AUDIUM CORPORATION
STOCK PURCHASE AGREEMENT
Dated as of April 5, 2001
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement") is made as of April 5,
2001, by and among Fonix Corporation, a Delaware corporation ("Investor"), and
Audium Corporation, a Delaware corporation (the "Company").
Agreement
The parties, intending to be legally bound, agree as follows:
1. Sale and Purchase of Preferred Stock.
1.1 Sale and Issuance of Preferred Stock.
(a) On or before the Closing (as defined below), the Company shall
adopt and file with the Secretary of State of Delaware the Certificate of
Designation in the form attached hereto as Exhibit A (the "Certificate").
(b) Subject to the terms and conditions of this Agreement, Investor
agrees to purchase at the Closing and the Company agrees to sell and issue to
Investor at the Closing (i) $2.8 million of shares of the Company's Series A
Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred
Stock"), and (ii) a note in the principal amount of $400,000 (the "Audium Note")
convertible into shares of Series A Preferred Stock in accordance with the
Audium Note (collectively, the "Securities"). The purchase price per share of
Series A Preferred Stock shall be $1.46 (the "Purchase Price") and the $3.2
million payable for the Securities is the "Investment Amount," which shall be
payable as provided below.
(c) At Closing, Investor shall (i) pay the Company $200,000 in
immediately available funds and (ii) issue a Promissory Note (the "Fonix Note")
in favor of the Company for $2.6 million in the form of Exhibit B to this
Agreement. The Fonix Note shall be payable in 13 consecutive monthly
installments beginning on June 1, 2001. The payment of Investor's obligations
under the Fonix Note shall be secured by the Series A Preferred Stock purchased
by Investor under this Agreement pursuant to the Security Agreement attached as
Exhibit C to this Agreement (the "Fonix Security Agreement"). The Fonix Security
Agreement shall terminate upon payment in full of the Fonix Note in accordance
with its terms.
(d) At the Closing, the Company shall issue 14 share certificates in
Investor's name, each for 136,986 shares of Series A Preferred Stock. The
Company shall deliver one certificate to Investor at Closing upon receipt of
$200,000 from Investor. The remaining certificates shall be held by the Company
pursuant to the Fonix Security Agreement. Thereafter, within three business days
of receipt of each $200,000 installment payment under the Fonix Note, the
Company shall release and deliver to Investor an additional certificate
representing 136,986 shares of Series A Preferred Stock (as may be adjusted to
give effect to any stock dividends, stock splits or similar recapitalizations)
until the Fonix Note is paid in full. The Company shall simultaneously reserve
for issuance 273,972 shares of Series A Preferred Stock for issuance upon
conversion of the Audium Note.
(e) At Closing, the Company shall issue Investor the Audium Note in the
amount of $400,000 in exchange for (i) cancellation of that certain convertible
promissory note issued by the Company in favor of Investor on February 28, 2001
(the "Old Note") and (ii) Investor's commitment to pay $197,600 in immediately
available funds to the Company on May 1, 2001. The Company's obligations under
the Audium Note shall be secured by the Company's intellectual property pursuant
to the Security Agreement attached as Exhibit J to this Agreement (the "Audium
Security Agreement") and a related license agreement (the "Audium License
Agreement") in the form of Exhibit L to this Agreement. The Audium Note shall
automatically convert into shares of Series A Convertible Preferred Stock, and
the Audium Security Agreement and the Audium License Agreement shall
automatically terminate, upon the Company's next funding with net proceeds to
the Company of no less than $2.0 million in accordance with the Audium Note.
(f) As described in the Fonix Note, Investor's obligation to make
monthly installment payments shall cease in the event of the Company's
bankruptcy or the cessation of its business resulting from financial insolvency
and certain related events. As described in the Certificate, if an Event of
Default shall occur (either as defined in the Fonix Note or Fonix Security
Agreement), then the protective provisions in Sections 4(b)(iv) through
4(b)(viii) of the Certificate shall be null and void; provided, however, that
such actions shall thereafter require the affirmative vote of the Company's
Board of Directors in lieu of a Series A Preferred Stock class vote.
