Common Stock Purchase Agreement
COMMON STOCK PURCHASE AGREEMENT ("Agreement") by and among fonix
corporation, a Delaware corporation (the "Company"), JNC Opportunity Fund Ltd.,
a Cayman Islands corporation ("JNC"), and Diversified Strategies Fund, L.P., an
Illinois limited partnership ("DSF") (collectively JNC and DSF are referred to
herein as "Purchaser"), dated as of March 9, 1998.
Recitals
A. Purchaser desires to purchase, and the Company desires to sell
2,222,222 shares of the Company's restricted common stock on the terms and
conditions as are set forth below.
B. The parties intend that the issuance of the Securities as
anticipated by this Agreement shall be accomplished without registration under
the U.S. Securities Act of 1933, as amended (the "Securities Act"), and without
registration or qualification under the securities laws of any state or other
jurisdiction in reliance on exemptions from the registration requirements of the
Securities Act, including without limitation Regulation D under the Securities
Act and Section 4(2) of the Securities Act, provided, however that nothing in
this Agreement shall act or be construed as a limitation on Purchaser's right to
sell any of the securities to be acquired pursuant to this Agreement pursuant to
the Registration Statement contemplated by the Registration Rights Agreement, or
other provisions of the Registration Rights Agreement or in accordance with
applicable laws.
THEREFORE, in consideration of the mutual promises and covenants set
forth below and for other good and valuable consideration, the receipt and
sufficiency of which the parties acknowledge by their signatures below, the
parties agree as follows:
Agreement
1. Purchase of Common Stock. Subject to the terms and conditions of
this Agreement, the Company agrees to issue and sell, and Purchaser agrees,
severally not jointly, to acquire, Two Million Two Hundred Twenty-two Thousand
Two Hundred Twenty-two (2,222,222) fully paid and non-assessable shares (the
"Shares") of the Company's common stock, par value $.0001 per share (the "Common
Stock"). The purchase price (the "Purchase Price") payable by Purchaser for the
Shares shall be Four and 50/100 Dollars ($4.50) U.S. per share.
2. Closing.
2.1 Initial Closing. Upon execution of this Agreement (the
"Initial Closing") and on the date set forth above (the "Initial Closing Date")
Purchaser shall pay pro rata according to Schedule 2 Five Million Dollars
($5,000,000) of the Purchase Price by wire transfer to the Company's account of
presently available funds according to the following instructions:
First Security Bank of Utah
00 Xxxxx Xxxx Xxxxxx, Xxxx Xxxx Xxxx, Xxxx 00000
ABA No. 000000000
Account No. 1820000865 (fonix corporation)
In return for such payment at the Initial Closing, the Company shall deliver
at the Closing certificates representing One Million One Hundred Eleven
Thousand, One Hundred Eleven (1,111,111) of the Shares (the "First Tranche
Shares") to the Purchaser, which First Tranche Shares shall be delivered to
each Purchaser and in each amount as shall be set forth in Schedule 2. At the
Initial Closing the parties shall execute and deliver the Registration Rights
Agreement in the form attached to this Agreement as Exhibit "A", and
incorporated herein by reference.
2.2 Second Closing. On that date which shall be the next business
day following that date which shall be the sixtieth (60th) day following the
"Effectiveness Date," as that term is defined in the Registration Rights
Agreement (the "Second Closing Date"), each Purchaser shall pay to the Company
its pro rata share (as shall be determined by reference to Schedule 2) of Five
Million Dollars ($5,000,000) in return for which the Company shall deliver One
Million One Hundred Eleven Thousand, One Hundred Eleven (1,111,111) of the
Shares (the "Second Tranche Shares") to the Purchaser plus such additional
shares of Common Stock as shall be determined in accordance with Section 2.3(a)
(which events shall constitute the "Second Closing"), provided that Purchaser's
obligation to perform at the Second Closing is subject to the satisfaction or
waiver by Purchaser at or before the Second Closing, of the following
conditions:
(1) The Registration Statement required to be filed under the
Registration Rights Agreement shall continue to be in effect;
(2) The representations and warranties of the Company
contained in Section 4 hereof shall be true and correct in all material respects
(and the Company's issuance of the Second Tranche Shares shall at the Second
Closing constitute the Company's making each such representation and warranty as
of such date);
(3) The Market Price of the Common Stock (as defined below)
for the five (5) trading days immediately preceding the Second Closing Date
shall exceed $4.50 per share;
(4) The Dollar volume for trading for the Common Stock as
reported by the Nasdaq Stock Market or any securities exchange or quotation
service on which the Common Stock is then listed or quoted for each of the ten
(10) trading days preceding the Second Closing Date shall have equaled or
exceeded $1,000,000, and there shall be on such date at least eighteen (18)
market makers of the Common Stock, as reported by Bloomberg, LP or other similar
source; and
(5) There shall have been no change in the business or
financial condition of the Company that individually, or in the aggregate,
constitutes a Material Adverse Effect, as that term is defined in Section 4.5
from the Closing Date through and including the Second Closing Date (and the
Company's issuance of the Second Tranche Shares shall constitute the Company's
making such representation and warranty as of such date).
(6) The Term "Market price of the Common Stock" means, the
closing bid price of the Common stock as reported, at the option of the
Purchaser, by Bloomberg, LP or the National Association of Securities Dealers.
(7) The Company shall have timely complied with all of its
obligations under this Agreement as of such date.
2.3 Reset. (1) First Tranche Reset. At the Second Closing, in
addition to delivery of the Second Tranche Shares, the Company shall deliver
additional shares of Common Stock for no additional consideration (the "Reset
Shares") to the extent and as follows:
(a) If the average Closing Bid Price of the Common Stock
for the sixty calendar day period between the Effectiveness Date and the Second
Closing Date (the "60-day Average") is less than $5.40 per share, the Company
shall issue Reset Shares in such number as shall be determined by dividing (i)
the product of (A) the amount by which the 60-day Average is less than $5.40 and
(B) 1,111,111 by (ii) the 60-day Average.
(2) Second Tranche Reset. On that date which shall be the
next following business day after the sixtieth (60th) day after the Second
Closing (the "Second Tranche Reset Date"), the Company shall issue additional
Reset Shares as provided in Section 2.3(1)(a), provided that the period for
determining the 60-day Average shall be the sixty (60) day period commencing on
the Second Closing Date.
(3) Issuance of Reset Shares. The Reset Shares, if any,
issued by the Company Pursuant to Section 2.3, shall be issued to each Purchaser
pro rata according to the percentage of the Purchase Price paid by each
Purchaser. The Shares and the Reset Shares shall be collectively referred to
herein as the "Securities."
