REGISTRATION RIGHTS AGREEMENT
This
Registration Rights Agreement (this "Agreement"),
dated
as
of December 1, 2006, by and between Fonix Corporation, a Delaware corporation
(the "Company"),
and
Southridge Partners, LP, a Delaware limited partnership (the “Buyer”).
This
Agreement is made pursuant to the Securities Purchase Agreement, dated as
of the
date hereof among the Company and the Buyer (the "Purchase
Agreement").
The
Company and the Buyer hereby agree as follows:
1. Definitions.
Capitalized terms used and not otherwise defined herein shall have the meanings
given such terms in the Purchase Agreement. As used in this Agreement, the
following terms shall have the following meanings:
"Advice"
shall
have meaning set forth in Section 3(o).
"Affiliate"
means,
with respect to any Person, any other Person that directly or indirectly
controls or is controlled by or under common control with such Person. For
the
purposes of this definition, "control,"
when
used with respect to any Person, means the possession, direct or indirect,
of
the power to direct or cause the direction of the management and policies
of
such Person, whether through the ownership of voting securities, by contract
or
otherwise; and the terms of "affiliated,"
"controlling"
and
"controlled"
have
meanings correlative to the foregoing.
"Business
Day"
means
any day except Saturday, Sunday and any day which shall be a legal holiday
or a
day on which banking institutions in the state of Delaware generally are
authorized or required by law or other government actions to close.
"Closing
Date"
shall
have the meaning set forth in the Purchase Agreement.
"Commission"
means
the United States Securities and Exchange Commission.
"Common
Stock"
means
the Company's Class A Common Stock, par value $.0001 per share.
"Debentures"
means
the Series E 9% Convertible Debentures due November 30, 2011, in an aggregate
principal amount of $850,000, purchased by the Buyer pursuant to the Purchase
Agreement.
"Effectiveness
Date"
means
the 90th
day
following the Filing Date.
"Effectiveness
Period"
shall
have the meaning set forth in Section 2(a).
"Exchange
Act"
means
the Securities Exchange Act of 1934, as amended.
"Filing
Date"
means
the 30th
day
following the 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 proceed-ing, such as a deposition),
whether commenced or threatened.
"Prospectus"
means
the prospectus included in the Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted
from a
prospectus filed as part of an effective registration statement in reliance
upon
Rule 430A promulgated under the Securities Act), as amended or supplemented
by
any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by the Registration Statement,
and
all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
"Registrable
Securities"
means
the shares of Common Stock issuable upon (i) conversion in full of the
Debentures, and (ii) payment of interest in respect of the Debentures, assuming
all interest is paid in shares of Common Stock and that all Debentures remain
outstanding for three years; provided,
however
that in
order to account for the fact that the number of shares of Common Stock that
are
issuable upon conversion of Debentures (and as payment of interest thereon)
is
determined in part upon the market price of the Common Stock at the time
of
conversion, Registrable Securities issuable upon the conversion of Debentures
(and as payment of interest thereon) shall include (but not be limited to)
a
number of shares of Common Stock equal to no less than 125% of the number
of
shares of Common Stock into which the Debentures are convertible (including
shares of Common Stock issuable as interest), assuming such conversion occurred
on the Closing Date, the Filing Date or the date the Company files an
acceleration request with the Commission relating to a Registration Statement,
whichever such date yields the lowest Conversion Price (as defined in the
Purchase Agreement).
"Registration
Statement"
means
the registration statement contemplated by Section 2(a) (and any additional
Registration Statements contemplated in the definition of Registrable
Securities), including (in each case) 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.
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"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.
"Rule
158"
means
Rule 158 promulgated by the Commission pursuant to the Securities Act, as
such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect
as such
Rule.
"Rule
415"
means
Rule 415 promulgated by the Commission pursuant to the Securities Act, as
such
Rule may be amended from time to time, or any similar rule or regulation
hereafter adopted by the Commission having substantially the same effect
as such
Rule.
"Securities
Act"
means
the Securities Act of 1933, as amended.
"Special
Counsel"
means
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 Com-pany are sold
to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
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2.
|
Shelf
Registration
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(a) On
or
prior to the Filing Date, the Company shall prepare and file with the Commission
a Shelf Registration Statement covering the resales by the Buyer of up to
300,000,000 shares of the Company’s common stock issuable upon conversion of the
Debenture for an offering to be made on a continuous basis pursuant to Rule
415.