1.2 Closing. The purchase and sale of the Securities shall
take place at the offices of ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, Dallas, Texas, at 10:00 a.m.,
local time, on April 9, 2001, or at such other time and place as the Company and
Investor mutually agree upon orally or in writing (the "Closing"). The time and
date of the Closing are referred to herein as the "Closing Date."
2. Representations and Warranties of the Company. Except as set forth
in the disclosure schedule of the Company (the "Disclosure Schedule") attached
hereto as Exhibit D, the Company hereby represents and warrants to Investor as
follows. The Disclosure Schedule shall be arranged in the order of the
paragraphs contained in Article 2.
2.1 Organization, Good Standing and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the Company.
2.2 Capitalization. The authorized capital of the Company
consists of the following:
(a) 7,500,000 shares of preferred stock, par value $.01
per share (the "Preferred Stock"), of which 5,000,000 shares
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will be designated Series A Preferred Stock upon filing of
the Certificate with the Secretary of State of Delaware,
none of which will be outstanding immediately prior to the
Closing and up to all of which may be sold pursuant to this
Agreement or issued upon conversion of the Notes (defined
below).
(b) 17,500,000 shares of common stock, par value $.01
per share (the "Common Stock"), of which 4,343,520 shares
are issued and outstanding as of the date of this Agreement.
(c) Except for (i) the conversion privileges under the
outstanding convertible notes in the principal amount of
$1,337,200 (the "Notes"), (ii) the conversion privileges of
the Series A Preferred Stock, (iii) the rights provided in
Section 7 of the Registration Rights Agreement (as defined
in Section 4.8), (iv) 1,590,678 shares of Common Stock
reserved for issuance under the Company's 2000 Stock Option
and Restricted Stock Plan, (v) 89,000 options for Common
Stock granted prior to adoption of the 2000 Stock Option and
Restricted Stock Plan, (vi) approximately 67,327 shares of
Common Stock issuable under the warrants issued in
conjunction with the Notes, (vii) approximately 57,842
shares of Common Stock issuable to the Company's investment
advisors in conjunction with the issuance of the Notes and
the Securities and (viii) shares of Series A Preferred Stock
and Common Stock issuable under this Agreement, there are no
outstanding options, warrants, rights (including conversion
or preemptive rights) or agreements for the purchase or
acquisition from the Company of any of its capital stock.
2.3 Subsidiaries. The Company does not presently own or
control, directly or indirectly, any interest in any other corporation,
association or other business entity other than FlashSpot Networks, Inc. The
Company is not a participant in any joint venture, partnership or similar
arrangement.
2.4 Authorization. All corporate action on the part of the
Company, its officers, directors and stockholders necessary for the
authorization, execution and delivery of this Agreement and the agreements and
documents to be executed and delivered in accordance herewith (the "Transaction
Documents"), the performance of all obligations of the Company hereunder and
thereunder, and the authorization, issuance (or reservation for issuance), sale
and delivery of the Securities being sold hereunder has been taken or will be
taken prior to the Closing, and the Transaction Documents constitute valid and
legally binding obligations of the Company, enforceable in accordance with their
respective terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally, (b) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (c) to the extent the indemnification provisions contained in the
Transaction Documents may be limited by applicable federal or state securities
laws.
2.5 Valid Issuance of Securities. The Securities that are
being purchased by Investor hereunder, when issued, sold, and delivered in
accordance with the terms of this Agreement for the consideration expressed
herein, will be duly and validly issued, fully paid, and non-assessable, and
will be free of restrictions on transfer other than restrictions on transfer
under this Agreement, the First Refusal Agreement (as defined in Section 3.7)
and under applicable federal and state securities laws.
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2.6 Governmental Consents. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement other than as may be required to comply with
applicable federal and state securities laws.