(4) Reset Share Adjustment. If, at any time prior to or on
the Sixtieth (60th) day following the Second Tranche Reset Date, the Company
shall sell, or enter into an agreement to sell, Common Stock or securities
convertible into Common Stock at a discount of sixteen and two thirds percent
(16.66%) or greater from the Closing Bid Price of such Common Stock at time of
such sale or conversion, or the date of any such agreement (the "Discount
Percentage"), whichever is less, the Company shall issue additional Reset
Shares to each Purchaser, and such number shall be calculated as follows:
Securities actually issued x Adjusted Yield
--------------
.20
Where "Adjusted Yield" is equal to:
Discount Percentage
-------------------
1-Discount Percentage
(5) Short Sales. Purchaser covenants that it will engage in
no short sales of Common Stock during any period during which a 60-day Average
is being calculated.
2.4 Size of Offering. Purchaser and the Company agree that, in
addition to Purchaser's investment as contemplated by this Agreement, the
Company may offer and sell additional Securities to other investors as part of
the same offering, provided that the any additional investment shall be on the
same material terms and conditions as are herein set forth, and do not exceed,
in the aggregate $20,000,000.
3. Representations and Warranties of Purchaser. To induce the Company's
acceptance of this Agreement, each of Purchaser hereby severally certifies,
represents and warrants to the Company and its agents and attorneys as follows,
which representations and warranties are solely for the benefit of the Company
and may be waived in whole or in part at any time prior to Closing by the
Company:
3.1 Intent. Purchaser will be acquiring the Securities for its own
account, and Purchaser has no present arrangement (whether or not legally
binding) to sell any of such securities to or through any person or entity;
provided, however, that by making the representations herein, Purchaser does not
agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
U.S. federal and state securities laws applicable to such disposition and any
restrictions imposed on such transfer by this Agreement or the instruments and
documents executed in connection with this Agreement. Purchaser understands that
the Securities must be held indefinitely unless such securities are subsequently
registered under the Securities Act or an exemption from registration is
available. Purchaser has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act.
3.2 Sophisticated Investor. Purchaser is a "sophisticated
investor" (as described in Rule 506(b)(2)(ii) of Regulation D) and an
"accredited investor" (as defined in Rule 501(a) of Regulation D), and Purchaser
has such knowledge and experience in business and financial matters that it is
capable of evaluating the merits and risks of an investment in the Company's
securities.
3.3 Ability of Purchaser to Bear Risk of Investment. Purchaser
acknowledges that the Securities are speculative investments and involve a
high degree of risk and the Purchaser is able to 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.
3.4 Authority. This Agreement has been duly authorized and validly
executed and delivered by each Purchaser and (assuming due authorization and
valid execution by the Company) is a legal, valid and binding agreement of
Purchaser enforceable against Purchaser in accordance with its terms, subject to
general principles of equity and to bankruptcy, insolvency or similar laws
relating to, or affecting generally the enforcement of creditors' rights and
remedies or by other equitable principles of general application. The person or
persons executing this Agreement and all exhibits to this Agreement and
documents or instruments executed in connection with this Agreement have all
requisite authority to do so on behalf of Purchaser.
3.5 Brokers, Finders. Neither Purchaser has signed any agreement
which would give rise to any claim by any person for brokerage commission,
finder's fees or similar payments by the Company relating to this Agreement or
the transactions contemplated hereby. See Section 4.14.
3.6 Organization; Authority. Each Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by this Agreement and to
carry out its obligations thereunder. The acquisition of the Securities and the
payment of the purchase price therefor by such Purchaser have been duly
authorized by all necessary action on the part of such Purchaser. This Agreement
has been duly executed by such Purchaser and, when delivered by such Purchaser
in accordance with the terms hereof, shall constitute the valid and legally
binding obligation of such Purchaser, enforceable against it in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability relating to
or affecting creditors' rights generally and to general principles of equity.
3.7 Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument executed in connection herewith
(collectively, the "Transaction Documents"), and the consummation of the
transactions contemplated by this Agreement and such other documents and
instruments, and compliance with the requirements thereof, will not violate any
law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on such Purchaser, or the provision of any indenture, instrument or
agreement to which such Purchaser is a party or is subject, or by which such
Purchaser or any of its assets is bound, or conflict with or constitute a
material default thereunder, or require the approval of any third-party pursuant
to any material contract, agreement, instrument, relationship or legal
obligation to which such Purchaser is subject or to which any of its assets,
operations or management may be subject.
3.8 Disclosure; Access to Information. Each Purchaser has received
copies of or has had access to all documents, records, books and other
information pertaining to such Purchaser's investment in the Company and the
Securities that have been requested by such Purchaser. Each Purchaser has been
afforded the opportunity to ask questions of the Company and its
management. Such Purchaser further acknowledges that it understands that the
Company is subject to the periodic reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and such Purchaser has
reviewed or received copies of any such reports that have been requested by it.
Such Purchaser further acknowledges that it has been provided with copies of the
Company's certificate of incorporation, as amended (the "Certificate"), and the
Company's by-laws (the "By-Laws").
3.9 Manner of Sale. At no time was Purchaser presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising with
respect to the Securities.
3.10 Accuracy of Other Materials. To the extent Purchaser has
received from the Company documents or other materials which constitute
summaries, projections, forecasts or estimates, Purchaser acknowledges the
following with respect to such documents or other materials. Such documents or
other materials are intended to illustrate projected financial and other results
based upon a set of assumptions (in some cases based on information obtained by
the Company from outside sources) the Company views as reasonable and
obtainable. All such summaries, projections, forecasts or estimates pertaining
to revenue growth, profitability and other similar financial or market data are
forward-looking statements. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
projected. No representations or warranties of future performance by or market
trends for the Company are intended, and such are expressly disclaimed.
3.11 Accuracy of Representations and Information. All
representations made by Purchaser in this Agreement are correct and complete in
all material respects as of the date hereof.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to Purchaser as follows, which representations and
warranties are solely for the benefit of Purchaser and may be waived in whole or
in part by Purchaser at any time prior to Closing:
4.1 Company Status. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act, is in full compliance with all
reporting requirements of the Exchange Act, and the Company has maintained all
requirements for the continued listing of its Common Stock, and such Common
Stock is currently listed on the Nasdaq SmallCap Market.
4.2 Current Public Information. The Company has furnished or made
available to Purchaser true and correct copies of all registration statements,
reports and documents, including proxy statements (other than preliminary proxy
statements), filed with the Securities and Exchange Commission (the "SEC") by or
with respect to the Company since December 31, 1996 and prior to the date of
this Agreement, pursuant to the Securities Act or the Exchange Act
(collectively, the "SEC Documents"). The SEC Documents are the only filings made
by or with respect to the Company since December 31, 1996 pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act or pursuant to the Securities
Act. The Company has filed all reports, schedules, forms, statements and other
documents required to be filed under Sections 13(a), 13(c), 14 and 15(d) of the
Exchange Act since January 1, 1996 and prior to the date of this Agreement. The
Company meets the "Registrant Requirement" for eligibility to use Form S-3 under
the Securities Act in order to register the Company's Common Stock for resales.
