Common Stock Purchase Agreement
COMMON STOCK PURCHASE AGREEMENT ("Agreement") by and among fonix
corporation, a Delaware corporation (the "Company"), Thomson Kernaghan &
Co., as agent for the investors listed in Schedule 2 (collectively
"Purchaser"), dated as of March 9, 1998.
Recitals
A. Purchaser desires to purchase, and the Company desires to sell
4,444,444 shares of the Company's restricted common stock on the terms and
conditions as are set forth below.
B. The parties intend that the issuance of the securities as
anticipated by this Agreement shall be accomplished without registration
under the U.S. Securities Act of 1933, as amended (the "Securities Act"),
and without registration or qualification under the securities laws of any
state or other jurisdiction in reliance on exemptions from the registration
requirements of the Securities Act, including without limitation Regulation
D under the Securities Act and Section 4(2) of the Securities Act,
provided, however that nothing in this Agreement shall act or be construed
as a limitation on Purchaser's right to sell any of the securities to be
acquired pursuant to this Agreement pursuant to the Registration Statement
contemplated by the Registration Rights Agreement, or other provisions of
the Registration Rights Agreement or in accordance with applicable laws.
THEREFORE, in consideration of the mutual promises and covenants set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which the parties acknowledge by their signatures below, the
parties agree as follows:
Agreement
1. Purchase of Common Stock. Subject to the terms and conditions
of this Agreement, the Company agrees to issue and sell, and Purchaser
agrees to acquire, Four Million Four Hundred Forty-four Thousand Four
Hundred Forty-four (4,444,444) fully paid and non-assessable shares (the
"Shares") of the Company's common stock, par value $.0001 per share (the
"Common Stock"). The purchase price (the "Purchase Price") payable by
Purchaser for the Shares shall be Four and 50/100 Dollars ($4.50) U.S. per
share.
2. Closing.
2.1 Initial Closing. Upon execution of this Agreement (the "Initial
Closing") and on the date set forth above (the "Initial Closing Date") Purchaser
shall pay Ten Million Dollars ($10,000,000) of the Purchase Price by wire
transfer to the Company's account of presently available funds according to the
following instructions:
First Security Bank of Utah
00 Xxxxx Xxxx Xxxxxx, Xxxx Xxxx Xxxx, Xxxx 00000
ABA No. 000000000
Account No. 1820000865 (fonix corporation)
In return for such payment at the Initial Closing, the Company shall
deliver at the Closing certificates representing Two Million Two Hundred
Twenty-two Thousand, Two Hundred twenty-two (2,222,222) of the Shares (the
"First Tranche Shares") to the Purchaser, which First Tranche Shares shall
be delivered to each Purchaser and in each amount as shall be set forth in
Schedule 2. At the Initial Closing the parties shall execute and deliver
the Registration Rights Agreement in the form attached to this Agreement as
Exhibit "A", and incorporated herein by reference.
2.2 Second Closing. (1) On that date which shall be the next business day
following that date which shall be the sixtieth (60th) day following the
"Effectiveness Date," as that term is defined in the Registration Rights
Agreement (the "First Tranche Reset Date"), Purchaser shall pay to the Company
Ten Million Dollars ($10,000,000) in return for which the Company shall deliver
Two Million Two Hundred Twenty-two Thousand, Two Hundred twenty-two (2,222,222)
of the Shares (the "Second Tranche Shares") to the Purchaser plus such
additional shares of Common Stock as shall be determined in accordance with
Section 2.3(a) (which events shall constitute the "Second Closing"), provided
that Purchaser's obligation to perform at the Second Closing is subject to the
satisfaction or waiver by Purchaser at or before the Second Closing, of the
following conditions:
(a) The Registration Statement required to be filed under the Registration
Rights Agreement shall continue to be in effect;
(b) The representations and warranties of the Company contained in Section
4 hereof shall be true and correct in all material respects (and the Company's
issuance of the Second Tranche Shares shall at the Second Closing constitute the
Company's making each such representation and warranty as of such date);
(c) The Market Price of the Common Stock (as defined below) for the five
(5) trading days immediately preceding the Second Closing Date shall exceed
$4.50 per share;
(d) The Dollar volume for trading for the Common Stock as reported by the
Nasdaq Stock Market or any securities exchange or quotation service on which the
Common Stock is then listed or quoted for each of the ten (10) trading days
preceding the Second Closing Date shall have equaled or exceeded $400,000; and
(e) There shall have been no change in the business or financial condition
of the Company that individually, or in the aggregate, constitutes a Material
Adverse Effect, as that term is defined in Section 4.5 from the Closing Date
through and including the Second Closing Date (and the Company's issuance of the
Second Tranche Shares shall constitute the Company's making such representation
and warranty as of such date).
(f) The Term "Market price of the Common Stock" means, the closing bid
price of the Common stock as reported, at the option of the Purchaser, by
Bloomberg, LP or the National Association of Securities Dealers.
(2) If the Second Closing does not occur on the First Tranche Reset Date
because one or more of the foregoing conditions is not satisfied as of that
date, Purchaser shall have an additional sixty (60) calendar day period after
such First Tranche Reset Date during which it may, at its option, purchase the
Second Tranche Shares subject to the satisfaction by the Company of the
conditions set forth in Section 2.2(1) or the waiver of such conditions by
Purchaser. Regardless of whether the Second Closing occurs on the First Tranche
Reset Date or is postponed as set forth in this Section 2.2(2), the actual date
of the Second Closing shall be referred to herein as the "Second Closing Date."
2.3 Reset. (1) First Tranche Reset. On the First Tranche Reset Date, the
Company shall deliver additional shares of Common Stock for no additional
consideration (the "Reset Shares") to the extent and as follows:
(a) If the average Closing Bid Price of the Common Stock for the sixty
calendar day period between the Effectiveness Date and the First Tranche Reset
Date (the "60-day Average") is less than $5.40 per share, the Company shall
issue Reset Shares in such number as shall be determined by dividing (i) the
product of (A) the amount by which the 60-day Average is less than $5.40 and (B)
2,222,222 by (ii) the 60-day Average.
(2) Second Tranche Reset. On that date which shall be the next following
business day after the sixtieth (60th) day after the Second Closing (the "Second
Tranche Reset Date"), the Company shall issue additional Reset Shares as
provided in Section 2.3(1)(a), provided that the period for determining the 60-
day Average shall be the sixty (60) day period commencing on the Second Closing
Date.
(3) Issuance of Reset Shares. The Reset Shares, if any, issued by the
Company Pursuant to Section 2.3, shall be issued to each Purchaser pro rata
according to the percentage of the Purchase Price paid by each Purchaser. The
Shares and the Reset Shares shall be collectively referred to herein as the
"Securities."
(4) Reset Share Adjustment. If, at any time prior to or on the Sixtieth
(60th) day following the Second Tranche Reset Date, the Company shall sell, or
enter into an agreement to sell, Common Stock or securities convertible into
Common Stock at a discount of sixteen and two thirds percent (16.66%) or greater
from the Closing Bid Price of such Common Stock at time of such sale or
conversion, or the date of any such agreement (the "Discount Percentage"),
whichever is less, the Company shall issue additional Reset Shares to each
Purchaser, and such number shall be calculated as follows:
Securities actually issued x Adjusted Yield
------------------------------------------
.20
Where "Adjusted Yield" is equal to:
Discount Percentage
-------------------
1-Discount Percentage
(5) Short Sales. Purchaser covenants that it will engage in no short
sales of Common Stock during any period during which a 60-day Average is being
calculated.
2.4 Regulation S. The Company covenants that, in the event that, as of
the Second Closing Date, the Registration Statement shall not have been declared
effective, the Company will solely with respect to non-U.S. persons cause the
Second Tranche Shares and any Reset Shares issuable in respect of the First
Tranche Shares to be issued pursuant to Regulation S under the Securities Act,
provided that the Company, in consultation with its securities counsel, has
determined that Regulation S would be available for the transactions
contemplated by this Section 2.4, and further provided that each Purchaser to
receive shares of Common Stock issued pursuant to Regulation S shall provide to
the Company such additional documentation or certification as the Company may
reasonably request to assure its compliance with the terms and conditions of
Regulation S.
2.5 Size of Offering. Purchaser and the Company agree that, in addition
to Purchaser's investment as contemplated by this Agreement, the Company may
offer and sell additional Securities to other investors as part of the same
offering, provided that the any additional investment
shall be on the same material terms and conditions as are herein set forth, and
do not exceed, in the aggregate $10,000,000, and further provided that no more
than $5,000,000 of such additional investment shall be paid, and Securities
issued therefor at the First Closing.