The Registration Statement shall be on Form S-1 (if the Company is not then
eligible to register for resale the Registrable Securities on Form S-1 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 effec-tive
under the Securities Act until the date which is three years after the date
that
such Registration Statement is initially declared effective by the Commission
or
such earlier date when all Registrable Securities covered by such Registration
Statement have been sold or may be sold without volume restrictions pursuant
to
Rule 144(k) 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.
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(b) If
the
Holders of a majority of the Registrable Securities so elect, an offering
of
Registrable Securities pur-suant to the Registration Statement may be effected
in the form of an Underwritten Offering. In such event, and, if the man-aging
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.
3. Registration
Procedures.
In
connection with the Company's registration obliga-tions hereunder, the Company
shall:
(a) Prepare
and file with the Commission on or prior to the Filing Date, a Registra-tion
Statement on Form S-1 (or if the Company is not then eligible to register
for
resale the Registrable Securities on Form S-1 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 five (5) 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 under-writers, and (ii) cause its officers and directors,
counsel and independent certified pub-lic 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.
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(b) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to the Registration State-ment as may be necessary to keep the
Registration Statement continuously effective as to the applicable Registrable
Securities for the Effectiveness Period and prepare and file with the Commission
such additional Registration Statements in order to register for resale under
the Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Pro-spectus supplement,
and as so supplemented or amended to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; (iii)
respond as promptly as 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 Securi-ties 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
disposi-tion 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 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. In such event, the Registration Statement required to be filed
by the
Company shall include no less than a number of shares of Common Stock equal
to
no less than 100% of the number of shares of Common Stock into which all
then
outstanding Debentures are convertible (assuming such conversion occurred
on the
Filing Date or the date of the filing of the final acceleration request
therefor, whichever date yields a lower Conversion Price) and any other
Registrable Securities not then registered in a Registration
Statement.
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(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 Regis-tration 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 Pro-spectus 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 pur-pose; (iv) if at any time
any of
the representations and war-ranties 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 suspen-sion 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, Pro-spectus 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 mate-rial
fact
or omit to state any material fact required to be stated therein or necessary
to
make the statements therein, in light of the circumstances under which they
were
made, not misleading. In addition, the Company shall furnish the Holders
with
copies of all intended written responses to the comments contemplated in
clause
(C) of this Section 3(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 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, at least one conformed copy of each Regis-tration Statement and each
amendment thereto, including xxxxx-cial statements and schedules, all documents
incorporated or deemed to be incorporated therein by reference, and all
exhib-its 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.
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(h) Promptly
deliver to each Holder, their Special Counsel, and any underwriters, without
charge, as many copies of the Prospectus or Prospec-tuses (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 con-nection with the offering and sale of
the
Registrable Securi-ties covered by such Prospectus and any amendment or
supplement thereto.
(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 reg-istration 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 leg-ends, 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 supple-ment or amendment, including a
post-effective amendment, to the Registration Statement or a supplement to
the
related Prospec-tus 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 mate-rial
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 Nasdaq SmallCap Market and any other Subsequent
Market (or qualified for trading on the OTC Bulletin Board, if applicable),
if
any, on which similar securi-ties issued by the Company are then listed as
and
when required pursuant to the Purchase Agreement.
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(m)
In
the
case of an Underwritten Offering, enter into such agreements (including an
under-writing agreement in form, scope and substance as is customary in
Underwritten Offerings) and take all such other actions in connection therewith
(including those reasonably requested by any managing underwriters and the
Holders of a majority of the Registrable Securities being sold) in order
to
expedite or facilitate the disposition of such Registrable Securities, and
is
entered into, (i) make such representations and warranties to such Holders
and
such underwriters as are customarily made by issuers to underwriters in
underwritten public offerings, and confirm the same if and when requested;
(ii)
obtain and deliver copies thereof to each Holder and the managing underwriters,
if any, of opinions of counsel to the Company and updates thereof addressed
to
each Holder and each such underwriter, in form, scope and substance reasonably
satisfactory to any such managing underwriters and Special Counsel to the
selling Holders covering the matters customarily covered in opinions requested
in Underwritten Offerings and such other matters as may be reasonably requested
by such Special Counsel and underwriters; (iii) immediately prior to the
effectiveness of the Registration Statement, 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 cer-tified public accountants of the
Company (and, if necessary, any other independent certified public accountants
of any sub-sidiary of the Company or of any business acquired by the Com-pany
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 custom-ary in connection with Underwritten Offerings; (iv)
if
an underwriting agreement is entered into, the same shall contain
indemnification provisions and proce-dures no less favorable to the selling
Holders and the under-writers, if any, than those set forth in Section 5
(or
such other provisions and procedures acceptable to the managing underwriters,
if
any, and holders of a majority of Registrable Securities participating in
such
Under-written Offering); and (v) deliver such documents and certificates
as may
be reason-ably 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 under-writer participating in any disposition of Registra-ble
Securities, and any attorney or accountant retained by such selling Holders
or
underwriters, at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries, and cause the officers,
directors, agents and employees of the Company and its subsid-iaries 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 writ-ing
to
be of a confidential nature at the time of delivery of such information shall
be
kept confidential by such Persons, unless (i) disclo-sure 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.