4.3 No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the Securities.
4.4 Regulation D Offering. Assuming the accuracy of the
representations and warranties of the Purchaser contained in Sections 3.1, 3.2,
3.3, 3.8 and 3.9 hereof, the offer, issuance and sale of the Securities to the
Purchaser as contemplated hereunder are exempt from the registration
requirements of the Securities Act.
4.5 Nonpublic Information. The Company confirms that it has not
provided to Purchaser or any of its representatives, agents or counsel any
information that constitutes or might constitute material nonpublic information.
4.6 Valid Issuance of Common Stock. 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
share. As of the date of this Agreement, the Company has issued and outstanding
45,149,952 shares of Common Stock. 12,880,000 shares of Common Stock are subject
to issuance upon the conversion or exercise of presently issued and outstanding
warrants and options of the Company. 13,800,000 shares of Common Stock are
reserved for issuance under the Company's existing stock option plans. 166,667
shares of the Company's Series A Preferred Stock have been issued and 166,667
shares are outstanding, which shares of Series A Preferred Stock are convertible
into 166,667 shares of Common Stock. 125,000 shares of the Company's Series B
Convertible Preferred Stock have been issued and no shares are outstanding.
187,500 shares of the Company's Series C Convertible Preferred Stock have been
issued and no shares are outstanding. All of the shares of Common Stock and
preferred stock of the Company issued to date have been duly and validly
authorized and issued and are fully paid and non-assessable. Except as set forth
above or as disclosed in Schedule 4.4, as of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of it subsidiaries is or may become bound to redeem or issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the Securities Act. Except as
disclosed in Schedule 4.4, there are no securities or instruments containing any
anti-dilution, right of first refusal, preemptive rights or similar provisions
that will be triggered by the issuance of the Securities as described in this
Agreement. Upon issuance of the Securities, such securities will be duly and
validly issued, fully paid and non-assessable.
4.7 Organization and Qualification. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries, except for those listed on Schedule 4.5 attached to this Agreement
(the "Subsidiaries"). The Subsidiaries are duly incorporated and existing in
good standing under the laws of the jurisdiction of their incorporation. The
Company and each of the Subsidiaries is duly qualified as a foreign corporation
to do business and is in good standing in every jurisdiction in which the nature
of the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect. "Material Adverse Effect" means any effect on the
business, operations, properties,
prospects, or financial condition of the entity or entities with respect to
which such term is used and which is material and adverse to such entity or to
other entities controlling or controlled by such entity, and/or any condition or
situation which would prohibit or otherwise interfere with the ability of the
entity or entities with respect to which said term is used to enter into and
perform its obligations under the Transaction Documents.
4.8 Authorization: Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform under the Transaction
Documents and to issue the Securities in accordance with the terms of the
Transaction Documents, (ii) the execution, issuance and delivery of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated by the Transaction Documents have been duly authorized
by all necessary corporate action, and no further consent or authorization of
the Company or its board of directors or stockholders is required, (iii) the
Transaction Documents have been duly executed and delivered by the Company, and
(iv) the Transaction Documents (assuming due authorization and valid and legal
execution Purchaser) constitute legal, valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general application.
4.9 Corporate Documents. The Company has furnished or made
available to Purchaser true and correct copies of the Certificate and the
Bylaws.
4.10 No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Securities, do not and will not (i) result in a violation of the Company's
Certificate or Bylaws, or (ii) conflict with, or result in a breach of or
forfeiture of any rights (or result in an event which with notice or lapse of
time or both would become a breach of or forfeiture of any rights) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of the Subsidiaries is a party, or (iii) result in a violation of
any federal or state law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company or
any of the Subsidiaries or by which any property or asset of the Company or any
of the Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not and will not have a
Material Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation to obtain any consent, authorization or order of,
or make any filing or registration with, any court or governmental agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Securities in accordance with the terms of this
Agreement (other than any SEC, NASD or state securities filings which may be
required to be made by the Company subsequent to any Closing, and any
registration statement which may be filed in furtherance of this Agreement);
provided that, for purposes of the representation made in this sentence, the
Company is assuming and relying upon the accuracy of the relevant
representations and agreements of Purchaser herein. Neither the Company nor any
of the Subsidiaries is in violation of any material term of or in material
default under its Certificate, Certificate of Designation, Preferences and
Rights of any outstanding series of preferred stock or By-laws or their
organizational charter or by-laws, respectively, or any material contract,
agreement, mortgage, indebtedness, indenture,
instrument, judgment, decree of order or any statute, rule or regulation
applicable to the Company or is subsidiaries, which has not been duly waived as
of the date of this Agreement.
4.11 SEC Documents. The Company has not provided to Purchaser any
information which according to applicable law, rule or regulation, should have
been disclosed publicly prior to the date hereof by the Company but which has
not been so disclosed. As of their respective dates, the SEC Documents complied,
and all similar documents filed with the SEC prior to the Closing Date will
comply, in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such SEC Documents, and none of the SEC Documents
contained, nor will any similar document filed with the SEC prior to the Closing
Date contain, 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. The financial statements of the Company included in the SEC
Documents, as of the dates thereof, complied, and all similar documents filed
with the SEC prior to the Closing Date will comply, as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC and other applicable rules and regulations with respect
thereto. Such financial statements were prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the periods
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto or (ii) in the case of unaudited interim statements, to the
extent they may not include footnotes or may be condensed or summary statements
as permitted by Form 10-Q of the SEC) and fairly present in all material
respects the financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments).
4.12 No Undisclosed Liabilities. Except to the extent described in
Schedule 4.10, the Company and the Subsidiaries have no liabilities or
obligations of a financial nature (whether accrued, absolute, contingent or
otherwise), which are material, individually or in the aggregate, and are not
disclosed in the SEC Documents, other than those incurred in the ordinary course
of the Company's or the Subsidiaries' respective businesses consistent with past
practice since December 31, 1996, and which, individually or in the aggregate,
do not or would not have a Material Adverse Effect on the Company.
4.13 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents or otherwise disclosed in writing to the Purchaser, there
are no lawsuits or proceedings pending or to the best knowledge of the Company
threatened, against the Company, nor has the Company received any written or
oral notice of any such action, suit, proceeding or investigation, which might
have a Material Adverse Effect on the Company or which might materially
adversely affect the transactions contemplated by this Agreement. Except as set
forth in the SEC Documents no judgment, order, writ, injunction or decree or
award has been issued by or, to the best knowledge of the Company, requested of
any court, arbitrator or governmental agency which might result in a Material
Adverse Effect or which might materially adversely affect the transactions
contemplated by this Agreement.
4.14 Other Documents or Materials. With respect to any document or
other materials received by Purchaser from the Company or its representatives
other than the Transaction Documents and the SEC Documents, (i) the Company has
no reason to believe any of such documents and materials or any projections
contained therein, as of the date of such other documents or materials,
contained errors or misstatements or do not adequately describe the status of
the development of the Company's technologies or its business as
of such date, and (ii) such documents, materials and projections were prepared
by the Company and its management in good faith.