3. Representations and Warranties of Purchaser. To induce the Company's
acceptance of this Agreement, each of Purchaser hereby severally certifies,
represents and warrants to the Company and its agents and attorneys as follows,
which representations and warranties are solely for the benefit of the Company
and may be waived in whole or in part at any time prior to Closing by the
Company:
3.1 Intent. Purchaser will be acquiring the Securities for its own
account, and Purchaser has no present arrangement (whether or not legally
binding) to sell any of such securities to or through any person or entity;
provided, however, that by making the representations herein, Purchaser does not
agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
U.S. federal and state securities laws applicable to such disposition and any
restrictions imposed on such transfer by this Agreement or the instruments and
documents executed in connection with this Agreement. Purchaser understands that
the Securities must be held indefinitely unless such securities are subsequently
registered under the Securities Act or an exemption from registration is
available. Purchaser has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
3.2 Sophisticated Investor. Purchaser is a "sophisticated investor" (as
described in Rule 506(b)(2)(ii) of Regulation D) and an "accredited investor"
(as defined in Rule 501(a) of Regulation D), and Purchaser has such knowledge
and experience in business and financial matters that it is capable of
evaluating the merits and risks of an investment in the Company's securities.
3.3 Ability of Purchaser to Bear Risk of Investment. Purchaser
acknowledges that the Securities are speculative investments and involve a high
degree of risk and the Purchaser is able to bear the economic risk of an
investment in the Securities, and, at the present time, is able to afford a
complete loss of such investment.
3.4 Authority. This Agreement has been duly authorized and validly
executed and delivered by each Purchaser and (assuming due authorization and
valid execution by the Company) is a legal, valid and binding agreement of
Purchaser enforceable against Purchaser in accordance with its terms, subject to
general principles of equity and to bankruptcy, insolvency or similar laws
relating to, or affecting generally the enforcement of creditors' rights and
remedies or by other equitable principles of general application. The person or
persons executing this Agreement and all exhibits to this Agreement and
documents or instruments executed in connection with this Agreement have all
requisite authority to do so on behalf of Purchaser.
3.5 Brokers, Finders. Each Purchaser has taken no action which would give
rise to any claim by any person for brokerage commission, finder's fees or
similar payments by the Company relating to this Agreement or the transactions
contemplated hereby. The Company shall have no obligation with respect to such
fees or with respect to any claims made by or on behalf of other Persons for
fees of a type contemplated in this Section 3.5 that may be due in connection
with the transactions contemplated hereby. Purchaser shall indemnify and hold
harmless the Company, its respective employees, officers, directors, agents, and
partners, and their respective affiliates, from and against all claims, losses,
damages, costs (including the costs of preparation and attorney's
fees) and expenses suffered in respect of any such claimed or existing fees, as
and when incurred. See Section 4.14.
3.6 Organization; Authority. Each Purchaser is an entity organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by this Agreement and to carry out its
obligations thereunder. The acquisition of the Securities and the payment of the
purchase price therefor by such Purchaser have been duly authorized by all
necessary action on the part of such Purchaser. This Agreement has been duly
executed by such Purchaser and, when delivered by such Purchaser in accordance
with the terms hereof, shall constitute the valid and legally binding obligation
of such Purchaser, enforceable against it in accordance with its terms, subject
to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
generally and to general principles of equity.
3.7 Absence of Conflicts. The execution and delivery of this Agreement
and any other document or instrument executed in connection herewith
(collectively, the "Transaction Documents"), and the consummation of the
transactions contemplated by this Agreement and such other documents and
instruments, and compliance with the requirements thereof, will not violate any
law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on such Purchaser, or the provision of any indenture, instrument or
agreement to which such Purchaser is a party or is subject, or by which such
Purchaser or any of its assets is bound, or conflict with or constitute a
material default thereunder, or require the approval of any third-party pursuant
to any material contract, agreement, instrument, relationship or legal
obligation to which such Purchaser is subject or to which any of its assets,
operations or management may be subject.
3.8 Disclosure; Access to Information. Each Purchaser has received copies
of or has had access to all documents, records, books and other information
pertaining to such Purchaser's investment in the Company and the Securities that
have been requested by such Purchaser. Each Purchaser has been afforded the
opportunity to ask questions of the Company and its management. Such Purchaser
further acknowledges that it understands that the Company is subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and such Purchaser has reviewed or received copies
of any such reports that have been requested by it. Such Purchaser further
acknowledges that it has been provided with copies of the Company's certificate
of incorporation, as amended (the "Certificate"), and the Company's by-laws (the
"By-Laws").
3.9 Manner of Sale. At no time was Purchaser presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising with respect to the
Securities.
3.10 Accuracy of Other Materials. To the extent Purchaser has received
from the Company documents or other materials which constitute summaries,
projections, forecasts or estimates, Purchaser acknowledges the following with
respect to such documents or other materials. Such documents or other materials
are intended to illustrate projected financial and other results based upon a
set of assumptions (in some cases based on information obtained by the Company
from outside sources) the Company views as reasonable and obtainable. All such
summaries, projections, forecasts or estimates pertaining to revenue growth,
profitability and other similar financial or market data are forward-looking
statements. Such statements are subject to certain risks and uncertainties that
could cause actual
results to differ materially from those projected. No representations or
warranties of future performance by or market trends for the Company are
intended, and such are expressly disclaimed.
3.11 Accuracy of Representations and Information. All representations
made by Purchaser in this Agreement and all documents and instruments related to
this Agreement, and all information provided by Purchaser to the Company
concerning Purchaser are correct and complete in all material respects as of the
date hereof.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser as follows, which representations and
warranties are solely for the benefit of Purchaser and may be waived in whole or
in part by Purchaser at any time prior to Closing:
4.1 Company Status. The Company has registered its Common Stock pursuant
to Section 12(g) of the Exchange Act, is in full compliance with all reporting
requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing of its Common Stock, and such Common
Stock is currently listed on the Nasdaq SmallCap Market.
4.2 Current Public Information. The Company has furnished or made
available to Purchaser true and correct copies of all registration statements,
reports and documents, including proxy statements (other than preliminary proxy
statements), filed with the Securities and Exchange Commission (the "SEC") by or
with respect to the Company since December 31, 1996 and prior to the date of
this Agreement, pursuant to the Securities Act or the Exchange Act
(collectively, the "SEC Documents"). The SEC Documents are the only filings made
by or with respect to the Company since December 31, 1996 pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act or pursuant to the Securities
Act. The Company has filed all reports, schedules, forms, statements and other
documents required to be filed under Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act since January 1, 1996 and prior to the date of this Agreement. The
Company meets the "Registrant Requirement" for eligibility to use Form S-3 under
the Securities Act in order to register the Company's Common Stock for resales.
4.3 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.
4.4 Regulation D Offering. Assuming the accuracy of the representations
and warranties of the Purchaser contained herein, the offering, issuance or sale
of the Securities as contemplated hereunder are exempt from the registration
requirements of the Securities Act.
4.5 Nonpublic Information. The Company confirms that it has not provided
to Purchaser or any of its representatives, agents or counsel any information
that constitutes or might constitute material nonpublic information.
4.6 Valid Issuance of Common Stock. The Company has an authorized
capitalization consisting of 100,000,000 shares of Common Stock, par value
$.0001 per share, and 20,000,000 shares of preferred stock, par value $.0001 per
share. As of the date of this Agreement, the Company has issued and outstanding
45,149,952 shares of Common Stock. 12,880,000 shares of Common Stock are subject
to issuance upon the conversion or exercise of presently issued and outstanding
warrants and options of the Company. 13,800,000 shares of Common Stock are
reserved for issuance under the Company's existing stock option plans. 166,667
shares of the Company's
Series A Preferred Stock have been issued and 166,667 shares are outstanding,
which shares of Series A Preferred Stock are convertible into 166,667 shares of
Common Stock. 125,000 shares of the Company's Series B Convertible Preferred
Stock have been issued and no shares are outstanding. 187,500 shares of the
Company's Series C Convertible Preferred Stock have been issued and no shares
are outstanding. All of the shares of Common Stock and preferred stock of the
Company issued to date have been duly and validly authorized and issued and are
fully paid and non-assessable. Except as set forth above or as disclosed in
Schedule 4.4, as of the date of this Agreement, (i) there are no outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of it
subsidiaries is or may become bound to redeem or issue additional shares of
capital stock of the Company or any of its subsidiaries or options, warrants,
scrip, rights to subscribe to, calls or commitments of any character whatsoever
relating to, or securities or rights convertible into, any shares of capital
stock of the Company or any of its subsidiaries, (ii) there are no outstanding
debt securities and (iii) there are no agreements or arrangements under which
the Company or any of its subsidiaries is obligated to register the sale of any
of their securities under the Securities Act. Except as disclosed in Schedule
4.4, there are no securities or instruments containing any anti-dilution, right
of first refusal, preemptive rights or similar provisions that will be triggered
by the issuance of the Securities as described in this Agreement. Upon issuance
of the Securities, such securities will be duly and validly issued, fully paid
and non-assessable.
