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EXHIBIT 4.2
THIS DEBENTURE AND THE SHARES OF COMMON STOCK OF SONUS COMMUNICATION HOLDINGS,
INC., A DELAWARE CORPORATION (THE "BORROWER") INTO WHICH THIS DEBENTURE MAY
BECOME CONVERTIBLE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE
BORROWER THAT SUCH REGISTRATION IS NOT REQUIRED.
SONUS COMMUNICATION HOLDINGS, INC.
15% SECURED SUBORDINATED CONVERTIBLE DEBENTURE
January 3, 2001
New York, New York
$80,000
FOR VALUE RECEIVED, SONUS COMMUNICATION HOLDINGS, INC., a Delaware
corporation ("Borrower"), hereby promises to pay to the order of QUADRANT
MANAGEMENT, INC., with an address at 000 Xxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000 ("Lender") the principal sum of Eighty Thousand Dollars ($80,000),
together with interest accrued thereon at an interest rate equal to fifteen
percent (15%) per annum on the date (the "Maturity Date") that is the earlier of
(i) ninety (90) days from the date first set forth above; (ii) the date of
closing of the funding of the $500,000 subordinated convertible debenture to be
provided by the Lender pursuant to the letter from lender to Borrower dated
December 21, 2000; or (iii) upon the closing of any other financing in excess of
$200,000. Anything to the contrary herein notwithstanding, no payment of
principal or interest shall be required to be made by Borrower to the extent
such principal or interest is converted into shares of common stock of the
Borrower (the "Common Stock") as provided herein.
The obligations of Borrower hereunder are guaranteed by EMPIRE ONE
TELECOMMUNICATIONS, INC., a Delaware corporation and wholly owned subsidiary of
Borrower ("Guarantor"). The obligations of Xxxxxxxx and Guarantor hereunder
shall be secured by a security interest granted in certain assets of the
Borrower and Guarantor as provided in that certain Security Agreement (the
"Security Agreement") by and among the Borrower, Guarantor and Xxxxxx dated of
even date herewith. Xxxxxx agrees and acknowledges that the security interest
granted therein shall be subordinated to the Permitted Liens (within the meaning
of the Security Agreement) and otherwise as provided in the Security Agreement.
Notwithstanding any other provision hereof, interest paid or becoming
due hereunder shall in
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no event exceed the maximum rate permitted by applicable law. Both principal and
interest are payable in lawful money of the United States of America to the
Lender at the address above indicated.
This Debenture and the provisions hereof are to be construed according
to, and are governed by, the laws of the State of Delaware, without regard to
principles of conflicts of laws thereof, and this Debenture is further subject
to the following additional provisions:
1. Events of Default. (a) If one or more of the following events (herein
called "Events of Default") shall have occurred and be continuing, that is to
say:
(i) If the Borrower shall default in the payment of the
principal or interest of this Debenture after the same shall become due
and payable, and such default shall not have been remedied within thirty
(30) days after written notice thereof to Borrower; or
(ii) If the Borrower or any of its subsidiaries shall (1)
commence any proceeding or other action relating to it in bankruptcy or
seek reorganization, arrangement, readjustment of its debts,
dissolution, liquidation, winding-up, composition or any other relief
under the U.S. Bankruptcy Code, or under any other insolvency,
reorganization, liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law, of any
jurisdiction; or (2) admit the material allegations of any petition or
pleading in connection with any such proceeding; or (3) apply for, or
consent or acquiesce to, the appointment of a receiver, conservator,
trustee or similar officer for it or for all or a substantial part of
its property; or (4) make a general assignment for the benefit of
creditors; or (5) have any of the foregoing proceedings commenced
against it by a third party and such proceeding or proceedings are not
vacated within ninety (90) days;
then the holder of this Debenture may, at any time thereafter, at its option by
written notice to the Borrower, declare the principal and all accrued interest
thereon to be immediately due and payable, and thereupon the same shall become
so due and payable.
(b) Non-Waiver and Other Remedies. No course of dealing or delay
on the part of Lender in exercising any right hereunder shall operate as a
waiver thereof or otherwise prejudice the right of any holder. No remedy
conferred hereby shall be exclusive of any other remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise. In case
of any Event of Xxxxxxx, Xxxxxxxx will reimburse the Lender for its reasonable
attorneys' fees incurred in connection with the enforcement of its rights
hereunder.
