EXHIBIT J
AUDIUM SECURITY AGREEMENT
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SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement"), entered into this 9th day
of April, 2001, is between AUDIUM CORPORATION, a Delaware corporation with its
principal place of business at 000 Xxxxxxxxx Xxxxxx, 0xx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000 (the "Debtor"), and Fonix Corporation, a Delaware corporation with
its principal place of business at 000 Xxxx Xxxxxxxx Xxxxx, Xxxxxx, Xxxx 00000
(the "Secured Party").
RECITALS
A. The Debtor and the Secured Party are parties to that certain
Promissory Note in the original principal amount of $400,000 issued by the
Debtor in favor of the Secured Party of even date herewith (the "Note").
B. The Debtor currently owns or will acquire an interest in certain
personal property more particularly described on the attached Exhibit A (the
"Collateral").
C. The Debtor desires to grant the Secured Party a security interest in
the Collateral in accordance with the terms of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises, mutual covenants and
conditions contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
1. Security Interest. As security for the Secured Obligations (described in
Section 2 of this Agreement), the Debtor hereby grants to the Secured Party a
security interest (as that term is defined in the Uniform Commercial Code) (the
"Security Interest") in the Collateral. As used in this Agreement, the
Collateral shall include the personal property described in the attached Exhibit
A, whether now or hereafter acquired, whether now existing or hereafter arising
and wherever located, together with all accessions, parts, or additions to and
all replacements of and substitution for any of the Collateral, and all proceeds
(including insurance proceeds), from the sale or other disposition of any of the
foregoing.
2. Secured Obligations. The Security Interest in the Collateral hereby
granted shall secure the due and punctual payment and performance of the
following liabilities, duties and obligations of the Debtor: (a) all obligations
under the Note and all renewals, extensions and modifications thereof; (b) all
duties and obligations of the Debtor contained in this Agreement and in all
renewals, extensions and modifications hereof; and (c) all sums that may be
expended by the Secured Party during the existence of a default hereunder in the
performance of any duty or obligation of the Debtor, or to cure any default,
under this Agreement (collectively, the "Secured Obligations").
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3. Covenants of Debtor. Unless and until the Secured Party consents in
writing to another course of action, which consent shall not be unreasonably
delayed or withheld, the Debtor covenants and agrees as follows:
a. Debtor will execute financing statements and take such
further actions as may be reasonably necessary or convenient to perfect
the Secured Party's Security Interest in the Collateral.
b. Debtor will keep the Collateral free of liens and security
interests other than Permitted Liens. "Permitted Liens" shall mean and
include: (i) liens or security interests for taxes or other
governmental charges not at the time delinquent or thereafter payable
without penalty or being contested in good faith; (ii) liens or
security interests of mechanics, vendors, and landlords incurred in the
ordinary course of business; (iii) deposits to secure the performance
of bids, tenders, contracts (other than for the repayment of borrowed
money) or leases; or (iv) liens or security interests upon any property
acquired or held by Debtor to secure the purchase price of such
property or indebtedness incurred for the purpose of financing the
acquisition of such property, and any accessions, replacements,
substitutions and proceeds (including insurance proceeds) thereof or
thereto.
c. Debtor will promptly pay and discharge any and all taxes,
levies and other impositions on or with respect to the Collateral,
except those being contested in good faith, and shall do all acts
necessary to preserve and maintain the value thereof.
d. Debtor will comply in all material respects with all laws,
ordinances and regulations of all governmental authorities applicable
to the use or ownership of the Collateral.
e. Debtor will procure and maintain a policy of insurance as
may be required by law or regulation and as is commonly maintained by
owners of Collateral of like kind and nature. Such policy shall contain
a stipulation that coverage will not be cancelled or diminished without
a minimum of ten (10) days' written notice to the Secured Party.
Following the occurrence of a default hereunder, all proceeds of any
insurance on the Collateral, at the election of the Secured Party,
shall be delivered to the Secured Party.
4. Debtor's Right to Use and Possession. Until default (as defined
under Section 6), the Debtor may maintain use and possession of the Collateral.
5. Preservation of Collateral. The Secured Party may, from time to
time, at its option, perform any obligation to be performed by the Debtor
hereunder which the Debtor shall fail to perform after notice of such failure by
Secured Party and take any other action which the Secured Party may reasonably
deem necessary for the maintenance or preservation of the perfection of its
security interest in the Collateral. All moneys advanced by the Secured Party in
connection with the foregoing, together with interest at a rate of five percent
(5%) per annum, shall be repaid by the Debtor to the Secured Party, upon the
latter's demand, and shall be secured hereby prior to any other indebtedness or
obligation secured hereby; but the making of such advance by the Secured Party
shall not relieve the Debtor of any default hereunder until the full amount of
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all moneys so advanced and interest thereon is repaid by Debtor and such default
is otherwise cured. The rights granted under this Section 5 shall be in addition
to any other rights or remedies to which the Secured Party may be entitled on
account of default.
6. Events of Default. Debtor shall be in default under this Agreement
upon:
a. failure to make any payment under the Note to the Secured Party
when due;
b. the occurrence of any event of default under this Agreement or the
Note;
c. the dissolution, liquidation or other termination of the Debtor's
existence; or
d. the commencement of foreclosure, whether by judicial proceeding,
self-help, repossession, or any other method by any creditor of the Debtor
against any material portion of the Collateral; provided, however, such
proceedings shall not be an event of default if the Debtor promptly
disputes such proceedings in good faith and provides adequate reserve for
the eventuality of any loss of Collateral.