4.7 Organization and Qualification. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on Schedule 4.5 attached to this Agreement
(the "Subsidiaries"). The Subsidiaries are duly incorporated and existing in
good standing under the laws of the jurisdiction of their incorporation. The
Company and each of the Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any effect on the
business, operations, properties, prospects, or financial condition of the
entity or entities with respect to which such term is used and which is material
and adverse to such entity or to other entities controlling or controlled by
such entity, and/or any condition or situation which would prohibit or otherwise
interfere with the ability of the entity or entities with respect to which said
term is used to enter into and perform its obligations under the Transaction
Documents.
4.8 Authorization: Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform under the Transaction
Documents and to issue the Securities in accordance with the terms of the
Transaction Documents, (ii) the execution, issuance and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated by the Transaction Documents have been duly authorized
by all necessary corporate action, and no further consent or authorization of
the Company or its board of directors or stockholders is required, (iii) the
Transaction Documents have been duly executed and delivered by the Company, and
(iv) the Transaction Documents (assuming due authorization and valid and legal
execution Purchaser) constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such
enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
4.9 Corporate Documents. The Company has furnished or made available to
Purchaser true and correct copies of the Certificate and the Bylaws.
4.10 No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Securities, do not and will not (i) result in a violation of the Company's
Certificate or Bylaws, or (ii) conflict with, or result in a breach of or
forfeiture of any rights (or result in an event which with notice or lapse of
time or both would become a breach of or forfeiture of any rights) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of the Subsidiaries is a party, or (iii) result in a violation of
any federal or state law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company or
any of the Subsidiaries or by which any property or asset of the Company or any
of the Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Securities in accordance with the terms of this
Agreement (other than any SEC, NASD or state securities filings which may be
required to be made by the Company subsequent to any Closing, and any
registration statement which may be filed in furtherance of this Agreement);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of Purchaser herein. Neither the Company nor any
of the Subsidiaries is in violation of any material term of or in material
default under its Certificate, Certificate of Designation, Preferences and
Rights of any outstanding series of preferred stock or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree of
order or any statute, rule or regulation applicable to the Company or is
subsidiaries, which has not been duly waived as of the date of this Agreement.
4.11 SEC Documents. The Company has not provided to Purchaser any
information which according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company but which has
not been so disclosed. As of their respective dates, the SEC Documents complied,
and all similar documents filed with the SEC prior to the Closing Date will
comply, in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained, nor will any similar document filed with the SEC prior to the Closing
Date contain, any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein,
in light of the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents, as of the
dates thereof, complied, and all similar documents filed with the SEC prior to
the Closing Date will comply, as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC and other applicable rules and regulations with respect thereto. Such
financial statements were prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may not include footnotes or may be condensed or summary statements as
permitted by Form 10-Q of the SEC) and fairly present in all material respects
the financial position of the Company and its consolidated subsidiaries as of
the dates thereof and the consolidated results of operations and cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
4.12 No Undisclosed Liabilities. Except to the extent described in
Schedule 4.10, the Company and the Subsidiaries have no liabilities or
obligations of a financial nature (whether accrued, absolute, contingent or
otherwise), which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents, other than those incurred in the ordinary course
of the Company's or the Subsidiaries' respective businesses consistent with past
practice since December 31, 1996, and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company.
4.13 Litigation and Other Proceedings. Except as may be set forth in the
SEC Documents or otherwise disclosed in writing to the Purchaser, there are no
lawsuits or proceedings pending or to the best knowledge of the Company
threatened, against the Company, nor has the Company received any written or
oral notice of any such action, suit, proceeding or investigation, which might
have a Material Adverse Effect on the Company or which might materially
adversely affect the transactions contemplated by this Agreement. Except as set
forth in the SEC Documents no judgment, order, writ, injunction or decree or
award has been issued by or, to the best knowledge of the Company, requested of
any court, arbitrator or governmental agency which might result in a Material
Adverse Effect or which might materially adversely affect the transactions
contemplated by this Agreement.
4.14 Other Documents or Materials. With respect to any document or other
materials received by Purchaser from the Company or its representatives other
than the Transaction Documents and the SEC Documents, (i) the Company has no
reason to believe any of such documents and materials or any projections
contained therein, as of the date of such other documents or materials,
contained errors or misstatements or do not adequately describe the status of
the development of the Company's technologies or its business as of such date,
and (ii) such documents, materials and projections were prepared by the Company
and its management in good faith.
4.15 Nature of Company. The Company is not an open ended investment
company or a unit investment trust, registered or required to be registered, or
a closed end investment company required to be registered, but not registered,
under the Investment Company Act of 1940.
4.16 Brokers, Finders. Two entities have acted as brokers and/or finders
in connection with the transactions contemplated by this Agreement. Payment of
fees to such brokers and/or finders shall be the sole responsibility of the
Company. The Company has taken no action which would give rise to any claim by
any person for brokerage commission,
finder's fees or similar payments by Purchaser relating to this Agreement or the
transactions contemplated hereby. Purchaser shall have no obligation with
respect to such fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section 4.14 that may be due in
connection with the transactions contemplated hereby. The Company shall
indemnify and hold harmless each of Purchaser, their respective employees,
officers, directors, agents, and partners, and their respective affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as and when incurred. See Section 3.5.
4.17 Absence of Certain Changes. Since December 31, 1996, no Material
Adverse Effect has been suffered by, and no material adverse development has
occurred in the business, properties, operations, financial condition, results
of operations or prospects of, the Company or the Subsidiaries. The Company has
not taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or any of the
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
4.18 Intellectual Property Rights. The Company and its subsidiaries own
or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. None of the Company's trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate in the near future. The Company and its
subsidiaries do not have any knowledge of any infringement by the Company or its
subsidiaries of trademarks, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service xxxx
registrations, trade secrets or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, there is no claim, action or proceeding being made or brought
against, or to the best knowledge of the Company, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patent, patent
rights, invention, copyright, license, service name, service xxxx, service xxxx
registration, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
4.19 Internal Accounting Controls. The Company is aware of no respect in
which its system of internal accounting controls is not sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations, (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with managements's
general or specific authorization and (iv) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
4.20 Tax Status. The Company and the Subsidiaries have made or filed all
federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports, declarations,
except those being contested in good faith and has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports, or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
4.21 Certain Transactions. Except as set forth in the SEC Documents and
except for arm's length transactions pursuant to which the Company makes
payments in the ordinary course of business upon terms no less favorable than
the Company could obtain from third parties and other than the grant of stock
options, none of the officers, directors, or employees of the Company (or any
spouse or relative of any such person) is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.22 Dilution. The number of shares of Common Stock issuable as Reset
Shares may increase substantially in certain circumstances, including, but not
necessarily limited to, the circumstance wherein the trading price of the Common
Stock declines during the sixty day reset periods incident to the First and
Second Tranche Reset Dates. The Company's executive officers and directors have
studied and fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Reset Shares is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
4.23 Nasdaq Listing. The Company's Common Stock is presently quoted on
the Nasdaq SmallCap Stock Market under the symbol "FONX". The Company is not in
receipt of any written or oral notice from any stock exchange, market or trading
facility on which the Common Stock is or has been listed (or on which it is or
has been quoted) to the effect that the Company is not in compliance with the
listing or maintenance requirements of such stock exchange, market or trading
facility or that the Common Stock will be delisted from such stock exchange,
market or trading facility.
5. Use and Disposition of Proceeds. The Company intends to use the gross
proceeds from the Shares for working capital, for acquisition activities, to
fund its ongoing research and development activities, and for the payment of
general and administrative expenses. Purchaser acknowledges and agrees that the
Company shall have immediate access to the funds paid by Purchaser pursuant to
this Agreement according to the discretion of management of the Company.
6. Company Reliance on Purchaser's Representations. Purchaser understands
that the Company is relying on the truth and accuracy of the representations and
warranties made herein by Purchaser in offering the Securities for sale and in
relying upon applicable exemptions available under the Act and applicable state
securities laws.
