ROYALTY MODIFICATION AGREEMENT
ROYALTY MODIFICATION AGREEMENT (the "Agreement"), by and between fonix
corporation, a Delaware corporation having its principal place of business at
0000 Xxxxx Xxxx Tower, 00 Xxxx Xxxxx Xxxxxx Xxxxxx, Xxxx Xxxx Xxxx, Xxxx 00000
(the "Company" or "fonix"), and SYNERGETICS, INC., a Utah corporation having its
principal place of business at 000 Xxxxx 000 Xxxx, Xxxxx X, Xxxxx, Xxxx 00000
("Synergetics"), dated as of the date hereof.
RECITALS
1. On October 16, 1993, Synergetics entered into that certain Product
Development and Assignment Agreement (the "Initial Agreement") with Phonic
Technologies, Inc., a Utah corporation and fonix's predecessor in interest
("PTI"), pursuant to which Synergetics agreed to perform research and
development activities in connection with the development and commercialization
of certain computer human voice recognition technologies then known as the
"VoiceBox" project and now known as "Automatic Speech Recognition Technologies"
("ASRT") (collectively all of the technology related to VoiceBox and ASRT will
be referred to in this Agreement as the "Technology"), and to irrevocably
transfer and assign to PTI any and all right, title and interest in and to the
Technology, in return for which PTI agreed to fund the research and development
activities of Synergetics on an as-needed basis and to pay to Synergetics a
royalty of ten percent (10%) of "Net Sales" (as that term is defined in the
Initial Agreement) of any products incorporating the Technology or from any
revenues from licensing the Technology (the "Royalty").
2. Effective June 16, 1994, PTI was merged with and into the Company,
with the Company being the surviving entity. In connection with the merger, the
Company succeeded to the rights of PTI under the Initial Agreement. On March
30, 1995, the Company and Synergetics entered into a Re-Stated Product
Development and Assignment Agreement (the "Re-Stated Agreement") (the Initial
and Re-Stated Agreements are referred to collectively in this Agreement as the
"Development Agreements") pursuant to which the arrangement existing under the
Initial Agreement was ratified and certain other changes were made. After the
date of the Re-Stated Agreement and until March 13, 1997, Synergetics continued
to perform research and development activities related to the Technology, and
the Company continued to finance such activities in return for Synergetics's
assignment of the resulting Technology, although no Royalty was ever paid
because the Company received no revenue from sales or licensing during that
period.
3. In connection with its research and development activities performed
under the Initial Agreement, Synergetics engaged software development engineers,
linguists, computer scientists and other professional and administrative
personnel (collectively "Developers") to work on the Technology. Some of the
Developers were paid cash consideration for their services; others were issued,
either in addition to or in lieu of cash compensation, certificates representing
fractional interests in the Royalty payments to be received by Synergetics from
the Company in the event of revenues from sales of products incorporating or
licensing of the Technology (each such right a "Project Share" and collectively
"Project Shares"). The Project Shares issued to the Developers each represent
one sixtieth (1/60th) of one percent (1%) of the total Royalty payments payable
by the Company under the Development Agreements, provided,
however, that the amounts payable to Project Share holders is limited to a
maximum of $30,000 for each Project Share held, upon payment of which maximum
amount the Project Shares terminate and have no further force or effect. In
addition to the Developers described above, Synergetics has granted Project
Shares to certain other individuals and entities that have provided equipment,
supplies, support services or capital to Synergetics, which such persons are,
for purposes of this Agreement, referred to as Developers.
4. On March 13, 1997, the Company and Synergetics signed a Memorandum of
Understanding (the "MOU") which manifested their agreement in principle that the
Royalty should be canceled in exchange for the offering and issuance by the
Company of warrants to purchase up to 4,800,000 shares of the Company's common
stock, par value $.0001 per share ("Common Stock"). In recognition of the
issuance by Synergetics of the Project Shares, the MOU further anticipated that
the Company would issue a pro rata portion of the warrants in exchange for
cancellation of the Royalty to any Developers who desired to tender their
Project Shares for such warrants. fonix and Synergetics acknowledge that the
Project Shares currently have and the warrants, when issued, will have no
present market value. The MOU further provided that certain of the employees
and independent contractors then engaged by Synergetics would become full-time
employees or independent contractors of the Company, and C. Xxx Xxxxxx
("Xxxxxx"), the majority shareholder and President of Synergetics, or
Synergetics would become a consultant to the Company.
5. After the execution of the MOU, certain of the Developers and other
employees and independent contractors of Synergetics became employees and/or
independent contractors of the Company. Commencing on March 14, 1997, the
Company has been conducting the research and development of the Technology at
its own research facility staffed by its own employees, including some persons
who were Developers prior to March 14, 1997. Furthermore, since March 14, 1997,
the Company has engaged Synergetics and Xxxxxx as development consultants to the
Company.
