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Registration No. 333-92275
As filed with the Securities and Exchange Commission on March 22, 2000.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 1 to
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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<S> <C> <C>
DELAWARE 6770 54-1939577
(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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<S> <C> <C> <C> <C>
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 $ 213,750.00 $---(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 of 1933 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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SUBJECT TO COMPLETION, DATED MARCH 22, 2000
SONUS COMMUNICATION HOLDINGS, INC.
[LOGO]
3,170,435 SHARES
1,013,970 WARRANTS TO PURCHASE SHARES
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ABOUT OUR COMPANY: THE COMMON STOCK:
<S> <C>
- - We are a provider of telephone - On March 16, 2000, the last reported
services that use the internet to closing price of the common stock was
transport voice and data. $6 7/8.
THE WARRANTS:
- - Our headquarters are located at - The warrants have exercise prices
1600 Wilson Boulevard, Suite 1008 ranging from $.92 to $3.00, and the
Arlington, Virginia 22209 average weighted exercise price of the
Telephone: (703) 527-8860 warrants is $1.51.
THE OFFERING: THE SELLING SECURITY HOLDER:
- - This is an offering by the selling - The selling shareholders have advised
security holders to sell shares of our us that they will sell the shares and
common stock, par value $.0001 per the warrants from time to time in the
share, and warrants to purchase our open market, on the over-the-counter
common stock. electronic bulletin board or in
privately negotiated transactions.
See "Plan of Distribution."
- - We will not receive proceeds upon the - The selling security holders will pay
sale of the shares or warrants but may all of their commissions, brokerage
receive up to $1,534,422 upon exercise fees and related expenses. We will
of all the warrants offered by this pay all of the expenses of this
prospectus for cash. offering, estimated to be
approximately $50,000.
TRADING SYMBOL:
- - Our common stock is traded on the
over-the-counter bulletin board under
the symbol "SNHD."
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BEFORE MAKING ANY INVESTMENT IN OUR SECURITIES, YOU SHOULD READ AND CAREFULLY
CONSIDER RISKS DESCRIBED IN THE RISK FACTORS BEGINNING ON PAGE 6.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Red Herring: The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
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SUMMARY
GENERAL
We are an FCC licensed telecommunications company that uses the
public internet as well as private internet networks to transport data and voice
media. We are among the first of a growing number of service providers to offer
telephone services that use the public internet and private internet networks as
our primary transport media. We are also among the first carriers with internet
based telephone service considered equivalent to that of the major international
long-distance carriers such as AT&T. We implement leading edge technology in our
ongoing effort to develop and deploy a global internet communications network
providing telephone, facsimile, data and video services.
Our principal executive offices are located at 1600 Wilson Blvd.,
Arlington, Virginia 22209, and our telephone number is (703) 527-8860.
THE OFFERING
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Common stock offered by selling security holders..............................2,156,465
Warrants offered by selling security holders..................................1,013,970
Common stock underlying warrants..............................................1,013,970
Common stock outstanding immediately prior
to the offering...............................................................6,032,214
Common stock to be outstanding after the offering assuming all outstanding
dilutive securities are exchanged or exercised for common stock (excluding
1,065,857 shares issuable upon consummation of the
merger with Empire One Telecommunications, Inc.)..............................8,822,226
Use of Proceeds...............................................................This is a secondary offering which will not result
in proceeds to us, except that we will receive
proceeds of $1,534,422 if all of the warrants are
exercised for cash, and $750,000 if the
warrants with cashless exercise features are
exercised on a cashless basis and the remainder of
the warrants are exercised for cash. All such
proceeds would be used for working capital. See "Use
of Proceeds" on page 15 hereof.
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SUMMARY FINANCIAL DATA
The summary financial data in the table below has been derived from
our audited financial statements for the years ended December 31, 1997, 1998 and
1999. Our audited financial statements are included in this prospectus beginning
at page F-1. These financial statements include, in the opinion of our
management, all normal recurring adjustments necessary to present fairly our
financial condition and results of operations. The information includes the
historical information of Sonus Communications, Inc. for 1998 and 1999 and
includes the merger with The Park Group that occurred in the first quarter of
1999. You should read this information together with the information under
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" beginning on page 22 and our financial statements and accompanying
notes.
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YEAR ENDED DECEMBER 31,
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1998 1999
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<S> <C> <C>
Historical Statement of
Operations Data:
Revenues $287,290 $1,704,056
Net loss from (81,406) (1,751,266)
operations
Loss per share (0.02) (0.44)
Historical Balance
Sheet Data:
Total assets 505,212 1,554,593
Long term debt 99,969 152,550
Stockholders' equity (180,565) 412,423
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RISK FACTORS
In addition to the other information contained in this prospectus,
you should consider carefully the following risk factors before investing in any
of our common stock or warrants.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING
HISTORY.
We entered the U.S. outgoing international telephone service
business in October 1998 and have only a limited operating history upon which an
evaluation of our business and our business prospects can be based. You should
consider our prospects in light of the heightened risks and unexpected expenses
and difficulties frequently encountered by companies in an early stage of
development. These risks, expenses and difficulties, which are described below,
apply particularly to us because the market for delivering voice and other data
over the internet is new and rapidly evolving. Due to our limited operating
history, it will be difficult for you to evaluate whether we will successfully
address these risks.
WE HAVE A HISTORY OF LOSSES AND NEGATIVE CASH FLOW AND ANTICIPATE CONTINUED
LOSSES.
Since our formation, we have incurred operating losses and negative
cash flow. To the extent that we are unable to achieve profitability in the
future, our business, prospects, financial condition and results of operations
will suffer. In 1999, we incurred a net loss of $1,751,266, and have incurred
accumulated net losses through December 31, 1999 of $2,199,525. We cannot assure
you that we will ever achieve or sustain profitability or that our operating
losses will not increase in the future.
WE EXPECT THAT OUR CURRENT STRATEGY WILL RESULT IN CONTINUING NET LOSSES FOR THE
FORESEEABLE FUTURE.
Our current strategy can be expected to have an adverse impact on
our profit margins for at least the near-term. We cannot assure you that we can
increase our revenues and customer base sufficiently to recover the costs of our
anticipated expenses. Our current focus is on expanding our network and
establishing an infrastructure to achieve economies of scale, improve network
performance and enable us to expand our geographic reach for potential
telecommunications clients. As a result, we will continue to make capital
expenditures and incur substantial operating costs and increase our expenses in
order to hire additional personnel, provide adequate levels of support to
management, develop further the network infrastructure, increase our technical
resources and provide additional customer support. This strategy can be expected
to have an adverse impact on our profit margins for at least the near-term. In
addition, acceleration in the growth of our client base or changes in the way
our clients use our services may also increase costs as a percentage of
revenues.
WE WILL IMMEDIATELY NEED ADDITIONAL CAPITAL FOLLOWING COMPLETION OF THIS
OFFERING TO CONTINUE AS A GOING CONCERN.
We will require substantial additional financing in order to
implement our present business plan and meet our working capital and other cash
requirements. If we fail to obtain that additional financing, we may not be able
to implement our business plan and we may not be able to continue as a going
concern.
We estimate that approximately $500,000 is required to deploy the
necessary equipment to terminate telephone calls in each additional country we
enter. Therefore, we will require substantial immediate additional financing.
Failure to secure additional financing will have a material adverse effect on
us. Based upon our present business plan and existing cash resources, we expect
that cash flow from operating activities will not be sufficient to meet our
currently anticipated working
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capital and capital expenditure requirements for the next twelve months. If our
growth exceeds current expectations or if we expedite or enlarge our network
expansion, or if our cash flow from operations is not sufficient to meet our
working capital and capital expenditure requirements, we will need to raise
additional capital by issuing additional common stock or by debt financing. We
can provide no assurance that we will be able to raise additional capital or
that additional capital, if raised, will be obtained on favorable terms. Any
additional financing using our common stock will result in the reduction of each
stockholder's percentage ownership interest in us and may result in a decrease
in the market price of our common stock. Any additional debt financing likely
will involve restrictive covenants that may limit our operating flexibility.
IF WE FAIL TO PROPERLY MANAGE OUR GROWTH, OUR BUSINESS COULD BE ADVERSELY
AFFECTED.
Our rapid growth and expansion into new markets have placed, and may
continue to place, a strain on our management, administrative, operational,
financial and technical resources and increase demands on our systems and
controls. Demands on network resources, technical staff and resources have grown
rapidly with our expanding customer base, and it may be difficult to satisfy the
demand for our services and to address problems in billing customers. We have
had customer relations and other general business issues and difficulties
resulting from our rapid growth. We can not assure you that we will not
experience similar or additional problems in the future or that our attempts to
improve our technical staff will be adequate to facilitate continued growth. A
failure to effectively provide customer and technical support services will
adversely affect our ability to attract and maintain our customer base. Expected
increases in our telecommunications customer base will produce increased demands
on:
-- sales,
-- marketing and administrative resources,
-- engineering and technical resources,
-- customer and technical support resources,
-- switching and routing capabilities and
-- network infrastructure.
Our administrative, operating and financial control systems,
infrastructure, personnel and facilities may not be adequate to support future
operations or maintain and effectively adapt to future growth. We cannot assure
you that we will be able to:
-- build-out our telecommunications infrastructure,
-- install additional equipment for the termination of
telephone calls,
-- add services,
-- expand our customer base and geographical markets, or
-- implement our business strategy at the rate planned.
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 our results of operations
or financial condition.
INABILITY TO IMPLEMENT OUR ACQUISITION STRATEGY MAY HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS STRATEGY AND OPERATIONS.
If we fail to identify suitable acquisition candidates, fail to
reach acceptable terms with potential acquisition candidates or if we fail to
develop or acquire the requisite competencies in the delivery of retail products
or services, we may not achieve profitability. We are in the process of
exploring strategic acquisitions that will permit us to vertically integrate our
low-cost, high-quality international long-distance services with retail products
and services that are sold directly to consumers and businesses. Our goal is to
expand beyond wholesale services to create retail revenue sources which capture
greater profit margins, but we can
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provide no assurance that we will be successful or that increased margins can be
attained. We currently have no expertise in the development and marketing of
retail telecommunication products or services.
IF THE ACQUISITION OF EMPIRE ONE TELECOMMUNICATIONS, INC. DOES NOT OCCUR WE MAY
SUFFER LOSSES AND FAIL TO IMPLEMENT OUR BUSINESS PLAN.
In November, 1999, we entered into a merger agreement to acquire
Empire One Telecommunications, Inc., a New York corporation, for 1,065,857
shares of our common stock. Our inability to close the acquisition of Empire One
Telecommunications, Inc. may limit our ability to become a complete
telecommunications provider, enter the retail market and enjoy higher margins,
and may reduce our ability to find financing on favorable terms or at all.
Empire One is a competitive local exchange carrier and internet service provider
doing business primarily in the northeast and western U.S. We can provide no
assurances that:
-- the conditions to closing contained in our merger
agreement will be satisfied; or
-- the merger will be consummated.
In addition, if we refuse to close this acquisition for any reason
other than in accordance with a written condition set forth in the merger
agreement, we may be required to pay all of Empire One Telecommunications,
Inc.'s costs and expenses in connection with the proposed transaction, including
reasonable legal fees. The payment of their costs, expenses or fees could
adversely affect our operating results and financial condition.
OUR PRINCIPAL STOCKHOLDERS EXERCISE SIGNIFICANT CONTROL OVER US THAT MAY LIMIT
YOUR ABILITY TO INFLUENCE OUR CORPORATE ACTIONS.
Charles W. Albo, our Chairman of the Board and co-founder, Nana
Maraneli, our Executive Vice President and co-founder, and other officers and
directors together own a large portion of our issued and outstanding common
stock. They will be able to exercise significant influence over our corporate
actions and limit your ability to influence our growth, strategy and management.
It is anticipated that our management will continue to have the ability to
exercise significant influence over us for the foreseeable future. As a result,
our management is and will be able to significantly influence matters requiring
approval by our stockholders, including the election of the directors and the
approval of significant corporate matters, including any merger, consolidation,
dissolution or sale of all or substantially all of our assets.
INTENSE COMPETITION WITHIN THE MARKET FOR INTERNET TELEPHONY PRODUCTS AND
SERVICES MAY ADVERSELY AFFECT OUR REVENUES AND PROFITS.
The market for internet telephony services is relatively new and
expected to be extremely competitive. If we are not able to successfully compete
in this market, our revenues and our profits could be reduced. Our competitors
include a number of companies that have introduced services that make internet
telephony solutions available to businesses and consumers. There currently exist
several "next generation" commercial telecommunication carriers offering
internet-based long-distance service at a substantial discount to traditional
commercial grade service. Companies including IDT Corporation, Inc., Delta Three
(a subsidiary of RSL Communications, Ltd.), ITXC Corp. and OzEmail Limited,
which was acquired by MCI WorldCom, provide a range of internet telephony
services similar to ours. Many of our competitors are significantly larger and
have substantially greater market presence and financial, technical,
operational, marketing and other resources and experience than us. To the extent
our competitors successfully penetrate the markets in which we intend to operate
and we are unable to successfully compete, our business, financial condition and
results of operations could be negatively and materially affected.
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ENTRY OF NEW WELL-CAPITALIZED COMPANIES INTO THE MARKET FOR INTERNET TELEPHONY
PRODUCTS AND SERVICES MAY ADVERSELY AFFECT OUR ABILITY TO COMPETE.
An increasing number of large, well-capitalized companies are
entering the market for internet telephony products and services. As a result,
we may not be able to compete effectively with our competitors in this market or
increase our customer base. Large companies, including Cisco Systems, Inc.,
Lucent Technologies, Inc., Northern Telecom Limited and Dialogic Corp. offer or
plan to offer internet telephony products. These products are expected to allow
large-scale communications over the internet. In addition, major long distance
carriers, including AT&T, Qwest, 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.
INTERNATIONAL LONG DISTANCE COMPANIES MAY BEGIN OFFERING INTERNATIONAL RATES
THAT ARE COMPETITIVE WITH OR LOWER THAN THOSE OFFERED BY US.
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. These
competitive rates may force other carriers to lower their rates significantly,
thereby increasing competitive pressure on us. Moreover, the expected price
reductions may lead to the elimination of the tariffs that currently apply to
many international calls and that create spreads between various international
telecommunications markets. Any price reductions or elimination of tariffs and
spreads may constrict our margins or significantly affect our ability to execute
our business plan.
IF WE BECOME SUBJECT TO TELECOMMUNICATIONS REGULATIONS OUR PROFITABILITY AND
GROWTH MAY BE RESTRICTED.
State and federal telecommunications and federal securities
regulations could limit our ability to achieve profitability and to grow.
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, we will be subject to
various regulatory requirements and fees. The FCC has advised Congress that it
may, in the future, regulate private internet telephony services as basic
telecommunications services. Conventional telephone companies are also lobbying
Congress to impose tariffs that would impact customer use of our products and
services. In addition, several states are studying the imposition of access
charges for internet telephony providers.
Foreign public telephone companies, newly-privatized former public
telephone companies and other local competitors in foreign countries are
positioned to pressure us directly in their home countries by influencing
regulatory authorities to outlaw certain services or by blocking access to our
services. We believe that our operating results have been negatively impacted by
anti-competitive behavior on the part of the public telephone companies or
former public telephone companies, and that behavior may negatively impact our
business, financial condition or results of operations. With the increasing
privatization and deregulation of international telecommunications in foreign
countries, public telephone companies may increasingly become free to compete
more effectively with us at competitive rates.
REGULATION OF THE INTERNET MAY NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.
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
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privacy, pricing, and the characteristics and quality of internet products and
services. Future legislation, legal decisions, or regulations concerning the
internet may impact our business, financial condition, or results of operations.
REGULATION BY THE SECURITIES AND EXCHANGE COMMISSION MAY AFFECT YOUR ABILITY TO
SELL OUR SECURITIES AND THE PRICE OF OUR STOCK.
We are subject to 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.
OUR RELIANCE ON A SMALL CUSTOMER BASE INCREASES THE RISK ASSOCIATED WITH THE
LOSS OF A SINGLE CUSTOMER.
Currently, we have five primary customers, all of which are
resellers for long-distance providers. These five customers account for nearly
all of our revenues. The reliance by us on relatively few customers and lack of
diversification of our customer base increases the importance of any one
customer. The loss of a single customer could have a material adverse effect on
our revenue and operating results.