2.7 Offering. Subject in part to the truth and accuracy of the
representations of Investor set forth in Article 3, the offer, sale and issuance
of the Securities as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
and neither the Company nor any authorized agent acting on its behalf will take
any action hereafter that would cause the loss of such exemption.
2.8 Litigation. There is no action, suit, proceeding or
investigation, to the knowledge of the Company, pending or currently threatened
against the Company that questions the validity of the Transaction Documents or
the right of the Company to enter into such agreements, or to consummate the
transactions contemplated hereby or thereby, or that might result, either
individually or in the aggregate, in any material adverse change in the Company
or any change in the current equity ownership of the Company. To the knowledge
of the Company, the foregoing includes without limitation, actions, suits,
proceedings or investigations pending or threatened involving the prior
employment of any of the Company's employees, their use in connection with the
Company's business of any information or techniques allegedly proprietary to any
of their former employers or their obligations under any agreements with prior
employers. To the knowledge of the Company, the Company is not a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
2.9 Proprietary Information and Inventions Agreements. Each
employee of the Company has executed an agreement with respect to proprietary
information and inventions in the form made available to Investor. The Company
is not aware that any of its employees are in violation thereof in any material
respect.
2.10 Patents and Trademarks. The Company has sufficient title
and ownership of all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information, proprietary rights and processes
necessary for its business as now conducted without any known conflict with or
infringement of the rights of others. There are no outstanding options, licenses
or agreements of any kind relating to the foregoing, nor is the Company bound by
or a party to any options, licenses or agreements of any kind with respect to
the patents, trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, proprietary rights and processes of any other person or
entity that are material for the conduct of the Company's business. The Company
has not received any communications alleging that the Company has violated or,
by conducting its business as proposed, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity. The Company is not aware that
any of its employees is obligated under any contract (including licenses,
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covenants or commitments of any nature) or other agreement, or subject to any
judgment, decree or order of any court or administrative agency, that would, in
any material respect, conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement or any of the
agreements and documents to be executed and delivered in accordance herewith,
nor the carrying on of the Company's business by the employees of the Company,
nor the conduct of the Company's business as proposed, will, to the Company's
knowledge, conflict with or result in a breach, in any material respect, of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not believe it is or will be necessary to utilize any inventions of
any of its employees (or people it currently intends to hire) made prior to
their employment by the Company.
2.11 Compliance with Other Instruments. The Company is not in
violation or default of any provision of its Amended Certificate of
Incorporation or Bylaws, or in any material respect of any instrument, judgment,
order, writ, decree or contract to which it is a party or by which it is bound,
or, to its knowledge, of any material provision of any federal or state statute,
rule or regulation applicable to the Company. The execution, delivery and
performance of the Transaction Documents, and the consummation of the
transactions contemplated hereby and thereby, will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, in any material respect, either a default under any
such provision, instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any material permit, license, authorization or approval applicable
to the Company.
2.12 Agreements; Action.
(a) Except for agreements contemplated hereby and by
the Transaction Documents, there are no agreements,
understandings or proposed transactions between the Company
and any of its officers, directors, affiliates or any
affiliate thereof.
(b) Except for agreements contemplated hereby and by
the Transaction Documents, there are no agreements,
understandings, instruments, contracts, proposed
transactions, judgments, orders, writs or decrees to which
the Company is a party or by which it is bound that may
involve (i) obligations (contingent or otherwise) of, or
payments to the Company in excess of, $100,000, or (ii) the
license of any patent, copyright, trade secret or other
proprietary right to or from the Company (other than the
license of the Company's software and products in the
ordinary course of business) or (iii) provisions restricting
or affecting the development, manufacture or distribution of
the Company's products or services.