4.15 Nature of Company. The Company is not an open ended
investment company or a unit investment trust, registered or required to be
registered, or a closed end investment company required to be registered, but
not registered, under the Investment Company Act of 1940.
4.16 Brokers, Finders. Two entities have acted as brokers and/or
finders in connection with the transactions contemplated by this Agreement.
Payment of fees to such brokers and/or finders shall be the sole responsibility
of the Company. The Company has taken no action which would give rise to any
claim by any person for brokerage commission, finder's fees or similar payments
by Purchaser relating to this Agreement or the transactions contemplated hereby.
Purchaser shall have no obligation with respect to such fees or with respect to
any claims made by or on behalf of other Persons for fees of a type contemplated
in this Section 4.14 that may be due in connection with the transactions
contemplated hereby. The Company shall indemnify and hold harmless each of
Purchaser, their respective 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, as and when
incurred. See Section 3.5.
4.17 Absence of Certain Changes. Since December 31, 1996, no
Material Adverse Effect has been suffered by, and no material adverse
development has occurred in the business, properties, operations, financial
condition, results of operations or prospects of, the Company or the
Subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or any of the Subsidiaries have any knowledge or reason to believe
that its creditors intend to initiate involuntary bankruptcy proceedings.
4.18 Intellectual Property Rights. The Company and its
subsidiaries own or possess adequate rights or licenses to use all trademarks,
trade names, service marks, service xxxx registrations, service names, patents,
patent rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. None of the Company's trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, government authorizations,
trade secrets or other intellectual property rights have expired or terminated,
or are expected to expire or terminate in the near future. The Company and its
subsidiaries do not have any knowledge of any infringement by the Company or its
subsidiaries of trademarks, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service xxxx
registrations, trade secrets or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, there is no claim, action or proceeding being made or brought
against, or to the best knowledge of the Company, being threatened against, the
Company or its subsidiaries regarding trademark, trade name, patent, patent
rights, invention, copyright, license, service name, service xxxx, service xxxx
registration, trade secret or other infringement; and the Company and its
subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing. The Company and its subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties.
4.19 Internal Accounting Controls. The Company is aware of no
respect in which its system of internal accounting controls is not sufficient to
provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
4.20 Tax Status. The Company and the Subsidiaries have made or
filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject and has paid
all taxes and other governmental assessments and charges that are material in
amount, shown or determined to be due on such returns, reports, declarations,
except those being contested in good faith and has set aside on its books
provisions reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports, or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
4.21 Certain Transactions. Except as set forth in the SEC
Documents and except for arm's length transactions pursuant to which the Company
makes payments in the ordinary course of business upon terms no less favorable
than the Company could obtain from third parties and other than the grant of
stock options, none of the officers, directors, or employees of the Company (or
any spouse or relative of any such person) is presently a party to any
transaction with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director, or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
4.22 Dilution. The number of shares of Common Stock issuable as
Reset Shares may increase substantially in certain circumstances, including, but
not necessarily limited to, the circumstance wherein the trading price of the
Common Stock declines during the sixty day period between the Effectiveness Date
and the Second Closing Date. The Company's executive officers and directors have
studied and fully understand the nature of the transactions contemplated by this
Agreement and recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment,
that such issuance is in the best interests of the Company. The Company
specifically acknowledges that its obligation to issue the Reset Shares is
binding upon the Company and enforceable regardless of the dilution such
issuance may have on the ownership interests of other shareholders of the
Company.
4.23 Nasdaq Listing. The Company's Common Stock is presently
quoted on the Nasdaq SmallCap Stock Market under the symbol "FONX". The Company
is not in receipt of any written or oral notice from any stock exchange, market
or trading facility on which the Common Stock is or has been listed (or on which
it is or has been quoted) to the effect that the Company is not in compliance
with the listing or maintenance requirements of such stock exchange, market or
trading facility or that the Common Stock will be delisted from such stock
exchange, market or trading facility. The Company is in compliance with such
listing and maintenance requirements.
5. Use and Disposition of Proceeds. The Company intends to use the
gross proceeds from the Shares for working capital, for acquisition activities,
to fund its ongoing research and development activities, and for
the payment of general and administrative expenses. Purchaser acknowledges and
agrees that the Company shall have immediate access to the funds paid by
Purchaser pursuant to this Agreement according to the discretion of management
of the Company.
6. Company Reliance on Purchaser's Representations. Purchaser
understands that the Company is relying on the truth and accuracy of the
representations and warranties made herein by Purchaser in offering the
Securities for sale and in relying upon applicable exemptions available under
the Act and applicable state securities laws.
7. Restricted Shares. Purchaser understands and acknowledges that the
Securities have not been, and will not as of the time issued, registered under
the Securities Act and that they will be issued in reliance upon exemptions from
the registration requirements of the Securities Act, and thus cannot be resold
unless they are included in an effective registration statement filed under the
Securities Act or unless an exemption from registration is available for such
resale. With regard to the restrictions on resales of the Securities, Purchaser
is aware (a) that the Company will issue stop transfer orders to its stock
transfer agent in the event of attempts to improperly transfer any such
securities; and (b) that a restrictive legend will be placed on certificates
representing the Securities, which legend will read substantially as follows:
THESE SECURITIES ARE NOT REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND REGULATIONS
PROMULGATED UNDER THE ACT, INCLUDING EXEMPTIONS UNDER SECTIONS 3(b) AND 4(2) OF
THE ACT AND THE PROVISIONS OF REGULATION D UNDER SUCH ACT, AND SIMILAR
EXEMPTIONS UNDER STATE LAW. ACCORDINGLY, THESE SECURITIES MAY NOT BE RESOLD,
TRANSFERRED, PLEDGED, ASSIGNED OR HYPOTHECATED UNLESS SUCH SECURITIES ARE
COVERED BY AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER THE ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT IS AVAILABLE AND THE COMPANY HAS
RECEIVED AN OPINION OF SECURITIES COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
THAT SUCH EXEMPTION IS AVAILABLE.
The legend set forth above shall be removed, and the Company shall issue a
certificate without such legend to the holder of any such Securities upon which
such legend is stamped promptly and, in the case of clauses (i) or (ii) below,
no later than the Delivery Date, as such term is defined below, if, unless
otherwise required by state securities laws, (i) such Securities are registered
for resale under the Securities Act, (ii) in connection with a sale transaction,
such holder provides the Company with an opinion of counsel, in a generally
acceptable form, to the effect that a public sale, assignment or transfer of
such Securities may be made without registration under the Securities Act, or
(iii) such holder provides the Company with reasonable assurances that such
Securities can be sold pursuant to Rule 144 promulgated under the Securities Act
without any restriction as to the number of securities acquired as of a
particular date that can then be immediately sold. Notwithstanding the removal
of the legend set forth above in the event the Securities are registered for
resale on an effective registration statement, the Company reserves the right to
affix a legend on certificates representing such Securities that any selling
shareholder must comply with the prospectus delivery requirements of the
Securities Act in connection with any resale. The Company shall bear the cost of
the removal of any legend as anticipated by this Section 7.