IF CONSUMERS DO NOT ACCEPT OUR PRODUCT AS A LESS EXPENSIVE, QUALITY ALTERNATIVE
TO TRADITIONAL SERVICE, WE MAY NOT BECOME PROFITABLE.
Broad acceptance of our technology, products, and services is
critical to our success and ability to generate revenues. If we are not
successful in obtaining market acceptance of our technology, products and
services, we may not achieve profitability. The markets for our technology,
products, and services have only recently begun to develop and are rapidly
evolving because our 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.
THE INTRODUCTION OF MORE TECHNOLOGICALLY ADVANCED PRODUCTS AND SERVICES BY OUR
COMPETITORS COULD DECREASE OUR PROFITABILITY.
The introduction of technologically superior products and services
by our competitors may make our products and services less marketable or subject
to downward price pressures, and decrease our profitability. The internet and
telecommunications markets, including the market for voice transmission over
digital data networks, are characterized by evolving industry standards and
specifications. We may have to spend substantial time and money to adapt our
technology, products, and services to this rapid technological change. We may
fail to achieve profitability if:
-- we fail to successfully develop enhanced or new products
and services,
-- such products and services do not achieve market
acceptance,
-- we fail to adapt products and services to comply with
new standards or specifications, or
-- the introduction of new products or services by others
renders our technology, products, and services obsolete.
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OUR REVENUES MAY FALL IF OUR SERVICE QUALITY IS HARMED AS A RESULT OF A FAILURE
OF OUR SYSTEM TO HANDLE A LARGE VOLUME OF SIMULTANEOUS CALLS.
Our inability to handle a large number of simultaneous calls will
cause our service quality to suffer resulting in a loss of customers and
revenue. A key component of our profitability will be the addition and retention
of customers. As a result, we will be required to handle increased call volume
on our network. It is crucial to our ability to provide quality services for our
system to handle a large volume of calls. If we cannot effectively manage our
customers' use of our systems, customers may not perceive our service as a
reliable, high-quality alternative to the traditional long-distance telephone
service.
OUR INABILITY TO PREDICT TRAFFIC VOLUME ON THE INTERNET MAY ADD EXTRA EXPENSE TO
OUR BUSINESS OPERATIONS.
Large fluctuations in internet traffic volume may obligate us to pay
additional contractual charges for our internet service. A decrease in internet
traffic volume may obligate us to pay for leased internet service capacity
without adequate corresponding revenues. An unexpected increase in traffic
volume may require us to obtain transmission capacity through more expensive
means. If we are unable to accurately project our needs for leased capacity in
the future, operating costs may increase negatively impacting our profitability.
IF WE FAIL TO DEVELOP STRATEGIC ALLIANCES WITH FOREIGN PARTNERS, WE MAY NOT BE
ABLE TO DEVELOP A SUFFICIENT CUSTOMER BASE TO ACHIEVE PROFITABILITY.
Our marketing strategy and performance depends on our ability to
develop strategic alliances with foreign partners. We may not be able to develop
these alliances and, if we are able to develop them, the partners may not be
able to effectively promote our technology, products, and services. At present,
we have established a significant business relationship with three entities
outside the United States. We may not be successful in retaining these
relationships or in developing future strategic alliances. We have limited
experience in obtaining the necessary personnel, offices, regulatory
authorization, leases and agreements with the intranational telecommunications
carriers in the countries where we seek to establish strategic alliances.
WE DEPEND ON THIRD-PARTY RELATIONSHIPS WHICH ARE SHORT-TERM OR TERMINABLE TO
PERFORM SERVICES FOR OUR CLIENTS; A FAILURE OF THIRD-PARTY SUPPLIERS COULD
RESULT IN A LOSS OF CUSTOMERS AND REVENUES.
We are dependent on third-party suppliers of telecommunications and
internet network transmission services for many of our services and do not have
long-term contracts with them. If these suppliers raise their rates or change
their pricing structure, we may lose customers and revenue. Our ability to
provide quality, reliable telecommunications services and our ability to expand
our network by providing new voice and data lines is dependent upon the services
of telecommunication and internet service providers such as MCI/WorldCom. Some
of our third party suppliers are or may become our competitors and are not
subject to restrictions upon their ability to compete with us.
In addition, if our suppliers of internet access are unable to
expand their networks or unwilling to provide or expand their current level of
service to us in the future, our operations could be materially limited as could
our financial condition. We have experienced delays in the timely connection of
customer accounts to the internet and delays in the timely cross-connection of a
client network to our network. Any disruption in the service provided by our
suppliers will result in a disruption in the services we provide to our
customers. Although certain internet access and leased data communications
services are currently available from several alternative suppliers, including,
AT&T, MCI, and Sprint, there can be no assurance that we could obtain substitute
services from other suppliers at reasonable or comparable terms and prices, or
in a timely fashion.
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If a telecommunication or internet access provider fails to serve
accounts on a timely basis, or is unable to serve accounts generated by our
growth, we could lose customers and our results of operations may be adversely
affected.
OUR ABILITY TO COMPETE RELIES ON THE QUALITY OF SERVICE AND TERMINATION RATES
PROVIDED TO US BY INTERNATIONAL EXCHANGE CARRIERS.
Our ability to compete in the long-distance telecommunications
market depends, in part, on our ability to procure advantageous termination
rates from other international exchange carriers and on the ability of such
international exchange carriers to carry the calls we route to their networks.
Our profit margin may be narrower than expected and our network service quality
may suffer if:
-- our relationship with an international exchange carrier
is terminated,
-- an international exchange carrier fails to carry traffic
routed to it, or
-- traffic is routed to another international exchange
carrier providing service at a less advantageous rate
with lower quality.
OUR SUCCESS DEPENDS ON RETAINING OUR CURRENT KEY PERSONNEL.
Our future success depends to a significant degree on the technical
and management skills of Charles W. Albo, the Executive Vice President, our
Chairman of the Board and co-founder; Nana Maraneli, our co-founder,
Vice-Chairman and Executive Vice President and W. Todd Coffin, President, Chief
Executive Officer and director. Mr. Coffin has been serving as chief executive
officer on an interim month-to-month basis since his contract expired on October
15, 1999. We are actively seeking a suitable replacement but have not yet made a
hiring decision. Mr. Coffin intends to step down as Chief Executive Officer and
director when a suitable replacement is located. The loss of the services of Mr.
Albo, Ms. Maraneli or Mr. Coffin could have a material adverse effect on us
unless suitable replacements are found in a timely manner.
OUR BUSINESS PROSPECTS MAY BE ADVERSELY AFFECTED IF WE ARE NOT ABLE TO ATTRACT
AND RETAIN QUALIFIED PROFESSIONALS.
As a result of our planned growth and expansion, we 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 our financial control systems. We may not
be able to locate or hire qualified personnel. If we are not successful in
attracting, assimilating, transitioning or retaining qualified technical
personnel in the future, then we may not remain competitive. In addition, we
believe that there is a shortage of, and significant competition for,
professionals with the advanced technical skills necessary to perform the
services offered by us.
FAILURE TO RESPOND TO RAPID CHANGES IN TECHNOLOGY COULD ADVERSELY AFFECT OUR
ABILITY TO GENERATE REVENUE.
We expect that the technology underlying the markets served by us
will be characterized by rapid change, evolving industry standards, emerging
competition and frequent introduction of new services, software and other
products. Our future success will depend upon our ability to enhance services
that meet changing customer requirements on a timely and cost-effective basis.
If we fail to adequately and timely identify new opportunities and bring new
services to market, we may fail to compete with services or technologies
developed by others.
IF OUR SYSTEM OR NETWORK FAILS WE MAY LOSE CUSTOMERS AND REVENUE.
Our success is largely dependent on our 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
our operations could damage
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our reputation and result in a loss of customers and revenue. We have
experienced failures relating to network equipment in foreign countries. These
types of failures typically arise as a result of technical problems associated
with newly established connections. In addition, if we successfully expand our
network and integrate new and emerging technologies and equipment into our
network, the risk of system failure and unforeseen strain upon the network is
likely to increase.
OUR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED BY OUR INTERNATIONAL
OPERATIONS.
The central aspect of our growth strategy is to develop a network
switching infrastructure in foreign countries. Our equipment and other property
is subject to risks associated with international operations. The risks
associated with international markets, include:
-- political and economic instability,
-- unexpected changes in legal and regulatory requirements,
-- changes in tariffs,
-- fluctuations in currency exchange rates,
-- difficulties in staffing and managing international
operations,
-- difficulties in maintaining and repairing equipment
abroad and
-- difficulties in protecting our physical property
overseas.
Currently, we derive most of our revenue by directing telephone
service to three foreign destinations for U.S. clients. We direct this phone
traffic to countries fraught with political turmoil, 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 the imperilment of our employees which may result in significant legal
exposure, confiscation or destruction of equipment or revocation of licenses,
which may result in the interruption of service. We intend 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.
WE MAY SUFFER LOSSES ARISING OUT OF SECURITY BREACHES.
A breach in our network security could result in the loss of
customers and revenue and in potential liability to customers. Despite the
implementation of network security measures, our internet access systems are
vulnerable to computer viruses, break-ins and similar disruptive problems caused
by customers or others. These problems could lead to interruption, delays or
cessation in service to customers. Persistent security problems continue to
plague public and private data networks. Alleviating problems caused by computer
viruses, break-ins or other problems caused by third parties may require
significant expenditures of capital and resources. 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 our customer base and revenues in particular. In
addition, if we experience a breach of network security or privacy, our
customers may assert or threaten claims against us.
IF WE CONSUMMATE THE MERGER WITH EMPIRE ONE TELECOMMUNICATIONS, INC. OR OUR
EMPLOYEES AND OTHERS EXERCISE THEIR STOCK OPTIONS, WARRANTS AND OTHER RIGHTS TO
ACQUIRE COMMON STOCK, YOUR PROPORTIONATE INTEREST WILL BE DILUTED.
We currently have 6,032,214 shares of common stock issued and
outstanding. If we complete the acquisition of Empire One Telecommunications,
Inc., we will issue an additional 1,065,857 shares of our common stock. Our
directors, officers, employees, agents or affiliates may exercise stock options
to purchase 356,000 shares of our common stock. In addition, holders of our
warrants have rights upon exercise to acquire 2,434,012 shares of our common
stock. The issuance of these shares and any
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<PAGE> 14
shares issued in the future will result in a reduction of your percentage
ownership of our common stock.
YOUR INVESTMENT MAY HAVE LIMITED LIQUIDITY IF AN ACTIVE TRADING MARKET DOES NOT
DEVELOP OR CONTINUE AND THE PRICE OF OUR COMMON STOCK MAY FALL.
Your purchase of our common stock may not be a liquid investment
because our 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 our common stock. We have no obligation and do not plan
to apply for quotation of our common stock on the Nasdaq Stock Market or for
listing of the our common stock on any national securities exchange. An active
and liquid market for our common stock may not develop or if it does develop,
continue, and investors in our common stock may not be able to resell their
shares as a result of:
-- our limited earnings history,
-- the absence of reasonable expectations of dividends in
the near future, or
-- the fact that our common stock will not be listed.
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.
VOLATILITY IN OUR STOCK PRICE MAY ADVERSELY AFFECT OUR BUSINESS.
Fluctuations in the market price of our stock may adversely affect
our ability to complete any acquisitions, our access to capital and financing
and our ability to attract and retain qualified personnel. Our common stock
price and trading volume has fluctuated widely, with a closing price range since
quoting began in August, 1999 of $2 1/4 to $6 7/8, as of March 16, 2000. The
price of our common stock may decline in future quarters if:
-- we fail to meet market expectations of our quarterly or
annual revenues, net income or earnings per share,
-- we lose significant customers,
-- we or our competitors announce new services and products
or technological innovations, or
-- our products and services do not gain market acceptance.
In addition, technology stocks such as ours experience significant
price and volume fluctuations that are often unrelated to operating performance.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR SECURITIES COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE.
Immediately prior to this offering, we have 6,032,214 shares of
common stock outstanding, not including shares issuable upon exercise of
outstanding warrants or stock options and 8,822,226 shares of common stock
outstanding immediately prior to this offering taking into account shares of our
common stock issuable upon exercise of issued warrants and options. In addition,
we are obligated to issue an additional 1,065,857 shares of common stock upon
completion of the acquisition of Empire One Telecommunications, Inc. Of the
shares outstanding immediately prior to this offering, 154,248 shares were
freely tradable without volume limitations under Rule 144 of the Securities Act
of 1933, as amended, as of March 16, 2000. 3,170,435 shares of common stock will
be registered in this offering. As a result of this offering, substantial
amounts of our common stock may be sold in the public market, which may
adversely affect prevailing market prices for our common stock.
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<PAGE> 15
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" and elsewhere in this prospectus are
"forward-looking statements." Forward-looking statements include, among other
things, statements about the competitiveness of the telecommunications industry,
our plans and objectives for future operations, the likelihood of our success in
developing and expanding our business, potential regulatory obligations, and
other statements that are not historical facts. These forward-looking statements
are based upon a number of assumptions and estimates that are inherently subject
to significant uncertainties, many of which are beyond our control. When used in
this prospectus, the words "anticipate," "believe," "expect," "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 6.
RECENT DEVELOPMENTS
Due to political turmoil in Southwest Asia we have not been able to
terminate traffic into that region since late November 1999. Our contractor that
terminates this traffic for us has indicated a willingness to reestablish this
route once the political situation has improved. We are evaluating other
potential routes to provide for alternative ways to send traffic, but we have
not yet established any alternative routes. While we anticipate reestablishing
these operations, there can be no assurance that these circuits will be restored
or that a suitable secondary route can be located.
In November 1999, we entered into a merger agreement with Empire One
Telecommunications, Inc. We have received approvals from the Federal
Communication Commission, the New York State Public Service Commission and other
regulatory agencies, and the shareholders of Empire One Telecommunications, Inc.
have voted to approve the merger. In the event we close the merger, we will
issue an additional 1,065,857 shares of common stock to the current stockholders
of Empire One Telecommunications, Inc.. We anticipate that the merger will close
before the end of the first quarter of 2000, but can provide no assurances in
that regard.
USE OF PROCEEDS
If the warrants registered by this registration statement are
exercised by the selling security holders, we 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 approximately $1,534,000
based upon the current exercise price, which results in gross proceeds of
approximately $1,534,000 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 and the remaining
warrants are exercised for cash. The per share exercise price for the warrants
is between $.92 and $3.00 per share, and the weighted average exercise price of
the warrants is approximately $1.51. We expect to use any proceeds from the
exercise of the warrants to cover payroll expense, launch a marketing and
promotion campaign, provide increased customer services for our growing customer
base and for other working capital purposes, and for the purchase of additional
equipment. We 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.
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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 our
revenues or the value of our physical or other assets, our book value 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 our actual capitalization at December 31,
1999. The table does not take into account any of the shares of common stock
underlying any common stock equivalents including 2,434,012 warrants issued by
us and 356,000 options granted by us.
<TABLE>
<CAPTION>
December 31, 1999
ACTUAL
(dollars in
thousands)
(unaudited)
<S> <C>
Current portion of long term debt $87
Total long-term debt 153
Shareholders' equity:
Common stock, $.0001
4,598,850 shares issued and
outstanding at December 31,
1999
Additional paid-in capital 2,476
Subscriptions received 135
Accumulated deficit (2,199)
-------
Total shareholders' equity 412
-------
Total Capitalization 652
-------
</TABLE>
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock,
and intend to continue a policy of retaining future earnings to finance growth
and for general corporate purposes. Therefore, we do not anticipate paying any
cash dividends on our common stock in the future.
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BUSINESS
Our operations are conducted through Sonus Communications, Inc., a
Virginia corporation and wholly owned subsidiary of Sonus Communication
Holdings, Inc. Sonus Communication Holdings, Inc. was incorporated in the State
of Delaware in April, 1999 and Sonus Communications, Inc. was incorporated in
the Commonwealth of Virginia in May, 1995.
We are an FCC licensed telecommunications company that uses the
public internet as well as private internet networks to transport international
voice telephone calls. We are among the first of a growing number of service
providers to offer telephone services that utilize the internet and private
internet networks and are 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. We implement leading edge technology in our
ongoing effort to develop and deploy a global internet communications network
providing telephone, facsimile and data services.
Our current customers are U.S. and foreign international
long-distance carriers and pre-paid calling card companies that use our network
to send their commercial telephone traffic, including telephone, facsimile, and
internet service through the lowest cost route to international destinations.
