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Registration No. 333-_______
As filed with the Securities and Exchange Commission on December 7, 1999.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM SB-2
Registration Statement Under the Securities Act of 1933
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SONUS COMMUNICATION HOLDINGS, INC.
(Name of small business issuer)
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DELAWARE 6770 54-1939577
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(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION No.)
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1600 WILSON BLVD., SUITE 1008
ARLINGTON, VIRGINIA 22209
(703) 527-8860
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
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CORPORATION SERVICE COMPANY
1013 CENTRE ROAD, WILMINGTON, DELAWARE 19805
(800) 677-3394
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
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Copies to:
CLIVE R.G. O'GRADY
CECIL E. MARTIN, III
MCGUIRE, WOODS, BATTLE & BOOTHE LLP
Suite 1800, 1750 Tysons Boulevard
McLean, VA 22102
TELEPHONE: (703) 712-5017
FACSIMILE: (703) 712-5248
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From
time to time as the selling shareholders may decide.
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act of 1933, check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434 check the following box. / /
Pursuant to Rule 416, there are also being registered such additional
shares and warrants as may become issuable pursuant to the anti-dilution
provisions of the warrants.
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY (1) OFFERING PRICE (1) REGISTRATION
FEE
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Common Stock
par value, $0.0001 per share (2).... 2,156,465 $ 3.375 $7,278,069 $1,921
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Common Stock Underlying Warrants
par value, $0.0001 per share (3).... 1,013,970 $ 3.375 $3,422,149 $903
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Common Stock Purchase Warrants (4).... 90,000 $ 2.375 $ 213,750.06 $---(5)
487,500 2.455 1,196,812.50
86,250 2.375 204,843.75
250,000 .375 93,750.00
37,500 1.375 51,562.50
62,720 2.025 127,008.00
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(1) Estimated solely for the purpose of (i) calculating the registration
fee for the common stock in accordance with Rule 457(c) under the
Securities Act and based on the average of the high and low price
per share of Sonus Communication Holdings, Inc. common stock as
quoted on the OTC Bulletin Board on December 2, 1999, and (ii)
calculating the registration fee for the common stock purchase
warrants and common stock underlying the warrants in accordance
with Rule 457(g) under the Securities Act.
(2) Consists of shares of outstanding common stock issued by the Company
in private placements on January 21, May 5, May 27, August 3 and
November 22, 1999.
(3) Consists of (i) 90,000 shares of common stock issuable upon exercise
of common stock purchase warrants issued January 21, 1999, at an
exercise price of $1.00 per share, (ii) 487,500 shares of common
stock issuable upon exercise of common stock purchase warrants
issued as of January 21, 1999, at an exercise price of $.92 per
share, (iii) 86,250 shares of common stock issuable upon exercise
of common stock purchase warrants issued as of August 3, 1999 at
an exercise price of $1.00 per share, (iv) 250,000 shares of
common stock issuable upon exercise of common stock purchase
warrants issued August 3, 1999 at an exercise price of $3.00 per
share, (v) 37,500 shares of common stock issuable upon exercise
of common stock purchase warrants issued August 3, 1999, at an
exercise price of $2.00 per share, and (vi) 62,720 shares of
common stock issuable upon exercise of common stock purchase
warrants issued November 22, 1999, at an exercise price of $1.35
per share.
(4) Consists of warrants to purchase the shares of common stock
described in footnote (3) above.
(5) The filing fee is included in the fee for the registration of the
underlying common stock.
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THE COMPANY HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE COMPANY SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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2,156,465 SHARES OF COMMON STOCK
1,013,970 WARRANTS TO PURCHASE COMMON STOCK
1,013,970 SHARES ISSUABLE UPON EXERCISE OF WARRANTS
LOGO
SONUS COMMUNICATION HOLDINGS, INC.
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The shares of common stock of Sonus Communication Holdings, Inc. (the
"Company"), par value $.0001 per share, warrants to purchase shares of common
stock of the Company and shares of common stock of the Company issuable upon
exercise of such warrants are being offered for sale by some of the Company's
stockholders. The Company will not receive any of the proceeds from the sale of
these shares or warrants. If, however, all of the common stock purchase
warrants are exercised for cash, the Company will receive $1,448,172 based upon
the current exercise price of such warrants if all of the warrants are
exercised for cash, and will receive $750,000 based upon the current exercise
price of such warrants if all 763,970 warrants with cashless exercise features
are exercised on a cashless basis. The Company will pay certain of the legal
and other expenses of this offering, estimated to be $50,324.
The selling stockholders will bear the cost of any brokerage
commissions or discounts or other selling expenses incurred in connection with
the sale of their shares, warrants and shares underlying the warrants. The
price and the commissions, if any, paid in connection with any sale may be
privately negotiated, may be based on then prevailing market prices, and may
vary from transaction to transaction and, as a result, are not currently known.
See "Plan of Distribution."
The Company's common stock is traded over the counter. Bid and asked
prices are quoted, and the last sale is reported, on the over-the-counter
electronic bulletin board maintained by the National Association of Securities
Dealers (the "Bulletin Board") under the symbol "SNHD". On December 2, 1999,
the last bid price of the common stock as reported was $3.375.
The selling stockholders and any participating broker-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and any commissions or discounts given to any such broker-dealer may be
regarded as underwriting commissions or discounts under the Securities Act of
1933. The Company has not registered the shares or warrants for sale by the
selling stockholders under the securities laws of any state as of the date of
this prospectus. Brokers or dealers effecting transactions in the shares or
warrants should confirm the registration of these securities under the
securities laws of the states in which transactions occur or the existence of
an exemption from registration.
AN INVESTMENT IN SHARES OF THE COMPANY'S COMMON STOCK OR WARRANTS
INVOLVES SIGNIFICANT RISK. THE COMPANY URGES YOU TO CAREFULLY CONSIDER THE RISK
FACTORS BEGINNING ON PAGE 8, ALONG WITH THE REST OF THIS PROSPECTUS, BEFORE YOU
MAKE YOUR INVESTMENT DECISION.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this prospectus is __________, 1999
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SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this prospectus and should be read in conjunction with
that information and those financial statements and notes. YOU SHOULD CAREFULLY
READ THE ENTIRE PROSPECTUS BEFORE INVESTING IN THE SECURITIES.
In General
Sonus Communications, Inc. ("Sonus"), the Company's wholly-owned
operating subsidiary, is a US "FCC-214" facilities based telecommunications
company that utilizes the public Internet as well as private IP networks as its
primary transport media. Sonus is among the first of a growing number of
service providers to offer telephone services that utilize the Internet and
private IP networks as its primary transport media and is also among the first
carriers with Internet based telephone service regarded as equivalent to that
of the major international long-distance carriers such as AT&T. Sonus
implements leading edge technology in its ongoing effort to develop and deploy
a global Internet Protocol ("IP") Network that transmits telephone, facsimile,
data and video services.
Sonus's current customers are international long-distance carriers and
pre-paid calling card companies that use the Sonus network to send their
commercial telephone traffic through the "least cost route" to international
destinations.
Industry Overview
Long distance telephone services have traditionally been offered
through public switched telephone networks which use traditional telephone
lines to deliver service. Recently, the growing popularity and
commercialization of the Internet and related technologies have accelerated the
integration of technologies involving computers and telephones. This
integration has given rise to computer telephony or Internet telephony, which
can be a less expensive and more workable method of telecommunication. This
alternative to switched telephone networks was developed from applications
introduced in the early 1990s which permitted standard commercial transmission
of voice and audio using Internet protocols ("IP"), which enabled multi-media
personal computer users to converse over the Internet. The global marketplace
is quickly becoming accustomed to the Internet and cognizant of its value as a
communications and data medium. Service providers are expanding the Internet
and users are requesting premium services such as enhanced voice, audio, and
video transmissions. Companies have invested heavily to develop new and
enhanced Internet telephony applications to improve the service quality and
lower implementation costs of voice-over-IP telecommunications.
Voice-over-IP technology is superior to traditional switched telephone
networks using traditional telephone lines in significant ways. First, tariffs
are imposed on communications over traditional telephone systems, increasing
costs as compared to internet telephony. Second, IP telephony has superior
capability which permits data and interactive document sharing, multi-media
data transmissions, and other innovative features.
The advent of Internet telephony is a dramatic development in the
growing Internet industry. New applications are being developed every day. The
cost of computer processing is decreasing and customer demand and familiarity
is increasing. IP systems are more cost effective, have enhanced features, and
may soon become more reliable than traditional service and, many believe, the
telecommunications alternative of the future. Sonus believes it is well
positioned to take advantage of these opportunities.
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Focus and Strategies
Sonus is currently focused on expanding its international long
distance telecommunications network and establishing an infrastructure that
primarily uses the public Internet as well as private IP networks. Sonus is
attempting to increase its customer base, expand the number of markets served,
and expand capacity in the markets currently being served.
Sonus plans to pursue geographical markets which have been
historically under-served, but which management has identified to be
"emerging," such as the former Soviet Union (the "FSU"), Southwest Asia and
others. Sonus expects to enter new markets that it determines are strategic or
offer the best opportunities for exploitation.
Sonus hopes to gain share in the markets it enters by offering carrier
quality services at lower prices than its competitors. Sonus relies on numerous
technologies and techniques aimed at driving down the costs of its
international routing, including Internet routing, "Intelligent switching" and
a "Refile" strategy. See "Business".
Executive Offices
The Company's principal executive offices are located at 1600 Wilson
Blvd., Arlington, Virginia 22209, and the Company's telephone number is (703)
527-8860.
History
The Company is a Delaware holding company whose only material asset is
Sonus Communications, Inc., a wholly-owned operating subsidiary incorporated
under Virginia law ("Sonus").
Sonus was incorporated in May, 1995. Sonus provided consulting
services until it began operations as a long distance carrier between the US
and the Nation of Georgia in late 1998. In March 1999, Sonus merged with Sonus
Park Acquisition, Inc., a wholly owned subsidiary of The Park Group, Limited, a
dormant public corporation, leaving Sonus as the surviving corporation and a
wholly owned subsidiary of Park. The former shareholders of Sonus received
approximately 92% of the capital stock of Park in the merger.
Park was originally incorporated as American Ventures, Inc. ("AVI") on
January 24, 1986 under the laws of the State of Colorado. AVI was formed as a
"blind pool," in which investors entrusted management to apply of the offering
proceeds to acquire or merge with a suitable operating company. In August of
1986, AVI closed an initial public offering of it stock. In February of 1987,
AVI changed its name to "The Park Group, Ltd."
Following Park's reverse acquisition of Sonus, Park reincorporated in
Delaware in April, 1999 and changed its name to Sonus Communication Holdings,
Inc.
The Offering
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Common stock offered by selling stockholders.............................2,156,465
Warrants offered by selling stockholders (1).............................1,013,970
Common stock underlying warrants.........................................1,013,970
Common stock outstanding immediately prior
to the offering (2)......................................................4,598,850
Common stock to be outstanding after the offering (3)....................5,612,820
Risk Factors.............................................................The securities offered hereby
involve a high degree of risk
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and should be purchased only
by persons who can afford to
sustain a total loss of their
investment. See "Risk Factors"
"Dilution".
Use of Proceeds..........................................................This is a secondary offering
which will not result in
proceeds to the Company,
except that 1,013,970 shares
underlying warrants are being
registered which, if exercised
for cash, would result in gross
proceeds of $1,448,172 if all
of the warrants are exercised
for cash, or $750,000 if all
763,970 warrants with cashless
exercise features are exercised
on a cashless basis. All such
proceeds would be used for
working capital.
OTC Bulletin Board symbol................................................"SNHD"
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(1) Includes warrants (i) issued January 21, 1999 to purchase 90,000
shares of common stock, at an exercise price of $1.00 per share, (ii) issued
January 21, 1999 to purchase 487,500 shares of common stock at an exercise
price of $.92 per share, (iii) issued August 3, 1999 to purchase 86,250 shares
of common stock at an exercise price of $1.00 per share, (iv) issued August 3,
1999 to purchase 250,000 shares of common stock issuable at an exercise price
of $3.00 per share, (v) issued August 3, 1999 to purchase 37,500 shares of
common stock at an exercise price of $2.00 per share, and (vi) issued November
22, 1999 to purchase 62,720 shares of common stock at an exercise price of
$1.35 per share. See "Description of Securities, Description of Warrants".
(2) Does not include (i) the 1,013,970 common stock purchase warrants
described in footnote (1) above, (ii) 725,000 common stock purchase warrants
issued to directors and officers of the Company and their affiliates, (iii) the
conditional grant of 150,000 shares of restricted stock to a consulting company
owned by the Chief Executive Officer of the Company, (iv) 306,000 options
issued to employees under the Company's 1999 Employee Stock Option Plan, or (v)
50,000 options issued to directors of the Company under the Company's 1999
Directors Stock Option Plan.
(3) Assumes exercise of all 1,013,970 common stock purchase warrants
described in footnote (1) above, but does not include (i) 725,000 common stock
purchase warrants issued to directors and officers of the Company and their
affiliates, (ii) the conditional grant of 150,000 shares of restricted common
stock to a consulting company owned by the Chief Executive Officer of the
Company, (iii) 306,000 options issued to employees under the Company's 1999
Employee Stock Option Plan, or (iv) 50,000 options issued to directors of the
Company under the Company's 1999 Directors Stock Option Plan.
SUMMARY FINANCIAL DATA
The summary financial data set forth in the table below is derived
from the Company's audited financial statements for the years ended December
31, 1997 and 1998. The audited financial statements are included in this
prospectus beginning at page F-1. The summary financial data for the nine
months ended September 30, 1998 and 1999 are derived from the unaudited
financial statements which are included in this prospectus beginning on page
F-21. The Company believes these financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's financial condition and results of operations.
The information represents historical information and consequently includes the
historical information of Sonus Communications, Inc. for 1997 and 1998 and
includes the merger with The Park Group beginning January 1, 1999 as a result
of the merger having occurred during the first quarter of 1999. This financial
data represents historical information that is not necessarily indicative of
future results. The Company urges you to read carefully the "Management's
Discussion and Analysis of Financial Conditions and Results of Operations"
section which begins on page 26, the financial statements and notes thereto,
and other financial data included elsewhere in this prospectus.
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YEAR ENDED DECEMBER 31, NINE MONTHS ENDED SEPT 30,
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1997 1998 1998 1999
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Historical Statement
of Operations Data:
Revenues 121,318 287,290 39,950 1,022,296
Net loss from operations (43,729) (63,465) (84,311) (968,389)
Loss per share (0.02) (0.02) (0.03) (0.33)
Historical Balance Sheet Data:
Total assets 2,253 504,951 599,405 1,175,713
Long term debt 99,969 99,969 99,969 155,000
Stockholders' equity (110,363) (180,826) (199,923) 162,973
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RISK FACTORS
AN INVESTMENT IN THE COMPANY'S COMMON STOCK AND WARRANTS INVOLVES A
SIGNIFICANT DEGREE OF RISK. YOU SHOULD NOT INVEST IN THE COMPANY'S COMMON STOCK
OR WARRANTS UNLESS YOU CAN AFFORD TO LOSE YOUR ENTIRE INVESTMENT. YOU SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS AND OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING TO INVEST IN THE COMPANY'S COMMON STOCK OR WARRANTS.
YOU SHOULD ALSO CAREFULLY READ THE CAUTIONARY STATEMENT FOLLOWING THE "RISK
FACTORS" SECTION REGARDING THE COMPANY'S USE OF FORWARD-LOOKING STATEMENTS.
The Company's only material asset is its wholly owned operating
subsidiary, Sonus Communications, Inc., a Virginia corporation ("Sonus").
Therefore, any event mentioned which has or could have a material adverse
effect on the business, financial condition or results of operations of Sonus
would have a similar material adverse effect on the Company.
Limited Operating History; Operating Losses and Financial Performance
Sonus entered the U.S. outbound international telephone service
business in October 1998. Accordingly, Sonus and the Company have only a
limited operating history upon which an evaluation of it and its prospects can
be based.
Sonus' current focus is on expanding its network and establishing an
infrastructure to achieve economies of scale, improve network performance, and
enable Sonus to expand its geographic reach for potential telecommunications
clients. Consequently, Sonus will continue to make capital expenditures and
incur substantial operating costs to hire additional personnel and increase its
expenses, including, but not limited to, those related to finance, key
management support, network infrastructure, technical resources and customer
support. The pursuit of such objectives can be expected to have an adverse
impact on Sonus' profit margins for at least the near-term. There can be no
assurance that Sonus can increase its revenues and customer base sufficiently
to recover the costs of such expansions. In addition, acceleration in the
growth of Sonus' client base or changes in usage patterns among clients may
also increase costs as a percentage of revenues.
As a result, Sonus expects that it will continue to incur net losses
for the foreseeable future. There can be no assurance Sonus will at any time in
the future achieve or sustain profitability. Sonus' operating results have
fluctuated in the past as Sonus' business has evolved and may fluctuate
significantly in the future as a result of a variety of factors, some of which
are outside of Sonus' control. These factors include, but are not limited to,
potential network failure, general economic conditions, acceptance and use of
Sonus' services, user demand for long-distance telecommunications services,
capital expenditures and other costs relating to the expansion of operations,
the timing and costs of any acquisitions of technologies or businesses,
government regulation, the timing of new destinations serviced by Sonus or its
competitors, changes in pricing strategies by Sonus or its competitors, changes
in the mix of services sold by Sonus, market availability and acceptance of new
and enhanced versions of Sonus' or its competitors' services and the rates of
new customer acquisition and retention. Any of these or other factors could
have a material adverse effect on Sonus' and the Company's business, financial
condition and results of operations.
Immediate Need For Additional Capital Following Completion Of The Offering
Sonus currently has points of presence ("PoPs") deployed in five
countries. It estimates that approximately $500,000 is required to deploy PoPs
in each additional country. Therefore, the Company will require substantial
immediate additional financing. Failure to secure additional financing will
have a material adverse effect on the Company.
The Company believes that, based upon Sonus' present business plan and
its existing cash resources, its expected cash flow from operating activities
will not be
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sufficient to meet its currently anticipated working capital and capital
expenditure requirements for the next twelve months. If Sonus' growth exceeds
current expectations or Sonus expedites or enlarges its network expansion, or
if Sonus' cash flow from operations is insufficient to meet its working capital
and capital expenditure requirements, the Company will need to raise additional
capital from equity and/or debt sources. The Company can provide no assurance
that it will be able to raise such additional capital or that such additional
capital, if raised, will be obtained on terms favorable to the Company, all of
which could have a material adverse effect on the Company.
Risks Of Expansion And Implementation Of Growth Strategy
Sonus' rapid growth and expansion into new markets have placed, and
may continue to place, a strain on Sonus' management, administrative,
operational, financial and technical resources and increase demands on its
systems and controls. Demands on network resources, technical staff and
resources have grown rapidly with Sonus' expanding customer base, and Sonus may
experience difficulties satisfying the demand for its services and problems in
billing its customers. In certain situations, these events have created and may
continue to create customer relations and other general business issues and
difficulties for Sonus and the Company. There can be no assurance that Sonus
will not experience similar or additional problems in the future or that Sonus'
attempts to improve its technical staff will be adequate to facilitate
continued growth. A failure to effectively provide customer and technical
support services will adversely affect Sonus' ability to attract and maintain
its customer base. Expected increases in Sonus' telecommunications customer
base will produce increased demands on its sales, marketing and administrative
resources, its engineering and technical resources, and its customer and
technical support resources, as well as on its switching and routing
capabilities and network infrastructure. Consequently, the inability to
continue to upgrade the networking systems or the operating and financial
control systems, the inability to recruit and hire necessary personnel or the
emergence of unexpected expansion difficulties could have a material adverse
effect on the Company.
Sonus believes that it will need, both in the short-term and the
long-term, to hire sales and marketing and technical personnel, as well as
qualified administrative and management personnel in the accounting and finance
areas to manage Sonus' financial control systems. There can be no assurance
that Sonus will be able to locate or hire such personnel or that Sonus'
administrative, operating and financial control systems, infrastructure,
personnel and facilities will be adequate to support future operations or
maintain and effectively adapt to future growth. There can be no assurance that
Sonus will be able to build-out its telecommunications infrastructure, install
additional PoPs, add services, expand its customer base and geographical
markets or implement the other features of its business strategy at the rate or
to the extent presently planned, or that the Company's overall business
strategy will be successful.
Risk of Implementing an Acquisition Strategy
The Company is in the process of exploring strategic acquisitions that
will permit it to vertically integrate the Company's low-cost, high-quality
international long-distance services with retail products and services that are
sold directly to consumers and businesses. The Company's goal is to expand
beyond wholesale services to create retail revenue sources which capture
greater profit margins, but can provide no assurance that increased margins can
be attained. The Company currently has no expertise in the development and
marketing of retail telecommunication products or services. If Sonus fails to
identify suitable acquisition candidates, fails to reach acceptable terms with
potential acquisition candidates, or if the Company fails to develop or acquire
the requisite competencies in the delivery of retail products or services, it
is unlikely to succeed in these endeavors, which may have a material adverse
effect on the Company.
Business acquisitions involve special risks, including unanticipated
liabilities and contingencies and difficulties related to the integration of
the
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acquired business. Any such unanticipated liability or significant delay in, or
increase in the cost of, integrating an acquired business could have a material
adverse effect on the Company's business, financial condition and results of
operations. Although the Company is evaluating various acquisition
opportunities, it does not have any agreement or understanding regarding any
business acquisition. There can be no assurances that a suitable acquisition
candidate can be identified or that, if identified, the Company will be able to
consummate any acquisition on terms favorable to the Company or at all or that,
if consummated, the acquired business could be integrated successfully into the
operations of the Company. Acquisitions can involve significant transaction and
other costs and require substantial resources including devotion of
management's time and attention.
Proposed Acquisition of Empire One Telecommunications, Inc.
In November, 1999, the Company entered into a merger agreement to
acquire Empire One Telecommunications, Inc., a New York corporation ("EOT").
EOT is a competitive local exchange carrier and internet service provider doing
business primarily in the northeast and western U.S. The merger agreement
provides that EOT will merge into EOT Acquisition Corporation, a newly created
wholly-owned subsidiary of the Company, with EOT Acquisition Corporation as the
surviving corporation following the merger (the "EOT Acquisition"). The
stockholders of EOT would receive 1,065,857 shares of the Company's common
stock in the merger. As part of the EOT Acquisition, EOT Acquisition
Corporation plans to assume all of EOT's outstanding liabilities. The Company
expects to offer piggy-back registration rights in connection with the shares
of common stock to be issued in the merger and plans to employ at least three
of the key employees of EOT and pay them annual salaries of $115,000 each plus
options or warrants to purchase up to 150,000 shares of the Company's common
stock at a strike price of $3.00 per share, to vest over a three year period in
equal installments, plus other standard benefits.
The closing of the merger is subject to, among other things, the
approval of various persons and governmental agencies including, without
limitation, the Federal Communications Commission and the New York State Public
Service Commission. The Company can provide no assurances that such approvals
will be obtained and that the other conditions to closing contained in the
merger agreement will be satisfied, or that the merger will be consummated. A
failure to complete the EOT Acquisition could have a material adverse effect on
the Company. The Company's inability to close the EOT acquisition may also
limit the Company's ability to become a complete telecommunications provider,
enter the retail market and enjoy higher margins, and may reduce the Company's
ability to find financing on favorable terms or at all.
If the Company refuses to close the EOT Acquisition for any reason
other than in accordance with a written condition set forth in the merger
agreement and EOT is willing to proceed to closing, the Company may be required
to pay all of EOT's costs and expenses in connection with the proposed
transaction (including reasonable legal fees). The payment of this fee could
have a material adverse effect on the Company.
Control By Principal Stockholders
Charles W. Albo, the Company's Chairman of the Board and co-founder,
Nana Maraneli, the Company's Executive Vice President and co-founder, and the
other officers and directors of the Company together own in excess of a
majority of the Company's issued and outstanding capital stock. It is
anticipated that the Company's management will maintain majority control over
the Company for the foreseeable future. As a result, the Company's management
is and will be able to control matters requiring approval by the stockholders
of the Company, including the election of a majority of the directors and the
approval of significant corporate matters, including any merger, consolidation
or sale of all or substantially all of the Company's assets.
Internet Telephony
The market for Internet telephony services is expected to be extremely
competitive. An increasing number of large, well-capitalized companies are
entering
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the market for Internet telephony products and services. As a result, the
Company may not be able to compete effectively with its competitors in this
market, or to increase its customer base.
Sonus' competitors include a number of companies that have introduced
services that make Internet telephony solutions available to businesses and
consumers. Companies such as IDT Corporation, Inc., Delta Three (a subsidiary
of RSL), ITXC Corp. and OzEmail Limited, which was recently acquired by MCI
WorldCom, provide a range of Internet telephony services that are similar to
the ones that the Company offers. Several companies, including industry
leaders, such as AT&T and Qwest, have announced their intention to offer these
services on a wider basis in both the U.S. and internationally.
A number of large companies, including Cisco Systems, Inc., Lucent
Technologies, Inc., Northern Telecom Limited and Dialogic Corp. offer or plan
to offer server-based Internet telephony products. These products are expected
to allow large-scale communications over the Internet. Major long distance
carriers, including AT&T, Bell Atlantic Corporation and Deutsche Telekom AG, as
well as other major companies, including Motorola, Inc., Intel Corporation and
Netscape Communications Corporation, have entered or plan to enter the Internet
telephony market, in some cases by investing in companies engaged in the
development of Internet telephony products.
Government Regulation May Impair The Company's Profitability and Restrict The
Company's Growth.
State and federal telecommunications and penny stock regulations could
limit the Company's ability to achieve profitability and to grow. These changes
may be retroactively applied and are not within the Company's control.
Telecommunications companies are subject to regulation by the Federal
Communications Commission. Conventional telephone companies are currently
pushing the FCC to regulate providers of computer software products that enable
voice transmission over the Internet, arguing that these companies are
operating as common carriers. If this argument is successful, the Company will
be subject to various regulatory requirements and fees. The FCC has advised
Congress that it may, in the future, regulate Internet protocol telephony
services as basic telecommunications services. Conventional telephone companies
are also lobbying Congress to impose tariffs that would impact customer use of
the Company's products and services. In addition, several states are studying
the imposition of access charges for Internet telephony providers.
In addition to telecommunications regulation, the growing popularity
and use of the Internet has led to increased regulation of communication and
commerce over the Internet. The United States and other countries have enacted
laws to regulate user privacy, pricing, and the characteristics and quality of
Internet products and services. The Company is unable to predict the impact, if
any, that future legislation, legal decisions, or regulations concerning the
Internet may have on the Company's business, financial condition, or results of
operations.
The Company is subject to additional regulation by the Securities and
Exchange Commission under its rules regulating broker-dealer practices in
connection with transactions in "penny stocks," and this type of regulation may
reduce the level of trading activity or your ability to sell the common stock.
Penny stocks generally are equity securities with a price of less than $5.00
that are not registered on certain national securities exchanges or quoted on
the NASDAQ system. The penny stock rules require a broker-dealer, prior to a
transaction in a regulated penny stock, to deliver a standardized risk
disclosure document that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer must also
provide information concerning his compensation for the penny stock purchase,
current prices of the penny stock, and a special written determination that the
penny stock is a suitable investment for the purchaser.
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Increasing Competition
The industry in which Sonus operates, and more specifically, the
markets in which Sonus operates, are extremely competitive and can be
significantly influenced by the marketing and pricing decisions of larger
industry participants. Other than substantial capital investment and start-up
costs, there are currently no substantial barriers to entry in any of the
telecommunications markets in which Sonus competes, but there can be no
assurance that barriers to entry will not arise in the future. The Company
expects competition in these markets to intensify in the future.
There currently exist several "next generation" commercial
telecommunication carriers offering Internet-based long-distance service at a
substantial discount to traditional commercial grade service. To the extent
such carriers successfully penetrate the markets in which Sonus intends to
operate, the Company's business, financial condition and results of operations
could be negatively and materially effected.
Many of the Company's competitors are significantly larger and have
substantially greater market presence and financial, technical, operational,
marketing and other resources and experience than Sonus. Sonus is not nearly as
established as these competitors and lacks the substantial resources of such
competitors. Foreign PTTs, newly-privatized former PTTs and other home country
competitors are positioned to pressure Sonus directly in their home countries
by influencing regulatory authorities to outlaw certain services or by blocking
access to Sonus' services. Sonus has suffered material adverse effect due to
anti-competitive behavior on the part of the PTTs (or former PTTs) to date, and
there can be no assurance that such behavior will not in the future cause a
material adverse effect on the Company's business, financial condition or
results of operations. With the increasing privatization and deregulation of
international telecommunications in foreign countries, PTTs may increasingly
become free to compete more effectively with Sonus at competitive rates.
Deregulation in foreign countries also could result in competition
from larger U.S. service providers with large, established customer bases and
close ties to the local PTT and/or governmental authorities in a particular
country, resulting in decreased prices for international calls to that
destination, such that Sonus' services are no longer commercially viable. The
ability of a deregulated PTT or another home country service provider to
compete on the basis of greater size and resources, pricing flexibility and
long-standing relationships with U.S. carriers and customers in its own country
could have a material adverse effect on the Company's business, financial
condition and results of operations.
There can be no assurance that large carriers will not seek to offer
discounted, wholesale long-distance services to customers in deregulated
overseas markets. Because of their ability to compete on the basis of superior
financial and technical resources, the entry of any large long-distance
carriers into the international wholesale long-distance service business in
foreign countries could have a material adverse effect on the business,
financial condition and results of operations of both Sonus and the Company.
Competition for customers in the telecommunication markets in which
Sonus competes is primarily on the basis of price and on the basis of the type
and quality of service offered. Increased competition could force Sonus to
reduce its prices and profit margins. Sonus could also face significant pricing
pressure because there can be no assurance that Sonus will be able to maintain
the volume of domestic and international long-distance traffic necessary to
obtain favorable rates and tariffs. The Company is aware that Sonus' ability to
market its long-distance resale services depends upon the existence of spreads
between the rates offered by Sonus and those offered by the International
Exchange Carriers (the "IXCs") with whom it competes as well as those from whom
it obtains service. A decrease in such spreads or price competition in Sonus'
markets could have a material adverse effect on the Company's business,
financial condition or results of operations.
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Currently, Sonus has five primary customers, all of which are
resellers for long-distance providers. The reliance by Sonus on a relatively
few number of customers and lack of diversification of its customer base
increases the importance of any one customer. The loss of even one customer
could have a material adverse effect on the Company and its business,
operations and financial condition.
Businesses such as the entity created by the merger of MCI and
WorldCom are expected to be well-financed, formidable competitors, Offering a
wide range of integrated telecommunications and Internet services with a global
reach. The new entities can be expected to offer international rates
significantly below those currently offered by other providers. Such
competitive rates may force other carriers to lower their rates significantly,
thereby increasing competitive pressure on Sonus. Moreover, the expected price
reductions may lead to the elimination of the tariffs which currently apply to
many international calls and which create spreads between various international
telecommunications markets. Any such price reductions or elimination of tariffs
and spreads may constrict Sonus' margins or significantly affect its ability to
execute its business plan successfully.
Sonus' current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, operational, marketing and other resources and experience than
Sonus.
If consumers do not accept the Company's product, or any product developed by
the Company in the future, as a less expensive, quality alternative to
traditional service, the Company may not become profitable.
Broad acceptance of the Company's technology, products, and services
is critical to the Company's success and ability to generate revenues. The
markets for the Company's technology, products, and services have only recently
begun to develop and are rapidly evolving because the Company's products and
services are new and based on emerging technologies. Typically, demand and
market acceptance for recently introduced technology and products are subject
to a high level of uncertainty. There can be no assurance that the Company will
be successful in obtaining market acceptance of the Company's technology,
products, and services. The lower quality of voice transmissions through the
Company's network compared to traditional long-distance services will be a
factor in consumer acceptance of the Company's services.
The introduction of more technologically advanced products and services by the
Company's competitors could decrease the Company's profitability.
The introduction of technologically superior products and services by
the Company's competitors may make the Company's products and services less
marketable or subject to downward price pressures, thus decreasing the
Company's profitability. The Internet and telecommunications markets, including
the market for voice transmission over packetized data networks, are
characterized by evolving industry standards and specifications. The Company
may have to expend substantial time and money to adapt its technology,
products, and services to this rapid technological change. A critical factor in
the Company's growth and competitiveness will be the Company's ability to
anticipate changes in technology and industry standards, including the
successful development of products and services in a cost effective and timely
manner. There can be no assurance that the Company will successfully develop
enhanced or new products and services, that any enhanced or new products and
services will achieve market acceptance, that the Company will be able to adapt
the Company's products and services to comply with new standards or
specifications, or that the introduction of new products or services by others
will not render the Company's technology, products, and services obsolete.
The Company's service quality will be harmed if the Company's system cannot
handle a large volume of simultaneous calls.
The Company's inability to handle a large number of simultaneous calls
will cause the Company's service quality to suffer which could result in
customer losses. A key component of the Company's profitability will be the
addition and retention of
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customers. A byproduct of this component will be increased call volume on the
Company's network. It is crucial to the Company's ability to provide quality
services for the Company's system to handle a large volume of calls. If the
Company cannot effectively manage the Company's customers' use of the Company's
systems, customers may not perceive the Company's service as a high-quality
alternative to the traditional long-distance telephone service.
The Company's inability to predict traffic volume on the internet may add extra
expense to the Company's business operations.
Large fluctuations in Internet traffic volume may obligate the Company
to pay additional contractual charges for the Company's Internet service. A
decrease in Internet traffic volume may obligate the Company to pay for leased
Internet service capacity without adequate corresponding revenues. An
unexpected increase in traffic volume may require the Company to obtain
transmission capacity through more expensive means. If the Company is unable to
accurately project the Company's needs for leased capacity in the future, such
inability may increase the Company's operating costs and, therefore, decrease
the Company's profitability.
If the Company cannot develop strategic alliances with foreign partners, the
Company may not be able to develop a sufficient customer base.
The Company's marketing strategy and, therefore, the Company's
performance, depends on the Company's ability to develop strategic alliances
with foreign partners. The Company may not be able to develop these alliances
and, if the Company is able to develop them, the partners may not be able to
effectively promote the Company's technology, products, and services. The
Company has established a significant business relationship with three entities
outside the United States. The Company may not be successful in developing any
future strategic alliances. The Company has limited experience in obtaining the
necessary personnel, offices, regulatory authorization, and leases and
agreements with the intranational telecommunications carriers in the countries
where the Company seeks to establish strategic alliances.
Dependence On Others
Sonus is dependent on third-party suppliers of telecommunications and
Internet network transmission services for many of its services and does not
have long-term contracts with some of its suppliers. Sonus' ability to provide
quality and reliable telecommunications services and its ability to expand its
network through the timely provisioning of new voice and data lines is
dependent upon the services of telecommunication and Internet service providers
such as MCI/WorldCom. Certain of these companies and other third party
suppliers are or may become competitors of Sonus, and such suppliers generally
are not subject to restrictions upon their ability to compete with Sonus. To
the extent that any of these suppliers raise their rates or change their
pricing structure, Sonus and the Company may be materially adversely affected.
Also, Sonus faces the risk that there will be a disruption in the service
provided by these suppliers, and can give no assurance that there will not be a
significant disruption in such service in the future, thereby causing a
disruption in the services provided by Sonus to its customers. Sonus is
dependent upon its current primary providers of leased-line network capacity
and Internet access. If these suppliers are unable to expand their networks or
unwilling to provide or expand their current level of service to Sonus in the
future, Sonus' operations could be materially adversely affected as could the
financial condition of the Company. Sonus is also dependent upon third parties
to provide telecommunications services to its customers. Although certain
Internet access and leased data communications services are currently available
from several alternative suppliers, including, for example, AT&T, MCI, and
Sprint, there can be no assurance that Sonus could obtain substitute services
from other suppliers at reasonable or comparable terms and prices, or in a
timely fashion.
The ability of Sonus to compete in the long-distance
telecommunications market depends, in part, on its ability to procure
advantageous termination rates from other IXCs, and on the ability of such IXCs
to carry the calls Sonus routes to their networks. If Sonus, as a result of a
termination of its relationship with an IXC or
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an IXC's inability to carry traffic routed to it, routed the traffic to another
IXC providing service at a less advantageous rate, or with lesser quality,
there could be an adverse effect on Sonus' profit margins and network service
quality. Such harm to Sonus' profit margins and service quality could in turn
have an adverse effect on the Company's results of operations.
Sonus has from time to time experienced delays in the timely
connection of customer accounts to the Internet and/or the timely
cross-connection of a client network to its own. If a telecommunication or
Internet access provider fails to serve accounts on a timely basis, or is
unable to serve accounts generated by Sonus' growth, there could be a loss of
customers which may have a material adverse effect on the Company.
Dependence On Key Personnel
The Company and Sonus are highly dependent on the technical and
management skills of key employees of Sonus, including technical, sales,
marketing, financial and executive personnel, and on its ability to identify,
hire and retain qualified personnel. As of the date hereof, Sonus has not
located or employed a sufficient workforce to fill its expected future
technical, sales, marketing, financial or executive personnel needs.
Competition for such personnel is intense and there can be no assurance that
Sonus will be able to retain existing personnel or identify or hire additional
personnel. In particular, the Company and Sonus are currently dependent on the
services of Charles W. Albo, the Executive Vice President, Chairman of the
Board and co-founder of the Company, Nana Maraneli, Sonus' co-founder,
Vice-Chairman and Executive Vice President and W. Todd Coffin, President, Chief
Executive Officer and director. The loss of the services of Mr. Albo, Ms.
Maraneli and/or Mr. Coffin could have a material adverse effect on Sonus and
the Company unless suitable replacements are found in a timely manner.
Mr. Coffin has been serving as chief executive officer on an interim
month-to-month basis since his contract expired on October 15, 1999. The
Company is actively engaged in locating a suitable replacement but has not yet
made a hiring decision. Mr. Coffin intends to step down as chief executive
officer and a director of the Company when a suitable replacement is located.
In addition, Mr. Coffin is associated with Hudson Allen Co., the Company's
investment banking firm, which renders consulting, investment banking and
management services to the Company under the agreement between the Company and
Hudson Allen. See "Immediate Need For Additional Capital Following Completion
Of The Offering" for a discussion of the terms of the Hudson Allen agreement.
Mr. Coffin may receive a portion of the consideration to which Hudson Allen
becomes entitled under the agreement between the Company and Hudson Allen.
Rapid Technological Development
The markets served by Sonus are characterized by rapidly changing
technology, evolving industry standards, emerging competition and the frequent
introduction of new services, software and other products. The Company's
success is dependent in part upon Sonus' ability to enhance services that meet
changing customer requirements on a timely and cost-effective basis. There can
be no assurance that Sonus can successfully identify new opportunities and
bring new services to market in a timely and cost-effective manner, or that
services or technologies developed by others will not render Sonus' services
noncompetitive or obsolete. In addition, there can be no assurance that new
services, developments or enhancements introduced by Sonus will achieve or
sustain market acceptance or be able to effectively address the compatibility
and interoperability issues raised by technological changes or new industry
standards.
Risks Of Network Failure
The success of the Company is largely dependent on Sonus' ability to
deliver high quality, uninterrupted domestic and international long-distance
telephone services at low-cost. Any system or network failure that causes
interruptions in
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Sonus' operations could have a material adverse effect on the business,
financial condition or results of operations of the Company. From time to time,
Sonus has experienced failures relating to individual PoPs. These types of
failures typically arise as a result of technical problems associated with
newly established connections. The Company's operations are dependent on the
ability of Sonus to successfully expand its Network and integrate new and
emerging technologies and equipment into its Network, which are likely to
increase the risk of system failure and cause unforeseen strain upon the
Network. Sonus' operations also are dependent on Sonus' protection of its
hardware and other equipment from damage from natural disasters such as fires,
floods, hurricanes, and earthquakes, or other sources of power loss,
telecommunications failures or similar occurrences. Sonus maintains and will
continue to maintain a substantial portion of its equipment and systems
essential to its operations at its customers' premises and on premise with
IXCs. Momentary, significant or prolonged system failures could damage the
reputation of Sonus and result in the loss of customers. Difficulties for
customers in completing long-distance telephone calls could damage the
reputation of Sonus and result in the loss of customers. Such damage or losses
could have a material adverse effect on the ability of Sonus to retain existing
clients and obtain new ones, and on the business, financial condition or
results of operation of both Sonus and the Company.
Risks Associated With International Operations
The central aspect of Sonus' growth strategy is to develop a network
switching infrastructure in foreign countries. Therefore, a significant portion
of Sonus' total revenues as well as a portion of the equipment and other
property of Sonus are expected to be subject to risks associated with
international operations, including unexpected changes in legal and regulatory
requirements, changes in tariffs, exchange rates, political and economic
instability, difficulties in staffing and managing international operations,
difficulties in maintaining and repairing equipment abroad, difficulties in
protecting Sonus' physical property overseas, possible confiscation of property
and equipment and potentially adverse regulation of Internet access providers
and telecommunications companies by foreign jurisdictions. Although Sonus'
sales to date have generally been denominated in U.S. dollars, the value of the
U.S. dollar in relation to foreign currencies may also adversely affect Sonus'
marketing and sales to international customers as well as the cost of
procuring, installing and maintaining equipment abroad. To the extent Sonus
expands its international operations or changes its pricing practices to
denominate prices in foreign currencies, it will be exposed to increased risks
of currency fluctuation as Sonus does not, and has no plans to, engage in
hedging activities designed to manage currency fluctuations.
New And Uncertain Markets
Currently, Sonus derives most of its revenue by directing telephone
service to three foreign destinations for U.S. clients. It directs this phone
traffic to countries fraught with political uncertainty, civil wars and
uncertainty as to rights concerning private property, civil liberties and legal
parameters for conducting business. The risks associated with maintaining such
operations include, without limitation, the imperilment of Sonus employees
which may result in significant legal exposure, confiscation of equipment,
revocation of licenses, and numerous other significant factors which may result
in the interruption of service, which could cause a material adverse effect on
the business, financial condition or results of operations of Sonus and the
Company. Sonus intends to offer service to many other remote international
locations with similar uncertainties. Many of these locations are subject to
political uncertainty, uncertainty as to rights concerning private property,
civil liberties and legal parameters for conducting business.
Many of the overseas markets in which Sonus currently and
prospectively intends to direct long-distance telephone services are undergoing
dramatic changes as a result of privatization and deregulation. The European
Union ("EU") has mandated competitive markets for the European
telecommunications industry, and the various European countries are at
different stages of opening their telecommunications markets. As a result of
privatization and deregulation, a new competitive environment is emerging in
which major European telephone companies, media companies and utilities are
entering
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the telecommunications market and forming new alliances which are radically
changing the landscape for domestic and international telephone services. Open
markets for telecommunications services are expected to evolve in other parts
of the world as well. While Sonus is focused on exploiting the imbalances that
may be brought about by the often fragmented nature of deregulation, Sonus is
entering new and often unknown markets and, therefore, is unable to predict how
such deregulating markets will evolve. There can be no assurance that changes
in the marketplace and new strategic alliances among companies with greater
resources and experience than Sonus will not adversely affect Sonus' ability to
offer and sell telecommunication services or its ability to recover the cost of
building out its international telecommunications switching infrastructure. The
markets for Internet-based and other packet switched telephony services are
relatively new, and current and future competitors are likely to introduce
competing packet switched telephony services. Therefore, it is difficult to
predict either the rates at which the markets will grow (if at all) or the
rates at which new or increased competition will result in market saturation
and margin erosion. If demand for communications services fails to grow, grows
more slowly than anticipated, or becomes saturated with competitors, the
Company's business, financial condition or results of operations could be
materially adversely affected. If the development of the Internet as a
commercial medium does not continue on its current course, or if alternate
systems supplant all or part of the currently anticipated functionality of the
Internet and Sonus is not able to react in a cost-effective and timely manner,
then such changes could have a material adverse effect on the business,
financial condition or results of operations of Sonus and the Company.
Security Risks
Despite the implementation of network security measures by Sonus, such
as limiting physical and network access to its routers, its Internet access
systems are vulnerable to computer viruses, break-ins and similar disruptive
problems caused by its customers or others. Such problems could lead to
interruption, delays or cessation in service to customers. Persistent security
problems continue to plague public and private data networks. Recent break-ins
reported in the press and otherwise have reached computers connected to the
Internet at major corporations and Internet access providers, and have included
incidents in which hackers bypassed firewalls by posing as trusted computers.
Alleviating problems caused by computer viruses, break-ins or other problems
caused by third parties may require significant expenditures of capital and
resources by the Company. Until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential
customers may inhibit the growth of the Internet service industry in general
and Sonus' customer base and revenues in particular.
Moreover, if Sonus experiences a breach of network security or
privacy, there can be no assurance that Sonus' customers will not assert or
threaten claims against Sonus and the Company based on or arising out of such
breach, or that any such claims will not be upheld, which could have a material
adverse effect on the Company's business, financial condition or results of
operations.
Risk of Loss of Entire Investment; No Refund of Investment
An investment in the securities is speculative in nature and involves
a high degree of risk. There is no assurance that the Company will become
profitable or, if profitability is attained, remain a going concern. The
Company's financial condition is such that a downturn could result in investors
losing their entire investment.
Restrictions on Transfer
The shares and warrants offered hereby may be subject to restrictions
on transfer under applicable state laws. Such securities may not be resold or
otherwise transferred unless an exemption from applicable registration
requirements of state law is available. The Company filed a registration
statement on Form 10-SB under the
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Exchange Act in May, 1999, which became effective in July, 1999. The Company's
common stock is thinly traded on the OTC Bulletin Board.
Indemnification of Officers and Directors; Limitation of Liability
The Company's governing documents require the Company to indemnify its
officers and directors against liabilities incurred as a result of acting in
such capacity, to the extent permitted by applicable law. In addition, such
documents also provide that no director of the Company shall be liable to the
Company or its stockholders for monetary damages except for any breach of the
director's duty of loyalty to the Company or its stockholders, for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, for the types of liability set forth in Section 174
of the Delaware General Corporation Law or for any transaction from which the
director received any improper personal benefit.
Risk of Inaccuracy of Projections and other Forward-Looking Statements
This Memorandum contains certain forward-looking statements,
including, among others: (i) presently anticipated trends in the Company's and
Sonus' results of operations and financial condition, including financial
projections; (ii) the ability of Sonus to rely on cash generated from
operations and the proceeds of financing activities to finance its working
capital requirements; (iii) Sonus' business strategy for expanding its
operations into new markets; (iv) Sonus' estimated costs to expand, develop new
products and channels of distribution; (v) anticipated trends in telephony
demands; (vi) the ability of Sonus or any of its subsidiaries to offer
high-quality products; (vii) Sonus' ability to distinguish itself from its
current and future competitors; and (viii) the size of the market for Sonus'
products and anticipated growth of this market. These forward-looking
statements are based upon a number of assumptions and estimates that, while
presented with numerical specificity and considered reasonable by the Company
when taken as a whole, are inherently subject to significant business,
political, economic, and competitive uncertainties and contingencies, many of
which are beyond the control of the Company, and are based upon specific
assumptions with respect to future business decisions, many of which will
change. It can be anticipated that some or all of the assumptions underlying
the projections and forward-looking statements included herein will not
materialize or will vary significantly from actual results. Accordingly, it can
be expected that actual results will vary from the projections and that such
variations, in all likelihood, will be material and are likely to increase over
time. In addition to the other risks described elsewhere in this Risk Factors
discussion, important factors to consider and evaluate in such forward-looking
statements include: (i) changes in the external competitive market factors or
in Sonus' internal budgeting process which might impact trends in Sonus'
results of operations; (ii) unanticipated working capital or other cash
requirements; and (iii) changes in Sonus' or the Company's business strategy or
an inability to execute its strategy due to unanticipated changes in its
targeted markets; (iv) changes in demands for products that perform functions
similar to those performed by Sonus' products; and (v) the inability or failure
of the Company's management to devote sufficient time and energy to the
Company's business. In light of these risks and uncertainties, many of which
are described in greater detail elsewhere in this "Risk Factors" discussion,
there can be no assurance that the forward-looking statements contained herein
will in fact transpire.
Dependence On External Funding Sources
Sonus and the Company expect to rely significantly on external funding
sources to finance its operations and growth. Any unexpected reduction in cash
flow from operations could increase the Company's external funding requirements
to levels above those currently available to it. There can be no assurance that
the Company will not experience unexpected cash flow shortfalls in the future
or that any increase in external funding required by such shortfalls will be
available to it, especially if all the Shares offered hereby are not sold in
their entirety. Moreover, the Company can provide no assurance that it will be
able to raise any additional funds in connection with money raising activities
that it may undertake in the future.
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Tax Considerations; No Dividends; No Tax Deductions
Purchasers of securities should not expect to receive a return on
their investment in the form of dividend payments. No representation is made as
to when, or if, funds will be available for dividend payments and the Company
does not anticipate that it will pay dividends at any time in the foreseeable
future. Sonus and the Company are "C" corporations for federal tax law
purposes. Accordingly, no shareholder will be entitled to deduct any portion of
any losses incurred by the Company or Sonus. Furthermore, potential investors
must be aware that the purchase of securities will have tax implications and
consequences. Potential investors should direct any questions or concerns with
regard to any tax matter to their own independent tax consultant, advisor,
accountant or attorney without relying on the information and advice of the
Company or any of the Company's advisors.
If the Company's employees and others exercise their stock options, warrants
and other rights to acquire common stock, your proportionate interest will be
diluted and the Company may not be able to raise additional capital on the most
favorable terms
The Company's directors, officers, employees, agents or affiliates may
exercise stock options or warrants to purchase common stock which would result
in the dilution of your proportionate interest in the Company. The Company's
directors, officers, employees, and affiliates will have the opportunity to
profit from any rise in the market value of the common stock or any increase in
the Company's net worth. Holders of the Company's warrants have rights to
acquire a substantial number of shares of common stock, and the common stock
underlying those rights is being registered for resale to the public under
federal law.
Your investment may have limited liquidity if an active trading market does not
develop or continue.
Your purchase of the Company's common stock may not be a liquid
investment because the Company's securities trade over the counter with quotes
on the Bulletin Board. You should consider carefully the limited liquidity of
your investment before purchasing any shares of the Company's common stock. The
Company has no obligation and no plans to apply for quotation of the Company's
common stock on the Nasdaq Stock Market or for listing of the Company's common
stock on any national securities exchange. Factors such as the Company's
limited earnings history, the absence of a reasonable expectation of dividends
in the near future, and the fact that the Company's common stock will not be
listed mean that there can be no assurance that an active and liquid market for
the Company's common stock will exist at any time, that a market can be
sustained, or that investors in the common stock will be able to resell their
shares. In addition, the free transferability of the common stock will depend
on the securities laws of the various states in which it is proposed that a
sale of the common stock be made.
The Company's Stock Price May be Highly Volatile and Subject to Wide
Fluctuations
The market price of the Company's common stock may be highly volatile
and subject to wide fluctuations in response to quarterly variations in
operating results, losses of significant customers, announcements of
technological innovations or new products by the Company or the Company's
competitors, changes in financial estimates by securities analysts, lack of
market acceptance of the Company's products and services, or other events or
factors, including the risk factors described herein. In addition, the stock
market in general, and the technology stocks in particular, experience
significant price and volume fluctuations that are often unrelated to a
company's operating performance. As with any public company, the Company may be
subject to securities class action litigation following periods of volatility
in the market price of the Company's securities which could result in
substantial costs and a diversion of management's attention and resources.
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Resellers of the Company's Securities Must Deliver A Current Prospectus and
Comply With State Blue Sky Laws
If you intend to resell securities sold in this offering, you will be
required to deliver a current prospectus to any potential purchaser.
Additionally, you will be able to resell the shares in the public market only
if the shares are qualified for sale or exempt from qualification under
applicable state securities laws of the jurisdictions where proposed purchasers
reside.
The Sale of a Substantial Number of Shares of the Company's Securities Could
Cause the Market Price of the Company's common stock to Decline
Immediately prior to this offering, the Company had 4,598,850 shares
of common stock outstanding, not including outstanding warrants or stock
options. Of the shares outstanding immediately prior to this offering, 154,248
shares were freely tradable without volume limitations under Rule 144(k) of the
Securities Act as of December 2, 1999 and 3,170,435 shares of common stock will
be registered in this offering. The Company cannot predict the effect, if any,
that sales of shares of the Company's common stock or the availability of such
shares for sale will have on prevailing market prices. However, substantial
amounts of the Company's common stock could be sold in the public market, which
may adversely affect prevailing market prices for the common stock.
The Company's computer systems, or those of the Company's strategic partners,
service providers suppliers, or customers, may not operate properly on year
2000-sensitive dates
The year 2000 problem, if not corrected, could significantly disrupt
the Company's operations. The Company is particularly sensitive to these
disruptions because the Company is heavily dependent on complex computer
systems for most phases of the Company's operations. The Company's partners,
service providers, suppliers, and customers are also heavily dependent on
computer systems. If any of the Company's customers suffer a computer system
failure due to year 2000 problem, they may not be able to use some of the
Company's services.
The year 2000 issue common to most companies concerns the inability of
certain software and databases to recognize the year 2000 and other year
2000-sensitive dates. These disruptions could include events ranging from
electrical or water failure to computer systems failure, with any of these
events potentially resulting in a cessation of the Company's activities until
the problem is resolved. A failure of any of the Company's current systems, the
failure to implement or integrate new systems without difficulty, if at all,
the failure of any new systems, or the failure to upgrade systems as necessary
could have a material adverse effect on the Company's financial condition and
results of operations. The Company is reviewing its computer systems and
operations to identify and determine the extent to which any systems will be
vulnerable to potential errors and failures as a result of the year 2000
problem.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus under the captions
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Plan of Operations," "Proposed Business of Access Power," and
elsewhere in this prospectus are "forward-looking statements." Forward-looking
statements include, among other things, statements about the competitiveness of
the telecommunications industry, the Company's plans and objectives for future
operations, the likelihood of the Company's success in developing and expanding
the Company's business, potential regulatory obligations, and other statements
that are not historical facts. The forward-looking statements included herein
are based upon a number of assumptions and estimates, which are inherently
subject to significant uncertainties, many of which are beyond the Company's
control. When used in this prospectus, the words "anticipate," "believe,"
"estimate," or similar expressions generally identify forward-looking
statements. Because forward-looking statements involve risks and uncertainties,
there are important factors that could cause actual results to differ
materially from those expressed or implied by the forward-looking statements.
These factors include, among other things, the risks set forth in the "Risk
Factors" section beginning on page 8.
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USE OF PROCEEDS
If the warrants are exercised by the selling security holders, the
Company will receive proceeds in the form of the exercise price. The 1,013,970
common stock purchase warrants registered in this offering have an aggregate
exercise price of $1,448,172 based upon the current exercise price, which
results in gross proceeds of $1,448,172 if all of such warrants are exercised
for cash, but which results in gross proceeds of $750,000 if all 763,970
warrants with cashless exercise features are exercised on a cashless basis. The
per share exercise price for the warrants is between $.92 and $3.00 per share.
If the Company receives any proceeds from the exercise of the warrants, the
Company expects to use them for working capital. The Company will not receive
any proceeds from the sale of the shares of common stock or warrants or the
shares of common stock underlying the warrants by the selling security holders
and all proceeds will go to the selling security holders to be used for their
own purposes.
DETERMINATION OF THE OFFERING PRICE
The offering price of the shares, warrants and underlying shares
offered hereunder does not necessarily bear any direct relationship to the
revenues or value of the physical or other assets of the Company or Sonus, the
book value of the Company or Sonus or any other generally accepted criteria of
valuation. The offering price is not necessarily an indication of the actual
value of the securities and no assurance can be made that the Securities can be
resold for the purchase price or for any price.
CAPITALIZATION
The following table shows the Company's short-term debt, long-term
debt and capitalization as of September 30, 1999 as adjusted to reflect the
issuance of 418,140 additional shares of common stock on November 22, 1999. The
table does not take into account any of the shares of common stock underlying
any common stock equivalents. Common stock equivalents include 763,970 warrants
issued in conjunction with placement agent and consulting services, 325,000
warrants held by employees and consultants of the Company, 250,000 warrants
held by the founders of the Company, 306,000 options issued to employees as
part of an employee stock option plan, 50,000 options issued to a director
under the director's stock option plan and 250,000 warrants issued as part of
the Unit Equity Offering.
<TABLE>
SEPTEMBER 30, 1999
----------------------------
PRO FORMA
ACTUAL AS ADJUSTED
------ -----------
<S> <C> <C>
Vendor equipment payable $ 364,667 $ 364,667
Due to shareholders 155,000 155,000
------------ ------------
Total $ 519,667 $ 519,667
Common stock $ 4,181 $ 4,599
Paid-in capital 1,606,133 2,108,103
Accumulated deficit (1,447,341) ( 1,447,341)
--------- ----------
Total shareholders' equity $ 162,973 $ 665,361
Total Capitalization $ 682,640 $1,185,028
=========== ==========
</TABLE>
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DIVIDEND POLICY
The Company has not declared or paid any cash dividend on the
Company's common stock in the past, and the Board of Directors intends to
continue a policy of retaining future earnings to finance the Company's growth
and for general corporate purposes. Therefore, the Company does not anticipate
paying any cash dividends on common stock in the future.
BUSINESS
The Company conducts its operations through Sonus Communications, Inc.
("Sonus"), a Virginia corporation and wholly owned subsidiary of the Company.
The Company was incorporated in the State of Delaware in April, 1999 and Sonus
was incorporated in the Commonwealth of Virginia in May, 1995. The Company
primarily acts as a holding company for Sonus common stock and provides certain
general and administrative services to Sonus.
SONUS
Sonus is a US "FCC-214" facilities based telecommunications company
that utilizes the public Internet as well as private IP networks as its primary
transport media. Sonus is among the first of a growing number of service
providers to offer telephone services that utilize the Internet and private IP
networks as its primary transport media and is also among the first carriers
with Internet based telephone service regarded as equivalent to that of the
major international long-distance carriers such as AT&T. Sonus implements
leading edge technology in its ongoing effort to develop and deploy a global
Internet Protocol ("IP") Network that transmits telephone, facsimile and data
services.
Sonus's current customers are international long-distance carriers and
pre-paid calling card companies, that use the Sonus network (the "Sonus
Network") to send their commercial telephone traffic through the "least cost
route" to international destinations.
Sonus sells wholesale telephone, facsimile, and Internet service to US
and foreign telecommunications carriers and pre-paid phone-card companies.
Sonus' principal strategy is to develop business relationships with carriers in
U.S. and international markets and to sell "out-bound" and "inbound" telephone
services.
Sonus is currently focused on expanding its international long
distance telecommunications network and establishing an infrastructure that
primarily uses the public Internet as well as private IP networks. Sonus is
attempting to increase its customer base, expand the number of markets served,
and expand capacity in the markets currently being served.
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Sonus plans to pursue geographical markets which have been
historically under-served, but which management has identified to be
"emerging," such as countries in the former Soviet Union (the "FSU"), Southwest
Asia and others. Sonus expects to enter new markets that it determines are
strategic or offer the best opportunities for exploitation.
Sonus hopes to gain share in the markets it enters by offering carrier
quality services at lower prices than its competitors. Sonus relies on numerous
technologies and techniques aimed at driving down the costs of its
international routing, including Internet routing, "Intelligent switching" and
a "Refile" strategy.
The public Internet and private IP networks employed by Sonus are
significantly more cost-efficient that the older technology networks currently
employed by both traditional long-distance carriers that use circuit switching
and the "so-called" next-generation telecommunication companies ("Next Gen
Telcos"), with networks that are based on "point-to-point" leased bandwidth.
Use of the Internet gives Sonus a significant cost advantage, with "carrier
grade" efficiency, over competitors that do not benefit from the low cost of
Internet bandwidth.
Sonus is able to offer competitive rates on traffic directed to
destinations beyond its points of presence through the use of a Refile strategy
and the Intelligent-switching capability built into the fabric of its network.
Intelligent switching permits Sonus to utilize its points of presence ("PoPs")
in foreign destinations to terminate phone traffic and/or to redirect it to
destinations along the least cost route.
Refile is a "least cost routing" strategy, whereby traffic is directed
from one country to another country, then redirected to a third country. This
practice permits Sonus to combine the cost-efficiency of its own network with
favorable rate structures that exist between the countries in which Sonus
maintains its points of presence ("PoPs") and other nations. Refile strategy
leverages the Sonus Network by combining the cost-efficient connections between
its points of presence ("PoPs") with favorable international long-distance rate
structures that may exist from the country in which a PoP resides to other
destinations.
The vast majority of Sonus's traffic originates in the US and
terminates in foreign destinations. Revenues derived from traffic originating
in foreign destinations and terminating in the US, are deducted from Sonus's
foreign termination costs rather than paid to Sonus directly. Therefore, all of
Sonus's revenues are derived from US carrier clients and are US dollar
denominated, which minimizes Sonus foreign exchange risk and most other
financial risks associated with foreign operations.
The Internet service providers ("ISPs") that serve Sonus employ
technologies, techniques and services that bypass the public exchange "choke
points" greater than 90% of the time in both directions. Utilizing a strategy
called "tunneling," Sonus's ISPs have strategically coordinated their
relationship to send voice packets along the shortest, most direct path across
the Internet. In bypassing the choke points, Sonus's Internet Protocol Voice
packets in effect "cut ahead in line" past other data being transferred across
the Internet by conventional means.
COMPETITION
The markets in which Sonus operates are extremely competitive. Several
"Next Gen Telcos" offer Internet-based long-distance service at a substantial
discount to traditional commercial grade service.
Competition for customers is primarily based on price and the type and
quality of service offered. Sonus' ability to market its long-distance resale
services depends upon the existence of spreads between the rates offered by
Sonus and those offered by the International Exchange Carriers ("IXCs") with
whom it competes as well as those from whom it obtains service. IXC's are
long-distance providers as well as companies that provide long-distance access.
Sonus' ability to compete in the long-distance
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telecommunications market also depends, in part, on its ability to procure
advantageous termination rates from other IXCs, and on the ability of such IXCs
to carry the calls that Sonus routes to their networks.
Sonus competes with (i) International Exchange Carriers ("IXCs")
engaged in the provision of long-distance access and other long-distance
providers, including large carriers such as AT&T, MCI/WorldCom and Sprint and,
(ii) foreign government-owned postal, telegraph and telephone monopolies
("PTTs"), (iii) other marketers of international long-distance, (iv) wholesale
providers of international long-distance services, (v) alliances for providing
carrier services such as "Global One" (Sprint, Deutsche Telekom, and France
Telecom), "Concert" (British Telecom Plc and MCI) and "Uniworld" (AT&T and
Unisource-Telecom Netherlands, Telia AB, Swiss Telecom PTT and Telefonica de
Espana S.A.), (vi) new entrants to the International and domestic long-distance
market, such as the regional telephone operating companies ("RBOCs") in the
United States, who have entered or have announced plans to enter the
international long-distance market pursuant to recent legislation authorizing
such entry, and new or expected entrants to the international long-distance
market such as RWE AG ("RWE") in Germany, and (vii) small resellers and
facility-based TXCs. Many of Sonus' competitors are significantly larger and
have substantially greater market presence and financial, technical,
operational, marketing and other resources and experience than Sonus.
SUPPLIERS AND PROVIDERS
Sonus is dependent on third-party suppliers of telecommunications and
Internet network transmission services for many of its services and does not
have long-term contracts with some of its suppliers. Sonus' has three principal
suppliers of satellite services and two principal suppliers of terrestrial and
internet circuits. Sonus is dependent upon its current primary providers of
leased-line network capacity and Internet access and upon third-parties to
provide telecommunications services to its customers. Sonus' ability to provide
quality and reliable telecommunications services and its ability to expand its
network through the timely provisioning of new voice and data lines is
dependent upon the services of telecommunication and Internet service providers
such as MCI/WorldCom.
MAJOR CUSTOMERS
Currently, Sonus has five primary customers, all of which are resellers of
long distance telephone service for long-distance providers or are long
distance providers. Sonus is dependent on these five customers for the majority
of its revenues.
REGULATORY ENVIRONMENT
TELECOMMUNICATIONS. Sonus is a Federal Communications Commission ("FCC")
"214-approved" facilities based carrier and has received its license under the
Communications Act of 1934. U.S. domestic interstate long-distance
telecommunications services are generally subject to regulation by the FCC.
Intrastate long-distance services are regulated by state commissions, which
have varying requirements. International telephone services are subject to
regulation by both U.S. and foreign regulators. The FCC requires international
telephone service providers such as Sonus to provide service without violating
the laws of the countries in which they operate. Local laws and regulations
differ among the jurisdictions in which Sonus operates, and the interpretation
and enforcement of such laws and regulations vary and are often based on the
informal views of the local government ministries which, in some cases, are
subject to influence by the local PTTs. In certain of Sonus' principal existing
and target markets, there may exist certain laws, regulations or policies that
either prohibit or limit, or could be used to prohibit or limit, certain of
Sonus' services.
The 1996 Telecommunications Act substantially altered the regulatory
framework for the telecommunications industry for domestic and U.S.
international telecommunications services. The 1996 Telecommunications Act
directs the FCC to conduct a variety of rulemaking activity to implement the
Act's requirements. The Company cannot predict the ultimate effects of this
legislation or the outcome of the FCC rulemaking required by this Act. The
legislation does not impose substantial regulatory burdens on Sonus
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<PAGE> 25
at present. However, the rulemaking required by the 1996 Telecommunications Act
could produce additional regulatory requirements, including a requirement that
Sonus contribute some portion of its revenues to subsidize mechanisms for
universal service. In addition, the legislation could increase competition and
affect interconnections and costs.
Many of the overseas markets in which Sonus currently markets long-distance
telephone services are undergoing dramatic changes as a result of privatization
and deregulation. The European Union has mandated competitive markets for the
European telecommunications industry and the various European countries are at
different stages of opening their telecommunications markets. As a result of
privatization and deregulation, a new competitive environment is emerging in
which major European telephone companies, media companies and utilities are
entering the telecommunications market and forming new alliances which are
radically changing the landscape for domestic and international telephone
services. This new environment, although competitive, has allowed small
companies such as Sonus to penetrate new markets and rapidly gain market share.
INTERNET TELEPHONY. The FCC and various state regulatory commissions have
not made any formal determinations regarding the regulatory status of voice
telephony services provided through use of the Internet. However, America's
Carriers Telecommunications Association, an association of domestic phone
carriers, filed a petition (the "Petition") in March, 1996 with the FCC
alleging that providers of Internet telephone software are operating as
telecommunications carriers and, as such, should be subject to the FCC
regulatory framework applicable to traditional telecommunications companies.
The Petition seeks a declaratory ruling establishing the FCC's
authority over interstate and international communications using the Internet
and an order directing that persons providing Internet phone service to comply
with the regulatory requirements of the Communication Act of 1934. Finally, the
Petition urges the FCC to initiate a rulemaking proceeding to consider rules
governing the use of the Internet for the provision of telecommunication
services. The FCC has not taken final action with respect to the Petition.
Sonus is also subject to regulations relating to Internet telephony in
each point of presence in which it operates. Some of the countries in which
Sonus' PoPs are located have uncertain and changing regulatory environments.
EMPLOYEES
Sonus has ten employees, all of which are full-time employees. The Company
has no employees and does not anticipate hiring any employees in the
foreseeable future. Certain of Sonus' employees have entered into employment
and other agreements with Sonus. See "Employment Agreements", incorporated
herein by reference.
HISTORY
THE MERGER OF SONUS WITH SONUS PARK ACQUISITION, INC. In January 1999,
Sonus entered into merger discussions with The Park Group, Limited, a dormant
public corporation. In anticipation of the merger, Park formed Sonus Park
Acquisition, Inc., a Virginia corporation, as a wholly owned subsidiary of
Park, which merged with and into Sonus on March 4, 1999, leaving Sonus as the
surviving corporation and a wholly owned subsidiary of Park. The former
shareholders of Sonus received approximately 92% of the capital stock of Park
in the merger.