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(o)
Comply
with all applicable rules and regulations of the Commission.
(p)
The
Company may 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, and 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
information within a reasonable time after receiving such request.
(q) If
the
Registration Statement refers to any Holder by name or otherwise as the holder
of any securities of the Com-pany, 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 rec-ommendation 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.
(r) 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.
(s) Each
Holder agrees by its acquisition of such Registrable Securities that, upon
receipt of a notice from the Company of the occurrence of any event of the
kind
described in Section 3(d)(ii), 3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi),
such
Holder will forthwith discon-tinue 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 Pro-spectus may be resumed, and, in
either case, has received cop-ies of any additional or supplemental filings
that
are incorpo-rated or deemed to be incorporated by reference in such Pro-spectus
or Registration Statement.
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4.
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Registration
Expenses
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(a) All
fees
and expenses incident to the perfor-xxxxx 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 State-ment is filed or becomes effective
and
whether or not any Reg-istrable Securities are sold pursuant to the Registration
Statement. The fees and expenses referred to in the foregoing sentence shall
include, without limitation, (i) all registra-tion and filing fees (including,
without limitation, fees and expenses (A) with respect to filings required
to be
made with Nasdaq and any Subsequent Market on which the Common Stock is then
listed for trading, and (B) in compliance with state securities or Blue Sky
laws
(including, without limitation, fees and disbursements of its counsel or,
if its
counsel fails to timely make such determinations, counsel for the Holders
(which
will not be subject to the restrictions set forth below) in connection with
Blue
Sky qualifica-tions or exemptions of the Registrable Securities and
determination of the eligibility of the Regis-trable 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 limita-tion, expenses of printing
certificates for Registrable Securi-ties and of printing prospectuses if
the
printing of prospec-tuses 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, tele-phone 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 $7,500),
(v)
Securities Act liability insurance, if the Company so 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 Com-pany shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limi-tation,
all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on
any
securities exchange as required hereunder.
(b) If
the
Holders require an Underwritten Offering pursuant to the terms hereof, the
Company shall be responsible for all costs, fees and expenses in connection
therewith, except for the fees and disbursements of the Underwriters (including
any underwriting commissions and discounts) and their legal counsel and
accountants, which shall be borne by the Holders. By way of illustration
which
is not intended to diminish from the provisions of Section 4(a), the Holders
shall not be responsible for, and the Company shall be required to pay the
fees
or disbursements incurred by the Company (including by its legal counsel
and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of
the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof.
-10-
|
5.
|
Indemnification
|
(a) Indemnification
by the Company.
The
Company shall, notwithstanding any termination of this Agreement and without
limitation as to time, indemnify and hold harmless each Holder, the officers,
directors, agents (including any underwriters retained by such Holder in
connection with the offer and sale of Registrable Securities), brokers
(including brokers who offer and sell Registrable Securities as principal
as a
result of a pledge or any failure to perform under a margin call of Common
Stock), investm-ent advisors and employees of each of them, each Person who
con-trols any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the offi-cers, 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, with-out limitation, costs of preparation
and
attor-neys' 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 prospec-tus, 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 mis-leading, 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 writ-ing 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 pro-posed 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 Prospec-tus 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
Com-pany, 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 thereto, or arising solely
out of
or based solely upon any omission of a mate-rial fact required to be stated
therein or necessary to make the statements therein not misleading to the
extent, but only to the extent, that such untrue statement or omission is
contained in any information so furnished in writing by such Holder to the
Company specifically for inclusion in the Registration Statement, such
Prospectus or such form of prospectus and that such information was reasonably
relied upon by the Company for use in the Registration Statement, such
Prospectus of such form of Prospectus or to the extent that such information
relates to such Holder or such Holder's pro-posed 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 Prospec-tus
or
such form of Prospectus, or in any amendment or supplement thereto. In no
event
shall the lia-bility of any selling Holder hereun-der 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.