Our principal strategy is to continue developing business relationships with
carriers in U.S. and international markets and to sell "out-bound" and "inbound"
telephone services.
We are currently expanding our international long distance
telecommunications network and establishing an infrastructure that primarily
uses the public and private internet networks. We are attempting to grow our
customer base, expand the number of markets served and increase capacity in the
markets we currently serve. We plan to pursue emerging geographical markets
which have been historically under-served. Management has identified emerging
markets in the former Soviet Union, Southwest Asia and other regions.
We hope to gain share in the markets we enter by offering services
of the same quality as major telecommunications carriers at lower prices than
our competitors. The public internet and private internet networks that we
employ are significantly more cost-efficient than the older technology networks
currently employed by both traditional long-distance carriers that use circuit
switching and the next-generation telecommunication companies with networks that
are based on "point-to-point" leased bandwidth. We rely on technologies and
techniques aimed at driving down the costs of our international routing,
including internet routing, intelligent switching and a refile strategy. By
using the internet we gain a significant cost advantage while being able to
provide carrier quality services.
Through the use of a refile strategy and the intelligent switching
capability built into our network we are able to offer competitive rates on
traffic directed to destinations beyond those countries where we maintain
network equipment for the routing of telephone calls. Intelligent switching
permits us to utilize our network equipment in foreign countries to terminate
and redirect international phone traffic to destinations along the least cost
route. Refile strategy is a practice of lowest cost routing, whereby traffic is
directed from one country to another country, then redirected to a third
country. This practice permits us to combine the cost-efficiency of our own
network with favorable rate structures that exist between the countries in which
we maintain our network equipment. Refile strategy leverages our network by
combining the cost-efficient connections between our network equipment with
favorable international long-distance rate structures that may exist from the
country where that equipment resides to destinations in other countries.
The vast majority of our traffic originates in the US and terminates
in foreign destinations. Revenues derived from traffic originating in foreign
destinations and terminating in the U.S., are deducted from our foreign
termination costs rather than
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paid to us directly. Therefore, all of our revenues are derived from US carrier
clients and are US dollar denominated, which minimizes our foreign exchange
risk.
Our internet service providers employ technologies, techniques and
services that bypass less efficient public exchange points, referred to as choke
points, greater than 90% of the time. Utilizing a strategy called "tunneling,"
our internet service providers have strategically coordinated their
relationships to send voice data along the shortest, most direct path across the
internet. In bypassing the choke points, our internet protocol voice data in
effect "cuts ahead in line" past other data being transferred across the
internet by conventional means.
COMPETITION
Competition for customers is primarily based on price and the type
and quality of service offered. Our ability to market our long-distance resale
services depends upon the existence of spreads between the rates offered by us
and those offered by the international exchange carriers with whom we compete as
well as those from whom we obtain service. International exchange carriers
consist of long-distance providers and other companies that provide
long-distance access. Our ability to compete in the long-distance
telecommunications market also depends, in part, on our ability to obtain
advantageous rates from international exchange carriers, and on the ability of
international exchange carriers to carry the calls that we route through them to
our networks.
The markets in which we operate are extremely competitive. Several
next generation telecommunication companies offer internet-based long-distance
service at a substantial discount to traditional commercial grade service. Many
of our competitors are significantly larger and have substantially greater
market presence and financial, technical, operational, marketing and other
resources and experience. We compete with:
- international exchange carriers that provide long-distance
access and other long-distance providers, including large
carriers such as AT&T, MCI/WorldCom and Sprint,
- foreign government-owned telephone monopolies,
- other marketers of international long-distance,
- wholesale providers of international long-distance
services,
- alliances for providing carrier services such as "Global
One", "Concert" (an alliance between British Telecom Plc
and MCI) and "Uniworld" (an alliance between AT&T and
Unisource-Telecom Netherlands, Telia AB, Swiss Telecom PTT
and Telefonica de Espana S.A.),
- new entrants to the international and domestic
long-distance market, such as regional telephone operating
companies in the United States, who have entered or have
announced plans to enter the international long-distance
market after recent legislation authorizing entry, and new
or expected entrants to the international long-distance
market such as RWE AG in Germany and
- small resellers and facility-based exchange carriers.
SUPPLIERS AND PROVIDERS
We are dependent on third-party suppliers of telecommunications and
internet network transmission services for many of our services and do not have
long-term contracts with them. We have three principal suppliers of satellite
services and two principal suppliers of terrestrial and internet circuits. We
are dependent upon our current primary providers of leased-line network capacity
and internet access and upon third-parties to provide telecommunications
services to customers. Our ability to provide quality and reliable
telecommunications services and our ability to expand our network by providing
new voice and data lines is dependent upon the services of telecommunication and
internet service providers such as MCI/WorldCom.
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MAJOR CUSTOMERS
Currently, we have five primary customers, all of which are
resellers of long distance telephone service for long-distance providers or are
long distance providers. We are dependent on these five customers for nearly all
of our revenues.
REGULATORY ENVIRONMENT
We are a facilities-based carrier licensed by the Federal
Communications Commission under Section 214 of 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 us and other international telephone service
providers to provide service without violating the laws of the countries where
we operate. We are subject to regulations relating to internet telephony in each
country where we maintain our network equipment. Some of the countries in which
our network equipment is located have uncertain and changing regulatory
environments. Local laws and regulations differ among the jurisdictions. The
interpretation and enforcement of these laws and regulations varies and is often
based on the informal views of the local government ministries which, in some
cases, are subject to influence by local public telephone companies. In certain
of our 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 our 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 activities to implement the
Act's requirements. We 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 us at present. However, rulemaking
required by the 1996 Telecommunications Act could produce additional regulatory
requirements, including a requirement that we contribute some portion of our
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 we currently market
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 like us to penetrate new markets and rapidly gain market share.
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 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 comply with the regulatory requirements of the
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<PAGE> 20
Communication Act of 1934. The petition also 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.
EMPLOYEES
We have ten employees, all of which are full-time employees. Some of
our employees have entered into employment and other agreements with us. See
"Employment Agreements", incorporated herein by reference.
HISTORY
THE MERGER OF SONUS COMMUNICATIONS, INC. WITH SONUS PARK ACQUISITION, INC.
In January 1999, Sonus Communications, Inc. entered into merger
discussions with The Park Group, Limited, a dormant public corporation. In
anticipation of the merger, The Park Group, Limited formed Sonus Park
Acquisition, Inc., a Virginia corporation, as a wholly-owned subsidiary of The
Park Group, Limited, which merged with and into Sonus Communications, Inc. on
March 4, 1999, leaving Sonus Communications, Inc. as the surviving corporation
and a wholly owned subsidiary of The Park Group, Limited. The former
shareholders of Sonus Communications, Inc. received approximately 92% of the
capital stock of The Park Group, Limited in the merger.
THE MERGER OF SONUS COMMUNICATION HOLDINGS, INC. WITH THE PARK GROUP, LIMITED.
On April 7, 1999, The Park Group, Limited organized Sonus
Communication Holdings, Inc. as a Delaware corporation and wholly-owned
subsidiary of The Park Group Limited. On April 16, 1999, Sonus Communication
Holdings, Inc. merged with and into The Park Group, Limited, leaving Sonus
Communication Holdings, Inc. as the surviving corporation following the merger.
As a consequence of the merger, Sonus Communications, Inc. became a wholly-owned
subsidiary of Sonus Communication Holdings, Inc. Shares of The Park Group,
Limited were exchanged for shares of Sonus Communication Holdings, Inc. on a
one-for-one basis in the merger. The sole purpose of the merger was to
reincorporate in the State of Delaware.
HISTORY OF THE COMPANY'S PREDECESSOR.
The Park Group, Limited was originally incorporated as American
Ventures, Inc. on January 24, 1986 under the laws of the State of Colorado.
American Ventures, Inc. 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 1986, American Ventures, Inc. closed an
initial public offering of it stock. In February 1987, American Ventures, Inc.
acquired The Park Group, Ltd., a mortgage company, as a wholly owned subsidiary.
American Ventures, Inc. then changed The Park Group, Ltd.'s name to "Park Group
Mortgage Company, Ltd.," and changed its own name to "The Park Group, Ltd." The
Park Group, Limited had been dormant for at least three years prior to the
merger with Sonus Communication Holdings, Inc.
ENVIRONMENTAL COMPLIANCE
The cost and effect of compliance with environmental laws has not
been a material factor for us.
FILING OF PUBLIC REPORTS
In May, 1999, Sonus Communication Holdings, Inc. filed a Form 10-SB
to become a reporting company under the Securities Exchange Act of 1934, as
amended, which became effective in July, 1999. Sonus Communication Holdings,
Inc. is required to file public reports under Section 13 of that act, including
reports on forms 10-KSB, 10-
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QSB, 8-K and other Exchange Act reports. The public may read and copy any
materials Sonus Communication Holdings, Inc. files with the SEC 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.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of our company should be read in conjunction with the financial
statements and the notes to those statements and the other financial information
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Please see "Risk Factors" and
"Cautionary Statement about Forward Looking Statements" elsewhere in this
prospectus.
OVERVIEW
We are currently a provider of telecommunications services that
utilize the public internet as well as private internet networks. Since we began
offering long distance services in late 1998, our strategy has been to establish
routes into underserved geographic markets such as countries that were formerly
part of the Soviet Union (e.g. Republic of Georgia) and developing countries in
Asia, the Pacific Rim and the Caribbean. This strategy involved establishing a
relationship with a local organization in the destination country that would own
all necessary equipment in that country as well as establish any necessary
working relationships with the local phone company or other companies. More
recently, we have adjusted our strategy and are establishing ourselves both as a
significant provider of "pin-drop" quality voice-over-internet telephone service
to several international markets and as a growing competitive local exchange
carrier providing service to ethnic markets in the U.S.
As a result of this strategy, we entered into an agreement, which is
expected to close during the first quarter of 2000, to acquire Empire One
Telecommunications, Inc., a competitive local exchange carrier located in New
York City focusing on the Chinese community. We expect to use Empire One
Telecommunications, Inc. to market to other ethnic communities such as the
Russian communities in the U.S. This approach will integrate the existing long
distance circuits with local communications services.
Since we began offering long distance telecommunications services,
we have incurred net operating losses and expect to incur additional losses for
the foreseeable future, primarily as a result of increased sales and marketing
efforts. As of December 31, 1999, we had accumulated net losses of approximately
$2,208,252.
REVENUES
We began our long distance offerings through a circuit we
established into the Republic of Georgia. We have traditionally sold this
capacity to other telecommunications providers that wholesale the service to
carriers within the United States. Most of the revenue was from these customers
sending voice, fax and other telecommunications that terminated in the Republic
of Georgia with some also being "refiled" to other locations in the former
Soviet Union such as Moscow and St. Petersburg. In addition, we established a
relationship with an internet service provider to service its needs for a
circuit from the Republic of Georgia into the United States. In 1999, 81% of our
revenue, or $831,000 was generated from telecommunications services carried over
this circuit. There was no revenue from this circuit until the fourth quarter of
1998.
During the second quarter of 1999, we established a small presence
in China. We learned that we could not continue to provide services on a
profitable basis with the relationships we initially developed. As a result, we
generated only a small amount of revenue before the decision was made to stop
providing services over this route until different relationships could be
located. We are pursuing new relationships and hope to offer services into China
again during the first half of 2000. In 1999, only 13% of our revenue, or
$136,000 was recognized from services terminating in China.
22
<PAGE> 23
At the end of the third quarter of 1999, we established a network
circuit in Southwest Asia. This circuit has carried telecommunications traffic
sporadically since being established due to political unrest. As a result of the
locations we target, we expect that events will occur that may disrupt our
ability to use any individual circuit for indeterminate periods of time.
With the acquisition of Empire One Telecommunications, Inc., we will
focus expansion in the future on increasing revenues by developing services
centered around various ethnic communities in the United States. These services
will include local, long distance, internet and other communications needs of
these various communities. In addition, we will continue to opportunistically
look for international locations where telecommunications services can be
provided on a profitable basis. Because these will be pursued only as
opportunities arise, the timing of additional network circuits can not be
determined. Such opportunities may exist in locations as diverse as Cuba,
Kazakhstan, Central Africa, or other countries that are currently underserved.
DIRECT OPERATING EXPENSES
Direct operating expenses consist primarily of network costs associated
with the routing and termination of customers' traffic. These include:
-- amounts paid to carriers and internet service
providers to carry our traffic on both the
internet and traditional phone networks,
-- amounts paid to our international vendors to
terminate our traffic at their circuits, and
-- costs associated with leased lines and satellite
routes connecting our circuits directly to the
internet or to connect to circuits of our
international vendors.
We expect our direct operating expenses to increase in absolute
terms over time to support our customer base. Some of these costs are fixed
while other costs vary on a per minute basis. Therefore, there may be some
volatility in our direct operating costs as a percentage of revenues,
particularly as we expand our network.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist of salaries of our
employees and associated benefits, rent, travel and professional fees including
those of accountants, lawyers and other business consultants. A portion of our
general and administrative expenses include the costs associated with technical
support and customer service, consisting primarily of the salaries of employees.
We expect technical support and customer support expenses to increase over time
to support new and existing customers and additions to the network. We expect
general and administrative costs to increase to support our growth as we
establish a larger organization to implement our business plan. Historically,
research and development costs which are primarily payroll expenses for our
technicians, have been accounted for as general and administrative expenses. We
plan to incur additional costs for research and development though they are not
expected to increase as a percentage of revenue. Over time, we expect these
relatively fixed general and administrative expenses to decrease as a percentage
of revenue.
RESULTS OF OPERATIONS
For the year ended December 31, 1999, we had revenues of $1,704,000
compared to $287,000 for the year ended December 31, 1998. During 1998, we began
installing our 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 we have focused on
telecommunications services and
23
<PAGE> 24
expanding our network, revenues from consulting have decreased with no
consulting service revenues during 1999. The first circuit installed was to the
Republic of Georgia which began generating revenues in the fourth quarter of
1998. In 1999, the circuit to the Republic of Georgia generated 61% of the total
revenue.
During the first quarter of 1999, we began installing the network to
China. This circuit began carrying traffic during the second quarter of 1999.
Since beginning service to China, we have experienced significant declines in
prices due to competitive pressures. As a result, the original circuit to China
has become uncompetitive. Consequently, we made the decision to take the circuit
out of service until a new relationship can be established that will result in a
profitable circuit and be competitive in the marketplace. During 1999, the China
circuit generated only 8% of total revenues with most of that coming during the
second quarter.
At the end of the third quarter, we established a circuit in
Southwest Asia. This circuit has carried telecommunications traffic sporadically
since being established, due to political unrest. We expect the circuit to be
operational again before the end of the first or second quarter of 2000,
although the revenue from it may be limited. We also expect to add additional
circuits in other locations in the last part of 2000 if the opportunity arises
in locations that can be operated profitably. Most of the focus during 2000 will
be in building the ethnic markets of Empire One Telecommunications, Inc. in the
United States.
We had direct operating expenses of $1,951,519 for the year ended
December 31, 1999, compared to direct operating expenses of $267,946 for the
year ended December 31, 1998. These expenses relate to the installation and
operation of the network. For 1999 and 1998, the call termination, satellite
utilization fees and other costs of carrying traffic accounted for 83% and 85%,
respectively, of direct operating expenses with such items as depreciation and
equipment maintenance costs accounting for the remainder of the direct costs.
General and administrative expenses were $1,237,000 for the 12
months of 1999 compared to $94,000 for the 12 months of 1998. This increase is
directly attributable to the increase in wages since the two founders in 1998
took minimal salaries based on the time they spent on the business in 1998 as
compared to staffing of nine at December 31, 1999 and all associated costs of
establishing and maintaining an office. Because operations during 1998 were
minimal, the founders spent little time on operations. In addition, we had an
agreement with a third party to provide services on an as needed basis for time
spent on operations. We expect 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 Communications Inc. merged with and into
Sonus Park Acquisitions, Inc., a newly formed wholly-owned subsidiary of The
Park Group, Limited. Sonus Communications, Inc., which was the surviving entity,
became a wholly-owned subsidiary of The Park Group, Limited and the only asset
of The Park Group, Limited. On April 7, 1999, The Park Group, Limited organized
Sonus Communication Holdings, Inc. as a Delaware corporation and a wholly-owned
subsidiary of The Park Group, Limited. On April 16, 1999, Sonus Communication
Holdings, Inc. merged with and into The Park Group, Limited leaving Sonus
Communication Holdings, Inc. as the surviving corporation. Shares of The Park
Group, Limited were exchanged for shares of Sonus Communication Holdings, Inc.
on a one-for-one basis. The sole purpose of the merger was to re-incorporate in
Delaware.
