LOAN AGREEMENT
LOAN AGREEMENT dated as of April 22, 1999 entered into by and among
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V., a Belgian corporation ("Lender"), with a
place of business at Flanders Language Valley 50, B-8900, Ieper, Belgium, on the
one hand, and FONIX CORPORATION, a Delaware corporation having its principal
place of business at 00 Xxxx Xxxxx Xxxxxx Xxxxxx, Xxxx Xxxx Xxxx, Xxxx 00000,
and FONIX/ASI CORPORATION, a Utah corporation, having its principal place of
business at 0000 Xxxxx Xxxx Tower, 00 Xxxx Xxxxx Xxxxxx Xxxxxx, Xxxx Xxxx Xxxx,
Xxxx, 00000, and a place of business at 000 Xxxx Xxxxxxxx Xxxx, Xxxxx 0000,
Xxxxxx, Xxxxxxxxxxxxx 00000, on the other hand. Each of Fonix Corporation and
Fonix/ASI Corporation is a "Borrower" and they are collectively referred to
herein as the "Borrowers".
W I T N E S S E T H:
WHEREAS, the Borrowers have requested that Lender make available to
Borrowers a loan in the amount of $1,000,000.00 to finance the working capital
needs of Fonix/ASI Corporation, a wholly owned subsidiary of Fonix Corporation,
and Fonix Corporation;
WHEREAS, Lender is willing to do so, but only on the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrowers and
Lender agree as follows.
1. CERTAIN DEFINITIONS. As used herein the terms set forth on
Schedule I attached hereto shall have the meanings set forth therein.
2. THE LOAN.
(a) On April __, 1999, the Lender shall make a loan to Borrowers (the
"Loan") in the original principal amount of $1,000,000.00, subject to the terms
and conditions contained in this Agreement. Once repaid, the Loan may not be
reborrowed. The Loan shall be due and payable as set forth in the Note in the
form attached hereto as Exhibit A.
(b) The Loan shall be evidenced by the Note and shall be secured by:
(i) a first priority security interest in all of the assets of Fonix/ASI
Corporation pursuant to a Security Agreement in the form attached hereto as
Exhibit B (the "Security Agreement"); (ii) a Patent Security Agreement in the
form attached hereto as Exhibit C ; (iii) a Copyright Security Agreement in the
form attached hereto as Exhibit D ; and (iv) a Trademark Security Agreement in
the form attached hereto as Exhibit E . The Loan shall bear interest and be
payable as set forth in the Note. The term "Loan Documents", as used herein when
discussing Fonix/ASI Corporation, shall mean this Agreement and the documents
1
referred to in this subsection. The term "Loan Documents", as used herein when
discussing Fonix Corporation, shall mean this Agreement and the Note.
(c) Proceeds of the Loan will be used by the Borrowers solely to
finance the working capital needs of Fonix/ASI Corporation and the working
capital needs of Fonix Corporation.
3. REPRESENTATIONS AND WARRANTIES.
The Borrowers hereby jointly and severally represent and warrant to the
Lender that:
(a) Organization and Qualification. The Borrowers are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and have all required corporate power
and authority to own or lease their property, to carry on their businesses as
presently conducted and to carry out the transactions contemplated hereby.
(b) Charter. The Borrowers have delivered to counsel to the Lender true
and complete copies of their respective Certificates of Incorporation or
equivalent documents as amended from time to time (the "Charters") and their
by-laws ("By-laws") as currently in effect.
(c) Authorization of Transaction. The execution, delivery and
performance of the Loan Documents by Borrowers have been duly authorized by all
necessary corporate action of the Borrowers. The Loan Documents are the legal,
valid and binding obligations of the Borrowers, enforceable against the
Borrowers in accordance with their terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors. The issuance of
the Note by Borrowers pursuant to the terms of this Agreement is duly and
validly authorized, and no further approval or authority of the shareholders or
the directors of the Borrowers or of any governmental authority or agency will
be required for the issuance and sale of the Note as contemplated by this
Agreement.
(d) Approvals; Compliance With Laws. The execution, delivery and
performance of this Agreement by Borrowers and the transactions contemplated
hereby: (i) do not require any approval or consent of, or filing with, any
governmental agency or authority in the United States of America or otherwise
which has not been obtained and which is not in full force and effect as of the
date hereof; (ii) will not conflict with or constitute a breach or violation of
the Charters or By-laws of the Borrowers; and (iii) will not result in a
violation of any law or regulation to which they are subject.
(e) Disclosure. This Agreement, together with any financial statement,
schedule, exhibit or other statement (written or oral) pertaining to the
Borrowers, made, delivered or communicated to the Lender by the Borrowers, or
any representative thereof, in connection with this Agreement and the
transactions related thereto, contains no untrue statement of a material fact
and does not omit to state any material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which they were made.
