REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of February 24, 2004, by and among FONIX CORPORATION, a Delaware
corporation (the "Company") and the Sellers (the "Sellers") identified in that
certain Exchange Agreement (the "Exchange Agreement") of even date herewith
among the Company, LTEL Acquisition Corporation, a Delaware corporation and
wholly owned subsidiary of the Company, LTEL Holdings Corporation, a Delaware
corporation, XxXxxxxxx Avenue, Ltd., a British Virgin Islands corporation, and
the Sellers.
The Company and the Sellers hereby agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
shall have the meanings given such terms in the Exchange Agreement. As used in
this Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 2(e).
"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 that
is 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 action
to close.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the Company's Class A Common Stock, par value
$.0001 per share.
"Effectiveness Date" means the 180th day following the Closing Date.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Event" shall have the meaning set forth in Section 2(f).
"Event Date" shall have the meaning set forth in Section 2(f).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-1-
"Filing Date" means the 120th day following the 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 (i) the Fonix Restricted Stock issuable
pursuant to the Exchange Agreement, (ii) 2,000,000 shares of Fonix Common Stock
issuable at the option of Fonix as payment of interest accrued under the Note,
and (iii) 2,000,000 shares of Fonix Common Stock issuable at the option of Fonix
as payment of dividends payable in respect of the Series H Preferred Stock.
"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 144" means Rule 144 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.
-2-
"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.
"Rule 424" means Rule 424 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 any special 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. Registration
(a) No later than one hundred twenty (120) days after the
Closing, the Company shall prepare and file with the Commission a Registration
Statement covering all Registrable Securities for an offering to be made on a
continuous basis pursuant to Rule 415. The Registration Statement shall be on
Form S-2 (if the Company is not then eligible to register for resale the
Registrable Securities on Form S-2 such registration shall be on another
appropriate form in accordance herewith). 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 one year after the Closing Date 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) 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"), provided, however, that 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 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.
-3-
(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, and, if the managing underwriters advise the Company and such 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.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. 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.
(d) Each Holder covenants and agrees that (i) it will not 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(h) and written or oral notice from the Company that
such Registration Statement and any post-effective amendments thereto have
become effective as contemplated by Section 3(d), and (ii) it and its officers,
directors or Affiliates, if any, 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.
(e) 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 Sections 3(d)(ii), 3(d)(iii), 3(d)(iv),
3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(k), 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.
(f) (i) if the Registration Statement is not filed on or prior
to the Filing Date, or (ii) if the Company fails to file with the Commission a
request for acceleration in accordance with Rule 461 promulgated under the
Securities Act within five (5) Business Days of the date that the Company is
notified (orally or in writing, whichever is earlier) by the Commission that the
Registration Statement will not be "reviewed" or is not subject to further
review or comment by the Commission, or (iii) if the Registration Statement is
-4-
not declared effective by the Commission on or prior to the Effectiveness Date,
or (iv) if the Registration Statement is filed with and declared effective by
the Commission but thereafter ceases to be effective as to all Registrable
Securities at any time prior to the expiration of the Effectiveness Period,
without being succeeded by a subsequent Registration Statement filed with and
declared effective by the Commission within twenty (20) Business Days, or (v) if
an amendment to the Registration Statement is not filed by the Company with the
Commission within ten (10) Business Days after notification by the Commission
that such amendment is required in order for the Registration Statement to
remain effective (any such failure being referred to as an "Event," and for
purposes of clauses (i) and (iii) the date on which such Event occurs, or for
purposes of clause (ii) the date on which such five (5) Business Day period is
exceeded, or for purposes of clauses (iv) the date which such twenty (20)
Business Day period is exceeded, or for purposes of clause (v) the date on which
such ten (10) Business Day period is exceeded, being referred to as "Event
Date"), the Company shall pay for each thirty (30) day period or any portion
thereof during which the Event continues and until the Registration Statement is
filed or declared effective, a fee equal to one percent (1%) of an amount equal
to the closing bid price of the Common Stock as of the Event Date multiplied by
the number of shares of Registrable Securities owned by the Holder claiming such
fee. Such fee shall be paid in cash as liquidated damages, and not as a penalty.