7. Restricted Shares. Purchaser understands and acknowledges that the
Securities have not been, and will not as of the time issued, registered under
the Securities Act and that they will be issued in reliance upon exemptions from
the registration requirements of the Securities Act, and thus cannot be resold
unless they are included in an effective registration statement filed under the
Securities Act or unless an exemption from registration is available for such
resale. With regard to the restrictions on resales of the Securities, Purchaser
is aware (a) that the Company will issue stop transfer orders to its stock
transfer agent in the event of attempts to improperly transfer any such
securities; and (b) that a restrictive legend will be placed on certificates
representing the Securities, which legend will read substantially as follows:
THESE SECURITIES ARE NOT REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND REGULATIONS PROMULGATED UNDER
THE ACT, INCLUDING EXEMPTIONS UNDER SECTIONS 3(b) AND 4(2) OF
THE ACT AND THE PROVISIONS OF REGULATION D UNDER SUCH ACT, AND
SIMILAR EXEMPTIONS UNDER SATE LAW. ACCORDINGLY, THESE
SECURITIES MAY NOT BE RESOLD, TRANSFERRED, PLEDGED, ASSIGNED OR
HYPOTHECATED UNLESS SUCH SECURITIES ARE COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT FILED UNDER THE ACT OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENT IS AVAILABLE AND THE COMPANY
HAS RECEIVED AN OPINION OF SECURITIES COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH EXEMPTION IS AVAILABLE.
The legend set forth above shall be removed, and the Company shall issue a
certificate without such legend to the holder of any such Securities upon
which such legend is stamped promptly and, in the case of clauses (i) or
(ii) below, no later than the Delivery Date, as such term is defined below,
if, unless otherwise required by state securities laws, (i) such Securities
are registered for resale under the Securities Act and Purchaser notifies
the Company of a sale of all or a portion of such Securities after such
registration is declared effective, (ii) in connection with a sale
transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale,
assignment or transfer of such Securities may be made without registration
under the Securities Act, or (iii) such holder provides the Company with
reasonable assurances that such Securities can be sold pursuant to Rule 144
promulgated under the Securities Act without any restriction as to the
number of securities acquired as of a particular date that can then be
immediately sold. Notwithstanding the removal of the legend set forth
above in the event the Securities are registered for resale on an effective
registration statement, the Company reserves the right to affix a legend on
certificates representing such Securities that any selling shareholder must
comply with the prospectus delivery requirements of the Securities Act in
connection with any resale. The Company shall bear the cost of the removal
of any legend as anticipated by this Section 7.
8. Other Covenants of the Parties.
8.1 Furnishing of Information. As long as Purchaser owns Securities, the
Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. If at any time prior to the date on which the Purchasers may resell all of
their Securities without volume restrictions pursuant to Rule 144(k) promulgated
under the Securities Act (as determined by counsel to the Company pursuant to a
written opinion letter to such effect, addressed and acceptable to the Company's
transfer agent for the benefit of and enforceable by Purchaser)
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act annual and quarterly
financial statements, together with a discussion and analysis of such financial
statements in form and substance substantially similar to those that would
otherwise be required to be included in reports required by Section 13(a) or
15(d) of the Exchange Act in the time period that such filings would have been
required to have been made under the Exchange Act. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act.
8.2 Listing of Securities. The Company shall (a) not later than the
Effective Date, prepare and file with the Nasdaq SmallCap Market (as well as any
other national securities exchange, market or trading facility on which the
Common Stock is then listed) an additional shares listing application covering
the Securities, (b) take all steps necessary to cause such Securities to be
approved for listing on the Nasdaq SmallCap Market (as well as on any other
national securities exchange, market or trading facility on which the Common
Stock is then listed) as soon as possible thereafter, and (c) provide to
Purchaser evidence of such listing, and the Company shall maintain the listing
of its Common Stock on such exchange or market.
8.3 First Right. The Company shall not, directly or indirectly, without
the prior written consent of Purchaser, offer, sell, grant any option to
purchase, or otherwise dispose of (or announce any offer, sale, grant or any
option to purchase or other disposition) any of its Common Stock or securities
convertible into Common Stock at a price that is less than eighty percent (80%)
of the market price of the Common Stock at the time of issuance of such security
or investment (a "Subsequent Financing") for a period of ninety (90) days after
the Second Closing Date, except (i) the granting of options or warrants to
employees, officers and directors, and the issuance of shares upon exercise of
options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, (ii) shares issued upon exercise of any currently
outstanding warrants or options and upon conversion of any currently outstanding
convertible preferred stock or payment of dividends thereon, in each case
disclosed in Section 4.4 or Schedule 4.4, (iii) securities issued in connection
with the capitalization or creation of a joint venture with a strategic partner,
(iv) shares issued to pay part or all of the purchase price for the acquisition
by the Company of a Person (which, for purposes of this clause (iv), shall not
include an individual or group of individuals) and (v) shares issued in a bona
fide public offering by the Company of its securities, unless (A) the Company
delivers to Purchaser a written notice (the "Subsequent Financing Notice") of
its intention to effect such Subsequent Financing, which Subsequent Financing
Notice shall describe in reasonable detail the proposed terms of such Subsequent
Financing, the amount of proceeds intended to be raised thereunder, the Person
with whom such Subsequent Financing shall be effected, and attached to which
shall be a term sheet or similar document relating thereto and (B) Purchaser
shall not have notified the Company by 5:00 p.m. (Salt Lake City time) on the
tenth (10th) trading day after its receipt of the Subsequent Financing Notice of
its willingness to cause all or any of the Purchaser to provide, subject to
completion of mutually acceptable documentation, financing to the Company on
substantially the terms set forth in the Subsequent Financing Notice. If
Purchaser shall fail to notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Financing substantially upon the terms and to the Persons (or Affiliates of such
Persons) set forth in the
Subsequent Financing Notice; provided, that the Company shall provide Purchaser
with a second Subsequent Financing Notice, and Purchaser shall again have the
right of first refusal set forth above in this subsection 8.4, if the Subsequent
Financing subject to the initial Subsequent Financing Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Financing
Notice within thirty (30) trading days after the date of the initial Subsequent
Financing Notice with the Person (or an Affiliate of such Person) identified in
the Subsequent Financing Notice.
8.4 Available Shares. The Company shall have at all times authorized and
reserved for issuance, free from preemptive rights, shares of Common Stock
sufficient to yield the number of shares of Common Stock issuable as may be
required to issue the Reset Shares.
8.5 Stockholder Meeting. The Company shall, not later than August 1,
1998, hold a regular or special meeting of stockholders. At such meeting of
stockholders, the board of directors of the Company shall recommend that the
stockholders approve the transactions contemplated hereby, which might result in
the issuance of more than 20% of the Company's outstanding Common Stock in
accordance with NASDAQ Rule 4310(c)(25)(H)(i)(d)(2). Xxxxxx X. Xxxxxxx, as
trustee of a voting trust (the "Voting Trust") pursuant to that certain Voting
Trust Agreement dated the 10th day of December, 1993 and as amended to date, by
and among the Company, Xxxxxxx X. Xxxxxxxx, Xxxxxx X. Xxxxxxx, Xxxxx X. Xxxxxx,
Beesmark Investments, L.C., a Utah limited liability company, and Studdert
Companies Corporation, a Utah corporation, and Xxxxxx X. Xxxxxxx, as Trustee,
warrants and represents by his signature below:
(1) That the Voting Trust owns of record in excess of
56% of the Common Stock of the Company issued and outstanding as of
the date of this Agreement; and
(2) That he will affirmatively vote such shares
of Common Stock in favor of such resolution.
8.6 Redemption by the Company. At any time prior to the ninetieth (90th)
day following the Second Closing Date, the Company may redeem all or any of the
Securities then outstanding and which have not been sold or contracted to be
sold by Purchaser by payment to the holder of the Securities to be redeemed of
$5.40 per share.
9. Transfer Agent Instructions.
9.1 Irrevocable Instructions. The Company will irrevocably instruct its
transfer agent to issue securities from time to time in such amounts as shall be
specified from time to time by the Company to the transfer agent, bearing the
restrictive legend specified in Section 7 of this Agreement prior to
registration of the Securities under the Securities Act, registered in the name
of the Purchaser or its nominee and in such denominations to be specified by the
Purchaser in connection with each Closing. The Company warrants that no
instruction other than such instructions referred to in this Section 9 and stop
transfer instructions to give effect to Section 7 hereof prior to registration
and sale of the Securities under the Securities Act will be given by the Company
to the transfer agent and that the securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement, and applicable
law. Nothing in this Section 9 shall affect in any way the Purchaser's
obligations and agreement to comply with all applicable securities laws upon
resale of the Securities.
