SECOND AMENDMENT TO LOAN AGREEMENT
Second Amendment to Loan Agreement ("Amendment") made as of the 19th
day of May, 1999, by and among FONIX CORPORATION, a Delaware corporation, and
FONIX/ASI CORPORATION, a Utah corporation, jointly and severally (each a
"Borrower", and collectively, the "Borrowers"), and LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V., a Belgian corporation ("Lender"), with respect to that certain
Loan Agreement dated April 22, 1999 by and among Borrowers and Lender, as
amended by that certain Amendment to Loan Agreement dated as of May 12, 1999 (as
amended, the "April Loan Agreement"). Capitalized terms not defined herein shall
have the meanings ascribed thereto in the April Loan Agreement.
WHEREAS, Borrowers and the Lender are parties to the April Loan
Agreement pursuant to which the Lender has provided a loan of $1,000,000 on
April 28, 1999 and a loan of $100,000 on or about May 12, 1999 to the Borrowers;
WHEREAS, Fonix/ASI Corporation and Lender have agreed to enter into an
additional Loan Agreement dated as of the date hereof (the "May Loan
Agreement"), under which the Lender will provide additional loans of up to
$4,900,000 to Fonix/ASI Corporation, under the terms and conditions thereof;
WHEREAS, in connection with the May Loan Agreement, Borrowers and the
Lender have agreed to certain amendments to the terms of the April Loan
Agreement and the Loan Documents;
NOW THEREFORE, based on these premises, and in consideration of the
mutual promises contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties, the
Borrowers and the Lender hereby agree as follows:
1. Amendments to Loan Agreement.
(a) Loans to Fonix Corporation. Section 4(b) of the April Loan
Agreement is hereby stricken and deleted in its entirety, and replaced with the
following in lieu thereof:
" (b) Except as consented to by the Lender, the Borrowers shall
not pay or set apart for payment to holders of their capital
stock, any dividends, and the Borrowers shall not redeem or
purchase any shares of capital stock, provided, however, that
notwithstanding anything to the contrary herein and subject to
satisfaction of all of the conditions precedent set forth in
Section 7 hereof, Fonix/ASI Corporation may loan such amounts to
Fonix Corporation as may be permitted under Section 4(b) of the
Loan Agreement between Fonix/ASI Corporation and Lender dated as
of May 19, 1999, and subject to the conditions thereof."
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(b) Indebtedness. Section 4(g) of the Loan Agreement is hereby stricken
and deleted in its entirety and replaced with the following in lieu thereof:
"(g) Fonix/ASI Corporation will not create, assume, or otherwise become
or remain obligated in respect of, or permit or suffer to exist or
to be created, assumed or incurred or to be outstanding any
indebtedness (other than current trade payables and accrued
expenses incurred in the ordinary course of business and payable
in accordance with customary practice), or indebtedness to the
Lender."
(c) Break-Up. Section 8(h) of the Loan Agreement is hereby stricken and
deleted in its entirety and replaced with the following in lieu thereof:
"h. Intentionally omitted."
2. Conditions Precedent.
Each Borrower acknowledges and agrees that Lender will not enter into
this Amendment unless and until all of the following conditions have been
satisfied and remain satisfied:
(a) Representations and Warranties. Borrowers' representations and
warranties contained herein and in each and every Loan Document shall be correct
and complete in all material respects;
(b) Covenants. Borrowers shall be in compliance in all material
respects with all covenants and agreements contained herein and in each and
every Loan Document;
(c) No Events of Default. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default; and
(d) Delivery of Documents. Borrowers shall have executed and delivered,
or caused to be delivered, to Lender: (i) this Amendment, (ii) the Second
Amendment To Promissory Note in the form attached hereto as Exhibit A, (iii) the
Second Amendment to Security Agreement in the form attached hereto as Exhibit B,
(iv) such legal opinions as in its reasonable judgment the Lender deems
necessary in form and substance satisfactory to Lender in the form attached
hereto as Exhibit C; and (v) a completed Exhibit D showing bank accounts as set
forth in Section 3(a) hereof.
(e) No Material Adverse Effect. No event or condition having a material
adverse effect with respect to either Borrower shall have occurred.
3. Additional Provisions.
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(a) Bank Accounts. Each Borrower represents, warrants,
covenants and agrees that it shall hold all proceeds of the Loan at only those
bank accounts set forth on Exhibit D attached hereto, until such time the
Borrowers make disbursements from such accounts for the purposes set forth in
Section 2(c) of the April Loan Agreement.
