SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of December 21,
1998, by and among fonix corporation, a Delaware corporation (the "Company"),
and JNC Strategic Fund Ltd., a Cayman Islands corporation ("Buyer").
WHEREAS:
The Company and the Buyer are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Rule 506 of
Regulation D ("Regulation D") as promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"); and
The Buyer wishes to purchase and the Company wishes to offer and sell, upon
the terms and conditions stated in this Agreement, (i) an aggregate number of
shares of the Company's common stock, par value $.0001 per share (the "Common
Stock"), equal to $2,000,000 divided by the Purchase Price (as defined below)
(the "Common Shares"), (ii) the right with respect to each Common Share (the
"Repricing Right") to require the Company, subject to the terms and conditions
set forth herein, to issue and deliver to the Buyer additional shares of Common
Stock (the "Repricing Common Shares") as described in Section 5 and (iii) a
Common Stock purchase warrant in the form of Exhibit C attached hereto (the
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"Warrant"), entitling the holder thereof to acquire from the Company on the
terms and subject to the conditions set forth therein 200,000 shares of Common
Stock (the "Warrant Shares"). The Common Shares, the Warrant, the Warrant
Shares, the Repricing Rights, the Repricing Common Shares and any shares of
common stock issued as payment of Registration Delay Payments (as defined in the
Registration Rights Agreement, as defined below) collectively are referred to in
this Agreement as the "Securities"); and
The Company intends to use the net proceeds from the sale of the Securities
to retire certain debt and trade payables of the Company.
NOW THEREFORE, the Company and the Buyer hereby agree as follows:
1. PURCHASE AND SALE OF SECURITIES.
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(a) The Closing. The issuance and sale of the Common Shares, Repricing
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Rights and Warrant pursuant to this Agreement shall occur on the date hereof or
on such other date as may be mutually agreed to by the parties (the "Closing
Date"). The closing of the transactions contemplated by this Agreement (the
"Closing") shall occur on the Closing Date at the offices of Xxxxxxxx Xxxxxxxxx
Xxxxxx Xxxxxxxx & Xxxxxx, 1290 Avenue of the Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000,
or at such other location as may be agreed to by the parties.
(b) Deliveries at Closing. At the Closing (1) the Company shall deliver
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to or as directed by the Buyer (i) a stock certificate, registered in the name
of the Buyer (the "Stock Certificate"), representing the Common Shares (which
shall equal $2,000,000 divided by $1.11 (the "Purchase Price")), (ii) the
Warrant, (iii) one Repricing Right for each Common Share issued at the Closing
to the Buyer (which
shall be deemed incorporated and part of each Common Share issued), (iv) the
legal opinion letter of Durham, Evans, Xxxxx & Xxxxxxx, P.C., outside counsel to
the Company, dated as of the Closing Date, in form satisfactory to the Buyer,
(v) the Irrevocable Transfer Agent Instructions, in the form of Exhibit A
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attached hereto, acknowledged in writing by the Company's transfer agent, and
(vi) all other instruments and writings required to have been delivered at or
prior to the Closing by the Company pursuant to this Agreement, including
without limitation, an executed Registration Rights Agreement, dated as of the
Closing Date, between the Company and the Buyer in the form of Exhibit D
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attached hereto (the "Registration Rights Agreement"); and (2) the Buyer shall
deliver or cause to be delivered to the Company (i) by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, $2,000,000, and (ii) all documents, instruments and writings
required to have been delivered at or prior to the Closing by the Buyer pursuant
to this Agreement, including, without limitation, an executed Registration
Rights Agreement.
(c) Closing Bid Price. For purposes of this Agreement, "Closing Bid
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Price" means, for any security as of any particular date (a) the closing bid
price of such security on such date on the Nasdaq Small Cap Market or on the
Subsequent Market on which such security is then listed or quoted, or if there
is no such price on such date, then the closing bid price on the Nasdaq Small
Stock Market or on such Subsequent Market on the date nearest preceding such
date, or (b) if such security is not then listed or quoted on the Nasdaq Small
Cap Market or on a Subsequent Market, the closing bid price for such security in
the over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if such security
is not then reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices), then
the average of the "Pink Sheet" quotes for the relevant period, as determined in
good faith by the holder of the securities making such determination, or (d) if
such security is not then publicly traded the fair market value of a unit of
such security as determined by an appraiser selected in good faith by the
holders of a majority of the Common Shares.
(d) Trading Day. For purposes of this Agreement, "Trading Day" shall mean
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(a) a day on which the Common Stock is listed for trading on the Nasdaq SmallCap
Market or on the New York Stock Exchange, American Stock Exchange or Nasdaq
National Market, or any of their respective successors (each a "Subsequent
Market") or (b) if the Common Stock is not listed on the Nasdaq SmallCap Market
or a Subsequent Market, a day on which the Common Stock is traded in the over-
the-counter market, as reported by the OTC Bulletin Board, or (c) if the Common
Stock is not quoted on the OTC Bulletin Board, a day on which the Common Stock
is quoted in the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that the
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Common Stock is not listed or quoted as set forth in (a), (b) and (c) hereof,
then a Trading Day shall be a Business Day.
(e) Business Day. For purposes of this Agreement, "Business Day" shall
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mean 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 are authorized
or required by law or other government action to close.
2. COMPANY REPRESENTATIONS AND WARRANTIES. The Company hereby makes the
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following representations and warranties to the Buyer:
(a) Organization and Qualification. The Company is a corporation, duly
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incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite
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corporate power and authority to own and use its properties and assets and to
carry on its business as currently conducted. The Company has no subsidiaries
other than those set forth on Schedule 2(a) (collectively the "Subsidiaries").
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Each of the Subsidiaries is a corporation, duly incorporated validly existing
and in good standing under the laws of the jurisdiction of its incorporation,
with the requisite corporate power and authority to own and use its properties
and assets and to carry on its business as currently conducted. Each of the
Company and the Subsidiaries 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, (x) adversely
affect the legality, validity or enforceability of any of the Securities or any
of this Agreement, the Registration Rights Agreement or the Warrant
(collectively, the "Transaction Documents"), (y) have or result in a material
adverse effect on the results of operations, assets, prospects, or condition
(financial or otherwise) of the Company and the Subsidiaries, taken as a whole,
or (z) adversely impair the Company's ability to perform fully on a timely basis
its obligations under any Transaction Document (any of (x), (y) or (z), a
"Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite corporate
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power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been (subject, with respect to the
reservation of the required number of Repricing Common Shares and Warrant
Shares, to increasing the authorized capital of the Company in accordance with
Section 4(d)(i)) duly authorized by all necessary action on the part of the
Company and no further action is required by the Company. Each of the
Transaction Documents has been duly executed by the Company and, when delivered
in accordance with the terms thereof, will constitute the legal, 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
relating to or affecting generally the enforcement of creditors' rights and
remedies or by other equitable principles of general application. Neither the
Company nor any Subsidiary is in violation of any of the provisions of its
respective certificate of incorporation, by-laws or other charter documents.
(c) Capitalization. The number of authorized, issued and outstanding
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capital stock of the Company is set forth in Schedule 2(c). No shares of Common
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Stock are entitled to preemptive or similar rights, nor is any holder of Common
Stock entitled to preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction Documents.
Except as disclosed in Schedule 2(c), there are no outstanding options,
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warrants, script rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Securities, rights or obligations convertible into or exchangeable for, or
giving any Person any right to subscribe for or acquire any Common Shares, or
contracts, commitments, understandings, or arrangements by which the Company or
any Subsidiary is or may become bound to issue additional Common Shares, or
securities or rights convertible or exchangeable into Common Shares. To the
knowledge of the Company, except as specifically disclosed in the SEC Reports
(as defined below) or Schedule 2(c), no Person or group of related Persons
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beneficially owns (as determined pursuant to Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) or has the
right to acquire by agreement with or by obligation binding upon the Company
beneficial ownership of in excess of 5% of the Common Stock. A "Person" means
an individual or corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
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(d) Issuance of the Securities The Common Shares, Repricing Rights and
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the Warrant are duly authorized, and, when issued and paid for in accordance
with the terms hereof, shall have been validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "Liens"). Subject to amending the Company's
certificate of incorporation in accordance with Section 4(d)(i), the Company
will, at all times while the Warrant and the Repricing Rights are outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, to
enable it to perform its exercise and other obligations under this Agreement and
the Warrant. Subject to amending the Company's certificate of incorporation in
accordance with Section 4(d)(i), the Warrant Shares and the Repricing Common
Shares shall have been duly authorized and reserved for issuance and, when
issued in accordance with the terms hereof, the Warrant shall have been validly
issued, fully paid and nonassessable, free and clear of all Liens. With respect
to the Repricing Rights, after satisfaction of the requirements of Section
4(d)(i), such number of reserved and available shares of Common Stock shall not
be less than the number of Repricing Common Shares as would be issuable assuming
the Closing Bid Price on the Exercise Date (as defined below) is 50% of the
Closing Bid Price measured on the Closing Date and all Repricing Rights are
exercised from and after the 211/th/ day after the Closing Date.
(e) No Conflicts. The execution, delivery and performance of the
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Transaction Documents 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, bylaws or other
charter documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), 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 (with or without notice, lapse of time
or both) of, any agreement, credit facility, indenture or instrument
(evidencing a Company debt or otherwise) to which the Company or any Subsidiary
is a party or by which any property or asset of the Company or any Subsidiary is
bound or affected, 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 and the rules and regulations of the
principal market or exchange on which the Common Stock is listed or traded), or
by which any property or asset of the Company is bound or affected, except in
the case of each of clauses (ii) and (iii), as could not, individually or in the
aggregate, have or result in a Material Adverse Effect. 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, could not have or result in a Material Adverse Effect.
(f) Consents and Approvals. Neither the Company nor any Subsidiary is
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required to obtain any consent, waiver, authorization or order of, give any
notice to, 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 the Company of the Transaction
Documents, other than (i) the filings required to comply with its requirements
under Sections 4(a) and 4(d), (ii) the filing of the registration statement with
the Commission meeting the requirements set forth in the Registration Rights
Agreement and covering the resale of the Common Shares, the Repricing Common
Shares and the Warrant Shares by the Buyer, (iii) the application(s) to the
Nasdaq SmallCap Market (and with any Subsequent Market) for the listing
therewith of the Common Shares, the Repricing Common Shares and the Warrant
Shares, (iv) applicable Blue Sky filings and (v) in all other cases where the
failure to obtain such consent, waiver, authorization or order, or to give such
notice or make such filing or registration could not have or result in,
individually or in the aggregate, a Material Adverse Effect (the consents,
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waivers, authorizations, orders, notices and filings referred to in (i)-(v) of
this Section are, collectively, the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed in the
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Disclosure Materials (as hereinafter defined) or in Schedule 2(g), there is no
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action, suit, notice of violation, proceeding or investigation pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries 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
legality, validity or enforceability of any Transaction Document or the
Securities or (ii) could, individually or in the aggregate, have or result in a
Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary (i)
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is in default under or in violation of (and no event has occurred which has not
been waived which, with notice or lapse of time or both, would result in a
default by the Company or any Subsidiary under), nor has the Company or any
Subsidiary received notice of a claim that it is in default under or that it is
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 a Material Adverse Effect or, except in the case of
clause (i) above as has not been waived pursuant to an effective waiver.
(i) Private Offering. Assuming the accuracy of the representations and
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warranties of the Buyer set forth in Section 3(a)-(f), the offer, issuance and
sale of the Securities to the Buyer as contemplated hereby are exempt from the
registration requirements of the Securities Act. Neither the Company nor any
Person acting on its behalf has taken any action that could subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act.