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 on Form S-2 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-2 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form available to
the Company and acceptable to the Holders), and cause the Registration Statement
to become effective and remain effective as provided herein; provided, however,
that not less than three (3) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment (or with
respect to any pre-effective amendment not less than two (2) Business Days prior
to the filing of such pre-effective 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 to
which 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
-5-
necessary to keep the Registration Statement continuously effective as to the
applicable Registrable Securities for the Effectiveness Period; (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;
(iii) respond as promptly as reasonably possible to any comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as reasonably possible provide the Holders true and
complete copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply in all material respects 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) File additional Registration Statements if the number of
Registrable Securities at such time exceeds the number of shares of Common Stock
then registered in a Registration Statement. The Company shall have thirty (30)
days to file such additional number of Registration Statements after notice of
the requirement thereof which the Holders may give at such time when the
Registrable Securities exceeds 85% of the number of shares of Common Stock then
registered in a Registration Statement hereunder;
(d) 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 and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders); and (C) 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 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
-6-
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(d) not later than
two (2) Business Days in advance of the filing of such responses with the
Commission so that the Holders shall have the opportunity to comment thereon;
(e) 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;
(f) 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) (subject to a permitted Blackout Period)
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(f) that would, in the opinion of counsel for
the Company, violate applicable law or be materially detrimental to the business
prospects of the Company. For purposes of this Agreement, "Blackout Period"
shall mean not more than two five-day periods within any 12 month period, with
at least a ten (10) Business Day separation between blackout periods, (i) beyond
the date by which such Registration Statement was otherwise required hereunder
to be filed or (ii) during which the effectiveness of such Registration
Statement or the use of the related prospectus is deferred or suspended by the
Company;
(g) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge and upon request therefor, 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;
(h) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge and upon request therefor, 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;
-7-
(i) 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 within the United States 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;
(j) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, 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 (3)
Business Days prior to any sale of Registrable Securities;
(k) Upon the occurrence of any event contemplated by Section
3(d)(vi), as promptly as reasonably possible, 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;
(l) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the OTC Bulletin Board;
(m) 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) as shall be reasonably necessary to expedite or facilitate the disposition
of such Registrable Securities, in connection with which the Company shall (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 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
-8-
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, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, use its
best reasonable efforts to 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 the Company in form and substance as are
customary in connection with Underwritten Offerings; (iv) include in any
underwriting agreement indemnification provisions and procedures no less
favorable to the selling Holders and the underwriters, if any, than those set
forth in Section 5 of this Agreement (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(m)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company;
(n) 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
standard business hours and upon two (2) Business Days' prior written notice,
all material 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 reasonably 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) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by such Person;
or (iii) 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;
(o) Comply with all applicable rules and regulations of the
Commission; and
(p) Have the right to require each selling Holder to furnish
to the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, provided that
-9-
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, and further
provided that the Company may exclude from such registration, without any
penalty otherwise provided by this Agreement, the Registrable Securities of any
such Holder who unreasonably fails to furnish such requested information within
a reasonable time after receiving such request.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall 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 Nasdaq or any other market
on which the Common Stock is then listed for trading, and (B) all registration
and filing fees in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of its counsel in connection with
Blue Sky qualifications or exemptions 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 of the
Company, (iv) fees and disbursements of counsel for the Company and Special
Counsel for the Holders (which, in the case of the Special Counsel, will not
exceed $2,000), (v) Securities Act liability insurance, if the Company in its
discretion desires such insurance, and (vi) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. 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.
-10-
(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.
5. Indemnification
(a) Indemnification by the Company. The Company shall
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 contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
-11-
thereto, or arising solely out of or based solely upon any 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 furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement, such Prospectus or such form of prospectus and 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, or in any amendment or supplement
thereto. 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. The breach, default or other action by or claim
against one Holder will not be deemed a breach, default or action of or claim
against any other Holder or in any way adversely affect the rights of each of
the other Holders.
(c) Conduct of Indemnification Proceedings.
(1) If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly
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
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.
(2) 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: (i) the Indemnifying Party has agreed
in writing to pay such fees and expenses; or (ii) 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 (iii) 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
-12-
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.
(3) 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
ten (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 (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), no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such Holder from
the sale of the Registrable Securities subject to the Proceeding exceeds the
-13-
amount of any damages that such Holder has 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.
(e) The indemnity and contribution agreements contained in
this Section 5 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. Without the written consent of the Holders, 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 not in conflict or inconsistent with the provisions of this Agreement.