The total merger related costs of $262,000 consisted of $238,000 for
costs related to the Park/Sonus merger consisting of legal fees of approximately
$121,000, investment banking fees of $104,000, and accounting fees and other
miscellaneous fees of $12,000. In addition, we incurred $25,000 for investment
banking fees during the third quarter of 1999 related to the acquisition of
Empire One Telecommunications,
24
<PAGE> 25
Inc. We expect to incur additional investment banking fees during the first
quarter of 2000 due to the merger with Empire One Telecommunications, Inc. It is
expected that these fees will be capitalized as part of the acquisition of
Empire One Telecommunications, Inc. 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, we had a net loss of $1,751,266
for 1999. This is compared to a net loss of $81,000 for 1998 when operations
were limited.
LIQUIDITY
At December 31, 1998, we had cash of $1,000, negative working
capital of $312,000 and negative shareholders' equity of $181,000. During 1999,
we were successful in completing four separate rounds of financing.
The first round was completed in January 1999 when we sold 750,000
shares of our common stock in a private offering realizing net proceeds
aggregating $627,000. In May 1999, we 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 one share of our common stock and one
warrant exercisable for one share of common stock at an exercise price of $3.00.
We closed the minimum under the Equity Unit offering in August 1999 by selling
250,000 units thereby netting $435,000 in cash after investment banking fees and
other expenses. The final round in 1999 was completed in November 1999 with the
sale of 418,140 shares of common stock at $1.35 per share, and we realized net
proceeds of $502,000. This final round was the first traunch of a $2.5 million
offering and the remainder of the offering closed in January 2000. See the
Footnotes to Consolidated Financial Statements included in this Form SB-2 for
more details related to these transactions.
Even though we have been successful in completing the financings
noted above, prior to the financing completed in January 2000, we had negative
working capital of $219,000 at December 31, 1999 with positive shareholders'
equity of $412,000. As a result, we will need to continue our efforts to raise
capital or find other sources of funds to finance our growth and the continued
losses. As part of this effort, on September 29, 1999, we entered into an
equipment leasing arrangement with our network equipment supplier. The agreement
provides for a total available facility of $2.2 million. Under the arrangement,
we leased $200,000 of network equipment in the third quarter under an operating
lease. In addition, subsequent to December 31, 1999, the vendor equipment
payable of $364,000 was put under this lease facility thereby providing
additional working capital.
As noted in the footnotes to the Consolidated Financial Statements,
we signed a merger agreement on November 16, 1999 to acquire Empire One
Telecommunications, Inc. . The acquisition, when completed, will result in the
issuance of approximately 1,066,000 shares of our common stock in exchange for
all the outstanding common stock of Empire One Telecommunications, Inc.
Regulatory and shareholder approval was obtained during the first quarter of
2000. In conjunction with the signing of the merger agreement, we expect to
complete an additional round of financing of approximately $1.25 million. As
noted above, we completed the first closing on November 22, 1999 netting the
Company $502,000, and we closed approximately $2 million in January 2000.
In May, 1999, we filed a Form 10-SB with the Securities and Exchange
Commission to register our common stock under the Securities Exchange Act of
1934, as amended. The Form 10-SB became effective in July, 1999 and our stock
began trading publicly on the NASDAQ over the counter bulletin board in August,
1999. Besides the monies we expect to raise in conjunction with the Empire One
Telecommunications, Inc. acquisition, we believe it will be necessary to
continue to raise additional funds in order to have enough cash to pay for our
expected expansion and continue our
25
<PAGE> 26
operations. With the aid of our investment banker, Hudson Allen & Co., we are
anticipating a round of financing by mid-year of 2000 that is expected to be a
minimum of $5 million and could be significantly higher based on our operations
at the time of the financing, although no assurances can be provided that such
funds can be obtained on terms favorable to us or at all.
During 1999, we acquired $379,000 of equipment, most of which was
for our network. During 1999, we and our vendors installed equipment in
Southwest Asia, China and the United States as part of the effort to increase
our network capabilities. The network equipment was financed by the manufacturer
and is shown as vendor equipment payable at December 31, 1999, and, subsequent
to year end, was converted into a lease under our equipment leasing agreement.
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,
we hired L. Flomenhaft & Co., Inc. as a consultant in January, 1999. The
relationship extends for two years. As a fee for these services, L. Flomenhaft &
Co. agreed to take shares of our common stock valued at $90,000 in lieu of cash.
As noted above, the acquisition of subscribers for Empire One
Telecommunications, Inc. after the merger and the opportunistic expansion of the
current network requires substantial investment of both equipment and personnel.
We expect that we 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 our operations. We believe that our ability to raise money in the
public sector will enhance these efforts although there can be no assurance that
this will be the case or that any public offering of our securities will be
made.
DESCRIPTION OF PROPERTY
We lease and maintain our corporate headquarters in 2,027 square
feet of office space located at 1600 Wilson Blvd., Suite 1008, Arlington,
Virginia 22209. At December 31, 1999, we leased or owned telecommunications
equipment located in Holmdel, New Jersey, New York City, New York, Los Angeles,
California, Shanghai, China and Tbilisi, Georgia. The value of the equipment we
currently own is approximately $721,000. Subsequent to December 31, 1999, we
converted approximately $375,000 owed to the manufacturer of the equipment into
a lease secured by the equipment. The property is in good working order.
CERTAIN MARKET INFORMATION
PRICE RANGE OF COMMON STOCK
Our common stock is traded over-the-counter and quoted on the NASD
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 March 16, 2000.
The prices presented are the 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 March 16, 2000, there were approximately 226 stockholders of
record of the common stock.
<TABLE>
<CAPTION>
Closing
--------
Low High
--- ---
1999
- ----
<S> <C> <C>
Third Quarter 2 1/2 3
Fourth Quarter 2 1/2 4 1/4
First Quarter through March 16, 2000 2 1/4 6 7/8
</TABLE>
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<PAGE> 27
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and titles of all of our directors and executive
officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- ---- --------
<S> <C> <C>
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; [Chief Accounting Officer]
Stephen Albo 35 Chief Technology Officer
Raleigh Coffin 66 Director
John Theodoracopulos 34 Director
Ronald Frankum 64 Director
</TABLE>
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.
CHARLES W. ALBO, CHAIRMAN, EXECUTIVE VICE PRESIDENT, is our co-founder and has
been Chairman and a director of Sonus Communication Holdings, Inc. and Sonus
Communications, Inc. since April 7, 1999, served as Chief Executive Officer of
Sonus Communications, Inc. from its incorporation in May, 1995 until April 14,
1999, and has been a director of the Sonus Communications, Inc. since May, 1995.
Mr. Albo oversees our 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., a company which installed and is operating international
telecommunications services linking the Nation of Georgia to the United States.
From 1994 through 1999, Mr. Albo served as Goodwill Communications' president.
From 1992 until 1995, Mr. Albo served as President of Management Vision
Partners, Inc., 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 Sonus
Communication Holdings, Inc. and Sonus Communications, Inc. as CEO on April 14,
1999, as President on April 19, 1999 and as a Director on April 20, 1999. Mr.
Coffin's background is in finance, telecommunications and enabling technologies.
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. From June 1995 to May 1997,
Mr. Coffin was the Investment Director for ETOM Technologies, a venture-backed
technology company. From April 1993 to May 1995, Mr. Coffin was with Alex Brown
& Sons. From 1991 to 1993, Mr. Coffin was with Smith Barney, Harris, Upham. W.
Todd Coffin is the son of Raleigh Coffin, one of our directors.
NANA MARANELI, VICE-CHAIRPERSON, EXECUTIVE VICE PRESIDENT, SECRETARY, is our
co-founder and has been Vice Chairperson, Executive Vice President, Secretary
and a director of Sonus Communication Holdings, Inc. since April, 1999, was
President of Sonus Communications, Inc. from May 1995 until April 20, 1999, and
has been a director of Sonus Communications, Inc. since May 1995. Ms. Maraneli
oversees our operations in the former Soviet Union and is responsible for the
development of new
27
<PAGE> 28
telecommunication opportunities in Eastern Europe and Asia. Ms. Maraneli was
born in Tbilisi, Georgia and is a permanent resident of the United States. She
has ten years experience generating business partnerships between entities in
the U.S., Tbilisi, 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, a Georgian
telecommunication service provider. 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 former Soviet Union, including joint ventures in Karelia
for forest products, in Georgia for bank card clearing and in Bulgaria for
cellular and paging services.
RICHARD D. ROSE, CHIEF FINANCIAL OFFICER, TREASURER, joined Sonus Communication
Holdings, Inc. and Sonus Communications, Inc. 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 for high-technology
start-ups. Prior to January 1997, for more than five years, Mr. Rose was Chief
Financial Officer of Penril DataComm Networks, Inc., a manufacturer of data
communications equipment.
STEPHEN ALBO, CHIEF TECHNOLOGY OFFICER, has been our 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. Since January 1999 Mr. Albo has been employed as our 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 information
systems 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 information systems
functions. Mr. Albo is the son of Charles W. Albo, Chairman and Executive Vice
President of Sonus Communication Holdings, Inc. and Sonus Communications, Inc.
RALEIGH COFFIN, DIRECTOR, has been a director of Sonus Communication Holdings,
Inc. and Sonus Communications, Inc. 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) 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., 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. He has served as Brand Manager at Procter &
Gamble, assistant to the President and Chairman and as a division manager at
General Foods and President of International Standard Brands. In addition, Mr.
Coffin had responsibility for all operations outside the U.S. as President of
Playtex International. Raleigh Coffin is the father of W. Todd Coffin, our Chief
Executive Officer and one of our directors.
JOHN H. THEODORACOPULOS, DIRECTOR, joined Sonus Communication Holdings, Inc. in
April, 1999. Since 1989, Mr. Theodoracopulos has worked for National Shipping &
Trading Corp., a tanker and bulk carrier operator. Based in New York, New York,
he oversees the fleet's worldwide commercial operations. He also advises their
overseas affiliates on investments in real estate, tourism and agriculture.
28
<PAGE> 29
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 Asian company involved in the development of
telecommunications services 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
CASH COMPENSATION OF EXECUTIVE OFFICERS
The following information relates to compensation paid to our Chief
Executive Officer and to the three other most highly-compensated individuals who
were serving the Company as executive officers at the end of 1999. Herbert R.
Donica served as the chief executive officer of The Park Group, Limited, our
predecessor, during the last three fiscal years, until February 26, 1999.
Neither Mr. Donica nor any other executive officer received compensation for
their services as executive officers of The Park Group, Limited during the last
three fiscal years.
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------------------------------------------------
Securities
Name and Principal Fiscal Salary Bonus Underlying
Position Year Options/SARs
- ------------------------- ----------------- ------------------ ------------------------ --------------------
<S> <C> <C> <C> <C>
W. Todd Coffin, Chief
Executive Officer (1) 1999 $80,000 $37,500 0
Charles W. Albo,
Chief Executive
Officer, Executive
Vice President (2) 1999 $86,534 0 0
Steven Albo,
Chief Operating Officer 1999 $108,000 0 200,000
</TABLE>
- ------------
(1) Mr. Coffin served as Chief Executive Officer of the Company from April,
1999 through the end of 1999.
(2) Charles W. Albo served as our Chief Executive Officer from our inception
until mid-April, 1999, and as our executive vice president from April,
1999 through the remainder of the 1999 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information relating to option and
warrant grants made during 1999 to our named Executive Officers and the
potential realizable value of
29
<PAGE> 30
each grant assuming appreciation of our common stock at an annual rate of either
5% or 10% over the stated term of the option.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------------------------------------
Percentage
Number of of Options
Shares Granted to Exercise
Underlying Employees or Base
Options in Fiscal Price Per Expiration
Name Granted Year (1) Share Date
- ------------------------ ----------------------- ----------------------- -------------------- ----------------
<S> <C> <C> <C> <C>
W. Todd Coffin 0 0 -- --
Charles W. 0 0 -- --
Albo
Steven Albo 100,000 (2) 18.83 $1.50 6/10/09
75,000 (3) 14.12 1.00 4/19/04
75,000 (4) 14.12 1.00 4/19/04
</TABLE>
(1) Percentages calculated based on aggregate of 306,000 employee stock
options granted and 225,000 warrants issued to employees.
(2) Represents stock options issued pursuant to our employee stock option
plan, of which 41,667 options are vested and presently exercisable.
(3) Represents common stock purchase warrants which are vested and
presently exercisable.
(4) Represents common stock purchase warrants, of which 35,000 are currently
vested or will vest within 60 days.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table presents certain information about stock
options exercised by our named Executive Officers during 1999 and the value of
unexercised options held by them at the end of 1999.
<TABLE>
<CAPTION>
No. Shares Value of Unexercised
Name Shares Acquired Underlying Unexercised In-the-Money Options
- ------------- on Exercise Options at December 31, At December 31, 1999 (1)
1999
------ -------------------- ------------------------------------------------------------
Value Exercis- Unexercis- Exercisa Unexercis-
No. Realized able able ble able
- ------------ -------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
W. Todd 0 0 0 0
Coffin
Charles W. 0 0 0 0
Albo
Steven Albo 0 0 151,667 98,333 $273,400 $161,600
</TABLE>
(1) The closing price of the Company's common stock at the end of fiscal year
1999 was $2.94 per share.
30
<PAGE> 31
LONG TERM INCENTIVE PLAN DURING FISCAL YEAR
We did not make any long term incentive plan awards to any executive
officers or directors during the fiscal year ended December 31, 1999.
EMPLOYMENT AGREEMENTS
We 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 Sonus Communication Holdings, Inc. 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, 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. We 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 us.
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.
On June 10, 1999, we adopted the 1999 Director Stock Incentive Plan,
which was approved by a majority of the stockholders on July 12, 1999. Under the
terms of the 1999 Director Stock Incentive Plan, which expires on June 10, 2009,
our non-employee directors 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. We have
reserved 350,000 shares for issuance under the 1999 Director Stock Incentive
Plan. As of the date of this prospectus, options to purchase 50,000 shares have
been granted to Ronald Frankum under the 1999 Director Stock Incentive Plan
entitling Mr. Frankum to purchase 50,000 shares at an exercise price of $2.00
per share.
EMPLOYEE STOCK INCENTIVE PLAN
On June 10, 1999, we adopted the 1999 Stock Incentive Plan which was
approved by a majority of the stockholders on July 12, 1999. Under the terms of
the 1999 Stock Incentive Plan, which expires on June 10, 2009, employees 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. We have reserved
500,000 shares for issuance under the 1999 Stock Incentive 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 Stock Incentive 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 Stock
Incentive Plan.
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<PAGE> 32
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In April, 1999, Mr. Albo, Chairman and Executive Vice President,
and Ms. Maraneli, Vice-Chairperson and Executive Vice President, each
transferred 550,000 shares of common stock to us, for cancellation. The
cancellation became effective in May, 1999. In exchange for the cancellation of
these shares, we issued to each of Mr. Albo and Ms. Maraneli warrants dated
April 20, 1999 to purchase 125,000 shares of common stock at an exercise price
of $1.50 per share. Mr. Albo and Ms. Maraneli are our founders.
At December 31, 1998, we had a promissory note outstanding to our
Chairman, Mr. Charles Albo, with a principal balance of $99,969 plus accrued
interest. Interest accrued at an annual rate of 7%. In conjunction with an
agreement made with Mr. Albo effective April 16, 1999, the principal under the
note was converted into 44,431 shares of our common stock. Accrued interest,
which totaled $19,509 at the time of the principal conversion, remains unpaid at
December 31, 1999.
In May 1999, in conjunction with the agreement noted above, we
agreed to redeem from each of Mr. Albo and Ms Maranelli 75,000 shares of common
stock at $1.50 per share. Each of Albo and Maraneli agreed that payment of the
redemption price would 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 our payment obligations, we agreed to advance each of them
$7,000 per month not to exceed the total redemption price. All amounts advanced
would 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 1999, Albo
and Maraneli have continued to accept advances from us in lieu of full payment
until our cash position is better able to support payment of the remaining
amounts due. At December 31, 1999, $112,000 had been paid leaving a balance due
for the redemption of $113,000.
