURANCE ON BUILDING

         9. a. Landlord will maintain in good condition the roof of the Building
and all landscaping,  curbing, sidewalks, roads (including,  without limitation,
the ring-road  system servicing the Lake Success  Quadrangle),  surface drainage
and sanitary waste disposal facilities, water mains, fire hydrants and all other
areas and  facilities  used in common by the  occupants of the Building and Lake
Success  Quadrangle and will furnish and maintain  necessary outside lighting to
such areas and will generally keep clean and remove snow and sand ice therefrom:

                                        4







                  b. Landlord  will maintain in good  condition the parking area
demised to the Tenant  herein,  and the driveway and loading  ramps  serving the
demised premises, including snow removal therefrom for the demised premises.

                  c.  Landlord  shall  provide  insurance  on the  Building  and
Improvements  (Tenant shall insure its personal  property pursuant to Article 27
hereof). Such policies shall be issued in the name of Landlord and the mortgagee
as their respective interest might appear. Tenant shall not do anything,  permit
anything to be done, in or about the demised premises which shall (i) invalidate
or be in conflict with the  provisions of any fire or other  insurance  policies
covering  the  Building or any  property  located  therein,  or (ii) result in a
refusal by fire  insurance  companies of good standing to insure the Building or
any such  property in amounts  reasonably  satisfactory  to  Landlord,  or (iii)
subject Landlord to any liability or responsibility  for injury to any person or
property  located  therein at the  beginning  of the Demised Term or at any time
thereafter.  Tenant, at Tenant's expense,  shall comply with all rules,  orders,
regulations,  or requirements of the New York Board of Fire Underwriters and the
New York Fire Insurance  Rating  Organization or any similar body.  Tenant shall
pay all costs, expenses, fines, penalties, or damages, which may be imposed upon
Landlord by reason of Tenant's  failure to comply  with the  provisions  of this
Article 9 and if by reason of such failure the fire  insurance rate shall at the
beginning  of this lease or at any time  thereafter  be higher than it otherwise
would be, then Tenant shall  reimburse  landlord,  as additional rent hereunder,
for that  portion of all fire  insurance  premiums  thereafter  paid by Landlord
which shall have been charged because of such failure by Tenant,  and shall make
such  reimbursement  upon the first day of the month  following  such  outlay by
Landlord. In any action or proceeding wherein Landlord and Tenant are parties, a
schedule or "make up" of rates  applicable  to the Building or property  located
therein  issued by the New York Fire  Insurance  Rating  Organization,  or other
similar body fixing such fire insurance rates,  shall be conclusive  evidence of
the facts  therein  stated  and of the  several  items and  charges  in the fire
insurance rates then applicable to the Building or property located therein.

                  d.  Tenant will pay to  Landlord  as  additional  rent for the
services described in Article 9(a), (b), and (c) above the sum of $25,602.50 per
year, payable in equal monthly installments of $2,133.54 as additional rent.

                  e.  Landlord  shall submit all claims as  necessary  under the
applicable  insurance policy and shall promptly apply all insurance  proceeds to
repair and restore the Building.

LANDLORD'S REPAIRS

         10. Landlord shall make all structural repairs to the demised premises,
during the term of this  lease  with the  exception  of any  structural  repairs
required as a result of the gross  negligence of Tenant,  its agents,  officers,
employees,  patrons,  or  licensees.  Landlord  shall  make all  repairs  to and
maintain Building heating, ventilation, and air conditioning system.

                                        5






TENANT'S REPAIRS

         11. a. Tenant shall, throughout the Demised Term, take good care of the
demised  premises and the fixtures  and  appurtenances  therein and, at Tenant's
sole  cost and  expense,  make  all  non-structural  repairs  thereto,  and,  as
required,  non-structural  replacements  thereof, as and when needed to preserve
the  same in good  working  order  and  condition,  reasonable  wear  and  tear,
obsolescence  and damage from the elements,  fire or other  casualty,  excepted.
Tenant  shall also  repair all  damage to the  Building  caused by the moving of
Tenant's  fixtures,  furniture or equipment.  Any repairs or  replacements to be
made  by  Tenant  shall  be  made  with  reasonable  diligence,  in a  good  and
workmanlike  manner  and so as not to  unreasonably  interfere  with  any  other
tenant's  use and  occupancy of the  Building.  Notwithstanding  the  foregoing,
Tenant  shall  repair  promptly  at  Tenant's  sole  cost  and  expense,  to the
reasonable satisfaction of Landlord, (i) all damage or injury to any part of the
Building or to the fixtures,  equipment  and  appurtenances  thereof,  excluding
structural repairs, caused by or resulting from carelessness, omission, neglect,
or improper conduct of Tenant, its agents,  employees,  invitees,  or licensees;
and (ii) all structural  repairs required as a result of the gross negligence of
Tenant, its agents, employees, invitees, or licensees.

                  b.  Tenant  shall,  at its sole  cost and  expense,  clean and
provide the  maintenance  for the  demised  premises  to  Landlord's  reasonable
satisfaction,  including,  without limitation,  the removal of Tenant's garbage,
refuse and trash from the demised  premises and the Building in accordance  with
all  applicable  laws.  Landlord  shall not be obligated at any time to clean or
have  exterminated  any part of the demised  premises  all of which Tenant shall
cause to be kept clean,  free from obnoxious odors and exterminated by Tenant at
its sole cost and expense.

                  c. Except as provided in Article 24 hereof,  there shall be no
allowance  to Tenant for a  diminution  of rental  value and no liability on the
part of Landlord  by reason of  inconvenience,  annoyance  or injury to business
arising  from  Landlord,  Tenant  or others  making  any  repairs,  alterations,
additions  or  improvements  in or to any portion of the Building or the demised
premises, or in or to fixtures,  appurtenances, or equipment thereof. Subject to
subparagraph  e. of Article 9 and except as provided in Article 24,  there shall
be no  liability  upon  Landlord  for  failure of Landlord or others to make any
repairs,  alterations,  additions  or  improvements  in or to any portion of the
Building or of the demised premises, or in or to the fixtures,  appurtenances or
equipment  thereof.  Any  repairs  which  Tenant  may be  required  to carry out
pursuant to the terms hereof may, at Landlord's  option,  be made by Landlord at
the expense of Tenant,  and the expenses  thereof  incurred by Landlord shall be
collectible  as  additional  rent  after the  rendition  of a bill or  statement
therefor.

FLOOR LOADING

         12.  The  emplacement  of any  equipment  which  will  impose an evenly
distributed  floor load in excess of 100  pounds  per square  foot shall be done
only after written  permission is received  from the Landlord.  Such  permission
will be  granted  only  after  adequate  proof is  furnished  by a  professional
engineer that such floor loading will not endanger the structure.

                                        6






FIXTURES AND INSTALLATIONS

         13. All  appurtenances,  fixtures,  improvements,  additions  and other
property attached to or built into the demised premises,  whether by Landlord or
Tenant or others, and whether at Landlord's expense, or Tenant's expense, or the
joint  expense of Landlord  and Tenant,  shall become and remain the property of
Landlord,  and shall remain upon and be  surrendered  with the demised  premises
unless Landlord, by notice to Tenant no later than twenty days prior to the date
fixed as the  termination of this lease,  elects to have them removed by Tenant,
in which event, the same shall be removed from the premises by Tenant forthwith,
at Tenant's  expense.  Nothing in this  Article  shall be  construed  to prevent
Tenant's removal of trade fixtures,  but upon removal of any such trade fixtures
from the premises or upon removal of other  installations  as may be required by
Landlord,  Tenant shall  immediately and at its expense,  repair and restore the
premises to the condition  existing prior to installation  and repair any damage
to the demised  premises  or the  Building  due to such  removal.  All  property
permitted  or required to be removed by Tenant at the end of the term  remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election  of  Landlord,  either be  retained  as  Landlord's  property or may be
removed from the  premises at Tenant's  expense.  Tenant  shall,  at  Landlord's
option  exercised  by written  notice to Tenant  given no later than thirty (30)
days prior to the Expiration Date, restore the lobby being constructed by Tenant
at Tenant's  entrance to the Building to the  condition  existing as of the date
hereof.  All the outside walls of the demised premises  including corridor walls
and the outside entrance doors to the demised premises, any balconies,  terraces
or roofs adjacent to the demised premises, and any space in the demised premises
used for shafts,  stacks, pipes,  conduits,  ducts or other building facilities,
and the use  thereof,  as well as access  thereto  in and  through  the  demised
premises for the purpose of operation,  maintenance,  decoration and repair, are
expressly  reserved  to  Landlord,  and  Landlord  does not convey any rights to
Tenant therein.  Notwithstanding the foregoing, Tenant shall enjoy full right of
access to the demised  premises through the public  entrances,  public corridors
and public areas within the Building.

ALTERATIONS

         14. a. Tenant shall make no  alterations,  installations,  additions or
improvements in or to the demised  premises costing in excess of $10,000 without
Landlord's  prior  written  consent  (which  consent  shall not be  unreasonably
withheld), and then only by contractors or mechanics approved by Landlord and at
such  times and in such  manner  as  Landlord  may from time to time  designate.
Landlord shall have the right to make inspections of any such work being carried
out by Tenant or on Tenant's  behalf at any reasonable  time during the progress
of such work.

              b. All installations or work done by Tenant shall be done in a 
good and workmanlike manner and shall at all times comply with:

                           1. Laws, rules, orders and regulations of 
governmental authorities having jurisdiction thereof.

                                        7






                           2. Rules and regulations of Landlord.

                           3. Plans and specifications prepared by and at the 
expense of Tenant theretofore  submitted to Landlord for its prior written  
approval in compliance with  subparagraph  a of this Article.  No such  
installations  or work shall be undertaken, started or begun by Tenant, its 
agents, servants or employees, until Landlord  has  approved  such plans and  
specifications; and no amendments or additions to such  plans and specifications
shall be made  without  the prior written consent of Landlord,  and shall be 
subject to Landlord's supervisory fee charge, which shall not exceed 10% of the
 cost of such alteration.

                               Tenant agrees that it will not, either directly 
or indirectly, use any contractors  and/or labor and/or materials if the use of
such contractors and/or labor  and/or   materials  would  or  will  create  any 
difficulty  with  other contractors  and/or  labor  engaged  by  Tenant  or 
Landlord  or  others in the construction,  maintenance and/or operation of the 
Building or any part thereof. Tenant  shall,  before  making  any  alterations,
additions,  installations  or improvements, at its expense,  obtain all permits,
approvals and certificates required by any governmental or quasi-governmental
bodies and (upon completion) certificates of final approval thereof and shall 
deliver promptly  duplicates of all such permits,  approvals and  certificates 
to Landlord and Tenant agrees to carry and will cause  Tenant's  contractors and
sub-contractors to carry such workmen's compensation, general liability, 
personal  and  property damage insurance as Landlord may require.  At Landlord's
request, Tenant agrees to obtain and deliver to Landlord, written and 
unconditional waivers of mechanic's, liens upon the real property in which the 
demised premises are located, for all property in which the demised  premises 
are located, for all work, labor and services  performed and materials  
furnished in connection  with such work after payment therefore, signed by all 
contractors,  sub-contractors,  materialmen and laborers involved in such work.
Notwithstanding the foregoing, if any mechanic's lien is filed against the 
demised premises, or the Building, for work claimed to have  been done for,  or
materials  furnished  to  Tenant  whether  or not done pursuant to this Article
the same shall be  discharged by Tenant within ten days thereafter, at Tenant's
expense, by filing the bond required by law.

                  c. Anything contained herein to the contrary  notwithstanding,
Tenant  shall make no  alterations,  declarations,  installations,  additions or
improvements in or to the demised premises which shall in any way affect utility
services or plumbing  and  electrical  lines.  Moreover,  Landlord  shall not be
deemed to have acted  unreasonably  for withholding  consent to any alterations,
decorations,  installations,  additions or  improvements  which:  (i) involve or
might affect any  structural  or exterior  element of the  Building  outside the
demised  premises  or the  Building,  or (ii) will  require  unusual  expense to
readapt  the  demised  premises to normal  office use on the  expiration  of the
Demised  Term or increase the cost of  construction  or of insurance or taxes on
the Building or of the services  called for hereunder  unless Tenant first gives
assurances  acceptable to Landlord for payment of such  increased  cost and that
such  readoption  will be made prior to the Expiration  Date without  expense to
Landlord.


                                        8





REQUIREMENTS OF LAW

         15. a.  Tenant  shall  not do,  and shall  not  permit  Persons  Within
Tenant's  Control to do, any act or thing in or upon the demised premises or the
Building  which  will  invalidate  or be in  conflict  with the  certificate  of
occupancy for the demised premises or the Building or violate any  Requirements.
Tenant  shall,  at Tenant's  sole cost and expense,  take all action,  including
making  any  required  alterations  necessary  to comply  with all  Requirements
(including,  but  not  limited  to,  applicable  terms  of  the  Americans  With
Disabilities Act of 1990 (the "ADA"),  as modified and supplemented from time to
4time) which shall impose any violation,  order or duty upon  Landlord or Tenant
arising from, or in connection with, the demised premises,  Tenant's  occupancy,
use or manner of use of the demised premises (including, without limitation, any
occupancy,   use  or  manner  of  use  that   constitutes  a  "place  of  public
accommodation" under the ADA), or any installations in the demised premises,  or
required by reason of a breach of any of Tenant's  covenants or agreements under
this lease, whether or not such Requirements shall now be in effect or hereafter
enacted or issued,  and  whether or not any work  required  shall be ordinary or
extraordinary or foreseen or unforeseen at the date hereof.  Notwithstanding the
preceding  sentence,  Tenant shall not be  obligated  to perform any  structural
alterations  necessary to comply with any Requirements,  unless compliance shall
be  required  by  reason  of (I)  any  cause  or  condition  arising  out of any
alterations or installations in the demised premises  (whether made by Tenant or
by Landlord on behalf of Tenant), or (ii) Tenant's particular use, manner of use
or occupancy on behalf of Tenant of the demised premises, or (iii) any breach of
any of Tenant's  covenants or agreements  under this lease, or (iv) any wrongful
act or omission by Tenant or Persons Within  Tenant's  Control,  or (v) Tenant's
use or manner of use or occupancy of the demised  premises as a "place of public
accommodation" within the meaning of the ADA.

                  b. Tenant  covenants and agrees that Tenant shall, at Tenant's
sole cost and expense,  comply at all times with all Requirements  governing the
use, generation, storage, treatment and/or disposal of any "Hazardous Materials"
(as defined below), the presence of which results from or in connection with the
act or omission of Tenant or Persons  Within  Tenant's  Control or the breach of
this lease by Tenant or Persons  Within  Tenant's  Control.  The term  Hazardous
Materials  shall mean any  biologically  or chemically  active or other toxic or
hazardous  wastes,  pollutants or  substances,  including,  without  limitation,
asbestos, PCB, petroleum products and by-products,  substances defined or listed
as "hazardous  substances" or "toxic  substances" or similarly  identified in or
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act,  42 U.S.C.  '9601 et seq.,  and as  hazardous  wastes  under  the  Resource
Conservation and Recovery Act, 42 U.S.C.  '6010 et seq., any chemical  substance
or mixture  regulated under the Toxic Substance Control Act of 1976, as amended,
15 U.S.C.  2601, et seq.,  any "toxic  pollutant"  under the Clean Water Act, 33
U.S.C. '466 et seq., as amended, any hazardous air pollutant under the Clean Air
Act, 42 U.S.C. '7401 et seq.,  hazardous materials  identified in or pursuant to
the Hazardous  Materials  Transportation  Act, 49 U.S.C. '1802, et seq., and any
hazardous  or  toxic   substances  or  pollutant   regulated   under  any  other
Requirements.  Tenant shall agree to execute,  from tine to time,  at Landlord's
request,  affidavits,  representations  and the like  concerning  Tenant's  best
knowledge and belief regarding the presence of Hazardous Materials in, on, under
or about the demised premises,

                                        9





the Building or the Real Property.  Tenant shall indemnify and hold harmless all
Indemnities  from and  against  any loss,  cost,  damage,  liability  or expense
(including attorneys' fees and disbursements) arising by reason of any clean up,
removal,  remediation,  detoxification  action or any other activity required or
recommended of any  Indemnities by any  Governmental  Authority by reason of the
presence  in or about the  Building or the  demised  premises  of any  Hazardous
Materials, as a result of or in connection with the act or omission of Tenant or
Persons Within Tenant's Control or the breach of this lease by Tenant or Persons
Within  Tenant's  Control.  However,  notwithstanding  anything to the  contrary
contained in this  paragraph,  the provisions of this paragraph shall only apply
and be limited to the extent any such  failure to comply  therewith is caused by
Tenant or Persons Within Tenant's Control,  and shall not apply to any violation
which  may have  existed  prior to the  execution  of this  lease.  Furthermore,
Landlord  covenants and agrees that the Building and/or the demised  premises do
not  contain  levels of asbestos  containing  materials  or any other  Hazardous
Materials  above or  exceeding  Requirements.  If at any time during the Demised
Term,  or any renewals  thereof,  it is  determined  that the levels of asbestos
containing   materials  or  any  other  Hazardous   Materials  exceed  any  such
Requirements,  Tenant  shall have the right and option to  terminate  this Lease
immediately upon such occurrence, with written notice to Landlord. The foregoing
covenants and indemnity  shall survive the expiration or any termination of this
lease.

                  c. If Tenant  shall  receive  notice of any  violation  of, or
defaults under, any Requirements,  liens or other encumbrances applicable to the
demised premises, Tenant shall give prompt notice thereof to Landlord.

                  d. If any governmental license or permit shall be required for
the proper and lawful conduct of Tenant's  business and if the failure to secure
such license or permit would, in any way, affect Landlord or the Building,  then
Tenant,  at Tenant's  expense,  shall promptly procure and thereafter  maintain,
submit for  inspection  by Landlord,  and at all times comply with the terms and
conditions of, each such license or permit.

                  e. Tenant,  at Tenant's sole cost and expense and after notice
to Landlord,  may contest, by appropriate  proceedings prosecuted diligently and
in good faith, the legality or  applicability  of any Requirement  affecting the
demised premises  provided that: (a) neither Landlord nor any Indemnitee,  shall
be  subject  to  criminal  penalties,  nor shall the Real  Property  or any part
thereof be subject to being  condemned or vacated,  nor shall the certificate of
occupancy for the demised  premises or the Building be suspended.  or threatened
to be suspended,  by reason of non-compliance or by reason of such contest;  (b)
before the  commencement of such contest,  if Landlord or any Indemnities may be
subject to any civil  fines or  penalties  or if  Landlord  may be liable to any
independent third party as a result of such  non-compliance,  then Tenant shall]
furnish  to  Landlord  either  (I) a bond of a surety  company  satisfactory  to
Landlord, in form and substance reasonably  satisfactory to Landlord,  and in an
amount at least equal to Landlord's  estimate of the sum of (A) the cost of such
compliance,  (B) the  penalties  or fines  that may  accrue  by  reason  of such
non-compliance (as reasonably  estimated by Landlord) and (C) the amount of such
liability to independent  third parties,  and shall indemnify  Landlord (and any
Indemnities) against the cost of such compliance and liability resulting from or
incurred in connection with such contest or

                                       10





non-compliance; or (ii) other security satisfactory in all respects to Landlord;
(c) such non-compliance or contest shall not constitute or result in a violation
(either  with the giving of notice or the  passage of time or both) of the terms
of any mortgage or superior  lease  affecting the Building,  or if such superior
lease or mortgage  conditions such  non-compliance or contest upon the taking of
action or furnishing of security by Landlord, such action shall be taken or such
security shall be furnished at the expense of Tenant;  and (d) Tenant shall keep
Landlord regularly advised as to the status at such proceedings.

                  f. For the  purposes of this  Article,  and  elsewhere in this
lease,  (I) the term "Persons  Within  Tenant's  Control" shall mean and include
Tenant, all of Tenant's respective principals,  officers,  agents,  contractors,
servants, employees,  licensees and invitees; (ii) the term "Requirements" shall
mean all present and future laws, ordinances,  requirements, orders, directives,
rules and regulations of federal,  state, county and city governments and of all
other  governmental  authorities  having or claiming  jurisdiction over the Real
Property;  (iii) the term  'Indemnities"  shall  mean  Landlord,  its  trustees,
partners,  shareholders,  officers, directors, employees, agents and contractors
and the  managing  agent,  if any (and  the  partners,  shareholders,  officers,
directors and employees and  contractors of such managing  agent),  of Landlord;
and (iv) the term  "Governmental  Authority"  shall  mean The  United  States of
America,  the State of New York,  the  County of  Nassau,  the  Village  of Lake
Success,  any  political   subdivision  thereof  and  any  agency,   department,
commission,  board,  bureau  or  instrumentality  of any of the  foregoing,  now
existing or hereafter created,  having jurisdiction over the Building,  the Real
Property, or any portion thereof.

END OF TERM

         16. a. Upon the  expiration or other  termination  of the Demised Term,
Tenant shall quit and surrender to Landlord the demised  premises,  broom clean,
in good order and condition, ordinary wear excepted, and Tenant shall remove all
of its  property,  and shall  repair all damage to the  demised  premises or the
Building occasioned by such removal.  Any property not removed from the premises
shall be deemed  abandoned by Tenant and may be disposed of in any manner deemed
appropriate by the Landlord.  Tenant  expressly  waives,  for itself and for any
person  claiming  through or under  Tenant,  any rights which Tenant or any such
person  may have  under the  provisions  of  Section  2201 of the New York Civil
Practice Law and Rules and of any successor law of like import then in force, in
connection with any holdover summary proceedings which Landlord may institute to
enforce the foregoing provisions of this Article. Tenant's obligation to observe
or perform this covenant  shall survive the  expiration or other  termination of
the  Demised  Term.  If the last day of the Demised  Term or any removal  hereof
falls on Sunday or a legal holiday,  this lease shall expire on the business day
immediately preceding.

                  b. Tenant acknowledges that possession of the demised premises
must be surrendered  to Landlord at the expiration or sooner  termination of the
Demised Term.  Tenant  hereby  agrees to indemnify  and save  Landlord  harmless
against any and all costs,  damages,  claims,  loss or liability  resulting from
delay by Tenant in so  surrendering  the demised  premises,  including,  without
limitation, any claims made by any succeeding tenant, founded on such delay. The
parties recognize

                                       11





and agree  that the  damage to  landlord  resulting  from any  failure by Tenant
timely to surrender  possession  of the demised  premises as  aforesaid  will be
extremely  substantial,  will  exceed  the amount of  monthly  rent  theretofore
payable  hereunder,  and will be  impossible  of  accurate  measurement.  Tenant
therefore  agrees that if possession of the demised  premises is not surrendered
to landlord on or before the date of the expiration or other  termination of the
Demised Term, time being of the essence with respect thereto,  then, in addition
to any other remedies and/or damages otherwise  available to Landlord  hereunder
or at law, Tenant agrees to pay Landlord, for each month and for each portion of
any  month  during  which  Tenant  holds  over  in the  demised  premises  after
expiration  or other  termination  of the Demised  Term,  a sum equal to two (2)
times the rent and additional rent  (inclusive of escalations)  that was payable
per month under this lease  during the last month of the term  thereof.  Nothing
contained herein shall be construed to constitute  Landlord's  consent to Tenant
remaining in possession of the demised  premises  after the  expiration or other
termination of the Demised Term. Landlord shall be entitled to pursue any action
necessary   to   recover   immediate   possession   of  the   demised   premises
notwithstanding  Tenant's  payment  of the  aforementioned  sum.  The  aforesaid
provisions of this paragraph shall survive the expiration or sooner  termination
of the demised Term.

QUIET ENJOYMENT

         17.  Landlord  covenants and agrees with Tenant that upon Tenant paying
the rent and  additional  rent  and  observing  and  performing  all the  terms,
covenants and conditions on Tenant's part to be observed and  performed,  Tenant
may  peaceably and quietly  enjoy the demised  premises  during the Demised Term
without  hindrance or  molestation  by anyone  claiming by or through  Landlord,
subject,  nevertheless,  to the terms,  covenants  and  conditions of this lease
including, but not limited to, Article 22.

SIGNS

         18.  Tenant may place on the outside of the Building a sign in size and
type to be approved by the Landlord  which  approval  shall not be  unreasonably
withheld and which sign shall be in conformity with applicable laws  ordinances,
and  regulations.  Tenant  shall  remove  such sign at the  expiration  or other
termination  of this  Lease and  shall  repair  any  damage  resulting  from the
installation,  maintenance, or removal of the sign. The exterior of the Building
is not a part of the demised premises, and accordingly,  Tenant (except pursuant
to this  Article)  may not place or  install  anything  on the  exterior  of the
Building.

RULES AND REGULATIONS

         19.  Tenant and Tenant's  agents,  employees,  visitors,  and licensees
shall  faithfully  comply with the Rules and Regulations set forth on Schedule A
annexed hereto and made part hereof,  and with such further reasonable Rules and
Regulations  as  Landlord  at any time may make and  communicate  in  writing to
Tenant which, in the Landlord's judgment, shall be necessary for the reputation,
safety,  care or  appearance  of the  Building  and land  allocated to it or the
preservation of

                                       12





good order  therein,  or the  operation  or  maintenance  of the  Building,  its
equipment  and such land,  or the more  useful  occupancy  or the comfort of the
tenants or others in the  Building.  Landlord  shall not be liable to Tenant for
the  violation  of any of said  Rules  and  Regulations,  or the  breach  of any
covenant or condition of any lease by any other  tenant in the  Building.  Rules
and Regulations shall be uniformly applied where possible.

ASSIGNMENT AND SUBLETTING

         20. a. Tenant,  for itself,  its successors,  undertenants and assigns,
(all  of  the  foregoing  hereinafter  referred  to as the  "Tenant")  expressly
covenants  that it shall not assign,  mortgage or encumber this  agreement,  nor
underlet  the  demised  premises or any part  thereof,  or license or permit the
demised  premises  or any part  thereof to be used by others,  without the prior
written  consent of the Landlord in each  instance  (which  consent shall not be
unreasonably  withheld or delayed),  and otherwise upon due compliance  with the
provisions of this Article 20.

                  b.  Prior  to  requesting  the  approval  of  Landlord  to  an
assignment or subletting as  hereinafter  provided,  Tenant shall,  by notice as
provided in Article 34,  advise the  Landlord  of all the terms,  covenants  and
conditions of the Tenant's proposed sublease or assignment.

                  c. Upon Tenant's due compliance with the aforesaid  provisions
of this Article 20, Landlord agrees not to unreasonably  withhold its consent to
an  assignment  or  subletting,  provided that the Tenant is not then in default
under this lease and that the proposed  assignee or  undertenant  is financially
responsible,  of good  reputation and engaged in a business  compatible with the
business  generally carried on in the Building and that the proposed  assignment
or sublease would not be  inconsistent  with any agreement  previously made with
any other tenant,  and further provided that such assignee or undertenant  shall
execute and deliver to Landlord  an  assumption  agreement  wherein it agrees to
perform all the  obligations of the Tenant under this lease in form  appropriate
for recording.

                  d. No assignment of this lease or  underletting of the demised
premises  shall  release  or  discharge  the  Tenant  hereunder  from any of its
obligations  to be  performed  under this  lease.  The consent by Landlord to an
assignment or  underletting  shall not in any way be construed to relieve Tenant
from  obtaining  the  express  consent  in writing of  Landlord  to any  further
assignment or underletting.

                  e.  Anything  contained  in this  Article  20 to the  contrary
notwithstanding,  Tenant,  without having to obtain the consent of Landlord, may
assign this lease to any  successor by merger,  consolidation  or sale of all or
substantially  all of the  assets  or stock of  Tenant  (whether  or not  Tenant
survives  such  merger,  consolidation  or  sale)  and may  sublet  the  demised
premises,  or assign this lease, to any entity that controls,  is controlled by,
or is under  common  control with  Tenant,  provided  that (1) in the case of an
assignment,   the  net  worth  of  the  assignee  (in  the  case  of  a  merger,
consolidation  or sale,  after giving  effect to such merger,  consolidation  or
sale),  is not less than the net worth of the Tenant named herein as of the date
hereof, and (2) a copy of said assignment, in

                                       13





recordable  form,  containing  a full  assumption  by the  assignee  of all  the
Tenant's  obligations  hereunder,  or said  sublease,  as the  case  may be,  is
delivered to the Landlord  prior to the  effective  date  thereof.  Tenant shall
provide Landlord with evidence reasonably satisfactory to Landlord regarding the
net worth of such assignee, where applicable.

                  f. Except as expressly otherwise provided in Section 20.e 
hereof, the following shall be deemed an "assignment" of this lease for the 
purposes of Article 20:

                     i.  an assignment of a part interest in this lease;

                     ii. one or more sales or transfers, by operation of 
law or otherwise, or creation of new stock or issuance of additional shares of
stock,  resulting in a transfer of at least fifty-one (51%) percent of the out-
standing stock of Tenant, if Tenant is a  corporation,  or of any  corporate  
subtenant,  except  that the transfer of the outstanding capital stock of any 
corporate tenant, or subtenant, shall be deemed  not to include  the sale of 
such  stock by persons or  parties, other than those deemed  "affiliates"  of 
Tenant  within the meaning of Rule 144 promulgated  under  the  Securities  Act
of 1933, as amended, through the "over-the-counter market" or through any 
recognized stock exchange;

                     iii. one or more sales or transfers, by operation of law or
otherwise, resulting in a transfer of at least fifty-one (51%) percent of the 
total interests in Tenant, if Tenant is a partnership, or in any partnership 
subtenant; or

                     iv.  Tenant's entering into a takeover agreement affecting
this lease.

         For the  purposes of this  Article  20, a  modification,  amendment  or
extension of a sublease shall be deemed a sublease.

                  g. If Tenant assigns,  sells, conveys,  transfers,  mortgages,
pledges or sublets this lease, the demised  premises,  or any portion thereof in
violation of this Article 20, or if the demised premises are occupied by anybody
other than Tenant,  Landlord may collect  rent from any  assignee,  sublessee or
anyone who claims a right to this  Agreement  or  letting  or who  occupies  the
demised  premises,  and  Landlord  shall apply the net amount  collected  to the
annual rental herein  reserved;  and no such collection shall be deemed a waiver
by Landlord of the  covenants  contained  in this Article nor an  acceptance  by
Landlord of any such assignee,  sublessee, claimant or occupant as Tenant, nor a
release  of Tenant  from the  further  performance  by  Tenant of the  covenants
contained herein.

LANDLORD'S ACCESS TO PREMISES

         21.      a. Landlord or Landlord's agents shall have the right to enter
and/or pass through the demised premises at all times to examine the same, to 
show them to mortgagees, ground lessors, prospective purchasers or lessees or 
mortgagees of the Building, and to make such repairs, improvements or additions
as Landlord may deem necessary or desirable and Landlord shall be

                                       14





allowed to take all material into and upon and/or through said demised  premises
that may be required  therefor.  During the one (1) year prior to the expiration
of the Demised  Term,  or any  renewal  term,  Landlord  may exhibit the demised
premises  to  prospective  tenants or  purchasers  at all  reasonable  hours and
without unreasonably  interfering with Tenant's business. If Tenant shall not be
personally present to open and permit an entry into said premises,  at any time,
when for any reason an entry therein shall be necessary or permissible, Landlord
or  Landlord's  agents  may enter the same by a master  key,  without  rendering
Landlord  or such agent  liable  therefor  (if during  such  entry  Landlord  or
Landlord's agents shall accord reasonable care to Tenant's property).  If during
the last month of the Demised  Term,  Tenant  shall have removed all of Tenant's
property  therefrom,   Landlord  may  immediately  enter,  alter,   renovate  or
redecorate  the demised  premises  without  limitation  or abatement of rent, or
incurring  liability to Tenant for any  compensation  and such act shall have no
effect on this lease or Tenant's obligations hereunder.

                  b.  Landlord  shall  also  have the  right at any time to use,
maintain and replace pipes and conduits in and through the demised  premises and
to erect new pipes and  conduits  therein,  to  change  the  arrangement  and/or
location  of  entrances  or  passageways,  doors and  doorways,  and  corridors,
elevators,  stairs,  toilets or other  public parts of the  Building,  provided,
however,  that Landlord shall make no change in the arrangement  and/or location
of entrances  or  passageways  or other public parts of the Building  which will
adversely  affect in any  material  manner  Tenant's  use and  enjoyment  of the
demised  premises.  Landlord shall also have the right, at any time, to name the
Building,  to display appropriate signs and/or lettering on any or all entrances
to the  Building,  and to change the name,  number or  designation  by which the
Building is commonly known.

                  c.  Neither this lease nor any use by Tenant shall give Tenant
any right or easement to the use of any door or passage or concourse  connecting
with any other building or to any public conveniences, and the use of such doors
and passages and  concourse  and of such  conveniences  may be regulated  and/or
discontinued  at any time and from time to time by  Landlord  without  notice to
Tenant.

                  d.  The  exercise  by  Landlord  or its  agents  of any  right
reserved  to  Landlord  in this  Article  shall  not  constitute  an  actual  or
constructive  eviction,  in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations  under this
lease, or impose any liability upon Landlord,  or its agents, or upon any lessor
under any ground or underlying lease, by reason of inconvenience or annoyance to
Tenant, or injury to or interruption of Tenant's business, or otherwise.

                  e.  Anything   contained  in  this  Article  to  the  contrary
notwithstanding, any access to the demised premises by Landlord shall be subject
to  reasonable  prior  notice  (which may be  verbal)  except in the event of an
emergency, in which event no notice shall be necessary.

SUBORDINATION

         

                                       15




     22.  a. This lease is subject and subordinate in all respects to all ground
leases and/or underlying  leases and to all mortgages  which may now or 
hereafter be placed on or affect such  leases  and/or the Real Property of which
the demised premises form a part,  or any part or  parts of such  real property,
and/or Landlord's interest or estate therein, and to each advance made and/or 
hereafter to be made under any such mortgages,  and to all renewals,  
modifications,  consolidations, replacements  and  extensions  thereof  and  all
substitution therefor.  This subparagraph a. shall be self-operative and no 
further instrument of subordination shall be required.  In confirmation of such
subordination,  Tenant shall execute and deliver  promptly any  certificate that
Landlord  and/or any mortgagee  and/or the lessor under any ground or underlying
lease and/or their respective successors in interest may request.

                  b. Without  limitation of any of the provisions of this lease,
in the event that any  mortgagee or its assigns shall succeed to the interest of
Landlord or of any  successor-Landlord  and/or shall have become  lessee under a
new ground or  underlying  lease,  then, at the option of such  mortgagee,  this
lease shall nevertheless  continue in full force and effect and Tenant shall and
does hereby  agree to attorn to such  mortgagee  or its assigns and to recognize
such mortgagee or its respective assigns as its Landlord.

                  c.  Tenant  shall,  at any time and from time to time upon not
less than fifteen (15) days' prior notice by Landlord, execute,  acknowledge and
deliver  to  Landlord  a  statement  in  writing  certifying  that this lease is
unmodified  and in full force and  effect (or if there have been  modifications,
that  the  same  is in full  force  and  effect  as  modified  and  stating  the
modifications),  and the  dates to which  the  rent,  additional  rent and other
charges  have been paid in advance,  if any,  and stating  whether or not to the
best  knowledge  of the  signer of such  certificate  Landlord  is in default in
performance of any covenant,  agreement,  term, provision or condition contained
in this lease and, if so,  specifying  each such default of which the signer may
have  knowledge,  it being intended that any such statement  delivered  pursuant
hereto may be relied upon by any  prospective  purchaser  or lessee of said Real
Property  or any  interest  or estate  therein,  any  mortgagee  or  prospective
mortgagee thereof or any prospective  assignee of any mortgage  thereof.  If, in
connection with obtaining financing or refinancing for the Building and the land
allocated to it, a banking,  insurance or other recognized  institutional lender
shall  request  reasonable  modifications  in this lease as a condition  to such
financing,  Tenant will not  unreasonably  withhold,  delay or defer its consent
thereto,  provided that such  modifications  do not increase the  obligations of
Tenant hereunder or materially  adversely  affect the leasehold  interest hereby
created.

                  d. Landlord shall use its reasonable best efforts to obtain an
agreement  (a  "Non-Disturbance  Agreement")  from The Mitsui  Trust and Banking
Company Limited,  the holder of the mortgage  encumbering the Real Property,  in
the form annexed hereto as Exhibit 2, in favor of Tenant, providing in substance
that so long as Tenant is not in  default  under  the terms of this  lease,  the
right of possession of Tenant to the demised  premises  shall not be affected or
disturbed by such holder in the exercise of any of its rights under the mortgage
or any note secured thereby,  and any sale of the Real Property  pursuant to the
exercise of any rights and remedies  under the  mortgage or  otherwise  shall be
made  subject to Tenant's  right of  possession  under this lease.  Such efforts
shall  include   making  a  written   request  to  each  such  holder  for  such
Non-Disturbance

                                       16





Agreement.  Landlord  shall  incur no  liability,  nor shall  this  lease or the
obligations of Tenant and Landlord  hereunder be affected in any manner,  in the
event  Landlord shall be unable to obtain a  Non-Disturbance  Agreement from the
holder of any mortgage in favor of Tenant.  Furthermore,  Landlord  shall not be
required to incur any expense  (other than a reasonable  processing  fee) or pay
any consideration in order to obtain any  Non-Disturbance  Agreement in favor of
Tenant.

PROPERTY LOSS, DAMAGE, REIMBURSEMENT, INDEMNIFICATION

         23. a.  Landlord  or its  agents  shall not be liable for any damage to
property of Tenant or of others entrusted to employees of the Building,  nor for
the loss of or damage to any property of Tenant by theft or otherwise.  Landlord
or its  agents  shall not be liable  for any  injury  or  damage to  persons  or
property  resulting  from  fire,   explosion,   falling  plaster,   steam,  gas,
electricity,  electrical disturbance, water, rain or snow or leaks from any part
of the  Building or from the pipes,  appliances  or  plumbing  works or from the
roof,  street or  subsurface  or from any other  place or by  dampness or by any
other cause of whatsoever  nature,  unless caused by or due to the negligence of
Landlord, its agents, servants or employees; nor shall Landlord or its agents be
liable for any such damage caused by other tenants or persons in the Building or
caused by  operations  in  construction  of any private,  public or quasi public
work; nor shall Landlord be liable for any latent defect in the demised premises
or in the  Building.  If at any time any  windows of the  demised  premises  are
temporarily  closed or  darkened  incident  to or for the  purpose  of  repairs,
replacements,  maintenance  and/or  cleaning in, on, to or about the Building or
any part or parts  thereof,  Landlord  shall not be liable for any damage Tenant
may  sustain  thereby  and  Tenant  shall not be  entitled  to any  compensation
therefor  nor  abatement  of rent nor shall  the same  release  Tenant  from its
obligations  hereunder nor  constitute an eviction.  Tenant shall  reimburse and
compensate  Landlord as additional rent for all expenditures made by, or damages
or  fines  sustained  or  incurred  by  Landlord  due  to   non-performance   or
non-compliance  with or breach or  failure  to  observe  any term,  covenant  or
condition of this lease upon  Tenant's part to be kept,  observed,  performed or
complied with. Tenant shall give immediate notice to Landlord in case of fire or
accidents in the demised premises or in the Building or of defects therein or in
any fixtures or equipment. Insert 23 b and c

                  b. Tenant shall indemnify and save harmless  Landlord  against
and from any and all claims by and on behalf of any person or  persons,  firm or
firms,  corporation or corporations arising from the conduct or management of or
from  any  work  or  thing  whatsoever  done  (other  than  by  Landlord  or its
contractors or the agents or employees of either) in and on the demised premises
during the Demised Term and during the period of time, if any, prior to the Term
Commencement Date that Tenant may have been given access to the demised premises
for the purpose of making  installations,  and will further  indemnify  and save
harmless Landlord against and from any and all claims arising from any condition
of the demised premises due to or arising from any act or omission or negligence
of Tenant or any of its agents, contractors,  servants, employees,  licensees or
invitees,  and against and from all costs,  expenses and liabilities incurred in
connection  with any such  claim or  claims  or  action  or  proceeding  brought
thereon;  and in case any action or  proceeding be brought  against  Landlord by
reason of any such claim, Tenant, upon notice from Landlord, agrees that

                                       17





Tenant, at Tenant's expense, will resist or defend such action or proceeding and
will employ  counsel  therefor  reasonably  satisfactory  to Landlord.  Tenant's
liability  under this lease extends to the acts and omissions of any  subtenant,
and any agent, contractor, employee, invitee or licensee of any subtenant.

                  c. Landlord shall  indemnify and save harmless  Tenant against
and from any and all claims by and on behalf of any person or  persons,  firm or
firms,  corporation or corporations arising from the conduct or management of or
from any work or thing  whatsoever done (other than by Tenant or its contractors
or the agents or employees of either) in and on the demised  premises during the
Demised  Term  and  during  the  period  of  time,  if any,  prior  to the  Term
Commencement Date that Tenant may have been given access to the demised premises
for the purpose of making  installations,  and will further  indemnify  and save
harmless  Tenant  against and from any and all claims arising from any condition
of the demised premises due to or arising from any act or omission or negligence
of Landlord or any of its agents, contractors, servants, employees, licensees or
invitees,  and against and from all costs,  expenses and liabilities incurred in
connection  with any such  claim or  claims  or  action  or  proceeding  brought
thereon;  and in case any  action or  proceeding  be brought  against  Tenant by
reason of any such  claim,  Landlord,  upon  notice  from  Tenant,  agrees  that
Landlord,   at  Landlord's  expense,  will  resist  or  defend  such  action  or
proceeding, and will employ counsel therefor reasonably satisfactory to Tenant.

DESTRUCTION-FIRE OR OTHER CASUALTY

         24. If the demised  premises shall be damaged by fire or other casualty
and if Tenant shall give prompt notice to Landlord of such damage,  Landlord, at
Landlord's expense, shall promptly repair such damage.  However,  Landlord shall
have no  obligation  to repair any damage to, or to replace,  Tenant's  personal
property  or any other  property  or effects of  Tenant.  If the entire  demised
premises shall be rendered  untenantable by reason of any such damage,  the rent
shall  abate for the period  from the date of such  damage to the date when such
damage  shall have been  repaired,  and if only a part of the  demised  premises
shall be so rendered  untenantable,  the rent shall abate for such period in the
proportion  which  the  area of the part of the  demised  premises  so  rendered
untenantable bears to the total area of the demised premises.  However, if prior
to the date when all of such  damage  shall have been  repaired  any part of the
demised  premises so damaged shall be rendered  tenantable  and shall be used or
occupied by Tenant or any person or persons  claiming  through or under  Tenant,
then the amount by which the rent shall abate shall be equitably apportioned for
the period from the date of any such use or  occupancy to the date when all such
damage shall have been repaired.  Tenant hereby  expressly waives the provisions
of Section 227 of the New York Real  Property  Law, and of any  successor law of
like import then in force, and Tenant agrees that the provisions of this Article
shall  govern  and  control  in  lieu  thereof.  Notwithstanding  the  foregoing
provisions  of this Section,  if, prior to or during the Demised  Term,  (i) the
demised  premises shall be totally  damaged or rendered  wholly  untenantable by
fire or other casualty,  and if Landlord shall decide not to restore the demised
premises,  or (ii) the  Building  shall be so damaged by fire or other  casualty
that,  in   Landlord's   opinion,   substantial   alteration,   demolition,   or
reconstruction  of the  Building  shall be required  (whether or not the demised
premises shall be damaged or rendered untenantable), then, in

                                       18





any of such events,  Landlord at Landlord's option,  may give to Tenant,  within
ninety  (90)  calendar  days after such fire or other  casualty,  a thirty  (30)
calendar days' notice of termination of this lease and, in the event such notice
is given,  this  lease and the  Demised  Term  shall  come to an end and  expire
(whether  or not said term shall have  commenced)  upon the  expiration  of said
thirty (30)  calendar  days with the same effect as if the date of expiration of
said thirty  (30)  calendar  days were the  Expiration  Date,  the rent shall be
apportioned as of such date and any prepaid portion of rent for any period after
such date shall be refunded by Landlord to Tenant.

SUBROGATION

         25. Each of the parties  hereto and their  successors or assigns hereby
waives any and all  rights of action  for  negligence  against  the other  party
hereto  which may  hereafter  arise for damage to the  premises  or to  property
therein  resulting  from any  fire or other  casualty  of the  kind  covered  by
standard fire insurance policies with extended  coverage,  regardless of whether
or not, or in what amounts,  such  insurance is now or hereafter  carried by the
parties hereto,  or either of them. The foregoing release and waiver shall be in
force only if both releasors' insurance policies contain a clause providing that
such a release or waiver shall not  invalidate  the  insurance and also provided
that such a policy can be obtained  without  additional  premiums.  Both parties
agree to use their best efforts to obtain and  maintain a waiver of  subrogation
from their respective carriers if they are insured.

EMINENT DOMAIN

         26. a. In the event  that the whole of the  demised  premises  shall be
lawfully  condemned or taken in any manner for any public or  quasi-public  use,
this lease and the term and estate  hereby  granted  shall  forthwith  cease and
terminate as of the date of vesting of title. In the event that only one part of
the demised premises shall be so condemned or taken,  then,  effective as of the
date of  vesting  of  title,  the rent  hereunder  shall be  abated in an amount
thereof  apportioned  according to the area of the demised premises so condemned
or taken. In the event that only a part of the Building shall be so condemned or
taken,  then (a) Landlord (whether or not the demised premises be affected) may,
at its option, terminate this lease and the term and estate hereby granted as of
the date of such  vesting  of title  by  notifying  Tenant  in  writing  of such
termination  within 60 days  following  the date on which  Landlord  shall  have
received  notice of vesting  of title,  and (b) if such  condemnation  or taking
shall be of a substantial  part of the demised premises or of a substantial part
of the means of access  thereto,  Tenant  shall have the right,  by  delivery of
notice in writing to Landlord  within 60 days following the date on which Tenant
shall have received  notice of vesting of title, to terminate this lease and the
term and  estate  hereby  granted  as of the date of  vesting of title or (c) if
neither  Landlord nor Tenant elects to terminate this lease, as aforesaid,  this
lease shall be and remain unaffected by such condemnation or taking, except that
the rent shall be abated to the  extent,  if any,  hereinabove  provided in this
Article  26. In the event that only a part of the demised  premises  shall be so
condemned or taken and this lease and the term and estate hereby granted are not
terminated as hereinbefore provided,  Landlord will, at its expense, restore the
remaining  portion of the demised  premises as nearly as practicable to the same
condition as it was in prior to such condemnation or taking.

                                       19







                  b.  In  the  event  of a  termination  in  any  of  the  cases
hereinabove provided, this lease and the term and estate granted shall expire as
of the date of such  termination  with the same  effect as if that were the date
hereinbefore  set for the expiration of the Demised Term, and the rent hereunder
shall be apportioned as of such date.

                  c. In the  event of any  condemnation  or  taking  hereinabove
mentioned  of all or a part of the  Building,  Landlord  shall  be  entitled  to
receive the entire award in the  condemnation  proceeding,  including  any award
made for the value of the  estate  vested by this  lease in  Tenant,  and Tenant
hereby  expressly  assigns to Landlord any and all right,  title and interest of
Tenant now or hereafter arising in or to any such award or any part thereof, and
Tenant  shall be  entitled  to receive no part of such  award,  except  that the
Tenant may file a claim for any taking of removable fixtures owned by Tenant and
for moving expenses incurred by Tenant.

         It is  expressly  understood  and agreed  that the  provisions  of this
Article  26  shall  not  be  applicable  to  any   condemnation  or  taking  for
governmental occupancy for a limited period.

LIABILITY INSURANCE

         27. a. Tenant will keep in force, at Tenant's expense at all times 
during the Demised Term and during such other times as Tenant occupies the 
demised premises or any part thereof:

             i.  commercial general liability insurance or comprehensive general
liability  insurance  with broad form  endorsement  with  respect to the demised
premises and the operation of Tenant and any Persons under Tenant's  Control in,
on or about the demised  premises  in which the limits of coverage  shall be not
less  than  Five  Million  Dollars   ($5,000,000)   combined  single  limit  per
occurrence;

             ii. statutory workers' compensation coverage and employers' 
liability as required by state law;

             iii. business interruption insurance for a period of not less than
one year and such other  insurance as Tenant deems  necessary to protect its 
property and its business against all perils commonly insured against by prudent
tenants;

             iv. such other insurance with respect to the demised premises and 
in such amounts as Landlord may from time to time reasonably require against 
such other insurable hazards or risks which at the time are commonly insured 
against in the case of property similar to the demised premises and used as 
provided herein.

             b. The foregoing limits shall be increased from time to time in the
event that Landlord, in its reasonable judgment, shall determine that the 
amounts of insurance are inadequate

                                       20





to pay any claims that may be brought under the foregoing policies. All policies
required by this lease shall be written on an  occurrence  basis.  Such policies
are to be written by a company  having a general policy  holder's  rating of not
less than A and a rating in financial  size of not less than XI, as rated in the
most current "Best's"  insurance  reports,  and authorized and licensed to issue
such policies in the State of New York.  Any such  insurance  required of Tenant
hereunder  may be furnished by Tenant  under any blanket  policy  carried by it,
providing  the policy  properly  allocates  the  required  limits to the demised
premises,  or under a separate policy thereof.  Each policy evidencing insurance
as required to be carried by Tenant  pursuant to this Article  shall contain the
following  provisions  and/or  clauses:  (i) a  cross-liability  clause;  (ii) a
provision that such policy and the coverage  carried by Landlord shall be excess
insurance;  (iii) a provision including Landlord,  Landlord's managing agent and
other  parties  (including  mortgagees)  designated  by Landlord  as  additional
insureds with respect to commercial general liability  insurance;  (iv) a waiver
by the  insurer  of any  right of  subrogation  against  Landlord,  its  agents,
employees  and  representatives  which  arises  or might  arise by reason of any
payment under such policy or by reasons of any act or omission of Landlord,  its
agents,  employees,  or representatives;  (v) a severability  clause; and (vi) a
provision that the insurer will not cancel, materially change, reduce aggregates
or coverage or fail to renew the coverage  provided by such policy without first
giving  Landlord and all  additional  insureds  thirty (30) days' prior  written
notice.

                  c. A copy of each paid-up  policy or  certificate of insurance
accompanied by original  endorsements signed by the insurance company evidencing
the  policies   required   hereunder,   along  with   evidence  of  payment  and
appropriately  authenticated  by the insurer or its authorized  agent certifying
that such  policy  has been  issued  providing  the  coverage  required  by this
Article,  and  containing  provisions  specified  herein,  shall be delivered to
Landlord  not less than  fifteen  (15) days prior to the earlier of (x) the Term
Commencement  Date,  or (y) the date Tenant shall first take  possession  of the
demised premises for any purpose, and, upon renewals,  not less than thirty (30)
days prior to the expiration of such coverage.

                  d. If Tenant fails to deliver to Landlord on time any required
evidence  of  insurance  coverage,  or  fails to carry  any  insurance  required
hereunder, or by law or governmental regulations,  then Landlord may (but is not
obligated  to) purchase the required  coverage on behalf of Tenant,  as provided
above,  in which event  Tenant  shall pay to Landlord on demand the cost of such
insurance  coverage  plus ten  percent  (10%) of the  amount  of such  cost as a
service  charge to  Landlord.  No such  purchase by  Landlord  shall be deemed a
waiver of Tenant's  default and Landlord may pursue its full rights and remedies
on account of such default.

DEFAULT

         28.      a. Upon the occurrence at any time prior to or during the 
Demised Term, of any one or more of the following events (referred to as "Events
of Default"):

                     i. if Tenant shall fail to pay when due or within the 
applicable grace period any installment of rent or additional rent, and such 
default shall continue for a period of five (5) days after notice by Landlord to
Tenant of such default; or

                                       21







                    ii. if Tenant shall default in the observance or performance
of any term, covenant or condition of this lease on Tenant's part to be observed
or performed (other  than the  covenants  for the payment of rent and additional
rent) and Tenant  shall fail to remedy such  default  within ten (10) days after
notice by Landlord to Tenant of such default,  or if such default is of such a 
nature that it cannot be completely remedied within said period of ten (10) days
and Tenant shall not commence  within said period of ten (10) days, or shall not
thereafter diligently prosecute to completion,  all steps necessary to remedy 
such default; or

                   iii. if Tenant or Tenant's guarantor hereunder (if any) shall
file a voluntary petition in bankruptcy or insolvency, or shall be adjudicated a
bankrupt or become insolvent, or shall file any petition or answer seeking any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under the present or any future federal  bankruptcy act or any
other present or future  applicable  federal,  state or other statute or law, or
shall make an  assignment  for the benefit of creditors or shall seek or consent
to or acquiesce in the  appointment  of any trustee,  receiver or  liquidator of
Tenant or of all or any part of Tenant's property; or

                    iv. if, within thirty (30) days after the commencement of 
any proceeding against Tenant, whether by the filing of a petition or otherwise,
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under the present or any future federal bankruptcy
act or other present of future applicable federal, state or other statute or 
law, such proceeding  shall not have been dismissed,  or if, within thirty (30) 
days after the appointment of any trustee,  receiver or liquidator of Tenant, or
of all or any part of Tenant's  property,  without the consent or  acquiescence
of Tenant, such appointment shall not have been vacated or otherwise discharged,
or if any execution or attachment shall be issued against Tenant or any of 
Tenant's property  pursuant to which the demised  premises  shall be taken or 
occupied or attempted to be taken or occupied; or

                      v. if Tenant shall default in the observance or 
performance of any term, covenant or  condition on Tenant's  part to be observed
or  performed  under any other  lease with  Landlord  of space in the  Building
and such default  shall continue beyond any grace period set forth in such other
lease for the remedying of such default; or

                     vi.  if the demised premises shall become vacant, deserted
or abandoned; or

                    vii.  if Tenant's interest in this lease shall devolve upon
or pass to any person, whether by operation of law or otherwise, except as 
expressly permitted under Article 20;

then, upon the  occurrence,  at any time prior to or during the Demised Term, of
any one or more of such Events of Default,  Landlord, at any time thereafter, at
Landlord's  option, may give to Tenant a five (5) days' notice of termination of
this lease and, in the event such notice is given, this lease

                                       22





and the Demised  Term shall come to an end and expire  (whether or not said term
shall have  commenced)  upon the  expiration of said five (5) days with the same
effect as if the date of  expiration  of said five (5) days were the  Expiration
Date, but Tenant shall remain liable for damages as provided in Article 29.

                  b. If, at any time,  (I) Tenant  shall be comprised of two (2)
or more persons,  or (ii) Tenant's  obligations under this lease shall have been
guaranteed by any person other than Tenant,  or (iii) Tenant's  interest in this
lease shall have been assigned,  the word "Tenant",  as used in subsection (iii)
and (iv) of Section 28.a, shall be deemed to mean any one or more of the persons
primarily or secondarily  liable for Tenant's  obligations under this lease. Any
moneys  received by Landlord  from or on behalf of Tenant during the pendency of
any proceeding of the types referred to in said subsections (iii) and (iv) shall
be  deemed  paid as  compensation  for the use  and  occupation  of the  demised
premises and the  acceptance of any such  compensation  by Landlord shall not be
deemed an  acceptance  of rent or a waiver on the part of Landlord of any rights
under Section 28.a.

REMEDIES

         29. a. If Tenant  shall fail to pay when due or within  the  applicable
grace period any  installment of rent or additional  rent and such default shall
continue  for a period of five (5) days after  notice by  Landlord  to Tenant of
such default,  or if this lease and the Demised Term shall expire and come to an
end as provided in Article 28:

                i. Landlord and its agents and servants may immediately, or at
any time after such  default or after the date upon which this lease and the 
Demised Term shall  expire and come to an end,  re-enter  the  demised  premises
or any part thereof, without notice, either by summary proceedings or by  any
other applicable action or proceeding,  or by force or otherwise (without being
liable to indictment,  prosecution or damages therefor),  and may repossess the
demised premises and dispossess  Tenant and any other persons from the demised 
premises and remove any and all of their property and effects from the demised 
premises; and

               ii. Landlord, at Landlord's option, may relet the whole or any 
part or parts of the  demised  premises  from time to time,  either in the name
of Landlord or otherwise,  to such tenant or tenants,  for such term or terms
ending before, on or after the  Expiration  Date,  at such  rental or rentals
and upon such other conditions, which may include concessions and free rent 
periods, as Landlord, in its sole discretion,  may determine.  Landlord shall 
have no obligation to relet the demised  premises or any part  thereof and shall
in no event be liable for refusal or failure to relet the demised premises or 
any part thereof, or, in the event of any such reletting, for refusal or failure
to collect any rent due upon any such  reletting, and no such refusal or failure
shall operate to relieve Tenant of any  liability  under this lease or otherwise
to affect any such liability.  Landlord, at Landlord's option, may make such 
repairs, replacements, alterations, additions, improvements,  decorations and 
other physical changes in and to the  demised  premises as  Landlord,  in its 
sole  discretion,  considers advisable  or  necessary  in  connection  with any
such  reletting  or  proposed reletting,  without  relieving  Tenant  of any 
liability  under  this  lease or otherwise affecting any such liability.

                                       23







              b.  Tenant,  on its own  behalf  and on behalf of all  persons
claiming through or under Tenant, including all creditors, does hereby waive any
and all rights which Tenant and all such persons might  otherwise have under any
present  or  future  law to redeem  the  demised  premises,  or to  re-enter  or
repossess the demised premises, or to restore the operation of this lease, after
(I) Tenant shall have been dispossessed by a judgment or by warrant of any court
or  judge,  or (ii) any  re-entry  by  Landlord,  or  (iii)  any  expiration  or
termination  of this  lease  and the  Demised  Term,  whether  such  dispossess,
re-entry,  expiration or termination shall be by operation of law or pursuant to
the provisions of this lease.  In the event of a breach or threatened  breach by
Tenant, or any persons claiming through or under Tenant,  of any term,  covenant
or  condition  of this  lease on  Tenant's  part to be  observed  or  performed,
Landlord  shall have the right to enjoin such breach and the right to invoke any
other remedy allowed by law or in equity as if re-entry, summary proceedings and
other  special  remedies  were not provided in this lease for such  breach.  The
rights to invoke the remedies  hereinbefore  set forth are  cumulative and shall
not  preclude  Landlord  from  invoking  any other  remedy  allowed by law or in
equity.

DAMAGES

         30. a. If this lease and the Demised  Term shall  expire and come to an
end as provided in Article 28 or by or under any summary proceeding or any other
action or  proceeding,  or if Landlord  shall  re-enter the demised  premises as
provided in Article 29 or by or under any summary proceeding or any other action
or proceeding, then, in any of said events:

                i. Tenant shall pay to Landlord all rent, additional rent and 
other charges payable under this lease by Tenant to Landlord to the date upon 
which this lease and the Demised Term shall have expired and come to an end or
to the date of re-entry upon the demised premises by Landlord, as the case may
be; and

               ii. Tenant shall also be liable for and shall pay to Landlord, as
damages, any  deficiency  (referred to as  "Deficiency")  between the rent and 
additional rent  reserved  in  this  lease  for  the  period  which  otherwise
would  have constituted  the  unexpired  portion of the Demised Term and the net
amount, if any, of rents collected under any reletting  effected pursuant to the
provisions of Section  29.a for any part of such  period  (first  deducting from
the rents collected under any such reletting all of Landlord's expenses in 
connection with the termination of this lease or Landlord's re-entry upon the 
demised  premises and such  reletting  including,  but not  limited  to, all  
repossession  costs, brokerage  commissions,  legal expenses,  attorney's fees,
alteration costs and other expenses of preparing the demised premises for such 
reletting).  Any such Deficiency shall be paid in monthly installments by Tenant
on the days specified in this lease for payment of installments of rent. 
Landlord shall be entitled to recover from Tenant each monthly Deficiency as the
same shall arise, and no suit to collect the amount of the Deficiency for any 
month shall prejudice Landlord's right  to  collect  the  Deficiency  for  any
subsequent month by a similar proceeding; and


                                       24





               iii. At any time after the Demised Term shall have expired and 
come to an end or Landlord shall have re-entered upon the demised premises,  as
the case may be, whether or not Landlord shall have collected any monthly 
Deficiencies as aforesaid,  Landlord shall be entitled to recover from Tenant,
and Tenant shall pay to Landlord,  on demand,  as and for liquidated and agreed
final damages, a sum equal to the amount by which the rent and  additional  rent
reserved in this lease for the period  which  otherwise  would  have constituted
the unexpired portion of the Demised Term exceeds the then fair and reasonable 
rental value of the demised  premises for the same period,  both  discounted to 
present worth at the rate of four (4%) per cent per annum.  If, before  
presentation  of proof of such  liquidated  damages to any court,  commission or
tribunal,  the  demised premises, or any part thereof,  shall have been relet by
Landlord for the period which  otherwise  would have  constituted  the unexpired
portion of the Demised Term, or any part thereof, the amount of rent reserved 
upon such reletting shall be deemed,  prima facie, to be the fair and reasonable
rental value for the part or the whole of the demised premises so relet during 
the term of the reletting.

                  b. If the  demised  premises,  or any part  thereof,  shall be
relet together with other space in the Building, the rents collected or reserved
under  any  such  reletting  and the  expenses  of any such  reletting  shall be
equitably  apportioned  for the purposes of this Article 30.  Tenant shall in no
event be entitled to any rents collected or payable under any reletting, whether
or not such rents shall exceed the rent  reserved in this lease.  Solely for the
purposes of this  Article,  the term rent as used in Section 30.a shall mean the
rent in effect  immediately  prior to the date  upon  which  this  lease and the
Demised Term shall have expired and come to an end, or the date of re-entry upon
the demised  premises by Landlord,  as the case may be, plus any additional rent
payable  pursuant  to the  provisions  of  Articles  8 & 9 for  the  Lease  Year
immediately  preceding  such event.  Nothing  contained in Articles 28 and 29 or
this Article  shall be deemed to limit or preclude the recovery by Landlord from
Tenant of the maximum amount allowed to be obtained as damages by any statute or
rule of law,  or of any sums or damages to which  Landlord  may be  entitled  in
addition to the damages set forth in Section 30.a.

FEES AND EXPENSES

         31. a. If Tenant shall  default in the  performance  of any covenant on
Tenant's part to be performed in this lease contained, Landlord may immediately,
or at any time thereafter,  without notice,  perform the same for the account of
Tenant.  If Landlord at any time is compelled to pay or elects to pay any sum of
money,  or do any act which will  require  the  payment of any sum of money,  by
reason of the  failure of Tenant to comply  with any  provision  hereof,  or, if
Landlord  is  compelled  to or  does  incur  any  expense  including  reasonable
attorneys'  fees,  instituting,  prosecuting  and/or  defending  any  action  or
proceeding  instituted by reason of any default of Tenant hereunder,  the sum or
sums so paid by Landlord with all interest,  costs and damages,  shall be deemed
to be additional  rent hereunder and shall be due from Tenant to Landlord on the
first day of the month following the incurring of such respective  expenses,  or
at Landlord's option on the first day of any subsequent month. In the event that
Landlord shall institute any such action or proceeding by reason of a default by
Tenant. hereunder, and Tenant shall thereafter cure such default before judgment
is  entered in such  action or  proceeding,  the sum of $500  shall  immediately
become due and payable from Tenant

                                       25





to Landlord as and for  liquidated  damages on account of Landlord's  attorneys'
fees and other costs and expenses in  connection  therewith  (said sum not to be
deemed  to be, or  construed  as, a  limitation  on  Landlord's  right to obtain
reasonable  attorneys'  fees in a greater  amount  where such  default is not so
cured).  Any sum of money  (other  than rent)  accruing  from Tenant to Landlord
pursuant  to any  provision  of this lease,  whether  prior to or after the Term
Commencement  Date, may, at Landlord's  option,  be deemed  additional rent, and
Landlord  shall have the same  remedies for Tenant's  failure to pay any item of
additional rent when due as for Tenant's  failure to pay any installment of rent
when due.  Tenant's  obligations under this Article shall survive the expiration
or sooner termination of the Demised Term.

                  b. If any legal  action or  proceeding  is  brought  by either
party against the other  pertaining  to or arising out of this lease,  the final
prevailing party shall be entitled to recover all costs and expenses,  including
reasonable attorneys' fees, incurred on account of such action or proceeding.

NO WAIVER

         32. a. No act or thing done by Landlord or Landlord's agents during the
Demised Term hereby demised shall be deemed an acceptance of a surrender of said
demised  premises,  and no  agreement  to accept such  surrender  shall be valid
unless in writing  signed by Landlord.  No employee of Landlord or of Landlord's
agents shall have any power to accept the keys of said demised premises prior to
the termination of this lease.  The delivery of keys to any employee of Landlord
or of Landlord's  agents shall not operate as a  termination  of this lease or a
surrender of the demised  premises.  In the event of Tenant at any time desiring
to have Landlord underlet the demised premises for Tenant's account, Landlord or
Landlord's  agents are authorized to receive said keys for such purposes without
releasing Tenant from any of the obligations under this lease, and Tenant hereby
relieves  Landlord  of any  liability  for loss of or damage to any of  Tenant's
effects in connection  with such  underletting.  The failure of Landlord to seek
redress  for  violation  of, or to insist  upon the strict  performance  of, any
covenant or condition of this lease, or any of the Rules and Regulations annexed
hereto and made a part  hereof,  or  hereafter  adopted by  Landlord,  shall not
prevent a subsequent act, which would have  originally  constituted a violation,
from  having all the force and effect of an original  violation.  The receipt by
Landlord  of rent with  knowledge  of the breach of any  covenant  of this lease
shall not be deemed a waiver of such breach.  The failure of Landlord to enforce
any of the Rules and  Regulations  annexed  hereto  and made a part  hereof,  or
hereafter  adopted  against Tenant and/or any other tenant in the Building shall
not be deemed a waiver of any such Rules and  Regulations.  No provision of this
lease shall be deemed to have been waived by Landlord,  unless such waiver be in
writing  signed by  Landlord.  No payment by Tenant or receipt by  Landlord of a
lesser  amount than the monthly  rent  herein  stipulated  shall be deemed to be
other than on account of the earliest  stipulated  rent then owing nor shall any
endorsement  or statement on any check or any letter  accompanying  any check or
payment as rent be deemed an accord and  satisfaction,  and  Landlord may accept
such check or payment  without  prejudice  to  Landlord's  right to recover  the
balance of such rent or pursue any other remedy in this lease provided.


                                       26





                  b.  Landlord's  failure to render a Landlord's  Statement with
respect to any Lease  Year per  Articles  8 & 9 shall not  prejudice  Landlord's
right to render a  Landlord's  Statement  with respect to any  subsequent  Lease
Year. The  obligations of Landlord and Tenant under the provisions of Articles 8
& 9 with  respect to any  additional  rent for any Lease Year shall  survive the
expiration or any sooner termination of the Demised Term.

WAIVER OF TRIAL BY JURY

         33. To the extent such waiver is permitted by law,  Landlord and Tenant
hereby waive trial by jury in any action,  proceeding or counterclaim brought by
Landlord or Tenant against the other on any matter whatsoever  arising out of or
in any way connected with this lease,  the  relationship of landlord and tenant,
the use or  occupancy of the demised  premises by Tenant or any person  claiming
through or under  Tenant,  any claim of injury or damage,  and any  emergency or
other statutory remedy.  The provisions of the foregoing  sentence shall survive
the  expiration  or any sooner  termination  of the  Demised  Term.  If Landlord
commences any summary  proceeding for nonpayment of rent or otherwise to recover
possession  of  the  demised  premises,  Tenant  agrees  not  to  interpose  any
counterclaim  of any nature or  description  in any such  proceeding  except for
compulsory counterclaims.