2
(f) Title. Fonix/ASI Corporation has good and marketable title to all
of the Collateral (as defined in the Security Agreement), free and clear of any
liens other than the liens disclosed on Schedule 3(f) attached hereto (the
"Permitted Liens").
(g) Enforcement; No Other Liens. The Borrowers have not performed any
acts which might prevent the Lender from enforcing any of the terms of this
Agreement or the Loan Documents or which would limit the Lender in any such
enforcement. Other than financing statements or other similar or equivalent
documents or instruments in favor of the Lender or with respect to the Permitted
Liens, no financing statement, mortgage or security agreement or similar or
equivalent document or instrument covering all or any part of the Collateral is
on file or of record in any jurisdiction in which such filing or recording would
be effected to perfect a lien on such Collateral. No Collateral is in the
possession of any person (other than the Borrowers) asserting any claim thereto
or security interest therein other than Collateral being repaired by third
parties in the ordinary course of business and inventory in transit.
(h) Perfection. The liens granted to Lender pursuant to the Loan
Documents constitute valid first priority security interests in the Collateral
securing the Obligations (as defined in the Security Agreements) and constitute
first priority perfected security interests in the Collateral to the extent that
a security interest therein may be perfected by filing pursuant to the UCC prior
to all other liens and rights of others therein except for the Permitted Liens.
(i) Accounts. Each Account which is reflected on Fonix/ASI
Corporation's books as an Account is a bona fide, valid and legally each
enforceable obligation of the account debtor in respect thereof, arising in the
ordinary course of Fonix/ASI Corporation's business.
(j) Perfection Certificate: The information set forth in the Perfection
Certificate attached hereto as Exhibit F is true and complete as of the date
hereof.
(k) Litigation. There are no actions, suits or proceedings pending
(nor, to the knowledge of Fonix/ASI Corporation, are there any actions, suits or
proceedings threatened, nor is there any basis therefor) against or affecting
Fonix/ASI Corporation's property in any court or before any arbitrator of any
kind or before or by any governmental body which would have a materially adverse
effect on either Borrower. There are no strikes or walkouts in progress relating
to any labor contracts to which Fonix/ASI Corporation is a party.
(l) No Material Adverse Change. Other than as disclosed in Schedule
3(l) attached hereto or as otherwise disclosed in the periodic reports filed by
Fonix Corporation with the Securities and Exchange Commission, there has
occurred, since December 31, 1998, no event which has had or is reasonably
likely to have a material adverse change on either Borrower or any of their
subsidiaries.
(m) Intellectual Property. Fonix/ASI Corporation owns or possesses the
adequate right to use all Intellectual Property Rights (as defined below)
necessary to the conduct of its business as presently conducted or presently
contemplated to be conducted as of the date of this Agreement. Schedule 3(m)
attached hereto contains a list of all patents, tradenames, trademarks, service
3
marks, and registered copyrights and applications for the same owned by
Fonix/ASI Corporation or any of its subsidiaries. Fonix/ASI Corporation has
unencumbered title to the Intellectual Property Rights which are owned by
Fonix/ASI Corporation and such title has not been challenged (pending, or to the
knowledge of the Borrowers, threatened) by others. All such patents, registered
trademarks, service marks, and copyrights owned by Fonix/ASI Corporation are in
good standing and are recorded on the public record in the name of Fonix/ASI
Corporation, except for those failures to be in good standing and so recorded
that would not, individually or in the aggregate, have a material adverse
effect. For purposes of this Agreement, "Intellectual Property Rights" shall
mean and include all of Fonix/ASI Corporation's rights relating to patents,
trademarks, service marks, tradenames, copyrights, inventions, processes, trade
secrets, know-how, software and any documentation relating to the manufacture,
marketing and maintenance of products by Fonix/ASI Corporation.
(n) Subsidiaries. Schedule 3(n) attached hereto sets forth for each
corporation with respect to which the Borrowers, directly or indirectly, have
the power to vote or direct the voting of sufficient securities to elect all of
the directors (a "subsidiary") its name and jurisdiction of incorporation. Each
subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each
subsidiary is duly qualified to conduct business and is in good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to so qualify would not, individually or in the aggregate, have a
material adverse effect. Each subsidiary has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
4. BORROWER'S AGREEMENTS. The Borrowers jointly and severally agree as
follows:
(a) Borrowers will notify Lender, at least thirty (30) days prior to
any such event, of any change in any Borrower's exact legal name, any change in
their places of business or location as set forth in the preamble to this
Agreement, or their establishment of any new place of business or location, or
any change in either Borrowers' organizational structure.
(b) Except as consented to by the Lender, the Borrowers shall not pay
or set apart for payment to holders of their capital stock, any dividends, and
the Borrowers shall not redeem or purchase any shares of capital stock.
(c) The Borrowers may not amend their respective Charters or By-laws in
such a manner as may adversely affect the rights of the Lender hereunder, or
under any of the Loan Documents.