9.2 Regulation S. To the extent any of the Securities are
issued pursuant to Regulation S under the Securities Act, and subject to
the completeness and accuracy of the Purchaser's representations and
warranties herein or in any document the Purchaser may hereafter provide to
the Company to facilitate the Company's compliance with Regulation S, and
following the expiration of any applicable Restricted Period (as those
terms are defined in Regulation S), the Company, shall, at its expense,
take all necessary action (including the issuance of an opinion of counsel)
to assure that the Company's transfer agent shall issue stock certificates
without restrictive legend or stop orders in the name of Purchaser (or its
nominee (being a non-U.S. Person) or such non-U.S. Persons as may be
designated by Purchaser) and in such denominations to be specified at
either Closing representing the number of shares of Securities issuable
upon at such Closings, as applicable. Nothing in this Section 9, however,
shall affect in any way any Purchaser's or such nominee's obligations and
agreement to comply with all applicable securities laws upon resale of the
Securities.
9.3 Transmission of Certificates. The Company will transmit
the certificates representing the unlegended Securities to be issued to the
Purchaser (i) as Reset Shares pursuant to any of the provisions of Section
2.3 hereof, (ii) as contemplated by Section 7 hereof, and/or (iii) pursuant
to Section 9.2 hereof via express courier, by electronic transfer or
otherwise by the Delivery Date. The term "Delivery Date" means (w) the
Second Closing Date, with respect to Reset Shares contemplated by Section
2.3(1) hereof, (x) the Second Tranche Reset Date, with respect to Reset
Shares contemplated by Section 2.3(2) hereof, (y) the third (3rd) business
day after receipt by the Company of the certificate(s) representing the
legended Common Stock, as contemplated by Section 7 or by Section 9.2
hereof.
9.4 Delay. The Company understands that a delay in the issuance of the
Securities beyond the Delivery Date could result in economic loss to the
Purchaser. As compensation to the Purchaser for such loss, the Company agrees to
pay late payments to the Purchaser for late issuance of unlegended securities in
accordance with the following schedule (where "No. Days Late" is defined as the
number of days beyond five (5) business days from Delivery Date):
Late Payment For Each
No. Days Late $10,000 of Common Stock
------------- -----------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
greater than 10 $1,000 +$200 for each
Business Day Late beyond
10 days
The Company shall pay any payments incurred under this Section 9.4 in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue actual damages for the Company's failure to
issue and deliver the unlegended securities to the Purchaser.
9.5 Cover. If, by the relevant Delivery Date, the Company fails for any
reason to deliver the unlegended Shares to be issued pursuant to Section 9.2 and
after such Delivery Date, the holder of the securities
(a "Holder") purchases, in an open market transaction or otherwise, shares of
Common Stock (the "Covering Shares") in order to make delivery in satisfaction
of a sale of Common Stock by the Holder (the "Sold Shares"), which delivery such
Holder anticipated to make using the Shares to be issued upon such conversion (a
"Buy-In"), the Company shall pay to the Holder, in addition to all other amounts
contemplated in other provisions of the Transaction Agreements, and not in lieu
thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In Adjustment
Amount" is the amount equal to the excess, if any, of (x) the Holder's total
purchase price (including brokerage commissions, if any) for the Covering Shares
over (y) the net proceeds (after brokerage commissions, if any) received by the
Holder from the sale of the Sold Shares. The Company shall pay the Buy-In
Adjustment Amount to the Company in immediately available funds immediately upon
demand by the Holder. By way of illustration and not in limitation of the
foregoing, if the Holder purchases shares of Common Stock having a total
purchase price (including brokerage commissions) of $11,000 to cover a Buy-In
with respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which Company will be required to pay to the Holder
will be $1,000.
9.6 Electronic Transfer. In lieu of delivering physical certificates
representing the unlegended securities issuable upon conversion, provided the
Company's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, upon request of the
Purchaser and its compliance with the provisions contained in this paragraph, so
long as the certificates therefor do not bear a legend and the Purchaser thereof
is not obligated to return such certificate for the placement of a legend
thereon, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the
Purchaser by crediting the account of Purchaser's Prime Broker with DTC through
its Deposit Withdrawal Agent Commission system.
10. General Provisions.
10.1 Assignment. Neither this Agreement nor any rights of Purchaser
hereunder may be assigned by either party to any other person without the prior
written consent of the Company, provided that Purchaser may assign this
Agreement or its rights hereunder to another of Purchaser or its affiliates or
the affiliates of another Purchaser without first obtaining the written consent
of the Company.
10.2 Attorneys' Fees. In the event any dispute arises under this
Agreement or the documents or instruments executed and delivered in connection
with this Agreement, and the parties hereto resort to litigation to resolve such
dispute, the prevailing party in any such litigation, in addition to all other
remedies at law or in equity, shall be entitled to an award of costs and fees
from the other party, which costs and fees shall include, without limitation,
reasonable attorneys' fees and legal costs.
10.3 Choice of Law; Venue. This Agreement will be construed and enforced
in accordance with and governed by the laws of the State of Delaware and the
federal law of the United States without reference to principles of conflicts of
law. The parties agree that, in the event of any dispute arising out this
Agreement or the transactions contemplated thereby, venue for such dispute shall
be in the state or federal courts located in Delaware, and that each party
hereto waives any objection to such venue based on forum non conveniens.
10.4 Costs and Expenses. The parties shall be responsible for and shall
pay their own costs and expenses, including without limitation attorneys' fees
and accountants' fees and expenses, in connection with the conduct of the due
diligence inquiry, negotiation, execution and delivery
of this Agreement and the instruments, documents and agreements executed in
connection with this Agreement.
10.5 Counterparts/Facsimile Signatures. This Agreement may be executed in
one or more counterparts, each of which when so signed shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument. In lieu of the original, a facsimile transmission or copy of the
original shall be as effective and enforceable as the original.
10.6 Entire Agreement: Amendment. This Agreement, together with the
exhibits to this Agreement and the other instruments and documents delivered in
connection with this Agreement constitute the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof,
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 in
this Agreement or therein. Except as expressly provided in this Agreement,
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
10.7 Headings. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
10.8 Notices. All notices or other communications provided for under this
Agreement shall be in writing, and mailed, telecopied or delivered by hand
delivery or by overnight courier service, as follows:
If to the Company:
fonix corporation
0000 Xxxxx Xxxx Tower
00 Xxxx Xxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
With a copy to:
DURHAM, EVANS, XXXXX & XXXXXXX, P.C.
Key Bank Tower, Suite 850
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
If to Purchaser:
To Purchaser at the addresses set forth in Schedule 2.
All notices and communications shall be effective as follows: When mailed,
upon three (3) business days after deposit in the mail (postage prepaid);
when telecopied, upon confirmed transmission of the telecopied notice; when
hand delivered, upon delivery; and when sent by overnight courier, the next
business day after deposit of the notice with the overnight courier.
10.9 Publicity. Purchaser shall not issue any press release or otherwise
make any public statement about the transactions contemplated by this Agreement
without the Company's prior written consent. The Company agrees that it shall
give Purchaser written notice of any press release or
other public statement with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of such Purchaser, except to the
extent required by law. Purchaser acknowledges that this Agreement and all or
part of the Transaction Documents may be deemed to be "material contracts" as
that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company
may therefore be required to file such documents as exhibits to reports or
registration statements filed under the Securities Act or the Exchange Act.
Purchaser further agrees that the status of such documents and materials as
material contracts shall be determined solely by the Company, in consultation
with its counsel.
10.10 Severability. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all other provisions of
this Agreement shall be given effect separately from the provision or provisions
determined to be illegal or unenforceable and shall not be affected thereby.
10.11 Survival. All warranties, representations, indemnities and
agreements made in this Agreement by a party hereto shall survive the date of
this Agreement, the Closing Dates, and the issuance by the Company of the
Securities. Each of the parties agrees to indemnify, defend and hold harmless
the other party from, against and in respect of all damages resulting from the
breach by such party or the inaccuracy of any representation or warranty
contained in this Agreement or the breach or non-fulfillment of any covenant or
agreement on the part of such party under this Agreement, whether or not such
breach, inaccuracy, or non-fulfillment was or should have been known by the
other party.
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
IN WITNESS WHEREOF, the parties named below have caused this
Agreement to be executed, as of the date first above written.