THE MERGER OF THE COMPANY WITH PARK. On April 7, 1999, Park organized the
Company as a Delaware corporation and wholly owned subsidiary of Park. On April
16, 1999, the Company merged with and into Park, leaving the Company as the
surviving corporation following the merger. As a consequence of the merger,
Sonus became a wholly-owned subsidiary of the Company. Shares of Park were
exchanged for shares of the Company on a one-for-one basis in the merger. The
sole purpose of the merger was to reincorporate in the State of Delaware.
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HISTORY OF THE COMPANY'S PREDECESSOR. Park was originally incorporated
as American Ventures, Inc. ("AVI") on January 24, 1986 under the laws of the
State of Colorado. AVI was formed as a "blind pool," in which investors
entrusted management to apply the offering proceeds to acquire or merge with a
suitable operating company. In August of 1986, AVI closed an initial public
offering of it stock. In February of 1987, AVI acquired The Park Group, Ltd., a
mortgage company, (the "Mortgage Company"), as a wholly owned subsidiary. AVI
then changed the Mortgage Company's name to "Park Group Mortgage Company,
Ltd.," and changed its own name to "The Park Group, Ltd." Park had been dormant
for at least three years prior to the merger with the Company.
ENVIRONMENTAL COMPLIANCE
The cost and effect of compliance with environmental laws has not been a
material factor for the Company or Sonus.
FILING OF PUBLIC REPORTS
In May, 1999, the Company filed a Form 10-SB to register its common
stock under Section 12 of the Exchange Act of 1934, as amended, which became
effective in July, 1999. The Company is required to file public reports under
Section 13 of that act, including reports on forms 10-KSB, 10-QSB, 8-K and
other Exchange Act reports. The public may read and copy any materials the
Company files with the SEC without charge at the Public Reference section of
the commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the following regional offices of the SEC: New
York Regional Office, Seven World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of the reports can be obtained from the Public
Reference Section of the SEC upon payment of prescribed fees, or at its web
site at http://www.sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION INCLUDED
ELSEWHERE IN THIS PROSPECTUS.
RESULTS OF OPERATIONS
The Private Securities Litigation Reform Act provides a "safe harbor"
for forward-looking statements. Certain statements included in this Form 10-QSB
are forward-looking and are based on the Company's current expectations and are
subject to a number of risks and uncertainties that could cause actual results
to differ materially from results expressed or implied in any forward-looking
statements made by, or on behalf of, the Company. The Company assumes no
obligation to update any forward-looking statements contained herein or that
may be made from time to time by, or on behalf of, the Company.
For the third quarter of 1999, Sonus had revenues of $393,000 compared
to $7,000 for the third quarter of 1998. For the first nine months of 1999, the
Company had revenues of $1,022,000 compared to $40,000 for the first nine
months of 1998. During 1998, Sonus began installing its network with the first
revenues generated from telecommunications services occurring in the fourth
quarter of 1998. Revenues prior to the fourth quarter of 1998 were mostly from
consulting services. As the Company has focused on telecommunications services
and expanding its network, revenues from consulting have decreased with no
consulting service revenues during 1999. The first circuit installed was to the
Nation of Georgia which began generating revenues in the fourth quarter of
1998. During the first quarter of 1999, the Company began installing the
network to China. This circuit began carrying traffic during the 1999 second
quarter. Since beginning service to China, the Company has experienced
significant declines in prices due to competitive pressures. As a result, the
original
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circuit to China has become uncompetitive. Consequently, the Company made the
decision to take the circuit out of service until a new circuit can be located
that will be competitive in the market place. During the third quarter of 1999,
Sonus installed a point of presence in Southwest Asia. The circuit carried
minor traffic in the third quarter and became fully operational during the
fourth quarter. The Company anticipates demand for this circuit to increase
sufficiently during the fourth quarter that the capacity will need to be
expanded during the first quarter of 2000 if not sooner. The Company also
expects to add additional points of presence in other locations in the last
part of 2000.
The Company had direct operating expenses of $470,000 and $1,229,000
for the quarter and nine months ended September 30, 1999, respectively. These
expenses relate to the installation and operation of the network. Since the
network was not installed until the fourth quarter of 1998, there are no
comparable expenses in 1998. Direct operating expenses include costs that are
incurred during the installation and testing phases of the network, as well as
the fixed costs and the operating costs of carrying telephone traffic. These
costs have increased quarter over quarter as the Company has been adding to its
network. General and administrative expenses were $309,000 for the quarter
ended September 30, 1999 compared to $21,000 for the comparable 1998 quarter.
General and administrative expenses were $762,000 for the first nine months of
1999 compared to $55,000 for the first half of 1998. This increase is directly
attributable to the increase from wages since the two founders in 1998 did not
take a salary in the first quarter of 1998 and minimal salary in the second and
third quarters of 1998 as compared to staffing of nine at September 30, 1999
and all associated costs of establishing and maintaining an office. Sonus will
continue to make an investment in staffing as 1999 progresses. The Company
expects that in order to increase capacity of the current installed locations
and to expand into additional locations, as well as to obtain the
administrative support necessary in connection with being a public company, a
significant investment in both equipment and personnel will be needed. The
result will be to increase operating expenses with no assurance of any return
on investment.
On March 4, 1999, Sonus merged with and into Sonus Park Acquisitions,
Inc, a newly formed wholly owned subsidiary of the Park Group, Ltd. Sonus,
which was the surviving entity, became a wholly owned subsidiary of the Park
Group and the only asset of Park. On April 7, 1999, Park organized Sonus
Communication Holdings, Inc as a Delaware corporation and a wholly owned
subsidiary of Park. On April 16, 1999, Sonus Holdings merged with and into Park
leaving Sonus Holdings as the surviving corporation. Shares of Park were
exchanged for shares of Sonus Holdings on a one-for-one basis. The sole purpose
of the merger was to re-incorporate in Delaware. The costs incurred during the
first half of 1999 under the caption Merger Related Costs amounting to $254,000
relate to these transactions. In addition, the Company has incurred costs
during the third quarter of 1999 related to the acquisition of EOT. Please see
the Footnotes to Condensed Consolidated Financial Statements for additional
information on the mergers.
As a result of the limited revenue, the increased costs associated
with the expansion and the costs of the merger, the Company had a net loss of
$417,000 for the third quarter of 1999 and of $1,251,000 for the first nine
months of 1999. This is compared to a net loss of $81,000 for the third quarter
of 1998 and a net loss of $90,000 for the first nine months of 1998 when
operations were limited.
LIQUIDITY
At December 31, 1998, the Company had cash of $1,000, negative working
capital of $312,000 and negative shareholders' equity of $181,000. During the
first nine months of 1999, the Company has been successful in completing three
separate rounds of financing. The first round was completed in January 1999
when Sonus sold 750,000 shares of its common stock in a private offering
realizing net proceeds aggregating $627,000. In May 1999, the Company completed
the second round by selling $575,000 in convertible debentures. These
Debentures were automatically converted under the terms of the agreement to
common stock with the sale of the Equity Unit offering in August 1999. The
third round of financing consisted of the sale of Equity Units comprised of
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one share of common stock of the Company and one warrant exercisable for one
share of common stock at an exercise price of $3.00. The Company closed the
minimum under the Equity Unit Offering in August 1999 by selling 250,000 Units
thereby netting the Company $435,000 in cash after investment banking fees and
other expenses. See the Footnotes to Condensed Consolidated Financial
Statements included in this Form 10-QSB for more details related to these
transactions.
Even though the Company has been successful in completing the
financing noted above, the Company had negative working capital of $417,852 at
September 30, 1999 with positive shareholders' equity of $162,973. As a result,
Sonus will need to continue its efforts to raise capital or find other sources
of funds to finance the growth of the Company and the continued losses. As part
of this effort, on September 29, 1999, the Company entered into an equipment
leasing arrangement with its network equipment supplier. The agreement provides
for a total available facility of $2.2 million. Under the arrangement, the
Company leased $200,000 of network equipment in the third quarter under an
operating lease. In addition, it is anticipated that the vendor equipment
payable of $364,667 will be put under the lease during the fourth quarter of
1999.
As noted in the footnotes to the Condensed Consolidated Financial
Statements, the Company entered into a letter of intent to acquire Empire One
Telecommunications. The acquisition is expected to be accomplished by swapping
shares of stock of the Company for shares of EOT. In conjunction with the
signing of the acquisition documents, the Company anticipates being able to
complete an additional round of financing amounting to approximately $1.25
million to fund the working capital and other needs of the combined entity.
On May 14, 1999, the Company filed a Form 10SB with the Securities and
Exchange Commission to allow the Company's common stock to be traded publicly.
The Form 10SB became effective July 14, 1999 and the Company's stock began
trading publicly on the NASDAQ electronic bulletin board on August 13, 1999.
This may afford the Company the availability of the public market place as a
potential source of additional capital. Besides the monies being raised in
conjunction with the EOT acquisition, the Company believes it will be necessary
to continue to raise funds in both the public and private markets to have
enough cash to pay for the expected expansion of the Company and to continue
the operations of the Company.
During the first nine months of 1999, the Company has acquired
$386,000 of equipment most of which was for the Company's network. During 1999,
the Company has installed equipment in Southwest Asia, China and the United
States as part of the effort to increase its network capabilities. The network
equipment was financed by the manufacturer and is shown as vendor equipment
payable. The additional equipment financing has been offset by payments made to
the manufacturer on equipment acquired and financed in 1998 resulting in an
increase of $8,000 in the amount owed the manufacturer.
As part of the expenses associated with the mergers as noted above,
the Company hired L. Flomenhaft & Co. as a consultant. The relationship extends
for two years. As a fee for these services, L. Flomenhaft & Co. agreed to take
shares of the Company's common stock valued at $90,000 in lieu of cash.
As noted above, expansion of the current network as well as the
addition of more locations requires substantial investment of both equipment
and personnel. The Company expects that it will have to continue to raise funds
in both the private and public markets to have enough cash to pay for this
expected expansion and to continue the operations of the Company. The Company
believes that ability to raise money in the public sector will enhance these
efforts although there can be no assurances that this will be the case or that
any public offering of the Company's securities will be made.
IMPACT OF THE YEAR 2000 ON INFORMATION SYSTEMS
The year 2000 issue arises as the result of computer programs having
been written and systems having been designed using two digits rather than four
to define
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the applicable year. Consequently, such software has the potential to recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing inability to process
transactions, send invoices, or engage in similar normal business activities.
Holdings is not expected to be affected by Year 2000 because it does
not rely on date-sensitive software or affected hardware. The Company's current
accounting software was is an "off-the shelf" software package installed during
the third quarter of 1999 with the Company ensuring that the software was Year
2000 compliant prior to installation. If the Company finds it is using any
other software that is found to be non-compliant, it expects to be able to
timely update to compliant versions. However, there are no assurances that a
material adverse effect could not occur.
The Company has not contacted other companies on whose services it
depends to determine whether such companies' systems are Year 2000 compliant.
If any systems of the Company, or other companies, including Holdings'
customers, are not Year 2000 compliant, there could be a material adverse
effect on the Company's financial condition or results of operations.
The worst anticipated year 2000 malfunction that the Company will face
is temporary loss of power and other utilities and interruption of Internet
services. In that case, the Company's preliminary contingency plan will be to
attempt to restore utilities and insure adequate records are available manually
to minimize disruption and inconvenience to the Company's customers. The
Company believes, however, that the Company's computer software and hardware
systems will be substantially year 2000 compliant. There are no assurances that
the Company and all of its key suppliers, customers, or third parties upon
which the Company relies will completely address and solve the potential
problem and by not doing so could result in an adverse material effect on the
Company, its financial condition, or results on operations.
DESCRIPTION OF PROPERTY.
The Company maintains its corporate headquarters in and leases 2,027
square feet of office space located at 1600 Wilson Blvd., Suite 1008,
Arlington, Virginia 22209. Sonus owns telecommunications equipment located in
Holmdel, New Jersey, New York City, New York, Los Angeles, California,
Shanghai, China and Tbilisi, Georgia. Sonus paid approximately $428,000 for the
telecommunications equipment, of which approximately $231,000 was sold to a
customer of Sonus. The value of the equipment currently owned by Sonus is
approximately $257,000.
CERTAIN MARKET INFORMATION
PRICE RANGE OF COMMON STOCK
The Company's common stock is traded over-the-counter and quoted on
the Bulletin Board under the symbol "SNHD" on a limited and sometimes sporadic
basis. Quoting began in August of 1999. The reported high and low prices for
the common stock are shown below for the indicated periods through December 2,
1999. The prices presented are closing prices that represent prices between
broker-dealers and do not include retail mark-ups and mark-downs or any
commission to the broker-dealer. The prices do not necessarily reflect actual
transactions. As of December 2, 1999, there were approximately 184 stockholders
of record of the common stock.
<TABLE>
<CAPTION>
Closing
-------
Low High
--- ----
1999
- ----
<S> <C> <C>
Third Quarter 2 1/2 3 1/8
Fourth Quarter through
December 2, 1999 2 1/2 3 5/8
</TABLE>
29
<PAGE> 30
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and titles of all directors and executive officers of
the Company and Sonus are:
NAME AGE POSITION
- ---- --- --------
Charles W. Albo 62 Chairman and Executive Vice President,
Director
W. Todd Coffin 32 President, Chief Executive Officer,
Director
Nana Maraneli 53 Vice-Chairman; Executive Vice-
President; Secretary;
Director
Richard D. Rose 45 Chief Financial Officer;
Treasurer
Stephen Albo 35 Chief Technology Officer
Raleigh Coffin 66 Director
John Theodoracopulos 34 Director
Ronald Frankum 64 Director
Each director is elected to hold office until the next annual meeting of
stockholders and until his or her successor is elected and qualified. Each
officer serves at the discretion of the Board of Directors, subject to any
applicable employment agreements. Stephen Albo is Charles Albo's son.
CHARLES W. ALBO, CHAIRMAN, EXECUTIVE VICE PRESIDENT, is the co-founder of Sonus
and has been Chairman and a director of the Company and Sonus since April 7,
1999, served as Chief Executive Officer of Sonus from its incorporation in May,
1995 until April 14, 1999, and has been a director of the Sonus since May,
1995. Mr. Albo oversees Sonus' existing operations and is responsible for
managing and developing new domestic customer relationships and new foreign
partnership relationships. Mr. Albo's background is in strategic planning,
analysis and management. In 1994, together with Nana Maraneli, Mr. Albo
co-founded Goodwill Communications, Ltd. ("Goodwill Communications"), a company
which installed and is operating international telecommunications services
linking the Nation of Georgia to the United States. From 1994 through the
present, Mr. Albo has served as Goodwill Communications' president. Goodwill
Communications expects to permanently cease operations in early 1999. From 1992
until 1995, Mr. Albo served as President of Management Vision Partners, Inc.
("Management Vision"), a company which assisted high technology companies in
the development of next generation products, non-defense markets and
international business.
W. TODD COFFIN, CHIEF EXECUTIVE OFFICER, PRESIDENT, DIRECTOR, joined the
Company and Sonus as CEO on April 14, 1999, as President on April 19, 1999 and
as a Director on April 20, 1999. From March 1997 to April 1999, Mr. Coffin
worked in investment banking for Tanner Unman Securities where he assisted in
the financing of telecommunications companies including IDT Corp. and Amnex and
technology companies including Fonix, Globalink and SuperConductor
Technologies. Mr. Coffin's background is in finance, telecommunications and
enabling technologies. From June 1995 to May 1997, Mr. Coffin was the
Investment Director for ETOM Technologies, a venture-backed technology company.
From April of 1993 to May of 1995, Mr. Coffin was with Alex Brown & Sons. From
1991 to 1993, Mr. Coffin was with Smith Barney, Harris, Upham.
NANA MARANELI, VICE-CHAIRPERSON, EXECUTIVE VICE PRESIDENT, SECRETARY, is the
co-founder of Sonus and has been Vice Chairperson, Executive Vice President,
Secretary and a director of the Company since April, 1999, was President of
Sonus from May, 1995 until April 20, 1999, and has been a director of Sonus
since May, 1995. Ms. Maraneli oversees the Company's operations in the FSU and
is responsible for the development of new telecommunication opportunities in
Eastern Europe and Asia. Ms. Maraneli was born in Tbilisi, Georgia and is a
permanent resident of the United
30
<PAGE> 31
States. She has ten years experience generating business partnerships between
entities in the U.S., Tbilisi, Georgia, Moscow, Paris, Vienna, Amsterdam, and
London. Under George Soros' direction, Ms. Maraneli organized the development
of the Soros Foundation's Georgian branch and served as its first executive
director. In 1994, Ms. Maraneli co-founded Goodwill Communications. Goodwill
Communications is a Georgian telecommunication service provider linking Georgia
to the United States and elsewhere. It is the first private joint venture
telecommunications company in Georgia and owns a satellite earth station in
Tbilisi, Georgia. From 1993 through 1995, Ms. Maraneli served as Vice President
of Management Vision Partners, Inc. While at Management Vision Partners, Inc.,
Ms. Maraneli assisted other companies in identifying joint venture partners and
negotiating joint venture agreements for enterprises in Eastern Europe and the
FSU, including joint ventures in Karelia for forest products, Georgia for bank
card clearing and Bulgaria for cellular and paging services.
RICHARD D. ROSE, CHIEF FINANCIAL OFFICER, TREASURER, joined the Company and
Sonus on April 20, 1999 as Chief Financial Officer and Treasurer. From March
1998 until April 1999, Mr. Rose served as Vice President of Finance and
Administration of Visual Mining, Inc., a venture-backed start-up software
company. From October 1997 to March 1998, Mr. Rose was the Chief Financial
Officer for the Netrix Corporation, a telephone/data switch manufacturer. From
January 1997 through September 1997, Mr. Rose ran his own financial services
company consulting to high-technology start-ups. Prior to January 1997, for
more than five years, Mr. Rose was Chief Financial Officer of Penril Data
Communication Networks, Inc., a manufacturer of data communications equipment.
STEPHEN ALBO, CHIEF TECHNOLOGY OFFICER, has been the Company's Chief Technology
Officer since January, 1999. He has over 14 years of project management,
systems analysis, design, development and maintenance experience at all levels.
He also has experience in telecommunications, software development and business
management. From January, 1999, Mr. Albo was employed by Sonus as its Chief
Technology Officer, responsible for system development, implementation, and
maintenance of all voice/data networks. From September, 1996 until January
1999, Mr. Albo was the Director of Information Systems for CommTek
Communications Corp., where he oversaw development and operations of all
corporate IS functions including production of printed and electronic
magazines, and EDI partnerships. From May, 1994 until September, 1996 he was
Director of Information Systems/Manager of Technical Support for Intrafed,
Inc., where he was in charge of development and operations of all corporate IS
functions and the implementation and customer satisfaction of high imaging
solutions. Mr. Albo is the son of Charles W. Albo, Chairman and Executive Vice
President of the Company and Sonus.
RALEIGH COFFIN, DIRECTOR, has been a director of the Company and Sonus since
April 19, 1999. He has extensive management experience in several major
corporations. Mr. Coffin is currently Director and Vice Chairman of InMedia
Presentations Inc. (listed on the Montreal Exchange as IMD) ("InMedia") and is
responsible for the strategic, marketing and funding needs for InMedia. InMedia
sells computer software which provides for the digitization of film and other
images for enhancement, e-mailing or multi-media presentations. Mr. Coffin
served as President and CEO of ETOM Technologies Corp. ("ETOM"), a company that
performed research and development for next generation DVD and video on demand
technology, from 1992 until 1997. Mr. Coffin served as President and Founder of
The Alternate Network, providing original programming and interactive phone
services for The Alternate Network. He has served as Brand Manager at Procter &
Gamble, assistant to the President and Chairman and as a division manager at
General Foods (now Kraft/General Foods/Philip Morris), and President of
International Standard Brands (now RJR/Nabisco). In addition, Mr. Coffin had
responsibility for all operations outside the U.S. as President of Playtex
International.
JOHN THEODORACOPULOS, DIRECTOR, joined the Company in April, 1999. Since 1989,
John H. Theodoracopulos has worked for National Shipping & Trading Corp.
("National"), a tanker and bulk carrier operator. Based in New York, New York,
he oversees the fleet's worldwide commercial operations. He also advises
National's overseas affiliates on investments in real estate, tourism and
agriculture.
31
<PAGE> 32
RONALD FRANKUM, DIRECTOR, was appointed to the Board of Directors on September
27, 1999. Mr. Frankum is the founder, president and chairman of IntelPhone
Holdings, Ltd., a telecommunications company started in 1993 to develop
business opportunities in GSM technologies, manufacturing and high technology
products on a global basis. From July 1996 to December 1998, Mr. Frankum was a
member of the board of directors of Digitel, a telecommunications company which
conducted trials for a nationwide 900 GSM digital cellular telephone system in
the Republic of Slovenia. As a co-founder of PMCL Mobilink, Mr. Frankum helped
to create the Motorola mobile phone system in Southwest Asia. In 1994, Mr.
Frankum was the Vice-Chairman of the GSM Association and in 1995 served as the
Chairman of the North American interest group of the GSM Association. From
February 1986 to August 1997, Mr. Frankum served as Chairman of the Board of
Saif Telecom Ltd, a Southwest Asiai company involved in the development of
telecommunications services in that country and was Managing General Partner of
Cellular Fund One, an asset management company that raised capital and built
and operated rural cellular telephone systems in the United States. Mr. Frankum
is a former Deputy Science Advisor to President Reagan responsible for national
telecommunications planning, emergency preparedness and network modernization.
EXECUTIVE COMPENSATION
The Company was incorporated in April 1999 and has no history of
executive compensation to report. Herbert R. Donica served as the chief
executive officer of Park, the Company's predecessor, during the last three
fiscal years, until February 26, 1999. Mr. Donica received no compensation for
his services as chief executive officer of Park. Effective April 16, 1999, Park
merged with and into the Company, with the Company as the surviving
corporation. No other executive officer of Park received any compensation for
services rendered to Park during the last three fiscal years. Charles W. Albo
served as chief executive officer of Sonus during the last three fiscal years,
until April 14, 1999. Mr. Albo received a cash salary of $9,794 in 1998,
$35,996 in 1997 and $7,363 in 1996.
OPTION/SAR GRANTS IN FISCAL 1998
The Company did not grant any stock options or SARs to the Company's
executive officers or directors during the fiscal year ended December 31, 1998.
STOCK OPTIONS EXERCISED DURING FISCAL YEAR
None of the Company's executive officers or directors exercised stock
options or stock appreciation rights during the fiscal year ended December 31,
1998.
LTIP AWARDS DURING FISCAL YEAR
The Company did not make any long term incentive plan awards to any
executive officers or directors during the fiscal year ended December 31, 1998.
EMPLOYMENT CONTRACTS
The Company entered into a three year employment agreement with
Charles W. Albo as of April 15, 1999. The agreement provides that he will serve
as Executive Vice President and Chairman of the Company. He has agreed to forgo
any salary during the first year of the term (through May 1, 2000) but will
become entitled to receive salary thereafter equivalent to that of similarly
situated executives of the Company, to be not less than $84,000 per year. The
agreement also provides that Mr. Albo shall be entitled to participate in
benefit programs available to similarly situated senior management employees
from and after April 15, 2000. The Company may terminate Mr. Albo's employment
agreement for "cause" or upon a finding of disability under the agreement. The
employment agreement also contains provisions pursuant to which Mr. Albo has
agreed not to compete with the Company.
32
<PAGE> 33
DIRECTORS COMPENSATION
The directors do not receive any fees for their services in such
capacity. However, each Director is reimbursed for all reasonable and necessary
costs and expenses incurred as a result of being a Director of the Company.
On June 10, 1999, the Company adopted the 1999 Director Stock
Incentive Plan (the "Director Plan"), which was approved by a majority of the
stockholders on July 12, 1999. Under the terms of the Director Plan, which
expires on June 10, 2009, non-employee directors of the Company may be granted
non-statutory stock options at an exercise price equal to 100% of the fair
market value on the date of grant. No option will be exercisable more than ten
years from the date of grant. The Company has reserved 350,000 shares for
issuance under the 1999 Plan. As of the date of this prospectus, options to
purchase 50,000 shares have been granted to Ronald Frankum under the Director
Plan entitling Mr. Frankum to purchase 50,000 shares at an exercise price of
$1.50 per share.
EMPLOYEE STOCK INCENTIVE PLAN
On June 10, 1999, the Company also adopted the 1999 Stock Incentive
Plan (the "1999 Plan") which was approved by a majority of the stockholders on
July 12, 1999. Under the terms of the 1999 Plan, which expires on June 10,
2009, employees of the Company and its subsidiaries may be granted incentive
stock options, non-statutory stock options and restricted stock awards. The
option price of shares of common stock generally will not be less than 100% of
the fair market value on the date of grant or 110% of fair market value in the
case of a grant to a 10% or greater shareholder. No option will be exercisable
more than ten years from the date of grant. The Company has reserved 500,000
shares for issuance under the 1999 Plan. As of the date of this prospectus,
employees had been granted 306,000 shares. Options typically vest quarterly
over a three year period unless the Board of Directors in its discretion
provides otherwise. Options shall become fully vested upon a "change of
control" as defined in the 1999 Plan. The Board of Directors has discretion to
set the terms and conditions of options; including the term, exercise price,
and vesting conditions, if any; to determine whether the option is an incentive
stock option or a non-qualified stock option; to select the persons who receive
such grants; and to interpret and administer the 1999 Plan.
CERTAIN TRANSACTIONS
In April, 1999, Mr. Albo, Chairman and Executive Vice President, and
Ms. Maraneli, Co-Chairperson and Executive Vice President, each transferred
550,000 shares of common stock to the Company (the "Founders Shares"), for
cancellation by the Company. The cancellation became effective in May, 1999. In
exchange for the Founders Shares, the Company issued to Mr. Albo and Ms.
Maraneli each 125,000 stock purchase warrants dated April 20, 1999. Mr. Albo
and Ms. Maraneli are the original founders of Sonus.
In April, 1999, Mr. Albo and Ms. Maraneli also each transferred to the
Company 75,000 shares, at a price of $1.50 per share (the "Redemption Price"),
which shares were redeemed by the Company effective in May, 1999. Mr. Albo, Ms.
Maraneli and the Company have agreed that payment of the Redemption Price will
be deferred until the closing of a private placement of common stock in an
amount not less than $1,000,000 or another equity financing of the Company in
which the Company receives proceeds of not less than $1,000,000.
In exchange for the deferral of the Company's payment obligations, the
Company has agreed to advance each of Mr. Albo and Ms. Maraneli up to $7,000
each month as a loan from the Company to Mr. Albo and Ms. Maraneli, not to
exceed the Redemption Price in the aggregate. All amounts so advanced will be
deducted from the Redemption Price to be paid to Mr. Albo and Ms. Maraneli upon
the closing of the proposed private placement or other equity financing
providing proceeds to the Company not less than $1,000,000. Mr. Albo and Ms.
Maraneli are required to repay such advances only from the amount of the
Redemption Price paid to Mr. Albo and Ms. Maraneli by the Company.
33
<PAGE> 34
In April 1999, the Company and Mr. Albo agreed to convert the
shareholder demand note in the aggregate principal amount of $99,969 issued by
Sonus in favor of Mr. Albo into 44,431 shares of common stock, reflecting a
conversion rate of at least $2.25 per share. The demand note was cancelled in
exchange for the issuance of the shares in May, 1999.
In May, 1999, the Company sold $575,000 of its 10% Convertible
Debentures. The Debentures were automatically converted into common stock upon
the first closing of the Unit offering described below at an effective
conversion price of $1.00 per share. Mr. Theodoracopulos, a director, purchased
$25,000 aggregate principal amount of such Debentures.
In October, 1999, the Company entered into a letter agreement with the
investment banking firm of Hudson Allen Co. ("Hudson Allen"). Under the terms
of the agreement, Hudson Allen has agreed to render investment banking services
for one year in exchange for a signing fee of 500,000 common stock purchase
warrants, 100,000 of which vested upon signing, the remainder to vest in
100,000 warrant increments for each $2,000,000 worth of financing obtained for
the Company by Hudson Allen. Under the agreement, Hudson Allen will also serve
as the Company's non-exclusive placement agent and be entitled to receive as
commissions in connection with any such financing a cash fee of 8% of gross
proceeds received and 8% warrant coverage for proceeds up to $5,000,000 and a
cash fee of 5% and 5% warrant coverage for proceeds received in excess of
$5,000,000. The Company expects the warrants to provide for registration rights
with respect to the common stock underlying the warrants.
For its management and consulting work, Hudson Allen will be entitled
to receive a management fee of $6,000 per month from and after the date on
which it has raised $1,000,000 for the Company. In the event of a merger or
acquisition consummated by a source introduced to the Company by Hudson Allen,
a fee in the amount of 3% shall be payable to Hudson Allen. In any event, if
within one year after termination of this agreement, or any time while this
agreement is in effect, the Company is acquired by another entity not
introduced by Hudson Allen and Hudson Allen works on such transaction, Hudson
Allen will be paid 1% of the transaction value.
Hudson Allen will be entitled to the foregoing fees in the event that
at any time prior to the expiration of 12 months after their termination (or
the expiration of Hudson Allen's engagement) a financing, merger or acquisition
is consummated and there was contact by or through Hudson Allen or its
affiliates with the other party to the financing, or an affiliate thereof
regarding financing during the period of the engagement, or any materials,
presentations or analyses prepared by Hudson Allen are provided to the other
party prior to consummation of the financing. The agreement requires the
Company to indemnify Hudson Allen under certain circumstances and reimburse
Hudson Allen for its expenses incurred in the course of representing the
Company. The Company can provide no assurance that Hudson Allen will be
successful in raising funds for the Company or in finding suitable
acquisitions.
Mr. Coffin has been serving as chief executive officer on an interim
month-to-month basis since his contract expired on October 15, 1999. The
Company is actively engaged in locating a suitable replacement but has not yet
made a hiring decision. Mr. Coffin intends to step down as chief executive
officer and a director of the Company during the fourth quarter of this year
assuming that a suitable replacement is located. The Company can provide no
assurance, however, that it will be able to locate a suitable replacement prior
to Mr. Coffin's departure. In addition, Mr. Coffin is associated with Hudson
Allen Co., the Company's investment banking firm, which renders consulting,
investment banking and management services to the Company under the agreement
between the Company and Hudson Allen. Mr. Coffin may receive a portion of the
consideration to which Hudson Allen becomes entitled under the agreement
between the Company and Hudson Allen.
34
<PAGE> 35
See "Security Ownership of Certain Beneficial Owners and Management:
Conditional Right to Acquire Certain Securities" for additional information,
which is incorporated by reference herein.
See "Executive Compensation: Employment Agreements" for additional information,
which is incorporated by reference herein.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth certain information regarding the
beneficial ownership of the common stock, the only class of capital stock
authorized, as of December 2, 1999, by (i) each person known to the Company to
be the beneficial owner of more than 5% of the outstanding shares of common
stock, (ii) each of the Company's directors and the Chief Executive Officer,
(iii) all directors and executive officers as a group. Unless otherwise
indicated, each of the stockholders listed below has sole voting and investment
power with respect to the shares beneficially owned.
BENEFICIAL OWNERS OF MORE THAN 5%
OF THE COMPANY'S COMMON STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- ----------------------- ----------------
<S> <C> <C>
Charles W. Albo 1,044,431 (1) 22.7%
1600 Wilson Blvd
Suite 1008
Arlington, VA
22201
Nana Maraneli 1,000,000 (2) 21.7%
1600 Wilson Blvd.
Suite 1008
Arlington, VA
22201
L. Flomenhaft & Co., Inc. 889,088(3) 16.6%
225 West 34th Street
Suite 2008
New York, NY
10122
</TABLE>
- ----------------------
(1) Includes 1,000,000 shares owned of record by Albo Limited Partners, a
Virginia limited partnership, of which Mr. Albo is general partner.
(2) Includes 950,000 shares owned of record by Maraneli Limited Partners, a
Virginia limited partnership, of which Ms. Maraneli is general partner.
(3) Includes 120,000 shares of outstanding common stock and fully vested
common stock purchase warrants (i) issued January 21, 1999 to purchase
78,750 shares of common stock at an exercise price of $1.00 per share,
(ii) issued January 21, 1999 to purchase 487,500 shares of common stock at
an exercise price of $.92 per share, (iii) issued August 3, 1999 to
purchase 86,250 shares of common stock at an exercise price of $1.00 per
share, (iv) issued August 3, 1999 to purchase 25,500 shares of common
stock issuable at an exercise price of $3.00 per share, (v) issued August
3, 1999 to purchase 32,812 shares of common stock at an exercise price of
$2.00 per share, and (vi) issued November 22, 1999 to purchase 58,276
shares of common stock at an exercise price of $1.35 per share. See
"Description of Securities, Description of Warrants".
The following table sets forth, as of December 2, 1999, the beneficial
ownership of shares of common stock of the Directors and Executive Officers of
the Company.
BENEFICIAL OWNERSHIP OF DIRECTORS
AND EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------- ----------------------- ----------------
<S> <C> <C>
Charles W. Albo - Chairman 1,044,431 (1) 22.7%
and Executive Vice President
1600 Wilson Blvd.
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C>
Suite 1008
Arlington, VA 22201
Steven Albo 125,000 (2) 2.6%
Chief Technology Officer
1600 Wilson Blvd.
Suite 1008
Arlington, VA 22201
Raleigh Coffin - Director 75,000 (3) -- (4)
c/o Hudson Capital Advisors, LLC
160 Shore Road
Old Greenwich, CT 06870
W. Todd Coffin - Chief Executive 54,444 (5) 1.2%
Officer, President and Director
1600 Wilson Blvd.
Suite 1008
Arlington, VA 22201
Nana Maraneli - Vice Chairperson, 1,000,000 (6) 21.7
Executive Vice President and Secretary
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
Richard D. Rose - Treasurer 41,667 (7) -- (4)
and Chief
Financial Officer
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
John Theodoracopulos 150,623 (8) 3.3%
Director
545 Madison Avenue
6th Floor
New York, NY 10022
Ronald Frankum 4,167 (9) -- (4)
Director
774 Mays Blvd., Suite 10-222
Incline Village, NV 89451
Directors and Executive 2,495,332 51.3%
Officers as a Group
</TABLE>
- ------------------
(1) Includes 1,000,000 shares owned of record by Albo Limited Partners, a
Virginia limited partnership, of which Mr. Albo is general partner.
(2) Represents warrants to purchase 75,000 shares of common stock at $1.00 per
share granted as of January 1, 1999, all of which are vested, warrants to
purchase 25,000 shares of common stock at $1.00 per share granted as of
April 20, 1999, all of which are vested, and options to purchase 25,000
shares of common stock at $1.50 per share, all of which are vested.
(3) Represents 75,000 warrants to purchase shares of common stock at an
exercise price of $1.00 per share which are fully vested.
(4) Percent of class is less than 1%.
(5) Includes 4,444 common stock purchase warrants owned of record by Hudson
Allen Co., with which Mr. Coffin is associated.
(6) Includes 950,000 shares owned of record by Maraneli Limited Partners, a
Virginia limited partnership, of which Ms. Maraneli is general partner.
36
<PAGE> 37
(7) Represents warrants to purchase 25,000 shares of common stock at an
exercise price of $1.00 per share which are vested, and options to
purchase 16,667 shares of common stock at $1.50 which are vested.
(8) Includes 138,123 shares of issued common stock and warrants to purchase
12,500 shares of common stock at an exercise price of $3.00 per share
which are fully vested.
(9) Represents options granted under the Company's 1999 Directors Stock Option
Plan which are fully vested.
CONDITIONAL RIGHT TO ACQUIRE CERTAIN SECURITIES
In addition to the shares set forth in the table above, Charles Albo
and Nana Maraneli also each own warrants to purchase 125,000 shares of common
stock at $1.50 per share, which vest when the shares of common stock issued in
the Unit placement are registered for resale or otherwise are exempt from
registration under the Securities Act and the stock price per share has closed
at or above $3.00 bid for 20 consecutive trading days within the eighteen month
period following the closing of such private placement. The warrants were
issued on April 20, 1999 and expire on April 20, 2004. The Company does not
expect the foregoing vesting conditions to be satisfied within the next 60
days.
In addition to warrants to purchase 100,000 shares of common stock at
a price of $1.00 per share, all of which are fully vested, Mr. Stephen Albo
owns warrants to purchase an additional 50,000 shares of common stock at a
price of $1.00 per share, which vest in equal 10,000 warrant increments on each
six month anniversary of the date of issuance of the warrants. The warrants
were issued to Mr. Stephen Albo as of April 20, 1999.
In addition to owning fully vested warrants to purchase 75,000 shares
of common stock at a price of $1.00 per share, Mr. Raleigh Coffin also owns
additional warrants to purchase 25,000 shares of common stock at an exercise
price of $1.00 per share, which vest upon the accomplishment of certain other
milestones which may not be met within the next 60 days. The warrants were
issued on April 20, 1999 and expire on April 20, 2004.
In addition to the 54,444 shares of common stock shown in the table
above, Mr. W. Todd Coffin, through Coffin & Sons, Inc., his wholly-owned
consulting company, also has the right to receive (i) 50,000 additional shares
of common stock upon the completion of the next private placement to occur
after April, 1999 in an amount in excess of $1,000,000 at a price per share of
at least $1.50 per share, (ii) 50,000 shares of common stock following the
closing of such private placement, if the shares issued in such private
placement are successfully registered for resale under the Act and the stock
trades at or above $3.00 per share for 20 consecutive trading days within 18
months of the closing of such private placement, and (iii) in the event Sonus
and Coffin & Sons, Inc. choose not to renew their consulting arrangement,
50,000 shares of common stock following the installation of a new chief
executive officer identified and recruited by Coffin & Sons, Inc. and
acceptable to Sonus.
In November, 1999, the Company entered into a merger agreement to
acquire Empire One Telecommunications, Inc., a New York corporation ("EOT").
EOT is a competitive local exchange carrier and internet service provider doing
business primarily in the northeast and western U.S. The merger agreement
provides that EOT will merge into EOT Acquisition Corporation, a newly created
wholly-owned subsidiary of the Company, with EOT Acquisition Corporation as the
surviving corporation following the merger (the "EOT Acquisition"). The
stockholders of EOT would receive 1,065,857 shares of the Company's common
stock in the merger. As part of the EOT Acquisition, EOT Acquisition
Corporation plans to assume all of EOT's outstanding liabilities. The Company
expects to offer piggy-back registration rights in connection with the shares
of common stock to be issued in the merger and plans to employ at least three
of the key employees of EOT and pay them annual salaries of $115,000 each plus
options or warrants to purchase up to 150,000 shares of the Company's common
stock at a strike price of $3.00 per share, to vest over a three year period in
equal installments, plus other standard benefits. The closing of the merger is
subject to, among other things, the approval of various persons and
governmental agencies including, without limitation, the Federal Communications
Commission and the New York State Public Service Commission. The Company can
provide no assurances that
37
<PAGE> 38
such approvals will be obtained and that the other conditions to closing
contained in the merger agreement will be satisfied, or that the merger will be
consummated.
SELLING SECURITY HOLDERS
The following tables list the name, position, office or other material
relationship which the selling security holder has had within the past three
years with the Company, if any, and the amount of securities of each class
owned by such security holder before the offering. The registration statement
of which this prospectus is a part registers all outstanding shares of common
stock and all shares of common stock underlying warrants held by each of the
selling security holders, if any, all of which may be offered for the security
holder's account pursuant to this registration. If all of the securities
registered under this registration statement are sold, none of the selling
security holders will own any securities of the Company after the offering is
completed. The selling security holders may at various times sell the shares of
common stock and/or warrants offered hereby and may choose to sell less than
all or none of such shares or warrants.
OUTSTANDING COMMON STOCK
The persons and entities listed below are holders of that number of
issued and outstanding shares of common stock set forth opposite their names,
respectively, all of which are being registered and may be sold under the
registration statement of which this prospectus is a part.
<TABLE>
<CAPTION>
Shares Beneficially Owned Number of
Prior to the Offering Shares Registered
Beneficial Owner Number Percent
- ---------------- ------ -------
<S> <C> <C> <C>
Austen, Karl R. 12,500 * % 12,500
10810 Massachusetts Ave No. 1
Los Angeles, CA 90024
Becker, Stanley 25,000 * % 25,000
55 East End Avenue, Apt 7A
New York, NY 10028
Bencivenga, John 5,093 * % 5,093
38 Blossom Heath
Lynbrook, NY 11563
Benjamin, Samuel, MD. Inc. 50,000 1.9% 50,000
Profit Sharing Plan and Trust
2219 Balsam Avenue
Los Angeles, CA 90064
Benevolent Partners 62,038 1.9* 62,038
4 Clarence Place
San Francisco, CA 94107
Blumenfeld, Alan J. 12,733 * % 12,733
1220 Park Avenue
New York, NY 10128
</TABLE>
38
<PAGE> 39
<TABLE>
<S> <C> <C> <C>
Bolloten, Gregory 25,000 * % 25,000
489 Sandlewood Drive
Aptos, CA 95003
Buckner, Larry E., Sr. 12,500 * % 12,500
10607 Anita Drive
Lorton, VA 22079
Connery, Michael M. 100,623 3.2 % 100,623
c/o Skadden, Arps, Slate,
Meagher and Flom
919 3rd Avenue
New York, NY 10022
Giuseppe D'Arcangelo 7,408 * % 7,408
16 East 74th Street
New York, NY 10021
Domaco Venture Capital Fund 25,623 * % 25,623
90 Park Avenue, 16th Fl.
New York, NY 10016
Donica, Herbert and Janice (1) 30,000 * % 30,000
632 Luzon Avenue
Tampa, FL 33606
Eilian, Jonathan 25,000 * % 25,000
c/o Starwood Capital
3 Pickwick Plaza - #250
Greenwich, CT 06830
Eilian, Kevin 30,000 * % 30,000
c/o Starwood Capital
3 Pickwick Plaza - #250
Greenwich, CT 06830
Epinal Ltd. 35,000 * % 35,000
Attn: Paula Douer
10155 Collins Avenue
Bal Harbour, FL 33154
Evansville Ltd. 175,000 3.8% 175,000
Attn. Thomas A Huzer, Esquire
750 5th Avenue
New York, NY 10019
Farber, S. Edmond 44,142 * % 44,142
2526 Locust Avenue
No. Bellmore, NY 11710
Ferrante, Vincent 10,249 * % 10,249
7 Park Court
Fort Salonga, NY 11768
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C> <C> <C>
L. Flomenhaft & Co., Inc. (2) 145,500 16.6% 145,500
225 West 34th Street, Suite 2008
New York, NY 10122
Steven Goodman Defined Benefit 15,000 * % 15,000
Pension Plan (3)
24843 Delprado #536
Dana Point, CA 92629
Gormley, Arthur and Denise 30,279 * % 30,279
108 Signs Road
Staten Island, NY 10314
Gross, John 18,519 * % 18,519
16 Hoccy Lane
Rye Brook, NY 10573
Jaffe, Max D., Trust 25,000 * % 25,000
141 Great Neck Road
Apartment 5E
New York, NY 11021
Kaplan, Andrew 10,249 * % 10,249
18 Wayside Lane
Lloyd Harbor, NY 11743
Kaplan, David 10,249 * % 10,249
27 Hilltop Drive
Melville, NY 11747
Kaplan, Eileen 63,123 13.7% 63,123
4 Spinning Wheel Lane
Dix Hills, NY 11746
Kaplan, Jerry 15,374 * % 15,374
150 Motor Pkwy, Suite 311
Hauppauge, NY 11788
Kaplan, Lawrence (4) 83,622 2.1 % 83,622
17 Riverview Terrance
Smithtown, NY 11787
Kaplan, Stephen 10,249 * % 10,249
3 Kalb Street
Dix Hills, NY 11746
Kaplan, Stanley 10,186 * % 10,186
G-V Capital
150 Vanderbilt Motor Parkway
Suite 311
Hauppage, NY 11788
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C> <C> <C>
Lax, Melvin 15,374 * % 15,374
7 Sturbridge Lane
Dix Hills, NY 11746
Lazar, Ron 25,623 * % 25,623
575 Fifth Avenue
30th Floor
New York, NY 10017
Mail, Russell A. 25,000 1.1% 25,000
361 Hemsley Drive
Queenstown, MD 21658
Miller, Michel 25,466 * % 25,466
485 Madison Avenue
Suite 1100
New York, NY 10022
Mittleman, Philip 25,466 * % 25,466
11601 Wilshire Boulevard
21st Floor
Los Angeles, CA 90025
Nathanson, Barry 40,000 * % 40,000
6 Shore Cliff Place
Great Neck, NY 11572
Peterson, William H., Trustee 18,519 * % 18,519
William H. Peterson Living Trust
2403 Beach Road
Walled Lake, MI 48390
Polak, Anthony 25,623 * % 25,623
575 Fifth Ave., 30th Floor
New York, NY 10017
Polak, Anthony G. 18,519 * % 18,519
8 Elkslip Lane
Greenwich, CT 06831
Polak, Jack 51,247 1.1% 51,247
195 Beech St.
Eastchester, NY 10709
Polak, Margrit B. 18,519 * % 18,519
1411 Carroll Avenue
Los Angeles, CA 90026
R L Capital 51,247 1.1% 51,247
c/o Ronald Lazar
575 Fifth Avenue
New York, NY 10017
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C> <C> <C>
Romano, Alfred 15,000 * % 15,000
4 Wagonwheel Drive
Dix Hill, NY 11746-5017
Rosenthal, James 14,800 * % 14,800
200 West Houston Street
#2B
New York, NY 10014
Rosenthal, James and Bishop, Kathy 25,000 * % 25,000
200 West Houston St. #2B
New York, NY 10014
Rothschild, Jonathan 44,142 * % 44,142
c/o Arterio, Inc.
1061-B Shary Circle
Concord, CA 94518
Rubin, Michael 20,000 * % 20,000
1840 Aloha Lane
Gladwin, PA 19035-1033
Silva, Jerry 25,000 * % 25,000
3700 Oceanside Road West
Oceanside, NY 11572
Silverman, Mark 12,733 * % 12,733
10 Ursuline Court
Oyster Bay CV, NY 11771
Stephaich, Paul 79,500 2.8 % 79,500
117 East 72nd Street
Apt 14
New York, NY 10021-4249
Tanner, Adam 7,408 * % 7,408
16 East 74th Street
New York, NY 10021
Tanner, Marie 7,408 * % 7,408
16 East 74th Street
New York, NY 10021
Terhorst, Kasper and Rita, 12,500 * % 12,500
as Trustees of the Kasper
and Rita J. Terhorst
Family Trust Dated July
18, 1988
4477F Shadow Hills Bl.
Santa Barbara, CA 93105
Terhorst, Kasper 45,374 * % 45,374
4477 F Shadow Hills Boulevard
Santa Barbara, CA 93105
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C> <C> <C>
Theodoracopulos, John (5) 138,123 3.3% 138,123
689 Halsey Neck Ln.
Southhampton, NY 11968
Windy City, Inc. 25,466 * % 25,466
Joel Kantar
333 West Wacker
Suite 2710
Chicago, IL 60606
Wolf, Peter 15,000 * % 15,000
123 Lakeshore Drive
Lake Ronkonkoma, NY 11779
Zante Holdings S.A. 148,149 3.2% 148,149
c/o Pierre Bessone
1, Avenue De La Costa
Monaco, Monaco MC98000
Zolot, C. Barry and Marjorie 55,000 1.7% 55,000
48 Brampton Lane
Great Neck, NY 11023
</TABLE>
*Less than 1%.
1 Herbert Donica served as Chairman and Chief Executive Officer of The Park
Group Limited, the Company's predecessor, until March, 1999.
2 L. Flomenhaft & Co., Inc. has served as the Company's placement agent in
connection with private placements of the Company's securities from
January through November, 1999.
3 Steven Goodman, beneficiary of the plan, served as a director of The Park
Group, Limited, the Company's predecessor, until March, 1999.
4 Lawrence Kaplan served as a director of The Park Group Limited, the
Company's predecessor, until March, 1999.
5 John Theodoracopulos currently serves as a director of the Company and has
served in such capacity since April, 1999.
WARRANT HOLDERS
The persons set forth below are holders of warrants to purchase that
number of shares of common stock set forth opposite their names, respectively,
at the strike price indicated. All of the warrants listed below are being
registered by the registration statement of which this prospectus is a part and
may be sold by the selling warrant holders in this offering.
<TABLE>
<CAPTION>
Beneficial Ownership of Warrants
Before Offering
Number Percent Exercise Number of
Price Warrants Offered
<S> <C> <C> <C> <C>
Austen, Karl R. 12,500 * $3.00 12,500
10810 Massachusetts Ave
No. 1
Los Angeles, CA 90024
Benevolent Partners 25,000 1.9% $3.00 25,000
4 Clarence Place
San Francisco, CA 94107
Buckner, Larry E., Sr. 12,500 * $3.00 12,500
10607 Anita Drive
Lorton, VA 22079
</TABLE>
43
<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C>
Hudson Allen Co. 4,444 * $.92 4,444
Hudson Allen & Company
250 Kitchawan Rd.
South Salem, NY 10590
Connery, Michael M. 50,000 3.2% $3.00 50,000
c/o Skadden, Arps, Slate,
Meagher and Flom
919 3rd Avenue
New York, NY 10022
L. Flomenhaft & Co., Inc. 487,500 16.6% $.92 487,500
(2) 165,000 $1.00 165,000
225 West 34th St. 58,276 $1.35 58,276
Suite 2008 32,812 $2.00 32,812
New York, NY 10122 25,500 $3.00 25,500
Kaplan, Lawrence (4) 11,250 2.1% $1.00 11,250
17 Riverview Terrace
Smithtown, NY 11787
Mail, Russell A. 25,000 1.1% $3.00 25,000
361 Hemsley Drive
Queenstown, MD 21658
Stephaich, Paul M. 49,500 2.8% $3.00 49,500
117 East 72nd Street
New York, NY 10021
Tanner Unman Securities, Inc. 4,688 * $2.00 4,688
(6)
900 3rd Avenue
New York, NY 10022
Terhorst, Kasper and Rita, as 12,500 * $3.00 12,500
Trustees of the Kasper and Rita
J. Terhorst Family Trust Dated
July 18, 1988
4477F Shadow Hills Bl.
Santa Barbara, CA 93105
Theodoracopulos, John (5) 12,500 3.3% $3.00 12,500
689 Halsey Neck Lane
Southhampton, NY 11968
Zolot, Barry C. and Marjorie 25,000 1.7% $3.00 25,000
48 Brampton Lane
Great Neck, NY 11023
</TABLE>
6 Tanner Unman Securities, Inc. has served as the Company's placement
agent.
COMMON STOCK ISSUABLE UPON EXERCISE OF WARRANTS
The security holders listed below are also beneficial owners of the
number of shares of common stock indicated below, which shares are issuable
upon exercise of warrants presently held by such selling security holders. All
of such underlying
44
<PAGE> 45
shares are being registered by the registration statement of
which this prospectus is a part and all such underlying shares, when issued,
may be sold under the registration statement of which this prospectus is apart.
<TABLE>
<CAPTION>
Beneficial Ownership
Before Offering Number of
Number Percent Shares Offered
<S> <C> <C> <C>
Austen, Karl R. 12,500 * 12,500
10810 Massachusetts Ave
No. 1
Los Angeles, CA 90024
Benevolent Partners 25,000 1.9% 25,000
4 Clarence Place
San Francisco, CA 94107
Buckner, Larry E., Sr. 12,500 * 12,500
10607 Anita Drive
Lorton, VA 22079
Hudson Allen Co. (6) 4,444 * 4,444
Hudson Allen & Company
250 Kitchawan Rd.
South Salem, NY 10590
Connery, Michael M. 50,000 3.2% 50,000
c/o Skadden, Arps, Slate,
Meagher and Flom
919 3rd Avenue
New York, NY 10022
L. Flomenhaft & Co., Inc. 769,088 16.6% 769,088
(2)
225 West 34th St.
Suite 2008
New York, NY 10122
Kaplan, Lawrence (4) 11,250 2.1% 11,250
17 Riverview Terrace
Smithtown, NY 11787
Mail, Russell A. 25,000 1.1% 25,000
361 Hemsley Drive
Queenstown, MD 21658
Stephaich, Paul M. 49,500 2.8% 49,500
117 East 72nd Street
New York, NY 10021
Tanner Unman Securities, 4,688 * 4,688
Inc. (7)
900 3rd Avenue
New York, NY 10022
</TABLE>
45
<PAGE> 46
<TABLE>
<S> <C> <C> <C>
Terhorst, Kasper and Rita, as 12,500 * 12,500
Trustees of the Kasper and Rita
J. Terhorst Family Trust Dated
July 18, 1988
4477F Shadow Hills Bl.
Santa Barbara, CA 93105
Theodoracopulos, John (5) 12,500 3.3% 12,500
689 Halsey Neck Lane
Southhampton, NY 11968
Zolot, Barry C. and Marjorie 25,000 1.7% 25,000
48 Brampton Lane
Great Neck, NY 11023
</TABLE>
PLAN OF DISTRIBUTION
The selling security holders have advised the Company that, prior to
the date of this prospectus, they have not made any agreement or arrangement
with any underwriters, brokers, or dealers regarding the distribution and
resale of the shares or warrants. If the Company is notified by a selling
security holder that any material arrangement has been entered into with an
underwriter for the sale of their shares or warrants, then, to the extent
required under the Securities Act of 1933 or the rules of the Securities and
Exchange Commission, a supplemental prospectus will be filed to disclose such
of the following information as the Company believes appropriate: (i) the name
of the participating underwriter; (ii) the number of the shares or warrants
involved; (iii) the price at which such shares or warrants are to be sold, the
commissions to be paid or discounts or concessions to be allowed to such
underwriter; and (iv) other facts material to the transaction.
Neither the shares nor warrants have been registered for sale by the
selling security holders under the securities laws of any state as of the date
of this prospectus. Brokers or dealers effecting transactions in these
securities should confirm the registration thereof under the securities laws of
the states in which transactions occur or the existence of any exemption from
registration.
The Company expects that the selling security holders will sell their
securities covered by this prospectus through customary brokerage channels,
either through broker-dealers acting as agents or brokers for the seller, or
through broker-dealers acting as principals, who may then resell the securities
in the over-the-counter market, or at private sale or otherwise, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, or at negotiated prices. The selling security holders may effect
such transactions by selling the securities to or through broker-dealers, and
such broker-dealers may receive compensation in the form of concessions or
commissions from the selling security holders and/or the purchasers of the
securities for whom they may act as agent (which compensation may be in excess
of customary commissions). The selling security holders and any broker-dealers
that participate with the selling security holders in the distribution of
shares may be deemed to be underwriters and commissions received by them and
any profit on the resale of securities positioned by them might be deemed to be
underwriting discounts and commissions under the Securities Act. There can be
no assurance that any of the selling security holders will sell any or all of
the common stock or warrants offered by them hereunder.
Sales of the securities on the OTC Bulletin Board or other trading
system may be by means of one or more of the following:
(i) a block trade in which a broker or dealer will attempt to sell
the
46
<PAGE> 47
securities as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
(ii) purchases by a dealer as principal and resale by such dealer for
its account pursuant to this prospectus; and
(iii) ordinary brokerage transactions and transactions in which the
broker solicits purchasers.
In effecting sales, brokers or dealers engaged by the selling security
holders may arrange for other brokers or dealers to participate. From time to
time the selling shareholders may engage in short sales, short sales against
the box, puts and calls, and other hedging transactions in the Company's
securities, and may sell and deliver their shares of the Company's common stock
in connection with such transactions or in settlement of securities loans. In
addition, from time to time a selling shareholder may pledge its shares
pursuant to the margin provisions of its customer agreements with its
broker-dealer. Upon delivery of such shares or a default by a selling
shareholder, the broker-dealer or financial institution may offer and sell such
pledged shares from time to time.
The selling security holders are not restricted as to the price or
prices at which they may sell their share of common stock or warrants. Sales of
such securities at less than market prices may depress the market price of the
Company's common stock. Moreover, the selling security holders are not
restricted as to the number of shares or warrants that may be sold at any one
time.
The Company has advised the selling security holders that the
anti-manipulative rules under the Securities Exchange Act of 1934, including
Regulation M, may apply to sales in the market of the common stock offered
hereby. The Company has also advised the selling security holders of the
requirement for the delivery of this prospectus in connection with resales of
the securities.
SHARES ELIGIBLE FOR FUTURE SALE
Through the date of this prospectus, there has been only limited
over-the-counter trading of the Company's common stock by certain market makers
who have registered to enter quotes on the common stock on the Bulletin Board.
The Company have no plans to list the common stock on NASDAQ or on any
securities exchange. Sales of substantial amounts of shares of the Company's
common stock in the public market following the offering, or the perception
that such sales could occur, could adversely affect the market price of the
common stock prevailing from time to time and could impair the Company's
ability to raise capital in the future through sales of the Company's equity
securities.
Assuming exercise of the warrants offered hereby, the Company will
have a total of 5,612,820 shares of common stock outstanding at the time of
this offering, not including options to purchase 356,000 shares of common stock
and warrants to purchase 725,000 shares of common stock issued to directors,
employees and service providers of the Company, and a conditional grant of
150,000 shares of restricted stock to the Company's Chief Executive Officer.
Shares in the amount of up to 3,170,435 registered for sale by the selling
stockholders, if sold under this registration, and 154,248 shares of common
stock issued in private placements pursuant to an exemption under Regulation D
or Section 4(2) of the Securities Act will, after the offering, be freely
tradable without restriction or further registration under the Securities Act,
except that any shares purchased by the Company's "affiliates," as that term is
defined in Rule 144 under the Securities Act of 1933, may generally only be
sold in compliance with Rule 144 described below. The remaining shares of
common stock are "Restricted Securities" as defined in Rule 144. Restricted
Securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under the Securities Act, such as
pursuant to Rule 144, which rule is summarized below.
47
<PAGE> 48
SALES OF RESTRICTED SECURITIES
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities, as defined in Rule 144, for at least
one year, including a person who may be deemed the Company's affiliate, is
entitled to sell, within a three-month period, a number of shares of the
Company's common stock that does not exceed the greater of one percent of the
then-outstanding shares of common stock (approximately 459,885 shares as of
December 2, 1999) and the average weekly reported trading volume of the
Company's common stock during the four calendar weeks preceding such sale.
Sales under Rule 144 are subject to certain restrictions relating to manner of
sale, notice, and availability of current public information about the Company.
In addition, under Rule 144(k), a person who is not an affiliate and has not
been an affiliate at any time during the ninety days preceding a sale, and who
has beneficially owned shares for at least two years, would be entitled to sell
such shares without regard to the volume limitations, manner of sale
provisions, or notice or other requirements of Rule 144. In meeting the one-and
two-year holding periods described above, the holder of restricted securities
can include the holding periods of a prior owner who is not an affiliate. The
one-and two-year holding periods described above do not begin to run until the
full purchase price or other consideration is paid by the person acquiring the
restricted securities from the issuer or/an affiliate.
RECENT SALES OF UNREGISTERED SECURITIES
In May 1998, the Company's predecessor, Park Group Ltd.("Park"),
issued 42,698,875 shares (prior to the 1 for 262.154216 reverse stock split
approved by shareholders on January 29, 1999) of its common stock in exchange
for services rendered and cancellation of indebtedness to Herbert R. Donica,
Steven J. Goodman, Lawrence Kaplan, Eileen Kaplan and Creative Business
Strategies Inc., all shareholders of Park. Park relied upon the exemption from
registration contained in Section 4(2) of the Act in offering and selling such
shares without registration under the Act.
In November 1998, Park sold 14,795,177 shares of its common stock to
existing shareholders of Park for $7,500 in cash. Park relied upon the
exemption from registration contained in Section 4(2) of the Act in offering
and selling such shares without registration under the Act.
On January 21, 1999, Sonus sold 750,000 shares of common stock, $.001
per share (the "Private Placement Shares"), with L. Flomenhaft & Co.,
Incorporated, acting as placement agent, to twenty-one individual and corporate
accredited investors. The aggregate offering price was $750,000, reflecting a
$1.00 per share offering price. The placement agent received warrants to
purchase 112,500 shares of common stock at $1.00 per share (the "Agent
Warrants"), and $75,000 in cash. Sonus relied on Section 4(2) of the Act, and
on Rule 506 of Regulation D promulgated thereunder, in issuing the shares
without registering the offering under the Act. Sonus relied upon
representations and warranties of the investors in the private placement
contained in the subscription agreements entered into between Sonus and the
private placement investors, to the effect that such investors were accredited
investors, as well as investor questionnaires completed by such investors.
In March 1999, the Private Placement Shares were converted, on a
one-for-one basis, into shares of Park in connection with the merger of Sonus
Park Acquisition, Inc., a Virginia corporation and wholly-owned subsidiary of
Park, with and into Sonus, with Sonus as the surviving corporation following
the merger. As a consequence of the merger, Sonus became a wholly owned
subsidiary of Park, and the former shareholders of Sonus (including the private
placement investors) received approximately 92% of all of Park's capital stock.
Park assumed the Agent Warrants and registration obligations of Sonus. Park
relied upon the exemption from registration contained in Section 4(2) of the
Act in exchanging such shares without registration under the Act.
In April 1999, Park merged with and into the Company. The sole purpose
of the merger was to reincorporate in Delaware. The issued and outstanding
shares of Park were automatically converted, on a one-for-one basis, into
shares of the Company's
48
<PAGE> 49
common stock. The Company assumed Park's obligations with respect to all
outstanding securities, including the Agent Warrants and the registration
obligations of Park. The Company was the surviving corporation following the
merger, with Sonus as its wholly owned subsidiary. The issued and outstanding
shares of Sonus are the Company's only material asset.
In May 1999, the Company sold $575,000 original principal amount of
its 10% convertible debentures (the "Debentures") to accredited corporate and
individual investors pursuant to Rule 506 of Regulation D promulgated under the
Exchange Act. Selling commissions of approximately $57,500 payable to L.
Flomenhaft & Co., Inc., as placement agent, were deferred pending the closing
of the minimum offering of the unit equity offering described below which
closed in August 1999. The Company relied on information provided and
representations made by purchasers of the Debentures in claiming exemption from
the registration obligations of the Securities Act.
Under the terms of the Debenture Agreement, the principal amount of
the Debentures plus accrued interest was automatically converted into shares of
the Company's common stock. Debenture holders were also entitled to an "equity
kicker" equal to one-half the number of shares of common stock into which the
Debentures were converted. The Company converted the Debentures into common
stock at $1.50 per share and, in accordance with the terms of the Debentures,
provided the additional shares as part of the equity kicker.
In June 1999, the Company commenced a private placement of equity
units, each unit consisting of one share of common stock and one common stock
purchase warrant (the "Units"), through L. Flomenhaft & Co., Inc., as placement
agent, in order to raise a minimum of $500,000 and a maximum of $2,500,000. On
August 4, 1999, the Company sold $500,000 of its Units to accredited investors,
resulting in the issuance of 250,000 shares of common stock and 250,000 common
stock purchase warrants. As a result of such sales, L. Flomenhaft & Co., Inc.
and a nominee of L. Flomenhaft & Co. received a total of $50,000 and 37,500
common stock purchase warrants. The sale of the Units in the Unit offering was
exempt from registration under the Securities Act pursuant to Section 4(2) of
the Securities Act and under Rule 506 of Regulation D promulgated under the
Securities Act. The Company relied upon representations and warranties made by
investors in the Unit offering in the Subscription Agreement attached as
Exhibit 4.1 to the Company's Form 10-QSB for the quarter ended June 30, 1999
and upon Statements of Accredited Investors signed by such investors and
delivered to the Company.
As part of the Unit offering, the Company has granted to the investors
certain registration rights as set forth in the Subscription Agreement attached
as Exhibit 4.1 to the Company's Form 10-QSB for the quarter ended June 30,
1999. The registration rights provide that, within 45 days after the later of
the completion of the last closing in the offering or the date the offering is
terminated by the Company, the Company will: (i) file a registration statement
covering the resale of the shares, warrants and shares underlying the warrants,
(ii) undertake commercially reasonable efforts to cause such registration
statement to be declared effective by the SEC within 90 days after such filing,
and (iii) undertake commercially reasonable efforts to keep the registration
statement continuously effective, supplemented and amended for a period of one
year. The registration rights also provide, however, that the Company is not
obligated to file or maintain the effectiveness of any registration statement
if the Company determines, in the exercise of its reasonable good faith
judgement that such registration would have a material adverse effect on the
business prospects, finances or operations of the Company; or that such
registration would interfere with any material financing, disposition,
corporate reorganization or other material transaction involving the Company or
any of its subsidiaries. The Company closed the offering on September 30, 1999
after completing the minimum offering and, under the terms of the offering,
filed the registration statement of which this prospectus is a part.
If the Company breaches its obligations as set forth above to file or
to maintain the effectiveness of the registration statement and, in the case of
a failure to maintain such effectiveness, and such effectiveness is not
restored within 90 days
49
<PAGE> 50
thereafter, the Company will pay liquidated damages to each holder of
registrable securities purchased in the Unit offering. The liquidated damages
are 5% per month of the number of the investor's shares which were issued and
outstanding and entitled to be registered on the date of the registration
default. The liquidated damages begin 30 days after the registration default
and continue until such time as the Company is current in its obligations or
until the shares are exempt from registration provisions pursuant to Rule 144
of the Securities Act.
On November 22, 1999, the Company sold 418,140 shares of common stock,
with L. Flomenhaft & Co., Inc. and Hudson Allen Co., acting as placement agent,
to individual and corporate accredited investors. The aggregate amount sold was
$564,489, reflecting a $1.35 per share offering price. The placement agents
received warrants to purchase 62,720 shares of common stock at $1.35 per share,
and $56,449 in cash. The Company relied on Section 4(2) of the Act, and on Rule
506 of Regulation D promulgated thereunder, in issuing the shares without
registering the offering under the Act. The Company relied upon representations
and warranties of the investors in the private placement contained in the
subscription agreements entered into between the Company and the private
placement investors, to the effect that such investors were accredited
investors, as well as investor questionnaires completed by such investors.
DESCRIPTION OF SECURITIES
The authorized capital of the Company consists of 100,000,000 shares
of common stock, $.0001 par value per share, of which 4,598,850 shares of
common stock are issued and outstanding prior to this offering. In addition,
prior to this offering the Company has outstanding warrants exercisable (in
some cases on a cashless basis) to acquire an additional 1,738,970 shares of
common stock, and options to purchase up to 356,000 shares of common stock
granted under the Company's Employee Stock Option Plan and Directors Stock
Option Plan. The Company expects to issue additional shares, options and
warrants in the future.
DESCRIPTION OF COMMON STOCK
The holders of shares of common stock are entitled to share ratably in
such dividends and distributions as may be legally declared by the Board of
Directors with respect to the common stock and in any assets of the Company
available for distribution to holders of common stock upon the liquidation of
the Company. Upon liquidation, assets will only be available for distribution
after satisfaction or provision for all debts and other obligations of the
Company. The holders of shares of common stock have one vote per share in
person or by proxy at all meetings of stockholders. There are no cumulative
voting rights with respect to the election of directors of the Company, which
means that holders of more than 50% of the shares of common stock voting in an
election for directors can elect all of the directors then to be elected. There
are no preemptive, conversion, sinking fund or redemption rights applicable to
the common stock.
DESCRIPTION OF WARRANTS
The registration statement of which this prospectus is a part
registers warrants (i) issued January 21, 1999 to purchase 90,000 shares of
common stock, at an exercise price of $1.00 per share (the "January Placement
Agent Warrants"), (ii) issued January 21, 1999 to purchase 487,500 shares of
common stock at an exercise price of $.92 per share (the "Consulting
Warrants"), (iii) issued August 3, 1999 to purchase 86,250 shares of common
stock at an exercise price of $1.00 per share (the "Debenture Warrants"), (iv)
issued August 3, 1999 to purchase 250,000 shares of common stock issuable at an
exercise price of $3.00 per share (the "Unit Warrants"), (v) issued August 3,
1999 to purchase 37,500 shares of common stock at an exercise price of $2.00
per share (the "Unit Placement Agent Warrants"), and (vi) issued November 22,
1999 to purchase 62,720 shares of common stock at an exercise price of $1.35
per share (the "November Warrants").