(d) The Borrowers will permit representatives designated by the Lender,
at Lender's expense, to visit and inspect any of the properties of Fonix/ASI
Corporation(or any subsidiary), and to inspect and make extracts of the books
and records of the Borrowers, and to discuss the affairs, finances, and accounts
of the Borrowers with its officers, all to such reasonable extent and at such
reasonable times and intervals as the representatives may reasonably request.
4
(e) The Borrowers will maintain and cause each of their subsidiaries
now in existence or hereinafter acquired or created to maintain their corporate
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or states thereof or of any political
subdivisions thereof or of any government authority, where failure to so comply
would have a material adverse effect on either respective Borrower and its
subsidiaries, taken as a whole; provided, however, that nothing herein shall
prohibit the Borrowers from liquidating or dissolving any of their subsidiaries
into the Borrowers or merging any of their subsidiaries with or into the
Borrowers or any other subsidiary.
(f) Fonix/ASI Corporation will not create, assume, incur or permit or
suffer to exist or to be created, assumed or incurred, any lien upon any of its
properties or assets of any character whether now owned or hereafter acquired
other than Permitted Liens.
(g) Fonix/ASI Corporation will not create, assume, or otherwise become
or remain obligated in respect of, or permit or suffer to exist or to be
created, assumed or incurred or to be outstanding any indebtedness (other than
current trade payables and accrued expenses incurred in the ordinary course of
business and payable in accordance with customary practice).
(h) Fonix/ASI Corporation will not sell, transfer, lease or otherwise
dispose of any of the Collateral except in the ordinary course of business.
(i) The Borrowers acknowledge that the Lender has no existing
commitments, obligations or agreements to pay any monies, advance credits or
loans or make other financial accommodations to the Borrowers.
5. EVENTS OF DEFAULT; REMEDIES. Upon the occurrence and during the
continuance of an Event of Default: (a) the Loan shall bear interest at the
Default Rate of Interest (as defined in the Note); (b) the Lender may by notice
to Borrowers accelerate the payment of the Loan and all other obligations of
Borrowers hereunder and demand payment thereof; provided however, that, no such
notice shall be required and the principal and interest due under the Note shall
become immediately due and payable if the Event of Default is one under clause
(f), (g) or (h) of the definition of Event of Default; and (c) Lender may
proceed to enforce payment of any of the foregoing and shall have and may
exercise any and all rights under the UCC or which are afforded to Lender herein
or in the Loan Documents.
6. EXPENSES. Borrowers jointly and severally agree to pay Lender on
demand any and all reasonable out-of-pocket costs and expenses of any nature
(including without limitation reasonable attorneys' fees and disbursements)
which may be incurred by Lender in connection with exercise of Lender's rights
against the Borrowers after an Event of Default; any exercise of Lender's right
of acceleration; any enforcement, collection or other proceedings with respect
to the Loan; or any bankruptcy, insolvency or other similar proceedings of
either Borrower.
5
7. CONDITIONS PRECEDENT.
Borrowers acknowledge and agree that Lender will not make the Loan
hereunder, unless and until all of the following conditions have been satisfied
and remain satisfied as of the date of funding the Loan:
(a) Representations and Warranties. Borrowers' representations
and warranties contained herein shall be correct and complete in all material
respects;
(b) Covenants. Borrowers shall be in compliance in all material
respects with all covenants and agreements contained herein;
(c) No Events of Default. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default; and
(d) Delivery of Documents. Borrowers shall have delivered, or caused to
be delivered, to Lender: (i) each of the Loan Documents; (ii) such legal
opinions as in its reasonable judgment the Lender deems necessary in form and
substance satisfactory to Lender in the form attached hereto as Exhibit G; (iii)
UCC-1 financing statements naming Lender as secured party, duly executed by
Fonix/ASI Corporation, in form and substance reasonably satisfactory to Lender,
as Lender shall reasonably request in its sole discretion; and (iv) a Common
Stock Warrant in the form attached hereto as Exhibit H.
(e) No Material Adverse Effect. No event or condition having a material
adverse effect with respect to either Borrower shall have occurred.
8. MISCELLANEOUS PROVISIONS.
(a) Indemnification. The Borrowers, severally and jointly, shall
indemnify and hold harmless Lender from and against any and all claims, actions,
suits, judgments, penalties, losses, damages, costs, disbursements, expenses,
obligations or liabilities of any kind or nature (except those resulting from
Lender's gross negligence or willful misconduct) arising in any way out of or in
connection with the Loan Documents and shall pay to Lender on demand any and all
amounts in connection therewith. The Borrowers shall make no claim against
Lender for or in connection with the exercise or enforcement by Lender of any
right or remedy granted to it under or any of the Loan Documents, or any action
taken or omitted to be taken by Lender hereunder (except for the gross
negligence or willful misconduct of Lender).