7. Remedies. From and after that date which is thirty (30) calendar
days after written notice from the Secured Party to the Debtor that the Debtor
is in default under the terms of this Agreement or the Note and Debtor has not
cured such default, in addition to any other rights which may be available to
the Secured Party at law or in equity, the Secured Party may, at its option:
a. declare all indebtedness under the Note immediately due and payable
without demand or notice;
b. require the Debtor to deliver to the Secured Party the Collateral,
including any and all certificates of title and other documents relating to
such Collateral or to enter upon the property of the Debtor to take
possession of and remove the Collateral;
c. sell, lease, transfer or otherwise deal with or dispose the
Collateral in its own name or in that of the Debtor including, without
limitation, sale of the Collateral at public auction or by private sale;
d. have a receiver appointed as a matter of right; or
e. exercise any and all rights or remedies granted secured creditors
under the provisions of the Uniform Commercial Code.
8. Termination of Security Agreement. This Agreement and Secured
Party's security interest in the Collateral shall terminate upon the Debtor's
payment in full of the Secured Obligations or the occurrence of an "Event of
Default" under the Promissory Note in the original principal amount of $2.6
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million executed by Secured Party in favor of Debtor on or about the date hereof
or the related Security Agreement. Promptly after the Secured Party's receipt of
payment of the Secured Obligations, the Secured Party shall file termination
statements or take such other actions as may be reasonably requested by the
Debtor to evidence the release of its lien and Security Interest in the
Collateral.
9. Miscellaneous.
a. Except as otherwise provided in this Agreement, each right, power
and remedy herein specifically given to the Secured Party or otherwise
existing shall be cumulative and shall be in addition to every other right,
power and remedy herein specifically given or now or hereafter existing at
law, in equity, or otherwise; and each right, power and remedy, whether
specifically herein given or otherwise existing, may be exercised from time
to time as often and in such order as may be deemed expedient by the
Secured Party and the exercise of any right, power or remedy shall not be
construed to be a waiver of the right to exercise at the same time or
thereafter any other right, power or remedy. No delay or omission by the
Secured Party in the exercise of any right or power, or in the pursuance of
any remedy, shall impair any such right, power or remedy or be construed to
be a waiver of any default on the part of Debtor or to be an acquiescence
therein. No waiver by the Secured Party of any breach or default by Debtor
under this Agreement shall be deemed a waiver of any other previous breach
or default or any other previous breach or default or any thereafter
occurring.
b. This Agreement shall be binding upon and inure to the benefit of
the Debtor and the Secured Party, and their respective successors and
assigns, except that no party may assign or transfer its rights hereunder
without the prior written consent of the other party.
c. Upon the occurrence and during the continuance of a default under
this Agreement or the Note, the Debtor does hereby constitute the Secured
Party, its successors and assigns, Debtor's true and lawful attorney,
irrevocably, with full power (in the name of the Debtor or otherwise) to
ask, require, demand, receive, compound and give acquittance for any and
all moneys and claims for money due and to become due under to arising out
of the Collateral, to endorse any checks or other instruments or orders in
connection therewith and to file any claims or take any action or institute
any proceedings which the Secured Party may deem to be necessary or
advisable to protect the Collateral.
d. Any consent, notice or other communication required or contemplated
by this Agreement shall be in writing and shall be delivered personally or
mailed by certified or registered mail, return receipt requested, postage
prepaid, addressed (a) if to the Secured Party at the address for the
Secured Party set forth in the heading of this Agreement, or (b) if to
Debtor at the address for Debtor set forth in the heading of this
Agreement, or in each case at such other address as such party shall have
furnished to the other party to this Agreement in writing. Notices shall be
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deemed to have been given when delivered, if delivered personally, or five
(5) days after deposited from mailing, if mailed by certified or registered
mail.
e. Debtor waives any right that it may have to require the Secured
Party to proceed against any other entity or individual, or proceed against
or exhaust any other security, or pursue any other remedy the Secured Party
may have.
f. In the event that any provision of this Agreement or the Note
entered into by the parties in connection with the Note, as applied to any
party or circumstances shall be adjudged by a court to be invalid or
unenforceable, the Debtor acknowledges and agrees that this Agreement shall
remain valid and enforceable in all respects against the Debtor.
g. No default shall be waived by the Secured Party except in writing,
and the waiver of any one right under this Agreement shall not operative as
a waiver of any other right.
h. This Agreement shall be governed by and construed pursuant to the
internal laws of the State of Delaware, without regard to choice of law
principles.
i. This Agreement may be executed in one or more counterparts, which
taken together shall constitute one agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
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DEBTOR:
AUDIUM CORPORATION
a Delaware corporation
By:
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Xxxxxxx X. Xxxxxxxxx, President
SECURED PARTY:
Fonix Corporation,
a Delaware corporation
By:
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Its:
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Exhibit A
Description of Collateral
"Collateral" means: (a) all inventions (whether patentable or unpatentable and
whether or not reduced to practice), all improvements thereto, and all patents,
patent applications, and patent disclosures, together with all reissuances,
continuations, continuations-in-part, revisions, extensions, and reexaminations
thereof, (b) all copyrights, patents, trademarks, service marks, trade dress,
logos, trade names, domain names, corporate names and IP addresses, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all copyrightable
works, all copyrights, and all applications, registrations, and renewals in
connection therewith, (d) all mask works and all applications, registrations,
and renewals in connection therewith, (e) all trade secrets and confidential
business information (including ideas, research and development, know-how,
formulas, compositions, manufacturing and production processes and techniques,
technical data, designs, drawings, specifications, customer and supplier lists,
pricing and cost information, and business and marketing plans and proposals),
(f) all computer software (including data and related documentation), (g) all
other proprietary rights, (h) all copies and tangible embodiments thereof (in
whatever form or medium), and goodwill associated therewith, licenses and
sublicenses granted and obtained with respect thereto, and rights thereunder,
remedies against infringement thereof, and rights to protection of interests
therein under the laws of all jurisdictions.
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