50
<PAGE> 51
Each warrant evidences the right to purchase one share of common stock
of the Company, par value $.0001 per share, having the characteristics
described above. See "Common Stock". The number of shares of common stock into
which the warrants are exercisable and the exercise price, however, is adjusted
to account for stock dividends, stock splits, reverse stock splits,
consolidations, mergers, reorganizations and other events. The warrants expire
five years from the date of original issuance. The holders of unexercised
warrants are not entitled to participate in any dividend distributions with
respect to the common stock. The holders of unexercised warrants do not have
any voting rights with respect to the Company.
The Debenture Warrants, Unit Warrants and Unit Placement Agent
Warrants are redeemable at the option of the Company at $0.05 per warrant (the
"Redemption Price") upon 20 days notice, when (i) the shares of common stock
issued in the Unit offering and the shares underlying the warrants issued in
the Debenture and Unit offering which are issued and outstanding on the date of
the registration notice have been registered for resale under the Securities
Act, (ii) a public market has developed for the Company's common stock, and
(iii) the common stock's bid price has closed at $4.50 or higher for ten
consecutive trading days.
All of the warrants except for the Unit Warrants contain provisions
permitting the cashless exercise of such warrants, whereby the number of shares
issuable pursuant to the Warrant shall be determined by multiplying (i) the
number of shares issuable under the warrant by (ii) a fraction, the numerator
of which is equal to the fair market value of the Company's common stock minus
the warrant's exercise price, and the denominator of which is equal to the fair
market value of the Company's common stock.
DELAWARE ANTI-TAKEOVER LAW
The Company and its stockholders are subject to Section 203 of the
General Corporation Law of the State of Delaware, an anti-takeover law. In
general, the law prohibits a public Delaware corporation (such as the Company)
from engaging in a "business combination" with an "interested stockholder" for
a period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in the prescribed manner. A "business combination" includes merger, asset sale
and other transaction resulting in a financing benefit to the interested
stockholder. An "interested stockholder" is a person who, together with
affiliates and associates, owns (or within three years, did own) 15% or more of
the corporation's voting stock.
CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS
The Company's Bylaws contain certain provisions, described below, that
could delay, defer, or prevent a change in control of the Company if the Board
of Directors determines that such a change in control is not in the best
interests of the Company and the Company's stockholders, and could have the
effect of making it more difficult to acquire the Company or remove incumbent
management.
The Company's Bylaws provide that all actions taken by the
stockholders must be taken at an annual or special meeting of the stockholders
or by unanimous written consent. The Bylaws provide that special meetings of
the stockholders may be called only by a majority of the members of the Board
of Directors, the Chairman or President. Under the Company's Bylaws,
stockholders are required to comply with advance notice provisions with respect
to any nominations for elections to the Board of Directors.
Section 6.2 of the Company's Certificate of Incorporation provides
that no director of the Company shall be liable to the Company or its
stockholders for monetary damages except: (a) for any breach of the director's
duty of loyalty to the Company or its stockholders; (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (c) for the types of
51
<PAGE> 52
liability set forth in Section 174 of the Delaware General Corporation Law; or
(d) for any transaction from which the director received any improper personal
benefit. Article 7 of the Company's Certificate of Incorporation and Section
6.1 of the Company's Bylaws provides that, to the fullest extent permitted by
the Delaware General Corporation Law, the Company shall indemnify any party to
an action, suit or proceeding by reason of the fact that such person serves as
a director or officer of the Company or as a director or officer of another
entity at the request of the Company against all losses or amounts reasonably
incurred or suffered in connection therewith. Section 145 of the Delaware
General Corporation Law authorizes the Company to provide this protection to
directors and officers and contains the standards for determining whether
indemnification shall be made.
Such indemnification may be available for liabilities arising in
connection with this offering. Insofar as indemnification for liabilities under
the Securities Act may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
TRANSFER AGENT
The Company's Transfer Agent and Registrar is American Securities
Transfer & Trust, Inc., Lakewood, Colorado.
LEGAL MATTERS
The validity of the common stock being offered hereby is being passed
upon for the Company by McGuire, Woods, Battle & Boothe, LLP.
EXPERTS
The financial statements of the Company at December 31, 1998, and for
the year ended December 31, 1998, and the period from the Company's inception
appearing in this prospectus and the Registration Statement have been audited
by Lazar Levine & Felix LLP and Scott & Guilfoyle, independent auditors, as
indicated in their reports thereon appearing herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to
the common stock, warrants and shares of common stock underlying the warrants
to be offered hereby. As used herein, the term "Registration Statement" means
the initial Registration Statement and any and all amendments thereto. This
prospectus, which is a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Company's
common stock and the warrants, reference is made to the Registration Statement,
including the exhibits and schedules thereto. Statements contained in this
prospectus concerning the contents of any contract or any other document are
not necessarily complete and such instance reference is made to such contract
or other document filed with the SEC as an exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
A copy of the Registration Statement, including the exhibits thereto,
may be inspected without charge at the Public Reference section of the
commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the following regional offices of the SEC: New York Regional
Office, Seven World Trade Center, 13th Floor, New York, New York 10048; and
Chicago Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of the Registration Statement and the exhibits and schedules
thereto can be obtained from the Public Reference Section of the SEC upon
payment of prescribed fees, or at its web site at
52
<PAGE> 53
http://www.sec.gov.
The Company's common stock is registered under Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
Company is therefore subject to the reporting requirements of Section 13 of the
Exchange Act, and, in accordance therewith, the Company will file periodic
reports with the Securities and Exchange Commission. Such periodic reports will
be available for inspection and copying at the public reference facilities and
other regional offices referred to above.
53
<PAGE> 54
FINANCIAL STATEMENTS
INDEX TO COMPANY (THE PARK GROUP, LTD.)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
PAGE(s)
------
<S> <C>
Report of Independent Certified Public Accountants - Current Auditor F - 2
Report of Independent Certified Public Accountants - Prior Auditor F - 3
Financial Statements:
Balance Sheets F - 4
Statements of Operations F - 5
Statement of Changes in Shareholders' Deficit F - 6
Statements of Cash Flows F - 7
Notes to Financial Statements F - 8
</TABLE>
F-1
<PAGE> 55
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Park Group, Ltd.
We have audited the balance sheet of The Park Group, Ltd. (a Colorado
corporation) as of December 31, 1998, and the related statements of operations,
changes in shareholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of The Park Group, Ltd. as of
December 31, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses which raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans regarding this matter are described in Note 4. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ Lazar Levine & Felix LLP
---------------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
March 26, 1999
F-2
<PAGE> 56
SCOTT & GUILFOYLE
CERTIFIED PUBLIC ACCOUNTANTS
5 DAKOTA DRIVE, SUITE 206
LAKE SUCCESS, NY 11042
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Park Group, Ltd.
We have audited the accompanying balance sheet of the Park Group, Ltd. as of
December 31, 1997 and the related statement of operations, stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We have conducted our audit 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 balance sheet
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of The Park
Group Ltd. as of December 31, 1997 and the results of its operations and its
cash flows for the year then ended in conformity with general accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to this matter are
also described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ SCOTT & GUILFOYLE
- ---------------------
SCOTT & GUILFOYLE
Lake Success, New York
March 9, 1998
F-3
<PAGE> 57
THE PARK GROUP, LTD.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- ASSETS -
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash $ 261 $ 5,386
--------- ----------
TOTAL CURRENT ASSETS 261 5,386
--------- ----------
$ 261 $ 5,386
========= ==========
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accrued expenses $ - $ 1,682
Due to shareholders - 19,395
Loan payable - 2,250
--------- ----------
TOTAL CURRENT LIABILITIES - 23,327
--------- ----------
COMMITMENTS AND CONTINGENCIES (NOTES 3 AND 4)
SHAREHOLDERS' EQUITY (NOTE 2):
Preferred stock, no par value; 100,000,000 shares authorized; - -
none issued and outstanding
Common stock, $.0001 par value; 9,118 3,369
1,000,000,000 shares authorized; 91,184,052 and 33,690,000 shares
issued and outstanding for 1998 and 1997, respectively
Additional paid-in capital 243,129 219,733
Accumulated deficit (251,986) (241,043)
-------- --------
261 (17,941)
-------- --------
$ 261 $ 5,386
========= ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 58
THE PARK GROUP, LTD.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUES $ - $ -
OPERATING EXPENSES (10,943) (13,062)
-------- --------
NET LOSS $(10,943) $(13,062)
======== ========
LOSS PER COMMON SHARE:
Basic $ - $ -
====== ======
Diluted $ - $ -
====== ======
</TABLE>
See accompanying notes.
F-5
<PAGE> 59
THE PARK GROUP, LTD.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Paid -in Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 33,690,000 $3,369 $219,733 $(227,981) $(4,879)
Net loss for the year ended December 31, 1997 - - - (13,062) (13,062)
---------- ------ -------- --------- -------
Balance at December 31, 1997 33,690,000 3,369 219,733 (241,043) (17,941)
Conversion of loans 42,698,875 4,270 17,375 - 21,645
Sale of common shares 14,795,177 1,479 6,021 - 7,500
Net loss for the year ended December 31, 1998 - - - (10,943) (10,943)
---------- ------ -------- --------- -------
BALANCE AT DECEMBER 31, 1998 91,184,052 $9,118 $243,129 $(251,986) $261
========== ====== ======== ========= ====
</TABLE>
See accompanying notes.
F-6
<PAGE> 60
THE PARK GROUP, LTD.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,943) $(13,062)
Changes in operating assets and liabilities:
(Decrease) increase in accrued expenses (1,682) 1,682
-------- --------
NET CASH (USED) IN OPERATING ACTIVITIES (12,625) (11,380)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES - -
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loans received from shareholders - 14,516
Other loans received - 2,250
Proceeds from sale of common stock 7,500 -
-------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,500 16,766
-------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,125) 5,386
Cash and cash equivalents, beginning of year 5,386 -
-------- -------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 261 $ 5,386
======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
(1) Interest paid $ - $ -
Taxes paid $ - $ -
(2) During 1998, the Company issued 42,698,875
shares of common stock in payment of loans
aggregating $21,645.
</TABLE>
See accompanying notes.
F-7
<PAGE> 61
THE PARK GROUP, LTD.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
NATURE OF BUSINESS:
The Park Group, Ltd., (the Company), incorporated in the State
of Colorado, commenced business operations on January 24,
1986. The books and records of the Company are kept in Florida
and managed by a majority stockholder of the Company. The
Company is commonly known as a blind pool and is seeking the
acquisition of, or merger with an existing company. See Note 4
re: Subsequent Event.
ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates and assumptions.
RELATED PARTY TRANSACTIONS:
The Company's President, Herbert R. Donica, provides
management, legal, administrative services, and office space.
For the years ended December 31, 1998 and 1997 there were no
charges for these items.
INCOME TAXES:
As of December 31, 1998, the Company had a net operating loss
carry forward of approximately $308,000 available to offset
future taxable income through 2002.
NOTE 2 - CAPITAL STOCK:
In July of 1996 the Company amended and restated its articles
of incorporation to increase the authorized number of shares
of common stock from 1,000,000 to 1,000,000,000, and to
authorize 100,000,000 shares of preferred stock, the relative
rights to be established by the Board of Directors at the time
of issuance.
On January 29, 1999, subsequent to the balance sheet date, and
in connection with the merger (see Note 4), the shareholders
of the Company approved a 1 for 262.154216 reverse stock split
of the Company's common stock. Additional shares were issued
to round up each shareholder's fractional shares, and, as a
result of this reverse split, 347,954 shares became
outstanding.
NOTE 3 - GOING CONCERN:
As shown in the financial statements, the Company incurred a
net loss of $10,943 and $13,062 for the years ended December
31, 1998 and 1997, respectively. Combined with the fact that
the Company has no working capital and an accumulated deficit
of $251,986, it is management's assertion that these
circumstances may hinder the Company's ability to continue as
a going concern. See Note 4 re: Subsequent Events.
F-8
<PAGE> 62
NOTE 4 - SUBSEQUENT EVENT:
On February 26, 1999, subsequent to the balance sheet date,
the Company and its newly formed, wholly owned subsidiary,
Sonus Park Acquisitions, Inc., (a Virginia corporation)
entered into an agreement to merge Sonus Park Acquisitions,
Inc., (SPAC) with and into Sonus Communications, Inc., (a
Virginia corporation), the surviving entity. As a result of
this merger, Sonus Communications, Inc., (Sonus), became a
wholly owned subsidiary of the Company.
Sonus, a telecommunications company, currently provides
satellite-based Internet, phone and facsimile access services
to countries in the former Soviet Union and China. Sonus is
also in the process of establishing such services in Southwest
Asia and plans to enter other foreign markets as well.
F-9
<PAGE> 63
SONUS COMMUNICATIONS, INC.
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- INDEX -
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Independent Auditors' Report F - 11
Financial Statements:
Balance Sheets F - 12
Statements of Operations F - 13
Statement of Shareholders' Equity (Deficit) F - 14
Statements of Cash Flows F - 15
Notes to Financial Statements F - 16
</TABLE>
F-10
<PAGE> 64
INDEPENDENT AUDITORS' REPORT
To the Shareholders
Sonus Communications, Inc.
Arlington, Virginia
We have audited the balance sheets of Sonus Communications, Inc. as of December
31, 1998 and 1997 and the related statements of operations, shareholders'
equity (deficit) and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financial statements referred to above present fairly, in
all material respects, the financial position of Sonus Communications, Inc. as
of December 31, 1998 and 1997 and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Lazar, Levine & Felix LLP
-----------------------------
LAZAR LEVINE & FELIX LLP
New York, New York
April 1, 1999
F-11
<PAGE> 65
SONUS COMMUNICATIONS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
- ASSETS -
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,002 $ 235
Accounts receivable - trade 41,244 -
Installment sales receivable - net of unearned profit of $131,340
(Notes 3c and 4) 231,090 -
Prepaid expenses and other current assets - 2,018
------- --------
TOTAL CURRENT ASSETS 273,336 2,253
FIXED ASSETS - NET (NOTES 3d AND 5) 231,615 -
------- --------
$504,951 $2,253
======== ========
- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) -
CURRENT LIABILITIES:
Accounts payable and accrued expenses (Note 7) $212,039 $ 2,149
Interest payable - shareholder (Note 6) 17,496 10,498
Accounts payable - equipment (Note 4) 356,273 -
------- ------
TOTAL CURRENT LIABILITIES 585,808 12,647
------- -------
LONG-TERM LIABILITIES:
Note payable - shareholder (Note 6) 99,969 99,969
------- -------
COMMITMENTS AND CONTINGENCIES (NOTE 10)
SHAREHOLDERS' EQUITY (DEFICIT) (NOTES 2a AND 8):
Common stock; par value $.001, 100,000,000 shares authorized,
3,250,000 and 600 (pre-split) shares issued and outstanding
in 1998 and 1997, respectively 3,250 600
Additional paid-in capital 12,197 14,847
Accumulated deficit (196,273) (125,810)
--------- --------
(180,826) (110,363)
-------- --------
$504,951 $ 2,253
======== ========
</TABLE>
See accompanying notes.
F-12
<PAGE> 66
SONUS COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
OPERATING INCOME:
Telecommunication services (Note 3c) $225,840 $ -
Consulting fee income (Note 7) 61,450 121,318
--------- -------
287,290 121,318
--------- -------
OPERATING EXPENSES:
Direct expenses 267,946 46,954
General and administrative expenses 82,809 118,093
--------- ---------
350,755 165,047
--------- -------
LOSS FROM OPERATIONS (63,465) (43,729)
Interest expense (Note 6) (6,998) (6,998)
--------- ---------
LOSS BEFORE INCOME TAXES (70,463) (50,727)
Provision for income taxes (Notes 3e and 9) - -
--------- ---------
NET LOSS $(70,463) $(50,727)
========= =========
BASIC LOSS PER COMMON SHARE (NOTE 3f) $(.02) $(.02)
====== ======
WEIGHTED AVERAGE NUMBER OF COMMON
shares outstanding (note 3f) 3,250,000 3,250,000
========= =========
</TABLE>
See accompanying notes.
F-13
<PAGE> 67
SONUS COMMUNICATIONS, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN ACCUMULATED
COMMON STOCK CAPITAL DEFICIT TOTAL
------------ ---------- ----------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 600 $14,847 $ (75,083) $ (59,636)
Net loss - - (50,727) (50,727)
------ ------- ---------- ----------
Balance at December 31, 1997 600 14,847 (125,810) (110,363)
Adjustment for stock split 2,650 (2,650) - -
Net loss - - (70,463) (70,463)
------ ------- ---------- ----------
BALANCE AT DECEMBER 31, 1998 $3,250 $12,197 $(196,273) $(180,826)
====== ======= ========== ==========
</TABLE>
See accompanying notes.
F-14
<PAGE> 68
SONUS COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(70,463) $(50,727)
Adjustments to reconcile net loss to net cash provided
(utilized) by operating activities:
Depreciation 25,735 -
Changes in assets and liabilities:
(Increase) in accounts receivable (41,244) -
(Increase) in installment sales receivable (231,090) -
Decrease in prepaid expenses 2,018 48,065
Increase (decrease) in accounts payable 209,890 (4,778)
Increase in interest payable 6,998 6,998
Increase in accounts payable - equipment 356,273 -
--------- ---------
NET CASH PROVIDED (UTILIZED) BY OPERATING ACTIVITIES 258,117 (442)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (257,350) -
CASH FLOWS FROM FINANCING ACTIVITIES - -
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 767 (442)
Cash and cash equivalents, beginning of year 235 677
--------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 1,002 $ 235
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid $ - $ -
Income taxes - -
</TABLE>
See accompanying notes.
F-15
<PAGE> 69
SONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - DESCRIPTION OF BUSINESS:
Sonus Communications, Inc., (the Company), was incorporated as MVP
International, Inc., in the state of Virginia on May 25, 1995, and
changed its name on July 8, 1998.
The Company currently provides satellite-based Internet, phone and
facsimile access services to countries within the former Soviet Union
as well as China and Southwest Asia. Using leased-bandwidth and
satellite connections, the Company also intends to enter other foreign
markets through relationships it proposes to develop with other
entities in other countries.
NOTE 2 - SUBSEQUENT EVENTS
(a) Offering of Shares of Common Stock:
In January, 1999, subsequent to the balance sheet date, the
Company successfully completed the sale of 750,000
(post-split - see Note 8) shares of its common stock in a
private offering, at a price of $1.00 per share. Net
proceeds realized from this offering aggregated $626,634.
(b) Merger:
On February 26, 1999, subsequent to the balance sheet date,
the Company entered into an agreement to merge with and into
Sonus Park Acquisitions, Inc., (a Virginia corporation), a
newly formed, wholly owned subsidiary of The Park Group,
Ltd., (Park). The Company, which was the surviving entity,
became a wholly owned subsidiary of Park.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting policies are in accordance with generally
accepted accounting principles. Outlined below are those policies
considered particularly significant.
(a) Use of Estimates:
In preparing financial statements in accordance with
generally accepted accounting principles, management makes
certain estimates and assumptions, where applicable, that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date
of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. While
actual results could differ from those estimates,
F-16
<PAGE> 70
SONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
management does not expect such variances, if any, to have a
material effect on the financial statements.
(b) Statements of Cash Flows:
For purposes of the statements of cash flows the Company
considers all highly liquid investments purchased with a
remaining maturity of three months or less to be cash
equivalents.
(c) Revenue Recognition:
The Company recognizes revenue as services are rendered to
customers. In connection with certain sales, however, when
the related receivables are collected over extended periods
of time, profit is recognized on the installment method as
receivables are collected.
(d) Depreciation and Amortization:
Fixed assets are reflected at cost. Depreciation is provided
using the straight-line method over the following useful
lives:
<TABLE>
<S> <C>
Machinery and equipment 5 years
Furniture and fixtures 7 years
</TABLE>
Maintenance and repairs are expensed as incurred.
Depreciation expense for the years ended December 31, 1998
and 1997 aggregated $25,635 and $0 respectively.
(e) Income Taxes:
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences
between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases, and to
net operating loss and tax credit carry forwards, measured by
enacted tax rates for years in which taxes are expected to be
paid or recovered (see Note 9).
F-17
<PAGE> 71
SONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
(f) Earnings (Loss) Per Share:
Earnings (loss) per share has been computed on the basis of
the weighted average number of common shares outstanding
during each period presented according to the standards of
SFAS No. 128 "Earnings Per Share" ("SFAS 128"). See Note 8
re: stock split.
(g) Statement of Comprehensive Income:
SFAS 130 "Reporting Comprehensive Income" is effective for
years beginning after December 15, 1997. This statement
prescribes standards for reporting comprehensive income and
its components. Since the Company currently does not have any
items of other comprehensive income, a statement of
comprehensive income is not yet required. Comprehensive
income consists of net income or loss and other comprehensive
income (income, expenses, gains and losses that bypass the
income statement and are reported directly as a separate
component of equity).
NOTE 4 - INSTALLMENT SALES RECEIVABLE:
During 1998, the Company purchased telecommunications equipment from a
vendor in the aggregate amount of $427,943, of which $196,853 was
placed in service. The remainder of this equipment, at a cost of
$231,090, was sold to Egrisi Joint Stock Company, Ltd., an entity in
the nation of Georgia for $362,430. Since the payment terms are based
on usage of the equipment, the collection period may be extended, and
as such, the Company has recorded this sale under the installment
sales method, (see Note 3c). Each payment collected will be allocated
to cost and profit, in the same ratio that these two elements existed
in the original sale.
As of December 31, 1998, no payments had been collected. Starting in
March 1999, Egrisi Joint Stock Company, Ltd. began making weekly
payments.
NOTE 5 - FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Telephonic equipment $257,350 $ -
Less: accumulated depreciation (25,735) -
--------
$231,615 $ -
======== ===
</TABLE>
F-18
<PAGE> 72
SONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 6 - NOTE PAYABLE - SHAREHOLDER:
Note payable - shareholder represents advances made to the Company, by
a shareholder, bearing interest at an annual rate of 7%. Interest
accrued and unpaid as of December 31, 1998 and 1997, aggregated
$17,496 and $10,498, respectively.
NOTE 7 - RELATED PARTY TRANSACTIONS:
The Company provides consulting services to Goodwill Communications
USA, Inc., (Goodwill USA), a Virginia corporation which is 90% owned
by the Company's two shareholders. Income earned for such services
aggregated $37,450 and $119,613, for 1998 and 1997, respectively.
Goodwill USA holds certain satellite service contracts, which it does
not use and which are material to the business operations of the
Company. The Company has been utilizing the services of these
contracts and has been making the appropriate payments to either
Goodwill USA or the service provider. In March of 1999, subsequent to
the year-end, such service contracts were assigned to the Company by
Goodwill USA.
As of December 31, 1998, accounts payable include $100,461 payable to
Goodwill USA with respect to such contracts.
NOTE 8 - SHAREHOLDERS' EQUITY:
In December 1998, the two shareholders of the Company approved an
amendment to its Articles of Incorporation changing the par value of
its shares from $1.00 to $.001 and increasing the authorized capital
from 1,000 to 100,000,000 shares of common stock. On January 10, 1999
(subsequent to the balance sheet date) this change was effected and
the Board of Directors authorized a stock split of 5,415 2/3 shares of
common stock for each share of common stock then outstanding. This
transaction has been retroactively reflected as of December 31, 1998.
All references in the accompanying financial statements to per share
amounts have also been restated to retroactively reflect this split.
NOTE 9 - INCOME TAXES:
No provision for Federal and state income taxes has been recorded
since the Company has incurred losses through December 31, 1998,
aggregating $196,273. Deferred tax assets at December 31, 1998 and
1997 which consist primarily of the tax effect of net operating loss
carry forwards, amount to approximately $60,000 and $39,000,
respectively. The Company has provided a full, 100% valuation
allowance on the deferred tax assets at December 31, 1998 and 1997 to
reduce such asset to zero, since
F-19
<PAGE> 73
SONUS COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 9 - INCOME TAXES (CONTINUED):
there is no assurance that the Company will generate future taxable
income to utilize such asset. Management will review this valuation
allowance requirement periodically and make adjustments as warranted.
NOTE 10 - COMMITMENTS AND CONTINGENCIES:
(a) Operating Leases:
In January 1999, subsequent to the balance sheet date, the
Company entered into three-year leases for space in New York
and Los Angeles to house its equipment for operations. These
leases include provisions for a one-time charge of $8,700,
for installation services provided by the lessor.
In March 1999 subsequent to the balance sheet date, the
Company entered into a three-year lease for new office space.
During 1998, the Company utilized space rented on a
month-to-month basis. Prior to 1998, a shareholder of the
Company provided office space at no charge.
The Company is obligated under long-term lease commitments
for warehouse and office space as follows:
<TABLE>
<S> <C>
1999 $ 57,513
2000 72,546
2001 74,037
2002 16,703
--------
$220,799
========
</TABLE>
Rental expense for the years ended December 31, 1998 and 1997
were $10,800 and $0, respectively.
(b) Other Matters:
(i) During the year ended December 31, 1996 the Company wrote
off a $100,000 equity investment it had made in SFH Trading &
Brokerage ("SFH"), a company located in Switzerland. The
Company has been unable to recover its investment from SFH.
The Company is continuing to seek the assistance of the
appropriate policing authorities in order to locate SFH and
recover their investment.
NOTE 10 - COMMITMENTS AND CONTINGENCIES - OTHER MATTERS (CONTINUED):
(ii) The Company is dependent on certain primary providers
of leased-line network capacity and internet access and upon
third-parties to provide telecommunications services to its
customers.
(iii) Through December 31, 1998 the Company had only one
major customer to which it was providing telecommunications
services. For the year ended December 31, 1998, sales to this
customer accounted for more than 50 percent of revenues from
such services.
(iv) As a telecommunications company providing international
telephone services the Company is subject to the 1996
Telecommunications Act, which is administered by the FCC.
F-20
<PAGE> 74
SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
- INDEX -
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Financial Statements:
Balance Sheets F - 22
Statements of Operations F - 23
Statement of Shareholders' Equity F - 24
Statements of Cash Flows F - 25
Notes to Financial Statements F - 26
</TABLE>
F-21
<PAGE> 75
SONUS COMMUNICATION HOLDINGS INC AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ----------------
(unaudited) (audited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 75,942 $ 1,002
Accounts receivable, net 71,597 41,244
Installment sales receivable, net of unearned
profit of $113,104 and $131,340 at 9/30/99
and 12/31/98, respectively 199,692 231,090
Other current assets 92,657 -
---------- ------------
TOTAL CURRENT ASSETS 439,888 273,336
PROPERTY AND EQUIPMENT, net 553,071 231,615
OTHER ASSETS 182,754 -
---------- -----------
TOTAL ASSETS $1,175,713 $504,951
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 377,141 $202,842
Vendor equipment payable 364,667 356,273
Other current liabilities 115,932 26,693
----------- ---------
TOTAL CURRENT LIABILITIES 857,740 585,808
Due to shareholders 155,000 99,969
---------- ----------
TOTAL LIABILITIES 1,012,740 685,777
SHAREHOLDERS' EQUITY
Common stock, $.001 par value 4,181 3,250
Additional paid-in capital 1,606,133 12,197
Accumulated deficit (1,447,341) (196,273)
----------- ----------
TOTAL SHAREHOLDERS' EQUITY 162,973 (180,826)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,175,713 $ 504,951
========== ==========
</TABLE>
See accompanying notes.
F-22
<PAGE> 76
SONUS COMMUNICATION HOLDINGS INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Sept 30, Nine Months Ended Sept 30,
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
OPERATING INCOME
Telecommunications services $392,924 $ - $1,022,296 $ 4,000
Consulting services 0 7,000 0 35,950
-------------- --------- ---------------- ---------
392,924 7,000 1,022,296 39,950
OPERATING EXPENSES
Direct expenses 470,161 65,982 1,228,688 68,830
General & administrative 309,731 20,855 761,997 55,431
--------- ----------- ----------- ---------
779,892 86,837 1,990,685 124,261
LOSS FROM OPERATIONS (386,968) (79,837) (968,389) (84,311)
OTHER INCOME (EXPENSE)
Interest, net (5,225) (1,750) (3,634) (5,249)
Merger related costs (25,000) - (279,045) -
----------- ------------- ------------- ------------
(30,225) (1,750) (282,679) (5,249)
LOSS BEFORE INCOME TAXES (417,193) (81,587) (1,251,068) (89,560)
Provision for income taxes - - - -
--------------- -------------- ------------------ --------------
NET LOSS $(417,193) $ (81,587) $(1,251,068) $ (89,560)
========== =========== ============ ===========
Basic loss per common share $ (0.11) $ (.03) $ (0.33) $ (0.03)
========================================================================
Shares used in per share calculation 3,761,548 3,250,000 3,823,501 3,250,000
========= ========= ========= =========
</TABLE>
See accompanying notes.
F-23
<PAGE> 77
SONUS COMMUNICATION HOLDINGS INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
CASH FLOW FROM OPERATING ACTIVITIES: Nine Months Ended Sept 30,
1999 1998
------ ------
<S> <C> <C>
Net Loss $(1,251,068) $ (89,560)
Adjustments to reconcile net loss to net cash utilized
in operating activities:
Depreciation 64,622 13,291
Common shares issued for services rendered 127,500 -
Changes in assets and liabilities:
(Increase) in accounts receivable (30,353) -
(Increase) decrease in installment sales receivable 31,398 (231,090)
(Increase) in prepaid expenses (92,657) (10,886)
Increase in accounts payable 165,103 77,936
Increase in vendor equipment payable 8,393 372,088
Increase in customer deposits - 100,100
Increase in accrued expenses 98,435 5,248
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (878,627) 237,127
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (386,078) (237,343)
Deposits for equipment and circuits (182,754) -
----------- ----------
NET CASH USED IN INVESTING ACTIVITIES (568,832) (237,343)
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement of common shares, net 626,634 -
Private placement of common shares with warrants 965,765 -
Repurchase of founder shares (70,000) - .
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,522,399 -
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 74,940 (216)
----------- ------------
CASH AND CASH EQUIVALENTS, BEGINNING 1,002 235
----------- -----------
CASH AND CASH EQUIVALENTS, END $ 75,942 $ 19
=========== ============
</TABLE>
See accompanying notes.
F-24
<PAGE> 78
SONUS COMMUNICATION HOLDINGS INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months
Ended September 30, 1999 and 1998
1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements apply to
the Company and its wholly-owned subsidiary and reflect all
adjustments which are, in the opinion of management, necessary for a
fair presentation of the Company's consolidated financial position as
of September 30, 1999 and the results of operations for the three and
nine months ended September 30, 1999 and 1998. The results of
operations for such periods, however, are not necessarily indicative
of the results to be expected for a full fiscal year. On May 14, 1999,
the Company filed a Form 10SB with the Securities and Exchange
Commission to register the common stock of the Company under the
Securities Exchange Act of 1934, as amended. This Form 10-QSB should
be read in conjunction with the Form 10SB.
2. MERGER
In January 1999, Sonus Communications Inc ("Sonus"), entered into
merger discussions with The Park Group Limited ("Park"). In
anticipation of the merger, Park formed Sonus Park Acquisition, Inc.
as a wholly owned subsidiary of Park. On March 4, 1999, Park
Acquisition merged with and into Sonus leaving Sonus as the surviving
corporation and a wholly owned subsidiary of Park. The former
shareholders of Sonus received 92% of the capital stock of Park.
On April 7, 1999, Park organized Sonus Communication Holdings,
Inc.("Holdings") as a Delaware corporation and wholly owned subsidiary
of Park. On April 16, 1999, Holdings merged with and into Park,
leaving Holdings as the surviving corporation. As a consequence of the
merger, Sonus became a wholly owned subsidiary of Holdings. Shares of
Park were exchanged for shares of Holdings on a one-for-one basis in
the merger. The sole purpose of the merger was to re-incorporate in
the state of Delaware.
L. Flomenhaft & Co., Inc., an investment banker, acted as a consultant
to Park on the merger. As a fee for services, L. Flomenhaft received
150,000 shares of the Company. Of the 150,000 shares, the Company
issued 120,000 shares to L. Flomenhaft & Co and the remaining 30,000
shares to a nominee of L. Flomenhaft & Co.
3. ACQUISITION
At the end of the third quarter of 1999, the Company announced the signing
of a letter of intent to acquire Empire One Telecommunications, Inc.
("EOT") for approximately 1.2 million shares of Sonus common stock for all
the outstanding shares of EOT subject to adjustment at the time of signing
the merger agreement. Subsequent to September 30, 1999, the Company
expects to sign the related merger documents subject to approval by the
shareholders of EOT and approval of the Public Service Commission of New
York State as well as other state and federal regulatory agencies. EOT
expects to hold the shareholder meeting to approve the merger and to begin
the regulatory approval process during the fourth quarter of 1999.
As part of the acquisition agreement, the Company expects to sign
employment agreements with the three principal shareholders of EOT.
EOT is a rapidly growing, domestic Competitive Local Exchange Carrier
("CLEC"), Interexchange Carrier ("IXC"), and Internet Service Provider
("ISP") that offers a full range of services including local,
long-distance, Internet access and Web Hosting Services to approximately
12,000 subscribers. EOT's 1998 revenues were approximately $6 million.
F-25
<PAGE> 79
4. FINANCING
On January 21, 1999, Sonus completed the sale of 750,000 shares of common
stock at $1.00 per share in a private placement to accredited investors.
L. Flomenhaft & Co. acted as placement agent. The aggregate offering
price was $750,000 with Sonus netting cash proceeds of $626,634. L.
Flomenhaft & Co. received $75,000 in cash and a five year common stock
purchase warrant for 112,500 shares at an exercise price of $1.00 per
share for its services. Of the 112,500 warrants, Sonus issued a warrant
for 90,000 shares to L. Flomenhaft & Co and a warrant for the remaining
22,500 shares to a nominee of L. Flomenhaft & Co. The investors in the
private placement received piggyback registration rights in connection
with the sale.
In May 1999, the Company issued an aggregate principal amount of $575,000
of its 10% convertible debentures ("Debentures"). The principal amount plus
accrued interest are due on demand by the lender six months following the
date of issuance. This Debenture was automatically converted under the
terms of the agreement to common stock with the sale of the Equity Unit
offering in August 1999 as described below. Debenture holders were also
entitled to an "equity kicker" equal to one-half the number of shares of
common stock into which the Debentures were converted. The Company
converted the Debentures into common stock at $1.50 per share and, in
accordance with the terms of the Debentures, provided the additional
shares as part of the equity kicker.
In August 1999, the Company sold $500,000 of its equity Units, consisting
of an aggregate of 250,000 shares of common stock and 250,000 common stock
purchase warrants. Each warrant is exercisable at $3.00 per share of
common stock. The sale resulted in net proceeds to the Company of $435,000
after investment banking fees and other expenses.
In the third quarter of 1999, the Company entered into an equipment
leasing arrangement with its network equipment supplier. The agreement
provides for a total available facility of $2.2 million. Under the
arrangement, the Company leased $200,000 of network equipment in the third
quarter under an operating lease. The Company expects to convert the
vendor equipment payable into a leasing arrangement under this leasing
agreement.
5. WARRANTS
On January 14, 1999, Sonus Communications entered into a two year
consulting arrangement with L. Flomenhaft & Co. ("Consultant") whereby the
Consultant is to provide strategic financial, business planning and
business development services. The Agreement became effective January 21,
1999 when the first private placement was completed. To compensate
Consultant for his efforts, Sonus issued a five year warrant for 487,500
shares of common stock of the Company with an exercise price of $1.00 per
share.
Effective April 1, 1999, the Company entered into a consulting agreement
with Coffin & Sons, Inc., a consulting firm owned by Mr. W. Todd Coffin,
the Company's President and CEO. The agreement provides that Mr. Coffin
will serve as CEO for a term of six months and 15 days and that Mr. Coffin
will serve on the Board of Directors of the Company during the consulting
period. For the services of Mr. Coffin, Coffin & Sons will receive cash
compensation of $10,000 per month of which $2,000 per month is deferred
until after the successful completion of the next private placement
completed after the effective date of the agreement. In addition to the
cash compensation, Coffin & Sons, Inc was issued 50,000 shares of common
stock in May 1999 and is entitled to receive (i) 50,000 shares upon the
successful completion of the private placement with gross proceeds of at
least $1 million; (ii) 50,000 shares following the registration of shares
issued in the private placement and the shares trade at or above $3.00 per
share for 20 consecutive trading days; and (iii) 50,000 shares following
the installation of a new chief executive officer identified by Coffin &
Sons, Inc and acceptable to the Company.
F-26
<PAGE> 80
On April 20, 1999 the Company entered into a three month consulting
agreement with Hudson Capital, a consulting firm owned by Mr. Raleigh
Coffin, a director of the Company and the father of Mr. W. Todd Coffin. The
agreement provides for Mr. R. Coffin to help the Company develop a
comprehensive business plan along with an institutional investor
presentation. Compensation to Hudson Capital consisted of $10,000 per month
of which $5,000 per month is deferred until after the successful completion
of the next private placement and a five year warrant for 100,000 shares
with an exercise price of $1.00 per share. The warrant vests as to: (i)
25,000 shares upon the signing of the agreement; (ii) 25,000 shares upon
the completion of the business plan; (iii) 25,000 shares upon successful
completion of the private placement noted above and (iv) 25,000 shares when
the stock publicly trades at $3.00 per share for at least 20 consecutive
days.
In April 1999, Mr. Charles Albo, Chairman, and Ms. Maraneli, Executive
Vice President each transferred 550,000 shares of common stock to the
Company for cancellation by the Company. In exchange for the shares, the
Company issued Mr. Albo and Ms Maraneli each a five year warrant to
purchase 125,000 shares of the Company's common stock at an exercise price
of $1.50 per share. Mr. Albo and Ms. Maraneli are the original founders
of Sonus Communications, Inc.
Additionally, the Company in May 1999 redeemed from each of Mr. Albo and
Ms Maraneli 75,000 shares at $1.50 per share (the "Redemption Price"). Mr.
Albo and Ms. Maraneli agreed that payment of the Redemption Price will be
deferred until the closing of a private placement resulting in gross
proceeds to the Company of at least $1 million. In exchange for the
deferral of the Company's payment obligations, the Company agreed to
advance each of Mr. Albo and Ms. Maraneli up to $7,000 per month not to
exceed the total Redemption Price. All amounts advanced will be deducted
from the redemption price when paid. Although the repayment was required
to be made at the time of the Unit Equity sale in August, Mr. Albo and Ms
Maraneli have continued to accept advances from the Company in lieu of
full payment until the Company's cash position is better able to support
the remaining amounts due. As of September 30, 1999, $70,000 had been paid
leaving a balance due for the redemption of $155,000.
Pursuant to employment contracts, the Company has issued warrants to Mr.
Stephen Albo, the Company's Chief Technical Officer and to Mr. Richard
Rose, the Company's Chief Financial Officer. Initially, Mr. Albo received
in lieu of a salary, a five year warrant to acquire 75,000 shares of
common stock of the Company at $1.00 per share which is fully vested and
at the time Mr. Albo became a full time employee, a second five year
warrant to purchase 75,000 shares of common stock of the Company which
vests over three years. Mr. Rose received upon execution of an employment
agreement, a five year warrant to purchase 75,000 shares of common stock
of the Company at $1.00 per share which vests over three years.
In conjunction with the hiring of an investment relations firm, the
Company issued a five year warrant to purchase 150,000 shares of common
stock of the Company at $2.50 per share, the market value on the date of
the agreement.
6. OPTION PLANS
Employee Stock Option Plan: On June 10, 1999, the Company adopted the 1999
Stock Incentive Plan (the "1999 Plan") which was approved by a majority of
the stockholders on July 12, 1999. Under the terms of the 1999 Plan, which
expires on June 10, 2009, employees of the Company and its subsidiaries
may be granted incentive stock options, non-statutory stock options and
restricted stock awards. The option price of shares of common stock
generally will not be less than 100% of the fair market value on the date
of grant or 110% of fair market value in the case of a grant to a 10%
shareholder. No option will be exercisable more than ten years from the
date of grant. The Company has reserved 500,000 shares for issuance under
the 1999 Plan. At September 30, 1999, employees had been granted 206,000
shares.
F-27
<PAGE> 81
Options typically vest quarterly over a three-year period unless the Board
of Directors in its discretion provides otherwise. Options shall become
fully vested upon a "change of control" as defined in the 1999 Plan.
Directors Option Plan: On June 10, 1999, the Company adopted the 1999
Director Stock Incentive Plan (the "Director Plan") which was approved by
a majority of the stockholders on July 12, 1999. Under the terms of the
Director Plan, which expires on June 10, 2009, non-employee directors of
the Company may be granted non-statutory stock options at an exercise
price equal to 100% of the fair market value on the date of grant. No
option will be exercisable more than ten years from the date of grant. The
Company has reserved 350,000 shares for issuance under the 1999 Plan. At
September 30, 1999, the Company had granted to a new director an option
for 50,000 shares under the Director Plan.
7. NOTE PAYABLE - SHAREHOLDER
At December 31, 1998, Sonus Communications had a note payable to a
shareholder for $99,969 plus accrued interest. In conjunction with an
agreement made with the shareholder effective April 16, 1999, the note was
converted into 44,431 shares of common stock of the Company.
F-28
<PAGE> 82
SONUS COMMUNICATION HOLDINGS, INC.
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Introduction to Pro Forma Financial Statements F - 30
Financial Statements:
Balance Sheet as of December 31, 1998 F - 31
Statements of Operations Year Ended 12/31/98 F - 32
Statements of Operations Year Ended 12/31/97 F - 33
Notes to Financial Statements F - 34
</TABLE>
F-29
<PAGE> 83
SONUS COMMUNICATION HOLDINGS, INC.
INTRODUCTION TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma financial statements have been prepared based
upon certain pro forma adjustments to the historical financial statements of
Sonus Communication Holdings, Inc., (formerly The Park Group, Ltd.). The pro
forma financial statements should be read in conjunction with the notes thereto
and the historical financial statements of Sonus Communication Holdings, Inc.,
(the Company).
The accompanying pro forma balance sheet has been presented as if the
transactions described below occurred at the Company's balance sheet date,
December 31, 1998. The accompanying pro forma statements of operations have
been prepared as if the transactions occurred at the beginning of the years
ended December 31, 1998 and 1997.
These pro forma financial statements do not purport to be indicative of the
results which would actually have been obtained had the pro forma transactions
been completed as of the beginning of the years ended December 31, 1998 and
1997.
The pro forma transactions (see notes to pro forma financial statements) are as
follows:
- - the consummation of a private offering of Sonus' common shares
- - the reverse stock split of the outstanding common shares of the
Company
- - the merger of Sonus Communications, Inc. (Sonus) into a newly-formed,
wholly-owned subsidiary of the Company, with Sonus being the
surviving entity
F-30
<PAGE> 84
SONUS COMMUNICATION HOLDINGS, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------
Sonus Sonus
Communication Communications, Transactions
Holdings, Inc. Inc. and Adjustments Consolidated
----------------- -------------------- --------------------------------------------
- ASSETS -
<S> <C> <C> <C> <C> <C>
CURENT ASSETS:
Cash $ 261 $ 1,002 $626,634(1) $ 627,897
Accounts receivable 0 41,244 41,244
Installment sale receivable 0 231,090 231,090
-------- --------- ----------
TOTAL CURRENT ASSETS $ 261 273,336 900,231
FIXED ASSETS 0 231,615 231,615
INVESTMENT IN SUBSIDIARY 0 0 642,081(3) 642,081(4) 0
-------- --------- ----------
TOTAL ASSETS $ 261 $ 504,951 $1,131,846
======== ========= ==========
<CAPTION>
- - LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable & accrued liabilities $ 0 $212,039 $ 212,039
Interest payable - shareholder 0 17,496 17,496
Accounts payable - equipment 0 356,273 356,273
--------- ------- -------
TOTAL CURRENT LIABILITIES 0 585,808 585,808
--------- ------- -------
NON-CURRENT LIABILITIES:
Note payable - shareholder 0 99,969 99,969
--------- ------ ------
0 99,969 99,969
--------- ------ ------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock 0 0 0
Common stock 9,118 3,250 9,083(2) 750(1) 435
4,000(4) 400(3)
Additional paid-in capital 234,129 12,197 638,081(4) 9,083(2) 893,893
625,884(1)
641,681(3)
Accumulated deficit (251,986) (196,273) (448,259)
--------- --------- ---------
Total stockholders' equity (deficit) 261 (180,826) 446,069
--------- --------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 261 $504,951 $1,131,846
========= ======== ==========
</TABLE>
F-31
<PAGE> 85
SONUS COMMUNICATON HOLDINGS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------
Sonus Sonus
Communication Communications, Transactions and
Holdings, Inc. Inc. Adjustments Consolidated
----------------- -------------------- ------------------------- -------------
<S> <C> <C> <C> <C>
REVENUES - NET $ 0 $287,290 $ 287,290
----------- -------- ----------
COSTS AND EXPENSES:
Cost of revenues 0 267,946 267,946
General and administrative 10,943 82,809 93,752
----------- ------ ------
TOTAL OPERATING EXPENSES 10,943 350,755 361,698
----------- ------- -------
LOSS FROM OPERATIONS (10,943) (63,465) (74,408)
Interest expense 0 (6,998) (6,998)
----------- ------- -------
NET LOSS $ (10,943) $(70,463) $ (81,406)
=========== ========= ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 174,360 4,174,360
=========== =========
BASIC LOSS PER SHARE $ (0.06) $ (0.02)
=========== ===========
</TABLE>
F-32
<PAGE> 86
SONUS COMMUNICATION HOLDINGS, INC.
PRO FORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
Historical
--------------------------------------
Sonus Sonus
Communication Communications, Transactions and
Holdings, Inc. Inc. Adjustments Consolidated
----------------- -------------------- --------------------- ------------------
<S> <C> <C> <C> <C>
REVENUES - NET $ 0 $ 121,318 $ 121,318
--------- --------- ---------
COSTS AND EXPENSES:
Cost of revenues 0 46,954 46,954
General and administrative 13,062 118,093 131,155
------ ------- -------
TOTAL OPERATING EXPENSES 13,062 165,047 178,109
------ ------- -------
LOSS FROM OPERATIONS (13,062) (43,729) (56,791)
Interest expense 0 (6,998) (6,998)
------- ------- -------
NET LOSS $(13,062) $(50,727) $ (63,789)
========= ========= ==========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 128,513 4,128,513
======= =========
BASIC LOSS PER SHARE $ (0.10) $ (0.02)
========= ===========
</TABLE>
F-33
<PAGE> 87
SONUS COMMUNICATION HOLDINGS, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
(UNAUDITED)
NOTE - 1 On January 21, 1999, Sonus Communications Inc., (Sonus)
completed the sale of 750,000 of its common shares in a
private offering at a price of $1.00 per share. Net proceeds
from this offering aggregated $626,634. As a result of this
offering, Sonus had 4,000,000 common shares outstanding.
NOTE - 2 On January 29, 1999, Sonus Communication Holdings, Inc., (the
Company) effected a 1 for 262.154216 reverse stock split of
its common stock. Additional shares were issued to round up
each shareholder's fractional shares, and, as a result
347,954 shares became outstanding.
NOTE - 3 On February 26, 1999, Sonus merged with and into Sonus Park
Acquisitions, Inc. a newly formed subsidiary of Sonus
Communication Holdings, Inc. (formerly The Park Group).
Sonus was the surviving entity of this merger. In
conjunction with this merger, the Company issued 4,000,000
common shares to the Sonus shareholders in exchange for the
4,000,000 Sonus shares held by them.
NOTE - 4 This adjustment eliminates the Company's investment in Sonus,
due to consolidation.
F-34
<PAGE> 88
=======================================================================
No person has been authorized in connection with any offering made hereby to
give any information or to make any representation other than those contained
in this Prospectus in connection with the offering made hereby, and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the shares of
common stock and warrants offered hereby, nor does it constitute an offer to
sell or a solicitation of any offer to buy any of the securities offered hereby
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that the
information contained herein is correct as of any time subsequent to the date
as of which such information is furnished or that there has been no change in
the affairs of the Company since such date.
TABLE OF CONTENTS
PAGE
Summary......................................................................4
Risk Factors.................................................................8
Cautionary Statement About Forward Looking Statements.......................21
Use of Proceeds.............................................................21
Determination of Offering Price.............................................21
Capitalization..............................................................21
Dividend Policy.............................................................22
Business....................................................................22
Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................26
Description of Property.....................................................29
Certain Market Information..................................................29
Management..................................................................30
Executive Compensation......................................................32
Certain Transactions........................................................33
Security Ownership of Certain Beneficial Owners and Management..............35
Conditional Right to Acquire Certain Securities.............................37
Selling Security holders....................................................38
Description of Securities...................................................51
Description of Common Stock.................................................51
Description of Warrants.....................................................51
Legal Matters...............................................................53
Experts.....................................................................53
Additional Information......................................................53
Index to Financial Statements...............................................F-1
=======================================================================
2,156,465 Shares of Common Stock
1,013,970 Common Stock Purchase Warrants
1,013,970 Shares of Common Stock Underlying Warrants
SONUS COMMUNICATION HOLDINGS, INC.
Common Stock and Warrants
-----------------------------------
Prospectus
-----------------------------------
Date:____________
=======================================================================
<PAGE> 89
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6.2 of the Company's Certificate of Incorporation provides
that no director of the Company shall be liable to the Company or its
stockholders for monetary damages except: (a) for any breach of the director's
duty of loyalty to the Company or its stockholders; (b) for acts or omissions
not in good faith or which involve intentional misconduct or a knowing
violation of law; (c) for the types of liability set forth in Section 174 of
the Delaware General Corporation Law; or (d) for any transaction from which the
director received any improper personal benefit.
Article 7 of the Company's Certificate of Incorporation and Section
6.1 of the Company's Bylaws provides that, to the fullest extent permitted by
the Delaware General Corporation Law, the Company shall indemnify any party to
an action, suit or proceeding by reason of the fact that such person serves as
a director or officer of the Company or as a director or officer of another
entity at the request of the Company against all losses or amounts reasonably
incurred or suffered in connection therewith. Section 145 of the Delaware
General Corporation Law authorizes the Company to provide this protection to
directors and officers and contains the standards for determining whether
indemnification shall be made.
Such indemnification may be available for liabilities arising in
connection with this offering. Insofar as indemnification for liabilities under
the Securities Act may be permitted to directors, officers, or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate (except for registration fees, which
are actual) of the approximate amount of the fees and expenses (other than
underwriting commissions and discounts) payable by the Company in connection
with the issuance and distribution of the shares of common stock and warrants.
Expense Estimated Amount
------- ----------------
Securities and Exchange Commission
Registration Fee $2,824
Printing and Engraving Expenses $10,000
Legal Fees and Expenses $30,000
Accounting Fees and Expenses $1,500
Transfer Agent Fees and Expenses $1,000
Miscellaneous $5,000
-------
Total $50,324
=======
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1998, the Company's predecessor, Park Group Ltd.("Park"),
issued 42,698,875 shares (prior to the 1 for 262.154216 reverse stock split
approved by shareholders on January 29, 1999) of its common stock in exchange
for services rendered and cancellation of indebtedness to Herbert R. Donica,
Steven J. Goodman,
II-I
<PAGE> 90
Lawrence Kaplan, Eileen Kaplan and Creative Business Strategies Inc., all
shareholders of Park. Park relied upon the exemption from registration
contained in Section 4(2) of the Act in offering and selling such shares
without registration under the Act.
In November 1998, Park sold 14,795,177 shares of its common stock to
existing shareholders of Park for $7,500 in cash. Park relied upon the
exemption from registration contained in Section 4(2) of the Act in offering
and selling such shares without registration under the Act.
On January 21, 1999, Sonus sold 750,000 shares of common stock, $.001
per share (the "Private Placement Shares"), with L. Flomenhaft & Co.,
Incorporated, acting as placement agent, to twenty-one individual and corporate
accredited investors. The aggregate offering price was $750,000, reflecting a
$1.00 per share offering price. The placement agent received warrants to
purchase 112,500 shares of common stock at $1.00 per share (the "Agent
Warrants"), and $75,000 in cash. Sonus relied on Section 4(2) of the Act, and
on Rule 506 of Regulation D promulgated thereunder, in issuing the shares
without registering the offering under the Act. Sonus relied upon
representations and warranties of the investors in the private placement
contained in the subscription agreements entered into between Sonus and the
private placement investors, to the effect that such investors were accredited
investors, as well as investor questionnaires completed by such investors.
In March 1999, the Private Placement Shares were converted, on a
one-for-one basis, into shares of Park in connection with the merger of Sonus
Park Acquisition, Inc., a Virginia corporation and wholly-owned subsidiary of
Park, with and into Sonus, with Sonus as the surviving corporation following
the merger. As a consequence of the merger, Sonus became a wholly owned
subsidiary of Park, and the former shareholders of Sonus (including the private
placement investors) received approximately 92% of all of Park's capital stock.
Park assumed the Agent Warrants and registration obligations of Sonus. Park
relied upon the exemption from registration contained in Section 4(2) of the
Act in exchanging such shares without registration under the Act.
In April 1999, Park merged with and into the Company. The sole purpose
of the merger was to reincorporate in Delaware. The issued and outstanding
shares of Park were automatically converted, on a one-for-one basis, into
shares of the Company's common stock. The Company assumed Park's obligations
with respect to all outstanding securities, including the Agent Warrants and
the registration obligations of Park. The Company was the surviving corporation
following the merger, with Sonus as its wholly owned subsidiary. The issued and
outstanding shares of Sonus are the Company's only material asset.
In May 1999, the Company sold $575,000 original principal amount of
its 10% convertible debentures (the "Debentures") to accredited corporate and
individual investors pursuant to Rule 506 of Regulation D promulgated under the
Exchange Act. Selling commissions of approximately $57,500 payable to L.
Flomenhaft & Co., Inc., as placement agent, were deferred pending the closing
of the minimum offering of the unit equity offering described below which
closed in August 1999. The Company relied on information provided and
representations made by purchasers of the Debentures in claiming exemption from
the registration obligations of the Securities Act.
Under the terms of the Debenture Agreement, the principal amount of
the Debentures plus accrued interest was automatically converted into shares of
the Company's common stock. Debenture holders were also entitled to an "equity
kicker" equal to one-half the number of shares of common stock into which the
Debentures were converted. The Company converted the Debentures into common
stock at $1.50 per share and, in accordance with the terms of the Debentures,
provided the additional shares as part of the equity kicker.
In June 1999, the Company commenced a private placement of equity
units, each unit consisting of one share of common stock and one common stock
purchase warrant (the "Units"), through L. Flomenhaft & Co., Inc., as placement
agent, in order to raise a minimum of $500,000 and a maximum of $2,500,000. On
August 4, 1999, the Company sold $500,000 of its Units to accredited investors,
resulting in the issuance of 250,000 shares of common stock and 250,000 common
stock purchase warrants. As a result of such sales, L. Flomenhaft & Co., Inc.
and a nominee of L. Flomenhaft & Co.
II-2
<PAGE> 91
received a total of $50,000 and 37,500 common stock purchase warrants. The sale
of the Units in the Unit offering was exempt from registration under the
Securities Act pursuant to Section 4(2) of the Securities Act and under Rule
506 of Regulation D promulgated under the Securities Act. The Company relied
upon representations and warranties made by investors in the Unit offering in
the Subscription Agreement attached as Exhibit 4.1 to the Company's Form 10-QSB
for the quarter ended June 30, 1999 and upon Statements of Accredited Investors
signed by such investors and delivered to the Company.
As part of the Unit offering, the Company has granted to the investors
certain registration rights as set forth in the Subscription Agreement attached
as Exhibit 4.1 to the Company's Form 10-QSB for the quarter ended June 30,
1999. The registration rights provide that, within 45 days after the later of
the completion of the last closing in the offering or the date the offering is
terminated by the Company, the Company will: (i) file a registration statement
covering the resale of the shares, warrants and shares underlying the warrants,
(ii) undertake commercially reasonable efforts to cause such registration
statement to be declared effective by the SEC within 90 days after such filing,
and (iii) undertake commercially reasonable efforts to keep the registration
statement continuously effective, supplemented and amended for a period of one
year. The registration rights also provide, however, that the Company is not
obligated to file or maintain the effectiveness of any registration statement
if the Company determines, in the exercise of its reasonable good faith
judgement that such registration would have a material adverse effect on the
business prospects, finances or operations of the Company; or that such
registration would interfere with any material financing, disposition,
corporate reorganization or other material transaction involving the Company or
any of its subsidiaries. The Company closed the offering on September 30, 1999
after completing the minimum offering and, under the terms of the offering,
filed the registration statement of which this prospectus is a part.
If the Company breaches its obligations as set forth above to file or
to maintain the effectiveness of the registration statement and, in the case of
a failure to maintain such effectiveness, and such effectiveness is not
restored within 90 days thereafter, the Company will pay liquidated damages to
each holder of registrable securities purchased in the Unit offering. The
liquidated damages are 5% per month of the number of the investor's shares
which were issued and outstanding and entitled to be registered on the date of
the registration default. The liquidated damages begin 30 days after the
registration default and continue until such time as the Company is current in
its obligations or until the shares are exempt from registration provisions
pursuant to Rule 144 of the Securities Act.
On November 22, 1999, the Company sold 418,140 shares of common stock,
with L. Flomenhaft & Co., Inc. and Hudson Allen Co., acting as placement agent,
to individual and corporate accredited investors. The aggregate amount sold was
$564,489, reflecting a $1.35 per share offering price. The placement agents
received warrants to purchase 62,720 shares of common stock at $1.35 per share,
and $56,449 in cash. The Company relied on Section 4(2) of the Act, and on Rule
506 of Regulation D promulgated thereunder, in issuing the shares without
registering the offering under the Act. The Company relied upon representations
and warranties of the investors in the private placement contained in the
subscription agreements entered into between the Company and the private
placement investors, to the effect that such investors were accredited
investors, as well as investor questionnaires completed by such investors.
II-3
<PAGE> 92
ITEM 27. EXHIBITS
Exhibit
NO. DESCRIPTION OF EXHIBIT
2.1 Plan of Merger between Sonus Park Acquisition, Inc. and Sonus
Communications, Inc. dated February 26, 1999, contained in
the Agreement of Merger previously filed as Exhibit 3.1(f) to
Form 10-SB filed May 14, 1999 (the "Form 10-SB"), hereby
incorporated by reference.
2.2 Agreement and Plan of Merger dated April 12, 1999, contained
in the Articles of Merger previously filed as Exhibit 3.1(g)
to Form 10-SB, hereby incorporated by reference.
2.3 Merger Agreement dated as of November 15, 1999 among the
Company, EOT Acquisition Corporation, Empire One
Telecommunications, Inc., John K. Friedman, Paul A. Butler,
and Bradley D. Lewis.
3.1 Certificate of Incorporation, previously filed as Exhibit 2.1
of Form 10-SB, hereby incorporated by reference.
3.2 By-laws, previously filed as Exhibit 2.2 of Form 10-SB,
hereby incorporated by reference.
4.1 Stock Subscription Agreement dated January 14, 1999,
previously filed as Exhibit 3.1(a) of Form 10-SB, hereby
incorporated by reference.
4.2 Placement Agent Agreement dated January 14, 1999, previously
filed as Exhibit 3.1(b) of Form 10-SB, hereby incorporated by
reference.
4.3 Shareholders Agreement dated as of January 21, 1999,
previously filed as Exhibit 3.1(c) of Form 10-SB, hereby
incorporated by reference.
4.4 10% Convertible Debentures dated May 5, 1999, previously
filed as Exhibit 3.1(d) of Form 10-SB, hereby incorporated by
reference.
4.5 Debenture Purchase Agreement dated May 5, 1999, previously
filed as Exhibit 3.1(e) of Form 10-SB, incorporated herein by
reference.
4.6 Articles of Merger dated February 26, 1999, previously filed
as Exhibit 3.1(f) of Form 10-SB, hereby incorporated by
reference.
4.7 Articles of Merger dated April 12, 1999, previously filed as
Exhibit 3.1(g) of Form 10-SB, hereby incorporated by
reference.
4.8 Certificate of Merger dated April 12, 1999, previously filed
as Exhibit 3.1(h) of Form 10-SB, hereby incorporated by
reference.
4.9 78,750 Placement Agent Warrants issued to L. Flomenhaft &
Co., Inc. dated January 21, 1999.
4.10 11,250 Warrants issued to Lawrence Kaplan dated January 21,
1999.
4.11 487,500 Consulting Warrants issued to L. Flomenhaft & Co.,
Inc. dated January 21, 1999.
4.12 86,250 Debenture Placement Agent Warrants issued to L.
Flomenhaft & Co., Inc. dated August 3, 1999.
4.13 Form of Unit Warrant issued to various purchaser dated August
3, 1999.
4.14 32,812 Unit Placement Agent Warrants issued to L. Flomenhaft
dated August 3, 1999.
II-4
<PAGE> 93
4.15 4,688 Unit Placement Agent Warrant issued to Tanner Unman
Securities, Inc. on August 3, 1999.
4.16 4,444 Placement Agent Warrants issued to Coffin & Sons, Inc.
dated November 22, 1999.
4.17 58,276 Placement Agent Warrants issued to L. Flomenhaft &
Co., Inc. dated November 22, 1999.
5 Opinion re: legality
10.1 Employment Agreement dated as of April 15, 1999 between the
Company and Charles W. Albo.
10.2 Employment Agreement dated as of April 15, 1999 between the
Company and Nana Maraneli.
10.3 Consulting Agreement between Sonus Communications, Inc. and
L. Flomenhaft & Co., Inc. dated January 14, 1999, previously
filed as Exhibit 6.1(a) of Form 10-SB, hereby incorporated
by reference.
10.4 Placement Agent Agreement between Sonus Communications, Inc.
and L. Flomenhaft & Co., Inc. dated January 14, 1999,
previously filed as Exhibit 3.1(b) of Form 10-SB, hereby
incorporated by reference.
10.5 Employment Agreement with Richard D. Rose dated April 15,
1999, previously filed as Exhibit 6.1(c) of Form 10-SB,
hereby incorporated by reference.
10.6 Consulting Agreement with Raleigh Coffin dated as of April
15, 1999, previously filed as Exhibit 6.1(d) of Form 10-SB,
hereby incorporated by reference.
10.7 10% Convertible Debentures dated May 5, 1999, previously
filed as Exhibit 3.1(d) of Form 10-SB, hereby incorporated by
reference.
10.8 Consulting Agreement dated April 15, 1999 between the Company
and Coffin & Sons, Inc., previously filed as Exhibit 6.1(f)
of Form 10-SB, hereby incorporated by reference.
10.9 Hudson Allen Letter Agreement
15 Letter of Lazar Levine & Felix, LLP on unaudited interim
financial information.
22 Subsidiaries of the Company: Sonus Communication, Inc., a
Virginia corporation, and EOT Acquisition Corporation, a
Delaware corporation.
23.1 Consent of Lazar, Levine & Felix LLP for the use of Sonus
Communications, Inc. Independent Auditors' Report dated April
1, 1999.
23.2 Consent of Lazar, Levine & Felix LLP for the use of The Park
Group, Ltd. Independent Auditors' Report dated March 26,
1999.
23.3 Consent of Scott & Guilfoyle for the use of The Park Group,
Ltd. Independent Auditors' Report dated March 9, 1998.
23.4 Consent of McGuire, Woods, Battle & Boothe, LLP, contained in
the opinion of McGuire, Woods, Battle & Boothe, LLP attached
as Exhibit 5 hereto and incorporated herein by reference.
ITEM 28. UNDERTAKINGS
The undersigned Company hereby undertakes to:
II-5
<PAGE> 94
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from the
law or high end of the estimate maximum offering range may be reflected in the
form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the `Calculation of
Registration Fee' table in the effective registration statement;
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question as to whether such indemnification by it is against
public policy as expressed in the Securities Act, and will be governed by the
final adjudication of such issue.
The undersigned hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective. (2) For the purpose of
determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-6
<PAGE> 95
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Company certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the city of
Arlington, State of Virginia, on the 6th day of December, 1999.
SONUS COMMUNICATION HOLDINGS, INC.
By: /s/ W. Todd Coffin
--------------------
W. Todd Coffin
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on the 6th day
of December, 1999, in the capacities indicated.
SIGNATURE POSITION
/s/ W. Todd Coffin W. Todd Coffin, Chief Executive Officer
- ---------------------- (Principal Executive Officer) and Director
/s/ Richard D. Rose Chief Financial Officer (Principal
- ---------------------- Financial and Accounting Officer)
/s/ Charles W. Albo Charles W. Albo, Director
- ----------------------
/s/ Nana Maraneli Nana Maraneli, Director
- ----------------------
/s/ Raleigh Coffin Raleigh Coffin, Director
- ----------------------
II-7
<PAGE> 96
INDEX TO EXHIBITS
Exhibit
NO. DESCRIPTION OF EXHIBIT
2.1 Plan of Merger between Sonus Park Acquisition, Inc. and Sonus
Communications, Inc. dated February 26, 1999, contained in
the Agreement of Merger previously filed as Exhibit 3.1(f) to
Form 10-SB filed May 14, 1999 (the "Form 10-SB"), hereby
incorporated by reference.
2.2 Agreement and Plan of Merger dated April 12, 1999, contained
in the Articles of Merger previously filed as Exhibit 3.1(g)
to Form 10-SB, hereby incorporated by reference.
2.3 Merger Agreement dated as of November 15, 1999 among the
Company, EOT Acquisition Corporation, Empire One
Telecommunications, Inc., John K. Friedman, Paul A. Butler,
and Bradley D. Lewis.
3.1 Certificate of Incorporation, previously filed as Exhibit 2.1
of Form 10-SB, hereby incorporated by reference.
3.2 By-laws, previously filed as Exhibit 2.2 of Form 10-SB,
hereby incorporated by reference.
4.1 Stock Subscription Agreement dated January 14, 1999,
previously filed as Exhibit 3.1(a) of Form 10-SB, hereby
incorporated by reference.
4.2 Placement Agent Agreement dated January 14, 1999, previously
filed as Exhibit 3.1(b) of Form 10-SB, hereby incorporated by
reference.
4.3 Shareholders Agreement dated as of January 21, 1999,
previously filed as Exhibit 3.1(c) of Form 10-SB, hereby
incorporated by reference.
4.4 10% Convertible Debentures dated May 5, 1999, previously
filed as Exhibit 3.1(d) of Form 10-SB, hereby incorporated by
reference.
4.5 Debenture Purchase Agreement dated May 5, 1999, previously
filed as Exhibit 3.1(e) of Form 10-SB, incorporated herein by
reference.
4.6 Articles of Merger dated February 26, 1999, previously filed
as Exhibit 3.1(f) of Form 10-SB, hereby incorporated by
reference.
4.7 Articles of Merger dated April 12, 1999, previously filed as
Exhibit 3.1(g) of Form 10-SB, hereby incorporated by
reference.
4.8 Certificate of Merger dated April 12, 1999, previously filed
as Exhibit 3.1(h) of Form 10-SB, hereby incorporated by
reference.
4.9 78,750 Placement Agent Warrants issued to L. Flomenhaft &
Co., Inc. dated January 21, 1999.
4.10 11,250 Warrants issued to Lawrence Kaplan dated January 21,
1999.
4.11 487,500 Consulting Warrants issued to L. Flomenhaft & Co.,
Inc. dated January 21, 1999.
4.12 86,250 Debenture Placement Agent Warrants issued to L.
Flomenhaft & Co., Inc. dated August 3, 1999.
4.13 Form of Unit Warrant issued to various purchaser dated August
3, 1999.
4.14 32,812 Unit Placement Agent Warrants issued to L. Flomenhaft
dated August 3, 1999.