(b) Notices. Unless otherwise specified herein, all notices hereunder
shall be in writing directed to the addresses shown below:
6
Lernout & Hauspie Speech Products N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Attn: Legal Department
Telephone: 000-00-00-000-000
Facsimile: 011-32-57-21-9661
with a copy to:
Brown, Rudnick, Freed & Gesmer
Xxx Xxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attn: Xxxxxxxx X. Xxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Fonix Corporation
00 Xxxx Xxxxx Xxxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxx X. Xxxxxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Fonix/ASI Corporation
0000 Xxxxx Xxxx Tower
00 Xxxx Xxxxx Xxxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxx X. Xxxxxxx, President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Durham, Xxxxx & Xxxxxxx
00 Xxxxx Xxxx Xxxxxx
Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esquire
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Written notices and communications shall be effective and shall be deemed
received on the day when delivered by hand or by facsimile transmission (with
written confirmation of transmission); on the next business day, if by
commercial overnight courier; and on the third business day, if by registered or
certified mail, postage prepaid.
7
(c) No Waiver. No failure to exercise and no delay in exercising, on
the part of Lender, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right or remedy. Waiver by
Lender of any right or remedy on any one occasion shall not be construed as a
bar to or waiver thereof or of any other right or remedy on any future occasion.
Lender's rights and remedies hereunder, under any agreement or instrument
supplemental hereto or under any other agreement or instrument shall be
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
(d) Assignment. This Agreement shall be binding upon and shall inure to
the benefit of Borrowers and Lender and their respective successors and assigns;
provided that, Borrowers may not assign or transfer any rights or obligations
hereunder without Lender's prior written consent.
(e) Governing Law; Jurisdiction. This Agreement shall be governed by
the laws of the Commonwealth of Massachusetts (other than its laws relating to
conflicts of laws).
(f) Waiver of Jury Trial. The Borrowers irrevocably waive any and all
right to trial by jury in any legal proceeding arising out of or relating to the
Loan Documents or the transactions contemplated thereby.
(g) Amendments. The Parties may mutually amend any provision of the
Loan Documents, but only in a writing signed by all of the Parties.
(h) Break-Up. If Lender has not acquired all of the assets of Fonix/ASI
Corporation and certain assets of Fonix Corporation on or before 90 days from
the date of this Agreement, Fonix/ASI Corporation will grant Lender a worldwide,
perpetual, nonexclusive license, at commercially reasonable rates, to offer,
sell, offer to sell, distribute, market, make, develop or otherwise use any and
all intellectual property and proprietary technology of Fonix/ASI Corporation.
(i) Co-Borrowing Guaranties and Waivers; Contribution Agreement.
(i) Joint and Several Liability. All Loans made hereunder are
made to or for the benefit of each of the Borrowers. The Borrowers are jointly
and severally, directly and primarily liable for the full and indefeasible
payment when due and performance of all Obligations and for the prompt and full
payment and performance of all of the promises, covenants, representations, and
warranties made or undertaken by each Borrower under the Loan Documents and
Borrowers agree that such liability is independent of the duties, obligations,
and liabilities of each of the joint and several Borrowers. In furtherance of
the foregoing, each Borrower jointly and severally, absolutely and
unconditionally guaranties to Lender and agrees to be liable for the full and
indefeasible payment and performance when due of all the Obligations. This
guarantee is a continuing guarantee, and shall apply to all Obligations whenever
arising.
8
(ii) Suretyship Waivers and Consents. Each Borrower
acknowledges that the obligations of such Borrower undertaken herein might be
construed to consist, at least in part, of the guaranty of obligations of
persons other than such Borrower (including the other Borrower) and, in full
recognition of that fact, each Borrower consents and agrees that Lender may, at
any time and from time to time, without notice or demand (except as provided in
and in accordance with the terms of this Agreement), whether before or after any
actual or purported termination, repudiation or revocation of this Agreement by
any Borrower, and without affecting the enforceability or continuing
effectiveness hereof as to each Borrower: (i) increase, extend, lengthen, or
otherwise change the time for payment or the terms of the Obligations or any
part thereof; (ii) supplement, restate, modify, amend, increase, decrease, or
waive, or enter into or give any agreement, approval or consent with respect to,
the Obligations or any part thereof, or any of the Loan Documents or any
additional security or guarantees, or any condition, covenant, default, remedy,
right, representation, or term thereof or thereunder, provided, however, that
such supplementation, restatement, amendment, modification, increase, decrease,
waiver or otherwise shall not impose, in writing (as opposed to by effect), any
greater or more onerous duty on a Borrower than as provided for in the Loan
Documents; (iii) accept new or additional instruments, documents, or agreements
in exchange for or relative to any of the Loan Documents or the Obligations or
any part thereof; (iv) accept partial payments on the Obligations; (v) receive
and hold additional security or guarantees for the Obligations or any part
thereof; (vi) release, reconvey, terminate, waive, abandon, fail to perfect,
subordinate, exchange, substitute, transfer, or enforce any Collateral, security
or guarantees, and apply any Collateral or security and direct the order or
manner of sale thereof as Lender in its sole and absolute discretion may
determine; (vii) release any person from any personal liability with respect to
the Obligations or any part thereof; (viii) settle, release on terms
satisfactory to Lender or by operation of applicable laws or otherwise liquidate
or enforce any Obligations and any Collateral or security therefor or guaranty
thereof in any manner, consent to the transfer of any Collateral or security and
bid and purchase at any sale; or (ix) consent to the merger, change or any other
restructuring or termination of the corporate existence of any Borrower, and any
corresponding restructuring of the Obligations, and any such merger, change,
restructuring or termination shall not affect the liability of any Borrower or
the continuing effectiveness hereof, or the enforceability hereof with respect
to all or any part of the Obligations.