6. The Company and Synergetics now desire to enter into this Agreement,
which is agreed by them to constitute the definitive agreement contemplated by
the MOU, and which shall specify the terms and conditions on and the extent to
which the Royalty shall be exchanged and canceled and the Re-Stated Development
Agreement modified or terminated.
In consideration of the foregoing recitals and the mutual covenants and
agreements set forth below and for other good and valuable consideration, the
receipt and adequacy of which the parties acknowledge, the parties agree as
follows:
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AGREEMENT
Section 1.
Covenants
1.1 Offer of Warrants. The Company agrees to offer warrants (the
"Warrants") to purchase up to a total of four million eight hundred thousand
(4,800,000) shares of Common Stock, pro rata, to Synergetics and to the holders
of Project Shares who desire to tender their Project Shares to the Company in
exchange for the issuance of Warrants and who comply with the instructions for
tendering such Project Shares to the Company as shall be set forth in the
offering documents to be delivered in connection with the Company's offering of
the Warrants. The exercise price of the Warrants shall be ten dollars ($10.00)
(the "Exercise Price") per share of Common Stock issuable upon such exercise,
and the Warrants shall be exercisable at any time after the date of issuance
thereof, provided, that the Warrants shall not be exercisable until the first to
occur of (i) that date that the per share closing bid price of the Common Stock
as quoted on the Nasdaq SmallCap Market or other exchange or quotation system on
which the Common Stock is then traded or listed shall have been equal to or
greater than thirty-seven and 50/100 dollars ($37.50) (the "Effective Price")
for a period of fifteen (15) consecutive Trading Days, or (ii) September 30,
2000 (the first to occur being the "Exercise Date"), provided further, that the
Warrants shall be immediately exercisable up to and including the Exercise Date
in the event of any merger to which the Company is a party but is not the
surviving entity or the sale of substantially all of the Company's assets.
"Trading Day" means a day on which the Common Stock is traded on the Nasdaq
SmallCap Market or other stock exchange or market on which the Common Stock is
listed or is traded. The Warrants shall be nontransferable by the holders
thereof except pursuant to a transfer upon the death of any holder according to
the laws of testate or intestate succession. The Exercise Price and the
Effective Price shall be adjustable in the event of a stock split, stock
dividend or reorganization The Warrants shall be offered and issued in the form
attached hereto as Exhibit "A".
(a) Consideration. The only consideration the Company shall accept
for the issuance of the Warrants shall be the tender of Project Shares, together
with executed copies of any documentation incident to the tender of Project
Shares as shall be requested by the Company at the time of any offer of the
Warrants, provided that Synergetics shall have the right to reasonably object to
the form of any such additional documentation. For each Project Share tendered,
the Company shall issue Warrants to purchase eight hundred (800) shares of
Common Stock. Exchanges of Project Shares in amounts less than the total number
of Project Shares then owned by any Project Share holder shall not be accepted
by the Company, and single Project Shares shall not be partially exchangeable
for Warrants to purchase less than eight hundred (800) shares of Common Stock,
provided, however, that if any Project Share holder or Synergetics shall present
to the Company a written instrument in form and content reasonably acceptable to
the Company to the effect that Synergetics and such Project Share holder have
agreed between them that the Warrants otherwise issuable upon exchange of any
Project Shares should be issued in part to the Project Share holder and in part
to Synergetics or some other party, which adjustment shall be made as a
consequence of any transaction between Synergetics and such Project Share
holder, including without limitation "Advances" as that term is defined in the
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MOU, the Company shall comply with the instructions set forth in such writing
with respect to the exchange of Project Shares and the issuance of Warrants
therefor.
(b) Registration of Warrants and Common Stock Underlying Warrants. No
offer to exchange or any actual exchange of Warrants for Project Shares shall be
made or allowed, and no Common Stock shall be issued upon any exercise of the
Warrants, unless and until such time as the Company has filed with the U.S.
Securities and Exchange Commission (the "Commission") a registration statement
covering the total number of Warrants issuable upon tender of all of the Project
Shares and the total number of shares of Common Stock issuable upon exercise of
the Warrants (the "Registration Statement") on Form S-3 or such other
registration form as shall then be available to the Company, and such
Registration Statement has become effective such that offers and sales of the
Warrants, and subject to the terms and conditions of the Warrants, the Common
Stock issuable upon exercise of the Warrants, covered thereby can be made by the
Company. The Registration Statement shall be prepared and filed by the Company
promptly after the date of this Agreement (the "Effective Date"), but in no
event later than that date forty-five (45) calendar days after the Effective
Date (the "Filing Date"). After the filing of the Registration Statement, the
Company shall use its best efforts to cause the Registration Statement to become
effective. If and when the Registration Statement becomes effective, the
Company shall use its best efforts to maintain the effectiveness of the
Registration Statement until the earlier of (i) that date all of the Warrants
have been exercised or (ii) that date upon which the last of the Warrants shall
have expired by their terms. Offers and exchanges of the Warrants for Project
Shares shall be made and accepted by the Company for a period of ninety (90)
days following the date the Registration Statement becomes effective, or such
longer period as the Company may elect in its sole discretion (the "Warrant
Offer Period"). After the termination of the Warrant Offer Period, the Company
shall have no obligation to continue the effectiveness of the Registration
Statement or to offer additional Warrants in exchange for Project Shares not
tendered during such period. If the Registration Statement is not declared
effective by the Commission, the Company and Synergetics agree to promptly
determine another means to offer the Warrants and Common Stock issuable upon
exercise of the Warrants to holders of Project Shares. Promptly upon
determination and implementation of such an alternative means, the Company shall
use its best efforts to comply with each time period and other obligation set
forth with respect to the offer of Warrants for Project Shares. The parties
agree that the holders of the Project Shares shall be intended third party
beneficiaries of the covenants of this Section 1.1(b) pertaining to the
registration of the shares of Common Stock underlying the Warrants.