II-8
<PAGE> 97
4.15 4,688 Unit Placement Agent Warrant issued to Tanner Unman
Securities, Inc. on August 3, 1999.
4.16 4,444 Placement Agent Warrants issued to Hudson Allen & Co.
dated November 22, 1999.
4.17 58,276 Placement Agent Warrants issued to L. Flomenhaft &
Co., Inc. dated November 22, 1999.
5 Opinion re: legality
10.1 Employment Agreement dated as of April 15, 1999 between the
Company and Charles W. Albo.
10.2 Employment Agreement dated as of April 15, 1999 between the
Company and Nana Maraneli.
10.3 Consulting Agreement between Sonus Communications, Inc. and
L. Flomenhaft & Co., Inc. dated January 14, 1999, previously
filed as Exhibit 6.1(a) of Form 10-SB, hereby incorporated by
reference.
10.4 Placement Agent Agreement between Sonus Communications, Inc.
and L. Flomenhaft & Co., Inc. dated January 14, 1999,
previously filed as Exhibit 3.1(b) of Form 10-SB, hereby
incorporated by reference.
10.5 Employment Agreement with Richard D. Rose dated April 15,
1999, previously filed as Exhibit 6.1(c) of Form 10-SB,
hereby incorporated by reference.
10.6 Consulting Agreement with Raleigh Coffin dated as of April
15, 1999, previously filed as Exhibit 6.1(d) of Form 10-SB,
hereby incorporated by reference.
10.7 10% Convertible Debentures dated May 5, 1999, previously
filed as Exhibit 3.1(d) of Form 10-SB, hereby incorporated by
reference.
10.8 Consulting Agreement dated April 15, 1999 between the Company
and Coffin & Sons, Inc., previously filed as Exhibit 6.1(f)
of Form 10-SB, hereby incorporated by reference.
10.9 Hudson Allen Letter Agreement
15 Letter of Lazar Levine & Felix, LLP on unaudited interim
financial information.
22 Subsidiaries of the Company: Sonus Communication, Inc., a
Virginia corporation, and EOT Acquisition Corporation, a
Delaware corporation.
23.1 Consent of Lazar, Levine & Felix LLP for the use of Sonus
Communications, Inc. Independent Auditors' Report dated April
1, 1999.
23.2 Consent of Lazar, Levine & Felix LLP for the use of The Park
Group, Ltd. Independent Auditors' Report dated March 26,
1999.
23.3 Consent of Scott & Guilfoyle for the use of The Park Group,
Ltd. Independent Auditors' Report dated March 9, 1998.
23.4 Consent of McGuire, Woods, Battle & Boothe, LLP, contained in
the opinion of McGuire, Woods, Battle & Boothe, LLP attached
as Exhibit 5 hereto and incorporated herein by reference.
II-9
<PAGE> 1
EXHIBIT 2.3
MERGER AGREEMENT
DATED AS OF NOVEMBER 15, 1999
BY AND AMONG
SONUS COMMUNICATION HOLDINGS, INC.
EOT ACQUISITION CORPORATION
EMPIRE ONE TELECOMMUNICATIONS, INC.
AND
THE STOCKHOLDERS NAMED HEREIN
FOR THE MERGER OF
EMPIRE ONE TELECOMMUNICATIONS
WITH AND INTO
EOT ACQUISITION CORPORATION
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE 1 DEFINITIONS1
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 2 MERGER; CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.1 Merger. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.2 Conversion of Target Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 2.3 Conversion of Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.4 Issuance of Merger Shares into Escrow Upon Signing of this Agreement. . . . . . . . . . . . 11
Section 2.5 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.6 Escrow. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.7 Release of Escrow Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.8 Confirmation of Equity Value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.9 Alex Adelson Options. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.10 Assumption of Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF TARGET AND PRINCIPAL
STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.1 Organization and Qualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.2 Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3.3 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3.4 Subsidiaries; Officers and Directors; Charter and Bylaws. . . . . . . . . . . . . . . . . . 13
Section 3.5 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.6 Governmental Approvals and Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.7 Minute Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.9 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.10 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.12 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.13 Compliance with Laws and Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.14 Plans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 3.15 Real Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.16 Tangible Personal Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.17 Intellectual Property Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 3.18 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 3.19 Permits and Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.20 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.21 Affiliate Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.22 Employees, Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.23 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.24 Substantial Customers and Suppliers. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.25 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.26 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.27 Other Negotiations; Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.28 Restrictions on Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 3.29 Bank and Brokerage Accounts; Investment Assets . . . . . . . . . . . . . . . . . . . . . 28
Section 3.30 Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.31 Business Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.32 Investment Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.33 Certain Practices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 3.34 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ACQUISITION AND SONUS . . . . . . . . . . . . . . . . . . . . . 30
Section 4.1 Organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.3 No Conflicts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.4 Governmental Approvals and Filings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.5 Capital Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.6 Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.7 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.8 Absence of Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.9 No Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.10 Restrictions on Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.11 Business Plan. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.12 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 5 CERTAIN AGREEMENTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.1 Conduct of Business Prior to the Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 5.2 Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.3 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.4 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 5.5 Regulatory and Other Authorizations; Consents. . . . . . . . . . . . . . . . . . . . . . . 38
Section 5.6 No Solicitation of Offers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 5.7 Notice of Certain Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 5.8 Interim Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.9 Principal Stockholders' Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.10 Further Action, Related Assets and Properties. . . . . . . . . . . . . . . . . . . . . . 40
Section 5.11 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 5.12 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE 6 CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.1 Conditions to Obligations of Target and the Principal Stockholders. . . . . . . . . . . . . 40
Section 6.2 Conditions to Obligations of Sonus and Acquisition. . . . . . . . . . . . . . . . . . . . . 42
ARTICLE 7 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . 44
Section 7.1 Survival of Representations, Warranties, Covenants and Agreements. . . . . . . . . . . . . 44
ARTICLE 8 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 8.2 Method of Asserting Claims. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE 9 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.1 Grounds for Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 9.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 9.3 Payment of Fees and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 10 ARBITRATION OF DISPUTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.1 Arbitration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 10.2 Procedure for Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 11.2 Entire Agreement, Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.3 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.4 Cumulative Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.5 Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.6 No Assignment, Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.7 Invalid Provisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.8 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 11.9 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 11.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
iii
<PAGE> 5
LIST OF SCHEDULES AND EXHIBITS
TARGET DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
No. Description
- --- -----------
<S> <C>
1.1 Permitted Liens
3.1 Jurisdictions in which Target is Qualified to do Business
3.2 Holders of Target Stock
3.4 Subsidiaries (capitalization; qualification); and Directors and Officers of Target and Subsidiaries
3.5 Conflicts, Violations and Breaches
3.6 Governmental Approvals and Filings
3.8 Financial Statements
3.9 Absence of Changes
3.10 Certain Liabilities
3.11 Taxes
3.12 Legal Proceedings
3.14 Plans
3.15 Real Property
3.16 Tangible Personal Property
3.17 Intellectual Property
3.18 Contracts
3.19 Permits and Licenses
3.20 Insurance
3.21 Affiliate Transactions
3.22 Employees; Labor Relations
3.23 Environmental Matters
3.24 Largest Customers and Suppliers
3.29 Bank and Brokerage Accounts; Investment Assets
4.4 Target Governmental Approvals and Filings
6.2(d) Required Consents - Acquisition Condition
8.1(b) Personal Guarantees
9.3(g) Target's Costs and Fees
</TABLE>
iv
<PAGE> 6
SONUS DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
No. Description
- --- -----------
<S> <C>
4.3 Conflicts, Violations and Breaches
4.4 Governmental Approvals and Filings
4.5 Options
4.6 Legal Proceedings
4.7 Absence of Changes
4.8 Certain Liabilities
</TABLE>
v
<PAGE> 7
EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description
- ------- -----------
<S> <C>
Exhibit A1 Certificate of Merger to be filed with the Secretary of State of Delaware
Exhibit A2 Certificate of Merger to be filed with the Department of State of New York
Exhibit B Merger Shares Escrow Agreement
Exhibit C Principal Stockholders' Escrow Agreement
Exhibit D Registration Rights Agreement
Exhibit E Reserved
Exhibit F Employment Agreements
Exhibit G Reserved
</TABLE>
vi
<PAGE> 8
MERGER AGREEMENT
This Merger Agreement (this "Agreement"), dated as of November 15,
1999, is entered into by and among Sonus Communication Holdings, Inc., a
Delaware corporation ("Sonus"), EOT Acquisition Corporation, a Delaware
corporation and wholly-owned subsidiary of Sonus ("Acquisition"), Empire One
Telecommunications, Inc., a New York corporation ("Target"), John K. Friedman
("Friedman"), Paul A. Butler ("Butler"), and Bradley D. Lewis ("Lewis" and,
together with Friedman and Butler, the "Principal Stockholders").
BACKGROUND
The parties to this Agreement desire to merge Target with and into
Acquisition at the Effective Time (as defined below), pursuant to which, at the
Effective Time: (i) Target will cease to exist and Acquisition will be the
surviving corporation following the merger (the "Merger"); (ii) all of the
issued and outstanding shares of capital stock of Target will automatically
convert into shares of common stock, par value $.0001 per share, of Sonus (the
"Sonus Common Stock"), in accordance with the terms and conditions of this
Agreement; and (iii) Acquisition will change its name to Empire One
Telecommunications, Inc., all in accordance with the terms and conditions of
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. As used in this Agreement, the
following defined terms shall have the meanings indicated below:
"AAA" has the meaning ascribed to it in Section 10.1.
"Acquisition" has the meaning ascribed to it in the forepart of this
Agreement.
"Acquisition Indemnitees" has the meaning ascribed to it in Section
8.1(a).
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"Affiliate" means, as applied to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with
that Person, (b) any other Person that owns or controls five percent (5%) or
more of any class of equity securities (including any equity securities
issuable upon the exercise of any option or convertible security) of that
Person or any of its Affiliates, or (c) any director, partner, officer, agent,
employee or relative of such Person. For the purposes of this definition,
"control" (including with correlative meanings, the terms "controlling",
"controlled by", and "under common control with") as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through
ownership of voting securities or by contract or otherwise.
1
<PAGE> 9
"Agreement" means this Merger Agreement, the Exhibits, the Target
Disclosure Schedule, the Sonus Disclosure Schedule and the certificates
delivered in connection herewith, as the same may be amended from time to time
in accordance with the terms hereof.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including the goodwill related
thereto, operated, owned or leased by such Person, including without limitation
cash, cash equivalents, Investment Assets, accounts and notes receivable,
chattel paper, documents, instruments, general intangibles, real estate,
equipment, inventory, goods and Intellectual Property.
"Associate" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner or is
the beneficial owner, directly or indirectly, of ten percent (10%) or more of
any class of equity securities, any trust or estate in which such Person has a
substantial beneficial interest or as to which such Person serves as a trustee
or in a similar capacity and any relative or spouse of such Person, or any
relative of such spouse, who has the same home as such Person.
"Balance Sheet" has the meaning ascribed to it in Section 3.8.
"Balance Sheet Date" means September 30, 1999.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to Target and the Subsidiaries, including without
limitation financial statements, Tax Returns and related work papers and
letters from accountants, budgets, pricing guidelines, ledgers, journals,
deeds, title policies, minute books, stock certificates and books, stock
transfer ledgers, Contracts, Permits, customer lists, computer files and
programs, retrieval programs, operating data and plans and environmental
studies, audits, reports and plans.
"Business Combination" means with respect to any Person any (i)
merger, amalgamation, consolidation or combination to which such Person is a
party, (ii) any sale, dividend, split or other disposition of any capital stock
or other equity interests of such Person, (iii) any tender offer (including
without limitation a self-tender), exchange offer, recapitalization,
liquidation, dissolution or similar transaction, (iv) any sale (including,
without limitation, a bulk sale), dividend or other disposition of all or a
material portion of the Assets and Properties of such Person or (v) the
entering into of any agreement or understanding, or the granting of any rights
or options, with respect to any of the foregoing.
"Business or Condition" means, with respect to any Person, the
business, operations, assets, Liabilities, condition (financial or otherwise),
results of operations, Assets and Properties and prospects of such Person or
its Subsidiaries.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in New York, New York are authorized or obligated to close.
"Certificates of Merger" shall have the meaning ascribed such terms in
Section 2.1 of this Agreement.
"Claim Notice" means written notification pursuant to Section 8.2(a)
of a Third Party Claim as to which indemnity under Section 8.1 is sought by an
Indemnified Party, enclosing a copy of all papers served, if any, on the
Indemnified Party and otherwise describing the Indemnified Party's claim
against the Indemnifying Party under Section 8.1.
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"Closing" has the meaning ascribed to it in Section 2.5.
"Closing Date" has the meaning ascribed to it in Section 2.5.
"Competing Transaction" has the meaning ascribed to it in Section 9.3.
"Contract" means any agreement, lease, license, evidence of
Indebtedness, mortgage, indenture, security agreement or other contract,
commitment or understanding (whether written or oral).
"Conversion Ratio" has the meaning ascribed to it in Section 2.2.
"Dispute" has the meaning ascribed to it in Section 10.1.
"Dispute Period" means the period ending thirty (30) calendar days
following receipt by an Indemnifying Party of an Indemnity Notice.
"Dollar(s)" or "$" means lawful currency of the United States of
America.
"Effective Time" has the meaning ascribed to it in Section 2.1.
"Employees" has the meaning ascribed to it in Section 3.14(a).
"Employment Agreements" means the employment agreements to be executed
and delivered on or prior to Closing by the Principal Stockholders in the form
of Exhibit F.
"Environment" means all air, surface water (including, without
limitation, navigable waters and ocean waters), groundwater, drinking water
supplies, stream sediments or land (including land surface or subsurface),
including all fish, wildlife, biota and all other natural resources.
"Environmental Claim" means any and all administrative or judicial
actions, suits, orders, claims, liens, notices, notices of violations,
investigations, complaints, requests for information, proceedings, or other
communication (written or oral), whether criminal, penal or civil, pursuant to
or relating to any applicable Environmental Law by any person (including but
not limited to any Governmental or Regulatory Authority, private person and
citizens' group) based upon, alleging, asserting, or claiming any actual or
potential (i) violation of or Liability under any Environmental Law, (ii)
violation of any Environmental Permit, or (iii) Liability for investigatory
costs, cleanup costs, removal costs, remedial costs, response costs, natural
resource damages, property damage, personal injury, fines, or penalties arising
out of, based on, resulting from, or related to the presence, Release, or
threatened Release into the Environment, of any Hazardous Substances at any
location, including but not limited to any off-Site location to which Hazardous
Substances or materials containing Hazardous Substances were sent for handling,
storage, treatment, or disposal.
"Environmental Law" means any and all current and future civil, penal
and criminal Laws (including administrative and judicial interpretations of
these Laws by any Governmental or Regulatory Authority), statutes, ordinances,
orders, codes, treaties, rules, regulations, Environmental Permits, policies,
guidance documents, judgments, decrees, injunctions, or agreements of or with
any Governmental or Regulatory Authority, relating to the protection of health
and the Environment, worker health and safety, and/or governing the handling,
use, generation, treatment, storage, transportation, disposal, manufacture,
distribution, formulation, packaging, labeling, or Release of Hazardous
Substances, whether now existing or subsequently amended or enacted, and the
foreign analogies thereof, all as amended or superseded from time to time; and
any common law doctrine, including but not limited
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to, negligence, nuisance, trespass, personal injury, or property damage related
to or arising out of the presence, Release, or exposure to a Hazardous
Substance.
"Environmental Liabilities" means Liabilities of a Person that arise
under any Environmental Law, including, but not limited to, all financial
responsibility under any Environmental Law for site assessments, investigatory
and testing costs, clean-up costs or corrective actions (including, without
limitation, for any removal, remedial or other response actions), and any other
costs, fines and penalties.
"Environmental Permit" means any United States federal, state, or
local permits, licenses, approvals, consents or authorizations required by any
Governmental or Regulatory Authority under or in connection with any
Environmental Law and includes any and all orders, consent orders or binding
agreements issued or entered into by a Governmental or Regulatory Authority
under any applicable Environmental Law.
"Equity Value" means $3,197,493, reflecting the equity value of Target
on September 30, 1999, calculated by taking $3,209,119 (the equity value of
Target on June 30, 1999) and reducing (or increasing) it, Dollar for Dollar,
for (1) increases (decreases) in working capital deficit from June 30, 1999,
(2) increases (decreases) in before tax assets from June 30, 1999, (3)
increases (decreases) in working capital required in the ordinary course of
business, from $500,000, and (4) increases (decreases) in long-term debt and
liabilities from June 30, 1999.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Escrow Agent" means McGuire, Woods, Battle & Boothe LLP.
"Escrow Amount" has the meaning ascribed to it in Section 2.6.
"Escrow Shares" has the meaning ascribed to it in Section 2.6.
"Financial Statements" has the meaning ascribed to it in Section 3.8.
"GAAP" means United States generally accepted accounting principles
(as defined by the United States Financial Accounting Standards Board),
consistently applied.
"Governmental or Regulatory Authority" means (i) the United States of
America, any state, commonwealth, territory, city, county, possession, or any
other political subdivision or quasi-governmental authority of any of the same,
including, but not limited to, any court, tribunal, arbitrator, authority,
department, ministry, commission, board, bureau, agency, county, municipality,
province, parish and other instrumentality or other regulatory body or entity,
and shall include, without limitation, any stock exchange, quotation service,
and the National Association of Securities Dealers, and (ii) any foreign (as to
the United States of America) sovereign entity, including, but not limited to,
nations, states, republics, kingdoms and principalities, any state, province,
commonwealth, territory or possession thereof, and any political subdivision,
quasi-governmental authority or instrumentality of any of the same.
"Hazardous Substances" means all contaminants, pollutants, chemicals,
deleterious substances, wastes or industrial, toxic or hazardous wastes or
substances including, without limitation, petroleum and petroleum products,
asbestos in any form that is or could become friable, urea, formaldehyde, foam
insulation and transformers or other equipment that contain dielectric fluid
levels of polychlorinated biphenyls ("PCBs"), flammable material or radioactive
materials (or any other chemical, material, substance or waste, exposure to
which is now or hereafter prohibited, limited or regulated by any
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<PAGE> 12
Governmental or Regulatory Authority), issued or discharged into the
Environment in a greater quantity or concentration than that provided for in
any Environmental Law or the presence of which in the Environment is prohibited
pursuant to any Environmental Law. For the purposes of this definition,
"contaminants" means any solid, liquid or gaseous matter, microorganism, sound,
vibration, ray, heat, water, radiation or a combination of any of them that
adversely alters the quality of the Environment.
"Indebtedness" of any Person means, at any date, without duplication,
(i) all obligations of such Person for borrowed money, (ii) all obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services (other than trade accounts payable arising in the ordinary
course of business), (iv) all capital lease obligations of such Person, (v) all
obligations of such Person to purchase securities or other property which arise
out of or in connection with the sale of the same or substantially similar
securities or property, (vi) all obligations of such Person to reimburse any
bank or other Person in respect of amounts paid under a letter of credit,
bankers' acceptance or similar instrument, (vii) all obligations of others
secured by a Lien on any asset of such Person, whether or not such obligation
is assumed by such Person or for which such Person would be liable therefor
under applicable law or any agreement or instrument by virtue of such Person's
ownership interest in or other relationship with such entity, (viii) all
obligations of others guaranteed by such Person, and (ix) with respect to any
swaps, puts calls, collars, caps or other derivative transactions with respect
to or in connection with any of the foregoing.
"Indemnified Party" means any Person claiming indemnification in
accordance with any provision of Article 8.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted in accordance with any provision of Article
8.
"Indemnity Notice" means written notification pursuant to Section
8.2(c) of a claim for indemnity under Article 8 by an Indemnified Party,
specifying the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount, determined in good
faith, of such claim.
"Intellectual Property" means (i) inventions, whether or not
patentable, whether or not reduced to practice, and whether or not yet made the
subject of a pending patent application or applications, (ii) ideas and
conceptions of potentially patentable subject matter, including, without
limitation, any patent disclosures, whether or not reduced to practice and
whether or not yet made the subject of a pending patent application or
applications, (iii) national (including the United States) and multinational
statutory invention registrations, patents, patent registrations and patent
applications (including all reissues, divisions, continuations,
continuations-in-part, extensions and reexaminations) and all rights therein
provided by international treaties or conventions and all improvements to the
inventions disclosed in each such registration, patent or application, (iv)
trademarks, service marks, trade dress, logos, trade names and corporate names,
whether or not registered, including all common law rights, and registrations
and applications for registration thereof, including, but not limited to, all
marks registered in the United States Patent and Trademark Office, the
Trademark Offices of the States and Territories of the United States of America
and the Trademark Offices of other nations throughout the world, and all rights
therein provided by international treaties or conventions, (v) copyrights
(registered or otherwise) and registrations and applications for registration
thereof, and all rights provided by international treaties or conventions, (vi)
computer software, including, without limitation, source code, operating
systems and specifications, data, data bases, files, documentation and other
materials related thereto, (vii) trade secrets and confidential, technical and
business information (including ideas, formulas, compositions, inventions and
conceptions of inventions whether patentable or unpatentable and whether or not
reduced to practice), (viii) whether or not confidential, technology (including
know-how and show-how), manufacturing and
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production processes and techniques, research and development information,
drawings, specifications, designs, plans, proposals, technical data,
copyrightable works, financial, marketing and business data, pricing and cost
information, business and marketing plans and customer and supplier lists and
information, (ix) copies and tangible embodiments of all the foregoing, in
whatever form or medium, (x) all rights to obtain and rights to apply for
patents, and to register trademarks and copyrights, and (xi) all rights to sue
or recover and retain damages and costs and attorneys' fees for present and
past infringement of any of the foregoing.
"Intellectual Property License Agreements" has the meaning ascribed to
it in Section 3.17(a).
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and securities
convertible into or exchangeable for other securities), interests in joint
ventures, limited liability companies and general and limited partnerships,
mortgage loans and other investment or portfolio assets owned of record or
beneficially by Target or any Subsidiary.
"IRS" means the Internal Revenue Service of the United States.
"Judgment" means any judgment, writ, order, injunction, award or
decree of any court, judge, justice or magistrate, including any bankruptcy
court or judge, and any order of or by any Governmental Authority.
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States, any foreign
country or any state, county, province, territory, city or other political
subdivision or of any Governmental or Regulatory Authority.
"Leased Real Property" has the meaning ascribed to it in Section
3.15(a).
"Legal Requirements" means applicable common law and any statute,
ordinance, code or other law, rule, regulation, order, technical or other
standard, requirement or procedure enacted, adopted, promulgated or applied by
any Governmental Authority, including Judgments.
"Liabilities" means all Indebtedness, obligations and other
liabilities (or contingencies that have not yet become liabilities) of a Person
(whether absolute, accrued, contingent (or based upon any contingency), known
or unknown, fixed or otherwise, or whether due or to become due), including,
without limitation, any fines, penalties, judgments, awards, settlements
respecting any judicial, administrative or arbitration proceedings, damages,
losses, claims or demands with respect to any Law.
"Liens" means any liens, security interests, valid claims, pledges,
deposits, bills of sale, hypothecations, encumbrances of every kind,
arrangements for the retention of title and any other restriction, right,
interest, power or arrangement of any nature having the purpose or effect of
providing security for, or otherwise protecting against default in respect of,
the obligations of any Person, other than (i) ad valorem Taxes not currently
due and payable, and (ii) purchase money security interests.
"Loss" means any and all damages, fines, fees, penalties,
deficiencies, diminution in value of investment, losses and expenses, including
without limitation, interest, reasonable expenses of investigation, court
costs, reasonable fees and expenses of attorneys, accountants and other experts
or other expenses of litigation, arbitration or other proceedings or of any
claim, default or assessment (such
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fees and expenses to include without limitation all fees and expenses of
attorneys incurred in connection with (i) the investigation or defense of any
Third Party Claims or (ii) asserting or disputing any rights under this
Agreement against any party hereto or otherwise).
"Merger" means the merger contemplated by this Agreement.
"Merger Share Certificates" has the meaning ascribed to it in Section
2.2.
"Merger Shares" means all of the shares of Sonus Common Stock to be
issued to the shareholders of Target in connection with the Merger.
"Merger Shares Escrow Agreement" has the meaning ascribed to it in
Section 2.4.
"Old Target Certificate" or "Old Target Certificates" has the meaning
ascribed to it in Section 2.2.
"Operative Agreements" means this Agreement, the Merger Shares Escrow
Agreement, the Principal Stockholder Escrow Agreement, the Registration Rights
Agreement and any other agreements to be entered into in connection with the
transactions contemplated by this Agreement.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock or other equity interests of such Person or any security of any
kind convertible into or exchangeable or exercisable for any shares of capital
stock or other equity interests of such Person or (ii) receive any benefits or
rights similar to any rights enjoyed by or accruing to the holder of shares of
capital stock or other equity interests of such Person, including without
limitation any rights to participate in the equity, income or election of
directors or officers of such Person.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"Other Stockholders" means holders of capital stock of Target other
than the Principal Stockholders.
"Owned Real Property" has the meaning ascribed to it in Section
3.15(a).
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permits" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
"Permitted Liens" means (i) Liens for Taxes or governmental
assessments, charges or claims the payment of which is not yet due, or for
Taxes the validity of which are being contested in good faith by appropriate
proceedings; (ii) statutory Liens of landlords and Liens of carriers,
contractors, warehousemen, mechanics, materialmen and other similar Persons
imposed by applicable Law and incurred in the ordinary course of business for
sums not yet delinquent or being contested in good faith and which, in the case
of Owned Real Property, shall have been discharged before the Closing; (iii)
Liens relating to deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types
of social security or to secure the performance of leases, trade contracts or
other similar agreements; (iv) Liens specifically identified in the Balance
Sheet; (v) Liens
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securing executory obligations under any lease that constitutes an "operating
lease" under GAAP; and (vi) other Liens set forth in Section 1.1 of the Target
Disclosure Schedule; provided, however, that with respect to each of the
foregoing clauses (i) through (v), to the extent that any such Lien arose on or
prior to the date of the Balance Sheet and relates to, or secures the payment
of, a Liability that is required to be accrued under GAAP, such Lien shall not
be a Permitted Lien unless adequate accruals for such Liability have been
established therefor on such Balance Sheet in conformity with GAAP.
Notwithstanding the foregoing, no Lien arising under the Internal Revenuer Code
shall be a Permitted Lien.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability company or partnership, proprietorship,
other business organization, trust, union, association or Governmental or
Regulatory Authority.
"Personal Guarantees" has the meaning ascribed to it in Section
8.1(b).
"Plan" means all employee pension plans, any bonus, incentive
compensation, deferred compensation, profit sharing, retirement, savings, stock
purchase, stock option, stock ownership, stock appreciation rights, phantom
stock, leave of absence, layoff, vacation, day or dependent care, legal
services, cafeteria, life, medical, dental, health, accident, disability,
workers' compensation or other insurance, severance, separation or other
employee benefit plan, practice, policy, program or arrangement of any kind
providing money (other than as current salary or wages), services, property or
other benefits, written or oral, funded or unfunded, and including all that
have been frozen or terminated, and all trust, escrow or similar agreements
related thereto, funded or unfunded, which are maintained by Target or any
Subsidiary with respect to any of its present or former employees, independent
contractors, directors, officers or shareholders or with respect to which
Target or any Subsidiary has made or is required to make payments, transfers or
contributions or is required to administer and make regulatory filings.
"Principal Stockholder" or "Principal Stockholders" has the meaning
ascribed to it in the forepart of this Agreement.
"Principal Stockholders' Escrow Agreement" has the meaning ascribed to
it in Section 2.6.
"Principal Stockholder Indemnitees" has the meaning ascribed to it in
Section 8.1 (b).
"Real Property Leases" has the meaning ascribed to it in Section
3.15(a).
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of
a Hazardous Substance into the Environment.
"Release Date" has the meaning ascribed to it in Section 2.7.
"Representatives" means, with respect to any Person, such Person and
its Affiliates and each of their respective officers, employees, agents,
counsel, accountants, financial advisors, consultants and other
representatives.
"Resolution Period" means the period ending thirty (30) calendar days
following receipt by an Indemnified Party of an Arbitration Notice.
"Sale" has the meaning ascribed to it in Section 5.6(a).
"Securities Act" means the (United States) Securities Act of 1933, as
amended, and the rules and regulations thereunder.
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"Site" means any of the real properties currently or previously owned,
leased or operated by Target or any Subsidiary, any predecessors of Target or
any Subsidiary or any entities previously owned by Target or any Subsidiary,
including all soil, subsoil, surface waters and groundwater thereat.
"Sonus Common Stock" means the common stock of Sonus, par value $.0001
per share.
"Sonus Disclosure Schedule" means the schedules delivered to Principal
Stockholders by or on behalf of Sonus.
"Stockholder Indebtedness" has the meaning ascribed to it in Section
2.11.
"Subsidiary" means, with respect to Target or Sonus (i) those
corporations identified by name in Section 3.4 hereof or Section 3.4 of the
Target Disclosure Schedule with respect to Target, or Section 4.3 hereof or
Section 4.3 of the Sonus Disclosure Schedule with respect to Sonus, (ii) any
other corporation as to which more than ten percent (10%) of the outstanding
stock having ordinary voting rights or power (and excluding stock having voting
rights only upon the occurrence of a contingency unless and until such
contingency occurs and such rights may be exercised) is owned or controlled,
directly or indirectly, by Target or Sonus, as the case may be and/or by one or
more of Target's or Sonus' Subsidiaries, and (iii) any partnership, joint
venture or other similar relationship between Target or Sonus (or any
Subsidiary thereof), as the case may be and any other Person (whether pursuant
to a written agreement or otherwise) and any limited liability company, in each
case if Target or Sonus, as the case may be has a ten percent (10%) or more
equity interest therein.
"Target" has the meaning ascribed to it in the forepart of this
Agreement (and, unless the context otherwise requires, shall include any
predecessor of Target).
"Target Disclosure Schedule" means the schedules delivered to
Acquisition and Sonus by or on behalf of Target and the Principal Stockholders.
"Target Share" or "Target Stock" has the meaning ascribed to it in
Section 2.2.
"Tax" or "Taxes" means all United States and foreign federal, state,
territorial, provincial or local net or gross income, gross receipts, net
proceeds, sales, use, franchise, ad valorem, real or personal property
(tangible and intangible), value added, transfer, franchise, stamp, leasing,
lease, user, transfer, fuel, excess profits, undistributed profits, windfall
profits, blank share, issued share, bearer share, capital stock, customs
duties, recapture, license, employee income withholding, dividend withholding,
interest withholding, other withholding, payroll, employment, unemployment,
social security, pension, health, old age security, unemployment, excise,
property, disability, severance, alternative or add-on minimum, environmental,
or other taxes, assessments, duties, fees, levies or other charges of any
nature whatever imposed by any Governmental Authority, whether disputed or not,
together with any interest, penalties, additions to tax or additional amounts
with respect thereto.
"Tax Returns" means any United States, and foreign federal, state,
territorial, provincial or local returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Taxing Authority" means the IRS and any governmental agency, board,
bureau, body, department or authority of any United States federal, state,
territorial, provincial or local jurisdiction or any foreign jurisdiction,
having or purporting to exercise jurisdiction with respect to any Tax.
"Third Party Claim" has the meaning ascribed to it in Section 8.2(a).
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"Warranty Obligations" has the meaning ascribed to it in Section 3.30.
SECTION 1.2 INTERPRETATION. As used in this Agreement, the word
"including" means without limitation; the word "or" is not exclusive; and the
words "herein", "hereof', "hereby", "hereto" and "hereunder" refer to this
Agreement as a whole. Any reference to any applicable Law shall be deemed also
to refer to all rules and regulations promulgated thereunder unless the context
otherwise requires. Whenever required by the context, any gender shall include
any other gender, the singular shall include the plural and the plural shall
include the singular. Unless the context otherwise requires, references
herein: (i) to Articles, Sections, Exhibits and Schedules mean the Articles and
Sections of and the Exhibits and Schedules attached to this Agreement; and (ii)
to an agreement, instrument or other document means such agreement, instrument
or other document as amended, supplemented and modified through the date hereof
unless the context otherwise requires and thereafter from time to time to the
extent permitted by this Agreement. The Schedules and Exhibits referred to
herein shall be construed with and as an integral part of this Agreement to the
same extent as if they were set forth verbatim herein. The Table of Contents
and titles to Articles and headings of Sections or Schedules are inserted for
convenience of reference only and shall not be deemed a part of or to affect
the meaning or interpretation of this Agreement.
ARTICLE 2
MERGER; CLOSING
SECTION 2.1 MERGER. At the time both of the Certificates of
Merger attached hereto as Exhibit A1 and Exhibit A2 (the "Certificates of
Merger") have been properly filed with the appropriate Delaware and New York
authorities and accepted thereby (the "Effective Time"), Target shall merge
with and into Acquisition. Acquisition will be the surviving corporation
following the Merger and the separate existence of Target shall cease, except
insofar as continued by statute, all in accordance with the Certificates of
Merger. The Merger shall have the effects set forth in Section 259 of the
Delaware General Corporation Law, Section 906 of the New York Business
Corporation Law, and in this Agreement.
SECTION 2.2 CONVERSION OF TARGET SHARES. At the Effective Time,
each one (1) share of common stock of Target, par value $.0001 per share,
issued and outstanding at the Effective Time (each such share being
collectively referred to herein as a "Target Share" and collectively the
"Target Stock"), shall be automatically converted, by operation of law, into
that number of shares of Sonus Common Stock as is equal to one (1) multiplied
by a fraction (the "Conversion Ratio"), the numerator of which is the Equity
Value divided by three (3), and the denominator of which is 159,250, without
any further act on the part of the holder thereof, Target or Sonus. In the
event the foregoing calculation and conversion would result in the issuance of
a fraction of a share to any Target stockholder, the number of shares of Sonus
Common Stock to be issued such Target stockholder in the Merger shall be
rounded up to the nearest whole number. No other property, shares, other
securities or consideration of any type will be distributed or issued in
connection with or as a result of the Merger. At the Effective Time,
Acquisition shall assume all of the rights and obligations of Target. All
stock certificates issued by Target and representing any Target Shares (each an
"Old Target Certificate" and collectively the "Old Target Certificates"), shall
be deemed from and after the Effective Time to represent such number of shares
of Sonus Common Stock as is equal to the number of Target Shares represented by
such Old Target Certificate immediately prior to the Effective Time multiplied
by the Conversion Ratio and, upon surrender of any Old Target Certificate by
holders thereof to Sonus, such holders shall be entitled to one or more new
stock certificates to be issued by Sonus representing such number of shares of
Sonus Common Stock (the "Merger Share Certificates").
SECTION 2.3 RESERVED.
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SECTION 2.4 ESCROW OF MERGER SHARES. Concurrently with the
execution and delivery of this Agreement, Sonus shall execute and deliver the
Merger Shares Escrow Agreement in substantially the form attached hereto as
Exhibit B. Within five (5) days after the execution and delivery of the Merger
Shares Escrow Agreement, Sonus shall cause the Merger Shares to be issued and
deposited into escrow with its counsel in accordance with the Escrow Agreement
attached hereto as Exhibit B (the "Merger Shares Escrow Agreement").
SECTION 2.5 CLOSING. The closing (the "Closing") of the Merger
and the transactions contemplated hereby will take place at the offices of
McGuire, Woods, Battle & Boothe LLP, Seven Saint Paul Street, Baltimore,
Maryland 21202, at 10:00 A.M. local time, on the third Business Day following
the date on which the last of the conditions set forth in Sections 6.1 and 6.2
have been satisfied or waived by the party or parties entitled to waive the
same (the date and time of the Closing are herein referred to as the "Closing
Date"). At Closing: (i) Target and Acquisition shall execute and deliver the
Certificates of Merger substantially in the form attached hereto as Exhibit A1
and Exhibit A2, (ii) Sonus and each of the Principal Stockholders shall execute
and deliver a Principal Stockholders' Escrow Agreement in substantially the
form attached hereto as Exhibit C, (iii) Sonus shall execute and, within 5 days
thereafter, deliver the Registration Rights Agreement in substantially the form
attached hereto as Exhibit D to each of the Principal Stockholders and each of
the Other Stockholders having properly elected to receive registration rights,
(iv) Acquisition and each of the Principal Stockholders shall execute and
deliver the Employment Agreements in substantially the form attached hereto as
Exhibit F, (v) Acquisition shall file the Certificates of Merger with the
Secretary of State of Delaware and the Department of State of New York, (vi)
Sonus shall cause the Merger Shares to be delivered to the stockholders of
Target set forth in Section 3.2 of the Target Disclosure Schedule in the
respective amounts set forth opposite their name thereon in accordance with
this Agreement (except for the Escrow Shares), and (vii) there shall also be
delivered by Sonus, Acquisition, Target and the Principal Stockholders the
certificates and other agreements, documents and instruments to be delivered
pursuant to Sections 6.1 and 6.2 hereof.
SECTION 2.6 PRINCIPAL STOCKHOLDERS' ESCROW. On the Closing Date
upon receipt of their Merger Shares, the Principal Stockholders, as collateral
security for any Liability of the Principal Stockholders to Acquisition or
Sonus under this Agreement shall deposit with the Escrow Agent that number of
Merger Shares as is equal to fifteen percent (15%) of the Merger Shares into
which their Target Shares are convertible in connection with the Merger (the
"Escrow Shares"), and the indemnification provided in Section 8.1(a) shall be
limited to the value of the Escrow Shares as herein calculated.
SECTION 2.7 RELEASE OF ESCROW SHARES. The Escrow Shares shall be
held by the Escrow Agent until Target's audited financial statements covering
fiscal years 1999 and 2000 are delivered to Sonus and thereafter as provided in
the Principal Stockholders Escrow Agreement (the "Release Date"). The Escrow
Shares shall be released on the Release Date in accordance with the Principal
Stockholders' Escrow Agreement provided there are no claims, Actions or
Proceedings initiated against Target or the Principal Stockholders, as the case
may be, alleging that either Target or the Principal Stockholders (i) is then
in breach of the terms of this Agreement or (ii) was in breach of this
Agreement prior to the Release Date and such breach remained uncured in excess
of ten (10) days after written notice of such breach was received from Sonus.
On the Release Date, if and to the extent that there is any Action or
Proceeding alleging that Target or any of the Principal Stockholders is in
breach of this Agreement or was in breach prior to the Release Date beyond the
cure period provided in this Section 2.7, and damages alleged in such Action or
Proceeding (together with all costs, fees (including reasonable attorneys'
fees) and other expenses expected to be incurred by Sonus or Acquisition in its
reasonable determination) exceed the amount of Thirty-Seven Thousand Five
Hundred Dollars ($37,500), the Escrow Agent shall retain and hold the Escrow
Shares in accordance with the terms of the Principal Stockholders' Escrow
Agreement as security pending the final determination of all such Actions or
Proceedings, and the Escrow Shares shall
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be cancelled (based upon a price of $3.00 per share) in satisfaction of any
amounts to which Sonus becomes entitled in respect of any such Action or
Proceeding.
SECTION 2.8 CONFIRMATION OF EQUITY VALUE. In connection with the
calculation of Equity Value on the Balance Sheet Date, Target shall afford
Sonus, Acquisition and their Representatives reasonable access to all books,
records and work papers used by Target to prepare the Balance Sheet or
otherwise necessary for Sonus' or Acquisition's Representatives to conduct
their review of the Balance Sheet.
SECTION 2.9 ALEX ADELSON OPTIONS. At Closing, Alex Adelson shall
receive options or warrants to purchase up to thirty thousand (30,000) shares
of Sonus common stock at an exercise price of Three Dollars ($3.00) per share,
vesting upon issuance, which may be exercised on a cashless basis. Such
options shall terminate on the seventh anniversary of the Closing Date.
SECTION 2.10 ASSUMPTION OF DEBT. Acquisition will assume all
Indebtedness disclosed in Target's Financial Statements except for Indebtedness
of Target to Principal Stockholders or other holders of Target Stock or their
respective affiliates (the "Stockholder Indebtedness"). The Stockholder
Indebtedness will be cancelled by each such Principal Stockholder or holder of
Target Stock prior to the Closing Date.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF TARGET AND PRINCIPAL STOCKHOLDERS
As an inducement to Sonus and Acquisition to enter into this Agreement
and to consummate the transactions contemplated herein, except as set forth in
the Target Disclosure Schedule (with Section references corresponding to those
set forth below), Target and each of the Principal Stockholders hereby
represents, warrants, covenants and agrees, jointly and severally (except with
respect to representations and warranties relating or pertaining specifically
to the Principal Stockholders, which are made by each Principal Stockholder as
to himself only) to Sonus and Acquisition as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. Target is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New York and has full corporate power and authority to
conduct its business as and to the extent now conducted and to own, use and
lease its Assets and Properties. Target is duly qualified, licensed or
admitted to do business and is in good standing in the jurisdictions listed in
Section 3.1 of the Target Disclosure Schedule, which are the only jurisdictions
in which the ownership, use or leasing of its Assets and Properties, or the
conduct or nature of its business, makes such qualification, licensing or
admission necessary. The business now being conducted by Target or any
Subsidiary has not been conducted under any other name.
SECTION 3.2 CAPITAL STOCK. The authorized capital stock of
Target consists of 1,000,000 shares of common stock, par value $.0001 per
share. The only issued and outstanding shares of capital stock are the 159,250
shares of Target Stock, all of which are validly issued, fully paid and
nonassessable, and the issuance thereof was in compliance with all applicable
Laws. Except for such Target Stock, no shares of the capital stock of Target
have been issued or reserved for issuance. There are no outstanding Options
relating to the capital stock of Target or agreements, arrangements or
understandings to issue Options relating to the capital stock of Target and
there are no preemptive rights or agreements, arrangements or understandings to
issue preemptive rights with respect to the issuance or sale of Target's
capital stock or any Options. The Principal Stockholders are the record and
beneficial owners of the Target Shares set forth in Section 3.2 of the Target
Disclosure Schedule, free and clear of all Liens except as set forth in Section
3.2 of the Target Disclosure Schedule. Section 3.2 of the Target Disclosure
Schedule sets forth a true, correct and complete list of all holders of Target
Stock and, with respect to
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each such holder, the number of shares of Target Stock held by such holder.
The share ledger of Target accurately reflects all issuances and transfers of
Target's capital stock since the incorporation of Target.
SECTION 3.3 AUTHORITY. Target and each of the Principal
Stockholders represents, severally but not jointly, that (i) he and Target have
the full legal capacity to execute and deliver this Agreement and the Operative
Agreements to which he or Target is a party and to perform his obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby, (ii) the execution, delivery and performance of this Agreement and
the Operative Agreements by him and Target and the consummation by him and
Target of the transactions contemplated hereby and thereby have been duly and
validly approved by such Principal Stockholder and Target, and no other action
on the part of any of such Principal Stockholder or Target is necessary to
authorize the execution, delivery and performance of this Agreement and the
Operative Agreements and the consummation by him and Target of the transactions
contemplated hereby and thereby (except for the approval of Target's
stockholders); (iii) this Agreement has been duly and validly executed and
delivered by Target and such Principal Stockholder and this Agreement
constitutes, and each of the Operative Agreements to which Target or such
Principal Stockholder is a party (when so executed and delivered) will
constitute, legal, valid and binding obligations of such Principal Stockholder
and Target enforceable against him and Target in accordance with their
respective terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws relating to the enforcement of creditors' rights generally
and by general principles of equity.
SECTION 3.4 SUBSIDIARIES; OFFICERS AND DIRECTORS; CHARTER AND BYLAWS.
(a) Section 3.4 of the Target Disclosure Schedule lists
the name of each Subsidiary of Target. The Subsidiaries are EOT
Telecommunications of Canada, Inc., a New Brunswick corporation and Empire One
Power, Inc., a New York Corporation. Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the Province
of New Brunswick and the State of New York, respectively, and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its Assets and Property. Each Subsidiary
is duly qualified, licensed or admitted to do business and is in good standing
in the jurisdictions listed in Section 3.4 of the Target Disclosure Schedule,
which are the only jurisdictions in which the ownership, use or leasing of its
Assets and Properties or the conduct or nature of its business makes such
qualification, licensing or admission necessary. Section 3.4 of the Target
Disclosure Schedule lists for each Subsidiary the amount of its authorized and
outstanding capital stock. All of the outstanding capital stock of each
Subsidiary have been duly authorized and validly issued and are fully paid and
non-assessable, are wholly owned, beneficially and of record, by Target, in
each case free and clear of all Liens. There are no outstanding Options with
the respect to the capital stock of any Subsidiary or agreements, arrangements
or understandings to issue Options with respect to the capital stock of any
Subsidiary and there are no preemptive rights, agreements, arrangements or
understandings to issue preemptive fights with respect to the issuance or sale
of any capital stock of any Subsidiary. Except for the Subsidiaries, Target
and the Subsidiaries hold no equity, partnership, limited liability company,
joint venture or other interest in any Person.
(b) The name of each director and officer of Target and
each Subsidiary on the date hereof, and the position with Target and the
Subsidiaries, are listed in Section 3.4 of the Disclosure Statement.
(c) Target has, prior to the execution of this Agreement,
delivered to Sonus and Acquisition true and complete copies of the Certificate
or Articles of Incorporation and Bylaws of Target and each Subsidiary.
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SECTION 3.5 NO CONFLICTS. Each of the Principal Stockholders
represents and warrants that the execution and delivery by such Principal
Stockholder and Target of this Agreement do not, and the execution and delivery
by such Principal Stockholder and Target of the Operative Agreements to which
either of them is a party, the performance by Target and such Principal
Stockholder of his and its respective obligations under this Agreement and such
Operative Agreements and the consummation of the transactions contemplated
hereby and thereby did not, do not and will not:
(a) conflict with or result in a violation or breach of
any of the terms, conditions or provisions of the Certificate or Articles of
Incorporation or Bylaws of Target or any of the Subsidiaries or of any
agreement of the shareholders of Target or any Subsidiary;
(b) subject to obtaining the consents and approvals and
making the filings and giving the notices referred to in Section 3.6 below or
described in Section 3.6 of the Target Disclosure Schedule, if any, conflict
with or result in a violation or breach of any term or provision of any Law or
Order applicable to Target, any of its Subsidiaries or any of their respective
Assets and Properties; or
(c) except as described in Section 3.5 of the Target
Disclosure Schedule, (i) conflict with or result in a violation or breach of,
(ii) constitute (with or without notice or lapse of time or both) a default
under, (iii) require Target, any of the Subsidiaries or such Principal
Stockholder to obtain any consent, approval or action of, make any filing with
or give any notice to, any Person as a result or under the terms of, (iv)
result in or give to any Person any right of termination, cancellation,
acceleration or modification in or with respect to, (v) result in or give to
any Person any additional rights or entitlement to increased, additional,
accelerated or guaranteed payments under, or (vi) result in the creation or
imposition of any Lien upon the Target Shares or any of the Subsidiaries or any
of their respective Assets and Properties under, any Contract or Permit to
which Target, any Subsidiary or such Principal Stockholder is a party or by
which any of their respective Assets and Properties is bound.
SECTION 3.6 GOVERNMENTAL APPROVALS AND FILINGS. Except as
described in Section 3.6 of the Target Disclosure Schedule, no permits,
consents or approvals by, or filing with or notice to, any federal, provincial,
territorial, local or foreign Governmental Authority, as applicable, including,
without limitation, any consents or approvals under the applicable United
States federal or foreign investment laws and other federal, provincial,
territorial, local or foreign competition and antitrust laws and under any
Environmental Law, is required on the part of Target, any of the Subsidiaries
or any of the Principal Stockholders in connection with the execution, delivery
and performance of this Agreement or any of the Operative Agreements to which
he, she or it is a party or the consummation of transactions contemplated
hereby or thereby.
SECTION 3.7 MINUTE BOOKS AND RECORDS. The minute books and other
similar records of Target and the Subsidiaries provided to Sonus or Acquisition
prior to the execution of this Agreement contain a true and complete record, in
all material respects, of all action taken at all meetings and by all written
consents in lieu of meetings of the stockholders, the boards of directors and
committees of the boards of directors of Target and the Subsidiaries.
SECTION 3.8 FINANCIAL STATEMENTS Attached hereto as Section 3.8
of the Target Disclosure Schedule are true and complete copies of the
consolidated balance sheets of Target and the Subsidiaries as of the Balance
Sheet Date (the "Balance Sheet") and as of December 31, 1998 and the related
consolidated statements of operations and cash flow for such year then ended,
with the audit report thereon of Target's accountants (the "Audited Financials"
and, together with the Balance Sheet, the "Financial Statements"). The
Financial Statements are true and correct in all material respects and were (i)
prepared from the books of account or other financial records of Target and the
Subsidiaries, (ii) prepared in accordance with GAAP consistently applied
throughout the periods involved, and (iii) fairly
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present the consolidated financial condition, results of operations and cash
flow of Target and the Subsidiaries on a consolidated basis as of the dates
thereof and for the periods covered thereby.
SECTION 3.9 ABSENCE OF CHANGES. Except as set forth in Section
3.9 of the Target Disclosure Schedule, since the Balance Sheet Date, Target and
the Subsidiaries have been operated in the ordinary course of business
consistent with past practice and there has not been any material adverse
change, or any event or development which, individually or together with other
such events or developments, could reasonably be expected to result in a
material adverse change, in the Business or Condition of Target. None of the
other representations or warranties set forth in this Agreement shall be deemed
to limit the foregoing. In addition, without limiting the foregoing, except as
disclosed in Section 3.9 of the Target Disclosure Schedule, there has not
occurred since the Balance Sheet Date:
(a) any amendment or change to the Articles or
Certificate of Incorporation of Target or any of the Subsidiaries or their
respective Bylaws;
(b) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of Target, or
any direct or indirect redemption, purchase or other acquisition by Target or
any Subsidiary of any such capital stock of Target;
(c) any authorization, issuance, sale or other
disposition by Target or any Subsidiary of any shares of capital stock of
Target or any Subsidiary, or any Option relating to such capital stock or any
modification or amendment of any right of any holder of any outstanding shares
of capital stock of Target or any Subsidiary;
(d) (i) any payment of a regular, special or year end
bonus to any employee or officer or director of Target or any Subsidiary, or
any increase in salary, rate of commissions or rate of consulting fees of any
director, officer, employee or consultant of Target or any Subsidiary, other
than salary increases to non-management employees in the ordinary course of
business and consistent with past practices; (ii) any payment of consideration
of any nature whatsoever (other than salary, commissions or consulting fees
paid in the ordinary course of business consistent with past practices) to any
officer, director, stockholder (including the Principal Stockholders), employee
or consultant of Target or any Subsidiary; (iii) any establishment or
modification of (A) targets, goals, pools, formula or similar provisions under
any Plan, employment contract or other employee compensation arrangement of
Target or any Subsidiary, or (B) salary ranges, guidelines or similar
provisions in respect of any Plan, employment contract or other employee
compensation arrangement of Target or any Subsidiary; (iv) any grant of any
severance, continuation or termination pay to any director, officer,
stockholder (including the Principal Stockholders) or employee of Target or any
Subsidiary; or (v) any adoption, entering into, amendment, modification or
termination (partial or complete) of any Plan or employment contract of Target
or any Subsidiary;
(e) (i) incurrences by Target or any Subsidiary of
Indebtedness or (ii) any voluntary purchase, cancellation, prepayment or
complete or partial discharge in advance of a scheduled payment date with
respect to, or waiver of any right of Target or any Subsidiary under, any
Indebtedness of or owing to Target or any Subsidiary;
(f) any change in or incurrence of any Liability of
Target or any Subsidiary other than in the ordinary course of business
consistent with past practices;
(g) any physical damage, destruction or other casualty
loss (whether or not covered by insurance) affecting any of the real or
personal property or equipment of Target or any Subsidiary in an aggregate
amount exceeding Fifteen Thousand Dollars ($15,000);
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(h) any write-off or write-down of or any determination
to write off or write down any of the Assets and Properties of Target or any
Subsidiary in an aggregate amount exceeding Fifteen Thousand Dollars ($15,000);
(i) any purchase of any Assets and Properties of any
Person or any sale, license or other disposition of, or incurrence of a Lien
(other than a Permitted Lien) on, any Assets and Properties of Target or any
Subsidiary, other than acquisitions or dispositions in the ordinary course of
business of Target or any Subsidiary consistent with past practice and the
terms of this Agreement and the Operative Agreements;
(j) any entering into, amendment, modification,
termination (partial or complete) or granting of a waiver under or giving any
consent with respect to (i) any Contract which is required (or had it been in
effect on the date hereof would have been required) to be disclosed in the
Target Disclosure Schedule pursuant to Section 3.18, (ii) any Permit held by
Target or any Subsidiary, or (iii) any Intellectual Property owned, held or
used by Target or any Subsidiary;
(k) any capital expenditures or commitments for additions
to property, plant, equipment or Intellectual Property of Target or any
Subsidiary in an aggregate amount exceeding Fifteen Thousand Dollars ($15,000);
(l) any commencement or termination by Target or any
Subsidiary of any line of business;
(m) any transaction by Target or any Subsidiary with any
officer, director, stockholder (including any Principal Stockholder), Affiliate
or Associate of Target or any Subsidiary, other than pursuant to any Contract
in effect on the Balance Sheet Date and disclosed to Acquisition pursuant to
Section 3.18(a)(viii) or other than pursuant to any contract of employment
listed pursuant to Section 3.18(a)(I) of the Target Disclosure Schedule;
(n) the commencement or notice or threat of commencement
of any lawsuit or proceedings against, or investigation of, Target or any
Subsidiary or their affairs which could reasonably be expected to have a
material adverse effect on Target or any Subsidiary or their respective
business or financial condition;
(o) any notice of any claim of ownership by a third party
of the Intellectual Property of Target or any Subsidiary or notice of
infringement by Target or any Subsidiary of any third party's Intellectual
Property rights;
(p) any change in pricing or royalties set or charged by
Target or any Subsidiary to clients, customers or licensees or in pricing or
royalties set or charged by Persons who have licensed Intellectual Property to
Target or any Subsidiary;
(q) any loan or advance by Target or any Subsidiary to
any Person or entity, except for advances to employees for travel and business
expenses in the ordinary course of business consistent with past practice;
(r) any change in the accounting methods or procedures of
Target or any Subsidiary;
(s) any other material transaction involving Target or
any Subsidiary outside the ordinary course of business consistent with past
practice; or
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(t) any entering into of an agreement to do or engage in
any of the foregoing, including without limitation with respect to any Business
Combination not otherwise restricted by the foregoing paragraphs.
SECTION 3.10 NO UNDISCLOSED LIABILITIES. Except as specifically
reflected or reserved against in the Balance Sheet or as described in Section
3.10 of the Target Disclosure Schedule, there are no Liabilities of, relating
to or affecting Target or any Subsidiary or any of their respective Assets and
Properties (whether or not required to be reflected in financial statements in
accordance with GAAP), other than Liabilities incurred in the ordinary course
of business consistent with past practice since the date of the Balance Sheet
and in accordance with the provisions of this Agreement and the Operative
Agreements, which in the aggregate are not material to the Business or
Condition of Target and are not for tort or for breach of contract.
SECTION 3.11 TAXES.
(a) All Tax Returns (including, without limitation, all
United States federal, state, local and other applicable income, goods and
services, and sales Tax Returns) required to have been filed by or with respect
to Target or any Subsidiary have been duly and timely filed, and such Tax
Returns shall be duly and timely filed through the period from the date hereof
to the Closing Date, unless extensions have been granted or the Taxes are being
contested in good faith. Each such Tax Return correctly and completely
reflects the Tax Liability and all other information required to be reported
thereon. All Taxes due and payable by Target or any Subsidiary have been paid
(whether or not shown on any Tax Return), including all payments of estimated
Taxes (taking into account any duly obtained extensions).
(b) The provisions for Taxes due by Target and the
Subsidiaries (including those for which Tax Returns are not yet required to be
filed) in the Financial Statements for the period ended on the date of the
Balance Sheet are sufficient for all unpaid Taxes of Target and the
Subsidiaries.
(c) Except as set forth in Section 3.11 of the Target
Disclosure Schedule, neither Target nor any Subsidiary is a party to any
agreement extending the time within which to file any Tax Return. No claim has
ever been made by any jurisdiction in which Target or any Subsidiary does not
file Tax Returns that it is or may be subject to taxation by that jurisdiction.
(d) Target and the Subsidiaries have withheld or deducted
all Taxes required by Law to have been withheld or deducted in connection with
amounts paid or owing to any present or former employee, officer, director,
shareholder, creditor, licensor, licensee, distributor, independent contractor
or other third party, and Target and the Subsidiary have duly paid all amounts
so withheld or deducted to the proper recipients thereof within the times and
in the manner required by such Laws.
(e) Section 3.11 of the Target Disclosure Schedule
indicates those Tax Returns, if any, of Target or any Subsidiary that has been
audited by IRS or and any other Taxing Authorities, and indicates those Tax
Returns of Target and the Subsidiaries that are currently the subject of audit.
No deficiencies, adjustments or changes in assessments for any Taxes have been
proposed, asserted or assessed against Target or any of the Subsidiaries, and
neither Target nor any Subsidiary expect any Taxing Authority to assess
additional Taxes against or in respect of it for any past period. Except as
disclosed in Section 3.11 of the Target Disclosure Schedule, (i) there are no
investigations, examinations, reassessments, claims, actions, suits or
proceedings threatened or pending against Target or any Subsidiary in respect
of any Taxes, nor are there any matters under discussion with the IRS or any
other Taxing Authorities relating to any Taxes imposed, levied or assessed by
any such Taxing Authority; and (ii) there is no dispute concerning any Tax
Liability of Target or any Subsidiary either threatened, claimed
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or raised by any Taxing Authority or of which Target, any Subsidiary or any
Principal Stockholder is or reasonably should be aware. There are no Liens for
Taxes upon the Assets or Properties of Target or any Subsidiary. The Principal
Stockholders have delivered to Sonus complete and correct copies of all
federal, state, local and foreign income Tax Returns filed by Target and the
Subsidiaries and all Tax examination reports since 1995. No issue has been
raised since that date by the IRS or any other Taxing Authority in any audit of
Target or any of the Subsidiaries which, by application of similar principles,
could be expected to result in a material proposed deficiency for any period
not yet audited or for periods under audit.
(f) Neither Target nor any Subsidiary has waived any
statute of limitations in respect of Taxes or agreed to any extension of time
with respect to any Tax assessment or deficiency.
(g) Neither Target nor any Subsidiary has received any
written ruling related to Taxes or entered into any written and legally binding
agreement with the IRS or any other Taxing Authority relating to Taxes.
(h) Neither Target nor any Subsidiary has any Liability
for Taxes of any Person other than Target and the Subsidiaries (i) as a
transferee or successor, (ii) by reason of Section 1.1502-6 of the United
States Treasury Regulations or any similar provision of any other Law, (iii) by
contract or (iv) otherwise.
(i) Neither Target nor any Subsidiary has been a member
of a consolidated, combined, affiliated or unitary group (other than a group
consisting of Target and the Subsidiaries) and neither Target nor any
Subsidiary has filed or consented to the filing of any federal, state, or local
consolidated, combined, affiliated or unitary or similar return with any entity
other than Target and the Subsidiaries. Neither Target nor any Subsidiary is a
party to or is bound by any obligations under any Tax sharing, Tax indemnity or
similar agreement or arrangement. Neither Target nor any Subsidiary is a party
to any joint venture, partnership or other arrangement that is treated as a
partnership for any federal, state, or local Tax purposes.
(j) Neither Target nor any Subsidiary has made any
payments, or is obligated to make any payments, or is a party to any Contract
that could, contingently or otherwise, obligate it to make any payment that
would, pursuant to Section 280G of the Internal Revenue Code, not be
deductible, except as otherwise provided in this Agreement or as otherwise
disclosed in Section 3.11 of the Target Disclosure Schedule.
(k) Neither Target nor any Subsidiary has filed a consent
under Section 341(f) of the Code.
(l) Neither Target nor any Subsidiary is 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)(ii).
SECTION 3.12 LEGAL PROCEEDINGS
(a) Except as disclosed in Section 3.12(a) of the Target
Disclosure Schedule (with paragraph references corresponding to those set forth
below):
(i) there are no Actions or Proceedings
pending or, to the knowledge of Target, any Subsidiary or any Principal
Stockholder, threatened against, relating to or affecting Target, any Subsidiary
or any Principal Stockholder (in his, her or its capacity as a stockholder of
Target), or any
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of their respective Assets and Properties or this Agreement and the
transactions contemplated hereby which does or could reasonably be expected,
individually or in the aggregate, to have a material adverse effect on Target
or any Subsidiary or their respective business or financial condition;
(ii) there are no facts or circumstances known to
Target, any Subsidiary or any Principal Stockholder that could reasonably be
expected to give rise to any Action or Proceeding that would be required to be
disclosed pursuant to clause (a) (i) above; and
(iii) neither Target, any Subsidiary nor any
Principal Stockholder has received notice, or is aware, of any Orders
outstanding against Target, any Subsidiary or any Principal Stockholder
(relating to Target, any Subsidiary or this Agreement).
SECTION 3.13 COMPLIANCE WITH LAWS AND ORDERS. Neither Target nor
any Subsidiary is, nor has Target or any Subsidiary been at any time, in
material violation of or in material default under any Law or Order applicable
to Target, any Subsidiary or any of their respective Assets and Properties. In
furtherance and not limitation of the foregoing, neither Target nor any
Subsidiary has violated any federal, provincial or territorial or United States
securities Law in connection with the offer, sale or purchase of any
securities.
SECTION 3.14 PLANS.
(a) Set forth in Section 3.14(a) of the Target Disclosure
Schedule is a complete and correct list of all Plans maintained or contributed
to by Target or any Subsidiary, Plans pursuant to which Target or any
Subsidiary may have any Liability, and Plans covering employees or former or
retired employees of Target or any Subsidiary ("Employees") with respect to
their employment with Target and the Subsidiaries. Except as disclosed in
Section 3.14(a) of the Target Disclosure Schedule, each Plan is in writing and
true and complete copies of such Plans and any trust, custodial or other
funding agreement, including all amendments thereto relating to such Plans,
have heretofore been delivered to Sonus.
(b) As to each of the Plans that is a retirement, savings
or other pension plan as defined in Section 3(2) of ERISA, Target has complied,
in all material respects, with all applicable laws and regulations in
administering such plans, including specifically the provisions of ERISA and
the qualification provisions of Section 401 of the Internal Revenue Code. No
non-exempt prohibited transaction, as defined in Section 4975 of the Internal
Revenue Code, has occurred with respect to any such Plans and no such Plan has
incurred any accumulated funding deficiency, as defined in Section 412 of the
Internal Revenue Code, whether or not waived. There has not been, with regard
to any such Plan, any reportable event, as defined in Section 4043(b) of ERISA,
that is required to be reported to the PBGC by law or regulation. The fair
market value of the assets of each such Plan that is subject to Title IV of
ERISA equals or exceeds the present value of all benefits accrued under such
Plan, whether or not vested, based on the actuarial assumptions that would be
used by the PGBC if the Plan were terminated as of the date of this Agreement
and as of the Closing Date. As to each of the Plans that is a health,
severance, insurance, disability and other employee welfare Plan, and all other
employee benefit plans and programs as defined in Section 3(1) of ERISA
(including without limitation the plans listed in Section 3.14(a)), Target has
complied, in all material respects, with all applicable laws and regulations in
the administration thereof including, without limitation, the provisions of
ERISA when applicable. Target has not terminated any Plan or incurred any
material liability to the PBGC under Title IV of ERISA and, to the knowledge of
each of the Principal Stockholders, no condition exists that could reasonably
be expected to cause Acquisition or Sonus to incur any such liability. All
premiums payable to the PBGC have been paid when due.
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(c) All required employer contributions, premium payments
and source-deducted Employee contributions under the Plans have been made or
will be timely made and remitted to the funding agents thereunder. All such
contributions to the Plans for any period ending before the Closing Date that
are not yet, but will be, required to be made, are properly accrued and
reflected on the Balance Sheet or are disclosed in Section 3.14 (c) of the
Target Disclosure Schedule. No oral or written promise, commitment or
representation has been made by any Principal Stockholder, Target or any
Subsidiary (i) to amend any of the Plans or to provide increased benefits
thereunder to any of Target's or any Subsidiary's present or former employees,
independent contractors, directors, officers or shareholders, except pursuant
to the requirements, if any, of the Plans or any collective bargaining
agreements, (ii) to establish any new Plans, or (iii) to fund or continue any
Plan beyond the Closing Date. Except as set forth in Section 3.14 (c) of the
Target Disclosure Schedule, each Plan can be terminated on the Closing Date
without making any additional contribution to such Plan other than normal
contributions with respect to the current plan year.
(d) Except as set forth in Section 3.14(d) of the Target
Disclosure Schedule, each Plan has been maintained, operated and administered
in compliance with its terms and all related documents or agreements and in
compliance with all applicable Laws, and all filings required to be made with
any Governmental or Regulatory Authority with respect to each Plan have been
duly and timely filed, including without limitation annual reports on Form 5500
Series. Any non-compliance or failure properly to administer a Plan or related
trust or fund has not exposed such Plan or related trust or fund or Target or
any Subsidiary, nor could it result in any exposure of Acquisition or Sonus, to
any Taxes, penalties or Liabilities to any Person, or expose the Plan to
disqualification or the trust or fund to loss of tax exempt status.
(e) There is no pending or threatened claim (other than
claims for benefits in the ordinary course), assessment, complaint, proceeding
or investigation of any kind before any Governmental or Regulatory Authority
with respect to any Plan.
(f) All insurance premiums required with respect to any
Plan up to the Closing Date have been or shall be paid on or prior to the
Closing Date, and, with respect to any such insurance policy, there shall be no
Liability of either Target, any Subsidiary or Acquisition or Sonus in the
nature of a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent Liability arising wholly or partially out of events
occurring prior to the Closing Date.
(g) All benefits, expenses and other amounts due and
payable to or under any Plan, and all contributions, transfers or payments
required to be made to any Plan, have been paid when due.
(h) No Plan provides benefits, including, without
limitation, death or medical benefits, beyond termination of service or
retirement other then (i) coverage mandated by Law, (ii) death or retirement
benefits under any Plan that is a pension plan as defined in Section 3(2) of
ERISA, or (iii) deferred compensation benefits reflected on the books of Target
or any Subsidiary and described in Section 3.14(h) of the Target Disclosure
Schedule.
(i) Neither Target, any Subsidiary nor any Plan has
agreed to guarantee or indemnify the performance of any Person with respect to
any Plan.
(j) Except with respect to the issuance of options to
Adelson in accordance with this Agreement, as a result of the merger of Target
into Acquisition, neither Target, any Subsidiary, Acquisition nor Sonus shall
be obligated to make a payment to any individual with respect to severance or
compensation for personal services (other than salary and benefits at current
rates for services performed),
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nor shall any benefit under any Plan be accelerated or become vested, including
without limitation any Options or similar rights to stock.
SECTION 3.15 REAL PROPERTY.
(a) Section 13.15(a) of the Target Disclosure Schedule
contains a true and correct list of (i) all real property owned by Target
("Owned Real Property"), (ii) all real property leased, subleased or otherwise
occupied by Target or any Subsidiary (as lessor or lessee), together with a
brief description of the terms thereof (the "Leased Real Property", and the
leases relating thereto are herein called the "Real Property Leases", and the
Leased Real Property and Owned Real Property collectively the "Real Property"),
and (iii) all Liens relating to or affecting all or any of the Real Property
Leases. Neither Target nor any Subsidiary owns, nor has it ever owned, any
real property.
(b) Target and each of the Subsidiaries has fee simple
title in and to, and is the record owner of, the Owned Real Property, free of
any Lien other than Permitted Liens. Subject to the terms of the Real Property
Leases and except as set forth in Section 3.15 of the Target Disclosure
Schedule, Target and each of the Subsidiaries has a valid and subsisting
leasehold estate in and the right to quiet enjoyment of each of the Leased Real
Properties leased by it for the full term of the lease thereof. Each Real
Property Lease is in full force and effect and is a legal, valid and binding
agreement, enforceable in accordance with its terms against the parties
thereto, and except as set forth in Section 3.15(b) of the Target Disclosure
Schedule, there is no, nor has Target, any Subsidiary or any Principal
Stockholder received notice of any, default (or any condition or event which,
after notice or lapse of time or both, would constitute a default) thereunder.