The foregoing agreement further called for Albo and Maraneli,
beginning on May 1, 1999 to devote all their time to their services to us and to
take no compensation for one year. Beginning in May, 2000, Albo and Maraneli
will be paid an annual salary commensurate with that paid to similarly situated
members of our senior management.
In May 1999, we sold $575,000 of our 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, we entered into a letter agreement with the
investment banking firm of Hudson Allen & Co. 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
vesting upon signing, with the remainder vesting in 100,000 warrant increments
for each $2,000,000 worth of financing obtained. Under the agreement, Hudson
Allen will also serve as our non-exclusive placement agent. As our placement
agent Hudson Allen will be entitled to commissions pursuant to successful
financings in the form of a cash fee of 8% of gross proceeds received, 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. We expect the
warrants to provide for registration rights for the common stock underlying the
warrants.
Hudson Allen will be entitled to receive a management fee of $6,000
per month from and after the date on which the Company has obtained $1,000,000
through financing activities. In the event of a merger or acquisition
consummated by a source introduced to us by Hudson Allen, a fee in the amount of
3% shall be payable to Hudson Allen. Hudson Allen will receive 1% of the
transaction value if we are acquired by another entity not introduced by Hudson
Allen and Hudson Allen works on such
32
<PAGE> 33
transaction at any time during the effectiveness or within one year after
termination of this agreement.
Hudson Allen will be entitled to the foregoing fees if:
-- a financing, merger or acquisition is consummated within 12
months of their termination (or the expiration of Hudson
Allen's engagement); and
-- there was contact by or through Hudson Allen with the other
party to the financing, 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 us to indemnify Hudson Allen under certain
circumstances and reimburse Hudson Allen for its expenses incurred in the course
of representing us. We can provide no assurance that Hudson Allen will be
successful in raising funds for us 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. We are
actively engaged in locating a suitable replacement but have not made a hiring
decision. Mr. Coffin intends to step down as chief executive officer assuming
that a suitable replacement is located. We can provide no assurance, however,
that we will be able to locate a suitable replacement prior to Mr. Coffin's
departure. In addition, Mr. Coffin is associated with Hudson Allen & Co., our
investment banking firm. Mr. Coffin may receive a portion of the consideration
Hudson Allen becomes entitled to under our letter agreement with Hudson Allen.
See "Security Ownership of Certain Beneficial Owners and Management: Conditional
Right to Acquire Certain Securities" for additional information, which is
incorporated by reference herein and "Executive Compensation: Employment
Agreements" for additional information, which are 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 March 16, 2000, by:
-- each person we know to be the beneficial owner of more than 5%
of the outstanding shares of common stock,
-- each of our directors and the Chief Executive Officer, and
-- 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.
33
<PAGE> 34
BENEFICIAL OWNERS OF MORE THAN 5%
OF OUR COMMON STOCK
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF CLASS
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP -----------------
- ------------------- -----------------------
<S> <C> <C>
Charles W. Albo 1,044,431 (1) 17.3%
1600 Wilson Blvd
Suite 1008
Arlington, VA
22201
Nana Maraneli 1,000,000 (2) 16.6%
1600 Wilson Blvd.
Suite 1008
Arlington, VA
22201
Evansville Ltd. 545,370 9%
Attn: Thomas A Huzer
Quadrant Management, Inc.
720 5th Avenue
New York, NY
10019
L. Flomenhaft & Co., Inc. 1,051,255(3) 15.1%
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, January 5, 2000 and
January 27, 2000 to purchase 220,443 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 the beneficial ownership of common
stock of the Directors and Executive Officers based on 6,032,214 shares of
common stock outstanding as of March 16, 2000.
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) 17.3%
and Executive Vice President
1600 Wilson Blvd.
Suite 1008
Arlington, VA 22201
Steven Albo 151,667 (2) 2.5%
Chief Technology Officer
1600 Wilson Blvd.
Suite 1008
Arlington, VA 22201
Raleigh Coffin - Director 100,000 (3) 1.6 (4)
c/o Hudson Capital Advisors,
LLC
160 Shore Road
Old Greenwich, CT 06870
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C> <C>
W. Todd Coffin - Chief 292,007 (4) 4.7%
Executive Officer, President
and Director
1600 Wilson Blvd.
Suite 1008
Arlington, VA 22201
Nana Maraneli - Vice 1,000,000 (5) 16.6%
Chairperson,
Executive Vice President and
Secretary
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
Richard D. Rose - Treasurer 50,000 (6) -- (7)
and Chief Financial Officer
1600 Wilson Blvd.,
Suite 1008
Arlington, VA 22201
John Theodoracopulos 150,623 (8) 2.5%
Director
545 Madison Avenue
6th Floor
New York, NY 10022
Ronald Frankum 12,500 (9) -- (7)
Director
774 Mays Blvd., Suite 10-222
Incline Village, NV 89451
Directors and Executive 2,757,895 41.9%
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 33,334 shares of common stock at $1.50 per share, all of which
are vested.
(3) Represents 100,000 warrants to purchase shares of common stock at an
exercise price of $1.00 per share which are fully vested.
(4) Includes warrants to purchase 4,688 shares of common stock at an exercise
price of $2.00 per share, warrants to purchase 37,319 shares of common
stock at an exercise price of $1.35 per share, and warrants to purchase
200,000 shares of common stock at an exercise price of $3.00 per share,
all of which are vested and owned beneficially and of record by Hudson
Allen & Co. Mr. Coffin is an equity holder in Hudson Allen & Co.
(5) Includes 950,000 shares owned of record by Maraneli Limited Partners, a
Virginia limited partnership, of which Ms. Maraneli is general partner.
(6) 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 25,000 shares of common stock at $1.50 which are vested.
(7) Percent of class is less than 1%.
(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.
35
<PAGE> 36
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.
In addition to options to purchase 41,667 shares of common stock at
a price of $1.50 per share and warrants to purchase 110,000 shares of common
stock at a price of $1.00 per share, all of which are fully vested, Mr. Stephen
Albo owns options to purchase 58,333 shares of common stock at a price of $1.50
per share and warrants to purchase an additional 40,000 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 the 292,007 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 Securities 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 we 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 us.
Also in addition to the 292,007 shares of common stock shown above,
Mr. Coffin, through Hudson Allen & Co., has been granted warrants to purchase an
additional 300,000 shares of common stock which are not currently vested, but
vest in 100,000 warrant increments for each $2,000,000 worth of financing
obtained. Mr. Todd Coffin is an equity owner of Hudson Allen & Co.
In November 1999 we entered into a merger agreement to acquire
Empire One Telecommunications, Inc. Empire One Telecommunications, Inc. 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
Empire One Telecommunications, Inc. will merge into EOT Acquisition Corporation,
a newly created wholly-owned subsidiary of Sonus Communication Holdings, Inc.,
with EOT Acquisition Corporation as the surviving corporation following the
merger. The stockholders of Empire One Telecommunications, Inc. would receive
1,065,857 shares of our common stock in the merger. As part of the merger, EOT
Acquisition Corporation plans to assume all of Empire One Telecommunication
Inc.'s outstanding liabilities. We expect to offer piggy-back registration
rights in connection with the shares of common stock to be issued in the merger
and plan to employ at least three of the key employees of Empire One
Telecommunications, Inc. and pay them annual salaries of $115,000 each plus
options or warrants to purchase up to 150,000 shares of our 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 including but not
limited to the shareholders of Empire One Telecommunications, Inc. and certain
governmental agencies including the Federal Communications Commission and the
New York State Public Service Commission. The Company can provide no assurances
that all necessary 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.
36
<PAGE> 37
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 us, if any, and the amount of securities of each class owned by
such security holder before the offering. If all of the securities registered
under this registration statement are sold, none of the selling security holders
will own any of our securities after the offering is completed.
The following table sets forth the aggregate number of shares of
common stock beneficially owned by each selling security holder hereunder and
the percentage of all shares of common stock beneficially owned by each selling
security holder after giving effect to the offering. 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 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>
No. of Shares and No. of Percentage
Warrants No. of Shares of Class
Beneficially Owned Shares Benefici- to be
Prior to Offering Registered ally Owned owned
Following after
Offering Offering
--------------------------
Warrants
Name Total Included in
Total
<S> <C> <C> <C> <C> <C>
Austen, Karl R. 25,000 12,500 25,000 (7) (7)
Becker, Stanley 25,000 25,000 (7) (7)
Bencivenga, John 5,093 5,093 (7) (7)
Benjamin, Samuel, MD. Inc. 50,000 50,000 (7) (7)
Benevolent Partners 87,038 25,000 87,038 (7) (7)
Blumenfeld, Alan J. 12,733 12,733 (7) (7)
Boloten, Gregory 25,000 25,000 (7) (7)
Buckner, Larry E., Sr. 25,000 12,500 25,000 (7) (7)
Connery, Michael M. 150,623 50,000 150,623 (7) (7)
D'Arcangelo, Giuseppe 7,408 7,408 (7) (7)
Domaco Venture Capital Fund 25,623 25,623 (7) (7)
Donica, Herbert & Janice (1) 30,000 30,000 (7) (7)
Eilian, Jonathan 25,000 25,000 (7) (7)
Eilian, Kevin 30,000 30,000 (7) (7)
Epinal Ltd. 35,000 35,000 (7) (7)
Evansville Ltd. 175,000 175,000 (7) (7)
Farber, S. Edmond 44,142 44,142 (7) (7)
Ferrante, Vincent 10,249 10,249 (7) (7)
</TABLE>
37
<PAGE> 38
<TABLE>
<CAPTION>
No. of Shares and No. of Percentage
Warrants No. of Shares of Class
Beneficially Owned Shares Benefici- to be
Prior to Offering Registered ally Owned owned
Following after
Offering Offering
--------------------------
Warrants
Name Total Included in
Total
<S> <C> <C> <C> <C> <C>
L. Flomenhaft & Co, Inc. (2) 914,588 769,088 914,588 (7) (7)
Steven Goodman Defined Benefit Pension Plan (3) 15,000 15,000 (7) (7)
Gormley, Arthur & Denise 30,279 30,279 (7) (7)
Gross, John 18,519 18,519 (7) (7)
Jaffe, Max D., Trust 25,000 25,000 (7) (7)
Kaplan, Andrew 10,249 10,249 (7) (7)
Kaplan, David 10,249 10,249 (7) (7)
Kaplan, Eileen 63,123 63,123 (7) (7)
Kaplan, Jerry 15,374 15,374 (7) (7)
Kaplan, Lawrence (4) 94,872 11,250 94,872 (7) (7)
Kaplan, Stephen 10,249 10,249 (7) (7)
Kaplan, Stanley 10,186 10,186 (7) (7)
Lax, Melvin 15,374 15,374 (7) (7)
Lazar, Ron 25,623 25,623 (7) (7)
Mail, Russell A. 50,000 25,000 50,000 (7) (7)
Miller, Michel 25,466 25,466 (7) (7)
Mittleman, Philip 25,466 25,466 (7) (7)
Nathanson, Barry 40,000 40,000 (7) (7)
Peterson, William H., Trustee 18,519 18,519 (7) (7)
Polak, Anthony 25,623 25,623 (7) (7)
Polak, Anthony G. 18,519 18,519 (7) (7)
Polak, Jack 51,247 51,247 (7) (7)
Polak, Margrit B. 18,519 18,519 (7) (7)
R. L. Capital 51,247 51,247 (7) (7)
Romano, Alfred 15,000 15,000 (7) (7)
Rosenthal, James 14,800 14,800 (7) (7)
Rosenthal, James & Bishop, Kathy 25,000 25,000 (7) (7)
Rothschild, Jonathan 44,142 44,142 (7) (7)
Rubin, Michael 20,000 20,000 (7) (7)
</TABLE>
38
<PAGE> 39
<TABLE>
<CAPTION>
No. of Shares and No. of Percentage
Warrants No. of Shares of Class
Beneficially Owned Shares Benefici- to be
Prior to Offering Registered ally Owned owned
Following after
Offering Offering
--------------------------
Warrants
Name Total Included in
Total
<S> <C> <C> <C> <C> <C>
Silva, Jerry 25,000 25,000 (7) (7)
Silverman, Mark 12,733 12,733 (7) (7)
Stephaich, Paul 129,000 49,500 129,000 (7) (7)
Tanner, Adam 7,408 7,408 (7) (7)
Tanner Unman Securities, Inc. (5) 4,688 4,688 4,688 (7) (7)
Tanner, Marie 7,408 7,408 (7) (7)
Terhorst, Kasper & Rita, as Trustees 25,000 12,500 25,000 (7) (7)
Terhorst, Kasper 45,374 45,374 (7) (7)
Theodoracopulos, John (6) 150,623 12,500 150,623 (7) (7)
Windy City, Inc. 25,466 25,466 (7) (7)
Wolf, Peter 15,000 15,000 (7) (7)
Zante Holdings, S.A. 148,149 148,149 (7) (7)
Zolot, C. Barry & Marjorie 80,000 25,000 80,000 (7) (7)
</TABLE>
*Less than 1%.
1 Herbert Donica served as Chairman and Chief Executive Officer of The Park
Group Limited, our predecessor, until March, 1999.
2 L. Flomenhaft & Co., Inc. has served as our placement agent in connection
with private placements of our securities from January, 1999 through
January, 2000.
3 Steven Goodman, beneficiary of the plan, served as a director of The Park
Group, Limited, our predecessor, until March, 1999.
4 Lawrence Kaplan served as a director of The Park Group Limited, our
predecessor, until March, 1999.
5 Tanner Unman Securities has acted as our placement agent in connection
with the private placement of our securities.
6 John Theodoracopulos currently serves as a director of ours and has
served in such capacity since April, 1999.
7 Because the selling security holders may offer all or some of the common
stock and warrants pursuant to the offering contemplated by this
prospectus, no estimate can be given as to the amount of shares of common
stock or warrants or the percentage of class that will be held by the
selling security holder after completion of this offering. See "Plan of
Distribution".
39
<PAGE> 40
PLAN OF DISTRIBUTION
The selling security holders have advised us 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 we are 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 the following information as the Company
believes appropriate:
-- the name of the participating underwriter;
-- the number of the shares or warrants involved;
-- 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
-- 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.
We expect 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:
-- a block trade in which a broker or dealer will attempt to sell
the securities as agent, but may position and resell a portion of the block as
principal to facilitate the transaction;
-- purchases by a dealer as principal and resale by such dealer for
its account pursuant to this prospectus; and
-- 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 our
securities, and may sell and deliver their shares of our 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,
40
<PAGE> 41
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 our
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.
We have advised the selling stockholders that Regulation M
promulgated under the Securities Exchange Act of 1934, as amended, may apply to
our sales in the market, have furnished the selling stockholders with a copy of
this regulation and have informed them of the need for delivery of copies of
this prospectus. The selling stockholders may indemnify any broker-dealer that
participates in transactions involving the sale of the shares against certain
liabilities, including liabilities arising under the Securities Act of 1933. Any
commissions paid or any discounts or concessions allowed to any such
broker-dealers, and any profits received on the resale of such shares, may be
deemed to be underwriting discounts and commissions under the Securities Act of
1933 if any such broker-dealers purchase shares as principal. We have agreed to
indemnify the selling stockholders against certain liabilities, including
liabilities under the Securities Act of 1933.
SHARES ELIGIBLE FOR FUTURE SALE
Through the date of this prospectus, there has been only limited
over-the-counter trading of our common stock by certain market makers who have
registered to enter quotes on the common stock on the bulletin board. We have no
plans to list the common stock on NASDAQ or on any securities exchange. Sales of
substantial amounts of shares of our 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 our ability to raise capital in the future through sales of our
equity securities.
Assuming exercise of our issued and outstanding warrants and
options, we will have a total of 8,822,226 shares of common stock outstanding at
the time of this offering, on a fully diluted basis, not including the 1,065,857
shares of our common stock we expect to issue in connection with the acquisition
of Empire One Telecommunications, Inc.. 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 of 1933 will, after the offering, be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by our "affiliates," as that term is defined in Rule 144 under the Securities
Act, 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.
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 our affiliate, is entitled to
sell, within a three-month period, a number of shares of our 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) or the
average weekly reported trading volume of our 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 us. In addition, under Rule 144(k),
41
<PAGE> 42
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.
DESCRIPTION OF SECURITIES
Our authorized capital consists of 100,000,000 shares of common
stock, $.0001 par value per share, of which 6,032,214 shares of common stock are
issued and outstanding prior to this offering. In addition, prior to this
offering we have outstanding warrants exercisable (in some cases on a cashless
basis) and options to purchase, up to 2,790,012 shares of common stock.