(b) No Prepayment of Indebtedness. Each Borrower represents,
warrants, covenants and agrees that it shall not prepay any indebtedness to any
party other than the Lender.
4. Representations and Warranties. To induce the Lender to enter into
this Amendment and perform its obligations hereunder, Borrowers hereby jointly
and severally represent and warrant as follows:
(a) Organization and Qualification. The Borrowers are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and have all required corporate power
and authority to own or lease their property, to carry on their businesses as
presently conducted and to carry out the transactions contemplated hereby.
(b) Charter. The Borrowers have delivered to counsel to the Lender true
and complete copies of their respective Certificates of Incorporation or
equivalent documents as amended from time to time (the "Charters") and their
by-laws ("By-laws") as currently in effect.
(c) Authorization of Transaction. The execution, delivery and
performance of this Amendment, the other documents executed and/or delivered in
connection herewith, and the other Loan Documents by Borrowers have been duly
authorized by all necessary corporate action of the Borrowers. The Loan
Documents are the legal, valid and binding obligations of the Borrowers,
enforceable against the Borrowers in accordance with their terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors. The issuance of the Amendment to Promissory Note by Borrowers pursuant
to the terms of this Amendment is duly and validly authorized, and no further
approval or authority of the shareholders or the directors of the Borrowers or
of any governmental authority or agency will be required for the issuance and
sale of the Note as contemplated by this Agreement.
(d) Approvals; Compliance With Laws. The execution, delivery and
performance of this Amendment by Borrowers and the transactions contemplated
hereby: (i) do not require any approval or consent of, or filing with, any
governmental agency or authority in the United States of America or otherwise
which has not been obtained and which is not in full force and effect as of the
date hereof; (ii) will not conflict with or constitute a breach or violation of
the Charters or By-laws of the Borrowers; and (iii) will not result in a
violation of any law or regulation to which they are subject.
(e) Disclosure. This Amendment, together with any financial statement,
schedule, exhibit or other statement (written or oral) pertaining to the
Borrowers, made, delivered or communicated to the Lender by the Borrowers, or
any representative thereof, in connection with this Amendment and the
transactions related thereto, contains no untrue statement of a material fact
and does not omit to state any material fact necessary in order to make the
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statements contained therein not misleading in light of the circumstances under
which they were made.
(f) Title. Fonix/ASI Corporation has good and marketable title to all
of the Collateral (as defined in the Security Agreement), free and clear of any
liens other than the liens disclosed on Schedule 3(f) attached to the April Loan
Agreement or liens held by the Lender (the "Permitted Liens"), and Fonix
Corporation has good and marketable title to all of the capital stock of
Fonix/ASI Corporation, free and clear of any liens other than the Permitted
Liens.
(g) Enforcement; No Other Liens. The Borrowers have not performed any
acts which might prevent the Lender from enforcing any of the terms of this
Amendment or the Loan Documents or which would limit the Lender in any such
enforcement. Other than financing statements or other similar or equivalent
documents or instruments in favor of the Lender or with respect to the Permitted
Liens, no financing statement, mortgage or security agreement or similar or
equivalent document or instrument covering all or any part of the Collateral is
on file or of record in any jurisdiction in which such filing or recording would
be effected to perfect a lien on such Collateral. No Collateral is in the
possession of any person (other than the Borrowers) asserting any claim thereto
or security interest therein other than Collateral being repaired by third
parties in the ordinary course of business and inventory in transit.
(h) Perfection. The liens granted to Lender pursuant to the Loan
Documents constitute valid first priority security interests in the Collateral
securing the Obligations (as defined in the Security Agreements) and constitute
first priority perfected security interests in the Collateral to the extent that
a security interest therein may be perfected by filing pursuant to the UCC prior
to all other liens and rights of others therein except for the Permitted Liens.
(i) No Material Adverse Change. Other than as disclosed in Schedule
3(l) to the April Loan Agreement or as otherwise disclosed in the periodic
reports filed by Fonix Corporation with the Securities and Exchange Commission,
there has occurred, since December 31, 1998, no event which has had or is
reasonably likely to have a material adverse change on either Borrower or any of
their subsidiaries.
(j) Intellectual Property. Fonix/ASI Corporation owns or possesses the
adequate right to use all Intellectual Property Rights necessary to the conduct
of its business as presently conducted or presently contemplated to be conducted
as of the date of this Agreement. Schedule 3(m) attached to the April Loan
Agreement contains a list of all patents, tradenames, trademarks, service marks,
and registered copyrights and applications for the same owned by Fonix/ASI
Corporation or any of its subsidiaries. Fonix/ASI Corporation has unencumbered
title to the Intellectual Property Rights which are owned by Fonix/ASI
Corporation and such title has not been challenged (pending, or to the knowledge
of the Borrowers, threatened) by others. All such patents, registered
trademarks, service marks, and copyrights owned by Fonix/ASI Corporation are in
good standing and are recorded on the public record in the name of Fonix/ASI
Corporation, except for those failures to be in good standing and so recorded
that would not, individually or in the aggregate, have a material adverse
effect.