1.2 Cancellation of Royalty. In consideration of the Company's agreement
to offer the Warrants as described in Section 1.1, the parties agree that upon
the tender to the Company of any Project Share by any party, together with any
other documents or instruments required to be executed by Project Share holders,
and the Company's issuance of a Warrant to such Project Share holder upon such
tender, without any further action by any party, the Royalty shall be canceled
at the rate of one sixtieth (1/60th) of one percent (1%) of the total amount of
the Royalty for each such Project Share tendered (each such fractional interest
a "Royalty Portion"), and the Company shall have no further obligation of any
kind with respect to such canceled Royalty Portion. Notwithstanding the
generality of the foregoing, and without diminishing in
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any way the legal effect of the tender of Project Shares and the issuance of
Warrants therefor, Synergetics covenants that at any time after the Effective
Time, and from time to time as the Company may reasonably request, whether
pursuant to a request from its auditors or otherwise, Synergetics shall promptly
execute an additional writing or writings indicating, as of the date thereof,
what percentage of the Royalty has been canceled pursuant to this Agreement.
(a) If any holder of any Project Share or Project Shares declines the
Company's offer to exchange Warrants for such Project Shares and continues to
decline such exchange until the end of the Warrant Offer Period, a corresponding
portion of the Royalty shall not be canceled and shall remain a valid, legal and
binding obligation of the Company, payable to Synergetics in accordance with the
terms of the Re-Stated Development Agreement, provided, that any Royalty Portion
not canceled as described in this Agreement shall remain an outstanding
obligation of the Company only to the extent of the monetary limitation set
forth in the certificate or certificates representing such Project Shares, and
upon the payment by the Company to Synergetics of Royalty payments sufficient to
pay such Project Share holder the entire amount required to be paid under the
Project Share certificate, the Royalty Portion associated with such Project
Shares shall be canceled immediately and without any action by any party, and
the Company shall have no further obligation with respect to such canceled
Royalty Portion. The Company expressly reserves the right to make any
payment(s) with respect to any uncanceled Project Share when and as due directly
to the holder of such Project Share (copies of such payments to be provided to
Synergetics), and Synergetics agrees to provide the Company with the information
necessary to complete such payment(s). Any payment(s) made directly to any
Project Share holder pursuant to this Section 1.2(a) shall satisfy and
extinguish a corresponding amount of the Royalty payable by the Company to
Synergetics.
1.3 Technology Assignment. Synergetics hereby specifically ratifies all
assignments and conveyances of the Technology and of Existing Technology, New
Technology, Existing Intellectual Property and New Intellectual Property, as
each of those terms are defined in the Re-Stated Development Agreement
(collectively, the "Assigned Technology") previously made to the Company and
agrees that it shall continue to be bound by the obligation to assign such
technology and intellectual property pursuant to the terms of the Re-Stated
Development Agreement. Synergetics and the Company acknowledge and agree that
it is their intent that such assignment of Assigned Technology include within
its scope (i) all neural net technology relating to ASRT that has been or will
be developed by Synergetics, including without limitation all technology
comprising the "MULTCONS" project and (ii) the rights and obligations of
Synergetics to Xxxxx Xxxxx and LTI, which obligations, if any, the Company
hereby assumes and agrees to discharge as and when due.
1.4 Release of Development Obligations. The Company hereby acknowledges
that no further work is required of Synergetics and hereby releases Synergetics
from all research and development activities in connection with the Technology
that may still exist under the Development Agreements or otherwise, provided,
however, that all of Synergetics's agreements and obligations relating to
covenants not to compete, confidentiality, assignment of intellectual property
rights and rights of first refusal shall continue in full force and effect,
pursuant to the terms of the Re-Stated Development Agreement. Except to the
extent specifically modified by
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this Agreement, the Development Agreements, as amended prior to the date of this
Agreement, shall remain in full force and effect.