(iii) Independent Enforcement. Lender may enforce this
Agreement independently as to each Borrower and independently of any other
remedy or security Lender at any time may have or hold in connection with the
Obligations, and it shall not be necessary for Lender to marshal assets in favor
of any Borrower or any guarantor or to proceed upon or against or exhaust any
Collateral or security or remedy before proceeding to enforce this Agreement
against any Borrower. Each Borrower expressly waives any right to require Lender
to marshal assets in favor of any Borrower or any guarantor of the Obligations
or to proceed against any other Borrower, and agrees that Lender may proceed
against any Borrower or any Collateral in such order as Lender shall determine
in its sole an absolute discretion.
(iv) Separate Actions. Lender may file a separate action or
actions against any Borrower, whether such action is brought or prosecuted with
9
respect to any security or against any guarantor of the Obligations, or whether
any other person is joined in any such action or actions. Each Borrower agrees
that Lender and each Borrower and any affiliate of any Borrower may deal with
each other in connection with the Obligations or otherwise, or alter any
contracts or agreements now or hereafter existing between any of them, in any
manner whatsoever, all without in any way altering or affecting the continuing
enforceability of this Agreement. Each Borrower, as a joint and several Borrower
hereunder, expressly waives the benefit of any statute of limitations affecting
its joint and several liability hereunder (but not its primary liability) or the
enforcement of the Obligations or any rights of Lender created or granted
herein.
(v) Reinstatement of Rights and Remedies. Lender's rights
hereunder shall be reinstated and revived, and the enforceability of this
Agreement shall continue, with respect to any amount at any time paid on account
of the Obligations which thereafter shall be required to be restored or returned
by Lender, all as though such amount had not been paid. The rights of Lender
created or granted herein and the enforceability of this Agreement at all times
shall remain effective to cover the full amount of all the Obligations even
though the Obligations, including any part thereof or any Collateral, other
security or guaranty therefor, may be or hereafter may become invalid or
otherwise unenforceable as against any Borrower and whether or not any Borrower
shall have any personal liability with respect thereto.
(vi) Additional Waivers; Subordination. Each Borrower
expressly waives any and all defenses now or hereafter arising or asserted by
reason of (i) any disability or other defense of any other Borrower with respect
to the Obligations; (ii) the unenforceability or invalidity of any security or
guaranty for the Obligations or the lack of perfection or continuing perfection
or failure of priority of any security for the Obligations; (iii) the cessation
for any cause whatsoever of the liability of any Borrower (other than by reason
of the full payment and performance of all Obligations); (iv) any failure of
Lender to marshal assets in favor of any Borrower; (v) any failure of Lender to
give notice to any Borrower of sale or other disposition of Collateral of
another Borrower or any defect in any notice that may be given in connection
with any such sale or disposition of Collateral of any Borrower securing the
Obligations; (vi) any failure of Lender to comply with applicable law in
connection with the sale or other disposition of any Collateral or other
security of any Borrower, for any Obligation, including any failure of Lender to
conduct a commercially reasonable sale or other disposition of any Collateral or
other security of any Borrower for any Obligation; (vii) any act or omission of
Lender or others that directly or indirectly results in or aids the discharge or
release of any Borrower or the Obligations of any Borrower or any security or
guaranty therefor by operation of law or otherwise; (viii) any law which
provides that the obligation of a surety or guarantor must neither be larger in
amount nor in other respects more burdensome than that of the principal or which
reduces a surety's or guarantor's obligation in proportion to the principal
obligation; (ix) any failure of Lender to file or enforce a claim in any
bankruptcy or other proceeding with respect to any Borrower; (x) the avoidance
of any lien or security interest in assets of any Borrower in favor of Lender
for any reason; or (xi) any action taken by Lender that is authorized by this
section or any other provision of any Loan Document. Until such time, if any, as
all of the Obligations have been indefeasibly paid and performed in full and no
portion of any commitment of Lender to Borrowers under any Loan Document remains
in effect, each Borrower's indebtedness, claims and rights of subrogation,
contribution, reimbursement, or indemnity against the other Borrowers shall be
10
fully and completely subordinated to the indefeasible repayment in full of the
Obligations, and each Borrower expressly waives until such indefeasible payment
any right to enforce any remedy that it now has or hereafter may have against
any other Person and waives the benefit of, or any right to participate in, any
Collateral now or hereafter held by Lender.