(c) The Company has not (i) declared or paid any
dividends or authorized or made any distribution upon or
with respect to any class or series of its capital stock,
(ii) incurred any indebtedness for money borrowed or any
other liabilities individually in excess of $100,000 or, in
the case of indebtedness and/or liabilities individually
less than $100,000, in excess of $200,000 in the aggregate,
other than the Notes, (iii) made any loans or advances to
any person, other than ordinary advances for travel expenses
or (iv) sold, exchanged or otherwise disposed of any of its
assets or rights, other than the sale of its inventory in
the ordinary course of business.
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2.13 Permits. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of its business as
now being conducted by it, the lack of which could materially and adversely
affect the Company, and the Company believes it can obtain, without undue burden
or expense, any similar authority for the conduct of its business as planned to
be conducted. The Company is not in default in any material respect under any of
such franchises, permits, licenses or other similar authority.
2.14 Registration Rights. Except as provided in the
Registration Rights Agreement and the securities purchase agreements executed in
connection with the Notes, the Company has not granted or agreed to grant any
registration rights to any person or entity.
2.15 Corporate Documents. The Amended Certificate
of Incorporation and Bylaws of the Company are in the form previously made
available to Investor.
2.16 Title to Property and Assets. The Company owns its
material property and assets free and clear of all mortgages, liens, loans and
encumbrances, except such encumbrances and liens that arise in the ordinary
course of business and do not materially impair the Company's ownership or use
of such property or assets. With respect to the property and assets it leases,
the Company is in compliance in all material respects with such leases and, to
its knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances.
2.17 Financial Statements. The Company has delivered its
financial statements substantially in the form of Exhibit E to this Agreement to
Investor, consisting of: (i) unaudited balance sheets as of December 31, 1999
and December 31, 2000; and (ii) unaudited statements of operations, statements
of stockholders' equity and statements of cash flows for the periods ended
December 31, 1999 and December 31, 2000 (collectively, the "Financial
Statements"). The Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied. The Financial
Statements fairly present the financial position of the Company at the dates
thereof and the results of operations of the Company for the periods covered
thereby.
2.18 Changes. Since December 31, 2000, there has not been:
(a) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely affecting the
assets, properties, financial condition, operating results,
prospects or business of the Company;
(b) any waiver by the Company of a valuable right or of
a material debt owed to it;
(c) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company,
except in the ordinary course of business and that is not
material to the Company (as such business is presently
conducted and as it is proposed to be conducted);
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(d) any resignation or termination of employment of any
key officer of the Company;
(e) any mortgage, pledge, transfer of a security
interest in, or lien, created by the Company, with respect
to any of its material properties or assets, except liens
for taxes not yet due or payable;
(f) any declaration, setting aside or payment or other
distribution in respect of any of the Company's capital
stock, or any direct or indirect redemption, purchase or
other acquisition of any of such stock by the Company; or
(g) any agreement or commitment by the Company to do
any of the things described in this Section 2.18.
2.19 Employee Benefit Plans. The Company does not have any
Employee Benefit Plan as defined in the Employee Retirement Income Security Act
of 1974.
2.20 Insurance. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
2.21 Minute Books. The minute books of the Company contain a
complete summary of all meetings of directors and stockholders since the time of
incorporation and reflect all transactions referred to in such minutes
accurately in all material respects.
2.22 Labor Agreements and Actions; Employee Compensation. The
Company is not bound by or subject to (and none of its assets or properties is
bound by or subject to) any written or oral, express or implied, contract,
commitment or arrangement with any labor union, and no labor union has requested
or, to the Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company. The Company is not aware that any
officer or key employee, or that any group of key employees, intends to
terminate their employment with the Company, nor does the Company have a present
intention to terminate the employment of any of the foregoing. The employment of
each officer and employee of the Company is terminable at the will of the
Company. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
agreement.