1.5 Cooperation; Best Efforts. Synergetics agrees to cooperate with all
reasonable requests of the Company in consummating the transactions contemplated
by this Agreement. Such cooperative efforts shall include, without limitation,
(i) providing written information to the Company as shall be required and
reasonably requested in connection with the preparation of the Registration
Statement, (ii) providing information about the status of currently outstanding
Project Shares and the names and addresses of the holders of such outstanding
Project Shares, (iii) on or after the filing of the Registration Statement,
conveying to the Project Share holders, or authorizing the Company to convey to
the Project Share holders a writing indicating the unanimous approval of the
board of directors and a majority approval of the shareholders of Synergetics of
the transactions contemplated by this Agreement, and (iv) when and if the
Company is able to commence the offering of the Warrants contemplated by Section
1.1 pursuant to the filing and effectiveness of the Registration Statement,
promptly exchanging all Project Shares then issued or deemed to be issued to
Synergetics to the Company in exchange for Warrants.
1.6 Project Share Issuance. Synergetics agrees that, as of the Effective
Date, Synergetics shall have granted a total of six thousand (6,000) Project
Shares, which number of Project Shares shall be deemed and agreed to be the
maximum number of Project Shares issuable by Synergetics and shall be deemed to
represent one hundred percent (100%) of the Royalty due Synergetics from the
Company at any future time or times. In the event that, as of the Effective
Date, Synergetics shall not have granted the maximum number of Project Shares to
Developers, any residual number of ungranted Project Shares shall be deemed to
be issued to Synergetics and Synergetics shall be deemed to have the ability to
tender such residual number of Project Shares to the Company upon the offering
of Warrants anticipated by Section 1.1. In such event, any Project Shares
deemed to be granted to Synergetics shall be deemed to be subject to the same
terms and conditions as are applicable to the other Project Shares. Synergetics
further agrees that it shall offer no more than the maximum number of Project
Shares as described in this Section 1.6 and that it shall grant no Project
Shares after the Effective Date. Synergetics further agrees that, to the
fullest extent legally permitted, it will cause any Project Shares or Project
Share certificates which Synergetics may be holding as collateral or security
for any obligation, regardless of the nature of such obligation, or as to which
Synergetics otherwise has any security interest, to be tendered to the Company
in exchange for Warrants if and when the Company offers the Warrants, subject to
the filing and effectiveness of the Registration Statement, and in the event
Synergetics legally may not tender such Project Shares or certificates,
Synergetics will use its best efforts to cause the holder or holders of such
Project Shares to tender them (or consent to the tender thereof) in exchange for
Warrants. Synergetics shall deliver to the Company on or prior to the Effective
Date a complete and accurate list of all Project Shares outstanding as of the
Effective Date, together with the names and last-known addresses of all Project
Share holders and the number of Project Shares held by them, together with true
and correct copies of all Project Share certificates granted and related
instruments or agreements as of the Effective Date.
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1.7 Assignment of Development and Assignment Agreements. Synergetics
hereby assigns to the Company all of its right, title and interest in, and
rights under, any contract or arrangement with any employee, independent
contractor or other person arising out of or related to Synergetics's research
and development activities related to the Technology, including without
limitation any employment, independent contractor, development, contribution,
confidentiality or non-compete agreement or provision. Synergetics additionally
covenants that it will provide on or prior to the Effective Date, a complete and
accurate list of all such agreements and the identity of all such employees,
independent contractors or other third persons, together with true and correct
copies of all writings manifesting such agreements. By this Section 1.7 the
Company does not assume any of the obligations or liabilities associated with
such agreements, which obligations and liabilities will continue to be the
responsibility of Synergetics.
Section 2.
Representations and Warranties
2.1 Representations and Warranties of Synergetics. Synergetics hereby
represents and warrants to the Company as follows:
(a) Organization and Qualification. Synergetics is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
State of Utah, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
Synergetics has no subsidiaries. Synergetics is duly qualified to do business
and is in good standing as a foreign corporation in each jurisdiction in which
the nature of the business conducted or property owned by it makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate,
adversely affect the legality, validity or enforceability of this Agreement, or
adversely impair Synergetics's ability to perform fully on a timely basis its
obligations under this Agreement (a "Material Adverse Effect").
(b) Authorization; Enforcement. Synergetics has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
thereunder. The execution and delivery of this Agreement by Synergetics and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of Synergetics. Without limiting
the generality of the foregoing sentence, the board of directors of Synergetics
has duly and unanimously and a majority of the shareholders of Synergetics has
duly approved the execution of this Agreement and the performance of
Synergetics's obligations thereunder. This Agreement has been duly executed by
Synergetics and when delivered in accordance with the terms hereof constitutes
the valid and binding obligation of Synergetics enforceable against Synergetics
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
Synergetics is not in violation of any of the provisions of its articles of
incorporation, by-laws or other charter documents.
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(c) No Conflicts. The execution and delivery of and performance under
this Agreement by Synergetics and the consummation by Synergetics of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its articles of incorporation or bylaws (each as
amended through the date hereof), or (ii) subject to obtaining the consents
referred to in Section 2.1(d), conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which Synergetics is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which Synergetics is subject (including Federal and state
securities laws and regulations), or by which any material property or asset of
Synergetics is bound or affected, except in the case of each of clauses (ii)
and (iii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the aggregate,
have or result in a Material Adverse Effect, provided, that the representation
and warranty as to clauses (ii) and (iii) above are limited to Synergetics best
knowledge. The business of Synergetics is not being conducted in violation of
any law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.