We expect 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 equally
in dividends and distributions declared by the Board of Directors and in any
assets available for distribution to holders of common stock upon our
liquidation. Upon liquidation, assets will only be available for distribution
after satisfaction or provision for all debts and our other obligations. 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 our directors, 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:
-- issued January 21, 1999 to purchase 90,000 shares of
common stock, at an exercise price of $1.00 per share;
-- issued January 21, 1999 to purchase 487,500 shares of
common stock at an exercise price of $.92 per share;
-- issued August 3, 1999 to purchase 86,250 shares of
common stock at an exercise price of $1.00 per share;
-- issued August 3, 1999 to purchase 250,000 shares of
common stock issuable at an exercise price of $3.00 per
share;
-- issued August 3, 1999 to purchase 37,500 shares of
common stock at an exercise price of $2.00 per share;
and
-- issued November 22, 1999 to purchase 62,720 shares of
common stock at an exercise price of $1.35 per share.
Each warrant evidences the right to purchase one share of our common
stock having the characteristics described above. 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.
42
<PAGE> 43
186,470 of the Warrants registered hereby are redeemable at our
option at $0.05 per warrant upon 20 days notice, when (i) the shares of common
stock issued in the unit equity 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 our 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 warrants issued August 3, 1999
for the purchase of 250,000 shares of common stock 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 our common stock minus the warrant's exercise
price, and the denominator of which is equal to the fair market value of our
common stock.
DELAWARE ANTI-TAKEOVER LAW
We and our 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 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
Our Bylaws contain certain provisions, described below, that could
delay, defer, or prevent a change in control if the Board of Directors
determines that such a change in control is not in our and our stockholders'
best interests, and could have the effect of making it more difficult to acquire
us or remove incumbent management.
Our 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 our 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 our Certificate of Incorporation provides that no
director shall be liable to us or our stockholders for monetary damages except:
-- for any breach of the director's duty of loyalty to us or
our 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.
Article 7 of our Certificate of Incorporation and Section 6.1 of our
Bylaws provide that, to the fullest extent permitted by the Delaware General
Corporation Law, we shall indemnify any party to an action, suit or proceeding
by reason of the fact that such person serves as our director or officer or as a
director or officer of another entity at our request against all losses or
amounts reasonably incurred or suffered in connection therewith. Section 145 of
the Delaware General Corporation Law
43
<PAGE> 44
authorizes us to provide this protection to directors and officers and contains
the standards for determining whether indemnification shall be made.
Indemnification may be available for liabilities arising in
connection with this offering. Insofar as indemnification for liabilities under
the Securities Act of 1933 may be permitted to directors, officers, or persons
controlling us pursuant to the foregoing provisions, we have been informed that,
in the opinion of the Commission, such indemnification is against public policy
as expressed in the Securities Act of 1933 and is therefore unenforceable.
TRANSFER AGENT
Our transfer agent and registrar is American Securities Transfer &
Trust, Inc. in Lakewood, Colorado.
LEGAL MATTERS
The validity of the common stock being offered hereby is being
passed upon for us by McGuire, Woods, Battle & Boothe LLP.
EXPERTS
Our financial statements at December 31, 1999 and December 31, 1998,
and for the years ended December 31, 1999 and December 31, 1998, have been
audited by Lazar Levine & Felix LLP, 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 firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on Form SB-2 under the Securities Act of 1933, as
amended, 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 us
and our 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 http://www.sec.gov.
Our common stock is registered under Section 12 of the Securities
Exchange Act of 1934, as amended, and we are therefore subject to the reporting
requirements of Section 13 of the Securities Exchange Act of 1934, as amended.
In accordance therewith we file periodic reports with the Securities and
Exchange Commission. Such periodic reports are available for inspection and
copying at the public reference facilities and other regional offices referred
to above.
44
<PAGE> 45
SONUS COMMUNICATION HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Certified Public Accountants F - 1
Financial Statements:
Balance Sheets F - 2
Statements of Operations F - 3
Statement of Changes in Shareholders' Deficit F - 4
Statements of Cash Flows F - 5
Notes to Financial Statements F - 6
</TABLE>
45
<PAGE> 46
INDEPENDENT AUDITORS' REPORT
DRAFT
Board of Directors and Stockholders
Sonus Communication Holdings, Inc.
Arlington, Virginia
We have audited the consolidated balance sheets of Sonus Communication Holdings,
Inc. and subsidiary as of December 31, 1999 and 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of 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, such financial statements present fairly, in all material
respects, the financial position of Sonus Communication Holdings, Inc. and
subsidiary as of December 31, 1999 and 1998 and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
LAZAR LEVINE & FELIX LLP
New York, New York
February 10, 2000
F-1
<PAGE> 47
SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
ASSETS 1999 1998
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 234,688 $ 1,263
Accounts receivable, less allowance for doubtful
accounts of $20,223 in 1999 31,936 41,244
Installment sales receivable, net of unearned
profit of $106,134 in 1999 and $ 131,340 in 1998 187,430 231,090
Loan receivable 150,000 -
Prepaid expenses 166,572 -
------------ ----------
TOTAL CURRENT ASSETS 770,626 273,597
PROPERTY AND EQUIPMENT, net 721,905 231,615
OTHER ASSETS 62,062 -
------------ ----------
TOTAL ASSETS $ 1,554,593 $ 505,212
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 382,045 $ 212,039
Vendor equipment payable 364,666 356,273
Lease obligation, current portion 87,399
Due to shareholders 113,000 -
Accrued expenses 42,510 17,496
------------ ----------
TOTAL CURRENT LIABILITIES 989,620 585,808
LONG-TERM LIABILITIES
Due to shareholder - 99,969
Lease obligation, net of current portion 109,550 -
Other noncurrent liabilities 43,000
------------ ----------
TOTAL LIABILITIES 1,142,170 685,777
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.0001 par value; authorized
100,000,000 shares; issued and outstanding 4,598,850
shares in 1999 and 3,597,954 shares in 1998 460 360
Additional paid-in capital 2,476,488 267,334
Subscriptions received 135,000 -
Accumulated deficit (2,199,525) (448,259)
------------ ----------
TOTAL STOCKHOLDERS' EQUITY 412,423 (180,565)
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,554,593 $ 505,212
============ ==========
</TABLE>
See notes to consolidated financial statements
F-2
<PAGE> 48
SONUS COMMUNICATION HOLDINGS INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
OPERATING INCOME:
Telecommunication services $ 1,635,042 $ 225,840
Consulting services - 61,450
Installment sales 69,014
----------- ----------
Total 1,704,056 287,290
OPERATING EXPENSES
Direct expenses 1,951,519 267,946
General & administrative 1,237,092 93,752
----------- ----------
3,188,611 361,698
LOSS FROM OPERATIONS (1,484,555) (74,408)
OTHER EXPENSE
Interest, net (5,100) (6,998)
Merger related costs
(266,711)
----------- ----------
(266,711) (6,998)
LOSS BEFORE INCOME TAXES (1,751,266) (81,406)
Provision for income taxes
----------- ----------
NET LOSS $(1,751,266) $ (81,406)
=========== ==========
Basic loss per common share $ (0.44) $ (0.02)
=========== ==========
Shares used in per share calculation 3,965,071 3,488,298
=========== ==========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 49
SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARY
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
--------------------- Paid-in Subscription Accumulated
Shares Amount Capital Received Deficit Total
-------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1998 3,378,512 $ 338 $ 238,211 $ - $ (366,853) $ (128,304)
Split shares issued for 129 - - - - -
rounding
Conversion of loans 162,877 16 21,629 - - 21,645
Sale of common shares 56,436 6 7,494 - - 7,500
Net loss - - - - (81,406) (81,406
--------- ------- ---------- -------- ----------- -----------
Balance, December 31, 1998 3,597,954 360 267,334 - (448,259) (180,565)
Sale of common shares 750,000 75 626,559 626,634
Shares issued for merger 150,000 15 89,985 90,000
related consulting fees
Shares returned by founders (1,100,000 (110) 110 -
)
Shares issued to consultant 50,000 5 37,495 37,500
Conversion of shareholder 44,431 4 99,965 99,969
note
Repurchase from shareholders (150,000) (15) (224,985) (225,000)
Sale of common shares in Unit
equity offering 250,000 25 434,914 434,939
Conversion of convertible
debentures
588,325 59 530,766 530,825
Sale of common shares 418,140 42 502,345 502,387
Waiver of compensation
payable 112,000 112,000
Received for January 2000 135,000 135,000
financing
Net loss - - -
------------ - --------- --------- (1,751,266) (1,751,266)
----------- ------------ ------------
Balance, December 31, 1999 4,598,850 $ 460 $2,476,488 $135,000 $(2,199,525) $ 412,423
========= ======= =========== ======== ============ ===========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 50
SONUS COMMUNICATION HOLDINGS, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,751,266) $ (81,406)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 98,529 25,735
Common shares issued for services rendered 127,500 -
Compensation waived 112,000 -
Changes in assets and liabilities:
Accounts receivable 9,308 (41,244)
Installment sales receivable 43,660 (231,090)
Prepaid expenses (166,572) 2,018
Accounts payable 170,006 209,890
Vendor equipment payable 8,393 356,273
Accrued expenses 25,014 5,316
----------- ----------
Net cash provided by (used in) operating activities (1,323,428) 245,492
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (379,417) (257,350)
Loan to Empire One Telecomm (150,000) -
Deposits for equipment and circuits (19,062)
----------- ----------
Net cash used in investing activities (548,479) (257,350)
CASH FLOWS FROM FINANCING ACTIVITIES:
Private placement of common shares, net 2,094,785 7,500
Subscriptions received 135,000 -
Repurchase of founder shares (112,000) -
Payment of lease obligation for network equipment (12,453) -
----------- ----------
Net cash provided by financing activities 2,105,332 7,500
Net increase in cash and cash equivalents 233,425 (4358)
Cash and cash equivalents at the beginning of the year $ 1,263 $ 5,621
----------- ----------
Cash and cash equivalents at the end of the year $ 234,688 $ 1,263
=========== ==========
Supplemental Information
Cash payments for interest $ 13,289 $ -
=========== ==========
Cash payments for taxes $ - $ -
=========== ==========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 51
SONUS COMMUNICATION HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
NOTE 1 - DESCRIPTION OF BUSINESS
The accompanying consolidated financial statements include the
accounts of Sonus Communication Holdings, Inc. (the "Company" or
"Holdings") and Sonus Communications, Inc. ("Sonus"), the Company's
wholly owned subsidiary. The Company was incorporated in April 1999
as part of the merger between Sonus Communications Inc and The Park
Group ("Park") and re-incorporation of The Park Group in Delaware
(see Note 3 for details). Holdings is an inactive company whose only
asset currently is Sonus.
Sonus is a provider of low-cost, high-quality international telephone
and Internet services. Sonus secures access to international
destinations that offer the opportunity for large call volumes and
high margins. The company establishes Internet connectivity and uses
the circuit to provide voice, facsimile, Internet, and e-commerce
services to US and foreign telephone and Internet Service Providers.
In general, Sonus' destinations are in developing countries
characterized by high international telephone rates, poor Internet
connectivity and little access to US e-commerce or
business-to-business services.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary Sonus Communications, Inc.
All significant intercompany balances and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from
those estimates.
REVENUE RECOGNITION
Revenue from telecommunications services is recognized as the service
is provided. In connection with the sale of equipment, the related
receivable is collected over extended periods based on usage of the
equipment and consequently the revenue and profit is recognized on
the installment method as the receivable is collected (see Note 4 for
details).
DIRECT OPERATING EXPENSES
Direct operating expenses consist primarily of telecommunications
costs, connectivity costs and the cost of equipment sold to
customers.
PROPERTY AND EQUIPMENT
Network equipment and furniture and fixtures are recorded at cost and
depreciated using the following estimated useful lives:
Computers and other 2 - 7 years
Network equipment 5 years
F-6
<PAGE> 52
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity
of three months or less when purchased to be cash equivalents. Cash
and cash equivalents are carried at cost which approximates market
value.
The Company maintains its cash balances primarily in one financial
institution. These balances are insured by the Federal Deposit
Insurance Corporation up to $100,000. Management periodically
monitors the credit worthiness of its bank to lower its risk.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
approach as per FASB Statement no. 109, Accounting for Income Taxes
("FASB 109"). Under this method, deferred tax assets and liabilities
are determined based on the differences between the financial
reporting and tax bases of assets and liabilities using expected tax
rates in effect for the year in which the differences are expected to
reverse. Under FASB 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that
includes the enactment date of the rate change.
STOCK BASED COMPENSATION
FASB Statement No. 123 Accounting for Stock Based Compensation,
requires the Company to either record compensation expense or to
provide additional disclosures with respect to stock awards and stock
option grants. Such disclosure is included in Note 8 below. No
compensation expense is recognized pursuant to the Company's stock
option plan under FASB 123, which is consistent with prior treatment
under APB 25.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is calculated in accordance with FASB
Statement no. 128, Earnings per Share. Basic earnings (loss) per
share is computed by dividing the net income (loss) applicable to
common shares by the weighted average number of common shares
outstanding during the period. Diluted earnings (loss) per share
adjusts basic earnings (loss) per share for the effects of
convertible securities, stock options and other potentially dilutive
financial instruments, only in the periods in which such effect is
dilutive.
CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash, cash
equivalents, trade receivables and property. Concentration of credit
risk with respect to trade receivables is limited as a result of the
customer base being mostly in the United States and the property risk
limited because most equipment in foreign countries is owned by the
Company's vendor in that country.
STATEMENT OF COMPREHENSIVE INCOME
SFAS 130, Reporting Comprehensive Income 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 required.
NOTE 3 - MERGER & ACQUISITION
MERGER: In January 1999, Sonus entered into merger discussions with
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
F-7
<PAGE> 53
owned subsidiary of Park. The former shareholders of Sonus received
92% of the capital stock of Park. The merger was accomplished via a
reverse acquisition accounted for in a manner similar to a pooling of
interests.
On April 7, 1999, Park organized Sonus Communication Holdings, Inc.
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.
SUBSEQUENT ACQUISITION: On November 15, 1999, the Company signed a
definitive merger agreement, subject to regulatory and EOT
shareholder approval, to acquire Empire One Telecommunications, Inc.
("EOT") for 1,065,857 shares of common stock of the Company in
exchange for all the outstanding common shares of EOT plus assumption
of debt. The shares were valued at $3.00 per share. The Company has
received Federal Communication Commission and New York State Public
Service Commission approval with the remaining regulatory approvals
anticipated before the end of the first quarter of 2000. EOT has
scheduled the shareholder meeting on March 6, 2000 to vote on the
merger.
EOT is a domestic Competitive Local exchange Carrier ("CLEC"),
Interexchange Carrier and Internet Service Provider that offers a
full range of services including local, long-distance, internet
access and web hosting services to approximately 12,000 subscribers.
EOT's 1999 revenues were approximately $4.9 million.
NOTE 4 - INSTALLMENT SALES
During 1998, the Company purchased telecommunications equipment from
a vendor at a cost of $231,090 which was sold to Egrisi Joint Stock
Company, Ltd., an entity in the Republic of Georgia for $362,430. The
payment terms are based on the usage of the equipment and
consequently the collection period may be extended. As a result, the
Company has recorded this sale under the installment method. Each
payment collected is allocated to cost and profit in the same ratio
that these two elements existed at the time of the sale. No
installment sales were recorded in 1998. During 1999, the Company
recorded installment sales of $69,014 with a margin of $ 25,206. At
December 31, 1999, the remaining receivable on the installment sale
was $187,430 net of unearned profit of $106,134.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31
-------------
1999 1998
---- ----
<S> <C> <C>
Network equipment $619,754 $257,350
Computers & other office Equipment 17,013 -
Assets held under capital lease 209,402 -
------- --------
846,169 257,350
Accumulated depreciation (124,264) (25,735)
Property and equipment, net $721,905 $231,615
</TABLE>
NOTE 6 - STOCKHOLDERS' EQUITY
On January 20, 1999, in connection with the merger with Park (see
Note 3), 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 split, 347,954 shares became outstanding immediately
after the reverse split. The financial statements have been
retroactively adjusted to account for this transaction.
F-8
<PAGE> 54
NOTE 7 - 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. The aggregate offering price was $750,000 with Sonus
netting cash proceeds of $627,000. L. Flomenhaft & Co.("Flomenhaft"),
acting as investment banker, received $75,000 in cash and a five year
common stock purchase warrant for 112,500 shares for its services.