Neither Target nor any Subsidiary owes brokerage, commissions or finders fees
with respect to any such Real Property Lease or Leased Real Property, except to
the extent that Target or a Subsidiary may renew the term of any such Real
Property Lease, in which case, any such commissions and fees would be in
amounts that are reasonable and customary for premises similar to those leased,
given their intended use and terms. Neither Target nor any Subsidiary has
assigned, sublet, transferred, hypothecated or otherwise disposed of any
interest in any Real Property Lease.
(c) Target has delivered to Sonus prior to the execution
of this Agreement true and complete copies of all Real Property Leases
(including any amendments and renewal letters).
(d) The improvements on the Leased Real Property subject
to the Real Property Leases and on the Owned Real Property are in good
operating condition and in a state of good maintenance and repair, ordinary
wear and tear excepted, and are adequate and suitable for the purposes for
which they are presently being used.
(e) Except as disclosed in Section 3.15(e) of the Target
Disclosure Schedule, neither Target, any Subsidiary nor any Principal
Stockholder has received notice of any pending zoning or other land use
regulation Actions or Proceedings nor has any knowledge of any proposed change
in any applicable Laws, which could reasonably be expected to detrimentally
affect the use or operation of any Real Property, nor has any such party
received notice of any special assessment proceedings affecting the Real
Property, or applied for any change to the zoning or land use status of the
Real Property.
(f) Except as disclosed in Section 3.15(f) of the Target
Disclosure Schedule, the current use and operation of all Real Property is in
compliance with all applicable Laws (including without limitation all
Environmental Laws and Laws relating to zoning and land use) and public and
private covenants, restrictions and easements, and neither Target, any
Subsidiary nor any Principal Stockholder has received notice of noncompliance
with any applicable Laws.
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(g) Target and the Subsidiaries have obtained all
licenses, permits, approvals, easements and rights of way (and all such items
are currently in full force and effect) required from any Governmental or
Regulatory Authority having jurisdiction over each parcel of Real Property or
from private parties for the current use and operation by Target and the
Subsidiaries of each parcel of Real Property.
(h) No Principal Stockholder is a "foreign person," as
defined in the federal Foreign Investment in Real Property Tax Act of 1980 and
the 1984 Tax Reform Act, as amended.
SECTION 3.16 TANGIBLE PERSONAL PROPERTY. Target and each of the
Subsidiaries is in possession of and has good and marketable title to, or has
valid leasehold interests in or valid rights under Contract to use, all
tangible personal property used in the conduct of their respective businesses,
including all tangible personal property reflected on the Financial Statements
for the period ended on the Balance Sheet Date and tangible personal property
acquired since that date, other than property disposed of since such date in
the ordinary course of business consistent with past practice and the terms of
this Agreement and the Operative Agreements. The principal items of such
tangible personal property (which for the purpose of this Agreement shall mean
those having an original purchase price of Five Thousand Dollars ($5,000) or
more are listed in Section 3.16 of the Target Disclosure Schedule. All such
tangible personal property is free and clear of all Liens, other than Permitted
Liens, and are adequate and suitable for the conduct by Target and the
Subsidiaries of the business presently conducted by them, and are in good
working order and condition, ordinary wear and tear excepted, and their use
complies in all material respects with all applicable Laws.
SECTION 3.17 INTELLECTUAL PROPERTY RIGHTS.
(a) The only Intellectual Property owned or licensed for
use or otherwise used by Target and the Subsidiaries is disclosed in Section
3.17 of the Target Disclosure Schedule. No other Intellectual Property is used
or necessary in the conduct of the business of Target and the Subsidiaries.
Target or a Subsidiary owns all right, title and interest in each item of such
Intellectual Property disclosed in Section 3.17 of the Target Disclosure
Schedule, and none constitute "work-made-for-hire" for customers or clients,
except for those items of software identified in Section 3.17 of the Target
Disclosure Schedule which have been exclusively (other than "shrinkwrap" or
similar commercial end user licenses) and irrevocably licensed to Target or a
Subsidiary in perpetuity under valid and binding license agreements, true and
correct copies of which have been provided to Sonus, which license agreements
are in full force and effect (the "Intellectual Property License Agreements").
The consummation of the transactions contemplated by this Agreement will
neither violate nor result in the breach, modification, cancellation,
termination or suspension of the Intellectual Property License Agreements, and
Target and the Subsidiaries are in compliance with, and have not breached (or
would breach after notice or lapse of time) any term of, the Intellectual
Property License Agreements and, to the knowledge of Target, any Subsidiary and
the Principal Stockholders, all of the other parties to such Intellectual
Property License Agreements are in compliance with, and have not breached, any
of the terms thereof. There is no dispute between Target or any Subsidiary and
any licensor of such Intellectual Property regarding the scope of the license
or performance under any applicable Intellectual Property License Agreement,
including with respect to any payments to be made by Target or any Subsidiary
thereunder.
(b) Except as disclosed in Section 3.17 of the Target
Disclosure Schedule, all such Intellectual Property disclosed in Section 3.17
of the Target Disclosure Schedule is free and clear of any and all Liens, other
than Permitted Liens. Section 3.17 of the Target Disclosure Schedule lists all
of Target's and the Subsidiaries' United States, Canadian or foreign
registrations or applications issued by, filed with or recorded by any
Governmental Regulatory Authority with respect to the Intellectual Property
listed in Section 3.17 of the Target Disclosure Schedule (including patent,
trademark, copyright and other
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registrations and applications), and all of such registrations and applications
are valid and in full force and effect and all necessary registration,
maintenance and renewal fees in connection therewith have been made and all
necessary documents and certificates in connection therewith have been filed
with the relevant patent, copyright, trademark or other authority in the United
States, or foreign jurisdictions, as the case may be, for the purpose of
maintaining the registrations or applications for registration of such
Intellectual Property. Except as described in Section 3.17 of the Target
Disclosure Schedule, (i) there are no restrictions on the direct or indirect
transfer of any such Intellectual Property subject to the terms of any license
described in Section 3.17 of the Target Disclosure Schedule, (ii) to the extent
requested by Sonus and to the extent such documentation exists and is available
to Target and the Subsidiaries, Target and the Subsidiaries have made available
to Acquisition prior to the execution of this Agreement documentation with
respect to any invention, process, design, computer software and program or
other know-how or trade secret or proprietary information included in such
Intellectual Property, which documentation is accurate in all material respects
and reasonably sufficient in detail and content to identify and explain such
invention, process, design, computer software and programs or other know-how or
trade secret or proprietary information, (iii) Target and any Subsidiary have
taken reasonable security measures to protect the secrecy, confidentiality and
value of their trade secrets and proprietary information, and (iv) Target and
the Subsidiaries have not granted to any Person any license, agreement or other
permission to use such Intellectual Property. Neither Target, any Subsidiary
nor any Principal Stockholder has any knowledge that such Intellectual Property
is being infringed by any other Person. Neither Target nor any Subsidiary is
infringing any Intellectual Property of any other Person, and no claim is
pending or, to the knowledge of Target, any Subsidiary or any Principal
Stockholder, has been threatened to such effect or with respect to the
ownership, validity, license or use of, or any infringement resulting from,
Target's or Subsidiaries' Intellectual Property, or the sale of any products or
services by Target or any Subsidiary.
(c) No (i) product, service or publication of Target or
any Subsidiary, (ii) material published or distributed by Target or any
Subsidiary, or (iii) conduct or statement of Target or any Subsidiary,
constitutes obscene material, a defamatory statement or material, or violates
any rights, including rights of publicity or privacy, of any Person.
(d) Except as disclosed in Section 3.17 of the Target
Disclosure Schedule, the information systems (including all computer hardware
and software) owned, licensed or otherwise used by Target and the Subsidiaries,
all products and services presently being purchased or acquired by Target or
any Subsidiary or which Target or any Subsidiary has any Contract to purchase
or acquire or are planning to purchase or acquire, and all products and
services which Target or any Subsidiary currently produces, sells or supplies,
has previously produced, sold or supplied, or are planning to produce, sell or
supply, are free of any "Year 2000 Problem" and any "leap year problem" such
that such systems, products and services do not and will not, without requiring
any modifications, experience any malfunctions or other usage problems in
connection with the year 2000 (and later years) as distinct from 1900s years
and any leap year.
SECTION 3.18 CONTRACTS.
(a) Section 3.18 of the Target Disclosure Schedule
contains a true and complete list of each of the following Contracts or other
arrangements (true and complete copies or, if not in writing, reasonably
complete and accurate written descriptions of which, together with all
amendments and supplements thereto and all waivers of any terms thereof, have
been delivered to Sonus prior to the execution of this Agreement), to which
Target or any Subsidiary (or any Principal Stockholder on behalf of Target or
any Subsidiary) is a party or by which any of their respective Assets and
Properties is bound:
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(i) (A) all Contracts (excluding Plans which are
listed on Section 3.14 of the Target Disclosure Schedule) providing for a
commitment of employment or consultation services for a specified or
unspecified term, specifying the name, position and rate of compensation of
each Person party to such a Contract and the expiration date of each such
Contract; and (B) any written or unwritten representations, commitments,
promises, communications or courses of conduct involving an obligation of
Target or any Subsidiary to make severance or other payments (with or without
notice, passage of time or both) to any Person in connection with, or as a
consequence of, the transactions contemplated hereby or by the Operative
Agreements or to any employee who is disclosed on Section 3.22(a) of the Target
Disclosure Schedule, other than with respect to salary payments in the ordinary
course of business consistent with past practice;
(ii) all Contracts with any Person containing any
provision or covenant prohibiting or limiting the ability of Target, any
Subsidiary or any Principal Stockholder (to the extent the restriction directly
or indirectly affects Target or any Subsidiary) to engage in any business
activity or compete with any Person or prohibiting or limiting the ability of
any Person to compete with Target or any Subsidiary (including, without
limitation, any restriction respecting the provision of services to customers
or potential customers or any class of customers, in any geographic area,
during any period of time or in any segment of the market), or prohibiting or
limiting disclosure of confidential or proprietary information;
(iii) all partnership, joint venture, shareholders'
or other similar Contracts with any Person;
(iv) all Contracts relating to Indebtedness of
Target or any Subsidiary and all guarantees of any Indebtedness or other
obligations by Target or any Subsidiary of any third Person;
(v) all Contracts with independent contractors,
distributors, dealers, manufacturers' representatives, sales agencies or
franchisees;
(vi) all Contracts respecting any Intellectual
Property;
(vii) all Contracts relating to (A) the future
disposition or acquisition of any Assets and Properties, and (B) any Business
Combination;
(viii) all Contracts between or among Target or any
Subsidiary, on the one hand, and any current or former officer, director,
stockholder (including any Principal Stockholder), Affiliate or Associate of
Target or any Associate of any such officer, director, stockholder or Affiliate
(other than Target), on the other hand, other than Contracts disclosed pursuant
to Section 3.18(a)(i);
(ix) all collective bargaining or similar labor
Contracts;
(x) all leases of personal property;
(xi) any Contract for the sale, purchase or lease
of goods, services or capital assets which involved the payment of more than
Five Thousand Dollars ($5,000) in 1998 or which Target or any Subsidiary
anticipates will involve the payment of more than Five Thousand Dollars
($5,000) in 1999 or which extends beyond 1999;
(xii) any fidelity or surety bond or completion
bond;
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(xiii) all Contracts that (A) limit or contain
restrictions on the ability of Target or any Subsidiary to declare or pay
dividends on, to make any other distribution in respect of, or to issue or
purchase, redeem or otherwise acquire, its capital stock, to incur
Indebtedness, to incur or suffer to exist any Lien, to purchase or sell any
Assets and Properties, to change the lines of business in which it participates
or engages or to engage in any Business Combination, (B) require Target or any
Subsidiary to maintain specified financial ratios or levels of net worth or
other indicia of financial condition or (C) require Target or any Subsidiary to
maintain insurance in certain amounts or with certain coverages;
(xiv) all powers of attorney or comparable
delegations of authority;
(xv) all Contracts which are not in the ordinary
course of business or which are material to Target or any Subsidiary; and
(xvi) all other Contracts, including but not
limited to, Contracts with clients or customers, that involve the payment or
potential payment pursuant to the terms of any such Contract, by or to Target
or any Subsidiary of more than Ten Thousand Dollars ($10,000) or which is not
cancelable without penalty within thirty (30) days.
(b) Each Contract required to be disclosed in Section
3.18 of the Target Disclosure Schedule is in full force and effect and
constitutes a legal, valid and binding agreement, enforceable in accordance
with its terms, of each party thereto; and neither Target, any Subsidiary nor
any Principal Stockholder, or to the knowledge of Target, any Subsidiary or any
Principal Stockholder, any other party to such Contract is, or has received
notice that it is, in violation or breach of or default in any material respect
under any such Contract (or with notice or lapse of time or both, would be in
violation or breach of or default in any material respect under any such
Contract).
SECTION 3.19 PERMITS AND LICENSES Section 3.19 of the Target
Disclosure Schedule contains a true and complete list of all Permits issued to
or used in the business or operations of Target and each Subsidiary, setting
forth the owner, the function and the expiration and renewal date of each.
Prior to the execution of this Agreement, Target has delivered to Sonus true
and complete copies of all such Permits. Except as disclosed in Section 3.19
of the Target Disclosure Schedule:
(a) Target and the Subsidiaries own or validly hold all
Permits that are required to conduct, or are material to, their respective
business or operations as currently conducted or to own their respective Assets
and Property;
(b) each Permit listed in Section 3.19 of the Target
Disclosure Schedule is valid, binding and in full force and effect; and
(c) neither Target nor any Subsidiary is, nor has it
received any notice that it is, in default (or with the giving of notice or
lapse of time or both, would be in default) under any such Permit.
SECTION 3.20 INSURANCE. Section 3.20 of the Target Disclosure
Schedule contains a true and complete list (including the names and addresses
of the insurers, the expiration dates thereof, the annual premiums and payment
terms thereof, the period of time covered thereby and a brief description of
the interests insured thereby) of all liability, property, workers'
compensation, fidelity, directors' and officers' liability and other insurance
policies currently in effect that insure the business, operations or employees
of Target and the Subsidiaries or affect or relate to the ownership, use or
operation of any of the Assets and Properties of Target and the Subsidiaries
and that (i) have been issued to Target or a Subsidiary or (ii) have been
issued to any Person (other than Target or any Subsidiary) for the benefit of
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Target or any Subsidiary. The insurance coverage provided by the policies
described in clause (i) above will not terminate or lapse by reason of any of
the transactions contemplated by this Agreement or the Operative Agreements.
Each policy listed in Section 3.20 of the Target Disclosure Schedule is valid
and binding and in full force and effect, all premiums due thereunder have been
paid when due and neither Target, any Subsidiary nor any Principal Stockholder,
nor the Person to whom such policy has been issued, has received any notice of
cancellation or termination in respect of any such policy or is in default
thereunder (or would be in default with notice or upon lapse of time), and
neither Target, any Subsidiary nor any Principal Stockholder knows of any
reason or state of facts that could reasonably lead to the cancellation of such
policies. The insurance policies listed in Section 3.20 of the Target
Disclosure Schedule (i) in light of the business, operations and Assets and
Properties of Target and the Subsidiaries are in amounts and have coverages
that are reasonable and customary for Persons engaged in such businesses and
operations and having such Assets and Properties and (ii) are in amounts and
have coverages as required by any Contract to which Target or any Subsidiary is
a party. Section 3.20 of the Target Disclosure Schedule contains a list of all
claims made under any insurance policies covering Target or any Subsidiary
since 1997. Neither Target, any Subsidiary nor any Principal Stockholder has
received notice that any insurer under any policy referred to in this Section
is denying liability with respect to a claim thereunder or defending under a
reservation of rights clause. Since 1997, Target and the Subsidiaries have, in
light of its business, location, operations, Assets and Properties, maintained
at all times without interruption appropriate insurance, in scope and amount of
coverages.
SECTION 3.21 AFFILIATE TRANSACTIONS.
(a) Except as disclosed in Section 3.21 of the Target
Disclosure Schedule (i) there are no Liabilities between Target or any
Subsidiary on the one hand, and any current or former officer, director,
stockholder (including any Principal Stockholder), Affiliate (other than
Target) or Associate of Target or any Associate of any such officer, director,
stockholder or Affiliate on the other, (ii) neither Target nor any Subsidiary
provides or causes to be provided any assets, services or facilities to any
such current or former officer, director, stockholder (including any Principal
Stockholder), or any such Affiliate or Associate, (iii) no current or former
officer, director, stockholder (including any Principal Stockholder) or any
such Affiliate or Associate has any interest, directly or indirectly, in any
entity which furnishes or sells any goods or services or provides any
facilities to Target or any Subsidiary, except that ownership of no more than
two percent (2%) of the outstanding capital stock of a publicly traded
corporation shall not be deemed to be an interest for the purposes of this
Section 3.21, and (iv) neither Target nor any Subsidiary beneficially owns,
directly or indirectly, any Investment Assets of any such current or former
officer, director, stockholder (including any Principal Stockholder), Affiliate
or Associate.
(b) Except as disclosed in Section 3.21of the Target
Disclosure Schedule, each of the Liabilities and transactions listed in Section
3.21 of the Target Disclosure Schedule was incurred or engaged in, as the case
may be, on an arm's-length basis on competitive terms.
SECTION 3.22 EMPLOYEES, LABOR RELATIONS.
(a) Section 3.22 of the Target Disclosure Schedule
contains a list of the name of each (i) officer, employee and consultant of
Target and each Subsidiary, together with such person's position or function,
years of employment, annual base salary or wages and any incentives or bonus
arrangement with respect to such person; and (ii) all of such employees and all
former employees of Target who are disabled or are receiving workers
compensation benefits or any Plans, together with their respective entitlement
under such Plans. Neither Target, any Subsidiary nor any Principal Stockholder
has received any information that would lead him, her or it to believe that any
such individual will or may cease to be engaged by Target or the relevant
Subsidiary, or will refuse offers of engagement by Target,
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for any reason, including, without limitation, because of the consummation of
the transactions contemplated by this Agreement and the Operative Agreements.
(b) Except as disclosed in Section 3.22 of the Target
Disclosure Schedule, (i) to the knowledge of Target, any Subsidiary or any
Principal Stockholder, there are no material controversies between Target or
any Subsidiary, on the one hand, and any employee or consultant of Target or
any Subsidiary, on the other hand, (ii) neither Target nor any Subsidiary is a
party to or bound by any collective bargaining agreement or any other agreement
with, or commitment to, any union of employees, and, to the knowledge of
Target, any Subsidiary or any Principal Stockholder, there are no threatened or
contemplated attempts to organize for collective bargaining purposes any of the
employees of Target or any Subsidiary, and (iii) no unfair labor practice
complaint or sex or age discrimination or harassment claim has been brought
against Target or any Subsidiary before any Governmental or Regulatory
Authority and there are no facts or circumstances known to Target, any
Subsidiary or any Principal Stockholder that could reasonably be expected to
give rise to such complaint or claim. There has been no work stoppage, strike
or other concerted action by employees of Target or any Subsidiary. Target and
the Subsidiaries have complied in all material respects with all applicable
Laws relating to the employment of labor, including without limitation those
relating to wages, hours and collective bargaining.
SECTION 3.23 ENVIRONMENTAL MATTERS
Except as set forth in Section 3.23 of the Target Disclosure Schedule (with
paragraph references corresponding to those set forth below):
(a) Target and the Subsidiaries have obtained and hold
all necessary Environmental Permits.
(b) Target and the Subsidiaries, and the activities of
Target and the Subsidiaries and the operation and use of the Leased Real
Property, have been and are in compliance with all terms, conditions and
provisions of all applicable (i) Environmental Permits and (ii) Environmental
Laws.
(c) There are no past, pending, or threatened material
Environmental Claims or material Environmental Liabilities against Target or
any Subsidiary, and neither Target, any Subsidiary nor any Principal
Stockholder is aware of any facts or circumstances which could reasonably be
expected to form the basis for any Environmental Claim or Environmental
Liability against Target or any Subsidiary.
(d) No Releases of Hazardous Substances have occurred at,
from, in, to, on, or under any Site and no Hazardous Substances are present in,
on, about or migrating to or from any Site that could give rise to a material
Environmental Claim or material Environmental Liability against Target or any
Subsidiary.
(e) Neither Target, any Subsidiary nor any predecessor of
Target or any Subsidiary, nor any entity previously owned by Target or any
Subsidiary has transported or arranged for the treatment, storage, handling,
disposal, or transportation of any Hazardous Substances to any off-Site
location which could result in an Environmental Claim or an Environmental
Liability against Target or any Subsidiary.
(f) To the best of each of the Principal Stockholders'
knowledge, there are no (ii) underground storage tanks, active or abandoned,
(ii) polychlorinated biphenyl containing equipment, or (iii) asbestos
containing material at any Site.
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(g) There have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted by, on behalf of,
or which are in the possession of Target, any Subsidiary or any Principal
Stockholder with respect to any Site which have not been delivered to
Acquisition prior to execution of this Agreement.
SECTION 3.24 RESERVED.
SECTION 3.25 ACCOUNTS RECEIVABLE. The accounts and notes
receivable of Target reflected on the Balance Sheet and all accounts and notes
receivable arising subsequent to the date of the Balance Sheet, (i) arose from
bona fide sales transactions in the ordinary course of business consistent with
past practice and are payable on ordinary trade terms, (ii) are legal, valid
and binding obligations of the respective debtors enforceable in accordance
with their respective terms, (iii) are not subject to any valid set-off or
counterclaim, (iv) are collectible in the ordinary course of business
consistent with past practice in the aggregate recorded amounts thereof, net of
any applicable reserve reflected in the Balance Sheet, as such reserve has been
adjusted on the books of Target and the Subsidiaries since the Balance Sheet
Date in the ordinary course of business consistent with past practices, (v)
except as set forth in Section 3.12 of the Target Disclosure Schedule, are not
the subject of any Actions or Proceedings brought by or on behalf of Target or
any Subsidiary or by the account debtor, and (vi) except as set forth in
Section 3.12 of the Target Disclosure Schedule, have not been pledged as
collateral by Target or any Subsidiary
SECTION 3.26 RESERVED.
SECTION 3.27 OTHER NEGOTIATIONS; BROKERS. No agent, broker,
finder, investment banker, financial advisor or other similar Person will be
entitled to any fee, commission or other compensation in connection with the
transactions contemplated by this Agreement or the Operative Agreements on the
basis of any act or statement made by Target, any Subsidiary, any Principal
Stockholder, any of their respective Affiliates, or any investment banker,
financial advisor, attorney, accountant or other Person retained by or acting
for or on behalf of Target, any Subsidiary, any Principal Stockholder or any
such Affiliate.
SECTION 3.28 RESTRICTIONS ON CONDUCT OF BUSINESS. Neither Target
nor any Subsidiary is prohibited or otherwise restricted from conducting its
business as presently conducted or intended to be conducted by any Contract,
any Governmental or Regulatory Authority or any Law.
SECTION 3.29 BANK AND BROKERAGE ACCOUNTS; INVESTMENT ASSETS.
Section 3.29 of the Target Disclosure Schedule sets forth (a) a true and
complete list of the names and locations of all banks, trust companies,
securities brokers and other financial institutions at which Target or any
Subsidiary has an account or safe deposit box or maintains a banking,
custodial, trading or other similar relationship; (b) a true and complete list
and description of each such account, box and relationship, indicating in each
case the account number and the names of the respective officers, employees,
agents or other similar representatives of Target or any Subsidiary having
signatory power with respect thereto; and (c) a list of each Investment Asset,
the name of the record and beneficial owner thereof, the location of the
certificates, if any, therefor, the maturity date, if any, and any stock or
bond powers or other authority for transfer granted with respect thereto.
SECTION 3.30 WARRANTIES. Except as set forth in its public
tarriffs, Target has provided no written warranties, guarantees or warranty
policies to any Person.
SECTION 3.31 BUSINESS PLAN. The Principal Stockholders have
provided to Sonus a current business plan for the planned operations of Target
and the Subsidiaries during calendar years 1999, which includes, without
limitation, a description of the capital requirements and staffing needs of
Target and the
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Subsidiaries, and a pro forma income statement. Target used reasonable care in
preparing such business plan and the assumptions and projections therein are
reasonable.
SECTION 3.32 INVESTMENT REPRESENTATIONS. Each Principal
Stockholder represents, warrants and agrees with Acquisition that:
(a) He, she or it has been advised by Sonus that the
Sonus Common Stock to be acquired pursuant to this Agreement will not be
registered under the Securities Act except as provided herein and the issuance
to such Principal Stockholder of such stock is being made on the basis of an
exemption afforded under the Securities Act and Sonus' reliance on such
statutory exemption is based in part on the representations made herein by such
Principal Stockholder.
(b) He, she or it is either an "Accredited Investor", as
defined in Rule 501 of Regulation D promulgated under the Securities Act ("Reg.
D") or has been advised by a "Purchaser Representative" (as defined in Reg. D)
in connection with the issuance of the Merger Stock pursuant to this Agreement.
Such Principal Stockholder, or if he, she or it is not an Accredited Investor,
as advised by his, her or its Purchaser Representative, has such knowledge and
experience in financial and business matters that he, she or it is capable of
evaluating the merits and risk of Merger Stock, and is able to bear the
economic risk of such investment.
(c) He, she or it, or if he, she or it is not an
Accredited Investor, his, her or its Purchaser Representative, is familiar with
the condition, financial or otherwise of Sonus and its affairs as he, she or it
has deemed necessary to evaluate the merits and risk of becoming a stockholder
of Sonus and acknowledges that Sonus has offered to make available and has,
when requested, made available, such additional information that would be
provided in a registration statement under the Securities Act and granted
access to such reasonable additional information necessary to verify the
accuracy of all information famished.
(d) He, she or it, as advised by legal counsel, (i) is
familiar with the nature of the limitations imposed by the Securities Act, and
the rules and regulations promulgated thereunder, on the transfer of the Sonus
Common Stock, (ii) understands that the Sonus Common Stock must be held
indefinitely unless a disposition thereof is registered under the Securities
Act, or in the opinion of counsel to such Principal Stockholder (reasonably
acceptable to Sonus) in form and substance satisfactory to Sonus' counsel (a
signed copy of which opinion shall have been delivered to Sonus prior to the
disposition of any shares of Sonus Common Stock), is exempt from registration
under the Securities Act, including a disposition in accordance with all the
requirements and limitations of Rule 144 promulgated under the Securities Act,
and complies with other applicable federal and state securities Laws;
(e) He, she or it will acquire the Sonus Common Stock for
his, her or its own account, for investment and not with a view to the
distribution or resale thereof within the meaning of the Securities Act, nor
with any present intention of selling or distributing the same.
(f) He, she or it will not transfer any shares of Sonus
Common Stock except in compliance with the terms and provisions of this Section
3.32 and with the provisions of the Shareholders Agreement.
(g) He, she or it agrees that each certificate to be
received by him, her or it representing shares of Sonus Common Stock will bear
the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
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UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY
OTHER APPLICABLE SECURITIES LAWS."
In addition to marking the certificates with the above legend,
the Principal Stockholders agree that Sonus is authorized to notify its
transfer agent of the status of the shares of Sonus Common Stock and to take
such action, including stop transfer instructions, as Sonus in its sole
discretion may deem necessary or proper to prevent the violation of the
Securities Act or other securities Laws and to assure compliance with the terms
of this Agreement.
SECTION 3.33 CERTAIN PRACTICES. No shareholder, director,
officer, employee or agent of the Principal Stockholder or Target has, directly
or indirectly, made or agreed to make, any improper or illegal payment, gift or
political contribution to, or taken any other improper or illegal action, for
the benefit of any customer, supplier, governmental employee or other Person
who is or may be in a position to assist or hinder the business of Target.
SECTION 3.34 DISCLOSURE. No representation or warranty of Target
or the Principal Stockholders contained in this Agreement, and no statement
contained in the Target Disclosure Schedule or in any certificate, list or
other writing furnished to Sonus or Acquisition pursuant to any provision of
this Agreement (including without limitation the Financial Statements) contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein or therein, in the light of
the circumstances under which they were made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ACQUISITION AND SONUS
As an inducement to Target and the Principal Stockholders to enter
into this Agreement and to consummate the transactions contemplated herein,
except as set forth in the Sonus Disclosure Schedule (with Section references
corresponding to those set forth below), Sonus and Acquisition hereby
represent, warrant, covenant and agree, jointly and severally, to Target and
the Principal Stockholders as follows:
SECTION 4.1 ORGANIZATION. Acquisition and Sonus are corporations
duly organized, validly existing and in good standing under the laws of the
state of Delaware.
SECTION 4.2 AUTHORITY. Acquisition and Sonus have full corporate
power and authority to enter into this Agreement and the Operative Agreements
to which they are parties and to perform their obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution, delivery and performance of this Agreement and the Operative
Agreements to which they are parties by Acquisition and Sonus and the
consummation by Acquisition and Sonus of the transactions contemplated hereby
and thereby have been duly and validly approved by its board of directors and
no other corporate proceedings on the part of Acquisition or Sonus or its
stockholders are necessary to authorize the execution, delivery and performance
of this Agreement and the Operative Agreements to which they are parties by
Acquisition and Sonus and the consummation by Acquisition and Sonus of the
transaction contemplated hereby and thereby. This Agreement has been duly and
validly executed and delivered by Acquisition and Sonus and constitutes, and
the Operative Agreements to which Acquisition and Sonus are parties (when so
executed and delivered) will constitute, the legal, valid and binding
obligation of Acquisition and Sonus enforceable against Acquisition and Sonus
in accordance with their respective terms, except as enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws relating to the enforcement of creditors'
rights generally and by general principles of equity.
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SECTION 4.3 NO CONFLICT. Except as set forth in Section 4.3 of
the Sonus Disclosure Schedule, the execution and delivery by Acquisition and
Sonus of this Agreement do not, and the execution and delivery by Acquisition
and Sonus of the Operative Agreements to which they are parties, the
performance by Acquisition and Sonus of its obligations under this Agreement
and such Operative Agreements and the consummation of the transactions
contemplated hereby and thereby did not, do not and will not:
(a) conflict with or result in a violation or breach of
any of the terms, conditions or provisions of the Certificate of Incorporation
or Bylaws of Acquisition or Sonus;
(b) conflict with or result in a violation or breach of
any term or provision of any Law or Order applicable to Acquisition or Sonus or
any of their Assets and Properties, the effect of which, individually or in the
aggregate, would reasonably be expected to have a materially adverse effect on
the ability of Acquisition to consummate the transactions contemplated hereby
or would materially hinder or delay such consummation; or
(c) (x) conflict with or result in a violation or breach
of, (y) constitute (with or without notice or lapse of time or both) a default
under or (z) require Acquisition or Sonus to obtain any consent, approval or
action of, make any filing with or give any notice (other than filings, if any,
with the Securities and Exchange Commission and the Stock Exchange) to any
Person as a result or under the terms of, any Contract or Permit to which
Acquisition or Sonus is a party or by which its Assets and Properties are
bound, the effect of which, individually or in the aggregate, would reasonably
be expected to have a material adverse effect on the ability of Acquisition to
consummate the transactions contemplated by this Agreement or would materially
hinder or delay such consummation.
SECTION 4.4 GOVERNMENTAL APPROVALS AND FILINGS. Except as
disclosed in Section 4.4 of the Sonus Disclosure Schedule, no consent, approval
or action of, filing with or notice to any Governmental or Regulatory Authority
on the part of Acquisition or Sonus is required in connection with the
execution, delivery and performance of this Agreement or the Operative
Agreements to which it is a party or the consummation of the transactions
contemplated hereby or thereby.
SECTION 4.5 CAPITAL STRUCTURE. As of the date hereof, the
authorized capital stock of Sonus consists of 100,000,000 shares of Sonus
Common Stock, par value $.0001 per share, of which 3,592,385 shares are issued
and outstanding as of the date hereof. Such outstanding shares of Sonus Common
Stock are, and the shares of Sonus Common Stock to be issued pursuant to this
Agreement will be, upon consummation of the Merger in accordance with this
Agreement, validly issued, fully paid and nonassessable and not subject to
preemptive rights. As of the date hereof, there are no Options, except as set
forth in Section 4.5 of the Sonus Disclosure Schedule, to which Sonus is a
party or by which it is bound obligating Sonus to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of
Sonus.
SECTION 4.6 LEGAL PROCEEDINGS. Except as set forth in Section
4.6 of the Sonus Disclosure Schedule, there are no Actions or Proceedings
pending or, to the knowledge of Acquisition or Sonus, threatened against,
relating to or affecting Acquisition, Sonus or any of their respective Assets
and Properties which (i) could reasonably be expected to result in the issuance
of an Order restraining, enjoining or otherwise prohibiting or making illegal
the consummation of any of the transactions contemplated by this Agreement or
any of the Operative Agreements or (ii) could reasonably be expected,
individually or in the aggregate with other such Actions or Proceedings, to
have a material adverse effect on the ability of Acquisition or Sonus to
consummate the transactions contemplated by this Agreement or would materially
hinder or delay such consummation.
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SECTION 4.7 BROKERS. Except with respect to fees of Ferris,
Baker Watts, Incorporated, no agent, broker, finder, investment banker,
financial advisor or other similar Person will be entitled to any fee,
commission or other compensation in connection with any of the transactions
contemplated by this Agreement or the Operative Agreements on the basis of any
act or statement made by Acquisition or Sonus.
SECTION 4.8 ABSENCE OF CHANGES. Except as set forth in Section
4.8 of the Sonus Disclosure Schedule, since the balance sheet of Sonus (the
"Sonus Balance Sheet") dated September 30, 1999 (the "Sonus Balance Sheet
Date"), Sonus and its Subsidiaries have been operated in the ordinary course of
business consistent with past practice and there has not been any material
adverse change, or any event or development which, individually or together
with other such events or developments, could reasonably be expected to result
in a material adverse change, in the Business or Condition of Sonus. In
addition, without limiting the foregoing, except as disclosed in Section 4.8 of
the Sonus Disclosure Schedule, there has not occurred since the Sonus Balance
Sheet Date:
(a) any amendment or change to the Articles or
Certificate of Incorporation of Sonus or any of its Subsidiaries or their
respective Bylaws;
(b) any declaration, setting aside or payment of any
dividend or other distribution in respect of the capital stock of Sonus, or any
direct or indirect redemption, purchase or other acquisition by Sonus or any
Subsidiary of any such capital stock of Sonus;
(c) any authorization, issuance, sale or other
disposition by Sonus or its Subsidiaries of any shares of capital stock of
Sonus or any Subsidiary, or any Option relating to such capital stock or any
modification or amendment of any right of any holder of any outstanding shares
of capital stock of Sonus or any Subsidiary;
(d) (i) any payment of a regular, special or year end
bonus to any employee or officer or director of Sonus or any Subsidiary, or any
increase in salary, rate of commissions or rate of consulting fees of any
director, officer, employee or consultant of Sonus or any Subsidiary, other
than salary increases to non-management employees in the ordinary course of
business and consistent with past practices; (ii) any payment of consideration
of any nature whatsoever (other than salary, commissions or consulting fees
paid in the ordinary course of business consistent with past practices) to any
officer, director, stockholder (including the Principal Stockholders), employee
or consultant of Sonus or any Subsidiary; (iii) any establishment or
modification of (A) targets, goals, pools, formula or similar provisions under
any Plan, employment contract or other employee compensation arrangement of
Sonus or any Subsidiary, or (B) salary ranges, guidelines or similar provisions
in respect of any Plan, employment contract or other employee compensation
arrangement of Sonus or any Subsidiary; (iv) any grant of any severance,
continuation or termination pay to any director, officer, stockholder
(including the Principal Stockholders) or employee of Sonus or any Subsidiary;
or (v) any adoption, entering into, amendment, modification or termination
(partial or complete) of any Plan or employment contract of Sonus or any
Subsidiary;
(e) (i) incurrences by Sonus or any Subsidiary of
Indebtedness or (ii) any voluntary purchase, cancellation, prepayment or
complete or partial discharge in advance of a scheduled payment date with
respect to, or waiver of any right of Sonus or any Subsidiary under, any
Indebtedness of or owing to Sonus or any Subsidiary;
(f) any change in or incurrence of any Liability of Sonus
or any Subsidiary other than in the ordinary course of business consistent with
past practices;
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(g) any physical damage, destruction or other casualty
loss (whether or not covered by insurance) affecting any of the real or
personal property or equipment of Sonus or any Subsidiary in an aggregate
amount exceeding Fifteen Thousand Dollars ($15,000);
(h) any write-off or write-down of or any determination
to write off or write down any of the Assets and Properties of Sonus or any
Subsidiary in an aggregate amount exceeding Fifteen Thousand Dollars ($15,000);
(i) any purchase of any Assets and Properties of any
Person or any sale, license or other disposition of, or incurrence of a Lien
(other than a Permitted Lien) on, any Assets and Properties of Sonus or any
Subsidiary, other than acquisitions or dispositions in the ordinary course of
business of Sonus or any Subsidiary consistent with past practice and the terms
of this Agreement and the Operative Agreements;
(j) any entering into, amendment, modification,
termination (partial or complete) or granting of a waiver under or giving any
consent with respect to (i) any material Contract, (ii) any Permit held by
Sonus or any Subsidiary, or (iii) any Intellectual Property owned, held or used
by Sonus or any Subsidiary;
(k) any capital expenditures or commitments for additions
to property, plant, equipment or Intellectual Property of Sonus or any
Subsidiary in an aggregate amount exceeding Fifteen Thousand Dollars ($15,000);
(l) any commencement or termination by Sonus or any
Subsidiary of any line of business;
(m) any transaction by Sonus or any Subsidiary with any
officer, director, stockholder (including any Principal Stockholder), Affiliate
or Associate of Sonus or any Subsidiary, other than pursuant to any Contract in
effect on the date of the Sonus Balance Sheet and disclosed to Target pursuant
to Section 4.8 of the Sonus Disclosure Schedule;
(n) the commencement or notice or threat of commencement
of any lawsuit or proceedings against, or investigation of, Sonus or any
Subsidiary or their affairs;
(o) any notice of any claim of ownership by a third party
of the Intellectual Property of Sonus or any Subsidiary or notice of
infringement by Sonus or any Subsidiary of any third party's Intellectual
Property rights;
(p) any change in pricing or royalties set or charged by
Sonus or any Subsidiary to clients, customers or licensees or in pricing or
royalties set or charged by Persons who have licensed Intellectual Property to
Sonus or any Subsidiary;
(q) any loan or advance by Sonus or any Subsidiary to any
Person or entity, except for advances to employees for travel and business
expenses in the ordinary course of business consistent with past practice;
(r) any change in the accounting methods or procedures of
Sonus or its Subsidiaries;
(s) any other material transaction involving Sonus or any
Subsidiary outside the ordinary course of business consistent with past
practice; or
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(t) any entering into of an agreement to do or engage in
any of the foregoing, including without limitation with respect to any Business
Combination not otherwise restricted by the foregoing paragraphs.
SECTION 4.9 NO UNDISCLOSED LIABILITIES. Except as specifically
reflected or reserved against in the Balance Sheet or as described in Section
4.9 of the Sonus Disclosure Schedule, there are no Liabilities of, relating to
or affecting Sonus or any Subsidiary or any of their respective Assets and
Properties (whether or not required to be reflected in financial statements in
accordance with GAAP), other than Liabilities incurred in the ordinary course
of business consistent with past practice since the date of the Sonus Balance
Sheet and in accordance with the provisions of this Agreement and the Operative
Agreements, which in the aggregate are not material to the Business or
Condition of Sonus and are not for tort or for breach of contract.
SECTION 4.10 RESTRICTIONS ON CONDUCT OF BUSINESS. Except as set
forth in Section 4.10 of the Sonus Disclosure Schedule, neither Sonus nor any
Subsidiary is prohibited or otherwise restricted from conducting its business
as presently conducted or intended to be conducted by any Contract, any
Governmental or Regulatory Authority or any Law.
SECTION 4.11 BUSINESS PLAN. Sonus has provided to Target a current
business plan for the planned operations of Sonus and the Subsidiaries during
calendar years 1999, which includes, without limitation, a description of the
capital requirements and staffing needs of Sonus and the Subsidiaries, and a
pro forma income statement. Sonus used reasonable care in preparing such
business plan and the assumptions and projections therein are reasonable.
SECTION 4.12 DISCLOSURE. No representation or warranty of Sonus
or Acquisition contained in this Agreement, and no statement contained in the
Sonus Disclosure Schedule or in any certificate, list or other writing
furnished to Target or the Principal Stockholders pursuant to any provision of
this Agreement (including without limitation the Financial Statements) contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein or therein, in the light of
the circumstances under which they were made, not misleading.
ARTICLE 5
CERTAIN AGREEMENTS OF THE PARTIES
SECTION 5.1 CONDUCT OF BUSINESS PRIOR TO THE CLOSING.
(a) The Principal Stockholders, jointly and severally,
covenant and agree that between the date hereof and the Closing Date, they
shall cause Target and the Subsidiaries to conduct their business in the
ordinary course and consistent with past practice.
(b) The Principal Stockholders, jointly and severally,
covenant and agree that prior to the Closing Date, and without making any
commitment on Sonus' or Acquisition's behalf, they will cause Target and the
Subsidiaries to use all reasonable efforts to preserve substantially intact the
business organization of Target and the Subsidiaries, to keep available to
Sonus and Acquisition the services of the employees of Target and the
Subsidiaries and to preserve the current relationships of Target and the
Subsidiaries with its clients, customers, suppliers and other persons with
which Target and the Subsidiaries have significant business relationships.
(c) The Principal Stockholders, jointly and severally,
covenant and agree that prior to the Closing Date, they will cause Target and
the Subsidiaries to maintain their books and records in the usual, regular and
ordinary manner consistent with past practices; to use all reasonable efforts
to continue
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in full force and effect the policies of insurance listed in Section 3.20 of
the Target Disclosure Schedule or comparable substitute policies and will
promptly notify Sonus of any cancellation or non-renewal of such insurance; and
to use all reasonable efforts to maintain all of Target's and Subsidiaries'
Assets and Properties in good repair, working order and operating condition
(subject only to ordinary wear and tear).
(d) The Principal Stockholders, jointly and severally,
covenant and agree that prior to the Closing Date, they will not permit Target
or any Subsidiary to amend its Certificate or Articles of Incorporation or
Bylaws or merge, amalgamate or consolidate or sell all or substantially all of
its Assets and Property, or obligate itself to do so, with or into or to any
other entity, without the prior written consent of Sonus.
(e) The Principal Stockholders, jointly and severally,
covenant and agree that prior to the Closing Date, they will cause Target and
their Subsidiaries to (i) comply with all material applicable Laws, (ii) file
all Tax Returns required to be filed with any Governmental or Regulatory
Authority and make timely payments of applicable Taxes when due; and (iii) take
all reasonable actions necessary to be in compliance with, and to maintain the
effectiveness of, all material Permits.
(f) The Principal Stockholders, jointly and severally,
covenant and agree that without the prior written consent of Sonus, they will
not permit Target or any Subsidiary prior to the Closing Date to:
(i) amend its Articles or Certificate of
Incorporation or Bylaws;
(ii) change its accounting methods, principles or
practices, except to the extent required by GAAP and concurred in by Target's
independent accountants;
(iii) declare, set aside or pay any dividend or
other distribution (whether in cash, stock, property or any combination
thereof) in respect of the capital stock of Target or any other securities or
redeem, repurchase or otherwise acquire any equity securities of Target or any
Subsidiary;
(iv) revalue any of its assets, including, without
limitation, writing off notes or accounts receivable, other than in the
ordinary course of business consistent with past practice;
(v) establish any new, or amend or modify any
existing, Plan; pay any bonus or other payment to any employee, officer or
director except salary payments at current rates; or increase the compensation
payable or to become payable to any directors, officers or employees of Target
or any Subsidiary, except salary increases as may be required by Law, and
salary increases to non-management employees in the ordinary course of business
consistent with past practice and not in excess of Thirty Five Thousand Dollars
($35,000) per annum in the aggregate;
(vi) enter into any employment or severance
agreement with any of its directors, officers or employees (whether new hires
or existing employees) or establish, adopt or enter into any collective
bargaining agreement;
(vii) create, incur, assume, maintain or permit to
exist any Lien on any Asset or Property of Target or any Subsidiary other than
Permitted Liens;
(viii) create, incur or assume any Indebtedness,
including obligations in respect of capital leases, or guarantee any
Indebtedness or any other obligation of any other Person;
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(ix) pay or discharge any material claim,
Liability or Lien (whether absolute, accrued, contingent or otherwise), or
waive any right, other than in the ordinary course of business consistent with
past practice or pursuant to binding contractual obligations of Target or the
Subsidiaries in existence on the date hereof;
(x) transfer to any Person any rights to the
Intellectual Property of Target or any Subsidiary, other than as reasonably
necessary in the ordinary course of business consistent with past practice in
rendering services to clients and customers;
(xi) enter into any agreement granting marketing,
distribution or similar rights of any type or scope with respect to any
products or services of Target or any Subsidiary;
(xii) commence any litigation except in the
ordinary course of business;
(xiii) hire any new employees, agents or
consultants, except employees earning less than $70,000 per annum to replace
employees who have left the employ of Target or any Subsidiary;
(xiv) authorize or make any capital expenditure in
excess of Ten Thousand Dollars ($10,000) on any one item, or in excess of
Twenty Thousand Dollars ($20,000) in the aggregate;
(xv) issue or agree to issue any shares of its
capital stock or Options with respect to such stock;
(xvi) become a party to any agreement which, if it
existed on the date hereof, would be required to be listed in the Target
Disclosure Schedule, or amend or terminate any Contact listed on the Target
Disclosure Schedule;
(xvii) acquire or agree to acquire by merging,
amalgamating or consolidating with, or by purchasing any assets or equity
securities of, or by any other manner, any business or any corporation, limited
liability company, partnership or other business organization or division
thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to its business;
(xviii) sell, lease, license, or otherwise dispose of
any material item of its Assets and Property or any item of Intellectual
Property (except as described in subsection (x) above);
(xix) make or change any material election in
respect of Taxes, adopt or change any accounting method in respect of Taxes,
enter into any closing agreement, settle any claim or assessment in respect of
Taxes, or consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes;
(xx) abandon, modify, waive, terminate or
other-wise change any of the Permits described in Section 3.19 of the Target
Disclosure Schedule;
(xxi) settle or compromise any material claims
against Target or any Subsidiary;
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(xxii) take any action or course of action
inconsistent with compliance with the covenants and agreements contained in
this Agreement; or
(xxiii) take or agree to commit to take any action
that would make any representation or warranty of the Principal Stockholders
contained herein inaccurate in any material respect at the Closing or omit to
take any action necessary to prevent any such representation or warranty from
being inaccurate in any material respect at such time or which would diminish
the value of Target or the Subsidiaries as going concerns.
SECTION 5.2 ACCESS TO INFORMATION From the date hereof until the
Closing, upon reasonable notice, each party hereto shall, and shall cause such
party's officers, directors, employees, auditors and agents to (i) afford the
Representatives of the other parties reasonable access, during normal business
hours, to the offices, properties, books and records of such party and such
party's officers, employees, agents, accountants and actuaries, and (ii)
furnish to the Representatives of such party such additional financial and
operating data and other information regarding the assets, properties, goodwill
and business of such party as the requesting party may from time to time
reasonably request; provided, however, that such investigation shall not
unreasonably interfere with the business or operations of any party upon whom
such request is served. No investigation or access to information pursuant to
this Section 5.2 shall affect any representation or warranty made by Sonus,
Target or the Principal Stockholders hereunder or otherwise affect the rights
and remedies available to any party hereunder.
SECTION 5.3 RESERVED.
SECTION 5.4 CONFIDENTIALITY.
(a) The information which Sonus acquires about Target and
the Subsidiaries as a result of the investigations permitted by this Agreement
is termed "Evaluation Material." Sonus agrees that neither it nor any of its
Representatives will use any such material for any purpose not related to the
transactions contemplated by this Agreement and will not disclose any such
material to anyone except its Representatives who may need such information to
perform their respective duties and have been informed of its confidential
nature and directed to treat it confidentially. If the transactions
contemplated by this Agreement are not consummated, Sonus agrees that it and
its Representatives will return any written Evaluation Material in their
possession, or will destroy and will not retain any such material, any copies
thereof or any notes or memoranda made using such material.
(b) The confidentiality agreement contained herein will
terminate upon the earlier of two years after the date hereof or upon
consummation of the transactions contemplated hereby.
(c) The parties agree that monetary damages alone would
not be a satisfactory remedy for a breach of that portion of the
confidentiality agreement contained herein which relate to the proprietary
processes employed by Target and the Subsidiaries in the provision of its
services, and that if that provision is breached, Target and the Principal
Stockholders shall be entitled to injunctive relief as well as monetary
damages.
(d) Notwithstanding the foregoing, Sonus and its
Representatives may use and disclose Evaluation Material and information
obtained from the Evaluation Material to the extent that (i) they acquired such
information on a non-confidential basis prior to receipt thereof from Target or
its Representative, (ii) such information has become generally available to the
public, or (iii) such information is provided to the Person using or disclosing
it by a Person who obtained such information other than as a result of a breach
of this Agreement. Furthermore, Sonus and its Representatives may disclose
such information to the extent that they are required to do so to comply with a
governmental or
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judicial order or decree, but upon receiving notice that any such order or
decree has been issued or is being sought, they will promptly notify Target and
will, at Target's expense, cooperate with Target's efforts to contest the
issuance of such order or decree.
(e) Each of the Principal Stockholders and Target will
hold in strict confidence and shall cause each of their respective
Representatives to hold in strict confidence from any Person (other than any
Affiliate of Sonus or any Representative of Sonus or such Affiliate), unless
compelled to disclose by judicial or administrative process (including without
limitation in connection with obtaining the necessary approvals of this
Agreement and the transactions contemplated hereby of Governmental or
Regulatory Authorities) or by other requirements of Law, all documents and
information concerning Acquisition, Sonus or any of their respective
Affiliates, except to the extent that such documents or information can be
shown to have been (i) previously known by the party receiving such documents
or information, (ii) in the public domain (either prior to or after the
furnishing of such documents or information hereunder) through no fault of such
receiving party or (iii) later acquired by the receiving party from another
source if the receiving party is not aware that such source is under an
obligation to another party hereto to keep such documents and information
confidential.
SECTION 5.5 REGULATORY AND OTHER AUTHORIZATIONS; CONSENTS.
(a) Each of the Principal Stockholders, Target, Sonus and
Acquisition will use their best efforts to obtain all authorizations, consents,
orders and approvals of all federal, state, and local and all foreign
regulatory bodies and officials that may be or become necessary for its
execution and delivery of, and the performance of its obligations pursuant to,
this Agreement, including without limitation, F.C.C., New York Public Service
Commission and California Public Utilities Commision authorizations, consents,
orders and approvals, and will cooperate fully with the other parties in
promptly seeking to obtain all such authorizations, consents, orders and
approvals, subject to the proviso in Section 5.5(b).
(b) Acquisition, Sonus, Target and the Principal
Stockholders will each use their best efforts to assist one another in
obtaining the consents referred to in Sections 6.1 (c), 6.2 (c) and, if any,
the consents referred to in Section 6.2(d); provided, however, that Acquisition
shall not be obligated with respect to such assistance to expend any material
amount of funds except the payment of the fees and expenses of any applicable
attorneys, consultants or other advisors retained by it and applicable filing
fees.
SECTION 5.6 NO SOLICITATION OF OFFERS, ETC.
(a) Prior to the termination of this Agreement in
accordance with its terms, the Principal Stockholders and their Affiliates,
including Target and the Subsidiaries, shall not, nor shall they authorize or
permit any officer, director, employee, investment banker, attorney, accountant
or other representative of or Person retained by them to, directly or
indirectly, take any action to knowingly solicit, encourage or facilitate any
action that might lead to, or accept any offers, initiate or participate in
negotiations or discussions with, or provide any non-public information to, or
enter into any letter of intent, preliminary agreement or definitive agreement
with any Person with respect to, any possible merger, amalgamation,
acquisition, reorganization, exchange offer or any sale of all or substantially
all of the Assets and Properties, purchase or sale of capital stock (whether
outstanding shares, treasury or other shares) or change in control of, or any
similar transaction or transactions involving, directly or indirectly, Target
or any Subsidiary (collectively, a "Sale"). The Principal Stockholders and
Target shall immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
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(b) The Principal Stockholders and Target acknowledge and
agree that a violation by any of them of Section 5.6(a) will cause irreparable
damage to Sonus and Acquisition. Accordingly, each of the Principal
Stockholders and Target agree that, in the event of a breach of Section 5.6(a),
Sonus and Acquisition shall be entitled to a temporary or permanent injunction
or restraining order to prevent breaches of Section 5.6(a) and to specifically
enforce the terms and provisions thereof without the need to post any security
or bond, such rights to be cumulative and in addition to whatever other
remedies at law or in equity or otherwise Sonus and Acquisition may have
pursuant to this Agreement.
SECTION 5.7 NOTICE OF CERTAIN MATTERS.
(a) Target and the Principal Stockholders, jointly and
severally, covenant and agree to give prompt notice in writing to Sonus of: (i)
any information that indicates that any representation or warranty of Target or
the Principal Stockholders contained in this Agreement was not true and correct
as of the date hereof or will not be true and correct as of the Closing Date,
(ii) the occurrence of any event which will result, or has a reasonable
prospect of resulting, in the failure to satisfy a condition specified in
Article 6 hereof, (iii) any notice or other communication from any third party
alleging that the consent of such third party is or may be required in
connection with the transactions contemplated by this Agreement, (iv) any
notice of, or other communication relating to, any default or event which, with
notice or lapse of time or both, would become a default under any Contract
listed on the Target Disclosure Schedule, and (v) any change in the officers or
directors of Target or any Subsidiary.
(b) The Principal Stockholders, jointly and severally,
covenant and agree to (i) promptly advise Sonus of any fact, condition or
change that, individually or in the aggregate, has or results in a material
adverse effect on the Business or Condition of Target, and (ii) notify Sonus of
any governmental complaint, investigation or hearing (or communications
indicating that the same may be contemplated) or adjudicatory proceeding
involving Target, any Subsidiary or any of their respective Assets and
Property, and will keep Sonus fully informed of such events and permit Sonus'
Representatives reasonable access to all materials prepared in connection
therewith.
(c) The giving of any such notice under this Section 5.7
or the providing of the financial statements contemplated by Section 5.8 shall
in no way change or modify Target or the Principal Stockholders'
representations and warranties or the conditions to Sonus' or Acquisition's
obligations contained herein or otherwise affect the remedies available to
Sonus or Acquisition hereunder.
SECTION 5.8 INTERIM FINANCIAL STATEMENTS. Target and Sonus shall
prepare and deliver to each other copies of the customary form of interim
financial statements promptly upon the completion of such interim statements,
and the Principal Stockholders shall use their best efforts to cause Target and
the Subsidiaries to prepare and deliver such financial statements. All such
interim financial statements will fairly present, in all material respects, the
financial condition of Target and the Subsidiaries or Sonus, as the case may
be.
SECTION 5.9 PRINCIPAL STOCKHOLDERS' OBLIGATIONS. Each Principal
Stockholder hereby agrees that in each instance in this Agreement where Target
or any Subsidiary is obligated to act or refrain from acting under this
Agreement during the period prior to the Closing, each such Principal
Stockholder individually, or together with the other Principal Stockholders,
shall cause Target and the Subsidiaries to fulfill such obligations. The
Principal Stockholders also agree to vote in favor of the transactions
contemplated by this Agreement and to use reasonable efforts to ensure that all
corporate and stockholder approvals of the transactions contemplated hereby
necessary by Target or its shareholders will be taken and adopted.
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SECTION 5.10 FURTHER ACTION, RELATED ASSETS AND PROPERTIES. Each
of the parties hereto shall execute and deliver such documents and other papers
and take such further actions as may be reasonably required to carry out the
provisions hereof and give effect to the transactions contemplated hereby. At
any time or from time to time after the Closing, the Principal Stockholders
and/or Target shall execute and deliver to Acquisition and/or Sonus such other
documents and instruments, provide such materials and information and take such
other actions as Acquisition or Sonus may reasonably request to consummate the
transactions contemplated by this Agreement and the Operative Agreements and
otherwise to cause Target and the Principal Stockholders to fulfill each of
their respective obligations under this Agreement and the Operative Agreements.
Each Principal Stockholder hereby agrees at Closing to transfer, convey, assign
and deliver to Target and the Subsidiaries, free and clear of all Liens (except
as noted on the Target Disclosure Schedule), all of such Principal
Stockholder's respective Assets and Properties, if any, used, held for use or
related to the business or operations of Target and the Subsidiaries (other
than personal items purchased by or given to the Principal Stockholders not in
excess of $200 per item).
SECTION 5.11 RESERVED.
SECTION 5.12 PUBLICITY. Each party agrees that he or it will not
release any information relating to the transactions without the prior
agreement of the other parties, except as may be required by law.
Notwithstanding the foregoing: (i) the parties expect that a public
announcement will be made regarding this transaction on the signing of an
Agreement and the closing thereof, and (ii) if Sonus concludes that it is
required to do so to comply with its disclosure obligations under the federal
securities laws, it will make a public announcement and may file a copy of that
public announcement with the Securities and Exchange Commission on a Form 8-K
or any other applicable form.
ARTICLE 6
CONDITIONS TO CLOSING
SECTION 6.1 CONDITIONS TO OBLIGATIONS OF TARGET AND THE PRINCIPAL
STOCKHOLDERS. The obligations of Target and the Principal Stockholders to
consummate the transactions contemplated by this Agreement at the Closing shall
be subject to the fulfillment, at or prior to the Closing, of each of the
following conditions:
(a) Representations and Warranties; Covenants and
Agreements. The representations and warranties of Acquisition and Sonus
contained in this Agreement shall be true and correct in all material respects
as of the Closing Date, with the same force and effect as if made as of the
Closing Date, other than such representations and warranties as are made as of
another date, which shall be true and correct as of such date; provided,
however, that if any such portion of any representation or warranty is already
qualified by materiality, for purposes of determining whether this Section 6.1
(a) has been satisfied with respect to such portion of such representation or
warranty, such portion of such representation or warranty as so qualified must
be true and correct in all respects; and all the agreements, undertakings,
covenants and obligations contained in this Agreement to be complied with by
Sonus and Acquisition on or before the Closing Date shall have been complied
with in all material respects, and Target shall have received a certificate of
Sonus and Acquisition to such effect signed by a duly authorized officer
thereof.
(b) No Order or Suit. No Governmental or Regulatory
Authority shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions; provided, however, that the
parties hereto shall use their reasonable best efforts to have any
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such order or injunction vacated.
(c) Governmental Filings and Consents. All governmental
orders, approvals and consents to the transactions contemplated by this
Agreement shall have been obtained and be in effect on the Closing Date, in
form and substance reasonably acceptable to Target and the Principal
Stockholders except to the extent that the failure to obtain any such consent
would not have the effect of making the transactions contemplated by this
Agreement illegal or otherwise restrain or prohibit consummation of such
transactions.
(d) Target Stockholder Approval. The stockholders of
Target shall have approved the Merger to the extent required by applicable New
York Business Corporation Law or the articles of incorporation of Target.
(e) Incumbency Certificate. Target and the Principal
Stockholders shall have received a certificate of the Secretary or an Assistant
Secretary of Sonus and Acquisition certifying the names and signatures of the
officers of Sonus and Acquisition authorized to sign this Agreement, the
Operative Documents to which Sonus and Acquisition are parties and any other
document required to be delivered hereunder.
(f) Proceedings. All proceedings, corporate or
otherwise, taken by Acquisition and Sonus in connection with the transactions
contemplated hereby and all instruments and documents incident thereto shall be
reasonably satisfactory in form and substance to the Principal Stockholders and
their counsel.
(g) Organizational Documents. Target and the Principal
Stockholders shall have received a copy of (i) the Certificate of Incorporation
of Sonus and Acquisition, certified by the Secretary of State or another
appropriate official of the appropriate jurisdiction of incorporation, as of a
date not earlier than ten Business Days prior to the Closing Date and
accompanied by a certificate of the Secretary or an Assistant Secretary of
Sonus and Acquisition, dated as of the Closing Date, stating that no amendments
have been made to such document since such date, and (ii) the Bylaws of Sonus
and Acquisition and each Subsidiary, certified by the Secretary or an Assistant
Secretary of Sonus and Acquisition and each Subsidiary, respectively.
(h) Good Standing. Target and the Principal Stockholders
shall have received a Certificate of Good Standing for Sonus and Acquisition
and a certificate to the effect that all franchise and other taxes shall have
been paid up to date by Sonus and Acquisition and each Subsidiary from the
appropriate official of the appropriate jurisdiction of incorporation, dated as
of a date not earlier than ten Business Days prior to the Closing Date.
(i) Release of Personal Guarantee of Citizens' Loan. The
personal guarantees of each of the Principal Stockholders relating to the
Citizens' loan in the approximate amount of $384,000 (the "Citizens' Loan")
shall be released on or prior to the Closing Date, or such other arrangement
with respect to the personal guarantees shall have been reached as is
reasonably acceptable to the Principal Stockholders.
(j) Other Agreements. Acquisition shall have executed
and delivered to each Principal Stockholder an Employment Agreement in
substantially the form attached hereto as Exhibit F, Sonus shall have executed
and delivered a Principal Stockholders Escrow Agreement in substantially the
form attached hereto as Exhibit C, and Acquisition shall have executed and
delivered the Certificates of Merger in substantially the forms attached hereto
as Exhibit A1 and Exhibit A2.
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SECTION 6.2 CONDITIONS TO OBLIGATIONS OF SONUS AND ACQUISITION.
The obligations of Sonus and Acquisition to consummate the transactions
contemplated by this Agreement at the Closing shall be subject to the
fulfillment, at or prior to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. Without
giving effect to any matter disclosed to Sonus or Acquisition between the date
hereof and the Closing Date, the representations and warranties of Target and
the Principal Stockholders contained in this Agreement shall be true and
correct in all material respects as of the Closing Date with the same force and
effect as if made as of the Closing Date, other than such representations and
warranties as are made as of another date, which shall be true and correct as
of such date; provided, however, that if any portion of any representation or
warranty is already qualified by materiality, for purposes of determining
whether this Section 6.2(a) has been satisfied with respect to such portion of
such representation or warranty, such portion of such representation or
warranty as so qualified must be true and correct in all respects; and all the
agreements, undertakings, covenants and obligations contained in this Agreement
to be complied with by Principal Stockholders, Target and the Subsidiaries on
or before the Closing shall have been complied with in all material respects,
and Acquisition shall have received certificates of the Principal Stockholders
and Target to such effect signed by a duly authorized officer of Target and by
each Principal Stockholder.
(b) No Order or Suit. No Governmental or Regulatory
Authority shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and has the effect of making the
transactions contemplated by this Agreement illegal or otherwise restraining or
prohibiting consummation of such transactions or which would have a material
adverse effect on the Business or Condition of Target; in addition, no Action
or Proceeding before any Governmental or Regulatory Authority shall be pending
or threatened and no investigation by any Governmental or Regulatory Authority
shall have commenced seeking to restrain or prohibit (or questioning the
validity or legality of) the transactions contemplated by this Agreement or
seeking to restrict in any material respect the effective operation of the
business of Target or any Subsidiary after the Closing or seeking material
damages from Target or any Subsidiary or seeking material damages from
Acquisition in connection with this Agreement, which Acquisition, in good faith
and with the advice of counsel, believes makes it undesirable to proceed with
the consummation of the transactions contemplated hereby; provided, however,
that the parties hereto shall use their reasonable best efforts to have any
such order or injunction vacated.
(c) Governmental Filings and Consents. All governmental
orders, approvals and consents to the transactions contemplated by this
Agreement shall have been obtained and be in effect on the Closing Date, in
form and substance reasonably acceptable to Sonus and Acquisition and the
waiting period (if any), including extensions thereof, applicable to the
consummation of the transactions contemplated hereunder shall have either
expired or been previously terminated, and such approvals as shall have been
obtained shall not impose upon Acquisition, Target or any Subsidiary any
conditions or other requirements which would cause any thereof any material
additional costs or materially interfere with the continued operations of the
business of Sonus, Acquisition, Target or any Subsidiary as currently conducted
or materially and adversely affect the Business and Condition of Target.
(d) Third Party Consents. Sonus and Acquisition shall
have received the third party consents, approvals, authorizations or actions to
the transactions contemplated by this Agreement, if any, in form and substance
reasonably satisfactory to Sonus and Acquisition from the parties listed in
Section 6.2(d) of the Sonus Disclosure Schedule.
(e) Limitation on Non-Accredited Investors. The
Principal Stockholders who are not "accredited investors" within the meaning of
Rule 501 of Regulation D promulgated under the Securities
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Act, together with the Other Stockholders who are not "accredited investors"
(within the meaning of such Rule), shall not number in the aggregate in excess
of thirty five (35) as of the Closing Date.
(f) Resignation of Directors and Officers of Target.
Sonus shall have received the resignations, effective as of the Closing Date,
of all the directors of Target and of all of the officers of Target.
(g) Organizational Documents. Sonus shall have received
a copy of (i) the Certificate or Articles of Incorporation of Target and each
Subsidiary, certified by the Secretary of State or another appropriate official
of the appropriate jurisdiction of incorporation, as of a date not earlier than
ten Business Days prior to the Closing Date and accompanied by a certificate of
the Secretary or an Assistant Secretary of Target and each Subsidiary, dated as
of the Closing Date, stating that no amendments have been made to such document
since such date, and (ii) the Bylaws of Target and each Subsidiary, certified
by the Secretary or an Assistant Secretary of Target and each Subsidiary,
respectively.
(h) Good Standing. Sonus shall have received a
Certificate of Good Standing for and a certificate to the effect that all
franchise and other taxes shall have been paid up to date by Target and each
Subsidiary from the appropriate official of the appropriate jurisdiction of
incorporation, dated as of a date not earlier than ten Business Days prior to
the Closing Date.
(i) Incumbency Certificate. Sonus shall have received a
certificate of an officer of Target certifying the names and signatures of the
officers of Target authorized to sign any document required to be delivered by
Target hereunder.
(j) Accounting Method. Acquisition and/or Sonus shall
have the availability of pooling accounting treatment with respect to the
transactions contemplated by this Agreement.
(k) Other Agreements. Each of the Principal Stockholders
shall have executed and delivered an Employment Agreement in substantially the
form attached hereto as Exhibit F, and a Principal Stockholders Escrow
Agreement in substantially the form attached hereto as Exhibit C. Target shall
have executed and delivered the Certificates of Merger in substantially the
forms attached hereto as Exhibit A1 and A2.
(l) Repayment of Indebtedness. All Principal
Stockholders who are indebted to Target or any Subsidiary shall have repaid
such indebtedness in full with interest thereon to the date of payment.
(m) Discharge of Liens; Citizens' Loan. All Liens on the
Property and Assets of Target and the Subsidiaries, other than Permitted Liens,
shall have been fully satisfied, terminated and discharged as evidenced by
releases or satisfactions satisfactory to Sonus including but not limited to
the Stockholder Indebtedness. The personal guarantees of each of the Principal
Stockholders relating to the Citizens' Loan shall be released on or prior to
the Closing Date such that the Escrow Shares are free of all Liens at the
Closing, or such other arrangement with respect to the Escrow Shares shall have
been reached as is reasonably acceptable to Sonus.
(n) Proceedings. All proceedings, corporate or
otherwise, taken by the Principal Stockholders and Target in connection with
the transactions contemplated hereby and all instruments and documents incident
thereto shall be reasonably satisfactory in form and substance to Sonus and its
counsel.