(j) SEC Reports; Financial Statements. The Company has filed all reports
---------------------------------
required to be filed by it under the Exchange Act, including pursuant to Section
13(a) or 15(d) thereof, for the two years preceding the date hereof (or such
shorter period as the Company was required by law to file such material) (the
foregoing materials being collectively referred to herein as the "SEC Reports"
and, together with the Schedules to this Agreement the "Disclosure Materials")
on a timely basis or has received a valid extension of such time of filing and
has filed any such SEC Reports prior to the expiration of any such extension.
As of their respective dates, the SEC Reports complied in all material respects
with the requirements of the Securities Act and the Exchange Act and, the rules
and regulations promulgated thereunder, and none of the SEC Reports, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. All material agreements to which the Company is a party or to which
the property or assets of the Company are subject have been filed as exhibits to
the SEC Reports to the extent required. The financial statements of the Company
included in the SEC Reports comply in all material respects with applicable
accounting requirements and the rules and regulations of the Commission with
respect thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods involved, except as
may be otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments. Since December 31, 1997, except as specified in the SEC Reports,
(a) there has been no event, occurrence or development
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that has had or that could have or result in a Material Adverse Effect, (b) the
Company has not incurred any liabilities (contingent or otherwise) other than
(x) liabilities incurred in the ordinary course of business consistent with past
practice and (y) liabilities not required to be reflected in the Company's
financial statements pursuant to GAAP or required to be disclosed in filings
made with the Commission, (c) the Company has not altered its method of
accounting or the identity of its auditors and (d) the Company has not declared
or made any payment or distribution of cash or other property to its
stockholders or officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or purchased,
redeemed (or made any agreements to purchase or redeem) any shares of its
capital stock or debt convertible into shares of Common Stock.
(k) Investment Company. The Company is not, and is not an Affiliate (as
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defined in Rule 405 under the Securities Act) of, an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Buyer shall have no obligation with respect to any
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fees or commissions or with respect to any claims made by or on behalf of any
Person for any fees or commissions that may be due in connection with the
transactions contemplated by this Agreement to any broker, adviser, consultant,
finder, placement agent, banker or other Person . As between the Company and
the Buyer (including, for such purposes, Affiliates and agents of the Buyer),
the Company shall be solely responsible for all such fees and amounts and the
Company shall indemnify and hold harmless the Buyer, its employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees or amounts, as such fees and expenses are incurred.
(m) Form S-3 Eligibility. The Company is eligible to register securities
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for resale with the Commission under Form S-3 promulgated under the Securities
Act.
(n) Listing and Maintenance Requirements Compliance. Other than as
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specifically disclosed in writing to the Buyer in connection with the issuance
of the Securities, the Company has not, in the two years preceding the date
hereof, received written notice from the Nasdaq Small Cap Market or any other
stock exchange, market or trading facility on which the Common Stock is or has
been listed (or on which it has been quoted) to the effect that the Company is
not in compliance with the listing or maintenance requirements of such exchange
or market. The Company is currently in compliance with all such maintenance
requirements and no fact or circumstances currently exist of which the Company
has knowledge which could reasonably be expected to result in noncompliance with
such maintenance requirements in the foreseeable future.
(o) Patents and Trademarks. The Company has, or has rights to use, all
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patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses and rights (collectively, the "Intellectual
Property Rights") which are necessary for use in connection with its business,
or which the failure to do so have would have a Material Adverse Effect. To the
best knowledge of the Company, all such Intellectual Property Rights are
enforceable and there is no existing infringement by another Person of any of
the Intellectual Property Rights.
(p) Regulatory Permits. The Company and its Subsidiaries possess all
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certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Reports, except where the failure to possess
such permits could not, individually or in the aggregate, have or result in a
Material
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Adverse Effect ("Material Permits"), and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
(q) Disclosure. The Company understands and confirms that the Buyer shall
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be relying on the foregoing representation in effecting transactions in
securities of the Company. All information relating to or concerning the Company
or its Subsidiaries set forth in the Transaction Documents and the Disclosure
Materials is true and correct and does not fail to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
3. BUYER REPRESENTATIONS AND WARRANTIES. The Buyer hereby represents and
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warrants to the Company as follows:
(a) Organization; Authority. The Buyer is duly organized, validly
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existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate power and authority to enter into and
to consummate the transactions contemplated by the Transaction Documents and
otherwise to carry out its obligations thereunder. The purchase by the Buyer of
the Securities hereunder has been duly authorized by all necessary action on the
part of the Buyer. Each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Buyer and constitutes the valid and
legally binding obligation of such Buyer, enforceable against it 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.
(b) Investment Intent. The Buyer is acquiring the Securities for its own
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account for investment purposes only and not with a view to or for distributing
or reselling such Securities or any part thereof or interest therein, without
prejudice, however, to such Buyer's right, subject to the provisions of this
Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable state securities laws or under an exemption from such registration.
(c) Buyer Status. At the time the Buyer was offered the Securities, it
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was, and on the Closing Date it will be, an "accredited investor" as defined in
Rule 501(a) under the Securities Act.
(d) Experience of the Buyer. The Buyer, either alone or together with
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its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Securities, and has so evaluated the
merits and risks of such investment.
(e) Ability of Buyer to Bear Risk of Investment. The Buyer is able to
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bear the economic risk of an investment in the Securities and, at the present
time, is able to afford a complete loss of such investment.
(f) Access to Information. The Buyer acknowledges that it has been
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afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Securities and the merits and risks
of investing in the Securities; (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information which the
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Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of the Buyer or its representatives or counsel shall
modify, amend or affect such Buyer's right to rely on the truth, accuracy and
completeness of the Disclosure Materials and the Company's representations and
warranties contained in the Transaction Documents.
(g) Reliance. The Buyer understands and acknowledges that (i) the
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Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and the Buyer hereby consents to such
reliance.
The Company acknowledges and agrees that the Buyer makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 3.
4. COVENANTS AND CERTAIN AGREEMENTS.
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(a) Certain Securities Law Disclosures. The Company shall: (i) issue a
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press release acceptable to the Buyer disclosing the transactions contemplated
hereby on the Closing Date, (ii) file with the Commission a report on Form 8-K
or Form 10-Q disclosing the transactions contemplated hereby within ten (10)
Business Days after the Closing Date, and (iii) timely file with the Commission
a Form D promulgated under the Securities Act as required under Regulation D and
provide a copy thereof to the Buyer promptly after the filing thereof. The
Company shall, no less than two (2) Business Days prior to the filing of any
disclosure required by clause (ii) above, provide a copy thereof to the Buyer.
(b) Furnishing of Information. So long as the Buyer owns Securities, the
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Company covenants to timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports required to be filed by the
Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange
Act. If at any time prior to the date on which the Buyer may resell all of its
Common Shares, Warrant Shares and Repricing Common Shares without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act (as
determined by counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to each of the holder of such securities
and the Company's transfer agent) the Company is not required to file reports
pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and
furnish to the Buyer and make publicly available in accordance with Rule 144(c)
promulgated under the Securities Act annual and quarterly financial statements,
together with a discussion and analysis of such financial statements in form and
substance substantially similar to those that would otherwise be required to be
included in reports required by Section 13(a) or 15(d) of the Exchange Act, as
well as any other information required thereby, in the time period that such
filings would have been required to have been made under the Exchange Act. The
Company further covenants that it will take such further action as any holder of
the Securities may reasonably request, all to the extent required from time to
time to enable such holder to sell Common Shares, Warrant Shares and Repricing
Common Shares without registration under the Exchange Act under Rule 144
promulgated under the Securities Act. Upon the request of any such holder, the
Company shall deliver thereto a written certification of a duly authorized
officer as to whether it has complied with such requirements.
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(c) Use of Proceeds. The Company will use up to $600,000 of the net
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proceeds from the sale of the Securities to retire certain Company debt and
shall use the balance of such net proceeds solely to repay Company trade
payables and meet certain other Company obligations.
(d) Shareholder Approval; Reservation of Shares. (i) Shareholder
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Approval. The Company shall call a special meeting of its shareholders and use
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its best efforts to obtain the approval of the shareholders of the Company
necessary to, and shall, increase the authorized capital of the Company in an
amount sufficient for the Company to satisfy all of its obligations hereunder
and under the Warrant, but in all events at least 150,000,000 shares of Common
Stock, no later than 60 days following the Closing Date.
(ii) Reservation of Shares. After satisfaction of its obligations
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under 4(d)(i), the Company shall take all action necessary to at all times have
authorized, and reserved for the purpose of issuance, no less than the number of
shares of Common Stock needed to provide for the issuance in full of (A) the
Repricing Common Shares, assuming all such Repricing Rights are exercised from
and after the 211/th/ day after the Closing Date and that the Market Price
measured on the applicable Exercise Date is the lesser of (x) 50% of the Market
Price measured on the Closing Date and (y) the actual Market Price measured on
such Exercise Date, and (B) the Warrant Shares (without regard, in the case of
(A) and (B) above, to any limitations on the exercise of the Repricing Rights or
the Warrants). At such time after the date that the Company complies with its
obligation under Section 4(d)(i), the Company would be, if a notice of exercise
with respect to the Warrant or any Repricing Shares (as the case may be) were to
be delivered on such date, precluded from honoring the exercise in full of the
Warrant or issuing the full number of Repricing Common Shares as would then be
issuable if all Repricing Rights were exercised on such date, due to the
unavailability of a sufficient number of shares of authorized but unissued or
re-acquired Common Stock, the Board of Directors of the Company shall promptly
(and in any case within 30 Business Days from such date) prepare and mail to the
shareholders of the Company proxy materials requesting authorization to amend
the Company's certificate of incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least a number of
shares equal to the sum of (1) all shares of Common Stock then outstanding, (2)
the number of shares of Common Stock issuable on account of all outstanding
warrants, options and convertible securities (other than the Repricing Rights
and Warrant) and on account of all shares reserved under any stock option, stock
purchase, warrant or similar plan, (3) 200% of the number of the number of
shares of Common Stock as would then be issuable upon a exercise in full of the
then outstanding Repricing Rights in accordance with the terms of this Agreement
and (4) such number of Warrant Shares as would then be issuable upon the
exercise in full of the Warrant. In connection therewith, the Board of
Directors shall (x) adopt proper resolutions authorizing such increase, (y)
recommend to and otherwise use its best efforts to promptly and duly obtain
shareholder approval to carry out such resolutions (and hold a special meeting
of the shareholders no later than the 60th day after delivery of the proxy
materials relating to such meeting) and (z) within five (5) Business Days of
obtaining such shareholder authorization, file an appropriate amendment to the
Company's certificate of incorporation to evidence such increase.
(e) Listing. The Company shall list 2,001,802 shares of Common Stock in
-------
respect of the Securities within 10 Business Days of the Closing Date and shall
promptly secure the listing of all additional Registrable Securities not
previously listed as such shares are issued on the Nasdaq SmallCap Market and
each other Subsequent Market on which the Common Stock is then listed or traded
and shall maintain, so long as any other shares of Common Stock shall be so
listed, such listing of all such securities from time to time issuable under the
terms of the Transaction Documents. The Company shall maintain the Common
Stock's authorization for listing on The Nasdaq SmallCap Market and any other
Subsequent Market on which the Common Stock is then listed or traded or in
connection with a Major
-9-
Transaction (as defined below). The Company shall promptly provide to the Buyer
copies of any notices it receives from The Nasdaq SmallCap Market or any other
Subsequent Market on which the Common Stock is then listed or traded regarding
the continued eligibility of the Common Stock for listing on such automated
quotation system or securities exchange. The Company shall pay all fees and
expenses in connection with satisfying its obligations under this Section.