BILLS AND NOTICES

         34. Except as otherwise  expressly  provided in this lease,  any bills,
statements, notices, demands, requests or other communications given or required
to be given  under this lease  shall be  effective  only if rendered or given in
writing,  sent  by  registered  or  certified  mail  (return  receipt  requested
optional),  addressed  (A) to Tenant (I) at  Tenant's  address set forth in this
lease if mailed prior to Tenant's taking possession of the demised premises,  or
(ii) at the Building if mailed  subsequent to Tenant's taking  possession of the
demised premises with a copy to AMNEX, Inc., 100 West Lucerne Circle, Suite 100,
Orlando,  Florida 32801-4400 Attention:  V.P. Legal, or (iii) at any place where
Tenant or any agent or employee of Tenant may be found if mailed  subsequent  to
Tenant's vacating,  deserting,  abandoning or surrendering the demised premises,
or (B) to  Landlord  at  Landlord's  address  set  forth in this  lease,  or (C)
addressed to such other  address as either  Landlord or Tenant may  designate as
its new address for such purpose by notice given to the other in accordance with
the  provisions  of this  Article.  Any such bill,  statement,  notice,  demand,
request or other communication shall be deemed to have been rendered or given on
the date when it shall have been mailed as provided in this Article.

INABILITY TO PERFORM; INTERRUPTION OF SERVICE

         35. a. If, by reason of strikes or other labor disputes, fires or other
casualty (or reasonable delays in adjustment of insurance), accidents, orders or
regulations of any Federal,  State, County or Municipal authority,  or any other
cause  beyond  Landlord's  reasonable  control,  whether or not such other cause
shall be similar in nature to those hereinbefore enumerated,  Landlord is unable
to furnish or is delayed in  furnishing  any  utility or service  required to be
furnished by

                                       27





Landlord under the provisions of this lease or any collateral instrument,  or is
unable  to  perform  or  make  or  is  delayed  in   performing  or  making  any
installations,  decorations,  repairs,  alterations,  additions or improvements,
whether or not  required to be  performed  or made under this lease or under any
collateral  instrument,  or is unable to fulfill or is delayed in fulfilling any
of Landlord's other obligations  under this lease or any collateral  instrument,
except as set forth in Article 24, no such  inability or delay shall  constitute
an actual or constructive eviction, in whole or in part, or impose any liability
upon Landlord or its agents by reason of  inconvenience  or annoyance to Tenant,
or injury to or interruption of Tenant's business,  or otherwise,  nor shall any
such delay or  inability  to perform on the part of  Landlord  in any way affect
this lease and the obligation of Tenant to pay rent hereunder and to perform all
of the other  covenants  and  agreements  to be performed  by Tenant  hereunder.
Notwithstanding any provision to the contrary,  Tenant's  continuing  obligation
under this  subparagraph  a. of Article 35 to pay rent and to perform all of the
other  covenants and agreements of this lease  agreement  shall terminate in the
event the  Landlord's  inability  to furnish  any utility or service or delay in
furnishing  any utility or service,  or inability to perform or make any repairs
or delay in  performing  or making any  repairs,  continues  for a period of one
year.

                  b. Landlord reserves the right to stop the services of the air
conditioning,  elevator,  escalator,  plumbing,  electrical or other  mechanical
systems or facilities  in the Building  when  necessary by reason of accident or
emergency,  or for repairs,  alterations,  replacements or improvements which in
the  judgment  of Landlord  are  desirable  or  necessary,  until such  repairs,
alterations,  replacements  or improvements  shall have been  completed.  In the
event  that  Landlord  is  unable  to  complete  the  repairs,  replacement  and
improvement  within a reasonable  amount of time which in no event shall be less
than  five (5)  days,  and  further  provided  that the  repair,  alteration  or
improvement is  significantly  harming or hindering  Tenant's use of the demised
premises,  Tenant shall be entitled to an abatement of the pro-rata share of the
annual  rental rate  adjusted for the  percentage of the Premises not useable by
Tenant until the repairs, alterations,  replacement or improvement is completed.
The  exercise  of such  rights by  Landlord  shall not  constitute  an actual or
constructive  eviction,  in whole or in part, or entitle Tenant to any abatement
or diminution of rent, or relieve Tenant from any of its obligations  under this
lease,  or  impose  any  liability  upon  Landlord  or its  agents  by reason of
inconvenience  or annoyance to Tenant,  or injury to or interruption of Tenant's
business, or otherwise, except as otherwise stated in this Article.

CONDITIONS OF LANDLORD'S LIABILITY

         36. a. Tenant  shall not be entitled to claim a  constructive  eviction
from the demised  premises  unless Tenant shall have first notified  Landlord of
the  condition or  conditions  giving rise  thereto,  and if the  complaints  be
justified,  unless Landlord shall have failed to remedy such conditions within a
reasonable time after receipt of such notice.

                  b. If  Landlord  shall be  unable  to give  possession  of the
demised  premises  on any date  specified  for the  commencement  of the term by
reason  of the  fact  that the  demised  premises  have  not  been  sufficiently
completed to make same ready for  occupancy,  or for any other reason,  Landlord
shall not be subject to any liability for the failure to give possession on said
date, nor shall

                                       28





such failure in any way affect the validity of this lease or the  obligations of
Tenant  hereunder  except that the Term  Commencement  Date shall be the date on
which  Landlord  gives  possession  of  the  demised  premises  to  Tenant.  The
provisions of this Article are intended to constitute  "an express  provision to
the contrary"  within the meaning of Section 223-a of the New York Real Property
Law.

TENANT'S TAKING POSSESSION

         37.  Tenant  by  entering  into  occupancy  of the  premises  shall  be
conclusively  deemed  to  have  agreed  that  Landlord  up to the  time  of such
occupancy has performed all of its  obligations  hereunder and that the premises
were in satisfactory  condition as of the date of such occupancy,  unless within
ten (l0) days  after such date  Tenant  shall give  written  notice to  Landlord
specifying the respects in which the same were not in such condition.

ENTIRE AGREEMENT

         38. This lease  contains the entire  agreement  between the parties and
all prior  negotiations  and agreements are merged herein.  Neither Landlord nor
Landlord's agent or representative has made any representation, or statement, or
promise,  upon which Tenant has relied regarding any matter or thing relating to
the Building, the land allocated to it, (including the Building Parking Area and
the  Building  C Parking  Area) or the  demised  premises,  or any other  matter
whatsoever,  except as is  expressly  set forth in this  lease,  including,  but
without limiting the generality of the foregoing, any statement,  representation
or promise as to the fitness of the demised premises for any particular use, the
services to be rendered to the demised premises or the prospective amount of any
item of additional rent. No oral or written statement, representation or promise
whatsoever  with respect to the  foregoing or any other matter made by Landlord,
its  agents  or any  broker,  whether  contained  in an  affidavit,  information
circular,  or otherwise shall be binding upon the Landlord unless  expressly set
forth in this lease.  No rights,  easements or licenses are or shall be acquired
by Tenant by implication or otherwise  unless expressly set forth in this lease.
This lease may not be  changed,  modified  or  discharged,  in whole or in part,
orally,  and no executory  agreement  shall be  effective  to change,  modify or
discharge,  in whole or in part, this lease or any obligations under this lease,
unless such agreement is set forth in a written instrument executed by the party
against whom enforcement of the change, modification or discharge is sought. All
references in this lease to the consent or approval of Landlord  shall be deemed
to mean the written consent of Landlord, or the written approval of Landlord, as
the case may be, and no consent or approval of Landlord  shall be effective  for
any purpose unless such consent or approval is set forth in a written instrument
executed by Landlord.

DEFINITIONS

         39. The term  "landlord" as used in this lease means only the owner, or
the mortgagee in possession, for the time being of the land and Building (or the
owner of a lease of the  Building  or of the land  and  Building)  of which  the
demised premises form a part, so that in the event of any sale or other transfer
of said land and  Building or of said  lease,  or in the event of a lease of the
Building, or of the land and Building,

                                       29





the said  Landlord  shall be and hereby is  entirely  freed and  relieved of all
covenants  and  obligations  of Landlord  hereunder,  and it shall be deemed and
construed as a covenant running with the land without further  agreement between
the  parties or their  successors  in  interest,  or between the parties and the
purchaser  or other  transferee  at any such  sale,  or the said  lessee  of the
Building, or of the land and Building,  provided that the purchaser,  transferee
or the  lessee  of the  Building  assumes  and  agrees  to carry out any and all
covenants  and  obligations  of  Landlord   hereunder.   The  words  "re-enter",
"re-entry"  and  "re-entered"  as used in this lease are not restricted to their
technical legal  meanings.  The term "business days" as used in this lease shall
exclude  Saturdays,  Sundays  and all days  observed  by the State  and  Federal
Government as legal holidays.

            The terms  "person"  and  "persons"  as used in this lease  shall be
deemed to include natural  persons,  firms,  corporations,  associations and any
other  private or public  entities,  whether any of the  foregoing are acting on
their own behalf or in a representative capacity.

PARTNERSHIP TENANT

         40. If  Tenant is a  partnership  (or is  comprised  of two (2) or more
persons,  individually  and as  co-partners  of a  partnership)  or if  Tenant's
interest in this lease shall be assigned to a partnership (or to two (2) or more
persons,  individually and as co-partners of a partnership)  pursuant to Article
20 (any such  partnership and such person,  being referred to in this Section as
"Partnership  Tenant"),  the following provisions of this Section shall apply to
such  Partnership  Tenant:  (a) the liability of each of the parties  comprising
Partnership  Tenant  shall be joint  and  several,  and (b) each of the  parties
comprising  Partnership  Tenant hereby  consents in advance to, and agrees to be
bound by, any modifications of this lease which may hereafter be made and by any
notices,  demand, requests or other communications which may hereafter be given,
by Partnership  Tenant or by any of the parties comprising  Partnership  Tenant,
and  (c)  any  bills,   statements,   notices,   demands,   requests   or  other
communications  given or rendered to Partnership Tenant or to any of the parties
comprising  Partnership  Tenant shall be deemed given or rendered to Partnership
Tenant and to all such parties and shall be binding upon Partnership  Tenant and
all such parties, and (d) if Partnership Tenant shall admit new partners, all of
such new partners shall, by their admission to Partnership  Tenant, be deemed to
have assumed  performance of all of the terms,  covenants and conditions of this
lease on Tenant's part to be observed and performed,  and (e) Partnership Tenant
shall give prompt  notice to Landlord of the admission of any such new partners,
and upon  demand of  Landlord,  shall cause each such new partner to execute and
deliver to Landlord an agreement in form satisfactory to Landlord,  wherein each
such new partner  shall assume  performance  of all of the terms,  covenants and
conditions  of this lease on Tenant's  part to be observed  and  performed  (but
neither  Landlord's failure to request any such agreement nor the failure of any
such new partner to execute or deliver  any such  agreement  to  Landlord  shall
vitiate the provisions of subdivision (d) of this Section).

SUCCESSORS, ASSIGNS, ETC.

         41. The covenants,  conditions  and agreements  contained in this lease
shall bind and inure to the benefit of Landlord and Tenant and their  respective
heirs,  distributees,  executors,  administrators,  successors,  and,  except as
otherwise provided in this lease, their respective assigns.


                                       30





APPLICATION OF INSURANCE PROCEEDS, WAIVER OF SUBROGATION

         42. In any case in which Tenant shall be obligated under any provisions
of this lease to pay to Landlord any loss,  cost,  damage,  liability or expense
suffered or incurred by  Landlord,  Landlord  shall allow to Tenant as an offset
against  the amount  thereof  the net  proceeds of any  insurance  collected  by
Landlord  for or on account of such loss,  cost,  damage  liability  or expense,
provided that the allowance of such offset does not  invalidate or prejudice the
policy or policies under which such proceeds were payable.  In any case in which
Landlord shall be obligated  under any provisions of this lease to pay to Tenant
any loss,  cost,  damage,  liability or expense  suffered or incurred by Tenant,
Tenant shall allow to Landlord as an offset  against the amount  thereof the net
proceeds of any  insurance  collected  by Tenant for or on account of such loss,
cost damage,  liability or expense,  provided  that the allowance of such offset
does not  invalidate  or  prejudice  the  policy or  policies  under  which such
proceeds were payable.

CAPTIONS AND INDEX

         43. The captions and the index at the  beginning of the lease,  if any,
are included only as a matter of convenience  and for  reference,  and in no way
define,  limit  or  describe  the  scope of this  lease  nor the  intent  of any
provisions thereof.

RECOVERY FROM LANDLORD

         44. a. Tenant  shall look solely to the estate and property of Landlord
in the land and  building  of which the  demised  premises  are a part,  for the
satisfaction  of Tenant's  remedies for the  collection  of a judgment (or other
judicial process) requiring the payment of money by Landlord in the event of any
default or breach by Landlord with respect to any of the terms, covenants and/or
conditions  of the lease to be observed  and/or  performed by  Landlord,  and no
other property or assets of such Landlord shall be subject to levy, execution or
other enforcement procedure for the satisfaction of Tenant's remedies.

                  b. With respect to any provision of this lease which  provides
for Landlord's  approval and/or consent,  Tenant, in no event, shall be entitled
to make,  nor shall Tenant make any claim,  and Tenant  hereby waives any claim,
for money  damages;  nor shall Tenant claim any money damages by way of set-off,
counterclaim  or  defense,  based  upon any claim or  assertion  by Tenant  that
Landlord has unreasonably  withheld or unreasonably  delayed any such consent or
approval.

BROKER

         45.  Tenant  represents  and warrants to Landlord that Island Realty is
the sole broker who brought the demised premises to Tenant's  attention and with
whom Tenant has  negotiated  in  bringing  about this  lease.  Tenant  agrees to
indemnify,  defend and save  Landlord  harmless of, from and against any and all
claims (and all expenses and fees,  including  attorneys fees,  related thereto)
for commissions or compensation made by any other broker or entity,  arising out
of or relating to the breach by Tenant of the foregoing  representation.  As, if
and when this lease shall be fully  executed  and  unconditionally  delivered by
both Landlord and Tenant,  Landlord agrees to pay any commission that may be due
the above-named broker in connection with this lease in accordance with a 
separate agreement between Landlord and said broker.

                                       31



MORTGAGEE'S CONSENT

         46. Landlord and Tenant hereby  acknowledge  that this lease is subject
to Landlord's  obtaining the written approval of Mitsui to this lease.  Landlord
agrees to submit a copy of this lease to Mitsui for  Mitsui's  written  approval
promptly after the execution hereof.  The failure of Landlord to obtain Mitsui's
approval  to this  Lease  shall not result in any  liability  from  Landlord  to
Tenant,  or give rise to any claim in favor of Tenant against Landlord by reason
thereof.  In the event that Mitsui's  written  approval to this Agreement is not
obtained on or before the date that is twenty  (20) days after the date  hereof,
then this Agreement shall  automatically  terminate and shall be deemed null and
void ab initio,  and neither party shall have any further  rights or obligations
hereunder.

NET LEASE

         47. Except as may be otherwise  expressly  provided  herein,  it is the
intention,  understanding,  and agreement of Landlord and Tenant that this lease
is, and shall  constitute a Net Net Net lease,  and that Landlord  shall receive
its base rent and all other additional rent without setoff deduction,  or offset
for any charges or expenses incurred in the ownership, operation, maintenance or
repair of the demised premises.

SECURITY

         48.  Tenant has  deposited  with  Landlord  the sum of $50,000  for the
faithful  performance  and  observance  by Tenant of the terms,  provisions  and
conditions  of this  lease;  it is agreed that in the event  Tenant  defaults in
respect of any of the terms,  provisions and conditions of this lease,  Landlord
may use,  apply or retain the whole or any part of the  security so deposited to
the extent required for the payment of any sum as to which Tenant is in default.
Landlord shall deposit Tenant's security in an interest bearing account.  In the
event that  Tenant  shall  fully and  faithfully  comply  with all of the terms,
provisions,  covenants  and  conditions  of this lease,  the  security  shall be
returned to Tenant as follows:  (a) $5,000 on the first  anniversary of the Term
Commencement Date; (b) $5,000 on the second anniversary of the Term Commencement
Date;  (c) $5,000 on the third  anniversary of the Term  Commencement  Date; (d)
$5,000  on the  fourth  anniversary  of the  Term  Commencement  Date;  and  the
remaining  $30,000 and all accrued  interest  after the date fixed at the end of
this lease and after  delivery of entire  possession of the demised  premises to
Landlord.  In the event of a sale of the land and  Building  or  leasing  of the
Building,  Landlord  shall have the right to transfer the security to the vendee
or lessee and Landlord shall  thereupon be released by Tenant from all liability
for the return of such  security.  Tenant  covenants  that it will not assign or
encumber or attempt to assign or encumber the moneys  deposited here as security
and that neither  Landlord nor its  successors  or assigns shall be bound by any
such assignment, encumbrance, attempted assignment or attempted encumbrance.






                                       32




IN WITNESS WHEREOF

Landlord and Tenant have respectively signed and sealed this lease as of the day
and year first written above.

Witness for Landlord:                       WE'RE ASSOCIATES COMPANY


                                            BY:/s/ Bennett Rechler

                                            Bennett Rechler
                                            (Print Name)



Witness for Tenant:                         CRESCENT PUBLIC COMMUNICATIONS, INC.

                                            By: /s/ A.M. Scalice

                                            A. M. Scalice
                                            (Print Name)

                                            President
                                            (Title)


                                       33

EX-10.5

                                   AMNEX, INC.
                             1992 Stock Option Plan

                  1. Purpose of the Plan. The AMNEX, Inc. 1992 Stock Option Plan
(the "Plan") is intended to advance the interests of AMNEX, Inc. (the "Company")
by inducing individuals or entities of outstanding ability and potential to join
and remain with, or provide consulting or advisory services to, the Company,  by
encouraging and enabling eligible employees, non-employee Directors, consultants
and advisors to acquire proprietary  interests in the Company,  and by providing
the participating  employees,  non-employee Directors,  consultants and advisors
with an  additional  incentive  to promote the success of the  Company.  This is
accomplished  by  providing  for the granting of  "Options,"  which term as used
herein includes both "Incentive Stock Options" and "Nonstatutory Stock Options,"
as  later  defined,  to  employees,   non-employee  Directors,  consultants  and
advisors.
                  2. Administration. The Plan shall be administered by the Board
of Directors of the Company (the "Board of  Directors")  or by a committee  (the
"Committee")  consisting  of at least three (3)  persons  chosen by the Board of
Directors.  Except as  herein  specifically  provided,  the  interpretation  and
construction  by the Board of Directors or the Committee of any provision of the
Plan or of any  Option  granted  under it shall be  final  and  conclusive.  The
receipt of Options by  Directors,  or any  members of the  Committee,  shall not
preclude  their vote on any matters in  connection  with the  administration  or
interpretation of the Plan.

                                        1





                  3. Shares  Subject to the Plan.  The stock  subject to Options
granted under the Plan shall be shares of the Company's  common stock, par value
$.001 per share (the "Common Stock"), whether authorized but unissued or held in
the Company's treasury, or shares purchased from stockholders  expressly for use
under the Plan. The maximum number of shares of Common Stock which may be issued
pursuant to Options granted under the Plan shall not exceed in the aggregate 
four million two hundred fifty thousand (4,250,000) shares, subject to 
adjustment in accordance  with the  provisions of Section 12 hereof. The Company
shall at all times while the Plan is in force  reserve  such number of shares of
Common Stock as will be sufficient to satisfy the requirements of all 
outstanding Options granted under the Plan. In the event any Option granted 
under the Plan shall expire or  terminate  for any reason  without  having been
exercised in full or shall  cease  for  any  reason  to be  exercisable in whole
or in  part,  the unpurchased  shares  subject  thereto shall again be available
for Options under the Plan.

                  4.  Participation.  The  class of  individuals  that  shall be
eligible  to  receive  Options  under  the Plan  shall be (a)  with  respect  to
Incentive Stock Options described in Section 6 hereof, all employees  (including
officers) of either the Company or any  subsidiary  corporation  of the Company,
and (b) with  respect  to  Nonstatutory  Stock  Options  described  in Section 7
hereof,  all employees  (including  officers) and non-employee  Directors of, or
consultants and advisors to, either the Company or any subsidiary corporation of
the Company; provided, however, that Nonstatutory

                                        2





Stock Options shall not be granted to any such  consultants  and advisors unless
(i) bona fide  services  have been or are to be rendered by such  consultant  or
advisor and (ii) such services are not in  connection  with the offer or sale of
securities  in a capital  raising  transaction.  The Board of  Directors  or the
Committee,  in its sole  discretion,  but subject to the provisions of the Plan,
shall determine the employees and non-employee Directors of, and the consultants
and advisors  to, the Company and its  subsidiary  corporations  to whom Options
shall be granted, and the number of shares to be covered by each Option,  taking
into  account  the  nature  of  the  employment  or  services  rendered  by  the
individuals  being  considered,  their annual  compensation,  their  present and
potential contributions to the success of the Company, and such other factors as
the Board of Directors or the Committee may deem relevant.

                  5. Stock Option Agreement.  Each Option granted under the Plan
shall be  authorized  by the Board of Directors or the  Committee,  and shall be
evidenced by a Stock Option Agreement which shall be executed by the Company and
by the  individual  to whom such Option is granted.  The Stock Option  Agreement
shall  specify  the  number of shares of Common  Stock as to which any Option is
granted, the period during which the Option is exercisable, and the option price
per share thereof.

                  6.     Incentive Stock Options.  The Board of Directors or
the Committee may grant Options under the Plan, which Options are
intended to meet the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and which are

                                        3





subject to the following terms and conditions and any other terms and conditions
as may at any time be required by Section 422 of the Code (referred to herein as
an "Incentive Stock Option"):

                         (a)  No Incentive Stock Option shall be granted to
individuals other than employees of the Company or of a subsidiary
corporation of the Company.

                         (b)  Each Incentive Stock Option under the Plan must
be granted  prior to May 26, 2002,  which is within ten (10) years from the date
the Plan was adopted by the Board of Directors.

                         (c)  The option price of the shares subject to any
Incentive  Stock  Option  shall  not be less than the fair  market  value of the
Common  Stock at the time such  Incentive  Stock  Option is  granted;  provided,
however,  if an Incentive  Stock Option is granted to an individual who owns, at
the time the Incentive  Stock Option is granted,  more than ten percent (10%) of
the total  combined  voting power of all classes of stock of the Company or of a
parent or subsidiary  corporation of the Company, the option price of the shares
subject to the Incentive  Stock Option shall be at least one hundred ten percent
(110%) of the fair market  value of the Common  Stock at the time the  Incentive
Stock Option is granted.

                         (d)  No Incentive Stock Option granted under the Plan
shall be exercisable after the expiration of ten (10) years from the date of its
grant.  However,  if an Incentive  Stock Option is granted to an individual  who
owns, at the time the Incentive  Stock Option is granted,  more than ten percent
(10%) of the total combined  voting power of all classes of stock of the Company
or of

                                        4





a parent or subsidiary  corporation of the Company,  such Incentive Stock Option
shall not be exercisable after the expiration of five (5) years from the date of
its grant.  Every Incentive Stock Option granted under the Plan shall be subject
to earlier termination as expressly provided in Section 10 hereof.

                         (e)  For purposes of determining stock ownership
under this Section 6, the attribution  rules of Section 425(d) of the Code shall
apply.

                         (f)  For purposes of the Plan, fair market value
shall be  determined by the Board of Directors or the  Committee.  If the Common
Stock  is  listed  on  a  national   securities   exchange   or  traded  on  the
Over-the-Counter  market,  fair market value shall be the closing  selling price
or, if not available,  the closing bid price or, if not available,  the high bid
price of the Common Stock quoted on such  exchange,  or on the  Over-the-Counter
market as reported by the National  Association of Securities  Dealers Automated
Quotation  (NASDAQ) system or if the Common Stock is not listed on NASDAQ,  then
by the National Quotation Bureau,  Incorporated,  as the case may be, on the day
immediately preceding the day on which the Option is granted, or, if there is no
trading or bid price on that day, the closing  selling price,  closing bid price
or high bid price on the most recent day which  precedes  that day and for which
such prices are available.

                  7.     Nonstatutory Stock Options.  The Board of Directors
or the Committee may grant Options under the Plan which are not
intended to meet the requirements of Section 422 of the Code, as

                                        5





well as Options  which are intended to meet the  requirements  of Section 422 of
the Code but the  terms  of which  provide  that  they  will not be  treated  as
Incentive Stock Options  (referred to herein as a "Nonstatutory  Stock Option").
Nonstatutory  Stock  Options  which are not intended to meet those  requirements
shall be subject to the following terms and conditions:

                         (a)  A Nonstatutory Stock Option may be granted to
any  individual or entity  eligible to receive an Option under the Plan pursuant
to Section 4(b) hereof.

                         (b)  The option price of the shares subject to a
Nonstatutory  Stock Option shall be  determined by the Board of Directors or the
Committee, in its sole discretion,  at the time of the grant of the Nonstatutory
Stock Option; provided,  however, that the option price of the shares subject to
a Nonstatutory  Stock Option granted to a person subject to Section 16(b) of the
Securities  Exchange Act of 1934, as amended (an  "Insider"),  shall not be less
than the fair  market  value of the Common  Stock at the time such  Nonstatutory
Stock Option is granted.

                         (c)  A Nonstatutory Stock Option granted under the
Plan may be of such duration as shall be determined by the Board of Directors or
the Committee  (subject to earlier  termination as expressly provided in Section
10 hereof);  provided,  however, that no Nonstatutory Stock Option granted under
the Plan to an Insider  shall be  exercisable  after the  expiration of ten (10)
years from the date of its grant.


                                        6





                  8.     Rights of Option Holders.  The holder of any Option
granted under the Plan shall have none of the rights of a
stockholder with respect to the stock covered by his Option until
such stock shall be transferred to him upon the exercise of his
Option.

                  9.     Transferability.  No Option granted under the Plan
shall be transferable by the individual or entity to whom it was
granted otherwise than by Will or the laws of descent and
distribution, and, during the lifetime of such individual, shall
not be exercisable by any other person, but only by him.

                  10.    Termination of Employment or Death.

                         (a)  Subject to the terms of the Stock Option
Agreement,  if  the  employment  of  an  employee  by,  or  the  services  of  a
non-employee  Director  for,  or  consultant  or advisor  to,  the  Company or a
subsidiary  corporation  of  the  Company  shall  be  terminated  for  cause  or
voluntarily by the employee,  non-employee Director, consultant or advisor, then
his or its  Option  shall  expire  forthwith.  Subject to the terms of the Stock
Option  Agreement,  and except as  provided in  subsections  (b) and (c) of this
Section 10, if such employment or services shall terminate for any other reason,
then such Option may be exercised at any time within three (3) months after such
termination, subject to the provisions of subsection (d) of this Section 10. For
purposes of the Plan,  the  retirement  of an  individual  either  pursuant to a
pension or  retirement  plan adopted by the Company or at the normal  retirement
date prescribed from time to time by the Company shall

                                        7





be  deemed  to  be  termination  of  such  individual's  employment  other  than
voluntarily  or for cause.  For  purposes of this  subsection  (a), an employee,
non-employee  Director,  consultant or advisor who leaves the employ or services
of the  Company  to  become  an  employee  or  non-employee  Director  of,  or a
consultant  or  advisor  to,  a  subsidiary  corporation  of  the  Company  or a
corporation (or subsidiary or parent  corporation of the corporation)  which has
assumed  the Option of the  Company as a result of a  corporate  reorganization,
etc., shall not be considered to have terminated his employment or services.

                         (b)  Subject to the terms of the Stock Option
Agreement, if the holder of an Option under the Plan dies (i) while employed by,
or while serving as a  non-employee  Director for or a consultant or advisor to,
the Company or a subsidiary corporation of the Company, or (ii) within three (3)
months  after  the   termination  of  his  employment  or  services  other  than
voluntarily by the employee or non-employee Director,  consultant or advisor, or
for cause,  then such Option may, subject to the provisions of subsection (d) of
this  Section 10, be  exercised  by the estate of the  employee or  non-employee
Director,  consultant  or  advisor,  or by a person  who  acquired  the right to
exercise such Option by bequest or inheritance or by reason of the death of such
employee or non-employee Director,  consultant or advisor at any time within one
(1) year after such death.

                         (c)  Subject to the terms of the Stock Option
Agreement, if the holder of an Option under the Plan ceases

                                        8





employment  or services  because of permanent and total  disability  (within the
meaning of Section  22(e)(3) of the Code) while employed by, or while serving as
a  non-employee  Director  for or  consultant  or advisor  to, the  Company or a
subsidiary  corporation  of the  Company,  then such Option may,  subject to the
provisions of subsection (d) of this Section 10, be exercised at any time within
one (1) year after his termination of employment, termination of Directorship or
termination of consulting or advisory  services,  as the case may be, due to the
disability.

                         (d)  An Option may not be exercised pursuant to this
Section 10 except to the extent that the holder was  entitled  to  exercise  the
Option at the time of termination of  employment,  termination of  Directorship,
termination of consulting or advisory  services,  or death, and in any event may
not be exercised after the expiration of the Option.

                         (e)  For purposes of this Section 10, the employment
relationship of an employee of the Company or of a subsidiary corporation of the
Company  will be treated as  continuing  intact  while he is on military or sick
leave or other bona fide leave of absence  (such as temporary  employment by the
Government)  if such leave does not exceed ninety (90) days,  or, if longer,  so
long as his  right  to  reemployment  is  guaranteed  either  by  statute  or by
contract.

                  11.    Exercise of Options.

                         (a)  Unless otherwise provided in the Stock Option
Agreement, any Option granted under the Plan shall be exercisable

                                        9





in whole at any time,  or in part from time to time,  prior to  expiration.  The
Board of Directors or the Committee, in its absolute discretion,  may provide in
any Stock Option  Agreement  that the exercise of any Options  granted under the
Plan shall be subject  (i) to such  condition  or  conditions  as it may impose,
including, but not limited to, a condition that the holder thereof remain in the
employ or service of, or continue to provide consulting or advisory services to,
the  Company or a  subsidiary  corporation  of the  Company  for such  period or
periods  from the date of grant of the Option as the Board of  Directors  or the
Committee,  in its  absolute  discretion,  shall  determine;  and  (ii)  to such
limitations as it may impose,  including,  but not limited to, a limitation that
the  aggregate  fair  market  value of the Common  Stock  with  respect to which
Incentive  Stock  Options  are  exercisable  for the first time by any  employee
during any  calendar  year  (under all plans of the  Company  and its parent and
subsidiary   corporations)   shall  not  exceed  one  hundred  thousand  dollars
($100,000).  In addition, in the event that under any Stock Option Agreement the
aggregate fair market value of the Common Stock with respect to which  Incentive
Stock  Options are  exercisable  for the first time by any  employee  during any
calendar  year  (under all plans of the  Company  and its parent and  subsidiary
corporations)  exceeds one hundred  thousand  dollars  ($100,000),  the Board of
Directors or the  Committee  may, when shares are  transferred  upon exercise of
such Options,  designate those shares which shall be treated as transferred upon
exercise of an Incentive Stock Option and those shares which shall

                                       10





be treated as transferred upon exercise of a Nonstatutory Stock
Option.

                         (b)  An Option granted under the Plan shall be
exercised by the delivery by the holder  thereof to the Company at its principal
office  (attention of the  Secretary) of written  notice of the number of shares
with  respect  to which the  Option is being  exercised.  Such  notice  shall be
accompanied, or followed within ten (10) days of delivery thereof, by payment of
the full option price of such shares,  and payment of such option price shall be
made by the  holder's  delivery  of (i) his  check  payable  to the order of the
Company,  or (ii)  previously  acquired  Common Stock,  the fair market value of
which  shall  be  determined  as of the  date of  exercise,  or by the  holder's
delivery of any combination of the foregoing (i) and (ii).

                  12.    Adjustment Upon Change in Capitalization.

                         (a)  In the event that the outstanding Common Stock
is  hereafter  changed  by  reason  of  reorganization,  merger,  consolidation,
recapitalization,  reclassification,  stock  split-up,  combination  of  shares,
reverse split,  stock dividend or the like, an appropriate  adjustment  shall be
made by the Board of  Directors  or the  Committee  in the  aggregate  number of
shares  available  under the Plan,  in the number of shares and option price per
share subject to outstanding  Options,  and in any limitation on exerciseability
referred  to in  Section  11(a)(ii)  hereof  which is set  forth in  outstanding
Incentive Stock Options. If the Company shall be reorganized,  consolidated,  or
merged with another

                                       11





corporation,  the holder of an Option  shall be  entitled  to  receive  upon the
exercise  of his Option the same  number and kind of shares of stock or the same
amount of property, cash or securities as he would have been entitled to receive
upon the happening of any such  corporate  event as if he had been,  immediately
prior to such event,  the holder of the number of shares  covered by his Option;
provided,  however,  that in such event the Board of Directors or the  Committee
shall have the  discretionary  power to take any action necessary or appropriate
to prevent any Incentive Stock Option granted  hereunder which is intended to be
an  "incentive  stock  option"  from being  disqualified  as such under the then
existing  provisions of the Code or any law amendatory  thereof or  supplemental
thereto.

                         (b)  Any adjustment in the number of shares shall
apply  proportionately  to only the  unexercised  portion of the Option  granted
hereunder.  If fractions of a share would result from any such  adjustment,  the
adjustment shall be revised to the next lower whole number of shares.

                  13.    Further Conditions of Exercise.

                         (a)  Unless prior to the exercise of the Option the
shares  issuable upon such exercise have been registered with the Securities and
Exchange  Commission  pursuant to the  Securities  Act of 1933, as amended,  the
notice of exercise shall be accompanied by a representation  or agreement of the
person or estate  exercising  the Option to the  Company to the effect that such
shares are being  acquired  for  investment  purposes and not with a view to the
distribution thereof, or such other documentation as may be

                                       12





required by the  Company,  unless in the opinion of counsel to the Company  such
representation,  agreement or documentation is not necessary to comply with such
Act.

                         (b)  The Company shall not be obligated to deliver
any Common Stock until it has been listed on each  securities  exchange on which
the Common Stock may then be listed or until there has been qualification  under
or  compliance  with such  federal or state laws,  rules or  regulations  as the
Company may deem applicable.  The Company shall use reasonable efforts to obtain
such listing, qualification and compliance.

                  14.  Effectiveness  of the Plan.  The Plan was  adopted by the
Board of Directors on May 26, 1992.  The Plan shall be subject to approval on or
before May 25, 1993, which is within one (1) year of adoption of the Plan by the
Board of Directors,  by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon.  In
the event such stockholder  approval is withheld or otherwise not received on or
before the latter date,  the Plan and,  subject to the terms of the Stock Option
Agreement,  all Options that may have been granted  hereunder  shall become null
and void.

                  15.    Termination, Modification and Amendment.

                         (a)  The Plan (but not Options previously granted
under the Plan) shall terminate on May 25, 2002,  which is within ten (10) years
from  the  date  of its  adoption  by the  Board  of  Directors,  or  sooner  as
hereinafter  provided,  and no Option shall be granted after  termination of the
Plan.

                                       13
 




                         (b)  The Plan may from time to time be terminated,
modified, or amended by the affirmative vote of the holders of a majority of the
outstanding shares of capital stock of the Company entitled to vote thereon.
 
                         (c)  The Board of Directors may at any time, on or
before the termination  date referred to in Section 15(a) hereof,  terminate the
Plan, or from time to time make such  modifications or amendments to the Plan as
it may deem advisable; provided, however, that the Board of Directors shall not,
without  approval  by the  affirmative  vote of the holders of a majority of the
outstanding  shares of capital  stock of the Company  entitled to vote  thereon,
increase (except as otherwise  provided by Section 12 hereof) the maximum number
of shares as to which Options may be granted  hereunder,  change the designation
of the employees or class of employees eligible to receive Options,  or make any
other change which would prevent any Incentive  Stock Option  granted  hereunder
which is intended to be an "incentive  stock option" from  disqualifying as such
under the then existing  provisions of the Code or any law amendatory thereof or
supplemental thereto.

                         (d)  No termination, modification, or amendment of
the Plan may, without the consent of the individual or entity to whom any Option
shall have been granted, adversely affect the rights conferred by such Option.

                  16.    Not a Contract of Employment.  Nothing contained in
the Plan or in any Stock Option Agreement executed pursuant hereto
shall be deemed to confer upon any individual or entity to whom an

                                       14





Option is or may be  granted  hereunder  any  right to  remain in the  employ or
service  of the  Company  or a  subsidiary  corporation  of the  Company  or any
entitlement to any  remuneration or other benefit  pursuant to any consulting or
advisory arrangement.

                  17.    Use of Proceeds.  The proceeds from the sale of
shares pursuant to Options granted under the Plan shall constitute
general funds of the Company.

                  18.  Indemnification  of Board of Directors or  Committee.  In
addition to such other rights of  indemnification  as they may have, the members
of the  Board of  Directors  or the  Committee,  as the  case  may be,  shall be
indemnified by the Company to the extent  permitted under applicable law against
all  costs and  expenses  reasonably  incurred  by them in  connection  with any
action,  suit,  or  proceeding  to  which  they or any of them may be a party by
reason of any action  taken or failure  to act under or in  connection  with the
Plan or any rights  granted  thereunder  and against all amounts paid by them in
settlement  thereof or paid by them in  satisfaction  of a judgment  of any such
action, suit or proceeding, except a judgment based upon a finding of bad faith.
Upon the  institution  of any such action,  suit, or  proceeding,  the member or
members of the Board of  Directors or the  Committee,  as the case may be, shall
notify the Company in writing, giving the Company an opportunity at its own cost
to defend the same before such member or members undertake to defend the same on
his or their own behalf.

                  19.    Definitions.  For purposes of the Plan, the terms
"parent corporation" and "subsidiary corporation" shall have the

                                       15




meanings set forth in Sections 425(e) and 425(f) of the Code, respectively,  and
the masculine shall include the feminine and the neuter as the context requires.

                  20.    Governing Law.  The Plan shall be governed by, and
all questions arising hereunder shall be determined in accordance
with, the laws of the State of New York.


                                       16

EX-10.6

                                   AMNEX, INC.

                              AMENDED AND RESTATED
                        1996 RESTRICTED STOCK GRANT PLAN


         1.   Purpose.  The AMNEX, Inc. Amended and Restated 1996 Restricted 
Stock Grant Plan (the "Plan") is intended to advance the interests of AMNEX, 
Inc., a New York corporation (the "Company"),  by encouraging and enabling 
officers, other key employees, and key consultants and advisors, upon whose 
judgment, initiative and effort the Company is largely dependent for the 
successful conduct of its business, to acquire and retain a proprietary interest
in the Company by ownership of its stock.

         2. Definitions.  For purposes of the Plan, the following terms shall 
have the  indicated meanings unless the context clearly indicates otherwise:

                  "Board" means the Board of Directors of the Company.

                  "Cause" means termination of the  Participant's  employment or
consulting or advisory relationship by the Company because of (A) conviction of,
or a plea of nolo  contendere  to, a felony,  or  another  serious  crime  which
results or is likely to result in material injury to the Company;  (B) breach of
fiduciary duty involving  personal profit; (C) continued and habitual neglect to
perform  material stated duties;  or (D) material breach of any provision of any
employment,  consulting or advisory  agreement  between the  Participant and the
Company or any subsidiary thereof.

                  "CEO" means the Chief Executive Officer of the Company as of 
the Initial Adoption Date.

                  "Chairman" means the Chairman of the Board as of the Initial 
Adoption Date.

                  "Code" means the Internal Revenue Code of 1986, as it may be 
amended from time to time.

                  "Committee" means the committee designated in Section 3 below
to administer the Plan.

                  "Common Stock" means the Company's Common Stock, par value 
$.001 per share.

                  "Change in  Control"  of the  Company  shall be deemed to have
occurred (A) when either the CEO or Chairman is either  removed as a director or
not nominated by the Board for re-election as a director of the Company;  or (B)
when any nominee for  election  as a director  of the Company  contained  in the
Company's  Proxy  Statement sent to  shareholders in connection with the Board's
solicitation of proxies to be voted at any annual meeting of shareholders is not
so elected by the  shareholders,  except where the person elected instead of the
nominee is acceptable to the CEO






and Chairman;  or (C) upon any person or entity gaining  ownership,  directly or
indirectly,   of  securities  that,  in  the  aggregate,   represent  more  than
thirty-five  percent  (35%) of the  voting  power of the  Company's  outstanding
securities  (whether or not such securities are in fact voted);  or (D) upon the
sale or disposition  of fifty percent (50%) or more of the voting  securities of
any of the Company's  subsidiaries or all or substantially  all of the assets of
any such  subsidiary,  except where such sale or disposition was approved by the
CEO; or (E) upon the  termination  of  employment  by the Company other than for
Cause, or the Resignation for Good Reason of, the CEO or Chairman.


                  "Exchange Act" means the  Securities  Exchange Act of 1934, as
it may be amended from time to time.

                  "Grant"  means a grant of Shares,  whether or not  restricted,
pursuant to a written instrument that awards Shares to a Participant pursuant to
the Plan.

                  "Initial Adoption Date" means May 23, 1996.

                  "Non-Employee  Director" means a "non-employee  director",  as
that term is used in Rule  16b-3  promulgated  under the  Exchange  Act,  or any
successor provision.

                  "Parent" means a parent corporation of the Company as defined
in section 424(e) of the Code.

                  "Participants"  means the officers,  other key employees,  and
key consultants and advisors of the Company,  its  Subsidiaries and its Parents,
including directors of the Company who are also employees of the Company.

                  "Permanent  Disability"  means such mental or physical illness
or incapacity as shall result in the Participant being unable to render services
to the  Company,  its Parents or its  Subsidiaries  for a  continuous  period of
twelve (12) months.

                  "Plan" means this AMNEX, Inc. Amended and Restated 1996 
Restricted Stock Grant Plan.

                  "Resignation   for  Good  Reason"  means  a   resignation   of
employment  or  consulting  or advisory  services  following  the failure by the
Company to comply with any material  provision of any employment,  consulting or
advisory agreement with the Company or any subsidiary thereof, which failure was
not cured with thirty (30) days after a notice of noncompliance was given by the
employee, consultant or advisor to the Company.

                  "Shares"  means  shares of Common Stock which are granted to a
Participant pursuant to a Grant under the Plan.


                                        2





                  "Standard Restrictions" means those restrictions set forth in
Section 8(b) hereof.

                  "Subsidiary" means a subsidiary corporation of the Company, as
defined in Section 424(f) of the Code.

         3.  Administration  of the Plan. The Plan shall be  administered by the
Board or a  committee  (the  "Committee")  composed  of not less than  three (3)
persons.  Only  Non-Employee  Directors shall be eligible to serve as members of
the  Committee.  The Committee  shall report all action taken by it to the Board
which shall review and ratify or approve those actions which are required by law
to be so  reviewed  and  ratified  or  approved  by the Board.  The Board or the
Committee shall have full and final authority in its discretion,  subject to the
provisions of the Plan, (a) to determine the Participants,  the time or times at
which Grants shall be made and the number of Shares so granted;  (b) to construe
and interpret the Plan; (c) to determine the terms,  restrictions and provisions
of the respective Grants,  which need not be identical,  including,  but without
limitation,  restrictions  on Shares  granted  and the  amount  and terms of the
purchase  price,  if  any,  of  Shares  granted;  and  (d)  to  make  all  other
determinations  and take all other actions deemed necessary or advisable for the
proper  administration of the Plan. All such actions and determinations shall be
conclusively binding for all purposes and upon all persons.

         4.  Number of Shares  Subject to the Plan.  The total  number of Shares
available  for Grants  under the Plan may not exceed in the  aggregate  245,000,
subject to adjustment upon occurrence of any of the events  indicated in Section
6  hereof.  The Board  may,  from time to time,  increase  the  number of Shares
available for grant under the Plan. The Shares to be delivered  under the Grants
may consist,  in whole or in part,  of authorized  but unissued  Common Stock or
treasury Common Stock not reserved for any other purpose.

         5. Lapsed Grants.  If a Grant, or any portion thereof, is forfeited for
any reason, any Shares forfeited shall be available again for the making of a 
later Grant hereunder.

         6.  Adjustment  in  Capitalization.  In the event of any  change in the
outstanding  shares of Common Stock that occurs after the Initial  Adoption Date
by reason of a stock dividend,  stock split,  reorganization,  reclassification,
recapitalization,  merger,  consolidation,  combination,  exchange of shares, or
other similar  change,  then the  aggregate  number and class of shares or other
securities  that may be  issued or  transferred  pursuant  to the Plan,  and the
provisions,  terms and conditions of each  outstanding  Grant affected  thereby,
shall  be  adjusted   appropriately  by  the  Board  or  the  Committee,   whose
determination shall be conclusive.

         7. Eligibility and Participation.  Grantees of Grants shall be selected
by the Board or the Committee from among those  Participants who are recommended
by the Chief  Executive  Officer of the  Company  and who, in the opinion of the
Board or the Committee, are key officers, other key employees or key consultants
or advisors in a position to contribute  materially  to the Company's  continued
growth and development and to its long-term success.


                                        3





         8.       Grants of Restricted Stock.

                  (a) Grant of Restricted  Stock.  Subject to the  provisions of
Section 7, the Board or the  Committee,  at any time and from time to time,  may
make Grants to such Participants and in such amounts as it shall determine. Each
Grant shall be made pursuant to a written  instrument  which must be executed by
the grantee in order to be effective.

                  (b) Standard Restrictions. In addition to any other applicable
provisions  hereof and except as may  otherwise  be  specifically  provided in a
Grant,   the  following   restrictions  in  this  Section  8(b)  (the  "Standard
Restrictions") shall apply to Grants made by the Board or the Committee:

                      (i) No Shares granted pursuant to a Grant may be sold, 
transferred, pledged,  assigned or otherwise  alienated  or  hypothecated until,
and to the extent that, such Shares are vested.

                      (ii) Shares granted pursuant to a Grant are non-vested at
the time the Grant is made, but shall,  unless earlier forfeited  hereunder, 
vest according to the following vesting schedule:

                                                          Vested Percentage
                    Vesting Dates                         of Shares Granted

         One (1) year from the date of Grant                       10%
         Two (2) years from the date of Grant                      20%
         Three (3) years from the date of Grant                    30%
         Four (4) years from the date of Grant                     40%
         Five (5) years from the date of Grant                     50%
         Six (6) years from the date of Grant                      60%
         Seven (7) years from the date of Grant                    70%
         Eight (8) years from the date of Grant                    80%
         Nine (9) years from the date of Grant                     90%
         Ten (10) years from the date of Grant                    100%

The foregoing notwithstanding (but subject to the provisions of (iii) hereof and
subject to the discretion of the Board or the  Committee),  a Participant  shall
forfeit  all  Shares  not  previously  vested,  if  any,  at  such  time  as the
Participant  is no longer  employed  by, or  rendering  consulting  or  advisory
services to, the Company or a Parent or Subsidiary.  All forfeited  Shares shall
be returned to the Company.

                      (iii) Notwithstanding any other provision of this Section
8(b) to the contrary, a Participant  who has not previously  forfeited any non-
vested  Shares that are granted pursuant to a Grant,  shall  automatically  have
such non-vested  Shares vest upon the earlier of (a) the effective date

                                        4





of a Change in Control,  (b) the termination by the Company of the Participant's
employment  with,  or  consulting  or advisory  services to, the Company and all
Parents and  Subsidiaries  other than for Cause,  (c) the  Resignation  for Good
Reason  by the  Participant,  and  (d)  the  Participant's  death  or  Permanent
Disability.

                  (c)   Other   Restrictions.   Notwithstanding   the   Standard
Restrictions  of Section 8(b) above,  the Board or the Committee may impose such
other or different  restrictions  on any Shares granted as it may deem advisable
including,  without  limitation,  restrictions  relating  to length of  service,
corporate performance, attainment of individual or group performance objectives,
and  federal  or  state   securities  laws,  and  may  legend  the  certificates
representing  restricted Shares to give appropriate notice of such restrictions.
Any such other or different  restrictions shall be specifically set forth in the
Grant instrument.

                  (d) Holding of Restricted  Shares.  Certificates  representing
Shares granted that are subject to restrictions shall be held by the Company or,
if the  Board  or the  Committee  so  specifies,  deposited  with a  third-party
custodian or trustee until lapse of all  restrictions on the Shares.  After such
lapse,  certificates  for such Shares (or the vested  percentage of such Shares)
shall be delivered by the Company to the  Participant  who received the grant of
such  Shares;  provided,  however,  that the Company  need not issue  fractional
Shares.

                  (e) Rights in Restricted Shares.  During any applicable period
of restriction, a Participant who has been granted Shares hereunder shall be the
record  owner  thereof and shall be entitled to vote such Shares and receive all
dividends  and other  distributions  paid with respect to such Shares while they
are so restricted.  However,  if any such dividends or distributions are paid in
shares of Company stock during an applicable  period of restriction,  the shares
received shall be subject to the same restrictions as the Shares with respect to
which they were issued. Moreover, the Board or the Committee may provide in each
Grant such other  restrictions,  terms and  conditions as it may deem  advisable
with respect to the treatment and holding of any stock, cash or property that is
received in exchange for restricted Shares.

                  (f)  Conflicting Provisions.  In case of any conflict between
the provisions of this Plan and the provisions of a Grant, the provisions of 
this Plan shall control.

         9.  Conditions  to Grants.  The making of any Grant and the issuance of
any Shares to a Participant  shall be subject to the  condition  that, if at any
time the Company shall  determine in its  discretion  that the  satisfaction  of
withholding  tax  or  other  withholding  liabilities,   or  that  the  listing,
registration,  or qualification of any Shares  otherwise  deliverable  hereunder
upon any  securities  exchange  or under any state or federal  law,  or that the
consent or approval of any  regulatory  body,  is  necessary  or  desirable as a
condition of, or in connection with, the delivery or purchase of Shares pursuant
hereto,  then in any such event, such Grant or such issuance of Shares shall not
be effective  unless such  withholding,  listing,  registration,  qualification,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to the Company.


                                        5




         10.  Amendment,  Suspension,  and Termination of Plan. The Board may at
any time  suspend or terminate  the Plan or any portion  thereof or may amend it
from time to time in such respects as the Board may deem advisable in order that
the  Grants  granted  hereunder  may  conform to any change in the law or in any
other  respects  which  the Board  may deem to be in the best  interests  of the
Company. No Grants may be made during any suspension or after the termination of
the  Plan.  Except  as  provided  in the  Plan,  no  amendment,  suspension,  or
termination  of the Plan shall,  without  the  Participant's  consent,  alter or
impair any of the rights or obligations under any Grant  theretofore  granted to
such Participant under the Plan.

         11.  Tax  Withholding.  The  Board or the  Committee  may,  in its sole
discretion,  (a)  require a  Participant  to remit to the  Company a cash amount
sufficient  to  satisfy,  in whole or in part,  any  federal,  state  and  local
withholding tax requirements prior to the delivery of any certificate for vested
Shares pursuant to a Grant hereunder;  (b) require a Participant to satisfy,  in
whole or in part, any such  withholding tax  requirements by having the Company,
upon any  delivery of vested  Shares,  withhold  from such Shares that number of
full  Shares  having a fair  market  value equal to the amount or portion of the
amount  required or permitted to be  withheld;  or (c) satisfy such  withholding
requirements through another lawful method.

         12.  Code Section 83(b) Elections.  Each Participant making an election
pursuant to Section 83(b) of the Code shall, upon the making of such election, 
promptly provide a copy of such election to the Company.

         13.  Employment.  Nothing in this Plan shall interfere with or limit in
any way the right of the Company or any Parent or  Subsidiary  to terminate  any
Participant's  employment or consulting or advisory arrangement at any time, nor
confer  upon any  Participant  any right to continue in the employ of, or render
consulting or advisory services to, the Company or any Parent or Subsidiary.

         14.  Effective Date of the Plan.  The effective date of the Plan is May
23, 1996, the date of its adoption by the Board.

         15.  Term.  No Grants may be made under the Plan after May 23, 2006.  
The provisions of the Plan shall, however, continue to apply as to any Grants 
made prior to such date.

Dated:   May 23, 1996 (Amended and Restated as of March 31, 1997)
                                                  
K:\WPDOC\CORP\AMNEX\STKGRT96.2
                                        6

EX-10.9

                              EMPLOYMENT AGREEMENT
                               BETWEEN AMNEX, Inc.
                                       AND
                                 KEVIN D. GRIFFO


         This AGREEMENT  made this 25th day of June,  1996, by and between AMNEX
Inc., a New York  corporation  having an office in Orlando,  Florida  (sometimes
hereinafter  referred  to as  "AMNEX"  or the  "Company")  and  Kevin D.  Griffo
(sometimes hereinafter referred to as "Employee").

WITNESSETH:

         WHEREAS,  the Company  desires to employ the  Employee and the Employee
desires to accept employment by the Company and enter into this Agreement; and

         WHEREAS, the retention of Employee's services, for and on behalf of the
Company is of material  importance to the  preservation  and  enhancement of the
value of AMNEX;

         NOW,  THEREFORE,  in  consideration  of the mutual covenants herein set
forth, AMNEX and Employee do hereby agree as follows:

         1. Employment.  The Employee is employed as Chief Operating  Officer of
the Company from the date hereof  through the term of this  Agreement.  As Chief
Operating Officer of the Company,  the Employee shall implement executive policy
and other  management  services on behalf of the Company as would be customarily
performed by persons serving in a similar executive  capacity.  As an executive,
the Employee shall be responsible for  implementing  the policies and directives
of the Chief  Executive  Officer  ("CEO") and the Board of  Directors  and shall
report  only to the CEO.  During the term of this  Agreement,  there shall be no
material decrease in the duties and  responsibilities of the Employee other than
provided herein, unless the parties otherwise agree in writing.  During the term
of this  Agreement,  the  Employee  shall not be required to relocate his or her
principal place of employment beyond 50 miles from Orlando,  Florida in order to
perform his services hereunder.

2. Term. The initial term of employment  under this Agreement shall be for a one
year period from the date hereof. This Agreement shall be automatically  renewed
or extended  for one  additional  year on each annual  anniversary  date of this
Agreement, unless either the Employee or the Company gives written notice to the
other on or before the sixtieth (60th) day prior to such anniversary  date. Such
initial term and all such renewal terms are  collectively  referred to herein as
the term of this Agreement.


                                        1





3.  Standards;  Devotion  of Time.  The  Employee  shall  perform his duties and
responsibilities  under  this  Agreement  in  accordance  with  such  reasonable
standards as may be established from time to time by the CEO of the Company. The
reasonableness  of such  standards  shall  be  measured  against  standards  for
executive  performance generally prevailing in the  telecommunications  services
industry.  During the  employment  period,  the Employee shall expend all of his
working time for the Company and shall devote his best efforts, energy and skill
to the services of the Company and the promotion of its interests.

4. Compensation.  The Company agrees to pay the Employee during the term of this
Agreement a salary at the minimum annual rate of $150,000.00.  In the event that
this Agreement is renewed or extended, the Employee's salary will be reviewed at
the time of such renewal and may be increased in an amount to be  determined  by
the CEO in his sole  discretion.  In determining  the  Employee's  annual salary
increases, if any, the CEO may compensate the Employee for increases in the cost
of living and also  provide for  performance  or merit  increases  to the extent
appropriate  and when  compared to the  prevailing  telecommunications  services
industry for like executive  positions.  The salary of the Employee shall not be
decreased at any time during the term of this  Agreement from the amount then in
effect  unless  the  Employee  otherwise  agrees in  writing.  Participation  in
deferred compensation,  bonus, retirement,  and other employee benefit plans and
in fringe  benefits  shall not reduce the salary  payable to the  Employee.  The
salary under this Section 4 shall be payable to the Employee biweekly.

5. Bonus.  During the term of this Agreement,  the Employee shall be entitled to
participate with other executive employees of the Company in a bonus pool, which
pool shall be equal to 3% of AMNEX Inc.'s consolidated pre-tax profits. The pool
shall be  authorized  and  distributed  by the CEO and  Chairman of the Board in
their sole  discretion.  No other  compensation  provided for in this  Agreement
shall be deemed a substitute  for the  Employee's  right to  participate in such
bonus if, when and as authorized.

6.  Disability.  In the event of the  inability  of Employee to render  services
hereunder  during  the  term  of  the  Agreement  due to a  disability  (whether
temporary or permanent), and for so long as such disability continues,  Employee
shall  continue  to  receive  Employee's  salary  for a period not to exceed the
remaining term of the Agreement. There shall be deducted from the amount paid to
Employee  hereunder during any period of disability any amounts actually paid to
Employee  pursuant to any  disability  insurance  or other  similar such program
which the Company has instituted or may institute on behalf of its employees for
the purpose of compensating Employee in the event of disability.

7. Additional Compensation and Benefits. During the term of the Agreement, 
Employee will be entitled to participate in and receive the benefits of any 
stock option, profit sharing, or other plans, benefits and privileges given to 
employees and/or

                                        2





executives of the Company or its subsidiaries and affiliates which may come into
existence  hereafter,  to the  extent  commensurate  with  his then  duties  and
responsibilities,  as fixed by the CEO, and to the extent  Employee is otherwise
eligible  and  qualified  to so  participate  in and  receive  such  benefits or
privileges.  The Company  shall not make any changes in such plans,  benefits or
privileges   which  would  adversely  affect   Employee's   rights  or  benefits
thereunder,  unless such change occurs  pursuant to a program  applicable to all
executives  of the  Company  and does not  result in a  proportionately  greater
adverse  change in the rights of or benefits  to  Employee as compared  with any
other  executive  of the  Company.  Nothing  paid to Employee  under any plan or
arrangement  presently in effect or made available in the future shall be deemed
to be in lieu of the salary  payable to  Employee  pursuant to Section 4 hereof.
Nothing herein shall be deemed to imply that Employee is entitled to receive any
stock options (notwithstanding the grant thereof to other executive employees of
the Company or its  subsidiaries or affiliates),  it being understood and agreed
that the grant  thereof is within the sole  discretion of the Board of Directors
or its Compensation Committee.

8. Expenses.  The Company shall reimburse  Employee or otherwise  provide for or
pay for all  reasonable  expenses  incurred by Employee in  furtherance of or in
connection  with the business of the Company.  In  addition,  the Company  shall
reimburse Employee for all reasonable  entertainment  expenses (whether incurred
at the Employee's  residence,  while  traveling,  or otherwise)  subject to such
reasonable  limitations  as may be  established by the CEO. If such expenses are
paid in the first  instance by  Employee,  the Company will  reimburse  Employee
therefor in accordance with its standard expense reimbursement policy.

9. Vacations.  The Employee shall be entitled to annual paid vacations in
accordance with the following schedule:

             1 - 2 years of service:            3 weeks per year
             3 - 5 years of service:            3 weeks plus 2 days per year
             6 - 9 years of service:            4 weeks per year
             10+ years of service:              5 weeks per year

The timing of paid  vacations  shall be scheduled in a reasonable  manner by the
parties following  consultation between the CEO and Employee. The Employee shall
not be  entitled  to receive  any  additional  compensation  from the Company on
account of his failure to take paid  vacation.  The  Employee  shall also not be
entitled to accumulate more than two weeks of unused paid vacation time from one
calendar year to the next.


                                        3





10.      Termination of Employment.

         (a)  Definitions.  For the purposes of this Agreement, the following
definitions shall apply:

                  (i) A "Change in Control"  of the  Company  shall be deemed to
have  occurred:  (A) when either the CEO or Chairman of the Board of the Company
as of the date hereof is either  removed as a director or not  nominated  by the
Board for re-election as a director of the Company;  or (B) when any nominee for
election as a director of the Company contained in the Company's Proxy Statement
sent to shareholders in connection with the Board of Directors'  solicitation of
proxies  to be voted at any  Annual  Meeting  of  Shareholders  shall  not be so
elected by the  shareholders,  except  where the person  elected  instead of the
nominee is acceptable to the CEO and Chairman as of the date hereof; or (C) upon
any person or entity  gaining  ownership  directly or  indirectly  of securities
that, in the aggregate,  represent over thirty-five  percent (35%) of the voting
power of the Company's  outstanding  securities  (whether or not such securities
are in fact voted);  or (D) upon the sale or  disposition of fifty percent (50%)
or more of the voting securities of any of the Company's  subsidiaries or all or
substantially  all of the assets of any such subsidiary,  except where such sale
or  disposition  was approved by the CEO serving as of the date  hereof;  or (E)
upon the  termination of employment by the Company other than for cause,  or the
resignation  for good  reason  of,  the CEO or  Chairman  serving as of the date
hereof.

                  (ii)  Termination  "for cause" shall mean  termination  of the
Employee  by the  Company  because  of:  (A)  conviction  of or a plea  of  nolo
contendere to a felony,  or another  serious crime which results or is likely to
result in material injury to the Company; (B) breach of fiduciary duty involving
personal  profit;  (C) continued and habitual neglect to perform material stated
duties; or (D) material breach of any provision of this Agreement.

                  (iii) Resignation "for good reason" shall mean the resignation
of his  employment  by the  Employee  following:  (A) a Change in Control of the
Company  which,  within two years of said Change in Control,  results in (i) the
assignment to Employee,  without  Employee's  express  written  consent,  of any
duties   materially    inconsistent   with   Employee's    positions,    duties,
responsibilities  and status with the Company  immediately  prior to a Change in
Control of the Company;  or (ii) a material  change or  reduction in  Employee's
reporting responsibilities,  titles or offices as in effect immediately prior to
a Change in Control of the Company;  or (iii) any removal of Employee  from,  or
any failure to re-elect Employee to, any of such positions,  except in each case
in  connection  with  the  Employee's  disability  or  death  and  except  under
circumstances  which would permit the  termination of Employee's  employment for
cause;  or (B) failure by the Company to comply with any  material  provision of
this Agreement, which failure has not been cured within thirty (30) days after a
notice of non-compliance has been given by Employee to the Company.

                                        4






         (b)  Termination  for  Cause.  The CEO  may  terminate  the  Employee's
employment  at any time for cause.  The Employee  shall have no right to receive
compensation or other benefits for any period after  termination for cause.  If,
within thirty (30) days of receipt of notice of termination, the Employee denies
that  termination  for cause was  warranted,  the  dispute  shall be resolved by
submission of the claim to binding arbitration in accordance with the provisions
hereof.  The parties agree that the sole  determination by the arbitrators shall
be whether the  termination of the Employee's  employment was for cause.  In the
event it is determined that such  termination was without cause,  Employee shall
be entitled to such relief as is provided  for herein with respect  thereto.  If
the Employee does not deny that  termination for cause was warranted within such
thirty (30) day period, the Employee's  termination for cause shall be deemed to
be conclusive.

         (c) Termination Without Cause. Any termination of employment by the CEO
other than  termination  for cause,  including but not limited to, the Company's
failure to renew or extend this Agreement  pursuant to Paragraph 2, (which shall
be deemed termination  without cause),  shall not prejudice the Employee's right
to compensation or other benefits under this Agreement.  The parties acknowledge
and agree that  damages  which will result to Employee for  termination  without
cause shall be extremely  difficult  or  impossible  to establish or prove,  and
agree that,  unless the termination is for cause, the Company shall be obligated
to make a payment to the  Employee as  liquidated  damages in an amount equal to
the greater of (A) one year's  minimum  annual  salary as set forth in Section 4
hereof and (B) the Employee's total  compensation  hereunder for the twelve (12)
months preceding the termination,  provided, however, that in the event that the
Company fails to renew or extend this  Agreement and the  Employee's  employment
continues, then the amount payable to Employee hereunder shall not be paid until
the cessation of Employee's  employment.  Employee agrees that,  except for such
other  payments  and benefits to which the Employee may be entitled as expressly
provided by the terms of this  Agreement,  such  liquidated  damages shall be in
lieu of all other claims, demands or causes of action which Employee may make by
reason of such termination.  The liquidated  damages amount shall not be reduced
by any compensation which the Employee may receive for any other employment with
another  employer after  termination of his employment with the Company.  At the
election of the Company,  the payment of such  liquidated  damages shall be made
either by a lump sum payment on the Employee's  last day of employment  with the
Company or over the course of the next twelve months in equal bimonthly payments
in accordance with the Company's then standard  payroll  policies and practices.
Such  bimonthly  payments  shall be made by wire  transfer  to the bank  account
designated by the Employee. The Company's failure to make each and every payment
when due and the  continuance  thereof  for a period of five (5) days shall be a
material  breach of this  Agreement and the Employee shall be entitled to demand
and receive in a lump sum all unpaid liquidated damages.


                                        5





         (d) Termination upon Death.  Employee's  employment shall automatically
terminate upon Employee's death,  provided,  however,  that the Employee's wife,
Terry Griffo,  shall be entitled to receive the payments specified under Section
10 (e)(ii) hereof.

         (e) Resignation for Good Reason. (i) Employee may resign his employment
hereunder for good reason upon thirty (30) days notice to the Company, stating 
in his notice the basis upon which he believes that good reason exists for such
resignation.

                  (ii) In the event the Employee resigns,  the Employee shall be
entitled to receive as a severance  payment,  or in lieu of a severance payment,
payment for services previously rendered to the Company, a lump sum cash payment
equal to the  greater of (A) one year's  minimum  annual  salary as set forth in
Section 4 hereof and (B) the Employee's total compensation  hereunder applicable
to the twelve (12) months preceding such resignation. Payment under this section
shall be in lieu of any amount owed to the  Employee as  liquidated  damages for
termination without cause under Section 10(c) hereof and shall be payable on the
last day of Employee's employment hereunder. However, payment under this section
shall not be reduced by any  compensation  which the  Employee  may receive from
other  employment with another  employer after  termination  from his employment
with the Company.

         (f) Change in Control;  Resignation  Without Good Reason. If during the
term of this  Agreement  there is a Change in  Control  of the  Company  and the
Employee  without good reason resigns his employment  within one year after such
Change in Control, the Employee shall be entitled to receive a severance payment
pursuant to Section  10(e)(ii)  hereof.  Any such resignation shall be on thirty
(30) days notice to the Company.

         (g) Other Benefits.  In the event  liquidated  damages and/or severance
payments are payable  pursuant to this  Section 10, the  Employee  shall also be
entitled  to have any  allowances  set forth in Section 8 hereof and  Employee's
health insurance  coverage  continue for a period of twelve months. In the event
that any such  law or plan may  prevent  a  continuation  of  Employee's  health
insurance  for such twelve month period,  the Company  shall pay for  Employee's
C.O.B.R.A.  health coverage during such period, or, if earlier,  until such time
as Employee becomes eligible to be covered by comparable  insurance with another
employer.  The Company shall also ensure that all insurance or other  provisions
for  indemnification,  defense or hold  harmless of officers or directors of the
Company  which  are in  effect  as of the  date  of the  Employee's  termination
continue  for the benefit of the  Employee  with  respect to all of his acts and
omissions  while an  officer  or  director  as fully and  completely  as if such
termination had not occurred,  and until the final  expiration or running of all
periods of  limitation  against  action which may be  applicable to such acts or
omissions.



                                        6





         (h)  Benefit  Plans.  Notwithstanding  any  other  provisions  of  this
Agreement or of any other agreement,  contract,  or understanding  heretofore or
hereafter  entered  into  between  the  Employee  and  the  Company,  except  an
agreement,  contract,  or  understanding  hereafter  entered into that expressly
modifies or excludes  application  of this Section 10 (the "Other  Agreements"),
and notwithstanding any formal or informal plan or other arrangement  heretofore
or  hereafter  adopted by the Company for the direct or  indirect  provision  of
compensation  to the Employee  (including  groups of classes of  participants or
beneficiaries  of  which  the  Employee  is  a  member),  whether  or  not  such
compensation  is deferred,  is in cash, or is in the form of a benefit to or for
the  Employee  (a  "Benefit  Plan"),  the  Employee  shall not have any right to
receive any payment or other benefit under this Agreement,  or Other  Agreement,
or any Benefit  Plan if such  payment or benefit,  taking into account all other
payments or  benefits to or for the  Employee  under this  Agreement,  all Other
Agreements, and all Benefit Plans, would cause any payment to the Employee under
this  Agreement to be  considered a  "parachute  payment"  within the meaning of
Section  280G(b)(2)  of the Internal  Revenue Code of 1986,  as amended.  In the
event that the receipt of any such payment or benefit under this Agreement,  any
Other  Agreement,  or any Benefit Plan would cause the Employee to be considered
to have  received a parachute  payment under this  Agreement,  then the Employee
shall have the right,  in his sole  discretion,  to designate  those payments or
benefits under this Agreement,  and Other Agreements,  and/or any Benefit Plans,
which should be reduced or  eliminated  so as to avoid having the payment to the
Employee under this Agreement be deemed to be a parachute payment.