(d) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(d), Synergetics is not required to obtain any consent, waiver,
authorization or order of, or make any filing or registration with, any court or
other Federal, state, local or other governmental authority or other person in
connection with the execution, delivery and performance by Synergetics of this
Agreement other than where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, could not have
or result in, individually or in the aggregate, a Material Adverse Effect.
(e) Litigation; Proceedings. There is no action, suit, notice of
violation, proceeding or investigation pending or, to the best knowledge of
Synergetics, threatened against or affecting Synergetics or any of its
properties before or by any court, governmental or administrative agency or
regulatory authority (Federal, state, county, local or foreign) which (i)
adversely affects or challenges the legality, validity or enforceability of this
Agreement or (ii) could not, individually or in the aggregate, have or result in
a Material Adverse Effect.
(f) No Default or Violation. To the best knowledge of Synergetics, it
(i) is not in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, (ii) is not in violation of any
order of any court, arbitrator or governmental body, and (iii) is not in
violation of any statute, rule or regulation of any governmental authority,
except as could not individually or in the aggregate, have or result in,
individually or in the aggregate, Material Adverse Effect and except in the case
of clause (i) above as has not been waived.
(g) Intellectual Property. The Assigned Technology is all of original
authorship by Synergetics and does not infringe any copyrights, patents,
trademarks, trade secrets or other personal or proprietary rights of any third
party. There are no existing, pending or, to
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the best knowledge of Synergetics, threatened claims of infringement,
misappropriation or disputed ownership by any third party relating to the
Assigned Technology, and, to Synergetics's best knowledge, there is no basis for
any such claim. To Synergetics's best knowledge, no third party is infringing or
has infringed the intellectual property rights with respect to the Assigned
Technology. There are no outstanding licenses or agreements of any kind relating
to the Assigned Technology or the intellectual property rights therein, except
for the Development Agreements. No licenses from or rights (including patent
rights) of any third party are necessary to market, license, sell, modify and/or
create derivative works of the Assigned Technology.
(h) No Breach By The Company. As of the date of this Agreement, the
Company has not breached in any respect or otherwise failed to fulfill its
obligations under the Development Agreements. As of the date of this Agreement,
Synergetics is aware of no claim of any type it may have against the Company or
any affiliate of the Company.
(i) Status of Assigned Technology; No Claims. Either prior to or
concurrently with the execution of this Agreement, Synergetics has completed the
assignment of all of the Assigned Technology. As to such Assigned Technology,
Synergetics has no right, interest or title, and has no claim of any kind which
could in any way hinder or delay the Company's further development,
commercialization and/or licensing of the Assigned Technology, and Synergetics
hereby releases any such claim it may presently have or it may have in the
future. Synergetics is aware of no right, title or interest of any third party
to or in any of the Assigned Technology except for such right, title or interest
as may have been fully assigned to the Company prior to or on the date of this
Agreement. As of the time of any assignment of any Assigned Technology,
Synergetics has and had good and marketable title to such Assigned Technology,
and such Assigned Technology was assigned to the Company free and clear of all
Liens and all conditions to and restrictions on transfer or assignment. "Liens"
shall mean liens, title defects and objections of any kind, security interests,
pledges, taxes, leases, licenses, liabilities, costs, charges and claims and
encumbrances of any kind, direct or indirect, whether accrued, absolute,
contingent or otherwise (including without limitation any agreement to give any
of the foregoing).
(j) Sale of Assets Related to Assigned Technology. Synergetics has, on
or prior to the date of this Agreement, assigned, delivered, conveyed or
returned to the Company any equipment, supplies, documentation or other property
or assets of any type used in connection with the development of the Assigned
Technology.
(k) Accuracy of Documents. To the best knowledge of Synergetics, all
documents and other materials provided to the Company by Synergetics whether in
writing or in electronic format pursuant to or in connection with this
Agreement, including without limitation due diligence materials and written
copies of Project Share certificates, are true, complete and accurate in all
material respects.
(l) Project Shares. On or prior to the Effective Date, Synergetics
has granted a total of six thousand (6,000) Project Shares, all of which are
outstanding as of the Effective Date. Each such Project Share has been granted
in compliance with all applicable laws, Federal
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and state (including securities laws), and, as of the date hereof is duly and
validly outstanding and is a legal obligation of Synergetics enforceable in
accordance with the terms set forth in the Project Share certificates and any
related documents or instruments. As of the date of this Agreement, Synergetics
has not breached any of the provisions of or otherwise failed to satisfy any of
its obligations under the Project Shares or any other agreement with the
Developers. All of the Project Shares granted by Synergetics are subject to
substantially identical terms and conditions.