(f) Transfer Restrictions; Legends. (i) Legends. The Securities may
------------------------------ -------
only be disposed of pursuant to an effective registration statement under the
Securities Act, to the Company or pursuant to an available exemption from or in
a transaction not subject to the registration requirements thereof. In
connection with any transfer of any Securities other than pursuant to an
effective registration statement or to the Company, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration under the Securities Act. Notwithstanding the foregoing, the
Company hereby consents to and agrees to register without any legal opinion (i)
any transfer by the Buyer to an Affiliate thereof or a fund under common
management with the Buyer, or any transfers among any such Affiliates or such
other funds provided the transferee (x) certifies to the Company that it is an
"accredited investor" as defined in Rule 501(a) under the Securities Act and (y)
agrees in writing to be bound by the terms of the Registration Rights Agreement.
Any such transferee shall have the rights of the Buyer under the Transaction
Documents.
(ii) The parties agree to the imprinting, so long as is required by
this Section 4(f)(ii), of the following legend (or such substantially similar
legend as is acceptable to the Buyer, the parties agreeing that any unacceptable
legended Securities shall be replaced promptly by and at the Company's cost) on
the Securities:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("THE SECURITIES
ACT"), OR APPLICABLE STATE SECURITIES LAWS IN RELIANCE UPON AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT, AND, ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN
A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Common Shares, Repricing Common Shares and Warrant Shares shall not contain
the legend set forth above or any other restrictive legend, and the Company
shall, within three (3) Business Days issue a certificate without any legend to
the holder of the Securities upon which it is stamped, if (i) such Securities
are registered for resale under the Securities Act, or (ii) such holder provides
the Company with reasonable assurances that such Securities can be sold without
restriction pursuant to Rule 144. With respect to any Common Shares, Repricing
Common Shares or Warrant Shares issued at such time when a legend was required
to be imprinted hereunder, the Company agrees that it will provide the holder
thereof, within three (3) Business Days of the request therefor, with a
certificate of certificates representing such securities, free from all
restrictive legends at such time when such legend is not required to be
imprinted under this Section 4(f)(ii). The Company may not make any notation on
its records or give instructions to any transfer agent of the Company which
enlarge the restrictions of transfer set forth in this Section 4(f)(ii).
-10-
(g) Stockholder Approval Under the Rules and Regulations of The Nasdaq
------------------------------------------------------------------
Stock Market. If on any Exercise Date (A) the Common Stock is listed for
------------
trading on the Nasdaq SmallCap Market or Nasdaq National Market, (B) the
Repricing Rate then in effect is such that the aggregate number of shares of
Common Stock that would then be issuable upon exercise in full of all then
outstanding Repricing Rights, together with any shares of Common Stock
previously issued upon exercise of Repricing Rights, would equal or exceed 20%
of the number of shares of Common Stock outstanding on the Original Issue Date
(such number of shares as would not equal or exceed such 20% limit, the
"Issuable Maximum"), and (C) the Company shall not have previously obtained the
-----------------
vote of shareholders (the "Shareholder Approval"), if any, as may be required by
--------------------
the applicable rules and regulations of the Nasdaq Stock Market, Inc. (or any
successor entity) applicable to approve the issuance of shares of Common Stock
in excess of the Issuable Maximum pursuant to the terms hereof, then the Company
shall issue to the holder so requesting an exercise of Repricing Rights a number
of shares of Common Stock equal to the Issuable Maximum and, with respect to the
remainder of Repricing Rights then held by such holder for which an exercise
into Repricing Common Shares in accordance with the Repricing Rate would result
in an issuance of shares of Common Stock in excess of the Issuable Maximum (the
"Excess Repricing Common Shares"), the exercising holder shall have the option
------------------------------
to require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but in
any event not later than the 75th day after such request, or (2)(i) issue and
deliver to such holder a number of shares of Common Stock as equals (x) the
number of Excess Repricing Common Shares divided by (y) the closing sales price
of the Common Stock as reported by the Nasdaq SmallCap Market on the Original
Issue Date, and (ii) cash in an amount equal to the product of (x) the Per Share
Market Value on the Exercise Date and (y) the number of shares of Common Stock
in excess of such holder's pro rata portion of the Issuable Maximum that would
have otherwise been issuable to the holder in respect of such exercise but for
the provisions of this Section (such amount of cash being hereinafter referred
to as the "Discount Equivalent"), or (3) pay cash to the exercising holder in an
-------------------
amount equal to the Repurchase Price (as defined in Section 7(a)) for the Excess
Repricing Common Shares. If the Company fails to pay the Discount Equivalent or
the Repurchase Price, as the case may be, in full pursuant to this Section
within seven (7) days after the date payable, the Company will pay interest
thereon at a rate of 15% per annum to the converting Holder, accruing daily from
the Exercise Date until such amount, plus all such interest thereon, is paid in
full.
(h) Right of First Refusal; Subsequent Registrations. (i) Right of First
------------------------------------------------ --------------
Refusal. The Company shall not, directly or indirectly, without the prior
-------
written consent of the Buyer, offer, sell, grant any option to purchase, or
otherwise dispose of (or announce any offer, sale, grant or any option to
purchase or other disposition) any of its or its Affiliates' equity or equity-
equivalent securities in any transaction that is intended to be exempt from the
registration requirements of the Securities Act (a "Subsequent Financing") for a
period of 75 days after the Effectiveness Date (as defined under the
Registration Rights Agreement), except (i) the granting of options or warrants
to employees, officers and directors, and the issuance of shares upon exercise
of options granted, under any stock option plan heretofore or hereinafter duly
adopted by the Company, (ii) shares issued upon exercise of any currently
outstanding warrants and upon conversion of any currently outstanding
convertible preferred stock in each case disclosed in Schedule 2(c), (iii)
-------------
Warrant Shares and Repricing Common Shares, (iv) shares issued in connection
with the capitalization or creation of a joint venture with a strategic partner
(a Person whose business is primarily that of investing and selling of
securities shall not be deemed a strategic partner), (v) shares issued to pay
part or all of the purchase price for the acquisition by the Company of a Person
(which, for purposes of this clause (v), shall not include an individual or
group of individuals) and (vi) shares issued in a bona fide public offering by
the Company of its (and not of any of its stockholders') securities, unless (A)
the Company delivers to the Buyer a written notice (the "Subsequent Financing
Notice") of its intention effect such Subsequent Financing, which Subsequent
Financing Notice shall
-11-
describe in reasonable detail the proposed terms of such Subsequent Financing,
the amount of proceeds intended to be raised thereunder, the Person with whom
such Subsequent Financing shall be affected, and attached to which shall be a
term sheet or similar document relating thereto and (B) the Buyer shall not have
notified the Company by 5:00 p.m. (Salt Lake City time) on the tenth (10th)
Trading Day after its receipt of the Subsequent Financing Notice of its
willingness to enter into or otherwise provide (or to cause its sole designee to
provide), subject to completion of mutually acceptable documentation, financing
to the Company on substantially the terms set forth in the Subsequent Financing
Notice. If the Buyer shall fail to notify the Company of its intention to enter
into such negotiations within such time period, the Company may effect the
Subsequent Financing substantially upon the terms and to the Persons (or
Affiliates of such Persons) set forth in the Subsequent Financing Notice;
provided, that the Company shall provide the Buyer with a second Subsequent
Financing Notice, and the Buyer shall again have the right of first refusal set
forth above in this Section 4(h)(i), if the Subsequent Financing subject to the
initial Subsequent Financing Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Financing Notice within thirty
(30) Trading Days after the date of the initial Subsequent Financing Notice with
the Person (or an Affiliate of such Person) identified in the Subsequent
Financing Notice. The rights granted to the Buyer in this Section 4(h)(i) are
subject to the prior right of first refusal granted to the purchasers of the
Company's Series D and Series E preferred stock, to the extent, if any, that
they exist on the date hereof, but not any modifications, extensions or
assignments of such rights to such Persons, the parties hereto agreeing that
such rights shall not be extended or modified except with the consent of the
Buyer.
(ii) Except Common Shares, Repricing Common Shares, and Warrant
Shares, other "Registrable Securities" (as defined in the Registration Rights
Agreement) to be registered in accordance with the Registration Rights Agreement
and except as set forth on Schedule 6(c) to the Registration Rights Agreement
(which securities may not be registered prior to the time the Registrable
Securities are registered), the Company shall not, for a period of not less than
90 Trading Days after the date that the Underlying Securities Registration
Statement is declared effective by the Commission, without the prior written
consent of the Buyer, (i) issue or sell any of its or any of its Affiliates'
equity or equity-equivalent securities pursuant to Regulation S promulgated
under the Securities Act, or (ii) register for resale any securities of the
Company. Any days that the Buyer is not permitted to sell securities under the
Underlying Securities Registration Statement shall be added to such 90 Trading
Day period for the purposes of (i) and (ii) above.
(i) Notice of Breaches. Each of the Company and the Buyer shall give
------------------
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof, which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained in the Transaction Document to be incorrect
or breached as of and after the Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document.
(j) Exercise Procedures. The Exercise Notice (as defined below) sets
-------------------
forth all procedures, required information and instructions that are required to
be followed in order to permit the holders of Repricing Rights to exercise the
Repricing Rights and the Notice of Exercise attached to the Warrant sets forth
the totality of the procedures required by the holder thereof to exercise the
Warrant.
(k) Exercise Obligations of the Company. The Company shall honor
-----------------------------------
exercises of Repricing Rights and the Warrant and shall deliver shares of Common
Stock upon such exercises in accordance with the respective terms and conditions
and time periods set forth herein and in the Warrant.
-12-
(l) Transfer of Intellectual Property Rights. Except in connection with
----------------------------------------
the sale of all or substantially all of the assets of the Company, the Company
shall not transfer, sell or otherwise dispose of, any Intellectual Property
Rights, or allow the Intellectual Property Rights to become subject to any
Liens, or fail to renew such Intellectual Property Rights (if renewable and
would otherwise expire).
(m) Integration. The Company shall not and shall use its best efforts to
-----------
ensure that no Affiliate shall sell, offer for sale or solicit offers to buy or
otherwise negotiate in respect of any security (as defined in Section 2 of the
Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the issue, offer or sale of the Securities to the Buyer.
(n) Acknowledgment of Dilution. The Company acknowledges that the
--------------------------
issuance of shares of Common Stock upon (i) exercise of Repricing Rights and
(ii) exercise of the Warrant will result in dilution of the outstanding shares
of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
shares of Common Stock in accordance with the terms hereof with respect to
Repricing Rights and in accordance with the Warrant with respect to the Warrant
is unconditional and absolute regardless of the effect of any such dilution.
5. REPRICING COMMON SHARES.
-----------------------
(a) Certain Defined Terms. For purposes of this Agreement, the following
---------------------
terms shall have the following meanings:
(i) "Repricing Price" means, as of any date, (A) during the period
beginning on and including the date which is 90 days after the Closing Date and
ending on and including the date which is 120 days after the Closing Date, 125%
of the Purchase Price, (B) during the period beginning on and including the date
which is 121 days after the Closing Date and ending on and including the date
which is 150 days after the Closing Date, 126% of the Purchase Price, (C) during
the period beginning on and including the date which is 151 days after the
Closing Date and ending on and including the date which is 180 days after the
Closing Date, 127% of the Purchase Price, (D) during the period beginning on and
including the date which is 181 days after the Closing Date and ending on and
including the date which is 210 days after the Closing Date, 128% of the
Purchase Price and (E) after the date which is 211 days after the Closing Date,
129% of the Purchase Price.