11.  Confidentiality  and  Non-Solicitation.  The  services of the  Employee are
unique,  extraordinary and essential to the business of the Company,  especially
since the Employee  shall have access to the  Company's  customer  lists,  trade
secrets  and  other  confidential  network,  financial,  legal  and  operational
information essential to the Company's business. Accordingly, during the term of
this Agreement and thereafter,  the Employee agrees not to use, divulge, furnish
or make available to any person or entity any knowledge of or  information  with
respect to any  confidential or otherwise  proprietary  documents,  discussions,
plans, policies, procedures,  activities,  materials, information or data of the
Company.  The Employee  further  agrees to refrain from engaging in any activity
whatsoever  that would tend to  disparage  or  diminish  the  reputation  of the
Company or which would tend to have a  detrimental  effect upon the interests of
the Company.  The  Employee  has  executed or will  execute the  standard  AMNEX
Employee  Confidentiality  Agreement,  which agreement is incorporated herein by
reference and made a part hereof.

The  Employee  also  agrees  that,  for a period of one (1) year  following  the
expiration of this Agreement,  the Employee shall not, without the prior written
approval  of the  CEO,  anywhere  in  the  United  States  of  America,  whether
individually or as a principal,  officer, employee,  partner, director, agent or
representative  of or consultant  for any entity,  (a) cause or seek to persuade
any director, officer, employee, customer, subscriber, account, agent, vendor or
supplier of, or consultant to, the Company to discontinue or

                                        7





modify to the detriment of the Company the status, employment or relationship of
such  person or entity  with the  Company  (including,  without  limitation,  to
discontinue  or modify to the  detriment of the Company the use of the Company's
operator services,  long-distance transmission services, 1+ Coin Services and/or
other  telecommunications  services);  (b)  hire or  retain  any  such  officer,
director or employee;  (c) cause or seek to persuade any  prospective  customer,
subscriber  or  account  of the  Company  (which  at the  date of  cessation  of
employment with the Company was then actively being solicited by the Company) to
determine not to enter into a business relationship with the Company.

The Employee  acknowledges and agrees that, in the event he shall violate any of
the  restrictions  of this  Section 11, the Company  will be without an adequate
remedy at law and will  therefore  be entitled to enforce such  restrictions  by
temporary or permanent injunctive relief in any court of competent  jurisdiction
without the necessity of proving  damages and without any prejudice to any other
remedies which it may have at law or in equity.  The Employee  acknowledges  and
agrees that, in addition to any other state having proper jurisdiction, any such
relief  may be  sought  in,  and for  such  purpose  the  Employee  consents  to
jurisdiction of, the courts of the State of Florida.

12. Assumption of Agreement.  In the event of a Change in Control transaction to
which the Company is a party,  the Company  shall  require that the acquiring or
successor  entity,  if any,  expressly assume the obligations and entitlement of
this Agreement  following such change of control.  Employee shall have the right
to demand  that the  Company  acknowledge  in  writing  the  assumption  of this
Agreement,  if  applicable,  within thirty (30) days  following  receipt of such
demand. Failure of the Company to so act timely in response to such demand shall
be deemed a material breach of this Agreement by the Company,  thereby entitling
Employee to resign for good reason in  accordance  with the  provisions  of this
Agreement  but  without  providing  any  further  notice of  non-compliance  and
opportunity for cure.

13. Other Employment.  The Employee shall not, during the term of this
Agreement, have any other paid employment other than with a subsidiary of the
Company except with the prior approval of the CEO.

14. Section Headings.  The section headings used in this Agreement are included
solely for convenience and shall not affect, or be used in conjunction with, the
interpretation of this Agreement.

15. Notices. Any notice required or permitted to be given pursuant to this
Agreement shall be deemed to have been duly given when delivered by hand or sent
by certified or registered mail, return receipt requested and postage prepaid, 
overnight mail or courier or telecopier as follows:


                                        8





                  If to the Employee:

                  12770 Lone Eagle Drive
                  Orlando, FL 32827

                  If to the Company:

                  100 W. Lucerne Circle
                  Orlando, FL 32801
                  Attn: CEO
                  Telecopier Number:  (407) 246-0005

or at such other  address as any party  shall  designate  by notice to the other
party given in accordance with this Paragraph 15.

16. No Waiver;  Entire Agreement.  Failure to insist upon strict compliance with
any of the terms, covenants or conditions hereof shall not be deemed a waiver of
such term, covenant or condition,  nor shall any waiver or relinquishment of any
right or  power  hereunder  at any one or more  times  be  deemed  a  waiver  or
relinquishment of such right or power at any other time or times. This Agreement
constitutes  the  entire  agreement   between  the  parties  and  there  are  no
representations,  warranties or  commitments  except as set forth  herein.  This
Agreement  supersedes all prior  agreements,  understandings,  negotiations  and
discussions,  whether  written or oral,  of the parties  hereto  relating to the
matters set forth in this  Agreement.  This  Agreement  may be amended only by a
writing executed by the parties hereto.

17. Assignability. This Agreement is personal in nature. The Employee shall have
no right to assign or transfer  this  Agreement.  In the event of any  attempted
assignment or transfer by the executive of his duties and  obligations  contrary
to this  paragraph,  all the  Employee's  rights under this  Agreement  shall be
forfeited, and the Company shall have no further liability under this Agreement.
The Company may assign or transfer  its rights  under this  Agreement  only to a
subsidiary  or  affiliate  of the Company so long as such  assignment  shall not
substantially  change  the  current  status  of this  Agreement  or its place of
performance.  No  assignment  by the  Company  shall  relieve the Company of the
liabilities  and  responsibilities  created  by this  Agreement,  including  its
responsibilities under Section 12 hereof.

18.  Reformation and  Severability.  The Employee and the Company agree that the
agreements   contained  herein  shall  each  constitute  a  separate   agreement
independently  supported  by good  and  adequate  consideration,  shall  each be
severable  from the other  provisions  of the  Agreement,  and shall survive the
Agreement.  If a court of  competent  jurisdiction  determines  that  any  term,
provision or portion of this Agreement is void,  illegal or  unenforceable,  the
other  terms,  provisions  and portions of this  Agreement  shall remain in full
force and effect and the terms, provisions and portions that are determined

                                        9





to be void, illegal or unenforceable  shall be limited so that they shall remain
in effect to the extent permissible by law.

19. Governing Law.  This Agreement shall be governed by the laws of the United
States, where applicable, and otherwise by the laws of the State of Florida, 
excluding choice of law principles thereof.

20. Arbitration; Attorneys Fees. (I) Except with regard to Section 11 hereof and
any other  maters that are not a proper  subject of  arbitration,  all  disputes
between the parties hereto concerning the performance,  breach,  construction or
interpretation  of this  Agreement  or any  portion  thereof,  or in any  manner
arising out of this Agreement or the performance thereof,  shall be submitted to
binding  arbitration  in accordance  with the rules of the American  Arbitration
Association,  which arbitration  shall be carried out in the manner  hereinafter
set forth.

         (ii) Within fifteen days after written notice by one party to the other
party of its demand for  arbitration,  which demand shall set forth the name and
address  of  its  designated  arbitrator,  the  other  party  shall  select  its
designated  arbitrator  and so notify the demanding  party.  Within fifteen days
thereafter,  the two arbitrators so selected shall select the third  arbitrator.
The dispute shall be heard by the arbitrators  within sixty days after selection
of the third  arbitrator.  The decision of any two arbitrators  shall be binding
upon the parties.  In default of either side naming its  arbitrator as aforesaid
or in default of the selection of the said third  arbitrator  as aforesaid,  the
American  Arbitration  Association  shall  designate  such  arbitrator  upon the
application of either party. The decision of the arbitrators  shall be final and
binding upon the Company, its successors and assigns and the Employee.

         (iii) The arbitration proceedings shall take place in Orlando, Florida,
and the judgment and  determination of such proceedings  shall be binding on all
parties hereto.  Judgment upon any award rendered by the  arbitrators  appointed
hereunder may be entered into any court having  competent  jurisdiction  thereof
without any right of appeal therefrom.

         (iv) Each party shall pay its or his own expenses of  arbitration,  and
the expenses of the arbitrators and the arbitration  proceeding shall be equally
shared;  provided,  however,  that,  (a) if, in the opinion of a majority of the
arbitrators, any claim of defense was unreasonable,  the arbitrators may assess,
as part of their award, all or any part of the arbitration expenses of the other
party  (including  reasonable  attorneys'  fees) and of the  arbitrators and the
arbitration proceeding  (collectively,  the "Arbitration  Expenses") against the
party raising such  unreasonable  claim or defense,  and (b) if the  arbitrators
rule in favor of the Employee, then the Company shall be obligated to pay all of
the Arbitration Expenses.


                                       10




21. No Restrictions.  The Employee hereby  represents that neither the execution
of this Agreement nor his performance hereunder will (a) violate,  conflict with
or result in a breach of any provisions of, or constitute a default (or an event
which,  with notice or lapse of time or both,  would constitute a default) under
the  terms,  conditions  or  provisions  of any  contract,  agreement  or  other
instrument or obligation to which the Employee is a party, or by which he may be
bound, or (b) violate any order, judgment, writ, injunction or decree applicable
to the Employee.  In the event of a breach hereof,  in addition to the Company's
right to terminate this Agreement,  the Employee shall indemnify the Company and
hold it harmless from and against any and all claims,  losses,  liabilities  and
expenses  (including   reasonable  attorney's  fees)  incurred  or  suffered  in
connection with or as a result of the Company's  entering into this Agreement or
employing the Employee hereunder.

22. No Third Party Beneficiaries.  Except as provided for in Section 10 (d) 
hereof, no person not a party to this Agreement shall have any right to enforce 
any of the provisions hereof, there being no third party beneficiaries.

23. Service  as  Officer  of  Subsidiaries;  Service  as  Director.  During the
employment period, the Employee shall, if elected or appointed,  serve as (a) an
officer of any subsidiaries of the Company in existence or hereafter  created or
acquired and (b) a Director of the Company and/or any such  subsidiaries  of the
Company, in each case without any additional compensation for such services.

                  IN  WITNESS  WHEREOF,   the  undersigned  have  executed  this
Agreement as of the day and year above written.


EMPLOYEE                                           AMNEX, Inc.


By:   /s/Kevin Griffo                              By:   /s/

Name:  ________________________                    Name: _______________________

Date:  ________________________                    Date: _______________________




                                       11

EX-10.10

                              EMPLOYMENT AGREEMENT
                               BElWEEN AMNEX, INC.
                                       AND
                                    JOHN KANE




         This AGREEMENT made this 1st day of October, 1996, by and between AMNEX
Inc., a New York  corporation  having an office in Orlando,  Florida  (sometimes
hereinafter  referred to as "AMNEX" or the "Company")  and John Kane  (sometimes
hereinafter referred to as "Employee").

WITNESSETH:

         WHEREAS,  the Company  desires to employ the  Employee and the Employee
desires to accept employment by the Company and enter into this Agreement; and

         WHEREAS, the retention of Employee's services, for and on behalf of the
Company is of material  importance to the  preservation  and  enhancement of the
value of AMNEX;

         NOW THEREFORE,  in  consideration  of the mutual  covenants  herein set
forth, AMNEX and Employee do hereby agree as follows:

1.  Employment.  The  Employee  is employed  as Chief  Operating  Officer of the
Company  from the date  hereof  through  the  term of this  Agreement.  As Chief
Operating Officer of the Company,  the Employee shall implement executive policy
and other  management  services on behalf of the Company as would be customarily
performed by persons serving in a similar executive  capacity.  As an executive,
the Employee shall be responsible for  implementing  the policies and directives
of the Chief  Executive  Offcer  ("CEO")  and the Board of  Directors  and shall
report  only to the CEO.  During the term of this  Agreement,  there shall be no
material decrease in the duties and  responsibilities of the Employee other than
provided herein, unless the parties otherwise agree in writing.  During the term
of this Agreement,  the Employee shall not be required to relocate his principal
place of employment  beyond 50 miles from  Orlando,  Florida in order to perform
his services hereunder.

2. Term. The initial term of employment  under this Agreement shall be for a two
year period from the date hereof. This Agreement shall be automatically  renewed
or extended for  additional  one year terms on each annual  anniversary  date of
this Agreement, after the second anniversary,  unless either the Employee or the
Company gives written  notice to the other on or before the sixtieth  (60th) day
prior to such anniversary date. Such initial term and all such renewal terms are
collectively referred to herein as the term of this Agreement.

3. Standards; Devotion of Time. The Employee shall perform his duties and 
responsibilities under this Agreement in accordance with such reasonable 
standards as may be established from time to time by the CEO of the Company. The
reasonableness of such standards shall be measured against standards for 
executive performance generally prevailing in the

                                        1





telecommunications services industry. During the employment period, the Employee
shall  expend all of his working  time for the Company and shall devote his best
efforts,  energy and skill to the  services of the Company and the  promotion of
its interests.

4. Compensation.  The Company agrees to pay the Employee during the term of this
Agreement a salary at the minimum annual rate of $180,000.00.  In the event that
this Agreement is renewed or extended, the Employee's salary will be reviewed at
the time of such renewal and may be increased in an amount to be  determined  by
the CEO in his sole  discretion.  In determining  the  Employee's  annual salary
increases, if any, the CEO may compensate the Employee for increases in the cost
of living and also  provide for  perforrnance  or merit  increases to the extent
appropriate  and when  compared to the  prevailing  telecommunications  services
industry for like executive  positions.  The salary of the Employee shall not be
decreased at any time during the term of this  Agreement from the amount then in
effect  unless  the  Employee  otherwise  agrees in  writing.  Participation  in
deferred compensation,  bonus, retirement,  and other employee benefit plans and
in fringe  benefits  shall not reduce the salary  payable to the  Employee.  The
salary under this Section 4 shall be payable to the Employee biweekly.

5. Bonus.  During the term of this  Ageement,  the Employee shall be entitled to
participate with other executive employees of the Company in a bonus pool, which
pool shall be equal to 3% of AMNEX Inc.'s consolidated pre-tax profits. However,
the Employee shall not receive less than 1% of AMNEX Inc.'s consolidated pre-tax
profits. The pool shall be authorized and distributed by the CEO and Chairman of
the Board in their sole discretion.  No other compensation  provided for in this
Agreement  shall be deemed a substitute for the Employee's  right to participate
in such bonus if, when and as authorized.

6.  Disability.  In the event of the  inability  of Employee to render  services
hereunder  during  the  term  of  the  Agreement  due to a  disability  (whether
temporary or permanent), and for so long as such disability continues,  Employee
shall  continue  to  receive  Employee's  salary  for a period not to exceed the
remaining term of the Agreement. There shall be deducted from the amount paid to
Employee  hereunder during any period of disability any amounts actually paid to
Employee  pursuant to any  disability  insurance  or other  similar such program
which the Company has instituted or may institute on behalf of its employees for
the purpose of compensating Employee in the event of disability.

7.  Additional  Compensation  and Benefits.  During the terrn of the  Agreement,
Employee  will be entitled  to  participate  in and receive the  benefits of any
stock option,  profit sharing, or other plans,  benefits and privileges given to
employees  and/or  executives of the Company or its  subsidiaries and affiliates
which may come into existence  hereafter,  to the extent  commensurate  with his
then  duties  and  responsibilities,  as  fixed by the  CEO,  and to the  extent
Employee is otherwise  eligible and qualified to so  participate  in and receive
such  benefits or  privileges.  The  Company  shall not make any changes in such
plans,  benefits or privileges which would adversely affect Employee's rights or
benefits thereunder,  unless such change occurs pursuant to a program applicable
to all  executives  of the  Company  and does not  result  in a  proportionately
greater adverse change in the

                                        2





rights of or benefits to Ennployee as compared  with any other  executive of the
Company.  Nothing paid to Employee  under any plan or  arrangement  presently in
effect  or made  available  in the  future  shall be deemed to be in lieu of the
salary payable to Employee pursuant to Section 4 hereof. Nothing herein shall be
deemed  to imply  that  Employee  is  entitled  to  receive  any  stock  options
(notwithstanding  the grant thereof to other executive  employees of the Company
or its  subsidiaries  or  affiliates),  it being  understood and agreed that the
grant  thereof is within the sole  discretion  of the Board of  Directors or its
Compensation Committee.

8. Expenses.  The Company shall reimburse  Employee or otherwise  provide for or
pay for all  reasonable  expenses  incurred by Employee in  furtherance of or in
connection  with the business of the Company.  In  addition,  the Company  shall
reimburse Employee for all reasonable  entertainment  expenses (whether incurred
at the Employee's  residence,  while  traveling,  or otherwise)  subject to such
reasonable  limitations  as may be  established by the CEO. If such expenses are
paid in the first  instance by  Employee,  the Company will  reimburse  Employee
therefor in accordance with its standard expense reimbursement policy.

9. Vacations.  The Employee shall be entitled to annual paid vacations in 
accordance with the following schedule:

          1 - 2 years of service: 3 weeks per year
          3 - 5 years of service: 3 weeks plus 2 days per year
          6 - 9 years of service: 4 weeks per year
          10 + years of service: 5 weeks per year

The timing of paid  vacations  shall be scheduled in a reasonable  manner by the
parties following  consultation between the CEO and Employee. The Employee shall
not be  entitled  to receive  any  additional  compensation  from the Company on
account of his failure to take paid  vacation.  The  Employee  shall also not be
entitled to accumulate more than two weeks of unused paid vacation time from one
calendar year to the next.

10. Termination of Employment.

    (a) Definitions.  For the purposes of this Agreement, the following 
definitions shall apply:

                  (i) A "Change in Control"  of the  Company  shall be deemed to
have  occurred:  (A) when either the CEO or Chairman of the Board of the Company
as of the date hereof is either  removed as a director or not  nominated  by the
Board for re-election as a director of the Company;  or (B) when any nominee for
election as a director of the Company contained in the Company's Proxy Statement
sent to shareholders in connection with the Board of Directors'  solicitation of
proxies  to be voted at any  Annual  Meeting  of  Shareholders  shall  not be so
elected by the  shareholders,  except  where the person  elected  instead of the
nominee is acceptable to the CEO and Chairman as of the date hereof; or (C) upon
any person or entity gaining ownership directly or

                                        3





indirectly of securities  that, in the  aggregate,  represent  over  thirty-five
percent  (35%) of the  voting  power  of the  Company's  outstanding  securities
(whether  or not such  securities  are in fact  voted);  or (D) upon the sale or
disposition  of fifty percent  (50%) or more of the voting  securities of any of
the Company's subsidiaries or all or substantially all of the assets of any such
subsidiary,  except  where  such sale or  disposition  was  approved  by the CEO
serving as of the date hereof;  or (E) upon the termination of employment by the
Company other than for cause,  or the resignation for good reason of, the CEO or
Chairman serving as of the date hereof.

                  (ii)  Termination  "for cause" shall mean  termination  of the
Employee  by the  Company  because  of:  (A)  conviction  of or a plea  of  nolo
contendere to a felony,  or another  serious crime which results or is likely to
result in material injury to the Company; (B) breach of fiduciary duty involving
personal  profit;  (C) continued and habitual neglect to perform material stated
duties; or (D) material breach of any provision of this Agreement.

                  (iii) Resignation "for good reason" shall mean the resignation
of his  employment  by the  Employee  following:  (A) a Change in Control of the
Company  which,  within two years of said Change in Control,  results in (i) the
assignment to Employee,  without  Employee's  express  written  consent,  of any
duties   materially    inconsistent   with   Employee's    positions,    duties,
responsibilities  and status with the Company  immediately  prior to a Change in
Control of the  Company;  or (ii) a material  change or  reduction  in Employees
reporting responsibilities,  titles or offices as in effect immediately prior to
a Change in Control of the Company;  or (iii) any removal of Employee  from,  or
any failure to re-elect Employee to, any of such positions,  except in each case
in  connection  with  the  employee's  disability  or  death  and  except  under
circumstances  which would permit the  termination of Employee's  employment for
cause;  or (B) failure by the Company to comply with and  material  provision of
this  Agreement,  which failure has not been cured within thirty (30) days after
the notice of non-compliance has been given by Employee to the Company.

         (b)  Termination  for  Cause.  The CEO  may  terminate  the  Employee's
employment  at any time for cause.  The Employee  shall have no right to receive
compensation or other benefits for any period after  termination for cause.  If,
within  thirty  (30) days of receipt  of notice of  terrnination,  the  Employee
denies that  termination for cause was warranted,  the dispute shall be resolved
by  submission  of the  claim to  binding  arbitration  in  accordance  with the
provisions  hereof.  The  parties  agree  that  the  sole  determination  by the
arbitrator shall be whether the termination of the Employee's employment was for
cause. In the event it is determined that such  terrnination  was without cause,
Employee shall be entitled to such relief as is provided for herein with respect
thereto. If the Employee does not deny that termination for cause was wrarranted
within such thirty (30) day period,  the Employee's  termination for cause shall
be deemed to be conclusive.

         (c) Termination Without Cause. Any termination of employment by the CEO
other than  termination  for cause,  including but not limited to, the Company's
failure to renew or extend this Agreement  pursuant to Paragraph 2, (which shall
be deemed termination without cause), shall not prejudice the Employee's right 
to compensation or other benefits under this Agreement.  The parties acknowledge
and agree that damages which will result to Employee for termination without    
cause

                                        4





shall be extremely difficult or impossible to establish or prove, and agree
that,  unless the  termination  is for cause,  the Company shall be obligated to
make a payment to the Employee as  liquidated  damages in an amount equal to the
greater  of (A) one  year's  minimum  annual  salary as set  forth in  Section 4
hereof,  (B) the  Employee's  total  compensation  hereunder for the twelve (12)
months  preceding the  termination  and (C) If during the initial term, the then
remaining  number of  months  minimum  salary as set forth in  Section 4 hereof,
provided,  however,  that in the event that the Company fails to renew or extend
this Agreement and the Employee's employment continues,  then the amount payable
to  Employee  hereunder  shall not be paid  until the  cessation  of  Employee's
employment.  Employee agrees that, except for such other payments and benefts to
which the Employee  may be entitled as expressly  provided by the terrns of this
Agreement, such liquidated damages shall be in lieu of all other claims, demands
or causes of action which Employee may make by reason of such  termination.  The
liquidated  damages  amount shall not be reduced by any  compensation  which the
Employee  may receive  for any other  employment  with  another  employer  after
termination of his employment with the Company.  At the election of the Company,
the  payment  of such  liqluidated  damages  shall be made  either by a lump sum
payment on the  Employee's  last day of employment  with the Company or over the
course of the next twelve months in equal bimonthly  payments in accordance with
the Company's  then standard  payroll  policies and  practices.  Such  bimonthly
payments  shall be made by wire  transfer to the bank account  designated by the
Employee.  The Company's failure to make each and every payment when due and the
continuance  thereof for a penod of five (5) days shall be a material  breach of
this  Agreement  and the  Employee  shall be entitled to demand and receive in a
lump sum all unpaid liqulidated darnages.

         (d) Termination Upon Death.  Employee's employment shall autornatically
terminate upon Employee's death,  provided,  however, that the Employee's trust,
entitled John and Margaret Kane Trust dated 1/25/96 shall be entitled to receive
the payments specified under Section 10 (e)(ii) hereof.

         (e) Resignation for Good Reason. (i) Employee may resign his employment
hereunder for good reason upon thirty (30) days notice to the Company, stating 
in his notice the basis upon which he believes that good reason exists for such
resignation.

                  (ii) In the event the Ernployee resigns, the Employee shall be
entitled ta receive as a severance  payment,  or in lieu of a severance payment,
payment  for  services  previously  rendered  to the  Company,  a lump surn cash
payment  equal to the  greater of (A) one year's  minimum  annual  salary as set
forth in Sedion 4 hereof and (B) the  Employee's  total  compensation  hereunder
applicable to the twelve (12) months preceding such  resignation.  Payment under
this section  shall be in lieu of any amount owed to the Employee as  liquidated
damages for  terrnination  without cause under Section 10(c) hereof and shall be
payable on the last day of Employee's  employment  hereunder.  However,  payment
under this section shall not be reduced by any  compensation  which the Employee
rnay receive from other employment with another employer after termination frorn
his employment with the Company.

         (f) Change in Control; Resignation Without Good Reason.  If during the
term of this

                                        5





Agreement  there is a Change in Control of the Company and the Employee  without
good reason resigns his employment within one year after such Change in Control,
the  Employee  shall be  entitled to receive a  severance  payrnent  pursuant to
Section  10(e)(ii)  hereof.  Any such  resignation  shall be on thirty (30) days
notice to the Company.

         (g) Other Benefits.  In the event  liquidated  damages and/or severance
payments are payable  pursuant to this  Section 10, the  Employee  shall also be
entitled  to have any  allowances  set forth in Section 8 hereof and  Employee's
health insurance  coverage  continue for a period of twelve months. In the event
that any such  law or plan may  prevent  a  continuation  of  Employee's  health
insurance for such twelve month period,  the Company shall pay for  Employee's 
C.O.B.R.A. health coverage during such period, or, if earlier, until such time 
as Employee becomes eligible to be covered by comparable insurance  with another
employer.  The Company shall also ensure that all insurance or other  provisions
for  indemnification,  defense or hold  harmless of officers or directors of the
Company  which  are in  effect  as of the  date  of the  Employee's  termination
continue  for the benefit of the  Employee  with  respect to all of his acts and
omissions  while an  officer  or  director  as fully and  completely  as if such
tenmination had not occurred,  and until the final  expiration or running of all
periods of  limitation  against  action which may be  applicable to such acts or
omissions.

         (h)  Benefit  Plans.  Notwithstanding  any  other  provisions  of  this
Agreement or of any other agreement,  contract,  or understanding  heretofore or
hereafter  entered  into  between  the  Employee  and  the  Company,  except  an
agreement,  contract,  or  understanding  hereafter  entered into that expressly
modifies or excludes  application  of this Section 10 (the "Other  Agreements"),
and nonwithstanding any formal or informal plan or other arrangement  heretofore
or  hereafter  adopted by the Company for the direct or  indirect  provision  of
compensation  to the Employee  (including  groups of classes of  participants or
beneficiaries  of  which  the  Employee  is  a  member),  whether  or  not  such
compensation  is deferred,  is in cash, or is in the form of a benefit to or for
the  Employee  (a  "Benefit  Plan"),  the  Employee  shall not have any right to
receive any payment or other benefit under this Agreement,  or Other  Agreement,
or any Benefit  Plan if such  payment or benefit,  taking into account all other
payments or  benefits to or for the  Employee  under this  Agreement,  all Other
Agreements, and all Benefit Plans, would cause any payment to the Employee under
this  Agreement to be  considered a  "parachute  payment"  within the meaning of
Section 280G(b)(2) of the Intemal Revenue Code of 1986, as amended. In the event
that the receipt of any such payment or benefit under this Agreement,  any Other
Agreement, or any Benefit Plan would cause the Employee to be considered to have
received a parachute payment under this Agreement,  then the Employee shall have
the right, in his sole discretion,  to designate those payments or benefts under
this Agreement, and Other Agreements,  and/or any Benefit Plans, which should be
reduced or  eliminated  so as to avoid having the payment to the Employee  under
this Agreement be deemed to be a parachute payment.

11. Confidentiality and Non-Solicitation.  The services of the Employee are 
unique, extraordinary and essential to the business of the Company, especially 
since the Employee shall have access to the Company's customer lists,  trade 
secrets and other confidential network, financial, legal and operation all 
information essential to the Company's business.  Accordingly, during the term
of

                                        6





this Agreement and thereafter,  the Employee agrees not to use, divulge, furnish
or make available to any person or entity any knowledge of or inforrnation  with
respect to any  confidential or otherwise  proprietary  documents,  discussions,
plans, policies, procedures,  activities,  materials, information or data of the
Company.  The Employee  further  agrees to refrain from engaging in any activity
whatsoever  that would tend to  disparage  or  diminish  the  reputation  of the
Company or which would tend to have a  detrimental  effect upon the interests of
the Company.  The  Employee  has  executed or will  execute the  standard  AMNEX
Employee  Confidentiality  Agreement,  which agreement is incorporated herein by
reference and made a part hereof.

The  Employee  also  agrees  that,  for a period of one (1) year  following  the
expiration of this Agreement,  the Employee shall not, without the prior written
approval  of the  CEO,  anywhere  in  the  United  States  of  America,  whether
individually or as a principal,  officer, employee,  partner, director, agent or
representative  of or consultant  for any entity,  (a) cause or seek to persuade
any director, officer, employee, customer, subscriber, account, agent, vendor or
supplier  of, or  consultant  to, the  Company to  discontinue  or modify to the
detriment of the Company the status,  employment or  relationship of such person
or entity with the Company  (including,  without  limitation,  to discontinue or
modify  to the  detriment  of the  Company  the  use of the  Company's  operator
services,  long-distance  transmission  services, 1 + Coin Services and/or other
telecommunications  services); (b) hire or retain any such officer,  director or
employee; (c) cause or seek to persuade any prospective customer,  subscriber or
account of the Company  (which at the date of cessation of  employment  with the
Company was then  actively  being  solicited by the Company) to determine not to
enter into a business relationship with the Company.

The Employee  acknowledges and agrees that, in the event he shall violate any of
the  restrictions  of this  Section 11, the Company  will be without an adequate
remedy at law and will  therefore  be entitled to enforce such  restrictions  by
temporary or permanent injunctive relief in any court of competent  jurisdiction
without the necessity of proving  damages and without any prejudice to any other
remedies which it may have at law or in equity.  The Employee  acknowledges  and
agrees that, in addition to any other state having proper jurisdiction, any such
relief  may be  sought  in,  and for  such  purpose  the  Employee  consents  to
jurisdiction of, the courts of the State of Florida.

12. Assumption of Agreement.  In the event of a Change in Control transaction to
which the Company is a party,  the Company  shall  require that the acquiring or
successor  entity,  if any,  expressly assume the obligations and entitlement of
this Agreement  following such change of control.  Employee shall have the right
to demand  that the  Company  acknowledge  in  writing  the  assumption  of this
Agreement,  if  applicable,  within thirty (30) days  following  receipt of such
demand. Failure of the Company to so act timely in response to such demand shall
be deemed a material breach of this Agreement by the Company,  thereby entitling
Employee to resign for good reason in  accordance  with the  provisions  of this
Agreement  but  without  providing  any  further  notice of  non-compliance  and
opportunity for cure.

13. Other Employment. The Employee shall not, during the term of this Agreement,
have any other paid employment other than with a subsidiary of the Company 
except with the prior approval of the CEO.

                                        7




14. Section Headings.   The section heading used in this Agreement are included
solely for convenience and shall not affect, or be used in conjunction with, the
interpretation of this Agreement.

15.  Notices.  Any notice  required or  permitted  to be given  pursuant to this
Agreement shall be deemed to have been duly given when delivered by hand or sent
by certified or registered mail,  return receipt  requested and postage prepaid,
overnight mail or courier or telecopier as follows:

         If to the Employee:

         5818 Master Blvd.
         Orlando. FL 32819

         If to the Company::

         100 W. Lucerne Circle
         Orlando, FL 32801
         Attn: CEO
         Telecopier Number: (407) 246-0005

or at such other  address as any party  shall  designate  by notice to the other
party given in accordance with this Paragraph 15.

16. No Waiver;  Entire Agreement.  Failure to insist upon strict compliance with
any of the terrns,  covenants or conditions  hereof shall not be deemed a waiver
of such term,  covenant or condition,  nor shall any waiver or relinquishment of
any  right or power  hereunder  at any one or more  times be  deemed a waiver or
relinquishment of such right or power at any other time or times. This Agreement
constitutes  the  entire  agreement   between  the  parties  and  there  are  no
representations,  warranties or  commitrnents  except as set forth herein.  This
Agreement  supersedes all prior  agreements,  understandings,  negotiations  and
discussions,  whether  written or oral,  of the parties  hereto  relating to the
matters set forth in this  Agreement.  This  Agreement  may be amended only by a
writing executed by the parties hereto.

17. Assignability. This Agreement is personal in nature. The Employee shall have
no right to assign or transfer  this  Agreement.  In the event of any  attempted
assignment or transfer by the executive of his duties and  obligations  contrary
to this  paragraph,  all the  Employee's  rights under this  Agreement  shall be
forfeited, and the Company shall have no further liability under this Agreement.
The Company may assign or transfer  its rights  under this  Agreement  only to a
subsidiary  or  afflliate  of the Company so long as such  assignment  shall not
substantially  change  the  current  status  of this  Agreement  or its place of
perforrnance.  No  assignment  by the Company  shall  relieve the Company of the
liabilities and responsibilities created by this Agreement, including its
responsibilities under Section 12 hereof.

                                        8







18.  Reformation and  Severability.  The Employee and the Company agree that the
agreements   contained  herein  shall  each  constitute  a  separate   agreement
independently  supported  by good  and  adequate  consideration,  shall  each be
severable  from the other  provisions  of the  Agreement,  and shall survive the
Agreement.  If a court of  competent  jurisdiction  determines  that  any  term,
provision or portion of this Agreement is void,  illegal or  unenforceable,  the
other  terms,  provisions  and portions of this  Agreement  shall remain in full
force and effect and the terrns,  provisions and portions that are determined to
be void, illegal or unenforceable  shall be limited so that they shall remain in
effect to the extent permissible by law.

19. Governing Law.  This Agreement shall be governed by the laws of the United
States, where applicable, and otherwise by the laws of the State of Florida, 
excluding choice of law principles thereof.

20. Arbitration: Attorneys Fees. (i) Except with regard to Section 11 hereof and
any other maters that are not a proper subject of arbitration, all disputes 
between the parties hereto concerning the performance, breach, construction or
interpretation of this Agreement or any portion thereof, or in any manner 
arising out of this Agreement or the performance thereof, shall be submitted to
binding arbitration in accordance with the rules of the American Arbitration 
Association, which arbitration shall be carried out in the manner hereinafter
set forth.

         (ii) Within fifteen days after written notice by one party to the other
party of its demand for  arbitration,  which demand shall set forth the name and
address  of  its  designated  arbitrator,  the  other  party  shall  select  its
designated  arbitrator  and so notify the demanding  party.  Within fifteen days
thereafter,  the two arbitrators so selected shall select the third  arbitrator.
The dispute shall be heard by the arbitrators  within sixty days after selection
of the third  arbitrator.  The decision of any two arbitrators  shall be binding
upon the parties.  In default of either side naming its  arbitrator as aforesaid
or in default of the selection of the said third  arbitrator  as aforesaid,  the
American  Arbitration  Association  shall  designate  such  arbitrator  upon the
application of either party. The decision of the arbitrators  shall be final and
binding upon the Company, its successors and assigns and the Employee.

         (iii) The arbitration proceedings shall take place in Orlando, Florida,
and the judgment and  determination of such proceedings  shall be binding on all
parties hereto.  Judgment upon any award rendered by the  arbitrators  appointed
hereunder  may be entered into any court having  competent  junsdiction  thereof
without any right of appeal therefrorn.

         (iv) Each party shall pay its or his own expenses of  arbitration,  and
the expenses of the arbitrators and the arbitration  proceeding shall be equally
shared;  provided,  however,  that,  (a) if, in the opinion of a majority of the
arbitrators, any claim of defense was unreasonable,  the arbitrators may assess,
as part of their award, all or any part of the arbitration expenses of the other
party  (including  reasonable  attorneys'  fees) and of the  arbitrators and the
arbitration proceeding

                                        9




(collectively,  the  "Arbitration  Expenses")  against  the party  raising  such
unreasonable  claim or defense,  and (b) if the arbitrators rule in favor of the
Employee,  then the Company  shall be  obligated  to pay all of the  Arbitration
Expenses.

21. No Restrictions.  The Employee hereby  represents that neither the execution
of this Agreement nor his performance hereunder will (a) violate,  conflict with
or result in a breach of any provisions of, or constitute a default (or an event
which,  with notice or lapse of time or both,  would constitute a default) under
the  terms,  conditions  or  provisions  of any  contract,  agreement  or  other
instrument or obligation to which the Employee is a party, or by which he may be
bound, or (b) violate any order, judgment, writ, injunction or decree applicable
to the Employee.  In the event of a breach hereof,  in addition to the Company's
right to terminate this Agreement,  the Employee shall indemnify the Company and
hold it harmless from and against any and all claims,  losses,  liabilities  and
expenses  (including   reasonable  attorney's  fees)  incurred  or  suffered  in
connection with or as a result of the Company's  entering into this agreement or
employing the Employee hereunder.

22. No Third Party Beneficiaries. Except as provided for in Section 10(d) 
hereof, no person not a party to this Agreement shall have any right to enforce
any of the provisions hereof, there being no third party beneficiaries.

23. Service  as  Officer  of  Subsidiaries;  Service  as  Director.  During the
employment period, the Employee shall, if elected or appointed,  serve as (a) an
officer of any subsidiaries of the Company in existence or hereafter  created or
acquired and (b) a Director of the Company and/or any such  subsidiaries  of the
Company, in each case without any additional compensation for such services.

         IN WITNESS WHlEREOF, the undersigned have executed this agreement as of
the day and year above written.


EMPLOYEE                                         AMNEX, INC.

By: /s/ John Kane                                By: /s/ Peter Izzo

Name: John Kane                                  Name: Peter Izzo

Date: 10/1/96                                   Date: 10/1/96

                                       10

EX-10.12

                                                                 Execution Copy

                           SECURITY AGREEMENT NO. 001

         This Security Agreement (the "Security Agreement"), dated as of October
4, 1995 made by and among Lyon Credit Corporation,  a corporation  organized and
existing under the laws of the State of Delaware, with an office address at 1266
East Main Street, Stamford, Connecticut 06902, (together with its successors and
assigns, if any, "Secured Party"),  American Network Exchange,  Inc. ("ANEI"), a
corporation organized and existing under the laws of the State of Delaware,  and
Crescent Public  Communications Inc.  ("Crescent"),  a corporation organized and
existing under the laws of the State of New York, each with their address at 101
Park Avenue, New York, New York 10178 (collectively, "Borrower");

                              W I T N E S S E T H :

         1. Grant of Security  Interest:  To secure payment on each Note made by
Borrower in the form attached hereto as Exhibit "A" together with any extensions
or renewals thereof, and any amendments or modifications thereto (each, a "Note"
and,  collectively,  the  "Notes"),  and  also  to  secure  any  and  all  other
indebtedness,  obligation  or liability  of the  Borrower to the Secured  Party,
whether direct or indirect,  absolute or  contingent,  due or to become due, now
existing  or  hereafter  arising and no matter how  acquired  by Secured  Party,
including, but not limited to, all future advances or loans which may be made at
the option of the Secured  Party to or on behalf of Borrower  (all the foregoing
hereinafter  called the  "Indebtedness"),  Crescent hereby grants and conveys to
the Secured Party a first security  interest in, and mortgages and  collaterally
assigns to the Secured  Party,  (i) each unit of property (such unit, an "Item")
described  in a  Schedule  in  the  form  attached  hereto  as  Exhibit  "B"  (a
"Schedule")  and each unit of property  constituting  Replacement  Equipment  as
defined in Section 9 hereof,  (ii) each Pay Telephone Location Agreement between
Crescent  and the  owner or  lessee  of any  location  on which  any Item may be
located (such agreement,  a "Contract"),  and (iii) all products and proceeds of
each Item, if any,  which Crescent may be entitled to receive,  i.e.,  excluding
any and all non-coin revenues but including  commissions  receivable on non-coin
revenues and any coin revenues derived from an Item, all additions, attachments,
accessories and accessions thereto and any and all  substitutions,  replacements
or exchanges thereto,  and any and all insurance and insurance proceeds thereof,
including,  but not limited to, every permitted lease or sublease (collectively,
"Proceeds  and  Additions"),  howsoever  designated,  covering  all or any  part
thereof  (all  or any of  the  foregoing  hereinafter  collectively  called  the
"Collateral");

         TO HAVE AND TO HOLD the  Collateral  with the power and  authority  and
subject to the terms and conditions set forth in this Security Agreement.

         2.  Repayment:  Borrower will duly and punctually pay the  Indebtedness
secured by this Security Agreement in accordance with the terms of the Notes and
this Security Agreement. Payments of Indebtedness shall be made to Secured Party
at its office  address  stated  above,  except as otherwise  directed by Secured
Party, and shall not be prorated for any cause or reason except as herein may be
specifically  provided.  Payments shall be due  periodically as specified in the
applicable  Note,  except  that in the event any month in which a payment is due
does not contain a






numbered day equal to such payment day  specified,  payment shall be made on the
last day of such  month.  If any  payment is not made within ten (10) days after
its due date,  Borrower  agrees to pay a late charge of five cents (5(cent)) per
dollar on, and in addition to, the amount of such payment, but not exceeding the
lawful maximum, if any.

         3.  Obligations  Absolute:  The  obligations  of  Borrower  under  this
Security  Agreement shall be absolute and unconditional  under all circumstances
whatsoever,  including, but not limited to, the existence of any claim, set-off,
defense,  counterclaim  or recoupment to any present or future claim of Borrower
against  Secured Party under this Security  Agreement or otherwise,  against the
manufacturer  or seller of any of the  Collateral or against any other person or
entity for whatever  reason.  This Security  Agreement shall not terminate,  nor
shall the obligations of Borrower be affected,  by reason of any defect in title
to, damage to or any loss or  destruction  of, the  Collateral  from  whatsoever
cause, or the interference  with the use thereof by any person or entity, or the
invalidity or  unenforceability  or lack of due authorization in respect of this
Security Agreement or any lack of right, power or authority of the Secured Party
to enter into this  Security  Agreement,  or any  failure  of  Secured  Party to
perform any  obligation  of Secured  Party or  Borrower  or any other  person or
entity under this Security  Agreement or any instrument or document  executed in
connection  herewith,  or for any other cause,  whether similar or dissimilar to
the  foregoing,  any  present  or  future  law or  regulation  to  the  contrary
notwithstanding,  it being the express  intention of Secured  Party and Borrower
that all  payments by  Borrower  shall be, and  continue  to be,  payable in all
events unless the  obligation to pay the same,  shall be terminated  pursuant to
the express provisions of his Security Agreement.

         4. Representations and Warranties:  Borrower represents and warrants as
of the date of this Security  Agreement that: (a) Borrower is a corporation duly
organized and validly  existing in good standing  under the laws of its state of
organization  and  has the  corporate  power  to  enter  into  and  perform  its
obligations under this Security Agreement,  (b) this Security Agreement has been
duly  authorized,   executed  and  delivered  by  Borrower  and,   assuming  due
authorization,  execution and delivery by Secured Party,  is a legal,  valid and
binding obligation of Borrower,  enforceable in accordance with its terms except
as  may  be  limited  by  applicable  bankruptcy,  insolvency,   reorganization,
moratorium  or other similar laws  affecting the rights of creditors  generally,
and general principles of equity,  regardless of whether such  enforceability is
considered  in a proceeding  in equity or at law, (c) the execution and delivery
by Borrower of this Security  Agreement is not, and the performance by it of its
obligations  hereunder will not be,  inconsistent  with  Borrower's  articles or
certificate of incorporation or bylaws,  do not and will not contravene any law,
governmental rule or regulation,  judgment or order applicable to Borrower,  and
do not and will not  contravene any provision of, or constitute a default under,
any  indenture,  mortgage,  contract or other  instrument to which Borrower is a
party or by which it is bound,  (d) no consent or approval of,  giving of notice
to,  registration  with,  or taking of any other action in respect to or by, any
federal,  state or local  governmental  authority  or agency or other  entity is
required with respect to the execution,  delivery and performance by Borrower of
this Security Agreement, or if any such approval, notice, registration or action
is  required,  it has been  duly  given or  obtained,  (e) there are no suits or
proceedings  pending or threatened in court or before any  commission,  board or
other

                                        2





administrative agency against or affecting Borrower,  which will have a material
adverse effect on the ability of Borrower to fulfill its obligations  under this
Security  Agreement,  (f) each financial statement and other related information
furnished  to  Secured  Party by Amnex,  Inc.,  the parent  company of  Borrower
("Parent"),  has been prepared in accordance with generally accepted  accounting
principles  and,  since  the  date of the most  recent  financial  statement  so
delivered, there has been no material adverse change (as that term is defined in
paragraph 12 (k) below),  (g) this Security Agreement shall be effective against
all creditors of Borrower under applicable law,  including,  without limitation,
fraudulent conveyance and bulk transfer laws, and (h) the Collateral will at all
times be used  solely in the  conduct of the  business  of  Crescent  and be and
remain in the possession and control of Crescent.

         5. Liens:  Borrower shall keep the  Collateral  free and clear from all
liens,  charges,  encumbrances  and security  interests  of any kind  ("Liens"),
except  for (i)  subject to clause  (iv) of this  Section 5, the Lien of Secured
Party, as provided in this Security  Agreement,  (ii) Liens for taxes either not
yet due or being  contested by crescent in good faith with due  diligence and by
appropriate  proceedings,  so long as such proceedings do not, in the opinion of
Secured  Party,  involve  any  material  danger of sale,  forfeiture  or loss of
Collateral  or any part  thereof or title  thereto or  interest  therein,  (iii)
inchoate  materialmen's,   mechanics',   workmen's,   repairmen's,   employees',
carriers',  warehousemen's or other like Liens arising in the ordinary course of
business  of Crescent  and not  delinquent  and  Crescent  shall be  maintaining
adequate  reserves  therefor  and (iv) in the  absence  of any Event of  Default
hereunder,  any  Lien  of any  third  party  providing  financing  to  Borrower,
provided,  that (A) Secured Party retains a perfected  first  priority  security
interest  in at least 1500  Items of  Collateral  and (B) each of the  Contracts
related to such Items has a term which  extends at least to the  maturity of the
Note.  Secured  Party  shall,  at its own cost and expense,  promptly  take such
action as may be necessary to discharge duly all Secured Party's Liens upon full
payment and satisfaction of all Indebtedness.

         6. Use and Operation:  (a) Borrower shall not assign, sublet, mortgage,
hypothecate  or modify any of the  Collateral  or any interest in this  Security
Agreement,  without  the prior  written  consent of Secured  Party,  except that
Crescent  shall  have the right to  modify  any Item in the  ordinary  course of
business or for the  purposes of  compliance  with  applicable  laws,  rules and
regulations so long as such  modification  does not decrease the value,  utility
and  remaining  useful  life of such Item.  Any  attempt  so to assign,  sublet,
mortgage,  hypothecate or modify any Item in violation of the preceding sentence
shall be void and without  effect.  Borrower shall not remove from the specified
place of Collateral any Item, except that Borrower may so remove any Item in the
ordinary  course of business or for purposes of compliance  with applicable laws
and  regulations  so long as Secured  Party retains a perfected  first  priority
security interest in at least 1500 Items and the related Contracts and each such
related  Contract has a term which extends at least to the maturity of the Note.
Notwithstanding  the  foregoing,  in order to replace an Item,  the Borrower may
remove an Item from the  specified  place of such Item  irregardless  of whether
such removal  would cause the number of Items in which  Secured  Party retains a
perfected first priority security interest to decline to less than 1500 Items if
Borrower  immediately  replaces such Item in accordance  with the provisions set
forth in Section 9 hereof.

                                        3






                  (b) Borrower will not,  without the prior  written  consent of
Secured  Party,  affix or install  any  accessory,  equipment,  or device on any
Collateral if such  addition  will  materially  impair the  originally  intended
function or use of any such  Collateral or its value in place.  Borrower  agrees
that  each  Item of  Collateral  shall  prior to its  installation  be  personal
property under applicable law. Borrower agrees to take such reasonable action as
shall be required  by Secured  Party from time to time to protect the rights and
interests of Secured  Party in each such Item.  Borrower  will not,  without the
prior written consent of Secured Party and subject to such conditions as Secured
Party may reasonably impose for its protection,  affix or install any Item to or
in any other personal  property  except to the extent  necessary in the ordinary
course of business of Crescent.  Secured Party and Crescent agree that each Item
of Collateral  and every part thereof shall be treated as being severed from any
real property and, even if physically  attached to any real property,  it is the
intention  of Secured  Party and  Borrower  that such Item (i) shall  retain the
character of personal property, (ii) shall be removable,  (iii) shall be treated
as personal  property  with  respect to the rights of all persons and  entities,
(iv) shall not become part of any real property, and (v) by virtue of its nature
as personal property, shall not be affected in any way by any instrument dealing
with any real property.  Borrower  represents  that it has not entered into, and
agrees that it will not enter into, any agreement or other arrangement,  without
the consent of Secured Party, which consent shall not be unreasonably  withheld,
which  prohibits  or  restricts  in any  manner  the right of  Secured  Party or
Crescent to sever Items of  Collateral  from the real property on which they are
located,  to sever  Items of  Collateral  from any other  equipment  or personal
property to which such Items are attached or to remove Items of Collateral  from
the place where they are then  located  except as may be required by  applicable
laws and regulations.

          7. Maintenance and Service: (a) Items of Collateral shall be used only
in the manner for which they were designed and intended and Crescent will at its
sole expense at all times  maintain each Item in good operating  order,  repair,
condition  and  appearance  and keep  each  Item  protected  from the  elements,
ordinary wear and tear excepted.  Crescent shall, if at any time requested to do
so by Secured  Party,  affix in a prominent  position on each Item of Collateral
plates,  tags or other identifying  labels showing the interest of Secured Party
in the Collateral.  Crescent will, at all times,  operate and maintain each Item
of  Collateral in  accordance  with (i) the  standards  applied by Crescent with
respect to similar  equipment  owned or leased by it and (ii) prudent  operating
and maintenance standards and manufacturer's requirements. Borrower will not use
or  operate  any  Item  of  Collateral  in  violation  of  applicable  laws  and
regulations  (including all applicable  environmental  and  occupational  safety
laws)  except as shall  not have a  material  adverse  effect on such Item or on
Borrower.

                   (b)  Any  alterations  or   modifications   with  respect  to
Collateral  that may at any time  prior to full  repayment  of the  Indebtedness
secured hereby be required to comply with any applicable law or any governmental
rule or regulation shall be made by Crescent as required and at the sole expense
of Crescent.

         8.  Reports:  (i) Borrower agrees that Secured Party shall not be 
responsible for any loss or damage to Borrower, its customers or any other third
parties caused by the Collateral, any failure

                                        4





thereof or defect therein, or otherwise. Nevertheless, Borrower will immediately
notify  Secured  Party of each  personal  injury or property  damage to property
other  than the Items,  if any,  valued by  Crescent  to be in excess of $25,000
arising out of any alleged or apparent  improper  manufacturing,  functioning or
operation of any Item, the time, place and nature of the injury and damage,  the
names and addresses of parties involved,  persons injured,  witnesses and owners
of property  damaged,  and such other  information as may be known, and promptly
advise  Secured  Party of all  correspondence,  papers,  notices  and  documents
whatsoever received by Borrower in connection with any claim or demand involving
or relating to improper  manufacturing,  operation or functioning of any Item or
charging  Secured  Party with  liability  therefor;  (ii)  Borrower  will notify
Secured  Party in writing  within ten (10) days  after it has  knowledge  of the
attachment of any Lien to any Collateral  which lien is not expressly  permitted
hereby  of the  full  particulars  thereof  and of the  then  location  of  such
Collateral on such day;  (iii) Borrower will notify Secured Party on a quarterly
basis in writing of the location of any  Collateral  moved by Borrower  from the
location  specified  in this  Security  Agreement  or any  subsequent  agreement
executed  by the  parties  during the three  months  preceeding  such report and
Borrower  shall notify  Secured  Party in writing 45 days prior to any change of
its place or places of business  and/or  residence  and/or name ; (iv)  Borrower
will  within  the later of ninety  (90) days of the close of each of its  fiscal
years  or five (5)  business  days  after  the date  such  information  which is
required to be filed with the  Securities  and  Exchange  Commission  ("SEC") is
actually filed therewith,  deliver,  or cause to be delivered,  to Secured Party
Parent's  consolidated  balance sheet and profit and loss statement  prepared in
accordance  with generally  accepted  accounting  principles  and, to the extent
available,  certified to by a recognized firm of certified  public  accountants.
Borrower will deliver,  or cause to be delivered,  to Secured Party,  within the
later of sixty  (60) days of the close of each of its  fiscal  quarters  or five
business days after the date such information which is required to be filed with
the SEC is actually filed therewith,  Parent's quarterly  consolidated financial
report  (which  shall be in  reasonable  detail)  prepared  in  accordance  with
generally accepted accounting principles and certified to by the chief financial
officer of Parent or other permitted  officer;  (v) Crescent will permit Secured
Party to  inspect  and  examine  Collateral  at such times and from time to time
during normal  business hours as Secured Party may wish (and at such other times
as may be mutually agreeable) and upon reasonable prior notice,  provided,  that
such examination and inspection shall not unreasonably interfere with Crescent's
normal  business  operations;  and (vi)  Crescent  will provide or arrange to be
provided to Secured Party (A) call activity and  commission  reports with regard
to the  Items of  Collateral  no later  than the 20th day of each  month and (B)
revenue  reports with respect to coin revenue from Items of  Collateral no later
than the 15th day of each month.

         9. Risk of Loss: (a) Crescent is solely responsible for the entire risk
of use and operation,  and for each and every cause or hazard,  and all loss and
damage to any and all Items whether arising through  operation or otherwise.  In
the  event  of  damage  to any  Item of  Collateral,  Crescent,  at its cost and
expense,  shall promptly repair or cause to be repaired such Item,  restoring it
to its  previous  condition  or the  condition  in which it was  required to be,
assuming Crescent had met all its obligations for maintenance of the Collateral.
Upon the  occurrence  of an Event of Loss  (defined  below) with  respect to any
Item, Crescent shall, if such Event of Loss will result in there being less than
1500 Items of Collateral subject to this Security Agreement, replace the Item of
Collateral in

                                        5





respect of which such Event of Loss has occurred as provided in paragraph (c) of
this  Section  9. The  Borrower  may only  replace  an Item of  Collateral  with
equipment that performs the same function as the Item of Collateral with respect
to which the Event of Loss has occurred,  such replacement  equipment to be free
and clear of all Liens  (excepting  those expressly agreed to by Secured Party),
and to have a fair market value, condition, remaining useful life and utility at
least equal to the Items so replaced  (assuming  such Item was in the  condition
and repair  required by the terms hereof)  ("Replacement  Equipment").  Provided
Borrower is not in breach or default of this Security Agreement, any proceeds of
insurance  received by Secured Party with respect to any such loss shall be paid
to Crescent to the extent necessary to reimburse Crescent for costs incurred and
paid by Crescent in repairing  damaged  Equipment or as a credit  against  total
amount payable by Borrower with respect to the Collateral involved,  as the case
may be, all as provided in this Security Agreement.

                  (b) For the purposes hereof,  "Event of Loss" shall mean, with
respect to any Item of  Collateral,  if such Item is (i)  destroyed,  condemned,
irreparably  damaged or damaged beyond economic repair,  (ii)  requisitioned for
use by a governmental entity for an indefinite period or stated period extending
beyond  a  period  in  excess  of  ninety  (90)  consecutive  days or the  final
installment  payment date stated on the applicable  Note,  whichever is earlier,
(iii) the  subject  of an  insurance  settlement  with  respect  to such Item of
Collateral on the basis of a  constructive  total loss,  (iv) stolen or lost and
not recovered  within  thirty (30) days,  (v) the subject of a  condemnation  or
requisition of title by a governmental  entity, or (vi) prohibited by applicable
law from being used by Borrower for a period of ninety (90)  consecutive days or
the final installment payment date on the applicable Note, whichever is earlier.

                  (c) The Borrower's  right to replace any Item of Collateral as
provided in paragraph  (a) above and Section 6(a) hereof shall be subject to the
fulfillment,  at  the  Borrower's  sole  cost  and  expense,  of  the  following
conditions precedent:

                           (A)  on the date of such replacement the following 
documents shall have been duly  authorized,  executed  and  delivered by the 
respective  party or parties thereto and shall be in full force and effect,  and
an executed  counterpart  of each thereof shall have been delivered to the 
Secured Party:

                                    (1)  a Schedule covering the Replacement 
Equipment and any location agreement related thereto ("Replacement Contract");

                                    (2)  evidence of the making of such Uniform
Commercial Code financing statements and fixture filings covering the security 
interests created by this Security  Agreement as are deemed  necessary or 
desirable by counsel for the Secured  Party to protect the security  interest of
the Secured Party in the Replacement Equipment and such related Contract or 
Replacement Contract;

                                        6




                           (B)  on such replacement date, the Secured Party 
shall receive a valid, first priority  security  interest in the  Replacement  
Equipment and such Contract or Replacement  Contract free and clear of Liens  
(excepting those expressly agreed to by Secured Party);

                           (C)  the Secured Party shall have received evidence
reasonably satisfactory to it with  respect to the  Replacement  Equipment,  its
function,  fair market value, condition, utility and remaining useful life.

         10. Insurance:  (a) Crescent, at its own cost and expense shall obtain,
maintain  and shall keep the Items  insured  against all risks of loss or damage
from every cause whatsoever  (other than vandalism or malicious  mischief) in an
amount not less than the greater of actual cash value or the aggregate amount of
all unpaid  Indebtedness as at any time,  with such  reasonable  deductibles and
co-insurance (as are consistent with industry  standards or as Secured Party may
approve in writing).  Secured Party agrees that Crescent may self-insure against
such casualty risks for any Item of  Collateral.  Crescent shall also obtain and
maintain,  until  repayment  in  full  of  the  Indebtedness,  public  liability
insurance  covering  liability for bodily injury,  including death, and property
damage  resulting from the purchase,  ownership,  leasing,  maintenance,  use or
operation of the Items in an amount of at least  $1,000,000 with respect to each
separate  Schedule hereto,  or in such greater amounts as Secured Party may from
time to time require. If not self-insured, Secured Party shall be the sole named
loss-payee  with  respect  to  damage  or loss to the Items and shall be a named
additional  insured on the public  liability  insurance.  All insurance shall be
with insurers and in form  satisfactory  to Secured Party;  shall provide for at
least  thirty  (30) days  advance  written  notice to Secured  Party  before any
cancellation or material  modification thereof (or ten (10) days advance written
notice for  cancellation  for nonpayment of premium);  shall waive any claim for
premium  against  Secured  Party;  and shall not be  invalidated or the insurers
liability to or for or on behalf of Secured  Party be  diminished or affected by
any  breach  of  warranty  or  representation  or other act or  omission  of the
Borrower.  Crescent  shall  deliver  to  Secured  Party the  original  policy or
policies of insurance,  certificates of insurance or other evidence satisfactory
to Secured  Party  evidencing  the  insurance  required  hereby along with proof
satisfactory  to Secured Party of the payment of the premium  therefor.  Secured
Party may, at its option,  apply proceeds of insurance,  in whole or in part, to
(A)  repair or replace  any Item or any  portion  thereof,  or (B)  satisfy  any
obligation of Borrower to Secured Party hereunder,  provided that in the absence
of any Event of Default,  ten (10) business  days' prior written notice is given
to Crescent.

                  (b) Secured Party is authorized,  but under no duty, to obtain
such insurance  upon failure of Crescent to do so. In obtaining such  insurance,
Secured  Party  agrees to use  reasonable  efforts to  maintain  the cost of the
premiums for such insurance to reasonable amounts. Crescent shall give immediate
written  notice to the Secured  Party of loss or damage to the Items  reasonably
estimated  by  Crescent  to be in  excess of $1,500  per Item.  Crescent  hereby
irrevocably  appoints  the Secured  Party as  attorney-in-fact,  coupled with an
interest, for Crescent in obtaining,  adjusting and canceling any such insurance
and endorsing settlement drafts and hereby assigns to the Secured Party all sums
which may become payable under such  insurance,  including  return  premiums and
dividends, as additional security for the Indebtedness.


                                        7





         11. Indemnification: Borrower hereby agrees to indemnify, save and keep
harmless Secured Party, its agents, employees,  successors and assigns, from and
against  any  and  all  losses,   damages   (including   indirect,   special  or
consequential),  penalties,  injuries,  claims,  actions  and  suits  including,
without limitation,  legal expenses,  of whatsoever kind and nature, in contract
or tort,  including,  but in no way limited to, Secured Party's strict liability
in tort,  unless and except to the extent  Secured  Party's gross  negligence or
willful  misconduct is the proximate  cause of any such loss,  damage,  penalty,
injury,  claim, action or suit, and Borrower shall at its own expense defend any
and all such  actions,  arising out of the  selection,  modification,  purchase,
ownership,  acceptance or rejection of any of the  Collateral  and the delivery,
possession,  maintenance, use, condition (including,  without limitation, latent
and other defects, whether or not discoverable by Secured Party or Borrower, and
any claim for patent, trademark or copyright infringement),  or operation of any
Item of Collateral by whomsoever used or operated or arising out of or resulting
from the  condition of any Item of  Collateral  sold or disposed of after use by
Borrower,  any lessee,  sublessee or employee of Borrower.  The  indemnities and
assumptions  of liability  herein  provided for shall continue in full force and
effect  notwithstanding  the termination of this Security  Agreement  whether by
expiration of time, operation or law or otherwise.  BORROWER AGREES THAT SECURED
PARTY  SHALL  NOT BE  LIABLE  TO  BORROWER  FOR ANY  CLAIM  CAUSED  DIRECTLY  OR
INDIRECTLY BY THE  INADEQUACY  OF ANY ITEM OF COLLATERAL  FOR ANY PURPOSE OR ANY
DEFICIENCY OR DEFECT THEREIN OR THE USE OR  MAINTENANCE  THEREOF OR ANY REPAIRS,
SERVICING OR ADJUSTMENTS THERETO OR ANY DELAY IN PROVIDING OR FAILURE TO PROVIDE
ANY THEREOF OR ANY INTERRUPTION OR LOSS OF SERVICE OR USE THEREOF OR ANY LOSS OF
BUSINESS, ALL OF WHICH SHALL BE THE SOLE RISK AND RESPONSIBILITY OF BORROWER.

         12.  Default;  Remedies:  If any of the following  (herein an "Event of
Default") shall occur: (a) Borrower shall default in the payment of Indebtedness
to Secured Party or in making any other payment hereunder or under any Note when
due, and such default shall continue for a period of ten (10) days after written
notice  thereof to Borrower from Secured Party without its cure by Borrower,  or
(b)  Borrower  shall  default  in the  payment  when due of any  obligations  of
Borrower (A) equal to or greater than $50,000,  whether or not to Secured Party,
arising  independently of this Security  Agreement or any Note, and such default
shall  continue for a period of ten (10) days after  written  notice  thereof to
Borrower  from Secured Party after any  applicable  cure period set forth in the
document  creating  such  obligation  without  its cure by Borrower or (B) which
default would permit the acceleration of such obligation,  or (c) Borrower shall
default in the performance of any other material covenant contained herein other
than those referred to in clause (d) herein (including any Schedule hereto), any
Certificate in respect hereof or any Note or any other document  entered into in
connection with this Security  Agreement and such default shall continue for ten
(10) days after  written  notice  thereof to Borrower by Secured  Party,  or (d)
Crescent shall breach any of its material insurance  obligations under paragraph
10 hereof,  or (e) any  representation  or  warranty  made by  Borrower  in this
Security  Agreement or any other documents  entered into in connection with this
Security  Agreement shall prove to be incorrect in any material respect when any
such  representation  or warranty was made or given,  or (f)  Crescent,  ANEI or
Parent shall become insolvent or make an

                                        8





assignment for the benefit of creditors,  or (g) Crescent,  ANEI or Parent shall
apply for or consent to the appointment of a receiver, trustee or liquidator for
a substantial  part of its property or such  receiver,  trustee or liquidator is
appointed without the application or consent of Crescent, ANEI or Parent, or (h)
a  petition  shall be filed by or  against  Crescent,  ANEI or Parent  under the
federal  bankruptcy  laws  (including,   without  limitation,   a  petition  for
reorganization,  arrangement or extension) or under any other  insolvency law or
law  providing  for the relief of  debtors,  or (i) there is,  without the prior
consent of Secured  Party which consent shall not be  unreasonably  withheld,  a
change  in  control  (defined  to be a change  in the  possession,  directly  or
indirectly,  of the power to direct or cause the direction of the management and
policies of Borrower,  whether  through the ownership of voting  securities,  by
contract  or  otherwise  but not to include a change in the  composition  of the
boards of  directors of  Borrower),  or (j) there is a material  adverse  change
(defined  to be a  decrease  of at  least  one-third  (1/3)  of  net  worth,  as
determined in accordance  with  generally  accepted  accounting  principles)  in
Parent's financial  condition;  then, to the extent permitted by applicable law,
Secured  Party shall have the right to exercise any one or more of the following
remedies one or more times: (A) declare this Security Agreement in default, such
declaration  being applicable to all Schedules  hereunder except as specifically
excepted  by  Secured  Party;  (B)  declare  the entire  amount of unpaid  total
Indebtedness immediately due and payable; (C) declare due and payable the amount
of any indemnification hereunder if then determinable, with interest as provided
herein;  (D) upon  notice to any  lessees or  sublessees  permitted  pursuant to
paragraph  6(a),  to obtain and retain all rentals  thereafter  due, paid and/or
payable;  (E) without  demand or legal process to enter into any premises  where
the  Collateral  may be found  and  take  possession  of and  remove  the  same,
whereupon all rights of Borrower in the Collateral  shall terminate  absolutely,
and either (i) retain all prior payments of Indebtedness and sell the Collateral
at public or private sale,  with or without notice to Borrower,  with or without
having the  Collateral at the sale, at which sale Secured Party may purchase all
or any of the Collateral,  the proceeds of such sale, less expenses of retaking,
storage,  repairing and reselling,  and reasonable  attorneys'  fees incurred by
Secured  Party,  to be applied to the payment of the unpaid total  Indebtedness,
Borrower remaining liable for the balance of said unpaid total Indebtedness, and
any surplus  thereafter  remaining to be for the account of Borrower  (except as
otherwise  provided under  applicable law) or (ii) retain the Collateral and all
prior  payments  of  Indebtedness,  in  satisfaction  of  the  remaining  unpaid
Indebtedness in accordance with Section 9-505(2) of the Uniform  Commercial Code
as in effect  in the  State of New  York;  (F)  pursue  any  other  remedy  then
available to Secured Party at law or in equity.  Borrower  hereby  covenants and
agrees to notify  Secured Party  immediately  of the  occurrence of any Event of
Default  specified  in this  paragraph  12 and  promptly  after such  occurrence
provide Secured Party with a means of access to the coin boxes of pay telephones
which constitute Items of Collateral.

         13. Remedies Cumulative:  Time of performance of Borrower's obligations
hereunder  is of the  essence.  All  remedies  of Secured  Party  hereunder  are
cumulative,  and may, to the extent permitted by law, be exercised  concurrently
or  separately,  and the exercise of any one remedy shall not be deemed to be an
election of such remedy to the  exclusion of any other remedy or to preclude the
exercise  of any  other  remedy at any other  time.  Failure  on the part of the
Secured Party to exercise, or delay in exercising, any right or remedy hereunder
or Secured Party's failure at any time

                                        9





to restrict  performance by Borrower of any of the  provisions  hereof shall not
operate as a waiver thereof; nor shall any single or partial exercise by Secured
Party of any right or remedy  hereunder  preclude  any  other  further  exercise
thereof or the exercise of any other right or remedy.

         14.  Assignment:  Borrower  acknowledges,  understands  and agrees that
Secured Party may assign this Security Agreement, any Schedule or Certificate or
any Note to any bank or any  other  lending  institution  or any  other  person,
organization or agency upon ten (10) days' prior written notice to Borrower, and
Borrower shall (a) recognize any such assignment,  (b) accept the lawful demands
of such assignee,  (c) surrender assigned Collateral only to such assignee,  (d)
pay all  Indebtedness  payable  hereunder and do any and all things  required of
Borrower  hereunder,  notwithstanding  any default of the  Secured  Party or the
existence of any claim,  defense or offset  between  Borrower and Secured Party,
and (e) not require any assignee of the Security  Agreement to perform any duty,
covenant or condition  required to be performed by Secured Party under the terms
of this Security  Agreement  provided that Secured Party shall remain liable for
such performance.  The obligations of Borrower shall not be subject,  as against
any such  assignee  or  transferee,  to any  defense,  set-off  or  counterclaim
available to Borrower  against  Secured Party and any such  defense,  set-off or
counterclaim may be asserted only against Secured Party.