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(k) No Conflict. The execution, delivery and performance of this
Amendment and each document executed and/or delivered in connection herewith by
the Borrowers will not violate (i) any organizational documents of any Borrower,
or (ii) any requirement of law affecting any of the Borrowers or any of their
properties, and will not result in or require the creation (except as provided
in or contemplated by this Amendment) of any security interest or lien upon any
of such properties. None of the Borrowers is in violation of or default in any
material respect under any requirement of law, and no condition exists that
would, with the giving of notice or lapse of time, or both, constitute such a
violation or default.
(l) Loan Documents. Each Borrower represents and warrants to the Lender
that each of the representations and warranties in the Loan Documents,
including, without limitation, the April Loan Agreement (in Section 3 of the
April Loan Agreement or elsewhere) are still true as of the date hereof.
5. Confirmation. Except as specifically provided herein, all other terms
and conditions of the April Loan Agreement and the other Loan Documents shall
remain in full force and effect in accordance with their original terms. Without
limitation of the foregoing, Borrowers confirm that the new loans made by Lender
pursuant to this Amendment shall be governed by, secured by and entitled to the
benefit of the terms and conditions of the April Loan Agreement and the other
Loan Documents.
Each Borrower each hereby (a) consents to the execution of the
Amendment To Promissory Note, the Amendment to Security Agreement, and each
other document relating thereto, all of even date herewith, executed by each
other Borrower, and (b) agrees and confirms that any and all documents and
instruments securing any of their obligations shall be deemed to secure any
obligation of such party as it may be amended or affected hereby.
6. References. All references in the April Loan Agreement to "this
Agreement" shall hereafter be deemed to refer to the April Loan Agreement as
amended hereby and as otherwise hereafter amended, supplemented or modified. All
references in the Loan Documents shall hereafter be deemed to refer to the April
Loan Agreement as amended hereby and as otherwise hereafter amended,
supplemented or modified.
7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall be deemed to constitute one and the same agreement.
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IN WITNESS WHEREOF, the Borrowers and the Lender have executed this
Amendment as of the date first above written, by their respective officers
hereunto duly authorized, under Massachusetts law as a document under seal.
WITNESS: FONIX CORPORATION
By:/s/
----------------------------- --------------------------------------
Xxxxxx X. Xxxxxxx
President and Chief Executive Officer
WITNESS: FONIX/ASI CORPORATION
By:/s/
----------------------------- --------------------------------------
Xxxxxx X. Xxxxxxx
President
WITNESS: LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V.
By:/s/
----------------------------- --------------------------------------
Xxxxxx Xxxxxxxxx
President and Chief Executive Officer
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EXHIBIT A
Form of Amendment To Promissory Note
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EXHIBIT B
Form of Amendment To Security Agreement
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EXHIBIT C
Form of Legal Opinion
(a) Fonix Corporation is validly existing and in good standing as a
corporation under the laws of the State of Delaware and has full corporate power
and authority to own, lease and operate its properties, to carry on its business
as now being conducted by it and to execute, deliver and perform each Loan
Document (defined herein to include each Loan Document under either or both of
the Loan Agreement dated as of May 19, 1999 between Fonix/ASI Corporation and
Lender or the Loan Agreement dated as of April 22, 1999 among Fonix Corporation,
Fonix/ASI Corporation, and Lender) to which it is a party.
(b) Fonix/ASI Corporation is validly existing and in good standing as a
corporation under the laws of the State of Utah and has full corporate power and
authority to own, lease and operate its properties, to carry on its business as
now being conducted by it and to execute, deliver and perform each Loan Document
to which it is a party.
(c) Each Loan Document constitutes the legal, valid and binding
agreement of Fonix/ASI Corporation and/or Fonix Corporation, as applicable,
enforceable against Fonix/ASI Corporation and/or Fonix Corporation, as
applicable, in accordance with its terms.
(d) The Common Stock Warrant dated as of May 19, 1999 constitutes the
legal, valid and binding obligation of Fonix Corporation enforceable against
Fonix Corporation in accordance with its terms.