(ii) "Market Price" means, as of any date of determination, the
lowest Closing Bid Price during the 15 consecutive Trading Days immediately
preceding such date of determination. All such determinations shall be
appropriately adjusted for any stock dividend, stock split, combination,
recapitalization, reclassification or other similar transaction during such
period.
(iii) "Repricing Rate" means the number of shares of Common Stock
issuable upon exercise of each Repricing Right pursuant to Section 5(b)
determined according to the following formula; provided that if the result of
such formula is less than zero, then the result shall be deemed to be zero:
(Repricing Price - Market Price)
--------------------------------
Market Price
-13-
(b) Repricing Right. At any time or times on or after the Closing Date
---------------
and prior to the date that is nine (9) months and one day after the date that
the Commission declares effective an Underlying Securities Registration
Statement (provided, however, that such period shall be extended for the number
-------- -------
of Trading Days, if any, during such period in which (1) trading in the Common
Stock is suspended from the Nasdaq SmallCap Market or a Subsequent Market on
which the Common Stock is listed for trading prior to such suspension, or (2)
the Underlying Securities Registration Statement is not declared effective prior
to the Effectiveness Date, or (3) after the date declared effective by the
Commission, the Underlying Securities Registration Statement is not effective as
to all Registrable Securities (as defined in the Registration Rights Agreement),
or (4) after the date declared effective by the Commission, the prospectus
included in the Underlying Securities Registration Statement may not be used by
the holder for the resale of all of its Registrable Securities a holder of
Repricing Rights shall be entitled to exercise any whole number of Repricing
Rights for fully paid and nonassessable shares of Common Stock in accordance
with Section 5(c), at the Repricing Rate. The Company shall not issue any
fraction of a share of Common Stock upon any exercise of Repricing Rights. All
shares of Common Stock (including fractions thereof) issuable upon exercise of
more than one Repricing Right by a holder thereof shall be aggregated for
purposes of determining whether the exercise would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
(c) Mechanics of Exercise of Repricing Right. A holder of Repricing
----------------------------------------
Rights shall exercise such rights in accordance with the following terms:
(i) Holder's Delivery Requirements. To exercise Repricing Rights for
------------------------------
full shares of Common Stock on any date during the period set forth in Section
(b) (the "Exercise Date"), the holder thereof shall (A) transmit by facsimile
(or otherwise deliver), for receipt on or prior to 11:59 p.m. Salt Lake City
time, on such date, a copy of a fully executed notice of exercise in the form
attached hereto as Exhibit B (the "Exercise Notice") to the Company, and (B)
---------
surrender to a common carrier, for delivery to the Company as soon as
practicable following such date, the originally executed Exercise Notice.
(ii) Company's Response. Upon receipt by the Company of the Exercise
------------------
Notice, the Company or the transfer agent for the Common Stock (the "Transfer
Agent") (as applicable) shall, within two (2) Trading Days following the date
that such Exercise Notice is deemed delivered hereunder, (I) issue and surrender
to a common carrier for overnight delivery to the address specified in the
Exercise Notice, a certificate, registered in the name of the holder or its
designee, for the number of shares of Common Stock to which the holder shall be
entitled, or (II) credit such aggregate number of shares of Common Stock to
which the holder shall be entitled to the holder's or its designee's balance
account with The Depository Trust Company.
(iii) Dispute Resolution. In the case of a dispute as to the
------------------
determination of the Market Price or the Repricing Price or the arithmetic
calculation of the Repricing Rate, the Company shall promptly issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one Trading Day of receipt of such holder's Exercise Notice.
If such holder and the Company are unable to agree upon the determination of the
Market Price or the Repricing Price or arithmetic calculation of the Repricing
Rate within one Business Day after such disputed determination or arithmetic
calculation is submitted to the holder, then the Company shall within one
Trading Day submit via facsimile (A) the disputed determination of the Market
Price or Repricing Price to an independent, reputable investment bank, or (B)
the disputed arithmetic calculation of the Repricing Rate to its independent,
outside accountant. The
-14-
Company shall cause the investment bank or the accountant, as the case may be,
to perform the determinations or calculations and notify the Company and the
holder of the results no later than two Trading Days from the time it receives
the disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be binding
upon all parties absent manifest error.
(iv) Record Holder. The Person entitled to receive the shares of
-------------
Common Stock issuable upon an exercise of Repricing Rights shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
the Exercise Date.
(v) Company's Failure to Timely Deliver Repricing Common Shares. If
-----------------------------------------------------------
within three (3) Trading Days after the Company's receipt of the Exercise Notice
the Company shall fail to issue or cause to be issued a certificate (which shall
be free of all restrictive legends other than those required by Section
4(f)(ii)) for the number of shares of Common Stock to which a holder is entitled
or to credit the holder's balance account with The Depository Trust Company for
such number of shares of Common Stock to which the holder is entitled upon such
holder's exercise of the Repricing Rights, then the holder shall be entitled by
written notice to the Company at any time on or before its receipt of such
certificate or certificates thereafter, to rescind the exercise to which the
Exercise Notice related, in which event the Company shall immediately return the
canceled Exercise Notice. In addition, if the Company fails to deliver to the
holder such certificate or certificates by such third (3/rd/) Trading Day after
the Company's receipt of the Exercise Notice, then (x) the Company shall pay to
such holder, in cash, as liquidated damages and not as a penalty, $2,500 for
each day after such third (3/rd/) Trading Day until such certificates are
delivered and (y) if after such third (3/rd/) Trading Day the holder purchases
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by such holder of the shares of Common Stock which the
holder anticipated receiving upon such exercise (a "Buy-In"), then the Company
shall pay in cash to the holder (in addition to any remedies available to or
elected by the holder) the amount by which (A) the holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate Closing Bid Price for which such exercise
was not timely honored. For example, if the holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted exercise of Repricing Rights having an aggregate of $10,000 Closing
Bid Price on the Exercise Date, the Company shall be required to pay the holder
$1,000. Nothing herein shall limit a holder's right to pursue actual damages
for the Company's failure to deliver certificates representing shares of Common
Stock upon exercise within the period specified herein and such holder shall
have the right to pursue all remedies available to it at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the
holder from seeking to enforce damages pursuant to any other Section hereof or
under applicable law. The holder shall provide the Company written notice
indicating the amounts payable to the holder in respect of the Buy-In.
(d) Exercise Restrictions. The right of a holder of Repricing Rights to
---------------------
exercise such Repricing Rights shall be limited as set forth below.
(i) Notwithstanding anything to the contrary in this Agreement, in
no event shall any holder of Repricing Rights be entitled to exercise Repricing
Rights to the extent that the receipt of Repricing Common Shares resulting
therefrom would result in the holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares of Common Stock then held by such holder and shares issuable
upon exercise of the Repricing Rights (and other derivative
-15-
securities) held by such holder after application of this Section. The holder
shall have the sole authority and obligation to determine whether the
restriction contained in this Section applies and to the extent that the holder
determines that the limitation contained in this Section applies, the
determination of which Repricing Rights are exercisable shall be in the sole
discretion of the holder. The provisions of this Section may be waived by a
holder (but only as to itself and not to any other holder) upon not less than 75
days prior notice to the Company. Other holders shall be unaffected by any such
waiver.
(ii) Notwithstanding anything to the contrary in this Agreement, in
no event shall any holder of Repricing Rights be entitled to exercise Repricing
Rights to the extent that the receipt of Repricing Common Shares resulting
therefrom would result in the holder beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules thereunder) in
excess of 9.999% of the then issued and outstanding shares of Common Stock,
including shares of Common Stock then held by such holder and shares issuable
upon exercise of the Repricing Rights (and other derivative securities) held by
such holder after application of this Section. The holder shall have the sole
authority and obligation to determine whether the restriction contained in this
Section applies and to the extent that the holder determines that the limitation
contained in this Section applies, the determination of which Repricing Rights
are exercisable shall be in the sole discretion of the holder. The provisions
of this Section may be waived by a holder (but only as to itself and not to any
other holder) upon not less than 75 days prior notice to the Company. Other
holders shall be unaffected by any such waiver.
(e) Taxes. The Company shall pay any and all transfer taxes which may be
-----
imposed with respect to the issuance and delivery of Repricing Common Shares.
6. TRANSFER AGENT INSTRUCTIONS.
---------------------------
The Company shall issue irrevocable instructions to its Transfer Agent, and
any subsequent Transfer Agent, to issue certificates, registered in the name of
each Buyer or its respective nominee(s), for the Repricing Common Shares and the
Warrant Shares in such amounts as specified from time to time by each Buyer to
the Company upon exercise of the Warrants or the Repricing Right, as the case
may be (the "Irrevocable Transfer Agent Instructions"). The Irrevocable
Transfer Agent Instructions shall be in the form of Exhibit A attached hereto.
---------
7. REPURCHASE AT OPTION OF HOLDERS.
-------------------------------
(a) Repurchase Option Upon Major Transaction or Triggering Event. In
------------------------------------------------------------
addition to all other rights of the holders of the Securities contained herein,
simultaneous with or after the occurrence of a Major Transaction (as defined
below) or a Triggering Event (as defined below), each holder of Common Shares or
Repricing Rights shall have the right, at such holder's option, to require the
Company to repurchase all or a portion of such holder's Common Shares or
Repricing Rights at a price equal to (i) for each Common Share with an
associated Repricing Right, the greater of (A) 125% of the Purchase Price and
(B) the sum of (I) the Purchase Price and (II) the product of (x) the Repricing
Rate of the Repricing Right on the date of such holder's delivery of a notice of
repurchase and (y) the last reported sale price of the Common Stock (as reported
by Bloomberg Information Services, Inc. (or any successor thereto to its
function of reporting prices "Bloomberg") on the date of such holder's
delivery of a notice of repurchase, (ii) for each Repricing Right without the
associated Common Share, the product of (x) the Repricing Rate of the Repricing
Right on the date such holder's delivery of a notice of repurchase and (y) the
last reported sale price of the Common Stock (as reported by Bloomberg) on the
date of such holder's
-16-
delivery of a notice of repurchase and (iii) for each Common Share without an
associated Repricing Right, 125% of the Purchase Price (the "Repurchase Price").
(b) "Major Transaction". A "Major Transaction" shall be deemed to have
-------------------
occurred at such time as any of the following events:
(i) the consolidation, merger or other business combination of the
Company with or into another Person (other than (A) a consolidation, merger or
other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such surviving entity or entities, or
(B) pursuant to a migratory merger effected solely for the purpose of changing
the jurisdiction of incorporation of the Company);
(ii) the sale or transfer of all or substantially all of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to and accepted by
the holders of more than 40% of the outstanding shares of Common Stock.