         15.  Filings:  Borrower agrees to execute any instrument or instruments
necessary or expedient for filing,  recording,  perfecting,  or notifying of the
interest of Secured  Party upon  request of, and as  reasonably  determined  by,
Secured Party.  Borrower hereby  specifically  authorizes  Secured Party to file
financing statements not signed by Borrower or to execute same for and on behalf
of Borrower as  Borrower's  attorney-in-fact,  irrevocably  and coupled  with an
interest, for such purposes. A carbon, photographic or other reproduction of the
Security  Agreement or a financing  statement shall be sufficient as a financing
statement for filing purposes.

         16.  Notes:  (a) Upon ten (10) days'  prior  written  notice by Secured
Party to Borrower  that Secured  Party  intends to transfer  any Note,  Borrower
shall, in exchange for the Note to be transferred,  promptly  execute a new note
in the amount of the exchanged Note,  naming the transferee as payee thereunder,
and  deliver  the  same  to  such  transferee,   provided,  that  Secured  Party
simultaneously surrenders the old Note to Crescent or ANEI.

                  (b) If any Note shall become  mutilated or shall be destroyed,
lost or stolen,  Borrower  shall,  upon the written  request of payee under such
Note,  execute and deliver in replacement  thereof,  the new Note payable in the
same amount and dated the same date as the Note so mutilated, destroyed, lost or
stolen,  provided,  that such payee delivers to Crescent or ANEI  simultaneously
therewith,  the  mutilated  Note  or  a  signed  affidavit  in  form  reasonably
satisfactory  to Crescent or ANEI stating that such Note was destroyed,  lost or
stolen.

         17.  Borrower's Representations and Covenants Regarding Collateral.  
The Borrower represents, warrants, and covenants to the Secured Party as 
follows:   (i) Crescent is the sole and lawful owner of all of the Collateral, 
with good title thereto free of all Liens except for the rights of the Secured 
Party as provided in this Security Agreement; (ii) Crescent has the power and 
authority

                                       10





to, and does hereby convey to the Secured  Party,  a valid and  perfected  first
priority  security  interest in all of the Collateral as security for the prompt
and full payment of all of the Indebtedness;  (iii) none of the Collateral,  nor
any interest therein, has been previously  transferred,  conveyed,  assigned, or
pledged by the  Borrower in any manner that would  result in  impairment  of the
Secured Party's first priority  security  interest in the Collateral  granted to
the Secured Party pursuant hereto; (iv) the Note, this Security Agreement,  each
Schedule, and the Contracts, create legal, valid, and binding obligations of the
respective  parties thereto,  enforceable  against them in accordance with their
respective terms, subject to applicable bankruptcy,  insolvency,  reorganization
or other similar laws  affecting the  enforceability  generally of the rights of
creditors  or  lessors;  (v) except as  otherwise  provided in Section 5 hereof,
Crescent  shall  not  assign  any of its  rights to the  Collateral,  or grant a
security  interest  in or lien upon any  thereof,  to any person  other than the
Secured Party without the Secured Party's prior written  consent;  (vi) Borrower
shall execute such financing statements,  continuation financing statements, and
assignment  financing statements in connection herewith as the Secured Party may
reasonably request concurrently with the delivery of the Security Agreement, and
at any time or times  thereafter;  (vii)  Borrower shall not amend or modify any
provision  of any  Contract  if such  amendment  or  modification  would  have a
material  adverse  effect on  Lender's  rights as granted  herein or on Lender's
first priority  security  interest  therein without the prior written consent of
the Secured Party (viii) each of the  Contracts is, by its terms,  assignable by
Crescent  (except as  prohibited  by applicable  laws and  regulations),  and no
Contract  provides  for  any  claim  (other  than  a  claim  for  nonpayment  of
commissions  due  thereunder)  or lien by the owner of the premises on which any
Item is  located  on any such  Item,  and  each  Contract  (other  than 2 of the
Contracts)  allows Crescent to remove the Collateral from the premises  whenever
Crescent  or  its  assigns  feels  it is  necessary  to do  so  to  prevent  the
deterioration of the value of the Collateral without liability or accountability
to such owner; (ix) if Crescent shall replace any item of Equipment  pursuant to
Section 9 hereof,  Borrower agrees that the Contract related to such Replacement
Equipment  shall  automatically,  without  further action by Borrower or Secured
Party, be assigned to Secured Party; (x) the related Contracts for at least 1500
of the Items have  terms,  including  automatic  renewals  thereof,  of at least
forty-eight  (48) months from the date  hereof;  (xi)  Crescent  shall  promptly
notify Secured Party if any Contract is terminated or is not renewed at any time
the Note secured by such Contract is  outstanding;(xii)  each Item of Collateral
which is a pay telephone contains an Elcotel number 4 or 5 board and constitutes
a  "smart  phone"  as such  term  is  currently  used in the  telecommunications
industry;  and (xiii)  the  Collateral  is and shall  remain  personal  property
notwithstanding  the  manner in which it is,  may be or become  affixed  to, any
premises,  and title  thereto  shall remain at all times in Crescent,  its legal
representatives, successors, agents or permitted assigns.

         18.  No  Assumption  of  Obligations.   By  virtue  of  the  collateral
assignment under this Security  Agreement,  the Secured Party will not be deemed
to have assumed (or to have agreed to perform) any of the obligations,  or to be
subject to any  liabilities,  of the Borrower under any Contract.  This Security
Agreement  will  not  relieve  the  Borrower  from  any  of the  obligations  or
liabilities of the Borrower under each Contract.

         19.  Power of Attorney.  Borrower hereby names and appoints the Secured
Party as Crescent's

                                       11





true and lawful  attorney-in-fact  for the following  purposes (all of which the
Secured Party may undertake, at any time an Event of Default has occurred and is
continuing in Crescent's  name or in the Secured  Party's name,  without further
consent  of or notice  to  Crescent  and  without  affecting  or  impairing  the
obligations of Crescent  hereunder):  (i) to sign  Crescent's name and otherwise
endorse all checks, notes, drafts, and other receipts or remittances received or
given with respect to any obligations owing by or to Crescent under any Contract
and under the  agreement  with the B&C Agent (as  defined  in Section 20 hereof)
(collectively, the "Contract Obligations"); (ii) renew, extend, modify, perform,
release or  discharge  any  Contract  Obligation;  (iii)  accept full or partial
payments  with  respect to any of the Contract  Obligations;  (iv) accept new or
additional documents,  instruments or agreements relating to, or in substitution
of, the  Contract  Obligations;  (v)  settle,  release (by  operation  of law or
otherwise),  compound,  compromise,  collect,  or liquidate  any of the Contract
Obligations  and all  security  therefor  (including,  but not  limited  to, the
Collateral);  (vi) consent to the transfer,  release, or return of security, and
take and hold  additional or substitute  security for the Contract  Obligations;
(vii) amend,  modify,  exchange,  release or waive any security or guarantee for
any of the  Contract  Obligations;  and  (viii)  bid and  purchase  at any sale,
foreclosure or other  disposition  of any of the Contract  Obligations or any of
the security therefor.

         20. Operator Service  Revenues.  ANEI  acknowledges that it has entered
into a  contractual  arrangement  with OAN  Services,  Inc.  (the "B&C  Agent"),
pursuant  to which the B&C Agent is  obligated  to  forward to ANEI on a regular
basis certain monies in respect of long distance  operator-assisted  calls which
are generated by each Item of  Collateral  which is a pay telephone and actually
billed and collected by the B&C Agent (the "Crescent-Derived OS Revenue").  ANEI
represents and warrants that it has directed the B&C Agent, pursuant to a letter
of  direction  substantially  in the form of Exhibit C hereto,  to  forward  the
Crescent-Derived  OS Revenue  directly  to an account  specified  by the Secured
Party. Pursuant to the terms of a lockbox agreement with a collection agent, the
Secured Party agrees that, after deducting from such Crescent-Derived OS Revenue
the amount  necessary  to satisfy  the  monthly  debt  service on the Note,  the
remainder shall be available to the Borrower.

         21.  Release of  Collateral.  Notwithstanding  anything to the contrary
contained herein,  it is expressly  understood and agreed that in the event that
Borrower shall obtain financing from a third party,  Secured Party shall, in the
absence of any Event of Default  hereunder,  release its security interest in up
to 386 Items,  the  Contracts  with  respect to such Items and all  Proceeds and
Additions of such Items  provided,  that (i) Secured Party  receives at least 30
days' prior written notice of such proposed release,  (ii) Secured Party retains
a perfected first priority  security  interest in at least 1500 Items which have
related  Contracts  with terms which extend at least to the maturity of the Note
and (iii) Secured Party  receives an executed  copy of the  commitment  for such
financing. If the foregoing conditions are met, Secured Party agrees to promptly
execute and deliver,  at  Borrower's  sole cost and  expense,  one or more UCC-3
financing  statements and such other documents and instruments as are reasonably
necessary to effectuate such release.

         22.  Miscellaneous:  (a)  In case of failure of Borrower to comply with
any provision of this Security Agreement, Secured Party shall have the right, 
but shall not be obligated, to effect such

                                       12





compliance  in  whole  or in  part,  and  all  moneys  spent  and  expenses  and
obligations  incurred or assumed by Secured Party in effecting  such  compliance
(including but not limited to,  attorneys' fees and costs incurred in attempting
to effect compliance against Borrower and/or others) shall constitute additional
Indebtedness  hereby  secured due to Secured  Party ten (10) days after the date
Secured  Party  sends  notice to Crescent or ANEI  requesting  payment.  Secured
Party's  effecting such  compliance  shall not be waiver of Borrower's  default.
Interest on any payments  made by Secured  Party  hereunder on amounts due after
Secured Party  declares  default under  paragraph 12 and interest on any overdue
payment under  paragraph 11 shall be at the default rate prescribed in the Note,
(or,  if there is more than one Note,  at the highest  among the  default  rates
prescribed  in such  Notes),  but not to exceed the  maximum  lawful  rate.  Any
provisions in this Security  Agreement,  any Schedule  hereto or  Certificate in
respect  hereof which are in conflict with any statute,  law or rule  applicable
shall be deemed omitted, modified or altered to conform thereto.

                  (b)  If  any  provision  of  this  Security   Agreement  shall
contravene or be invalid under applicable law or regulation  (including  federal
law and  regulation),  such  contravention  or  invalidity  shall not affect the
entire  Security  Agreement,  the  provisions  held to be  invalid  to be deemed
deleted or modified  and the Security  Agreement  interpreted  and  construed as
though such invalid  provision or  provisions  were not part hereof or conformed
thereto.

                  (c)  Secured  Party  may give  notice  to  Borrower  or make a
request of Borrower by depositing such notice or request in the U.S. mail, first
class  postage  prepaid,  addressed  to the  Borrower at its address  above,  an
address furnished by Borrower to Secured Party or at the option of Borrower,  at
the principal place of business of Crescent (7 Mayflower Place,  Floral Park, NY
11101) or the  principal  place of  business of ANEI (100 West  Lucerne  Circle,
Suite 100,  Orlando,  FL 32801).  All  notices  required to be given by Borrower
hereunder  shall be deemed  adequately  given if sent by registered or certified
mail or by overnight delivery service to Secured Party at the address of Secured
Party stated  herein,  or at such other place as Secured  Party may designate to
Borrower in writing.

                  (d)  This Security Agreement, any addendum hereto attached and
signed by Secured Party and Borrower, any Schedule hereto and any Certificate in
respect hereof, constitute the entire agreement of the parties with respect to 
the subject matter hereof.  THIS SECURITY AGREEMENT,  ANY VARIATION OR 
MODIFICATION OF THIS SECURITY AGREEMENT, ANY WAIVER OF ANY OF ITS  PROVISIONS OR
CONDITIONS  AND ALL  SCHEDULES  SHALL NOT BE VALID UNLESS IN  WRITING AND SIGNED
BY AN  AUTHORIZED  OFFICER OR MANAGER OF SECURED PARTY.

                  (e)  BORROWER WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY
LITIGATION ARISING HEREFROM OR IN RELATION HERETO.

                  (f)  THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
WITHOUT REFERENCE TO CONFLICTS OF LAW RULES.

                                       13






                  (g) BORROWER  SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING  RELATING TO THIS AGREEMENT OR ANY NOTE, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NONEXCLUSIVE  GENERAL
JURISDICTION  OF ANY STATE OR FEDERAL COURT SITTING IN THE CITY OF NEW YORK, NEW
YORK AND  APPELLATE  COURTS FROM ANY THEREOF;  CONSENTS  THAT ANY SUCH ACTION OR
PROCEEDING  MAY BE BROUGHT IN SUCH COURTS AND WAIVES ANY  OBJECTION  THAT IT MAY
NOW OR HEREAFTER  HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND
AGREES NOT TO PLEAD OR CLAIM THE SAME;  AND AGREES  THAT  SERVICE MAY BE MADE ON
BORROWER IN ANY SUCH  PROCEEDING  BY DELIVERING A COPY OF PROCESS TO BORROWER AT
BORROWER'S ABOVE ADDRESS, SUCH SERVICE TO BE EFFECTIVE UPON RECEIPT.

                  (h) With respect to the Borrower, all words used herein in the
singular shall be deemed to have been used in the plural;  "Borrower" shall mean
each and any one or more of them.


                                       14






                  IN WITNESS  WHEREOF,  the parties  hereto have  executed  this
Security Agreement as of the date first above written.

                                        CRESCENT PUBLIC COMMUNICATIONS
                                        Inc., as Borrower


                                        By:   /s/   Kenneth Baritz
                                             Name:  Kenneth Baritz
                                             Title:  Chairman


                                        ATTEST: /s/   Renee A. Brander
                                              Name: Renee A. Brandner
                                              Title:  Secretary


                                        AMERICAN NETWORK EXCHANGE, Inc.


                                        By:   /s/   Kenneth Baritz
                                             Name:  Kenneth Baritz
                                             Title:  Chairman


                                        ATTEST: /s/    Amy S. Gross
                                              Name: Amy S. Gross
                                              Title:  Secretary


LYON CREDIT CORPORATION,
as Secured Party

By:/s/ F. S. Snipes
     Name:
     Title:

                                       15





                      SCHEDULE NO. 1 TO SECURITY AGREEMENT


Description of Collateral:  See Schedule A hereto.

Collateral currently located at:  The locations set forth on Schedule A hereto

         Reference is made to that certain Security Agreement No. 001, dated as
of October 4, 1995 (as it may be modified or amended, now or hereafter, called
the "Security Agreement") between Lyon Credit Corporation ("Secured Party"), 
American Network Exchange, Inc. and Crescent Public Communications Inc. 
(collectively, "Borrower" ).

         All of the terms and  provisions  of the Security  Agreement are hereby
incorporated by reference into and made part of this Schedule to the same extent
as if fully set forth  herein.  Borrower  and Secured  Party  hereby agree to be
bound by the terms and  provisions,  and hereby make,  as if made as of the date
hereof, the representations  and warranties  contained in the Security Agreement
as each relates to the Collateral described above.

         IN WITNESS  WHEREOF,  the parties hereto have executed this Schedule as
of the 4th day of October, 1995.

AMERICAN NETWORK EXCHANGE, INC.,            CRESCENT PUBLIC COMMUNICATIONS
   as Borrower                              INC., as Borrower

By:  /s/   Kenneth Baritz                   By:  /s/  Kenneth Baritz
Name: Kennth Baritz                         Name:  Kenneth Baritz
Title:  Chairman                            Title:  Chairman

Attest: /s/  Amy S. Gross                   By: /s/ Renee A. Brandner
Name:  Amy S. Gross                         Name:  Renee A. Brandner
Title  Secretary                            Title:  Secretary

LYON CREDIT CORPORATION,
         as Secured Party

By:/s/   F. S. Snipes
Name:
Title:

                                            AMERICAN NETWORK EXCHANGE, Inc.

                                            By:
                                            Name:
                                            Title:

LYON CREDIT CORPORATION,
         as Secured Party

By:/s/
Name:
Title:




                                       16






                                 Exhibit "B" to

                             Security Agreement No.

                     SCHEDULE NO. ___ TO SECURITY AGREEMENT

Description of Collateral:  Installed Pay Telephones

Collateral be located at:  see attached

         Reference is made to that certain Security Agreement No. ___, dated as
of ______, 19__ (as it may be modified or amended, now or hereafter, called the
"Security Agreement") between Lyon Credit Corporation ("Secured Party"), 
Crescent Public Communications Inc. and American Network Exchange, Inc. 
(collectively, "Borrower").

         All of the terms and  provisions  of the Security  Agreement are hereby
incorporated by reference into and made part of this Schedule to the same extent
as if fully set forth  herein.  Borrower  and Secured  Party  hereby agree to be
bound by the terms and  provisions,  and hereby make,  as if made as of the date
hereof, the representations and warranties applicable to each Borrower contained
in the Security Agreement as each relates to the Collateral described below.

         IN WITNESS  WHEREOF,  the parties hereto have executed this Schedule as
of the ___ day of ____, 19__.


                                        CRESCENT PUBLIC COMMUNICATIONS
                                        Inc., as Borrower


                                        By:
                                        Name:
                                        Title:


                                        ATTEST:
                                        Name:
                                        Title:


                                       18

EX-10.13

                     AMENDMENT TO SECURITY AGREEMENT NO. 001


         AMENDMENT dated as of December 28, 1995 by and among LYON CREDIT
CORPORATION ("Secured Party"), AMERICAN NETWORK EXCHANGE, INC. ("ANEI") and
CRESCENT PUBLIC COMMUNICATIONS INC. ("Crescent" and with ANEI, collectively,
"Borrower").

                                    RECITALS

         WHEREAS,  the undersigned are parties to a certain  Security  Agreement
No. 001 dated as of  October 4, 1995 (the  "Security  Agreement"),  pursuant  to
which, among other things, subject to the terms thereof, the Borrower granted to
the Secured Party a first  security  interest in the Collateral (as such term is
defined in the  Security  Agreement)  for  purposes of securing  payment on each
promissory note made by the Borrower in favor of the Secured Party and all other
indebtedness of the Borrower to the Secured Party; and

         WHEREAS,  simultaneously  herewith,  the  Borrower  is  executing a new
promissory note in favor of the Secured Party, and in connection therewith,  the
undersigned desire to amend the Security Agreement in accordance with clause (d)
of Section 22  thereof,  in order to  incorporate  into the  Security  Agreement
certain new provisions relating thereto.

         NOW,  THEREFORE,  in  consideration of the foregoing and for other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, the undersigned hereby agree as follows:

         1. Except as otherwise  provided  herein,  all  capitalized  terms used
herein  without  definition  shall  have the  meanings  ascribed  to them in the
Security Agreement.

         2. The original  listing of  Collateral  ("Original  List")  comprising
Schedule A attached to Schedule No. 1 to the Security  Agreement  ("Schedule 1")
is hereby deleted in its entirety and the new listing of Collateral ("New List")
comprising  Schedule A attached  to  Schedule  No. 2 to the  Security  Agreement
("Schedule 2") is substituted therefor. It is understood and agreed that the New
List shall serve to collateralize both Schedule 1 and Schedule 2, each of which,
as amended hereby, shall remain in full force and effect.

         3.  The first sentence of Section 5 of the Security Agreement is hereby
amended to read in its entirety as follows:

                  Borrower  shall  keep the  Collateral  free and clear from all
                  liens,  charges,  encumbrances  and security  interests of any
                  kind  ("Liens"),  except for (i) the Lien of Secured Party, as
                  provided  in this  Security  Agreement,  (ii)  Liens for taxes
                  either  not yet due or being  contested  by  Crescent  in good
                  faith with due diligence and by  appropriate  proceedings,  so
                  long as such  proceedings  do not,  in the  opinion of Secured
                  Party, involve any material danger of sale, forfeiture or loss
                  of Collateral or any part thereof or title thereto or interest
                  therein, (iii) inchoate materialmen's, mechanics', workmen's,
                  repairmen's, employees', carriers',  warehousemen's  or other
                  like Liens arising in the ordinary course of business of 
                  Crescent and not delinquent and Crescent shall be maintaining
                  adequate  reserves therefor and (iv) in the  absence  of any 
                  Event of Default  hereunder,  any Lien of any third  party, 
                  provided,  that (A)  Secured  Party retains a perfected  first
                  priority  security  interest in at least 1866 Items of  
                  Collateral  and (B) each of the Contracts related to such
                  Items has a term which extends at least to the maturity of the
                  Note.




         4. The  references  to "1500"  appearing  in clause  (a) of  Section 6,
clause (a) of Section 9, and clause (x) of Section 17 of the Security  Agreement
are hereby amended to read "1866".

         5. The  Security  Agreement  is hereby  amended by deleting  Section 21
thereof in its entirety and renumbering the remaining Section 22 of the Security
Agreement as Section 21.

         6. Except as expressly amended herein,  the terms and conditions of the
Security  Agreement  shall  remain in full  force and effect  without  waiver or
modification of the rights of any party thereto.

         7. This Amendment may be executed in any number of counterparts  and by
different  parties  hereto  on  separate  counterparts  each of  which,  when so
executed and delivered,  shall be an original,  and all such counterparts  shall
together constitute one and the same instrument.

         IN  WITNESS  WHEREOF,  each  of the  parties  hereto  has  caused  this
Amendment to be executed on its behalf by an officer  thereunto duly  authorized
as of the date first above written.

Borrower:

CRESCENT PUBLIC COMMUNICATIONS INC.

By:/s/
Name:  Kenneth G. Baritz
Title: Chairman

Borrower:
AMERICAN NETWORK EXCHANGE, INC.

By: /s/
Name:  Kenneth G. Baritz
Title: Chairman

Secured Party:
LYON CREDIT CORPORATION

By: /s/
Name: F.S. Snipes
Title: Asst. V.P.

EX-10.14

                     SECOND AMENDMENT TO SECURITY AGREEMENT

         SECOND AMENDMENT TO SECURITY AGREEMENT ("Amendment") dated as of
November 15, 1996, by and among LYON CREDIT CORPORATION ("Secured Party"),
AMERICAN NETWORK EXCHANGE, INC. ("ANEI") and CRESCENT PUBLIC COMMUNICATIONS INC.
("Crescent" and ANEI are collectively herein, the "Borrower" ).

                                    RECITALS

         WHEREAS,  the undersigned are parties to a certain  Security  Agreement
No.  001  dated as of  October  4,  1995 (the  "Original  Security  Agreement"),
pursuant to which,  among other  things and  subject to the terms  thereof,  the
Borrower  granted  to  the  Secured  Party  a  first  security  interest  in the
Collateral  (as such term is defined in the Security  Agreement) for purposes of
securing  payment on that certain  Promissory Note, cated as of October 4, 1995,
in the original stated amount of $2,500,000.00  executed by Borrower and payable
to Secured Party ("First Note") and each promissory note made by the Borrower in
favor of the Secured  Party and all other  indebte!dness  of the Borrower to the
Secured Party; and

         WHEREAS,  Secured Party advanced further funds to Borrower  pursuant to
that  Promissory  Note,  dated as of December 28, 1995,  in the original  stated
principal  amount  of  $500,000.00  ("Second  Note").  In  connection  with this
additional  funding,  the parties  amended the  Original  Security  Agreement in
accordance with that Amendment to Security  Agreement,  dated as of December 28,
1995 ("First Amendment") and other related amendment and loan documents; and

         WHEREAS,  simultaneously  herewith,  Borrower is refinancing  the First
Note and Seconcl Note and receiving  additional funds under a new  Consolidated,
Renewed and Restated  Promissory Note in the original stated principal amount of
$7,000,000.00  executed  by  Borrower  in  favor  of  the  Secured  Party  (such
refinancing and additional  funding being sometimes  hereinafter  referred to as
the "Loan") and other related  amendment and loan  documents;  and in connection
therewith,  the undersigned  desire to amend the Original Security  Agreement as
amended by the First  Amendment to incorporate  therein  certain new conditions,
terms and additional collateral.

                                   AGREEMENTS

         NOW,  THEREFORE,  in  consideration of the foregoing and for other good
and  valuable  consideration,  the  receipt and  sufficiency  of which is hereby
acknowledged, the undersigned hereby agree as follows:

         1. The recitals set forth above are incorporated herein for all 
purposes.

         2. Except as otherwise  provided  herein,  all  capitalized  terms used
herein  without  definition  shall  have the  meanings  ascribed  to them in the
Security Agreement.  "Security Agreement" as used herein shall mean the Original
Security  Agreement  as  amended by the First  Amendment  and as amended by this
Amendment.







         3. Schedule No. 1 to the Original Security Agreement was wholly 
restated and revised by Schedule No. 2 executed in connection with and as part
of the First Amendment. Schedule No. 2 is hereby wholly restated and replaced by
Schedule No. 3 attached hereto and incorporated herein for all purposes. It is
understood and agreed that only Schedule No. 3 shall serve as Collateral under
the Security Agreement.

         4. "Note" as used in the  Security  Agreement  shall  include,  without
limitation,  that certain  Consolidated,  Renewed and Restated  Promissory  Note
dated as of November  15,  1996,  in the  original  stated  principal  amount of
$7,000,000.00,  which note shall be  included,  without  limitation,  within the
Indebtedness secured by the Security Agreement.

         5. Clause (i) under Section 1 of the Security  Agreement which reads as
follows  "(i) each unit of  property  (such  unit,  an  "Item")  described  in a
Schedule in the form attached hereto as Exhibit "B" (a "Schedule") and each unit
of property constituting  Replacement Equipment as defined in Section 9 hereof,"
is replaced with the following:

                  (i) each unit of property  (such unit,  an "Item")  having the
                  location  and  phone  number  set  forth  on  and  as  further
                  described on Schedule No. 3 attached hereto  ("Schedule")  and
                  each Item  constituting  Replacement  Equipment  as defined in
                  Section  9  hereof  ("Item"  as used  herein  shall  mean  the
                  applicable pay telephone,  together with any telephone booths,
                  enclosures,  stations,  pedestals,  apparatus, circuit boards,
                  coin banks and any other equipment  physically connected to or
                  installed in or with such telephones  located at the addresses
                  set forth on the Schedule),

         6. Section 5 of the Security Agreement is hereby amended to read in its
entirety as follows:

                  5. Liens:  Borrower shall keep the  Collateral  free and clear
                  from all liens,  charges,  encumbrances and security interests
                  of any kind  ("Liens"),  except  for (i) the  Lien of  Secured
                  Party, as provided in this Security Agreement,  (ii) Liens for
                  taxes  either not yet due or being  contested  by  Crescent in
                  good faith with due diligence and by appropriate  proceedings,
                  so long as such  proceedings do not, in the opinion of Secured
                  Party, involve any material danger of sale, forfeiture or loss
                  of Collateral or any part thereof or title thereto or interest
                  therein,   and  (iii)  inchoate   materialmen's,   mechanics',
                  workmen's, repairmen's,  employees', carriers', warehousemen's
                  or other like Liens arising in the ordinary course of business
                  of  Crescent  and  not   delinquent   and  Crescent  shall  be
                  maintaining adequate reserves therefor. No additional Liens on
                  the Collateral shall be permitted for the benefit of any third
                  party or in connection  with any other third party  financing.
                  Secured  Party shall,  at its own cost and  expense,  promptly
                  take such action as may be  necessary  to  discharge  duly all
                  Secured  Party's Liens upon full payment and  satisfaction  of
                  all  Indebtedness.  Secured Party expressly  acknowledges  and
                  agrees that for purposes of this Security Agreement  including
                  but not  limited  to the  provisions  of this  Section  5, the
                  Collateral   consists  only  of  3500  Items  and   associated
                  Contracts, Proceeds and Additions as more fully defined and

                                        2





                  described in Section 1 hereof and the Schedule dated as of 
                  even date herewith attached hereto as Schedule No. 3.

         7. The references to "1866" appearing in clause (a) of Section 6 and 
clause (a) of Section 9 of the Security Agreement are hereby amended to read 
"3500."

         8.  Clause (x) of Section 17 of the Security Agreement is hereby 
revised to read as follows:

         (x) the  related  Contracts  for at least 3500 of the Items have terms,
         including  automatic  renewals  thereof,  of at least sixty (60) months
         from the date hereof;

         9.   The following phrase is hereby deleted from Section 17 (v) "except
as otherwise provided in Section 5 hereof."

         10.  Clause  (viii) of Section 17 of the  Security  Agreement is hereby
revised to read as follows:

         (viii) each of the Contracts  is, by its terms,  assignable by Crescent
         (except  for  Contracts  covering  approximately  65  Items  which  are
         maintained in hospitals,  which  assignments are subject to the consent
         of such hospitals and subject to applicable laws and regulations),  and
         no Contract  provides for any claim (other than a claim for non-payment
         of commissions  due thereunder) or lien by the owner of the premises on
         which any Item is located on any such Item,  and each  Contract  (other
         than 2 of the Contracts)  allows Crescent to remove the Collateral from
         the premises  whenever Crescent or its assigns feels it is necessary to
         do so to prevent the deterioration of the Collateral  without liability
         or accountability to such owner;

         11. The Security Agreement is hereby amended by adding Sections 22, 23,
24,  25,  26,  27  and  28 as  set  forth  below  (currently  Section  21 is the
Miscellaneous  Section  as the prior  Section 21  "Release  of  Collateral"  was
deleted in the First Amendment):

                  22.  Earnest  Money Fee.  Borrower  paid a refundable  earnest
                  money  fee  (the  "EMF")  in the  amount  of  $70,000.00  upon
                  Borrower's execution of the proposal to make the Loan. The EMF
                  shall be returned  to  Borrower  within 30 days after the Loan
                  proceeds  have been  funded  to  Borrower  (less any  Expenses
                  incurred by Secured Party in connection with making the Loan).
                  Expenses as used in this Section 22 shall include,  but not be
                  limited to, all costs of  recording  of liens,  UCC  searches,
                  reasonable   attorneys'   fees   and   expenses,   appraisals,
                  reasonable  travel  expenses  and  other  fees  incidental  to
                  closing  of the Loan.  In the event the Loan  should not close
                  due to rejection by Borrower  and/or its parent company of the
                  financing  contemplated  hereunder,  Borrower acknowledges and
                  agrees that the EMF was fully earned by Secured  Party and was
                  not contingent  upon the execution of the Second  Amendment to
                  Security Agreement or the making of any advance thereunder.

                  

                                        3



                  23. Prepayment Fee: Loan Fee. Concurrently with the execution 
                  of the Agreement, Borrower shall pay a non-refundable fee 
                  ("Fee") in the amount of Seventy Thousand
                  and No/100 Dollars  ($70,000.00)  to Secured  Party.  Borrower
                  acknowledges  and agrees  that the Fee was fully  earned  upon
                  Borrower's  execution  of this  Agreement,  and  shall  not be
                  subject to  proration or rebate upon the  termination  of this
                  Agreement  or repayment of the Loan. A portion of the Fee, the
                  calculation of which shall be determined by Secured Party,  is
                  payable to Secured  Party in  connection  with the  prepayment
                  premium  due to Secured  Party under the First Note and Second
                  Note.  The  remainder  of the Fee shall be  payment to Secured
                  Party as  consideration  for  making  the loan and shall  also
                  compensate  Secured  Party  for the cost  associated  with the
                  origination, structuring, processing, approving and closing of
                  the  transactions  contemplated  herein,  including,  but  not
                  limited to,  Secured  Party's  administrative,  out-of-pocket,
                  general overhead and lost opportunity costs, but not including
                  any  expenses  for which  Borrower  has  agreed  to  reimburse
                  Secured Party pursuant to this Security Agreement .

                  24. Right to Participate.  Borrower  acknowledges  that it has
                  been informed that Secured Party intends to sell participation
                  interests in the Indebtedness to other financial institutions.
                  To  the  extent  that  any  such   participants   should  find
                  typographical,   word  processing  or  other  similar  errors,
                  Borrower agrees to correct such matters.

                  25.  No  Additional  Debt  on  Coastal  Transaction.   Without
                  limiting Borrower's rights to use any non-Collateral  property
                  for  security  for  new  debt  for  future   acquisitions   or
                  otherwise,  Borrower  agrees and  represents  and  warrants to
                  Secured Party that no additional debt,  whether through seller
                  financing,  third  party  financing,  or  whether  secured  or
                  unsecured,  shall be entered  into or incurred  in  connection
                  with the  purchase of the assets of Coastal  Telecom  Payphone
                  Company,  Inc.,  BEK Tel,  Inc.,  and Garden  State  Telephone
                  Installation  & Service Co., Inc. as  originally  set forth in
                  that certain Asset Purchase Agreement, dated as of November 8,
                  1996.

                  26. Inadvertent  Replacement.  Without limiting or waiving any
                  of  the  other  affirmative  obligations  of  Borrower  as  to
                  maintaining  the Collateral  herein,  Borrower agrees that the
                  Items of Collateral  hereunder shall be maintained at the 3500
                  level and should  Borrower  have been  mistaken  (such mistake
                  must be  inadvertent  and in good faith) as to the term of, or
                  automatic  renewals of, any of the  Contracts  causing such to
                  terminate  prior to the maturity of the Note,  Borrower  shall
                  within ten (10) Business Days of such  termination  cause such
                  to be  replaced  in  accordance  with  Section  9 (c) of  this
                  Security Agreement.

                  27. Copies of Contracts. Borrower represents and warrants that
                  it has  available  in its  files the  Contracts  and that such
                  shall be held in trust by Borrower  for the benefit of Secured
                  Party.  Borrower  agrees  that within ten (10)  business  days
                  after request by Secured  Party after an Event of Default,  it
                  shall provide the Contracts to Secured Party.

                                        4






                  28.  Cash  Flow  Ratio.  AMNEX,  INC.  is a  guarantor  of the
                  Indebtedness and parent company to each corporation comprising
                  Borrower.  As a  condition  and  inducement  to Secured  Party
                  refinancing  and  providing   additional  funds  to  Borrower,
                  Borrower  agrees  that  it  shall  be  a  covenant   hereunder
                  applicable to Borrower that AMNEX,  Inc.  maintain a Cash Flow
                  Ratio  (as  hereafter  defined)  of not less than 1.25 to 1.0.
                  Borrower shall provide annual  certifications to Secured Party
                  (such  shall  be  delivered  along  with  the  annual  reports
                  provided  under  Section 8 (iv)).  "Cash  Flow  Ratio" as used
                  herein is  derived  by  dividing  Net Cash Flow (as  hereafter
                  defined)  by  Current  Maturities  of Long Debt (as  hereafter
                  defined).  "Net Cash Flow" shall mean the sum of net after tax
                  income (but excluding any  condemnation or insurance  proceeds
                  payable), depreciation, and amortization of intangible assets.
                  "Current  Maturities  of Long Term Debt" shall mean the sum of
                  the  current  portion  of long  term debt and  capital  leases
                  payable in the twelve months following the fiscal year end.

         12. Borrower  remakes its  representations  and warranties set forth in
the  Security  Agreement  as of the date of this  Amendment  and  reaffirms  and
remakes all of its covenants and agreements as of the date of this Amendment.

         13. Secured Party agrees within thirty (30) days after funding the Loan
to type  legends on the First Note and Second Note  stating  that such have been
consolidated,  renewed and  restated in the  Consolidated,  Renewed and Restated
Note, dated as of November 15, 1996 and to provide a copy of same to Borrower or
AMNEX, Inc. but the First Note and Second Note shall be, as so marked,  retained
by Secured  Party  until the Loan shall  have been paid in full.  Secured  Party
intends to file new UCC-1s in connection  with the Loan and agrees after receipt
of the  recorded new UCC-1s to file UCC  terminations  as to the UCC-1s filed in
connection with Original Security Agreement and the First Amendment.

         14. Except as expressly amended herein, the terms and conditions of the
Security  Agreement  shall  remain in full  force and effect  without  waiver or
modification of the rights of any party thereto.

      15. This  Amendment may be executed in any number of  counterparts  and by
different  parties  hereto  on  separate  counterparts  each of  which,  when so
executed and delivered,  shall be an original,  and all such counterparts  shall
together constitute one of the same instrument.

                 [THE REMAINDER OF PAGE IS INTENTIONALLY BLANK]



                                        5





         IN WITNESS  WHEREOF,  each of the parties hereto has caused this Second
Amendment  to  Security  Agreement  to be  executed  on its behalf by an officer
thereunto duly authorized as of the date first above written.

BORROWER:

CRESCENT PUBLIC COMMUNICATIONS INC.


By:/s/
     Kenneth G. Baritz, Chairman


ATTEST:/s/
          Renee A. Brandner, Secretary


AMERICAN NETWORK EXCHANGE, INC.,


By: /s/
        Kenneth G. Baritz, Chairman



ATTEST:/s/
         Amy S. Gross, Secretary


SECURED PARTY:

LYON CREDIT CORPORATION


By:/s/
Printed Name:Randall C. House
Title:VP/Division Manager



                                        6





                                 Schedule No, 3
                              to Security Agreement


                      SCHEDULE NO. 3 TO SECURITY AGREEMENT



Description of Collateral:    3500 Pay Telephones as outlined on Schedule "A"
                              attached hereto and made a part hereof.

Cost of Collateral:           $7,000,000.00

Collateral be located at:     See Schedule "A" attached hereto and made a part
                              hereof.


      Reference is rnade to that certain Security Agreernent No. 001, dated as 
of October 4, 1995, as amended by that certain Amendment to Security Agreement,
dated as of December 28, 1995 and that certain Second Amendment to Security
Agreement, dated as of November 15, 1996 (as it may be modified or amended, now
or hereafter, called the "Security Agreement") between Lyon Credit Corporation
("Secured Party") and American Network Exchange, Inc. and Crescent Public
Communications Inc. ("Borrower").

     All of the terms and  provisions  of the  Security  Agreernent  are  hereby
incorporated by reference into and made part of this Schedule to the same extent
as if fully set forth  herein.  Borrower  and Secured  Party  hereby agree to be
bound by the terms and  provisions,  and hereby make,  as if made as of the date
hereof, the representations  and warranties  contained in the Security Agreement
as each relates to the Collateral described above.



                                        7






     IN WITNESS  WHEREOF,  the parties  hereto have executed this Schedule as of
the 15th day of November, 1996.

                                             AMERICAN NETWORK EXCHANGE, INC.,
                                             as Borrower

Attest: /s/                                  By:/s/
Printed Name: Amy S. Gross                      Kenneth G. Baritz
Title: Secretary

                                             CRESCENT PUBLIC COMMUNICATIONS INC.
                                             as Borrower

Attest:/s/                                   By:/s/
Printed Name: Renee A. Brandner                 Kenneth G. Baritz, Chairman
Title:Secretary

LYON CREDIT CORPORATION
as Secured Party

By:/s/
Title: V.P. Division Manager

                                        8




                                   SCHEDULE A

Reference is made to that certain Security Agreement No. 001 dated as of October
4, 1995 as amended by the Amendment to Security Agreement,  dated as of December
28, 1995, and Second Amendment to Security  Agreement,  dated as of November 15,
1996  (collectively,   the  "Security  Agreement")  by  and  among  Lyon  Credit
Corporation (together with its successors and assigns, if any, "Secured Party"),
American Network Exchange, Inc. ("ANEI") and Crescent Public Communications Inc.
("Crescent",  and  collectively  with ANEI, the  "Borrower"),  pursuant to which
Borrower granted and conveyed to Secured Party a first security interest in, and
mortgaged and collaterally  assigned to Secured Party, (i) each unit of property
(such unit, an "Item")  having the location and phone number set forth on and as
further  described on Attachment 1 attached  hereto  ("Schedule")  and each Item
constituting  Replacement  Equipment  as defined  in  Section 9 of the  Security
Agreement  ("Item" as used  herein  shall  mean the  applicable  pay  telephone,
together with any telephone booths, enclosures,  stations, pedestals, apparatus,
circuit boards,  coin banks and any other equipment  physically  connected to or
installed in or with such  telephones  located at the addresses set forth on the
Schedule),  (ii) each Pay Telephone  Location Agreement between Crescent and the
owner or lessee of any location on which any Item may be located,  and (iii) all
products and proceeds of each Item,  if any,  which  Crescent may be entitled to
receive, i.e., excluding any and all non-coin revenues but including commissions
receivable on non-coin  revenues and any coin revenues derived from an Item, all
additions,  attachments,  accessories  and  accessions  thereto  and any and all
substitutions,  replacements  or exchanges  thereto,  and any and all  insurance
proceeds  thereof,  including,  but not limited  to,  every  permitted  lease or
sublease,  however  designated,  covering all or any part  thereof,  (all of the
foregoing hereinafter collectively called the "Collateral").


                                        9

EX-10.15

               CONSOLIDATED, RENEWED, AND RESTATED PROMISSORY NOTE


$7,000,000.00                                           November 15, 1996



         FOR VALUE RECEIVED,  the  undersigned,  Crescent Public  Communications
Inc., and American  Network  Exchange,  Inc.,  hereinafter  collectively  called
"Borrower",  jointly  and  severally  promise to pay to the order of Lyon Credit
Corporation, hereinafter called "Payee", at its office located at 1266 East Main
Street, Stamford,  Connecticut,  06902, or at such other place as Payee may from
time  to  time   designate,   the  principal   sum  of  Seven  Million   Dollars
($7,000,000.00)  together with interest thereon at the rate of 10.52% per annum,
with  principal  and  interest  payable  in  sixty  (60)   consecutive   monthly
installments, commencing January 1, 1997 and continuing on the same date of each
month  thereafter  until this Note is fully paid,  each such  installment in the
amount of One Hundred Fifty  Thousand Five Hundred  Twenty Six Dollars and Sixty
Seven  Cents  ($150,526.67).  In  addition  to the normal  monthly  payment  due
hereunder  on  January  1,  1997,  if this  Note is  funded  on any day prior to
December 1, 1996,  Borrower shall pay, in addition to the first monthly  payment
referred to above, a payment of interest only based on the interest rate charged
hereunder on the number of days such funds were outstanding prior to December 1,
1996.

         The interest rate stated above is based on the corresponding  term U.S.
Treasury Note Rate as of November 8, 1996 (the "Effective  Date") plus 450 basis
points (i.e.,  4.5%).  Each Borrower and Payee agree that any change in the U.S.
Treasury  Note,  from the Effective Date to the date of funding of the extension
of credit  evidenced by this Note, will result in a corresponding  change in the
interest rate for this Note.

         This note is referred  to in and is  entitled  to the  benefits of that
certain Security Agreement  (hereafter  defined).  Borrower  heretofore executed
that  certain  Security  Agreement  No.  001,  dated as of  October 4, 1995 (the
"Original  Security  Agreement") for the benefit of Payee. The Original Security
Agreement was modified pursuant to that certain Amendment to Security  Agreement
No. 001, dated as of December 28, 1995 ("First Amendment"),  and is concurrently
being modified by that certain Second Amendment to Security Agreement,  dated as
of the  date  of  this  Note  ("Second  Amendment")(collectively,  the  Original
Security  Agreement,  First  Amendment,  and  Second  Amendment  are  herein the
"Security  Agreement").  Schedule No. 1 to the Original  Security  Agreement was
wholly  restated and replaced by Schedule No. 2 executed in connection  with the
First  Amendment.  Schedule  No. 2 is being  wholly  restated  and  replaced  by
Schedule No. 3 executed as of even date herewith in  connection  with the Second
Amendment.  Schedule No. 3 is herein the "Schedule." The Security  Agreement and
Schedule  encumber and grant Security  interests in certain  property  described
therein and secure the indebtedness described herein.

         All payments received in respect of this Note shall be applied,  first,
to accrued interest and then to principal. The acceptance by Payee or any holder
hereof  of any  payment  which is less than the full  amount  then due and owing
shall not  constitute  a waiver of  Payee's  or such  holder's  right to receive
payment in full at such time or at any prior or subsequent time.






         Borrower,  if  required  by the  Security  Agreement,  shall,  upon the
occurrence  of an  "Event  of Loss" (as that  term is  defined  in the  Security
Agreement)  with respect to any Item of  Collateral  described in the  Schedule,
prepay  this  Note by that  amount an in the  manner  provided  in the  Security
Agreement.

         Borrower may, on any regular  installment  payment date,  prepay all or
any part of, the unpaid  principal  balance  hereof  together  with all  accrued
unpaid interest thereon to the date of such prepayment, provided that along with
and in addition to such prepayment  Borrower shall pay (i) a prepayment  premium
equal to a percentage of the remaining principal balance as follows:

                           MONTHS            FEE

                           1-12              5%
                           13-24             4%
                           25-36             3%
                           37-60             2%

and  (ii) any and all  other  sums  due  hereunder  and/or  under  the  Security
Agreement,  and provided  further,  that  Borrower  give Secured  Party at least
forty-five (45) days' prior written notice of such  prepayment.  If in part, any
prepayment shall be in an amount of no less than $250,000.00.

         Time is of the essence  hereof.  If payment of any  installment  or any
other sum due under this Note or Security  Agreement is not paid within ten (10)
days  after its due date,  Borrower  agrees to pay a late  charge of five  cents
(5(cent))  per dollar on, and in addition  to, the amount of each such  payment,
but not exceeding the lawful  maximum rate. In the event  Borrower shall fail to
make any  payment  under this Note  within ten (10) days  after  written  notice
thereof from  Secured  Party or if any other "Event of Default" (as that term is
defined in the Security Agreement) shall occur, then the entire unpaid principal
balance hereof with accrued unpaid interest thereon together with all other sums
payable under this Note or the Security Agreement, shall, at the option of Payee
and without notice or demand to Borrower,  become  immediately  due and payable,
such  accelerated  balance  bearing  interest  until paid at the default rate of
fifteen  percent  (15%) per annum,  or if prohibited by law, at such lesser rate
that is not prohibited by law.

         Notwithstanding  the foregoing,  if at any time  implementation  of any
provision  hereof  shall cause any amount  contracted  for or charged  herein or
collectable  hereunder to exceed any applicable  lawful  maximum rate,  then the
interest shall be limited to lawful maximum rate.

         Borrower and all sureties, endorsers, guarantors and any others who may
at any time become liable for the payment  hereof hereby  consent to any and all
extensions of time,  renewals,  waivers, and modifications of, and substitutions
or releases of security or of any party primarily or secondarily liable on, this
Note or the Security  Agreement or any of the terms and provision of either that
may be made,  granted  or  consented  to by Payee,  and  agree  that suit may be
brought  and  maintained  against  any one or more of them,  at the  election of
Payee,  without joinder of the others as parties  thereto,  and that Payee shall
not be required to first  foreclose,  proceed  against,  or exhaust any security
herefor in order to enforce payment by them, or any one or more of them, of this
Note. Borrower and all sureties, endorsers,  guarantors or any others who may at
any time become liable

                                       2




for  the  payment  hereof  hereby  severally  waive:   presentment,   notice  of
nonpayment,  demand for payment,  notice of dishonor,  and all other  notices in
connection with this Note; filing of suit;  diligence in collecting on this Note
or  enforcing  any of the  security  herefor;  and all  benefits  or  valuation,
appraisement  and  exemption  laws,  and  further  severally  agree  to pay,  if
permitted  by law,  all  expenses  incurred in  collection,  including,  without
limitation, reasonable attorney's fees.

         Borrower and the persons  signing on  Borrower's  behalf  represent and
warrant  that the  execution  and delivery of this Note has been  authorized  by
Borrower's  boards of  directors  and by all  other  necessary  and  appropriate
corporate and shareholder action.

         This Note is  transferable in accordance with the terms of the Security
Agreement.

         In addition to increasing the amount of the loan to Borrower, this Note
also  consolidates,  renews and restates that certain (i) Promissory Note, dated
October 4, 1995,  in the original  stated  amount of  $2,500,000.00  executed by
Borrower for the benefit of Payee and (ii) Promissory  Note,  dated December 28,
1995, in the original stated amount of $500,000.00  executed by Borrower for the
benefit of Payee.

         THIS NOTE HAS NOT BEEN REGISTERED  UNDER THE SECURITIES ACT OF 1933 AND
MAY NOT BE  TRANSFERRED IN VIOLATION OF SUCH ACT. THIS NOTE SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

         IN WITNESS  WHEREOF,  Borrower  has  executed  this Note as of the date
first above written.


                                    CRESCENT PUBLIC COMMUNICATIONS INC.
                                    as Borrower

                                    By: /s/
                                        Kenneth G. Baritz, Chairman

                                    ATTEST: /s/
                                            Renee Brandner, Secretary

                                                             (Seal)


                                    AMERICAN NETWORK EXCHANGE, INC.,
                                    as Borrower


                                     By: /s/
                                         Kenneth G. Baritz, Chairman

                                     ATTEST: /s/
                                             Amy Gross, Secretary

                                                             (Seal)

                                       3

EX-10.16

                             MASTER LEASE AGREEMENT


MASTER  LEASE  AGREEMENT  dated  as of  October  10,  1995  between  Southbridge
Financial Corp., a Delaware corporation ("Lessor"), and American Hotel Exchange,
Inc.,  a  Florida  corporation  ("Lessee").   In  Consideration  of  the  mutual
agreements hereinafter set forth and the payment of rent as herein provided, the
parties hereto agree as follows:

1. Property Leased.  Lessor hereby rents,  demises and lets to Lessee all of the
tangible personal property (the "Equipment")  listed on each equipment  schedule
("Equipment  Schedule")  executed,  from time to time,  pursuant  to this Master
Lease. Each Equipment  Schedule shall be substantially in the form of Exhibit A,
shall  incorporate  therein all of the terms and conditions of the Master Lease,
shall contain such  additional  terms and  conditions as Lessor and Lessee shall
agree and shall  constitute  a  separate,  distinct  and  independent  lease and
contractual obligation of Lessee.

2. Definitions. 2.1 "Installation Date" means, as to each Item of Equipment 
designated on any Equipment Schedule, the date determined in accordance with 
such Equipment Schedule.

         2.2. "Commencement Date" means, as to each Equipment Schedule, the Date
determined in accordance with such Equipment Schedule.

         2.3. "Event of Default" has the meaning specified in Section 14 hereof.

         2.4. "Item" means any individual item or items of Equipment identified
in an Equipment Schedule.

         2.5. "Lease" means an Equipment Schedule as it incorporates the terms 
of the Master Lease, together with any riders, supplements and amendments to
such Equipment Schedule and Master Lease.

         2.6. "Manufacturer" means the manufacturer of the Equipment.

         2.7. "Potential Event of Default" means any event which with the lapse
of time or the giving of notice, or both, would constitute an Event of Default.

         2.8 "Guarantor" means AMNEX, Inc., the parent company of Lessee.

         2.9 "Guaranty" means the guaranty of Guarantor delivered pursuant to 
Section 15.11.

3. Term and Lease  Termination  Option.  3.1 Term.  The term of the Master Lease
shall  commence on the date set forth above and shall continue in effect so long
as any Equipment  Schedule remains in effect. The lease term for each Item shall
commence  on the  Installation  Date for such  Item and  shall  continue  for an
initial  period  ending that number of months from the  Commencement  Date as is
specified in the  applicable  Equipment  Schedule (the "Initial  Term").  On the
Installation  Date for each Item of Equipment,  Lessee shall execute and deliver
to Lessor a Certificate of Acceptance substantially in the form of Exhibit B.

         3.2  Lease  Termination  Option.  So long as no  Event  of  Default  or
Potential  Event of Default shall have occurred and be continuing,  Lessee shall
have the right to purchase  the  Equipment on an "as is, where is" basis for the
sum of $1.00.  At such time,  Lessor  shall  deliver to Lessee a Bill of Sale to
evidence such sale.







4. Rent and  Payment.  Rent shall begin to accrue on the  Installation  Date and
Lessee shall pay to Lessor, as rental for the Equipment during the Initial Term,
the rent set forth in the applicable Equipment Schedule ("Rent"), which shall be
due and payable on the dates ("Rent  Payment  Dates")  specified  therein.  Rent
shall be paid to Lessor at the  address  set forth for  Lessor in the  Equipment
Schedule or at such other place as Lessor shall  designate in writing,  or if to
an  assignee  of  Lessor,  at such place as such  assignee  shall  designate  in
writing,  and shall be paid free and clear of all  claims,  demands  or  setoffs
against  Lessor or such  assignee or any other  party.  Whenever any payment (of
Rent or otherwise) is not made when due hereunder,  Lessee shall pay interest on
such amount until and  including  the date of payment,  at the lesser of (a) the
Overdue Rate specified in the applicable Equipment Schedule, and (b) the maximum
allowable rate of interest permitted by law.

5.  Selection;  Warranty and  Disclaimer of  Warranties.  Lessee  represents and
warrants that it selects the  Equipment  based on its own judgment and expressly
disclaims any reliance upon statements made by Lessor.  Lessee authorizes Lessor
to insert in each Equipment  Schedule the serial  numbers and other  identifying
data of the Equipment.  Lessor  warrants to Lessee that, so long as Lessee shall
not be in default of any of the provisions of the applicable Equipment Schedule,
neither  Lessor nor any Assignee or Secured  Party (as such terms are defined in
Section 6.3) of Lessor will disturb  Lessee's  quiet and peaceful  possession of
the Equipment and Lessee's  unrestricted  use thereof for its intended  purpose.
LESSOR MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER,
INCLUDING,  WITHOUT  LIMITATION,  THE DESIGN OR CONDITION OF THE EQUIPMENT,  ITS
MERCHANTABILITY  OR ITS  FITNESS OR CAPACITY OR  DURABILITY  FOR ANY  PARTICULAR
PURPOSE,  THE  QUALITY  OF THE  MATERIAL  OR  WORKMANSHIP  OF THE  EQUIPMENT  OR
CONFORMITY OF THE EQUIPMENT TO THE PROVISIONS AND SPECIFICATIONS OF ANY PURCHASE
ORDER OR ORDERS RELATING THERETO AND, AS TO LESSOR,  LESSEE LEASES THE EQUIPMENT
"AS IS". Lessor shall not be liable, to any extent whatever,  for the selection,
quality,  condition,   merchantability,   suitability,   fitness,  operation  or
performance of the Equipment.  Without limiting the generality of the foregoing,
Lessor shall not be liable to Lessee for any liability,  claim,  loss, damage or
expense  of any kind or nature  (including  strict  liability  in tort)  caused,
directly or  indirectly,  by the  Equipment  or any  inadequacy  thereof for any
purpose, or any deficiency or defect therein, or the use or maintenance thereof,
or any repairs,  servicing or adjustments thereto; or any delay in providing, or
failure to provide,  any part  thereof,  or any loss of business,  or any damage
whatsoever and howsoever  caused except for any such loss caused directly by the
gross   negligence  or  willful   misconduct  of  Lessor,   or  its  agents  and
representatives.  Lessor  hereby  appoints  Lessee as Lessor's  agent to assert,
during the term of the applicable Equipment Schedule,  any right Lessor may have
to enforce the Manufacturer's warranties, if any; provided, however, that Lessee
shall  indemnify and hold Lessor and any Assignee or Secured Party harmless from
and against any and all claims, costs, expenses, damages, losses and liabilities
incurred or suffered by it as a result of or incident to any action by Lessee in
connection therewith.

6. Title and Assignment. 6.1 Title. Nothing contained herein or in any Equipment
Schedule shall give or convey to Lessee any right, title or interest in or to
the Equipment, except as a lessee as set forth therein and Lessee represents and
agrees that Lessee shall hold the Equipment subject and subordinate to the 
rights of Lessor, any Assignee and any Secured Party, and Lessee shall furnish

                                        2





Lessor with such  documentation as Lessor shall reasonably  request with respect
thereto.  Lessor is hereby authorized by Lessee,  at Lessor's expense,  to cause
this Master Lease,  any Equipment  Schedule or any statement or other instrument
in respect of any  Equipment  Schedule as it may deem  necessary or  appropriate
showing  the  interest of Lessor,  any  Assignee  and any  Secured  Party in the
Equipment to be filed in all  jurisdictions  deemed by Lessor to be necessary or
appropriate  and Lessee agrees to execute and deliver  Uniform  Commercial  Code
financing statements reasonably requested by Lessor for such purpose. Lessee, at
its expense,  shall protect and defend Lessor's title as well as the interest of
any  Assignee  and any Secured  Party  against all persons  claiming  against or
through Lessee and shall at all times keep the Equipment free and clear from any
legal process,  liens or encumbrance whatsoever (except any placed thereon by or
through Lessor) and shall give Lessor immediate written notice thereof and shall
indemnify and hold Lessor,  any Assignee and any Secured Party harmless from and
against any loss caused thereby.

         6.2 Sublease or Relocation by Lessee. Provided that no Event of Default
or Potential Event of Default shall have occurred and be continuing, Lessee may,
upon not less than thirty (30) days' prior  written  notice to Lessor,  relocate
the equipment to any location within any state of the continental  United States
where the Uniform  Commercial  Code is in effect.  In the event of a relocation,
Lessee shall cooperate with Lessor in taking all reasonable  measures to protect
the title of Lessor or any Assignee and the interest of any Secured Party to and
in the Equipment and the Lease. No relocation  permitted hereunder shall relieve
Lessee from any of its obligations  under the Lease and Lessee hereby waives any
rights it may now have or  hereafter  acquire  to avoid any such  obligation  by
reason of such relocation or any circumstance  arising  therefrom.  Lessee shall
not  sublease  the  Equipment  or assign this Lease  without  the prior  written
consent of Lessor, which consent shall not be unreasonably withheld.

         6.3 Assignment by Lessor.  (a) Lessee  acknowledges  Lessor's intent to
have the ability to sell and assign its interest,  or grant a security  interest
for the purpose of securing an obligation, in and to each Equipment Schedule and
the  Equipment  listed  therein  in  whole  or in  part to a  security  assignee
("Secured Party") for the purpose of securing a loan to Lessor.  Lessor may also
sell and  assign  its  rights as owner and  lessor  of the  Equipment  under any
Equipment Schedule to an assignee ("Assignee") which, at the option of Lessor or
the Assignee, may be represented by a bank or trust company acting as a trustee,
in which case such trustee  shall be the Assignee.  After any such  assignments,
the term Lessor shall mean, as the case may be, such Assignee or trustee and any
Secured  Party.  Lessee  hereby  consents  to  any  such  assignment  and  shall
acknowledge  such  assignment or  assignments  as shall be designated by written
notice, substantially in the form of Exhibit C hereto, given by Lessor to Lessee
and further  covenants and agrees that:  (i) any Secured Party or Assignee shall
have and be entitled to exercise any and all  discretions,  rights and powers of
Lessor  hereunder or under any  Equipment  Schedule,  but such secured  party or
Assignee  shall not be  obligated  to perform any of the  obligations  of Lessor
hereunder or under any Equipment Schedule; (ii) Lessee shall pay to such Secured
Party as Assignee as shall be  designated  in such notice,  all Rent and any and
all other  amounts  designated  in such notice which are payable by Lessee under
any Equipment Schedule, notwithstanding any defense, counterclaim, recoupment or
setoff of  whatever  nature,  whether  by  reason  of  breach of such  Equipment
Schedule  or  otherwise,  which it may or might now or  hereafter  have  against
Lessor or Secured  Party or any other  party;  (iii)  Lessee  will  execute  and
deliver such further documentation as such Secured Party or Assignee may

                                        3





reasonably  require to perfect or further the  assignments  contemplated by this
Section 6.3; and (iv) subject to and without  impairment  of Lessee's  leasehold
rights in and to the  Equipment,  Lessee  holds the  Equipment  for such Secured
Party or Assignee to the extent of such  Secured  Party's or  Assignee's  rights
therein.

(b)  Notwithstanding any assignment of Lessor's rights hereunder to an Assignee,
Secured Party or any other person or entity,  Lessor agrees that it shall remain
principally responsible and obligated to perform all of Lessor's obligations and
agreements hereunder.  Lessee shall maintain its right to have recourse directly
against Lessor on account of any breach by Lessor of its obligations  hereunder.
Each Secured Party and Assignee shall covenant that it will not disturb Lessee's
quiet and peaceful  possession of such Equipment or its unrestricted use thereof
for its intended  purpose  during the term hereof so long as no Event of Default
has occurred and is continuing.

7. Net Lease; Taxes and Fees. 7.1 Net Lease. Each Equipment Schedule constitutes
a net lease. Lessee's obligation to pay all Rent and any and all other amounts 
payable by Lessee under any Equipment Schedule shall be absolute and 
unconditional and shall not be subject to any abatement, reduction, setoff, 
defense, counterclaim, interruption, deferment or recoupment for any reason
whatsoever, and such payments shall be and continue to be payable in all events.

      7.2  Taxes  and  Fees.  Lessee  covenants  and  agrees  to pay when due or
reimburse  and  indemnify  and hold Lessor  harmless from and against all taxes,
fees or other  charges  of any  nature  whatsoever  (together  with any  related
interest or penalties) now or hereafter  imposed or assessed  during the term of
each Equipment Schedule against Lessor,  Lessee or the Equipment by any federal,
state,  county  or local  governmental  authority  upon or with  respect  to the
Equipment  or  upon  the  ordering,  purchase,  ownership,   delivery,  leasing,
possession,  use,  operation,  return or other  disposition  thereof or upon the
rents,  receipts or earnings  arising  therefrom  or upon or with respect to any
Equipment  Schedule  (excepting only federal,  state and local taxes based on or
measured by the net income of Lessor).  To the extent  permitted  by  applicable
law, Lessee shall prepare (in such manner as will show Lessor's ownership of the
Equipment)  and timely file all tax returns  required in  connection  with taxes
payable by Lessee hereunder.

8. Care, Use and Maintenance, etc. 8.1 Care, Use and Maintenance. (a) Lessee 
shall, at its sole expense, at all times during the term of each Equipment 
Schedule, maintain the Equipment in good operating order, repair, condition and
appearance and protect the Equipment from deterioration, other than normal wear
and tear.

(b) Lessee shall not use the Equipment for any purpose other than that for which
it was designated  Lessee covenants that the Equipment will at all times be used
and  operated  in  accordance  with  the  Manufacturer's   instructions  and  in
compliance  with any  restriction  contained  in the  Manufacturer's  warranties
regarding  the Equipment and with any and all  statutes,  laws,  ordinances  and
regulations of any  government  agency  applicable to the Equipment  Lessee will
ensure,  by contract or otherwise,  that any Equipment  affixed to real property
does not become the property of the real  property  owner or any party holding a
security interest therein,  without the prior written consent of Lessor, and any
such  Equipment  that is so affixed will be affixed  subject to such  reasonable
conditions  as Lessor may impose for its  protection,  and Lessee  will  provide
Lessor with such landlord's and mortgagee's waivers as Lessor may request in
connection therewith

                                        4







         8.2 Alterations and Attachments. Lessee will not, without prior written
consent of Lessor,  affix or install any  accessory,  equipment or device on the
Equipment  leased  hereunder  which will either impair the  originally  intended
function or use of such Equipment or cannot be readily  removed  without causing
material damage to such Equipment.  All such accessories,  equipment and devices
furnished,  attached  or affixed to the  Equipment  shall  thereupon  become the
property  of Lessor  (except  such as may be  readily  removed  without  causing
material damage to the Equipment)

         8.3 Inspection by Lessor. Upon the request of Lessor,  Lessee shall, at
reasonable  times  during  business  hours  and  subject  to  Lessee's  and  the
applicable   property  owner's  or  manager's   normal   security,   safety  and
confidentiality  regulations,   make  the  Equipment  available  to  Lessor  for
inspection at the place where it is normally located and shall make Lessee's log
and  maintenance  records  pertaining to the  Equipment  available to Lessor for
inspection.

9. Representations and Warranties. 9.1 Representations and Warranties of Lessee.
Lessee  represents,  warrants and  covenants  that,  with respect to this Master
Lease  and  each  Equipment  Schedule  executed  hereunder,  (a) the  execution,
delivery  and  performance  thereof by Lessee have been duly  authorized  by all
necessary  corporate action and do not conflict with Lessee's charter or by-laws
or with any indenture,  contract or agreement by which it is bound,  or with any
statute,  judgment,  decree,  rule  or  regulation  binding  upon  it;  (b)  any
individual  executing this Master Lease or any documents delivered in connection
herewith on behalf of Lessee is duly  authorized  to do so; (c) the Master Lease
and each Equipment  Schedule  constitute legal,  valid and binding agreements of
Lessee  enforceable  in  accordance  with their  respective  terms;  and (d) the
Equipment  is personal  property  and when subject to use by Lessee will not, in
accordance with Lessee's  service  contract with the relevant  property owner or
manager, be deemed to become fixtures under applicable law.

      9.2 Representations and Warranties of Lessor. Lessor represents,  warrants
and covenants that, with respect to the Master Lease and each Equipment Schedule
executed  hereunder,  (a) the  execution,  delivery and  performance  thereof by
Lessor have been duly  authorized by all  necessary  corporate  action;  (b) any
individual  executing this Master Lease or any documents delivered in connection
herewith  on behalf of Lessor is duly  authorized  to do so;  and (c) the Master
Lease and each Equipment Schedule constitute legal, valid and binding agreements
of Lessor enforceable in accordance with their respective terms.

10. Delivery of Equipment. Lessee hereby assumes the full expense of 
transportation to the premises designated by Lessee (including in-transit 
insurance) and installation thereat of the Equipment.

11. Labeling. Lessee covenants and agrees that, upon request of Lessor, it shall
cause the Equipment to be plainly,  permanently  and  conspicuously  marked,  by
stenciling  or by metal tag or plate  affixed  thereto  as  supplied  by Lessor,
indicating  Lessor's  interest in the  Equipment.  Lessee shall replace any such
stenciling,  tag or plate which may be removed or destroyed or become illegible.
Lessee shall keep all Equipment free from any marking or labeling which might be
interpreted  as a claim of  ownership  thereof by Lessee or any party other than
Lessor or anyone so claiming through Lessor.

                                        5






12.  Loss  Indemnification.  Lessee  shall and does  hereby  indemnify  and hold
Lessor, any Assignee and any Secured Party harmless from and against any and all
claims,  costs,   expenses,   damages  and  liabilities,   including  reasonable
attorneys'  fees  (a  "Claim"),   arising  out  of  the  ownership,   selection,
possession,  leasing, renting, operation,  control, use, maintenance or delivery
of the Equipment. Notwithstanding the foregoing, Lessee shall not be responsible
under the terms of this  Section  12 to a party  indemnified  hereunder  for any
Claim  occasioned  by  the  gross  negligence  or  willful  misconduct  of  such
indemnified  party.  Lessee  shall  notify  Lessor  immediately  upon its having
knowledge  thereof  of  any  Claim  arising  out  of  the  alleged  or  improper
manufacturing,  functioning  or  operation  of any  Item  of  Equipment,  and as
promptly  as  practicable  furnish  Lessor  with  details  thereof and copies of
documents pertaining thereto.

13. Risk of Loss and  Insurance.  13.1 Risk of Loss.  Lessee hereby  assumes the
entire risk of loss,  damage,  theft or destruction of the Equipment,  including
during shipment of the Equipment to Lessee, and ending upon Lessee's purchase of
the Equipment  pursuant to Section 3.2, and no such loss,  damage or destruction
shall relieve  Lessee of any of its  obligations  under any  Equipment  Schedule
executed hereunder.  In the event the Equipment is lost,  damaged,  destroyed or
stolen,  or title thereto  shall be taken by any  governmental  authority  under
power of eminent  domain or  otherwise  (an "Event of Loss"),  Lessee shall give
Lessor immediate  notice thereof if the aggregate cost of the damaged  Equipment
at one  location  exceeds  $3,000,  and in any event,  shall (a) have the damage
repaired at its expense,  without interruption of payment of Rent, or (b) if the
Equipment so damaged cannot be repaired, or if the Equipment was lost, destroyed
or title thereto taken then, at Lessor's option,  either (x) continue the Lease,
without interruption,  as if not such damage had occurred,  and promptly replace
the  Equipment  with  like-kind  equipment  reasonably  satisfactory  to  Lessor
("Replacement  Equipment");  provided,  however,  that (A) Lessee  transfers  or
causes  to be  transferred  to  Lessor  or its  order  (by bill of sale or other
documents  necessary to effect such transfer) such Replacement  Equipment,  free
and  clear  of all  security  interests,  liens,  leases,  claims,  charges  and
encumbrances,  and (B) such Replacement Equipment has a fair market value at the
time of such  replacement  not less than the fair market value of the  Equipment
being  replaced  immediately  prior to the damage or  destruction  requiring its
replacement,  or (y) on the next Rent  Payment Date pay to Lessor the greater of
(i) the fair market  value of any  irreparably  damaged  Equipment,  or (ii) the
Stipulated  Loss  Value  (as  set  forth  in the  relevant  Equipment  Schedule)
applicable  to such Lease and all Rent  charges  and other  charges  accrued and
unpaid to and including the date of such payment.