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
Debentures were 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 thereby effectively making the
price of the common shares $1.00 per share. Flomenhaft provided the
investment banking services for this offering. By the terms of the
Debentures, all investment banking fees were deferred until the
Debentures were converted. In August, with the conversion of the
Debentures into shares of common stock, the cash fees of $57,500 and
the five-year warrants were issued to Flomenhaft.
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. The investment banking fees resulted in a cash payment to
Flomenhaft of $50,000 and the issuance to Flomenhaft and a nominee of
Flomenhaft of a five-year common stock purchase warrant.
In conjunction with the acquisition of Empire One Telecommunications,
the Company completed the sale of 1,851,504 shares of common stock at
$1.35 per share. The aggregate offering price was $2.5 million with
the Company realizing $2,246,000 in cash proceeds. The offering was
completed in three pieces with the first closing occurring on
November 22, 1999 for 418,140 shares resulting in gross proceeds of
$564,000 and net proceeds to the Company of $502,000, the second
closing occurring on January 5, 2000 for 1,088,939 shares resulting
in gross proceeds of $1,470,000 and net proceeds to the Company of
$1,327,000, and the final closing occurring on January 27, 2000 for
344,425 shares resulting in gross proceeds of $465,000 and net
proceeds to the Company of $417,157. The difference between gross
proceeds and net proceeds reflect expenses of approximately $11,000
with the remaining difference being the cash portion of the
investment banking fees. The closing that occurred on November 22,
1999 is included in the issued and outstanding common stock of the
Company at December 31, 1999. At December 31, 1999, the Company had
received $135,000 from investors in anticipation of the closing that
occurred on January 5, 2000. These proceeds are shown in the equity
section on the accompanying Consolidated Balance Sheet as
subscriptions received.
NOTE 8 - WARRANTS AND OPTIONS
FINANCING WARRANTS: In conjunction with the financing completed on
January 21, 1999 (See Note 7 for a discussion of financing activity),
Flomenhaft received 112,500 stock purchase warrants as a portion of
the fees for acting as Sonus' investment banker. The exercise price
was set at $1.00 per share, the per share sales price of the related
private placement. Of the 112,500 warrants, Sonus issued 90,000
warrants to Flomenhaft and a warrant for the remaining 22,500 shares
to a nominee of Flomenhaft. The warrants have piggyback registration
rights associated with them.
In May 1999, Flomenhaft acted as investment banker for the Company's
10% Convertible Debentures. As part of the fees for managing this
offering, Flomenhaft earned common stock purchase warrants to acquire
shares of the Company equal to 15% of the shares into which the
Debentures converted at the
F-9
<PAGE> 55
effective conversion price of the Debentures. Under the terms of the
Debenture Agreement, the Company had the right to either pay off the
Debentures or to convert the Debentures to common shares, therefore
the number of warrants and the exercise price of such warrants could
only be determined upon conversion. Consequently, by agreement, the
issuance to Flomenhaft of the warrants associated with the Debentures
was deferred until the actual date of conversion. The Company chose
to convert the entire Debenture to common shares and therefore
Flomenhaft received the maximum number of warrants when the
Debentures converted in August 1999. The exercise price was equal to
the effective offering price of $1.00 per share.
As part of the investment banking fees in conjunction with the
Company's Unit Equity offering in August 1999, Flomenhaft earned a
common stock purchase warrant for 37,500 shares at an exercise price
of $2.00 per share, the price of each Unit in the offering. Of the
shares earned, 32,812 were issued to Flomenhaft with the remaining
4,688 issued to a nominee of Flomenhaft.
In conjunction with the financing traunch closed in November 1999,
Flomenhaft and a nominee of Flomenhaft received five-year common
stock purchase warrants to acquire a total of 62,720 shares of the
Company's common stock at an exercise price of $1.35 per share, the
price paid by investors for each share in the offering. As indicated
above, the Company closed the remaining portion of this offering in
January 2000. Flomenhaft and Hudson Allen (both investment bankers of
the Company) received as the non-cash portion of the investment
banking fee for the two January 2000 closings, common stock purchase
warrants to acquire respectively,162,162 and 32,875, shares of the
Company's common stock at an exercise price of $1.35.
CONSULTING 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 provided
that Mr. Coffin serve as CEO for a term of six months and 15 days and
that Mr. Coffin serve on the Board of Directors of the Company during
the consulting period. For the services of Mr. Coffin, Coffin & Sons
received cash compensation of $10,000 per month of which $2,000 per
month was deferred until after the successful completion of the next
private placement completed after the effective date of the
agreement. The private placement was completed and the deferred
payment was subsequently paid. 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 of common shares at a per share
price of at least $1.50 and 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. The agreement
expired October 15, 1999. Mr. Coffin and the Company agreed to extend
the Agreement on a month-to-month basis until a new CEO can be found.
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 provided 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 was 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
F-10
<PAGE> 56
remaining balance of $10,000 remaining at December 31, 1999 was paid
in January 2000. 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.
OTHER WARRANTS: 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.
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 that was fully vested at the time of
issuance. 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 was issued 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 which vests
over three years. All of the above employment warrants were issued
with an exercise price of $1.00 per share, the price at which the
last shares of common stock had been sold prior to the issuance of
the warrants.
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 as determined based on the closing price of
the Company's common stock on the NASDAQ Bulletin board on the day
prior to the date of the agreement.
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
December 31, 1999, employees had been granted 306,000 shares at
prices ranging from $1.00 to $1.50, the fair market value on the date
of grant based on the most recent private placement of the Company's
common stock prior to the date of issuance of the options.
Options typically vest quarterly over a three-year period unless the
Board of Directors in its discretion provides otherwise. Options
issued during 1999 were issued with provisions for the option to vest
quarterly over three years from the date of grant. 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 at
an exercise price of $2.00 per share, the fair market value on the
date of grant, under the Director Plan.
F-11
<PAGE> 57
A summary of stock option transactions from the beginning of the
plans through December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Employees' Plan Directors' Plan
--------------- ---------------
Number Average Number Average
Of Price Per of Price Per
Shares Share Shares Shares
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Outstanding January 1, 1999 - $ - - $ -
Granted 306,000 $1.42 50,000 $2.00
Exercised - $ - - -
Canceled - $ - - -
-------- --------- -------- ---------
Outstanding December 31, 1999 306,000 $1.42 50,000 $2.00
======== ========= ======== =========
Exercisable Options at
December 31, 1999 64,417 $1.40 4,167 $2.00
-------- --------- -------- ---------
</TABLE>
The Company accounts for stock options utilizing APB 25, under which
no compensation cost has been recognized. Had compensation cost for
these options been determined consistent with Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation
(FASB 123), the net loss would have increased to $1,828,640 ($0.46
per share) compared to $1,751,266 ($0.44 per share) as reported for
the year ended December 31, 1999. There would have been no impact in
1998 since the plans were not established until June 1999.
For purposes of calculating the above required disclosure, the fair
value of each option is estimated on the date of grant using a
Black-Scholes option pricing model with the following
weighted-average assumptions used for grants in 1999: risk-free
interest rate of 6.84%, no expected dividend yield, a volatility
factor of the expected market price of the Company's common stock of
75% and a expected life of seven years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option
valuation models require the input assumptions including the expected
stock price volatility. Because the Company's employee and director
stock options have characteristics significantly different from those
of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide
a reliable single measure of the fair value of its stock options.
The weighted average fair value of options granted during the year
ended December 31, 1999 was $1.77 with the actual exercise prices for
options outstanding as of December 31, 1999 ranging from $1.00 to
$2.00 per share.
NOTE 9 - INCOME TAXES
No provision for federal and state income taxes has been recorded
since the Company has incurred losses through December 31, 1999
aggregating $2,200,000. The use of the losses of the Company will be
limited in the future as a result of the merger with Sonus
Communications which resulted in a change of control under the rules
of the Internal Revenue Service. The losses of Sonus Communications
expire beginning in 2013. Deferred tax assets at December 31, 1999
and 1998 which consist primarily of the tax effect of the net
operating loss carryforwards noted above, amount to approximately
$750,000 and $60,000, respectively. The Company has provided a
valuation reserve to reduce this asset to zero at both December 31,
1999 and 1998 since there is no assurance the Company will generate
future taxable income to utilize the asset.
NOTE 10 - GEOGRAPHIC AREA
The Company derives most of its telecommunications revenue from
customers located in the United States. Revenues from customers
located outside the United States are less than 10% of revenues.
However, revenues are derived by
F-12
<PAGE> 58
selling communications services to points of presence located in the
following geographic areas:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
United States 4% - %
Europe 61% 100%
Asia 35% - %
</TABLE>
NOTE 11 - TRANSACTIONS WITH THE FOUNDERS
At December 31, 1998, the Company had a note to a shareholder with a
principal balance of $99,969 plus accrued interest. Interest accrued
at an annual rate of 7%. In conjunction with an agreement made with
the shareholder effective April 16, 1999, the principal was converted
into 44,431 shares of common stock of the Company. Accrued interest,
which totaled $19,509 at the time of the principal conversion,
remains unpaid at December 31, 1999 and is included in other accrued
expenses.
In May 1999, in conjunction with the agreement noted above, the
Company agreed to redeem from each of Mr. Albo and Ms. Maranelli (the
"Founders") 75,000 shares of common stock at $1.50 per share (the
"Redemption Price"). The Founders agreed that payment of the
Redemption Price would 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 the Founders
$7,000 per month not to exceed the total Redemption Price. All
amounts advanced would 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 1999, the Founders 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. At December 31, 1999, $112,000 had been paid leaving a
balance due for the redemption of $113,000.
The Agreement further called for the Founders beginning on May 1,
1999 to devote all their time to the Company and to take no
compensation for one year. Beginning May 1, 2000, the Founders will
be paid an annual salary commensurate with that paid to similarly
situated members of senior management of the Company. As a result of
this agreement, the Company has recorded $112,000 in 1999 as salary
expense with a corresponding contribution to capital for the fair
value of the time devoted by the Founders to the Company.
NOTE 12 - RELATED PARTY TRANSACTION
During 1998, the Company provided consulting services to Goodwill
Communications USA, Inc. ("Goodwill"), a corporation 90% owned by the
Company's two founders. Income earned for such services aggregated
$37,450. No such services were provided in 1999. As of December 31,
1998, amounts payable to Goodwill for advances amounted to $100,461
which were paid in 1999.
NOTE 13 - RETIREMENT PLAN
The Company's Retirement Plan (the "Plan"), which was established in
1999, is a defined contribution plan including provisions of section
401(k) of the Internal Revenue Code. Employees of Holdings who have
completed 30 days of service ("Participants") are eligible to
participate in the Plan. The Plan permits, but does not require, the
Company to match employee contributions. In addition, Holdings may
make discretionary contributions to the Plan which will be allocated
to each participant based on the ratio of such Participant's eligible
compensation to the total of all Participants' eligible compensation.
Amounts contributed by Holdings vest evenly over three years based on
years of service. Participants may elect to direct the investment of
their contributions in accordance with the provisions of the Plan.
The Company made no contributions to the Plan during 1999.
NOTE 14 - CAPITALIZED LEASES
F-13
<PAGE> 59
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 $209,000 of network
equipment in the third quarter recording the transaction as a capital
lease. Subsequent to December 31, 1999, the Company converted the
outstanding vendor equipment payable of $375,000 into a lease under
this leasing agreement. If the lease had been converted at December
31, 1999, $219,000 of the vendor equipment payable would have been
classified as a long-term obligation.
Depreciation of assets under capital leases included in depreciation
expense for the year ended December 31, 1999 aggregated $10,470.
Minimum future lease payments under capital leases in effect at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
2000 $103,480
2001 83,070
2002 56,565
--------
Total minimum lease payments 243,115
Less: Amount representing interest 46,166
--------
$196,949
========
</TABLE>
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Leased facilities: The Company leases office space, certain equipment
and co-location space under lease agreements, certain of which are
renewable at the Company's option and/or provide for increases in
rent over the life of the lease. Rent expense for 1999 was $44,749.
During 1998, the Company operated from an office located in the house
of one of the founders at no charge to the Company. The value of such
space is not considered material and therefore no rent expense has
been recorded for such space.
Approximate aggregate future minimum rentals applicable to operating
leases in effect at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
2000 $68,427
2001 74,098
2002 12,903
-------
Total minimum rental.... $155,428
========
</TABLE>
Other Contingencies:
A. The Company is dependent on certain primary providers of
leased-line network capacity and internet access and upon
third-parties to provide telecommunications services it provides to
its customers.
B. In 1998, the Company had one customer to which it provided
telecommunications services. In 1999, the Company had two customers
that provided approximately 71% of the Company's revenue.
Employment contracts:
The Company entered into one year employment contracts with each of
Mr. Steven Albo, CTO, and Mr. Richard Rose, CFO, whereby each was
given warrants, as described more fully in Footnote No. 8 above, with
each receiving a salary of $84,000 per year and a payment at December
31, 1999 of an additional $31,000 providing each was employed by the
Company at that time. The contracts are renewable upon the mutual
consent of the Company and each of Mr. Albo and Mr. Rose. The
employment agreements also contain provisions pursuant to which they
have agreed not to compete with the Company.
F-14
<PAGE> 60
The Company entered into three-year employment agreements with
Charles W. Albo and Nana Maraneli as of April 15, 1999. The
agreements provide that Mr. Albo will serve as Executive Vice
President and Chairman of Sonus Communication Holdings, Inc. and Ms.
Maraneli will serve as Executive Vice President and Vice Chairman.
Each 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, to be
not less than $84,000 per year. The agreement also provides that both
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 the employment agreements for
cause or upon a finding of disability under the agreements. The
employment agreements also contain provisions pursuant to which both
have agreed not to compete with the Company.
F-15
<PAGE> 61
SONUS COMMUNICATION HOLDINGS, INC.
INDEX TO PRO FORMA FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
<S> <C>
Introduction to Pro Forma Balance Sheet F-17
Balance Sheet as of December 31, 1999 F-18
Introduction to Pro Forma Statements of Operations F-19
Statements of Operations Year Ended 12/31/99 F-20
</TABLE>
F-16
<PAGE> 62
PROFORMA BALANCE SHEET
The following unaudited consolidated balance sheet for the Company has been
prepared based upon the historical balance sheet of the Company as of December
31, 1999 and giving effect to the probable acquisition of Empire One
Telecommunications, Inc. with all adjustments necessary to consolidate EOT with
the Company. In the opinion of Sonus' management, all material adjustments
necessary to properly reflect the acquisition have been made. Such unaudited
proforma information should be read in conjunction with the historical financial
statements of Sonus Communication Holdings, Inc. and Empire One
Telecommunications Inc. including the notes thereto, which are included
elsewhere in this Prospectus, and the notes to this unaudited proforma
consolidated balance sheet.
F-17
<PAGE> 63
UNAUDITED PROFORMA BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
Historical
---------------------------------------------
Sonus Empire One
Communication Telecommunications, As Adjusted
Holdings, Inc. Inc. Adjustments Consolidated
--------------------------------------------------------------------------
- ASSETS -
<S> <C> <C> <C> <C> <C>
CURENT ASSETS:
Cash $ 234, 688 $ 5,009 $ $ 239,697
Accounts receivable 31,936 614,048 645,984
Installment sale receivable 187,430 - 187,430
Loan receivable 150,000 (5) (150,000) -
Prepaid expenses 47,454 - 214,026
166,572 ------ -------
-------
TOTAL CURRENT ASSETS $ 770,626 666,511 (150,000) 1,287,137
FIXED ASSETS 721,905 38,303 760,208
DEFERRED TAX ASSET - 165,100 (4) (165,100) -
INVESTMENT IN SUBSIDIARY - (1) 3,197,571 -
(5) (3,197,571)
EXCESS COST OVER NET ASSETS ACQUIRED, NET - (3) 3,197,571 3,174,213
(4) 165,100
(5) 38,271
(6) (226,729)
OTHER ASSETS 62,062 214,513 276,575
---------- ---------- ---------- ----------
TOTAL ASSETS $1,554,593 $1,084,427 $2,859,113 $5,498,133
========== ========== ========== ==========
<CAPTION>
- LIABILITIES AND STOCKHOLDERS' EQUITY -
<S> <C> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 382,045 $964,226 $1,346,271
Long-term debt, current portion 87,399 56,282 143,681
Vendor equipment payable 364,666 364,666
Due to shareholders 113,000 113,000
Accrued expenses 42,510 335,594 (5) (150,000) 228,104
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES 989,620 1,356,102 (150,000) 2,195,722
NON-CURRENT LIABILITIES:
Long-term debt, net of current 109,550 184,507 294,057
portion
Other liabilities - 43,000
43,000 ---------- ---------- ----------
---------
1,142,170 1,540,609 (150,000) 2,532,779
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock 460 12 (1) 107 567
(5) (12)
Additional paid-in capital 2,476,488 329,112 (1) 3,197,464 5,673,952
(3) 3,197,571
(5) (329,112)
(5) (3,197,571)
Subscription receivable 135,000 135,000
Accumulated deficit (2,199,525) (785,306) (5) 367,395 (2,844,165)
- P/L (226,729)
- ---------- ----------
Total stockholders' equity (deficit) 412,423 (456,182) 3,009,113 2,965,354
---------- ---------- ---------- ----------
TOTAL LIAB & STOCKHOLDERS' EQUITY $ 1,554,593 $1,084,427 $2,859,113 $5,299,200
========== ========== ========== ==========
</TABLE>
1/ To record the issuance by the Company of 1,065,857 shares at $3.00 per share
to acquire Empire One Telecommunications.