PURCHASER:
THOMSON KERNAGHAN & CO., AGENT
By: /s/ X. Xxxxxxxxx
---------------------------------------
Its: Agent
THE COMPANY:
fonix corporation
By: /s/ Xxxxxx X. Xxxxxxx
--------------------------------------
Xxxxxx X. Xxxxxxx, President
Xxxxxx X. Xxxxxxx, Trustee of Voting Trust
Solely as to Section 8.5
/s/ Xxxxxx X. Xxxxxxx
------------------------------------------
XXXXXX X. XXXXXXX
SCHEDULE 2
PURCHASERS AND NUMBER OF SHARES PURCHASED
Thomson Kernaghan & Co., corporation, shall receive all Securities to
be issued under the Agreement, as the agent for the investors listed below:
DOMINION CAPITAL FUND, LTD $4,250,000
SOVEREIGN PARTNERS, LP $3,000,000
EXCALIBUR LIMITED PARTNERSHIP $700,000
CANADIAN ADVANTAGE LIMITED PARTNERSHIP $750,000
ENDEAVOUR CAPITAL FUND, S.A. $1,300,000
All notices to be provided to the investors under the Agreement shall
be sent to:
Thomson Kernaghan & Co.
000 Xxx Xxxxxx
Xxxxxxx, Xxxxxx
Fax (000) 000-0000
Attention: Xxxx Xxxxxxxxx
With copies to:
Xxxxxxx & Prager
000 0xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
Attn. Xxxxxx X. Xxxxxxx, Esq.
SCHEDULE 4.4
CAPITALIZATION
1. Schedule 6(a) to the Registration Rights Agreement is incorporated
herein by reference and made part hereof as if it were set out below
in its entirety.
2. AcuVoice, Inc. Merger. The Company has entered into a definitive
agreement whereby AcuVoice, Inc., a California corporation, will be
merged with and into a wholly-owned subsidiary of the Company, fonix
Acquisition Corporation. The Company anticipates issuing between
2,500,000 and 3,000,000 shares of its restricted Common Stock to the
shareholders of AcuVoice when the merger closes.
3. In addition to Purchaser, the Company has agreed to offer and sell
shares of Common Stock to investors that shall hereafter be
identified by Encore Capital Management, L.L.C., which offers and
sales will be on terms substantially identical to the terms as set
forth in this Agreement and will close according to the same closing
schedule set forth in this Agreement, provided that such additional
sales shall not exceed, in the aggregate, $10,000,000, only
$5,000,000 of which amount may be paid at the First Closing.
First Refusal, Preemptive Rights or Similar Provisions
None.
SCHEDULE 4.5
SUBSIDIARIES
1. fonix systems corporation, a Utah corporation, wholly owned by the
Company.
2. fonix Acquisition Corporation, a Utah corporation, wholly owned by
the Company
SCHEDULE 4.10
UNDISCLOSED FINANCIAL LIABILITIES
None.
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of March 9, 1998, by and among fonix corporation, a Delaware
corporation (the "Company"), and Thomson Kernaghan & Co., as agent for the
investors listed in Schedule 2 to the Purchase Agreement (each a "Purchaser" and
collectively the "Purchasers").
This Agreement is made pursuant to the Common Stock Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers (the
"Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control
with such Person. For the purposes of this definition, "control," when used
with respect to any Person, means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of such
Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of Delaware generally are authorized or required by law or other
government actions to close.
"Initial Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.0001 per
share.
"Effectiveness Date" means the first to occur of (i) the 90th day
following the Initial Closing Date or (ii) the fifth (5th) trading day following
receipt by the Company of notice, orally or in writing, that the Commission
either will not review the Registration Statement or will allow the Registration
Statement to become effective.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Filing Date" means the 30th day following the Initial Closing Date.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section 5(c).
"Indemnifying Party" shall have the meaning set forth in Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the Securities; provided, however that
in order to account for the fact that the number of shares of Reset Shares that
are or will be issuable at the Second Closing will be determined in part upon
the market price of the Common Stock between the Initial Closing Date and the
Effective Date, Registrable Securities contemplated by this definition shall be
deemed to include not less than the number of shares of Common Stock issuable at
the Second Closing assuming that the 60-day Average is $3.25. The Registration
Statement shall cover at least such number of shares of Common Stock as equals
the sum of the number of Shares plus the amount of Reset Shares assuming the 60-
day Average set forth in the immediately preceding sentence. To the extent that
an additional Registration Statement is required at any time to include the full
amount of the Securities as then are issued and outstanding, the Company
covenants to file such additional Registration Statement within (10) business
days after notice from Purchasers that such additional Registration Statement is
required.
"Registration Statement" means the registration statement contemplated
by Section 2(a), including the Prospectus, amendments and supplements to such
registration statement or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statement.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Special Counsel" means the law firm acting as counsel to the Holders,
for which the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
2. Shelf Registration
(a) On or prior to the Filing Date the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. Such Registration Statement shall state that in accordance with
Rules 416 and 457 under the Securities Act, it also covers such indeterminate
shares of Common Stock as may be issuable as Reset Shares. The Registration
Statement shall be on Form S-3 promulgated under the Securities Act (or, if the
Company is not permitted to register the resale of the Registrable Securities on
Form S-3, the Registration Statement shall be on such other appropriate form).
The Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the Effectiveness Date, and shall use
its best efforts to keep such Registration Statement continuously effective
under the Securities Act until the date which is two years after the date that
such Registration Statement is declared effective by the Commission or such
earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant to
Rule 144(k) promulgated under the Securities Act, as determined by the counsel
to the Company pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company's transfer agent (the "Effectiveness Period"). In
the event that (i) the Registration Statement shall not have become effective by
the Effectiveness Date or (ii) the Registration Statement shall have become
effective by the Effectiveness date, but shall thereafter cease to be effective
for two 20-day trading day periods during any 12-month period during the
Effectiveness Period, then the Company shall pay to the Purchasers, pro rata,
and as liquidated damages and not as a penalty, cash payment in the amount of 2%
of the Purchase Price paid by Purchasers to date, in the case of clause (i)
above, for each month after the Effectiveness Date or, in the case of clause
(ii) above, for each additional 20-day period during which the Registration
Statement shall not be effective. The Company shall not be deemed to have used
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holders not being able to sell all of the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, the investment banker that will administer the offering will be selected
by the Holders of a majority of the Registrable Securities to be included in
such offering. In connection with any Underwritten Offering, if the managing
underwriters advise the Company and the participating Holders in writing that in
their opinion the amount of Registrable Securities proposed to be sold in such
Underwritten Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in such Underwritten
Offering the amount of such Registrable Securities which in the
opinion of such managing underwriters can be sold, and such amount shall be
allocated pro rata among the Holders proposing to sell Registrable Securities in
such Underwritten Offering. No Holder may participate in any Underwritten
Offering hereunder unless such Holder (i) agrees to sell its Registrable
Securities on the basis provided in any underwriting agreements approved by the
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement in accordance with Section 2(a), and cause the
Registration Statement to become effective and remain effective as provided
herein; provided, however, that not less than five (5) Business Days prior to
the filing of the Registration Statement or any related Prospectus or any
amendment or supplement thereto (including any document that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall (i) furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed, which documents
(other than those incorporated or deemed to be incorporated by reference) will
be subject to the review of such Holders, their Special Counsel and such
managing underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as shall
be necessary, in the opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Company shall not file the Registration Statement or any
such Prospectus or any amendments or supplements thereto if the Holders of a
majority of the Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to all
Registrable Securities for the Effectiveness Period and prepare and file with
the Commission such additional Registration Statements in order to register for
resale under the Securities Act all of the Registrable Securities; (ii) cause
the related Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule 424
(or any similar provisions then in force) promulgated under the Securities Act;
(iii) respond as promptly as practicable to any comments received from the
Commission with respect to the Registration Statement or any amendment thereto
and promptly provide the Holders true and complete copies of all correspondence
from and to the Commission relating to the Registration Statement; and (iv)
comply with the provisions of the Securities Act and the Exchange Act with
respect to the disposition of all Registrable Securities covered by the
Registration Statement during the applicable period in accordance with the
intended methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) whenever the Commission notifies the Company whether there will
be a "review" of such Registration Statement; (C)
whenever the Company receives (or representatives of the Company receive on its
behalf) any oral or written comments from the Commission in respect of a
Registration Statement (copies or, in the case of oral comments, summaries of
such comments shall be promptly furnished by the Company to the Holders); and
(D) with respect to the Registration Statement or any post-effective amendment,
when the same has become effective; (ii) of any request by the Commission or any
other Federal or state governmental authority for amendments or supplements to
the Registration Statement or Prospectus or for additional information; (iii) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement covering any or all of the Registrable Securities or
the initiation of any Proceedings for that purpose; (iv) if at any time any of
the representations and warranties of the Company contained in any agreement
(including any underwriting agreement) contemplated hereby ceases to be true and
correct in all material respects; (v) of the receipt by the Company of any
notification with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that to the best knowledge of
the Company makes any statement made in the Registration Statement or Prospectus
or any document incorporated or deemed to be incorporated therein by reference
untrue in any material respect or that requires any revisions to the
Registration Statement, Prospectus or other documents so that, in the case of
the Registration Statement or the Prospectus, as the case may be, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. In
addition, the Company shall furnish the Holders with copies of all intended
written responses to the comments contemplated in clause (C) of this Section
3(c) not later than one (1) Business Day in advance of the filing of such
responses with the Commission so that the Holders shall have the opportunity to
comment thereon.