         Lessee shall give Lessor notice,  immediately upon its having knowledge
thereof,  of any damage to, or loss or destruction  of, any Equipment  having an
aggregate  cost at one  location in excess of $3,000.  All proceeds of insurance
received by Lessor or Lessee under the policy  referred to in Section 13.2 shall
be applied  toward the cost of repair or  replacement  of the  Equipment  or, if
applicable,  to  reimburse  Lessee for the amount of any  Stipulated  Loss Value
actually  paid by Lessee to  Lessor.  Upon  replacement  or  payment of the fair
market value or Stipulated  Loss Value as provided  herein  above,  title to the
irreparably  damaged  Item or Items of  Equipment  shall  transfer to Lessee (or
Lessee's designee as may be required under the provisions of an insurance policy
or  maintenance  agreement  provided by Lessee with respect to the  Equipment or
otherwise) on an "as is" basis, without recourse or warranty.

         13.2 Insurance. (a) Lessee will, at all times prior to its purchase of
the Equipment from

                                        6





Lessor pursuant to Section 3.2, at its own expense,  carry and maintain or cause
to be  carried  and  maintained  (i)  property  insurance  with  respect  to the
Equipment,  and (ii)  public  liability  insurance  with  respect to third party
personal and property  damage,  in each case with no greater  deductibles and at
least  comparable in amounts and against risks  customarily  insured  against by
Lessee  with  respect to  equipment  it owns or leases  similar in nature to the
Equipment.  Property  insurance with respect to the Equipment in any event shall
be in an amount at least equal to the greater of (i) the fair market replacement
value of the Equipment, or (ii) the Stipulated Loss Value, if any, applicable to
the  relevant  Lease.  Public  liability  insurance  with respect to third party
personal and  property  damage in any event shall be for an amount not less than
$5,000,000 per occurrence.  Any policies of insurance carried in accordance with
this Section 13.2 shall (i) require 30 days prior notice to Lessor, any Assignee
and any  Secured  Party of  cancellation,  invalidation  or  material  change in
coverage,  (ii) name Lessor,  any Assignee and any Secured  Party as  additional
insured,  and provide  that the policy  shall be treated with respect to each of
them as if it were a separate  policy,  (iii)  provide  that such  insurance  is
primary and without right of  contribution  from any other insurance which might
otherwise  be  available to the  additional  insureds,  (iv) provide that in the
event of any loss payment under a property policy the proceeds  thereof shall be
payable to Lessee,  Lessor, any Assignee and any Secured Party as their interest
may appear, (v) expressly provide that any obligations imposed upon the insureds
(including,  without  limitation,  the obligation to pay premiums)  shall be the
obligation  solely of Lessee and not the obligation of the  additional  insureds
and that any rights of the insurer for setoff, counterclaim or other deductions,
and any rights of  subrogation  against  Lessor,  any  Assignee  and any Secured
Party,  are  waived  by such  insurer,  and  (vi) be  written  by a  company  of
recognized responsibility which is reasonably acceptable to Lessor.

          (b) On or prior to the Installation  Date and thereafter not less than
five days prior to any  expiration  date of a policy  required  pursuant to this
Section  13.2,  Lessee  shall  deliver  to Lessor  and any  additional  insureds
certificates of insurance  issued by the insurers  thereunder or by an insurance
broker  authorized to bind such  insurers  evidencing  the insurance  maintained
pursuant to this Section 13.2;  provided,  however,  that if the delivery of any
certificate  is delayed,  Lessee shall  deliver an executed  binder with respect
thereto and shall deliver the formal certificate upon receipt thereof.

         (c) Lessee irrevocably appoints Lessor as Lessee's  attorney-in-fact to
make claim for,  receive  payment of, and execute any and all documents that may
be required to be provided to the  insurance  carrier in  substantiation  of any
claim for loss under any  insurance  policy and to endorse  Lessee's name to any
and all drafts or checks in payment of the loss proceeds.

         (d)  Notwithstanding  the  foregoing  provisions  of this Section 13.2,
Lessee may self-insure  with respect to damage to the Equipment,  or third party
personal and property damage, or both,  provided that (i) such self-insurance is
consistent with the self-insurance practices of Lessee with respect to equipment
it  owns  similar  in  nature  to the  Equipment,  (ii) a  description  of  such
self-insurance  practices  including any limits or  restrictions  on coverage is
provided in writing to Lessor and any  Assignee or Secured  Party upon  request,
and (iii) Lessor shall in its sole discretion agree to accept  self-insurance in
lieu of the foregoing insurance requirements set forth in this Section 13.2.

14. Default. 14.1 Definition. The occurrence of any one or more of the following
events shall

                                        7





constitute an Event of Default under ln Equipment Schedule:  (a) Lessee fails to
pay any  installment  of Rent or other  charge  payable  by  Lessee  under  such
Equipment  Schedule  when the same  becomes  due and  payable  and such  default
continues for a period of five business  days after  written  notice  thereof to
Lessee; or (b) Lessee or Guarantor fails to perform any other term,  covenant or
condition of such  Equipment  Schedule or any Guaranty  delivered in  connection
therewith,  and such  failure  continues  uncured  for a period of 15 days after
written notice; or (c) with respect to either Lessee or Guarantor, the making of
an assignment by such party for the benefit of its creditors or the admission by
such party in writing of its  inability  to pay its debts as they become due, or
the  insolvency  of such  party,  or the  filing  by such  party of a  voluntary
petition in bankruptcy,  or the adjudication of such party as a bankrupt, or the
filing  by  such  party  of any  petition  or  answer  seeking  for  itself  any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, or the
filing of any answer by such party  admitting,  or the  failure by such party to
deny,  the  material  allegations  of a petition  filed  against it for any such
relief,  or the seeking or consenting by such party to, or  acquiescence by such
party in, the  appointment of any trustee,  receiver or liquidator of such party
or of all or any  substantial  part of the  properties of such party,  to vacate
such appointment; or (d) with respect to either Lessee or Guarantor, the failure
by such party,  within 45 days after the commencement of any proceeding  against
such party seeking any reorganization,  arrangement, composition,  readjustment,
liquidation,  dissolution or similar relief under any present or future statute,
law or regulation,  to obtain the dismissal  such  proceeding or, within 45 days
after the appointment, without the consent or acquiescence of such party, of any
trustee,  receiver or liquidator of such party or of all or any substantial part
of the  properties  of  such  party,  to  vacate  such  appointment;  or (e) any
representation or warranty made by Lessee or Guarantor herein or in any document
or  certificate  delivered by Lessee or Guarantor in connection  herewith  shall
prove to have been incorrect in any material respect when such representation or
warranty  was  made or  given;  (f) an  event  of  default  shall  occur  and be
continuing with respect to any other  indebtedness or lease obligation of Lessee
or  Guarantor  having a  principal  or rental  amount  outstanding  in excess of
$500,000;  or (g)  Lessee  shall,  or shall  attempt to or permit any person to,
remove, sell, transfer,  encumber,  part with possession of, assign, relocate or
sublet any Item or Equipment (except as expressly permitted by the provisions of
this Master Lease).

      14.2  Remedies.  (a) upon the  occurrence of any Event of Default,  Lessor
may, at its option: (i) proceed by appropriate court action, either at law or in
equity,  to enforce  performance by Lessee of the applicable terms and covenants
of the  applicable  Equipment  Schedule  or to  recover  damages  for the breach
thereof;  (ii) by notice to Lessee  terminate  such  Equipment  Schedule;  (iii)
declare immediately due and payable by Lessee, as liquidated damages for loss of
a bargain  and not as a  penalty,  an  amount  equal to the  greater  of (A) the
present value of all sums to be paid by Lessee during the remaining Initial Term
or any Renewal  Term then in effect,  discounted  at the  Acceleration  Rate set
forth in the applicable Equipment Schedule, and (B) the Stipulated Loss Value of
the  Equipment  as of the Rent Payment Date  immediately  preceding  the date on
which  such Event of  Default  occurs:  (iv) take  possession  of the  Equipment
subject to such Equipment Schedule during Lessee's normal working hours, without
demand or notice,  wherever such Equipment may be located.  Lessee hereby waives
any right it may have for damages occasioned by any repossession.  Any taking of
possession   pursuant  to  this  subsection  shall  not  in  itself   constitute
termination  of any  Equipment  Schedule  and shall not,  in any event,  relieve
Lessee of its obligations thereunder; and (v) enforce any of its rights against
Guarantor under the Guaranty.

                                        8







(b) Upon taking of possession of any Equipment pursuant to Section  14.2(a)(iv),
Lessor may, at its option and without  notice to Lessee,  lease the  repossessed
Equipment  to any  third  party on such  terms  and  conditions  as  Lessor  may
determine or sell such  Equipment at public  auction or at private  sale. In the
event that Lessor leases or sells such repossessed  Equipment,  the Net Proceeds
(as defined  below)  shall first be credited to amounts due and owing by Lessee,
and shall then be used to reimburse  Lessee for any  liquidated  damage  payment
made by Lessee pursuant to Section  14.2(a)(iii).  Any surplus shall be retained
by Lessor.  Lessee  shall remain  liable for any  deficiency  resulting  from an
excess of amounts due and owing by Lessee  over Net  Proceeds.  As used  herein,
"Net Proceeds" shall mean the sale price of the Equipment, or the aggregate rent
payable pursuant to a re-lease of the Equipment  discounted at the Overdue Rate,
less  all  costs  and  expenses  (including   reasonable   attorneys'  fees  and
disbursements)  incurred by Lessor as a result of Lessee's  default and Lessor's
exercise of its remedies with respect thereto.  In calculating Net Proceeds with
respect  to a  re-lease  of the  Equipment  for a term that  extends  beyond the
Initial  Term,  only that  portion  of the  re-lease  term which does not extend
beyond the Initial Term shall be used in such calculation.

(c)  Notwithstanding  Lessor's  choice of one or more of the  remedies  provided
herein,  Lessee shall be liable for (i) all sums due and payable for all periods
up to and  including  the date on which  Lessor  declared an Event of Default to
exist, and (ii) all costs, charges and expenses, including reasonable attorneys'
fees and disbursements,  incurred by Lessor by reason of occurrence of any Event
of Default or Lessor's exercise of its remedies hereunder. Any overdue Rent, and
any  unpaid  amounts   payable  as  liquidated   damages   pursuant  to  Section
14.2(a)(iii) shall bear interest at the Overdue Rate until paid in full.

(d) No remedy, referred to herein is intended to be exclusive, but each shall be
cumulative and in addition to any other right or remedy  otherwise  available to
Lessor at law or in equity.

15.  Miscellaneous.  15.1 Entire Agreement.  Lessor and Lessee  acknowledge that
there are no agreements or  understanding,  written or oral,  between Lessor and
Lessee with respect to the Equipment, other than as set forth herein and in each
Equipment  Schedule  and that  this  Master  Lease and each  Equipment  Schedule
contain the entire  agreement  between  Lessor and Lessee with respect  thereto.
Neither this Master Lease nor any Equipment  Schedule may be altered,  modified,
terminated  or discharged  except by a writing  signed by the party against whom
such alteration, modification, termination or discharge is sought.

         15.2 No Waiver;  Cure.  No  omission  or delay by Lessor at any time to
exercise  or  enforce  any  right  or  remedy  reserved  to  it,  or to  require
performance of any of the terms, covenants or provisions hereof by Lessee at any
time  designated,  shall be a waiver of any such right or remedy to which Lessor
is entitled,  not shall it in any way affect the right of Lessor to enforce such
provisions  thereafter.  If Lessee fails to perform any of its obligations under
this Master  Lease,  Lessor or its assigns in addition to their other rights and
remedies may, at the cost and expense of Lessee,  perform such  obligations  but
shall not be obligated to do so. All sums so paid by Lessor or its assigns shall
be immediately  due and payable by Lessee upon demand and shall bear interest at
the Overdue Rate.

                                        9






      15.3 Binding  Nature.  Each Equipment  Schedule shall be binding upon, and
shall inure to the benefit of, Lessor,  Lessee and their respective  successors,
legal  representatives  and  assigns,  except,  in the case of any  Assignor  or
Secured Party, to the extent set forth in Section 6.3 hereof.

      15.4  Survival  of  Obligations.   All  agreements,   representations  and
warranties  contained  in the Master  Lease,  any  Equipment  Schedule or in any
document  delivered  pursuant hereto or in connection  herewith shall be for the
benefit of Lessor and its successors and assigns and shall survive the execution
and delivery of this Master Lease and the expiration or other termination of the
Master Lease.

         15.5  Notices.  Any notice,  request or other  communication  to either
party by the other as provided for herein shall be given in writing and shall be
deemed  received only upon the earlier of receipt or three days after mailing if
mailed postage prepaid by registered  mail to Lessor or Lessee,  as the case may
be,  at the  address  for such  party  set  forth in the  appropriate  Equipment
Schedule or at such changed address as may be subsequently  submitted by written
notice of either party.

         15.6  Applicable  Law.  This Master Lease and each  Equipment  Schedule
shall be deemed to have been made,  executed  and  delivered in the State of New
York and shall be governed by and construed in accordance with the internal laws
of the  State of New  York  applicable  to  contracts  made and to be  performed
entirely within such State.

         15.7  Severability.  If any one or more of the provisions of the Master
Lease or any Equipment Schedule shall for any reason be held invalid, illegal or
unenforceable,  the  remaining  provisions  of this  Master  Lease  and any such
Equipment  Schedule  shall not be affected  thereby and shall be enforced to the
fullest extent permitted by law.

         15.8 Counterparts.  This Master Lease and any Equipment Schedule may be
executed  in any  number  of  counterparts,  each of which  shall be  deemed  an
original,  but all such  counterparts  together shall constitute but one and the
same instrument.  If Lessor grants a security  interest in all or any part of an
Equipment   Schedule,   the  Equipment   covered  thereby  and/or  sums  payable
thereunder,  only that counterpart Equipment Schedule marked "Counterpart Number
One of ___ Counterparts" shall be effective to transfer Lessor's rights therein.
All counterparts  shall bear the legend "No security  interest in this Lease may
be perfected by the possession of any counterpart other than Counterpart  Number
One. Only Counterpart  Number One shall be deemed to be the original;  all other
counterparts shall be deemed to be duplicates.

         15.9 Delay in  Installation.  Lessee hereby  assumes and shall bear the
entire  risk  of loss  arising  out of or in  connection  with  delays,  partial
performance or non-performance by the supplier of the Equipment and Lessor shall
not be liable for specific  performance of this Lease or for damages if, for any
reason, any supplier delays or fails to fill or improperly fills an order.

         15.10 Further  Assurances.  Lessee shall furnish in connection with the
execution  and  delivery of the Master  Lease and,  upon  request by Lessor,  in
connection  with each Equipment  Schedule  hereunder,  an opinion of counsel,  a
certificate  of  incumbency  and such other  documents as Lessor may  reasonably
request in form reasonably acceptable to Lessor. Lessee hereby authorizes

                                       10




Lessor  to  insert  the  serial  numbers  provided  by the  Manufacturer  of any
Equipment  in the  Equipment  Schedule,  Certificate  of  Acceptance  and  UCC-l
financing statements, covering such Equipment.

         15.11  Guaranty of Parent.  As  incentive to Lessor and any Assignee or
Secured Party to enter into each  Equipment  Schedule with Lessee,  Lessee shall
cause its parent company,  Guarantor to deliver a Guaranty  substantially in the
form of Exhibit E hereto.

         15.12 Additional Matters.  (a) Pursuant to Section l, Lessee and Lessor
may, from time to time,  mutually agree on additional  terms and conditions with
respect to an  Equipment  Schedule  which may be set forth  therein or  attached
thereto as "Riders" which shall be applicable to and constitute a part thereof.

(b) In the event of any conflict between the terms and conditions of this Master
Lease and the terms and conditions of any Equipment Schedule or Rider, the terms
and conditions of the Equipment Schedule or Rider shall prevail.

(c) Section headings are for convenience only and shall not be construed as part
of the Master Lease.

(d) Unless otherwise specified,  references to Exhibits or Sections herein shall
be references to Exhibits or Sections of this Master Lease.

In Witness Whereof,  the parties hereto have executed the Master Lease as of the
day and year first above written.

AMERICAN HOTEL EXCHANGE, INC.,              SOUTHBRIDGE FINANCIAL CORP.,
LESSEE                                      LESSOR


By:  /s/ Kenneth G. Baritz                  By: /s/ Arthur P. Freierman
     Name: Kenneth G. Baritz                    Arthur P. Freierman
     Title: Chairman                            President

                                       11

EX-10.18

                           LOAN AND SECURITY AGREEMENT

                             Dated December 18, 1996

                                 by and between

                      CRESCENT PUBLIC COMMUNICATIONS INC.,
                                  as Borrower,

                                       and

                          SOUTHBRIDGE FINANCIAL CORP.,
                                    as Lender








                           LOAN AND SECURITY AGREEMENT



         AGREEMENT,  dated  as  of  ,  1996,  by  and  between  CRESCENT  PUBLIC
COMMUNICATIONS INC., a New York corporation  ("Borrower"),  having its principal
place of  business at 7  Mayflower  Place,  Floral  Park,  New York  11001;  and
SOUTHBRIDGE  FINANCIAL  CORP.,  a Delaware  corporation  ("Lender"),  having its
principal place of business at 400 Madison Avenue, New York, New York 10017.

                              W I T N E S S E T H :

         WHEREAS,  Borrower has requested  Lender to make a loan to Borrower and
Lender is willing to make such loan to  Borrower  upon the terms and  conditions
hereinafter set forth.

         NOW,  THEREFORE,  in  consideration  of the  premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto covenant and agree as follows:


                      ARTICLE 1. DEFINITIONS; CONSTRUCTION

         1.1  Certain Definitions.

         In  addition  to  other  words  and  terms  defined  elsewhere  in this
Agreement,  as used  herein the  following  words and terms  have the  following
meanings, respectively, unless the context hereof otherwise clearly requires:

         "Agreement" means this Loan and Security Agreement as amended, modified
or supplemented from time to time.

         "Assignment  Agreement"  means the  Assignment  Agreement,  in form and
substance  satisfactory  to Lender,  executed  by  Borrower,  pursuant  to which
Borrower  assigns to Lender and grants to Lender a Lien  covering all of the Pay
Telephone Placement Agreements.

         "Billing  and  Related  Services  Agreement"  means (i) the Billing and
Related  Services  Agreement  between OAN  Services,  Inc. (the "B&C Agent") and
American Network Exchange, Inc. dated February 1, 1995 with respect to which the
B&C Agent will  arrange  for  accounts  receivable  financing  and will  provide
certain  billing,  collection  and  associated  services  or  (ii)  any  similar
agreement now or hereafter in effect in place of such  agreement with respect to
the Collateral.

         "Business Day" means any day other than a Saturday, Sunday or other day
on which banking  institutions are authorized or obligated to close in New York,
New Jersey, Florida or Arizona.

         "Closing Date" means the date of this Agreement.






         "Collateral" means all assets of Borrower in which Borrower has granted
or will  grant a Lien to  Lender,  pursuant  to  this  Agreement  or  otherwise,
including those assets described and defined as Collateral in Section 6.1.

         "Collection  Agreement" means (i) Collection  Agreement among Borrower,
Reliance Trust Company ("Agent"), and American Network Exchange, Inc. and Lender
dated December 18, 1996 pursuant to which,  among other things,  Agent agrees to
remit directly to Lender,  via wire transfer of funds,  the monthly payments and
all other amounts due under the Loan Documents;  and (ii) any similar  agreement
with respect to the Loan now or hereafter  entered into among Borrower,  Lender,
American  Network  Exchange Inc. and any other agent,  in all cases, as the same
have  heretofore  or may from time to time  hereafter  be  amended,  modified or
supplemented.

         "Constituent   Documents"  means  the  certificate  of   incorporation,
by-laws,  or other  similar  document  pursuant  to which  Borrower  and/or  the
Guarantor were organized or their affairs are governed.

         "Default"  means an event which with notice or lapse of time,  or both,
would constitute an Event of Default.

         "Equipment"  means  the Pay  Telephones  and any  equipment  physically
connected  to or  installed  in or  with  the  Pay  Telephones,  and any and all
accessions and additions thereto,  substitutions  therefor, and all replacements
thereof.

         "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

         "Event of Default" means any of the Events of Default described in 
Section 7.1 hereof.

         "Executive  Officer" means the President,  the Chief Executive Officer,
or the Chief Financial Officer of Borrower elected from time to time.

         "GAAP" means  generally  accepted  accounting  principles in the United
States of America (as such principles may change from time to time) applied on a
consistent basis (except for changes in application in which  Borrower's  and/or
Guarantor's  independent  certified public accountants concur),  applied both to
classification of items and amounts.

         "Guarantor" means AMNEX, Inc., a New York corporation.

         "Guaranty"  means the  unconditional  Guaranty  of the  Obligations  of
Borrower  to  Lender,   executed  by  the  Guarantor,   in  form  and  substance
satisfactory to Lender.

         "Interest  Rate"  means the Index Rate plus five and eighty  hundredths
percent  (5.80%).  The "Index Rate" shall be the highest yield,  as published in
The Wall Street  Journal,  on the first (lst) Business Day preceding the Closing
Date,  for Treasury  Notes having a maturity  date on or closest to the Maturity
Date. Interest shall be calculated on the basis of a year of 360 days and twelve
months of thirty (30) days each and charged on a daily basis.






         "'Law" means any law  (including  common law),  constitution,  statute,
treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of
any government or governmental agency.

         "Legal Requirements" means any and all present and future judicial, and
administrative rulings or decisions, and any and all present and future federal,
state, and local laws, ordinances, rules, regulations, permits and certificates,
in each case, in any way  applicable to Borrower (or the ownership or use of the
Collateral or its other assets) and/or the Guarantor, or this transaction.

         "Lien" means any mortgage,  pledge,  lien, security interest (including
without  limitation any conditional  sale or other title  retention  agreement),
grant of a leasehold,  charge or other encumbrance of any nature whatsoever, and
also means the filing of or the  agreement  to give any  financing  statement or
analogous document under the UCC or analogous law of any jurisdiction.

         "Loan" has the meaning given to such term in Section 2.1 hereof.

         "Loan  Documents"  means this  Agreement,  the Note, the Guaranty,  the
Assignment Agreement,  the Insurance Letter, the Collection  Agreement,  and any
other  agreements,  instruments  and  documents  required  to be, or which  are,
executed by Borrower or the Guarantor in connection  with this  Agreement or the
Loan (as the same may from time to time be amended, modified or supplemented).

         "Maturity Date" has the meaning given to that term in Section 2.7.2
hereof.

         "Note" means the promissory note of Borrower  executed and delivered by
Borrower  under this  Agreement,  in  substantially  the form annexed  hereto as
Exhibit A with the blanks appropriately filled in.

         "Obligations"   means  all  of  the   indebtedness,   liabilities   and
obligations of every kind and nature of Borrower to Lender, whether now existing
or hereafter arising, whether or not currently contemplated,  howsoever arising,
including,  without  limitation,  all indebtedness,  liabilities and obligations
arising under, in connection with or evidenced by this Agreement,  the Note, the
other Loan Documents, or otherwise.

         "Office", when used in connection with Lender, means its office located
at 400 Madison Avenue,  New York 10017, or such other office of Lender as may be
designated in writing from time to time by Lender to Borrower.

         "Pay Telephones"  means the pay telephones listed on Schedule A annexed
hereto and any and all accessions and additions thereto,  substitutions for, and
all replacements thereof.

         "Pay  Telephone  Placement  Agreement(s)"  means each of the written or
oral  agreements now or hereafter  entered into (as the same have  heretofore or
may from time to time hereafter be amended,  modified or  supplemented)  between
Borrower and the owner,  operator,  lessee or  proprietor  of the Premises  upon
which one or more Pay Telephones is now or hereafter located.







         "Person"   means   an   individual,   corporation,   national   banking
association,  partnership,  trust,  unincorporated  association,  joint venture,
joint-stock company, government (including political subdivisions), governmental
authority or agency, or any other entity.

         "Plan"  means any  employee  benefit plan which is covered by ERISA and
which is maintained by Borrower or, in the case of a plan to which more than one
employer  contributes,  to which Borrower is making or accruing an obligation to
make   contributions   or  has  within  the  preceding   five  plan  years  made
contributions.

         "Premises" means the locations at which Pay Telephones are now or 
hereafter located.

         "Term" means the period beginning on the Disbursement Date and ending 
on the Maturity Date.

         "UCC" means the Uniform Commercial Code as adopted in the State of New
York.

         1.2  General Interpretive Principals.

         For purposes of this Agreement,  except as otherwise expressly provided
herein or unless the context otherwise requires:

                  (i)  any pronoun used shall be deemed to cover both gender 
forms as well as the neuter form;

                  (ii)  all references to the plural shall include the singular,
the singular the plural and the part the whole;

                  (iii)  the word "or" has the inclusive meaning frequently 
identified by the phrase "and/or";

                  (iv)  accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;

                  (v) the words  "herein",  "hereunder" and "hereof" and similar
terms  in this  Agreement  refer  to this  Agreement  as a whole  and not to any
particular provision of this Agreement;

                  (vi)    references    herein   to   "Articles",    "Sections",
"Subsections",  "Paragraphs",  and other  subdivisions  without  reference  to a
document are to designated Articles, Sections, Subsections, Paragraphs and other
subdivisions of this Agreement;

                  (vii) a reference to a Subsection without further reference to
a Section is a reference to such  Subsection as contained in the same Section in
which the reference  appears,  and this rule shall also apply to Paragraphs  and
other subdivisions;

                  (viii)  the term "include" or "including" shall mean, without
limitation, by reason of enumeration; and





                  (ix) unless otherwise  provided herein, the term "satisfactory
to Lender" or "satisfaction of the Lender" or "satisfaction to counsel" or other
similar  terms  means  satisfactory  to  Lender or its  counsel  in its sole and
absolute discretion.


                              ARTICLE 2. THE CREDIT


         2.1  The Loan.

         Subject   to  the   terms  and   conditions   and   relying   upon  the
representations and warranties herein set forth, Lender agrees to make a Loan to
Borrower in the  principal  amount of Five  Million  Dollars  ($5,000,000)  (the
"Loan")

         2.2  Use of Proceeds.

         The  proceeds  of the  Loan  shall  be used by  Borrower  to  reimburse
Borrower for its payment of a portion of the purchase Price for the  acquisition
of the Equipment and for working  capital and other valid  business  purposes of
Borrower.

         2.3  The Note.

         The  obligation  of  Borrower  to repay  the  Loan and to pay  interest
thereon shall be evidenced by the Note. The Note shall be dated the Closing Date
and shall be executed by Borrower and delivered to Lender on the Closing Date.

         2.4  Disbursement.

         Subject  to the  conditions  set forth  herein,  Lender  shall,  on the
Closing Date, credit, by wire transfer, the amount of the Loan to the account of
Borrower or the Person or Persons specified in writing by Borrower.

         2.5  Loan Account.

         Lender  shall  maintain  a loan  account  on its  books  in the name of
Borrower  for the Loan in which  will be  recorded  all  payments  of  principal
thereof and all accruals and  payments of interest  thereon.  The entries in the
loan account (in the absence of manifest  error in the making  thereof) shall be
conclusive  evidence of the outstanding  principal  thereof and accrued interest
thereon from time to time. Lender shall provide Borrower with statements of said
account from time to time on Borrower's request.







         2.6  Interest Rates.

                  2.6.1  Interest Prior to Maturity.  Prior to maturity (whether
by acceleration or otherwise) the unpaid principal amount of the Loan shall bear
interest at the Interest Rate.

                  2.6.2 Interest After  Maturity.  Commencing with the day after
the  principal  amount of any part of the Loan shall have become due and payable
(by acceleration or otherwise), such part of the Loan or the entire Loan (as the
case may be) shall bear  interest  at the daily rate of three  percent  (3%) per
annum above the Interest Rate (the "Default Rate").

                  2.6.3  Maximum  Rate.  Lender  and  Borrower  intend  the Loan
Documents  to  comply  in all  respects  with all  provisions  of Law and not to
violate, in any way, any legal limitations on interest charges. Accordingly, if,
for any reason,  Borrower is required to pay, or has paid, interest at a rate in
excess of the highest  rate of interest  which may be charged by Lender or which
Borrower may legally  contract to pay under applicable law (the "Maximum Rate"),
then the  Interest  Rate  shall  be  deemed  to be  reduced,  automatically  and
immediately,  to the Maximum  Rate,  and  interest  payable  hereunder  shall be
computed and paid at the Maximum  Rate and the portion of all prior  payments of
interest in excess of the Maximum Rate shall be deemed to have been  prepayments
of the outstanding  principal of the Loan and applied to the installments in the
inverse order of their maturities.

         2.7  Payments.

                  2.7.1 Time; Place;  Manner. All payments to be made in respect
of principal,  interest,  or other amounts due from Borrower  hereunder or under
the Note  shall  become due at 5:00  P.M.,  New York  time,  on the day when due
without  presentment,  demand,  protest or notice of any kind,  all of which are
hereby expressly  waived.  Such payments shall be made to Lender in lawful money
of the United States of America in immediately available funds.

                  2.7.2 Payments of Principal and Interest.  The Loan,  together
with interest  thereon at the Interest Rate, shall be repaid in sixty (60) equal
consecutive  monthly  payments of principal and interest each in an amount which
will fully  amortize the Loan at the Interest  Rate over the Term (the date upon
which the sixtieth (60th) consecutive  monthly payment of principal and interest
is scheduled to be due is hereinafter  referred to as the "Maturity Date").  The
first such monthly payment of principal and interest shall be due and payable on
the first day of the second month  succeeding  the Closing Date and the payments
shall  continue  on a like day in each and every  month  thereafter  through and
including the Maturity Date;  provided that (i) if the Closing Date is the first
day of a month,  the first such monthly  payment of principal and interest shall
be due on the first day of the  immediately  succeeding  month,  and (ii) if the
Closing Date is not the first day of the month, Borrower shall pay, on the first
day of the month immediately  succeeding the Closing Date, interest only, at the
Interest  Rate,  from the Closing Date to the last day of the month in which the
Closing Date occurs.  Lender shall compute the amount of each payment and advise
Borrower of such amount.  Each monthly payment shall be applied,  first to fees,
costs and  charges,  if any,  owing to Lender,  then to  interest  as may be due
hereunder,  and the balance of such  payment  shall be applied to the  principal
balance of the Loan. The entire unpaid  principal  balance which was not payable
earlier, whether due to regularly scheduled payments, acceleration or otherwise,
together  with any unpaid  interest,  fees,  costs and charges  shall be due and
payable on the Maturity Date. After the






maturity of all or any part of the Loan (by acceleration or otherwise), interest
on the Loan or such part thereof shall be due and payable at the Default Rate on
demand.

                  2.7.3 Net Payments.  All payments hereunder and under the Note
shall  be  made by  Borrower  to  Lender  without  defense,  set-off,  claim  or
counterclaim  and without  deduction for any present or future income,  stamp or
other taxes, levies,  imposts,  deductions,  charges or withholdings  whatsoever
imposed, assessed, levied or collected by or for the benefit of any jurisdiction
or taxing authority. In addition, Borrower shall pay any and all taxes (stamp or
otherwise) if any,  payable or  determined to be payable in connection  with the
execution and delivery of this Agreement,  the Note and the other Loan Documents
and on all payments to be made by Borrower  hereunder and under the Note and the
other Loan Documents (other than Lender's income taxes) and all taxes payable in
connection with or related to the Collateral.

         2.8  Prepayments  Subject to Section 5.2.1 hereof,  Borrower  shall not
prepay the Loan in whole or in part.

                    ARTICLE 3. REPRESENTATIONS AND WARRANTIES

         Borrower represents and warrants to Lender that:

         3.1  Organization and Qualification.

         Borrower is duly organized,  validly existing and in good standing as a
corporation  under  the Laws of the  State  of New  York  with  full  power  and
authority to own its  properties  and to transact its business as now transacted
and as contemplated to be transacted. Borrower is qualified and in good standing
to transact business in each jurisdiction  where the ownership of its properties
or the transaction of its business requires such qualification. The Guarantor is
duly organized, validly existing and in good standing as a corporation under the
Laws of the State of its incorporation  with full power and authority to own its
properties and to transact its business as now transacted and as contemplated to
be  transacted.  The  Guarantor  is qualified  and in good  standing to transact
business in each  jurisdiction  where the  ownership  of its  properties  or the
transaction of its business requires such qualification.

         3.2  Authority and Authorization.

         Borrower has full power and authority to execute, deliver and carry out
the provisions of this Agreement, the Note and the other Loan Documents to which
it is a party,  to borrow  hereunder  and under the other Loan  Documents and to
create the Liens provided for herein,  and to perform its obligations  hereunder
and thereunder,  and all such action has been duly and validly authorized by all
necessary proceedings on its part. The Guarantor has full power and authority to
execute, deliver and carry out the provisions of the Guaranty and the other Loan
Documents to which it is a party and to perform its obligations thereunder,  and
all  such  action  has  been  duly  and  validly  authorized  by  all  necessary
proceedings on its part.





         3.3  Execution and-Binding Effect.


         This  Agreement,  the Note and the other Loan  Documents have been duly
and validly  executed and delivered by Borrower and constitute the legal,  valid
and  binding  obligation  of  Borrower  enforceable  in  accordance  with  their
respective  terms.  The  Guaranty and the other Loan  Documents  executed by the
Guarantor have been duly and validly executed and delivered by the Guarantor and
each  constitutes  the legal,  valid and  binding  obligation  of the  Guarantor
executing the same, enforceable in accordance with their respective terms.

         3.4  Authorizations and Filings.

         Except for the filing of UCC financing  statements,  no  authorization,
consent,  approval,  license, exemption or other action by, and no registration,
qualification,   designation,  declaration  or  filing  with,  any  governmental
authority is or will be necessary or advisable in connection  with the execution
and delivery of this Agreement, the Note, the Guaranty, the other Loan Documents
or the consummation by Borrower and the Guarantor of the transactions herein and
therein  contemplated,  or  performance  by  Borrower  and the  Guarantor  of or
compliance by Borrower and the Guarantor  with, the terms and conditions  hereof
or thereof.

         3.5  Absence of Conflicts.

         Neither the execution  and delivery of this  Agreement,  the Note,  the
Guaranty  or the other Loan  Documents,  nor  consummation  of the  transactions
herein or therein  contemplated nor performance of, or compliance with the terms
and  conditions  hereof or thereof will (a) result in any violation or breach of
(i) the provisions of Borrower's or the Guarantor's  Constituent  Documents,  or
(ii) any Law,  or the order,  rule or  regulation  of any court or  governmental
agency or body having  jurisdiction  over Borrower or the  Guarantor,  or any of
their respective properties,  or (iii) any agreement,  bond, note, instrument or
indenture to which Borrower or the Guarantor is a party or pursuant to which any
of their  respective  properties are affected,  or (b) result in the creation or
imposition  of any Lien upon any property  (now owned or hereafter  acquired) of
Borrower or the Guarantor, except for the Lien created by this Agreement.

         3.6  Financial Statements.

         Borrower and the Guarantor have heretofore  furnished to Lender certain
financial statements and related financial information ("Financial Statements").
Such  Financial  Statements  (including  the notes  thereto)  present fairly the
financial  condition of Borrower or the Guarantor (as the case may be) as of the
dates  of the  balance  sheets  contained  therein,  and the  results  of  their
respective operations for the periods then ended, all in conformity with GAAP on
a basis  consistent with that of Financial  Statements for  corresponding  prior
periods. Except as disclosed therein, neither Borrower nor the Guarantor has any
material  contingent  liabilities  (including  liabilities  for taxes),  unusual
forward or  long-term  commitments  or  unrealized  or  anticipated  losses from
unfavorable commitments.

         3.7  No Defaults.

         There is no Default under the Loan Documents.






         3.8  Litigation.

         There is no  pending  or,  to the  best of  Borrower's  or  Guarantor's
knowledge, threatened claim or proceeding by or before any court or governmental
agency  against or  affecting  Borrower or the  Guarantor  which,  if  adversely
decided  would have a material  adverse  effect on the  business,  operations or
financial  condition of Borrower or the  Guarantor or on the ability of Borrower
or the Guarantor to perform their respective  obligations  under this Agreement,
the Note, the Guaranty or the other Loan Documents or on the Collateral.

         3.9  Title to Collateral.

         Borrower has good title to the Collateral,  free and clear of all liens
covering  the  Collateral,  other  than the Liens  granted  hereunder  to Lender
covering  the  Collateral,  which are and will at all  times be first  perfected
Liens covering the Collateral. Borrower has good title to, or valid leasehold or
license  interests  in, all assets  reasonably  required  for the conduct of its
business.

         3.10  Taxes.

         All tax returns  required to be filed by  Borrower  have been  properly
prepared,   executed  and  filed.  All  taxes,   assessments,   fees  and  other
governmental charges upon Borrower or upon any of its properties, incomes, sales
or  franchises  which are due and payable have been paid except for those which,
in the  aggregate  do not  have  a  material  adverse  effect  on the  business,
operations or financial  condition of Borrower or Guarantor taken as a whole, or
on the Collateral. Notwithstanding the foregoing, all personal property taxes on
the Collateral, if any, have been paid.

         3.11  Financial Accounting Practices.

         Borrower  makes  and  keeps  books,  records  and  accounts  which,  in
reasonable  detail,  accurately and fairly reflect  Borrower's  transactions and
dispositions of its assets.

         3.12  Power To Carry On Business.

         Borrower and the Guarantor  have all  requisite  power and authority to
own and operate their respective  properties and to carry on their businesses as
now conducted and as presently planned to be conducted.

         3.13  No Material Adverse Change.

         Since the date of the Financial  Statements referred to in Section 3.6,
there  has been no  material  adverse  change  in the  business,  operations  or
financial condition of Borrower or the Guarantor.

         3.14  Compliance with Laws.

         Neither Borrower nor the Guarantor is in violation of any Law, except 
for violations which






in the  aggregate  do not  have  a  material  adverse  effect  on the  business,
operations or financial  condition of Borrower or the Guarantor taken as a whole
or on the Collateral.

         3.15  Compliance with Agreements.

         Neither  Borrower nor the Guarantor is in default under any  agreement,
bond, note, indenture or contract, except for defaults which in the aggregate do
not have a material  adverse  effect on the  business,  operation  or  financial
condition of Borrower or the Guarantor taken as a whole or on the Collateral.

         3.16  Accurate and Complete Disclosure.

         No representation or warranty made by Borrower in this Agreement and no
statement  made  by  Borrower  or  the  Guarantor  in the  Financial  Statements
furnished  pursuant  to Section  3.6 hereof or  otherwise,  or any  certificate,
report,  exhibit or document  furnished  by Borrower or the  Guarantor to Lender
pursuant  to or in  connection  with  this  Agreement  or the  Loan is  false or
misleading  in  any  material   respect   (including  by  omission  of  material
information  necessary to make such  representation,  warranty or statement  not
misleading).

         3.17  Regulations G and U.

         Borrower is not engaged in the  business  of  extending  credit for the
purpose  of  purchasing  or  carrying  "margin  stock",  as such term is used in
Regulations G or U promulgated by the Board of Governors of the Federal  Reserve
System as amended  from time to time No part of the proceeds of the Loan will be
used to purchase or carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any "margin stock".  Borrower does not own any
"margin stock".

         3.18  Perfection.

         Except for the filings  under Article 9 of the UCC specified in Section
4.7 hereof  (and  continuation  statements  at periodic  intervals),  no further
filing or recording  is  necessary  under the UCC or under any other Laws of any
jurisdiction,  in order to perfect in all applicable  jurisdictions the Liens of
Lender in the  Collateral.  Upon such  filings,  Lender  will be granted a first
perfected  Lien covering the  Collateral.  There are no other Liens covering the
Collateral.

         3.19  Place of Business.

         Both the place of business (or chief executive  office if there is more
than one  place of  business)  of  Borrower  and the  place  where it keeps  its
corporate  records  concerning the Collateral and all of its interest in, to and
under this  Agreement  are located at (i) the address set forth at the beginning
of this Agreement,  (ii) c/o Guarantor at 101 Park Avenue, Suite 2507, New York,
New York 10178; and (iii) 1675 Highway 34, Farmingdale, New Jersey 07727.







         3.20  Location of Collateral.

         For all purposes, including, without limitation, perfection of security
interests  therein under Article 9 of the UCC, the  Collateral is deemed located
and at all times shall be located at the Premises.

         3.21 Pay Telephone Placement Agreements.

                  (a)  Borrower  has  delivered  to  Lender  true,  correct  and
complete copies of all written Pay Telephone Placement  Agreements.  None of the
Pay Telephone Placement  Agreements have been modified,  amended or supplemented
since the date of delivery to Lender,  and each is in full force and effect.  No
more than [10%] of the Pay Telephone Placement  Agreements are oral and the oral
agreements are on terms substantially  similar to those contained in the written
agreements.  Borrower, and to the best of Borrower's knowledge,  the other party
to each  Pay  Telephone  Placement  Agreement  is in full  compliance  with  the
material terms of each of the Pay Telephone Placement Agreements.

                  (b)  Not  less  than  95% of the  Pay  Telephones  are ln good
operating  order.  All Pay  Telephones  are  installed  at Premises  the owners,
operators,  lessees or  proprietors  of which have  entered  into Pay  Telephone
Placement  Agreements (i) with Coastal Telecom Payphone Company,  Inc., BEK Tel,
Inc., or Garden State  Telephone  Installation & Service Co.,  Inc.,  which have
duly assigned all of their right, title and interest therein to Borrower or (ii)
directly with Borrower.

                  (c) All of the Pay Telephone  Placement  Agreements are freely
assignable and Liens may be granted with respect thereto, without the consent of
the owner,  operator,  lessee or proprietor of the Premises  which is a party to
such Pay Telephone Placement Agreement.

                  (d) Not less than ninety  percent  (90%) of the Pay  Telephone
Placement  Agreements  have a  remaining  term  of at  least  one (1)  year  and
approximately  1800 of the Pay  Telephones  have been upgraded to include either
(i) Elcotel  Number 5 Board  Technology  or (ii) Protel,  Intellical,  or Ernest
Board  Technology  of  substantially   equivalent  quality  to  Number  5  Board
Technology  and the  balance of the Pay  Telephones  will be upgraded to include
such Technology within six (6) months after the date hereof.

         3.22 Billing and Related Services Agreement.

         Borrower has  delivered to Lender a true,  correct and complete copy of
the Billing and Related  Services  Agreement.  The Billing and Related  Services
Agreement  has not been  amended,  modified  or  supplemented  since the date of
delivery thereof to Lender,  and is in full force and effect.  Borrower,  and to
the best of Borrower's  knowledge,  all other parties to the Billing and related
Services  Agreement are in full  compliance  with the material terms thereof and
there are no material defaults thereunder.

                        ARTICLE 4. CONDITIONS OF LENDING

         The  obligation of Lender to make the Loan  hereunder is subject to the
accuracy in all material respects, as of the date hereof, of the representations
and warranties herein contained, to the






performance  by Borrower of its  obligations  to be  performed  hereunder  on or
before  the  Closing  Date  and to the  satisfaction  of the  following  further
conditions. If all conditions contained herein are not satisfied by December 31,
1996, Lender shall have no obligation whatsoever to make the Loan and shall have
no liability for its refusal to do so.

         4.1  Corporate Action.

         On the Closing Date,  Borrower shall deliver to Lender a certificate in
form and substance  satisfactory to Lender,  dated the Closing Date, signed by a
duly  authorized  officer of Borrower,  certifying  as to (a) true copies of the
Constituent  Documents of Borrower and the  Guarantor,  all as in effect on such
date, (b) true copies of all action taken by Borrower and the Guarantor relative
to this  Agreement,  the Note and the other Loan  Documents,  and (c) the names,
true  signatures  and  incumbency of the officer or officers of Borrower and the
Guarantor  authorized  to execute and deliver this  Agreement,  the Note and the
other Loan  Documents  on behalf of Borrower and the  Guarantor  (and Lender may
conclusively  rely on such  certificate  unless  and  until a later  certificate
revising the prior  certificate  has been  furnished to Lender).  Borrower shall
also deliver to Lender good standing certificates for Borrower and the Guarantor
issued by the Secretary of State of its State of incorporation and each state in
which it is required by Law to be qualified.

         4.2  Opinion of Counsel.

         On the Closing  Date,  Lender shall have  received a favorable  written
opinion of counsel for Borrower and the Guarantor, dated the Closing Date and in
form and substance satisfactory to Lender and its counsel, Winick & Rich, P.C.

         4.3  No Change of Law or Facts.

         No  change  shall  have  occurred  in  applicable  Law  or  regulations
thereunder or  interpretations  thereof by  appropriate  regulatory  authorities
which, in the opinion of Lender or its counsel, would make it illegal for Lender
to acquire the Note, make the Loan, or otherwise to participate in the Loan, nor
shall any facts  come to the  attention  of  Lender,  concerning  Borrower,  its
business or financial  condition  which, in the opinion of Lender would increase
the risk to Lender of repayment of the Loan by Borrower.

         4.4  Documents.

         The following  documents shall have been duly authorized,  executed and
delivered  by the  respective  party or  parties  thereto,  shall be in form and
substance  satisfactory to Lender and its counsel and shall be in full force and
effect on the Closing Date,  and an executed  counterpart  of each thereof shall
have been delivered to Lender and its counsel:

                  4.4.1 this Agreement;

                  4.4.2 the Note;






                  4.4.3 the Guaranty;

                  4.4.4 the Assignment Agreement;

                  4.4.5 the Collection Agreement;

                  4.4.6 insurance certificates or policies of insurance 
                        evidencing the coverages required by Section 5.3 hereof;

                  4.4.7 other Loan Documents, if any.

         4.5 Collateral. Borrower shall provide to Lender a complete description
of the Collateral, together with evidence, in form and substance satisfactory to
Lender in its sole discretion, that Borrower owns legal title to the Collateral,
free and clear of all Liens.

         4.6  Financing Statements.

         On the Closing  Date,  UCC financing  statements  covering the security
interest  created  by this  Agreement  in the  Collateral  shall  have been duly
executed in form  suitable for filing in the office of the Secretary of State of
the State  where the  Collateral  is  located  (i.e.  New York,  New  Jersey and
Pennsylvania)  and in all other  places as, in the  opinion  of  Lender,  or its
counsel, are necessary or desirable to perfect such Liens.

         4.7  Licenses and Permits.

         All appropriate  action shall have been taken prior to the Closing Date
in order to permit  consummation  of the  transactions  contemplated  herein and
hereby and  enforcement of all of the terms hereof,  and all licenses,  permits,
waivers,   exemptions,   authorizations  and  approvals  required  (or,  in  the
reasonable  opinion of Lender or its counsel,  advisable) to be in effect on the
Closing  Date  shall  have been  issued and shall be in full force and effect on
such date, and copies thereof shall have been delivered to Lender.

         4.8  Agreements.  Borrower  shall  have  delivered  to Lender  true and
correct copies of the written Pay Telephone Placement Agreements and the Billing
and Related Services Agreement.

         4.9  Other Matters.

                  4.9.1  Lender  shall  have  received  all  other   agreements,
instruments,  financing statements,  certificates,  waivers, searches, releases,
terminations,  reports,  confirmations,   corporate  or  other  action,  opinion
letters,  copies of acquisition  documents,  evidence of payment of obligations,
evidence of ownership of the  Collateral  and such other  documents as Lender or
its  counsel  shall  have  reasonably  requested  (each  in form  and  substance
satisfactory  to  Lender  and  its  counsel),   including,  without  limitation,
certificates of  incorporation  and by-laws,  UCC-l financing  statements,  lien
waivers,  credit  references,   consents,   approvals,   authorization  to  date
documents, casualty and liability insurance policies and endorsements related to
such insurance, and certificates, appraisals and financial statements and other
financial information.








                  4.9.2  There shall be no Default hereunder or under the other
Loan Documents.

                  4.9.3  All legal matters incident to the Loan shall be 
satisfactory to Lender and its counsel.

                              ARTICLE 5. COVENANTS

         Borrower  covenants  that  from and  after  the date  hereof  and until
payment in full of the Note and interest  thereon and all other amounts due from
Borrower hereunder or under the Note or the other Loan Documents,  unless Lender
shall otherwise consent in writing:

         5.1  Reporting and Information Requirements.

                  5.1.1 Financial Statements.  Borrower shall cause Guarantor to
deliver  its Form  10-K and Forms  10-Q (or the  equivalent)  to Lender  and any
assignee  throughout  the  term of the  Agreement,  in no event  later  than one
hundred  twenty (120) days after the end of its fiscal year, in the case of such
Form 10-K or ninety (90) days after the end of its fiscal  quarter,  in the case
of each Form 10-Q,  and in each case,  together with a Certificate  of the Chief
Financial  Officer or other appropriate  officer of Guarantor  demonstrating and
certifying  compliance  with the  covenant  set forth in  paragraph  8(c) of the
Guaranty.  Borrower shall at the same time deliver a consolidating  statement of
income, retained earnings and changes in financial position of Borrower for such
fiscal  period  certified  by the Chief  Executive  Officer  of  Borrower  or an
independent certified public accountant.

                  5.1.2 Quarterly Pay Telephone  Reports.  Within fortyfive (45)
days after the end of each fiscal quarter  commencing  March 31, 1997,  Borrower
shall  furnish to Lender a written  report  certified by an  Executive  Officer,
which shall include, as of the last day of such fiscal quarter, the following on
a per Telephone  basis, in form reasonably  satisfactory to Lender:  (a) reports
with respect to revenue  generated by the Pay Telephones due to coin calls;  (b)
reports with respect to non-coin  calls  generated  by the Pay  Telephones;  (c)
reports with respect to expenses  incurred in connection with the Pay Telephones
due to (i) commissions payable to site owners, and (ii) line charges;  and (d) a
listing  of the  locations  of the Pay  Telephones,  indicating  which have been
relocated,  if any;  and (e) such  other  information  with  respect  to the Pay
Telephones  and Pay Telephone  Placement  Agreements as Lender shall  reasonably
request.

                  5.1.3  Further  Requests.  Borrower  will furnish to Lender as
soon as reasonably  practicable such other information  (financial or otherwise)
concerning  Borrower,  its assets or the  Collateral  in such form as Lender may
reasonably request.

                  5.1.4  Compliance  Certificates.  At the  same  time  Borrower
delivers the  financial  statements  required  under the  provisions  of Section
5.1.1, Borrower shall furnish to Lender a certificate of an Executive Officer to
the effect-that to the best of such officer's knowledge,  no Default or Event of
Default  exists,  or, if such cannot be so  certified,  specifying in reasonable
detail the exceptions, if any, to such statement.






                  5.1.5  Monthly  Certificate.   Monthly,  not  later  than  the
twentieth  (20th) day of each  month,  Borrower  shall  furnish,  or cause to be
furnished,  to Lender a certificate of an Executive Officer,  in form reasonably
satisfactory to Lender,  certifying and setting forth, as of the last day of the
immediately  preceding  month,  the  following:  (a) the  reports  specified  in
Sections  5.1.2(a),  (b) and (c),  providing  the  information  included in such
reports  for up to twelve  months  prior to such  immediately  preceding  month,
commencing  with  information  for the month of January  1997 and  later;  (b) a
certification  that (i) no less than ninety  percent (90%) of the Pay Telephones
are  subject  to  Pay  Telephone  Placement  Agreements,  at  least  90%  of the
agreements are written agreements and, to the best of Borrower's knowledge, each
such agreement is enforceable in accordance  with its terms and no party thereto
is in  material  default  of the term;  thereof,  or,  if the same  cannot be so
certified,  the reasons for the same and (ii)  ninety  percent  (90%) of all Pay
Telephones are in working order.

                  5.1.6 Notice of Material  Proceedings.  Promptly upon becoming
aware thereof  Borrower shall give Lender  written  notice of the  commencement,
existence or threat of any  proceeding by or before any court or  administrative
agency against or affecting Borrower,  the Guarantor or the Collateral which, if
adversely  decided,  would  have a  material  adverse  effect  on the  business,
operations or financial condition of Borrower or the Guarantor or on the ability
of Borrower or the Guarantor to perform its  obligations  under this  Agreement,
the Note, or the other Loan Documents or on the Collateral.

                  5.1.7 Visitation. Borrower shall permit such persons as Lender
may designate to visit and inspect the  Collateral  and to examine the books and
records of Borrower and take copies and extracts  therefrom,  and to discuss its
affairs  with  officers of Borrower  and its  independent  accountants,  at such
reasonable times as Lender may reasonably request, upon reasonable prior notice,
provided that such  visitation,  inspection,  examination and discussions do not
unreasonably interfere with Borrower's normal business operations.

                  5.1.8  Other   Deliveries.   Promptly   upon  their   becoming
available,  Borrower  shall  furnish  to  Lender,  copies  of  all  registration
statements  of Guarantor  and any  amendments  and  supplements  thereto and any
regular  and  periodic  reports  filed by  Borrower  or the  Guarantor  with any
securities  exchange  or with the  Securities  and  Exchange  Commission  or any
governmental  authority  succeeding  to any or all  of  the  functions  of  said
commissions.

         5.2  Preservation of Existence and Franchises.

                  5.2.1 Neither  Borrower nor the Guarantor shall enter into any
merger,  reorganization  or  consolidation in which Borrower or Guarantor is not
the surviving  corporation.  or wind up, liquidate or dissolve,  nor agree to do
any of the  foregoing.  Notwithstanding  the  foregoing,  Lender  agrees  not to
unreasonably withhold or delay its consent to a request by Borrower or Guarantor
to enter into a merger,  reorganization  or  consolidation  in which Borrower or
Guarantor is not the surviving  corporation.  In the event Lender does not grant
its  consent to a proposed  merger,  reorganization  or  consolidation  in which
Borrower or Guarantor is not the surviving corporation,  Borrower shall have the
right,  upon not less than thirty (30) days prior written  notice to Lender,  on
any regularly  scheduled payment date occurring after the second  anniversary of
the Disbursement  Date, to prepay the outstanding  principal balance of the Loan
in whole, but not in part, provided






that Borrower  shall pay to Lender,  together with the principal  balance of the
Loan, (i) all accrued and unpaid interest on the amount prepaid through the date
of prepayment,  (ii) all  outstanding  fees,  charges and other amounts then due
under the Loan  Documents,  and (iii) a prepayment fee in an amount equal to the
product  of (A) the  outstanding  principal  balance  of the Loan at the time of
prepayment,  times (B) the applicable  percentage set forth opposite the year of
the Term in which the prepayment is made, as set forth below:


                  Year of Term of Loan in
                  Which Prepayment is Made                    Percentage

                            3                                    1.6
                            4                                    1.14%
                            5                                    0.7%


Once given, the notice of prepayment  shall be irrevocable.  Borrower shall have
no right to prepay the Loan prior to the second  anniversary of the Disbursement
Date.

                  5.2.2  Borrower will qualify to do business and will remain in
good standing under the laws of each  jurisdiction in which it is required to be
qualified by reason of the location of the  properties  owned or leased by it or
the conduct of its business.

                  5.2.3  Borrower  will  comply  with all Laws  relative  to the
conduct of its business or the location of the properties owned or leased by it,
the  non-compliance  with  which  would have a  material  adverse  effect on the
business,  operations,  assets or  financial  condition  of Borrower  taken as a
whole,  as  contemplated  hereby,  or the  ability of  Borrower  to perform  its
obligations under this Agreement, the Note, or the other Loan Documents and will
obtain or cause to be obtained as  promptly  as  possible  any permit,  license,
consent, privilege or approval of any governmental authority and make any filing
or  registration  therewith  which at the time shall be required with respect to
the performance of its obligations  under this Agreement,  the Note or the other
Loan Documents or for the operation of its business as presently conducted or as
contemplated  by it, the  failure of which to obtain or file or  register  would
have a material adverse effect on the business,  operation,  assets or financial
condition  of the  Borrower  taken as a whole or in its  ability to perform  its
obligations to Lender.

                  5.2.4 Other than in connection with Borrower's compliance with
the provisions of Section 5.7 hereof,  Borrower shall not convey,  assign, sell,
mortgage,  encumber,  pledge,  hypothecate,  grant a security interest in, grant
options with  respect to,  lease or otherwise  dispose of all or any part of any
legal  or  beneficial  interest  in any  part  or all of the  Collateral  or any
interest therein.

         5.3  Insurance.

         Borrower shall, at its own expense, maintain and deliver evidence to 
Lender of such insurance required by Lender, written by insurers and in amounts
satisfactory to Lender.








         5.4  Payment of Taxes and Other Potential Charges.

         Borrower shall pay or discharge

                  5.4.1 all taxes, assessments and other governmental charges or
levies imposed upon it or any of its properties,  including the  Collateral,  or
income  (including  such as may arise under ERISA or any  similar  provision  of
law), on or prior to the date on which penalties attach thereto; and

                  5.4.2 all lawful claims of materialmen,  mechanics,  carriers,
warehousemen, landlords and other like Persons which, if unpaid, might result in
the creation of a Lien upon any such property, on or prior to the date when due;

provided,  that unless and until foreclosure,  distraint,  levy, sale or similar
proceedings  shall have been  commenced,  Borrower need not pay or discharge any
such tax,  assessment,  charge,  levy, claim or current liability so long as (i)
the validity  thereof is contested in good faith and by appropriate  proceedings
diligently  pursued,  (ii) in  Lender's  sole  judgment  there is no  reasonably
foreseeable  risk of  forfeiture of the  Collateral,  and (iii) such reserves or
other  appropriate  provisions  as may be  required by GAAP shall have been made
therefor,  and so long as such  failure  to pay or  discharge  does  not  have a
material  adverse effect on the business,  operations or financial  condition of
Borrower taken as a whole or the Collateral.

         5.5  Financial Accounting Practices.

         Borrower  shall make and keep books,  records and  accounts  which,  in
reasonable  detail,  accurately and fairly  reflect its business,  including all
transactions and dispositions of its assets.

         5.6  Compliance with Laws.

         Borrower  shall be in  material  compliance  with all  applicable  Laws
provided,  that Borrower  shall not be deemed to be in violation of this Section
5.6 as a result of any  failures  to  comply  which  would not  result in fines,
penalties,  injunctive relief or other civil or criminal  liabilities  which, in
the  aggregate,  would not  materially  affect the  business  or  operations  of
Borrower  or the  ability of  Borrower  to perform  its  obligations  under this
Agreement, the Note or the other Loan Documents or the Collateral.

         5.7  Maintenance of Collateral.

         Borrower  will maintain and preserve the  Collateral in good  condition
subject  to  ordinary  wear and tear,  and in good  repair  and  working  order,
promptly repairing, replacing or rebuilding any part of the Collateral which may
be destroyed by any casualty, or become damaged,  worn or dilapidated;  provided
that no more than five (5%) percent of the Pay  Telephones  may be inoperable at
any one time and Borrower shall, within forty-eight (48) hours,  replace any Pay
Telephone  which  becomes  permanently  disabled  or with  respect  to which the
related Pay Telephone Placement






Agreement is  terminated,  with a substitute  Pay Telephone of similar or better
technology and related Pay Telephone Placement Agreement satisfactory to Lender;
provided  further  that Lender shall  automatically  be granted a first and only
perfected  Lien  covering  such  replacement  Pay  Telephone  and Pay  Telephone
Placement Agreement.

         5.8  Maintenance of Principal Place of Business.

         Borrower  shall  maintain and keep its principal  place of business and
chief  executive  office  at the  address  set  forth at the  beginning  of this
Agreement,  and at no other location  without giving Lender at least thirty (30)
days prior  written  notice of any move.  Borrower  shall  maintain and keep its
records at such address and at no other location  without giving Lender at least
thirty (30) days prior written notice of any move.

         5.9  Certain Agreements.  Borrower shall not amend, modify or alter in
any material respect or terminate or assign any interest in the Billing and 
Related Services Agreement.

         5.10 Pay Telephone Placement  Agreements.  Not less than ninety percent
(90%) of all Pay  Telephones  shall at all  times be  subject  to Pay  Telephone
Placement  Agreements  and such  agreements  shall be in full  force and  effect
during all such times. At least: 90% of the Pay Telephone  Placement  Agreements
will be written agreements.

         5.11 Satisfaction of Certain  Obligations.  In the event Borrower fails
to make any payment or do any act as herein provided (including, but not limited
to, maintaining any insurance required to be maintained under the Loan Documents
or paying all taxes in  accordance  with the terms  hereof) or there  shall be a
claim or Lien asserted or filed against the  Collateral  which is not discharged
within thirty (30) days,  Lender may, but shall not be obligated to (and without
releasing  Borrower from any obligation  hereunder),  make all such payments and
perform all such acts or otherwise  satisfy such  obligations.  All sums paid by
Lender in respect thereof and all costs, fees and expenses, including reasonable
attorneys' fees, court costs, expenses and other charges relating thereto, which
are incurred by Lender on account  thereof,  shall bear  interest at the Default
Rate, shall be payable on demand by Borrower to Lender,  and shall be additional
Obligations hereunder secured by the Collateral.

         5.12  Cash  Flow  Coverage.  So long as any of the  Obligations  remain
outstanding,  Guarantor  shall  maintain,  on a  consolidated  basis,  Cash Flow
Coverage  in excess of 1.2.  Cash Flow  Coverage  shall be defined  as  earnings
before interest, taxes, depreciation and amortization, divided by the sum of the
current portion of long term debt,  including the current portion of any capital
leases,  interest,  dividends and capital expenditures.  All such item, shall be
determined  in  accordance  with GAAP and shall be  calculated on a rolling four
quarter basis.

         5.13 Further Assurances.

         Borrower shall cause to be done,  executed,  acknowledged and delivered
all and every such further act, conveyance and assurance as Lender shall require
for  accomplishing  the purposes of this Agreement,  the Note and the other Loan
Documents. Borrower will defend and protect its title with






respect to the Collateral and will indemnify  Lender with respect  thereto.  Any
payment in respect of such indemnity shall be made directly to Lender within ten
(10) days after written demand specifying such charges in immediately  available
funds.  Forthwith  after notice from Lender,  Borrower shall  promptly,  without
further consideration, execute, acknowledge and deliver such further instruments
and documents  and will take such other actions as Lender may deem  necessary or
advisable  from time to time to ensure the  enforceability  or  priority  of the
Liens  granted  hereby,  or  otherwise  to confirm  and carry out the intent and
purpose of this Agreement.

                          ARTICLE 6. SECURITY INTEREST

         6.1   Security.

         As security for the full and timely  payment and  performance of all of
the  Obligations of Borrower to Lender,  Borrower hereby  collaterally  assigns,
pledges,  transfers and sets over to Lender, and hereby agrees that Lender shall
have,  and hereby  grants to and  creates in favor of Lender,  a first  security
interest under the UCC subject to no other Liens,  in and to the  following,  in
each case  whether now  existing or  hereafter  arising,  now owned or hereafter
acquired, wherever located ("Collateral"):

                  6.1.1  All of the Pay Telephones and the other Equipment;

                  6.1.2  All of the Pay Telephone Placement Agreements; and

                  6.1.3 All accessions and additions thereto, substitutions for,
and all replacements of, any and all of the foregoing,  and all proceeds paid or
payable to Borrower with respect to the foregoing, cash and non-cash,  including
insurance proceeds.

                  6.1.4  All  of  the   licenses,   permits   and   governmental
authorizations  relating  to the  Pay  Telephones  and Pay  Telephone  Placement
Agreements, to the extent the same are assignable.

         6.2  Lender Has Rights and Remedies of a Secured Party.

         In  addition  to all  rights  and  remedies  given  to  Lender  by this
Agreement,  Lender  shall have all the rights and  remedies  of a secured  party
under the UCC.

         6.3  Additional Provisions Applicable to the Collateral.

         Borrower  shall not affix or permit the Collateral to become affixed to
real estate, and such Collateral shall remain personal property,  whether or not
so affixed.

         6.4  Certain Covenants.

         Borrower  covenants  and agrees  with  Lender for the benefit of Lender
that:

                  6.4.1  Borrower has and will have good and merchantable title
to all of the Collateral,





in each case as from time to time  owned or  acquired  by it, and shall keep the
Collateral  free and clear of all Liens,  other  than  those  granted to Lender.
Borrower  will defend  such title  against the claims and demands of all Persons
whomsoever.  Borrower  has and will have good title to or a leasehold or license
interest in all assets reasonably required for the conduct of its business.

                  6.4.2 Borrower will faithfully  preserve and protect  Lender's
Liens in the Collateral and will, at its own cost and expense,  cause said Liens
to be perfected and continued perfected, and for such purpose Borrower will from
time to time at the  request of Lender and at the  expense  of  Borrower,  make,
execute,  acknowledge and deliver,  and file or record,  or cause to be filed or
recorded,  in the proper  filing  places,  all such  instruments,  documents and
notices,  including  without  limitation  financing  statements and continuation
statements, as Lender may deem necessary or advisable from time to time in order
to perfect and continue perfected said security  interest.  Borrower will do all
such other acts and things and make,  execute,  acknowledge and deliver all such
other instruments and documents,  including without  limitation further security
agreements, pledges, endorsements, assignments and notices, as Lender reasonably
may deem  necessary  or  advisable  from  time to time in order to  perfect  and
preserve  the  priority  of said Liens as a first and only Lien on and  security
interest in the Collateral  prior to the rights of all other Persons  therein or
thereto.

                  6.4.3 Borrower will not,  without the prior written consent of
Lender,  (i) borrow or permit any Person to borrow against the Collateral  other
than the Loan to Borrower from Lender pursuant to this  Agreement;  (ii) create,
incur,  assume or suffer to exist any Lien with respect to any of the Collateral
except  for (x) the Lien of  Lender,  as  provided  herein,  (y) liens for taxes
either not yet due or being  contested  by Borrower or  Guarantor  in good faith
with  due   diligence   and  by   appropriate   proceedings   and  (z)  inchoate
materialmen's, mechanics', workmen's repairmen's and other like liens arising in
the ordinary course of business where adequate reserves are maintained therefor;
(iii) permit any levy or  attachment  to be made  against any of the  Collateral
except any levy or  attachment  relating to this  Agreement;  or (iv) permit any
financing statement to be on file with respect to any of the Collateral,  except
financing  statements in favor of Lender.  Any Lien permitted under (ii)(y) will
be discharged or bonded prior to foreclosure  and prior to the imposition of any
fire, penalty or other damage against Lender.

                  6.4.4  Risk  of  loss  of,  damage  to or  destruction  of the
Collateral  is  and  shall  remain  upon  Borrower.  Borrower  will  insure  the
Collateral as provided in Section 5.3 of this Agreement.  Lender,  its officers,
employees  and  authorized  agents and its  successors  and assigns,  are hereby
appointed  attorneys-in-fact of Borrower, for the purpose of endorsing any draft
or check which may be payable to  Borrower  in order to collect the  proceeds of
such  insurance.  Such  appointment is irrevocable and coupled with an interest.
The proceeds of insurance  shall be applied to reduction of the  Obligations  in
any order Lender may choose or, in Lender's reasonable discretion, to the repair
or replacement of the Collateral,  or any part thereof, in which case Lender may
impose such conditions on the disbursement of the proceeds as Lender in its sole
discretion deems appropriate.

                  6.4.5  Upon the  occurrence  and during  the  continuation  or
existence of any Event of Default,  Borrower  shall promptly upon written demand
by Lender make the Pay  Telephone  Placement  Agreements  and the  licenses  and
permits comprising the Collateral  available to Lender at the place or places to
be designated by Lender. The right of Lender to have the Pay Telephone






Placement  Agreements  and the licenses and permits  comprising  the  Collateral
assembled  and made  available  to it is of the  essence of this  Agreement  and
Lender  may,  at its  election,  enforce  such  right  in  equity  for  specific
performance.

                  6.4.6  Lender  shall  have  no duty  as to the  collection  or
protection of the Collateral or any part thereof or any income thereon, or as to
the preservation of any rights pertaining thereto,  beyond exercising reasonable
care in the  custody of any  Collateral  actually in the  possession  of Lender.
Lender  shall be deemed to have  exercised  reasonable  care in the  custody and
preservation  of such of the  Collateral as may be in its possession if it takes
such action for that purpose as Borrower shall request in writing, provided that
such requested  action shall not, in the reasonable  judgment of Lender,  impair
Lender's  security interest in the Collateral or its rights in, or the value of,
the  Collateral,  and provided  further that such written request is received by
Lender in sufficient time to permit it to take the requested action.