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(o) Customer Churn Rate. The cumulative customer
turnover rate of Target is not materially greater than five and one-half
percent (5-1/2%) for the period from January 1, 1999 through and including the
Closing Date.
(p) Cash Flow. Target's utilization of cash for
operations during any month in the third quarter of 1999 shall not be more than
twenty-five percent (25%) greater than cash receipts during such respective
month.
(q) Stockholder's Equity. As of the Closing Date, Target
shall have a stockholder's equity of not less than negative Three Hundred Fifty
Thousand Dollars (-$350,000).
(r) Cancellation of Shareholders Agreement. Each of the
Principal Stockholders shall have terminated their employment agreements with
Target as well as that certain shareholders agreement by and between Target and
Friedman, Butler and Lewis, all effective immediately prior to Closing.
ARTICLE 7
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
SECTION 7.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS. Notwithstanding any right of Sonus and its Affiliates (whether
or not exercised) to investigate the affairs of each Principal Stockholder,
Target or the Subsidiaries or any right of any party (whether or not exercised)
to investigate the accuracy of the representations and warranties of the other
party contained in this Agreement or the waiver of any provision hereof, each
Principal Stockholder, on the one hand, and Sonus and Acquisition, on the
other, have the right to rely fully upon the representations, warranties,
covenants and agreements of the other contained in this Agreement. The
representations, warranties, covenants and agreements of Target, the Principal
Stockholders, Sonus and Acquisition contained in this Agreement shall survive
the Closing (a) for a period equal to the applicable statute of limitations
with respect to the representations and warranties contained in Sections 3.6,
3.11, 3.13, 3.14, 3.19 and 3.23; and (b) for a period of two (2) years after
the Closing Date with respect to all other representations and warranties;
provided, however, that any representation, warranty, covenant or agreement
that would otherwise terminate will continue to survive if a Claim Notice or
Indemnity Notice (as applicable) shall have been timely given under Article 8
on or prior to such termination date, until the related claim for
indemnification has been satisfied or otherwise resolved as provided in Article
10, but only with respect to matters described in the Claim Notice or Indemnity
Notice.
ARTICLE 8
INDEMNIFICATION
SECTION 8.1 INDEMNIFICATION.
(a) Each of the Principal Stockholders, jointly and
severally, shall indemnify Acquisition, Sonus and their respective stockholders
and the officers, directors, employees, agents and Affiliates of each of them
(in each case, other than the Principal Stockholders) (collectively, the
"Acquisition Indemnitees"), in respect of, and hold each of them harmless from
and against, and shall pay any and all Losses suffered, incurred or sustained
by any of them or to which any of them becomes subject, resulting from, arising
out of or relating to any misrepresentation or breach of warranty or
nonfulfillment of or failure to perform any covenant or agreement on the part
of Target, any Subsidiary or any of the Principal Stockholders contained in
this Agreement or any of the Operative Agreements (including, without
limitation, any certificate delivered in connection herewith or therewith)
during any
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applicable survival period pursuant to Section 7.1 above in an amount up to and
including the value of the Escrow Shares, to be satisfied by cancellation of
the Escrow Shares to the extent necessary to satisfy the Principal Stockholders
indemnity obligations hereunder.
(b) Sonus agrees to indemnify the Principal Stockholders
and the Other Stockholders and their respective heirs, executors, personal
representatives, successors and assigns (the "Principal Stockholder
Indemnitees"') in respect of, and hold each of them harmless from and against,
and shall pay any and all Losses suffered, incurred or sustained by any of them
or to which any of them becomes subject, resulting from, arising out of or
relating to (i) any misrepresentation or breach of warranty or nonfulfillment
of or failure to perform any covenant or agreement on the part of Acquisition
or Sonus contained in this Agreement or the Operative Agreements (including,
without limitation, any certificate delivered in connection herewith or
therewith) during any applicable survival period pursuant to Section 7.1 above,
and (ii) the personal guarantees (the "Personal Guarantees") described on, and
guaranteeing the amounts listed in, Section 8.1(b) of the Target Disclosure
Schedule, to the extent such Losses arise from the act or omission of Sonus or
Acquisition after the Closing Date. The indemnities provided herein are
provided up to and including, but shall not exceed, an amount equal to the
value of the Merger Shares multiplied by 15/100.
(c) No amounts of indemnity shall be payable as a result
of a claim under Section 8.1(a) unless and until the Acquisition Indemnitees
have suffered, incurred, sustained or become subject to Losses with respect
thereto in excess of $37,500 in the aggregate, in which case the Acquisition
Indemnitees shall be entitled to seek indemnity for the amount of such Losses
incurred from and after Thirty-Seven Thousand Five Hundred Dollars ($37,500).
(d) No amounts of indemnity shall be payable as a result
of a claim under Section 8.1(b) unless and until the Principal Stockholder
Indemnitees have suffered, incurred, sustained or become subject to Losses with
respect thereto in excess of $37,500 in the aggregate, in which case the
Principal Stockholder Indemnitees shall be entitled to seek indemnity for the
amount of such Losses incurred from and after Thirty-Seven Thousand Five
Hundred Dollars ($37,500).
SECTION 8.2 METHOD OF ASSERTING CLAIMS. All claims for
indemnification by any Indemnified Party under Section 8.1 will be asserted and
resolved as follows:
(a) In order for an Indemnified Party to be entitled to
any indemnification provided for under Section 8.1 in respect of, arising out
of or involving a claim or demand made by any Person not a party to this
Agreement against the Indemnified Party (a "Third Party Claim"), the
Indemnified Party must deliver a claim notice to the Indemnifying Party within
thirty (30) Business Days after receipt by such Indemnified Party of written
notice of the Third Party Claim ("Claim Notice"); provided, however, that
failure to give such Claim Notice shall not affect the indemnification provided
hereunder except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure.
(b) If a Third Party Claim is made against an Indemnified
Party, the Indemnifying Party shall be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the Indemnifying Party, which counsel must be reasonably
satisfactory to the Indemnified Party, provided that all Indemnifying Parties
with respect to such Third Party Claim jointly acknowledge to the Indemnified
Party its right to indemnity pursuant hereto in respect of the entirety of such
claim (as such claim may be modified through written agreement of the parties
or arbitration hereunder) and provide assurances reasonably satisfactory to the
Indemnified Party that the Indemnifying Parties will be financially able to
satisfy such claim in full if it is decided adversely. Should the Indemnifying
Party so elect to assume the defense of a Third Party Claim, the Indemnifying
Party shall not be liable to the Indemnified Party for legal expenses
subsequently incurred by the
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Indemnified Party in connection with the defense thereof (except as hereinafter
provided), but shall continue to pay for any expenses of investigation or any
Loss suffered. If the Indemnifying Party assumes such defense, the Indemnified
Party shall have the right to participate in the defense thereof and to employ
counsel, at its own expense (except as hereinafter provided), separate from the
counsel employed by the Indemnifying Party. Notwithstanding the foregoing, if
(i) the Indemnifying Party shall not assume the defense of a Third Party Claim
with counsel reasonably satisfactory to the Indemnified Party within five
Business Days of any Claim Notice, or (ii) legal counsel for the Indemnified
Party notifies the Indemnifying Party that there are or may be legal defenses
available to the Indemnified Party or to other Indemnified Parties which are
different from or additional to those available to the Indemnifying Party,
which, if the Indemnified Party and the Indemnifying Party were to be
represented by the same counsel, would constitute a conflict of interest for
such counsel or prejudice prosecution of the defenses available to such
Indemnified Party, or (iii) if the Indemnifying Party shall assume the defense
of a Third Party Claim and fail to diligently and vigorously prosecute such
defense in a timely manner after due notice, then in each such case the
Indemnified Party, by notice to the Indemnifying Party, may employ its own
counsel and control the defense of the Third Party Claim and the Indemnifying
Party shall be liable for the reasonable fees, charges and disbursements of
counsel employed by the Indemnified Party; and the Indemnified Party shall be
promptly reimbursed for any such fees, charges and disbursements, as and when
incurred. Whether the Indemnifying Party or the Indemnified Party control the
defense of any Third Party Claim, the parties hereto shall cooperate in the
defense thereof. Such cooperation shall include the retention and provision to
the counsel of the controlling party of records and information which are
reasonably relevant to such Third Party Claim, and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Indemnifying Party shall
have the right to settle, compromise or discharge a Third Party Claim (other
than any such Third Party Claim in which criminal conduct is alleged) without
the Indemnified Party's consent if such settlement, compromise or discharge (i)
constitutes a complete and unconditional discharge and release of all
Indemnified Parties, and (ii) provides for no relief other than the payment of
monetary damages and such monetary damages are paid in full by the Indemnifying
Party, and in all other cases may not so settle without the prior written
consent of the Indemnified Party.
(c) In the event any Indemnified Party should have a
claim under Section 8.1 against any Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver an Indemnity Notice with
reasonable promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not impair such party's
rights hereunder except to the extent that an Indemnifying Party demonstrates
that it has been actually prejudiced thereby. If the Indemnifying Party
notifies the Indemnified Party that it does not dispute the claim described in
such Indemnity Notice or fails to notify the Indemnified Party within the
Dispute Period as to whether the Indemnifying Party disputes the claim
described in such Indemnity Notice, the Loss in the amount specified in the
Indemnity Notice will be conclusively deemed a Liability of the Indemnifying
Party under Section 8.1 and the Indemnifying Party shall pay the amount of such
Loss to the Indemnified Party on demand. If the Indemnifying Party has timely
disputed its Liability with respect to such claim, the Indemnifying Party and
the Indemnified Party will proceed in good faith to negotiate a resolution of
such dispute, and if not resolved through negotiations within the Resolution
Period, such dispute shall be resolved by arbitration as provided in Article
10.
(d) The rights accorded to Indemnified Parties hereunder
shall be in addition to any rights that any Indemnified Party may have at law
or in equity, under federal or state securities Laws or by separate agreement
(including, without limitation, under the Operative Agreements).
(e) Notwithstanding anything contained in this Agreement
to the contrary, at and after the Closing, and notwithstanding any right any
Principal Stockholder may have at law or in equity or
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pursuant to any Laws, no Principal Stockholder shall be entitled to any
indemnification, right of contribution or other right of recovery from Target
or any Subsidiary in connection with any claim made by or which could be made
by an Indemnified Party against Target or any Principal Stockholder or which
Target or any Subsidiary could be liable for, all of which are irrevocably
waived and released by each Principal Stockholder.
(f) Any payment under this Article 8 shall be treated for
tax purposes as an adjustment of the Purchase Price to the extent such
characterization is proper and permissible under relevant Tax authorities,
including court decisions, statutes, regulations and administrative
promulgations or, alternatively, by Acquisition or Sonus as an offset to a Tax
benefit item, if such characterization is permissible under such Tax
Authorities.
ARTICLE 9
TERMINATION
SECTION 9.1 GROUNDS FOR TERMINATION. This Agreement may be
terminated at any time prior to the Closing under the following provisions:
(a) by mutual written agreement of Sonus and Target;
(b) by Sonus after written notice to Principal
Stockholders if Sonus is not then in material breach of any provision of this
Agreement and there has been any one or more misrepresentations in or breaches
of the representations or warranties made by Target or the Principal
Stockholders contained herein that, if not cured on or prior to the Closing
Date, could be reasonably expected to give Sonus grounds not to close under
Section 6.2 when taken into account with all other uncured misrepresentations
in or breaches of such representation or warranties as to which Sonus shall
have given notice to Target as provided in this paragraph (b); a termination
pursuant to this paragraph (b) shall become effective (i) fifteen (15) days
after such notice with respect to such a misrepresentation or breach that is
not capable of being cured on or prior to the Closing Date, or (ii) immediately
prior to the Closing with respect to such a misrepresentation or breach that is
capable of being cured, but is not cured, on or prior to the Closing Date;
(c) by Sonus if Sonus is not then in material breach of
any provision of this Agreement after written notice to Target and the
Principal Stockholders of the failure by Principal Stockholders or Target to
perform and satisfy in any material respect any of their respective material
obligations required to be performed and satisfied by Principal Stockholders or
Target on or prior to the Closing Date, if the aggregate of all such failures
shall be material; a termination pursuant to this paragraph (c) shall become
effective (i) fifteen (15) days after such notice with respect to such a
failure that is not capable of being cured on or prior to the Closing Date, or
(ii) immediately prior to the Closing with respect to such a failure that is
capable of being cured, but is not cured, on or prior to the Closing Date;
(d) by the Principal Stockholders after written notice by
the Principal Stockholders to Sonus if the Principal Stockholders are not then
in material breach of any material provision of this Agreement and there has
been one or more material misrepresentations in or material breaches of the
representations or warranties made by Sonus herein which, if not cured on or
prior to the Closing Date, could be reasonably expected to give the Principal
Stockholders grounds not to close under Section 6.1 when taken into account
with all other uncured misrepresentations in or breaches of such
representations or warranties as to which the Principal Stockholders shall have
given notice to Sonus as provided in this paragraph (d); a termination pursuant
to this paragraph (d) shall become effective (i) fifteen (15) days after such
notice with respect to such a misrepresentation or breach that is not capable
of being cured on
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or prior to the Closing Date, or (ii) immediately prior to the Closing Date
with respect to such a misrepresentation or breach that is capable of being
cured, but is not cured, on or prior to the Closing Date;
(e) by the Principal Stockholders if the Principal
Stockholders are not then in material breach of any material provision of this
Agreement after written notice by the Principal Stockholders to Sonus of Sonus'
failure to perform and satisfy in any material respect any of its material
obligations under this Agreement required to be performed and satisfied by
Sonus on or prior to the Closing Date, if the aggregate of all such failures
shall be material; a termination pursuant to this paragraph (e) shall become
effective (i) fifteen (15) days after such notice with respect to such a
failure that is not capable of being cured on or prior to the Closing Date, or
(ii) immediately prior to the Closing Date with respect to such a failure that
is capable of being cured, but is not cured, on or prior to the Closing Date;
(f) by Sonus, Target or the Principal Stockholders, if
the Closing shall not have been consummated by April 1, 2000; provided,
however, that no party may terminate this Agreement pursuant to this paragraph
(f) if the Closing shall not have been consummated within such time period by
reason of the failure of such party or any of its Affiliates to perform in all
material respects any of its or their respective covenants or agreements
contained in this Agreement; and
(g) by Sonus or Target, if any United States federal or
state, Law or any rule or regulation thereunder shall hereafter be enacted or
become applicable that makes the transactions contemplated hereby or the
consummation of the Closing illegal or otherwise prohibited, or if any
judgment, injunction, order or decree enjoining any party hereto from
consummating the transactions contemplated hereby is entered and such judgment,
injunction, order or decree shall become final and nonappealable.
The party desiring to terminate this Agreement pursuant to the
foregoing provisions shall give written notice of such termination to the other
party.
SECTION 9.2 EFFECT OF TERMINATION. If termination results from
the breach by any party of its representations, warranties or covenants
contained in this Agreement, such party shall be fully liable for any and all
Losses incurred or suffered by the other parties as a result of such failure or
breach and such termination shall not be deemed to be an election of remedies.
The provisions of Sections 5.4, 5.6, Articles 8, 9 and 10 shall survive any
termination of this Agreement pursuant to this Article 9, and each party hereto
shall be fully responsible for any breach of Sections 5.4 or 5.6, Articles 8, 9
and 10, whether or not such breach occurs prior to the termination of this
Agreement.
SECTION 9.3 PAYMENT OF FEES AND EXPENSES.
(a) Except because of a failure of a condition precedent
to Target's consummation of the Merger (which conditions are set forth in this
Agreement), in the event that Target fails to consummate the Merger despite
Sonus' willingness to proceed with the Merger, Target shall, to the extent not
already paid by Target, pay all of Sonus' documented and reasonable expenses in
connection with the Merger, including but not limited to reasonable attorneys'
fees, up to One Hundred Thousand Dollars ($100,000).
(b) Unless Target has satisfied any of the conditions set
forth in Section 6.2(o through q) hereof and except because of a failure of a
condition precedent to Sonus' consummation of the Merger (which conditions are
set forth in this Agreement), in the event that Sonus fails to consummate the
Merger despite Target's willingness to proceed with the Merger, Sonus shall, to
the extent not already
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paid by Sonus, pay all of Target's documented and reasonable expenses in
connection with the Merger, including but not limited to reasonable attorneys'
fees, up to Fifty Thousand Dollars ($50,000).
(c) Except because of a failure of a condition precedent
to Target's consummation of the Merger (which condition precedent is set forth
in this Agreement), in the event that Target fails to consummate the Merger
despite Sonus' willingness to proceed with the Merger and Target subsequently
consummates any sale, transfer or assignment of its business, operations or
assets, whether by stock issuance or sale, asset sale, merger, consolidation,
reorganization, recapitalization or other means, whether directly or
indirectly, in one or more transactions, or the Principal Stockholders sell,
assign or transfer in excess of a majority of their shares of Target, directly
or indirectly, whether in one or more transactions (any such transaction being
referred to hereinafter as a "Competing Transaction") within six (6) months
following the date upon which Target failed to agree to Sonus' or Acquisition's
written request to proceed to Closing, Target agrees to pay Sonus the amount of
Four Hundred Fifty Thousand Dollars ($450,000) plus pay, to the extent not
already paid by Target, all of Sonus' documented and reasonable expenses,
including but not limited to reasonable attorneys' fees, up to One Hundred
Thousand Dollars ($100,000) in connection with the Merger, on or prior to the
first closing in connection with the Competing Transaction
(d) Anything to the contrary in this Agreement
notwithstanding, no party hereto shall be responsible for paying any fees or
expenses pursuant to this Section 9.3 as a result of the unavailability of
pooling accounting treatment with respect to the Merger.
(e) On the Closing Date, if Target has not satisfied the
conditions set forth in Section 6.2(o)(p) or (q), Target shall pay, to the
extent not already paid by Target, all of Sonus' and Acquisition's documented
and reasonable expenses, including but not limited to attorneys' fees up to One
Hundred Thousand Dollars ($100,000).
(f) The failure of any party's board of directors or
stockholders to approve the Merger and the transactions contemplated by this
Agreement shall not release such party from any obligation to pay fees and
expenses in accordance with this Section 9.3.
(g) In the event the Merger closes as contemplated by
this Agreement, except as otherwise provided herein, Sonus agrees to pay the
costs and fees incurred by Target in connection with the Merger, to the extent
such costs and fees are set forth in Section 9.3(g) of the Target Disclosure
Schedule or are incurred after the date of this Agreement in the ordinary
course consistent with legal or accounting fees normally incurred in
transactions of this type.
ARTICLE 10
ARBITRATION OF DISPUTES
SECTION 10.1 ARBITRATION. Any controversy or claim arising out of
or relating to this Agreement, or the breach thereof, shall be settled by
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association by an arbitration panel consisting of three persons, one
selected by Sonus, one selected by the Principal Stockholders and the third
selected by mutual agreement of the first two arbitrators selected, and
judgement upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof.
SECTION 10.2 PROCEDURE FOR ARBITRATION.
(a) The arbitration shall be held in Washington, D.C. if
brought by Target or any of the Principal Stockholders and in New York City if
brought by Acquisition or Sonus.
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(b) All fees, costs and expenses (including reasonable
attorneys' fees and expenses) incurred by a party that prevails on any issue in
any arbitration commenced hereunder or in any judicial proceeding seeking to
enforce this Agreement to arbitrate disputes or seeking to enforce any order or
award of any arbitration hereunder shall be assessed against the party or
parties that do not prevail on such issue or issues.
ARTICLE 11
MISCELLANEOUS
SECTION 11.1 NOTICES. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been
duly given only if delivered personally against written receipt or by facsimile
transmission or mailed by prepaid first class certified mail, return receipt
requested, or delivered by a nationally recognized overnight courier service
prepaid, to the parties at the following addresses or facsimile numbers:
(a) If to Sonus or Acquisition, to:
Sonus Communication Holdings, Inc.
1600 Wilson Boulevard, Suite 1008
Arlington, Virginia 22209
Attention: Rick D. Rose
Telecopier: 703-527-8865
with a copy to:
Cecil E. Martin, III, Esquire
McGuire, Woods, Battle & Boothe LLP
7 St. Paul Street, Suite 1000
Baltimore, Maryland 21202
Telecopier: 410-659-4535
(b) If to Target or the Principal Stockholders, to:
Empire One Telecommunications, Inc.
254 West 31st Street
New York, New York 10001
Attention: John K. Friedman
Telecopier: 212-904-1032
with a copy to:
David E. Bronston, Esquire
Wolf, Block, Schorr and Solis-Cohen LLP
250 Park Avenue
New York, New York 10177
Telecopier: 212-986-0604
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number
as provided for in this Section, be deemed given upon receipt, (iii) if
delivered by mail in the manner described above to the address as provided in
this Section, be deemed given on the earlier
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of the fourth Business Day following mailing or upon receipt and (iv) if
delivered by overnight courier to the address as provided for in this Section,
be deemed given on the earlier of the first Business Day following the date
sent by such overnight courier or upon receipt (in each case regardless of
whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this
Section). Any party from time to time may change its address, facsimile number
or other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
SECTION 11.2 ENTIRE AGREEMENT, AMENDMENT. This Agreement, the
Exhibits hereto, the Target Disclosure Schedule and the Operative Agreements
supersede all prior discussions and agreements between the parties with respect
to the subject matter hereof and thereof and contain the sole and entire
agreement between the parties hereto with respect to the subject matter hereof
and thereof. This Agreement may be amended, supplemented or modified only by a
written instrument duly executed by or on behalf of Sonus and the Principal
Stockholders. The terms and provisions of this Agreement are intended solely
for the benefit of each party hereto and their respective successors or
permitted assigns, and it is not the intention of the parties to confer
third-party beneficiary rights, and this Agreement does not confer any such
rights, upon any other Person other than any Person entitled to indemnity under
Article 8.
SECTION 11.3 EXPENSES. Except as otherwise expressly provided in
this Agreement (including without limitation as provided in Article 8 and
Section 9.3), the respective corporate entities will pay their own costs and
expenses and the costs and expenses of their Affiliates incurred in connection
with this Agreement, the Operative Agreements, and the transactions
contemplated hereby and thereby.
SECTION 11.4 CUMULATIVE REMEDIES. The rights, remedies, powers
and privileges herein provided are cumulative and not exclusive of any rights,
remedies, powers and privileges provided by law.
SECTION 11.5 WAIVER. Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof, but
no such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term.
SECTION 11.6 NO ASSIGNMENT, BINDING EFFECT. Neither this
Agreement nor any right, interest or obligation hereunder may be assigned (by
operation of law or otherwise) by any party hereto without the prior written
consent of the other parties hereto, and any attempt to do so will be void.
Subject to the preceding sentence, this Agreement is binding upon, inures to
the benefit of and is enforceable by the parties hereto and their respective
heirs, executors, personal representatives, successors and assigns.
SECTION 11.7 INVALID PROVISIONS. If any provision of this
Agreement is held to be illegal, invalid or unenforceable under any present or
future Law, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and
enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the illegal,
invalid or unenforceable provision or by its severance here from and (d) in
lieu of such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.
SECTION 11.8 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the domestic laws of the State of Delaware,
without giving effect to any choice of law or
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conflict of law provision or rule (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
SECTION 11.9 CONSTRUCTION.
(a) The parties hereto intend that each representation,
warranty, and covenant contained herein shall have independent significance.
If any party has breached any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) that the party has not breached shall not
detract from or mitigate the fact that the party is in breach of the first
representation, warranty or covenant.
(b) The parties hereto agree that this Agreement is the
product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentum.
SECTION 11.10 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument. This Agreement and
the Operative Agreements may be executed and delivered by facsimile
transmission.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Merger
Agreement to be duly executed as of the day and year first above written.
EOT ACQUISITION CORP.
By:
-----------------------------------
Name:
Title:
SONUS COMMUNICATION HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
EMPIRE ONE TELECOMMUNICATIONS, INC.
By:
-----------------------------------
Name:
Title:
PRINCIPAL STOCKHOLDERS:
--------------------------------------
John K. Friedman
--------------------------------------
Paul A. Butler
--------------------------------------
Bradley D. Lewis
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<PAGE> 1
EXHIBIT 4.9
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1)
PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES
WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND
BLUE SKY LAWS.
PLACEMENT AGENT WARRANT
WARRANT TO PURCHASE 78,750 SHARES OF COMMON STOCK
OF
SONUS COMMUNICATIONS, INC.
Date of Issuance: January 21, 1999
THIS CERTIFIES that, for value received, L. Flomenhaft & Co., a New York
corporation (the "Placement Agent"), or its assigns (each a "Holder" and
collectively, the "Holders") are entitled to purchase, subject to the provisions
of this Warrant, from SONUS COMMUNICATIONS, INC., a Virginia corporation (the
"Company"), at the price set forth in Section 8 hereof, the number of shares of
the Company's common stock, $.001 par value per share (the "Common Stock"), set
forth in Section 7 hereof. This Placement Agent Warrant, together with all
warrants issued in replacement hereof and warrants held by Holders in respect
hereof, are referred to herein as the "Warrant" and the shares of Common Stock
issued pursuant to the terms of the Warrant are sometimes referred to herein as
"Warrant Shares". The Warrant is issued in accordance with the terms of that
certain Placement Agent Agreement by and between the Company and the Placement
Agent of event date herewith.
Section 1. Exercise of Warrant. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at its principal office, (a) a
written notice, in substantially the form of the exercise notice attached hereto
(the "Exercise Notice"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) a check or money wire transfer in the amount of the aggregate exercise price
for the Warrant Shares being purchased, and (c) this Warrant. The Company shall
as promptly as practicable, and in any event within twenty (20) days after
<PAGE> 2
delivery to the Company of (i) the Exercise Notice, (ii) the check mentioned
above, and (iii) this Warrant, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of Common Stock specified in such
notice. If the Holder elects to purchase, at any time, less than the number of
shares of Common Stock then purchasable under the terms of this Warrant, the
Company shall issue to the Holder a new Warrant exercisable into the number of
remaining shares of Common Stock purchasable under this Warrant. Each
certificate representing Warrant Shares shall bear the legend or legends
required by applicable securities laws as well as such other legend(s) the
Company requires to be included on certificates for its Common Stock. Such
certificate or certificates shall be deemed to have been issued and such holder
or any other person so designated to be named therein shall be deemed for all
purposes to have become a holder of record of such shares as of the date the
Exercise Notice is delivered to the Company. The Company shall pay all expenses,
taxes and other charges payable in connection with the preparation, issuance and
delivery of such stock certificates except that, in case such stock certificates
shall be registered in a name or names other than the name of the Holder, funds
sufficient to pay all stock transfer taxes that are payable upon the issuance of
such stock certificate or certificates shall be paid by the Holder at the time
of delivering the Exercise Notice. All shares of Common Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid, and nonassessable.
This Warrant may be exercised on multiple occasions before the expiration of its
term as described in this Section 1. This Warrant, and any warrants issued in
replacement of this Warrant, will expire on fifth anniversary of the issuance
date set forth above (the "Expiration Date")
Section 2. Reservation of Shares. The Company hereby covenants that at
all times during the term of this Warrant there shall be reserved for issuance
such number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.
Section 3. Fractional Shares. This Warrant may be exercised only for a
whole number of shares of Common Stock, and no fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of this
Warrant.
Section 4. Transfer of Warrant and Warrant Shares. The Holder may freely
sell, pledge, hypothecate, or otherwise transfer this Warrant, in whole or in
part, and any or all of the Warrant Shares; provided that any such sale, pledge,
hypothecation, or transfer is made in compliance with the Act or pursuant to an
available exemption from registration under the Act relating to the disposition
of securities, and is made in accordance with applicable State securities laws.
Section 5. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor.
Section 6. Rights of the Holder. No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein. No
provision hereof, in the absence of affirmative
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<PAGE> 3
action by the Holder to exercise this Warrant, and no enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the purchase price of any Warrant Shares or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
Section 7. Number of Warrant Shares. This Warrant shall be exercisable
for up to 78,750 shares of the Company's Common Stock in accordance with the
terms of the Placement Agent Agreement, as adjusted as provided herein.
Section 8. Exercise Price and Adjustment of Number of Warrant Shares
Issuable.
(a) Determination of Exercise Price. The per share purchase price (the
"Exercise Price") for each of the Warrant Shares purchasable under this Warrant
shall be equal to $1.00 in accordance with the Placement Agent Agreement, as
adjusted in accordance with Section 8(b) below.
(b) Adjustment of Exercise Price. In the event of an adjustment under
Section 8(c) or Section 9 of the number of Warrant Shares issuable upon exercise
of this Warrant, the Exercise Price shall be adjusted to an amount which is
equal to the product of: (i) the Exercise Price immediately prior to such
adjustment, and (ii) a fraction, the numerator of which is the number of Warrant
Shares issuable pursuant to this Warrant immediately after giving effect to such
adjustment, and the denominator of which is the number of Warrant Shares
issuable pursuant to this Warrant immediately prior to such adjustment.
(c) Adjustment to Number of Warrant Shares Issuable. If (i) the
Company at any time or from time to time after the issuance date set forth above
shall declare or pay any dividend on the Common Stock payable in Common Stock,
or effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), or (ii) the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification, reverse stock
split or otherwise, into a lesser number of shares of Common Stock, then, and
in any such event, the number of Warrant Shares which the Holder shall be
entitled to receive upon exercise of the Warrant following such event shall be
equal to the product of (i) the number of Warrant Shares which the Holder was
entitled to receive upon exercise of the Warrant prior to such event, and (ii) a
fraction, the numerator of which is the number of issued and outstanding shares
of Common Stock after giving effect to such event, and the denominator of which
is the number of issued and outstanding shares of Common Stock immediately prior
to such event.
(d) Adjustment of Warrant Shares for Mergers or Reorganization, etc.
In case of any consolidation or merger of the Company with or into another
corporation or the conveyance of all or substantially all of the assets of the
Company to another corporation, other than a Qualifying Transaction (as used
herein, such capitalized term shall have the meaning provided such term in the
Placement Agent Agreement), this Warrant shall be exercisable into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Company deliverable upon exercise
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<PAGE> 4
of this Warrant would have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as determined by the
Board of Directors of the Company) shall be made in the application of the
provisions herein set forth with respect to the rights and interest thereafter
of the holder of this Warrant, to the end that the provisions set forth herein
(including provisions with respect to changes in and other adjustments of the
Exercise Price) shall thereafter be applicable, as nearly as reasonable may be,
in relation to any shares of stock or other property thereafter deliverable upon
the exercise of this Warrant.
(e) No Impairment. The Company will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights of the holder
of this Warrant against impairment.
(f) Notice of Record Date. In the event that the Company shall propose
at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all of its property
or business, or to liquidate, dissolve or wind up; or
(v) to conduct a public offering,
then in connection with each such event, the Company shall send to
the holder of this Warrant at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matter as
referred to above. Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holder of this Warrant at the address for each
such holder as shown on the books of the Company.
(g) Issue Taxes. The Company shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exercise of this Warrant, in whole or in part; provided,
however, that the Company shall not be
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<PAGE> 5
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such exercise.
(h) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(i) Fractional Shares. No fractional share shall be issued upon the
exercise, in whole or in part, of this Warrant. If any exercise in whole or in
part of this Warrant would result in the issuance of a fraction of a share of
Common Stock, the Company shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as determined in good
faith by the Board of Directors of the Company).
(j) Cashless Exercise. The Holder shall have the right to pay all or a
portion of the Exercise Price by making a "Cashless Exercise" pursuant to this
Section, in which case the portion of the Exercise Price to be so paid shall be
paid by reducing the number of Warrant Shares otherwise issuable pursuant to
this Warrant in accordance with the formula set forth below so that the number
of Warrant Shares to be issued to the Holder as a result of a Cashless Exercise
shall therefore be:
<TABLE>
<S> <C>
(Fair Market Value Per Share-Exercise Price per Warrant Share) X the number of Warrant Shares
-------------------------------------------------------------- otherwise issuable
Fair Market Value Per Share
</TABLE>
* Within ten (10) days of receipt of an election to exercise this Warrant
specifying a Cashless Exercise, the Company shall provide to the Holder in
writing its determination of the fair market value per share of Common Stock
(including the basis therefor), which shall be determined by the Board of
Directors of the Company and shall be binding on the Holder unless the Holder
objects thereto in writing within ten (10) business days of the Holder's receipt
of such determination. In the event the Company and the Holder cannot agree on
the amount of the fair market value per share of Common Stock within ten (10)
business days of the date of the Holder's delivery of its objection, such amount
shall be determined by an appraiser experienced in making such determinations
mutually selected by the Board of Directors of the Company and the Holder, the
fees and expenses of which shall be paid by the Company. (The fair market value
per share of Common Stock determined in accordance with this procedure is
referred to above as the "Fair Market Value Per Share").
Section 9. Reclassification or Reorganization. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (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 an
action described more particularly in Section 8(c)
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<PAGE> 6
hereof), the Company shall cause effective provision to be made so that the
Holder shall have the right thereafter by exercising this Warrant, to purchase
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, capital reorganization or other change,
by a holder of the number of shares of Common Stock which might have been
purchased upon exercise of this Warrant immediately prior to such
reclassification or change. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock. In the event that in any
such capital reorganization, reclassification, or other change, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for or of a security of the Company other than
Common Stock, any amount of the consideration received upon the issue thereof
being determined by the Board of Directors of the Company shall be final and
binding on the Holder.
Section 10. Piggy-Back Registration Rights.
(a) Grant of Piggy-Back Rights. In the event that the Company shall
register any of its common stock, par value $.001 per share (a "Registered
Offering"), either for its own account or the account of any other holder or
holders of equity securities of the Company, other than (i) a registration
relating solely to employee benefit plans, (ii) a registration relating solely
to a Rule 145 transaction, (iii) a registration in which the only equity
security being registered is capital stock issuable upon conversion of
convertible (or exchange of exchangeable) debt securities which are also being
registered, or (iv) an initial public offering of the Company, the Company will
provide you with written notice thereof within 90 days of the filing date of the
first registration statement filed in connection with the Registered Offering
(the "Company Notice"), and, subject to the other terms and conditions set forth
in this Section, include in such registration (and any related qualification
under blue sky laws or other compliance) and any underwriting involved therein,
the Warrant Shares (collectively, the "Registrable Securities") specified in a
written request or requests made by the Holders to the Company within 10 days
after receipt of the Company Notice.
(b) Underwritten Registered Offering. If the Registered Offering of
which the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise you as a part of the Company Notice.
In such event, your rights to registration pursuant to this Section 10 shall be
conditioned upon your participation in such underwriting, and the inclusion of
your Registrable Securities in the underwriting shall be limited to the extent
provided herein. You shall (together with the Company and the other holders
distributing their securities through such underwriting, if any) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 10, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the number of your Registrable Securities to be included
in such registration to such number of your Registrable Securities which the
managing underwriter determines can be included in such underwriting without
reducing the number of shares to be sold by the Company pursuant to such
underwriting. In such event, the Company shall so advise you and the number of
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<PAGE> 7
shares (other than shares being registered by the Company) that may be included
in the registration and underwriting shall be allocated among all the holders of
the Company's shares wishing to participate in the Registered Offering in
proportion, as nearly as practicable, to the respective amounts of shares held
by such holders at the time of filing the Registration Statement. To facilitate
the allocation of shares in accordance with the above provisions, the Company
may round the number of shares allocated to any holder to the nearest 100
shares. If you disapprove of the terms of any such underwriting, you may elect
to withdraw therefrom by written notice to the Company and the managing
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration, and shall not be transferred in a public
distribution prior to 180 days after the effective date of the registration
statement relating thereto, or such other shorter period of time as the
underwriters may require.
(c) Termination and Withdrawal of Registration. The Company shall have
the right to terminate or withdraw any Registered Offering or other registration
prior to the effectiveness of such registration whether or not you have elected
to include your Registrable Securities in such registration.
(d) Expenses. All registration expenses incurred in connection with
registrations pursuant to this Section 10 shall be borne by the Company. Unless
otherwise stated, all selling expenses relating to your Registrable Securities
shall be borne by you.
(e) Notification Requirements. In the case of each registration,
qualification or compliance effected by the Company under this Section 10 in
which the Holder participates, the Company will keep such Holder advised in
writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof. At its expense the Company will:
(i) to the extent required under this Agreement, prepare and
file with the Commission a registration statement with respect to such
securities and use reasonable best efforts to cause such registration statement
to become and remain effective for at least one hundred twenty (120) days or
until the distribution described in the registration statement has been
completed, whichever first occurs; and
(ii) furnish to such Holder, should such Holder participate in
such registration, and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents you and/or the
underwriters may reasonably request in order to facilitate the public offering
of such securities.
(f) Underwriting Agreement Governs. In the event the terms of this
Section 10 conflict with the terms of any underwriting agreement in connection
with any registration hereunder, the terms of such underwriting agreement shall
control.
(g) Information. If your Registrable Securities are to be included in
any Registered Offering, you shall furnish to the Company such information as
the Company
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<PAGE> 8
may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
(h) Termination. The rights granted pursuant to this Section 10 shall
terminate at such time as the Company has registered your Registrable Securities
in a Registered Offering or other registration. Holders may exercise its
piggy-back registration rights granted under this Section 10 not more than two
(2) times.
Section 11. Demand Registration.
(a) Definition of Registration Statement. "Registration Statement"
shall mean any registration statement under the Securities Act on an appropriate
form (which form shall be available for the sale of the Registrable Securities
in accordance with the intended method or methods of distribution thereof and
shall include all financial statements required by the SEC to be filed
therewith) which covers Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included in such registration
statement, amendments (including post-effective amendments) and supplements to
such registration statement, and all exhibits to and all material incorporated
by reference in such registration statement.
(b) Grant of Demand Registration Rights. Upon the completion of a
Qualifying Transaction, the Holders of Registrable Securities constituting at
least fifty one percent (51%) of the aggregate number of (i) Registrable
Securities issued upon exercise of the Warrants granted pursuant to the
Consulting Agreement entered into by and between the Company and L. Flomenhaft &
Co., Incorporated, and (ii) securities issued upon exercise of the warrants
granted and to be granted pursuant to that certain Placement Agent Agreement
entered into by and between the Company and L. Flomenhaft & Co., Incorporated,
may request at any time that the Company file a registration statement under the
Securities Act on an appropriate form (which form shall be available for the
sale of the Registrable Securities in accordance with the intended method or
methods of distribution thereof and shall include all financial statements
required by the SEC to be filed therewith), other than Form S-1 (a "Registration
Statement"), covering the shares of Registrable Securities that are the subject
of such request; provided, however, that the Company shall not become obligated
to file any Registration Statement until the earlier of (i) three months
following the date of completion of the Qualifying Transaction, or (ii) the
first date on which the Company may file such a registration statement in
accordance with all applicable State and Federal securities laws.
(c) Number of Demand Registrations. The Company shall be obligated to
prepare, file and cause to become effective pursuant to this Section no more
than one Registration Statement; provided, however, that a Registration
Statement shall not be counted hereunder unless it becomes effective and is
maintained effective in accordance with the requirements specified in this
Section.
(d) Required Thresholds. The Company shall not be obligated to
prepare, file and cause to become effective pursuant to this Section a
Registration Statement on Form S-1. The Company shall not be obligated to
prepare, file and cause to become effective any
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<PAGE> 9
Registration Statement if such demand is made less than 90 days after the
effective date of the Company's most recent registration statement for shares of
Common Stock (other than a Registration Statement on Form S-4 or Form S-8 or any
successor forms thereto).
(e) Underwriter's Cutback. If the public offering of Registrable
Securities is to be underwritten and, in the good faith judgment of the managing
underwriter, the inclusion of all the Registrable Securities requested to be
registered hereunder would interfere with the successful marketing of a smaller
number of such shares of Registrable Securities, the number of shares of
Registrable Securities to be included shall be reduced (except for shares of
Registrable Securities offered by the Company) to such smaller number with the
participation in such offering to be pro rata among the Holders of Registrable
Securities other than the Company requesting such registration, based upon the
number of shares of Registrable Securities owned by such Holders. Any shares
that are thereby excluded from the offering shall be withheld from the market by
the Holders thereof for a period (not to exceed 30 days prior to the effective
date and 75 days thereafter) that the managing underwriter reasonably determines
is necessary in order to effect the underwritten public offering.
(f) Managing Underwriter. The managing underwriter or underwriters of
any underwritten public offering covered by a Demand Registration shall be
selected by the Company.
(g) Black-Out Periods of Investor. Notwithstanding anything herein to
the contrary, (i) the Company shall have the right, exercisable once, to require
the Holders not to sell under a Demand Registration or to suspend the
effectiveness thereof (but not for a period exceeding 90 days in any calendar
year) if the Company determines, in its good faith judgment, that such offering
or continued effectiveness would interfere with any material financing,
acquisition, disposition, corporate reorganization or other material transaction
involving the Company or any of its subsidiaries or public disclosure thereof
would be required prior to the time such disclosure might otherwise be required,
or when the Company is in possession of material information that it deems
advisable not to disclose in a registration statement.
(h) Expenses. All registration expenses incurred in connection with
registrations pursuant to this Section 11 shall be borne by the Company. Unless
otherwise stated, all selling expenses relating to your Registrable Securities
shall be borne by you.
(i) Underwriting Agreement Governs. In the event the terms of this
Section 11 conflict with the terms of any underwriting agreement in connection
with any registration hereunder, the terms of such underwriting agreement shall
control.
(j) Information. If your Registrable Securities are to be included in
any Registered Offering, you shall furnish to the Company such information as
the Company may request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Agreement.
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<PAGE> 10
(k) Termination. The rights granted pursuant to this Section 11 shall
terminate at such time as the Company has registered your Registrable Securities
in a Registered Offering or other registration. The demand registration rights
granted under this Section 11 may be exercised only by demand of Holders of at
least fifty one percent (51%) of the sum of (i) Warrant Shares which are
Registrable Securities, and (ii) shares of Common Stock of the Company issuable
upon exercise of the warrants granted pursuant to the Consulting Agreement. The
demand registration rights granted under this Section 11 and the registration
rights granted pursuant to the warrants granted in connection with the
Consulting Agreement, including, without limitiation, Section 11 of the
Consulting Warrant of even date herewith, shall all be deemed to be exercised
simultaneously by a proper exercise under either the this Warrant or the
Consulting Warrant, and may be exercised not more than once in the aggregate.
Section 12. Indemnification.
(a) Indemnification. The Holders agree, if any of Holders' Registrable
Securities are included in the securities as to which such registration,
qualification or compliance is being effected, to indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each Person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such holder, each of its officers and directors
and each Person controlling such holder within the meaning of Section 15 of the
Securities Act, against all 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 such registration
statement, prospectus, offering circular or other document, 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, and will reimburse
the Company, such holders, such directors, officers, Persons, underwriters or
control Persons for any legal or any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by you.
Notwithstanding the foregoing, your liability under this subsection shall be
limited in an amount equal to the initial price of the Registrable Securities
sold by you, unless such liability arises out of or is based on willful
misconduct by you.
(g) Indemnification Procedure. Each party entitled to
indemnification under this Section (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the "Indemnifying Party")
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such 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 approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified
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<PAGE> 11
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Agreement, unless the failure to give such notice
is materially prejudicial to an Indemnifying Party's ability to defend such
action, and provided further that the Indemnifying Party shall not assume the
defense for matters as to which there is a conflict of interest or separate and
different defenses. 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.
Section 13. Redemption. The Company shall have the authority to redeem
this Warrant at any time.
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<PAGE> 12
Section 14. Applicable Law. This Warrant shall be construed in accordance
with the laws of the Commonwealth of Virginia without giving effect to the
conflicts of law provisions of such laws.
SONUS COMMUNICATIONS, INC.
By:
--------------------
Charles W. Albo
Chief Executive Officer
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<PAGE> 13
EXERCISE NOTICE
Dated:
--------------------
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $__ par value per share
(the "Common Stock"), of SONUS COMMUNICATIONS, INC., a Virginia corporation (the
"Company"), such right being pursuant to a Warrant dated _________, 1998, and as
issued to the undersigned by the Company, and remits herewith the sum of $______
in payment for same in accordance with the Exercise Price specified in Section 8
of said Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
-------------------------
(Please typewrite or print in block letters)
Address:
---------------------------------
Signature:
------------------------------
<PAGE> 14
ASSIGNMENT FORM
Dated:
---------------------
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
---------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------
---------------------------------
and appoints:
---------------------------------
---------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATIONS, INC.
with full power of substitution in the premises.
Signature:
--------------------------
<PAGE> 1
EXHIBIT 4.10
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND MAY NOT BE
OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE ASSIGNED EXCEPT (1)
PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES
WHICH IS EFFECTIVE UNDER THE ACT OR (2) PURSUANT TO AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND (3) IN ACCORDANCE WITH APPLICABLE STATE SECURITIES AND
BLUE SKY LAWS.
PLACEMENT AGENT WARRANT
WARRANT TO PURCHASE 11,250 SHARES OF COMMON STOCK
OF
SONUS COMMUNICATIONS, INC.
Date of Issuance: January 21, 1999
THIS CERTIFIES that, for value received, Lawrence Kaplan and his assigns
(each a "Holder" and collectively, the "Holders") are entitled to purchase,
subject to the provisions of this Warrant, from SONUS COMMUNICATIONS, INC., a
Virginia corporation (the "Company"), at the price set forth in Section 8
hereof, the number of shares of the Company's common stock, $.001 par value per
share (the "Common Stock"), set forth in Section 7 hereof. This Placement Agent
Warrant, together with all warrants issued in replacement hereof and warrants
held by Holders in respect hereof, are referred to herein as the "Warrant" and
the shares of Common Stock issued pursuant to the terms of the Warrant are
sometimes referred to herein as "Warrant Shares". The Warrant is issued in
accordance with the terms of that certain Placement Agent Agreement by and
between the Company and the Placement Agent of event date herewith.
Section 1. Exercise of Warrant. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at its principal office, (a) a
written notice, in substantially the form of the exercise notice attached hereto
(the "Exercise Notice"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) a check or money wire transfer in the amount of the aggregate exercise price
for the Warrant Shares being purchased, and (c) this Warrant. The Company shall
as promptly as practicable, and in any event within twenty (20) days after
delivery to the Company of (i) the Exercise Notice, (ii) the check mentioned
above, and (iii) this Warrant, execute and deliver or cause to be executed and
delivered, in accordance with such notice, a certificate or certificates
representing the aggregate number of shares of
<PAGE> 2
Common Stock specified in such notice. If the Holder elects to purchase, at any
time, less than the number of shares of Common Stock then purchasable under the
terms of this Warrant, the Company shall issue to the Holder a new Warrant
exercisable into the number of remaining shares of Common Stock purchasable
under this Warrant. Each certificate representing Warrant Shares shall bear the
legend or legends required by applicable securities laws as well as such other
legend(s) the Company requires to be included on certificates for its Common
Stock. Such certificate or certificates shall be deemed to have been issued and
such holder or any other person so designated to be named therein shall be
deemed for all purposes to have become a holder of record of such shares as of
the date the Exercise Notice is delivered to the Company. The Company shall pay
all expenses, taxes and other charges payable in connection with the
preparation, issuance and delivery of such stock certificates except that, in
case such stock certificates shall be registered in a name or names other than
the name of the Holder, funds sufficient to pay all stock transfer taxes that
are payable upon the issuance of such stock certificate or certificates shall be
paid by the Holder at the time of delivering the Exercise Notice. All shares of
Common Stock issued upon the exercise of this Warrant shall be validly issued,
fully paid, and nonassessable. This Warrant may be exercised on multiple
occasions before the expiration of its term as described in this Section 1. This
Warrant, and any warrants issued in replacement of this Warrant, will expire on
fifth anniversary of the issuance date set forth above (the "Expiration Date")
Section 2. Reservation of Shares. The Company hereby covenants that at
all times during the term of this Warrant there shall be reserved for issuance
such number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.
Section 3. Fractional Shares. This Warrant may be exercised only for a
whole number of shares of Common Stock, and no fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of this
Warrant.
Section 4. Transfer of Warrant and Warrant Shares. The Holder may freely
sell, pledge, hypothecate, or otherwise transfer this Warrant, in whole or in
part, and any or all of the Warrant Shares; provided that any such sale, pledge,
hypothecation, or transfer is made in compliance with the Act or pursuant to an
available exemption from registration under the Act relating to the disposition
of securities, and is made in accordance with applicable State securities laws.
Section 5. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor.
Section 6. Rights of the Holder. No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein. No
provision hereof, in the absence of affirmative action by the Holder to exercise
this Warrant, and no enumeration herein of the rights or privileges of the
Holder, shall give rise to any liability of the Holder for the purchase price
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<PAGE> 3
of any Warrant Shares or as a stockholder of the Company, whether such liability
is asserted by the Company or by creditors of the Company.
Section 7. Number of Warrant Shares. This Warrant shall be exercisable
for up to 11,250 shares of the Company's Common Stock in accordance with the
terms of the Placement Agent Agreement, as adjusted as provided herein.
Section 8. Exercise Price and Adjustment of Number of Warrant Shares
Issuable.
(a) Determination of Exercise Price. The per share purchase price (the
"Exercise Price") for each of the Warrant Shares purchasable under this Warrant
shall be equal to $1.00 in accordance with the Placement Agent Agreement, as
adjusted in accordance with Section 8(b) below.
(b) Adjustment of Exercise Price. In the event of an adjustment under
Section 8(c) or Section 9 of the number of Warrant Shares issuable upon exercise
of this Warrant, the Exercise Price shall be adjusted to an amount which is
equal to the product of: (i) the Exercise Price immediately prior to such
adjustment, and (ii) a fraction, the numerator of which is the number of Warrant
Shares issuable pursuant to this Warrant immediately after giving effect to such
adjustment, and the denominator of which is the number of Warrant Shares
issuable pursuant to this Warrant immediately prior to such adjustment.
(c) Adjustment to Number of Warrant Shares Issuable. If (i) the
Company at any time or from time to time after the issuance date set forth above
shall declare or pay any dividend on the Common Stock payable in Common Stock,
or effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in Common Stock), or (ii) the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification, reverse stock
split or otherwise, into a lesser number of shares of Common Stock, then, and
in any such event, the number of Warrant Shares which the Holder shall be
entitled to receive upon exercise of the Warrant following such event shall be
equal to the product of (i) the number of Warrant Shares which the Holder was
entitled to receive upon exercise of the Warrant prior to such event, and (ii) a
fraction, the numerator of which is the number of issued and outstanding shares
of Common Stock after giving effect to such event, and the denominator of which
is the number of issued and outstanding shares of Common Stock immediately prior
to such event.
(d) Adjustment of Warrant Shares for Mergers or Reorganization, etc.
In case of any consolidation or merger of the Company with or into another
corporation or the conveyance of all or substantially all of the assets of the
Company to another corporation, other than a Qualifying Transaction (as used
herein, such capitalized term shall have the meaning provided such term in the
Placement Agent Agreement), this Warrant shall be exercisable into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Company deliverable upon exercise of this
Warrant would have been entitled upon such consolidation, merger or conveyance;
and, in any such case, appropriate adjustment (as determined by the Board of
Directors of
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<PAGE> 4
the Company) shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holder of this
Warrant, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustments of the Exercise Price) shall
thereafter be applicable, as nearly as reasonable may be, in relation to any
shares of stock or other property thereafter deliverable upon the exercise of
this Warrant.
(e) No Impairment. The Company will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights of the holder
of this Warrant against impairment.
(f) Notice of Record Date. In the event that the Company shall propose
at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all of its property
or business, or to liquidate, dissolve or wind up; or
(v) to conduct a public offering,
then in connection with each such event, the Company shall send to
the holder of this Warrant at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matter as
referred to above. Each such written notice shall be given by first class mail,
postage prepaid, addressed to the holder of this Warrant at the address for each
such holder as shown on the books of the Company.
(g) Issue Taxes. The Company shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exercise of this Warrant, in whole or in part; provided,
however, that the Company shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
exercise.
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<PAGE> 5
(h) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
(i) Fractional Shares. No fractional share shall be issued upon the
exercise, in whole or in part, of this Warrant. If any exercise in whole or in
part of this Warrant would result in the issuance of a fraction of a share of
Common Stock, the Company shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as determined in good
faith by the Board of Directors of the Company).
(j) Cashless Exercise. The Holder shall have the right to pay all or a
portion of the Exercise Price by making a "Cashless Exercise" pursuant to this
Section, in which case the portion of the Exercise Price to be so paid shall be
paid by reducing the number of Warrant Shares otherwise issuable pursuant to
this Warrant in accordance with the formula set forth below so that the number
of Warrant Shares to be issued to the Holder as a result of a Cashless Exercise
shall therefore be:
<TABLE>
<S> <C>
(Fair Market Value Per Share-Exercise Price per Warrant Share) X the number of Warrant Shares
-------------------------------------------------------------- otherwise issuable
Fair Market Value Per Share
</TABLE>
* Within ten (10) days of receipt of an election to exercise this Warrant
specifying a Cashless Exercise, the Company shall provide to the Holder in
writing its determination of the fair market value per share of Common Stock
(including the basis therefor), which shall be determined by the Board of
Directors of the Company and shall be binding on the Holder unless the Holder
objects thereto in writing within ten (10) business days of the Holder's receipt
of such determination. In the event the Company and the Holder cannot agree on
the amount of the fair market value per share of Common Stock within ten (10)
business days of the date of the Holder's delivery of its objection, such amount
shall be determined by an appraiser experienced in making such determinations
mutually selected by the Board of Directors of the Company and the Holder, the
fees and expenses of which shall be paid by the Company. (The fair market value
per share of Common Stock determined in accordance with this procedure is
referred to above as the "Fair Market Value Per Share").
Section 9. Reclassification or Reorganization. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (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 an
action described more particularly in Section 8(c) hereof), the Company shall
cause effective provision to be made so that the Holder shall have the right
thereafter by exercising this Warrant, to purchase the kind and amount of shares
of stock and other securities and property receivable upon such
reclassification,
-5-
<PAGE> 6
capital reorganization or other change, by a holder of the number of shares of
Common Stock which might have been purchased upon exercise of this Warrant
immediately prior to such reclassification or change. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common
Stock. In the event that in any such capital reorganization, reclassification,
or other change, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for or of a security
of the Company other than Common Stock, any amount of the consideration received
upon the issue thereof being determined by the Board of Directors of the Company
shall be final and binding on the Holder.
Section 10. Piggy-Back Registration Rights.
(a) Grant of Piggy-Back Rights. In the event that the Company shall
register any of its common stock, par value $.001 per share (a "Registered
Offering"), either for its own account or the account of any other holder or
holders of equity securities of the Company, other than (i) a registration
relating solely to employee benefit plans, (ii) a registration relating solely
to a Rule 145 transaction, (iii) a registration in which the only equity
security being registered is capital stock issuable upon conversion of
convertible (or exchange of exchangeable) debt securities which are also being
registered, or (iv) an initial public offering of the Company, the Company will
provide you with written notice thereof within 90 days of the filing date of the
first registration statement filed in connection with the Registered Offering
(the "Company Notice"), and, subject to the other terms and conditions set forth
in this Section, include in such registration (and any related qualification
under blue sky laws or other compliance) and any underwriting involved therein,
the Warrant Shares (collectively, the "Registrable Securities") specified in a
written request or requests made by the Holders to the Company within 10 days
after receipt of the Company Notice.
(b) Underwritten Registered Offering. If the Registered Offering of
which the Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise you as a part of the Company Notice.
In such event, your rights to registration pursuant to this Section 10 shall be
conditioned upon your participation in such underwriting, and the inclusion of
your Registrable Securities in the underwriting shall be limited to the extent
provided herein. You shall (together with the Company and the other holders
distributing their securities through such underwriting, if any) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 10, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the number of your Registrable Securities to be included
in such registration to such number of your Registrable Securities which the
managing underwriter determines can be included in such underwriting without
reducing the number of shares to be sold by the Company pursuant to such
underwriting. In such event, the Company shall so advise you and the number of
shares (other than shares being registered by the Company) that may be included
in the registration and underwriting shall be allocated among all the holders of
the Company's shares wishing to participate in the Registered Offering in
proportion, as nearly as
-6-
<PAGE> 7
practicable, to the respective amounts of shares held by such holders at the
time of filing the Registration Statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the number
of shares allocated to any holder to the nearest 100 shares. If you disapprove
of the terms of any such underwriting, you may elect to withdraw therefrom by
written notice to the Company and the managing underwriter. Any securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration, and shall not be transferred in a public distribution prior to 180
days after the effective date of the registration statement relating thereto, or
such other shorter period of time as the underwriters may require.
(c) Termination and Withdrawal of Registration. The Company shall have
the right to terminate or withdraw any Registered Offering or other registration
prior to the effectiveness of such registration whether or not you have elected
to include your Registrable Securities in such registration.
(d) Expenses. All registration expenses incurred in connection with
registrations pursuant to this Section 10 shall be borne by the Company. Unless
otherwise stated, all selling expenses relating to your Registrable Securities
shall be borne by you.
(e) Notification Requirements. In the case of each registration,
qualification or compliance effected by the Company under this Section 10 in
which the Holder participates, the Company will keep such Holder advised in
writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof. At its expense the Company will:
(i) to the extent required under this Agreement, prepare and
file with the Commission a registration statement with respect to such
securities and use reasonable best efforts to cause such registration statement
to become and remain effective for at least one hundred twenty (120) days or
until the distribution described in the registration statement has been
completed, whichever first occurs; and
(ii) furnish to such Holder, should such Holder participate in
such registration, and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents you and/or the
underwriters may reasonably request in order to facilitate the public offering
of such securities.
(f) Underwriting Agreement Governs. In the event the terms of this
Section 10 conflict with the terms of any underwriting agreement in connection
with any registration hereunder, the terms of such underwriting agreement shall
control.
(g) Information. If your Registrable Securities are to be included in
any Registered Offering, you shall furnish to the Company such information as
the Company may request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Agreement.
(h) Termination. The rights granted pursuant to this Section 10 shall
terminate at such time as the Company has registered your Registrable Securities
in a
-7-
<PAGE> 8
Registered Offering or other registration. Holders may exercise its piggy-back
registration rights granted under this Section 10 not more than two (2) times.
Section 11. Demand Registration.
(a) Definition of Registration Statement. "Registration Statement"
shall mean any registration statement under the Securities Act on an appropriate
form (which form shall be available for the sale of the Registrable Securities
in accordance with the intended method or methods of distribution thereof and
shall include all financial statements required by the SEC to be filed
therewith) which covers Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus included in such registration
statement, amendments (including post-effective amendments) and supplements to
such registration statement, and all exhibits to and all material incorporated
by reference in such registration statement.
(b) Grant of Demand Registration Rights. Upon the completion of a
Qualifying Transaction, the Holders of Registrable Securities constituting at
least fifty one percent (51%) of the aggregate number of (i) Registrable
Securities issued upon exercise of the Warrants granted pursuant to the
Placement Agent Agreement entered into by and between the Company and L.
Flomenhaft & Co., Incorporated, and (ii) securities issued upon exercise of the
warrants granted pursuant to that certain Consulting Agreement entered into by
and between the Company and L. Flomenhaft & Co., Incorporated, may request at
any time that the Company file a registration statement under the Securities Act
on an appropriate form (which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required by the
SEC to be filed therewith), other than Form S-1 (a "Registration Statement"),
covering the shares of Registrable Securities that are the subject of such
request; provided, however, that the Company shall not become obligated to file
any Registration Statement until the earlier of (i) three months following the
date of completion of the Qualifying Transaction, or (ii) the first date on
which the Company may file such a registration statement in accordance with all
applicable State and Federal securities laws.
(c) Number of Demand Registrations. The Company shall be obligated to
prepare, file and cause to become effective pursuant to this Section no more
than one Registration Statement; provided, however, that a Registration
Statement shall not be counted hereunder unless it becomes effective and is
maintained effective in accordance with the requirements specified in this
Section.
(d) Required Thresholds. The Company shall not be obligated to
prepare, file and cause to become effective pursuant to this Section a
Registration Statement on Form S-1. The Company shall not be obligated to
prepare, file and cause to become effective any Registration Statement if such
demand is made less than 90 days after the effective date of the Company's most
recent registration statement for shares of Common Stock (other than a
Registration Statement on Form S-4 or Form S-8 or any successor forms thereto).
(e) Underwriter's Cutback. If the public offering of Registrable
Securities is to be underwritten and, in the good faith judgment of the managing
underwriter, the inclusion of
-8-
<PAGE> 9
all the Registrable Securities requested to be registered hereunder would
interfere with the successful marketing of a smaller number of such shares of
Registrable Securities, the number of shares of Registrable Securities to be
included shall be reduced (except for shares of Registrable Securities offered
by the Company) to such smaller number with the participation in such offering
to be pro rata among the Holders of Registrable Securities other than the
Company requesting such registration, based upon the number of shares of
Registrable Securities owned by such Holders. Any shares that are thereby
excluded from the offering shall be withheld from the market by the Holders
thereof for a period (not to exceed 30 days prior to the effective date and 75
days thereafter) that the managing underwriter reasonably determines is
necessary in order to effect the underwritten public offering.
(f) Managing Underwriter. The managing underwriter or underwriters of
any underwritten public offering covered by a Demand Registration shall be
selected by the Company.
(g) Black-Out Periods of Investor. Notwithstanding anything herein to
the contrary, (i) the Company shall have the right, exercisable once, to require
the Holders not to sell under a Demand Registration or to suspend the
effectiveness thereof (but not for a period exceeding 90 days in any calendar
year) if the Company determines, in its good faith judgment, that such offering
or continued effectiveness would interfere with any material financing,
acquisition, disposition, corporate reorganization or other material transaction
involving the Company or any of its subsidiaries or public disclosure thereof
would be required prior to the time such disclosure might otherwise be required,
or when the Company is in possession of material information that it deems
advisable not to disclose in a registration statement.
(h) Expenses. All registration expenses incurred in connection with
registrations pursuant to this Section 11 shall be borne by the Company. Unless
otherwise stated, all selling expenses relating to your Registrable Securities
shall be borne by you.
(i) Underwriting Agreement Governs. In the event the terms of this
Section 11 conflict with the terms of any underwriting agreement in connection
with any registration hereunder, the terms of such underwriting agreement shall
control.
(j) Information. If your Registrable Securities are to be included in
any Registered Offering, you shall furnish to the Company such information as
the Company may request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in this Agreement.
(k) Termination. The rights granted pursuant to this Section 11 shall
terminate at such time as the Company has registered your Registrable Securities
in a Registered Offering or other registration. The demand registration rights
granted under this Section 11 may be exercised only by demand of Holders of at
least fifty one percent (51%) of the sum of (i) Warrant Shares which are
Registrable Securities, and (ii) shares of Common Stock of the Company issuable
upon exercise of the warrants granted pursuant to the Consulting Agreement. The
demand registration rights granted under this Section 11 and the
-9-
<PAGE> 10
registration rights granted pursuant to the warrants granted in connection with
the Consulting Agreement, including, without limitiation, Section 11 of the
Consulting Warrant of even date herewith, shall all be deemed to be exercised
simultaneously by a proper exercise under either the this Warrant or the
Consulting Warrant, and may be exercised not more than once in the aggregate.
Section 12. Indemnification.
(a) Indemnification. The Holders agree, if any of Holders' Registrable
Securities are included in the securities as to which such registration,
qualification or compliance is being effected, to indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each Person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such holder, each of its officers and directors
and each Person controlling such holder within the meaning of Section 15 of the
Securities Act, against all 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 such registration
statement, prospectus, offering circular or other document, 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, and will reimburse
the Company, such holders, such directors, officers, Persons, underwriters or
control Persons for any legal or any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by you.
Notwithstanding the foregoing, your liability under this subsection shall be
limited in an amount equal to the initial price of the Registrable Securities
sold by you, unless such liability arises out of or is based on willful
misconduct by you.
(g) Indemnification Procedure. Each party entitled to
indemnification under this Section (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the "Indemnifying Party")
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such 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 approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's ability
to defend such action, and provided further that the Indemnifying Party shall
not assume the defense for matters as to which there is a conflict of interest
or separate and different defenses. 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
-10-
<PAGE> 11
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.
Section 13. Redemption. The Company shall have the authority to redeem
this Warrant at any time.
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<PAGE> 12
Section 14. Applicable Law. This Warrant shall be construed in accordance
with the laws of the Commonwealth of Virginia without giving effect to the
conflicts of law provisions of such laws.
SONUS COMMUNICATIONS, INC.
By:
-----------------------
Charles W. Albo
Chief Executive Officer
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<PAGE> 13
EXERCISE NOTICE
Dated:
---------------------
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $__ par value per share
(the "Common Stock"), of SONUS COMMUNICATIONS, INC., a Virginia corporation (the
"Company"), such right being pursuant to a Warrant dated _________, 1998, and as
issued to the undersigned by the Company, and remits herewith the sum of $______
in payment for same in accordance with the Exercise Price specified in Section 8
of said Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
--------------------------
(Please typewrite or print in block letters)
Address:
---------------------------------
Signature:
------------------------------
<PAGE> 14
ASSIGNMENT FORM
Dated:
---------------------
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
--------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------------
---------------------------------------
and appoints:
---------------------------------------
---------------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATIONS, INC.
with full power of substitution in the premises.
Signature:
----------------------
<PAGE> 1
may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Agreement.
(k) Termination. The rights granted pursuant to this Section 11 shall
terminate at such time as the Company has registered your Registrable Securities
in a Registered Offering or other registration. The demand registration rights
granted under this Section 11 may be exercised only by demand of Holders of at
least fifty one percent (51%) of the sum of (i) Warrant Shares which are
Registrable Securities, and (ii) shares of Common Stock of the Company issuable
upon exercise of the warrants granted pursuant to the Placement Agent Agreement.
The demand registration rights granted under this Section 11 and the
registration rights granted pursuant to the warrants granted in connection with
the Placement Agent Agreement, including, without limitiation, Section 11 of the
Placement Agent Warrant of even date herewith, shall all be deemed to be
exercised simultaneously by a proper exercise under either this Warrant or the
Placement Agent Warrant, and may be exercised not more than once in the
aggregate.
Section 12. Indemnification.
(a) Indemnification. The Holders agree, if any of Holders' Registrable
Securities are included in the securities as to which such registration,
qualification or compliance is being effected, to indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each Person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such holder, each of its officers and directors
and each Person controlling such holder within the meaning of Section 15 of the
Securities Act, against all 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 such registration
statement, prospectus, offering circular or other document, 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, and will reimburse
the Company, such holders, such directors, officers, Persons, underwriters or
control Persons for any legal or any other expenses reasonably incurred, as such
expenses are incurred, in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by you.
Notwithstanding the foregoing, your liability under this subsection shall be
limited in an amount equal to the initial price of the Registrable Securities
sold by you, unless such liability arises out of or is based on willful
misconduct by you.
(g) Indemnification Procedure. Each party entitled to
indemnification under this Section (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the "Indemnifying Party")
after such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense
-10-
<PAGE> 2
of such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not be unreasonably withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Agreement, unless
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action, and provided further that the
Indemnifying Party shall not assume the defense for matters as to which there is
a conflict of interest or separate and different defenses. 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.
Section 13. Redemption. The Company shall have the authority to redeem
this Warrant at any time.
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<PAGE> 3
Section 14. Applicable Law. This Warrant shall be construed in accordance
with the laws of the Commonwealth of Virginia without giving effect to the
conflicts of law provisions of such laws.
SONUS COMMUNICATIONS, INC.
By:
-------------------------
Charles W. Albo
Chief Executive Officer
-12-
<PAGE> 4
EXERCISE NOTICE
Dated:
---------------------
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $__ par value per share
(the "Common Stock"), of SONUS COMMUNICATIONS, INC., a Virginia corporation (the
"Company"), such right being pursuant to a Warrant dated _________, 1998, and as
issued to the undersigned by the Company, and remits herewith the sum of $______
in payment for same in accordance with the Exercise Price specified in Section 8
of said Warrant.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name:
--------------------------
(Please typewrite or print in block letters)
Address:
---------------------------------
Signature:
------------------------------
<PAGE> 5
ASSIGNMENT FORM
Dated:
---------------------
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
--------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------------
---------------------------------------
and appoints:
---------------------------------------
---------------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATIONS, INC.
with full power of substitution in the premises.