(vii) Subrogation Claims. To the fullest extent permitted by
applicable law, each Borrower expressly waives and agrees not to assert, any and
all defenses in its favor based upon an election of remedies by Lender which
destroys, diminishes, or affects such Borrower's subrogation rights against the
other Borrowers, and/or (except as explicitly provided for herein) any rights to
proceed against each other Borrower, or any other party liable to Lender, for
reimbursement, contribution, indemnity, or otherwise.
(viii) Waivers Given Knowingly. Borrowers and each of them
warrant and agree that each of the waivers and consents set forth herein are
made after consultation with legal counsel and with full knowledge of their
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy, or otherwise adversely affect
rights which Borrowers otherwise may have against each other, Lender or others,
or against Collateral, and that, under the circumstances, the waivers and
consents herein given are reasonable and not contrary to public policy or law.
If any of the waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be effective to
the maximum extent permitted by law.
(ix) Contribution Agreement. As an inducement to Lender to
enter into the Loan Documents and to make the Loan and extend credit to the
Borrowers, each Borrower agrees to indemnify and hold the other harmless from
and each shall have a continuing right of contribution against the other
Borrower,. These indemnification and contribution obligations shall be
unconditional and continuing obligations of the Borrowers and shall not be
waived, rescinded, modified, limited or terminated in any way whatsoever without
the prior written consent of Lender, in its sole discretion.
[SIGNATURE PAGE TO FOLLOW]
11
[SIGNATURE PAGE TO LOAN AGREEMENT]
Executed as an instrument under seal on the date set forth above.
FONIX/ASI CORPORATION
By:/s/
----------------------------------------
Xxxxxx X. Xxxxxxx
President
FONIX CORPORATION
By:/s/
----------------------------------------
Xxxxxx X. Xxxxxxx
President and Chief Executive Officer
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By:/s/
----------------------------------------
Xxxxxx Xxxxxxxxx
President and Chief Executive Officer
12
EXHIBIT A
[NOTE]
13
EXHIBIT B
[SECURITY AGREEMENT]
14
EXHIBIT C
[PATENT SECURITY AGREEMENT]
15
EXHIBIT D
[COPYRIGHT SECURITY AGREEMENT]
16
EXHIBIT E
[TRADEMARK SECURITY AGREEMENT]
17
EXHIBIT F
PERFECTION CERTIFICATE
The undersigned, the chief executive or financial officer of FONIX/ASI
CORPORATION, a Utah corporation (the "Company"), hereby certifies with reference
to the Loan Agreement dated as of April ___, 1999, among the Company, Fonix
Corporation, as Borrowers and Lernout & Hauspie Speech Products N.V., as Lender
(terms defined therein being used herein as therein defined), to the Lender and
each Lender as follows:
1. Names. (a) The exact corporate name of the Company as it
appears in its articles of organization is as follows:
Fonix/ASI Corporation
(b) Set forth below is each other corporate name the Company has had
since its organization, together with the date of the relevant change:
ASI Acquisition Corporation (incorporated on 6/26/98). ASI
Acquisition Corporation changed its name to Fonix/ASI
Corporation on 1/7/99.
(c) Except as set forth in Schedule 1 attached hereto, the Company has
not changed its identity or corporate structure in any way within the past five
years.
(SEE SCHEDULE I ATTACHED HERETO)
(d) The following is a list of all other names (including trade names
or similar appellations) used by the Company or any of its divisions or other
business units at any time during the past five years:
None.
2. Current Locations. (a) The chief executive office of the
Company is located at the following address:
Mailing Xxxxxxx Xxxxxx Xxxxx
0000 Xxxxx Xxxx Xxxxx Xxxx Xxxx Xxxxxx Xxxx
00 Xxxx Xxxxx Xxxxxx
Xxxx Xxxx Xxxx
18
(b) The following are all the locations where the Company maintains any
books or records relating to any Accounts:
0000 Xxxxx Xxxx Xxxxx 000 Xxxx Xxxxxxxx Xxxx
00 Xxxx Xxxxx Xxxxxx Xxxxx 0000
Xxxx Xxxx Xxxx, XX 00000 Xxxxxx, XX 00000
(c) The following are all the places of business of the Company not
identified above:
None.
(d) The following are all the locations where the Company maintains any
Inventory not identified above:
None.