-11-
(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 determi-nation
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 Indem-nified 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 Indem-nifying Party
(in
which case, if such Indemnified Party noti-fies the Indemnifying Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the Indemnifying
Party. The Indemnifying Party shall not be liable for any settlement of any
such
Proceeding effected without its written consent, which consent shall not
be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from
all
liability on claims that are the subject matter of such Proceeding.
-12-
(3) All
fees
and expenses of the Indemnified Party (in-cluding 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 Indem-nifying Party (regard-less of whether it is
ultimately deter-mined that an Indemnified Party is not entitled to
indemnifica-tion 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 Indem-nified 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 ques-tion, 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 sup-plied 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 limita-tions 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.
(e) 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 allo-cation that does not take into
account
the equitable considera-tions referred to in the immediately preceding
para-graph. Not-withstanding 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 Pro-ceeding exceeds the 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 misrep-resentation (within the meaning of Section 11(f)
of
the Securities Act) shall be entitled to contribution from any Per-son who
was
not guilty of such fraudulent misrepresentation.
-13-
(f) The
indemnity and contribution agreements contained in this Section are in addition
to any liability that the Indemnifying Parties may have to the Indemnified
Parties.
|
6.
|
Other
Company Registration Obligations; Piggy-Back Registration.
|
(a) No
Inconsistent Agreements.
Except
as and to the extent specifically set forth in Schedule
6(a)
attached
hereto, neither the Company nor any of its subsidiaries has, as of the date
hereof, nor shall the Company or any of its subsidiaries, on or after the
date
of this Agreement, enter into any agreement with respect to its securities
that
is inconsistent with the rights granted to the Holders in this Agreement
or
otherwise conflicts with the provisions hereof. Except as and to the extent
specifically set forth in Schedule
6(a)
attached
hereto, neither the Company nor any of its subsidiaries has previously entered
into any agreement granting any registration rights with respect to any of
its
securities to any Person. Without limiting the generality of the foregoing,
without the written consent of the Holders, 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 sub-ject
in
all respects to the prior rights in full of the Holders set forth herein,
and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement.
(b) No
Piggyback on Registrations.
Except
as and to the extent specifically set forth in Schedule
6(a)
attached
hereto, neither the Company nor any of its security holders (other than the
Holders in such capacity pursuant hereto) may include securities of the Company
in the Registration Statement other than the Registrable Securities, and
the
Company shall not enter into any agreement providing any such right to any
of
its security holders.
(c) Piggy-Back
Registrations.
If at
any time during the Effectiveness Period there is not an effective Registration
Statement covering all of the Registrable Securities and the Company shall
determine to prepare and file with the Commission a registration statement
relating to an offering for its own account or the account of others under
the
Securities Act of any of its equity securities, other than on Form S-4 or
Form
S-8 (each as promulgated under the Securities Act) or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans, then the Company
shall send to each Holder written notice of such determination and, if within
twenty (20) days after receipt of such notice, any such Holder shall so request
in writing, the Company shall include in such registration statement all
or any
part of the Registrable Securities such Holder requests to be registered.
No
right to registration of Registrable Securities under this Section shall
be
construed to limit any registration otherwise required hereunder.
|
7.
|
Miscellaneous
|
(a) Remedies.
In the
event of a breach by the Com-pany or by a Holder, of any of their obliga-tions
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 dam-ages, 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 com-pensation 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.
-14-
(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 all of the then outstanding Registrable
Securities; provided,
however,
that,
for the pur-poses of this sentence, Registrable Securities that are owned,
directly or indirectly, by the Company, or an Affiliate of the Company are
not
deemed outstanding. Notwithstanding the fore-going, a waiver or consent to
depart from the provisions hereof with respect to a matter that relates
exclusively to the rights of Holders and that does not directly or indirectly
affect the rights of other Holders may be given by Holders of at least a
majority of the Registrable Securities to which such waiver or consent relates;
provided,
however,
that
the provisions of this sen-tence may not be amended, modified, or supplemented
except in accordance with the provisions of the immediately preceding
sentence.
(c) Notices.