(c) "Triggering Event". A "Triggering Event" shall be deemed to have
------------------
occurred at such time as any of the following events:
(i) the failure of the Registration Statement to be declared
effective by the Commission on or prior to the 180/th/ day after the Closing
Date;
(ii) during the Effectiveness Period, the effectiveness of the
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Securities for
sale of the Registrable Securities, and such lapse or unavailability continues
for a period of ten Trading Days in aggregate;
(iii) suspension from listing or delisting of the Common Stock from
The Nasdaq SmallCap Market or on any Subsequent Market for a period of three (3)
Trading Days, unless such delisting is due to the Company having the Common
Stock relisted on a Subsequent Market within such three (3) Trading Day period;
(iv) the Company's notice to any holder of Repricing Rights,
including by way of public announcement, at any time, of its intention not to
comply or inability to comply with proper requests for exercise of any Repricing
Rights into shares of Common Stock;
(v) the Company's failure to deliver Repricing Common Shares within
twelve (12) days of an Exercise Date or to pay the full amount due in respect of
a Buy-In within twelve (12) days after notice of such Buy-In is delivered to the
Company;
(vi) the Company is not required to issue any Repricing Common Shares
due to the provisions of Section 4(g) or the Company is otherwise unable to
issue Repricing Common Shares upon delivery of an Exercise Notice for any
reason;
(vii) if (x) the Company does not comply with its obligations under
Section 4(d)(i) within 60 days following the Closing Date or (y) if the Company
is required to obtain Stockholder
-17-
Approval of the issuance of the Securities pursuant to Section 4(g) and the
holders of the Securities shall not have otherwise declared another applicable
Triggering Event under this Section with respect to such occurrence, the Company
fails to obtain such Shareholder Approval within the time required by Section
4(g);
(viii) the Company breaches any representation, warranty, covenant or
other material term or condition of any Transaction Document or the Irrevocable
Transfer Agent Instructions or any other agreement, document, certificate or
other instrument delivered in connection with the transactions contemplated
thereby or hereby, and such breach, if curable, continues for a period of at
least thirty (30) days after written notice thereof to the Company; or
(ix) the commencement by or against the Company or a Subsidiary of
voluntary or involuntary (which involuntary proceeding is not dismissed within
30 days of the filing thereof) case or proceeding under any applicable Federal
or state bankruptcy, insolvency, reorganization or other similar proceeding.
(d) Mechanics of Repurchase at Option of Buyer Upon Major Transaction. No
-----------------------------------------------------------------
sooner than 15 days nor later than 10 days prior to the consummation of a Major
Transaction, but not prior to the public announcement of such Major Transaction,
the Company shall deliver written notice thereof via facsimile and overnight
courier (a "Notice of Major Transaction") to each holder of Common Shares, the
Repricing Common Shares and the Repricing Rights. At any time after receipt of
a Notice of Major Transaction (or, in the event a Notice of Major Transaction is
not delivered at least 10 days prior to a Major Transaction, at any time on or
after the date which is 10 days prior to a Major Transaction), any holder of the
Securities then outstanding may require the Company to repurchase all or a
portion of the holder's Common Shares, Repricing Common Shares or Repricing
Rights then outstanding by delivering written notice thereof via facsimile and
overnight courier (a "Notice of Repurchase at Option of Buyer Upon Major
Transaction") to the Company, which Notice of Repurchase at Option of Buyer Upon
Major Transaction shall indicate (i) the number of such securities that such
holder is submitting for repurchase, and (ii) the applicable Repurchase Price,
as calculated pursuant to Section 7(a).
(e) Mechanics of Repurchase at Option of Buyer Upon Triggering Event.
----------------------------------------------------------------
Within one (1) day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier (a "Notice of
Triggering Event") to each holder of Common Shares, Repricing Common Shares or
Repricing Rights. At any time after the earlier of a holder's receipt of a
Notice of Triggering Event and such holder becoming aware of a Triggering Event
any holder of such securities then outstanding may require the Company to
repurchase all or a portion of the holder's Common Shares, Repricing Common
Shares or Repricing Rights then outstanding by delivering written notice thereof
via facsimile and overnight courier (a "Notice of Repurchase at Option of Buyer
Upon Triggering Event") to the Company, which Notice of Repurchase at Option of
Buyer Upon Triggering Event shall indicate (i) the number of such securities
that such holder is submitting for repurchase, and (ii) the applicable
Repurchase Price, as calculated pursuant to Section 7(a).
(f) Payment of Repurchase Price. Upon the Company's receipt of a
---------------------------
Notice(s) of Repurchase at Option of Buyer Upon Triggering Event or a Notice(s)
of Repurchase at Option of Buyer Upon Major Transaction from any holder of
Common Shares, Repricing Common Shares or Repricing Rights, the Company shall
immediately notify each holder of Common Shares, Repricing Common Shares or
Repricing Rights by facsimile of the Company's receipt of such Notice(s) of
Repurchase at Option of Buyer Upon Triggering Event or Notice(s) of Repurchase
at Option of Buyer Upon Major Transaction and each holder which has sent such a
notice shall promptly submit to the Company such holder's Stock
-18-
Certificates which such holder has elected to have repurchased. The Company
shall deliver the applicable Repurchase Price, in the case of a repurchase
pursuant to Section 7(e), to such holder within five (5) Business Days after the
Company's receipt of a Notice of Repurchase at Option of Buyer Upon Triggering
Event and, in the case of a repurchase pursuant to Section 7(d), the Company
shall deliver the applicable Repurchase Price immediately prior to the
consummation of the Major Transaction. If the Company shall fail to repurchase
all of the Common Shares or the Repricing Rights submitted for repurchase, in
addition to any remedy such holder of such securities may have under this
Agreement, the Warrant and the Registration Rights Agreement, the applicable
Repurchase Price payable in respect of such unrepurchased Common Shares or
Repricing Rights, as the case may be, shall bear interest at the lesser of (i)
rate of 2.0% per month or (ii) the highest lawful rate (prorated for partial
months) until paid in full. Until the Company pays such unpaid applicable
Repurchase Price in full to a holder of Common Shares or Repricing Rights
submitted for repurchase, such holder shall have the option (the "Void Optional
Repurchase Option") to, in lieu of repurchase, require the Company to promptly
return to such holder(s) all of such securities that were submitted for
repurchase by such holder(s) under this Section 7 and for which the applicable
Repurchase Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "Void Optional Repurchase Notice"). Upon the
Company's receipt of such Void Optional Repurchase Notice(s) prior to payment of
the full applicable Repurchase Price to such holder, (i) the Notice(s) of
Repurchase at Option of Buyer Upon Triggering Event or the Notice(s) of
Repurchase at Option of Buyer Upon Major Transaction, as the case may be, shall
be null and void with respect to those securities submitted for repurchase and
for which the applicable Repurchase Price has not been paid and (ii) the Company
shall immediately return any Common Shares submitted to the Company by each
holder for repurchase under this Section 7 and for which the applicable
Repurchase Price has not been paid.
8. INDEMNIFICATION. In consideration of the Buyer's execution and delivery of
---------------
this Agreement and acquisition of the Securities and in addition to all of the
Company's other obligations under the Transaction Documents, the Company shall
defend, protect, indemnify and hold harmless the Buyer and its stockholders,
officers, directors, employees and investors and any of the forgoing person's
agents or other representatives (including, without limitation, those retained
in connection with the transactions contemplated by this Agreement)
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims, losses, costs, penalties, fees, liabilities and
damages, and expenses in connection therewith (irrespective of whether any such
Indemnitee is a party to the action for which indemnification hereunder is
sought), and including reasonable attorneys' fees and disbursements (the
"Indemnified Liabilities"), as incurred by any Indemnitee as a result of, or
arising out of, or relating to (a)any cause of action, suit or claim brought or
made against such Indemnitee and arising out of or resulting from the execution,
delivery, performance, breach or enforcement of the Transaction Documents, or
(b) the status of the Buyer as an investor in the Company (however, the Buyer
shall not be entitled to indemnity under this clause (b) as a result of solely
of investment losses it may suffer in its investment in the Securities not
attributable to an Indemnified Liability). To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
9. MISCELLANEOUS.
-------------
(a) Fees and Expenses. The Company shall pay the Buyer at the Closing
-----------------
(i) $20,000 for its legal fees and disbursements in connection with the
preparation and negotiation of the Transaction Documents. Other than the
amounts contemplated by the immediately preceding sentence, and except as set
forth in the Registration Rights Agreement, each party shall pay the fees and
expenses of its advisers,
-19-
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Common Shares pursuant
hereto. The Buyer shall be responsible for its own respective tax liability that
may arise as a result of the investment hereunder or the transactions
contemplated by this Agreement.
(b) Entire Agreement; Amendments, Exhibits and Schedules. This
----------------------------------------------------
Agreement, together with the Exhibits and Schedules hereto, the Warrant, and the
Registration Rights Agreement contain the entire understanding of the parties
with respect to the subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters. The Exhibits and
Schedules to this Agreement are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
(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
00 Xxxx Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx X. Xxxxxx, Executive Vice President
With copies to: Durham, Evans, Xxxxx & Xxxxxxx, P.C.
Suite 850 Key Bank Tower
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxx, Esq.
If to the Buyer: JNC Strategic Fund Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Xxxxxxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxxxx XX00 Xxxxxxx
Facsimile No.: (000) 000-0000
Attn: Director
-20-
With copies to: Encore Capital Management, L.L.C.
0000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Managing Member
-and-
Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxx, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(d) Amendments; Waivers. No provision of this Agreement may be waived or
-------------------
amended except in a written instrument signed, in the case of an amendment, by
both the Company and the Buyer, or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
(e) Headings. The headings herein are for convenience only, do not
--------
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
(f) Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and permitted assigns,
including any Persons to whom the Buyer transfers Securities. The assignment by
a party of this Agreement or any rights hereunder shall not affect the
obligations of such party under this Agreement.
(g) No Third-Party Beneficiaries. This Agreement is intended for the
----------------------------
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
(h) Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the internal laws of the State of Delaware without
regard to the principles of conflicts of law thereof.
(i) Survival. The representations, warranties, agreements and covenants
--------
contained in this Agreement shall survive the Closing, the issuance of the
Repricing Common Shares and the exercise of the Warrant.
(j) Execution. This Agreement may be executed in two or more
---------
counterparts, all of which when taken together shall be considered one and the
same agreement, and shall become effective when counterparts have been signed by
each party and delivered to the other parties, it being understood that
-21-
all parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
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
page were an original thereof.
(k) Publicity. The Company and the Buyer shall consult with each other
---------
in issuing any press releases or otherwise making public statements with respect
to the transactions contemplated hereby and no party shall issue any such press
release or otherwise make any such public statement without the prior written
consent of the other parties, which consent shall not be unreasonably withheld
or delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
parties with prior notice of such public statement. Notwithstanding the
foregoing, the Company shall not publicly disclose the name of the Buyer without
its prior written consent, except to the extent required by law, in which case
the Company shall provide the Buyer with prior written notice of such public
disclosure.
(l) Severability. In case any one or more of the provisions of this
------------
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
(m) Remedies. Each of the parties to this Agreement acknowledges and
--------
agrees that the other parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the parties
hereto agrees that the other parties shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and provisions of this
Agreement in any action instituted in any court of the United States of America
or any state thereof having jurisdiction over the parties to this Agreement and
the matter, in addition to any other remedy to which they may be entitled, at
law or in equity.
(n) Xxxxx. The Buyer agrees to use its reasonable efforts to provide to
-----
the Company upon request therefor electronic copies of this Agreement and all
exhibits hereto, including any subsequent amendments or modifications thereof to
the extent such documents are under the control of the Buyer.
* * * * * *
-22-
IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
fonix corporation
By: /s/ ILLEGIBLE
---------------------------------------------
Name:
Its:
JNC STRATEGIC FUND LTD.
By: Encore Capital Management, L.L.C.
Its Investment Adviser
By:_________________________________________
Xxxx X. Xxxx
Managing Member
IN WITNESS WHEREOF, the Buyer and the Company have caused this Securities
Purchase Agreement to be duly executed as of the date first written above.
fonix corporation
By:
---------------------------------------------
Name:
Its:
JNC STRATEGIC FUND LTD.
By: Encore Capital Management, L.L.C.