(d) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement or (ii) any suspension of the qualification (or exemption
from qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably agree should be included
therein and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and
any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities, use
its best efforts to register or qualify or cooperate with the selling Holders,
any underwriters and their Special Counsel in connection with the registration
or qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions as any Holder or underwriter requests in writing, to keep
each such registration or qualification (or exemption therefrom) effective
during the Effectiveness Period and to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to a Registration Statement, which
certificates shall be free of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three Business
Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq SmallCap
Market and any other securities exchange, quotation system, market or over-the-
counter bulletin board, if any, on which similar securities issued by the
Company are then listed as and when required pursuant to the Purchase Agreement.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order to expedite or facilitate the disposition of such Registrable
Securities, and whether or not an underwriting agreement is entered into, (i)
make such representations and warranties to such Holders and such underwriters
as are customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) obtain and deliver
copies thereof to each Holder and the managing underwriters, if any, of opinions
of counsel to the Company and updates thereof addressed to each selling Holder
and each such underwriter, in form, scope and substance reasonably satisfactory
to any such managing underwriters and Special Counsel
to the selling Holders covering the matters customarily covered in opinions
requested in Underwritten Offerings and such other matters as may be reasonably
requested by such Special Counsel and underwriters; (iii) immediately prior to
the effectiveness of the Registration Statement or at the time of delivery of
any Registrable Securities sold pursuant thereto (at the option of the
underwriters), obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to each Person and in such form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the underwriters, if
any, than those set forth in Section 7 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering; and (v)
deliver such documents and certificates as may be reasonably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(l)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) disclosure of such information, in the opinion of counsel to
such Person, is required by law; (iii) such information becomes generally
available to the public other than as a result of a disclosure or failure to
safeguard by such Person; or (iv) such information becomes available to such
Person from a source other than the Company and such source is not known by such
Person to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act and
Rule 158 not later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at the end of any fiscal quarter in which Registrable Securities are
sold to underwriters in a firm commitment or best efforts Underwritten Offering
and (ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective date of
the Registration Statement, which statement shall cover said 12-month period, or
end shorter periods as is consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement
and the Company may exclude from such registration the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the inclusion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the
ownership by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such ownership does not imply that such
Holder will assist in meeting any future financial requirements of the Company,
or (ii) if such reference to such Holder by name or otherwise is not required by
the Securities Act or any similar Federal statute then in force, the deletion of
the reference to such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
Each Holder agrees by its acquisition of such Registrable Securities
that (i) it will not offer or sell any Registrable Securities under the
Registration Statement until it has received copies of the Prospectus as then
amended or supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective amendments
thereto have become effective as contemplated by Section 3(c) and (ii) it will
comply with the prospectus delivery requirements of the Securities Act as
applicable to it in connection with sales of Registrable Securities pursuant to
the Registration Statement.
Each Holder agrees by its acquisition of such Registrable Securities
that, upon receipt of a notice from the Company of the occurrence of any event
of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or
3(c)(vi), such Holder will forthwith discontinue disposition of such Registrable
Securities until such Holder's receipt of the copies of the supplemented
Prospectus and/or amended Registration Statement contemplated by Section 3(j),
or until it is advised in writing (the "Advice") by the Company that the use of
the applicable Prospectus may be resumed, and, in either case, has received
copies of any additional or supplemental filings that are incorporated or deemed
to be incorporated by reference in such Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the extent
specified in Section 4(b), be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in the
foregoing sentence shall include, without limitation, (i) all registration and
filing fees (including, without limitation, fees and expenses (A) with respect
to filings required to be made with The Nasdaq Stock Market, Inc. and Nasdaq
SmallCap Market and each other securities exchange or market or over-the-counter
bulletin board on which Registrable Securities are required hereunder to be
listed and (B) in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the underwriters or
Holders in connection with Blue Sky qualifications of the Registrable Securities
and determination of the eligibility of the Registrable Securities for
investment under the laws of such jurisdictions as the managing underwriters, if
any, or the Holders of a majority of Registrable Securities may designate)),
(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company, (v) Securities Act liability
insurance, if the Company so desires such insurance, (vi) fees and expenses of
all other Persons retained by the Company in connection with the consummation of
the transactions contemplated by this Agreement, and (vii) actual fees and
expenses of Special Counsel to the Holders in an amount not to exceed, in the
aggregate for any Registration Statement, three thousand five hundred dollars
($3,500). In addition, the Company shall be responsible for all of its internal
expenses incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange as
required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to
the terms hereof, the Company shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants, which shall be borne by the Holders and the
Underwriters. By way of illustration which is not intended to diminish from the
provisions of Section 4(a), the Holders shall not be responsible for, and the
Company shall be required to pay the fees or disbursements incurred by the
Company (including by its legal counsel and accountants) in connection with, the
preparation and filing of a Registration Statement and related Prospectus for
such offering, the maintenance of such Registration Statement in accordance with
the terms hereof, the listing of the Registrable Securities in accordance with
the requirements hereof, and printing expenses incurred to comply with the
requirements hereof.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement and without limitation as to
time, indemnify and hold harmless each Holder, the officers, directors, agents
(including any underwriters retained by such Holder in connection with the offer
and sale of Registrable Securities), brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by or on behalf of such Holder expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in
any amendment or supplement thereto. The Company shall notify the Holders
promptly of the institution, threat or assertion of any Proceeding of which the
Company is aware in connection with the transactions contemplated by this
Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and
not jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact or alleged untrue statement of material fact
contained in the Registration Statement, any Prospectus, or any form of
prospectus, or arising solely out of or based solely upon any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in the Registration Statement or such Prospectus and that such information was
reasonably relied upon by the Company for use in the Registration Statement,
such Prospectus or such form of prospectus or to the extent that such
information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus. In no event shall the liability of any
selling Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party promptly shall notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of independent outside counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any Indemnified
Party to give such notice shall not relieve the Indemnifying Party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The
Indemnifying Party shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be unreasonably
withheld. No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of any pending Proceeding in respect of
which any Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regardless of whether
it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material fact,
has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limitations set forth
in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section was available to such party in
accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), the Purchasers shall not be
required to contribute, in the aggregate, any amount in excess of the amount by
which the proceeds actually received by the Purchasers from the sale of the
Registrable Securities subject to the Proceeding exceeds the amount of any
damages that the Purchasers have otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
6. Other Company Registration Obligations; Piggy-Back
Registration.
(a) No Inconsistent Agreements. Except as and to the extent
specifically set forth in Schedule 6(a) attached hereto, neither the Company
nor any of its subsidiaries has, as of the date hereof, nor shall the Company
or any of its subsidiaries, on or after the date of this Agreement, enter into
any agreement with respect to its securities that is inconsistent with the
rights granted to the Holders in this Agreement or otherwise conflicts with
the provisions hereof. Except as and to the extent specifically set forth in
Schedule 6(a) attached hereto, neither the Company nor any of its subsidiaries
has previously entered into any agreement granting any registration rights
with respect to any of its securities to any Person. Without limiting the
generality of the foregoing, without the written consent of the Holders of a
majority of the then outstanding Registrable Securities, the Company shall not
grant to any Person the right to request the Company to register any
securities of the Company under the Securities Act unless the rights so
granted are subject in all respects to the prior rights in full of the Holders
set forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement.
(b) No Piggyback on Registrations. Except as and to the extent
specifically set forth in Schedule 6(a) attached hereto, neither the Company
nor any of its security holders (other than the Holders in such capacity
pursuant hereto) may include securities of the Company in the Registration
Statement other than the Registrable Securities, and the Company shall not
enter into any agreement providing any such right to any of its
securityholders.