(b) 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 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. Re-Sale Restrictions. Notwithstanding anything to the contrary
herein, and notwithstanding the effectiveness of any Registration Statement
covering the Registrable Securities, each Holder hereby agrees that such Holder
shall not sell, transfer, make any short sale of, grant any option for the
purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, more than 500,000 shares of Common Stock held by such
Holder (including those included in the Registration Statement) during any
calendar month or portion thereof from and after the Closing Date and until the
end of the Effectiveness Period. Each Holder further agrees that the Company
shall not be required to register on its books and records any transfer of
Common Stock by any Holder in violation of the requirements of this Section 7.
-14-
8. 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 agrees 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 a majority of all 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.
(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 Exchange 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
000 Xxxx Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx X. Xxxxxx,
Executive Vice President
With copies to: Durham Xxxxx & Xxxxxxx, P.C.
(which shall 000 Xxxx Xxxxxxxx
not constitute Suite 900
notice) Salt Xxxx Xxxx, Xxxx 00000 Facsimile No.:
-15-
(000) 000-0000
Attn: Xxxxxxx X. Xxxxx, Esq.
If to the Sellers: Xxxxxx Xxxxx
00 Xxxxx Xxxxxx, Xxxxx #00
Xxxxxxxxxx, Xxxxxxxxxxx 00000
Fax: (000) 000-0000
With copies to: Xxxxxxx & Prager, LLP
(which shall 00 Xxxxxxxx, Xxxxx 0000
not constitute Xxx Xxxx, Xxx Xxxx 00000
notice) Attn. Xxxxxx X. Xxxxxxx
Facsimile No.: 000-000-0000
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, in each instance, to any party at 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 Sellers may assign their rights hereunder in the manner and to
the Persons as permitted under the Exchange Agreement.
(e) 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.
(f) 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. The parties hereby consent to the
jurisdiction of the courts of such state and agree that any litigation commenced
or arising under this Agreement may be brought in the courts in Wilmington,
Delaware.
(g) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(h) 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
-16-
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.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
-17-
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
FONIX CORPORATION
By:_________________________________
Name:______________________________
Its:_________________________________
Sellers:
REFERENCE IS MADE TO THE COUNTERPART SELLER'S
SIGNATURE PAGE EXECUTED BY EACH SELLER AND MADE A
PART HEREOF
REGISTRATION RIGHTS agreement
Counterpart signature page
SELLERS:
Name of Seller:
----------------------------------------------------------
By:
-------------------------------------------------------------
(signature)
Name:
-----------------------------------------------------------
Title:
----------------------------------------------------------
Tax I.D. or Soc. Sec. No.:
--------------------------------------
No. of Fonix Shares Acquired:
SCHEDULE 6(a)
Other Registration Rights
1. Breckenridge - Series I Preferred Stock. On January 29, 2004, the
Company closed a transaction under which it sold to The Breckenridge Fund, LLC
("Breckenridge"), 3,250 shares of the Company's Series I 8% Convertible
Preferred Stock (the "Series I Preferred"). In addition, the Company issued to
Breckenridge (i) warrants (the "Warrants") to purchase up to Nine Hundred
Sixty-Five Thousand, Eight Hundred Thirty-nine (965,839) additional shares of
our Class A common stock; (ii) One Million Nine Hundred Thirty-One Thousand, Six
Hundred Seventy-Seven (1,931,677) shares of our Class A common stock (the
"Additional Shares"); and (iii) Four Hundred Eighty-two Thousand Nine Hundred
Nineteen (482,919) shares of our Class A common stock (the "Fee Shares"). In
connection with the Series I Preferred transaction, the Company agreed to
register the resale of the shares underlying the Warrants, the Additional
Shares, the Fee shares, and the shares of common stock issuable upon conversion
or as payment of dividends on the Series I Preferred Stock. As of the date of
this Agreement, the Company has not filed the Series I Preferred registration
statement.
2. Queen, LLC. In July 2003, the Company entered into a Fifth Equity
Line of Credit Agreement (the "Fifth Equity Line Agreement") with Queen, LLC
("Queen"), pursuant to which Queen would make available to the Company a line of
credit in the amount of $20,000,000. The Company makes draws on the equity line,
and puts shares of its common stock to Queen in lieu of repayment. The Company
granted registration rights to Queen, and filed a registration statement on Form
S-2 with the SEC (SEC File No. 333-106697). That registration statement
registered the resale by Queen of up to 91,670,833 shares issued to Queen in
connection with the Fifth Equity Line Agreement. The registration statement was
originally declared effective by the SEC on July 7, 2003, and a post-effective
amendment was declared effective on December 18, 2003.
Permissible Piggyback Securities
None.