Its Investment Adviser
By: /S/ XXXX X. XXXX
_________________________________________
Xxxx X. Xxxx
Managing Member
SCHEDULE 2(a)
-------------
SUBSIDIARIES
1. fonix systems corporation, a Utah corporation, wholly owned by the Company.
2. fonix/AcuVoice, Inc., a Utah corporation, wholly owned by the Company.
3. ASI Acquisition Corporation, a Utah corporation, wholly owned by the Company.
4. Papyrus Acquisition Corporation, a Utah corporation, wholly owned by the
Company.
SCHEDULE 2(c)
-------------
CAPITALIZATION
The Company has an authorized capitalization consisting of 100,000,000 shares
of Common Stock, par value $.0001 per share, and 20,000,000 shares of Preferred
Stock, par value $.0001 per shares. As of the date hereof, the Company has
issued and outstanding 64,467,459 shares of Common Stock. 15,144,000 shares of
Common Stock are subject to issuance upon the conversion or exercise of
presently issued and outstanding warrants and options of the Company, 10,456,000
shares of Common Stock are reserved for issuance under the Company's existing
stock option plans. 166,667 shares of Series A Preferred Stock have been issued
and 166,667 shares are outstanding, which share are convertible into 166,667
shares of Common Stock. 1,108,334 shares of Series D4% Convertible Preferred
Stock ("Series D") have been issued, and 958,334 shares are outstanding, which
are convertible into shares of Common Stock according to a formula that is
determined, in part, by reference to the prevailing market price of the Common
Stock. Assuming that all of the shares of Series D issued and outstanding as of
the date hereof were to be converted at an assumed conversion price of $1.20 per
share, the Company would be obligated to issue a total of 15,972,233 shares of
Common Stock. 250,000 shares of Series E4% Convertible Preferred Stock ("Series
E") have been issued, and 128,750 shares are outstanding, which are convertible
into shares of Common Stock according to a formula that is determined, in part,
by reference to the prevailing market price of the Common Stock. Assuming that
all of the shares of Series E issued and outstanding as of the date hereof were
to be converted an assumed conversion price of $1.20 per share, the Company
would be obligated to issue a total of 2,145,833 shares of Common Stock. Except
as set forth above, as of the date of this Agreement, there are no outstanding
options, warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or, except as a result of the purchase and sale of the
Shares and the Warrants, securities, rights or obligations convertible into or
exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock, except for the following:
1. Articulate Systems, Inc. Transaction. On July 31, 1998, the Company entered
------------------------------------
into an Agreement and Plan of Merger by and among the Company, ASI
Acquisition Corporation, a wholly-owned subsidiary of the Company, and
Articulate Systems, Inc. The merger (the "ASI Merger") closed on September 2,
1998. At closing, the parties executed Amendment No. 1 to Agreement and Plan
of Merger ("Amendment No. 1"). Under Amendment No. 1, and in order for the
ASI Merger to constitute a tax-free reorganization within the meaning of
Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended, the
Company agreed to issue 1,985,000 additional shares of Common Stock as
consideration for the ASI Merger ("Exchange Shares"). The parties further
agreed, however, that such additional number of shares would be issued to an
escrow agent following the closing of the ASI Merger and could be exchanged
at any time during the 90 day period following the closing for an equal
number of shares of the Company's Class B Non-Voting Common Stock, subject to
the approval by the Company's shareholders of the authorization of such class
of Common Stock at the
Special Meeting. As of the date hereof, the Company's shareholders have not
yet approved the amendment of the Company's Certificate of Incorporation
required to issue the Class B Common Stock. The Exchange Shares are
included in the number of shares of Common Stock issued and outstanding set
forth above.
2. 3D Planet Transaction. On September 8, 1998, the Company entered into an
---------------------
Asset Purchase between the Company and 3D Planet, Inc., a Delaware
corporation. Pursuant to the 3D Planet Agreement, the Company will acquire
all of the assets of 3D Planet, in consideration for which the Company will
issue (in addition to the payment of cash consideration as specified in the
agreement), a total of $5,900,00 in Common Stock, each share of which will
be valued at the average of the averages of the closing bid prices for the
3 10-trading-day periods immediately preceding May 29, 1998, September 8,
1998 and the closing date of the 3D Planet transaction. The Company
presently is renegotiating the terms of the 3D Planet transaction and
cannot predict at this time whether the transaction will close or, if it
closes, on what terms it will close.
5% Beneficial Owners
--------------------
The Company is aware of the following persons or groups who beneficially own
more than 5% of the Company's issued and outstanding Common Stock:
Xxxxxxx X. Xxxxxxxx
Xxxxxx X. Xxxxxxx
Xxxxx X. Xxxxxx
Beesmark Investments, X.X.
Xxxxxxxx Companies Corp.
SCHEDULE 2(g)
-------------
None.
Exhibit "A"
Transfer Agent Instructions
TRANSFER AGENT INSTRUCTIONS
December 21, 1998
Ladies and Gentlemen:
Reference is made to that certain Securities Purchase Agreement (the
"Purchase Agreement") between fonix corporation, a Delaware corporation (the
"Company"), and JNC Strategic Fund, Ltd., a Cayman Islands corporation (the
"Holder") pursuant to which the Company is issuing to the Holder1,801,802 shares
of its restricted common stock ("Common Stock"), par value par value $.0001 per
share (the "Common Shares"), a Common Stock purchase warrant (the "Warrant") and
certain Repricing Rights, as that term is defined in the Purchase Agreement,
having the terms and conditions set forth in the Purchase Agreement, which such
Warrant and Repricing Rights shall be exercisable into shares of Common Stock.
The shares of Common Stock issuable upon exercise of the Repricing Rights and
the Warrant are collectively referred to herein as "Underlying Shares."
This letter shall serve as our irrevocable authorization and direction to
you (provided that you are the transfer agent of the Company at such time) to
issue shares of Common Stock upon exercise of the Repricing Rights and the
Warrant, from time to time, upon surrender to you of (i) a properly completed
and duly executed Exercise Notice, in the form attached hereto as Exhibit I (for
Repricing Rights) or Exhibit II (for the Warrant), (ii) in the case of the
Warrant, the Warrant being exercised (or an indemnification undertaking with
respect to such share certificates in the case of their loss, theft or
destruction); and (iii) in the case of the Repricing Rights, a letter from
counsel for the Company or the Company authorizing the issuance of such
Underlying Shares with respect to the Repricing Rights exercised.
So long as you have previously received an opinion of the Company's outside
counsel substantially in the form of Exhibit III attached hereto (which the
Company shall direct be delivered to you by such outside counsel upon the
effectiveness of the registration statement covering Underlying Shares) stating
that a registration statement covering resales of Underlying Shares has been
declared effective by the Securities and Exchange Commission under the
Securities Act of 1933, as amended, and that Underlying Shares may be resold
without any restrictive legend (the "Opinion"), certificates representing
Underlying Shares shall not bear any legend restricting transfer of Underlying
Shares thereby and should not be subject to any stop-
transfer restriction. Provided, however, that if you have not previously
received a copy of the Opinion, then the certificates for Underlying Shares
shall bear the following legend:
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
and, provided further, that the Company may from time to time notify you to
place stop-transfer restrictions on the certificates for Underlying Shares in
the event a registration statement covering Underlying Shares is subject to
amendment for events then current.
Please be advised that the Holders has relied upon this letter as an
inducement to enter into the Purchase Agreement and, accordingly, the Holder is
a third party beneficiary to these instructions.
Should you have any questions concerning this matter, please contact me at
(000) 000-0000.
Very truly yours,
fonix corporation
By:___________________________________
Name:_________________________________
Title:________________________________
-2-
Acknowledged and agreed to:
CONTINENTAL STOCK TRANSFER & TRUST CO.
By:_________________________________
Title:______________________________
Dated: December __, 1998
-3-
Exhibit III
[Form of Outside Counsel Opinion]
[Addressee]
[Address]
To Whom It May Concern:
The Registration Statement on Form S-3 (File No. 333-______________) of
fonix corporation (the "Registration Statement") was declared effective at
___:____ __.M. Eastern Time on _____________, 199___. Upon exercise of the
Repricing Rights and upon exercise of the Warrant referred to in the Company's
instruction letter attached, you are authorized to issue certificates for the
Company's common stock without restrictive legends.
Very truly yours,
Exhibit "B"
Repricing Right Exercise Notice
EXHIBIT B
fonix corporation
REPRICING RIGHT EXERCISE NOTICE
Reference is made to the Securities Purchase Agreement, dated as of December 21,
1998, between fonix corporation (the "Company") and JNC Strategic Fund Ltd. (the
"Securities Purchase Agreement"). In accordance with and pursuant to the
Securities Purchase Agreement, the undersigned hereby elects to exercise the
number of Repricing Rights (as defined in the Securities Purchase Agreement) of
the Company, indicated below for shares of Common Stock, par value $.0001 per
share (the "Common Stock"), of the Company, by tendering this Repricing Right
Exercise Notice. Capitalized terms used and not otherwise defined in this
Notice that are defined in the Securities Purchase Agreement shall have the
respective meanings set forth in the Securities Purchase Agreement.
Date of Exercise: __________________________
Number of Repricing Rights to be exercised: __________________________
Please confirm the following information:
Repricing Price: __________________________
Market Price: __________________________
Number of shares of Common Stock
to be issued: __________________________
Please issue the Common Stock for which the Repricing Rights are being exercised
in the following name and to the following address:
Issue to: __________________________
__________________________
__________________________
__________________________
Facsimile Number: __________________________
Authorization:___________________________
By: Name and Title
Dated:
Account Number (if electronic book entry transfer): __________________________
Transaction Code Number
(if electronic book entry transfer): __________________________
Exhibit "C"
Form of Warrant
NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
fonix corporation
WARRANT
-------
Dated December 21, 1998
fonix corporation, a Delaware corporation (the "Company"), hereby certifies
that, for value received, JNC Strategic Fund, Ltd., a Cayman Islands
corporation, or its registered assigns ("Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company up to a total of TWO HUNDRED
THOUSAND (200,000) shares of Common Stock, $.0001 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $1.665 per share (as
adjusted from time to time as provided in Section 8, the "Exercise Price"), at
any time and from time to time from and after the date hereof and through and
including December 21, 2001 (the "Expiration Date"), and subject to the
following terms and conditions:
1. Registration of Warrant. The Company shall register this
-----------------------
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
2. Registration of Transfers and Exchanges.
---------------------------------------
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
---------------------------------
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 5:30 P.M., Salt Lake City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 5:30
P.M., Salt Lake City time on the Expiration Date, the portion of this Warrant
not exercised prior thereto shall be and become void and of no value. This
Warrant may not be redeemed by the Company.
(b) Subject to Sections 2(b), 6 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 11 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in lawful money of the United
States of America, in cash or by certified or official bank check or checks, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends other than as required by the
Purchase Agreement of even date herewith between the Holder and the Company.
Any person so designated by the Holder to receive Warrant Shares shall be deemed
to have become holder of record of such Warrant Shares as of the Date of
Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all
of the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
-2-
4. Piggyback Registration Rights. During the term of this Warrant,
-----------------------------
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act of 1933, as
amended, pursuant to which the Company is registering securities pursuant to a
Company employee benefit plan or pursuant to a merger, acquisition or similar
transaction including supplements thereto, but not additionally filed
registration statements in respect of such securities) at any time when there is
not an effective registration statement covering the resale of the Warrant
Shares and naming the Holder as a selling stockholder thereunder, unless the
Company provides the Holder with not less than 20 days written notice of its
intention to file such registration statement and provides the Holder the option
to include any or all of the applicable Warrant Shares therein. The piggyback
registration rights granted to the Holder pursuant to this Section shall
continue until all of the Holder's Warrant Shares have been sold in accordance
with an effective registration statement or upon the expiration of this Warrant.