2. Conversion Feature; Mechanics of Conversion or Cash Payment.
(a) At any time on or prior to the Maturity Date, the Lender may,
at its option, convert all or such portion of outstanding principal and accrued
but unpaid interest hereon (the "Outstanding Amount") as Lender may designate in
writing, into such number of shares of Borrower's Common Stock (the "Conversion
Shares") as is equal to the quotient obtained by dividing (A) the Outstanding
Amount, or in the case of a partial conversion of this Debenture, such
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portion of the Outstanding Amount as Lender may specify in writing to Borrower,
by (B) Five Cent ($.05) (the "Conversion Price"), rounded to the nearest whole
share, by providing the Borrower with written notice thereof (the "Conversion
Notice"). Accrued interest hereon shall be converted prior to conversion of any
outstanding principal.
(b) Mechanics and Effect of Conversion. No fractional shares of
the Borrower's Common Stock will be issued upon conversion of this Debenture. In
lieu of any fractional share to which the Lender would otherwise be entitled,
the Borrower will pay to Lender in cash the amount of the unconverted portion of
this Debenture that would otherwise be converted into such fractional shares.
Upon conversion of this Debenture, Xxxxxx shall surrender this Debenture, duly
endorsed, at the principal offices of the Borrower or any transfer agent of the
Borrower. At its expense, the Borrower will, as soon as practicable thereafter,
issue and deliver to Lender a certificate or certificates for the number of
shares of Common Stock to which Lender is entitled upon such conversion,
together with such other securities and property to which Lender is entitled
upon such conversion under the terms of this Debenture, including a check
payable to Lender for any cash amounts payable as described herein. Upon
conversion of this Debenture, the Borrower will be forever released from all of
its obligations and liabilities under this Debenture, including without
limitation the obligation to pay the principal and interest due and payable
under this Debenture.
(c) Mechanics of Cash Payment. Upon request for payment of this
Debenture at any time after the Maturity Date, Xxxxxx shall surrender this
Debenture, duly endorsed, at the principal offices of the Borrower. At its
expense, the Borrower will, as soon as practicable thereafter, make a cash
payment in lawful money of the United States of the principal and interest due
and payable under this Debenture. Upon request for payment and satisfaction
thereof, the Borrower shall be forever released from all of its obligations and
liabilities under this Debenture, including without limitation any conversion
rights otherwise applicable under this Debenture.
(d) Adjustment for Merger or Reorganization, Etc. In case of any
consolidation or merger of the Borrower with or into another corporation, or the
conveyance of all or substantially all of the assets of the Borrower to another
corporation, or upon a stock split, stock dividend, consolidation or like event,
this Debenture shall thereafter be convertible into the number of shares of
stock or other securities or property to which a holder of the same number of
shares of Common Stock deliverable upon conversion of this Debenture would have
been entitled upon such event; and, in any such case, appropriate adjustment
shall be made to the Conversion Price, as is appropriate for the circumstances,
to the extent that the provisions set forth herein shall be thereafter
applicable in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Debenture.
(e) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price, the Borrower at its expense
promptly shall compute such adjustment or readjustment and furnish to the holder
of this Debenture a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, which shall be conclusive absent manifest error.
(f) Further Adjustments. In case at any time conditions arise
which in the opinion of
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the Board of Directors or in the opinion of the Lender, are not adequately
covered by the provisions of this Section 2, or which might materially and
adversely affect the rights of the Lender in connection with the conversion of
the Debentures, then the Board of Directors shall appoint a firm of independent
certified public accountants of recognized national or regional standing, who
shall give their opinion upon the adjustment, if any, necessary with respect to
the Conversion Price, so as to preserve the conversion rights of the Lender.
Upon receipt of such opinion, the Board of Directors forthwith shall make the
adjustments described therein.
3. Representations and Warranties of Lender. Lender hereby represents
and warrants to Borrower as follows:
a. Purchase Entirely for Own Account, Etc.. The Conversion Shares
to be acquired by Xxxxxx hereunder upon conversion of this Debenture will be
acquired for investment for Xxxxxx's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof. Lender has no
present intention of selling, granting any participation in, or otherwise
distributing this Debenture or the Conversion Shares. Lender does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to any person with respect to this Debenture or
the Conversion Shares. The Lender has not construed the contents of this
Debenture, or any additional agreement with respect to the proposed investment
in the Shares or any prior or subsequent communications from Borrower, or any of
its officers, employees or representatives, as investment, tax or legal advice,
or as information necessarily applicable to such Xxxxxx's particular financial
situation. The Lender has consulted its own financial advisor, tax advisor,
legal counsel and accountant, as necessary or desirable, as to matters
concerning his investment in the Conversion Shares.