                               ARTICLE 7. DEFAULTS

         7.1  Events of Default.

         The occurrence of one or more of the following  described  events is an
Event of Default:

                  7.1.1  Borrower  fails to make any payment of  principal of or
interest on the Note when due,  and such failure  continues  for a period of ten
(10) days; or

                  7.1.2  Borrower fails to perform or observe any other covenant
or agreement to be performed or observed by it hereunder or under the other Loan
Documents  and such failure  continues  unremedied  for a period of fifteen (l5)
days after written  notice of such failure has been given by Lender  pursuant to
Section 8.7 hereof; or

                  7.1.3  Other  than as  provided  in  Section  6.4.3,  Borrower
voluntarily  creates,  suffers to exist,  incurs or assumes  any Lien,  security
interest,  charge or encumbrance  on, or with respect to, any part of or all the
Collateral,  or the Liens held by Lender in and to the Collateral shall cease to
be the first perfected Lien in and to the  Collateral,  or Lender shall cease to
hold a first perfected Lien covering 2500 Pay Telephones; or

                  7.1.4 Borrower sells,  assigns,  leases, or otherwise disposes
of or relinquishes possession of, any Collateral, provided that (a) Borrower may
replace any Pay Telephone which becomes permanently  disabled or with respect to
which the  related Pay  Telephone  Placement  Agreement  is  terminated,  with a
substitute Pay Telephone and Pay Telephone Placement  Agreement  satisfactory to
Lender  in  accordance   with  Section  5.2.4  and  5.7  and  (b)  Lender  shall
automatically  be  granted  a  first  and  only  perfected  Lien  covering  such
replacement Pay Telephone; or

                  7.1.5 any material representation or warranty made by Borrower
or the  Guarantor  herein or in any other Loan  Document  or in any  document or
certificate  furnished by Borrower to Lender in connection herewith or therewith
at any time while any of the Obligations  remain outstanding proves to have been
incorrect in any material respect when made; or






                  7.1.6 this  Agreement  or any Loan  Document at any time while
the Obligations remain outstanding and for any reason ceases to be in full force
and  effect  or is  declared  by a court or  governmental  agency  of  competent
jurisdiction to be null and void; or

                  7.1.7 Borrower or Guarantor breaches or defaults (after giving
effect to any notice or cure periods) under the material terms of any agreement,
instrument  or document  with or for the benefit of FINOVA  Capital  Corporation
which is not a Loan Document or under any other loan,  credit  facility or other
financial  accommodation  made by FINOVA  Capital  Corporation  to  Borrower  or
Guarantor,  including,  without  limitation,  all promissory notes,  guarantees,
equipment leases, security agreements, mortgages and deeds of trust; or

                  7.1.8  Borrower  or  the  Guarantor  is  convicted  under  any
criminal  statute or there is a judgment  against Borrower or the Guarantor in a
criminal or civil  proceeding  pursuant to which the  proceedings,  penalties or
judgment  include  forfeiture of any of the Collateral or a material  portion of
the assets of Borrower or the  Guarantor and  enforcement  of such action is not
stayed on appeal; or

                  7.1.9 an event of default shall occur and be  continuing  with
respect to any other  indebtedness or lease  obligation of Borrower or Guarantor
having a principal or rental amount outstanding in excess of $500,000; or

                  7.1.10 the  Guarantor  fails to  perform or observe  any other
covenant or agreement to be performed or observed by it under the Loan Documents
to which they are a party and such failure continues  unremedied for a period of
fifteen (15) days after written notice of such failure; or

                  7.1.11  there is a material adverse change in the financial 
condition of Borrower, the Guarantor or the Collateral;

                  7.1.12 a proceeding  is  instituted  seeking a decree or order
for relief in respect of Borrower or the Guarantor in an involuntary  case under
any applicable  bankruptcy,  insolvency or other similar law now or hereafter in
effect or for the appointment of a receiver,  liquidator,  assignee,  custodian,
trustee,  sequestrator (or other similar official) of Borrower or the Guarantor,
or for any substantial part of its properties or for the dissolution, winding-up
or liquidation of its affairs or any  substantial  part of any of its properties
and such proceeding  remains  undismissed or unstayed for a period of sixty (60)
consecutive  days or such  court  enters a decree or order  granting  the relief
sought in such proceeding; or

                  7.1.13   Borrower  or  the  Guarantor   voluntarily   suspends
transaction  of its business,  commences a voluntary  case under any  applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, consents
to the entry of an order for relief in an involuntary case under any such law or
consents to the appointment of or taking  possession by a receiver,  liquidator,
assignee,  trustee,  custodian,  sequestrator  (or other  similar  official)  of
Borrower or the Guarantor for any substantial part of any of its properties,  or
makes a general assignment for the benefit of creditors,  or takes any action in
furtherance of any of the foregoing; or







                  7.1.14 there shall be a judgment or judgments against Borrower
or the Guarantor for any amount in excess of [$100,000] in the aggregate,  which
shall remain unpaid, unstayed on appeal, undischarged,  unbounded or undismissed
for a period of thirty (30) days or more; or

                  7.1.15  Borrower  fails  to  perform  or  observe  any  of its
covenants  or  agreements  contained  in  Section  5.3  hereof or in the  letter
regarding  insurance  requirements  delivered by Borrower in connection herewith
dated December 12, 1996 (the "Insurance  Letter") or any such insurance shall at
any time cease to be in full force and effect; or

                  7.1.16  Borrower  shall  have  defaulted  under  or  otherwise
breached  any  of the  material  terms  of  the  Billing  and  Related  Services
Agreement.

         7.2  Consequences of Event of Default.

                  7.2.1 If an Event of Default occurs,  Lender may, by notice to
Borrower,  declare the unpaid  principal amount of the Note and interest accrued
thereon and all other Obligations and liabilities of Borrower hereunder or under
the Note or the Loan  Documents to be  immediately  due and payable and the same
shall thereupon  become and be immediately due and payable without  presentment,
demand,  protest or other notice of any kind, all of which are hereby  expressly
waived, and an action therefor shall immediately accrue.

                  7.2.2 In addition, if an Event of Default occurs, Lender shall
have all rights and remedies  granted herein and in the other Loan Documents and
all rights or remedies available at law including the UCC) or equity, whether as
a secured  party or  otherwise  (including  specifically  those  granted  by the
Uniform Commercial Code as in effect in the jurisdiction or jurisdictions  where
the Collateral is located) and, except as limited by Law, all remedies of Lender
(i)  shall  be  cumulative  and  concurrent;  (ii)  may be  pursued  separately,
successively or concurrently  against  Borrower or against all or any portion of
the  Collateral,  at the sole  discretion  of Lender;  (iii) may be exercised as
often as occasion  therefor  shall arise,  it being agreed by Borrower  that the
exercise  or failure to  exercise  any rights or  remedies  shall in no event be
construed  as a waiver  or  release  thereof  or of any other  right,  remedy or
recourse;  and (iv) are  intended  to be,  and  shall be,  nonexclusive.  To the
fullest  extent  permitted by applicable  Law,  Lender may resort to the rights,
remedies and recourses set forth herein and any other security  therefor in such
order and manner as Lender may elect.

                  7.2.3 Without  limiting any of the foregoing,  Borrower agrees
that (i) Lender may,  with or without  notice and without legal  process,  enter
upon any property owned,  leased or otherwise under the real or apparent control
of Borrower or any agent thereof or any other  location where the Collateral may
be located and disassemble,  disconnect, render unusable or repossess all or any
item of the Collateral;  (ii) written notice mailed to Borrower,  as provided in
this  Agreement for the giving of notice,  shall be reasonable if given ten (10)
days prior to (a) any public sale or (b) the date after which a private sale may
be made;  (iii) a sale of the Collateral may be made as a unit or in parcels and
for cash and upon terms;  and (iv) Lender may buy the  Collateral  at any public
sale and at any private sale as permitted by the UCC.

                  7.2.4  Any acceleration of the Loan as a consequence of the 
occurrence of an Event






of Default shall be deemed a prepayment and subject to a prepayment fee of three
(3%)  percent,  in  addition  to all other  amounts  otherwise  due  under  this
Agreement and the other Loan Documents.


                            ARTICLE 8. MISCELLANEOUS

         8.1  Indemnity.

         Borrower  shall  indemnify,  defend and hold  harmless  Lender from and
against,  and,  within ten (10) days after written demand  therefor,  adequately
particularizing the nature and amount thereof, reimburse Lender for, all claims,
demands, liabilities, losses, damages, judgments, penalties, costs and expenses,
including,  without  limitation,  reasonable  attorneys' fees and disbursements,
which may be imposed upon,  asserted  against or incurred or paid by Lender,  on
account of any act  performed or omitted to be performed  under this  Agreement,
the Note or the other Loan  Documents or on account of any  transaction  arising
out of or in any way connected with the Collateral or this  Agreement,  the Note
or the other Loan  Documents  (including,  without  limitation,  any  litigation
matter  involving  claims by third  parties),  except as a result of the willful
misconduct or gross negligence of Lender.

         8.2  No Implied Waiver: Cumulative Remedies.

         No course of dealing  and no delay or  failure of Lender in  exercising
any right, power or privilege under this Agreement, the Note or any of the other
Loan Documents shall affect such right,  power or privilege except as and to the
extent that the assertion of any such right,  power or privilege shall be barred
by an  applicable  statute  of  limitations;  nor  shall any  single or  partial
exercise thereof or any abandonment or discontinuance of steps to enforce such a
right,  power or privilege preclude any further exercise thereof or of any other
right,  power or  privilege.  The  rights  and  remedies  of Lender  under  this
Agreement, the Note or the other Loan Documents are cumulative and not exclusive
of any rights or remedies which Lender would otherwise have.

         8.3  Taxes.

         Borrower  agrees  to pay or  reimburse  Lender  for any and all  stamp,
document,   transfer,  recording  or  filing  taxes  or  fees  and  all  similar
impositions payable or hereafter  reasonably  determined by Lender to be payable
in  connection  with  this  Agreement,  the  Note or the  other  Loan  Documents
(including  but not  limited to those  necessary  or  advisable  to record or to
ensure the  enforceability or priority of this Agreement,  the Note or the other
Loan Documents),  and any other documents,  instruments or transactions pursuant
to or in connection  herewith,  and Borrower agrees to save Lender harmless from
and against any and all present or future claims or liabilities  with respect to
or resulting from any delay in paying or omission to pay any such taxes, fees or
similar impositions.

         8.4  Modifications, Amendments or Waivers.

         Lender and Borrower may from time to time enter into written agreements
amending,






modifying or supplementing this Agreement,  the note or the other Loan Documents
or changing the rights of Lender or Borrower hereunder or thereunder, and Lender
may from time to time grant  waivers or  consents  to a  departure  from the due
performance  of the  obligations  of Borrower  thereunder.  Any such  agreement,
waiver or consent must be in writing and shall be  effective  only to the extent
set forth in such writing. In the case of any such waiver or consent,  any Event
of  Default  so  waived  or  consented  to shall be  deemed  to be cured and not
continuing,  but no such waiver or consent  shall  extend to any  subsequent  or
other Event of Default or impair any right consequent thereto.

         8.5  Holidays.

         Except as otherwise provided herein,  whenever any payment or action to
be made or taken  hereunder  or the Note or any  other  Loan  Document  shall be
stated to be due on a day which is not a Business  Day,  such  payment or action
shall be made or taken on the next following Business Day (and such day shall be
included in the  calculation  of  interest  due),  unless  such next  succeeding
Business  Day falls in a  different  calendar  month,  in which case  payment or
action shall be made or taken on the next preceding Business Day.

         8.6  Notices.

                  8.6.1 Except as  otherwise  provided  herein,  all notices and
other communications  required under the terms and provisions of this Agreement,
the Note or the other  Loan  Documents  shall be in  writing  and  shall  become
effective  when  delivered  by hand or received  by  overnight  courier,  telex,
facsimile,  telegram or registered first class mail, postage prepaid,  addressed
as follows:

                           If to Lender, at:

                           Southbridge Financial Corp.
                           400 Madison Avenue
                           New York, New York  10017
                           Facsimile No. 212-593-0377
                           Attention:  Arthur Freierman
                                       President


                           If to Borrower, at:

                           Crescent Public Communications Inc.
                           7 Mayflower Place
                           Floral Park, NY 11001
                           Facsimile No. 516-437-0807
                           Attention:  Anthony M. Scalice

or at such other address as either party may, from time to time, designate in 
writing to the other party hereto.








                  8.6.2 If any notice is given by telex, facsimile transmission,
or telegram, the party giving such notice shall confirm such notice by a writing
delivered by hand or overnight courier; Provided, however, that for all purposes
hereunder,  notice  shall  be  deemed  effective  at the time  given  by  telex,
telecopier or telegram.

         8.7  Reimbursement for Certain Expenses.

         Borrower  agrees to pay or cause to be paid and to save Lender harmless
against  liability  for the payment of all  reasonable  out-of-pocket  costs and
expenses,  including, without limitation, all reasonable counsel fees and costs,
incurred  by  Lender  from  time to time  (i)  arising  in  connection  with the
negotiation,  execution,  delivery, and recordation of this Agreement,  the Note
and the other  Loan  Documents,  and the  transactions  contemplated  hereby and
thereby  and all  recording  or filing  fees,  (ii)  relating  to any  requested
amendments,  waivers or consents to or in connection  with this  Agreement,  the
Note or any other Loan  Document,  (iii)  arising in  connection  with  Lender's
enforcement  or  preservation  of rights under this  Agreement,  the Note or any
other  Loan  Document,  including  but not  limited to such  expenses  as may be
incurred by Lender in the  collection  of the Note,  and (iv) any other  matters
relating to the Loan, Loan Documents, the Collateral or Borrower.

         8.8  Governing Law.

         THIS  AGREEMENT,  THE NOTE, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HERETO AND THERETO SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

         8.9  Personal Jurisdiction and Service of Process.

         BORROWER  IRREVOCABLY  CONSENTS  THAT ANY LEGAL  ACTION  OR  PROCEEDING
AGAINST  BORROWER  UNDER,  ARISING  OUT OF, OR IN ANY  MANNER  RELATING  TO THIS
AGREEMENT,  THE NOTE OR THE OTHER  LOAN  DOCUMENTS  MAY BE  BROUGHT IN ANY STATE
COURT OF THE  STATE OF NEW YORK  LOCATED  IN NEW YORK  COUNTY  OR IN THE  UNITED
STATES DISTRICT COURT FOR THE SOUTHERN  DISTRICT OF NEW YORK.  BORROWER,  BY ITS
EXECUTION AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY CONSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDING. BORROWER FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING BORROWER
MAY BRING,  ARISING OUT OF OR IN ANY MANNER  RELATING TO THIS  AGREEMENT  OR THE
OTHER LOAN  DOCUMENTS,  SHALL ONLY BE BROUGHT IN ANY STATE COURT OF THE STATE OF
NEW YORK LOCATED IN NEW YORK COUNTY OR IN THE UNITED STATES  DISTRICT  COURT FOR
THE SOUTHERN  DISTRICT OF NEW YORK.  BORROWER ALSO  IRREVOCABLY  CONSENTS TO THE
SERVICE OF ANY  COMPLAINT,  SUMMONS,  NOTICE OR OTHER  PROCESS  RELATING TO SUCH
ACTION OR PROCEEDING BY DELIVERY THEREOF TO BORROWER IN THE






MANNER  PROVIDED FOR NOTICES IN THIS AGREEMENT.  BORROWER  HEREBY  EXPRESSLY AND
IRREVOCABLY  WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING  BASED
ON ANY  ALLEGED  LACK OF  PERSONAL  JURISDICTION,  IMPROPER  VENUE OR FORUM  NON
CONVENIENS  OR ANY  SIMILAR  BASIS.  BORROWER  SHALL NOT BE ENTITLED IN ANY SUCH
ACTION OR  PROCEEDING  TO ASSERT ANY DEFENSE  GIVEN OR ALLOWED UNDER THE LAWS OF
ANY STATE OTHER THAN THE STATE OF NEW YORK, UNLESS SUCH DEFENSE IS ALSO GIVEN OR
ALLOWED BY THE LAWS OF THE STATE OF NEW YORK.  NOTHING  HEREIN  SHALL  AFFECT OR
IMPAIR IN ANY  MANNER OR TO ANY  EXTENT  THE RIGHT OF LENDER TO  COMMENCE  LEGAL
PROCEEDINGS OR OTHERWISE  PROCEED AGAINST BORROWER IN ANY OTHER  JURISDICTION OR
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.

         8.10 Waiver of Jury Trial.

         BORROWER  HEREBY  WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY
ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY AGREEMENT,  INSTRUMENT OR
DOCUMENT EXECUTED AND DELIVERED IN CONNECTION  HEREWITH OR THEREWITH,  INCLUDING
THE LOAN DOCUMENTS.

         8.11 Severability.

    The provisions of this  Agreement,  the Note and any other Loan Document are
intended to be severable. If any such provision is held invalid or unenforceable
in  whole  or in part in any  jurisdiction,  such  provision  shall,  as to such
jurisdiction,   be   ineffective   to  the   extent   of  such   invalidity   or
unenforceability  without in any manner affecting the validity or enforceability
thereof in any other  jurisdiction  or the  remaining  provisions  hereof in any
jurisdiction.

         8.12 Prior Understandings.

         This  Agreement  and the  other  Loan  Documents  supersede  all  prior
understandings  and  agreements,  whether  written or oral,  between the parties
hereto relating to the transactions provided for herein or therein.

         8.13 Survival.

         All  representations  and  warranties  of  Borrower  contained  in this
Agreement or any other Loan Document or made in writing in  connection  herewith
or therewith  shall survive the execution  and delivery of this  Agreement,  the
Note and the other Loan Documents,  any  investigation  or inspection by Lender,
the making of the Loan  hereunder,  the payment of the Note or the expiration of
this Agreement.  All covenants and agreements of Borrower contained herein shall
continue  in full force  until  payment in full of the  Obligations.  Borrower's
obligation  to pay the  principal of and interest on the Note and all such other
amounts shall be absolute and unconditional under any and all circumstances .








         8.14 Successors and Assigns.

         This Agreement  shall be binding upon and shall inure to the benefit of
Lender and Borrower  and their  respective  successors  and  permitted  assigns,
except that  Borrower may not assign,  delegate or transfer any of its rights or
obligations hereunder or any interest herein other than to Guarantor without the
written consent of Lender which Lender may withhold in its absolute  discretion.
Any actual or attempted assignment by Borrower without Lender's consent shall be
null, void and of no effect whatsoever.  Lender may assign or otherwise transfer
any or all of its rights,  title and interests  hereunder and under the Note and
the  other  Loan  Documents  in whole  or in  part.  If  Lender  makes,  such an
assignment, the assignee shall have all of the rights of the Lender and Borrower
shall not assert against the assignee any defense, counterclaims or setoff which
Borrower may have against Lender (although any claim Borrower might have against
the original  Lender shall be preserved  and may be separately  pursued  against
such  Lender).  Upon Lender  giving  notice to  Borrower of any such  assignment
Borrower shall promptly acknowledge its obligations  hereunder to such assignee,
and shall  comply with all written  directions  or demands of such  assignee and
shall make all  payments  and  perform all  Obligations  due  hereunder  as such
assignee may direct in writing and as otherwise provided herein. Borrower hereby
acknowledges  that it has  received  written  notice from Lender that Lender has
assigned all of its right,  title and interest in and to the Loan  Documents and
the Collateral to FINOVA Capital  Corporation  ("FINOVA") and FINOVA is entitled
to all of the rights and remedies hereunder of an assignee. Except to the extent
otherwise  required  by its  context,  the  word  "Lender"  where  used  in this
Agreement  shall mean and  include the holder of the Note  originally  issued to
Lender,  and the holder of such Note shall be bound by and have the  benefits of
this Agreement to the same extent as if such holder had been a signatory hereto.
As used in this Section 8.14, "assign" shall be deemed to include a pledge, sale
of, or grant of a mortgage on, or a security  interest in, any of the Collateral
or this Agreement or the other Loan Documents by Lender and the term  "assignee"
shall be deemed to refer to the  recipient  of such  pledge,  sale,  mortgage or
security interest.

         8.15 Counterparts.

         This Agreement may be executed in any number of counterparts and by the
different  parties  hereto  on  separate  counterparts  each of  which,  when so
executed and  delivered by the  parties,  constituting  an original but all such
counterparts together constituting but one and the same instrument.

         8.16 Publicity.

         Lender is hereby  authorized to issue appropriate press releases and to
cause  a  tombstone  to  be  published   announcing  the   consummation  of  the
transactions  contemplated in this Agreement,  including the aggregate amount of
the Loan.

         IN WITNESS  WHEREOF,  the parties hereto,  by their officers  thereunto
duly authorized,  have executed and delivered this Agreement effective as of the
day and year first above written.






                                      CRESCENT PUBLIC COMMUNICATIONS INC.,
                                      a New York Corporation

                                      By:       /s/
                                      Name:  Peter M. Izzo, Jr.
                                      Title: Chief Executive Officer

                                      Federal Tax Identification No. 11-3292635

                                      SOUTHBRIDGE FINANCIAL CORP.

                                      By:    /s/
                                      Name:  Arthur P. Freierman
                                      Title: President

EX-10.19

                  STOCK  EXCHANGE  AGREEMENT  dated as of  January  7, 1997 (the
"Agreement") by and between AMNEX, INC., a New York corporation  ("AMNEX"),  and
FRANCESCO GALESI ("Galesi").


                  Upon the terms and conditions  hereinafter  set forth,  Galesi
desires to transfer to AMNEX,  and AMNEX desires to acquire from Galesi,  shares
of Common Stock of Galesi Telecom  International,  Inc., a New York  corporation
("GTI"),  representing  ten percent (10%) of the issued and outstanding  capital
stock of GTI, in exchange for shares of Series L Preferred Stock of AMNEX.

                  NOW, THEREFORE, the parties hereto hereby agree as follows:

                                    ARTICLE I

                                EXCHANGE OF STOCK

1.1 Exchange of Stock.  Simultaneously  herewith,  (a) Galesi is  delivering  to
AMNEX a  certificate  representing  ten (10) shares (the "GTI Shares") of Common
Stock, par value $.01 per share, of GTI (the "GTI Common Stock"),  duly endorsed
to AMNEX and (b) AMNEX is delivering to Galesi a  certificate  representing  one
hundred  thousand  (100,000) shares of Series L Preferred Stock, par value $.001
per  share,  of AMNEX  (the  "Series L  Preferred  Stock")  having  the  rights,
preferences  and  limitations  set forth in AMNEX's  Certificate of Amendment of
Certificate  of   Incorporation   with  regard  thereto  (the  "Preferred  Stock
Certificate  of  Amendment"),  including,  without  limitation,  the  right  and
obligation  to convert each share of Series L Preferred  Stock into fifteen (15)
shares of Common  Stock,  par value $.001 per share,  of the Company (the "AMNEX
Common  Stock") in the event of the filing by AMNEX with the  Secretary of State
of New York of the Increased  Authorized  Capital  Certificate  of Amendment (as
hereinafter defined), as provided for in Section 6.1 hereof.

1.2      Warrants.  In consideration of the foregoing, simultaneously herewith,
AMNEX is executing and delivering to Galesi a warrant (the "Warrant") for the 
purchase of the following: (a) prior to the filing of the Increased Authorized 
Capital Certificate of Amendment with the Secretary of State of New York, one 
hundred thousand

                                        1





(100,000) shares of Series L Preferred Stock (the "Warrant  Preferred Stock") at
an exercise price of forty-five  dollars and forty-five cents ($45.45) per share
of  Warrant  Preferred  Stock  and (b) on or after the  filing of the  Increased
Authorized  Capital  Certificate of Amendment with the Secretary of State of New
York, one million five hundred thousand (1,500,000) shares of AMNEX Common Stock
(the "Warrant Common Stock" and collectively  with the Warrant  Preferred Stock,
the  "Warrant   Stock")  at  an  exercise  price  of  three  dollars  and  three
cents($3.03)  per share of Warrant Common Stock (the Warrant being  exchangeable
for the Warrant Stock under certain circumstances as set forth therein).

                                   ARTICLE II

                     REPRESENTATIONS AND WARRANTIES OF AMNEX

                  AMNEX makes the following  representations  and  warranties to
Galesi:

2.1 Valid Corporate  Existence.  AMNEX is a corporation duly organized,  validly
existing and in good standing under the laws of the State of New York. AMNEX has
the requisite  corporate  power to carry on its business as now conducted and to
own its assets.  AMNEX is qualified to do business as a foreign  corporation  in
each  jurisdiction in which it is required to be so qualified,  except where the
failure to be so qualified would not have a material adverse effect on AMNEX and
the AMNEX Subsidiaries (as hereinafter  defined) taken as a whole. The copies of
AMNEX's Restated  Certificate of Incorporation  and By-laws,  each as amended to
date,  which have  heretofore  been  delivered to Galesi,  are true and complete
copies of such documents as now in effect.

2.2      Capitalization.

                  (a)  The  authorized   capital  stock  of  AMNEX  consists  of
40,000,000  shares of Common Stock,  of which  27,045,964  shares are issued and
outstanding,  and 5,000,000 shares of Preferred Stock, of which 72,450 shares of
Series  B  Preferred  Stock,  1,413,337  shares  of  Series D  Preferred  Stock,
1,035,000  shares  of  Series E  Preferred  Stock,  415,250  shares  of Series F
Preferred  Stock and 66,250  shares of Series G  Preferred  Stock are issued and
outstanding.  All the issued and  outstanding  shares of AMNEX  Common Stock and
Preferred Stock have been validly issued and fully paid and are nonassessable,  

                                        2





subject to the  provisions  of  Section  630  of  the  Business Corporation Law
of the State of New York ("Section 630").

                  (b) The Series L  Preferred  Stock and the  Warrant  Preferred
Stock have been duly and validly authorized and, when issued and delivered (upon
payment  in full of the  exercise  price in  accordance  with  the  terms of the
Warrant,  with respect to the Warrant Preferred Stock), will be duly and validly
issued,  fully paid and  nonassessable,  subject to Section 630.  Subject to the
filing  of  the  Increased  Authorized  Capital  Certificate  of  Amendment,  as
contemplated  by Section 6.1 hereof,  the shares of Common Stock  issuable  upon
conversion of the Series L Preferred  Stock or the Warrant  Preferred Stock (the
"Conversion  Stock") have been duly and validly  authorized and, upon conversion
in accordance  with the terms of the Preferred  Stock  Certificate of Amendment,
will be duly and  validly  issued,  fully  paid and  nonassessable,  subject  to
Section  630.  Subject  to  the  filing  of  the  Increased  Authorized  Capital
Certificate  of  Amendment,  the Warrant  Common Stock has been duly and validly
authorized  and,  when  issued  upon  payment in full of the  exercise  price in
accordance with the terms of the Warrant, will be duly and validly issued, fully
paid and nonassessable, subject to Section 630.

                  (c) Except as set forth in Schedule 2.2 attached hereto, there
are no commitments to which AMNEX is a party,  or by which it is bound,  calling
for the issuance,  sale or other disposition of any class of securities of AMNEX
and  there  are  no  outstanding   securities  of  AMNEX   convertible  into  or
exchangeable for shares of AMNEX Common Stock or any other securities of AMNEX.

2.3 Subsidiaries. Schedule 2.3 attached hereto sets forth a complete list of the
names and  jurisdictions of incorporation of all corporations and other business
entities owned by AMNEX (collectively,  the "AMNEX  Subsidiaries").  Each of the
AMNEX Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the  jurisdiction  of its  incorporation  and has the
requisite  corporate  power to carry on its business as now conducted and to own
its  assets.  Each AMNEX  Subsidiary  is  qualified  to do business as a foreign
corporation  in each  jurisdiction  in which it is required to be so  qualified,
except  where the failure to be so qualified  would not have a material  adverse
effect on AMNEX and the AMNEX Subsidiaries taken as a whole. Except as set forth
on Schedule 2.3, all the outstanding capital stock or other voting interests of 
each of the AMNEX Subsidiaries is owned by AMNEX.

                                        3




2.4 Consents.  Except for the requisite approval by AMNEX's  stockholders of the
Increased  Authorized  Capital  Certificate  of  Amendment,  no filings  with or
consents of governmental or other regulatory agencies,  foreign or domestic,  or
of other  parties are required to be made or received by or on the part of AMNEX
to enable it to enter  into and carry out this  Agreement  and the  transactions
contemplated hereby.

2.5 Authority;  Binding Nature of Agreement.  AMNEX has the requisite  corporate
power to enter into this Agreement and to carry out its  obligations  hereunder.
The  execution  and  delivery  of this  Agreement  and the  consummation  of the
transactions  contemplated  hereby  have  been duly  authorized  by the Board of
Directors  of AMNEX and,  except for the  approval of the  Increased  Authorized
Capital  Certificate  of  Amendment  by the  stockholders  of  AMNEX,  no  other
corporate  proceedings  on the part of  AMNEX,  including,  without  limitation,
stockholder  approval,  are necessary to authorize the execution and delivery of
this Agreement and the  consummation of the  transactions  contemplated  hereby.
This  Agreement  constitutes  the valid and binding  obligation  of AMNEX and is
enforceable against AMNEX in accordance with its terms.

2.6  Financial  Statements.  The  unaudited  financial  statements  of  AMNEX at
September 30, 1996 and for the nine month period then ended, copies of which are
included in AMNEX's Form 10-Q for the period ended  September 30, 1996,  (a) are
true, correct and com plete, (b) are in accordance with the books and records of
AMNEX,  (c) fairly  present the financial  position of AMNEX as of such date and
the  results  of its  operations  for  such  period,  and (d) were  prepared  in
conformity with generally  accepted  accounting  prin ciples,  subject to normal
year-end audit adjustments which were not and will not be material in nature.

2.7  Liabilities.  As of September  30, 1996 (the "AMNEX  Balance  Sheet Date"),
AMNEX had no material debts, liabilities or obligations, contingent or absolute,
inchoate or  otherwise,  other than those  debts,  liabilities  and  obligations
reflected, referred to or reserved against in AMNEX's balance sheet at the AMNEX
Balance Sheet Date or the footnotes thereto.

                                        4





2.8 Adverse Developments. Since the AMNEX Balance Sheet Date, there have been no
material  adverse  changes in the assets,  operations or financial  condition of
AMNEX  and the  AMNEX  Subsidiaries  taken as a whole,  there has been no act or
omission on the part of AMNEX,  any AMNEX  Subsidiary or others which would form
the  basis  for the  assertion  against  AMNEX or any  AMNEX  Subsidiary  of any
liability  or  obligation  that  would  be  material  to  AMNEX  and  the  AMNEX
Subsidiaries  taken as a whole,  no other  event  has  occurred  which  could be
reasonably  expected to have a  materially  adverse  effect upon the business of
AMNEX and the AMNEX  Subsidiaries  taken as a whole and,  except as described in
the SEC Reports (as hereinafter defined), AMNEX does not know of any development
or threatened development of a nature which could be reasonably expected to have
a  materially   adverse  effect  upon  the  business  of  AMNEX  and  the  AMNEX
Subsidiaries  taken  as a  whole  or  upon  any  of  their  assets,  properties,
operations or financial condition.

2.9  Litigation;  Compliance  with  Law.  Except as set  forth in  Schedule  2.9
attached  hereto,  there are no  actions,  suits,  proceedings  or  governmental
investigations  relating  to  AMNEX  or any  AMNEX  Subsidiary  or any of  their
respective properties, assets or business pending or, to the knowledge of AMNEX,
threatened,  or any order,  judgment,  injunction,  award or decree outstanding,
against  AMNEX or any AMNEX  Subsidiary  or against or  relating to any of their
respective  properties,  assets or business which would have a material  adverse
effect  on AMNEX  and the  AMNEX  Subsidiaries  taken as a  whole;  and,  to the
knowledge of AMNEX,  there has been no act or occurrence  which would reasonably
be  deemed  to  establish  a  basis  for  any  such  action,  suit,  proceeding,
governmental  investigation,  order,  injunction  or decree  which  would have a
material  adverse effect on AMNEX and the AMNEX  Subsidiaries  taken as a whole.
Except as set forth in Schedule 2.9,  neither AMNEX nor any AMNEX  Subsidiary is
in violation  of any law,  regulation,  ordinance,  order,  injunction,  decree,
award, or other  requirement of any governmental or other regulatory body, court
or arbitrator relating to their respective  properties,  assets or business, the
violation of which would have a material  adverse  effect on AMNEX and the AMNEX
Subsidiaries taken as a whole.

2.10  Permits and Licenses.  AMNEX and the AMNEX Subsidiaries have all permits, 
licenses, orders, franchises and approvals (collectively,  "Permits")  from  all
Federal, state, local and foreign governmental and other regulatory bodies 
(collectively, "Bodies") required to carry on their  respective  businesses as
presently conducted and to offer and sell their respective products and services
in all material respects; all such Permits are in full  force and  effect,  and,
to the knowledge of AMNEX, no suspension or cancellation of any of such Permits
is threatened;  and AMNEX and the AMNEX  Subsidiaries  are in  compliance in all
material respects with all requirements, standards and procedures of the Bodies
which have issued such Permits.

                                        5







2.11  No Breach.  Neither the execution and delivery of this Agreement nor 
compliance by AMNEX with any of the provisions hereof nor the consummation of 
the transactions contemplated hereby will:

                  (a)      violate or conflict with any provision of the
Restated Certificate of Incorporation or By-laws, each as amended
to date, of AMNEX;

                  (b)  violate  or  result  in the  breach  of the  terms of any
agreement to which AMNEX or any AMNEX  Subsidiary  is a party or by which any of
them is bound,  the  violation or breach of which would have a material  adverse
effect on AMNEX and the AMNEX Subsidiaries taken as a whole;

                  (c)      violate any judgment, order, injunction, decree or
award against, or binding upon, AMNEX or any AMNEX Subsidiary;

                  (d) violate any law or regulation of any jurisdiction relating
to AMNEX or any AMNEX  Subsidiary,  the violation of which would have a material
adverse effect on AMNEX and the AMNEX Subsidiaries taken as a whole;

                  (e) result in the creation of any  security  interest or other
encumbrance  upon  any of  the  properties  or  assets  of  AMNEX  or any  AMNEX
Subsidiary,  the  creation  of which would have a material  adverse  effect upon
AMNEX and the AMNEX Subsidiaries taken as a whole;

                  (f) result in a reduction in the exercise price of any rights,
options or warrants for the purchase  of, or a reduction  in the  conversion  or
exchange price of any convertible or exchangeable securities for the acquisition
of, shares of AMNEX Common Stock; or

                                        6





                  (g) result in the issuance of any  additional  shares of AMNEX
Common Stock pursuant to any (i) rights,  options or warrants,  (ii) convertible
or exchangeable securities or (iii) preemptive or other similar rights.

2.12 Brokers.  AMNEX has not engaged,  consented  to, or authorized  any broker,
finder, investment banker or other third party to act on its behalf, directly or
indirectly,   as  a  broker  or  finder  in  connection  with  the  transactions
contemplated by this Agreement.

                                   ARTICLE III

                    REPRESENTATIONS AND WARRANTIES OF GALESI

                  Galesi makes the following  representations  and warranties to
AMNEX with respect to itself and to GTI:

3.1 Valid Corporate  Existence.  GTI is a corporation  duly  organized,  validly
existing and in good standing  under the laws of the State of New York.  GTI has
the requisite  corporate  power to carry on its business as now conducted and to
own its assets. GTI is qualified to do business as a foreign corporation in each
jurisdiction  in which it is  required  to be so  qualified,  except  where  the
failure to be so qualified  would not have a material  adverse effect on GTI and
the GTI Subsidiaries (as hereinafter  defined),  taken as a whole. The copies of
GTI's Certificate of Incorporation  and By-laws,  each as amended to date, which
have  heretofore  been delivered to AMNEX,  are true and complete copies of such
documents as now in effect.

3.2      Capitalization.

                  (a) The  authorized  capital  stock of GTI  consists of 10,000
shares of Common Stock,  of which 100 shares are issued and  outstanding  (92 of
which are owned of record  and  beneficially  by  Galesi).  All the  issued  and
outstanding  shares of GTI Common Stock have been validly  issued and fully paid
and are nonassessable, subject to the provisions of Section 630.

                  (b) Except as set forth in Schedule 3.2 attached hereto, there
are no commitments to which GTI is a party, or by which it is bound, calling for
the issuance,  sale or other  disposition  of any class of securities of GTI and
there are no outstanding securities of GTI convertible into or exchangeable for
shares of GTI Common Stock or any other securities of GTI.

                                        7




3.3 Subsidiaries. Schedule 3.3 attached hereto sets forth a complete list of the
names and  jurisdictions of incorporation of all corporations and other business
entities owned by GTI (collectively,  the "GTI  Subsidiaries").  Each of the GTI
Subsidiaries is a corporation or similar entity duly organized, validly existing
and in good standing under the laws of the jurisdiction of its  incorporation or
formation  and has the  requisite  corporate  or  similar  power to carry on its
business  as now  conducted  and to own  its  assets.  Each  GTI  Subsidiary  is
qualified  to do business  as a foreign  corporation  or similar  entity in each
jurisdiction  in which it is  required  to be so  qualified,  except  where  the
failure to be so qualified  would not have a material  adverse effect on GTI and
the GTI Subsidiaries taken as a whole.  Except as set forth on Schedule 3.3, all
the  outstanding  capital  stock or other  voting  interests  of each of the GTI
Subsidiaries is owned by GTI.

3.4 Consents.  No filings with or consents of governmental  or other  regulatory
agencies,  foreign or domestic,  or of other  parties are required to be made or
received  by or on the part of Galesi or GTI to enable  Galesi to enter into and
carry out this Agreement and the transactions contemplated hereby.

3.5 Authority;  Binding  Nature of Agreement.  Galesi and GTI have the requisite
power to enter into this Agreement and to carry out their respective obligations
hereunder.  The execution and delivery of this Agreement and the consummation of
the transactions  contemplated  hereby have been duly authorized by the Board of
Directors  of GTI  and no  other  corporate  proceedings  on the  part  of  GTI,
including, without limitation,  stockholder approval, are necessary to authorize
the  execution  and  delivery  of this  Agreement  and the  consummation  of the
transactions  contemplated  hereby.  This  Agreement  constitutes  the valid and
binding  obligation of Galesi and GTI and is enforceable in accordance  with its
terms.

3.6  Financial Statements.  The unaudited financial statements of GTI at August
31, 1996 and for the eight month period then ended, and the unaudited 
consolidated balance sheet as of October 31, 1996 of Telit (as hereinafter
defined), copies of which are attached hereto as Schedule 3.6, (a) are true, 
correct and  complete, (b) are in accordance  with the books and records of GTI,
(c) fairly  present the financial position  of GTI as of such  date and the 
results  of its  operations for such period, and (d) except as noted in Schedule
3.6,  were prepared in conformity with generally accepted accounting principles,
subject to normal year-end audit adjustments which were not and will not be 
material in nature.


                                        8







3.7 Liabilities.  As of August 31, 1996 (the "GTI Balance Sheet Date"),  GTI had
no material debts, liabilities or obligations,  contingent or absolute, inchoate
or otherwise,  other than those debts,  liabilities and  obligations  reflected,
referred to or reserved  against in GTI's balance sheet at the GTI Balance Sheet
Date or the footnotes thereto.

3.8 Adverse  Developments.  Since the GTI Balance Sheet Date, there have been no
material adverse changes in the assets, operations or financial condition of GTI
and the GTI Subsidiaries  taken as a whole, there has been no act or omission on
the part of GTI any GTI  Subsidiary or others which would form the basis for the
assertion  against GTI or any GTI Subsidiary of any liability or obligation that
would be material  to GTI and the GTI  Subsidiaries  taken as a whole,  no other
event has  occurred  which could be  reasonably  expected  to have a  materially
adverse  effect  upon the  business of GTI and the GTI  Subsidiaries  taken as a
whole,  GTI does not know of any  development  or  threatened  development  of a
nature which could be reasonably  expected to have a materially  adverse  effect
upon the business of GTI and the GTI  Subsidiaries  taken as a whole or upon any
of their assets, properties, operations or financial condition.

3.9  Litigation;  Compliance  with  Law.  Except as set  forth in  Schedule  3.9
attached  hereto,  there are no  actions,  suits,  proceedings  or  governmental
investigations  relating to GTI or any GTI Subsidiary or any of their respective
properties,  assets or business  pending or, to the knowledge of GTI threatened,
or any order, judgment, injunction, award or decree outstanding,  against GTI or
any GTI Subsidiary or against or relating to any of their respective properties,
assets or business which would have a material adverse effect on GTI and the GTI
Subsidiaries  taken as a whole;  and, to the knowledge of GTI, there has been no
act or occurrence  which would reasonably be deemed to establish a basis for any
such action, suit, proceeding, governmental investigation, order,  injunction or
decree which would have a material  adverse  effect on GTI and the GTI 
Subsidiaries taken as a whole.  Except as set forth in Schedule 3.9, neither GTI
nor any GTI  Subsidiary  is in  violation  of any law,  regulation, ordinance,
order,  injunction,  decree,  award,  or  other  requirement of any governmental
or other regulatory body, court or arbitrator  relating to their respective
properties, assets or business, the violation of which would have a material
adverse effect on GTI and the GTI Subsidiaries taken as a whole.

                                        9







3.10 Permits and Licenses.  GTI and the GTI  Subsidiaries  have all Permits from
all  Bodies  required  to carry  on their  respective  businesses  as  presently
conducted and as  contemplated to be conducted as set forth in the Business Plan
(as  hereinafter  defined) and to offer and sell their  respective  products and
services  in all  material  respects;  all such  Permits  are in full  force and
effect,  and, to the knowledge of GTI, no suspension or  cancellation  of any of
such Permits is threatened;  and GTI and the GTI  Subsidiaries are in compliance
in all material respects with all requirements,  standards and procedures of the
Bodies which have issued such Permits.

3.11     No Breach.  Neither the execution and delivery of this Agreement nor
compliance by Galesi or GTI with any of the provisions hereof nor the 
consummation of the transactions contemplated hereby will:

                  (a)      violate or conflict with any provision of the
Certificate of Incorporation or By-laws, each as amended to date,
of GTI;

                  (b)  violate  or  result  in the  breach  of the  terms of any
material  agreement to which Galesi,  GTI or any GTI Subsidiary is a party or by
which any of them is bound,  the  violation  or  breach  of which  would  have a
material adverse effect on GTI and the GTI Subsidiaries taken as a whole;

                  (c)      violate any judgment, order, injunction, decree or
award against, or binding upon, GTI or any GTI Subsidiary;

                  (d)      violate any law or regulation of any jurisdiction
relating to GTI or any GTI Subsidiary, the violation of which would have a 
material adverse effect on GTI and the GTI Subsidiaries taken as a whole;

                                       10







                  (e) result in the creation of any  security  interest or other
encumbrance  upon any of the properties or assets of GTI or any GTI  Subsidiary,
the creation of which would have a material  adverse effect upon GTI and the GTI
Subsidiaries taken as a whole;

                  (f) result in a reduction in the exercise price of any rights,
options or warrants for the purchase  of, or a reduction  in the  conversion  or
exchange price of any convertible or exchangeable securities for the acquisition
of, shares of GTI Common Stock; or

                  (g) result in the  issuance  of any  additional  shares of GTI
Common Stock pursuant to any (i) rights,  options or warrants,  (ii) convertible
or exchangeable securities or (iii) preemptive or other similar rights.

3.12 Brokers.  Neither  Galesi nor GTI has engaged,  consented to, or authorized
any broker, finder, investment banker or other third party to act on its behalf,
directly  or  indirectly,   as  a  broker  or  finder  in  connection  with  the
transactions contemplated by this Agreement.

3.13 Title to Shares. Galesi owns outright the GTI Shares, free and clear of any
and all security interests,  liens, encumbrances,  pledges, claims and rights of
any third party.

3.14 Business  Plan. The  statements  contained in GTI's  Business  Plan,  dated
November 30, 1996 (the Business  Plan"),  a copy of which is attached  hereto as
Schedule 3.14, are true and complete in all material respects.







                                       11


                                   ARTICLE IV

                            ACQUISITION OF SECURITIES

                  Galesi makes the following  representations  and warranties to
AMNEX:


4.1  Investment Representations.

                  (a) Galesi is acquiring  the Series L Preferred  Stock and the
Warrants  and,  in the event of a  conversion  of the Series L  Preferred  Stock
and/or an exercise of the Warrants,  will be acquiring the Conversion  Stock and
the Warrant Stock (the Series L Preferred Stock, Warrants,  Conversion Stock and
Warrant Stock being collectively  referred to as the "Securities"),  for his own
account,  for  investment  and not  with a view to the  resale  or  distribution
thereof  within  the  meaning of the  Securities  Act of 1933,  as amended  (the
"Securities  Act").  Galesi  further  represents  and warrants that he shall not
sell, assign,  encumber, or otherwise dispose of any of the foregoing securities
unless  (i) a  registration  statement  under the  Securities  Act with  respect
thereto is in effect and the prospectus  included therein meets the requirements
of  Section  10 of the  Securities  Act,  or (ii)  AMNEX has  received a written
opinion from its counsel that,  after an  investigation  of the relevant  facts,
such counsel is of the opinion that such proposed  sale,  assignment,  transfer,
encumbrance or disposition  does not require  registration  under the Securities
Act. Galesi  acknowledges  and agrees that the stock  certificate(s)  evidencing
ownership of the Securities which he receives shall bear the following legend:

         "The  securities   represented  by  this   certificate  have  not  been
         registered  under  the  Securities  Act of  1933,  as  amended,  or the
         securities laws of any state.  These  securities have been acquired for
         investment and not for  distribution  or resale.  They may not be sold,
         assigned,  mortgaged, pledged, hypothecated or otherwise transferred or
         disposed  of  without  an  effective  registration  statement  for such
         securities  under such Act and any  applicable  state  securities  laws
         covering such  securities,  or an opinion of counsel to AMNEX that such
         registration is not required."

                  (b) Galesi  understands  that none of the Securities have been
registered  under the Securities Act or any state securities laws and, except as
provided for in Article V hereof,  there is no agreement on the part of AMNEX to
register any of the Securities thereunder.


                                       12





                  (c) It is understood  and agreed that the  Securities  are not
being  registered  under the Securities Act due to AMNEX's reliance upon Section
4(2) thereof,  which section provides an exemption from registration for certain
transactions by an issuer not involving any public offering,  and Galesi further
acknowledges that AMNEX's reliance thereon is predicated on his  representations
and warranties contained in this Agreement.

4.2  Additional Representations.

                  (a) Galesi is able to bear the economic risks of an investment
in each of the Securities,  including,  without limitation, the risk of the loss
of part or all of his  investment  and the  inability  to sell or  transfer  the
Securities  until such Securities are registered  under the Securities Act or an
exemption  from  registration  is  available;   subject,   however,  to  AMNEX's
obligations  with regard to the  registration  of the  Conversion  Stock and the
Warrant Stock under the Securities Act in accordance with Article V hereof.

                  (b)  Galesi  is an  "accredited  investor",  as  such  term is
defined in Rule 501(a),  promulgated  under the Securities  Act, or he, alone or
with his purchaser representative,  if any, has such knowledge and experience in
financial and business  matters that he is capable of evaluating  the merits and
risks of an  investment  in each of the  Securities.  Galesi  will  execute  and
deliver  to AMNEX such  documents  as AMNEX may  reasonably  request in order to
confirm the accuracy of the foregoing.  Galesi acknowledges that the acquisition
of the Securities may entail significant risks.

                  (c) Galesi has reviewed AMNEX's Annual Report on Form 10-K for
the year ended December 31, 1995,  Forms 10-Q for the fiscal periods ended March
31, 1996,  June 30, 1996 and  September  30, 1996 and Forms 8-K for events dated
October  4,  1995,  June  28,  1996  and  November  20,  1996,  each as  amended
(collectively,  the "SEC  Reports"),  and has been afforded the  opportunity  to
obtain  such  other  information  as  Galesi  requested  from  AMNEX in order to
evaluate the merits and risks of an investment in each of the Securities.





                                       13





                                    ARTICLE V

                             REGISTRATION OBLIGATION

5.1 Registration  Obligation.  AMNEX agrees that, commencing no earlier than the
540th day but no later  than the  630th  day  after the date of this  Agreement,
AMNEX shall file with the Securities and Exchange  Commission (the "Commission")
a registration  statement  under the Securities Act on Form S-3 (or, should Form
S-3 be unavailable to AMNEX, on another appropriate form) registering all of the
Conversion  Stock and the Warrant  Common Stock or, if the Increased  Authorized
Capital  Certificate of Amendment shall not have theretofore been filed with the
Secretary  of State of New York,  then all of the Series L  Preferred  Stock and
Warrant  Preferred Stock (the Conversion Stock,  Warrant Common Stock,  Series L
Preferred  Stock and Warrant  Preferred  Stock  collectively  referred to as the
"Registration  Stock") under the Securities Act, and thereafter,  AMNEX will use
its best efforts to (i) cause the Registration Stock to be registered,  and (ii)
cause such  registration  statement  to remain  effective in order to permit the
resale to the public of the Registration Stock for a period of 180 days from the
effective date thereof.

5.2  Obligations of AMNEX. As to the registration statement referred to in 
Section 5.1, AMNEX shall:

                  (a)  prepare  and file  with  the  Commission  a  registration
statement on an appropriate form with respect to the Registration  Stock and use
its best efforts to have such registration  statement  declared effective within
sixty (60) days after filing with the Commission;

                  (b) prepare and file with the Commission  such  amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration  statement effective and
current for a period of not less than 180 days and to comply with the provisions
of Securities Act with respect to the  disposition of all shares covered by such
registration  statement,  including such  amendments  and  supplements as may be
necessary to reflect the intended method of disposition from time to time of the
prospective seller or sellers of Registration Stock (individually,  the "Selling
Stockholder" and collectively, the "Selling Stockholders");

                                       14





                  (c) furnish to each Selling Stockholder such reasonable number
of  copies  of  any  prospectus   (including  any  supplemental  or  preliminary
prospectus), in conformity with the requirements of the Securities Act, and such
other documents as such Selling  Stockholder may reasonably  request in order to
effect the offering and sale of the Registration Stock being offered and sold by
such Selling Stockholder,  but only while AMNEX is required under the provisions
hereof to use its best  efforts to cause the  registration  statement  to remain
current;

                  (d) use its best  efforts to register  or  qualify,  not later
than the effective date of such registration  statement,  the Registration Stock
registered  thereunder  under the "blue  sky" or other  applicable  laws of such
jurisdictions as each prospective Selling Stockholder may reasonably request, to
enable such Selling  Stockholder to consummate (upon the registration  statement
being declared effective by the Commission) the public sale or other disposition
in  such   jurisdictions  of  the  Registration  Stock  owned  by  such  Selling
Stockholder;  provided,  however,  that in no event shall AMNEX be  obligated to
qualify as a foreign  corporation  or as a dealer in securities or to execute or
file any general  consent to service of process under the laws of any such state
where it is not at such time so qualified or subject;

                  (e)  notify  Galesi,  and  any  other  holders  of  shares  of
Registration Stock, and confirm such notice in writing, (i) when a prospectus or
any prospectus  supplement or post-effective  amendment has been filed and, with
respect to a registration  statement or any post-effective  amendment,  when the
same has become  effective  under the Securities Act and each  applicable  state
law,  (ii) of any  request  by the  Commission  or any  other  Federal  or state
governmental authority for amendments or supplements to a registration statement
or related  prospectus or for additional  information,  (iii) of the issuance by
the Commission of any stop order suspending the  effectiveness of a registration
statement or the  initiation of any  proceedings  for that purpose,  (iv) of the
receipt  by AMNEX of any  notification  with  respect to the  suspension  of the
qualification or exemption from  qualification of any of the Registration  Stock
for sale in any  jurisdiction or the initiation or threatening of any proceeding
for such  purpose,  (v) of the  happening of any event which makes any statement
made in such  registration  statement  or  related  prospectus  or any  document
incorporated or deemed to be incorporated therein by reference

                                       15





untrue in any  material  respect or that  requires  the making of any changes in
such registration statement, prospectus or documents so that, in the case of the
registration  statement,  it will not contain any untrue statement of a material
fact or omit to state  any  material  fact  required  to be  stated  therein  or
necessary to make the statements therein not misleading, and that in the case of
the prospectus,  it will not contain any untrue  statement of a material fact or
omit to state any material  fact  required to be stated  therein or necessary to
make the statements therein, in light of the circumstances under which they were
made,  not  misleading,  and (vi) of  AMNEX's  reasonable  determination  that a
post-effective amendment to a registration amendment would be appropriate;

                  (f) use its commercially reasonable best efforts to obtain the
withdrawal  of  any  order  suspending  the   effectiveness  of  a  registration
statement,  or the lifting of any suspension of the  qualification (or exemption
from   qualification)  of  any  of  the  Registration  Stock  for  sale  in  any
jurisdiction, at the earliest practicable moment;

                  (g) use its commercially reasonable best efforts to cause such
Registration  Stock to be registered with or approved by such other governmental
agencies  or  authorities  as may be  necessary  by virtue of the  business  and
operations of AMNEX so as to permit Galesi to be able to freely sell,  pledge or
dispose of such shares, subject to applicable  restrictions relating to the fact
that Galesi is or may be an affiliate of AMNEX;

                  (h) use its commercially  reasonable best efforts to cause all
such  Registration  Stock to be  listed  on each  securities  exchange  on which
similar  securities  issued  by  AMNEX  are then  listed  or  quoted  and on any
inter-dealer  quotation system on which similar  securities  issued by AMNEX are
then quoted; and

                  (i)      cooperate in any filings to be made with the
National Association of Securities Dealers, Inc.

5.3  Expenses.  Except as  provided  below,  the  expenses  of the  registration
statement pursuant to Section 5.1, and the state qualifications  related thereto
pursuant to Section  5.2(d),  shall be borne by AMNEX.  The expenses of any such
registration and qualifications shall include, but not be limited to (a) AMNEX's

                                       16





internal expenses (including,  without limitation,  all salaries and expenses of
its officers and employees  performing legal or accounting  duties);  (b) to the
extent not already  incurred,  the fees and expenses incurred in connection with
the listing on an exchange or inter-dealer  quotation system of the Registration
Stock; (c) all registration and filing fees (including, without limitation, with
respect  to  filings  to be made with the  National  Association  of  Securities
Dealers,  Inc.); (d) fees and expenses of compliance with securities or blue sky
laws (including  reasonable fees and disbursements of counsel in connection with
blue sky  qualifications of the Registration  Stock);  (e) printing expenses and
engraving expenses; (f) fees and disbursements of counsel to AMNEX and customary
fees and expenses  for  independent  certified  public  accountants  retained by
AMNEX;  (g) the reasonable fees and expenses of any special experts  retained by
AMNEX. However,  under no circumstances shall AMNEX be liable or responsible for
the fees and expenses of any Selling Stockholder, or of its counsel, incurred in
connection with any registration or for underwriting or brokerage  discounts and
commissions  or  transfer  taxes  payable  in  connection  with  any sale of the
Registration Stock included in a registration statement.

5.4  Indemnification.

                  (a) To the  extent  permitted  by law,  AMNEX  will  indemnify
Galesi and each other  holder of  Registration  Stock and each  underwriter  and
selling  broker of the  securities  so registered  and each of their  respective
successors (collectively,  "Indemnitees") against all expenses,  claims, losses,
damages and liabilities (or actions in respect  thereof) arising out of or based
on any untrue  statement  (or  alleged  untrue  statement)  of a  material  fact
contained in any prospectus, offering circular or other document incident to any
registration,  qualification  or  compliance  (or  in any  related  registration
statement,  notification  or the like) or any omission (or alleged  omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances in which
they were made, or any violation by AMNEX of any rule or regulation  promulgated
under the Securities Act and/or the Securities  Exchange Act of 1934, as amended
(the  "Exchange  Act"),  applicable  to AMNEX and relating to action or inaction
required of AMNEX in connection  with any such  registration,  qualification  or
compliance,  and will reimburse each such Indemnitee for any legal and any other
expenses

                                       17





reasonably incurred in connection with investigating,  defending and/or settling
any such expense, claim, loss, damage, liability or action;  provided,  however,
that AMNEX will not be liable in any such case to any  Indemnitee  to the extent
that any such expense,  claim, loss, damage or liability is caused by any untrue
statement or alleged untrue statement or omission or alleged omission so made in
conformity  with written  information  furnished to AMNEX by an instrument  duly
executed by such  Indemnitee and stated to be  specifically  for use therein and
except that the foregoing  indemnity agreement is subject to the condition that,
insofar as it relates to any such untrue statement (or alleged untrue statement)
or  omission  (or  alleged  omission)  made in the  preliminary  prospectus  but
eliminated or remedied in the amended  prospectus on file with the Commission at
the  time  the  registration  statement  becomes  effective  or in  the  amended
prospectus  filed  with the  Commission  pursuant  to Rule  424(b)  (the  "Final
Prospectus"),  such  indemnity  agreement  shall not inure to the  benefit of an
underwriter, or an Indemnitee if there is no underwriter, if a copy of the Final
Prospectus  was not  furnished  to the  person  or  entity  asserting  the loss,
liability,  claim or damage by such underwriter or Indemnitee at or prior to the
time such furnishing is required by the Securities Act; provided  further,  that
this indemnity  shall not be deemed to relieve any underwriter of any of its due
diligence  obligations;  and  provided  further,  that the  indemnity  agreement
contained in this section  shall not apply to amounts paid in  settlement of any
such claim,  loss,  damage,  liability or action if such  settlement is effected
without the consent of AMNEX, which consent shall not be unreasonably withheld.

                  (b) To the extent  permitted  by law,  Galesi  will  indemnify
AMNEX and its officers and directors and each person, if any, who controls AMNEX
within the  meaning of Section  15 of the  Securities  Act and their  respective
successors  against all claims,  losses,  damages and  liabilities or actions in
respect thereof arising out of or based on violation of any untrue statement (or
alleged  untrue  statement)  of a material  fact  contained  in any  prospectus,
offering circular or other document incident to any registration,  qualification
or compliance (or in any related  registration  statement,  notification  or the
like) or any omission (or alleged  omission)  to state  therein a material  fact
required to be stated  therein or necessary to make the  statements  therein not
misleading  in the light of the  circumstances  in which they were made and will
reimburse AMNEX and each other person indemnified

                                       18





pursuant to this paragraph (b) for any legal and any other  expenses  reasonably
incurred in connection  with  investigating  or defending any such claim,  loss,
damage,  liability or action;  provided,  however, that this paragraph (b) shall
apply only if (and only to the extent that) such  statement or omission was made
in reliance upon and in conformity with written information (including,  without
limitation,  written negative  responses to inquiries)  furnished to AMNEX by an
instrument duly executed by Galesi and stated to be specifically for use in such
prospectus,  offering  circular  or  other  document  (or  related  registration
statement,  notification  or the like) or any amendment or  supplement  thereto;
provided further,  that the indemnity  agreement contained in this paragraph (b)
shall not apply to amounts paid in settlement of any such claim,  loss,  damage,
liability  or action if such  settlement  is  effected  without  the  consent of
Galesi, which consent shall not be unreasonably  withheld; and provided further,
that the  obligations  of Galesi  shall be  limited  to an  amount  equal to the
proceeds to Galesi of Registration  Stock sold, unless such claim, loss, damage,
liability or action resulted from Galesi's fraudulent misconduct.

         (c) Each party entitled to indemnification  hereunder (the "indemnified
party") shall give notice to the party required to provide  indemnification (the
"indemnifying party") promptly after such indemnified party has actual knowledge
of any  claim  as to  which  indemnity  may be  sought,  and  shall  permit  the
indemnifying  party (at its  expense)  to assume the defense of any claim or any
litigation  resulting  therefrom,  provided  that  counsel for the  indemnifying
party,  who shall  conduct  the  defense of such claim or  litigation,  shall be
reasonably  satisfactory to the indemnified party, and the indemnified party may
participate in such defense at such party's expense, and provided further,  that
the omission by any  indemnified  party to give notice as provided  herein shall
not relieve  the  indemnifying  party of its  obligations  under this  Agreement
except to the extent that the omission  results in a failure of actual notice to
the indemnifying party and such indemnifying party is damaged solely as a result
of the failure to give notice. No indemnifying party, in the defense of any such
claim or litigation,  shall,  except with the consent of each indemnified party,
consent to entry of any  judgment  or enter into any  settlement  which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such  indemnified  party of a release  from all  liability in respect to such
claim or litigation.

                                       19





         (d) The  reimbursement  required  by this  Agreement  shall  be made by
periodic payments during the course of the investigation or defense, as and when
bills are received or expenses incurred.

         (e)  If  the   indemnification   provided  for  in  this  Agreement  is
unavailable to an indemnified party in respect of any losses,  claims,  damages,
liabilities or judgments  referred to herein,  then each indemnifying  party, in
lieu of indemnifying such indemnified party, shall contribute to the amount paid
or  payable  by such  indemnified  party as a  result  of such  losses,  claims,
damages,  liabilities and judgments as between the indemnifying party on the one
hand  and  the  indemnified  party  on  the  other,  in  such  proportion  as is
appropriate to reflect the relative fault of the  indemnifying  party and of the
indemnified  party in connection with the statements or omissions which resulted
in such losses, claims, damages,  liabilities or judgments, as well as any other
relevant equitable  considerations.  The relative fault of the indemnified party
on the one hand and of the  indemnifying  party on the other shall be determined
by  reference  to,  among other  things,  whether  the untrue or alleged  untrue
statement  of a material  fact or the  omission  or alleged  omission to state a
material fact relates to  information  supplied by such party,  and the parties'
relative intent, knowledge,  access to information and opportunity to correct or
prevent such  statement or omission.  The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Agreement were determined
by pro rata allocation or by any other method of allocation  which does not take
account of the equitable  considerations  referred to above.  The amount paid or
payable by an  indemnified  party as a result of the  losses,  claims,  damages,
liabilities or judgments  referred to above shall be deemed to include,  subject
to the  limitations  set forth  above,  any legal or other  expenses  reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim.  Notwithstanding  the  provisions  of this  Agreement,
Galesi shall not be required to contribute any amount in excess of the amount by
which the total price at which the Registration  Stock of Galesi were offered to
the public  exceeds the amount of any damages  which Galesi has  otherwise  been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission.  No person guilty of fraudulent  misrepresentation  (within
the  meaning of  Section  11(f) of the  Securities  Act)  shall be  entitled  to
contribution   from  any  person   who  was  not   guilty  of  such   fraudulent
misrepresentation.

                                       20





5.5  Obligations  of Galesi.  As to the  registration  statement  referred to in
Section  5.1,  Galesi  shall  provide  AMNEX with a written  description  of the
proposed  method  or  methods  of  distribution   of  the   Registration   Stock
contemplated  by Galesi and such other  information as may be required by AMNEX,
and  AMNEX  shall  include  such  description  and  other   information  in  the
registration statement and file any and all amendments and supplements necessary
in connection therewith.

                                   ARTICLE VI

                              ADDITIONAL COVENANTS

6.1 Certificate of Amendment. As soon as is reasonably practicable following the
date  hereof,  AMNEX will  submit to its  stockholders  for  approval a proposed
Certificate  of Amendment to its  Certificate  of  Incorporation  as a result of
which there will be a  sufficient  number of  authorized  shares of Common Stock
available for issuance upon the  conversion of the Series L Preferred  Stock and
any Warrant  Preferred  Stock into the  Conversion  Stock,  the  exercise of the
Warrants for the purchase of the Warrant  Common Stock,  and the exercise of any
and all other  outstanding  purchase,  exchange  or  conversion  rights  for the
acquisition of shares of AMNEX Common Stock (the "Increased  Authorized  Capital
Certificate  of  Amendment").  In  the  event  stockholder  approval  is  not so
obtained,  AMNEX will submit the Increased  Authorized  Capital  Certificate  of
Amendment  to  its   stockholders   for  approval  at  subsequent   meetings  of
stockholders of AMNEX.

6.2 Board of Directors.  (a) AMNEX hereby represents that its Board of Directors
(the  "AMNEX  Board") has duly  elected  Galesi as a director of AMNEX to fill a
vacancy on the AMNEX Board, such election to be effective upon the execution and
delivery of this Agreement by the parties hereto.

                  (b) Galesi hereby  represents that he, as sole  shareholder of
GTI, or the Board of Directors  of GTI (the "GTI Board") has duly elected  Peter
M. Izzo,  Jr.  ("Izzo") as a director of GTI to fill a vacancy on the GTI Board,
such election to be effective  upon the execution and delivery of this Agreement
by the  parties  hereto.  Alternatively,  at the  option  of  Izzo,  he shall be
entitled to attend, in a nonvoting observer capacity, meetings of GTI's Board of
Directors, participate in discussions of matters

                                       21





brought to the GTI Board, and obtain copies of all notices,  minutes,  consents,
and other material provided to GTI's directors.

                  (c) AMNEX  agrees to indemnify  Galesi as a director  thereof,
and GTI and Galesi, jointly and severally, agree to indemnify Izzo as a director
of GTI, to the fullest extent permitted by applicable law.

6.3  Business  Arrangements  between  AMNEX  and  GTI  and  TELIT.  The  parties
acknowledge  that AMNEX,  through various  wholly-owned  subsidiaries,  provides
telecommunications  services through its switch(es) located in the United States
and   that   GTI  and  its   wholly-owned   subsidiary,   TELIT/Galesi   Telecom
International,  A.B. ("TELIT"), provide telecommunication services through their
switch(es)  located in Europe.  Each party hereto shall use its reasonable  best
efforts to utilize the other party's  telecommunications  network system for the
termination of telephone calls in areas served by the other party's  switch(es).
Additionally,  Galesi shall cause TELIT to use its reasonable best efforts under
its equipment  purchase  agreement with Ericsson Telecom,  A.B. to provide AMNEX
and/or AMNEX Subsidiaries with discounted equipment purchase prices.

6.4 Issuance of Securities.  Galesi and GTI, jointly and severally, covenant and
agree that,  for so long as AMNEX is a  shareholder  of GTI,  GTI will issue its
shares of capital  stock,  as well as securities  that are  exercisable  for the
purchase of,  exchangeable  for or convertible into shares of its capital stock,
only for a consideration that is fair and adequate.

6.5 Section 630 Indemnity. Galesi and GTI, jointly and severally, will indemnify
AMNEX and hold it harmless  against all expenses,  claims,  losses,  damages and
liabilities  (or actions in respect  thereof),  and will reimburse AMNEX for any
legal  and  any  other   expenses   reasonably   incurred  in  connection   with
investigating,  defending and/or settling any such expense, claim, loss, damage,
liability or action, arising out of or based on AMNEX being allegedly subject to
liability under Section 630 as a shareholder of GTI.