2.23 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
3. Representations and Warranties of Investor. Investor represents and
warrants to the Company that:
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3.1 Power. Investor has full power and authority to enter into
the Transaction Documents and to carry out its obligations under the terms of
the Transaction Documents, and each such agreement constitutes Investor's valid
and legally binding obligation, enforceable in accordance with its terms, except
(a) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors' rights
generally and (b) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
3.2 Purchase Entirely for Own Account. This Agreement is made
with Investor in reliance upon such Investor's representation to the Company,
which, by Investor's execution of this Agreement, Investor hereby confirms that
the Securities to be received by Investor and the Common Stock issuable upon
conversion thereof, (collectively, the "Issuable Securities") will be acquired
for investment purposes only for Investor's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that Investor has no present intention of selling, granting any
participation in or otherwise distributing the same. By executing this
Agreement, Investor further represents that Investor does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Issuable Securities.
3.3 Disclosure of Information. Investor believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Issuable Securities. Investor further represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the terms and conditions of the offering of the Issuable Securities
and the business, properties, prospects and financial condition of the Company.
3.4 Investment Experience. Investor has substantial experience
in evaluating and investing in securities of companies in the development stage
so that Investor is capable of evaluating the merits and risks of Investor's
investment in the Company. Investor, by reason of its business or financial
experience or the business or financial experience of its professional advisors
who are unaffiliated with and who are not compensated by the Company or any
affiliate or selling agent of the Company, directly or indirectly, has the
capacity to protect its own interests in connection with the purchase of the
Issuable Securities under this Agreement. Investor also represents it has not
been organized for the purpose of acquiring the Issuable Securities.
3.5 Accredited Investor. Investor is an "accredited investor"
within the meaning of Securities and Exchange Commission (the "SEC") Rule 501 of
Regulation D under the Act. Investor has discussed with its professional legal,
tax and financial advisors, to the extent it deemed appropriate, the suitability
of the investment in the Company.
3.6 Restricted Securities. Investor understands that the
Issuable Securities it is purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities must be held
indefinitely and may be resold without registration under the Act only in
certain limited circumstances such as subsequent registration under the Act or
the availability of an exemption from such registration. Investor is aware of
and understands the provisions of the current Rule 144 promulgated under the Act
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which permit limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions, including, among other things, the
existence of a public market for the shares, the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being effected through a "broker's transaction" or in transactions directly with
a "market maker" (as provided by Rule 144(f)) and the number of shares being
sold during any three-month period not exceeding specified limitations.
3.7 Further Limitations on Disposition. Without in any way
limiting the representations set forth above, Investor further agrees not to
make any disposition of all or any portion of the Issuable Securities unless and
until Investor shall have complied in all respects with that certain Amended and
Restated First Refusal and Co-Sale Agreement in the form of Exhibit F (the
"First Refusal Agreement").
3.8 Investment Risk. Investor recognizes that an investment in
the Company involves a high degree of risk of loss by Investor of Investor's
entire investment in the Company, Investor can bear the economic risk of losing
its entire investment and has taken full cognizance of and understands all of
the risks related to the purchase of Series A Preferred Stock.
3.9 Restrictions on Transfer. It has been disclosed to
Investor that the following restrictions and limitations are applicable to
Investor's purchase and resales, pledges, hypothecations or other transfers of
the Series A Preferred Stock , and, therefore, that Investor must bear the
economic risk of investment in the Series A Preferred Stock for an indefinite
period of time as described in 3.6:
(a) As described in 3.6 above, the shares of Series A
Preferred Stock have not been registered and, therefore, they may not
be sold, pledged, hypothecated or otherwise transferred unless they are
registered under the Act and applicable state securities laws or an
exemption from such registration is available and unless the Company
receives an opinion of Investors' counsel, reasonably acceptable to the
Company, that the transfer of such shares does not require registration
under the Act or applicable state securities laws.
(b) A legend will be placed on any certificate
evidencing the Series A Preferred Stock (or Common Stock issued upon
conversion thereof) in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF AND HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE STATE SECURITIES LAWS OF ANY STATE.
WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED AT ANY TIME
WHATSOEVER, EXCEPT IN CERTAIN CIRCUMSTANCES UPON DELIVERY TO
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THE COMPANY OF AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED FOR
SUCH TRANSFER AND/OR THE SUBMISSION TO THE COMPANY OF SUCH
OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE COMPANY TO THE
EFFECT THAT ANY SUCH TRANSFER WILL NOT BE IN VIOLATION OF THE
ACT AND/OR APPLICABLE STATE SECURITIES LAWS AND/OR ANY RULE OR
REGULATION PROMULGATED THEREUNDER.
(c) Stop transfer instructions have been or will be
placed with respect to the Series A Preferred Stock so as to
restrict the resale, pledge, hypothecation or other transfer
thereof.
(d) Stop transfer instructions described in
subparagraph (iii) above will be placed with respect to any
new certificate representing the Series A Preferred Stock upon
presentment by Investor of a certificate for transfer.
(e) Upon request of a holder of a certificate
representing Series A Preferred Stock (or Common Stock issued
upon conversion thereof) which has the legend set forth in
clause (b) above, the Company shall remove the foregoing
legend from the certificate or issue to such holder a new
certificate therefor free of any legend, if with such request,
the Company shall have received an opinion from legal counsel
to the holder to the effect that the transfer of the Series A
Preferred Stock may be effected without registration under the
Act.
3.10 No Public Market. Investor understands that no public
market now exists for any of the securities issued by the Company, that the
Company has made no assurances that a public market will ever exist for the
Series A Preferred Stock or the underlying Common Stock and that, even if such a
public market exists at some future time, the Company may not then be satisfying
the current public information requirements of Rule 144.
3.11 Brokers or Finders. Investor has not incurred, and will
not incur, directly or indirectly, as a result of any action taken by Investor
any liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement.
The foregoing representations and warranties are true and
accurate as of the date hereof and will be true and accurate as of the Closing
Date. If in any respect such representations and warranties will not be true and
accurate as of the Closing Date, Investor will give written notice of such fact
to the Company specifying which representations and warranties are not true and
accurate and the reasons therefor.
4. Conditions to Investor's Obligations at Closing. The obligations of
Investor under Section 1.1 are subject to the fulfillment on or before the
Closing of each of the following conditions:
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4.1 Representations and Warranties. The representations and
warranties of the Company contained in Article 2 shall be true in all material
respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for representations and warranties that are date specific, in which case
they must have been true in all material respects as of the date made).
4.2 Performance. The Company shall have performed and complied
in all material respects with all agreements, obligations and conditions
contained in this Agreement that are required to be performed or complied with
by it on or before the Closing.
4.3 Compliance Certificate. The President of the Company shall
deliver to Investor at the Closing a certificate stating that the conditions
specified in Sections 4.1 and 4.2 have been fulfilled and stating that there
shall have been no material adverse change in the business, affairs, operations,
properties, assets or condition of the Company since the date of this Agreement.
4.4 Good Standing Certificate. The Company shall have
delivered to Investor a good standing certificate relating to the Company from
the State of Delaware dated not more than five business days prior to the
Closing Date.
4.5 Blue Sky. Subject to post-Closing filings, the Company
shall have obtained all necessary Blue Sky law permits and qualifications, or
secured exemptions therefrom, required by any state for the offer and sale of
the Series A Preferred Stock and the Common Stock issuable upon conversion of
the Series A Preferred Stock.
4.6 Certificate. The Company shall have filed the Certificate
and the Certificate of Amendment of Certificate of Incorporation authorizing the
issuance of Preferred Stock with the Delaware Secretary of State.
4.7 Opinion of Company's Counsel. Investor shall have received
from ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, counsel to the Company, a legal opinion addressed to it,
dated the Closing Date, in substantially the form of Exhibit G.
4.8 Registration Rights Agreement. The Company, the Investors
(as defined in the Registration Rights Agreement) and the Founders (as defined
in the Registration Rights Agreement) shall have executed the Registration
Rights Agreement in substantially the form of Exhibit H.