(c) Piggy-Back Registrations. If at any time during the
Effectiveness Period there is not an effective Registration Statement covering
all of the Registrable Securities and the Company shall determine to prepare
and file with the Commission a registration statement relating to an offering
for its own account or the account of others under the Securities Act of any
of its equity securities, other than on Form S-4 or Form S-8 (each as
promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of
any entity or business or equity securities issuable in connection with stock
option or other employee benefit plans, then the Company shall send to each
holder of Registrable Securities written notice of such determination and, if
within twenty (20) days after receipt of such notice, any such holder shall so
request in writing, the Company shall include in such registration statement
all or any part of the Registrable Securities such holder requests to be
registered. No right to registration of Registrable Securities under this
Section shall be construed to limit any registration otherwise required
hereunder.
7. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
The Company and each Holder agree that monetary damages would not provide
adequate compensation for any losses incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the
Company and the Holders of at least 80% of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders may be
given by Holders of at least a majority of the Registrable Securities to which
such waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance
with the provisions of the immediately preceding sentence.
(c) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in this Section prior to 5:00 p.m.
(Salt Lake City time) on a Business Day, (ii) the Business Day after the date
of transmission, if such notice or communication is delivered via facsimile at
the facsimile telephone number specified in the Purchase Agreement later than
5:00 p.m. (Salt Lake City time) on any date and earlier than 11:59 p.m. (Salt
Lake City time) on such date, (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service, or (iv)
upon actual receipt by the party to whom such notice is required to be given.
The address for such notices and communications shall be as follows:
If to the Company: fonix corporation
00 Xxxx Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
With copies to: Durham, Evans, Xxxxx & Xxxxxxx, P.C.
Suite 850 Key Bank Tower
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxx, Esq.
If to Purchasers:
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the stock
transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(d) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may
not assign its rights or obligations hereunder without the prior written
consent of each Holder. The Purchasers may assign their respective rights
hereunder in the manner and to the Persons as permitted under the Purchase
Agreement.
(e) Assignment of Registration Rights. The rights of any
Purchaser hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by such Purchaser to any assignee or
transferee of all or a portion of the Preferred Shares held by such Purchaser,
the Warrant held by such Purchaser or Registrable Securities without the
consent of the Company if: (i) such Purchaser agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee
or assignee, and (b) the securities with respect to such registration rights
are being transferred or assigned, (iii) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all
of the provisions of this Agreement, and (iv) such transfer shall have been
made in accordance with the applicable requirements of the Purchase
Agreement. The rights to assignment shall apply to the Purchasers (and to
subsequent) successors and assigns.
(f) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(g) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without regard
to principles of conflicts of law.
(h) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(i) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would
have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
(j) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(k) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company
or its Affiliates (other than the Purchasers or transferees or successors or
assigns thereof if such Persons are deemed to be Affiliates solely by reason
of their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
PURCHASER:
By:______________________________________
Its:__________________________________
THE COMPANY:
fonix corporation
By:____________________________________
Xxxxxx X. Xxxxxxx, President
Schedule 6(a)
Other Registration Rights
1. Siemens Aktiengesellschaft. On November 17, 1997, the Company entered into
a strategic collaborative agreement (the "Master Agreement") with Siemens
Semiconductor Group of Siemens Aktiengesellschaft ("Siemens") pursuant to
which the Company and Siemens will jointly pursue the development and
commercialization of products incorporating the Company's technologies into
Siemens integrated circuits ("ICs") for use in telecommunications products.
The Master Agreement anticipates multiple product-specific collaborative
efforts between the Company and Siemens for a variety of telecommunications
applications as described in multiple to-be-negotiated sub-agreements
("Statements of Work").
On February 11, 1998, the Company and Siemens executed the first Statement of
Work pursuant to the Master Agreement. In connection with the execution of
the Statement of Work, and as anticipated by the Master Agreement, on February
13, 1998, Siemens paid to the Company a total of 5,000,000 deutsche marks
("DM"). Of that amount, 600,000 DM was paid as the purchase price for
warrants ("Warrants") to purchase up to 1,000,000 shares of fonix restricted
common stock on or before the following dates and at the following exercise
prices:
No. of Shares Exercise Price Expiration Date
200,000 U.S. $10.00 December 31, 1998
200,000 U.S. $15.00 March 31, 1999
200,000 U.S. $20.00 June 30, 1999
200,000 U.S. $25.00 September 30, 1999
200,000 U.S. $30.00 December 31, 1999
Further, 2,000,000 DM was paid to acquire shares of the Company's restricted
Common Stock at any time prior to March 12, 1998. If Siemens elects not to
acquire all or a part of the Shares on or prior to March 12, 1998, the
2,000,000 DM (or any lesser portion thereof not used to purchase the Common
Stock) shall be accounted for as an additional advance royalty payment. The
purchase price of the Common Stock, if Siemens elects to purchase, shall be
the closing price of Common Stock as quoted by the Nasdaq SmallCap Market on
the day preceding the day on which Siemens notifies the Company of its
election to purchase the Common Stock.
The Common Stock, if any, issued to Siemens as a result either of Siemens
purchase of Common Stock or its exercise of the Warrants will be restricted
stock. The Company has agreed to register such shares of Common Stock within
30 days of the earlier of (i) the exercise by Siemens of Warrants to purchase
the first 200,000 shares of stock underlying the Warrants, or (ii) April 23,
1998. Siemens also has "piggyback" registration rights with respect to the
Shares and the common stock underlying the Warrants.
2. Synergetics, Inc.. Synergetics, Inc., is a Utah corporation that entered
into a Product Development and Assignment Agreement (the "Development
Agreement") with Phonic Technologies, Inc., a Utah corporation and the
Company's predecessor in interest ("PTI") on October 16, 1993. Under the
Development Agreement, Synergetics agreed to perform research and development
activities in connection with the development and commercialization of the
Company's voice recognition technologies and to irrevocably transfer and
assign to PTI any and all right, title and interest in and to the technology,
in return for which PTI agreed to fund the research and development activities
of Synergetics on an as-needed basis and to pay to Synergetics a royalty of
10% of net sales of any products incorporating the technology or from any
revenues from licensing the technology (the "Royalty").
Effective June 16, 1994, PTI was merged with and into the Company. The
Company succeeded to the rights of PTI under the Development Agreement. In
connection with its research and development activities performed under the
Development Agreement, Synergetics engaged software development engineers,
linguists, computer scientists and other professional and administrative
personnel (collectively "Developers") to work on the technology. Some of the
Developers were paid cash consideration for their services; others were issued
(by Synergetics), either in addition to or in lieu of cash compensation, certifi
xxxxx representing fractional interests in the Royalty payments to be received
by Synergetics from the Company (each such right a "Project Share"). The
Project Shares issued to the Developers each represent one sixtieth (1/60th)
of one percent (1%) of the total Royalty payments payable by the Company under
the Development Agreements, provided, that the amounts payable to Project
Share holders is limited to a maximum of $30,000 for each Project Share held,
upon payment of which maximum amount the Project Shares terminate and have no
further force or effect.
On March 13, 1997, the Company and Synergetics signed a Memorandum of
Understanding (the "MOU") which manifested their agreement in principle that
the Royalty should be canceled in exchange for the offering and issuance by
the Company of warrants to purchase up to 4,800,000 shares of the Company's
Common Stock. The MOU specified that the warrants would have an exercise
price of $10.00 per share, but would not be exercisable until the market price
of the Common Stock reaches $37.50 per share for a specified period of time.
In recognition of the issuance by Synergetics of the Project Shares, the MOU
further anticipated that the Company would issue a pro rata portion of the
warrants in exchange for cancellation of the Royalty to any Developers who
desired to tender their Project Shares for such warrants.
The definitive agreements anticipated by the MOU have not been finally
negotiated or executed. Nevertheless, the Company anticipates that in order
to accomplish any offering of warrants in exchange for Project Shares, it will
have to file a registration statement covering both the warrants and the
underlying Common Stock.
3. In addition to the foregoing, the Company presently has 2 effective S-3
registration statements covering resales of Common Stock underlying
convertible preferred stock and warrants issued in connection with the
preferred stock. The Company does not presently anticipate filing additional
registration statements with respect to those preferred stock transactions.
4. In addition to Purchaser, the Company has agreed to offer and sell shares of
Common Stock to investors that shall hereafter be identified by Encore Capital
Management, L.L.C., which offers and sales will be on terms substantially
identical to the terms as set forth in this Agreement and will close according
to the same closing schedule set forth in this Agreement, provided that such
additional sales shall not exceed, in the aggregate, $10,000,000, only
$5,000,000 of which amount may be paid at the First Closing.