                                       22





6.6  Sole International Telecommunications Vehicle.

                  (a) Galesi  covenants and agrees that, for so long as AMNEX is
a  shareholder  of GTI, he shall  utilize GTI as his sole vehicle with regard to
the  conduct of  international  telecommunications  business  and,  accordingly,
covenants and agrees that, in the event any business  opportunity  which relates
to international telecommunications is offered to him, either:

                           (i)(A)  he shall first offer such opportunity to
GTI,  for a  reasonable  period of time,  on the same  terms and  conditions  as
offered  to him,  (B) in the event  GTI is  unwilling  or unable to accept  such
opportunity  due  to a  lack  of  financing  but  would  otherwise  accept  such
opportunity and, in order for Galesi to accept such opportunity he would need to
invest  funds,  Galesi  shall  negotiate  with  GTI,  in  good  faith  and on an
arm's-length basis, the terms and conditions of an investment of funds by Galesi
into GTI for such  purpose and (C) in the event GTI is  otherwise  unwilling  or
unable to accept such opportunity, Galesi shall offer such opportunity to AMNEX,
or its  designee,  for a  reasonable  period  of  time,  on the same  terms  and
conditions as offered to him,  prior to accepting same (except that, if Izzo, as
a director of GTI, shall have voted against GTI accepting such opportunity, then
Galesi need not offer the opportunity to AMNEX or its designee); or

                           (ii)  in the event he desires to consummate such
opportunity  without following the foregoing  procedures,  (A) he shall offer to
contribute to GTI the business and/or assets acquired in  consideration  for (I)
the  issuance  by GTI to him of such  securities  of GTI as Galesi and GTI shall
agree,  in good faith and on an  arm's-length  basis,  has a value  equal to the
consideration  paid or payable by Galesi to the third party or (II) the transfer
by GTI to him of consideration  equal to, and on the same terms as, that paid or
payable  by Galesi to the third  party  ((I) or (II) being at the option of GTI)
and (B) in the event GTI is unwilling to acquire such business and/or assets, or
Galesi and GTI are unable to agree upon the kind or amount of GTI  securities to
be issued  therefor,  then Galesi shall offer to AMNEX,  or its designee,  for a
reasonable  period of time,  the  opportunity  to acquire such  business  and/or
assets on the same terms and  conditions as acquired by Galesi  (except that, if
Izzo, as a

                                       23





director of GTI,  shall have voted  against GTI acquiring  such business  and/or
assets,  as  opposed  to being  unable  to agree  upon the kind or amount of GTI
securities  to be issued  therefor,  then Galesi need not offer to transfer such
business and/or assets to AMNEX or its designee).

                  (b)  Galesi  represents  and  warrants  that,  as of the  date
hereof,  except  as  set  forth  on  Schedule  6.6,  he has  no  interest  in or
relationship with any entity, other than GTI, which is engaged or proposes to be
engaged  in the  international  telecommunications  business  and  there  are no
transactions pending or contemplated with regard to any such other entity.

6.7 Lock-up Agreement. Galesi covenants and agrees that, for a period of two (2)
years from the date hereof,  he will not sell,  transfer or otherwise dispose of
the  Conversion  Stock,  Warrant  Stock or Series L Preferred  Stock without the
prior written consent of AMNEX.  Notwithstanding the foregoing,  Galesi may make
private transfers of any such securities  provided that the transferee agrees in
writing with AMNEX to be bound by the provisions of this Section 6.7.

6.8  Tag-along Right.

                  (a) If Galesi shall  receive a bona fide written  offer from a
third  party (the  "Buyer")  to  purchase  or  otherwise  transfer  for value an
aggregate  of 50% or more of the issued and  outstanding  GTI Common  Stock,  he
shall so notify AMNEX (the "Tag Along  Notice") and  thereupon  AMNEX shall have
the right to require Galesi,  as a condition to his sale of shares of GTI Common
Stock to the Buyer,  to cause the Buyer to purchase such number of shares of GTI
Common Stock held by AMNEX  (subject to the  limitation in paragraph (b) hereof)
as it may designate by written notice ("Notice of Election") delivered to Galesi
within twenty (20) days following the date of the Tag Along Notice. Galesi shall
notify the Buyer of the  requirements  of this Section 6.8 and shall  transmit a
copy of the Notice of Election to the Buyer.  The purchase  price for the shares
of GTI Common Stock  designated in AMNEX's  Notice of Election shall be equal to
the price per share  offered  by the Buyer for the  shares of GTI  Common  Stock
subject to the offer of the  Buyer.  Such  price  offered by the Buyer  shall be
deemed to include  any  consideration  received or to be  received,  directly or
indirectly, by Galesi or any affiliate thereof in addition to the stated
purchase  price for the shares of GTI Common  Stock other than in  exchange  for
good, valuable and fair consideration.
                                       24







                  (b) In the event the Buyer is unwilling to purchase all of the
shares of GTI Common  Stock set forth in the Notice of  Election,  then it shall
acquire  that  number of shares of GTI  Common  Stock  subject  to the bona fide
written offer (or greater number as the Buyer shall agree) from Galesi and AMNEX
according to their pro rata interest,  which shall mean the aggregate  number of
shares  of GTI  Common  Stock to be  purchased  multiplied  by a  fraction,  the
numerator of which shall equal the number of shares of GTI Common Stock  offered
to be purchased by the Buyer (with respect to Galesi) or the number of shares of
GTI Common Stock set forth in the Notice of Election (with respect to AMNEX) and
the  denominator  of which shall equal the total  number of shares of GTI Common
Stock so offered to be purchased or set forth in the Notice of Election.

                  (c) In the event of any sale in violation of the provisions of
this Section 6.8, at the election of AMNEX, Galesi shall purchase from AMNEX the
number of shares of GTI Common Stock as AMNEX may have  designated by its Notice
of Election,  at the purchase price calculated as set forth herein,  and to hold
AMNEX  harmless from and against any and all costs,  expenses,  claims,  losses,
damages  and  liabilities,  together  with all  reasonable  costs  and  expenses
relating thereto (including legal and accounting fees and expenses) arising from
any violation of this Section.

6.9 Legends.  The certificate  representing the Series L Preferred Stock and any
certificates  issued  representing  the Conversion Stock and Warrant Stock shall
contain a legend to reflect that they are held subject to the provisions of this
Article VI.

6.10  Further  Assurances.  On and after the date  hereof,  AMNEX Galesi and GTI
shall take all such  further  actions and  execute and deliver all such  further
instruments  and documents as may be necessary or  appropriate  to carry out the
transactions contemplated by this Agreement.







                                       25





                                   ARTICLE VII

                            MISCELLANEOUS PROVISIONS

7.1  Expenses.  Each of the parties shall bear its own expenses in connection
herewith.

7.2  Survival.  The parties  agree that their  respective  representa  tions and
warranties  contained  in this  Agreement  shall  survive  the date hereof for a
period of two years with the  exception  of those set forth in Article IV hereof
which shall survive for an indefinite duration.

7.3  Publicity.  The parties  agree that no  publicity,  release or other public
announcement concerning the transactions contemplated by this Agreement shall be
issued by any party  without the advance  written  approval of both the form and
substance of the same by AMNEX and Galesi,  which  approval,  in the case of any
publicity,  release or other public  announcement  required by applicable law or
regulation,  shall not be  unreasonably  withheld or delayed.  The parties agree
that this Agreement,  including or excluding the schedules  attached hereto,  as
well as a  description  of the  terms  thereof,  may be filed by AMNEX  with the
Commission pursuant to the requirements of applicable law or regulation.

7.4 Entire Agreement.  This Agreement,  including the schedules attached hereto,
which are a part hereof,  constitutes  the entire  agreement of the parties with
respect  to the  subject  matter  hereof.  No change,  modification,  amendment,
addition or  termination  of this  Agreement or any part thereof  shall be valid
unless in writing and signed by AMNEX and Galesi.

7.5  Injunctive  Relief.  Galesi  agrees  that  money  damages  would  not  be a
sufficient remedy for any breach of the restrictions of Section 6.6 hereof,  and
that,  without  the  necessity  of proving  damages and in addition to all other
available rights and remedies,  AMNEX shall be entitled to specific  performance
and  injunctive  or other  equitable  relief as a remedy for any such  breach or
threatened  breach,  and Galesi further agrees to waive any requirements for the
securing or posting of any bond in connection with such remedy.


                                       26





7.6 Notices.  Any and all notices or other communications or deliveries required
or  permitted  to be given or made  pursuant  to any of the  provisions  of this
Agreement  shall be deemed to have been duly given or made for all purposes when
hand  delivered or sent by telecopier  (subject to  confirmation  of receipt) or
shall  be  deemed  to have  been  given on the next  business  day when  sent by
overnight  courier (subject to confirmation of receipt) or on the third business
day next  following  when sent by certified or registered  mail,  return receipt
requested and postage prepaid, as follows:

         If to AMNEX at:

         AMNEX, Inc.
         101 Park Avenue
         Suite 2507
         New York, NY 10178
         Attention:  Chairman of the Board
         Telecopier Number: (212) 867-0092

         with a copy to:

         Certilman Balin Adler & Hyman, LLP
         90 Merrick Avenue
         East Meadow, New York  11554
         Attention:  Fred Skolnik, Esq.
         Telecopier Number: (516) 296-7111

         If to Galesi, at:

         Galesi Group
         Rotterdam Industrial Park
         Westcott Road / Building 6
         Schnectady, New York 12306
         Telecopier Number: (518) 356-5334

         with a copy to:

         Steven Porter, Esq.
         Galesi Group
         Rotterdam Industrial Park
         Westcott Road / Building 6
         Schnectady, New York 12306
         Telecopier Number: (518) 356-5334

                                       27






or at such other address as any party or person shall designate by notice to the
other parties in accordance with the provisions hereof.

7.7 Choice of Law.  This  Agreement  shall be governed by, and  interpreted  and
construed  in  accordance  with,  the laws of the State of New  York,  excluding
choice of law principles thereof.

7.8  Severability.  In the event any clause,  section or part of this  Agreement
shall be held or  declared to be void,  illegal or invalid  for any reason,  all
other clauses, sections or parts of this Agreement which can be effected without
such  void,  illegal  or invalid  clause,  section  or part  shall  nevertheless
continue in full force and effect.

7.9 Successors and Assigns; Assignment. This Agreement shall be binding upon and
inure  to  the  benefit  of  the  parties  and  their  respective  heirs,  legal
representatives,  successors and permitted assigns;  provided,  however, that no
party may assign this Agreement or any portion thereof without the prior written
consent of Galesi and AMNEX.

7.10 Headings.  The headings or captions in this  Agreement are for  convenience
and  reference  only and do not in any way modify,  interpret  or  construe  the
intent of the parties or affect any of the provisions of this Agreement.

7.11 Facsimile Signatures.  Signatures transmitted by telecopier shall be deemed
original signatures.

7.12 Counterpart Signatures.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

                  [Remainder of page intentionally left blank]

                                       28




         WITNESS  the  execution  of this  Agreement  as of the date first above
written.

                                            AMNEX, INC.

                                            By: /s/


                                            
                                            /s/
                                            Francesco Galesi

                                            

 
Agreed to:

GALESI TELECOM INTERNATIONAL, INC.

By: /s/



K:\WPDOC\CORP\AMNEX\GALESI\STOCKEX4.D96
                                       29

EX-10.20

VOID AFTER 5:00 P.M., NEW YORK CITY TIME, ON JANUARY 7, 2002.

NEITHER THIS WARRANT NOR THE WARRANT  STOCK (AS  HEREINAFTER  DEFINED) HAVE BEEN
REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE  "ACT").  THIS
WARRANT AND THE WARRANT STOCK MAY BE  TRANSFERRED  ONLY IN  COMPLIANCE  WITH THE
ACT. THIS LEGEND SHALL BE ENDORSED UPON ANY WARRANT  ISSUED IN EXCHANGE FOR THIS
WARRANT.



                                   AMNEX, INC.

             (Incorporated under the laws of the State of New York)

                                     Warrant
                                                                 January 7, 1997

                  FOR VALUE RECEIVED,  AMNEX,  INC., a New York corporation (the
"Company"),  hereby  certifies  that, in  consideration  of the entering into by
FRANCESCO  GALESI (the "Holder") of a certain Stock  Exchange  Agreement of even
date with the Company (the  "Agreement"),  and the  agreement of Galesi  Telecom
International,  Inc. with regard thereto, the Holder is entitled, subject to the
provisions  of this  Warrant,  to purchase  from the Company,  during the period
expiring at 5:00 P.M.,  New York City time, on January 7, 2002,  the  following:
(a) prior to the filing with the Secretary of State of New York of the Increased
Authorized Capital Certificate of Amendment (as defined in the Agreement), up to
ONE HUNDRED  THOUSAND  (100,000)  SERIES L PREFERRED  SHARES of the Company (the
"Series L Preferred  Shares") at a price of  FORTY-FIVE  DOLLARS AND  FORTY-FIVE
CENTS  ($45.45) per Series L Preferred  Share (the "Series L Preferred  Exercise
Price") and (b) on or after the filing with the  Secretary  of State of New York
of the Increased Authorized Capital Certificate of Amendment,  up to ONE MILLION
FIVE  HUNDRED  THOUSAND  (1,500,000)  COMMON  SHARES of the Company (the "Common
Shares") at a price of THREE  DOLLARS AND THREE CENTS  ($3.03) per Common  Share
(the  "Common  Exercise  Price" and  collectively  with the  Series L  Preferred
Exercise Price, the "Exercise Price").

                  The number of Series L Preferred  Shares or Common Shares,  as
the  case may be,  to be  received  upon the  exercise  of this  Warrant  may be
adjusted  from time to time as  hereinafter  set forth.  The Series L  Preferred
Shares or Common Shares deliverable upon such  exercise,  and as adjusted from 
time to time,  are  hereinafter  sometimes referred to as "Warrant Stock".

                                        1




                  The Holder, by his acceptance hereof,  agrees with the Company
that this Warrant is issued,  and all the rights hereunder shall be held subject
to, all of the conditions, limitations and provisions set forth herein.

                  1.       Exercise of Warrant.

                           (a)      This Warrant may be exercised by its
presentation and surrender to the Company at its principal office, by 5:00 P.M.,
New York City time, on January 7, 2002, with the Warrant  Exercise Form attached
hereto duly executed and  accompanied by payment (either in cash or by certified
or official  bank check,  payable to the order of the  Company) of the  Exercise
Price for the number of shares specified in such Form. If this Warrant should be
exercised in part only,  the Company  shall,  upon surrender of this Warrant for
cancellation,  execute and deliver a new  Warrant  evidencing  the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder.

                           (b)     Notwithstanding the foregoing, but subject to
the provisions of applicable law and regulations, including, without limitation,
those  relating  to  margin  requirements,   the  Exercise  Price  may  be  paid
concurrently  with  the  sale of the  Warrant  Stock  in a  "cashless  exercise"
transaction.

                           (c)      Notwithstanding the foregoing but subject to
compliance  by  Galesi  with the terms of the  Agreement,  this  Warrant  may be
exchanged for the Series L Preferred  Shares or the Common  Shares,  as the case
may be,  without the payment of the Exercise Price provided for in paragraph (a)
hereof,  in the event,  during any  continuous  six (6)  calendar  month  period
commencing   with  January  1,  1997  and  ending  on  December  31,  1999,  the
consolidated  revenues  from  operations of GTI,  calculated in accordance  with
generally accepted accounting principles  consistently applied,  equal or exceed
twelve million five hundred thousand dollars ($12,500,000).

                  2. Reservation of Shares.  The Company will at all times 
reserve for issuance and delivery upon exercise of this Warrant all Series L 
Preferred Shares or Common Shares, as the case may be, or other shares of 
capital stock of the Company (and other securities  and  property)  from time to
time  receivable  upon exercise of this Warrant, it being understood that no 
Common Shares need be reserved for issuance unless and until the Increased  
Authorized  Capital  Certificate of Amendment is filed with the Secretary of 
State of New York.

                                        2







                  3.  Fractional  Shares.  The Company  shall not be required to
issue certificates representing fractions of Series L Preferred Shares or Common
Shares,  nor  shall  it be  required  to  issue  scrip  or pay  cash  in lieu of
fractional interests, it being the intent of the Company and the Holder that all
fractional interests shall be eliminated.

                  4.  Exchange  or  Assignment  of  Warrant.   This  Warrant  is
exchangeable,  without expense,  at the option of the Holder,  upon presentation
and   surrender   hereof  to  the  Company  for  other   Warrants  of  different
denominations, entitling the Holder to purchase in the aggregate the same number
of Series L Preferred Shares or Common Shares purchasable hereunder.  Subject to
the  provisions  of this  Warrant and the receipt by the Company of any required
representations  and  agreements,  upon surrender of this Warrant to the Company
with the  Warrant  Assignment  Form  annexed  hereto  duly  executed  and  funds
sufficient  to pay any  transfer  tax,  the Company  shall,  without  additional
charge,  execute and deliver a new Warrant in the name of the assignee  named in
such instrument of assignment and this Warrant shall promptly be cancelled.

                  5.  Rights of the  Holder.  The Holder  shall  not,  by virtue
hereof, be entitled to any rights of a shareholder of the Company, either at law
or in equity,  and the rights of the Holder are  limited to those  expressed  in
this Warrant.

                  6.  Anti-Dilution Provisions.

                      6.1      Adjustments for Stock Dividends; Combinations,
Etc.

                                (a)     In case the Company shall do any of the
following (a "Series L Preferred Event"):


                                        3





                                            (i) declare a dividend or other
distribution on its Series L Preferred Shares payable in Series L
Preferred Shares of the Company,

                                            (ii) subdivide the outstanding 
Series L Preferred Shares pursuant to a stock split or otherwise,

                                            (iii) combine the outstanding Series
L Preferred Shares into a smaller number of shares pursuant to a reverse split 
or otherwise, or

                                            (iv) reclassify its Series L 
Preferred Shares,

then the Series L Preferred  Exercise  Price in effect at the time of the record
date for such dividend or other  distribution  or of the effective  date of such
subdivision,  combination  or  reclassification  shall  be  changed  to a  price
determined  by  dividing  (a) the  product of the  number of Series L  Preferred
Shares  outstanding   immediately  prior  to  such  Series  L  Preferred  Event,
multiplied by the Series L Preferred  Exercise Price in effect immediately prior
to such Series L Preferred Event by (b) the number of Series L Preferred  Shares
outstanding   immediately  after  such  Series  L  Preferred  Event.  Each  such
adjustment of the Series L Preferred  Exercise  Price shall be calculated to the
nearest cent. No such  adjustment  shall be made in an amount less than one cent
($.01),  but any such amount shall be carried  forward and shall be given effect
in connection with the next subsequent adjustment. Such adjustment shall be made
successively whenever any Series L Preferred Event listed above shall occur.

                                    (b) In case the Company shall do any of the
following (a "Common Event"):

                                            (i) declare a dividend or other
distribution on its Common Shares payable in Common Shares of the Company,

                                            (ii) subdivide the outstanding
Common Shares pursuant to a stock split or otherwise,


                                        4





                                            (iii) combine the outstanding Common
Shares into a smaller number of shares pursuant to a reverse split or otherwise,
or

                                            (iv) reclassify its Common Shares,

then the Common Exercise Price in effect at the time of the record date for such
dividend or other  distribution  or of the effective  date of such  subdivision,
combination  or  reclassification  shall be  changed  to a price  determined  by
dividing (a) the product of the number of Common Shares outstanding  immediately
prior to such Common Event,  multiplied by the Common  Exercise  Price in effect
immediately  prior to such  Common  Event by (b) the  number  of  Common  Shares
outstanding  immediately  after such Common Event.  Each such  adjustment of the
Common  Exercise  Price  shall  be  calculated  to the  nearest  cent.  No  such
adjustment  shall be made in an amount less than one cent  ($.01),  but any such
amount shall be carried forward and shall be given effect in connection with the
next subsequent adjustment.  Such adjustment shall be made successively whenever
any Common Event listed above shall occur.

                                    (c)  Whenever the Exercise Price is adjusted
as set forth in Section 6.1 (whether or not the Company then or thereafter 
elects to issue additional  Warrants in substitution for an adjustment in the 
number of shares of Warrant Stock), the number of shares of Warrant Stock 
specified in each  Warrant  which the Holder may purchase  shall be adjusted, to
the nearest full share,  by multiplying such number of Series L Preferred Shares
or Common Shares, as the case may be, immediately prior to such adjustment by a
fraction, of which the numerator shall be the Series L Preferred  Exercise Price
or Common Exercise Price, as the case may be, immediately prior to such 
adjustment and the denominator shall be the Series L Preferred Exercise Price or
Common  Exercise Price, as the case may be, immediately thereafter.

                           6.2   Adjustment for Reorganization, Consolidation or
Merger. In case of any  reorganization of the Company (or any other corporation,
the  securities  of which are at the time  receivable  on the  exercise  of this
Warrant)  after the date  hereof or in case after such date the  Company (or any
such other  corporation)  shall  consolidate  with or merge with or into another
corporation,  then,  and in each such case,  the Holder of this Warrant upon the
exercise thereof as provided in Section l at any time after the consummation

                                        5





of such  reorganization,  consolidation or merger, shall be entitled to receive,
in lieu of the  securities  and  property  receivable  upon the exercise of this
Warrant  prior to such  consummation,  the  securities or property to which such
Holder  would  have been  entitled  upon such  consummation  if such  Holder had
exercised  this  Warrant  immediately  prior  thereto,  all  subject  to further
adjustment  as  provided in Section  6.l;  in each such case,  the terms of this
Warrant shall be applicable to the  securities or property  receivable  upon the
exercise of this Warrant after such consummation.

                  7.       Restrictions on Exercise; Registration Rights.

                           7.1  Investment Intent.  Unless, prior to the
exercise of the Warrant,  the issuance of the Warrant Stock has been  registered
with the Securities and Exchange  Commission  pursuant to the Act, the notice of
exercise shall be accompanied by a  representation  of the Holder to the Company
to the effect that such shares are being  acquired for investment and not with a
view  to the  distribution  thereof,  and  such  other  documentation  as may be
required by the  Company,  unless in the opinion of counsel to the Company  such
representation or other documentation is not necessary to comply with such Act.

                           7.2  Listing; Qualification.  The Company shall not
be obligated to deliver any shares of Warrant  Stock until they have been listed
on each securities exchange or other self-regulatory body on which the Company's
Series L  Preferred  Shares or Common  Shares,  as the case may be,  may then be
listed  or until  there has been  qualification  under or  compliance  with such
federal or state laws,  rules or regulations as the Company may deem applicable,
including, without limitation, compliance with Rule 10b-17 promulgated under the
Securities  Exchange Act of 1934, as amended.  The Company shall use  reasonable
efforts to obtain such listing, qualification and compliance.

                           7.3      Registration Rights.  The Holder shall have
certain registration rights with regard to the Warrant Stock as
provided for in the Agreement.

                  8.       Lost, Stolen or Destroyed Warrants.  In the event
that the Holder notifies the Company that this Warrant has been lost, stolen or
destroyed and provides (a) a letter, in form satisfactory to the Company, to the
effect that he will indemnify the Company from any loss incurred by it in 
connection therewith, and/or (b) an indemnity bond in such amount as is 
reasonably  required by the Company,  the Company  having the option of electing
either (a) or (b) or both, the Company may, in its sole discretion,  accept such
letter  and/or  indemnity  bond in  lieu of the  surrender  of this  Warrant  as
required by Section 1 hereof.

                                        6







                  9.       Applicable Law.  This Warrant is issued under, and
shall for all purposes be governed by and construed in accordance
with, the laws of the State of New York, excluding choice of law
principles thereof.



                                        7





                  IN WITNESS WHEREOF,  the Company has caused this Warrant to be
signed on its behalf, in its corporate name, by its duly authorized officer, all
as of the day and year first above written.

                                            AMNEX, INC.


                                            By: /s/
                                                Kenneth G. Baritz
                                                Chairman of the Board








                                   AMNEX, INC.

                              WARRANT EXERCISE FORM


        The undersigned hereby irrevocably elects to exercise the within Warrant
dated January 7, 1997 to the extent of  purchasing  of the  securities of AMNEX,
Inc.  indicated  below.  The undersigned  hereby makes a payment of $ in payment
therefor.


Check applicable line:
                                                    Name of Holder
Series L Preferred Shares  __

Common Shares              __                       Signature of Holder
                                                    or Authorized Representative


                                                    Signature, if jointly held


                                                    Name and Title of Authorized
                                                    Representative


                                                    Address of Holder



                                                    Date






                                   AMNEX, INC.

                             WARRANT ASSIGNMENT FORM

           FOR VALUE RECEIVED,                hereby sells, assigns
and transfers unto

Name
     (Please typewrite or print name of assignee in block letters)

Address
the right to purchase  Series L Preferred  Shares or Common Shares,  as the case
may be, of AMNEX, Inc.  represented by this Warrant dated January 7, 1997 to the
extent of Series L Preferred  Shares or ____ Common Shares,  as the case may be,
and does hereby irrevocably constitute and appoint________ attorney to transfer
the same on the books of the Company with full power of substitution in the 
premises.




                                           Name of Holder


                                           Signature of Holder or
                                           Authorized Representative


                                           Signature, if jointly held


                                           Name and Title of Authorized
                                           Representative


                                           Date


Signature(s) guaranteed:


K:\WPDOC\CORP\AMNEX\GALESI\WARRANT3.D96

EX-10.21

                  AGREEMENT, dated as of  January 13, 1997, by and among AMNEX,
INC. (the "Company"), FRIEDLI CORPORATE FINANCE AG ("Friedli AG"),  FRIEDLI
CORPORATE FINANCE INC. ("Friedli Inc."), and PETER FRIEDLI ("Friedli" and 
collectively with Friedli AG and Friedli Inc.,  the "Friedli Group").

                               -------------------

                  WHEREAS, Spring Technology Corp. ("Spring") is the holder of a
certain  promissory  note of the Company,  dated March 8, 1993, in the principal
amount of four hundred fifty thousand dollars ($450,000) (the "Spring Note").

                  WHEREAS,  Cofinvest 97 Ltd. ("Cofinvest" and collectively with
Spring,  the "1993  Noteholders") is the holder of a certain  promissory note of
the Company,  dated July 13, 1993,  in the  principal  amount of fifty  thousand
dollars  ($50,000) (the "Cofinvest Note" and collectively  with the Spring Note,
the "1993 Notes").

                  WHEREAS, the 1993 Notes provide for the payment of interest on
the principal  amount  thereof at the rate of ten percent (10%) per annum,  such
interest being originally payable from the following dates:

                           (i)      with respect to the Spring Note, (a) from 
February 22, 1993 with respect to the principal amount of seventy thousand 
dollars ($70,000);  (b) from February 23, 1993 with respect to the principal  
amount of  ninety-six  thousand dollars  ($96,000)  and (c) from  March 8, 1993
with  respect  to the  principal amount of two hundred eighty-four thousand 
dollars ($284,000); and

                           (ii)     with respect to the Cofinvest Note, from 
November 18, 1992.

                  WHEREAS, the principal amount of the 1993 Notes, together with
accrued and unpaid interest  thereon,  is convertible  into Common Shares of the
Company at a  conversion  price of twenty cents ($.20) per share (the "1993 Note
Conversion Rate").

                  WHEREAS,  Logitech Corp. ("Logitech" and collectively with the
1993 Noteholders,  the "Noteholders") is the holder of a certain promissory note
of the Company,  dated May 1, 1995,  in the  principal  amount of three  hundred
twenty-five  thousand  dollars  ($325,000) (the "Logitech Note" and collectively
with the 1993 Notes, the "Notes").

                  WHEREAS,  the  Logitech  Note  provides  for  the  payment  of
interest on the principal  amount  thereof at the rate of eight percent (8%) per
annum.

                  WHEREAS,  the principal amount of the Logitech Note,  together
with accrued and unpaid interest  thereon,  is convertible into Common Shares of
the Company at a  conversion  price of two dollars  eighty-one  and  one-quarter
cents ($2.8125) per share (the "Logitech Note Conversion Rate").

                  WHEREAS,  subject to the terms  hereof,  the Friedli Group has
agreed to use its best  efforts to cause the 1993  Noteholders  to  convert  the
principal amounts of the 1993 Notes, together with accrued and unpaid interest
thereon,  into Common Shares of the Company at the 1993 Note Conversion Rate.





                  WHEREAS,  subject to the terms  hereof,  the Friedli Group has
agreed to use its best efforts to cause Logitech to convert seventy-five percent
(75%) of the principal  amount of the Logitech  Note,  together with accrued and
unpaid interest thereon,  into Common Shares of the Company at the Logitech Note
Conversion Rate.

                  WHEREAS,  there  are  currently  outstanding  72,450  Series B
Preferred  Shares of the  Company,  1,413,337  Series D Preferred  Shares of the
Company and 1,035,000 Series E Preferred Shares of the Company.

                  WHEREAS, each Series B Preferred Share is convertible into ten
(10) Common Shares of the Company (the "Series B Conversion Rate").

                   WHEREAS,  each Series D Preferred  Share is convertible  into
one (1) Common Share of the Company (the "Series D Conversion Rate").

                  WHEREAS, each Series E Preferred Share is convertible into one
(1) Common Share of the Company (the "Series E Conversion Rate").

                  WHEREAS,  subject to the terms  hereof,  the Friedli Group has
agreed to use its best  efforts to cause the  holders  of at least  seventy-five
percent (75%) of each of the outstanding  Series B Preferred Shares (the "Series
B Holders"),  Series D Preferred  Shares (the  "Series D Holders")  and Series E
Preferred  Shares (the  "Series E Holders"  and  collectively  with the Series B
Holders,  and the Series D Holders,  the  "Preferred  Holders" and  collectively
further  with the  Noteholders,  the  "Converting  Holders")  to  convert  their
respective  Preferred Shares (the "Preferred  Shares" and collectively  with the
Notes,  the  "Converting  Securities")  into  Common  Shares  at  the  Series  B
Conversion  Rate,  Series D Conversion Rate or Series E Conversion  Rate, as the
case may be.

                  WHEREAS, no party to this Agreement will receive,  directly or
indirectly,  any commission or other remuneration for soliciting the conversions
or exchanges contemplated hereby.

                  WHEREAS,  subject to the terms  hereof,  the Friedli Group has
agreed to use its best efforts to cause (i) the  Converting  Holders to sell the
Underlying  Shares (as hereinafter  defined) and (ii) the holders of such number
of Common Shares of the Company (the "Common Holders" and collectively  with the
Converting Holders,  the "Holders") which, when added to the aggregate number of
Underlying Shares,  equals nine million  (9,000,000) Common Shares (the "Subject
Common Shares" and  collectively  with the Underlying  Shares,  the "Shares") to
sell such Subject Common Shares,  in each case in accordance with the provisions
hereof.

                  WHEREAS,  subject to the terms  hereof,  the  Company  and the
Friedli  Group are  willing to settle a dispute  between  them with  regard to a
certain consulting fee claimed to be payable by the Company to Friedli AG.

                                        2







                  WHEREAS,  subject to the terms hereof,  the Company has agreed
to make a payment  to the  Preferred  Holders  in lieu of a cash  dividend  with
respect to the Series B, Series D and Series E Preferred Shares of the Company.

                  WHEREAS,  subject to the terms hereof,  the Company has agreed
to offer to exchange Series K Preferred  Shares of the Company for the Company's
outstanding Series F Preferred Shares.

                  WHEREAS,  subject to the terms hereof,  the Company has agreed
to redeem certain  outstanding  promissory notes of the Company in the aggregate
principal amount of $1,400,000.

                  WHEREAS,  each  representation,  warranty and agreement of the
Friedli Group in this Agreement  shall be the joint and several  representation,
warranty  and  agreement  of Friedli  AG,  Friedli  Inc.  and  Friedli  and each
reference  herein  to the  Friedli  Group  shall be  deemed  to refer to each of
Friedli AG, Friedli Inc. and Friedli.

                  NOW, THEREFORE, in consideration of the foregoing, the parties
hereto have agreed, and do hereby agree, as follows:

         1. Recitals.  Each of the parties hereto acknowledges and 
agrees that each of the above recitals is true and that each has relied upon the
accuracy thereof in entering into this Agreement.

          2. Conversion of 1993 Notes.  Promptly following the execution
of this Agreement, the Friedli Group shall use its best efforts to cause each of
Spring and  Cofinvest  to execute  and  deliver  to the  Company an  irrevocable
election to convert,  in the form of Exhibit A attached  hereto,  the  principal
amount of its  respective  1993  Note,  together  with all  accrued  and  unpaid
interest thereon through the day immediately preceding the date hereof, into two
million eight hundred twenty thousand five hundred seventy-five  (2,820,575) and
three hundred  fifty-three  thousand  eight hundred  nineteen  (353,819)  Common
Shares of the Company,  respectively  (collectively,  the "Underlying  1993 Note
Shares"),  which  election  shall be subject to the terms  hereof.  In addition,
concurrently  therewith,  the Friedli  Group shall use its best efforts to cause
Spring and  Cofinvest to deliver to the Company their  respective  original 1993
Notes for cancellation, subject to the terms hereof.

         3.  Conversion  of  Logitech  Note.   Promptly  following  the
execution  of this  Agreement,  the Friedli  Group shall use its best efforts to
cause Logitech to execute and deliver to the Company an irrevocable  election to
convert, in the form of Exhibit B attached hereto, seventy-five percent (75%) of
the principal amount of the Logitech Note,  together with all accrued and unpaid
interest  thereon  through the day immediately  preceding the date hereof,  into
ninety-eight  thousand four hundred eighty (98,480) Common Shares of the Company
(collectively, the

                                        3





"Underlying Logitech Note Shares"), which election shall be subject to the terms
hereof.  In addition,  concurrently  therewith,  the Friedli Group shall use its
best efforts to cause  Logitech to deliver to the Company the original  Logitech
Note for notation as to such conversion, subject to the terms hereof.

         4. Conversion of Series B Preferred Shares. Promptly following
the execution of this Agreement, the Friedli Group shall use its best efforts to
cause each Series B Holder to execute and deliver to the Company an  irrevocable
election  to  convert,  in the form of  Exhibit C attached  hereto,  each of its
respective  Series B Preferred Shares that are contemplated to be converted into
Common  Shares of the  Company  pursuant to the terms  hereof  (the  "Converting
Series  B  Preferred  Shares")  into  ten  (10)  Common  Shares  of the  Company
(collectively,  the  "Underlying  Series B  Shares"),  which  election  shall be
subject to the terms hereof. In addition,  concurrently  therewith,  the Friedli
Group shall use its best efforts to cause each Series B Holder to deliver to the
Company its stock certificate(s)  representing the Converting Series B Preferred
Shares for cancellation, subject to the terms hereof.

         5. Conversion of Series D Preferred Shares.

            (a)      Promptly following the execution of this 
Agreement, the Friedli Group shall use its best  efforts to cause each  Series D
Holder  that is a  Permitted Holder (as hereinafter  defined) (a "Series D 
Permitted  Holder") to execute and deliver to the  Company  an  irrevocable  
election  to  convert,  in the form of Exhibit D-1 attached  hereto, each of its
respective  Series D Preferred Shares that are contemplated to be converted into
Common Shares of the Company pursuant to the terms hereof (the "Converting 
Series D Preferred  Shares") into one (1) Common Share of the Company  
(collectively,  the "Underlying  Series D Shares"), which election shall be 
subject to the terms hereof.  In addition,  concurrently therewith,  the Friedli
Group shall use its best efforts to cause each Series D Permitted Holder to 
deliver to the Company its stock certificate(s) representing the Converting 
Series D Preferred Shares for cancellation, subject to the terms hereof.

            (b) Promptly following the receipt by any member
of the Friedli Group and a Series D Holder that is a  Remaining  Holder (as 
hereinafter  defined) (a "Series D Remaining  Holder") of a Sell  Request (as 
hereinafter  defined),  as provided  for in Section  8(c)  hereof,  the  Friedli
Group  shall use its best efforts to cause each such Series D  Remaining  Holder
to execute and deliver to the Company,  promptly by telecopier  transmission and
overnight mail or courier service, an irrevocable election to convert, in the 
form of Exhibit D-2 attached hereto,  each of its  respective  Converting Series
D  Preferred  Shares  into Underlying  Series D Shares,  which election shall be
subject to, and shall be treated by the Company as subject to, the terms hereof
(notwithstanding anything expressly or implicitly to the contrary therein or the
absence  therein of any express condition that such election is subject to the
terms of this Agreement). In  addition,  concurrently  therewith,  the  Friedli
Group shall use its best efforts  to cause each  Series D  Remaining  Holder to
deliver to the  Company, immediately  by  overnight  mail or courier  service,
its stock  certificate(s) representing the Converting Series D Preferred Shares
for cancellation,  subject to the terms hereof.


                                        4





     6. Conversion of Series E Preferred Shares.

       (a) Promptly following the execution of this Agreement, the Friedli Group
shall use its best  efforts to cause each  Series E Holder  that is a  Permitted
Holder (a "Series E Permitted  Holder") to execute and deliver to the Company an
irrevocable  election to convert,  in the form of Exhibit E-1  attached  hereto,
each of its respective  Series E Preferred  Shares that are  contemplated  to be
converted  into Common  Shares of the Company  pursuant to the terms hereof (the
"Converting Series E Preferred Shares") into one (1) Common Share of the Company
(collectively,  the "Underlying  Series E Shares" and collectively  further with
the Underlying Series B Shares,  the Underlying Series D Shares,  the Underlying
1993 Note  Shares and the  Underlying  Logitech  Note  Shares,  the  "Underlying
Shares"),  which  election  shall be subject to the terms  hereof.  In addition,
concurrently  therewith,  the Friedli  Group shall use its best efforts to cause
each   Series  E   Permitted   Holder  to  deliver  to  the  Company  its  stock
certificate(s)  representing  the  Converting  Series  E  Preferred  Shares  for
cancellation, subject to the terms hereof.

       (b) Promptly following the receipt by any member of the Friedli Group
and a Series E Holder that is a Remaining Holder (a "Series E Remaining Holder")
of a Sell  Request,  as provided for in Section 8(c) hereof,  the Friedli  Group
shall use its best  efforts  to cause  each such  Series E  Remaining  Holder to
execute and deliver to the  Company,  promptly by  telecopier  transmission  and
overnight mail or courier service,  an irrevocable  election to convert,  in the
form of Exhibit E-2 attached hereto, each of its respective  Converting Series E
Preferred  Shares  into  Underlying  Series E Shares,  which  election  shall be
subject to, and shall be treated by the Company as subject to, the terms  hereof
(notwithstanding anything expressly or implicitly to the contrary therein or the
absence  therein of any express  condition  that such election is subject to the
terms of this Agreement). In addition, concurrently therewith, the Friedli Group
shall use its best efforts to cause each Series E Remaining Holder to deliver to
the  Company,  immediately  by  overnight  mail or  courier  service,  its stock
certificate(s)  representing  the  Converting  Series  E  Preferred  Shares  for
cancellation, subject to the terms hereof.

     7. Effectiveness of Conversions; Delivery of Underlying Shares; Additional
Common Shares Issuable.

        (a)  The parties acknowledge and agree (on which agreement each Holder
shall  be  entitled  specifically  to  rely  and  which  agreement  is  intended
specifically  for the benefit of the Holders (the  specificity  of the foregoing
not being intended to limit, and being without prejudice to, the Holders' rights
to rely on all other  provisions  of this  Agreement and to receive the benefits
thereof))  that  the  elections  to  convert  the  Converting   Securities  into
Underlying Shares, as provided for in Sections 2 through 6 hereof (collectively,
the "Conversions"),  with respect to any principal amount of any particular Note
or any  particular  number of  Preferred  Shares,  shall only  become  effective
immediately  prior to the  settlement  of, and shall only result in the holder's
entitlement to receive the  Underlying  Shares to the extent of, the sale of the
respective  Underlying  Shares  pursuant to the  provisions of Section 9 hereof;
provided,  however,  that a particular Conversion shall become effective earlier
in the event the  holder of the  Converting  Security  advises  the  Company  in
writing

                                        5





that the Conversion is to become effective  notwithstanding  that the Underlying
Shares with respect  thereto have not been sold (the  "Conversion  Notice").  In
such event,  the  Conversion  shall become  effective  upon the date the Company
receives the Conversion Notice.

       (b) The parties acknowledge and agree that, during the Sale Period (as
hereinafter defined), the certificates representing the Underlying Shares are to
be delivered directly to the Broker-Dealer(s) (as hereinafter  defined),  or its
designee, for sale and/or delivery as contemplated by Section 9 hereof.

       (c) The parties acknowledge and agree further that, notwithstanding that,
in determining  the number of Underlying  Shares issuable upon Conversion of the
Notes,  interest is calculated  through the day  immediately  preceding the date
hereof,  upon the  effectiveness  of any  Conversion  of the  Notes,  additional
validly  issued,  fully paid and  nonassessable  Common Shares (the  "Additional
Common  Shares")  shall be issuable to the Holder  thereof to give effect to the
Conversion of accrued  interest from the date hereof through the day immediately
preceding the effective date of Conversion.

     8. Establishment of Brokerage Accounts; Delivery of Instruments and
Documents.

       (a) Promptly following the Designation Time (as hereinafter defined), the
Friedli Group shall use its best efforts to cause all of the Noteholders, Series
B Holders and Common Holders, as well as Spring, Cofinvest, Logitech, Joyce Ltd.
and Eagle Growth Ltd. (collectively, the "Principal Holders") with regard to any
and all Converting  Series D Preferred Shares and Converting  Series E Preferred
Shares held of record by them (the Noteholders, Series B Holders, Common Holders
and  Principal  Holders  being  collectively   referred  to  as  the  "Permitted
Holders"), to establish one or more brokerage accounts (the "Accounts") with one
or  more  broker-dealers  designated  by  the  Company  (the  "Permitted  Holder
Broker-Dealers")  (the Friedli Group  acknowledging and agreeing that the number
of  Shares  which  are held by or  issuable  upon  Conversion  to the  Permitted
Holders,  and which shall be subject to the  provisions  of this  Section  8(a),
shall not be less than five million  (5,000,000)  Shares) and shall use its best
efforts  to cause the  Permitted  Holders to  deliver  to the  Permitted  Holder
Broker-Dealer(s)  the following (the "Required  Permitted Holder  Instruments"):
(i) unlegended  certificates  representing the Subject Common Shares held by the
Permitted Holders and (ii) duly executed stock powers, with signatures medallion
guaranteed,  covering  the  transfer  of the  Shares  held by or  issuable  upon
Conversion to the Permitted  Holders (the "Permitted  Shares").  The name(s) and
address(es)  of the Permitted  Holder  Broker-Dealer(s)  shall be set forth in a
writing (the "Broker-Dealer  Designation") executed and delivered by the Company
by telecopier  transmission  to Friedli AG by 5:00 p.m.,  New York City time, on
the seventh day following the date hereof (the "Designation  Time"). The Company
agrees to cooperate with the Friedli Group in connection with the removal of any
legends on the certificates representing the Subject Common Shares.



                                        6





        (b) Concurrently, the Friedli Group shall use its best efforts to cause 
the Permitted Holders to deliver to (i) the Permitted Holder Broker-Dealer(s) 
such duly executed and certified corporate resolutions and other instruments and
documentation,  with  signatures  medallion  guaranteed,  as are required by the
Permitted Holder  Broker-Dealer(s)  in connection with the  establishment of the
Accounts and to permit the  Permitted  Holder  Broker-Dealer(s)  to purchase the
Permitted  Shares for their account,  or sell the Permitted  Shares on behalf of
the Permitted Holders,  during the Sale Period in accordance with the provisions
of  Section  9 hereof  and (ii) the  Company's  transfer  agent,  namely  Jersey
Transfer & Trust Co., the address of which is 201  Bloomfield  Avenue,  P.O. Box
36, Verona,  New Jersey 07044,  Fax (201)  239-2361 (the "Transfer  Agent") such
duly executed and certified  corporate  resolutions,  with signatures  medallion
guaranteed,  as are required by the Transfer Agent to permit the transfer of the
Permitted Shares ((i) and (ii) being  collectively  referred to as the "Required
Permitted Holder Documents").

        (c) Promptly following the receipt from time to time during the Sale
Period  (as  hereinafter  defined)  by any member of the  Friedli  Group and any
Holder  other  than  a  Permitted   Holder  (such  Holders  being   referred  to
collectively  as  the  "Remaining  Holders")  of a  request  from  one  or  more
broker-dealers  designated by the Company (the "Remaining Holder Broker-Dealers"
and collectively with the Permitted Holder Broker-Dealers, the "Broker-Dealers")
that such  Remaining  Holder  sell any or all of its Shares  (the  Shares of all
Remaining Holders being collectively referred to as the "Remaining Shares") in a
manner  consistent  with the provisions of Section 9 hereof (a "Sell  Request"),
the Friedli Group shall use its best efforts to cause each such Remaining Holder
to deliver to the  Remaining  Holder  Broker-Dealer(s),  promptly  by  facsimile
transmission  and by overnight mail or courier  service,  the following:  (i) an
order to sell the subject  Remaining  Shares or other  document in lieu  thereof
required  by the  Remaining  Holder  Broker-  Dealer to indicate  the  Remaining
Holder's agreement to sell the subject Remaining Shares consistent with the Sell
Request  (a  "Remaining  Holder  Sell  Order"),  (ii)  unlegended   certificates
representing  any and all Subject  Common Shares held by the  Remaining  Holders
that would be required to be  delivered  pursuant to the  Remaining  Holder Sell
Order  and  (iii)  duly  executed  stock  powers,   with  signatures   medallion
guaranteed,  covering  the transfer of any and all  Remaining  Shares held by or
issuable upon  Conversion  to the Remaining  Holder that would be required to be
delivered pursuant to the Remaining Holder Sell Order ((i), (ii) and (iii) being
referred to as the "Required Remaining Holder Instruments" and collectively with
the Required Permitted Holder Instruments,  as the "Required Instruments").  The
name(s) and address(es) of the Remaining  Holder  Broker-Dealer(s)  shall be set
forth in a writing (the "Additional  Designation") executed and delivered by the
Company by  telecopier  transmission  to Friedli AG prior to the  receipt by any
member  of the  Friedli  Group or the  Remaining  Holders  of the  initial  Sell
Request.

        (d) Concurrently, the Friedli Group shall use its best efforts to cause
the Remaining Holders to deliver to (i) the Remaining  Holder  Broker-Dealer(s),
concurrently  with their  placing a Remaining  Holder Sell Order,  by  facsimile
transmission and overnight mail or courier service, such other duly executed and
certified  corporate  resolutions and other instruments and documentation,  with
signatures  medallion  guaranteed,  as  are  required  by the  Remaining  Holder
Broker-Dealer(s)  to permit  them to  purchase  the  Remaining  Shares for their
account, or to permit

                                        7





a designee of the Remaining  Holder  Broker-Dealer(s)  to purchase the Remaining
Shares,  during the Sale Period in accordance  with the  provisions of Section 9
hereof and (ii) the Company's Transfer Agent, promptly by facsimile transmission
and  overnight  mail or courier,  such duly  executed  and  certified  corporate
resolutions, with signatures medallion guaranteed, as are required to permit the
transfer  of the  Remaining  Shares  ((i)  and  (ii)  being  referred  to as the
"Required  Remaining  Holder  Documents"  and  collectively  with  the  Required
Permitted Holder Documents, as the "Required Documents").

        (e) The parties agree that the Broker-Dealer Designation shall provide 
for, in  addition to the name(s) and  address(es)   of  the   Permitted   Holder
Broker-Dealer(s),  the minimum number of separate  accounts to be established by
the Permitted Holders with each Permitted Holder  Broker-Dealer,  and the number
of Permitted  Shares to be offered for sale to or through each Permitted  Holder
Broker-Dealer.

        (f) The Friedli Group shall use its best efforts to cause the Holders to
advise  the  Broker-Dealers  to deliver to the  Company  copies of all  Required
Instruments and all Required  Documents executed and/or delivered by the Holders
to the Broker-Dealers (the  "Instrument/Document  Delivery  Instructions") (such
advice,  with regard to the Remaining Holders, to be given concurrently with the
delivery of the Required  Remaining  Holder  Instruments and Required  Remaining
Holder Documents).

     9. Sale of Shares; Proceeds.

        (a) The Friedli Group shall use its best efforts to cause each Permitted
Holder,  concurrently  with  its  delivery  of  the  Required  Permitted  Holder
Instruments  and Required  Permitted  Holder  Documents to the Permitted  Holder
Broker-Dealer(s),  to place an order to sell the Permitted Shares, to or through
the Permitted Holder  Broker-Dealer(s)  (the "Permitted  Holder Sell Orders" and
collectively  with the  Remaining  Holder Sell Orders,  the "Sell  Orders"),  as
expeditiously as possible, subject to the order of priority set forth in Section
9(c) hereof and the other terms set forth in this  Section 9. In  addition,  the
Friedli Group shall use its best efforts to cause each  Remaining  Holder,  from
time to time during the Sale Period, to sell, to or through the Remaining Holder
Broker  Dealer(s),  the  Remaining  Shares  in  a  manner  consistent  with  the
provisions of Section 8(c) hereof.

            In no event shall the Holders be required to accept a price of less 
than three dollars fifty cents ($3.50) per Share, net (the "Minimum Price");  
however, if a price in excess of the Minimum Price is offered to the Holders by
the Broker-Dealer(s),  directly or indirectly, for the purchase of their Shares,
the Friedli Group shall use its best efforts to cause the Holders to accept the
highest  price so offered.  The Friedli  Group agrees with the Company  that, in
consideration  for the  Company's  agreement to  repurchase,  as provided for in
Section 10 hereof,  and other good and valuable  consideration,  the receipt and
sufficiency  of which the  Friedli  Group  acknowledges,  the  Company  shall be
entitled  to  receive  and retain  any and all net sales  proceeds  per Share in
excess of the Minimum  Price.  The Friedli  Group shall use its best  efforts to
cause the Holders to advise the

                                        8





Broker-Dealer(s) to pay directly to the Company any and all such excess proceeds
(the "Excess Proceeds Instructions") and to deliver to the Company copies of the
Excess  Proceeds  Instructions  and all  confirmations  of orders  to sell,  and
confirmations  of sales of,  the  Shares  (the  "Proceeds/Confirmation  Delivery
Instructions")  (such advice,  with regard to the Remaining Holders, to be given
concurrently with the delivery of the Required  Remaining Holder Instruments and
Required Remaining Holder Documents).

        (b)  The Friedli Group shall use its best efforts to cause the Permitted
Holders to maintain  the  Permitted  Holder Sell Orders in effect until at least
the  earlier  of (the  "Sale  Period")  (i)  the  repurchase  of the  particular
Permitted  Shares  pursuant to the  provisions  of Section 10 hereof or (ii) one
hundred  twenty  (120)  days  following  the later of the date (A) all  Required
Permitted  Holder  Instruments and all Required  Permitted  Holder Documents are
delivered  to the  Permitted  Holder  Broker-Dealer(s),  (B) all  documents  and
instruments  required to be delivered by the Permitted Holders to the Company in
accordance with the provisions of Sections 2 through 4, 5(a) and 6(a) hereof are
so delivered,  (C) all of the Permitted  Holder Sell Orders are placed,  (D) the
Instrument/Document  Delivery Instructions are given by the Permitted Holders to
the Permitted Holder Broker-Dealer(s),  (E) the letters in the forms of Exhibits
F-1,  F-2 and F-3  attached  hereto (the  "Holder  Letters")  are  executed  and
delivered by the Holders to the Company,  (F) the Excess  Proceeds  Instructions
are given by the Permitted Holders to the Permitted Holder Broker-Dealer(s), (G)
the  Proceeds/Confirmation  Delivery  Instructions  are  given by the  Permitted
Holders to the Permitted  Holder  Broker-Dealer(s)  and (H) the Principal Holder
Releases (as hereinafter defined) are executed and delivered to the Escrow Agent
(as hereinafter  defined)((A)  through (H) being referred to collectively as the
"Holder Documents").

        (c) The parties agree, and the Friedli Group shall so advise the Holders
prior to their delivery of any executed Holder Documents,  and the Company shall
advise  the  Broker-  Dealers,  that  sales of the  Shares  shall be made in the
following order of priority:  (i) the Subject Common Shares, (ii) the Underlying
1993 Note Shares, (iii) the Underlying Logitech Note Shares, (iv) the Underlying
Series E Shares,  (v) the  Underlying  Series B Shares  and (vi) the  Underlying
Series D Shares,  or as  otherwise  agreed in writing  between  the  Company and
Friedli.  The  Company  agrees  that it will not  issue  any  Underlying  Shares
pursuant to any Conversion made under this Agreement  unless,  to its knowledge,
based upon its  receipt  of  confirmations  of sales of Shares,  all Shares of a
higher priority have been sold.

     10. Repurchase of Securities.

        (a) In the event any of the Underlying Shares are not sold within the 
Sale Period, the Friedli Group shall use its best efforts to cause the 
Converting Holders to sell to the Company,  and, subject to the conditions set 
forth below, the Company  agrees to repurchase  from the Converting  Holders, to
the fullest extent permitted by applicable law, any and all Converting 
Securities which were not converted into Underlying Shares (the "Repurchase 
Securities") at a purchase price (the  "Repurchase  Price") equal to the number
of  Underlying  Shares that would have been issued upon  Conversion  multiplied
by three dollars fifty cents ($3.50) per Share (the "Repurchases").  The 
Repurchase Price shall be payable in cash, certified check or wire transfer to

                                        9





an account designated by the particular  Converting Holder at least two (2) days
in advance of the Repurchase Closing Date (as hereinafter defined). In the event
the Company is unable to repurchase all of the Repurchase Securities, subject to
the conditions  hereof,  it shall  repurchase such of the Repurchase  Securities
permitted by  applicable  law in the order of priority set forth in Section 9(c)
hereof.

        (b)  The obligation of the Company to repurchase any and all Repurchase
Securities  is subject to the  satisfaction  of the  following  conditions:  (i)
through and as of the  Repurchase  Closing  Date,  the Friedli  Group shall have
performed all of its obligations hereunder ("Friedli Compliance"),  (ii) through
and as of the  Repurchase  Closing Date,  all of the Holders shall have done and
performed all acts with respect to which the Friedli Group has agreed to use its
best efforts to cause the Holders to do and perform  hereunder through and as of
such date (including,  without limitation,  executing,  delivering and complying
with all of the  provisions  of all of the Holder  Documents,  placing  the Sell
Orders and maintaining the Permitted Holder Sell Orders in effect throughout the
Sale Period)  (collectively,  "Holder  Compliance"),  (iii)  neither the Friedli
Group nor any Holder nor any Institution or Ultimate  Beneficial  Owner (as such
terms are  hereinafter  defined) nor any Affiliate of any of the foregoing shall
have commenced or maintained  any action or proceeding  similar in nature to the
Bader Action (as  hereinafter  defined) nor taken any actions  which the Friedli
Group has agreed not to take pursuant to Section 12 hereof ("Bader Compliance"),
(iv) as of the Repurchase  Closing Date, the  representations  and warranties of
the  Friedli  Group,  and of each of the  Holders  as set  forth  in the  Holder
Documents, shall be true and complete as if made at and as of such date, and (v)
on or after  the  date  hereof  and  prior to the  Repurchase  Outside  Date (as
hereinafter defined),  the Company shall have obtained financing in an amount at
least equal to the Repurchase  Price,  which financing does not prohibit the use
thereof  for  making  the  Repurchases  and  is  not  obtained  for a  different
particular purpose  ("Permitted  Financing");  provided,  however,  that, if the
Company obtains Permitted Financing in an amount less than the Repurchase Price,
subject to the  conditions  hereof,  it shall be  obligated  to  repurchase  the
Repurchase  Securities,  in the  order of  priority  set forth in  Section  9(c)
hereof, to the extent of the Permitted Financing received. The Company shall use
its best efforts to obtain such financing on terms  reasonably  satisfactory  to
it.

        (c)   The closing of the Repurchases provided for hereunder (the
"Repurchase  Closing")  shall take place at the  offices of the  Company on such
date (the "Repurchase Closing Date") and at such time as shall be indicated in a
notice  given not fewer  than five (5) days in  advance  by the  Company  to the
Holders who own such Repurchase Securities,  which Repurchase Closing Date shall
not be later than the day  following  the  expiration  of the Sale  Period  (the
"Repurchase Outside Date"). Upon the Repurchase of Repurchase  Securities at the
Repurchase  Closing,  the Company shall be entitled to retain and cancel (or, in
the case of the Logitech  Note,  make  appropriate  notation upon and then shall
return) all certificates and instruments representing or constituting Repurchase
Securities (other than Unrepurchased  Securities (as hereinafter  defined)) that
were delivered to it pursuant to the provisions of Sections 2 through 6 hereof.



                                       10




        (d) The parties agree that, in the event of a default on the part of the
Company in its obligation to repurchase the Repurchase Securities, as liquidated
damages  and as the sole and  exclusive  remedy  of the  Friedli  Group  and the
Holders for such  default,  the Company shall be obligated to pay to the Holders
of the  Repurchase  Securities  that were not  repurchased  (the  "Unrepurchased
Securities") an amount (the "Liquidated Damages Amount") equal to five and four-
sevenths  percent  (5-4/7%) of the Repurchase  Price thereof,  such amount to be
payable in equal monthly installments on the last day of each month over a three
(3) year period  commencing  with the month in which the default  occurs.  In no
event shall the  Liquidated  Damages  Amount  exceed,  in the  aggregate for all
Holders,  the sum of one million dollars  ($1,000,000) (the "Cap"). In the event
the Cap is applicable, a proportionate amount of the Cap shall be payable to the
Holders of the Unrepurchased  Securities,  as provided for above, based upon the
respective  Repurchase Price thereof. The Company hereby acknowledges and agrees
that the Liquidated Damages Amount is reasonable in light of the anticipated and
actual harm, if any, caused by such breach or default, the difficulties of proof
of loss and  damage,  and the  inconvenience  and  nonfeasibility  of the  other
parties  hereto or the  Holders  otherwise  obtaining  an adequate  remedy.  The
Company hereby acknowledges and agrees that the Liquidated Damages Amount is not
unreasonably  large,  under the  circumstances,  and that such  amount  does not
constitute, and shall not be construed as, a penalty.

         (e)  The certificates and instruments representing or constituting the
Converting  Securities that were not  repurchased and the documents  executed by
the Holders with respect to the Converting  Securities that were not repurchased
shall be  returned  to the  Holders  thereof  by the  Company  no later than the
Repurchase  Outside Date.  The  certificates  and  instruments  representing  or
constituting the Converting Securities that are returned to the Holders shall be
identical to and shall have the same rights and preferences as the  certificates
and  instruments  representing  or  constituting  the Notes and/or the Preferred
Shares held by the Holders on the day before execution of this Agreement.

     11.   Voting  Rights.  The holders of the Preferred  Shares will
retain all voting  rights with respect  thereto until the  effectiveness  of the
Conversion and sale, or Repurchase,  thereof.  The holders of the Subject Common
Shares will retain all voting  rights with  respect  thereto  until the sales of
such securities are consummated and record ownership thereof is transferred. The
provisions set forth in this Agreement or any other agreement of even date shall
not alter or otherwise  affect the voting rights of the Preferred  Shares or the
Subject  Common Shares until the  effectiveness,  as the case may be, of the (i)
Conversion of the Preferred Shares,  (ii) Repurchase of the Preferred Shares, or
(iii) sale of the Subject Common Shares.

     12.  Bader Litigation.  The Friedli Group agrees that, until the Repurchase
Closing Date, they will not, directly or indirectly, commence or maintain any 
action or proceeding similar in nature to that certain action entitled Jorg 
Bader v.  Kenneth G.  Baritz, Peter M.  Izzo, Michael V. Dettmers and Russell K.
Burbank (the "Bader Action"), which action was dismissed without prejudice, or 
otherwise encourage or assist any other person or entity to commence or maintain
any such action or proceeding.




                                       11





     13.  Representations and Warranties of the Friedli Group.

          As a material inducement to the Company's entering into this 
Agreement, the Friedli Group hereby represents, warrants, covenants and agrees 
as follows:

         (a)   The Friedli Group has the power and authority to enter into this
Agreement and to perform its obligations  hereunder.  The execution and delivery
of this Agreement and the  performance  by the Friedli Group of its  obligations
hereunder have been duly authorized by the Board of Directors or other governing
body  of  Friedli  AG and  Friedli  Inc.  and,  if  required,  their  respective
shareholders in conformity with applicable law. No other corporate proceeding on
the part of Friedli AG or Friedli Inc. is necessary to authorize  the  execution
or delivery of this  Agreement or the  performance  by the Friedli  Group of its
obligations  hereunder.  This Agreement is the valid and binding  obligation of,
and is enforceable in accordance with its terms against, the Friedli Group.

         (b) Neither the execution, delivery or performance of this Agreement by
the Friedli Group,  nor the  performance by the Friedli Group of its obligations
hereunder,  requires  the  consent or approval of any third party or any foreign
governmental  body or other  foreign  regulatory  or  administrative  authority,
agency, bureau or commission (collectively, "Foreign Governmental Body").

         (c) Neither the execution, delivery or performance of this Agreement by
the Friedli Group nor the  performance  by the Friedli Group of its  obligations
hereunder, (i) violates,  conflicts with or results in a breach of any provision
of  the   Certificate   of   Incorporation   or  By-Laws  or  other  charter  or
organizational  document of Friedli AG or Friedli Inc.; (ii) violates,  breaches
or is in conflict with, or constitutes a default (or an event which, with notice
or lapse of time or both,  would  constitute a default)  under any  agreement or
other  obligation  to  which  the  Friedli  Group  is a party  or by which it is
otherwise  bound;  or (iii)  violates  any order,  writ,  injunction,  decree or
judgment,  or any law, statute,  rule or regulation of any Foreign  Governmental
Body applicable to the Friedli Group.

         (d)  Each person executing this Agreement on behalf of Friedli AG and
Friedli Inc. has been duly authorized to execute and deliver this Agreement on 
such entity's behalf.

         (e)  To the knowledge of the Friedli Group, each Holder is a nominee
holder of the  securities of the Company that are registered in its name. To the
knowledge  of the Friedli  Group,  such  securities  are held for the benefit of
certain banking  institutions  (the  "Institutions"),  which, in turn, hold such
securities for the benefit of others (the "Ultimate Beneficial Owners").  To the
knowledge of the Friedli Group,  none of the Holders,  Institutions  or Ultimate
Beneficial  Owners,  directly  or  indirectly,  is now,  or has ever  been,  the
beneficial  owner (as such term is defined in Section 13 of the Exchange Act and
the rules and regulations promulgated thereunder) of more than five percent (5%)
of the outstanding Common Shares of the Company.


                                       12





        (f)  To the knowledge of the Friedli Group, each Holder, Institution and
Ultimate Beneficial Owner acts, and has always acted, independently of all other
Holders,  Institutions and Ultimate  Beneficial Owners, as well as independently
of all other  entities  that  acquired  securities  of the  Company  through the
efforts of the Friedli Group (the "Friedli  Clients"),  and none of the Holders,
Institutions or Ultimate  Beneficial  Owners acts, or has ever acted, in concert
with any other Holder,  Institution,  Ultimate Beneficial Owner or other Friedli
Client  in  connection  with  the  acquisition,  disposition  or  voting  of any
securities of the Company.

       (g)   To the knowledge of the Friedli Group, the respective Converting
Securities  were  acquired,  and  have  been  held,  pursuant  to  Regulation  S
("Regulation S"),  promulgated under the Securities Act of 1933, as amended (the
"Securities  Act").  To  the  knowledge  of  the  Friedli  Group,  any  and  all
representations  and  certifications  set forth in any  subscription or purchase
agreement or representation letter relating to the acquisition of the Converting
Securities were accurate at the time made.

       (h)  To the knowledge of the Friedli Group, since the respective
Converting Holder's  acquisition of the Converting  Securities,  it has not sold
short,  or otherwise taken any short position with respect to, any Common Shares
of the Company.

       (i)   To the knowledge of the Friedli Group, the respective Converting
Holder's  acquisition  of  the  Converting   Securities  was  not  part  of  any
prearranged  transaction  to sell  such  securities  or  Underlying  Shares to a
purchaser in the United States or to a "U.S. person" (as such term is defined in
Regulation S).

       (j)  To the knowledge of the Friedli Group, none of the Holders is now,
nor has any of them ever been, an Affiliate (as such term is defined in Rule 405
promulgated under the Securities Act) of the Company.

       (k) To the knowledge of the Friedli Group, each of the Converting Holders
was at the time of its acquisition of its respective Converting Securities,  and
each of them is, an  "accredited  investor" (as such term is defined in Rule 501
promulgated under the Securities Act).

       (l) To the knowledge of the Friedli Group, each of the Converting Holders
has significant prior investment experience,  including investment in non-listed
and non-registered  securities,  and each is able to bear the economic risk of a
conversion of the Converting Securities into the Underlying Shares.

       (m) In connection with (i) the conversion of the Converting Securities 
into Underlying Shares or Additional Common Shares and (ii) any exchange of the
Series F Preferred  Shares of the  Company for Series K Preferred  Shares of the
Company,   as  contemplated  by  Section  18  hereof,  no  commission  or  other
remuneration  was or will  be paid or  given,  directly  or  indirectly,  by the
Holders or the  holders  of the  Series F  Preferred  Shares,  or any  Affiliate
thereof,  to, or demanded or received,  directly or indirectly,  by, the Friedli
Group for soliciting such conversion or exchange.

                                       13






       (n)   To the knowledge of the Friedli Group, the Holders own the
Converting Securities and the Subject Common Shares, and, upon Conversion of the
Converting Securities, will own the Underlying Shares, free and clear of any and
all liens,  pledges,  security interests,  claims, rights and other encumbrances
other than as contemplated by this Agreement.

       (o)    Upon the effectiveness of the Conversions, or Repurchases, of the
Converting Securities pursuant to Section 7 or 10 hereof, the Converting Holders
shall have no further rights with regard to the Converting Securities.

       (p) As of the date hereof, there is no litigation or governmental 
proceeding pending,  or, to the  knowledge of the Friedli  Group,  threatened to
restrain, invalidate,  prevent, or otherwise impede any transaction contemplated
hereby, the defense of which would, in the judgment of the Company, made in good
faith and based upon the advice of counsel,  involve material expense or lapse 
of time that would be adverse to the interests of the Company.

       (q) The representations and warranties of the Friedli Group set forth 
herein are true and complete in all respects as of the date hereof and the
Friedli Group will neither take any action,  nor cause or encourage  the Holders
to take any action, directly or indirectly, that would cause any of such 
representations and warranties to not be true and complete in all respects at 
any time until the expiration of the Sale Period or the Outside Repurchase Date,
as the case may be. The Friedli Group shall use its best efforts to cause the 
Holders to execute and deliver the Holder Letters to the Company.

     14. Representations and Warranties of the Company. As a material inducement
to the Friedli Group's entering into this Agreement, the Company hereby 
represents, warrants, covenants and agrees as follows:

        (a)  The Company is a corporation validly existing and in good standing
under  the laws of the State of New York,  and has the  power and  authority  to
enter  into  this  Agreement  and to  perform  its  obligations  hereunder.  The
execution and delivery of this Agreement and the  performance of its obligations
hereunder have been duly  authorized by the Board of Directors of the Company in
conformity with applicable law. No other corporate proceeding on the part of the
Company,  including,  without limitation,  shareholder approval, is necessary to
authorize the execution or delivery of this Agreement or the  performance of its
obligations hereunder.  This Agreement is a valid and binding obligation of, and
is enforceable in accordance with its terms against, the Company.

        (b)  Neither the execution, delivery or performance of this Agreement by
the Company nor the  performance  of its  obligations  hereunder,  requires  the
consent or approval of any third party or any United States governmental body or
other United States regulatory or administrative  authority,  agency,  bureau or
commission   ("Domestic   Governmental   Body"),   except  that  the   foregoing
representation and warranty with regard to the requirement of any consent or

                                       14





approval of the Securities and Exchange Commission (the "SEC") is subject to the
accuracy of the Friedli Group's representations and warranties in paragraphs (e)
through (m) of Section 13 hereof and those set forth in  paragraphs  (i) through
(ix) of the Holder Letters (with respect to Exhibits F-1 and F-2) and paragraphs
(i) and (ii) of the Holder Letters (with respect to Exhibit F-3).

        (c)  Neither the execution, delivery or performance of this Agreement by
the Company nor the  performance  of its  obligations  hereunder  (i)  violates,
conflicts  with or results in a breach of any  provision of the  Certificate  of
Incorporation  or By-Laws  of the  Company;  (ii)  violates,  breaches  or is in
conflict with, or constitutes a default (or an event which, with notice of lapse
of time or both,  would  constitute  a  default)  under any  agreement  or other
obligation  to which the Company is a party or by which the Company is otherwise
bound; or (iii) violates any order, writ, injunction, decree or judgment, or any
law, statute, rule or regulation of any Domestic Governmental Body applicable to
the Company,  except that the foregoing  representation and warranty with regard
to any  law,  statute,  rule  or  regulation,  as it  applies  to the SEC or any
securities  laws or statutes,  is subject to the accuracy of the Friedli Group's
representations in paragraphs (e) through (m) of Section 13 hereof and those set
forth in  paragraphs  (i) through (ix) of the Holder  Letters  (with  respect to
Exhibits F-1 and F-2) and  paragraphs  (i) and (ii) of the Holder  Letters (with
respect to Exhibit F-3).