8. Other Covenants of the Parties.
8.1 Furnishing of Information. As long as Purchaser owns
Securities, the 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 Purchasers may resell all of their Securities 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 the Company's transfer agent for the benefit of
and enforceable by Purchaser) the Company is not required to file reports
pursuant to such sections, it will prepare and furnish to the Purchasers 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 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 Securities may reasonably request, all to the extent
required from time to time to enable such Person to sell Securities without
registration under the Securities Act within the limitation of the exemptions
provided by Rule 144 promulgated under the Securities Act.
8.2 Listing of Securities. The Company shall (a) in accordance
with applicable Nasdaq rules but in any event not later than the Effectiveness
Date, prepare and file with the Nasdaq SmallCap Market (as well as any other
national securities exchange, market or trading facility on which the Common
Stock is then listed) an additional shares listing application covering the
Securities, (b) take all steps necessary to cause such Securities to be
approved for listing on the Nasdaq SmallCap Market (as well as on any other
national securities exchange, market or trading facility on which the Common
Stock is then listed) as soon as possible thereafter, and (c) provide to
Purchaser evidence of such listing, and the Company shall maintain the listing
of its Common Stock on such exchange or market.
8.3 First Right. The Company shall not, directly or
indirectly, without the prior written consent of Purchaser, 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 Common Stock
or securities convertible into Common Stock at a price that is less than
eighty percent (80%) of the market price of the Common Stock at the time of
issuance of such security or investment (a "Subsequent Financing") for a
period of ninety (90) days after the Second Closing Date, 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 or options and upon
conversion of any currently outstanding convertible preferred stock or payment
of dividends thereon, in each case disclosed in Section 4.4 or Schedule 4.4,
(iii) securities issued in connection with the capitalization or creation of a
joint venture with a strategic partner, (iv) 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 (iv), shall not include an individual or group of
individuals) and (v) shares issued in a bona fide public offering by the
Company of its securities, unless (A) the Company delivers to Purchaser a
written notice (the "Subsequent Financing Notice") of its intention effect
such Subsequent Financing, which Subsequent Financing Notice shall 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 effected, and attached to which shall be a term
sheet or similar document relating thereto and (B) Purchaser 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 cause all or any of the Purchaser 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
Purchaser 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 Purchaser with a second Subsequent Financing Notice, and
Purchaser shall again have the right of first refusal set forth above in this
subsection 8.4, 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.
Purchaser's rights under this Section 8.3 are subject to the rights of Thomson
Kernaghan & Co., as agent for certain other entities ("Thomson") as described
in that certain Common Stock Purchase Agreement between Thomson and the
Company and dated as of even date herewith.
8.4 Available Shares. The Company shall have at all times
authorized and reserved for issuance, free from preemptive rights, shares of
Common Stock sufficient to yield the number of shares of Common Stock issuable
as may be required to issue the Reset Shares.
8.5 Stockholder Meeting. The Company shall, not later than
August 1, 1998, hold a regular or special meeting of stockholders. At such
meeting of stockholders, the board of directors of the Company shall recommend
that the stockholders approve the transactions contemplated hereby, which
might result in the issuance of more than 20% of the Company's outstanding
Common Stock in accordance with NASDAQ Rule 4310(c)(25)(H)(i)(d)(2). Xxxxxx
X. Xxxxxxx, as trustee of a voting trust (the "Voting Trust") pursuant to that
certain Voting Trust Agreement dated the 10th day of December, 1993 and as
amended to date, by and among the Company, Xxxxxxx X. Xxxxxxxx, Xxxxxx X.
Xxxxxxx, Xxxxx X. Xxxxxx, Beesmark Investments, L.C., a Utah limited liability
company, and Studdert Companies Corporation, a Utah corporation, and Xxxxxx X.
Xxxxxxx, as Trustee, warrants and represents by his signature below:
(1) That the Voting Trust owns of record in excess of 56% of the
Common Stock of the Company issued and outstanding as of the date of this
Agreement; and
(2) That he will affirmatively vote such shares of Common Stock
in favor of such resolution.
8.6 Redemption by the Company. At any time prior to the
ninetieth (90th) day following the Second Closing Date, the Company may redeem
all or any of the Securities then outstanding and which have not been sold or
contracted to be sold by Purchaser by payment to the holder of the Securities
to be redeemed of $5.40 per share.
9. Transfer Agent Instructions.
9.1 Irrevocable Instructions. The Company will irrevocably
instruct its transfer agent to issue securities from time to time in such
amounts as shall be specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 7 of this Agreement
prior to registration of the Securities under the Securities Act, registered
in the name of the Purchaser or its nominee and in such denominations to be
specified by the Purchaser in connection with each Closing. The Company
warrants that no instruction other than such instructions referred to in this
Section 9 and stop transfer instructions to give effect to Section 7 hereof
prior to registration and sale of the Securities under the Securities Act will
be given by the Company to the transfer agent and that the securities shall
otherwise be freely transferable on the books and records of the Company as
and to the extent provided in this Agreement, the Registration Rights
Agreement, and applicable law. Nothing in this Section 9 shall affect in any
way the Purchaser's obligations and agreement to comply with all applicable
securities laws upon resale of the Securities.
9.2 Transmission of Certificates. The Company will transmit the
certificates representing the unlegended Securities to be issued to the
Purchaser (i) as Reset Shares pursuant to any of the provisions of Section 2.3
hereof and/or (ii) as contemplated by Section 7 hereof. The term "Delivery
Date" means (w) the Second Closing Date, with respect to Reset Shares
contemplated by Section 2.3(1) hereof, (x) the Second Tranche Reset Date, with
respect to Reset Shares contemplated by Section 2.3(2) hereof, (y) the third
(3rd) business day after receipt by the Company of the certificate(s)
representing the legended Common Stock, as contemplated by Section 7 hereof.
9.3 Delay. The Company understands that a delay in the issuance
of the Securities beyond the Delivery Date could result in economic loss to
the Purchaser. As compensation to the Purchaser for such loss, the Company
agrees to pay late payments to the Purchaser for late issuance of unlegended
securities in accordance with the following schedule (where "No. Days Late"
is defined as the number of days beyond five (5) business days from Delivery
Date):
Late Payment For Each
No. Days Late $10,000 of Common Stock
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
Greater than 10 $1,000 +$200 for each Business
Day Late beyond 10 days
The Company shall pay any payments incurred under this Section 9.4 in
immediately available funds upon demand. Nothing herein shall limit the
Purchaser's right to pursue actual damages for the Company's failure to issue
and deliver the unlegended securities to the Purchaser.