Any and
all notices or other communications or deliveries required or permitted to
be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in
this
Section prior to 5:00 p.m. (Salt Lake City time) on a Business Day, (ii)
the
Business Day after the date of transmission, if such notice or communication
is
delivered via facsimile at the facsimile telephone number specified in the
Purchase Agreement later than 5:00 p.m. (Salt Lake City time) on any date
and
earlier than 11:59 p.m. (Salt Lake City time) on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is
required to be given. The address for such notices and communications shall
be
as follows:
|
If
to the Company:
|
Fonix
Corporation
|
0000
X
000 X, Xxxxx 000
Xxxx
Xxxx
Xxxx, 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.: (000) 000-0000
Attn:
Xxxxxxx X. Xxxxx, Esq.
-15-
|
If
to the Buyer:
|
Southridge
Partners LP
|
00
Xxxxx
Xxxxxx
Xxxxxxxxxx,
Xxxxxxxxxxx 00000
Fax:
000-000-0000
Attn.:
Xxxxx Xxxxx
|
With
copies to:
|
Xxxxx
Xxxxxxx
|
Southridge
Capital Management, LLC
00
Xxxxx
Xxxxxx
Xxxxxxxxxx,
Xxxxxxxxxxx 00000
Fax:
000-000-0000
and
Xxxxxxx & Xxxxxx LLP
00
Xxxxxxxx
Xxxxx
000
Xxx
Xxxx,
Xxx Xxxx 00000
Fax
000
000 0000
Attn:
Xxxxxx X. Xxxxxxx
If
to any
other Person who is then the regis-tered 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 Buyer may assign its rights
hereunder in the manner and to the Persons as permitted under the Purchase
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 an interpreted in accordance with the laws
of the
State of New York for contracts to be wholly performed in such state and
without
giving effect to the principles thereof regarding the conflict of laws. Each
of
the parties consents to the exclusive jurisdiction of the federal courts
whose
districts encompass any part of the City of New York or the state courts
of the
State of New York sitting in the City of New York in connection with any
dispute
arising under this Agreement or any of the other Transaction Documents and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. Each of the Parties hereby waives the right
to
request a jury trial in either state or federal court in connection with
any
dispute arising in connection with this Agreement.
-16-
(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 Agree-ment is held by a
court
of competent jurisdiction to be invalid, illegal, void or unenforceable,
the
remainder of the terms, provisions, covenants and restrictions set forth
herein
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated, and the parties hereto shall use their reasonable efforts
to
find and employ an alternative means to achieve the same or substantially
the
same result as that contemplated by such term, provision, covenant or
restric-tion. It is hereby stipulated and declared to be the intention of
the
parties that they would have executed the remaining terms, provisions,
cove-nants 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 other-wise affect the meaning hereof.
(j) Shares
Held by The Company and its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held
by the
Company or its Affiliates (other than the Buyer or transferees or successors
or
assigns thereof if such Persons are deemed to be Affiliates solely by reason
of
their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of
such
required percentage.
-17-
IN
WITNESS WHEREOF, the parties have executed this Registration Rights Agreement
as
of the date first written above.
|
FONIX
CORPORATION
|
|
|
By:
/s/ Xxxxx X.
Xxxxxx
|
|
|
Name:
Xxxxx X.
Xxxxxx
|
|
|
Its:
Exec VP and
CFO
|
|
|
SOUTHRIDGE
PARTNERS LP
|
|
|
a
Delaware limited partnership
|
|
|
By:
/s/____________________________________
|
|
|
Name:____________________________________
|
|
|
Title:
_____________________________________
|
-18-
SCHEDULE
6(a)
Other
Registration Rights
1. The
Company granted registration rights to XxXxxxxxx Avenue Ltd. in connection
with
shares of the Company’s common stock issuable upon conversion of the Company’s
Series L 9% Convertible Preferred Stock.
2. The
Company has entered into a Seventh Equity Line of Credit Agreement with a
third
party investor (the “Equity Line Investor”). The Company granted registration
rights to the Equity Line Investor and a registration statement covering
the
resale of shares by the Equity Line Investor has been filed but not yet declared
effective by the U.S. Securities and Exchange Commission. Upon effectiveness
of
the registration statement, if and when the Company draws funds under the
equity
line of credit, the Equity Line Investor has the right to receive shares
as
repayment of such draws.
Permissible
Piggyback Securities
None.
-19-