Signature:
----------------------
<PAGE> 1
EXHIBIT 4.12
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2)
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT
RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
WARRANT
WARRANT TO PURCHASE EIGHTY SIX THOUSAND TWO HUNDRED FIFTY (86,250)
SHARES OF COMMON STOCK
OF
SONUS COMMUNICATION HOLDINGS, INC.
Date of Issuance: August 4, 1`999
No.__________
THIS CERTIFIES that, in exchange for placement agent services provided in
the 10% Convertible Debenture Offering, L. Flomenhaft & Co., Inc., or its
assigns (in either case, the "Holder") is entitled to purchase, subject to the
provisions of this Warrant, from SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation (the "Company"), at the price per share set forth in Section 8
hereof, the number of shares of the Company's common stock, $.0001 par value per
share (the "Common Stock"), set forth in Section 7 hereof. This Warrant is
referred to herein as the "Warrant" and the shares of Common Stock issuable
pursuant to the terms hereof are sometimes referred to herein as "Warrant
Shares".
Section 1. Exercise of Warrant. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at its principal office, (a) a
written notice, in substantially the form of the exercise notice attached hereto
(the "Exercise Notice"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) a check in the amount of the aggregate exercise price for the Warrant Shares
being purchased, and (c) this Warrant. The Company shall as promptly as
practicable, and in any event within twenty (20) days after delivery to the
Company of (i) the Exercise Notice, (ii) the check mentioned above, and (iii)
this Warrant, execute and deliver or cause to be executed and delivered, in
accordance with such notice, a certificate or certificates representing the
aggregate number of shares of Common Stock specified in such notice, provided
the Warrants specified in such notice have vested on or prior to the date such
notice is delivered. If the Holder elects to purchase, at any time, less than
the number of shares of Common Stock then purchasable under the terms of this
Warrant, the Company shall issue to the Holder a new Warrant exercisable into
the number of remaining shares of Common Stock purchasable under this Warrant.
Each certificate representing Warrant Shares shall bear the legend or legends
required by applicable securities laws as well as such other legend(s) the
Company requires to be included on certificates for its Common Stock.
<PAGE> 2
The Company shall pay all expenses, taxes and other charges payable in
connection with the preparation, issuance and delivery of such stock
certificates except that, in case such stock certificates shall be registered in
a name or names other than the name of the Holder, funds sufficient to pay all
stock transfer taxes that are payable upon the issuance of such stock
certificate or certificates shall be paid by the Holder at the time of
delivering the Exercise Notice. All shares of Common Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid, and nonassessable.
This Warrant may be exercised on multiple occasions in amounts not less than 15%
of the original amount issued before the expiration of its term as described in
this Section 1. This Warrant will expire on November 17, 2004 (the "Expiration
Date").
Section 2. Reservation of Shares. The Company hereby covenants that at
all times during the term of this Warrant there shall be reserved for issuance
such number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.
Section 3. Fractional Shares. This Warrant may be exercised only for a
whole number of shares of Common Stock, and no fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of this
Warrant.
Section 4. Transfer of Warrant and Warrant Shares. The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole or in part,
only in accordance with and subject to the terms and conditions set forth in the
Subscription Agreement and then only if such sale, pledge, hypothecation, or
transfer is made in compliance with the Act or pursuant to an available
exemption from registration under the Act relating to the disposition of
securities, and is made in accordance with applicable State securities laws.
Section 5. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor.
Section 6. Rights of the Holder. No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein. Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
Section 7. Number of Warrant Shares. This Warrant shall be exercisable
for up to Eighty Six Thousand Two Hundred Fifty (86,250) shares of the Company's
Common Stock, as adjusted in accordance with this Agreement.
Section 8. Exercise Price; Redemption; Adjustment of Warrants.
(a) Determination of Exercise Price. The per share purchase price (the
"Exercise Price") for each of the Warrant Shares purchasable under this Warrant
shall be equal to One Dollar ($1.00).
(b) Redemption of Warrants. The Warrants are redeemable by the Company
at $0.05 per Warrant (the "Redemption Price"), upon 20 days notice, at the
discretion of the Company, when the following three conditions have been met:
(i) a registration statement has been filed under the Securities Act covering
the resale of the Shares, Warrants and the Warrant Shares, and such registration
statement is
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<PAGE> 3
effective, (ii) a public market has developed for the Common Stock, and (iii)
the bid price of the Common Stock has closed at $4.50 or higher for ten
consecutive trading days. Redemption of the Warrants shall be automatically
effective and the Warrants shall be deemed cancelled upon the Company's delivery
of the Redemption Price to the Holder in accordance with this Agreement. Upon
receipt of the Redemption Price, Holder agrees to return any evidence of the
Warrants to the Company.
(c) Adjustments for Stock Dividends, Distributions and Subdivisions.
If the Company at any time or from time to time after the original issue date
shall declare or pay any dividend or distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then the number of
shares of Common Stock into which this Warrant is exercisable shall be increased
to an amount which is equal to the product of (i) the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the stock
dividend, distribution or subdivision, as the case may be, and (ii) a fraction,
the numerator of which is equal to the number of shares of Common Stock issued
and outstanding after giving effect to such stock dividend, distribution or
subdivision, and the denominator of which is the number of shares of Common
Stock issued and outstanding prior to such stock dividend, distribution or
subdivision. If the outstanding shares of Common Stock shall be divided or
increased because of a stock dividend or distribution, by stock split or
otherwise, into a greater number of shares of Common Stock, the Exercise Price
in effect immediately prior to such dividend, distribution or division shall,
concurrently with the effectiveness of such division, dividend or distribution,
be proportionately decreased.
(d) Adjustments for Combinations or Consolidation of Common Stock. If
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification, reverse stock split or otherwise, into a lesser number of
shares of Common Stock, then the number of shares of Common Stock into which
this Warrant is exercisable shall be decreased to an amount which is equal to
the product of (i) the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to combination or consolidation, as the case
may be, and (ii) a fraction, the numerator of which is equal to the number of
shares of Common Stock issued and outstanding after giving effect to such
combination or consolidation, and the denominator of which is the number of
shares of Common Stock issued and outstanding prior to such combination or
consolidation. If the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification, reverse stock split or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
(e) Adjustment for Mergers or Reorganization, etc. In case of any
consolidation or merger of the Company with or into another corporation or the
conveyance of all or substantially all of the assets of the Company to another
corporation, this Warrant shall be exercisable into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon exercise of this Warrant would
have been entitled upon such consolidation, merger or conveyance; and, in any
such case, appropriate adjustment (as determined by the Board of Directors of
the Company) shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holder of this
Warrant, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonable may be, in relation to any shares of stock
or other property thereafter deliverable upon the exercise of this Warrant.
(f) No Impairment. The Company will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8
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<PAGE> 4
and in the taking of all such action as may be necessary or appropriate in order
to protect the exercise rights of the holder of this Warrant against impairment.
(g) Issue Taxes. The Company shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exercise of this Warrant, in whole or in part; provided,
however, that the Company shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
exercise.
(h) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(i) Fractional Shares. No fractional share shall be issued upon the
exercise, in whole or in part, of this Warrant. If any exercise in whole or in
part of this Warrant would result in the issuance of a fraction of a share of
Common Stock, the Company shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as determined in good
faith by the Board of Directors of the Company).
Section 9. Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Section 1 hereof, declare any
distribution of its assets to holders of its Common Stock as a partial
liquidation, distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends,
then the Holder shall be entitled, upon the proper exercise of this Warrant in
whole or in part prior to the effecting of such declaration, to receive, in
addition to the shares of Common Stock issuable on such exercise, the amount of
such assets (or at the option of the Company a sum equal to the value thereof at
the time of such distribution to holders of Common Stock as such value is
determined by the Board of Directors of the Company in good faith), which would
have been payable to the Holder had it been a holder of record of such shares of
Common Stock on the record date for the determination of those holders of Common
Stock entitled to such distribution.
Section 10. Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Section 1 hereof, dissolve,
liquidate or wind up its affairs, the Holder shall be entitled, upon the proper
exercise of this Warrant in whole or in part and prior to any distribution
associated with such dissolution, liquidation, or winding up, to receive on such
exercise, in lieu of the shares of Common Stock to which the Holder would have
been entitled, the same kind and amount of assets as would have been distributed
or paid to the Holder upon any such dissolution, liquidation or winding up, with
respect to such shares of Common Stock had the Holder been a holder of record of
such share of Common Stock on the record date for the determination of those
holders of Common Stock entitled to receive any such dissolution, liquidation,
or winding up distribution.
Section 11. Reclassification or Reorganization. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (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 an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), the Company shall cause effective provision to be
made so that the Holder shall have the right thereafter by exercising this
Warrant, to purchase the kind and amount of shares of stock and other
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<PAGE> 5
securities and property receivable upon such reclassification, capital
reorganization or other change, by a holder of the number of shares of Common
Stock which might have been purchased upon exercise of this Warrant immediately
prior to such reclassification or change. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section 11 shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common
Stock. In the event that in any such capital reorganization, reclassification,
or other change, additional shares of Common Stock shall be issued in exchange,
conversion, substitution or payment, in whole or in part, for or of a security
of the Company other than Common Stock, any amount of the consideration received
upon the issue thereof being determined by the Board of Directors of the Company
shall be final and binding on the Holder.
Section 12. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of, and be binding upon, the respective
successors and assigns of the parties, except to the extent otherwise provided
herein. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflict of laws thereof.
(c) Counterparts; Delivery by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Delivery
of this Agreement may be effected by facsimile.
(d) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified, by nationwide overnight delivery service or upon deposit with the
United States Post Office, by certified mail, return receipt requested and:
i. if to the Company, addressed to SONUS COMMUNICATION
HOLDINGS, INC., 1600 Wilson Blvd., Suite 1008, Arlington, Virginia 22209,
Attention: W. Todd Coffin, with a copy to Cecil E. Martin, III, Esquire,
McGuire, Woods Battle & Booth LLP, Seven Saint Paul Street, Suite 1000,
Baltimore, Maryland 21202-1626, or at such other address as the Company may
designate by notice to each of the Investors in accordance with the provisions
of this Section; and
ii. if to the Warrant holder, at the address indicated
on the signature pages hereof, or at such other addresses as such Holder may
designate by notice to the Company in accordance with the provisions of this
Section.
(f) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either prospectively or
retroactively), only with the written consent of the Company and a majority in
interest of the Holders.
(g) Entire Agreement. This Agreement and the Subscription
Agreement (including the exhibits and schedules hereto) constitute the entire
agreement among the parties hereto with respect to the
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<PAGE> 6
subject matter hereof and thereof and supersede all prior agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties hereto.
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<PAGE> 7
IN WITNESS WHEREOF, the undersigned hereby sets his hand and seal this
22nd day of November, 1999.
SONUS COMMUNICATION HOLDINGS, INC.
By:
-----------------------------------
Name: Richard D. Rose
Title: Chief Financial Officer
Investor Name: L. Flomenhaft & Co., Inc.
Investor Address: 225 W. 34th St
Suite 2008
New York, NY 10122
-7-
<PAGE> 8
EXERCISE NOTICE
Dated: _____________________
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $.0001 par value per
share (the "Common Stock"), of SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation (the "Company"), such right being pursuant to a Warrant dated
_________, 1999, and as issued to the undersigned by the Company, and remits
herewith the sum of $______ in payment for same in accordance with the Exercise
Price specified in Section 8 of said Warrant.
<PAGE> 9
ASSIGNMENT FORM
Dated: _____________________
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
--------------------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------------
---------------------------------------
and appoints:
-----------------------------------
-----------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATION
HOLDINGS, INC. with full power of substitution in the premises.
Signature:
------------------------------
<PAGE> 1
EXHIBIT 4.13
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS
AND MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR
OTHERWISE ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT
WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT
OR (2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER
THE ACT RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
WARRANT
WARRANT TO PURCHASE __________ SHARES OF COMMON STOCK
OF
SONUS COMMUNICATION HOLDINGS, INC.
Date of Issuance: __________, 1999
No.__________
THIS CERTIFIES that, for value received, ____________, or its assigns (in
either case, the "Holder") is entitled to purchase, subject to the provisions of
this Warrant, from SONUS COMMUNICATION HOLDINGS, INC., a Delaware corporation
(the "Company"), at the price per share set forth in Section 8 hereof, the
number of shares of the Company's common stock, $.0001 par value per share (the
"Common Stock"), set forth in Section 7 hereof. This Warrant is referred to
herein as the "Warrant" and the shares of Common Stock issuable pursuant to the
terms hereof are sometimes referred to herein as "Warrant Shares". Capitalized
terms used but not defined herein shall have the respective meanings accorded
such terms in the Confidential Private Placement Memorandum dated June 25, 1999.
Section 1. Exercise of Warrant. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at its principal office, (a) a
written notice, in substantially the form of the exercise notice attached hereto
(the "Exercise Notice"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) a check in the amount of the aggregate exercise price for the Warrant Shares
being purchased, and (c) this Warrant. The Company shall as promptly as
practicable, and in any event within twenty (20) days after delivery to the
Company of (i) the Exercise Notice, (ii) the check mentioned above, and (iii)
this Warrant, execute and deliver or cause to be executed and delivered, in
accordance with such notice, a certificate or certificates representing the
aggregate number of shares of Common Stock specified in such notice, provided
the Warrants specified in such notice have vested on or prior to the date such
notice is delivered. If the Holder elects to purchase, at any time, less than
the number of shares of Common Stock then purchasable under the terms of this
Warrant, the Company shall issue to the Holder a new Warrant exercisable into
the number of remaining shares of Common Stock purchasable under this Warrant.
Each certificate representing Warrant Shares shall bear the legend or legends
required by applicable securities laws as well as such other legend(s) the
Company requires to be included on certificates for its Common Stock. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, issuance and delivery of such stock certificates except
that, in case such stock certificates shall be
<PAGE> 2
registered in a name or names other than the name of the Holder, funds
sufficient to pay all stock transfer taxes that are payable upon the issuance of
such stock certificate or certificates shall be paid by the Holder at the time
of delivering the Exercise Notice. All shares of Common Stock issued upon the
exercise of this Warrant shall be validly issued, fully paid, and nonassessable.
This Warrant may be exercised on multiple occasions in amounts not less than 15%
of the original amount issued before the expiration of its term as described in
this Section 1. This Warrant will expire on July 30, 2004 (the "Expiration
Date").
Section 2. Reservation of Shares. The Company hereby covenants that at
all times during the term of this Warrant there shall be reserved for issuance
such number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.
Section 3. Fractional Shares. This Warrant may be exercised only for a
whole number of shares of Common Stock, and no fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of this
Warrant.
Section 4. Transfer of Warrant and Warrant Shares. The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole or in part,
only in accordance with and subject to the terms and conditions set forth in the
Subscription Agreement and then only if such sale, pledge, hypothecation, or
transfer is made in compliance with the Act or pursuant to an available
exemption from registration under the Act relating to the disposition of
securities, and is made in accordance with applicable State securities laws.
Section 5. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor.
Section 6. Rights of the Holder. No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein. Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
Section 7. Number of Warrant Shares. This Warrant shall be exercisable
for up to _____________ shares of the Company's Common Stock, as adjusted in
accordance with this Agreement.
Section 8. Exercise Price; Redemption; Adjustment of Warrants.
(a) Determination of Exercise Price. The per share purchase price (the
"Exercise Price") for each of the Warrant Shares purchasable under this Warrant
shall be equal to Three Dollars ($3.00).
(b) Redemption of Warrants. The Warrants are redeemable by the Company
at $0.05 per Warrant (the "Redemption Price"), upon 20 days notice, at the
discretion of the Company, when the following three conditions have been met:
(i) a registration statement has been filed under the Securities Act covering
the resale of the Shares, Warrants and the Warrant Shares, and such registration
statement is effective, (ii) a public market has developed for the Common Stock,
and (iii) the bid price of the Common Stock has closed at $4.50 or higher for
ten consecutive trading days. Redemption of the Warrants shall be automatically
effective and the Warrants shall be deemed cancelled upon the Company's delivery
of the
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<PAGE> 3
Redemption Price to the Holder in accordance with this Agreement. Upon
receipt of the Redemption Price, Holder agrees to return any evidence of the
Warrants to the Company.
(c) Adjustments for Stock Dividends, Distributions and Subdivisions.
If the Company at any time or from time to time after the original issue date
shall declare or pay any dividend or distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then the number of
shares of Common Stock into which this Warrant is exercisable shall be increased
to an amount which is equal to the product of (i) the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the stock
dividend, distribution or subdivision, as the case may be, and (ii) a fraction,
the numerator of which is equal to the number of shares of Common Stock issued
and outstanding after giving effect to such stock dividend, distribution or
subdivision, and the denominator of which is the number of shares of Common
Stock issued and outstanding prior to such stock dividend, distribution or
subdivision. If the outstanding shares of Common Stock shall be divided or
increased because of a stock dividend or distribution, by stock split or
otherwise, into a greater number of shares of Common Stock, the Exercise Price
in effect immediately prior to such dividend, distribution or division shall,
concurrently with the effectiveness of such division, dividend or distribution,
be proportionately decreased.
(d) Adjustments for Combinations or Consolidation of Common Stock. If
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification, reverse stock split or otherwise, into a lesser number of
shares of Common Stock, then the number of shares of Common Stock into which
this Warrant is exercisable shall be decreased to an amount which is equal to
the product of (i) the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to combination or consolidation, as the case
may be, and (ii) a fraction, the numerator of which is equal to the number of
shares of Common Stock issued and outstanding after giving effect to such
combination or consolidation, and the denominator of which is the number of
shares of Common Stock issued and outstanding prior to such combination or
consolidation. If the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification, reverse stock split or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
(e) Adjustment for Mergers or Reorganization, etc. In case of any
consolidation or merger of the Company with or into another corporation or the
conveyance of all or substantially all of the assets of the Company to another
corporation, this Warrant shall be exercisable into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon exercise of this Warrant would
have been entitled upon such consolidation, merger or conveyance; and, in any
such case, appropriate adjustment (as determined by the Board of Directors of
the Company) shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holder of this
Warrant, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonable may be, in relation to any shares of stock
or other property thereafter deliverable upon the exercise of this Warrant.
(f) No Impairment. The Company will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights of the holder
of this Warrant against impairment.
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<PAGE> 4
(g) Issue Taxes. The Company shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exercise of this Warrant, in whole or in part; provided,
however, that the Company shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
exercise.
(h) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(i) Fractional Shares. No fractional share shall be issued upon the
exercise, in whole or in part, of this Warrant. If any exercise in whole or in
part of this Warrant would result in the issuance of a fraction of a share of
Common Stock, the Company shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as determined in good
faith by the Board of Directors of the Company).
Section 9. Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Section 1 hereof, declare any
distribution of its assets to holders of its Common Stock as a partial
liquidation, distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends,
then the Holder shall be entitled, upon the proper exercise of this Warrant in
whole or in part prior to the effecting of such declaration, to receive, in
addition to the shares of Common Stock issuable on such exercise, the amount of
such assets (or at the option of the Company a sum equal to the value thereof at
the time of such distribution to holders of Common Stock as such value is
determined by the Board of Directors of the Company in good faith), which would
have been payable to the Holder had it been a holder of record of such shares of
Common Stock on the record date for the determination of those holders of Common
Stock entitled to such distribution.
Section 10. Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Section 1 hereof, dissolve,
liquidate or wind up its affairs, the Holder shall be entitled, upon the proper
exercise of this Warrant in whole or in part and prior to any distribution
associated with such dissolution, liquidation, or winding up, to receive on such
exercise, in lieu of the shares of Common Stock to which the Holder would have
been entitled, the same kind and amount of assets as would have been distributed
or paid to the Holder upon any such dissolution, liquidation or winding up, with
respect to such shares of Common Stock had the Holder been a holder of record of
such share of Common Stock on the record date for the determination of those
holders of Common Stock entitled to receive any such dissolution, liquidation,
or winding up distribution.
Section 11. Reclassification or Reorganization. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (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 an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), the Company shall cause effective provision to be
made so that the Holder shall have the right thereafter by exercising this
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization or
other change, by a holder of the number of shares of Common Stock which might
have been purchased upon exercise of this Warrant immediately prior to such
reclassification or change. Any such provision shall include provision
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<PAGE> 5
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section 11 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock. In the event that in any
such capital reorganization, reclassification, or other change, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for or of a security of the Company other than
Common Stock, any amount of the consideration received upon the issue thereof
being determined by the Board of Directors of the Company shall be final and
binding on the Holder.
Section 12. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of, and be binding upon, the respective
successors and assigns of the parties, except to the extent otherwise provided
herein. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflict of laws thereof.
(c) Counterparts; Delivery by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Delivery
of this Agreement may be effected by facsimile.
(d) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified, by nationwide overnight delivery service or upon deposit with the
United States Post Office, by certified mail, return receipt requested and:
i. if to the Company, addressed to SONUS COMMUNICATION
HOLDINGS, INC., 1600 Wilson Blvd., Suite 1008, Arlington, Virginia 22209,
Attention: W. Todd Coffin, with a copy to Cecil E. Martin, III, Esquire,
McGuire, Woods Battle & Booth LLP, Seven Saint Paul Street, Suite 1000,
Baltimore, Maryland 21202-1626, or at such other address as the Company may
designate by notice to each of the Investors in accordance with the provisions
of this Section; and
ii. if to the Warrant holder, at the address indicated
on the signature pages hereof, or at such other addresses as such Holder may
designate by notice to the Company in accordance with the provisions of this
Section.
(f) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either prospectively or
retroactively), only with the written consent of the Company and a majority in
interest of the Holders.
(g) Entire Agreement. This Agreement and the Subscription
Agreement (including the exhibits and schedules hereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties hereto.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the undersigned hereby sets is hand and seal this __
day of _____, 1999.
SONUS COMMUNICATION HOLDINGS, INC.
By:
-----------------------------------
Name:
Title:
Investor Name:
--------------------------
Investor Address:
-------------------------
-6-
<PAGE> 7
EXERCISE NOTICE
Dated: _____________________
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $.0001 par value per
share (the "Common Stock"), of SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation (the "Company"), such right being pursuant to a Warrant dated
_________, 1999, and as issued to the undersigned by the Company, and remits
herewith the sum of $______ in payment for same in accordance with the Exercise
Price specified in Section 8 of said Warrant.
<PAGE> 8
ASSIGNMENT FORM
Dated: _____________________
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
--------------------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------------
---------------------------------------
and appoints:
-----------------------------------
-----------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATION
HOLDINGS, INC. with full power of substitution in the premises.
Signature:
------------------------------
<PAGE> 1
EXHIBIT 4.14
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2)
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT
RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
WARRANT
WARRANT TO PURCHASE THIRTY-TWO THOUSAND EIGHT HUNDRED TWELVE (32,812)
SHARES OF COMMON STOCK
OF
SONUS COMMUNICATION HOLDINGS, INC.
Date of Issuance: August 3, 1999
No.__________
THIS CERTIFIES that, for value received, L. Flomenhaft & Co., Inc., or
its assigns (in either case, the "Holder") is entitled to purchase, subject to
the provisions of this Warrant, from SONUS COMMUNICATION HOLDINGS, INC., a
Delaware corporation (the "Company"), at the price per share set forth in
Section 8 hereof, the number of shares of the Company's common stock, $.0001 par
value per share (the "Common Stock"), set forth in Section 7 hereof. This
Warrant is referred to herein as the "Warrant" and the shares of Common Stock
issuable pursuant to the terms hereof are sometimes referred to herein as
"Warrant Shares". Capitalized terms used but not defined herein shall have the
respective meanings accorded such terms in the Confidential Private Placement
Memorandum dated June 28, 1999.
Section 1. Exercise of Warrant. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at its principal office, (a) a
written notice, in substantially the form of the exercise notice attached hereto
(the "Exercise Notice"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) a check in the amount of the aggregate exercise price for the Warrant Shares
being purchased, and (c) this Warrant. The Company shall as promptly as
practicable, and in any event within twenty (20) days after delivery to the
Company of (i) the Exercise Notice, (ii) the check mentioned above, and (iii)
this Warrant, execute and deliver or cause to be executed and delivered, in
accordance with such notice, a certificate or certificates representing the
aggregate number of shares of Common Stock specified in such notice, provided
the Warrants specified in such notice have vested on or prior to the date such
notice is delivered. If the Holder elects to purchase, at any time, less than
the number of shares of Common Stock then purchasable under the terms of this
Warrant, the Company shall issue to the Holder a new Warrant exercisable into
the number of remaining shares of Common Stock purchasable under this Warrant.
Each certificate representing Warrant Shares shall bear the legend or legends
required by applicable securities laws as well as such other legend(s) the
Company requires to be included on certificates for its Common Stock. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation,
<PAGE> 2
issuance and delivery of such stock certificates except that, in case such stock
certificates shall be registered in a name or names other than the name of the
Holder, funds sufficient to pay all stock transfer taxes that are payable upon
the issuance of such stock certificate or certificates shall be paid by the
Holder at the time of delivering the Exercise Notice. All shares of Common Stock
issued upon the exercise of this Warrant shall be validly issued, fully paid,
and nonassessable. This Warrant may be exercised on multiple occasions in
amounts not less than 15% of the original amount issued before the expiration of
its term as described in this Section 1. This Warrant will expire on August 3,
2004 (the "Expiration Date").
Section 2. Reservation of Shares. The Company hereby covenants that at
all times during the term of this Warrant there shall be reserved for issuance
such number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.
Section 3. Fractional Shares. This Warrant may be exercised only for a
whole number of shares of Common Stock, and no fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of this
Warrant.
Section 4. Transfer of Warrant and Warrant Shares. The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole or in part,
only in accordance with and subject to the terms and conditions set forth in the
Subscription Agreement and then only if such sale, pledge, hypothecation, or
transfer is made in compliance with the Act or pursuant to an available
exemption from registration under the Act relating to the disposition of
securities, and is made in accordance with applicable State securities laws.
Section 5. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor.
Section 6. Rights of the Holder. No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein. Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
Section 7. Number of Warrant Shares. This Warrant shall be exercisable
for up to Thirty-Two Thousand Eight Hundred Twelve (32,812) shares of the
Company's Common Stock, as adjusted in accordance with this Agreement.
Section 8. Exercise Price; Redemption; Adjustment of Warrants.
(a) Determination of Exercise Price. The per share purchase price (the
"Exercise Price") for each of the Warrant Shares purchasable under this Warrant
shall be equal to Two Dollars ($2.00).
(b) Redemption of Warrants. The Warrants are redeemable by the Company
at $0.05 per Warrant (the "Redemption Price"), upon 20 days notice, at the
discretion of the Company, when the following three conditions have been met:
(i) a registration statement has been filed under the Securities Act covering
the resale of the Shares, Warrants and the Warrant Shares, and such registration
statement is effective, (ii) a public market has developed for the Common Stock,
and (iii) the bid price of the Common Stock has closed at $4.50 or higher for
ten consecutive trading days. Redemption of the Warrants shall be
-2-
<PAGE> 3
automatically effective and the Warrants shall be deemed cancelled upon the
Company's delivery of the Redemption Price to the Holder in accordance with this
Agreement. Upon receipt of the Redemption Price, Holder agrees to return any
evidence of the Warrants to the Company.
(c) Adjustments for Stock Dividends, Distributions and Subdivisions.
If the Company at any time or from time to time after the original issue date
shall declare or pay any dividend or distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then the number of
shares of Common Stock into which this Warrant is exercisable shall be increased
to an amount which is equal to the product of (i) the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the stock
dividend, distribution or subdivision, as the case may be, and (ii) a fraction,
the numerator of which is equal to the number of shares of Common Stock issued
and outstanding after giving effect to such stock dividend, distribution or
subdivision, and the denominator of which is the number of shares of Common
Stock issued and outstanding prior to such stock dividend, distribution or
subdivision. If the outstanding shares of Common Stock shall be divided or
increased because of a stock dividend or distribution, by stock split or
otherwise, into a greater number of shares of Common Stock, the Exercise Price
in effect immediately prior to such dividend, distribution or division shall,
concurrently with the effectiveness of such division, dividend or distribution,
be proportionately decreased.
(d) Adjustments for Combinations or Consolidation of Common Stock. If
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification, reverse stock split or otherwise, into a lesser number of
shares of Common Stock, then the number of shares of Common Stock into which
this Warrant is exercisable shall be decreased to an amount which is equal to
the product of (i) the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to combination or consolidation, as the case
may be, and (ii) a fraction, the numerator of which is equal to the number of
shares of Common Stock issued and outstanding after giving effect to such
combination or consolidation, and the denominator of which is the number of
shares of Common Stock issued and outstanding prior to such combination or
consolidation. If the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification, reverse stock split or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
(e) Adjustment for Mergers or Reorganization, etc. In case of any
consolidation or merger of the Company with or into another corporation or the
conveyance of all or substantially all of the assets of the Company to another
corporation, this Warrant shall be exercisable into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon exercise of this Warrant would
have been entitled upon such consolidation, merger or conveyance; and, in any
such case, appropriate adjustment (as determined by the Board of Directors of
the Company) shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holder of this
Warrant, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonable may be, in relation to any shares of stock
or other property thereafter deliverable upon the exercise of this Warrant.
(f) No Impairment. The Company will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights of the holder
of this Warrant against impairment.
-3-
<PAGE> 4
(g) Issue Taxes. The Company shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exercise of this Warrant, in whole or in part; provided,
however, that the Company shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
exercise.
(h) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(i) Fractional Shares. No fractional share shall be issued upon the
exercise, in whole or in part, of this Warrant. If any exercise in whole or in
part of this Warrant would result in the issuance of a fraction of a share of
Common Stock, the Company shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as determined in good
faith by the Board of Directors of the Company).
Section 9. Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Section 1 hereof, declare any
distribution of its assets to holders of its Common Stock as a partial
liquidation, distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends,
then the Holder shall be entitled, upon the proper exercise of this Warrant in
whole or in part prior to the effecting of such declaration, to receive, in
addition to the shares of Common Stock issuable on such exercise, the amount of
such assets (or at the option of the Company a sum equal to the value thereof at
the time of such distribution to holders of Common Stock as such value is
determined by the Board of Directors of the Company in good faith), which would
have been payable to the Holder had it been a holder of record of such shares of
Common Stock on the record date for the determination of those holders of Common
Stock entitled to such distribution.
Section 10. Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Section 1 hereof, dissolve,
liquidate or wind up its affairs, the Holder shall be entitled, upon the proper
exercise of this Warrant in whole or in part and prior to any distribution
associated with such dissolution, liquidation, or winding up, to receive on such
exercise, in lieu of the shares of Common Stock to which the Holder would have
been entitled, the same kind and amount of assets as would have been distributed
or paid to the Holder upon any such dissolution, liquidation or winding up, with
respect to such shares of Common Stock had the Holder been a holder of record of
such share of Common Stock on the record date for the determination of those
holders of Common Stock entitled to receive any such dissolution, liquidation,
or winding up distribution.
Section 11. Reclassification or Reorganization. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (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 an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), the Company shall cause effective provision to be
made so that the Holder shall have the right thereafter by exercising this
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization or
other change, by a holder of the number of shares of Common Stock which might
have been purchased upon exercise of this Warrant immediately prior to such
reclassification or change. Any such provision shall include provision
-4-
<PAGE> 5
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section 11 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock. In the event that in any
such capital reorganization, reclassification, or other change, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for or of a security of the Company other than
Common Stock, any amount of the consideration received upon the issue thereof
being determined by the Board of Directors of the Company shall be final and
binding on the Holder.
Section 12. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of, and be binding upon, the respective successors
and assigns of the parties, except to the extent otherwise provided herein.
Nothing in this Agreement, express or implied, is intended to confer upon any
party, other than the parties hereto or their respective successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without regard to the
principles of conflict of laws thereof.
(c) Counterparts; Delivery by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Delivery
of this Agreement may be effected by facsimile.
(d) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified, by nationwide overnight delivery service or upon deposit with the
United States Post Office, by certified mail, return receipt requested and:
i. if to the Company, addressed to SONUS COMMUNICATION
HOLDINGS, INC., 1600 Wilson Blvd., Suite 1008, Arlington, Virginia 22209,
Attention: W. Todd Coffin, with a copy to Cecil E. Martin, III, Esquire,
McGuire, Woods Battle & Booth LLP, Seven Saint Paul Street, Suite 1000,
Baltimore, Maryland 21202-1626, or at such other address as the Company may
designate by notice to each of the Investors in accordance with the provisions
of this Section; and
ii. if to the Warrant holder, at the address indicated on the
signature pages hereof, or at such other addresses as such Holder may designate
by notice to the Company in accordance with the provisions of this Section.
(f) Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either prospectively or retroactively), only
with the written consent of the Company and a majority in interest of the
Holders.
(g) Entire Agreement. This Agreement and the Subscription Agreement
(including the exhibits and schedules hereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof
and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties hereto.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the undersigned hereby sets is hand and seal this __
day of _____, 1999.
SONUS COMMUNICATION HOLDINGS, INC.
By:
-----------------------------------
Name: W. Todd Coffin
Title: Chief Executive Officer
Investor Name: L. Flomenhaft & Co., Inc.
Investor Address:
--------------------------
-6-
<PAGE> 7
EXERCISE NOTICE
Dated: _____________________
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $.0001 par value per
share (the "Common Stock"), of SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation (the "Company"), such right being pursuant to a Warrant dated
_________, 1999, and as issued to the undersigned by the Company, and remits
herewith the sum of $______ in payment for same in accordance with the Exercise
Price specified in Section 8 of said Warrant.
<PAGE> 8
ASSIGNMENT FORM
Dated: _____________________
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
--------------------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------------
---------------------------------------
and appoints:
---------------------------------------
---------------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATION
HOLDINGS, INC. with full power of substitution in the premises.
Signature: ______________________________
<PAGE> 1
EXHIBIT 4.15
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2)
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT
RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
WARRANT
WARRANT TO PURCHASE FOUR THOUSAND SIX HUNDRED EIGHTY-EIGHT (4,688)
SHARES OF COMMON STOCK
OF
SONUS COMMUNICATION HOLDINGS, INC.
Date of Issuance: August 3, 1999
No.__________
THIS CERTIFIES that, for value received, Tanner Unman Securities, Inc.,
or its assigns (in either case, the "Holder") is entitled to purchase, subject
to the provisions of this Warrant, from SONUS COMMUNICATION HOLDINGS, INC., a
Delaware corporation (the "Company"), at the price per share set forth in
Section 8 hereof, the number of shares of the Company's common stock, $.0001 par
value per share (the "Common Stock"), set forth in Section 7 hereof. This
Warrant is referred to herein as the "Warrant" and the shares of Common Stock
issuable pursuant to the terms hereof are sometimes referred to herein as
"Warrant Shares". Capitalized terms used but not defined herein shall have the
respective meanings accorded such terms in the Confidential Private Placement
Memorandum dated June 28, 1999.
Section 1. Exercise of Warrant. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at its principal office, (a) a
written notice, in substantially the form of the exercise notice attached hereto
(the "Exercise Notice"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) a check in the amount of the aggregate exercise price for the Warrant Shares
being purchased, and (c) this Warrant. The Company shall as promptly as
practicable, and in any event within twenty (20) days after delivery to the
Company of (i) the Exercise Notice, (ii) the check mentioned above, and (iii)
this Warrant, execute and deliver or cause to be executed and delivered, in
accordance with such notice, a certificate or certificates representing the
aggregate number of shares of Common Stock specified in such notice, provided
the Warrants specified in such notice have vested on or prior to the date such
notice is delivered. If the Holder elects to purchase, at any time, less than
the number of shares of Common Stock then purchasable under the terms of this
Warrant, the Company shall issue to the Holder a new Warrant exercisable into
the number of remaining shares of Common Stock purchasable under this Warrant.
Each certificate representing Warrant Shares shall bear the legend or legends
required by applicable securities laws as well as such other legend(s) the
Company requires to be included on certificates for its Common Stock. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation,
<PAGE> 2
issuance and delivery of such stock certificates except that, in case such stock
certificates shall be registered in a name or names other than the name of the
Holder, funds sufficient to pay all stock transfer taxes that are payable upon
the issuance of such stock certificate or certificates shall be paid by the
Holder at the time of delivering the Exercise Notice. All shares of Common Stock
issued upon the exercise of this Warrant shall be validly issued, fully paid,
and nonassessable. This Warrant may be exercised on multiple occasions in
amounts not less than 15% of the original amount issued before the expiration of
its term as described in this Section 1. This Warrant will expire on August 3,
2004 (the "Expiration Date").
Section 2. Reservation of Shares. The Company hereby covenants that at
all times during the term of this Warrant there shall be reserved for issuance
such number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.
Section 3. Fractional Shares. This Warrant may be exercised only for a
whole number of shares of Common Stock, and no fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of this
Warrant.
Section 4. Transfer of Warrant and Warrant Shares. The Holder may sell,
pledge, hypothecate, or otherwise transfer this Warrant, in whole or in part,
only in accordance with and subject to the terms and conditions set forth in the
Subscription Agreement and then only if such sale, pledge, hypothecation, or
transfer is made in compliance with the Act or pursuant to an available
exemption from registration under the Act relating to the disposition of
securities, and is made in accordance with applicable State securities laws.
Section 5. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor.
Section 6. Rights of the Holder. No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein. Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
Section 7. Number of Warrant Shares. This Warrant shall be exercisable
for up to Four Thousand Six Hundred Eighty-Eight (4,688) shares of the Company's
Common Stock, as adjusted in accordance with this Agreement.
Section 8. Exercise Price; Redemption; Adjustment of Warrants.
(a) Determination of Exercise Price. The per share purchase price (the
"Exercise Price") for each of the Warrant Shares purchasable under this Warrant
shall be equal to Two Dollars ($2.00).
(b) Redemption of Warrants. The Warrants are redeemable by the Company
at $0.05 per Warrant (the "Redemption Price"), upon 20 days notice, at the
discretion of the Company, when the following three conditions have been met:
(i) a registration statement has been filed under the Securities Act covering
the resale of the Shares, Warrants and the Warrant Shares, and such registration
statement is effective, (ii) a public market has developed for the Common Stock,
and (iii) the bid price of the Common Stock has closed at $4.50 or higher for
ten consecutive trading days. Redemption of the Warrants shall be
-2-
<PAGE> 3
automatically effective and the Warrants shall be deemed cancelled upon the
Company's delivery of the Redemption Price to the Holder in accordance with this
Agreement. Upon receipt of the Redemption Price, Holder agrees to return any
evidence of the Warrants to the Company.
(c) Adjustments for Stock Dividends, Distributions and Subdivisions.
If the Company at any time or from time to time after the original issue date
shall declare or pay any dividend or distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then the number of
shares of Common Stock into which this Warrant is exercisable shall be increased
to an amount which is equal to the product of (i) the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the stock
dividend, distribution or subdivision, as the case may be, and (ii) a fraction,
the numerator of which is equal to the number of shares of Common Stock issued
and outstanding after giving effect to such stock dividend, distribution or
subdivision, and the denominator of which is the number of shares of Common
Stock issued and outstanding prior to such stock dividend, distribution or
subdivision. If the outstanding shares of Common Stock shall be divided or
increased because of a stock dividend or distribution, by stock split or
otherwise, into a greater number of shares of Common Stock, the Exercise Price
in effect immediately prior to such dividend, distribution or division shall,
concurrently with the effectiveness of such division, dividend or distribution,
be proportionately decreased.
(d) Adjustments for Combinations or Consolidation of Common Stock. If
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification, reverse stock split or otherwise, into a lesser number of
shares of Common Stock, then the number of shares of Common Stock into which
this Warrant is exercisable shall be decreased to an amount which is equal to
the product of (i) the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to combination or consolidation, as the case
may be, and (ii) a fraction, the numerator of which is equal to the number of
shares of Common Stock issued and outstanding after giving effect to such
combination or consolidation, and the denominator of which is the number of
shares of Common Stock issued and outstanding prior to such combination or
consolidation. If the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification, reverse stock split or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
(e) Adjustment for Mergers or Reorganization, etc. In case of any
consolidation or merger of the Company with or into another corporation or the
conveyance of all or substantially all of the assets of the Company to another
corporation, this Warrant shall be exercisable into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon exercise of this Warrant would
have been entitled upon such consolidation, merger or conveyance; and, in any
such case, appropriate adjustment (as determined by the Board of Directors of
the Company) shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holder of this
Warrant, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonable may be, in relation to any shares of stock
or other property thereafter deliverable upon the exercise of this Warrant.
(f) No Impairment. The Company will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights of the holder
of this Warrant against impairment.
-3-
<PAGE> 4
(g) Issue Taxes. The Company shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exercise of this Warrant, in whole or in part; provided,
however, that the Company shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
exercise.
(h) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(i) Fractional Shares. No fractional share shall be issued upon the
exercise, in whole or in part, of this Warrant. If any exercise in whole or in
part of this Warrant would result in the issuance of a fraction of a share of
Common Stock, the Company shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as determined in good
faith by the Board of Directors of the Company).
Section 9. Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Section 1 hereof, declare any
distribution of its assets to holders of its Common Stock as a partial
liquidation, distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends,
then the Holder shall be entitled, upon the proper exercise of this Warrant in
whole or in part prior to the effecting of such declaration, to receive, in
addition to the shares of Common Stock issuable on such exercise, the amount of
such assets (or at the option of the Company a sum equal to the value thereof at
the time of such distribution to holders of Common Stock as such value is
determined by the Board of Directors of the Company in good faith), which would
have been payable to the Holder had it been a holder of record of such shares of
Common Stock on the record date for the determination of those holders of Common
Stock entitled to such distribution.
Section 10. Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Section 1 hereof, dissolve,
liquidate or wind up its affairs, the Holder shall be entitled, upon the proper
exercise of this Warrant in whole or in part and prior to any distribution
associated with such dissolution, liquidation, or winding up, to receive on such
exercise, in lieu of the shares of Common Stock to which the Holder would have
been entitled, the same kind and amount of assets as would have been distributed
or paid to the Holder upon any such dissolution, liquidation or winding up, with
respect to such shares of Common Stock had the Holder been a holder of record of
such share of Common Stock on the record date for the determination of those
holders of Common Stock entitled to receive any such dissolution, liquidation,
or winding up distribution.
Section 11. Reclassification or Reorganization. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (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 an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), the Company shall cause effective provision to be
made so that the Holder shall have the right thereafter by exercising this
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization or
other change, by a holder of the number of shares of Common Stock which might
have been purchased upon exercise of this Warrant immediately prior to such
reclassification or change. Any such provision shall include provision
-4-
<PAGE> 5
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section 11 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock. In the event that in any
such capital reorganization, reclassification, or other change, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for or of a security of the Company other than
Common Stock, any amount of the consideration received upon the issue thereof
being determined by the Board of Directors of the Company shall be final and
binding on the Holder.
Section 12. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of, and be binding upon, the respective
successors and assigns of the parties, except to the extent otherwise provided
herein. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflict of laws thereof.
(c) Counterparts; Delivery by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Delivery
of this Agreement may be effected by facsimile.
(d) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
(e) Notices. Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified, by nationwide overnight delivery service or upon deposit with the
United States Post Office, by certified mail, return receipt requested and:
i. if to the Company, addressed to SONUS COMMUNICATION
HOLDINGS, INC., 1600 Wilson Blvd., Suite 1008, Arlington, Virginia 22209,
Attention: W. Todd Coffin, with a copy to Cecil E. Martin, III, Esquire,
McGuire, Woods Battle & Booth LLP, Seven Saint Paul Street, Suite 1000,
Baltimore, Maryland 21202-1626, or at such other address as the Company may
designate by notice to each of the Investors in accordance with the provisions
of this Section; and
ii. if to the Warrant holder, at the address indicated
on the signature pages hereof, or at such other addresses as such Holder may
designate by notice to the Company in accordance with the provisions of this
Section.
(f) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either prospectively or
retroactively), only with the written consent of the Company and a majority in
interest of the Holders.
(g) Entire Agreement. This Agreement and the Subscription
Agreement (including the exhibits and schedules hereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties hereto.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the undersigned hereby sets is hand and seal this __
day of _____, 1999.
SONUS COMMUNICATION HOLDINGS, INC.
By:
-----------------------------------
Name: W. Todd Coffin
Title: Chief Executive Officer
Investor Name: Tanner Unman Securities, Inc.
Investor Address:
-------------------------
-6-
<PAGE> 7
EXERCISE NOTICE
Dated: _____________________
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $.0001 par value per
share (the "Common Stock"), of SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation (the "Company"), such right being pursuant to a Warrant dated
_________, 1999, and as issued to the undersigned by the Company, and remits
herewith the sum of $______ in payment for same in accordance with the Exercise
Price specified in Section 8 of said Warrant.
<PAGE> 8
ASSIGNMENT FORM
Dated: _____________________
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
--------------------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------------
---------------------------------------
and appoints:
-----------------------------------
-----------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATION
HOLDINGS, INC. with full power of substitution in the premises.
Signature:
-----------------------------
<PAGE> 1
EXHIBIT 4.16
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2)
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT
RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
WARRANT
WARRANT TO PURCHASE 4,444 SHARES OF COMMON STOCK
OF
SONUS COMMUNICATION HOLDINGS, INC.
Date of Issuance: November 22, 1999
THIS CERTIFIES that, for value received, Hudson Allen & Co, or its
assigns (in either case, the "Holder") is entitled to purchase, subject to the
provisions of this Warrant, from SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation (the "Company"), at the price per share set forth in Section 8
hereof, the number of shares of the Company's common stock, $.0001 par value per
share (the "Common Stock"), set forth in Section 7 hereof. This Warrant is
referred to herein as the "Warrant" and the shares of Common Stock issuable
pursuant to the terms hereof are sometimes referred to herein as "Warrant
Shares".
Section 1. Exercise of Warrant. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at its principal office, (a) a
written notice, in substantially the form of the exercise notice attached hereto
(the "Exercise Notice"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) a check in the amount of the aggregate exercise price for the Warrant Shares
being purchased, and (c) this Warrant. The Company shall as promptly as
practicable, and in any event within twenty (20) days after delivery to the
Company of (i) the Exercise Notice, (ii) the check mentioned above, and (iii)
this Warrant, execute and deliver or cause to be executed and delivered, in
accordance with such notice, a certificate or certificates representing the
aggregate number of shares of Common Stock specified in such notice. If the
Holder elects to purchase, at any time, less than the number of shares of Common
Stock then purchasable under the terms of this Warrant, the Company shall issue
to the Holder a new Warrant exercisable into the number of remaining shares of
Common Stock purchasable under this Warrant. Each certificate representing
Warrant Shares shall bear the legend or legends required by applicable
securities laws as well as such other legend(s) the Company requires to be
included on certificates for its Common Stock. Such certificate or certificates
shall be deemed to have been issued and such holder or any other person so
designated to be named therein shall be deemed for all purposes to have become a
holder of record of such shares as of the date the Exercise Notice is delivered
to the Company. The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of such stock
certificates except that, in case such stock certificates shall be registered in
a name or names other than the name of the Holder, funds sufficient to pay all
stock transfer taxes that are payable upon the
<PAGE> 2
issuance of such stock certificate or certificates shall be paid by the Holder
at the time of delivering the Exercise Notice. All shares of Common Stock issued
upon the exercise of this Warrant shall be validly issued, fully paid, and
nonassessable. This Warrant may be exercised on multiple occasions in amounts
not less than 15% of the original amount issued before the expiration of its
term as described in this Section 1. This Warrant will expire on November 22,
2004 (the "Expiration Date").
Section 2. Reservation of Shares. The Company hereby covenants that at
all times during the term of this Warrant there shall be reserved for issuance
such number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.
Section 3. Fractional Shares. This Warrant may be exercised only for a
whole number of shares of Common Stock, and no fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of this
Warrant.
Section 4. Transfer of Warrant and Warrant Shares. The Holder may freely
sell, pledge, hypothecate, or otherwise transfer this Warrant, in whole or in
part, and any or all of the Warrant Shares; provided that any such sale, pledge,
hypothecation, or transfer is made in compliance with the Act or pursuant to an
available exemption from registration under the Act relating to the disposition
of securities, and is made in accordance with applicable State securities laws.
Section 5. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor.
Section 6. Rights of the Holder. No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein. Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
Section 7. Number of Warrant Shares. This Warrant shall be exercisable
for up to 4,444 shares of the Company's Common Stock, as adjusted in accordance
with this Agreement.
Section 8. Exercise Price; Redemption; Adjustment of Warrants.
(a) Determination of Exercise Price. The per share purchase price (the
"Exercise Price") for each of the Warrant Shares purchasable under this Warrant
shall be equal to $1.35.
(b) Redemption of Warrants. The Warrants are redeemable by the Company
at $0.05 per Warrant (the "Redemption Price"), upon 20 days notice, at the
discretion of the Company, when the following three conditions have been met:
(i) a registration statement has been filed under the Securities Act covering
the resale of the Shares, Warrants and the Warrant Shares, and such registration
statement is effective, (ii) a public market has developed for the Common Stock,
and (iii) the bid price of the Common Stock has closed at $4.50 or higher for
ten consecutive trading days. Redemption of the Warrants shall be automatically
effective and the Warrants shall be deemed cancelled upon the Company's delivery
of the Redemption Price to the Holder in accordance with this Agreement. Upon
receipt of the Redemption Price, Holder agrees to return any evidence of the
Warrants to the Company.
-2-
<PAGE> 3
(c) Adjustments for Stock Dividends, Distributions and Subdivisions.
If the Company at any time or from time to time after the original issue date
shall declare or pay any dividend or distribution on the Common Stock payable in
Common Stock, or effect a subdivision of the outstanding shares of Common Stock
into a greater number of shares of Common Stock (by reclassification or
otherwise than by payment of a dividend in Common Stock), then the number of
shares of Common Stock into which this Warrant is exercisable shall be increased
to an amount which is equal to the product of (i) the number of shares of Common
Stock for which this Warrant is exercisable immediately prior to the stock
dividend, distribution or subdivision, as the case may be, and (ii) a fraction,
the numerator of which is equal to the number of shares of Common Stock issued
and outstanding after giving effect to such stock dividend, distribution or
subdivision, and the denominator of which is the number of shares of Common
Stock issued and outstanding prior to such stock dividend, distribution or
subdivision. If the outstanding shares of Common Stock shall be divided or
increased because of a stock dividend or distribution, by stock split or
otherwise, into a greater number of shares of Common Stock, the Exercise Price
in effect immediately prior to such dividend, distribution or division shall,
concurrently with the effectiveness of such division, dividend or distribution,
be proportionately decreased.
(d) Adjustments for Combinations or Consolidation of Common Stock. If
the outstanding shares of Common Stock shall be combined or consolidated, by
reclassification, reverse stock split or otherwise, into a lesser number of
shares of Common Stock, then the number of shares of Common Stock into which
this Warrant is exercisable shall be decreased to an amount which is equal to
the product of (i) the number of shares of Common Stock for which this Warrant
is exercisable immediately prior to combination or consolidation, as the case
may be, and (ii) a fraction, the numerator of which is equal to the number of
shares of Common Stock issued and outstanding after giving effect to such
combination or consolidation, and the denominator of which is the number of
shares of Common Stock issued and outstanding prior to such combination or
consolidation. If the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification, reverse stock split or otherwise, into a
lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
(e) Adjustment for Mergers or Reorganization, etc. In case of any
consolidation or merger of the Company with or into another corporation or the
conveyance of all or substantially all of the assets of the Company to another
corporation, this Warrant shall be exercisable into the number of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Company deliverable upon exercise of this Warrant would
have been entitled upon such consolidation, merger or conveyance; and, in any
such case, appropriate adjustment (as determined by the Board of Directors of
the Company) shall be made in the application of the provisions herein set forth
with respect to the rights and interest thereafter of the holder of this
Warrant, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonable may be, in relation to any shares of stock
or other property thereafter deliverable upon the exercise of this Warrant.
(f) No Impairment. The Company will not, through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Section 8 and in the taking of all such action as may be
necessary or appropriate in order to protect the exercise rights of the holder
of this Warrant against impairment.
(g) Issue Taxes. The Company shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exercise of this Warrant, in
-3-
<PAGE> 4
whole or in part; provided, however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such exercise.
(h) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(i) Fractional Shares. No fractional share shall be issued upon the
exercise, in whole or in part, of this Warrant. If any exercise in whole or in
part of this Warrant would result in the issuance of a fraction of a share of
Common Stock, the Company shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as determined in good
faith by the Board of Directors of the Company).
(j) Cashless Exercise. The Holder shall have the right to pay all or a
portion of the Exercise Price by making a "Cashless Exercise", in which case the
portion of the Exercise Price to be so paid shall be paid by reducing the number
of Warrant Shares otherwise issuable pursuant to this Warrant in accordance with
the formula set forth below so that the number of Warrant Shares to be issued to
the Holder as a result of a Cashless Exercise shall therefore be:
<TABLE>
<S> <C>
(Fair Market Value Per Share-Exercise Price per Warrant Share) X the number of Warrant Shares
- --------------------------------------------------------------
Fair Market Value Per Share otherwise issuable
</TABLE>
* Within ten (10) days of receipt of an election to exercise this Warrant
specifying a Cashless Exercise, the Company shall provide to the Holder in
writing its determination of the fair market value per share of Common Stock
(including the basis therefor), which shall be determined by the Board of
Directors of the Company and shall be binding on the Holder unless the Holder
objects thereto in writing within ten (10) business days of the Holder's receipt
of such determination. In the event the Company and the Holder cannot agree on
the amount of the fair market value per share of Common Stock within ten (10)
business days of the date of the Holder's delivery of its objection, such amount
shall be determined by an appraiser experienced in making such determinations
mutually selected by the Board of Directors of the Company and the Holder, the
fees and expenses of which shall be paid by the Company. (The fair market value
per share of Common Stock determined in accordance with this procedure is
referred to above as the "Fair Market Value Per Share").
Section 9. Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Section 1 hereof, declare any
distribution of its assets to holders of its Common Stock as a partial
liquidation, distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends,
then the Holder shall be entitled, upon the proper exercise of this Warrant in
whole or in part prior to the effecting of such declaration, to receive, in
addition to the shares of Common Stock issuable on such exercise, the amount of
such assets (or at the option of the Company a sum equal to the value thereof at
the time of such distribution to holders of Common Stock as such value is
determined by the Board of Directors of the Company in good faith), which would
have been payable to the Holder had it been a holder of record of
-4-
<PAGE> 5
such shares of Common Stock on the record date for the determination of those
holders of Common Stock entitled to such distribution.
Section 10. Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Section 1 hereof, dissolve,
liquidate or wind up its affairs, the Holder shall be entitled, upon the proper
exercise of this Warrant in whole or in part and prior to any distribution
associated with such dissolution, liquidation, or winding up, to receive on such
exercise, in lieu of the shares of Common Stock to which the Holder would have
been entitled, the same kind and amount of assets as would have been distributed
or paid to the Holder upon any such dissolution, liquidation or winding up, with
respect to such shares of Common Stock had the Holder been a holder of record of
such share of Common Stock on the record date for the determination of those
holders of Common Stock entitled to receive any such dissolution, liquidation,
or winding up distribution.
Section 11. Reclassification or Reorganization. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (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 an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), the Company shall cause effective provision to be
made so that the Holder shall have the right thereafter by exercising this
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization or
other change, by a holder of the number of shares of Common Stock which might
have been purchased upon exercise of this Warrant immediately prior to such
reclassification or change. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section 11 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock. In the event that in any
such capital reorganization, reclassification, or other change, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for or of a security of the Company other than
Common Stock, any amount of the consideration received upon the issue thereof
being determined by the Board of Directors of the Company shall be final and
binding on the Holder.
Section 12. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of, and be binding upon, the respective
successors and assigns of the parties, except to the extent otherwise provided
herein. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflict of laws thereof.
(c) Counterparts; Delivery by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Delivery
of this Agreement may be effected by facsimile.
(d) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
-5-
<PAGE> 6
(e) Notices. Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified, by nationwide overnight delivery service or upon deposit with the
United States Post Office, by certified mail, return receipt requested and:
i. if to the Company, addressed to SONUS COMMUNICATION
HOLDINGS, INC., 1600 Wilson Blvd., Suite 1008, Arlington, Virginia 22209,
Attention: Chief Executive Officer, with a copy to Cecil E. Martin, III,
Esquire, McGuire, Woods Battle & Booth LLP, Seven Saint Paul Street, Suite 1000,
Baltimore, Maryland 21202-1626, or at such other address as the Company may
designate by notice to each of the Investors in accordance with the provisions
of this Section; and
ii. if to the Warrant holder, at the address indicated
on the signature pages hereof, or at such other addresses as such Holder may
designate by notice to the Company in accordance with the provisions of this
Section.
(f) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either prospectively or
retroactively), only with the written consent of the Company and a majority in
interest of the Holders.
(g) Entire Agreement. This Agreement and the Subscription
Agreement (including the exhibits and schedules hereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties hereto.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the undersigned hereby sets its hand and seal this
1st day of December, 1999.
SONUS COMMUNICATION HOLDINGS, INC.
By:
-----------------------------------
Name: Richard D. Rose
Title: Chief Financial Officer
Investor Name: Hudson Allen & Co
250 Kitchawan Rd
South Salem, NY 10590
-7-
<PAGE> 8
EXERCISE NOTICE
Dated: _____________________
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $.0001 par value per
share (the "Common Stock"), of SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation (the "Company"), such right being pursuant to a Warrant dated
_________, 1999, and as issued to the undersigned by the Company, and remits
herewith the sum of $______ in payment for same in accordance with the Exercise
Price specified in Section 8 of said Warrant.
<PAGE> 9
ASSIGNMENT FORM
Dated: _____________________
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
--------------------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------------
---------------------------------------
and appoints:
---------------------------------------
---------------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATION
HOLDINGS, INC. with full power of substitution in the premises.
Signature:
------------------------------
<PAGE> 1
EXHIBIT 4.17
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY STATE SECURITIES OR BLUE SKY LAWS AND
MAY NOT BE OFFERED, SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
ASSIGNED EXCEPT (1) PURSUANT TO A REGISTRATION STATEMENT WITH
RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER THE ACT OR (2)
PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE ACT
RELATING TO THE DISPOSITION OF SECURITIES AND (3) IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES AND BLUE SKY LAWS.
WARRANT
WARRANT TO PURCHASE 58,276 SHARES OF COMMON STOCK
OF
SONUS COMMUNICATION HOLDINGS, INC.
Date of Issuance: November 22, 1999
THIS CERTIFIES that, for value received, L. Flomenhaft & Co. Inc., or its
assigns (in either case, the "Holder") is entitled to purchase, subject to the
provisions of this Warrant, from SONUS COMMUNICATION HOLDINGS, INC., a New York
corporation (the "Company"), at the price per share set forth in Section 8
hereof, the number of shares of the Company's common stock, $.0001 par value per
share (the "Common Stock"), set forth in Section 7 hereof. This Warrant is
referred to herein as the "Warrant" and the shares of Common Stock issuable
pursuant to the terms hereof are sometimes referred to herein as "Warrant
Shares".
Section 1. Exercise of Warrant. To exercise this Warrant in whole or in
part, the Holder shall deliver to the Company at its principal office, (a) a
written notice, in substantially the form of the exercise notice attached hereto
(the "Exercise Notice"), of the Holder's election to exercise this Warrant,
which notice shall specify the number of shares of Common Stock to be purchased,
(b) a check in the amount of the aggregate exercise price for the Warrant Shares
being purchased, and (c) this Warrant. The Company shall as promptly as
practicable, and in any event within twenty (20) days after delivery to the
Company of (i) the Exercise Notice, (ii) the check mentioned above, and (iii)
this Warrant, execute and deliver or cause to be executed and delivered, in
accordance with such notice, a certificate or certificates representing the
aggregate number of shares of Common Stock specified in such notice. If the
Holder elects to purchase, at any time, less than the number of shares of Common
Stock then purchasable under the terms of this Warrant, the Company shall issue
to the Holder a new Warrant exercisable into the number of remaining shares of
Common Stock purchasable under this Warrant. Each certificate representing
Warrant Shares shall bear the legend or legends required by applicable
securities laws as well as such other legend(s) the Company requires to be
included on certificates for its Common Stock. Such certificate or certificates
shall be deemed to have been issued and such holder or any other person so
designated to be named therein shall be deemed for all purposes to have become a
holder of record of such shares as of the date the Exercise Notice is delivered
to the Company. The Company shall pay all expenses, taxes and other charges
payable in connection with the preparation, issuance and delivery of such stock
certificates except that, in case such stock certificates shall be registered in
a name or names other than the name of the Holder, funds sufficient to pay all
stock transfer taxes that are payable upon the
<PAGE> 2
issuance of such stock certificate or certificates shall be paid by the Holder
at the time of delivering the Exercise Notice. All shares of Common Stock issued
upon the exercise of this Warrant shall be validly issued, fully paid, and
nonassessable. This Warrant may be exercised on multiple occasions in amounts
not less than 15% of the original amount issued before the expiration of its
term as described in this Section 1. This Warrant will expire on November 22,
2004 (the "Expiration Date").
Section 2. Reservation of Shares. The Company hereby covenants that at
all times during the term of this Warrant there shall be reserved for issuance
such number of shares of its Common Stock as shall be required to be issued upon
exercise of this Warrant.
Section 3. Fractional Shares. This Warrant may be exercised only for a
whole number of shares of Common Stock, and no fractional shares or scrip
representing fractional shares shall be issuable upon the exercise of this
Warrant.
Section 4. Transfer of Warrant and Warrant Shares. The Holder may freely
sell, pledge, hypothecate, or otherwise transfer this Warrant, in whole or in
part, and any or all of the Warrant Shares; provided that any such sale, pledge,
hypothecation, or transfer is made in compliance with the Act or pursuant to an
available exemption from registration under the Act relating to the disposition
of securities, and is made in accordance with applicable State securities laws.
Section 5. Loss of Warrant. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, or destruction of this Warrant, and of
indemnification satisfactory to it, or upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor.
Section 6. Rights of the Holder. No provision of this Warrant shall be
construed as conferring upon the Holder the right to vote, consent, receive
dividends or receive notice other than as expressly provided herein. Prior to
exercise, no provision hereof, in the absence of affirmative action by the
Holder to exercise this Warrant, and no enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
purchase price of any Warrant Shares or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
Section 7. Number of Warrant Shares. This Warrant shall be exercisable
for up to 58,276 shares of the Company's Common Stock, as adjusted in accordance
with this Agreement.
Section 8. Exercise Price; Redemption; Adjustment of Warrants.
(a) Determination of Exercise Price. The per share purchase
price (the "Exercise Price") for each of the Warrant Shares purchasable under
this Warrant shall be equal to $1.35.
(b) Redemption of Warrants. The Warrants are redeemable by the
Company at $0.05 per Warrant (the "Redemption Price"), upon 20 days notice, at
the discretion of the Company, when the following three conditions have been
met: (i) a registration statement has been filed under the Securities Act
covering the resale of the Shares, Warrants and the Warrant Shares, and such
registration statement is effective, (ii) a public market has developed for the
Common Stock, and (iii) the bid price of the Common Stock has closed at $4.50 or
higher for ten consecutive trading days. Redemption of the Warrants shall be
automatically effective and the Warrants shall be deemed cancelled upon the
Company's delivery of the Redemption Price to the Holder in accordance with this
Agreement. Upon receipt of the Redemption Price, Holder agrees to return any
evidence of the Warrants to the Company.
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<PAGE> 3
(c) Adjustments for Stock Dividends, Distributions and
Subdivisions. If the Company at any time or from time to time after the original
issue date shall declare or pay any dividend or distribution on the Common Stock
payable in Common Stock, or effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in Common Stock),
then the number of shares of Common Stock into which this Warrant is exercisable
shall be increased to an amount which is equal to the product of (i) the number
of shares of Common Stock for which this Warrant is exercisable immediately
prior to the stock dividend, distribution or subdivision, as the case may be,
and (ii) a fraction, the numerator of which is equal to the number of shares of
Common Stock issued and outstanding after giving effect to such stock dividend,
distribution or subdivision, and the denominator of which is the number of
shares of Common Stock issued and outstanding prior to such stock dividend,
distribution or subdivision. If the outstanding shares of Common Stock shall be
divided or increased because of a stock dividend or distribution, by stock split
or otherwise, into a greater number of shares of Common Stock, the Exercise
Price in effect immediately prior to such dividend, distribution or division
shall, concurrently with the effectiveness of such division, dividend or
distribution, be proportionately decreased.
(d) Adjustments for Combinations or Consolidation of Common
Stock. If the outstanding shares of Common Stock shall be combined or
consolidated, by reclassification, reverse stock split or otherwise, into a
lesser number of shares of Common Stock, then the number of shares of Common
Stock into which this Warrant is exercisable shall be decreased to an amount
which is equal to the product of (i) the number of shares of Common Stock for
which this Warrant is exercisable immediately prior to combination or
consolidation, as the case may be, and (ii) a fraction, the numerator of which
is equal to the number of shares of Common Stock issued and outstanding after
giving effect to such combination or consolidation, and the denominator of which
is the number of shares of Common Stock issued and outstanding prior to such
combination or consolidation. If the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification, reverse stock split or otherwise,
into a lesser number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
increased.
(e) Adjustment for Mergers or Reorganization, etc. In case of
any consolidation or merger of the Company with or into another corporation or
the conveyance of all or substantially all of the assets of the Company to
another corporation, this Warrant shall be exercisable into the number of shares
of stock or other securities or property to which a holder of the number of
shares of Common Stock of the Company deliverable upon exercise of this Warrant
would have been entitled upon such consolidation, merger or conveyance; and, in
any such case, appropriate adjustment (as determined by the Board of Directors
of the Company) shall be made in the application of the provisions herein set
forth with respect to the rights and interest thereafter of the holder of this
Warrant, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonable may be, in relation to any shares of stock
or other property thereafter deliverable upon the exercise of this Warrant.
(f) No Impairment. The Company will not, through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 8 and in the taking of all
such action as may be necessary or appropriate in order to protect the exercise
rights of the holder of this Warrant against impairment.
(g) Issue Taxes. The Company shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on exercise of this Warrant, in
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<PAGE> 4
whole or in part; provided, however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by any holder in
connection with any such exercise.
(h) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the exercise of this
Warrant, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the exercise of this Warrant; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the exercise of this Warrant, the Company will take all appropriate
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
(i) Fractional Shares. No fractional share shall be issued upon
the exercise, in whole or in part, of this Warrant. If any exercise in whole or
in part of this Warrant would result in the issuance of a fraction of a share of
Common Stock, the Company shall, in lieu of issuing any fractional share, pay
the holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of exercise (as determined in good
faith by the Board of Directors of the Company).
(j) Cashless Exercise. The Holder shall have the right to pay
all or a portion of the Exercise Price by making a "Cashless Exercise", in which
case the portion of the Exercise Price to be so paid shall be paid by reducing
the number of Warrant Shares otherwise issuable pursuant to this Warrant in
accordance with the formula set forth below so that the number of Warrant Shares
to be issued to the Holder as a result of a Cashless Exercise shall therefore
be:
<TABLE>
<S> <C>
(Fair Market Value Per Share-Exercise Price per Warrant Share) X the number of Warrant Shares
- --------------------------------------------------------------
Fair Market Value Per Share otherwise issuable
</TABLE>
* Within ten (10) days of receipt of an election to exercise this Warrant
specifying a Cashless Exercise, the Company shall provide to the Holder in
writing its determination of the fair market value per share of Common Stock
(including the basis therefor), which shall be determined by the Board of
Directors of the Company and shall be binding on the Holder unless the Holder
objects thereto in writing within ten (10) business days of the Holder's receipt
of such determination. In the event the Company and the Holder cannot agree on
the amount of the fair market value per share of Common Stock within ten (10)
business days of the date of the Holder's delivery of its objection, such amount
shall be determined by an appraiser experienced in making such determinations
mutually selected by the Board of Directors of the Company and the Holder, the
fees and expenses of which shall be paid by the Company. (The fair market value
per share of Common Stock determined in accordance with this procedure is
referred to above as the "Fair Market Value Per Share").