2/ To record the loans made to EOT subsequent to the signing of the merger
agreement. This will be considered as additional purchase price of EOT at the
time of the closing.
3/ To record the investment of Sonus in EOT on the books of EOT
4/ To write-off the deferred tax asset of EOT as part of the acquisition since
this has no value to Sonus
5/ To adjust the equity of EOT to zero at the date of acquisition and to
eliminate the investment of Sonus in EOT
6/ To amortize the excess cost over assets acquired using a 15 year life.
F-18
<PAGE> 64
PROFORMA STATEMENTS OF OPERATIONS
The following unaudited proforma consolidated statements of operations for the
Company has been prepared from the historical results of operations of Sonus
giving effect to the probable acquisition of EOT assuming the merger was
consummated January 1, 1999. Such unaudited proforma information should be read
in conjunction with the historical financial statements of Sonus Communication
Holdings Inc and Empire One Telecommunications Inc. including the notes thereto,
which are included elsewhere in this Prospectus, and the notes to these
unaudited proforma consolidated statements of operations. These statements do
not purport to represent what the actual results of operations would have been
for the Company had the merger been consummated at the beginning of the period,
is not indicative of actual results and does not purport to represent what the
results of operations of the combined entity may be in the future.
F-19
<PAGE> 65
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Historical
---------------------------------------------------
Sonus
Communication Empire One
Holdings, Telecomm.,
Inc. Inc. Adjustments Consolidated
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Telecommunications
services $ 1,635,042 $4,759,922 6,394,964
Installment sales 69,014 69,014
----------- ---------- ----------- ------------
TOTAL REVENUES 1,704,056 4,759,922 6,463,978
COSTS AND EXPENSES:
Direct expenses 1,951,519 3,298,621 5,250,140
General and
administrative 1,237,092 1,805,759 3,042,851
Amortization of cost
over net assets acquired (1) 226,729 226,729
----------- ---------- ----------- ------------
TOTAL OPERATING EXPENSES 3,188,611 5,104,380 226,729 8,519,720
----------- ---------- ----------- ------------
LOSS FROM OPERATIONS (1,484,555) (344,458) (226,729) (2,055,742)
OTHER EXPENSES:
Interest expense ( 5,100) (73,453) (78,553)
Merger related costs (261,611) - (261,611)
----------- ---------- ----------- ------------
TOTAL OTHER EXPENSES ( 266,711) (73,453) (340,164)
----------- ---------- ----------- ------------
NET LOSS $(1,751,266) $(417,911) $(226,729) $(2,395,906)
=========== ========== =========== ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 3,965,071 5,030,928
=========== ========== =========== ============
BASIC LOSS PER SHARE $ (0.44) $ (0.48)
=========== ========== =========== ============
</TABLE>
- -------------------------------------------------------------------------------
1/ Adjustment to amortize the excess of purchase price over net assets acquired
if EOT had been acquired as of the beginning of the period. The calculation is
based on a 15 year life.
F-20
<PAGE> 66
================================================================================
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
<TABLE>
<CAPTION>
PAGE
<S> <C>
Summary........................................................................4
Risk Factors...................................................................6
Cautionary Statement About Forward-Looking Statements.........................15
Recent Developments...........................................................15
Use Of Proceeds...............................................................15
Determination Of The Offering Price...........................................16
Capitalization................................................................16
Dividend Policy...............................................................16
Business......................................................................17
History.......................................................................20
Management's Discussion And Analysis..........................................22
Description Of Property.......................................................26
Certain Market Information....................................................26
Management....................................................................27
Executive Compensation........................................................29
Certain Relationships And Related Transactions................................32
Security Ownership Of Certain Beneficial Owners And Management................33
Conditional Right To Acquire Certain Securities...............................36
Selling Security Holders......................................................37
Plan Of Distribution..........................................................40
Shares Eligible For Future Sale...............................................41
Sales Of Restricted Securities................................................41
Recent Sales Of Unregistered Securities.......................................43
Description Of Securities.....................................................42
Delaware Anti-Takeover Law....................................................43
Certain Provisions Of The Articles Of Incorporation And Bylaws................43
Transfer Agent................................................................44
Legal Matters.................................................................44
Experts.......................................................................44
Additional Information........................................................44
Financial Statements.........................................................F-1
</TABLE>
================================================================================
================================================================================
================================================================================
3,170,435 Shares
1,013,970 Warrants to Purchase Shares
SONUS COMMUNICATION HOLDINGS, INC.
Common Stock and Warrants
-----------------------------------
Prospectus
-----------------------------------
Date:____________
================================================================================
<PAGE> 67
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 of 1933 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 of 1933 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.
<TABLE>
<CAPTION>
Expense Estimated Amount
-------- ----------------
<S> <C>
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
=======
</TABLE>
<PAGE> 68
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In May 1998, our predecessor, The Park Group, Limited issued 162,877
shares (after giving effect to the 1 for 262.154216 reverse stock split approved
by shareholders on January 29, 1999) of its common stock to a group of five
existing shareholders, comprised of three directors, the sister-in-law of one of
such directors and a consulting company in exchange for cancellation of
indebtedness in an aggregate amount of $21,645. The Park Group relied upon the
exemption from registration contained in Section 4(2) of the Securities Act of
1933 in offering and selling such shares without registration under the Act.
Each of the purchasers entered into common stock purchase agreements with The
Park Group wherein they represented to The Park Group that they were accredited
investors within the meaning of Rule 501(a) promulgated under the Securities
Act.
In November 1998, The Park Group sold 56,436 shares (after giving
effect to the reverse stock split) of its common stock to the same group of five
existing shareholders, for an aggregate of $7,500 in cash. Park Group relied
upon the exemption from registration contained in Section 4(2) of the Securities
Act of 1933 in offering and selling such shares without registration under the
Act. Each of the purchasers entered into common stock purchase agreements with
The Park Group wherein they represented to The Park Group that they were
accredited investors within the meaning of Rule 501(a) promulgated under the
Securities Act.
On January 21, 1999, we 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 sophisticated 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, and
$75,000 in cash. We 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 Securities Act. We relied upon representations and
warranties of the investors in the private placement contained in the
subscription agreements entered into with the private placement investors, to
the effect that the investors were accredited investors, as well as investor
questionnaires completed by the investors.
In March 1999, the 750,000 shares sold to investors on January 21,
1999 were converted, on a one-for-one basis, into shares of The Park Group in
connection with the merger with The Park Group. The Park Group assumed the
warrants received by the placement agent and registration obligations of Sonus
Communications, Inc. The Park Group relied upon the exemption from registration
contained in Section 4(2) of the Securities Act of 1933 in exchanging such
shares without registration under such Act.
In April 1999, Park Group merged with and into Sonus Communication
Holdings, Inc. The sole purpose of the merger was to reincorporate in Delaware.
The issued and outstanding shares of Park Group were automatically converted, on
a one-for-one basis, into shares of Sonus Communication Holdings, Inc. common
stock. Sonus Communication Holdings, Inc. assumed Park Group's obligations with
respect to all outstanding securities, including the warrants issued to the
placement agent and the registration obligations of Park Group.
In May 1999, we sold $575,000 original principal amount of our 10%
convertible debentures to 26 sophisticated accredited corporate and individual
investors pursuant to Rule 506 of Regulation D promulgated under the Securities
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. We relied on information provided and representations made by purchasers
of the debentures in claiming exemption from the registration obligations of the
Securities Act.
<PAGE> 69
Under the terms of the debenture agreement, the principal amount of
the debentures plus accrued interest was automatically converted into shares of
our 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. We 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, reducing the effective conversion price to
$1.00 per share.
In June 1999, we commenced a private placement of equity units, each
unit consisting of one share of common stock and one common stock purchase
warrant, through L. Flomenhaft & Co., Inc., as placement agent. On August 4,
1999, we sold $500,000 of its units to 10 sophisticated accredited individual
and corporate 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 equity offering was exempt from registration under the Securities Act of
1933 pursuant to Section 4(2) of such Act and under Rule 506 of Regulation D
promulgated under the Securities Act of 1933. We relied upon representations and
warranties made by investors in the unit offering in the Subscription Agreement
attached as Exhibit 4.1 to our Form 10-QSB for the quarter ended June 30, 1999
and upon Statements of Accredited Investors signed by such investors and
delivered to us.
As part of the unit equity offering, we granted registration rights
to the investors as set forth in the Subscription Agreement referred to above.
The registration rights provide that, within 45 days after the later of the
completion of the last closing in the unit equity offering or the date we
terminate the offering, we 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 that we are not obligated to
file or maintain the effectiveness of any registration statement if we
determine, in the exercise of our reasonable good faith judgement that such
registration would have a material adverse effect on our business prospects,
finances or operations; or that such registration would interfere with any
material financing, disposition, corporate reorganization or other material
transaction. We 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 we breach our obligations to file or to maintain the
effectiveness of the registration statement or are unable to restore
effectiveness within 90 days of a failure to maintain, we will pay liquidated
damages to each holder of registrable securities purchased in the unit equity
offering. The liquidated damages are five percent 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 we are
current in our obligations or until the shares are exempt from registration
provisions pursuant to Rule 144 of the Securities Act.
As part of a $2.5 million private offering of our common stock, we
sold an aggregate of 1,851,504 shares of common stock in November, 1999 and
January, 2000 for approximately $2,499,500 to 43 sophisticated individual and
corporate accredited investors, reflecting a $1.35 per share offering price. L.
Flomenhaft & Co., Inc. and Hudson Allen & Co. acted as placement agents in
connection with this offering.
<PAGE> 70
Securities were sold in the offering at three separate closings conducted on
November 22, 1999, January 5, 2000 and January 26, 2000. We sold 418,140 shares
of common stock on November 22, 199 for approximately $564,500, 1,088,939 shares
of common stock on January 5, 2000 for approximately $1,470,000, and 344,425
shares of common stock on January 26, 2000 for approximately $465,000. The
placement agents received warrants to purchase 62,720 shares of common stock at
$1.35 per share and $56,449 in cash in connection with the closing on November
22, received warrants to purchase an aggregate of 143,378 shares of common stock
at $1.35 and $147,000 in cash in connection with the closing on January 5, 2000
and warrants to purchase an aggregate of 51,664 shares of common stock and
approximately $46,500 in cash in connection with the closing on January 26,
2000.
We relied on Section 4(2) of the Act, and on Rule 506 of Regulation
D promulgated thereunder, in issuing the shares in the $2.5 million offering
without registering the offering under the Act. We relied upon representations
and warranties of the investors contained in the subscription agreements entered
into with the private placement investors, to the effect that such investors
were accredited investors and on investor questionnaires completed by such
investors.
<PAGE> 71
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, Empire
One 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.
<PAGE> 72
4.14 32,812 Unit Placement Agent Warrants issued to L. Flomenhaft dated
August 3, 1999.
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
22 Subsidiaries of the Company: Sonus Communication, Inc., a Virginia
corporation, and Empire One Acquisition Corporation, a Delaware
corporation.
23.1 Consent of Lazar, Levine & Felix LLP for the use of Sonus
Communications, Inc. Independent Auditors' Report dated February 10,
2000.
23.2 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.
<PAGE> 73
ITEM 28. UNDERTAKINGS
The undersigned Company hereby undertakes to:
(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 of 1933 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 of 1933 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 of 1933 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.
<PAGE> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this amendment to the Registration
Statement to be signed on its behalf by the undersigned hereunto duly
authorized, in the city of Arlington, State of Virginia, on the 22nd day of
March, 2000.
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, as
amended, this amendment to the Registration Statement has been signed by the
following persons on the 22nd day of March, 2000, 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
- -------------------
<PAGE> 75
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, Empire
One 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.
<PAGE> 76
4.14 32,812 Unit Placement Agent Warrants issued to L. Flomenhaft dated
August 3, 1999.
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
22 Subsidiaries of the Company: Sonus Communication, Inc., a Virginia
corporation, and Empire One Acquisition Corporation, a Delaware
corporation.
23.1 Consent of Lazar, Levine & Felix LLP for the use of Sonus
Communications, Inc. Independent Auditors' Report dated February 10,
2000.
23.2 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.
<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>
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<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>
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<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.
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<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.
2
<PAGE> 10
"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
3
<PAGE> 11
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
4
<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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<PAGE> 57
(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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<PAGE> 58
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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<PAGE> 59
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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<PAGE> 60
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
53
<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.
-4-
<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,
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<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
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<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
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<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
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<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
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<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
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<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
EXHIBIT 4.11
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.
CONSULTING WARRANT
WARRANT TO PURCHASE 487,500 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 "Consultant"), 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 Consulting Warrant, together with all warrants
issued in replacement hereof and warrants held by Holders in respect hereof, is
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". This Warrant is granted pursuant to and in accordance with the
Consulting Agreement of even date herewith entered into by and between the
Company and the Consultant.
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
<PAGE> 2
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 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 487,500 shares of the Company's Common Stock, as adjusted as provided
herein.
Section 8. Exercise Price.
(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 92 cents ($0.92); provided, however, that if the Company, on
or before March 1, 1999, (i) consummates a merger with the Park Group, Ltd. (the
"Proposed Park Group Merger"), or (ii) consummates another transaction, pursuant
to which a class of equity securities of the Company or its successor becomes
registered under Section 12 of the Securities Act of 1933 and the Company
becomes obligated to file periodic reports under Section 13 of the Securities
Exchange Act of 1934 (which transactions, together with the Proposed Park Group
Merger, are sometimes referred to herein as a "Qualifying Transaction"), the
Exercise Price for each of the Warrant Shares purchasable under this Warrant
shall be equal $4.0 million divided by the number of Shares outstanding after
completion of the Qualifying Transaction.
(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) 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
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<PAGE> 4
the assets of the Company to another corporation, other than a Qualifying
Transaction or other transaction pursuant to which an adjustment is made under
Section 8(c) hereof, 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 (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.
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<PAGE> 5
(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 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").
-5-
<PAGE> 6
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
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 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
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<PAGE> 7
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
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 pursuant to this Agreement,
the Company will keep you 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) 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 you, should you 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.
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<PAGE> 8
(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 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 issuable hereunder, and (ii)
securities issued upon exercise of the warrants issuable pursuant to that
certain Placement Agent Agreement of even date herewith, 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.
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<PAGE> 9
(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 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
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<PAGE> 10
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> 11
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> 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 4.12
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.
-6-
<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.
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<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:
-------------------------
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<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
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<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.
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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
-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.
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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: 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
-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
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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.
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<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.
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<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
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<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]
March 20, 2000
Sonus Communication Holdings, Inc.
1600 Wilson Blvd., Suite 1008
Arlington, Virginia 22201
Sonus Communication Holdings, Inc. Ammendment No.1 to 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
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<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.
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<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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<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:
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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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.
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**********
8
<PAGE> 9
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
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 amendment No. 1 to the Registration
Statement on Form SB-2 of our report dated February 10, 2000, relating to the
consolidated financial statements of Sonus Communication Holdings, Inc. as of
and for the years ended December 31, 1999 and 1998 an to the reference to our
firm under the caption "Experts" in this registration statement.
LAZAR LEVINE & FELIX, LLP
New York, New York
March 15, 2000