(e) The execution, delivery and performance by Fonix Corporation of
each Loan Document and the consummation of the transactions contemplated thereby
will not: (i) conflict with any term or provision of the certificate of
incorporation or the by-laws of Fonix Corporation, (ii) result in any breach of,
or constitute a default under, or result in the creation of any Lien (except as
contemplated by the Loan Documents) in respect of any property of Fonix
Corporation under any indenture, mortgage, deed of trust, bank loan or credit
agreement, or other agreement or instrument, including, without limitation any
agreement with, or document or instrument delivered to Dragon Systems, Inc.
("Dragon"); (iii) conflict with or result in a breach of any terms, conditions
or provisions of any judgment, decree or order of any court or governmental
authority or agency to which Fonix Corporation or any of its properties are
bound and which is known to us; or (iv) violate any provision of any United
States Federal, State of Delaware, or Commonwealth of Massachusetts law or any
rule or regulation of any United States Federal or State of Delaware or
Commonwealth of Massachusetts governmental body applicable to Fonix Corporation.
(f) The execution, delivery and performance by Fonix/ASI Corporation of
each Loan Document and the consummation of the transactions contemplated thereby
will not: (i) conflict with any term or provision of the certificate of
incorporation or the by-laws of Fonix/ASI Corporation, (ii) result in any breach
of, or constitute a default under, or result in the creation of any Lien (except
as contemplated by the Loan Documents) in respect of any property of Fonix/ASI
Corporation under any indenture, mortgage, deed of trust, bank loan or credit
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agreement, or other agreement or instrument, including, without limitation any
agreement with, or document or instrument delivered to Dragon;; (iii) conflict
with or result in a breach of any terms, conditions or provisions of any
judgment, decree or order of any court or governmental authority or agency to
which Fonix/ASI Corporation or any of its properties are bound and which is
known to us; or (iv) violate any provision of any United States Federal, State
of Utah or Commonwealth of Massachusetts law or any rule or regulation of any
United States Federal or State of Utah or Commonwealth of Massachusetts
governmental body applicable to Fonix/ASI Corporation.
(g) To the extent that Fonix Corporation has rights in the capital
stock of Fonix/ASI Corporation and value has been given, the Pledge and Security
Agreement creates a valid and enforceable security interest in such capital
stock, to the extent that valid security interests can be created therein under
the Uniform Commercial Code presently in effect in the State of Utah, the State
of Delaware, and the Commonwealth of Massachusetts, in favor of the Lender, as
security for the payment of the Obligations (as defined in the Security
Agreement).
(h) To the extent that Fonix/ASI Corporation has rights in the
Collateral and value has been given, the Security Agreement creates a valid and
enforceable security interest in such Collateral, to the extent that valid
security interests can be created therein under the Uniform Commercial Code
presently in effect in the State of Utah and the Commonwealth of Massachusetts,
in favor of the Lender, as security for the payment of the Obligations (as
defined in the Security Agreement).
(i) The Financing Statements on Form UCC-1 naming Fonix/ASI Corporation
as secured party to be filed in the filing offices in the State of Utah and the
Commonwealth of Massachusetts, delivered in connection with the Loan Documents
executed as of April 22, 1999, are in appropriate form and, when duly filed and
indexed in the filing offices identified above, will result in the perfection of
aforesaid security interests in the Collateral to the extent such security
interests can be perfected under the Uniform Commercial Code, as in effect in
such State, by the filing of a Financing Statement in such State. No further
action will be required in order to perfect such security interests and to
preserve protect and continue such perfection, except for the filing of periodic
continuation statements with respect to such Financing Statements.
(j) To our knowledge, there is no pending or threatened action, suit or
proceeding before any court, governmental or regulatory authority, agency,
commission or board arbitration, by or against Fonix Corporation or Fonix/ASI
Corporation, which we believe could materially adversely affect either Fonix
Corporation or Fonix/ASI Corporation.
(k) The shares issuable upon the exercise of the Common Stock Warrant
dated as of May 19, 1999 have been duly and validly authorized and, upon
issuance, delivery and payment, as described in the Common Stock Warrant, will
be validly issued, fully paid and nonassessable and free and clear of any
preemptive or similar rights.
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EXHIBIT D
Bank Accounts
Borrower Bank Address of Bank Bank Account No.
FONIX CORPORATION Key Bank Xxxxxxxx Xxxx Xxxx Xxxx, Xxxx 0000-0000-0000
Association Account Name: Durham Xxxxx &
Xxxxxxx Trust Account
FONIX/ASI CORPORATION Cambridge Trust 0000 Xxxxxxxxxxxxx Xxx. 57-509-7-01
Company Xxxxxxxxx, XX 00000 Account Name: Articulate Systems