Section 9. Certain Distributions. In case the Company shall, at any time,
prior to the Expiration Date set forth in Section 1 hereof, declare any
distribution of its assets to holders of its Common Stock as a partial
liquidation, distribution or by way of return of capital, other than as a
dividend payable out of earnings or any surplus legally available for dividends,
then the Holder shall be entitled, upon the proper exercise of this Warrant in
whole or in part prior to the effecting of such declaration, to receive, in
addition to the shares of Common Stock issuable on such exercise, the amount of
such assets (or at the option of the Company a sum equal to the value thereof at
the time of such distribution to holders of Common Stock as such value is
determined by the Board of Directors of the Company in good faith), which would
have been payable to the Holder had it been a holder of record of
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<PAGE> 5
such shares of Common Stock on the record date for the determination of those
holders of Common Stock entitled to such distribution.
Section 10. Dissolution or Liquidation. In case the Company shall, at any
time prior to the Expiration Date set forth in Section 1 hereof, dissolve,
liquidate or wind up its affairs, the Holder shall be entitled, upon the proper
exercise of this Warrant in whole or in part and prior to any distribution
associated with such dissolution, liquidation, or winding up, to receive on such
exercise, in lieu of the shares of Common Stock to which the Holder would have
been entitled, the same kind and amount of assets as would have been distributed
or paid to the Holder upon any such dissolution, liquidation or winding up, with
respect to such shares of Common Stock had the Holder been a holder of record of
such share of Common Stock on the record date for the determination of those
holders of Common Stock entitled to receive any such dissolution, liquidation,
or winding up distribution.
Section 11. Reclassification or Reorganization. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company (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 an
issuance of Common Stock by way of dividend or other distribution or of a
subdivision or combination), the Company shall cause effective provision to be
made so that the Holder shall have the right thereafter by exercising this
Warrant, to purchase the kind and amount of shares of stock and other securities
and property receivable upon such reclassification, capital reorganization or
other change, by a holder of the number of shares of Common Stock which might
have been purchased upon exercise of this Warrant immediately prior to such
reclassification or change. Any such provision shall include provision for
adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Warrant. The foregoing provisions of this
Section 11 shall similarly apply to successive reclassifications, capital
reorganizations and changes of shares of Common Stock. In the event that in any
such capital reorganization, reclassification, or other change, additional
shares of Common Stock shall be issued in exchange, conversion, substitution or
payment, in whole or in part, for or of a security of the Company other than
Common Stock, any amount of the consideration received upon the issue thereof
being determined by the Board of Directors of the Company shall be final and
binding on the Holder.
Section 12. Miscellaneous.
(a) Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of, and be binding upon, the respective
successors and assigns of the parties, except to the extent otherwise provided
herein. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto or their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to the principles of conflict of laws thereof.
(c) Counterparts; Delivery by Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Delivery
of this Agreement may be effected by facsimile.
(d) Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
-5-
<PAGE> 6
(e) Notices. Unless otherwise provided, any notice required or
permitted hereunder shall be given by personal service upon the party to be
notified, by nationwide overnight delivery service or upon deposit with the
United States Post Office, by certified mail, return receipt requested and:
i. if to the Company, addressed to SONUS COMMUNICATION
HOLDINGS, INC., 1600 Wilson Blvd., Suite 1008, Arlington, Virginia 22209,
Attention: Chief Executive Officer, with a copy to Cecil E. Martin, III,
Esquire, McGuire, Woods Battle & Booth LLP, Seven Saint Paul Street, Suite 1000,
Baltimore, Maryland 21202-1626, or at such other address as the Company may
designate by notice to each of the Investors in accordance with the provisions
of this Section; and
ii. if to the Warrant holder, at the address indicated
on the signature pages hereof, or at such other addresses as such Holder may
designate by notice to the Company in accordance with the provisions of this
Section.
(f) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either prospectively or
retroactively), only with the written consent of the Company and a majority in
interest of the Holders.
(g) Entire Agreement. This Agreement and the Subscription
Agreement (including the exhibits and schedules hereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the parties hereto.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the undersigned hereby sets its hand and seal this
1st day of December, 1999.
SONUS COMMUNICATION HOLDINGS, INC.
By:
-----------------------------------
Name: Richard D. Rose
Title: Chief Financial Officer
Investor Name: L. Flomenhaft & Co. Inc
225 West 34th Street
Suite 2008
New York, NY 10122
-7-
<PAGE> 8
EXERCISE NOTICE
Dated: _____________________
The undersigned hereby irrevocably elects to exercise his, her or its
right to purchase _________ shares of the common stock, $.0001 par value per
share (the "Common Stock"), of SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation (the "Company"), such right being pursuant to a Warrant dated
_________, 1999, and as issued to the undersigned by the Company, and remits
herewith the sum of $______ in payment for same in accordance with the Exercise
Price specified in Section 8 of said Warrant.
<PAGE> 9
ASSIGNMENT FORM
Dated: _____________________
For value received ____________________ hereby sells, assigns and
transfers unto
Name:
--------------------------------------------
(Please typewrite or print block letters)
Address:
---------------------------------------
---------------------------------------
and appoints:
---------------------------------------
---------------------------------------
Attorney to transfer the said Warrant on the books of SONUS COMMUNICATION
HOLDINGS, INC. with full power of substitution in the premises.
Signature:
------------------------------
<PAGE> 1
EXHIBIT 5
[McGUIRE WOODS BATTLE & BOOTHE LLP LETTERHEAD]
December 6, 1999
Sonus Communication Holdings, Inc.
1600 Wilson Blvd., Suite 1008
Arlington, Virginia 22201
Sonus Communication Holdings, Inc. Form SB-2 Registration Statement
Ladies and Gentlemen:
We have examined the Registration Statement on Form SB-2 (the
"Registration Statement") to be filed by Sonus Communication Holdings, Inc. a
Delaware corporation (the "Company"), with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, relating to the
2,156,465 shares of common stock issued and outstanding (the "Outstanding
Shares"), 1,013,970 common stock purchase warrants (the "Warrants"), and
1,013,970 shares of common stock underlying the Warrants, covered by the
Registration Statement (the "Underlying Shares" and, together with the
Outstanding Shares and the Warrants, collectively, the "Securities"). The
Securities are being registered with the Securities and Exchange Commission on
Form SB-2 for the benefit of the selling security holders listed therein.
Based upon our review of the Company's Certificate of Incorporation and
Bylaws and such other documents and records as we have deemed necessary,
including certificates provided by officers of the Company as to certain factual
matters, which factual matters have not been independently verified, it is our
opinion that (i) the Outstanding Shares are legally issued, fully paid and
nonassessable shares of common stock of the Company, (ii) the Warrants are
legally issued, fully paid and nonassessable securities of the Company, and
(iii) the Underlying Shares, when exercised and paid for in accordance with the
terms of the Warrants relating thereto and when issued by the Company, will be
legally issued, fully paid and nonassessable shares of common stock of the
Company.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and further consent to the use of our name in the "Legal
Matters" section of the Registration Statement, including the Prospectus
constituting a part thereof, and any amendments thereto.
Very Truly Yours,
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AND NON-COMPETE AGREEMENT
THIS AGREEMENT entered into as of the 15th day of April, 1999, by and
between SONUS COMMUNICATIONS, INC., a Virginia corporation ("Employer") and
CHARLES W. ALBO ("Employee").
WHEREAS, Employer desires the Employee's employment with Employer and the
Employee wishes to accept such employment, upon the terms and conditions set
forth in this Agreement; and
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Agreement means this Employment Agreement, as amended from time to time.
Affiliate has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
Compensation means Salary and Employee Benefits and other compensation
paid or to be paid hereunder.
Board of Directors means the board of directors of Employer.
Confidential Information means (i) any and all trade secrets and other
confidential or proprietary information (whether or not amounting to a trade
secret or confidential information) concerning the business and affairs of
Employer and its Affiliates and including, without limitation, product
specifications, data, know-how, formulae, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions and ideas, past,
current, and planned research and development, current and planned manufacturing
or distribution methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business plans, computer
software and programs (including object code and source code), computer software
and database technologies, systems, structures, and architectures (and related
formulae, compositions, processes, improvements, devices, know-how, inventions,
discoveries, concepts, ideas, designs, methods and information, and any other
information, however documented), that is a trade secret within the meaning of
any applicable state trade secret law; (ii) information concerning the business
and affairs of Employer and its Affiliates (which includes historical financial
statements, financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key personnel,
personnel training and techniques and materials, however documented; and (iii)
notes, analysis, compilations, studies, summaries, and other material prepared
by or for Employer containing or based on, in whole or in part, any information
included in the foregoing.
Disability has the meaning set forth in SECTION 6.2.
Employee Benefits has the meaning set forth in SECTION 3.1(b).
Employment Period means the term of Employee's employment under this
Agreement.
"For Cause" means (i) Employee's incompetence, negligence,
insubordination, misconduct in office, or breach of any representation,
warranty, covenant or other obligation or term of this Agreement including,
without limitation, the non-competition, confidentiality and non-solicitation
provisions contained herein; provided, however, that, prior to termination under
this clause (i), Employer shall specify in reasonable detail the incompetence,
gross negligence, misconduct or breach in a written notice to Employee and, in
the event of a breach by Employee of a representation, warranty, covenant or
other obligation or term of this Agreement, shall, before terminating Employee,
provide Employee with 5 days to cure such breach to Employer's satisfaction;
(ii) Employee's conviction of a crime involving a felony, fraud, embezzlement or
the like; habitual insobriety; use of a controlled substance; or
misappropriation of funds of Employer or the taking by Employee of any improper
personal benefit; (iii) Employee's continued failure (on two or
1
<PAGE> 2
more occasions) to follow any reasonable policy of Employer to which similarly
situated Employees are subject, after notice of such policy; (iv) upon
Employer's reasonable determination that Employee's continuation in his position
may be expected to result in serious harm or damage, or the material risk
thereof, to the assets, business or worth of Employer; or (v) the appropriation
(or attempted appropriation) of a material business opportunity of Employer.
For Good Reason has the meaning set forth in SECTION 6.3.
Person means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
Post-Employment Period means (i) the period beginning on the date on
which the Employment Period ends and ending on the first anniversary of such
date; provided, however, that if the Employment Period ends For Good Reason,
then there shall be no Post-Employment Period.
Proprietary Items has the meaning set forth in SECTION 7.1(d).
Salary has the meaning set forth in SECTION 3.1(a).
Term has the meaning set forth in SECTION 2.2 below.
ARTICLE 2.
EMPLOYMENT TERMS AND DUTIES
2.1 Employment. Employer hereby employs Employee, and Employee hereby
accepts employment by Employer, upon the terms and conditions set forth in this
Agreement.
2.2 Term. Subject to the provisions of ARTICLE 6, the term of
Employee's employment under this Agreement will be three years, beginning on the
date hereof and ending on April 15, 2002, subject to one-year renewal terms upon
mutual agreement of the parties (the "Term").
2.3 Duties. Employee will have such duties as are assigned or
delegated to Employee by the Board of Directors which Employee acknowledges
shall include, without limitation, ____________________________________ and
other activities incident to Employee's position as Executive Vice President of
Employer. Employee will serve as the Executive Vice President and Chairman of
the Employer and of Sonus Communication Holdings, Inc., a Delaware corporation
("Holdings"), during the term. Employee will devote his entire business time,
attention, skill, and energy exclusively to the business of Employer, will use
his best efforts to promote the success of Employer's business, and will
cooperate fully with the Board of Directors in the advancement of the best
interests of Employer. Nothing in this SECTION 2.3, however, will prevent
Employee from engaging in additional activities in connection with personal
investments, business and community affairs that are not inconsistent with
Employee's duties under this Agreement.
2.4 Service on Board of Directors. Employee shall, subject to earlier
removal by the shareholders, serve on the Board of Directors of Employer and
Sonus Communication Holdings, Inc. until the third anniversary of this
Agreement, without additional compensation except for reimbursement of
reasonable expenses associated with such service. Removal from the Board of
Directors by shareholders prior to the third anniversary of this agreement shall
not give rise to any claim or other liability of or against Employer under this
Agreement.
2
<PAGE> 3
ARTICLE 3.
COMPENSATION
3.1 Basic Compensation.
(a) Base Salary. Beginning on April 15, 2000, Employee will be paid an
annual salary commensurate with that paid to similarly situated members of
senior management of Employer, as mutually agreed upon by Employer and Employee
prior to April 15, 2000; provided, however, that such salary shall be not less
than $84,000 per annum, and shall be paid in accordance with Employer's usual
compensation schedule and practices, but not less frequently than monthly,
during the Term. Prior to April 15, 2000, Employee shall not receive a salary or
other compensation hereunder, except as expressly provided herein. The Salary
will be reviewed by the Board of Directors from time to time, and may be
adjusted upward or downward in the sole discretion of the Board of Directors,
but in no event will the Salary be less than $84,000 per year.
(b) Employee Benefits. During the Employment Period, Employee will be
permitted to participate in such pension, health, profit sharing, savings and
retirement and other employee benefit plans, practices, policies and programs
applicable generally to similarly situated senior management employees of
Employer, if any (collectively, the "Employee Benefits"); provided, however,
that until April 15, 2000, Employer shall not be required to pay any portion
thereof or make any contributions thereto with respect to Employees
participation in such plans and programs.
ARTICLE 4.
FACILITIES AND EXPENSES
For the Employment Period, Employee shall be provided office and
conference room space, furniture, fixtures, miscellaneous office equipment
(including phones, faxes, computers, and copy machines). Employee shall be
entitled to reimbursement of reasonable expenses actually incurred by the
Employee in connection with Employee's pursuit of his duties under this
Agreement, provided, however, that Employee shall provide the Employer with all
documentation thereof reasonably requested by it.
ARTICLE 5.
VACATIONS AND HOLIDAYS
Employee will be entitled to three (3) weeks' paid vacation during each
year of the Term of this Agreement, in accordance with the vacation policies of
Employer in effect for its senior executive officers from time to time. Employee
will also be entitled to the paid holidays and other paid leave set forth in
Employee's policies. Vacation requests shall be cleared by the Board of
Directors. Vacation days and holidays during any Fiscal Year that are not used
by Employee during such Fiscal Year may not be used in any subsequent Fiscal
Year.
ARTICLE 6.
TERMINATION
6.1 Events of Termination. Except as otherwise provided in this
ARTICLE 6, the Employment Period, Employee's Compensation, and any and all other
rights of Employee under this Agreement or otherwise as an employee of Employer
will terminate:
(a) immediately upon the death of Employee;
(b) upon the Disability of Employee immediately upon notice from
either party to the other;
(c) immediately upon a termination of the Employment Period by
Employer For Cause, or
(d) upon a termination of the Employment Period by Employee, upon not
less than thirty days' prior notice from Employee to Employer.
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6.2 Definition of Disability. For purposes of SECTION 6.1, Employee
will be deemed to have a "Disability" if, for physical or mental reasons,
Employee is unable to perform Employee's duties under this Agreement for one
hundred twenty (120) consecutive days, or one hundred eighty (180) days during
any twelve (12) month period, as determined in accordance with this SECTION 6.2.
The Disability of Employee will be determined by a medical doctor selected by
written agreement of Employer and Employee upon the request of either party by
notice to the other. If Employer and Employee cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two medical
doctors will select a third medical doctor who will determine whether Employee
has a Disability. The determination of the medical doctor selected under this
SECTION 6.2 will be binding on both parties. Employee must submit to a
reasonable number of examinations by the medical doctor making the determination
of Disability under this SECTION 6.2, and Employee hereby authorizes the
disclosure and release to Employer of such determination and all supporting
medical records. If Employee is not legally competent, Employee's legal guardian
or duly authorized attorney-in-fact will act in Employee's stead, under this
SECTION 6.2, for the purposes of submitting Employee to the examinations, and
providing the authorization of disclosure, required under this SECTION 6.2.
6.3 Definition of For Good Reason. For purposes of this Agreement, the
phrase "For Good Reason" means Employer's material and continuing breach of this
Agreement.
6.4 Benefits. Except as otherwise provided in this Agreement,
Employee's accrual of, or participation in plans providing for, the Benefits
will cease at the effective date of the termination of the Employment Period,
and Employee will be entitled to accrued benefits pursuant to such plans only as
provided in such plans. Employee will receive, as his termination pay, any
payment or other compensation for any vacation, holiday, sick leave, or other
leave unused on the date the notice of termination is given under this
Agreement.
ARTICLE 7.
AGREEMENTS OF EMPLOYEE
In consideration of the compensation and benefits to be paid or provided
to Employee by Employer under this Agreement, Employee covenants as follows:
7.1 Confidentiality.
(a) Subject to SECTION 7.1(b), Employee agrees and acknowledges that
through the nature of his work, he will have access to and will acquire
information and knowledge concerning the business and operations of Employer and
its Affiliates including, without limitation, the Confidential Information.
Employee acknowledges that all such Confidential Information is the property of
Employer and its Affiliates solely and constitutes valuable, proprietary and
confidential information of Employer and its Affiliates; that the disclosure
thereof would cause substantial loss to the goodwill of Employer and its
Affiliates; that disclosure thereof to Employee is being made only because of
the position of trust and confidence which he will occupy and because of his
agreement to the restrictions herein contained. Employee shall not, at any time,
divulge, disseminate, disclose or communicate to any Person any Confidential
Information, which information Employee shall hold during such period in trust
in a fiduciary capacity for the sole benefit of Employer, its Affiliates, and
their successors and assigns.
(b) None of the foregoing obligations and restrictions applies to any
part of the Confidential Information that Employee demonstrates (i) was or
became generally available to the public other than as a result of a disclosure
by Employee; (ii) is information that has been explicitly approved for public
release by Employer or an Affiliate thereof; (iii) is disclosed pursuant to a
valid and enforceable subpoena of a court or governmental agency of competent
jurisdiction, provided that Employee shall first have given Employer reasonable
opportunity to seek a confidentiality order or other confidential treatment of
such Confidential Information; (iv) is disclosed to third parties by Employer
without restrictions as to confidentiality; or (v) is received from a third
party whose disclosure would not violate any confidentiality obligation, direct
or indirect, express or implied.
(c) Employee will not remove from Employer's premises (except to the
extent such removal is for purposes of the performance of Employee's duties at
home or while traveling, or except as otherwise specifically authorized by
Employer) any document, record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or in any other form
(collectively, the "Proprietary Items"). Employee recognizes that, as between
Employer and Employee, all of the Proprietary Items, whether or not developed by
Employee, are the
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exclusive property of Employer. Upon termination of this Agreement by either
party, or upon the request of Employer during the Employment Period, Employee
will return to Employer all of the Proprietary Items in Employee's possession or
subject to Employee's control, and Employee shall not retain any copies,
abstracts, sketches, or other physical embodiment of any of the Proprietary
Items.
7.2 Disputes or Controversies. Employee recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized.
Employee and Employer will use their best efforts to cause all pleadings,
documents, testimony, and records relating to any such adjudication to be
maintained in secrecy and to make the same available for inspection by Employer,
Employee, and their respective attorneys and experts, who will agree, in advance
and in writing, to receive and maintain all such information in secrecy, except
as may be limited by them in writing.
ARTICLE 8.
RESTRICTIVE COVENANTS
8.1 Acknowledgments by Employee. Employee acknowledges that: (a) the
services to be performed by him under this Agreement are of a special, unique,
unusual, extraordinary, and intellectual character; (b) Employer's business is
national in scope and its products are marketed throughout the United States;
(c) Employer competes with other businesses that are or could be located in any
part of the United States; (d) Employer has required that Employee make the
covenants set forth in this ARTICLE 8 as a condition to Employer's employment of
employee; and (e) the geographic boundaries, scope of prohibited activities, and
time duration of the provisions of this ARTICLE 8 are reasonable, are no broader
than are necessary to protect the business interests of Employer and its
Affiliates and are not oppressive and do not and will not impose any
unreasonable burden on Employee.
8.2 Covenants of Employee. In consideration of the acknowledgments by
Employee, and in consideration of the compensation and benefits to be paid or
provided to Employee by Employer, Employee covenants that he will not, directly
or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend Employee's name or any similar name
to, lend Employee's credit to or render services or advice to, any business
whose products or activities compete in whole or in part with the products or
activities of Employer:
(i) anywhere within the United States;
(ii) anywhere in Virginia, Washington, D.C. or Maryland;
(iii) anywhere within 50 miles of any location where Employer
does business including, without limitation, Georgia, China or Pakistan;
(iv) anywhere within 100 miles of any physical location owned,
leased or operated by Employer;
(v) anywhere within 50 miles of any physical location owned,
leased or operated by Employer;
provided, however, that (A) Employee may purchase or otherwise acquire up
to (but not more than) 4.99 percent of any class of securities of any enterprise
(but without otherwise participating in the activities of such enterprise) if
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of 1934,
and (B) this provision shall not require Employee to sell, transfer, assign or
otherwise divest any interest owned by him prior to the date of this Agreement;
(b) whether for Employee's own account or for the account of any other
Person, at any time during the Employment Period and the Post-Employment Period,
solicit business of the same or similar type being carried on by Employer, from
any Person known by Employee to be a customer of Employer, whether or not
Employee had personal contact with such person during and by reason of
Employee's employment with Employer;
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(c) whether for Employee's own account or the account of any other
Person (i) at any time during the Employment Period and the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any Person who is an employee of Employer or in any
manner induce or attempt to induce any employee of Employer to terminate his
employment with Employer; or (ii) at any time during the Employment Period and
during the Post-Employment Period, interfere with Employer's relationship with
any Person, including any Person who at any time during the Employment Period
was an employee, contractor, supplier, or customer of Employer; or
(d) at any time during the Employment Period and during the
Post-Employment Period, disparage Employer or any of its shareholders,
directors, officers, employees, or agents.
8.3 Return of Materials. When Employee ceases to be an employee of
Employer, Employee promptly shall deliver to Employer all documents, memoranda,
records, notes, and other materials in his possession, whether prepared by him
or others, and all copies thereof, that contain any Confidential Information,
and Employee shall have no further rights therein.
ARTICLE 9.
MISCELLANEOUS
9.1 Injunctive Relief and Additional Remedy. Employee acknowledges
that the injury that would be suffered by Employer as a result of a breach of
the provisions of this Agreement (including any provision of ARTICLE 7 or
ARTICLE 8) would be irreparable and that an award of monetary damages to
Employer for such a breach would be an inadequate remedy. Consequently, Employer
will have the right, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise to
specifically enforce any provision of this Agreement, and Employer will not be
obligated to post bond or other security in seeking such relief. Without
limiting Employer's rights under this ARTICLE 9 or any other remedies of
Employer, if Employee breaches any of the provisions of ARTICLE 7 or ARTICLE 8,
Employer will have the right to cease making any payments otherwise due to
Employee under this Agreement.
9.2 Covenants of Article 7 and Article 8 are Essential and Independent
Covenants. The covenants by Employee in ARTICLE 7 and ARTICLE 8 are essential
elements of this Agreement, Employer would not have entered into this Agreement
or employed or continued the employment of Employee. The Company and Employee
have independently consulted their respective counsel and have been advised in
all respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by Employer. Employee's
covenants in ARTICLE 7 and ARTICLE 8 are independent covenants and the existence
of any claim by Employee against Employer under this Agreement or otherwise, or
against the Buyer, will not excuse Employee's breach of any covenant in ARTICLE
7 or ARTICLE 8. Except as otherwise stated herein, if Employee's employment
hereunder expires or is terminated, this Agreement will continue in full force
and effect as is necessary or appropriate to enforce the covenants and
agreements of Employee in ARTICLE 7 and ARTICLE 8.
9.3 Representations and Warranties by Employee. Employee represents
and warrants to Employer that the execution and delivery by Employee of this
Agreement does not, and the performance by Employee of Employee's obligations
hereunder will not, with or without the giving of notice or the passage of time,
or both: (a) violate any judgment, writ, injunction, or order of any court,
arbitrator, or governmental agency applicable to Employee; or (b) conflict with,
result in the breach of any provisions of or the termination of, or constitute a
default under, any agreement to which Employee is a party or by which Employee
is or may be bound.
9.4 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any
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obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement.
9.5 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
provided, however, that this Agreement may be assigned by Employer only with the
prior written consent of Employee, which consent shall not be unreasonably
withheld. The duties and covenants of Employee under this Agreement, being
personal, may not be delegated.
9.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be given by registered or
certified mail, return receipt requested, postage prepaid, by telecopier or by
national overnight delivery service, and addressed to the intended recipient as
set forth below:
IF TO EMPLOYEE:
Charles W. Albo
-------------------
-------------------
-------------------
IF TO EMPLOYER WITH A COPY TO:
Sonus Communications, Inc.
c/o Chief Executive Officer Cecil E. Martin, III, Esquire
1600 Wilson Blvd. McGuire, Woods, Battle & Boothe LLP
Suite 1008 Seven Saint Paul Street
Arlington, Virginia 22201 Baltimore, Maryland 21202-1626
Any notice given in the manner aforesaid shall be deemed to have been served,
and shall be effective for all purposes hereof (a) if sent by registered or
certified mail, on the earlier of the second day following the day on which it
is posted or the date of its receipt by the party to be notified, (b) if sent by
telecopier, the day actually received as evidenced by a written receipt of
transmission and (c) if sent by overnight delivery service, the day after such
notice has been delivered by the party to said service. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in the manner
herein set forth.
9.8 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may not
be amended orally, but only by an agreement in writing signed by the parties
hereto.
9.9 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
9.10 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
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Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
9.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.12 Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the Commonwealth of Virginia
without giving effect to any choice or conflict of law provision or rule
(whether of the Commonwealth of Virginia or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the
Commonwealth of Virginia. To the extent not resolved by binding arbitration
pursuant to Section 9.13 below, each of the parties submits to the jurisdiction
of any state or federal court sitting in Fairfax, Virginia, in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding shall be heard and determined in
any such court. Each party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other party with respect thereto.
9.13 Binding Arbitration. Any controversy, dispute or claim of whatever
nature arising out of, in connection with, or in relation to the interpretation,
performance or breach of this Agreement, including any claim based on contract,
tort, or statute, and regardless of the amount of any claim or counterclaim,
shall be settled, at the request of any party to this Agreement, by final and
binding arbitration conducted at a location in Fairfax, Virginia (the
"Arbitration") determined by an arbitrator (the "Arbitrator") selected and
designated by the American Arbitration Association ("AAA"), administered by and
in accordance with the then existing Expedited Procedures (the "Expedited
Procedures") under the Commercial Arbitration Rules of the AAA, and judgment
upon any award rendered by the Arbitrator may be entered by any state or federal
court having jurisdiction thereof. By executing this Agreement, the parties
hereto expressly agree that the Expedited Procedures under the Commercial
Arbitration Rules of the AAA shall govern any arbitration proceeding, and the
parties expressly waive any and all challenges to the administration of
Arbitration pursuant to the Expedited Procedures.
[The remainder of this page is intentionally left blank]
**********
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and delivered as of the day and date first above written.
EMPLOYER:
SONUS COMMUNICATIONS, INC.
By:
------------------------------------
Name: W. Todd Coffin
Title: President
EMPLOYEE:
---------------------------------------
Charles W. Albo
Schedule A - 1
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AND NON-COMPETE AGREEMENT
THIS AGREEMENT entered into as of the 15th day of April, 1999, by and
between SONUS COMMUNICATIONS, INC., a Virginia corporation ("Employer") and NANA
MARANELI ("Employee").
WHEREAS, Employer desires the Employee's employment with Employer and the
Employee wishes to accept such employment, upon the terms and conditions set
forth in this Agreement; and
NOW, THEREFORE, in consideration of the above premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1.
DEFINITIONS
Agreement means this Employment Agreement, as amended from time to time.
Affiliate has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act of 1934, as amended.
Compensation means Salary and Employee Benefits and other compensation
paid or to be paid hereunder.
Board of Directors means the board of directors of Employer.
Confidential Information means (i) any and all trade secrets and other
confidential or proprietary information (whether or not amounting to a trade
secret or confidential information) concerning the business and affairs of
Employer and its Affiliates and including, without limitation, product
specifications, data, know-how, formulae, compositions, processes, designs,
sketches, photographs, graphs, drawings, samples, inventions and ideas, past,
current, and planned research and development, current and planned manufacturing
or distribution methods and processes, customer lists, current and anticipated
customer requirements, price lists, market studies, business plans, computer
software and programs (including object code and source code), computer software
and database technologies, systems, structures, and architectures (and related
formulae, compositions, processes, improvements, devices, know-how, inventions,
discoveries, concepts, ideas, designs, methods and information, and any other
information, however documented), that is a trade secret within the meaning of
any applicable state trade secret law; (ii) information concerning the business
and affairs of Employer and its Affiliates (which includes historical financial
statements, financial projections and budgets, historical and projected sales,
capital spending budgets and plans, the names and backgrounds of key personnel,
personnel training and techniques and materials, however documented; and (iii)
notes, analysis, compilations, studies, summaries, and other material prepared
by or for Employer containing or based on, in whole or in part, any information
included in the foregoing.
Disability has the meaning set forth in SECTION 6.2.
Employee Benefits has the meaning set forth in SECTION 3.1(b).
Employment Period means the term of Employee's employment under this
Agreement.
"For Cause" means (i) Employee's incompetence, negligence,
insubordination, misconduct in office, or breach of any representation,
warranty, covenant or other obligation or term of this Agreement including,
without limitation, the non-competition, confidentiality and non-solicitation
provisions contained herein; provided, however, that, prior to termination under
this clause (i), Employer shall specify in reasonable detail the incompetence,
gross negligence, misconduct or breach in a written notice to Employee and, in
the event of a breach by Employee of a representation, warranty, covenant or
other obligation or term of this Agreement, shall, before terminating Employee,
provide Employee with 5 days to cure such breach to Employer's satisfaction;
(ii) Employee's conviction of a crime involving a felony, fraud, embezzlement or
the like; habitual insobriety; use of a controlled substance; or
misappropriation of funds of Employer or the taking by Employee of any improper
personal benefit; (iii) Employee's continued failure (on two or
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more occasions) to follow any reasonable policy of Employer to which similarly
situated Employees are subject, after notice of such policy; (iv) upon
Employer's reasonable determination that Employee's continuation in his position
may be expected to result in serious harm or damage, or the material risk
thereof, to the assets, business or worth of Employer; or (v) the appropriation
(or attempted appropriation) of a material business opportunity of Employer.
For Good Reason has the meaning set forth in SECTION 6.3.
Person means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, or governmental body.
Post-Employment Period means (i) the period beginning on the date on
which the Employment Period ends and ending on the first anniversary of such
date; provided, however, that if the Employment Period ends For Good Reason,
then there shall be no Post-Employment Period.
Proprietary Items has the meaning set forth in SECTION 7.1(d).
Salary has the meaning set forth in SECTION 3.1(a).
Term has the meaning set forth in SECTION 2.2 below.
ARTICLE 2.
EMPLOYMENT TERMS AND DUTIES
2.1 Employment. Employer hereby employs Employee, and Employee hereby
accepts employment by Employer, upon the terms and conditions set forth in this
Agreement.
2.2 Term. Subject to the provisions of ARTICLE 6, the term of
Employee's employment under this Agreement will be three years, beginning on the
date hereof and ending on April 15, 2002, subject to one-year renewal terms upon
mutual agreement of the parties (the "Term").
2.3 Duties. Employee will have such duties as are assigned or
delegated to Employee by the Board of Directors which Employee acknowledges
shall include, without limitation, ____________________________________ and
other activities incident to Employee's position as Executive Vice President of
Employer. Employee will serve as the Executive Vice President and Chairman of
the Employer and of Sonus Communication Holdings, Inc., a Delaware corporation
("Holdings"), during the term. Employee will devote his entire business time,
attention, skill, and energy exclusively to the business of Employer, will use
his best efforts to promote the success of Employer's business, and will
cooperate fully with the Board of Directors in the advancement of the best
interests of Employer. Nothing in this SECTION 2.3, however, will prevent
Employee from engaging in additional activities in connection with personal
investments, business and community affairs that are not inconsistent with
Employee's duties under this Agreement.
2.4 Service on Board of Directors. Employee shall, subject to earlier
removal by the shareholders, serve on the Board of Directors of Employer and
Sonus Communication Holdings, Inc. until the third anniversary of this
Agreement, without additional compensation except for reimbursement of
reasonable expenses associated with such service. Removal from the Board of
Directors by shareholders prior to the third anniversary of this agreement shall
not give rise to any claim or other liability of or against Employer under this
Agreement.
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ARTICLE 3.
COMPENSATION
3.1 Basic Compensation.
(a) Base Salary. Beginning on April 15, 2000, Employee will be paid an
annual salary commensurate with that paid to similarly situated members of
senior management of Employer, as mutually agreed upon by Employer and Employee
prior to April 15, 2000; provided, however, that such salary shall be not less
than $84,000 per annum, and shall be paid in accordance with Employer's usual
compensation schedule and practices, but not less frequently than monthly,
during the Term. Prior to April 15, 2000, Employee shall not receive a salary or
other compensation hereunder, except as expressly provided herein. The Salary
will be reviewed by the Board of Directors from time to time, and may be
adjusted upward or downward in the sole discretion of the Board of Directors,
but in no event will the Salary be less than $84,000 per year.
(b) Employee Benefits. During the Employment Period, Employee will be
permitted to participate in such pension, health, profit sharing, savings and
retirement and other employee benefit plans, practices, policies and programs
applicable generally to similarly situated senior management employees of
Employer, if any (collectively, the "Employee Benefits"); provided, however,
that until April 15, 2000, Employer shall not be required to pay any portion
thereof or make any contributions thereto with respect to Employees
participation in such plans and programs.
ARTICLE 4.
FACILITIES AND EXPENSES
For the Employment Period, Employee shall be provided office and
conference room space, furniture, fixtures, miscellaneous office equipment
(including phones, faxes, computers, and copy machines). Employee shall be
entitled to reimbursement of reasonable expenses actually incurred by the
Employee in connection with Employee's pursuit of his duties under this
Agreement, provided, however, that Employee shall provide the Employer with all
documentation thereof reasonably requested by it.
ARTICLE 5.
VACATIONS AND HOLIDAYS
Employee will be entitled to three (3) weeks' paid vacation during each
year of the Term of this Agreement, in accordance with the vacation policies of
Employer in effect for its senior executive officers from time to time. Employee
will also be entitled to the paid holidays and other paid leave set forth in
Employee's policies. Vacation requests shall be cleared by the Board of
Directors. Vacation days and holidays during any Fiscal Year that are not used
by Employee during such Fiscal Year may not be used in any subsequent Fiscal
Year.
ARTICLE 6.
TERMINATION
6.1 Events of Termination. Except as otherwise provided in this
ARTICLE 6, the Employment Period, Employee's Compensation, and any and all other
rights of Employee under this Agreement or otherwise as an employee of Employer
will terminate:
(a) immediately upon the death of Employee;
(b) upon the Disability of Employee immediately upon notice from
either party to the other;
(c) immediately upon a termination of the Employment Period by
Employer For Cause, or
(d) upon a termination of the Employment Period by Employee, upon not
less than thirty days' prior notice from Employee to Employer.
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6.2 Definition of Disability. For purposes of SECTION 6.1, Employee
will be deemed to have a "Disability" if, for physical or mental reasons,
Employee is unable to perform Employee's duties under this Agreement for one
hundred twenty (120) consecutive days, or one hundred eighty (180) days during
any twelve (12) month period, as determined in accordance with this SECTION 6.2.
The Disability of Employee will be determined by a medical doctor selected by
written agreement of Employer and Employee upon the request of either party by
notice to the other. If Employer and Employee cannot agree on the selection of a
medical doctor, each of them will select a medical doctor and the two medical
doctors will select a third medical doctor who will determine whether Employee
has a Disability. The determination of the medical doctor selected under this
SECTION 6.2 will be binding on both parties. Employee must submit to a
reasonable number of examinations by the medical doctor making the determination
of Disability under this SECTION 6.2, and Employee hereby authorizes the
disclosure and release to Employer of such determination and all supporting
medical records. If Employee is not legally competent, Employee's legal guardian
or duly authorized attorney-in-fact will act in Employee's stead, under this
SECTION 6.2, for the purposes of submitting Employee to the examinations, and
providing the authorization of disclosure, required under this SECTION 6.2.
6.3 Definition of For Good Reason. For purposes of this Agreement, the
phrase "For Good Reason" means Employer's material and continuing breach of this
Agreement.
6.4 Benefits. Except as otherwise provided in this Agreement,
Employee's accrual of, or participation in plans providing for, the Benefits
will cease at the effective date of the termination of the Employment Period,
and Employee will be entitled to accrued benefits pursuant to such plans only as
provided in such plans. Employee will receive, as his termination pay, any
payment or other compensation for any vacation, holiday, sick leave, or other
leave unused on the date the notice of termination is given under this
Agreement.
ARTICLE 7.
AGREEMENTS OF EMPLOYEE
In consideration of the compensation and benefits to be paid or provided
to Employee by Employer under this Agreement, Employee covenants as follows:
7.1 Confidentiality.
(a) Subject to SECTION 7.1(b), Employee agrees and acknowledges that
through the nature of his work, he will have access to and will acquire
information and knowledge concerning the business and operations of Employer and
its Affiliates including, without limitation, the Confidential Information.
Employee acknowledges that all such Confidential Information is the property of
Employer and its Affiliates solely and constitutes valuable, proprietary and
confidential information of Employer and its Affiliates; that the disclosure
thereof would cause substantial loss to the goodwill of Employer and its
Affiliates; that disclosure thereof to Employee is being made only because of
the position of trust and confidence which he will occupy and because of his
agreement to the restrictions herein contained. Employee shall not, at any time,
divulge, disseminate, disclose or communicate to any Person any Confidential
Information, which information Employee shall hold during such period in trust
in a fiduciary capacity for the sole benefit of Employer, its Affiliates, and
their successors and assigns.
(b) None of the foregoing obligations and restrictions applies to any
part of the Confidential Information that Employee demonstrates (i) was or
became generally available to the public other than as a result of a disclosure
by Employee; (ii) is information that has been explicitly approved for public
release by Employer or an Affiliate thereof; (iii) is disclosed pursuant to a
valid and enforceable subpoena of a court or governmental agency of competent
jurisdiction, provided that Employee shall first have given Employer reasonable
opportunity to seek a confidentiality order or other confidential treatment of
such Confidential Information; (iv) is disclosed to third parties by Employer
without restrictions as to confidentiality; or (v) is received from a third
party whose disclosure would not violate any confidentiality obligation, direct
or indirect, express or implied.
(c) Employee will not remove from Employer's premises (except to the
extent such removal is for purposes of the performance of Employee's duties at
home or while traveling, or except as otherwise specifically authorized by
Employer) any document, record, notebook, plan, model, component, device, or
computer software or code, whether embodied in a disk or in any other form
(collectively, the "Proprietary Items"). Employee recognizes that, as between
Employer and Employee, all of the Proprietary Items, whether or not developed by
Employee, are the
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<PAGE> 5
exclusive property of Employer. Upon termination of this Agreement by either
party, or upon the request of Employer during the Employment Period, Employee
will return to Employer all of the Proprietary Items in Employee's possession or
subject to Employee's control, and Employee shall not retain any copies,
abstracts, sketches, or other physical embodiment of any of the Proprietary
Items.
7.2 Disputes or Controversies. Employee recognizes that should a
dispute or controversy arising from or relating to this Agreement be submitted
for adjudication to any court, arbitration panel, or other third party, the
preservation of the secrecy of Confidential Information may be jeopardized.
Employee and Employer will use their best efforts to cause all pleadings,
documents, testimony, and records relating to any such adjudication to be
maintained in secrecy and to make the same available for inspection by Employer,
Employee, and their respective attorneys and experts, who will agree, in advance
and in writing, to receive and maintain all such information in secrecy, except
as may be limited by them in writing.
ARTICLE 8.
RESTRICTIVE COVENANTS
8.1 Acknowledgments by Employee. Employee acknowledges that: (a) the
services to be performed by him under this Agreement are of a special, unique,
unusual, extraordinary, and intellectual character; (b) Employer's business is
national in scope and its products are marketed throughout the United States;
(c) Employer competes with other businesses that are or could be located in any
part of the United States; (d) Employer has required that Employee make the
covenants set forth in this ARTICLE 8 as a condition to Employer's employment of
employee; and (e) the geographic boundaries, scope of prohibited activities, and
time duration of the provisions of this ARTICLE 8 are reasonable, are no broader
than are necessary to protect the business interests of Employer and its
Affiliates and are not oppressive and do not and will not impose any
unreasonable burden on Employee.
8.2 Covenants of Employee. In consideration of the acknowledgments by
Employee, and in consideration of the compensation and benefits to be paid or
provided to Employee by Employer, Employee covenants that he will not, directly
or indirectly:
(a) during the Employment Period, except in the course of his
employment hereunder, and during the Post-Employment Period, engage or invest
in, own, manage, operate, finance, control, or participate in the ownership,
management, operation, financing, or control of, be employed by, associated
with, or in any manner connected with, lend Employee's name or any similar name
to, lend Employee's credit to or render services or advice to, any business
whose products or activities compete in whole or in part with the products or
activities of Employer:
(i) anywhere within the United States;
(ii) anywhere in Virginia, Washington, D.C. or Maryland;
(iii) anywhere within 50 miles of any location where Employer
does business including, without limitation, Georgia, China or Pakistan;
(iv) anywhere within 100 miles of any physical location owned,
leased or operated by Employer;
(v) anywhere within 50 miles of any physical location owned,
leased or operated by Employer;
provided, however, that (A) Employee may purchase or otherwise acquire up
to (but not more than) 4.99 percent of any class of securities of any enterprise
(but without otherwise participating in the activities of such enterprise) if
such securities are listed on any national or regional securities exchange or
have been registered under Section 12(g) of the Securities Exchange Act of 1934,
and (B) this provision shall not require Employee to sell, transfer, assign or
otherwise divest any interest owned by him prior to the date of this Agreement;
(b) whether for Employee's own account or for the account of any other
Person, at any time during the Employment Period and the Post-Employment Period,
solicit business of the same or similar type being carried on by Employer, from
any Person known by Employee to be a customer of Employer, whether or not
Employee had personal contact with such person during and by reason of
Employee's employment with Employer;
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<PAGE> 6
(c) whether for Employee's own account or the account of any other
Person (i) at any time during the Employment Period and the Post-Employment
Period, solicit, employ, or otherwise engage as an employee, independent
contractor, or otherwise, any Person who is an employee of Employer or in any
manner induce or attempt to induce any employee of Employer to terminate his
employment with Employer; or (ii) at any time during the Employment Period and
during the Post-Employment Period, interfere with Employer's relationship with
any Person, including any Person who at any time during the Employment Period
was an employee, contractor, supplier, or customer of Employer; or
(d) at any time during the Employment Period and during the
Post-Employment Period, disparage Employer or any of its shareholders,
directors, officers, employees, or agents.
8.3 Return of Materials. When Employee ceases to be an employee of
Employer, Employee promptly shall deliver to Employer all documents, memoranda,
records, notes, and other materials in his possession, whether prepared by him
or others, and all copies thereof, that contain any Confidential Information,
and Employee shall have no further rights therein.
ARTICLE 9.
MISCELLANEOUS
9.1 Injunctive Relief and Additional Remedy. Employee acknowledges
that the injury that would be suffered by Employer as a result of a breach of
the provisions of this Agreement (including any provision of ARTICLE 7 or
ARTICLE 8) would be irreparable and that an award of monetary damages to
Employer for such a breach would be an inadequate remedy. Consequently, Employer
will have the right, in addition to any other rights it may have, to obtain
injunctive relief to restrain any breach or threatened breach or otherwise to
specifically enforce any provision of this Agreement, and Employer will not be
obligated to post bond or other security in seeking such relief. Without
limiting Employer's rights under this ARTICLE 9 or any other remedies of
Employer, if Employee breaches any of the provisions of ARTICLE 7 or ARTICLE 8,
Employer will have the right to cease making any payments otherwise due to
Employee under this Agreement.
9.2 Covenants of Article 7 and Article 8 are Essential and Independent
Covenants. The covenants by Employee in ARTICLE 7 and ARTICLE 8 are essential
elements of this Agreement, Employer would not have entered into this Agreement
or employed or continued the employment of Employee. The Company and Employee
have independently consulted their respective counsel and have been advised in
all respects concerning the reasonableness and propriety of such covenants, with
specific regard to the nature of the business conducted by Employer. Employee's
covenants in ARTICLE 7 and ARTICLE 8 are independent covenants and the existence
of any claim by Employee against Employer under this Agreement or otherwise, or
against the Buyer, will not excuse Employee's breach of any covenant in ARTICLE
7 or ARTICLE 8. Except as otherwise stated herein, if Employee's employment
hereunder expires or is terminated, this Agreement will continue in full force
and effect as is necessary or appropriate to enforce the covenants and
agreements of Employee in ARTICLE 7 and ARTICLE 8.
9.3 Representations and Warranties by Employee. Employee represents
and warrants to Employer that the execution and delivery by Employee of this
Agreement does not, and the performance by Employee of Employee's obligations
hereunder will not, with or without the giving of notice or the passage of time,
or both: (a) violate any judgment, writ, injunction, or order of any court,
arbitrator, or governmental agency applicable to Employee; or (b) conflict with,
result in the breach of any provisions of or the termination of, or constitute a
default under, any agreement to which Employee is a party or by which Employee
is or may be bound.
9.4 Waiver. The rights and remedies of the parties to this Agreement
are cumulative and not alternative. Neither the failure nor any delay by either
party in exercising any right, power, or privilege under this Agreement will
operate as a waiver of such right, power, or privilege, and no single or partial
exercise of any such right, power, or privilege will preclude any other or
further exercise of such right, power, or privilege or the exercise of any other
right, power, or privilege. To the maximum extent permitted by applicable law,
(a) no claim or right arising out of this Agreement can be discharged by one
party, in whole or in part, by a waiver or renunciation of the claim or right
unless in writing signed by the other party; (b) no waiver that may be given by
a party will be applicable except in the specific instance for which it is
given; and (c) no notice to or demand on one party will be deemed to be a waiver
of any
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<PAGE> 7
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement.
9.5 Binding Effect; Delegation of Duties Prohibited. This Agreement
shall inure to the benefit of, and shall be binding upon, the parties hereto and
their respective successors, assigns, heirs, and legal representatives,
provided, however, that this Agreement may be assigned by Employer only with the
prior written consent of Employee, which consent shall not be unreasonably
withheld. The duties and covenants of Employee under this Agreement, being
personal, may not be delegated.
9.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be given by registered or
certified mail, return receipt requested, postage prepaid, by telecopier or by
national overnight delivery service, and addressed to the intended recipient as
set forth below:
IF TO EMPLOYEE:
Nana Maraneli
-------------------
-------------------
-------------------
IF TO EMPLOYER WITH A COPY TO:
Sonus Communications, Inc.
c/o Chief Executive Officer Cecil E. Martin, III, Esquire
1600 Wilson Blvd. McGuire, Woods, Battle & Boothe LLP
Suite 1008 Seven Saint Paul Street
Arlington, Virginia 22201 Baltimore, Maryland 21202-1626
Any notice given in the manner aforesaid shall be deemed to have been served,
and shall be effective for all purposes hereof (a) if sent by registered or
certified mail, on the earlier of the second day following the day on which it
is posted or the date of its receipt by the party to be notified, (b) if sent by
telecopier, the day actually received as evidenced by a written receipt of
transmission and (c) if sent by overnight delivery service, the day after such
notice has been delivered by the party to said service. Any Party may change the
address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Party notice in the manner
herein set forth.
9.8 Entire Agreement; Amendments. This Agreement contains the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, oral or written, between the
parties hereto with respect to the subject matter hereof. This Agreement may not
be amended orally, but only by an agreement in writing signed by the parties
hereto.
9.9 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise.
9.10 Severability. If any provision of this Agreement is held invalid
or unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
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<PAGE> 8
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
9.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
9.12 Governing Law; Venue. This Agreement shall be governed by and
construed in accordance with the domestic laws of the Commonwealth of Virginia
without giving effect to any choice or conflict of law provision or rule
(whether of the Commonwealth of Virginia or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the
Commonwealth of Virginia. To the extent not resolved by binding arbitration
pursuant to Section 9.13 below, each of the parties submits to the jurisdiction
of any state or federal court sitting in Fairfax, Virginia, in any action or
proceeding arising out of or relating to this Agreement and agrees that all
claims in respect of the action or proceeding shall be heard and determined in
any such court. Each party also agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each of the
parties waives any defense of inconvenient forum to the maintenance of any
action or proceeding so brought and waives any bond, surety, or other security
that might be required of any other party with respect thereto.
9.13 Binding Arbitration. Any controversy, dispute or claim of whatever
nature arising out of, in connection with, or in relation to the interpretation,
performance or breach of this Agreement, including any claim based on contract,
tort, or statute, and regardless of the amount of any claim or counterclaim,
shall be settled, at the request of any party to this Agreement, by final and
binding arbitration conducted at a location in Fairfax, Virginia (the
"Arbitration") determined by an arbitrator (the "Arbitrator") selected and
designated by the American Arbitration Association ("AAA"), administered by and
in accordance with the then existing Expedited Procedures (the "Expedited
Procedures") under the Commercial Arbitration Rules of the AAA, and judgment
upon any award rendered by the Arbitrator may be entered by any state or federal
court having jurisdiction thereof. By executing this Agreement, the parties
hereto expressly agree that the Expedited Procedures under the Commercial
Arbitration Rules of the AAA shall govern any arbitration proceeding, and the
parties expressly waive any and all challenges to the administration of
Arbitration pursuant to the Expedited Procedures.
[The remainder of this page is intentionally left blank]
**********
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed and delivered as of the day and date first above written.
EMPLOYER:
SONUS COMMUNICATIONS, INC.
By:
------------------------------------
Name: W. Todd Coffin
Title: President
EMPLOYEE:
--------------------------------------
Nana Maraneli
Schedule A - 1
<PAGE> 1
HUDSON ALLEN & COMPANY
INVESTMENT BANKING
EXHIBIT 10.9
October 20, 1999
Chuck Albo
Chairman of the Board
Sonus Communication Holdings Inc.
1600 Wilson Blvd., Suite 1008
Arlington, VA 22209
Dear Mr. Albo:
The purpose of this letter is to confirm the understanding and agreement (the
"Agreement") between Hudson Allen & Co. ("HA") and Sonus Communication Holdings,
Inc. (or the "Company"), regarding the retention of HA by the Company as its
financial advisor for the purposes set forth herein. For purposes hereof,
references to the Company include any subsidiaries or affiliates thereof.
Under this Agreement, HA will provide merger and acquisition as well as
investment banking services to the Company as follows:
Investment Banking: On a non-exclusive basis, for a period of one year, renewing
automatically unless cancelled, HA will introduce the Company to persons,
whether individuals or entities, that may be suitable candidates for providing
the Company with debt, equity or lease financing. HA will introduce Sonus to
Investment banks, market makers, research firms, telecommunication partners and
other corporate and individuals who may be able to assist in the execution of
Sonus' business plans. If, at any time during the term of this Agreement, the
Company enters into an agreement with any persons or their affiliates introduced
by Hudson Allen & Co., pursuant to which the Company obtains debt, equity, lease
or other financing including a merger (the "Financing"), the Company will pay to
HA, in accordance with the formula set forth below.
Merger and Acquisitions. In addition, on a non-exclusive basis, HA may from time
to time introduce the Company to entities, that may be suitable candidates to
acquire The Company or to be acquired by The Company. If, at any time during the
term of this Agreement, the Company enters into an agreement with any persons or
their affiliates introduced by Hudson Allen & Co., pursuant to which the Company
completes a merger or makes an acquisition of another company (the "Financing"),
the Company will pay to HA, in accordance with the formula set forth below.
HUDSON ALLEN & COMPANY
MEMBERS NASD & SIPC
250 KITCHAWAN RD. SOUTH SALEM, NY 10590
TEL. 914-533-2222, FAX 914-533-5124, EMAIL: [email protected]
<PAGE> 2
HUDSON ALLEN & COMPANY
INVESTMENT BANKING
The Company agrees to pay the following fees to HA for its management, merger
and acquisition and investment banking services:
Retention: Upon signing this agreement, Sonus Communications will pay a retainer
of 500,000 warrants at $3.00 that shall vest according to the performance
criteria as follows: 100,000 warrants shall become exercisable upon the signing
of this Agreement, and 100,000 warrants shall vest for each $2 million of
financing completed by Hudson Allen up to $8 million of total financing..
Warrants may vest only during the first two years of this contract. Any Warrants
not vested at the end of two years shal be cancelled Vested Warrants shall be
exercisable for a period of five (5) years from date of issuance of the
Warrants. The terms of said warrants shall include piggyback registration rights
with underwriter cutback provisions; acceptable anti-dilution rights, and shall
provide for a "cashless" exercise provision in the event of exercise by HA These
shares shall include a two year good faith lock-up. In addition, upon completion
of a minimum raise of $1,000,000 by any party or parties, Sonus shall pay a
monthly retainer of $6,000 to HA.
1. In the event of an equity or equity-linked Financing consummated by a
source introduced to the Company by HA, a fee in an amount equal to 8% of
the Financing, payable upon the closing or closings of the Financing,
plus warrants to purchase 8% of the number of shares of common stock sold
in the Financing, at an initial exercise price equal to the sale price of
the common stock. This fee shall be reduced to 5% cash and 5% warrants
after the first $5,000,000 is raised in any single offering. In the event
of lease financing, the above fees will be reduced zero. of the amount of
the Financing. Said warrants shall be exercisable for a period of five
(5) years from date of issuance. The terms of said warrants shall include
piggyback registration rights; acceptable anti-dilution rights, and shall
provide for a "cashless" exercise provision in the event of exercise by
HA. In the event that HA introduces Sonus to an investment bank who
raises funds for the company, then Sonus shall raise no objections to HA
receiving a finders fee of 15% of any such fees to be payable by the
investment bank.
2. In the event of a merger or acquisition consummated by a source
introduced to the Company by HA, a fee in the amount of 3% shall be
payable to HA. In any event, if within one year after termination of this
agreement, or any time while this agreement is in effect, The Company is
acquired by another entity not introduced by HA and HA works on such
transaction, HA shall be paid 1% of the transaction value.
In addition to any fees that may be payable to HA under this Agreement, the
Company agrees to reimburse HA, for its reasonable out of-pocket expenses up to
$1,500.00 per month incurred (pass-through only in connection with the services
rendered by HA hereunder, including, without limitation, travel and lodging,
data and word processing, graphics and communication charges, research costs,
and courier services and fees). HA will, on a monthly basis, provide the Company
with information regarding the expenses incurred. Compensation for any
additional professional services (e.g. legal or consulting) contracted for by
HA, to be performed for the benefit of the Company by outside parties, is the
responsibility of the Company and will be paid directly by the Company to such
party. HA will not contract for such services without the prior approval of the
Company
<PAGE> 3
HUDSON ALLEN & COMPANY
INVESTMENT BANKING
with regard to both the nature of the service and a reasonable estimate
of the cost of such service. The Company understands that it is customary for
the company to pay the investors reasonable attorney's fees directly out of
escrow, and agrees to do.
All cash payments under this Agreement shall be made in U.S. dollars and without
withholding or deduction of any tax, assessment or other governmental charge
(collectively, 'Tax"), unless required by law.
The Company will furnish or cause to be furnished to HA such information as HA
believes appropriate to its assignment (all such information so furnished being
the "Information"). The Company recognizes and confirms that HA; (a) will use
and rely primarily on the Information and on information available from
generally recognized public sources in performing the services contemplated by
this Agreement without having independently verified the same, (b) does not
assume responsibility for the accuracy or completeness of the Information and
such other information, (c) is entitled to rely upon the Information without
independent verification and (d) will not make an appraisal of any assets in
connection with its assignment.
Except as contemplated by the terms hereof or as required by applicable law or
legal process, HA shall keep confidential all material non-public information
provided to it by or at the request of the Company, and shall not disclose such
information to any third party or to any of its employees or advisors except to
those persons who have a need to know such information in connection with HA's
performance of its responsibilities hereunder. HA agrees that any confidential
information will not be used in connection with any other engagement of HA
whether during the term of this engagment or for a period of five years after
the conclusion of this Agreement.
The Company acknowledges and agrees that HA has been retained to act as
financial advisor to the Company. In such capacity, HA shall act as an
independent contractor, and any duties of HA arising out of its engagement
pursuant to this Agreement shall be owed solely to the Company. The Company
agrees to indemnify HA in accordance with the indemnification agreement attached
as Exhibit A.
Except as required by applicable law, any advice to be provided by HA under this
Agreement shall not be disclosed publicly or made available to third parties
without the prior written consent of HA. In addition, HA may not be otherwise
publicly referred to without its prior written consent. All services, advice and
information and reports provided by HA to the Company in connection with this
assignment shall be for the sole benefit of the Company and shall not be relied
upon by any other person.
The term of HA's engagement hereunder shall extend for one year from the date
above first writtern (the "Expiration Date") and will be automatically renewed
on a monthly basis until canceled in writing by either party. HA's engagement
hereunder may be terminated upon 10 days written notice without cause by either
the Company or HA at any time after the Expiration Date. Notwithstanding the
foregoing, the provisions relating to the payment of fees and expenses accrued
through the date of termination, the
<PAGE> 4
HUDSON ALLEN & COMPANY
INVESTMENT BANKING
status of HA as an independent contractor, the confidentiality requirements and
the limitation on to whom HA shall owe any duties will survive any such
termination, and any such termination shall not affect the Company's obligations
under the indemnification agreement. HA will be entitled to the fees set forth
above in the event that at any time prior to the expiration of 12 months after
such termination (or the expiration of HA's engagement hereunder) a Financing is
consummated or merger or acquisition and: i) there was contact by or through HA
or its affiliates with the other party to the Financing, or an affiliate thereof
regarding Financing during the period of the engagement; or ii) any materials,
presentations or analyses prepared by HA are provided to the other party prior
to consummation of a Financing.
The Company acknowledges that HA may, at its option and expense, place an
announcement in such newspapers and periodicals as it may choose, stating that
HA has acted as the financial advisor to the Company. HA agrees that the Company
will have the right to approve the form of such announcement.
This Agreement (including the attached indemnification) embodies the entire
agreement and understanding between the parties hereto and supersedes all prior
agreements and understandings relating to the subject matter hereof. If any
provision of this Agreement is determined to be invalid or unenforceable in any
respect, such determination will not affect such provision in any other respect,
which will remain in full force and effect. No waiver, amendment or other
modification of this Agreement shall be effective unless in writing and signed
by each party to be bound thereby. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
contracts executed in and to be performed in that state.
Please confirm that the foregoing correctly sets forth our agreement by signing
and returning to HA the duplicate copy of this Agreement and the indemnification
agreement attached hereto as Exhibit A by the close of business on November 5,
1999.
Very truly yours,
By
--------------------------
Lucas Tanner
Hudson Allen Co.
Accepted and Agreed
By
----------------------------
Chuck Albo
Chairman of the Board
Sonus Communication Holdings, Inc.
<PAGE> 5
HUDSON ALLEN & COMPANY
INVESTMENT BANKING
This SCHEDULE A is a part of and is incorporated into that certain letter
agreement, dated October 5th, 1999 (the "Agreement"), by and between Sonus
Communications Inc.,a Delaware corporation (with its wholly-owned subsidiaries
collectively, the "Company"), and Hudson Allen & Co. (the "Placement Agent").
Capitalized terms used herein and not otherwise defined shall have the
respective meanings provided in the Agreement.
The Company agrees to indemnify and hold harmless the Placement Agent, its
affiliates and each person controlling the Placement Agent (within the meaning
of Section 15 of the Securities Act), and the directors, officers, agents and
employees of the Placement Agent, its affiliates and each such controlling
person (the Placement Agent, and each such entity or person, an "Indemnified
Person") from and against any losses, claims, damages, judgments, assessments,
costs and other liabilities (collectively, the "Liabilities"), and shall
reimburse each Indemnified Person for all fees and expenses (including the
reasonable fees and expenses of one counsel for all Indemnified Persons, except
as otherwise expressly provided herein) (collectively, the "Expenses") as they
are incurred by an Indemnified Person in investigating, preparing, pursuing or
defending any claim, action, proceeding or investigation, whether or not any
Indemnified Person is a party thereto (collectively, the "Actions"), (i) caused
by, or arising out of or in connection with, any untrue statement or alleged
untrue statement of a material fact contained in any offering documents prepared
by the Company (including any amendments thereof and supplements thereto) (the
"Offer Documents") or by any omission or alleged omission to state therein a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (other than untrue
statements or alleged untrue statements in, or omissions or alleged omissions
from, information relating to an Indemnified Person furnished in writing by or
on behalf of such Indemnified Person expressly for use in the Offer Documents)
or (ii) otherwise arising out of or in connection with advice or services
rendered or to be rendered by any Indemnified Person pursuant to the Agreement,
the transactions contemplated thereby or any Indemnified Person's actions or
inactions in connection with any such advice, services or transactions;
provided, however, that, in the case of clause (ii) only, the Company shall not
be responsible for any Liabilities or Expenses of any Indemnified Person that
have resulted primarily from any Indemnified Person's (x) gross negligence, bad
faith or willful misconduct in connection with any of the advice, actions,
inactions or services referred to above or (y) use of any offering materials or
information concerning the Company in connection with the offer or sale of the
Securities in the Transaction which were not authorized for such use by the
Company and which use constitutes negligence, bad faith or willful misconduct.
The Company also agrees to reimburse each Indemnified Person for all Expenses as
they are incurred in connection with enforcing such Indemnified Person's rights
under the Agreement, which includes this SCHEDULE A.
Upon receipt by an Indemnified Person of actual notice of an Action against such
Indemnified Person with respect to which indemnity may be sought under the
Agreement, such Indemnified Person shall promptly notify the Company in writing;
provided that failure by any Indemnified Person so to notify the Company shall
not relieve the Company from any liability which the Company may have on account
of this indemnity or otherwise to such Indemnified Person, except to the extent
the Company shall have been prejudiced by such failure. The Company shall, if
requested by the Placement Agent, assume the defense of any such Action
including the employment of counsel reasonably satisfactory to the Placement
Agent, which counsel may also be counsel to the Company. Any Indemnified Person
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Person unless: (i) the Company has
failed promptly to assume the defense and employ counsel or (ii) the named
parties to any such Action (including any impleaded parties) include such
Indemnified Person and the Company, and such Indemnified Person shall have been
advised in the reasonable opinion of counsel that there is an actual conflict of
interest that prevents the counsel selected by the Company from representing
both the Company (or another client of such counsel) and any Indemnified Person;
provided that the Company shall not in such event be responsible hereunder for
the fees and expenses of more than one firm of separate counsel for all
Indemnified Persons in connection with any Action or related Actions, in
addition to any local counsel. The Company shall not be liable for any
settlement of any Action effected without its written consent (which shall not
be unreasonably withheld). In addition, the Company shall not, without the prior
written
<PAGE> 6
HUDSON ALLEN & COMPANY
INVESTMENT BANKING
consent of the Placement Agent (which shall not be unreasonably withheld),
settle, compromise or consent to the entry of any judgment in or otherwise seek
to terminate any pending or threatened Action in respect of which
indemnification or contribution may be sought hereunder (whether or not such
Indemnified Person is a party thereto) unless such settlement, compromise,
consent or termination includes an unconditional release of each Indemnified
Person from all Liabilities arising out of such Action for which indemnification
or contribution may be sought hereunder. The indemnification required hereby
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
In the event that the foregoing indemnity is unavailable to an Indemnified
Person other than because of the proviso at the end of paragraph 2 above or
otherwise in accordance with the Agreement, the Company shall contribute to the
Liabilities and Expenses paid or payable by such Indemnified Person in such
proportion as is appropriate to reflect (i) the relative benefits to the
Company, on the one hand, and to the Placement Agent and any other Indemnified
Person, on the other hand, of the matters contemplated by the Agreement or (ii)
if the allocation provided by the immediately preceding clause is not permitted
by applicable law, not only such relative benefits but also the relative fault
of the Company, on the one hand, and the Placement Agent and any other
Indemnified Person, on the other hand, in connection with the matters as to
which such Liabilities or Expenses relate, as well as any other relevant
equitable considerations; provided that in no event shall the Company contribute
less than the amount necessary to ensure that all Indemnified Persons, in the
aggregate, are not liable for any Liabilities and Expenses in excess of the
amount of fees actually received by the Placement Agent pursuant to the
Agreement. For purposes of this paragraph, the relative benefits to the Company,
on the one hand, and to the Placement Agent on the other hand, of the matters
contemplated by the Agreement shall be deemed to be in the same proportion as
(a) the total value paid or contemplated to be paid to or received or
contemplated to be received by the Company in the transaction or transactions
that are within the scope of the Agreement, whether or not any such transaction
is consummated, bears to (b) the fees paid to the Placement Agent under the
Agreement. Notwithstanding the above, no person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the Securities Act of
1933, as amended, shall be entitled to contribution from a party who was not
guilty of fraudulent misrepresentation.
The Company also agrees that no Indemnified Person shall have any liability
(whether direct or indirect, in contract or tort or otherwise) to the Company
for or in connection with advice or services rendered or to be rendered by any
Indemnified Person pursuant to the Agreement, the transactions contemplated
thereby or any Indemnified Person's actions or inactions in connection with any
such advice, services or transactions except for Liabilities (and related
Expenses) of the Company that have resulted primarily from such Indemnified
Person's gross negligence, bad faith or willful misconduct in connection with
any such advice, actions, inactions or services.
The reimbursement, indemnity and contribution obligations of the Company set
forth herein shall apply to any modification of the Agreement and shall remain
in full force and effect regardless of any termination of, or the completion of
any Indemnified Person's services under or in connection with, the Agreement.
<PAGE> 1
EXHIBIT 15
ADVISORY LETTER IN CONNECTION WITH THE UNAUDITED FINANCIAL
STATEMENTS OF SONUS COMMUNICATION HOLDINGS, INC. FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1999
The consolidated balance sheet of Sonus Communication Holdings, Inc. as of
September 30, 1999, and the consolidated statements of operations and cash
flows for the nine months ended September 30, 1999 were prepared by management
and are included herein by reference in this Registration Statement on Form
SB-2.
The accompanying unaudited consolidated financial statements are the
representation of management. We have not audited, reviewed, or otherwise been
associated with the accompanying financial statements and accordingly, do not
express an opinion or any other form of assurance on them.
LAZAR LEVINE & FELIX LLP
New York, New York
December 3, 1999
<PAGE> 1
a) Sonus Communications, Inc., a Virginia corporation; and
b) EOT Acquisition Corporation, a Delaware corporation.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We hereby consent to the use in this Form SB-2 Registration Statement of Sonus
Communication Holdings, Inc (the "Corporation") of our report dated April 1,
1999, relating to the financial statements of Sonus Communications, Inc. as of
December 31, 1998 and 1997 and to the reference to our firm in the Registration
Statement.
LAZAR LEVINE & FELIX, LLP
Certified Public Accountants
New York, New York
December 3, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Form SB-2 Registration Statement of Sonus
Communication Holdings, Inc (the "Corporation") of our report dated March 26,
1999, relating to the financial statements of The Park Group, Ltd. as of
December 31, 1998 and to the reference to our firm in the Registration
Statement.
LAZAR LEVINE & FELIX, LLP
Certified Public Accountants
New York, New York
December 3, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Form SB-2 Registration Statement of Sonus
Communication Holdings, Inc. (the "Corporation") of our report dated March 9,
1998, relating to the financial statements of The Park Group, Ltd. as of
December 31, 1997 and to the reference to our firm in the Registration
Statement.
SCOTT & GUILFOYLE.
Certified Public Accountants
Lake Success, New York
December 3, 1999