9.4 Cover. If, by the relevant Delivery Date, the Company fails
for any reason to deliver the unlegended Shares to be issued pursuant to
Section 9.2 and after such Delivery Date, the holder of the securities (a
"Holder") purchases, in an open market transaction or otherwise, shares of
Common Stock (the "Covering Shares") in order to make delivery in satisfaction
of a sale of Common Stock by the Holder (the "Sold Shares"), which delivery
such Holder anticipated to make using the Shares to be issued upon such
conversion (a "Buy-In"), the Company shall pay to the Holder, in addition to
all other amounts contemplated in other provisions of the Transaction
Agreements, and not in lieu thereof, the Buy-In Adjustment Amount (as defined
below). The "Buy-In Adjustment Amount" is the amount equal to the excess, if
any, of (x) the Holder's total purchase price (including brokerage
commissions, if any) for the Covering Shares over (y) the net proceeds (after
brokerage commissions, if any) received by the Holder from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the
Company in immediately available funds immediately upon demand by the Holder.
By way of illustration and not in limitation of the foregoing, if the Holder
purchases shares of Common Stock having a total purchase price (including
brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of
Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount
which Company will be required to pay to the Holder will be $1,000.
9.5 Electronic Transfer. In lieu of delivering physical
certificates representing the unlegended securities issuable upon conversion,
provided the Company's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon request of
the Purchaser and its compliance with the provisions contained in this
paragraph, so long as the certificates therefor do not bear a legend and the
Purchaser thereof is not obligated to return such certificate for the
placement of a legend thereon, the Company shall use its best efforts to cause
its transfer agent to electronically transmit the Common Stock issuable upon
conversion to the Purchaser by crediting the account of Purchaser's Prime
Broker with DTC through its Deposit Withdrawal Agent Commission system.
10. General Provisions.
10.1 Assignment. Neither this Agreement nor any rights of
Purchaser hereunder may be assigned by either party to any other person
without the prior written consent of the Company, provided that Purchaser may
assign its rights hereunder to another Purchaser or to any affiliate of the
Purchaser.
10.2 Attorneys' Fees. In the event any dispute arises under
this Agreement or the documents or instruments executed and delivered in
connection with this Agreement, and the parties hereto resort to litigation to
resolve such dispute, the prevailing party in any such litigation, in addition
to all other remedies at law or in equity, shall be entitled to an award of
costs and fees from the other party, which costs and fees shall include,
without limitation, reasonable attorneys' fees and legal costs.
10.3 Choice of Law; Venue. This Agreement will be construed and
enforced in accordance with and governed by the laws of the State of Delaware
and the federal law of the United States without reference to principles of
conflicts of law. The parties agree that, in the event of any dispute arising
out this Agreement or the transactions contemplated thereby, venue for such
dispute shall be in the state or federal courts located in Delaware, and that
each party hereto waives any objection to such venue based on forum non
conveniens.
10.4 Costs and Expenses. The parties shall be responsible for
and shall pay their own costs and expenses, including without limitation
attorneys' fees and accountants' fees and expenses, in connection with the
conduct of the due diligence inquiry, negotiation, execution and delivery of
this Agreement and the instruments, documents and agreements executed in
connection with this Agreement.
10.5 Counterparts/Facsimile Signatures. This Agreement may be
executed in one or more counterparts, each of which when so signed shall be
deemed to be an original, and such counterparts together shall constitute one
and the same instrument. In lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original.
10.6 Entire Agreement: Amendment. This Agreement, together with
the exhibits to this Agreement and the other instruments and documents
delivered in connection with this Agreement constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants except as
specifically set forth in this Agreement or therein. Except as expressly
provided in this Agreement, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
10.7 Headings. The headings of the sections and paragraphs of
this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
10.8 Notices. All notices or other communications provided for
under this Agreement shall be in writing, and mailed, telecopied or delivered
by hand delivery or by overnight courier service, as follows:
If to the Company:
fonixβ’ corporation
0000 Xxxxx Xxxx Tower
00 Xxxx Xxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxxxx, Esq.
Facsimile: (000) 000-0000
With a copy to:
DURHAM, EVANS, XXXXX & XXXXXXX, P.C.
Key Bank Tower, Suite 850
00 Xxxxx Xxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Facsimile: (000) 000-0000
If to Purchaser:
To Purchaser at the addresses set forth in Schedule 2.
All notices and communications shall be effective as follows: When mailed,
upon three (3) business days after deposit in the mail (postage prepaid); when
telecopied, upon confirmed transmission of the telecopied notice; when hand
delivered, upon delivery; and when sent by overnight courier, the next
business day after deposit of the notice with the overnight courier.
10.9 Publicity. Purchaser shall not issue any press release or
otherwise make any public statement about the transactions contemplated by
this Agreement without the Company's prior written consent. The Company
agrees that it shall give Purchaser written notice of any press release or
other public statement with respect to the transactions contemplated hereby.
Notwithstanding the foregoing, the Company shall not publicly disclose the
name of Purchaser without the prior written consent of such Purchaser, except
to the extent required by law. Purchaser acknowledges that this Agreement and
all or part of the Transaction Documents may be deemed to be "material
contracts" as that term is defined by Item 601(b)(10) of Regulation S-K, and
that the Company may therefore be required to file such documents as exhibits
to reports or registration statements filed under the Securities Act or the
Exchange Act. Purchaser further agrees that the status of such documents and
materials as material contracts shall be determined solely by the Company, in
consultation with its counsel.
10.10 Severability. Should any one or more of the provisions of
this Agreement be determined to be illegal or unenforceable, all other
provisions of this Agreement shall be given effect separately from the
provision or provisions determined to be illegal or unenforceable and shall
not be affected thereby.
10.11 Survival. All warranties, representations, indemnities
and agreements made in this Agreement by a party hereto shall survive the date
of this Agreement, the Closing Dates, and the issuance by the Company of the
Securities.
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
IN WITNESS WHEREOF, the parties named below have caused this Agreement to
be executed, as of the date first above written.
PURCHASER:
JNC OPPORTUNITY FUND LTD.
By: /s/ Xxxx X. Xxxx
----------------------------------------
Its:
--------------------------------
DIVERSIFIED STRATEGIES FUND, L.P.
By: /s/ Xxxx X. Xxxx
----------------------------------------
Its:
--------------------------------
THE COMPANY:
fonix corporation
By: /s/ Xxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxxx, President
/s/ Xxxxxx X. Xxxxxxx
------------------------------------------
Xxxxxx X. Xxxxxxx, Trustee of Voting Trust
Solely as to Section 8.5
SCHEDULE 2
JNC Opportunity Fund Ltd. $4,500,000
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Xxxxxxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxxxx XX00
Xxxxxxx
Facsimile No.: (000) 000-0000
Attn: Xxxx Xxxxx
Diversified Strategies Fund, L.P. $500,000
c/o Encore Capital Management, L.L.C.
