EXHIBIT 99.8
THIS DEBENTURE, AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE (COLLECTIVELY,
THE "SECURITIES"), HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE. THE
SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM REGISTRATION UNDER
REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). THE SECURITIES ARE "RESTRICTED" AND MAY NOT BE OFFERED OR SOLD UNLESS
THE SECURITIES ARE REGISTERED UNDER THE ACT, PURSUANT TO REGULATION D OR
PURSUANT TO AVAILABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE ACT
AND THE COMPANY WILL BE PROVIDED WITH OPINION OF COUNSEL OR OTHER SUCH
INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE
EXCEPT IN COMPLIANCE WITH THE ACT.
DEBENTURE
EPHONE TELECOM INC.
5% Convertible Debenture
Due June 24, 2005
No. ___ $125,000
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This Debenture is issued by EPHONE TELECOM INC., a Florida corporation
(the "Company"), to CORNELL CAPITAL PARTNERS, LP (together with its permitted
successors and assigns, the "Holder") pursuant to exemptions from registration
under the Securities Act of 1933, as amended.
ARTICLE I.
Section 1.01 Principal and Interest. For value received, on June 24, 2003, the
Company hereby promises to pay to the order of the Holder in lawful money of the
United States of America and in immediately available funds the principal sum of
One Hundred Twenty-Five Thousand Dollars (US $125,000), together with interest
on the unpaid principal of this Debenture at the rate of five percent (5%) per
year (computed on the basis of a 365-day year and the actual days elapsed) from
the date of this Debenture until paid. At the Company's option, the entire
principal amount and all accrued interest shall be either (a) paid to the Holder
on the second (2nd) year anniversary from the date hereof or (b) converted in
accordance with Section 1.02 herein.
Section 1.02 Optional Conversion. The Holder is entitled, at its option, to
convert, and sell on the same day, at any time and from time to time, until
payment in full of this Debenture, all or any part of the principal amount of
the Debenture, plus accrued interest, into shares (the "Conversion Shares") of
the Company's common stock, par value $0.001 per share ("Common Stock"), at the
price per share (the "Conversion Price") equal to the lesser of (a) an amount
equal to one-hundred twenty percent (120%) of the closing bid price of the
Common Stock as listed on a Principal Market (as defined herein) as quoted by
Bloomberg L.P. (the "Closing Bid Price") on the Closing Date, or (b) an amount
equal to eighty percent (80%) of the average of the two (2) lowest Closing Bid
Prices of the Common Stock for the five (5) trading days immediately preceding
the Conversion Date (as defined herein). Subparagraphs (a) and (b) above are
individually referred to as a "Conversion Price". As used herein, "Principal
Market" shall mean The National Association of Securities Dealers Inc.'s
Over-The-Counter Bulletin Board, Nasdaq SmallCap Market, or American Stock
Exchange. If the Common Stock is not traded on a Principal Market, the Closing
Bid Price shall mean, the reported Closing Bid Price for the Common Stock, as
furnished by the National Association of Securities Dealers, Inc., for the
applicable periods. No fraction of shares or scrip representing fractions of
shares will be issued on conversion, but the number of shares issuable shall be
rounded to the nearest whole share. To convert this Debenture, the Holder hereof
shall deliver written notice thereof, substantially in the form of Exhibit "A"
to this Debenture, with appropriate insertions (the "Conversion Notice"), to the
Company at its address as set forth herein. The date upon which the conversion
shall be effective (the "Conversion Date") shall be deemed to be the date set
forth in the Conversion Notice.
Section 1.03 Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of this Debenture, such number of shares
of Common Stock as shall from time to time be sufficient to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within sixty
(60) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
Section 1.04 Registration Rights. The Company is obligated to register the
resale of the Conversion Shares under the Securities Act of 1933, as amended,
pursuant to the terms of a Registration Rights Agreement, between the Company
and the Holder of even date herewith (the "Investor Registration Rights
Agreement").