(e) The following are the names and addresses of all persons other than
the Company which have possession of any of the Company's Inventory:
None.
3. Prior Locations. (a) Set forth below is the information required by
subparagraphs (a), (b) and (c) of paragraph 2 with respect to each location or
place of business maintained by the Company at any time during the past five
years:
N/A.
(b) Set forth below is the information required by subparagraphs (d)
and (e) of paragraph 2 with respect to each location or bailee where or with
whom Inventory has been lodged at any time during the past four months:
N/A.
4. File Search Reports. Attached hereto as Schedule 4(a) is a true copy of a
file search report from the UCC filing officer in each jurisdiction identified
in paragraph 2 or 3 above with respect to each name set forth in paragraph 1
above. Attached hereto as Schedule 4(b) is a true copy of each financing
statement or other filing identified in such file search reports.
Utah UCC searches shows nothing as of 4/5/99 for
Fonix/ASI Corporation, ASI Acquisition Corporation, or
Articulate Systems, Inc., or ASI Holdings, Inc.
Utah UCC search shows debtor Fonix to Secured Party
UTCO Associates, Ltd. Copies of UCC search, UCC-1 and related
Security Agreement are attached.
19
SCHEDULE 1(c)
Articulate Systems, Inc., a Delaware corporation, merged into
ASI Acquisition Corporation on September 2, 1998; ASI
Acquisition Corporation is the surviving corporation.
Articulate Systems, Inc. changed its name from ASI Holdings,
Inc., on January 1, 1995.
ASI Holdings, Inc. was incorporated in the State of Delaware
on December 20, 1994.
20
IN WITNESS WHEREOF, I have hereunto set my hands this _____ day of
April, 1999.
FONIX/ASI CORPORATION
By:/s/
----------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
21
EXHIBIT G
[LEGAL OPINIONS]
(a) Fonix/ASI Corporation is validly existing and in good standing as a
corporation under the laws of the State of Utah and has full corporate power and
authority to own, lease and operate its properties, to carry on its business as
now being conducted by it and to execute, deliver and perform each Loan Document
to which it is a party.
(b) Each Loan Document constitutes the legal, valid and binding
agreement of Fonix/ASI Corporation and/or Fonix Corporation, as applicable,
enforceable against Fonix/ASI Corporation and/or Fonix Corporation, as
applicable, in accordance with its terms.
(c) The Common Stock Warrant constitutes the legal, valid and binding
obligation of Fonix Corporation enforceable against Fonix Corporation in
accordance with its terms.
(d) The execution, delivery and performance by Fonix/ASI Corporation of
each Loan Document and the consummation of the transactions contemplated thereby
will not: (i) conflict with any term or provision of the certificate of
incorporation or the by-laws of Fonix/ASI Corporation, (ii) result in any breach
of, or constitute a default under, or result in the creation of any Lien (except
as contemplated by the Loan Documents) in respect of any property of Fonix/ASI
Corporation under any indenture, mortgage, deed of trust, bank loan or credit
agreement, or other agreement or instrument; (iii) conflict with or result in a
breach of any terms, conditions or provisions of any judgment, decree or order
of any court or governmental authority or agency to which Fonix/ASI Corporation
or any of its properties are bound and which is known to us; or (iv) violate any
provision of any United States Federal, State of Utah or Commonwealth of
Massachusetts law or any rule or regulation of any United States Federal or
State of Utah or Commonwealth of Massachusetts governmental body applicable to
Fonix/ASI Corporation.
(e) To the extent the Fonix/ASI Corporation has rights in the
Collateral and value has been given, the Security Agreement creates a valid and
enforceable security interest in such Collateral, to the extent that valid
security interests can be created therein under the Uniform Commercial Code
presently in effect in the State of Utah and the Commonwealth of Massachusetts,
in favor of the Lender, as security for the payment of the Obligations (as
defined in the Security Agreement).
(f) The Financing Statements on Form UCC-1 naming Fonix/ASI Corporation
as secured party to be filed in the filing offices in the State of Utah and the
Commonwealth of Massachusetts, delivered in connection with the Loan Documents
are in appropriate form and, when duly filed and indexed in the filing offices
identified above, will result in the perfection of aforesaid security interests
in the Collateral to the extent such security interests can be perfected under
the Uniform Commercial Code, as in effect in such State, by the filing of a
Financing Statement in such State. No further action will be required in order
22
to perfect such security interests and to preserve protect and continue such
perfection, except for the filing of periodic continuation statements with
respect to such Financing Statements.
(g) To our knowledge, there is no pending or threatened action, suit or
proceeding before any court, governmental or regulatory authority, agency,
commission or board arbitration, by or against Fonix/ASI Corporation, which we
believe could materially adversely affect Fonix/ASI Corporation.