00000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxx
Notices to Purchaser may be sent to the addressed listed above. Copies of any
notice to either Purchaser shall be provided as follows:
Encore Capital Management, L.L.C.
0000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxx
-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.
SCHEDULE 4.4
CAPITALIZATION
1. Schedule 6(a) to the Registration Rights Agreement is incorporated herein by
reference and made part hereof as if it were set out below in its entirety.
2. AcuVoice, Inc. Merger. The Company has entered into a definitive agreement
whereby AcuVoice, Inc., a California corporation, will be merged with and into
a wholly-owned subsidiary of the Company, fonix Acquisition Corporation. The
Company anticipates issuing between 2,500,000 and 3,000,000 shares of its
restricted Common Stock to the shareholders of AcuVoice when the merger
closes.
3. In addition to Purchaser, the Company has agreed to offer and sell shares of
Common Stock to investors that shall hereafter be identified by Southridge
Capital, which offers and sales will be on terms substantially similar to the
terms as set forth in this Agreement and will close according to the same
closing schedule set forth in this Agreement.
First Refusal, Preemptive Rights or Similar Provisions
None.
SCHEDULE 4.5
SUBSIDIARIES
1. fonix systems corporation, a Utah corporation, wholly owned by the Company.
2. fonix Acquisition Corporation, a Utah corporation, wholly owned by the
Company
SCHEDULE 4.10
UNDISCLOSED FINANCIAL LIABILITIES
None.
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of March 9, 1998, by and among fonix corporation, a Delaware
corporation (the "Company"), JNC Opportunity Fund Ltd., a Cayman Islands
corporation ("JNC"), and Diversified Strategies Fund, L.P., an Illinois
limited partnership ("DSF") (JNC and DSF are each a "Purchaser" and
collectively the "Purchasers").
This Agreement is made pursuant to the Common Stock Purchase
Agreement, dated as of the date hereof among the Company and the Purchasers
(the "Purchase Agreement").
The Company and the Purchasers 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.
"Initial Closing Date" shall have the meaning set forth in the
Purchase Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's Common Stock, par value $.0001
per share.
"Effectiveness Date" means the first to occur of (i) the 90th day
following the Initial Closing Date or (ii) the fifth (5th) trading day
following receipt by the Company of notice, orally or in writing, that the
Commission either will not review the Registration Statement or will allow the
Registration Statement to become effective.
"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 Initial 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.
"Registrable Securities" means the Securities; provided, however
that in order to account for the fact that the number of shares of Reset
Shares that are or will be issuable at the Second Closing will be determined
in part upon the market price of the Common Stock between the Initial Closing
Date and the Effective Date, Registrable Securities contemplated by this
definition shall be deemed to include not less than the number of shares of
Common Stock issuable at the Second Closing assuming that the 60-day Average
is $3.25. The Registration Statement shall cover at least such number of
shares of Common Stock as equals the sum of the number of Shares plus the
amount of Reset Shares assuming the 60-day Average set forth in the
immediately preceding sentence. To the extent that an additional Registration
Statement is required at any time to include the full amount of the Securities
as then are issued and outstanding, the Company covenants to file such
additional Registration Statement within ten (10) business days after notice
from Purchasers that such additional Registration Statement is required.
"Registration Statement" means the registration statement
contemplated by Section 2(a), including 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.
"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 the law firm acting as 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.
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. Such Registration Statement shall state that in
accordance with Rules 416 and 457 under the Securities Act, it also covers
such indeterminate shares of Common Stock as may be issuable as Reset Shares.
The Registration Statement shall be on Form S-3 promulgated under the
Securities Act (or, if the Company is not permitted to register the resale of
the Registrable Securities on Form S-3, the Registration Statement shall be on
such other appropriate form). 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 two 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) promulgated under the
Securities Act, 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"). In the event that (i)
the Registration Statement shall not have become effective by the
Effectiveness Date or (ii) the Registration Statement shall have become
effective by the Effectiveness Date, but shall thereafter cease to be
effective for two 20-day trading day periods during any 12-month period during
the Effectiveness Period, then the Company shall pay to the Purchasers, pro
rata, and as liquidated damages and not as a penalty, cash payment in the
amount of 2% of the Purchase Price paid by Purchasers to date, in the case of
clause (i) above, for each month after the Effectiveness Date or, in the case
of clause (ii) above, for each additional 20-day period during which the
Registration Statement shall not be effective. 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 all of 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 Offering. In such
event, the investment banker that will administer the offering will be
selected by the Holders of a majority of the Registrable Securities to be
included in such offering. In connection with any Underwritten Offering, if
the managing underwriters advise the Company and the participating 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. No Holder may
participate in any Underwritten Offering hereunder unless such Holder (i)
agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers
of attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement in accordance with Section 2(a), 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 if 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 all
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 practicable to any comments
received from the Commission with respect to the Registration Statement or any
amendment thereto and promptly provide the Holders true and complete copies of
all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply 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
Company whether there will be a "review" of such Registration Statement; (C)
whenever the Company receives (or representatives of the Company receive on
its behalf) any oral or written comments from the Commission in respect of a
Registration Statement (copies or, in the case of oral comments, summaries of
such comments shall be promptly furnished by the Company to the Holders); and
(D) 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 to the best knowledge of the Company 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 one
(1) Business Day 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) 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.
(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 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 sold pursuant to a Registration Statement, which
certificates shall be free 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
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 practicable, 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 and any other securities exchange, quotation system, market or
over-the-counter bulletin board, 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 whether or not an underwriting agreement 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
selling 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 or at the
time of delivery of any Registrable Securities sold pursuant thereto (at the
option of the underwriters), 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 each Person and in such form and
substance as are customary in connection 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 7 (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 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) disclosure of such information, in the opinion of
counsel to such Person, is required by law; (iii) such information becomes
generally available to the public other than as a result of a disclosure or
failure to safeguard by such Person; or (iv) 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 and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act
and Rule 158 not later than 45 days after the end of any 12-month period (or
90 days after the end of any 12-month period if such period is a fiscal year)
(i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which
statement shall cover said 12-month period, or end shorter periods as is
consistent with the requirements of Rule 158.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration Statement
and the Company may exclude from such registration 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 agrees by its acquisition of such Registrable Securities
that (i) it will not offer or 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 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.
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 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 shall, except as and to the
extent specified in Section 4(b), 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 Stock Market, Inc. and Nasdaq SmallCap Market and each other
securities exchange or market or over-the-counter bulletin board on which
Registrable Securities are required hereunder to be listed and (B) in
compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or Holders
in connection with Blue Sky qualifications 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,
(iv) fees and disbursements of counsel for the Company, (v) Securities Act
liability insurance, if the Company so desires such insurance, (vi) fees and
expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement, and (vii)
actual fees and expenses of Special Counsel to the Holders in an amount not to
exceed, in the aggregate for any Registration Statement, three thousand five
hundred dollars ($3,500). 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 and the
Underwriters. 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.