(m) Tax Consequences; Professional Advice. Neither the Company nor
any of its representatives, employees or agents has made any representation to
Synergetics about the tax consequences of the transactions contemplated by this
Agreement. Synergetics has had the opportunity to seek such tax, legal and
accounting advice with respect to the consummation of the transactions
contemplated by this Agreement as it has deemed appropriate, and any decision
not to obtain such advice or to not obtain additional advice resulted from
Synergetics's determination that such advice, or additional advice, is not
necessary, and not as a result of any representation by the Company or its
employees and agents about the tax consequences, or lack thereof, of the
consummation of the transactions contemplated by this Agreement.
(n) Sale of Substantially All Assets. The execution of this Agreement
and the consummation of the transactions contemplated hereby constitutes a sale
of substantially all of the business assets of Synergetics relating to the
Assigned Technology.
2.2 Representations and Warranties of the Company. The Company hereby
represents and warrants to Synergetics as follows:
(a) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, with the requisite corporate power and authority to own and
use its properties and assets and to carry on its business as currently
conducted. The Company has one subsidiary (the "Subsidiary"), which is duly
incorporated, validly existing and in good standing under the laws of the State
of Utah. The Company and the Subsidiary are duly qualified to do business and
are in good standing as foreign corporations in each jurisdiction in which the
nature of the business conducted or property owned by them makes such
qualification necessary, except where the failure to be so qualified or in good
standing, as the case may be, could not, individually or in the aggregate,
result in a Material Adverse Effect.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
thereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated thereby have been duly
authorized by all necessary action on the part of the Company. This Agreement
has been duly executed by the Company and when delivered in accordance with the
terms hereof constitutes the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws
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relating to, or affecting generally the enforcement of, creditor's rights and
remedies or by other equitable principles of general application. The Company is
not in violation of any of the provisions of its certificate of incorporation,
by-laws or other charter documents.
(c) No Conflicts. The execution and delivery of and performance under
this Agreement by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not, (i) conflict with or
violate any provision of its certificate of incorporation or bylaws (each as
amended through the date hereof) or (ii) subject to obtaining the consents
referred to in Section 2.2(d), conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company is
a party, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company is subject (including Federal and state
securities laws and regulations), or by which any material property or asset of
the Company is bound or affected, except in the case of each of clauses (ii)
and (iii), such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as could not, individually or in the aggregate,
have or result in a Material Adverse Effect, provided, that the representation
and warranty as to clauses (ii) and (iii) above are limited to the Company's
best knowledge. To the Company's knowledge, the business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental authority, except for violations which, individually or in the
aggregate, do not have a Material Adverse Effect.
(d) Consents and Approvals. Except as specifically set forth in
Schedule 2.2(d), the Company is not required to obtain any consent, waiver,
authorization or order of, or make any filing or registration with, any court or
other Federal, state, local or other govern-mental authority or other person in
connection with the execution, delivery and performance by the Company of this
Agreement other than (i) the filing of the Registration Statement with the
Commission, which shall be filed in the time periods set forth in this
Agreement, (ii) the applications for the listing of the shares of Common Stock
issuable upon the exercise of the Warrants with The Nasdaq Stock Market, Inc.
(and with any other national securities exchange or market on which the Common
Stock is then listed), (iii) the filing of any registration statements or other
documents and materials to effect the Company's compliance with the Blue Sky
laws of any state, and (iv) in all other cases, where the failure to obtain such
consent, waiver, authorization or order, or to give or make such notice or
filing, could not have or result in, individually or in the aggregate, a
Material Adverse Effect.
(e) Litigation; Proceedings. Except as specifically disclosed in the
reports and other materials on file with the Commission, which documents and
materials have been provided to or are otherwise available to Synergetics, or in
a writing to Synergetics, there is no action, suit, notice of violation,
proceeding or investigation pending or, to the best knowledge of the Company,
threatened against or affecting the Company or its Subsidiary or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (Federal, state, county, local or foreign) which
(i) adversely affects or challenges the
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legality, validity or enforceability of this Agreement, or (ii) could not,
individually or in the aggregate, have or result in a Material Adverse Effect.
(f) No Default or Violation. To the Company's knowledge, neither the
Company nor the Subsidiary (i) is in default under or in violation of any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound, (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is in violation of any statute, rule or regulation of any governmental
authority, except as could not individually or in the aggregate, have or result
in, individually or in the aggregate, Material Adverse Effect and except in the
case of clause (i) above as has not been waived.
Section 3.
Conditions
3.1 Conditions Precedent to the Obligation of the Company to Offer and
Sell Warrants. The obligation of the Company to offer and sell the Warrants as
described in Section 1.1 and to release Synergetics from its obligations under
the Development Agreements is subject to the satisfaction or waiver by the
Company on or before the date of filing of the Registration Statement (the
"Filing Date") of each of the following conditions, which conditions are for the
sole benefit of the Company and may be waived by the Company in whole or in part
at any time and from time to time in its sole discretion. The failure by the
Company at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right. The waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver with respect to
any other facts and circumstances and each such right shall be deemed an ongoing
right that may be asserted at any time and from time to time.