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Section 1.05 Interest Payments. The interest so payable will be paid at the time
of maturity or conversion to the person in whose name this Debenture is
registered. At the time such interest is payable, the Holder, in its sole
discretion, may elect to receive the interest in cash (via wire transfer or
certified funds) or in the form of Common Stock. In the event of default, as
described in Article III Section 3.01 hereunder, the Holder may elect that the
interest be paid in cash (via wire transfer or certified funds) or in the form
of Common Stock. If paid in the form of Common Stock, the amount of stock to be
issued will be calculated as follows: the value of the stock shall be the
Closing Bid Price on: (i) the date the interest payment is due; or (ii) if the
interest payment is not made when due, the date the interest payment is made. A
number of shares of Common Stock with a value equal to the amount of interest
due shall be issued. No fractional shares will be issued; therefore, in the
event that the value of the Common Stock per share does not equal the total
interest due, the Company will pay the balance in cash.
Section 1.06 Paying Agent and Registrar. Initially, the Company will act as
paying agent and registrar. The Company may change any paying agent, registrar,
or Company-registrar by giving the Holder not less than ten (10) business days'
written notice of its election to do so, specifying the name, address, telephone
number and facsimile number of the paying agent or registrar. The Company may
act in any such capacity.
ARTICLE II.
Section 2.01 Amendments and Waiver of Default. The Debenture may not be amended
with the consent of the Holder. Notwithstanding the above, without the consent
of the Holder, the Debenture may be amended to cure any ambiguity, defect or
inconsistency, to provide for assumption of the Company obligations to the
Holder or to make any change that does not adversely affect the rights of the
Holder.
ARTICLE III.
Section 3.01 Events of Default. An Event of Default is defined as follows: (a)
failure by the Company to pay amounts due hereunder within fifteen (15) days of
the date of maturity of this Debenture; (b) failure by the Company to comply
with the terms of the Irrevocable Transfer Agent Instructions attached to the
Securities Purchase Agreement; (c) failure by the Company's transfer agent to
issue freely tradeable Common Stock to the Holder within five (5) days of the
Company's receipt of the attached Notice of Conversion from Holder; (d) failure
by the Company for ten (10) days after notice to it to comply with any of its
other agreements in the Debenture; (e) events of bankruptcy or insolvency; (f) a
breach by the Company of its obligations under the Securities Purchase Agreement
or the Investor Registration Rights Agreement which is not cured by the Company
within ten (10) days after receipt of written notice thereof.
Section 3.02 Failure to Issue Unrestricted Common Stock. As indicated in Article
III Section 3.01, a breach by the Company of its obligations under the Investor
Registration Rights Agreement shall be deemed an Event of Default, which if not
cured within ten (10) days, shall entitle the Holder accelerate full repayment
of all debentures outstanding and accrued interest thereon. The Company
acknowledges that failure to honor a Notice of Conversion shall cause
irreparable harm to the Holder.
ARTICLE IV.
Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or in
part, may be converted at any time following the date of closing, into shares of
Common Stock at a price equal to the Conversion Price as described in Section
1.02 above.
Section 4.02 Re-issuance of Debenture. When the Holder elects to convert a part
of the Debenture, then the Company shall reissue a new Debenture in the same
form as this Debenture to reflect the new principal amount.
Section 4.03 Termination of Conversion Rights. The Holder's right to convert the
Debenture into the Common Stock in accordance with paragraph 4.01 shall
terminate on the date that is the second (2nd) year anniversary from the date
hereof and this Debenture shall be automatically converted on that date in
accordance with the formula set forth in Section 4.01 hereof, and the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.
ARTICLE V.
Section 5.01 Anti-dilution. In the event that the Company shall at any time
subdivide the outstanding shares of Common Stock, or shall issue a stock
dividend on the outstanding Common Stock, the Conversion Price in effect
immediately prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in the event that the Company shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased,
effective at the close of business on the date of such subdivision, dividend or
combination as the case may be.