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), investment
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 or alleged untrue
statement of material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or arising solely out of or based
solely upon any omission or alleged 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 or such
Prospectus and that such information was reasonably relied upon by the Company
for use in the Registration Statement, such Prospectus or 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. 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 promptly shall
notify the Person from whom indemnity is sought (the "Indemnifying Party") in
writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of independent outside 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 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 because of a failure or
refusal of a governmental authority to enforce such indemnification in
accordance with its terms (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.
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. Notwithstanding the provisions of this Section 5(d), the
Purchasers shall not be required to contribute, in the aggregate, any amount
in excess of the amount by which the proceeds actually received by the
Purchasers from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that the Purchasers have
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 of a
majority of the then outstanding Registrable Securities, 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 of Registrable Securities written notice of such determination and, if
within twenty (20) days after receipt of such notice, any such holder shall so
request in writing, the Company shall include in such registration statement
all or any part of the Registrable Securities such holder requests to be
registered. No right to registration of Registrable Securities under this
Section shall be construed to limit any registration otherwise required
hereunder.
7. Miscellaneous
(a) Remedies. In the event of a breach by the 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 agree 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 80% 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 foregoing, 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: Xxxxxxx X. Xxxxxxx, Esq.
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 Purchasers:
If to JNC: JNC Opportunity Fund Ltd.
Olympia Capital (Cayman) Ltd.
c/o Olympia Capital (Bermuda) Ltd.
Xxxxxxxx Xxxxx
00 Xxxx Xxxxxx
Xxxxxxxx XX00
Xxxxxxx
Facsimile No.: (000) 000-0000
Attn: Director
If to DSF: Diversified Strategies Fund, L.P.
c/o Encore Capital Management, L.L.C.
00000 Xxxxxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxx
With copies to (for Encore Capital Management, L.L.C.
communications to 00000 Xxxxxxx Xxxxxx Xxxxx
either Purchaser): Xxxxx 000
Xxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxx X. Xxxx
-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 Purchasers may assign their respective rights
hereunder in the manner and to the Persons as permitted under the Purchase
Agreement.
(e) Assignment of Registration Rights. The rights of any
Purchaser hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this Agreement,
shall be automatically assignable by such Purchaser to any assignee or
transferee of all or a portion of the Preferred Shares held by such Purchaser,
the Warrant held by such Purchaser or Registrable Securities without the
consent of the Company if: (i) such Purchaser agrees in writing with the
transferee or assignee to assign such rights, and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable time after such transfer or assignment,
furnished with written notice of (a) the name and address of such transferee
or assignee, and (b) the securities with respect to such registration rights
are being transferred or assigned, (iii) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all
of the provisions of this Agreement, and (iv) such transfer shall have been
made in accordance with the applicable requirements of the Purchase
Agreement. The rights to assignment shall apply to the Purchasers (and to
subsequent) successors and assigns.
(f) 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.
(g) 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.
(h) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(i) 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.
(j) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(k) 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 Purchasers 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties have executed this Registration
Rights Agreement as of the date first written above.
PURCHASER:
JNC OPPORTUNITY FUND LTD.
By: /s/ Xxxx X. Xxxx
----------------------------------------
Its:
--------------------------------
DIVERSIFIED STRATEGIES FUND, L.P.
By: /s/ Xxxx X. Xxxx
----------------------------------------
Its:
--------------------------------
THE COMPANY:
fonix corporation
By: /s/ Xxxxxx X. Xxxxxxx
-----------------------------------------
Xxxxxx X. Xxxxxxx, President
Schedule 6(a)
Other Registration Rights
1. Siemens Aktiengesellschaft. On November 17, 1997, the Company entered into
a strategic collaborative agreement (the "Master Agreement") with Siemens
Semiconductor Group of Siemens Aktiengesellschaft ("Siemens") pursuant to
which the Company and Siemens will jointly pursue the development and
commercialization of products incorporating the Company's technologies into
Siemens integrated circuits ("ICs") for use in telecommunications products.
The Master Agreement anticipates multiple product-specific collaborative
efforts between the Company and Siemens for a variety of telecommunications
applications as described in multiple to-be-negotiated sub-agreements
("Statements of Work").
On February 11, 1998, the Company and Siemens executed the first Statement of
Work pursuant to the Master Agreement. In connection with the execution of
the Statement of Work, and as anticipated by the Master Agreement, on February
13, 1998, Siemens paid to the Company a total of 5,000,000 deutsche marks
("DM"). Of that amount, 600,000 DM was paid as the purchase price for
warrants ("Warrants") to purchase up to 1,000,000 shares of fonix restricted
common stock on or before the following dates and at the following exercise
prices:
No. of Shares Exercise Price Expiration Date
200,000 U.S. $10.00 December 31, 1998
200,000 U.S. $15.00 March 31, 1999
200,000 U.S. $20.00 June 30, 1999
200,000 U.S. $25.00 September 30, 1999
200,000 U.S. $30.00 December 31, 1999
Further, 2,000,000 DM was paid to acquire shares of the Company's restricted
Common Stock at any time prior to March 12, 1998. If Siemens elects not to
acquire all or a part of the Shares on or prior to March 12, 1998, the
2,000,000 DM (or any lesser portion thereof not used to purchase the Common
Stock) shall be accounted for as an additional advance royalty payment. The
purchase price of the Common Stock, if Siemens elects to purchase, shall be
the closing price of Common Stock as quoted by the Nasdaq SmallCap Market on
the day preceding the day on which Siemens notifies the Company of its
election to purchase the Common Stock.
The Common Stock, if any, issued to Siemens as a result either of Siemens
purchase of Common Stock or its exercise of the Warrants will be restricted
stock. The Company has agreed to register such shares of Common Stock within
30 days of the earlier of (i) the exercise by Siemens of Warrants to purchase
the first 200,000 shares of stock underlying the Warrants, or (ii) April 23,
1998. Siemens also has "piggyback" registration rights with respect to the
Shares and the common stock underlying the Warrants.
2. Synergetics, Inc.. Synergetics, Inc., is a Utah corporation that entered
into a Product Development and Assignment Agreement (the "Development
Agreement") with Phonic Technologies, Inc., a Utah corporation and the
Company's predecessor in interest ("PTI") on October 16, 1993. Under the
Development Agreement, Synergetics agreed to perform research and development
activities in connection with the development and commercialization of the
Company's voice recognition technologies and to irrevocably transfer and
assign to PTI any and all right, title and interest in and to the technology,
in return for which PTI agreed to fund the research and development activities
of Synergetics on an as-needed basis and to pay to Synergetics a royalty of
10% of net sales of any products incorporating the technology or from any