(a) Effectiveness of Registration Statement. The Registration
Statement shall have been filed with and declared effective by the Commission.
(b) Accuracy of Synergetics's Representations and Warranties. The
representations and warranties of Synergetics shall be true and correct in all
material respects as of the date when made and as of each Filing Date, as though
made on and as of such dates.
(c) Performance by Synergetics. Synergetics shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by it at or prior to each Filing Date.
(d) No Prohibitions. The offering and sales of the Warrants (and upon
exercise thereof, the issuance of the underlying shares of Common Stock) as
described in Section 1.1: (i) shall not be prohibited or enjoined (temporarily
or permanently) by any applicable law or governmental regulation, and (ii) shall
not subject the Company to any penalty, or in its judgment, other onerous
condition under or pursuant to any applicable law or governmental regulation
that would materially reduce the benefits to the Company of the offering of the
Warrants and such underlying shares and the consummation of the transactions
contemplated by this Agreement.
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(e) No Pending Actions. There shall not be threatened, instituted or
pending by any person or governmental entity any suit, action or proceeding
challenging the offering and sales of the Warrants by the Company as
contemplated by this Agreement or seeking to restrain or prohibit the making or
consummation of offers and sales of the Warrants or the performance of any of
the other transactions contemplated by this Agreement, or seeking to obtain from
the Company any damages that are material in relation to the Company.
(f) Adverse Changes. No event or series of events which, individually
or in the aggregate, could have or result in a Material Adverse Effect shall
have occurred.
(g) Opinion of Counsel. Synergetics shall have used its best efforts
to deliver to the Company on or prior to the Effective Date, an opinion of
counsel in the form attached hereto as Exhibit "B."
(h) Delivery of Documentation. Synergetics shall have delivered to
the Company the information and documents required to be delivered to the
Company pursuant to Sections 1.6 and 1.7.
3.2 Conditions Precedent to the Obligations of Synergetics. Synergetics's
obligations under this Agreement are subject to the satisfaction or waiver by
Synergetics, at or before the Effective Date, of each of the following
conditions, which conditions are for the sole benefit of Synergetics and may be
waived by Synergetics in whole or in part at any time and from time to time in
its sole discretion. The failure by Synergetics at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any such right. The waiver
of any such right with respect to particular facts and circumstances shall not
be deemed a waiver with respect to any other facts and circumstances and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time:
(a) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company set forth in Section 2.2 shall be
true and correct in all material respects as of the date when made and as of the
Effective Date as though made on and as of such date.
(b) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Effective Date.
(c) Adverse Changes. No event or series of events which, individually
or in the aggregate, could have or result in a Material Adverse Effect shall
have occurred between the date of execution hereof and the Effective Date.
(d) Consulting Agreement. The Company will enter into a consulting
agreement with C. Xxx Xxxxxx or a company designated by him and reasonably
acceptable to
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Company for consulting services concerning the development and application of
the Company's ASRT.
(e) Opinion of Counsel. The Company shall have used its best efforts
to deliver to Synergetics on or prior to the Effective Date, an opinion of
counsel in the form attached hereto as Exhibit "C".
Section 4.
Termination
4.1 Termination by Mutual Consent. This Agreement and the transactions
contemplated hereby may be terminated at any time prior to the date of filing of
the Registration Statement (the "Initial Filing Date") by the mutual consent of
the Company and Synergetics.
4.2 Termination by the Company or Synergetics. This Agreement and the
transactions contemplated hereby may be terminated prior to the Initial Filing
Date by either the Company or Synergetics, by giving written notice of such
termination to the other party, if there shall be in effect any statute, rule,
law or regulation that prohibits the consummation of the transactions
contemplated hereby or if the consummation of the transactions contemplated by
this Agreement would violate any non-appealable final judgment, order, decree,
ruling or injunction of any court of or governmental authority having competent
jurisdiction.
4.3 Termination by the Company. This Agreement and the transactions
contemplated hereby may be terminated prior to the Initial Filing Date by the
Company, by giving written notice of such termination to Synergetics, if
Synergetics has breached in any material respect any representation, warranty,
covenant or agreement contained in this Agreement and such breach is not cured
within thirty (30) business days following receipt by Synergetics of notice of
such breach.
4.4 Termination by Synergetics. This Agreement and the transactions
contemplated hereby may be terminated by Synergetics by giving written notice of
such termination to the Company, if the Company has breached in any material
respects any representation, warranty, covenant or agreement contained in this
Agreement and such breach is not cured within thirty (30) business days
following receipt by the Company of notice of such breach.
Section 5.
General Provisions
5.1 Survival of Representations, Warranties and Agreements. The
representations and warranties set forth in Section 2 shall survive the
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement, and such provisions and the parties' respective
rights to rely on the accuracy of such provision shall be unaffected by any
investigation or due diligence review conducted by either party.