4.9 First Refusal and Co-Sale Agreement. The Company, the
Common Stockholders (as defined in the First Refusal Agreement) and the
Preferred Stockholders (as defined in the First Refusal Agreement) shall have
executed the First Refusal Agreement in substantially the form of Exhibit F.
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4.10 Voting Agreement. The Company and the Common Stockholders
(as defined in the Voting Agreement) shall have executed and delivered the
Voting Agreement in substantially the form attached hereto as Exhibit I.
4.11 Audium Agreements. The Company shall have executed and
delivered the Audium Security Agreement, the Audium Note and the Audium License
Agreement substantially in the forms attached hereto as Exhibits J, K and L,
respectively.
4.12 Employment Agreement. The Company and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇ shall have executed and delivered that certain Employment Agreement in
substantially the form previously provided to Investor.
4.13 Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to Investor, and it shall have received all such counterpart original
and certified or other copies of such documents as it may reasonably request.
5. Conditions of the Company's Obligations at Closing. The obligations
of the Company to Investor under this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions by Investor:
5.1 Representations and Warranties. The representations and
warranties of Investor contained in Article 3 shall be true in all material
respects on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing (except
for representations and warranties that are date specific, in which case they
must have been true in all material respects as of the date made).
5.2 Performance. Investor shall have performed and complied in
all material respects with all agreements, obligations and conditions contained
in this Agreement that are required to be performed or complied with by it as of
the Closing.
5.3 Qualifications. All authorizations, approvals or permits,
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Issuable Securities pursuant to this Agreement shall be duly obtained and
effective as of the Closing.
5.4 Registration Rights Agreement. Investor and other holders
of Series A Preferred Stock shall have executed the Registration Rights
Agreement in substantially the form of Exhibit H.
5.5 First Refusal and Co-Sale Agreement. The Preferred
Stockholders (as defined in the First Refusal Agreement) and the Common
Stockholders (as defined in the First Refusal Agreement) shall have executed the
First Refusal Agreement in substantially the form of Exhibit F.
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5.6 Voting Agreement. The Company, Investor and the Common
Stockholders (as defined in the Voting Agreement) shall have executed and
delivered the Voting Agreement in the form attached hereto as Exhibit I.
5.7 Fonix Agreements. Investor shall have executed and
delivered the Fonix Note and the Security Agreement substantially in the forms
attached hereto as Exhibits B and C.
5.8 Tender of Note. Investor shall have tendered the
Old Note to the Company for cancellation.
6. Miscellaneous.
6.1 [Intentionally Left Blank.]
6.2 Survival of Warranties. The warranties, representations
and covenants of the Company and Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement until
October 6, 2002.
6.3 Successors and Assigns. Except as otherwise provided
herein, 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
(including transferees of any Issuable Securities). 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.
6.4 Governing Law. The substantive laws of the State of
Delaware shall govern the validity, construction, enforcement and interpretation
of this Agreement.
6.5 Counterparts. 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.
6.6 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.
6.7 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission or nationally recognized overnight
courier service or five business days following deposit with the United States
Post Office, by registered or certified mail, postage prepaid and addressed to
the party to be notified at the address or facsimile number indicated for such
party indicated below, or at such other address or facsimile number as such
party may designate by ten days' advance written notice to the other parties
hereto.
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6.8 Finders' Fee. Except as set forth in the Disclosure
Schedule, each party represents that it neither is nor will be obligated for any
finders' fee or commission in connection with this transaction. Investor agrees
to indemnify and to hold harmless the Company from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
Investor or any of its officers, partners, employees or representatives is
responsible. The Company agrees to indemnify and hold harmless Investor from any
liability for any commission or compensation in the nature of a finders' fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees or
representatives is responsible.
6.9 Expenses. All costs and expenses incurred by the Company
and Investor with respect to the negotiation, execution, delivery and
performance of this Agreement shall be paid by the party incurring such costs
and expenses.