        (d)  The person executing this Agreement on behalf of the Company has
been duly authorized to execute and deliver this Agreement on its behalf.

        (e)  As of the date hereof, there is no litigation or governmental 
proceeding pending or, to the knowledge of the Company, threatened to restrain,
invalidate, prevent, or otherwise impede any transaction contemplated hereby, 
the defense of which would, in the judgment of the Friedli Group,  made in good 
faith and based upon the advice of counsel, involve material expense or lapse of
time that would be adverse to the interests of the Friedli Group.

        (f)  The Company has not filed a petition in bankruptcy or, to its
knowledge, had an involuntary petition in bankruptcy filed against it.

        (g)  The Company has reserved a number of authorized and unissued
Common Shares that is not less than the total number of Common  Shares  issuable
upon all of the Conversions,  and insofar as one or more  Conversions  might not
become  effective  immediately  prior  to  the  settlement  of the  sale  of the
respective  Underlying  Shares as contemplated by this Agreement (as a result of
the provisions of the Restated  Certificate of  Incorporation  of the Company or
otherwise) and the Board is authorized and empowered (pursuant to the provisions
of such  Restated  Certificate  of  Incorporation  or  otherwise)  to hasten the
effectiveness  of such  Conversions,  the Board by duly adopted  resolution (the
"Conversion Board  Resolution") (a certified copy of which shall be delivered to
the Friedli  Group upon  written  request)  shall act to render all  Conversions
effective  immediately  prior to the  settlement  of the sale of the  respective
Underlying Shares as contemplated by this Agreement.


                                       15





        (h)   The representations and warranties of the Company set forth herein
are true and complete in all respects as of the date hereof and the Company will
not take any action that would cause any such  representations  or warranties to
not be true and complete in all respects at any time until the expiration of the
Sale Period or the Outside Repurchase Date, as the case may be.

     15.  Release;  Escrow  Agreement.   Simultaneously   herewith,
pursuant  to the  terms  of an  Escrow  Agreement  of  even  date  (the  "Escrow
Agreement")  among the Company,  the Friedli Group and  Certilman  Balin Adler &
Hyman,  LLP, as escrow agent (the "Escrow Agent"),  the Company is executing and
delivering to the Escrow Agent,  among other things,  a general  release of, and
covenant  with respect to, among others,  the Friedli  Group,  the Holders,  the
Institutions and the Ultimate Beneficial Owners (the "Company Release"), and the
Friedli Group is executing and delivering to the Escrow Agent a general  release
of, and covenant with respect to, among others,  the Company and all  Affiliates
of the Company (the "Friedli  Group Release" and  collectively  with the Company
Release, the "Releases"),  in the forms attached hereto as Exhibits G-1 and G-2,
respectively, which Releases and other deliveries shall be held and delivered in
accordance with the terms of the Escrow  Agreement.  The Friedli Group agrees to
use its best  efforts to cause each of the  Principal  Holders to  execute,  and
deliver to the Escrow Agent,  a general  release and covenant in the form of the
Friedli Group Release (the "Principal Holder Releases"),  which Principal Holder
Releases  shall be held in  accordance  with the terms of the Escrow  Agreement,
including,  without  limitation,  the  conditions  for  delivery  to the Company
therein.

     16. Payment in Lieu of Dividends. The Company agrees to pay to
the Series B Holders,  Series D Holders  and Series E Holders an amount (the "In
Lieu Amount") in cash that would have been payable to such Preferred Holders had
the Company declared a cash dividend or dividends covering the period(s) through
the date of  Conversion  of such shares or the  Repurchase  Closing Date, as the
case may be, in the respective amounts of the dividend  preferences set forth in
the  Company's  Certificate  of  Incorporation,  with  regard  to the  Series  B
Preferred  Shares,  the Series D  Preferred  Shares  and the Series E  Preferred
Shares.  The In Lieu  Amount  shall be payable on the first  anniversary  of the
sixtieth (60th) day of the Sale Period, except that, in the event that there are
no Repurchase Securities,  the In Lieu Amount shall be payable on the earlier of
(a) the  expiration  of the Sale  Period  or (b) the  sale of all of the  Shares
pursuant  to Section 9 hereof.  Notwithstanding  the  foregoing,  the  Company's
payment  obligation  hereunder shall be subject to and conditional  upon Friedli
Compliance, Holder Compliance and Bader Compliance as of and through the date of
Conversion of such shares or the Repurchase Closing Date, as the case may be.

     17.  Consulting Fees.  In full and complete satisfaction and settlement of 
any and all claims of any nature whatsoever, whether at law, in equity or 
otherwise, which the Friedli Group may have against the Company and any and all
Affiliates thereof for consulting, advisory, investment banking or similar or 
related fees, or for costs and expenses incurred in connection therewith, the 
Company agrees to pay to Friedli AG, and the Friedli Group hereby agrees that 
Friedli AG shall accept from the Company, the aggregate sum of three hundred 
seventy-five thousand dollars ($375,000) (the "Friedli Settlement Amount").  
The Friedli Settlement Amount shall be

                                       16





delivered by the Company to the Escrow Agent within five (5) business days after
the Holders shall have executed and delivered all Holder  Documents,  including,
without  limitation,  the  Permitted  Holder Sell  Orders,  and shall be held in
accordance  with  the  terms  of  the  Escrow  Agreement,   including,   without
limitation,  the conditions for delivery to Friedli AG therein. In the event the
Friedli Settlement Amount is redelivered to the Company pursuant to the terms of
the Escrow  Agreement,  the Friedli Group and the Company shall have any and all
rights,  powers,  remedies and  defenses now or hereafter  existing at law or in
equity,  by  statute  or  otherwise,  with  respect to any and all claims of any
nature whatsoever that either may have against the other.

     18. Preferred Share Exchange; Redemption of Notes.

        (a) The Company agrees to irrevocably offer to the holders of the Series
F Preferred Shares of the Company, for a period of sixty (60) days commencing on
the expiration of the Sale Period (the "Exchange Period"), the right to exchange
such shares, on a one-to-one basis, for duly authorized,  validly issued,  fully
paid and nonassessable  Series K Preferred Shares of the Company,  such Series K
Preferred  Shares  to  have  the  same  relative  rights,  powers,  preferences,
qualifications and limitations as the Series F Preferred Shares, except that the
term "Conversion  Price", as used with respect to the Series K Preferred Shares,
shall mean three dollars fifty cents ($3.50). Notwithstanding the foregoing, the
Company's obligation to make such offer shall be subject to and conditional upon
Friedli  Compliance,  Holder Compliance and Bader Compliance.  The Friedli Group
shall  use its  best  efforts  to  cause  each of the  holders  of the  Series F
Preferred  Shares to execute and deliver to the Company,  in connection with the
exchange,  the document  attached  hereto as Exhibit H, and the  consummation of
such  exchange,  with  respect to any  particular  holder of Series F  Preferred
Shares,  shall be subject to the  Company's  receipt of such  executed  document
prior to the expiration of the Exchange Period.

        (b) The Company agrees to advise the registered holders of those certain
promissory  notes of the Company,  dated as of October 4, 1995, in the aggregate
principal amount of one million four hundred thousand dollars  ($1,400,000) that
were issued in  connection  with the  acquisition  of the  outstanding  stock of
Crescent Communications,  Inc. (the "Crescent Notes"), on or before December 31,
1997,  in writing  (with a copy to the  Friedli  Group)  that it will redeem and
prepay the Crescent  Notes upon its receipt of the original  Crescent  Notes for
cancellation,  and the Company thereupon shall so redeem and prepay the Crescent
Notes.  Notwithstanding  the foregoing,  the Company's  obligation to redeem and
prepay the  Crescent  Notes  shall be subject to and  conditional  upon  Friedli
Compliance,  Holder  Compliance  and  Bader  Compliance  as of and  through  the
expiration date of the Sale Period.

     19. Termination.

        (a) The Company shall have the right to terminate all of its obligations
under this Agreement, by written notice to such effect to the Friedli Group, and
to require that the Escrow Agent redeliver the Company Release and other Company
deliveries  to the  Company,  and the Friedli  Group  Release and any  Principal
Holder  Releases to the Friedli Group,  in the event any Holder Document has not
been executed and delivered to the Permitted Holder Broker-Dealer(s),

                                       17





the Escrow Agent or the Company,  as the case may be, within thirty (30) days of
the date of delivery to the Friedli Group of the  Broker-Dealer  Designation and
such  undelivered  Holder  Document(s) are not so executed and delivered  within
five (5) days of receipt by Friedli AG of written notice to such effect from the
Company.

        (b) The Friedli Group shall have the right to terminate all of its 
obligations under this  Agreement,  by written notice to such effect to the 
Company,  and to require  that the Escrow  Agent make the  redeliveries provided
for in Section 19(a)  hereof in the event any of the  following  shall occur and
shall not have been cured  within five (5) days of receipt by the Company of 
written  notice to such  effect  from  Friedli AG: (i) the  Company  shall not 
have  delivered  the Broker-Dealer  Designation  by the  Designation  Time as 
provided for in Section 8(a) hereof,  (ii) the Company shall not have delivered
a certified copy of the Conversion Board Resolution  following the request made
by the Friedli Group, as provided  for in  Section  14(g)  hereof  or (iii)  the
Company shall not have delivered  the Friedli  Settlement  Amount to the Escrow
Agent within the period provided for in Section 17 hereof.

        (c) In the event of a termination of this Agreement pursuant to the
foregoing  provisions  of  Section  19, no party  shall  have any  liability  or
obligation under this Agreement except for any breach of this Agreement that has
occurred prior to the giving of the notice of termination.

     20.  Notices.  Except  as  otherwise  expressly  provided  for
hereunder,  any  communication  or notice given hereunder shall be, and shall be
deemed to be given when,  delivered by hand,  or sent by certified or registered
mail,  return  receipt  requested and postage being  prepaid,  overnight mail or
courier, or telecopier as follows:

                           If to the Company:

                           101 Park Avenue
                           Suite 2507
                           New York, New York 10178
                           Attn:  President
                           Telecopier Number:  (212) 867-0166

                           With a copy to:

                           Certilman Balin Adler & Hyman, LLP
                           90 Merrick Avenue
                           East Meadow, New York  11554
                           Attn:  Fred S. Skolnik, Esq.
                           Telecopier Number:  (516) 296-7111



                                       18






                           If to Friedli AG:

                           Freigutstrasse 5, 8002
                           Zurich, Switzerland
                           Attn: Christa Wagner
                           Telecopier Number:  011 411 201 7819

                           With a copy to:

                           Morris, James, Hitchens & Williams
                           P.O. Box 2306
                           222 Delaware Avenue
                           Wilmington, Delaware 19899
                           Attn: Michael J. Maimone, Esq.
                           Telecopier Number: (302) 571-1750

                           If to Friedli Inc.:

                           Freigutstrasse 5, 8002
                           Zurich, Switzerland
                           Attn: Peter Friedli
                           Telecopier Number:  011 411 201 7819

                           With a copy to:

                           Morris, James, Hitchens & Williams
                           P.O. Box 2306
                           222 Delaware Avenue
                           Wilmington, Delaware 19899
                           Attn: Michael J. Maimone, Esq.
                           Telecopier Number: (302) 571-1750

                           If to Friedli:

                           Freigutstrasse 5, 8002
                           Zurich, Switzerland
                           Telecopier Number: 011 411 201 7819






                                       19





                           With a copy to:

                           Morris, James, Hitchens & Williams
                           P.O. Box 2306
                           222 Delaware Avenue
                           Wilmington, Delaware 19899
                           Attn: Michael J. Maimone, Esq.
                           Telecopier Number: (302) 571-1750

or at such other  address as any party may specify by notice  given to the other
parties hereto in accordance with the provisions hereof.

     21. Further Assurances. Each of the parties hereto will execute and deliver
any and all further documents as are reasonably necessary to carry out the 
provisions hereof.

     22. Applicable Law.  This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, applicable to agreements 
performed wholly within such state.

     23. Entire  Agreement.  This Agreement  sets forth the entire understanding
of the parties hereto with regard to the subject matter hereof and
there are no  representations,  warranties  or  commitments  except as set forth
herein.  This  Agreement   supersedes  all  prior  agreements,   understandings,
negotiations and discussions,  whether written or oral,  relating to the subject
matter  hereof.  This  Agreement  may be  modified  only by a written  agreement
between the Company and the Friedli Group.

     24. Waiver of Breach;  Partial  Invalidity.  The waiver by any
party of a breach of any  provision  of this  Agreement  shall not operate or be
construed  as a waiver  of any  subsequent  breach.  If any  provision,  or part
thereof,  of this Agreement shall be held to be invalid or unen forceable,  such
invalidity or  unenforceability  shall attach only to such  provision and not in
any way affect or render invalid or  unenforceable  any other provisions of this
Agreement,  and  this  Agreement  shall be  carried  out as if such  invalid  or
unenforceable  provision,  or part thereof, had been reformed,  and any court of
competent  jurisdiction is authorized to so reform such invalid or unenforceable
provision,  or part thereof, so that it would be valid, legal and enforceable to
the fullest extent permitted by applicable law.

     25. Binding Nature.  This Agreement shall be binding upon the successors,
assigns and legal representatives of the parties hereto.

     26. Headings.  The paragraph headings of this Agreement are for convenience
and reference only and do not in any way modify, interpret or construe the 
intent of the parties or affect any of the provisions of this Agreement.


                                       20





     27.  Counterparts; Effectiveness.  This Agreement may be executed in
counterparts, each of which shall be an original, but all of which taken 
together shall constitute one agreement.  Unless otherwise agreed in writing by
the Company, this Agreement shall be effective only if executed and delivered by
each of the parties hereto.

     28.  Facsimile Signatures. Signatures transmitted by facsimile transmission
shall be deemed original signatures.

     29. Third Party  Beneficiary.  This  Agreement is for the sole
benefit of the parties hereto, the Holders and all Affiliates of the Company. No
third party (other than the Holders and  Affiliates  of the Company)  shall have
any beneficial interest herein, directly or indirectly,  nor may any third party
(other  than the  Holders  and  Affiliates  of the  Company)  rely on the terms,
provisions, or conditions of this Agreement.

     30. Materiality.  All promises, covenants, agreements, understandings,
acknowledgments, representations, and warranties made in this Agreement shall be
deemed material and relied on by each party to this Agreement.

     31. Remedies  Cumulative.   Each  right,  power,  and  remedy
provided for herein or now or hereafter existing at law or in equity, by statute
or otherwise,  shall be cumulative  and  concurrent  and shall be in addition to
every other  right,  power,  and remedy  provided for herein or now or hereafter
existing at law or in equity,  by statute or otherwise,  and the exercise or the
beginning  of the  exercise  by any  party  of any one or  more of such  rights,
powers,  or remedies  shall not preclude the  simultaneous  or later exercise by
such party of any or all of such other rights, powers and remedies.

     32. Specific Performance; Jurisdiction.

        (a) The parties hereby acknowledge and agree that the failure of any 
party to this  Agreement to perform the  provisions  hereof in  accordance  with
their specific terms or other breach of such provisions will cause irreparable
injury to the other  parties to this  Agreement for which  damages,  even if 
available, will not be an adequate remedy.  Accordingly,  the parties hereby 
consent to the issuance of injunctive  relief by any court of competent 
jurisdiction to compel performance  of any party's  obligations,  including  an
injunction to prevent breaches,  and to the  granting  by any such  court of the
remedy of specific performance of the terms and conditions hereof.

        (b) Each party hereby irrevocably and unconditionally consents to submit
to the exclusive  jurisdiction of the courts of the State of New York and of the
United States of America located in the State of New York for any actions, suits
or  proceedings  arising  out of or  relating  to this  Agreement,  the  matters
referred  to herein or the  transactions  contemplated  hereby.  Each party also
hereby  irrevocably  and  unconditionally  waives any objection to the laying of
venue of any  action,  suit or  proceeding  arising out of this  Agreement,  the
matters referred to herein or the transactions contemplated hereby in the courts
of the State of New York or of the United States of


                                       21





America  located in the State of New York,  and hereby further  irrevocably  and
unconditionally  waives  and agrees not to plead or claim in any such court that
any such action,  suit or proceeding  brought in any such court has been brought
in an inconvenient forum.

     33.  Confidentiality.

         (a) Except as otherwise required by applicable law based upon a written
opinion of counsel to the disclosing party reasonably  satisfactory to the other
parties, each party shall use Confidential  Information (as hereinafter defined)
only in connection with the performance of its obligations under this Agreement,
shall not otherwise use Confidential Information to its own advantage, shall not
use  Confidential  Information  in  competition  with or to the detriment of any
other party, shall hold and treat all Confidential Information in confidence and
shall not  disclose or offer to disclose  any  Confidential  Information  to any
person or entity not a party to this Agreement,  except to an Affiliate  thereof
or a Holder,  an Institution or an Ultimate  Beneficial Owner,  which,  prior to
such disclosure, shall have executed and delivered to the other parties hereto a
writing  in which it  agrees  to be bound  by the  provisions  hereof.  The term
"Confidential  Information",  as used in this section, means all confidential or
proprietary  information and trade secrets of or relating to any other party, an
Affiliate thereof or a Holder,  an Institution or an Ultimate  Beneficial Owner.
Confidential  Information  shall  not  include  information  generally  known or
readily   ascertainable  by  proper  means.  To  the  extent  that  Confidential
Information,  through no act or omission of a party, a Holder, an Institution or
an Ultimate  Beneficial  Owner, or any of its  Affiliates,  employees or agents,
becomes  generally  known  or  readily   ascertainable  by  proper  means,  such
information shall no longer be considered Confidential  Information for purposes
of this Agreement.

        (b)   Nothing herein shall restrict the Company from disclosing publicly
this Agreement and/or the terms and conditions hereof; provided,  however, that,
prior to such public disclosure, the Company shall afford Friedli an opportunity
to review and comment thereon;  provided  further,  however,  that the Company's
only  obligation  with respect  thereto shall be to reasonably  consider in good
faith any comments made.




                  [Remainder of page intentionally left blank.]


K:\WPDOC\CORP\AMNEX\FRIEDLI\AGREEMEN\MAIN.FIN

                                       22




     IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.

                                       AMNEX, INC.

                                       By:/s/
                                           Signature of Authorized Officer


                                       Name of Authorized Officer


                                       Title of Authorized Officer


                                       FRIEDLI CORPORATE FINANCE AG

                                       By:/s/
                                             Signature of Authorized Officer


                                       Name of Authorized Officer


                                       Title of Authorized Officer


                                       FRIEDLI CORPORATE FINANCE INC.

                                       By:/s/
                                            Signature of Authorized Officer


                                       Name of Authorized Officer


                                       Title of Authorized Officer


                                       PETER FRIEDLI

                                       /s/
                                       Peter Friedli, individually

K:\WPDOC\CORP\AMNEX\FRIEDLI\AGREEMEN\MAIN.FIN

EX-10.22

                       Renewal and Modification Agreement

         This Renewal and Modification  Agreement (the  "Agreement") is made and
entered  into as of this  28th day of  February,  1997 by and  between  American
Network Exchange,  Inc., a Delaware  corporation  ("AMNEX") and National Telecom
USA, Inc., a New Jersey corporation ("NTI").

                                    Recitals

         WHEREAS,  AMNEX is an interexchange  carrier providing both direct dial
and operator assisted services (collectively,  the "Services") to subscribers at
COCOT locations throughout the United States;

         WHEREAS,  NTI is a  Dealer  and an  aggregator  of  long  distance  and
operator assisted traffic generated by subscribers at such COCOT locations;

         WHEREAS,  NTI  and  AMNEX  are  parties  to a  Prime  COCOT  Aggregator
Agreement  dated as of November 24,  1993,  as amended to the date hereof (as so
amended, the "COCOT Agreement"),  pursuant to which, among other things, NTI has
engaged AMNEX,  and AMNEX has agreed to serve, as the principal  provider of the
Services to subscribers  at  substantially  all existing and hereafter  acquired
COCOT locations of NTI and its Subaccounts;

         WHEREAS,  NTI and AMNEX are parties to a certain  Settlement  Agreement
dated  November  27,  1995,  as amended to the date hereof (as so  amended,  the
"Settlement  Agreement"),  pursuant to which,  among other  things,  the parties
completely and finally resolved, compromised and settled all claims asserted and
assertable between them, and in so doing,  provided for certain consideration to
be paid to each  other,  including  but not  limited  to the  payment of certain
additional commissions to NTI; and

         WHEREAS,  subject to the terms and conditions set forth herein, NTI and
AMNEX desire to amend the COCOT Agreement and the Settlement Agreement, in order
to extend and modify their  relationship  with one another as set forth  therein
and governed thereby.

         NOW,  THEREFORE,  in  consideration  of the  foregoing  and the  mutual
covenants as hereinafter contained, the parties hereby agree as follows:

                                      - 1 -





1. Definitions.  Except as otherwise defined herein,  all capitalized terms used
herein  shall have the meanings  ascribed to them in the COCOT  Agreement or the
Settlement  Agreement.  To the extent  that any term or  provision  of the COCOT
Agreement or the Settlement  Agreement is contrary to or  inconsistent  with the
terms  and  provisions  of this  Agreement,  the terms  and  provisions  of this
Agreement shall control.

2. Scope of Agreement.  Paragraph 1 of the COCOT  Agreement,  entitled "Scope of
Agreement", is hereby modified to provide that AMNEX be engaged and serve as the
exclusive   (rather  than  principal)   provider  of  Services  to  the  Phones.
Accordingly,  subject to AMNEX's  guidelines and  Applicable  Laws and the terms
hereof, AMNEX shall be entitled to serve as the exclusive carrier for and handle
100% of the Calls.

3. NTI's Rights and Obligations.  Paragraph 2 of the COCOT  Agreement,  entitled
"NTI's Rights and  Obligations",  is hereby modified to the extent  necessary to
incorporate and fully effectuate the following provisions:

         (a) NTI shall sell,  market and promote  only the Services of AMNEX and
shall in no event sell,  market or promote the Services of any other  carrier or
provider for or in respect of the Phones or Calls.

         (b) NTI shall maintain its  interstate  tariff on file with the Federal
Communications  Commission  (the  "Tariff") and promptly  update and modify such
Tariff as may be required by Applicable Law or, if requested in writing by AMNEX
and the request is approved by NTI's counsel,  within thirty (30) days after the
date of such written request.  NTI shall, with the assistance of AMNEX, and in a
reasonably prompt manner, make the necessary filings to become duly certified or
authorized  by the  applicable  regulatory  authorities  to  provide  intrastate
service  within the States of New Jersey and Michigan and an additional  two (2)
states to be  designated  by  AMNEX.  Where  required  by the  applicable  state
regulatory  authorities,  NTI shall, with AMNEX's assistance,  file tariffs and,
thereafter,  promptly  update and modify  such  tariffs  as may be  required  by
Applicable  Law or, if requested in writing by AMNEX and the request is approved
by NTI's  counsel,  within  thirty  (30)  days  after  the date of such  written
request.  NTI shall  forward  to  AMNEX,  via  overnight  mail,  all  regulatory
complaints within seventy two (72) hours of NTI's receipt of same.

         (c) NTI shall no longer be obligated to maintain at least $1,000,000 in
monthly Combined Revenue during the Maintenance Period.

         (d)      NTI shall no longer be responsible for the provision of
customer services and administrative support to its Subaccounts.

         (e) NTI shall no  longer be  responsible  to pay  commissions  or other
compensation to, or to collect 1+ usage charges from, each of its Subaccounts.

         (f) NTI shall no longer be responsible for ensuring (i) that all Phones
are programmed to route and deliver to AMNEX,  in the case of operator  assisted
calls, only Permitted Operator Assisted Calls,  and are otherwise  operated in 
compliance with Applicable Laws; and (ii) that all Subaccounts  comply with the
Act, the Rules,  and all Applicable  Laws, including the posting  requirements 
thereunder and the provisions thereof which prohibit  the  blocking  of 800, 950
and 10XXX  access  codes of  interexchange carriers other than AMNEX.

                                       2


         (g) NTI shall  maintain all of its books and records and provide  AMNEX
with originals or copies of all of NTI's agreements, correspondence and magnetic
records  as may be  requested  by AMNEX,  for the  confidential  use by AMNEX as
necessary to provide the Services to the Subaccounts.

         (h) NTI shall take whatever  steps may be required by Applicable Law or
reasonably  deemed  necessary  or  advisable  by  AMNEX,  in order to  maintain,
preserve and protect NTI's corporate existence,  business, operations and assets
from, among other things, dissolution,  bankruptcy,  diminution, liens, or other
adverse  effects.  In that  connection,  NTI  hereby  represents,  warrants  and
covenants  with AMNEX,  that it is solvent and in good  standing in its state of
incorporation  and shall so remain  at all  times  during  the term of the COCOT
Agreement as amended hereby. NTI further represents, warrants and covenants with
AMNEX, that all of its contracts and other assets are owned by it free and clear
of any and all liens, security interests,  mortgages or other encumbrances,  and
shall so remain at all times  during the term of the COCOT  Agreement as amended
hereby.  NTI agrees to timely file any and all  reports,  returns and  documents
necessary to effectuate the foregoing, including but not limited to any required
federal or state tax returns.

4. AMNEX's Rights and Obligations.  Paragraph 3 of the COCOT Agreement, entitled
"AMNEX's Rights and Obligations",  is hereby modified to the extent necessary to
incorporate and fully effectuate the following provisions:

         (a)      AMNEX accepts and assumes the right and obligation to
become the exclusive provider of the Services to NTI and the
Phones.

         (b) AMNEX  accepts  and assumes  the  obligation  of NTI to provide all
necessary  and customary  customer  services and  administrative  support to the
Subaccounts.  AMNEX shall use its  reasonable  best  efforts to comply with this
obligation.

         (c) AMNEX accepts and assumes the obligation of NTI to pay  commissions
and other  compensation  to, and to collect 1+ usage charges  from,  each of the
Subaccounts.  AMNEX shall use its  reasonable  best  efforts to comply with this
obligation.

         (d)      AMNEX accepts and assumes the obligation of NTI to ensure
(i) that all Phones are programmed to route and deliver to AMNEX or
to NTI, as the case may be, for operator assisted calls, only Permitted Operator
Assisted Calls,  and are otherwise  operated in compliance with Applicable Laws;
and (ii) that all Subaccounts comply with the Act, the Rules, and all Applicable
Laws, including the posting  requirements  thereunder and the provisions thereof
which prohibit the blocking of 800, 950 and 10XXX access codes of  interexchange
carriers other than AMNEX.

         (e) AMNEX  agrees to timely  provide  such data and  reports  as may be
reasonably required by NTI in order to maintain its records and accounting data.

         (f) AMNEX agrees to respond timely and  appropriately to all regulatory
complaints  generated by Permitted Operator Assisted Calls made from the Phones,
in  accordance  with the  guidelines  customarily  used by AMNEX and approved by
counsel for NTI.

                                       3


         (g) AMNEX agrees to reimburse NTI for all reasonable costs and expenses
it incurs to become duly  certified  to provide  intrastate  service  within the
states of New Jersey and Michigan and the additional  two (2) states  designated
by AMNEX, as provided in subparagraph 3(b) hereof.

5.  Compensation and Remittances.  In consideration of NTI's  performance of its
obligations hereunder, and subject to the terms and conditions set forth herein,
in lieu of paying NTI compensation in the manner and at the time provided for in
Paragraph 4 of the COCOT Agreement and the relevant provisions of the Settlement
Agreement  (and as may  exist  by  virtue  of any  existing  verbal  agreements,
arrangements  or course of  dealing),  AMNEX  shall pay NTI a  commission,  once
monthly,  based upon the Billed  Revenue (as  defined  below)  generated  by the
Phones during each calendar  month,  such Billed Revenue to be calculated  based
upon the total  activity of the  Subaccounts  for the preceding  month and to be
paid to NTI by the twentieth (20th) day of the month then following.  During the
period  commencing  March 1, 1997 and ending on February 28, 2000, the amount of
such monthly payment (the "Residual") shall be equal to the greater of $7,500 or
1/2 of 1 percent (.5%) of such Billed Revenue.  The amount of the Residual shall
be subject to adjustment by AMNEX and NTI on the third  anniversary  of the date
hereof,  it being  understood  and agreed  that (i) the  Residual is intended to
compensate  NTI  solely  for  its  ongoing   obligations  of  maintaining  NTI's
regulatory  certifications  and  authorizations,  the Tariff,  the state tariffs
(where applicable),  NTI's books and records and NTI's corporate  existence,  as
set forth in and contemplated by subparagraphs  3(b), 3(g) and 3(h) hereof;  and
(ii) any  adjustment  made to the  Residual  at such time  shall be  solely  for
purposes of more accurately  reflecting  such  intention.  The Residual shall be
deemed earned by NTI so long as NTI is in full  compliance  with this  Agreement
and such payment is not in violation of any law, rule,  regulation or order with
which AMNEX is required to comply.  For purposes hereof,  "Billed Revenue" means
gross revenue derived from (i) completed interstate operator assisted calls 
originating from the Phones and the Subaccounts or other accounts  serviced by 
AMNEX,  which calls are billed in NTI's name and under the Tariff; and (ii) 
completed intrastate operator assisted calls originating from the Phones and the
Subaccounts or other accounts serviced by AMNEX,  which calls are billed in 
NTI's name (and under NTI's state  tariffs, where applicable).

6. Term and Termination.  Paragraph 5 of the COCOT Agreement, entitled "Term and
Termination",  is hereby  modified to provide that the term shall commence as of
March 1, 1997 and shall  continue  in full  force and effect for a period of ten
(10) years  thereafter.  Upon expiration of this initial ten (10) year term, the
COCOT Agreement,  as modified by this Agreement,  shall  automatically renew for
successive  one (1) year  periods.  Notwithstanding  the  foregoing,  the  COCOT
Agreement,  as  modified by this  Agreement,  may be  terminated  as provided in
subparagraph  5(b) and 5(c) of the COCOT Agreement.  Subparagraph 5(a) shall not
apply so long as NTI remains in compliance with the terms and provisions of this
Agreement,  including but not limited to the obligation to  exclusively  utilize
the Services of AMNEX, as provided herein.

7.       Notices.  Paragraph 13 of the COCOT Agreement is hereby modified by 
deleting the Connecticut address as set forth therein and substituting in lieu
thereof, the Orlando address as already provided therein, but with copies to be
directed to the Vice President - Legal and Regulatory.

                                       4


8. Modification to and Acknowledgements  Concerning the Settlement Agreement. It
is  understood  and  agreed  that,  notwithstanding  anything  to  the  contrary
contained in the Settlement Agreement, AMNEX shall no longer be obligated (i) to
pay NTI any  monies  for calls  originated  from any NTI  accounts  which  AMNEX
transfers  to MCI's  network,  as  provided  in  Paragraph  2 of the  Settlement
Agreement;  or (ii) to pay NTI any commissions  with regard to 1+ minutes billed
and  collected  by AMNEX and  originating  from NTI's  accounts,  as provided in
subparagraph  3(a) of the  Settlement  Agreement.  Accordingly,  the  Settlement
Agreement is hereby modified to delete and exclude those portions of Paragraph 2
and  subparagraph  3(a) thereof which make reference to or otherwise  pertain to
such  obligations of AMNEX to NTI. It is further  understood and agreed that all
other  monies and  obligations  on the part of AMNEX to be paid to NTI and to be
performed  for the benefit of NTI under and in  accordance  with the  Settlement
Agreement have been fully paid,  performed,  satisfied and otherwise discharged.
Accordingly,  (i) the parties hereto  acknowledge  and agree that all consulting
fees and  consideration  required  to be paid to NTI  under  Paragraph  5 of the
Settlement Agreement have been paid in full; (ii) all obligations of AMNEX under
subparagraph 6(a) of the Settlement  Agreement relative to the Warrant have been
fully  performed and satisfied;  and (iii) all monies  required to be paid under
Paragraph 7 of the Settlement Agreement with regard to the 75,000 AMNEX, Inc.
shares described therein have been paid in full.  As for the Special Fund 
provided for in subparagraph 6(c) of the Settlement Agreement, it is understood
and agreed that, notwithstanding anything to the contrary contained in the
Settlement Agreement, (i) such fund and the mechanics thereof shall remain in 
effect for and in respect of February 1997; and (ii) commencing March 1, 1997, 
such fund and all of the parties' obligations with regard thereto shall
terminate.

9. Grant of the Right and Associated  Security Interest.  NTI hereby irrevocably
grants to AMNEX the exclusive right to manage the business and operations of NTI
and all contracts and agreements associated therewith, including but not limited
to all contracts of NTI with,  among others,  any  Subaccount,  for the full ten
(10) year initial term of the COCOT  Agreement,  as amended hereby,  and any and
all  renewals  thereof  (the  "Right").  The Right shall be deemed  personal and
proprietary  to AMNEX and coupled with an interest,  and NTI hereby  agrees that
the Right  shall be binding  upon NTI's  successors  and assigns and any and all
purchasers of the business, stock or assets of NTI to the same extent and degree
as NTI hereunder.  In  furtherance of the foregoing,  and in order to secure and
protect AMNEX's interest in and to the Right, NTI hereby grants to AMNEX a first
priority lien against and security  interest in all written and oral  contracts,
contract rights, agreements,  arrangements and related intangible rights of NTI,
including  but not  limited to all  contracts  of NTI with,  among  others,  any
Subaccount (collectively,  the "Operating Contracts").  NTI hereby represents to
AMNEX that it is the sole and absolute  owner of the Operating  Contracts,  that
there are no existing  liens,  security  interests or  encumbrances  of any kind
whatsoever  upon the  Operating  Contracts,  and covenants and agrees with AMNEX
that for so long as AMNEX  retains the Grant,  NTI shall not,  and shall use its
best efforts to ensure that its successors,  assigns and purchasers as described
above shall not, (a) create,  permit or suffer to exist any such liens, security
interests or encumbrances  upon any of the Operating  Contracts  (except for the
lien and  security  interest  granted  to AMNEX  herein);  or (b) sell,  assign,
transfer,  hypothecate  or otherwise  dispose of any of the Operating  Contracts
without AMNEX's prior written consent.  NTI agrees to defend at its sole expense
the Operating Contracts against the claims and demands of all third parties. NTI
further  agrees  to join  with  AMNEX in  executing  such  financing  statements
(including  amendments  thereto  and  continuation  statements  thereof) in form
satisfactory  to AMNEX as AMNEX may  specify,  and to take such  other  steps as
AMNEX may  reasonably  direct  from time to time in order to perfect and protect
AMNEX's lien and security  interest as granted  herein.  NTI hereby  irrevocably
authorizes  and  empowers  AMNEX,  on behalf of NTI,  to  execute  and file such
financing and  continuation  statements  and to take such other actions as AMNEX
deems  necessary or advisable  from time to time at NTI's expense to perfect and
continue AMNEX's lien and security  interest as granted herein.  In the event of
bankruptcy or similar proceedings by or against NTI or an actual or
threatened  loss of the Right due to or arising out of NTI's  breach of any term
hereof, AMNEX shall be entitled to proceed against,  seize and otherwise recover
upon the Operating  Contracts in any commercially  reasonable manner in order to
compensate  it for the loss of the  Right.  In  connection  with the  foregoing,
simultaneously  with the execution hereof, NTI is delivering to AMNEX for filing
with the  Secretary of State of the State of Florida,  a Form UCC-3  termination
statement,  duly  executed by Mark B. Arbeit,  evidencing  the  termination  and
complete release by him of his security interest in and to all contracts between
NTI and AMNEX,  Inc. and all  commissions,  proceeds  and monetary  entitlements
arising therefrom.

                                       5


10.  Renewal  Incentive.  In  consideration  of  extension  of the  term  of the
relationship between AMNEX and NTI as provided hereby, the grant by NTI to AMNEX
of the  Right,  and for such  other good and  valuable  consideration  as may be
derived from the COCOT Agreement,  as modified hereby,  the following  aggregate
consideration (collectively, the "Special Consideration") is being paid to NTI:

         (a) simultaneously  with the execution hereof,  AMNEX is paying the sum
of One Hundred Seventy Five Thousand  Dollars  ($175,000) and on or before March
31,  1997,  AMNEX  shall  pay the sum of Four  Hundred  Fifty  Thousand  Dollars
($450,000),  in each case, by wire transfer of immediately  available funds to a
depository designated in writing by NTI;

         (b)  simultaneously  with the execution hereof,  AMNEX is executing and
delivering to NTI a promissory  note in the aggregate  principal  amount of Five
Hundred Thousand Dollars ($500,000), such note to bear interest on the principal
amount  thereof from time to time  outstanding  at the rate of ten percent (10%)
per annum  and to be  payable  in twelve  (12)  equal  and  consecutive  monthly
installments of principal and interest; and

         (c) upon  expiration  of the NASDAQ  Clearance  Period  (as  defined in
subparagraph 11(b) below), AMNEX, Inc., the parent company of AMNEX, shall issue
and  deliver  to NTI or  Brian  E.  King,  its  sole  shareholder,  or to  their
designees,  a total of 346,154  shares of the Common  Stock of AMNEX,  $.001 par
value (the "AMNEX Common  Stock"),  such number of shares having been calculated
based upon the average  closing  selling price for the AMNEX Common Stock during
the  eighty two (82) day  period  immediately  preceding  the date  hereof.  For
purposes of this Agreement,  such shares of AMNEX Common Stock shall hereinafter
be referred to collectively as the "Shares".

It is  understood  and agreed  that the Special  Compensation  is being given by
AMNEX and  AMNEX,  Inc.  to NTI in  material  reliance  upon  NTI's  anticipated
compliance  with the terms  hereof,  continuance  of the Right for the full term
contemplated  hereby,  and  is in  lieu  of any  and  all  other  consideration,
compensation, payments or other
monies now due and owing or  hereafter  alleged to be due and owing to NTI under
any  and all  existing  agreements  (whether  oral  or  written),  arrangements,
understandings or claims arising under or out of or in connection with the COCOT
Agreement or the Settlement Agreement (as it relates to NTI).

11.  Acknowledgements and Agreements Concerning the Shares.

(a) It is understood  and agreed that the Shares shall not be  registered  under
the  Securities  Act  of  1933,  as  amended,  and  the  rules  and  regulations
promulgated thereunder (collectively,  the "1933 Act"). Each of NTI and Brian E.
King,  for it or  himself,  and on  behalf  of its  or his  designees,  if  any,
acknowledges  that the Shares are not being registered under the 1933 Act due to
AMNEX's reliance upon Section 4(2) thereof,  which section provides an exemption
from registration for certain transactions by an issuer not involving any public
offering. Each of NTI and Brian E. King, for it or himself, and on behalf of its
or his designees,  if any,  further  acknowledges  that AMNEX,  Inc.'s  reliance
thereon is  predicated  on their  representations  and  warranties  contained in
Paragraph 12 below.  Accordingly,  each of NTI and Brian E. King understands and
will ensure that its and his designees, if any, will understand, that the Shares
must be held indefinitely unless they are subsequently registered under the 1933
Act  or  an  exemption  from  such  registration  exists,  and  that  the  stock
certificate(s)  evidencing ownership of the Shares which they receive shall bear
the following restrictive legend:

                                       6


         "The shares  represented by this  certificate  have not been registered
          under the Securities Act of 1933.  These shares have been acquired for
          investment and not for  distribution or resale.  They may not be sold,
          assigned, mortgaged,  pledged,  hypothecated, or otherwise transferred
          or disposed of without an effective  registration  statement  for such
          shares under the  Securities  Act of 1933 or an opinion of counsel for
          AMNEX that registration is not required under such Act."

         (b) Notwithstanding  anything to the contrary contained herein,  AMNEX,
Inc.  shall not be obligated  to deliver any of the Shares  until prior  written
notice of their issuance in compliance  with Rule 10b-17  promulgated  under the
Securities Exchange Act of 1934 (the "1934 Act") shall have been given to NASDAQ
and the National  Association  of Securities  Dealers,  Inc. and the  applicable
pre-issuance  notification period therefor (the "NASDAQ Clearance Period") shall
have expired.  AMNEX,  Inc.  agrees to cause such written  notice to be given to
NASDAQ and the  National  Association  of  Securities  Dealers,  Inc. as soon as
reasonably practicable after the date hereof.

         (c)      Each of NTI and Brian E. King agrees (i) to cause its or
his designees, if any, to execute letters containing
acknowledgments,  agreements and representations concerning the Shares which are
identical to the  acknowledgments,  agreements and representations made by it or
him in  Paragraphs  11 and 12 of this  Agreement  (collectively,  the  "Designee
Letters"); and (ii) to deliver all such Designee Letters to AMNEX, Inc. prior to
the date of issuance of the Shares. The execution and delivery to AMNEX, Inc. of
a Designee Letter for each such designee, if any, shall be a condition precedent
to AMNEX, Inc.'s obligation to deliver a stock certificate issued in the name of
such designee.  Accordingly,  notwithstanding anything to the contrary contained
herein, AMNEX, Inc. shall not be obligated to deliver any certificate evidencing
ownership  of any Shares by any  designee  of NTI or Brian E.  King,  unless and
until AMNEX shall be in receipt of a Designee Letter with respect thereto.

         (d) AMNEX,  Inc.  warrants  that upon  issuance,  the  Shares  shall be
validly  issued,  fully paid and  nonassessable,  subject to the  provisions  of
Section  630 of the  Business  Corporation  Law of the  State  of New  York,  if
applicable.

12. Investment Intent;  Qualification as Investor.  (a) Each of NTI and Brian E.
King  represents  and warrants that the Shares are being acquired for its or his
own account,  for investment  and not with a view to the resale or  distribution
thereof  within  the  meaning  of the 1933  Act.  Each of NTI and  Brian E. King
further represents and warrants that it and he shall not sell, assign, transfer,
encumber,  or otherwise  dispose of any of the Shares unless (i) a  registration
statement  under  the  1933  Act  with  respect  thereto  is in  effect  and the
prospectus  included  therein meets the  requirements  of Section 10 of the 1933
Act; or (ii) AMNEX,  Inc. has  received a written  opinion from its counsel that
after  investigation of the relevant facts,  such counsel is of the opinion that
such proposed sale,  assignment,  transfer,  encumbrance or disposition does not
require registration under the 1933 Act.

                                       7


         (b) Each of NTI and Brian E.  King  represents  that  AMNEX,  Inc.  has
furnished it and him with its recent  filings with and reports to the Commission
on Form 10-K for the year  ended  December  31,  1995,  Form 10-Q for the fiscal
periods ended March 31, 1996,  June 30, 1996,  and September 30, 1996,  Form 8-K
and Amendment  No. 1 thereto for an event dated June 28, 1996,  and Form 8-K for
an event dated  November 20, 1996, and that it and he have reviewed the same and
been afforded the  opportunity to obtain such other  information as necessary to
evaluate  the  investment  contemplated  hereby.  Each of NTI and  Brian E. King
Seller further  represents and warrants that it and he are either an "accredited
investor" within the meaning of Rule 501(a)  promulgated  under the 1933 Act, or
have substantial  knowledge and experience in financial and business matters and
are capable of evaluating the merits and risks  associated  with the acquisition
of the Shares  provided for herein.  Each of NTI and Brian E. King  acknowledges
that such acquisition may entail significant risks.

13.  Limitation  of  Liability;  No Warranty.  AMNEX MAKES NO  WARRANTY,  EITHER
EXPRESS OR IMPLIED, WITH RESPECT TO THE MANAGEMENT OR OTHER SERVICES PROVIDED BY
IT HEREUNDER AND EXPRESSLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY OR WARRANTY
OF FITNESS  FOR A  PARTICULAR  PURPOSE.  AMNEX'S  LIABILITY  HEREUNDER  SHALL BE
LIMITED TO ITS OBLIGATION TO PAY THE SPECIAL COMPENSATION AND RESIDUAL TO NTI IN
ACCORDANCE  WITH THE TERMS  HEREOF.  NO PARTY  HERETO SHALL BE LIABLE TO ANOTHER
PARTY HERETO FOR ANY SPECIAL,  INDIRECT,  INCIDENTAL,  CONSEQUENTIAL OR PUNITIVE
DAMAGES  OR LOSS OF ANY KIND  (WHETHER  OR NOT SUCH  PARTY  WAS  ADVISED  OF THE
POSSIBILITY  OF SUCH  DAMAGES OR LOSS),  BY REASON OF ANY ACT OR OMISSION IN ITS
PERFORMANCE  UNDER THIS  AGREEMENT.  NOTWITHSTANDING  THE FOREGOING,  EACH PARTY
SHALL REMAIN LIABLE TO THE OTHER PARTY FOR ALL ACTUAL DAMAGES  RESULTING FROM OR
ARISING  OUT OF ITS GROSS  NEGLIGENCE  OR  WILLFUL OR WANTON  MISCONDUCT  IN THE
PERFORMANCE OF, OR THE FAILURE TO PERFORM, ITS OBLIGATIONS HEREUNDER.

14. Indemnification of NTI. AMNEX shall indemnify and hold harmless NTI from and
against any claim made by a third party,  which claim is based upon,  arises out
of or relates to AMNEX's  conduct in performing or failing to perform any of its
obligations  hereunder,  or to any service  provided under the Tariff (or to the
extent applicable,  NTI's state tariffs) pursuant to the terms and provisions of
this Agreement or on AMNEX's behalf, or for any violation,  alleged violation or
complaint made by a third party regarding  compliance with the Act, the Rules or
any Applicable  Laws,  which violation or complaint  arises out of or relates to
AMNEX's  conduct in  performing  or failing  to perform  any of its  obligations
hereunder.  For purposes of this  Paragraph  14, "third party" shall include any
applicable  regulatory agency or governmental  authority.  This  indemnification
shall  include,   but  not  be  limited  to,  reasonable   attorneys'  fees  and
disbursements,  court  costs,  and  the  amount  of  any  monetary  judgment  or
settlement,  including any  interest,  fines and  penalties  thereon.  NTI shall
provide  AMNEX with prompt  notice of receipt of any such claim,  together  with
copies of all documentation received in connection therewith. Upon notice to NTI
that AMNEX  desires to assume the  defense  of any legal  action,  complaint  or
proceeding,  AMNEX  shall not be  liable  to NTI for any legal or other  expense
subsequently  incurred by NTI. In the event that NTI determines  that there is a
reasonable  probability  that any claim may materially and adversely  affect NTI
other  than as a result of money  damages,  NTI shall have the right at its sole
cost and  expense to  defend,  compromise  or settle  such  claim.  In no event,
however,  shall NTI enter into any settlements or compromises with regard to any
claim  without  AMNEX's  prior  written  consent,  which  consent  shall  not be
unreasonably  withheld or delayed.  AMNEX shall not, without NTI's prior written
consent, which consent shall not be unreasonably withheld or delayed,  settle or
compromise  a claim or demand or consent to the entry of a judgment  against NTI
which does not include as an  unconditional  term thereof the giving to NTI of a
release from all liability in respect thereof.

15. Mutual Release.  Subject only to the  exceptions set forth herein,  AMNEX 
hereby  releases NTI, and NTI hereby releases AMNEX, together with each such 
party's respective heirs, administrators, successors, assigns, attorneys, share-
holders, officers, directors, employees,  representatives  and agents,  from all
claims,  demands, debts, obligations, liabilities, damages, actions, causes of 
action and suits at law or equity  of  whatever  kind, whether known or unknown,
anticipated or unanticipated,  contingent or  otherwise,  that each such party 
had, now has, or hereafter  can,  shall or may have,  for  anything  that has  
occurred up to and including the date hereof,  including but not limited to any
matters relating to or  arising  out of the COCOT  Agreement  and the Settlement
Agreement  (as it relates to NTI), such as, but not limited to, the distribution
of any monies deposited  in the Special  Fund.  The only  exceptions  to this  
release are the obligations of AMNEX and NTI under this Agreement,  the 
Settlement Agreement, as amended hereby, and the ZPDI Agreement.

                                       8


16.  Reconciliation  of Certain Calls.  The regular monthly  reconciliation  for
payments made and compensation  earned for calls made during February 1997 shall
be completed by AMNEX by March 17, 1997 and provided to NTI. Any amounts owed to
NTI shall be paid by AMNEX to NTI on or before March 21,  1997,  and any amounts
owed to AMNEX shall be paid by NTI to AMNEX on or before March 24, 1997.

17. Treatment of Certain Advances and Adjustments.  Pursuant to a Third Addendum
to the January 28, 1994 Telephone  Agreement between NTI and Teleplex Coin Comm.
Inc. ("Teleplex"), (i) NTI has previously advanced $75,000 to Teleplex; and (ii)
there is a balance of $50,000 remaining to be advanced to Teleplex,  the payment
of  which  is  required  to be  made  by  NTI in  four  (4)  consecutive  weekly
installments of $12,500 each, commencing the date hereof. AMNEX agrees to assume
NTI's obligation to pay these four (4) weekly  installments.  In addition to the
aforementioned $75,000, NTI is owed $10,000 by Global Network,  another customer
of NTI to which NTI previously  advanced funds.  Such $85,000 is scheduled to be
repaid by  Teleplex  and Global  Network  within  eight (8) months from the date
hereof. It is agreed that, in lieu of passing through such monthly repayments to
NTI,  AMNEX will  retain  them as they are  received  from  Teleplex  and Global
Network,  and pay out the total sum of  $85,000 to NTI under a  promissory  note
covering  such dollar  amount,  which note shall be payable in full within sixty
(60) days from the date hereof. It is acknowledged and agreed that, by virtue of
an  overpayment  made in NTI's  $70,000  monthly  fee to  AMNEX,  which  fee was
adjusted  downwards as a result of the sale of Coastal Telecom Payphone Company,
Inc., an affiliate of NTI, to Crescent Public  Comunications  Inc., an affiliate
of AMNEX, NTI is owed $50,000.  Accordingly,  AMNEX agrees to repay such $50,000
to NTI by  inclusion  of such sum in the  aforementioned  sixty  (60) day  note.
Accordingly,  simultaneously  with the execution hereof,  AMNEX is executing and
delivering to NTI a
promissory note in the aggregate principal amount of $135,000, such amount to be
payable in full to NTI no later than sixty (60) days from the date hereof.

18.  Arrangements  Concerning  Mark B. Arbeit.  It is understood and agreed that
Mark B. Arbeit  ("Arbeit"),  a senior  officer of each of NTI and its affiliated
companies,  will be  employed  by  AMNEX  in a  similar  capacity.  Accordingly,
effective as of the date Arbeit's  employment with AMNEX  commences  (which date
will be provided by AMNEX to NTI and set forth in a written employment agreement
between AMNEX and Arbeit) (the "Starting Date"), each of NTI and such affiliated
companies (consisting of The Keystone Corporation,  National Telecom Hospitality
USA, Inc. and Select Tel Communications, Inc.) shall release Arbeit from any and
all of his obligations under that certain exclusive  employment  agreement dated
November 19, 1996 (the  "Pre-existing  Employment  Agreement") by and among NTI,
The Keystone  Corporation,  National Telecom  Hospitality USA, Inc.,  Select Tel
Communications,  Inc. and Arbeit, and any non-competition or similar restrictive
agreements  relating  thereto (but only to the extent that such  non-competition
and similar agreements  restrict Arbeit's ability to comply with his obligations
under his new employment  agreement  with AMNEX),  such release to be in writing
and in form and substance reasonably acceptable to Arbeit and AMNEX (with a copy
of same being provided to AMNEX simultaneously  therewith);  provided,  however,
that Arbeit executes and delivers to each of NTI and such affiliated  companies,
a release in form and substance reasonably acceptable to NTI and such affiliated
companies.  Arbeit's employment term under the Pre-existing Employment Agreement
will  terminate  effective as of the  Starting  Date and he will  thereafter  be
deemed to be an exclusive employee of AMNEX.

19. Non-Contravention.  (a) In furtherance of the exclusivity provisions hereof,
and in consideration of the benefits to be accrued to him hereunder, Brian E. 
King, the President and sole shareholder of NTI, hereby agrees to be personally
bound by the exclusivity provisions of this Agreement to the same extent as NTI
is bound hereunder, and further agrees, for so long as the COCOT Agreement, as 
amended hereby, remains in full force and effect and AMNEX retains the Right 
granted to it by NTI hereunder, that he shall cause any and all business 
opportunities for the reselling of long distance and operator assisted traffic
generated by COCOTs (which is the business currently conducted by NTI) that come
to his attention (collectively, "Business Opportunities", and individually, a 
"Business Opportunity"), to be offered or referred to AMNEX, in accordance with
the provisions of subparagraph 19(b) below.

                                       9


         (b) Brian E. King shall offer all Business  Opportunities  as described
above to AMNEX, as NTI's exclusive  manager,  and on its behalf, and AMNEX shall
have the right of first refusal with regard  thereto (the "Option  Right").  The
Option Right must be exercised by AMNEX, if at all, within thirty (30) days 
after AMNEX receives written notice from  Brian E. King that he has a Business
Opportunity  (the  "Notice"),  which Notice shall  include a summary of the 
material  terms thereof and copies of all correspondence  from the  reseller  
or COCOT at issue. In the event  that AMNEX elects to exercise the Option Right,
it shall do so by sending  written  notice thereof to Brian E. King within the 
time period specified above. Upon receipt of such notice from AMNEX,  Brian E. 
King shall  direct such  Business  Opportunity exclusively to AMNEX,  as NTI's
exclusive  manager and on its behalf,  upon the terms and conditions stated in
the Notice, unless otherwise mutually agreed upon by the relevant parties.

20.  Injunctive  Relief. In the event of a breach by NTI or Brian E. King of the
exclusivity  or  non-contravention  provisions  hereof,  it is agreed that AMNEX
shall be without an adequate remedy at law, and in addition to any other rights,
remedies or damages available to it at law or in equity, AMNEX shall be entitled
to such  temporary  and  permanent  injunctive  relief as shall be  necessary or
appropriate to prevent or restrain any such breach or threatened breach, without
the necessity of proving damages,  without prejudice to any other remedies which
AMNEX may have at law or in equity,  and without obligation to post any security
in connection therewith.

21.      Effect of this Agreement.  Except as expressly amended hereby, the 
terms and provisions of the COCOT Agreement and the Settlement Agreement  shall
remain in full force and effect without waiver or  modification of the rights of
any party hereto.

22. Miscellaneous Provisions.  This Agreement shall be governed by and construed
in  accordance  with  the  laws of the  State  of New  York  without  regard  to
principles of conflicts of laws. This Agreement constitutes the entire agreement
between the parties hereto and supersedes all prior and contemporaneous  written
or oral agreements, understandings,  representations,  negotiations and promises
between  the  parties  hereto   concerning   the  subject   matter  hereof.   No
modification,  rescission or waiver of this  Agreement or any  provision  hereof
shall be binding unless made in writing and signed by a duly authorized  officer
of  each  party  hereto.   This  Agreement  may  be  executed  in  two  or  more
counterparts,  each of  which  shall be  deemed  an  original,  but all of which
together shall constitute one and the same instrument. NTI hereby represents and
warrants to AMNEX that it has full power,  authority and legal right to execute,
deliver, perform and observe the provisions of this Agreement, that in so doing,
NTI  shall not  contravene,  be in breach  of or  trigger a default  under,  its
certificate of incorporation or bylaws or any contracts, agreements, instruments
or other  documents to which it is party,  and that the execution,  delivery and
performance  by it of this  Agreement has been duly  authorized by all necessary
corporate action on its part.


                                       10



         IN WITNESS  WHEREOF,  the parties  hereto have caused this  Renewal and
Modification  Agreement  to be  executed as of the date first set forth above by
their respective officers thereunto duly authorized.

AMERICAN NETWORK EXCHANGE, INC.

By:/s/

Name:__________________________

Title:_________________________

AMNEX, INC. *

By:/s/

Name:__________________________

Title:_________________________

* with regard to Paragraphs 10 and 11 hereof only

NATIONAL TELECOM USA, INC.

By:/s/

Name:__________________________

Title:_________________________


/s/
- --------------------------------
Brian E. King, individually **

** with regard to Paragraphs 11, 12, 13, 19, 20 and 22 hereof only

THE KEYSTONE CORPORATION ***
NATIONAL TELECOM HOSPITALITY USA, INC. ***
SELECT TEL COMMUNICATIONS, INC. ***

By:____________________________
   Brian E. King, President

*** with regard to Paragraph 18 hereof only



                                       11

EX-10.23

March 1, 1997

Brian E. King
National Telecom USA, Inc.
675 Morris Avenue
Springfield, New Jersey 07081

Dear Mr. King:

Reference is made to that certain Renewal and Modification Agreement dated as of
February 28, 1997 (the  "Renewal  Agreement")  by and between  American  Network
Exchange,  Inc.  ("AMNEX") and National Telecom USA, Inc.  ("NTI"),  pursuant to
which, among other things,  AMNEX, Inc., the parent company of AMNEX,  agreed to
issue and  deliver to NTI or Brian E. King,  its sole  shareholder,  or to their
designees,  a total of 346,154  shares of the Common  Stock of AMNEX,  Inc.,  in
accordance with the terms and provisions of the Renewal  Agreement.  Such number
of shares was calculated  based upon the average  closing  selling price for the
AMNEX,  Inc.  Common  Stock  during the  eighty  two (82) day  period  ending on
February 28, 1997, which average price was $3.25 per share.

It is  acknowledged  and agreed  that,  in lieu of issuing and  delivering  such
346,154 shares to NTI or Brian E. King or their designees, as aforesaid,  NTI or
Brian E. King shall be  entitled  to receive  the sum of one million one hundred
twenty five thousand dollars  ($1,125,000),  which sum shall be wire transferred
by AMNEX to a depository designated in writing by NTI or Brian E. King, in whole
or part, as hereinafter provided, on the earlier to occur of (i) March 31, 1997;
or (ii) the third  business day following the date that AMNEX  receives  written
notification  from NTI,  Brian E. King or a broker dealer on their behalf,  that
any of them has  purchased  shares of the AMNEX,  Inc.  Common Stock in the open
market (the  "Settlement  Date").  It is  understood  and agreed that the entire
$1,125,000 may be utilized on one occasion to purchase such shares,  or portions
of such sum may be utilized on various  occasions to purchase  groupings of such
shares.  If the latter  approach is  employed,  AMNEX shall only be obligated to
wire  transfer  such portion of the  $1,125,000 as shall be necessary to satisfy
the purchase of such shares being made on the relevant Settlement Date. In all
cases, the form of instruction letter attached hereto as Exhibit A shall be 
transmitted to broker dealers purchasing such shares on NTI's or Brian E. King's
behalf.

In the event that, on or before March 31, 1997, (i) the entire sum of $1,125,000
shall have been utilized to purchase  shares of AMNEX,  Inc. Common Stock in the
open market; (ii) all such shares shall have been purchased on NTI's or Brian E.
King's  behalf  by a broker  dealer  of  AMNEX,  Inc.'s  choice;  and  (iii) the
aggregate  number of 




Brian E. King
National Telecom USA, Inc.
March 1, 1997
Page 2


such shares delivered to NTI and Brian E. King  (collectively,  the "Open Market
Shares")  shall be less than  346,154,  then AMNEX,  Inc.  shall be obligated to
issue and  deliver  to NTI or Brian E. King or their  designees  that  number of
unregistered  shares of the  Common  Stock of  AMNEX,  Inc.  as shall  equal the
difference between 346,154 and the actual aggregate number of Open Market Shares
delivered  to NTI or  Brian  E.  King.  For  purposes  hereof,  such  number  of
unregistered  shares to be delivered to NTI or Brian E. King or their  designees
shall hereinafter be referred to collectively as the "Spread Shares".

It is  expressly  understood  and agreed that (i) no Spread  Shares may be sold,
assigned,  mortgaged, pledged, hypothecated or otherwise transferred or disposed
of for a period  of two (2) years  from the date of such  delivery  without  the
written  consent  of AMNEX,  Inc.;  and (ii) all stock  certificates  evidencing
ownership of any Spread Shares shall bear a  restrictive  legend to such effect.
AMNEX agrees to cause the Spread  Shares,  if any, to be issued and delivered to
NTI or Brian E. King or their designees no later than April 30, 1997, subject to
and in accordance with, the terms and provisions of the Renewal  Agreement.  For
purposes of complying with any holding period  mandated by Rule 144  promulgated
under the  Securities  Act of 1933,  and for no other  purpose  whatsoever,  the
original issuance date of the Spread Shares shall,  unless otherwise provided by
law or rule, be deemed to be February 28, 1997.

It is further expressly understood and agreed that (i) no Open Market Shares may
be sold, assigned,  mortgaged, pledged, hypothecated or otherwise transferred or
disposed of until March 31, 1998 without the written consent of AMNEX, Inc.; and
(ii) all stock certificates evidencing ownership of any Open Market Shares shall
bear a restrictive  legend to such effect. In furtherance of the foregoing,  NTI
and Brian E. King agree to execute and deliver to AMNEX,  Inc.'s  transfer agent
and broker  dealer an  instruction  letter in form and  substance  acceptable to
AMNEX,  which  letter  clearly  authorizes  such  persons  to issue or cause the
issuance of all stock  certificates  for Open Market Shares in NTI's or Brian E.
King's name with the restrictive legend described above.

Notwithstanding  anything to the contrary  contained herein,  AMNEX shall not be
obligated  to issue any  Spread  Shares  unless NTI and Brian E. King shall have
complied  with the  provisions of the  immediately  preceding  paragraph.  It is
acknowledged and agreed that all representations and warranties contained in the
Renewal Agreement with respect to the 346,154 shares of AMNEX, Inc. Common Stock
shall apply with equal force and effect to the Spread Shares.



Brian E. King
National Telecom USA, Inc.
March 1, 1997
Page 3


The parties agree that the terms of this letter agreement may not be modified or
waived except by a written instrument signed by the parties hereto.

If the foregoing accurately and completely sets forth our agreement with respect
to the subject matter hereof,  please so indicate by signing below and returning
this letter to the undersigned.

Very truly yours,

AMNEX, INC.

By:/s/

Name:__________________________

Title:_________________________

ACKNOWLEDGED AND AGREED:

NATIONAL TELECOM USA, INC.

By:/s/

Name:__________________________

Title:_________________________


/s/ Brian E. King
- --------------------------------
Brian E. King, individually





                                    EXHIBIT A

                   FORM OF INSTRUCTION LETTER TO BROKER DEALER



[name of contact]
[name of broker dealer]
[street address]
[city] [state] [zipcode]


Dear ____________________:


This is to advise you that all purchases of AMNEX, Inc. Common Shares to be made
by you on behalf of National Telecom USA, Inc. or Brian E. King are to be 
treated as 10b-18 purchases.

Accordingly,  please ensure that such purchases are made in compliance  with the
safe harbor provisions of Rule 10b-18 promulgated under the Securities  Exchange
Act of 1934.

Thank you for your cooperation.

Very truly yours,


[name of transmitting person]

EX-11

                                                          EXHIBIT 11


STATEMENTS REGARDING COMPUTATION OF PER SHARE EARNINGS

                                                                                Year ended December 31,
                                                                 1996                     1995                        1994
                                                                 ----                     ----                        ----
                                                                         (in thousands except per share data)
Primary Earnings Per Share:

                                                                                                               
Weighted average number of shares of
Common Stock outstanding                                      22,498,915                18,714,369                 13,169,540

Net effect of dilutive  stock options and warrants  
based on the treasury  stock method using the average 
fair market value in effectfor the period                        775,304                   702,128                    353,275
                                                              ----------               -----------                -----------

Weighted average share outstanding                            23,274,219                19,416,497                 13,522,815
                                                              ==========                ==========                 ==========

Net income (loss)                                                ($4,248)                   $1,431                       $541
Less preferred stock dividends and deemed
         dividends                                                (1,016)                     (543)                      (291)
                                                              -----------              -----------                -----------
Net Income (loss) available for common
         shares                                                  ($5,264)                     $888                       $250
                                                              ===========              ===========                 ==========

Net income (loss) per share                                       ($0.23)                    $0.05                      $0.02
                                                              ===========              ===========                 ==========

Fully Diluted Earnings Per Share:

Weighted average number of shares of
Common Stock outstanding                                      22,498,915                18,714,369                 13,169,540

Net effect of dilutive  stock options and warrants  
based on the treasury  stock method using the higher 
of average fair market value in effect at the end of the
period or the average during the period                           775,304                  702,128                    353,275

Net effect of convertible securities                            7,734,480                7,282,040                  9,224,185
                                                              -----------              -----------                -----------

Weighted average shares outstanding                           31,008,699                26,698,537                 22,747,000
                                                              ==========                ==========                 ==========

Net income (loss)                                                ($4,248)                   $1,431                       $541
Add interest expense on convertible debt,
         net of tax                                                   47                        37                        156
                                                              ---------------          ------------              ------------
Net income (loss) available for common
         shares                                                    ($4,201)                 $1,468                       $697
                                                              =============            ============              ============

Net income (loss) per share                                          ($0.14)                 $0.06                      $0.03
                                                              ==============           ============              ============

EX-21

                                                                     EXHIBIT 21

                                  SUBSIDIARIES


American Network Exchange, Inc.
Capital Network System Inc.
Capital Network International, Inc.1
Capital Network Mexico2
AMNEX International, Inc.
National Billing Exchange, Inc.3
Crescent Public Communications Inc.
American Hotel Exchange, Inc.
Sun Tel North America, Inc.4
Telecommunity & International Network Services, Inc.5



- --------
1Wholly-owned subsidiary of Capital Network System Inc.
2Wholly-owned subsidiary of Capital Network International, Inc.
380%-owned subsidiary of AMNEX, Inc.
480%-owned subsidiary of Crescent Public Communications, Inc.
550%-owned subsidiary of AMNEX, Inc.

EX-23

                                                                     EXHIBIT 23


                         CONSENT OF INDEPENDENT AUDITORS


We consent to the  incorporation  by  reference in the  Registration  Statements
(Form S-3 No. 33- 58084) pertaining to 20,342,770  Common Shares;  (Form S-3 No.
333-15647)  pertaining  to  1,513,790  Common  Shares;  (Form S-8 No.  33-37398)
pertaining to the 1987 Stock Option Plan and (Form S-8 Nos.  33-58082,  33-90928
and  333-05659)  pertaining  to the 1992  Stock  Option  Plan  with  respect  to
2,250,000  Common Shares of AMNEX,  Inc. of our report dated April 4, 1997, with
respect to the consolidated  financial statements of AMNEX, Inc. included in its
Annual Report (Form 10-K) for the year ended  December 31, 1996,  filed with the
Securities and Exchange Commission.



                                                             ERNST & YOUNG LLP

New York, New York
April 11, 1997

EX-27

 


<ARTICLE>                     5

<MULTIPLIER>                                   1,000
<CURRENCY>                                     U.S.
       
                             
<PERIOD-TYPE>                   12-mos
<FISCAL-YEAR-END>                              dec-31-1996
<PERIOD-START>                                 jan-01-1996
<PERIOD-END>                                   dec-31-1996
<EXCHANGE-RATE>                                1
<CASH>                                         4,947
<SECURITIES>                                   0
<RECEIVABLES>                                  24,482
<ALLOWANCES>                                   2,757
<INVENTORY>                                    739
<CURRENT-ASSETS>                               30,063
<PP&E>                                         36,332
<DEPRECIATION>                                 12,481
<TOTAL-ASSETS>                                 91,359
<CURRENT-LIABILITIES>                          35,057
<BONDS>                                        33,321
<PREFERRED-MANDATORY>                          0
<PREFERRED>                                    10,061
<COMMON>                                       56,120
<OTHER-SE>                                     (32,861)
<TOTAL-LIABILITY-AND-EQUITY>                   91,359
<SALES>                                        117,142
<TOTAL-REVENUES>                               117,142
<CGS>                                          93,863
<TOTAL-COSTS>                                  93,863
<OTHER-EXPENSES>                               26,243
<LOSS-PROVISION>                               0
<INTEREST-EXPENSE>                             2,730
<INCOME-PRETAX>                                (5,694)
<INCOME-TAX>                                   (1,445)
<INCOME-CONTINUING>                            (5,694)
<DISCONTINUED>                                 0
<EXTRAORDINARY>                                0
<CHANGES>                                      0
<NET-INCOME>                                   (4,248)
<EPS-PRIMARY>                                  (0.23)
<EPS-DILUTED>                                  (0.23)