-14-
5.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed), sent by overnight courier (providing proof of delivery) or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to the Company, to it at:
fonix corporation
0000 Xxxxx Xxxx Tower
00 Xxxx Xxxxx Xxxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile: (000) 000-0000
Attn. Xxxxxx X. Xxxxxxx, President
With a copy to:
DURHAM, EVANS, XXXXX & XXXXXXX
Key Bank Tower, Suite 850
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile: (000) 000-0000
Attn. Xxxxxxx X. Xxxxx, Esq.
If to Synergetics, to it at:
SYNERGETICS, INC.
000 Xxxxx 000 Xxxx, Xxxxx X
Xxxxx, Xxxx 00000
Facsimile: (000) 000-0000
Attn. C. Xxx Xxxxxx, President and Xxxxxx X. Xxxxxx
With a copy to:
FILLMORE, BELLISTON & XXXXXXXXX
0000 Xxxxx Xxxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxx, Xxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxx, Esq.
5.3 Interpretation. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or
-15-
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation".
5.4 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
5.5 Entire Agreement; Third Party Beneficiaries. This Agreement (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, including without limitation the Initial Agreement, the
Re-Stated Development Agreement, and the MOU, and (b) except as expressly may be
provided herein is not intended to confer upon any person other than the parties
hereto any rights or remedies hereunder. To the extent of any conflict between
this Agreement and the provisions of the MOU, the parties acknowledge and agree
that such conflict is the result of negotiations between the date of the MOU and
the date of this Agreement and that this Agreement shall supercede the MOU in
any such respect.
5.6 Amendment; Waiver. Except as otherwise expressly provided in this
Agreement, this Agreement may be modified or amended only by a writing signed by
duly authorized representatives of both parties. The waiver by either party of
any default or breach of this Agreement, or any obligation hereunder, shall be
ineffective unless in writing, and shall not constitute a waiver of any
subsequent breach or default. No failure to exercise any right or power under
this Agreement or to insist on strict compliance by the other party shall
constitute a waiver of the right in the future to exercise such right or power
or to insist on strict compliance.
5.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Utah without regard to any applicable
conflicts of law principles.
5.8 Publicity. Except as otherwise required by law, Synergetics shall not
issue or cause the publication of any press release or other public announcement
with respect to the transactions contemplated by this Agreement without the
consent of the Company, which consent shall not be unreasonably withheld. The
Company may disclose, by publication of any press release or public announcement
or otherwise, the transactions contemplated by this Agreement in its sole
discretion. Synergetics specifically agrees that it will not in any way
communicate with any of the Project Share holders about the terms of this
transaction until such time as the Registration Statement has been filed.
5.9 Assignment. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by Synergetics (whether by operation
of law or otherwise) without the prior written consent of the Company. The
Company may assign its rights, interests or obligations under this Agreement in
its sole discretion. Subject to the preceding sentences, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
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5.10 Venue; Jurisdiction. Each of the parties hereto (i) consents to
submit such party to the personal jurisdiction of any Federal court located in
the State of Utah or any Utah state court in the event any dispute arises out of
this Agreement or any of the transactions contemplated hereby, (ii) agrees that
such party will not attempt to deny or defeat such personal jurisdiction by
motion or other request for leave from any such court, (iii) agrees that such
party will not bring any action relating to this Agreement or any of the
transactions contemplated hereby in any court other than a Federal court sitting
in the state of Utah or a Utah state court, and (iv) waives any right to trial
by jury with respect to any claim or proceeding related to or arising out of
this Agreement or any of the transactions contemplated hereby.
5.11 No Offering. This Agreement is not intended as and shall not be
construed to be an "offer" to "purchase" or "sell" "securities" as those terms
are defined in Section 2 of the Securities Act.
5.12 No Agency; No Assumed Liabilities. The parties are and have been
independent contractors, and this Agreement shall not be construed to create any
agency or partnership between them. Neither party has authority to bind the
other, to incur any liability or otherwise act on behalf of the other, or to
direct the other's employees. Except to the extent expressly provided in this
Agreement, neither party assumes hereby any debt, obligation or liability of the
other.
5.13 Expenses. The Company agrees to reimburse Synergetics for its
reasonable costs and expenses associated with the preparation, execution and
delivery of this Agreement. Subject to the foregoing sentence, each of the
parties agree to bear their respective costs associated with this Agreement and
the consummation of the transactions contemplated by this Agreement, including
without limitation, attorneys' fees and costs, accounting fees and expenses and
due diligence costs. The Company shall pay the expenses incurred in connection
with the preparation and filing of the Registration Statement, including all
legal and accounting fees and costs, costs for printing and engraving and filing
fees.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
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SIGNED as of the date first written above.
THE COMPANY
fonix corporation
By: /s/ Xxxxxx X. Xxxxxxx
--------------------------
Xxxxxx X. Xxxxxxx, President
SYNERGETICS
SYNERGETICS, INC.
By: /s/ C. Xxx Xxxxxx
---------------------------
C. Xxx Xxxxxx, President
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