b. Disclosure. Lender has received or reviewed all the
information which such Lender has requested for the purposes of determining the
merits of the Conversion Shares as an investment. Xxxxxx has also received and
reviewed a copy of the Company's audited financial statements for the period
ended September 30, 2000 and other filings made with the Securities Exchange
Commission (the "Commission"). Xxxxxx has had an opportunity to ask questions
and receive answers from the Borrower regarding the Borrower, its business, and
the terms and conditions of the conversion of this Debenture and the Conversion
Shares. XXXXXX ACKNOWLEDGES AND AGREES THAT THE CONVERSION OF THE DEBENTURE
INVOLVES A HIGH DEGREE OF RISK, AND MAY RESULT IN A LOSS OF THE ENTIRE AMOUNT
CONVERTED. THERE IS NO ASSURANCE THAT THE BORROWER'S OPERATIONS WILL BE
PROFITABLE IN THE FUTURE OR THAT ANY PUBLIC MARKET FOR THE SHARES WILL BE
AVAILABLE.
c. Accredited Lender. Lender is, as of the date hereof and as of
the date all or any portion of this Debenture is converted into Conversion
Shares, an accredited Lender as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933, as amended ("Securities Act"). Lender is capable of
bearing the economic risk of an investment in the Conversion Shares, including
the possible loss of Xxxxxx's entire investment. Lender has such knowledge and
experience in financial or business matters that it is capable of evaluating the
merits and risks of an investment in the Conversion Shares offered hereby. If
other than an individual, Lender has not been organized
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solely for the purpose of acquiring the Conversion Shares.
d. Restricted Securities. Xxxxxx understands that the Conversion
Shares are "restricted securities" as defined in the Securities Act, and that
under federal and state securities laws the Conversion Shares may be resold
without registration under the Securities Act only in certain limited
circumstances. Xxxxxx is familiar with Rule 144 promulgated by the Commission
under the Securities Act, and understands the resale limitations imposed thereby
and by the Securities Act generally. Xxxxxx also acknowledges that the Shares
are subject to significant restrictions on transfer, pledge or hypothecation.
e. Legends. It is understood that certificates or other evidence
of the Conversion Shares may bear the following legend, as well as any legend
required by the laws of any state:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH
REGISTRATION IS NOT REQUIRED PURSUANT TO A VALID EXEMPTION
THEREFROM UNDER THE SECURITIES ACT OF 1933, AS AMENDED."
4. Covenants of Lender. Lender hereby covenants with Borrower
that Lender shall not make any disposition of all or any portion of the
Conversion Shares unless and until:
a. There is then in effect a registration statement under
the Securities Act covering such proposed disposition, and such disposition is
made in accordance with such registration statement; or
b. Such Lender shall have notified Borrower of the
proposed disposition and shall have furnished Borrower with a detailed statement
of the circumstances surrounding the proposed disposition, and, if requested by
Xxxxxxxx, Lender shall have furnished Borrower with an opinion of counsel, in
form and substance satisfactory to Borrower, that such disposition will not
require registration of the Conversion Shares under the Securities Act.
5. Covenants of Borrower. The Borrower covenants and agrees that
for so long as this Debenture shall remain outstanding the Borrower:
a. will cause to be reserved and kept available out of
its authorized and unissued shares of Common Stock such number of shares that
will be sufficient to permit the conversion in full of all outstanding
Debentures;
b. will take all such action as may be necessary to ensure
that all shares of Common Stock delivered upon conversion of the Debentures
shall, at the time of delivery of the certificates for such shares, be duly and
validly authorized, issued, fully paid and non-assessable;
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c. will duly and punctually pay, or cause to be paid, the
principal and interest on this Debenture on the date(s) on which such principal
and interest comes due and payable in accordance with the terms hereof;
d. will preserve and keep in full force and effect its
corporate existence;
e will not declare or pay any cash dividend or other
distribution on the Common Stock or make, or directly or indirectly assume, any
liability or obligation in connection with any distribution of any sort in
respect to its Common Stock.
SONUS COMMUNICATION HOLDINGS, INC.
By:
Xxxx X. Xxxxxxxx, President
FOR VALUE RECEIVED, Empire One Telecommunications, Inc., a Delaware
corporation and wholly owned subsidiary of Borrower ("EOT") guarantees to the
Lender hereunder the punctual payment of the principal and interest due and
payable under this Debenture at the time and in the manner specified in this
Debenture and according to the terms and conditions specified herein; provided,
however, that EOT does not and cannot guarantee any request for conversion of
the principal and interest hereunder into the Common Stock of the Borrower.
IN WITNESS WHEREOF, EOT has caused its corporate name to be attached
hereto by its president.
EMPIRE ONE TELECOMMUNICATIONS, INC.
By:
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Xxxx X. Xxxxxxxx, President
AGREED TO AND ACCEPTED BY:
QUADRANT MANAGEMENT, INC.
By:
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Name:
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Title:
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