The Company will pay all registration expenses in connection therewith.
5. Payment of Taxes. The Company will pay all documentary stamp
----------------
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder, and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid. The Holder shall be
responsible for all other tax liability that may arise as a result of holding or
transferring this Warrant or receiving Warrant Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost,
----------------------
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if reasonably satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it
-----------------------------
will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holders (taking into
account the adjustments and restrictions of Section 8). The Company covenants
that all Warrant Shares that shall be so issuable and deliverable shall, upon
issuance and the payment of the applicable Exercise Price in accordance with the
terms hereof, be duly and validly authorized, issued and fully paid and
nonassessable.
-3-
8. Certain Adjustments. The Exercise Price and number of Warrant
-------------------
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 8. Upon each such adjustment of the
Exercise Price pursuant to this Section 8, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock (as defined below) or on any other class of capital
stock (and not the Common Stock) payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company in which the
consideration therefor is equity or equity equivalent securities or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities or property, then the Holder shall have the right thereafter to
exercise this Warrant only into the shares of stock and other securities and
property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or share
exchange, and the Holder shall be entitled upon such event to receive such
amount of securities or property of the Company's business combination partner
equal to the amount of Warrant Shares such Holder would have been entitled to
had such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale, transfer or share exchange shall
include such terms so as to continue to give to the Holder the right to receive
the securities or property set forth in this Section 8(b) upon any exercise
following any such reclassification, consolidation, merger, sale, transfer or
share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
8(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the
-4-
denominator shall be the Exercise Price determined as of the record date
mentioned above, and of which the numerator shall be such Exercise Price on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by a nationally recognized or
major regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") mutually
selected in good faith by the holders of a majority in interest of the Warrants
then outstanding and the Company. Any determination made by the Appraiser shall
be final.
(d) If, at any time while this Warrant is outstanding, the Company shall
issue or cause to be issued rights or warrants to acquire or otherwise sell or
distribute shares of Common Stock to all holders of Common Stock for a
consideration per share less than the Exercise Price then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by dividing (i) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Exercise Price, and
(B) the consideration, if any, received or receivable by the Company upon such
issue or sale by (ii) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(e) For the purposes of this Section 8, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record of the
-----------
holders of its Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or in securities
convertible or exchangeable into shares of Common Stock, or (B) to subscribe for
or purchase Common Stock or securities convertible or exchangeable into shares
of Common Stock, then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have been issued or sold
upon the declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase, as the
case may be.
(ii) Treasury Shares. The number of shares of Common Stock
---------------
outstanding at any given time shall not include shares owned or held by or for
the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
-5-
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all
or substantially all of the assets of the Company, or any
compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
-------- -------
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the Exercise Price
-------------------------
in cash or, in the event that a registration statement covering the resale of
the Warrant Shares and naming the holder thereof as a selling stockholder
thereunder is not effective for the resale of the Warrant Shares at any time
during the term of this Warrant, pursuant to a cashless exercise, as follows:
(a) Cash Exercise. The Holder shall deliver immediately
-------------
available funds;
(b) Cashless Exercise. The Holder shall surrender this Warrant to
-----------------
the Company together with a notice of cashless exercise, in which event the
Company shall issue to the Holder the number of Warrant Shares determined as
follows:
-6-
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the Holder.
Y = the number of Warrant Shares with respect to which this
Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock for the five (5) Trading Days immediately prior to
(but not including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
10. Fractional Shares. The Company shall not be required to issue or
-----------------
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 10, be issuable
on the exercise of this Warrant, the Company shall, at its option, (i) pay an
amount in cash equal to the Exercise Price multiplied by such fraction or (ii)
round the number of Warrant Shares issuable, up to the next whole number.
11. Notices. Any and all notices or other communications or
-------
deliveries 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, (ii) the business day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iii) upon actual receipt by
the party to whom such notice is required to be given. The addresses for such
communications shall be: (1) if to the Company, to fonix corporation, 00 Xxxx
Xxxxx Xxxxxx Xxxxxx, Xxxxx 0000, Xxxx Xxxx Xxxx, Xxxx 00000, or to Facsimile
No.: (000) 000-0000 Attention: Chief Financial Officer, or (ii) if to the
Holder, to the Holder at the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 11.
12. Warrant Agent.
-------------
(a) The Company shall serve as warrant agent under this Warrant. Upon
thirty (30) days' notice to the Holder, the Company may appoint a new warrant
agent.
-7-
(b) Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Miscellaneous.
-------------
(a) This Warrant shall be binding on and inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the Holder.
(b) Subject to Section 13(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant;
this Warrant shall be for the sole and exclusive benefit of the Company and the
Holder.
(c) This Warrant shall be governed by and construed and enforced
in accordance with the internal laws of the State of Delaware without regard to
the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
-8-
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
fonix corporation
By:
------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To fonix corporation:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase [___________]
shares of Common Stock ("Common Stock"), $.0001 par value per share, of fonix
corporation and encloses herewith $________ in cash or certified or official
bank check or checks, which sum represents the aggregate Exercise Price (as
defined in the Warrant) for the number of shares of Common Stock to which this
Form of Election to Purchase relates, together with any applicable taxes payable
by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
---------------------------------------
--------------------------------------------------------------------------------
(Please print name and address)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
--------------------------------------------------------------------------------
(Please print name and address)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Dated: ________________ , _____ Name of Holder:
(Print)_______________________
(By:)_________________________
(Name:)
(Title:)
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of fonix corporation to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of fonix corporation with full power of
substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________
Exhibit "D"
Registration Rights Agreement
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This Registration Rights Agreement (this "Agreement") is made and
---------
entered into as of December 21, 1998, between fonix corporation, a Delaware
corporation (the "Company"), and JNC Strategic Fund Ltd., a Cayman Islands
-------
corporation (the "Buyer").
-----
This Agreement is made pursuant to the Securities Purchase Agreement,
dated as of the date hereof, between 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 that are
defined in the Purchase Agreement 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 "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 Securities and Exchange Commission.
----------
"Common Shares" shall have the meaning set forth in the Purchase
-------------
Agreement.
"Common Stock" means the Company's common stock, par value $.0001 per
------------
share.
"Effectiveness Date" means the 90/th/ day following the Closing 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 proceeding, such as
a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
----------
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registration Delay Payments" shall have the meaning set forth in
---------------------------
Section 2(d).
"Registration Delay Payment Shares" shall have the meaning set forth
---------------------------------
in Section 2(d).
"Registrable Securities" means (i) the Common Shares, the Registration
----------------------
Delay Payment Shares (if any) and the Warrant Shares and (ii) the Repricing
Common Shares; provided, however in order to account for the fact that the
number of Repricing Common Shares is determined in part upon the market price of
the Common Stock prior to the determination of the Repricing Rate, Registrable
Securities contemplated by clause (ii) above shall include (but not be limited
to) 2,846,847 shares of Common Stock. The Registration Statement to be filed by
the Company on the Filing Date shall cover at least 4,848,649 shares of Common
Stock. The Company shall be required to file additional Registration Statements
to the extent the sum of (i) the Common Shares, the Repricing Common Shares and
the Warrant Shares and (ii) the Registration Delay Payment Shares exceeds the
number of shares of Common Stock initially registered in accordance with the
immediately prior sentence (or, to the extent further Registration Statements
are required, exceeds the number of shares of Common Stock then registered).
The Company shall have fifteen (15) days to file such additional Registration
Statements after notice of the requirement thereof, which the Holders may give
at such time when the number of shares referenced in clauses (i) and (ii) above
exceeds 85% of the number of shares of Common Stock then registered in a
Registration Statement hereunder.
"Registration Statement" means the registration statement and any
----------------------
additional registration statements contemplated by Section 2(a), 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.
"Repricing Common Shares" means the shares of Common Stock issuable
-----------------------
in respect of the Repricing Rights.
"Repricing Rights" shall have the meaning set forth in the Purchase
----------------
Agreement.
-2-
"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 one special counsel to the Holders, for which
---------------
the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering" means a
--------------------------------------------------
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrant" means the Common Stock purchase warrant issued or issuable
-------
to the Buyer pursuant to the Purchase Agreement.
"Warrant Shares" means the shares of Common Stock issuable upon
--------------
exercise in full of the Warrant.
2. Shelf Registration
------------------
(a) On or prior to the Filing Date, the Company shall prepare and file
with the Commission a "Shelf" Registration Statement covering all Registrable
Securities for an offering to be made on a continuous basis pursuant to Rule
415. The Registration Statement shall be on Form S-3 (if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith as the
Holders of a majority in interest of the Registrable Securities may consent).
The Company shall use its best efforts to cause the Registration Statement to be
declared effective under the Securities Act as promptly as possible after the
filing thereof, but in any event prior to the Effectiveness Date, and shall use
its best efforts to keep such Registration Statement continuously effective
under the Securities Act until the date which is three years after the date that
such Registration Statement is 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.
(b) If the Holders of a majority of the Registrable Securities so
elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten
-3-
Offering. In such event, and, if the managing underwriters advise the Company
and such Holders in writing that in their opinion the amount of Registrable
Securities proposed to be sold in such Underwritten Offering exceeds the amount
of Registrable Securities which can be sold in such Underwritten Offering, there
shall be included in such Underwritten Offering the amount of such Registrable
Securities which in the opinion of such managing underwriters can be sold, and
such amount shall be allocated pro rata among the Holders proposing to sell
Registrable Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Holder
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
(d) If (i) a Registration Statement covering all Registrable
Securities is not filed on or before the Filing Date (in the event that the
Company files such Registration Statement without complying with its obligations
set forth in Section 3(a) such filing hall not be deemed to have occurred fore
purposes hereof until such time as the Company shall have complied with such
requirements), or (ii) the Company fails to file with the Commission a request
for acceleration in accordance with Rule 12d1-2 promulgated under the Securities
Exchange Act within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission that a
Registration Statement will not be "reviewed" or is not subject to further
review or comment by the Commission; or (iii) a Registration Statement covering
all Registrable Securities is not declared effective by the Commission on or
before the Effectiveness Date, or (iv) if, after the Registration Statement has
been declared effective by the Commission, the Registration Statement is either
not effective as to all Registrable Securities throughout the Effectiveness
Period or the Holders are not permitted for any reason to make sales thereunder
during such period, without being succeeded by a subsequent Registration
Statement filed and declared effective by the Commission within ten (10) days,
or (v) if trading in the Common stock shall be suspended, or if the Common Stock
shall be delisted from trading, on the Nasdaq SmallCap Market or on any
Subsequent Market on which the Common Stock is then listed or quoted for trading
for any reason for more than three (3) Trading Days, or (vi) if an amendment to
the Registration Statement is not filed by the Company with the Commission
within ten (10) days after notification by the Commission that such amendment is
required in order for the Registration Statement to remain effective (any such
failure or breach being referred to as an "Event," and for purposes of clauses
-----
(i), (iii) and (vi) the date on which such Event occurs, or for purposes of
clause (ii) the date on which such five (5) day period is exceeded, or for
purposes of clause (v) the date on which such three (3) Trading Day period is
exceeded, being referred to as "Event Date"), then, in any such case, as partial
----------
relief for the damages suffered therefrom by the Holders (which remedy shall not
be exclusive of any other remedies available at law or in equity), the Company
shall pay to each Holder an amount, in cash, as liquidated damages and not as a
penalty, on the Event Date, equal to 2.0% of the aggregate Purchase Price paid
by each Holder, and, on the first day of each month following the Event Date
until the triggering Event in cured, 2.0% of the aggregate Purchase Price paid
by each Holder, on a cumulative basis. The payments to which a Holder shall be
entitled pursuant to this Section are referred to herein as "Registration Delay
------------------
Payments." Registration Delay Payments shall be calculated on a cumulative
--------
basis and paid within five Business Days of the Event Date and each monthly
anniversary thereof. If the Company fails to make Registration Delay Payments
in a timely manner, such Registration Delay Payments shall bear interest at the
rate of 2.0% per month (or the maximum rate permitted by law), prorated for
partial months, until paid in full. If the Company fails to pay the
Registration Delay Payments, including any interest thereon, within 15 Business
Days of the applicable payment date, then the Holder entitled to such payments
shall have the right at any time, so long as the Company continues to fail to
make such payments, to require the Company, upon written notice, to immediately
issue, in lieu of the Registration Delay Payments, including any interest
-4-
thereon, the number of shares of Common Stock (the "Registration Delay Payment
--------------------------
Shares") equal to the quotient of (X) the sum of the Registration Delay Payments
------
and all interest accrued thereon, divided by (Y) the lowest Closing Bid Price on
any Trading Day during the period beginning on and including the date the
Registration Delay Payments were due and payable and ending on and including the
date the Holder delivers written notice to the Company of its election to
receive shares of Common Stock in lieu of the Registration Delay Payments.