(h) The shares issuable upon the exercise of the Common Stock Warrant
have been duly and validly authorized and, upon issuance, delivery and payment,
as described in the Common Stock Warrant, will be validly issued, fully paid and
nonassessable and free and clear of any preemptive or similar rights.
23
EXHIBIT H
[COMMON STOCK WARRANT]
24
SCHEDULE I - DEFINITIONS
"Accounts" means all "accounts" (as defined in the UCC) now owned or hereafter
acquired by Fonix/ASI Corporation and shall also mean and include all accounts
receivable, contract rights, book debts, notes, drafts and other obligations or
indebtedness owing to Fonix/ASI Corporation arising from the sale, lease or
exchange of goods or other property by it and/or the performance of services by
it (including, without limitation, any such obligation which might be
characterized as an account, contract right or general intangible under the
Uniform Commercial Code in effect in any jurisdiction) and all of Fonix/ASI
Corporation's rights in, to and under all purchase orders for goods, services or
other property, and all of Fonix/ASI Corporation's rights to any goods, services
or other property represented by any of the foregoing (including returned or
repossessed goods and unpaid sellers' rights of rescission, replevin,
reclamation and rights to stoppage in transit) and all monies due to or to
become due to Fonix/ASI Corporation under all contracts for the sale, lease or
exchange of goods or other property and/or the performance of services by it
(whether or not yet earned by performance on the part of Fonix/ASI Corporation),
including, without limitation, credit card receivables and credit card charge
records and evidences of credit card transactions, in each case whether now in
existence or hereafter arising or acquired including, without limitation, the
right to receive the proceeds of said purchase orders and contracts and all
collateral security and guarantees of any kind given by any Person with respect
to any of the foregoing.
"Event of Default" means any one or more of the following events:
(a) failure by either Borrower to pay any principal,
interest or other amount due hereunder or on account of the Loan when
due;
(b) failure by either Borrower to perform or discharge,
observe or comply with any of their covenants or agreements set forth
herein or in any of the Loan Documents (or any of the other security
documents delivered in connection herewith);
(c) if any representation or warranty of either Borrower to
Lender set forth herein is found to have been false or misleading in
any material respect as of the time when made;
(d) either Borrower's liquidation, termination, dissolution or
ceasing to carry on any substantial part of its current business;
(e) a change in control with respect to either Borrower or
consummation by either Borrower of a reorganization, merger or
consolidation with any other person or entity, transfer of all or
substantially all of their assets or properties or consummation of any
other plan or arrangement involving a similar extraordinary corporate
transaction;
(f) service upon the Lender of a writ of levy or attachment,
or naming Lender as trustee for either Borrower, or of any other
similar process of attachment.
25
(g) commencement by either Borrower of a voluntary proceeding
seeking relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law, or seeking appointment of
a trustee, receiver, liquidator or other similar official for it or any
substantial part of its assets; or its consent to any of the foregoing
in an involuntary proceeding against it; or either Borrower shall
generally not be paying its debts as they become due or admit in
writing its inability to do so; or an assignment for the benefit of, or
the offering to or entering into by either Borrower of any composition,
extension, reorganization or other agreement or arrangement with, its
creditors; or
(h) commencement of an involuntary proceeding against either
Borrower seeking relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law, or seeking appointment of
a trustee, receiver, liquidator or other similar official for it or any
substantial part of its assets, which proceeding is not dismissed or
stayed within sixty (60) days.
"Inventory" means all "inventory" (as defined in the UCC), now owned or
hereafter acquired by Fonix/ASI Corporation, wherever located, and shall also
mean and include, without limitation, all consigned goods, all raw materials and
other materials and supplies, work-in-process and finished goods and any
products made or processed therefrom and all substances, if any, commingled
therewith or added thereto.
"Investment Property" shall mean all of Fonix/ASI Corporation's now owned and
hereafter existing or acquired securities, financial assets, securities
accounts, securities entitlements and all other investment property of
whatsoever kind or nature, wherever located.
"Loan" has the meaning given in Section 2(a) hereof.
"Note" means the note executed and delivered by Borrowers to Lender in the form
of Exhibit A attached hereto, made to evidence the Loan.
"Proceeds" has the meaning given such term under the UCC, and in any event
includes, without limitation, all proceeds of, and all other profits, products,
rentals or receipts, in whatever form, arising from the collection, sale, lease,
exchange, assignment, licensing or other disposition of, or other realization
upon, collateral, including, without limitation, all claims of the Borrowers
against third parties for loss of, damage to or destruction of, or for proceeds
payable under, or unearned premiums with respect to, policies of insurance in
respect of, any collateral, and any condemnation or requisition payments with
respect to any collateral, in each case whether now existing or hereafter
arising.
"Security Agreement" means the security agreement executed and delivered by
Fonix/ASI Corporation to Lender in the form of Exhibit B attached hereto,
entered into in connection with the Loan.
26