6.10 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 retroactively or
prospectively), only with the written consent of the Company and Investor.
6.11 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
6.12 Entire Agreement. This Agreement and the documents
referred to herein constitute the entire agreement among the parties and no
party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein.
6.13 [Intentionally Left Blank.]
6.14 Other Rights. So long as Investor owns at least 500,000
shares of Series A Preferred Stock or 500,000 shares of Common Stock issued upon
conversion of the Series A Preferred Stock (or a combination of both), the
Company covenants that it will:
(a) furnish Investor with monthly reports containing
then-relevant financial operations and sales information on a form mutually
agreeable to Investor and the Company; and
(b) permit an authorized representative of Investor to visit
and inspect the properties of the Company at Investor's expense and to discuss
its affairs, finances and accounts with its officers, personnel and auditors,
all at such reasonable times as such person may reasonably request, all upon
reasonable prior written notice to the President of the Company.
14
(c) not, without the consent of a majority of the Board of
Directors, (i) take any action that increases the authorized size of the
Company's Board of Directors or (b) make any expenditure over $150,000.
(d) furnish the following reports to Investor:
(i) as soon as available after the end of each fiscal
quarter of the Company other than fiscal year end, and in
any event within thirty (30) days thereafter, (A) an
unaudited consolidated balance sheet of the Company for such
quarter; (B) an unaudited consolidated statement of
operations of the Company for such quarter and for the
fiscal year of the Company to the end of such quarter; and
(C) an unaudited consolidated statement of cash flows of the
Company for such quarter and for the fiscal year to the end
of such quarter, all in reasonable detail, subject to
changes resulting from normal year-end audit adjustments,
certified by the principal financial officer of the Company
and a comparison between the actual financial figures for
such quarterly accounting period and the comparable figures
for the prior fiscal year (if any);
(ii) as soon as available after the end of each fiscal
year of the Company, and in any event within ninety (90)
days thereafter, an audited consolidated balance sheet of
the Company, and the related audited consolidated statements
of operations, stockholders' equity and cash flows of the
Company for such fiscal year, setting forth in each case in
comparative form the figures for the previous fiscal year
(if any), all in reasonable detail, accompanied by (A) an
opinion on such financial statements of such firm of
independent public accountants of nationally recognized
standing selected by the Board of Directors of the Company
that such financial statements fairly present the financial
position of the Company at the end of such fiscal year and
the results of their operations and cash flows for such
fiscal year in conformity with generally accepted accounting
principles and (B) a comparison by the Company between the
actual financial figures for such fiscal year and the
comparable figures for the prior fiscal year; and
(iii) such other data, reports and information as the
Company may from time to time furnish to holders of its
securities.
6.15 Indemnity. Each of the Company and Investor covenants
that it shall indemnify, defend and hold the other party and its directors,
officers, employees, affiliates and agents (the "Indemnified Persons") harmless
from and against and in respect of any and all claims, demands, losses, costs,
expenses, obligations, liabilities, damages, recoveries and deficiencies,
including without limitation, interest, penalties, court costs and reasonable
attorneys' fees, that any Indemnified Person shall incur or suffer as a result
of any material breach of the other party's representations or warranties in
this Agreement; provided, however, that Investor's remedy under this Agreement
shall be limited to the Investment Amount actually paid by it to the Company and
the Company's remedy shall not exceed the Investment Amount not yet paid by
Investor under this Agreement as of the date of any such claim for indemnity. No
claims may be made under this Section until the amount of such claim equals at
least $100,000.
15
Investor has executed this Agreement this 5th day of April, 2001.
INVESTOR:
FONIX CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Address: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ Tower
▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile: ▇▇▇-▇▇▇-▇▇▇▇
IRS Employer Identification Number: ▇▇-▇▇▇▇▇▇▇
ACCEPTED AND AGREED TO:
AUDIUM CORPORATION
By:
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: President
Address: ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Date: April 5, 2001
16