3. Registration Procedures
-----------------------
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 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) which shall contain the "Plan of
Distribution" attached hereto as Annex A (except if otherwise directed by 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 supplement thereto (including any document that
would be incorporated or deemed to be incorporated therein by reference), the
Company shall, (i) furnish to the Holders, their Special Counsel and any
managing underwriters, copies of all such documents proposed to be filed, which
documents (other than those incorporated or deemed to be incorporated by
reference) will be subject to the review of such Holders, their Special Counsel
and such managing underwriters, and (ii) cause its officers and directors,
counsel and independent certified public accountants to respond to such
inquiries as shall be necessary, in the opinion of respective counsel to such
Holders and such underwriters, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file the Registration
Statement or any such Prospectus or any amendments or supplements thereto to
which the Holders of a majority of the Registrable Securities, their Special
Counsel, or any managing underwriters, shall reasonably object on a timely
basis.
(b)(i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
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
Prospectus 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 Securities Act and the Exchange Act with respect to
the disposition of all Registrable Securities covered by the Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Holders thereof set forth in the Registration Statement as
so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters immediately (and, in the case of
(i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) whenever the Commission notifies the
-5-
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement (the
Company shall provide true and complete copies thereof and all written responses
thereto to each of the Holders); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) if at any time any of the representations
and warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event that makes any statement made in the Registration
Statement or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated 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(c) 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.
(d) 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.
(e) 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(e) that would, in the opinion of counsel for the
Company, violate applicable law or be materially detrimental to the business
prospects of the Company.
(f) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of prospectus) and each amendment or supplement thereto as
such Persons may reasonably request; and the Company hereby consents to the use
of such Prospectus and each amendment or supplement thereto by each of the
selling Holders and any underwriters in connection with the offering and sale of
the Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
-6-
(h) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders, any
underwriters and their Special Counsel in connection with the registration or
qualification (or exemption from such registration or qualification) of such
Registrable Securities for offer and sale under the securities or Blue Sky laws
of such jurisdictions within the United States as any Holder or underwriter
requests in writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and to do any and
all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
-------- -------
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request at least three (3)
Business Days prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi),
as promptly as reasonably possible, prepare a supplement or amendment, including
a post-effective amendment, to the Registration Statement or a supplement to the
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither the Registration Statement nor such Prospectus
will contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the Nasdaq SmallCap Market
("NASDAQ") and any other Subsequent Market (or qualified for trading on the OTC
--------
Bulletin Board, if applicable), if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) In the case of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) 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 certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to the Company in form
and substance as are customary in connection
-7-
with Underwritten Offerings; (iv) if an underwriting agreement is entered into,
the same shall contain indemnification provisions and procedures no less
favorable to the selling Holders and the underwriters, 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 Underwritten Offering); and (v) deliver such
documents and certificates as may be reasonably requested by the Holders of a
majority of the Registrable Securities being sold, their Special Counsel and any
managing underwriters to evidence the continued validity of the representations
and warranties made pursuant to clause 3(l)(i) above and to evidence compliance
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
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 subsidiaries to
supply all information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection with the
Registration Statement; provided, however, that any information that is
-------- -------
determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information shall be kept confidential by
such Persons, unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of regulatory
authorities; (ii) such information becomes generally available to the public
other than as a result of a disclosure or failure to safeguard by such Person;
or (iii) such information becomes available to such Person from a source other
than the Company and such source is not known by such Person to be bound by a
confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission.
(o) 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.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (i) the inclusion therein of language, in form and
substance reasonably satisfactory to such Holder, to the effect that the
ownership by such Holder of such securities is not to be construed as a
recommendation by such Holder of the investment quality of the Company's
securities covered thereby and that such ownership does not imply that such
Holder will assist in meeting any future financial requirements of the Company,
or (ii) if such reference to such Holder by name or otherwise is not required by
the Securities Act or any similar Federal statute then in force, the deletion of
the reference to such Holder in any amendment or supplement to the Registration
Statement filed or prepared subsequent to the time that such reference ceases to
be required.
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(g) and notice from the Company that such Registration Statement and
any post-effective amendments thereto have become effective as contemplated by
Section 3(c) 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.
-8-
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(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
------
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
4. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Company, except as and to the extent specified in
Section 4(b), shall be borne by the Company whether or not pursuant to an
Underwritten Offering and whether or not the Registration Statement is filed or
becomes effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses referred to in
the foregoing sentence shall include, without limitation, (i) all registration
and filing fees (including, without limitation, fees and expenses (A) with
respect to filings required to be made with the 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 qualifications or
exemptions of the Registrable Securities and determination of the eligibility of
the Registrable Securities for investment under the laws of such jurisdictions
as the managing underwriters, if any, or the Holders of a majority of
Registrable Securities may designate)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
and of printing prospectuses if the printing of prospectuses is requested by the
managing underwriters, if any, or by the holders of a majority of the
Registrable Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses of the Company, (iv) fees and disbursements of
counsel for the Company and Special Counsel for the Holders (which, in the case
of the Special Counsel, will not exceed $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 Company
shall be responsible for all of its internal expenses incurred in connection
with the consummation of the transactions contemplated by this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required hereunder.
(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.
-9-
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 controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, agents and employees of each such controlling
Person, to the fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including, without
limitation, costs of preparation and attorneys' fees) and expenses
(collectively, "Losses"), as incurred, arising out of or relating to any untrue
------
or alleged untrue statement of a material fact contained in the Registration
Statement, any Prospectus or any form of prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or
relating to any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
Prospectus or form of prospectus or supplement thereto, in light of the
circumstances under which they were made) not misleading, except to the extent,
but only to the extent, that such untrue statements or omissions are based
solely upon information regarding such Holder furnished in writing to the
Company by or on behalf of such Holder expressly for use therein, which
information was reasonably relied on by the Company for use therein or to the
extent that such information relates to such Holder or such Holder's proposed
method of distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally and not
--------------------------
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information 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 proposed method of
distribution of Registrable Securities and was reviewed and expressly approved
in writing by such Holder expressly for use in the Registration Statement, such
Prospectus or such form of Prospectus, or in any amendment or supplement
thereto. In no event shall the liability of any selling Holder hereunder be
greater in amount than the dollar amount of the net proceeds received by such
Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. 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
------------------
-10-
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) 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 (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party 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.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
--------
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
------------
or 5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
-11-
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
--- ----
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
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 Proceeding 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 misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
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 subject 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 securityholders.
(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.
-12-
7. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Company or by a Holder,
--------
of any of their obligations under this Agreement, each Holder or the Company, as
the case may be, in addition to being entitled to exercise all rights granted by
law and under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company and each
Holder agrees that monetary damages would not provide adequate compensation for
any losses incurred by reason of a breach by it of any of the provisions of this
Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least a majority of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
-------- -------
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. 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
-------- -------
sentence 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
00 Xxxx Xxxxx Xxxxxx Xxxxxx
Xxxxx 0000
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx X. Xxxxxx,
Executive Vice President
With copies to: Durham, Evans, Xxxxx & Xxxxxxx, P.C.
Suite 850 Key Bank Tower
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxxx X. Xxxxx, Esq.
-13-
If to the Buyer: JNC Strategic Fund Ltd.
Olympia Capital (Bermuda) Ltd.
Xxxxxxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxxxx XX00
Xxxxxxx
Facsimile No.: (000) 000-0000
Attn: Director
With copies to: Encore Capital Management, L.L.C.
0000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Managing Member
-and-
Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxxx
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears in the
stock transfer books of the Company
or 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 and construed
-------------
in accordance with the laws of the State of Delaware, without regard to
principles of conflicts of law.
(g) Cumulative Remedies. The remedies provided herein are cumulative
-------------------
and not exclusive of any remedies provided by law.
-14-
(h) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(i) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(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.
* * * * * *
-15-
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
fonix corporation
By:_______________________________________________
Name:
Its:
JNC STRATEGIC FUND LTD.
By: Encore Capital Management, L.L.C.
By:___________________________________________
Neill X. Xxxx
Managing Member
Annex A
-------
Plan of Distribution
--------------------
The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder (the "Shares") in privately
negotiated transactions or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such market
prices or at negotiated prices. The Shares may be sold by the Selling
Stockholders by one or more of the following methods, without limitation: (a)
block trades in which the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus,
(c) an exchange distribution in accordance with the rules of the applicable
exchange, (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, (e) privately negotiated transactions, (f) short
sales, (g) a combination of any such methods of sale and (h) any other method
permitted pursuant to applicable law.
From time to time the Selling Stockholders may engage in short sales, short
sales against the box, puts and calls and other transactions in securities of
the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the applicable conversion price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling Stockholders
may arrange for other brokers or dealers to participate in such sales. Brokers
or dealers may receive commissions or discounts from the Selling Stockholders
(or, if any such broker-dealer acts as agent for the purchaser of such shares,
from such purchaser) in amounts to be negotiated which are not expected to
exceed those customary in the types of transactions involved. Broker-dealers
may agree with the Selling Stockholders to sell a specified number of such
Shares at a stipulated price per share, and, to the extent such broker-dealer is
unable to do so acting as agent for a Selling Stockholder, to purchase as
principal any unsold Shares at the price required to fulfill the broker-dealer
commitment to the Selling Stockholders. Broker-dealers who acquire Shares as
principal may thereafter resell such Shares from time to time in transactions
(which may involve block transactions and sales to and through other broker-
dealers, including transactions of the nature described above) in the over-the-
counter market or otherwise at prices and on terms then prevailing at the time
of sale, at prices then related to the then-current market price or in
negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Shares commissions as described above. The
Selling Stockholders may also sell the Shares in accordance with Rule 144 under
the Securities Act, rather than pursuant to this Prospectus.
The Selling Stockholders and any broker-dealers or agents that participate
with the Selling Stockholders in sales of the Shares may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers or agents
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including fees and disbursements of one counsel (not
to exceed $7,500) to the Selling Stockholders. The Company has agreed to
indemnify the Selling Stockholders against certain losses, claims, damages and
liabilities, including liabilities under the Securities Act.
[such other disclosure as may be required
pursuant to applicable law]