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Section 5.02 Consent of Holder to Sell Capital Stock or Grant Security
Interests. Except for the Equity Line of Credit Agreement dated the date hereof
between the Company and Cornell Capital Partners, LP. so long as any of the
principal of or interest on this Note remains unpaid and unconverted, the
Company shall not, without the prior consent of the Holder, issue or sell (i)
any Common Stock or Preferred Stock without consideration or for a consideration
per share less than its fair market value determined immediately prior to its
issuance, (ii) issue or sell any Preferred Stock, warrant, option, right,
contract, call, or other security or instrument granting the holder thereof the
right to acquire Common Stock without consideration or for a consideration per
share less than such Common Stock's fair market value determined immediately
prior to its issuance, (iii) enter into any security instrument granting the
holder a security interest in any and all assets of the Company or (iv) file any
registration statement on Form S-8.
ARTICLE VI.
Section 6.01 Notice. Notices regarding this Debenture shall be sent to the
parties at the following addresses, unless a party notifies the other parties,
in writing, of a change of address:
If to the Company, to: ePhone Telecom Inc.
1145 Herndon Parkway - Suite 100
Herndon, VA 20170
Attention: Carmine Taglialatela, Jr., CEO
Telephone: (703) 787-7000
Facsimile: (707) 787-7009
With a copy to: Kirkpatrick & Lockhart LLP
201 South Biscayne Boulevard - Suite 2000
Miami, FL 33131-2399
Attention: Clayton E. Parker, Esq.
Telephone: (305) 539-3300
Facsimile: (305) 358-7095
If to the Holder: Cornell Capital Partners, LP
c/o Yorkville Advisors LLC
101 Hudson Street, Suite 3606
Jersey City, NJ 07303
Telephone: (201) 985-8300
Facsimile: (201) 985-8266
With a copy to: Butler Gonzalez LLP
1000 Stuyvesant Avenue - Suite 6
Union, NJ 07083
Attention: David Gonzalez, Esq.
Telephone: (908) 810-8588
Facsimile: (908) 810-0973
Section 6.02 Governing Law. This Debenture shall be deemed to be made under and
shall be construed in accordance with the laws of the State of Florida without
giving effect to the principals of conflict of laws thereof. Each of the parties
consents to the jurisdiction of the U.S. District Court sitting in the District
of the State of New Jersey or the state courts of the State of New Jersey
sitting in Hudson County, New Jersey in connection with any dispute arising
under this Debenture and hereby waives, to the maximum extent permitted by law,
any objection, including any objection based on forum non conveniens to the
bringing of any such proceeding in such jurisdictions.
Section 6.03 Severability. The invalidity of any of the provisions of this
Debenture shall not invalidate or otherwise affect any of the other provisions
of this Debenture, which shall remain in full force and effect.
Section 6.04 Entire Agreement and Amendments. This Debenture represents the
entire agreement between the parties hereto with respect to the subject matter
hereof and there are no representations, warranties or commitments, except as
set forth herein. This Debenture may be amended only by an instrument in writing
executed by the parties hereto.
Section 6.05 Counterparts. This Debenture may be executed in multiple
counterparts, each of which shall be an original, but all of which shall be
deemed to constitute on instrument.
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IN WITNESS WHEREOF, with the intent to be legally bound hereby, the
Company as executed this Debenture as of the date first written above.
EPHONE TELECOM INC.
By:/s/ Carmine Taglialatela, Jr.
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Name: Carmine Taglialatela, Jr.
Title: CEO
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EXHIBIT "A"
NOTICE OF CONVERSION
(To be executed by the Holder in order to Convert the Note)
TO:
The undersigned hereby irrevocably elects to convert $ of the principal
amount of the above Note into Shares of Common Stock of ePhone Telecom Inc.
according to the conditions stated therein, as of the Conversion Date written
below.
Conversion Date:
Applicable Conversion Price:
Amount to be converted: $
Amount of Debenture unconverted: $
Number of shares of Common Stock to be
issued:
Amount of Interest converted: $
Applicable Conversion Price:
Number of shares of Common Stock to be
issued:
Amount of Liquidated Damages
converted: $
Applicable Conversion Price:
Number of shares of Common Stock to be
issued:
Number of shares of Common Stock to be
issued:
Please issue the shares of Common Stock
in the following name and to the
following address:
Issue to:
Address:
Authorized Signature:
Name:
Title:
Phone Number:
Broker DTC Participant Code:
Account Number: