ASSET
PURCHASE AGREEMENT
ACQUISITION OF CERTAIN ASSETS OF FONIX CORPORATION AND
FONIX/ASI CORPORATION
BY LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
DATED: May 19, 1999
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Asset Purchase Agreement Page i
Execution Copy
TABLE OF CONTENTS
ARTICLE 1. PURCHASE AND SALE OF ASSETS.............................1
1.1 SALE OF ASSETS.......................................................1
1.2 ASSUMPTION OF LIABILITIES............................................4
1.3 PURCHASE PRICE AND PAYMENT...........................................6
1.4 TIME OF CLOSING......................................................8
1.5 DELIVERY OF ASSUMPTION OF LIABILITIES................................8
1.6 TRANSFER OF SUBJECT ASSETS...........................................8
1.7 DELIVERY OF RECORDS AND CONTRACTS; ELECTRONIC TRANSFER...............9
1.8 TAX RETURNS..........................................................9
1.9 FURTHER ASSURANCES...................................................9
1.10 ALLOCATION OF PURCHASE PRICE........................................10
1.11 RIGHT TO HIRE EMPLOYEES.............................................10
1.12 LICENSE OF ASI TECHNOLOGY; TECHNOLOGY OPTION AGREEMENT..............10
1.13 COLLECTION OF ACCOUNTS RECEIVABLE...................................10
1.14 CERTAIN MATTERS REGARDING APPLE LITIGATION..........................11
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLERS..............12
2.1 ORGANIZATION AND QUALIFICATION OF SELLER............................12
2.2 AUTHORIZATION OF TRANSACTION........................................12
2.3 PRESENT COMPLIANCE WITH OBLIGATIONS AND LAWS........................12
2.4 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS; APPROVALS.....12
2.5 FINANCIAL INFORMATION...............................................13
2.6 ABSENCE OF UNDISCLOSED LIABILITIES..................................13
2.7 ABSENCE OF CERTAIN CHANGES..........................................14
2.8 TITLE TO PROPERTIES; LIENS; CONDITION OF PROPERTIES.................14
2.9 PAYMENT OF TAXES....................................................15
2.10 INVENTORIES.........................................................15
2.11 INTELLECTUAL PROPERTY RIGHTS........................................16
2.12 WARRANTY OR OTHER CLAIMS............................................17
2.13 LITIGATION..........................................................17
2.14 PERMITS.............................................................18
2.15 TRANSACTIONS WITH INTERESTED PERSONS................................18
2.16 CONTRACTS AND COMMITMENTS...........................................18
2.17 LABOR AND EMPLOYEE RELATIONS........................................18
2.18 EMPLOYEES...........................................................19
2.19 FINDER'S FEE........................................................19
2.20 DISCLOSURE OF MATERIAL INFORMATION..................................19
2.21 SUPPLIERS, CUSTOMERS AND DISTRIBUTORS...............................19
2.22 INTENTIONALLY OMITTED...............................................19
2.23 BORROWINGS AND GUARANTEES...........................................19
2.24 INSURANCE...........................................................20
2.25 PREPAID MAINTENANCE AMOUNTS AND PREPAID SALES ORDER AMOUNTS.........20
2.26 ABSENCE OF SENSITIVE PAYMENTS.......................................20
2.27 SEC FILINGS.........................................................21
2.28 ENVIRONMENTAL MATTERS...............................................21
2.29 YEAR 2000...........................................................21
2.30 EXCLUDED TECHNOLOGY.................................................22
2.31 STOCKHOLDER ACTION..................................................22
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER................23
3.1 ORGANIZATION OF BUYER...............................................23
3.2 AUTHORIZATION OF TRANSACTION........................................23
3.3 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS................23
3.4 CLAIMS AND LEGAL PROCEEDINGS........................................24
3.5 DISCLOSURE OF MATERIAL INFORMATION..................................24
3.6 BROKER'S AND FINDER'S FEES..........................................24
ARTICLE 4. COVENANTS OF SELLERS...................................24
4.1 EXPENSES............................................................24
4.2 NONDISCLOSURE.......................................................24
4.3 NONCOMPETITION BY SELLERS...........................................25
4.4. ACQUIRED SALES ORDERS AND LICENSE AGREEMENT.........................25
4.5 PAYMENT OF DEBTS....................................................26
4.6 CONDUCT OF BUSINESS.................................................26
4.7 EXCLUSIVITY.........................................................26
4.8 WARRANTY AND SERVICE OBLIGATIONS....................................28
4.9 BREACH OF REPRESENTATIONS AND WARRANTIES............................28
4.10 CONSUMMATION OF AGREEMENT...........................................28
4.11 HSR FILINGS.........................................................28
4.12 APPROVAL OF STOCKHOLDERS............................................28
4.13 PREPARATION OF SOLICITATION STATEMENT...............................29
4.14 MERGER ESCROW AGREEMENT.............................................30
ARTICLE 5. COVENANTS OF BUYER.....................................30
5.1 EXPENSES............................................................30
5.2 PAYMENT OF DEBTS....................................................30
5.3 CONSUMMATION OF THE AGREEMENT.......................................30
5.4 HSR FILINGS.........................................................30
5.5 LEGAL REQUIREMENTS..................................................31
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BUYER.....................31
6.1 REPRESENTATIONS; WARRANTIES; COVENANTS..............................31
6.2 OPINION OF SELLERS'COUNSEL..........................................31
6.3 ABSENCE OF CERTAIN LITIGATION.......................................31
6.4 NO BANKRUPTCY.......................................................32
6.5 NO ADVERSE CHANGE...................................................32
6.6 RELEASE OF LIENS, SECURITY INTERESTS AND OTHER ENCUMBRANCES.........32
6.7 AUTHORIZATION FROM OTHERS...........................................32
6.8 EMPLOYMENT OF KEY PERSONNEL.........................................32
6.9 APPROVAL OF BUYER'S COUNSEL.........................................33
6.10 ESCROW AGREEMENT....................................................33
6.11 GOVERNMENTAL CONSENTS AND APPROVALS; TERMINATION OR EXPIRATION OF
HSR WAITING PERIOD.................................................33
6.12 SHAREHOLDER AUTHORIZATION...........................................33
6.13 PAYMENT OF ATTORNEYS'FEES...........................................33
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF SELLERS...................33
7.1 REPRESENTATIONS; WARRANTIES; COVENANTS..............................34
7.2 ABSENCE OF CERTAIN LITIGATION.......................................34
7.3 AUTHORIZATION FROM OTHERS...........................................34
7.4 GOVERNMENTAL CONSENTS AND APPROVALS; TERMINATION OR EXPIRATION OF
HSR WAITING PERIOD.................................................34
7.5 SHAREHOLDER AUTHORIZATION...........................................34
7.6 APPROVAL OF SELLER'S COUNSEL........................................34
ARTICLE 8. INDEMNIFICATION........................................35
8.1 DEFINITIONS.........................................................35
8.2 INDEMNIFICATION BY SELLER...........................................35
8.3 INDEMNIFICATION BY BUYER............................................36
8.4 LIMITATIONS ON INDEMNIFICATION......................................36
8.5 NOTICE..............................................................37
8.6 DEFENSE OF THIRD PARTY ACTIONS......................................38
8.7 MISCELLANEOUS.......................................................39
8.8 PAYMENT OF INDEMNIFICATION..........................................39
ARTICLE 9. TERMINATION OF AGREEMENT...............................39
9.1 TERMINATION.........................................................39
9.2 TERMINATION BY THE BUYER............................................40
9.3 TERMINATION BY THE SELLERS..........................................40
9.4 PROCEDURE FOR TERMINATION...........................................41
9.5 EFFECT OF TERMINATION AND ABANDONMENT...............................41
ARTICLE 10. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING....................41
10.1 SURVIVAL OF WARRANTIES..............................................41
10.2 COLLECTION OF ASSETS................................................41
10.3 PAYMENT OF DEBTS AND REFUND OF CASH.................................42
10.4 COBRA COMPLIANCE....................................................42
ARTICLE 11. MISCELLANEOUS..........................................42
11.1 BULK SALES LAW......................................................42
11.2 NOTICES.............................................................42
11.3 PUBLICITY AND DISCLOSURES...........................................43
11.4 CONFIDENTIALITY.....................................................44
11.5 ENTIRE AGREEMENT....................................................44
11.6 SEVERABILITY........................................................44
11.7 ASSIGNABILITY.......................................................44
11.8 RELATIONSHIP OF SELLERS.............................................44
11.9 AMENDMENT...........................................................45
11.10 GOVERNING LAW; VENUE................................................45
11.11 COUNTERPARTS........................................................45
11.12 EFFECT OF TABLE OF CONTENTS AND HEADINGS............................45
11.13 RULES OF CONSTRUCTION...............................................45
11.14 DEFINITION OF MATERIAL..............................................45
11.15 INTERPRETATION......................................................46
List of Schedules and Exhibits...............................................48
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Asset Purchase Agreement Page 1
Execution Copy
ASSET PURCHASE AGREEMENT
AGREEMENT entered into as of the 19th day of May, 1999, between Lernout
& Hauspie Speech Products N.V., a Belgian corporation with its principal place
of business in Ieper, Belgium ("Buyer"), and Fonix Corporation, a Delaware
corporation with its principal headquarters in Salt Lake City, Utah ("Fonix")
and Fonix/ASI Corporation, a Utah corporation with its principal place of
business in Woburn, Massachusetts ("ASI") (Fonix and ASI together, the
"Sellers").
RECITALS:
WHEREAS, Sellers are in the business, among others, of the development,
marketing and support of an integrated dictation/transcription solutions process
for healthcare organizations which includes a distributed architecture,
telephony based large vocabulary speech recognition and dictation/transcription
workflow, conducted principally through ASI (formerly Articulate Systems, Inc.)
but also through certain operations conducted by Fonix (such business, as it is
conducted by ASI and by Fonix, the "Articulate Division");
WHEREAS, the Buyer wishes to acquire (directly or indirectly through
subsidiaries) from Sellers all of the assets and properties held in connection
with, necessary for, or material to the business and operations of the
Articulate Division (the "Business"), and Sellers wish to convey such assets to
Buyer, subject to the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration for the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, in order to consummate said sale,
the parties hereto agree as follows:
ARTICLE 1 PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets
(a) Assets of ASI. Subject to the provisions of this Agreement
and except as expressly excluded in paragraph (c), Sellers agree to sell and
Buyer agrees to purchase, at the Closing (as defined in Section 1.4 hereof), all
of the properties, assets and business of ASI of every kind and description,
tangible and intangible, real, personal or mixed, and wherever located,
including without limitation all assets shown or reflected on the most recent
balance sheet of ASI attached hereto as Schedule 2.5 and all of ASI's goodwill
and the following:
(i) all copies of the source code of ASI now in
possession of ASI and copies of the source code and object code of ASI's
products, together with all other dictation/transcription related source code
(whether licensed, owned or under development) of ASI (collectively,
"Transferred Code") and all trade secrets, formulae, algorithms, methods,
technical data and other proprietary information relating to the Transferred
Code (collectively, "Transferred Software");
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(ii) all of ASI's raw materials, work in process
and finished goods (the "Inventory");
(iii) all of ASI's machinery, furniture, fixtures,
equipment, computer hardware and other tangible assets (collectively, the
"Equipment");
(iv) all of the following materials pertaining to
the Transferred Software: (A) pre-existing database customer lists, including
all customer and technical support databases and end-user registration
databases, (B) training manuals and materials, (C) advertising and promotional
materials, (D) plans, designs, procedures, research data, drawings, models, blue
prints, specifications, flow sheets, equipment and parts list and descriptions
and related instructions, and (E) all other business records (the "Business
Records");
(v) all of ASI's right, title and interest in and to
the "PowerScribe", "PowerScribe Radiology," "PowerScribe for Radiology",
"PowerScribe EM", "PowerScribe for Emergency Medicine," "PowerCare," and
"Articulate" names and ASI logo (including all related trademark applications
and registrations), and the goodwill of ASI associated with such names and the
related business;
(vi) all of ASI's rights, title and interests in and
to any and all intellectual property and proprietary information, including,
without limitation, all goodwill, computer software and networks, all data
bases, all data control and analysis systems and processes, strategic and
technical data, customer lists, service marks, trademarks, trade names and all
applications therefor, marketing plans and data, know-how, trade secrets,
formulae, methods, algorithms and inventions including all rights, title and
interests in and to any of the foregoing pursuant to any contract, agreement or
license;
(vii) to the extent transferable, all of ASI's
rights, title and interests in and to any and all contracts, agreements,
warranties, licenses or purchase or sales orders, including, without limitation,
client and customer contracts, non-disclosure, confidentiality and invention
agreements with present and former employees and consultants who are to be hired
by Buyer, leases for real or personal property or other arrangements and
contracts, agreements and purchase orders for the purchase or sale of materials,
supplies or services (the "Purchased Contracts");
(viii) all of ASI's rights, title and interests in
and to the patent applications and patents of ASI, including without limitation,
those listed in Schedule 1.1(a)(viii), and any invention disclosures, including
any patents issuing therefrom, and any reissues, reexaminations, divisions,
continuations in whole or in part, extensions and foreign counterparts thereof;
(ix) all of ASI's rights, title and interests in and
to any claims relating to the infringement of the patents, copyrights,
trademarks or other intellectual property rights being transferred hereunder,
including, without limitation, at Buyer's sole option pursuant to Section 1.14
hereof, ASI's claims against Apple Computer Corporation ("Apple") currently
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pending in the United States District Court for the District of Massachusetts
(the "Apple Litigation") and the right to collect damages for infringement of
such intellectual property rights by Apple or others incurred while ASI owned
such rights;
(x) all of ASI's right, title and interests in and to
technical documentation, including, but not limited to, all materials which
reproduce, patterns, plans, designs, research data, drawings, models,
blueprints, specifications, flow sheets, equipment and parts lists and
descriptions and related instructions, manuals, data, records and procedures;
(xi) to the extent transferable, any and all
permits, licenses, orders, ratings and approvals of federal, state or local
governmental or regulatory authorities; and
(xii) all of ASI's rights to indemnification under
agreements to which ASI is a party in connection with the merger of Articulate
Systems, Inc. into ASI, including, without limitation, ASI's right to receive
the shares of restricted common stock of Fonix held in escrow pursuant to the
Escrow Agreement executed on September 2, 1998 in connection with the
indemnification obligations of other parties to the merger (the "Merger Escrow
Agreement") subject to the obligation of Fonix and ASI to disburse such shares
at the end of the escrow period provided that claims by Buyer against and/or
disbursements by Fonix and ASI of the restricted common stock of Fonix held in
escrow shall be pursuant to Section 4.14 hereof.
(b) Assets of Fonix. Subject to the provisions of this
Agreement and except as expressly excluded in paragraph (c), Sellers agree to
sell and Buyer agrees to purchase, at the Closing all of the assets and
properties held by Fonix in connection with, necessary for, or material to the
Business of every kind and description, tangible and intangible, whether or not
currently used in the Business, and wherever located including, without
limitation all of the assets acquired by Fonix pursuant to the Asset Acquisition
Agreement (the "MRC Agreement"), dated as of December 31, 1998, by and between
Fonix and The MRC Group, Inc., a Missouri corporation ("MRC"), and the Xxxx of
Sale delivered by MRC to Fonix pursuant thereto, effective December 31, 1998,
including, without limitation, those assets described on Schedule 1.1(b) hereto
and including any assets of Fonix which would fall under paragraphs 1.1(a)(i)
through 1.1(a)(xii) with respect to Fonix to the extent held in connection with,
necessary for, or material to the Business.
The assets, property and business of ASI and of Fonix to be sold to and
purchased by Buyer under this Agreement are hereinafter sometimes referred to as
the "Subject Assets."
(c) Excluded Assets. Assets and property not disposed of
pursuant to this Agreement, including the remaining businesses of Fonix, shall
be excluded from the Subject Assets and are referred to herein as the "Excluded
Assets." Such Excluded Assets include, without limitation:
(i) all real property owned by Sellers;
(ii) Sellers' corporate franchise, stock record
books, corporate record books containing minutes of meetings of directors and
stockholders, original tax returns and financial statements, and such other
records as have to do with Sellers' organization or stock capitalization;
provided that, Sellers shall retain those records for a period of six (6) years
from the Closing Date and shall afford to Buyer and its accountants and
3
attorneys reasonable access to such records and shall permit Buyer to make
extracts and copies therefrom for any purpose;
(iii) all rights, title and interests in and to any
insurance policies;
(iv) pension, profit sharing and savings plans
and trusts and any assets thereof, and, all rights of Sellers with respect to
their employees and agents;
(v) all cash, accounts and other amounts receivable,
marketable securities, cash equivalents, notes receivable, deposit accounts and
similar type investments, and prepaid expenses of Sellers relating to any
Excluded Asset, including all accounts receivable ("Accounts Receivable")
relating to the Business that are outstanding on the Closing Date, but excluding
amounts receivable for uncompleted purchase or sales orders of customers unless
the related installation has "gone live", i.e. orders which are fully installed,
have gone live or are in the thirty (30) day post-installation customer
cancellation period on the Closing Date shall be included as Accounts
Receivable;
(vi) all personal property (including all
machinery, equipment and inventory, but excluding the Inventory, the Equipment,
the Business Records and all other Subject Assets) not related to the Business;
(vii) all rights, title and interests to the
contracts and licenses set forth on Schedule 1.1(c)(vii) (the "Excluded
Contracts") and the technology and intellectual property described on Schedule
1.1(c)(vii) (the "Excluded Technology"); and
(viii) all Prepaid Maintenance Amounts (as defined
in Section 1.3(b)) allocated to Sellers pursuant to Section 1.3(b).
1.2 Assumption of Liabilities.
(a) Upon the sale and purchase of the Subject Assets,
except as excluded in paragraph (b), Buyer shall assume and agree to perform and
discharge in the ordinary course of business the following:
(i) all of the liabilities and obligations of
Sellers arising under the unfilled portions of those purchase or sales orders
from customers of Sellers, as identified in Schedule 1.2(a)(i) (the "Acquired
Sales Orders"), (ii) effective as of the Closing Date, all of the liabilities
and obligations of Sellers arising under the software license agreements being
transferred to Buyer, as identified in Schedule 1.2(a)(ii) (the "License
Agreements") (including service, warranty and upgrade obligations) solely to the
extent such obligations and liabilities arise and relate to events, acts or
omissions occurring after the Closing Date and become due and payable after the
Closing Date, and (iii) liabilities and obligations related to the Prepaid
Maintenance Amounts set forth on Schedule 1.3(b). The liabilities to be assumed
by Buyer under this Section 1.2(a) are hereinafter sometimes referred to as the
"Assumed Liabilities."
(b) Except to the extent expressly assumed pursuant to
Section 1.2(a) above, Buyer shall not assume or be bound by or be liable for any
debt, obligation, responsibility or liability of Sellers or any Affiliate (as
defined below) of any kind or nature, known, unknown, accrued, absolute,
4
contingent, or otherwise. Without limiting the foregoing sentence, Buyer shall
have no responsibility with respect to the following, whether or not disclosed
in the Base Balance Sheet or a Schedule hereto:
(i) liabilities and obligations related to or
arising from the Excluded Assets and/or related to or arising from Fonix's
operations and assets other than the operations and assets of the Business
acquired under this Agreement;
(ii) liabilities and obligations related to or
arising from transactions with any officer, director or stockholder of either of
the Sellers or any person or organization controlled by, controlling, or under
common control with any of them (an "Affiliate");
(iii) liabilities and obligations for taxes of any
kind, including taxes related to or arising from the transfers contemplated
hereby;
(iv) liabilities and obligations for damage or
injury to person or property based upon events occurring prior to the date of
Closing;
(v) liabilities and obligations to employees of
Sellers, whether for accident, disability, or workers compensation insurance or
benefits, benefits under employee benefit plans, back pay, accrued vacation, or
obligations related to or resulting from severance of employment by Sellers;
(vi) workmen's liens on any of the Subject Assets;
(vii) liabilities incurred by Sellers in connection
with this Agreement and the transactions provided for herein, including counsel
and accountant's fees, filing fees and expenses, transfer and other taxes, and
expenses pertaining to ASI's liquidation or the performance by either of the
Sellers of their obligations hereunder;
(viii) liabilities of Sellers with respect to any
options, warrants, agreements or convertible or other rights to acquire or cause
registration of any shares of their capital stock of any class;
(ix) liabilities and obligations related to or
arising from products or services delivered or performed prior to the Closing
Date (including warranty or service claims and upgrades of existing products);
(x) liabilities and obligations under outstanding
indebtedness of Sellers or otherwise to the former shareholders of Articulate
Systems, Inc.;
(xi) all liabilities and obligations with respect
to any claims or litigation, except as described in Schedule 1.2(b)(xi) hereof,
including liabilities and obligations for attorneys' fees for work performed and
expenses incurred prior to the Closing;
(xii) all liabilities and obligations under the
Excluded Contracts or under any Purchased Contracts not identified on Schedule
1.2(a)(i) or Schedule 1.2(a)(ii);
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(xiii) all liabilities and obligations of Fonix under
the MRC Agreement, including, without limitation, the obligation to pay
royalties received under any of the License Agreements to MRC.
(c) The assumption of the Assumed Liabilities by Buyer
hereunder shall be treated as independent of Buyer's existing business and shall
not enlarge any rights of third parties under contracts or arrangements with
Buyer or Sellers or any of their respective affiliates or subsidiaries. Nothing
herein shall prevent Buyer from contesting in good faith any of the Assumed
Liabilities; provided, however, no such contest by Buyer shall relieve Buyer of
its indemnification obligations under Section 8.3 hereof. Nothing herein shall
prevent Sellers from contesting in good faith any of the liabilities retained by
them; provided, however, no such contest by Sellers shall relieve Sellers of
their indemnification obligations under Section 8.2 hereof.
1.3 Purchase Price and Payment.
(a) In consideration of the sale by Sellers to Buyer of
the Subject Assets, Buyer will, in full payment therefor, pay to Seller a total
purchase price (the "Purchase Price") of Twenty Eight Million Dollars
($28,000,000), subject to adjustment as set forth in this Section 1.3, payable
as follows:
(i) by cancellation of the outstanding balance under
the Promissory Note entered into by the parties dated April 22, 1999 and the
Amendment to Promissory Note dated May 12, 1999 delivered by Sellers to Buyer in
the principal amount of One Million One Hundred Thousand Dollars ($1,100,000),
including all interest and late fees accrued thereon, and including any
increases in the principal amount of such Promissory Note and the outstanding
balance and accrued interest and late fees on any other subsequent loans from
Buyer or any of its affiliates to either Seller;
(ii) by wire transfer of Five Million Dollars
($5,000,000) to the escrow agent under the escrow agreement as provided by
Section 6.11 of this Agreement;
(iii) by wire transfer of the remaining balance of
the Purchase Price (less the Earnout Payment (as defined in the next paragraph)
and less any amounts paid by Buyer to Sellers in respect of royalties under the
License Agreement required by Section 1.12 hereof), in immediately available
funds to a bank account or accounts of Sellers as per written instructions of
Sellers, consistent with the memorandum required by Section 1.10 hereof, given
to Buyer not less than twenty-four (24) hours prior to the Closing;
(iv) (A) if Buyer has generated Nine Million Dollars
($9,000,000) in gross revenues (determined in accordance with U.S. generally
accepted accounting principles used by the Buyer in the preparation of its
financial statements) from the sale and/or licensing of PowerScribe branded
products and services, together with products and services that include or
incorporate, PowerScribe technology, including distributed architecture,
telephony based large vocabulary speech recognition and dictation/transcription
workflow (collectively, the "PowerScribe Products"), during the one (1) year
period (the "First Earnout Period")beginning on the Sales Commencement Date,
then on the date that is one (1) year and thirty (30) days from the Sales
6
Commencement Date, Two Million Dollars ($2,000,000) (the "First Earnout
Payment"), and (B) if Buyer has generated Twenty Million Dollars ($20,000,000)
in gross revenues (determined as provided in (A) above) from the sale and/or
licensing of the PowerScribe Products during the one (1) year period (the
"Second Earnout Period") beginning at the end of the First Earnout Period, then
on the date that is two (2) years and thirty (30) days from the Sales
Commencement Date, Two Million Dollars ($2,000,000) (the "Second Earnout
Payment") (the First and Second Earnout Payments, together, the "Earnout
Payment") in each case, payable either in cash or by certified or bank cashier's
check or by wire transfer of immediately available funds. Notwithstanding the
foregoing, for purposes of calculating gross revenues from the sale and/or
licensing of PowerScribe Products, only 50% of revenues generated from the sale
and/or licensing of PowerScribe Products which include or incorporate technology
other than PowerScribe, will be included in gross revenues, provided that such
limitation shall not apply to radiology and telephony PowerScribe Products for
which 100% of revenues will be included. For purposes hereof, the "Sales
Commencement Date" shall be that date on or after the Closing Date, but in any
event no later than six (6) months after the Closing Date, on which Buyer gives
notice to Sellers that Buyer is ready to begin selling the PowerScribe Products.
It is understood and agreed that, during each Earnout Period, Buyer currently
intends, as of the date of this Agreement, to conduct its operations of the
Business and the sale and/or licensing of the PowerScribe Products reasonably
consistent with the two (2) year post-closing business and marketing plan
approved by the parties prior to Closing. Nothing contained herein shall
preclude Buyer from changing such intention, it being understood that the Buyer
operates and shall continue to operate its business, including with respect to
the PowerScribe Products, in such manner as it deems necessary or desirable in
its sole and absolute discretion. Without limiting the foregoing, the Buyer
shall, during the term of this Agreement and thereafter, maintain full
discretion with respect to all operations of the Buyer and with respect to the
PowerScribe Products, including but not limited to determination of pricing of
products and acceptance or rejection of any product sales or orders.
Specifically, it is agreed that no damages shall have been incurred or caused in
the event revenues from the sale and/or licensing of PowerScribe Products
decrease in a manner to adversely affect the Earnout Payment. At the end of each
of the First Earnout Period and the Second Earnout Period, Buyer shall provide
an accounting of the revenues generated during such Earnout Period to Sellers.
In the event that at the end of the First or Second Earnout Period, Buyer
determines that no related Earnout Payment is payable to Sellers, Sellers shall
have the right to employ an auditor to audit the books and records of Buyer in
connection with the sales and licensing of the PowerScribe Products, at the sole
cost and expense of Sellers; provided, however, in the event such audit results
in a determination that the related Earnout Payment is payable to Sellers, all
costs and expenses in connection with such audit shall be borne by Buyer.
(b) At the Closing, Sellers shall, to the Buyer's
satisfaction, prepare and deliver to Buyer a Schedule 1.3(b) containing a list
of all customers which have prepaid to Sellers any amounts with respect to
maintenance and/or servicing agreements (the "Prepaid Maintenance Amounts"). The
Prepaid Maintenance Amounts will be allocated between Buyer and Sellers on a pro
rata basis based upon the number of months elapsed from the beginning of the
service period to the Closing Date rounded up or down to the nearest whole
month. The Purchase Price to be paid to Sellers hereunder shall be reduced by
the aggregate amount of such Prepaid Maintenance Amounts which have been
allocated to Buyer.
7
(c) At the Closing, Sellers shall, to the Buyer's
satisfaction, prepare and deliver to Buyer a Schedule 1.3(c) containing a list
of all customers which have prepaid to Sellers any amounts with respect to
Acquired Sales Orders (the "Prepaid Sales Order Amounts"). The Purchase Price to
be paid to Sellers hereunder shall be reduced by the total amount of such
Prepaid Sales Order Amounts.....
1.4 Time of Closing.
The closing of the purchase and sale provided for in this Agreement
(herein called the "Closing") shall be held at the offices of Brown, Rudnick,
Freed & Gesmer, in Boston, Massachusetts at 10:00 a.m. on the second business
day immediately following the date on which the approval required by Section
6.13 is obtained, or at such other place, time or date as is mutually agreeable
to the parties (the "Closing Date").
1.5 Delivery of Assumption of Liabilities.
At the Closing, Buyer shall deliver or cause to be delivered to
Sellers, among other things, an agreement to assume the Assumed Liabilities in
form and substance satisfactory to Sellers.
1.6 Transfer of Subject Assets.
At the Closing, Sellers shall deliver or cause to be delivered to Buyer
good and sufficient instruments of transfer transferring to Buyer title to all
the Subject Assets, including without limitation, bills of sale, assignments of
trademarks and patents, assignments of leases, and such other instruments of
transfer as may be required, if any. Such instruments of transfer (a) shall be
in the form and will contain the warranties, covenants and other provisions (not
inconsistent with the provisions hereof) which are usual and customary for
transferring the type of property involved under the laws of the jurisdictions
applicable to such transfers, (b) shall be in form and substance satisfactory to
counsel for Buyer, and (c) shall effectively vest in Buyer good and valid title
to all the Subject Assets, free and clear of all liens, restrictions and
encumbrances, except for and to the extent of the Assumed Liabilities. Sellers
shall, at Buyer's expense, crate, remove and transport the Subject Assets from
ASI's facility in Woburn, Massachusetts and from the other facilities of
Sellers, wherever located, to such destinations as Buyer shall request.
1.7 Delivery of Records and Contracts; Electronic Transfer.
(a) At the Closing Sellers shall deliver or cause to be
delivered to Buyer all of the Purchased Contracts with such assignments thereof
and consents to assignments as are necessary to assure Buyer of the full benefit
of the same. Sellers shall also deliver to Buyer at the Closing all of Sellers'
business records, tax returns, books and other data relating to its assets,
business and operations (except corporate records and other property of Sellers
excluded under Subsection 1.1(c)) and Sellers shall take all requisite steps to
put Buyer in actual possession and operating control of the assets and business
of the Articulate Division. After the Closing Buyer shall afford to Sellers and
their accountants and attorneys reasonable access to the books and records of
Sellers delivered to Buyer under this Section 1.7 and shall permit Sellers to
make extracts and copies therefrom for the purpose of preparing such tax returns
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of Sellers and periodic and other reports to the Securities and Exchange
Commission as may be required after the Closing and for other proper purposes
reasonably approved by Buyer. Buyer will also provide Fonix, upon request
therefor, electronic copies of this Agreement and all exhibits thereto,
including any subsequent amendments or modifications thereof.
(b) At the Closing and at Buyer's election, Sellers shall
cause those Subject Assets which are capable of being transferred by remote
telecommunications and for which Buyer has elected remote transfer, including,
without limitation, the Transferred Code, Transferred Software and Business
Records of Sellers, to be transferred (the "Transfer") by remote
telecommunications from the applicable Seller's place of business to the Buyer
at the destination designated by the Buyer prior to the Transfer. Upon
successful completion of the Transfer, based upon notice from the Buyer to the
Sellers of Buyer's receipt of all Subject Assets included in the Transfer, the
Sellers agree to destroy all copies, regardless of the medium in which the same
exist, of the Subject Assets included in the Transfer.
1.8 Tax Returns.
Sellers, with the assistance and approval of Buyer, shall promptly
prepare and file on or before the due date or any extension thereof all required
federal, state and local tax returns with respect to Sellers' operations prior
to the Closing. Unless Buyer otherwise requests, Sellers shall also take all
necessary steps to terminate ASI's fiscal year for federal income tax purposes
on the Closing Date.
1.9 Further Assurances.
Sellers from time to time after the Closing at the request of Buyer and
without further consideration shall execute and deliver further instruments of
transfer and assignment (in addition to those delivered under Section 1.6) and
take such other action as Buyer may reasonably require to more effectively
transfer and assign to, and vest in, Buyer each of the Subject Assets. To the
extent that the assignment of any lease, contract, license, commitment or right
shall require the consent of other parties thereto, this Agreement shall not
constitute an assignment thereof; however, prior to the Closing, Sellers shall
obtain any necessary consents or waivers to assure Buyer of the benefits of such
leases, contracts, commitments or rights. Nothing herein shall be deemed a
waiver by Buyer of its right to receive at the Closing an effective assignment
of each of the leases, contracts, licenses, commitments or rights of Sellers.
1.10 Allocation of Purchase Price.
The purchase price payable by Buyer for the Subject Assets pursuant to
Section 1.3 and the face amount of the Assumed Liabilities assumed pursuant to
Section 1.2 shall represent payment for the noncompetition agreement set forth
in Section 4.3 hereof and the Subject Assets at the prices shown on a memorandum
to be prepared, initialed by the parties and delivered at the Closing. Such
memorandum shall further allocate such amounts between each of the Sellers in
proportion to the assets sold by each of them and the liabilities of each of
them assumed by Buyer. The parties hereto agree that they will not take a
position inconsistent with such allocation for Federal income tax purposes or
any other purposes.
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1.11 Right to Hire Employees.
Sellers shall make available to Buyer all of Sellers' employees for
hire at or after the Closing, to the extent such employees perform services in
connection with the Business, although Buyer shall have no obligation to hire
any of such employees. In the event that Buyer hires any of Sellers' employees,
Sellers shall be responsible for all wages, benefits, severance obligations,
vacation and sick leave accruals and other obligations for such employees, up to
the date such employee is no longer an employee of a Seller.
1.12 License of ASI Technology; Technology Option Agreement.
Simultaneously with the execution of this Agreement, Sellers and Buyer
shall enter into a License Agreement, in substantially the form attached hereto
as Exhibit A, pursuant to which ASI shall grant to Buyer a non-exclusive license
to use the ASI Technology (as defined in the License Agreement) (the "ASI
License"). In addition, simultaneously with the execution of this Agreement,
Seller and Buyer shall enter into a Technology Option Agreement in substantially
the form attached hereto as Exhibit E pursuant to which Buyer may be appointed
as a non-exclusive distributor for certain technology licensed to ASI or Buyer
may become the assignee of ASI thereunder.
1.13 Collection of Accounts Receivable.
(a) Buyer agrees that it shall use its commercially
reasonable efforts to collect all of the Accounts Receivable outstanding less
than ninety (90) days as of the Closing Date, as set forth on Schedule 1.13 (a),
on behalf of Sellers. On a quarterly basis, Buyer shall remit to Sellers all
funds collected in respect of such Accounts Receivable, less any amounts
deducted by Buyer to reimburse Buyer for any cost of goods incurred. In the
event that any Account Receivable is not fully collected with 90 days of the
applicable invoice date, Buyer shall no longer be obligated to use its best
efforts to collect such Account Receivable, and Sellers may request that Buyer
reassign such Account Receivable to Sellers for collection. Any efforts of
Sellers to collect such receivables shall be in compliance with all applicable
laws, rules and regulations and shall conform with good commercial business
practice.
(b) Sellers shall have the right and authority to collect
the Accounts Receivable outstanding 90 days or more as of the Closing Date,
provided such collection shall be conducted in compliance with all applicable
laws, rules and regulations and shall conform with good commercial business
practice. Buyer shall cooperate with Sellers in connection with Sellers' efforts
to collect such Accounts Receivable, and shall promptly pay over to Sellers
amounts paid to Buyer in respect of such receivables.
1.14 Certain Matters Regarding Apple Litigation.
In connection with the Apple Litigation, Buyer shall have the right,
exercisable prior to the Closing Date, to contact Apple for the purpose of
discussing settlement or other resolution of ASI's claims against Apple as
asserted in the Apple Litigation. In the course of such discussions, Buyer shall
not (i) disclose any confidential or proprietary information of Sellers with
respect to ASI's claims, strategy or legal theories concerning the Apple
Litigation, nor (ii) settle or agree to settle the Apple Litigation on terms
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which would in any way be binding upon Fonix or ASI if Buyer elects option (a)
below or the Closing does not occur because of any event or circumstance
described in Sections 9.1 or 9.2 below. Within two (2) business days before the
Closing, Buyer shall notify Sellers in writing that it has elected one (1) of
the following two (2) options: (a) Buyer may designate the Apple Litigation and
the patents and other intellectual property which are the subject thereof
(collectively, the "Apple Claims") as Excluded Assets pursuant to Section 1.1(c)
hereof; or (b) Buyer may designate the Apple Claims as Subject Assets pursuant
to Sections 1.1(a)(viii) and (ix) hereof. If Buyer designates the Apple Claims
as Excluded Assets, then at Closing ASI and Buyer shall enter into a
Non-Exclusive License Agreement pursuant to which ASI shall grant to Buyer a
non-exclusive, perpetual, fully-paid worldwide license to make, use and sell
technology covered by the patents and other intellectual property which are the
subject of the Apple Litigation on substantially the same terms and conditions
as the license previously granted pursuant to the Agreement between ASI
Holdings, Inc. and Dragon Systems, Inc., dated as of January 10, 1995. If Buyer
designates the Apple Claims as Subject Assets, then Sellers and Buyer agree that
the proceeds of the Apple Litigation, whether received as a result of a
settlement of the Apple Litigation or as a result of a court judgment, shall be
allocated as follows: (i) first, to Buyer to cover all expenses and attorney's
fees paid by Buyer in connection with the Apple Litigation from and after the
Closing Date to the final date of the receipt of proceeds, (ii) second, fifty
percent (50%) of the next three million dollars ($3,000,000) or the remainder of
the proceeds if a lesser amount to each of Sellers and Buyer, and (iii) third,
the remainder of the proceeds, if any, to be split sixty percent (60%) to Buyer
and forty percent (40%) to Sellers. It is understood and agreed that the conduct
of the Apple Litigation from and after the Closing Date shall be under the sole
and absolute control and discretion of Buyer. Without limitation of the
foregoing, following the Closing Date, any settlement of the Apple Litigation
and the amount and nature of proceeds to be received in connection with any such
settlement shall be in Buyer's sole and absolute discretion. It is further
expressly agreed that in the event that the proceeds received consist of
consideration other than cash or marketable securities, such proceeds shall be
allocated solely to Buyer and shall not be considered for purposes of the
allocation of proceeds agreed to herein.
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLERS.
Each of the Sellers hereby represents and warrants to Buyer as follows:
2.1 Organization and Qualification of Seller.
Each Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of its incorporation, with full power
and authority to own or lease the Subject Assets and to conduct its business,
including the Business. Each Seller is duly qualified to do business as a
foreign corporation in all jurisdictions where the failure to be so qualified
would have a material adverse effect upon the Business or the Subject Assets.
Fonix owns all of the issued and outstanding capital stock of ASI.
2.2 Authorization of Transaction.
Each Seller has the full power and authority to execute and deliver
this Agreement and subject to the authorization and approval of the transaction
contemplated hereunder by the shareholders of Fonix to perform this Agreement
and to carry out the transactions contemplated hereby. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been authorized by all necessary corporate action on
the part of each of the Sellers,, subject to authorization and approval of the
transaction contemplated hereunder by the shareholders of Fonix to perform this
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Agreement, and this Agreement and each other agreement, document and instrument
executed by each Seller pursuant to or in connection with this Agreement
constitute, or when executed and delivered will constitute, the valid and
binding obligation of such Seller, enforceable in accordance with their
respective terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditor's rights generally or by general equitable
principles.
2.3 Present Compliance with Obligations and Laws.
Neither Seller is in violation of its Certificate or Articles of
Incorporation ("Charter") or bylaws. Neither the ownership nor use of the
Subject Assets by Sellers nor the conduct of the Business by Sellers violates
or, with or without the passage of time or the giving of notice, or both, would
violate, conflict with or result in a default or right to accelerate under, any
term of any material lien, encumbrance, mortgage, deed of trust, lease, license,
agreement or condition of any debt instrument or any law, regulation,
administrative order or judicial order applicable to either Seller, the Business
or the Subject Assets.
2.4 No Conflict of Transaction With Obligations and Laws; Approvals.
(a) Except as set forth in Schedule 2.4(a), neither the
execution and delivery nor, subject to authorization and approval of this
transaction by the shareholders of Fonix, the performance of this Agreement and
the transactions contemplated hereby by the Sellers, will: (i) constitute a
breach or violation of the Charter or bylaws of either Seller; (ii) conflict
with or constitute (with or without the passage of time or the giving of notice)
a breach of, or default under, any debt instrument to which either Seller is a
party, or give any person the right to accelerate any material indebtedness or
terminate any material right; (iii) result in the creation of any lien, charge
or encumbrance on the Subject Assets; (iv) constitute (with or without the
passage of time or giving of notice) a default under or breach of any other
agreement, instrument or obligation to which either Seller is a party or by
which it or any of the Subject Assets are bound; or (v) result in a violation of
any law, regulation, administrative order or judicial order applicable to either
Seller, the Business or the Subject Assets.
(b) Except for the appropriate filing (the "HSR Filing")
under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the
"Xxxx-Xxxxx-Xxxxxx Act") filing and related requirements, and except as set
forth in Schedule 2.4(b), the execution, delivery and performance of this
Agreement and the transactions contemplated hereby by the Sellers do not require
either Seller to obtain any consent, waiver, approval, authorization, exemption
of or giving of notice to any governmental authority or other third party.
2.5 Financial Information.
Attached as Schedule 2.5 hereto are the following unaudited financial
statements of ASI (which include all of the assets and liabilities of the
Articulate Division held by Fonix), , which statements are prepared from and in
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accordance with the books and records of ASI, fairly present the financial
position of ASI on the date of such statements and the results of its operations
for the period covered thereby, and such financial statements have been prepared
consistent with past practices:
Balance Sheet and Statement of Operations for the four months ending
December 31, 1998.
Balance Sheet and Statement of Operations for the period ending March
31, 1999
(the balance sheet dated March 31, 1999 included in the above financial
statements of ASI, including notes as to subsequent events, if any, are
sometimes referred to together as the "Base Balance Sheet"). The Base Balance
Sheet fairly presents the assets and liabilities of the Articulate Division as
of the date thereof.
2.6 Absence of Undisclosed Liabilities.
As of the date of the Base Balance Sheet, the Articulate Division had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
except (a) liabilities stated or adequately reserved against the Base Balance
Sheet, (b) liabilities not in excess of twenty-five thousand dollars ($25,000)
arising in the ordinary course of business, and (c) liabilities disclosed in
Schedule 2.6 hereto. To the knowledge of Sellers, there is no fact which
materially adversely affects the Subject Assets or the operations or condition
of the Business provided that no representation is made as to general economic
conditions or the general conditions of the dictation/transcription industry.
2.7 Absence of Certain Changes.
Except as disclosed in Schedule 2.7 hereto, since the date of the Base
Balance Sheet, there has not been (a) any material adverse change in the
relationships of the Sellers with respect to their suppliers, distributors,
customers or others with whom they have business relationships which would have
a material adverse effect on the Business, and Sellers do not have knowledge of
any fact or contemplated event which could reasonably be expected to cause any
such material adverse change, (b) any material alteration or change in the
methods of operation employed by Sellers in the Business, (c) any material
change in the properties, assets, liabilities or operations of the Articulate
Division which change by itself or in conjunction with all other changes,
whether or not arising in the ordinary course of business, has had or would
reasonably be likely to have a material adverse effect on the Business, (d) any
encumbrance or lien placed on any of the Subject Assets which remains in
existence, (e) any disposal, or lapse of any rights to the use of any trademark,
tradename, patent or copyright, or disposal of or disclosure to any person other
than the Buyer of any trade secret, formula, process or know how relating to the
Business, not previously a matter of public knowledge, other than pursuant to
confidentiality agreements, (f) any obligation or liability incurred by the
Sellers with respect to the Business other than obligations and liabilities
incurred in the ordinary course of business, consistent with past practice, (g)
any purchase, sale or other disposition, or any agreement or other arrangement
for the purchase, sale or other disposition of any assets included among the
Purchased Assets other than in the ordinary course of the Business, (h) any
13
damage, destruction or loss, whether or not covered by insurance, materially and
adversely affecting the Business or the Purchased Assets, (i) any change in
Sellers' accounting procedures or practices as it relates to the Business, (j)
any waiver, release, cancellation or compromise of any debts owed to them or
claims or rights against others, in each case, relating to the Business,
exceeding ten thousand dollars ($10,000) in the aggregate, or (k) any business
conducted by Sellers with respect to the Business other than that conducted in
the ordinary and regular course.
2.8 Title to Properties; Liens; Condition of Properties.
(a) The Subject Assets do not include any real property.
The assets set forth in Schedule 2.8 constitute a complete and correct listing
of the Inventory, equipment and other tangible personal property included in the
Subject Assets, and all leases under which the Sellers lease any real or
personal property included in the Subject Assets. Sellers own all of the Subject
Assets, and Sellers have and are conveying to Buyer hereunder good and valid
title to all the Subject Assets. None of the Subject Assets, tangible or
intangible, shall be subject at Closing to any mortgage, pledge, lien, tax lien,
conditional sale agreement, security interest, encumbrance, claim or other
charge or restraint on transfer of any nature whatsoever. All financing
statements under the Uniform Commercial Code previously filed with respect to
any of the Subject Assets in any jurisdiction have or will be simultaneously
with the Closing terminated, together with the security interests and rights
created thereby, and Sellers have not signed any other such financing statement
or any security agreement authorizing any secured party thereunder to file any
such financing statement. Except as set forth in Schedule 2.8, the Subject
Assets comprise of all assets required for the continued conduct of the Business
by the Buyer as currently conducted by Sellers. The Subject Assets, taken as a
whole, constitute all of the properties and assets relating to or used or held
for use in connection with the Business as the same has been operated prior to
the date hereof, except inventory sold, prepaid expenses realized, contracts
fully performed, properties or assets replaced by equivalent or superior
properties or assets, in each case in the ordinary course of business, employees
not hired by the Buyer and the Excluded Assets.
(b) The Subject Assets are in good working order, normal
wear and tear excepted, and are reasonably suitable for the purpose or purposes
for which they are being used and, to the knowledge of Seller, there does not
exist any defect in any such item or property that is of the nature of a latent
defect which would render the particular item unfit for its continued use in its
current mode.
2.9 Payment of Taxes.
Sellers have filed all federal, state, local, and foreign government
income excise or franchise tax returns, real estate and personal property tax
returns, sales and use tax returns and all other tax returns required to be
filed by them, and they have paid all taxes owing by them except taxes which
have not yet accrued or otherwise become due for which adequate provision has
been made in the pertinent financial statements referred to in Section 2.5,
above. All transfer, excise and other taxes payable to any jurisdiction by
reason of the sale and transfer of the Subject Assets pursuant to this Agreement
shall be paid or provided for by Sellers after the Closing out of the
consideration payable by Buyer hereunder. The federal income tax returns of
Fonix and its subsidiaries have never been examined by the Internal Revenue
14
Service and no extension of time for the assessment of deficiencies for any year
is in effect. The provisions for taxes reflected in the above-mentioned
financial statements are adequate to cover any tax liabilities of the Sellers in
respect of their respective businesses, properties and operations during the
periods covered by said financial statements and all prior periods. Neither the
Internal Revenue Service nor any other taxing authority is now asserting or, to
the knowledge of the Sellers, threatening to assert against either Seller any
deficiency or claim for additional taxes or interest thereon or penalties in
connection therewith.
2.10 Inventories.
All inventories of finished goods and raw materials of the Sellers with
respect to the Business existing on the Closing Date will be of a quantity and
quality normally saleable or usable in the ordinary course of business at
commercially reasonable prices without discounts. All such inventories are
valued on a lower of cost (FIFO) or market basis and in accordance with the
Sellers' normal valuation methods and policies, consistently applied. Except for
the items listed on Schedule 2.10, all inventories of finished goods and raw
material existing on the Closing Date shall be either saleable or useable (with
respect to anticipated orders in-hand or reasonably forecast) on or before the
twelve-month anniversary of the Closing Date consistent with the past practices
of the Sellers.
2.11 Intellectual Property Rights.
(a) Sellers own, or are licensed or otherwise possess
legally enforceable rights to use all Intellectual Property Rights (as defined
below) necessary to the conduct of the Business as it is presently being
conducted or as presently contemplated to be conducted and, except for Excluded
Assets, all such Intellectual Property Rights are being transferred as part of
the Subject Assets. Schedule 2.11(a) contains a list of all patents, patent
applications registered copyrights, trade names, trademarks and service marks,
and registrations and applications for the same owned by Sellers relating to or
used or held for use in connection with the Business. Except as set forth on
Schedule 2.11(a), Sellers have unencumbered title to the Intellectual Property
Rights set forth in Schedule 2.11(a) which are listed as owned by Sellers and to
Sellers' knowledge there are no pending challenges to such title nor, to the
knowledge of Sellers, have others threatened to challenge such title. No rights
or licenses to use Intellectual Property Rights have been granted or acquired by
a Seller in connection with the Business except licenses associated with sales
of products to end user customers in the ordinary course of business and
consistent with past practice or those listed in Schedule 2.11(b). Schedules
2.11(c) lists all material licenses, agreements, obligations and contracts
relating to the Intellectual Property Rights to which a Seller is a party or by
which, to Seller's knowledge, a Seller is bound, except licenses associated with
sales of products to end user customers in the ordinary course of business and
consistent with past practice. Each of the licenses, agreements, obligations and
contracts listed in Schedules 2.11(b) and 2.11(c) (i) is in full force and
effect, (ii) except as set forth in Schedule 2.4(b), may be freely assigned to
Buyer, (iii) is not subject to any current default of Sellers, and (iv) is not
subject to any outstanding, or to the knowledge of Sellers, threatened, disputes
or disagreements. Except as listed in Schedule 2.11(d), there have been (i) no
claims or assertions made by others that a Seller has infringed any intellectual
property rights of others by the sale of products or any other activity and (ii)
to Sellers' knowledge no infringements of any intellectual property rights of
others by Sellers. Except as set forth in Schedule 2.11(e), Sellers have no
knowledge, of any infringement of Intellectual Property Rights of Seller by
15
others. All such patents, registered trademarks, service marks, and copyrights
owned by Sellers and relating to or used or held for use in connection with the
Business are in good standing and are recorded on the public record in the name
of a Seller. True, complete and correct copies of all material listed in
Schedules 2.11(a), 2.11(b), 2.11(c), 2.11(d) and 2.11(e) have been delivered or
made available to the Buyer. For purposes of this Agreement, "Intellectual
Property Rights" shall mean all of Sellers' rights relating to patents, patent
applications, trademarks, service marks, trade names, copyrights, applications
to register or registrations of any of the foregoing, mask works, inventions,
processes, methods, trade secrets, know-how, employee invention disclosures,
software (in both source code and object code form) and any documentation
relating to the manufacture, marketing and maintenance of products by Sellers to
the extent relating to or used or held for use in connection with the Business.
(b) Except as listed on Schedule 2.11(f), all employees
of and technical consultants to Sellers, who have contributed to or have access
to Intellectual Property Rights relating to or used or held for use in
connection with the Business have entered into proprietary information and
invention agreements with Sellers and copies of such agreements have been made
available or provided to the Buyer. Except as set forth on Schedule 2.11(f), to
Sellers' knowledge, no employee of the Articulate Division has entered into any
agreement that prohibits him from performing the work in which the employee is
presently engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than Sellers.
(c) The manner in which Sellers have manufactured,
packaged, shipped, advertised, labeled and sold its products, to the extent such
products are a part of the Business, complies in all material respects with all
the material applicable laws and regulations pertaining thereto. Except as set
forth on Schedule 2.11(g), Sellers have not deposited, and are not obligated to
deposit, any source code regarding their products, to the extent such products
or source code are a part of the Business, into any source code escrows or
similar arrangements and Sellers are not under any contractual or other
obligation to disclose the source code; or, other than to end-users or bundlers,
any other material proprietary information included in or relating to its
products.
(d) Sellers neither sell nor have under development any
product or service relating to dictation/transcription technology for the
medical industry other than those represented by the Business.
2.12 Warranty or Other Claims.
Except as set forth in Schedule 2.12, no product manufactured, sold,
licensed or delivered by the Sellers in connection with the Business is subject
to any contractual guarantee, warranty, right of return or other indemnity
beyond the applicable standard terms and conditions of sale or lease described
in Schedule 2.12. Schedule 2.12 sets forth the aggregate expenses incurred by
Sellers in fulfilling its obligations under its guarantee, warranty, right of
return and indemnity provisions with respect to the Business during fiscal 1998
and the first three (3) months of fiscal 1999, and Sellers know of no reason why
the warranty expenses with regard to the Business will significantly increase as
a percentage of sales in the future. Sellers do not know of any existing or
threatened claims, or any facts upon which a claim could be based, including
product liability or other tort claims, against either Seller related to
16
services or products sold as part of the Business. No claim has been asserted
against either Seller for renegotiation or price redetermination of any business
transaction relating to the Business, and Sellers have no knowledge of any facts
upon which any such claim could be based, other than routine price negotiation
consistent with past practice.
2.13 Litigation.
Except for matters described in Schedule 2.13 hereto, there is no suit,
claim, action, proceeding or governmental investigation pending or, to the
Sellers' knowledge, threatened, against either Seller, before any court or any
governmental agencies or regulatory authorities which could reasonably be
expected to have a material adverse effect on the Business or the Purchased
Assets or which, if adversely determined would materially impair or preclude
Sellers' ability to consummate the transactions contemplated by this Agreement
or which seeks to enjoin or otherwise hinder or prevent the consummation of the
transactions contemplated by this Agreement and neither Seller is subject to any
order, injunction or decree relating to or affecting the Business or the
Purchased Assets.
2.14 Permits.
Each Seller holds all licenses, permits and franchises which are
required to permit it to operate the Business as presently conducted, and all
such licenses, permits and franchises are listed on Schedule 2.14 hereto.
2.15 Transactions with Interested Persons.
Except as shown on Schedule 2.15, to the knowledge of Sellers, no
officer, supervisory employee, director or stockholder of either Seller or any
affiliate, or their respective spouses or children (i) owns, directly or
indirectly, on an individual or joint basis, any material interest in, or serves
as an officer or director of, any customer, competitor or supplier of the
Business or any organization which has a material contract or arrangement with a
Seller pertaining to the Business, or (ii) has any contract or agreement with a
Seller pertaining to the Business.
2.16 Contracts and Commitments.
All contracts, commitments, plans, agreements and licenses of any
nature that relate to the Business are listed on Schedule 2.16. Except as set
forth in Schedule 2.16, each of the Purchased Contracts is in full force and
effect and constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against the related Seller and, to Seller's knowledge,
the other parties thereto (in the latter case, subject to laws of general
application affecting creditor's rights), is subsisting and is fully assignable
by such Seller. Except as set forth in Schedule 2.16, each Seller has made all
payments due under the Purchased Contracts and performed all the obligations
required to be performed by it under such contracts so as not to be in default
thereunder, and there has not occurred any event which (whether with or without
the passage of time or the giving of notice or both) would constitute a default
of a Seller under a Purchased Contract, or, to the knowledge of Sellers, a
default of any other party under a Purchased Contract.
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2.17 Labor and Employee Relations.
(a) Except as set forth on Schedule 2.17, there are no
complaints against either Seller pending or, to the knowledge of Sellers,
threatened before the National Labor Relations Board or any similar state or
local labor agencies, or before the Equal Employment Opportunity Commission or
similar state or local agency, by or on behalf of any employee or former
employee who performs or performed services in connection with the Business.
(b) Sellers have provided to Buyer a complete description
of all material written and other employment policies under which each Seller
has operated or which have been communicated in writing to employees who perform
services in connection with the Business.
(c) Neither Seller has received notice from or is aware
of any key employee or key group of employees who perform services in connection
with the Business, that any such person or persons have plans to terminate his,
her or their employment with such Seller.
2.18 Employees.
The salaries and employee benefits of the employees of the Business
listed on Schedule 2.18 are accurately summarized in all material respects on
Schedule 2.18 hereto. Except as set forth in Schedule 2.18, Sellers have accrued
or paid in full to those employees listed on Schedule 2.18 all wages,
commissions, bonuses, vacation pay and other direct compensation for all
services performed by them. There are no grievances or claims by any of such
employees pending with respect to their employment by the related Seller,
including, but not limited to, sexual harassment and discrimination claims and
claims arising under workers' compensation laws.
2.19 Finder's Fee.
No Seller has incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
2.20 Disclosure of Material Information.
No representation or warranty of either Seller contained in this
Agreement, or any other document, certificate or other instrument delivered to
or to be delivered by or on behalf of a Seller pursuant to this Agreement,
contains or will contain any untrue statement of a material fact or omits, or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading.
2.21 Suppliers, Customers and Distributors.
Schedule 2.21 lists the two largest (by dollar volume) suppliers and
customers of Sellers during the immediately preceding twelve (12) month period
with respect to the Business. To the best knowledge of Sellers, the
relationships of Sellers with such suppliers and customers are good commercial
working relationships and Sellers have no knowledge of any intention on the part
of any such supplier or customer to modify or amend in any material manner or
terminate any such relationship, except as disclosed in Schedule 2.21.
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2.22 Intentionally Omitted.
2.23 Borrowings and Guarantees.
Except as shown on Schedule 2.23 hereto, there are no
agreements and undertakings pursuant to which ASI and/or Fonix, in connection
with the Business, (a) is borrowing or is entitled to borrow any money, (b) is
lending or has committed itself to lend any money, or (c) is a guarantor or
surety with respect to the obligations of any person. Complete and accurate
copies of all such written agreements have been delivered to Buyer.
2.24 Insurance.
Schedule 2.24 contains a complete and correct list of all
policies of insurance maintained by the Sellers (including insurance providing
benefits for employees) in effect on the date hereof in connection with the
Business, together with complete and correct information with respect to the
premiums, coverages, insurers, expiration dates, and deductibles in respect of
such policies. Except for amounts deductible under policies of insurance
described on such schedule or with respect to risks assumed as a self-insurer
and described on such schedule, neither Seller is, or has been at any time,
subject to any liability as a self-insurer of the businesses or assets of the
Sellers that is reasonably likely to have a material adverse effect upon the
businesses, assets, revenues, condition (financial or otherwise) or prospects of
the Business. Except as set forth on the schedule, there are no claims pending
or, to the knowledge of Sellers, overtly threatened, under any of said policies,
or disputes with insurers, and all premiums due and payable thereunder have been
paid, and all such policies are in full force and effect in accordance with
their respective terms.
2.25 Prepaid Maintenance Amounts and Prepaid Sales Order Amounts
Set forth on Schedule 1.3(b) and Schedule 1.3(c) are the Prepaid
Maintenance Amounts and Prepaid Sales Order Amounts, respectively, in each case,
listed separately by customer, amount, date of receipt, applicable customer
contract, and the service period or stage of product installation for which such
payment was received as of the Closing Date. All of such information is true,
complete and accurate in all material respects as of the Closing Date.
2.26 Absence of Sensitive Payments.
Neither Seller, nor to the knowledge of the Sellers, any of the
Sellers' directors, officers, agents, stockholders or employees, on behalf of a
Seller:
(a) has made or has agreed to make any contributions,
payments or gifts of funds or property to any governmental official, employee or
agent where either the payment or the purpose of such contribution, payment or
gift was or is illegal under the laws of the United States, any state thereof,
or any other jurisdiction (foreign or domestic);
(b) has established or maintained for any purpose any
unrecorded fund or asset relating to or concerning the Business, or has made any
false or artificial entries on any of the books or records of the Business for
any reason; or
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(c) has made or has agreed to make any contribution or
expenditure, or has reimbursed any political gift or contribution or expenditure
made by any other person to candidates for public office, whether federal, state
or local (foreign or domestic) where such contributions were or would be a
violation of applicable law.
2.27 SEC Filings.
Since December 31, 1997, Fonix has filed or caused to be filed all
registration statements, reports or statements, and any amendments thereto,
required to be filed by it pursuant to Sections 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, as of
their respective filing dates, all such documents were prepared in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations thereunder in all material respects and did not contain any
misstatement of a material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances,
not misleading, except to the extent corrected by a subsequently filed
registration statement, report or statement.
2.28 Environmental Matters.
(a) In connection with the Business, the Sellers have
materially complied with all applicable foreign, national, federal, state and/or
local laws (including without limitation case law, rules, regulations, orders,
judgments, decrees, permits, licenses and governmental approvals) that are
intended to protect the environment and/or human health or safety (collectively,
"Environmental Laws").
(b) In connection with the operation of the Business,
neither of the Sellers have ever handled, generated, used, stored, transported
or disposed of any material, substance or waste that is regulated by
Environmental Laws, except for reasonable amounts of ordinary office supplies
and/or office-cleaning supplies that have been handled in compliance with
Environmental Laws.
(c) To the Sellers' knowledge, there are no
"Environmental Liabilities," which, for purposes of this Agreement, means any
liabilities whatsoever of the Sellers which arise under any Environmental Laws
whether vested or unvested, contingent or fixed, actual or potential, and which
arise from or relate to the Business and any actions occurring (including any
failure to act) or conditions existing on or before the Closing Date.
2.29 Year 2000.
(a) The Transferred Software is designed to be used prior
to, during and after calendar year 2000 and will operate during each such time
period without error relating to date data, specifically including any error
relating to, or the conduct of, date data which represents or references
different centuries or more than one century. Without limiting the generality of
the foregoing, the Transferred Software (i) will not abnormally terminate or
provide invalid or incorrect results as a result of date data, and (ii) has been
designed to ensure year 2000 compatibility, including date data, century
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recognition, calculations which accommodate same century and multi-century
formulas and date values, and date data interface values that reflect the
correct century. The Transferred Software includes "Year 2000 Capabilities."
(b) "Year 2000 Capabilities" means the Transferred
Software (i) will manage and manipulate data involving dates, including single
century formulas and multi-century formulas, and will not cause an abnormally
ending scenario within an application or generate incorrect values or invalid
results involving such dates, (ii) provides that all date-related users
interface functionalities and data fields include the indication of century, and
(iii) provides that all date-related data interface functionalities include the
indication of century.
(c) Except as set forth on Schedule 2.29(c), all mission
critical computer-based systems and software used by the Business whether
developed by Sellers or developed or provided by third parties (collectively,
"Computer Systems") will record, store, process and present calendar dates
falling on or after January 1, 2000 in the same manner and with the same
functionality as such Computer Systems record, store, process and present
calendar dates falling on or before December 31, 1999. The upgrade to Microsoft
SQL referenced on Schedule 2.29(c) can be accomplished by Sellers or Buyer in
the ordinary course of business without unreasonable effort or expense. Set
forth on Schedule 2.29(c) is a description of the investigation and inquiries
made and work undertaken by Sellers in connection with the Computer Systems and
their Year 2000 Capabilities. To the knowledge of Sellers, in all other
respects, such Computer Systems shall not in any way lose functionality or
degrade in performance as a consequence of such Computer Systems operating at a
date later than December 31, 1999. Sellers shall jointly and severally indemnify
and hold Buyer harmless for any claims by third parties against Buyer, arising
from sales by the Sellers prior to the Closing Date, for failure of the
Transferred Software to perform in accordance with the Year 2000 Capabilities,
provided, however, that no such indemnification shall be available if such a
third party claim relates to Buyer's failure to provide the upgrade to Microsoft
SQL referenced on Schedule 2.29(c) in the ordinary course of business.
2.30 Excluded Technology.
Excluding the Excluded Technology not intended to be transferred to
Buyer, but including the rights to be granted to Buyer by the Technology Option
Agreement required by Section 6.13 hereof, Sellers have and by transfer of the
Subject Assets to Buyer, Buyer will have, legally enforceable rights to all of
the technology and Intellectual Property Rights necessary to operate the
Business and to produce, install and maintain the PowerScribe Products. At
Closing, none of the Acquired Sales Orders will contemplate any product
customization or other requirements that would necessitate use of the Excluded
Technology in order for Buyer to fulfill such Acquired Sales Orders in all
respects without incurring any additional material cost or material time delay
which Sellers would have been able to avoid by using the Excluded Technology.
None of the employees of Sellers who accept offers of employment from Buyer will
retain documentation concerning or any tangible or electronic evidence of any
proprietary information related to the Excluded Technology after the Closing.
Sellers shall ensure that no such information is delivered to Buyer, except as
may be contemplated by the Technology Option Agreement.
2.31 Stockholder Action.
On or prior to the date hereof, each of the individuals listed on
Schedule 2.31 has delivered to the Sellers a letter substantially in the form
set forth on Schedule 2.31 pursuant to which each of them have agreed to vote
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all shares of Fonix owned by them or as over which they have voting control in
favor of the transactions contemplated by this Agreement and irrevocably granted
a proxy, coupled with an interest, to Fonix or its designee to vote all such
shares in favor of such transactions.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Sellers as follows:
3.1 Organization of Buyer.
The Buyer and any subsidiary through which Buyer completes the
transaction contemplated hereby are corporations duly organized, validly
existing and in good standing under the laws of Belgium or the state of its
incorporation with full corporate power to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is conducted by it.
3.2 Authorization of Transaction.
The Buyer has all requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement and the performance of this Agreement and the
consummation by the Buyer of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of the
Buyer. This Agreement has been duly and validly executed and delivered by the
Buyer and constitutes a valid and binding obligation of the Buyer, enforceable
against the Buyer in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles.
3.3 No Conflict of Transaction with Obligations and Laws.
(a) Neither the execution, delivery and performance of
this Agreement or any of the agreements contemplated hereby, nor the performance
of the transactions contemplated hereby, will (i) constitute a breach or
violation of the Buyer's Restated Articles of Association or bylaws; (ii)
conflict with or constitute (with or without the passage of time or the giving
of notice) a breach of, or default under any material agreement, instrument or
obligation to which the Buyer is a party or by which it or its assets are bound
which would materially affect the performance by the Buyer of its obligations
under this Agreement; or (iii) result in a violation of any law, regulation,
administrative order or judicial order applicable to the Buyer.
(b) Except for the Xxxx-Xxxxx-Xxxxxx Act filing and
related requirements, the execution, delivery and performance of this Agreement
and the transactions contemplated hereby by the Buyer do not require the
consent, waiver, approval, authorization, exemption of or giving of notice to
any governmental authority or other third party.
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3.4 Claims and Legal Proceedings.
There are no claims, actions, suits, arbitration, proceedings or
investigations pending (or, to the best knowledge of the Buyer, threatened)
against the Buyer or any of its subsidiaries, and there are no outstanding court
orders, court decrees, or court stipulations to which the Buyer or any of its
subsidiaries is a party or by which any of their respective assets are bound,
any of which (a) question this Agreement or affect the transactions contemplated
hereby or (b) would, individually or in the aggregate materially impair or
preclude the Buyer's ability to consummate the transactions contemplated hereby.
The Buyer has no reason to believe that any such claim, action, suit,
arbitration, proceeding or investigation may be brought against it.
3.5 Disclosure of Material Information.
No representation or warranty by the Buyer contained in this Agreement,
or any other document, certificate or other instrument delivered to or to be
delivered by or on behalf of the Buyer pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits, or will omit to
state any material fact necessary, in light of the circumstances under which it
was or will be made, in order to make the statements herein or therein not
misleading.
3.6 Broker's and Finder's Fees.
Buyer has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finder's fees or agent's commissions or investment
banker fees or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
ARTICLE 4 COVENANTS OF SELLERS.
The Sellers hereby jointly and severally covenant and agree with the
Buyer as follows:
4.1 Expenses.
Sellers hereby agrees that (i) all expenses of Sellers in connection
with the negotiation and performance of this Agreement and the transactions
contemplated hereby, including one-half of the Xxxx-Xxxxx-Xxxxxx Act filing fee,
and (ii) all transfer, excise or other taxes payable by any party to this
Agreement to any jurisdiction by reason of the sale or transfer of the Subject
Assets pursuant to this Agreement, if any, shall be paid by Sellers out of the
proceeds of the sale of the Subject Assets or otherwise, and, notwithstanding
anything contained in Section 5.1 to the contrary, no such expenses shall be
payable by Buyer or any affiliate of Buyer.
4.2 Nondisclosure.
After the Closing Date, neither Seller, nor any person controlling,
controlled by or under common control with a Seller will, for any reason,
directly or indirectly, for itself or any other person, use or disclose any
trade secrets or confidential information, know-how or proprietary information
transferred pursuant to this Agreement, except to Buyer, its officers,
directors, employees or agents, in connection with the operation of the Business
by Sellers before or by Buyer after the Closing Date, except as may be required
to be disclosed by law. Confidential and proprietary information for purposes of
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this Agreement shall not include information which is or becomes publicly known
through no fault of a Seller or any of the aforementioned affiliates of Sellers.
4.3 Noncompetition by Sellers.
Sellers, in order to induce Buyer to enter into this Agreement,
expressly covenant and agree that neither Seller, nor any of its affiliates
will, directly or indirectly, for a period of three (3) years following the
Closing Date, own, manage, operate, join, control, joint venture with, act as
agent, consultant, surety or guarantor, or render any services of a business,
commercial or professional nature to or have a financial interest in any
business, individual, partnership, firm, corporation or other organization
which, to the knowledge of Sellers, is at the time engaged, wholly or partly, in
the development or sale of (a) dictation/transcription products or technology
specifically designed or marketed for use in the medical (i.e., patient charting
and/or patient care) field or which use language modeling or vocabularies
designed for medical (i.e., patient charting and/or patient care) applications
or (b) products or technology which allows for the distribution, retrieval or
use of data over a network or enterprise system, or in any activity which
competes with the Business as presently conducted by ASI during such three (3)
year period. Further, for a period of three (3) years following the Closing
Date, none of the Sellers nor their affiliates shall, directly or indirectly,
solicit, induce or encourage any person employed by the Buyer in the operation
of the Business to terminate his or her employment with the Buyer. Sellers agree
that this provision is reasonable in view of the nature of the business being
transferred hereby and the relevant market for products and services of the
Business and that any breach hereof would result in continuing and irreparable
harm to Buyer and would adversely affect the value to Buyer of the Subject
Assets and related goodwill being transferred under this Agreement. Sellers
expressly covenant and agree that the remedy at law for any breach of this
Section 4.3 will be inadequate and that, in addition to any other remedies Buyer
may have, Buyer shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damage. To the extent that any part of
this provision may be invalid, illegal or unenforceable for any reason, it is
intended that such part shall be enforceable to the extent that a court of
competent jurisdiction shall determine that such part if more limited in scope
would have been enforceable and such part shall be deemed to have been so
written and the remaining parts shall as written be effective and enforceable in
all events. Notwithstanding the foregoing, Fonix shall not be prohibited from
owning in the aggregate less than five percent (5%) of any class of securities
of any particular company.
4.4 Acquired Sales Orders and License Agreement.
Each Seller agrees that in the event it receives a payment from any
customer with respect to any Acquired Sales Order or License Agreement acquired
or assumed by Buyer hereunder, which payment is not made on account of an
Account Receivable, such Seller will promptly remit such payment to Buyer.
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4.5 Payment of Debts.
On or after the Closing Date, Sellers shall pay as and when due all
debts and obligations relating to the Business not assumed by Buyer hereunder,
provided that, the foregoing shall not prevent Sellers from contesting in good
faith any of such debts or obligations.
4.6 Conduct of Business.
Between the date of this Agreement and the Closing, the Sellers will do
the following in connection with the conduct of the Business unless the Buyer
shall otherwise consent in writing:
(a) conduct the Business only in the ordinary course and
refrain from changing or introducing any method of management or operations with
regard to the Articulate Division except in the ordinary course of business and
consistent with prior practices;
(b) refrain from making any purchase, sale or disposition
of any asset or property other than in the ordinary course of business and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
properties or assets, in each case to the extent the asset or property relates
to the Articulate Division;
(c) except with respect to the sale of Inventory in the
ordinary course of business, refrain from entering into any material agreements
or amending or terminating any material contract agreement or license relating
to the Articulate Division or waiving or releasing any material right or claim;
(d) maintain the Equipment and other assets of the
Articulate Division according to the standards that it has maintained the same
prior to the date of this Agreement;
(e) refrain from entering into any employment contract
(other than as may be contemplated by this Agreement) or making any material
change in the compensation payable or to become payable to any of its employees;
(f) withhold or remit with respect to its employees all
employment taxes;
(g) use its best efforts to keep intact the Business, to
keep available the employees and to preserve the goodwill of all suppliers,
customers and others having business relations with it in relation to the
Articulate Division; and
(h) permit the Buyer and its authorized representatives
to have full access to all its properties, assets, records, tax returns,
contracts and documents with respect to the Business and furnish to the Buyer or
its authorized representatives such financial and other information with respect
to the Business and the assets and properties of the Articulate Division as the
Buyer may from time to time reasonably request.
4.7 Exclusivity.
(a) Sellers shall not, and Sellers shall use reasonable best
efforts to cause each of their officers, directors, employees, representatives
and agents not to, directly or indirectly, (a) encourage, solicit, initiate,
engage or participate in discussions or negotiations with any person or entity
(other than the Buyer) concerning any Acquisition Transaction, (b) provide any
25
information concerning the Business or the properties or assets of the Business
to any person or entity (other than the Buyer) other than in the ordinary course
of business, or (c) take any other action intended or designed to facilitate the
efforts of any person or entity (other than Buyer) relating to a possible
Acquisition Transaction. For purposes of this Agreement, the term "Acquisition
Transaction" shall mean any of the following involving the Business, that is
material to the business, results of operation, prospects or financial condition
of the Business: (i) any sale, lease, exchange, transfer or other disposition of
all or substantially all of the assets of the Articulate Division or any merger,
consolidation, business combination, stock acquisition or other transaction
which results in Fonix owning less than one hundred percent (100%) of the
outstanding stock of ASI; or (ii) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(b) Notwithstanding anything herein to the contrary, in the
event that there is an unsolicited proposal for or an unsolicited indication of
a serious interest in entering into an Acquisition Transaction from a bona fide
financially capable third party that contains no financing contingency, Sellers,
at their discretion, shall be permitted to furnish to and communicate with any
such party all publicly available information requested by such party. In the
event that such party requests information in addition to that which is publicly
available, Sellers may furnish to and communicate with such third party
non-public information and otherwise negotiate with such party, only if (i) two
(2) business days prior written notice shall have been given to Buyer and
(ii)(A) Fonix's Board of Directors shall have been advised in writing by its
investment banker that it believes such third party is financially capable,
without any financing contingency, of consummating an Acquisition Transaction,
(B) Fonix's Board of Directors shall have been advised, by the written opinion
of outside counsel to Sellers, that any failure to provide such non-public
information to such party would constitute a breach of the fiduciary
responsibilities of the Board of Directors to shareholders of Fonix and (C)
Fonix's Board of Directors, after weighing such advice, determines that failing
to furnish such information would constitute a breach of the Board's fiduciary
duties. Notwithstanding anything herein to the contrary, nothing shall prohibit
the Board of Directors of Fonix from responding to a tender offer or complying
with its obligations under Sections 14d-9 or 14e-2 of the Exchange Act.
(c) Except as permitted by this Section 4.7(c), Fonix's
Board of Directors shall not enter into any agreement with respect to any
Acquisition Transaction. Notwithstanding the preceding sentence, if Fonix's
Board of Directors determines in its good faith judgment after consultation with
outside counsel that it has received a Superior Proposal (as defined below),
Fonix's Board of Directors may terminate this Agreement pursuant to Section
9.3(c) by providing written notice to Buyer (a "Notice of Superior Proposal")
advising Buyer that Fonix's Board of Directors has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
providing notice of termination of this Agreement. For purposes of this
Agreement, the term "Superior Proposal" means any proposal made by a third party
to acquire, directly or indirectly, including pursuant to a merger, liquidation,
dissolution or other similar transaction, one hundred percent (100%) of the
Business for aggregate consideration with a fair market value in excess of
thirty-four million dollars ($34,000,000).
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4.8 Warranty and Service Obligations.
During the period beginning on the Closing Date and ending on the third
anniversary thereof (the "Warranty Period"), Buyer shall retain records in
accordance with sound accounting practices with regard to its expenses incurred
with respect to fulfilling warranty, service or upgrade obligations in
connection with the Transferred Software. Buyer will provide Sellers, on a
monthly basis during the Warranty Period, within thirty (30) days after the end
of each month, a written certification of all expenses of Buyer reasonably
incurred by Buyer in fulfilling warranty or service obligations with respect to
products or services delivered or performed prior to the Closing Date, to the
extent that such obligations are not covered by a service or maintenance
agreement as to which there has been a Prepaid Maintenance Amount, which amount
shall be paid by Sellers within thirty (30) days.
4.9 Breach of Representations and Warranties.
Promptly upon the occurrence of, or promptly upon a Seller becoming
aware of the impending or threatened occurrence of, any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to a Seller prior to the date hereof, of any of the
representations and warranties of the Sellers contained in or referred to in
this Agreement, such person shall give detailed written notice thereof to the
Buyer and the Sellers shall use their best efforts to prevent or promptly remedy
the same.
4.10 Consummation of Agreement.
Sellers shall use their best efforts to perform and fulfill all
conditions and obligations on their part to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by this Agreement
shall be fully carried out. To this end, Sellers will obtain all necessary
authorizations or approvals of their stockholders and Boards of Directors, to
the sale of assets contemplated by this Agreement which shall include as
integral parts thereof:
(a) the transfer to Buyer of the Subject Assets upon the
terms and conditions set forth in this Agreement; and
(b) authorization to the officers and directors of Sellers and
to discharge all debts and obligations of Sellers relating to the Articulate
Division (other than those assumed by Buyer hereunder).
4.11 HSR Filings.
Promptly following the execution and delivery of this Agreement, the
Sellers shall cause to be made on their behalf an HSR Filing under the
Xxxx-Xxxxx-Xxxxxx Act. The Sellers shall also cooperate with the Buyer in
connection with the Buyer's preparation of its HSR Filing.
4.12 Approval of Stockholders.
Fonix shall promptly after the date hereof use its best efforts to
solicit consents from the Fonix stockholders in favor of the sale of the
Articulate Division to Buyer. Should Fonix reasonably determine that it cannot
obtain sufficient stockholder consents within a reasonable time, then, after
consultation with the Buyer, Fonix shall take all action necessary in accordance
with the Delaware General Corporation Law and its Certificate of Incorporation
and Bylaws to provide notice of and conduct a special meeting of stockholders
and, in connection therewith, obtain the approval of the Fonix stockholders of
the sale of the Articulate Division to Buyer.
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4.13 Preparation of Solicitation Statement.
(a) As soon as practicable after Fonix has determined pursuant
to Section 4.12, above, whether it can obtain sufficient consents of its
stockholders in favor of the sale of the Articulate Division to Buyer, Fonix
shall either prepare a solicitation statement or information statement
(collectively, the "Solicitation Statement") for the solicitation of approval of
the Fonix stockholders describing this Agreement and the transactions
contemplated hereby. The information in the Solicitation Statement about Buyer
shall be supplied by and shall be the sole responsibility of Buyer.
(b) The information supplied by Fonix for inclusion in the
Solicitation Statement to be sent to the Fonix stockholders shall not, on the
date the Solicitation Statement is first mailed to the Fonix stockholders or at
the Closing Date, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication which has become false or misleading. Notwithstanding the
foregoing, Fonix makes no representation, warranty or covenant with respect to
any information supplied by Buyer which is contained in any of the foregoing
documents.
(c) The information supplied by Buyer for inclusion in the
Solicitation Statement shall not, on the date the Solicitation Statement is
first mailed to Fonix's stockholders, or at the Closing Date, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication which has become false or misleading.
Notwithstanding the foregoing, Buyer makes no representation, warranty or
covenant with respect to any information which is contained in any of the
foregoing documents, other than information supplied in writing by Buyer to
Sellers.
(d) The Solicitation Statement shall constitute a proxy
statement for use by Fonix at a special meeting of Fonix stockholders, if Fonix
determines to conduct such special meeting of stockholders rather than obtain
approval of this Agreement and the transactions contemplated hereby via
stockholder consent. Fonix shall use reasonable commercial efforts to cause the
Solicitation Statement to comply with applicable federal and state securities
laws requirements, Delaware General Corporation Law and any other laws of any
other jurisdiction applicable to soliciting proxies or stockholder consents.
Buyers agrees to provide promptly to Fonix such information concerning Buyer's
business and financial statements and affairs as may be reasonably required or
appropriate for inclusion in the Solicitation Statement or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with
Fonix's counsel and auditors in the preparation of the Solicitation Statement.
Sellers shall promptly advise Buyer, and Buyer shall promptly advise Fonix, in
writing, if at any time prior to the Closing Date either Sellers or Buyer shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the Solicitation Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Solicitation Statement shall contain the recommendation of
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the boards of directors of Sellers that the Fonix stockholders approve the sale
of the Articulate Division to Buyer and this Agreement and the conclusion of the
boards of directors that the terms and conditions of the sale are fair and
reasonable to the Fonix stockholders.
4.14 Merger Escrow Agreement. Fonix and/or ASI shall give written
notice to Buyer ten (10) business days prior to the date (the "Release Date") on
which they will be obligated to release the escrowed shares pursuant to the
Merger Escrow Agreement. Unless Buyer has given Fonix written notice of its
intent to assert a claim against the escrow on or prior to the Release Date,
Fonix and/or ASI may release the escrowed shares on or after the business day
following the Release Date, free of any claim of Buyer. To the extent that Buyer
makes a claim against the escrowed shares, Fonix and/or ASI agree to pursue such
claim on Buyer's behalf and to cooperate with Buyer in asserting such claim. The
reasonable out of pocket expenses incurred by Fonix and/or ASI in pursuing such
claims on Buyer's behalf shall be paid by Buyer.
ARTICLE 5. COVENANTS OF BUYER.
The Buyer hereby covenants and agrees with the Sellers as follows:
5.1 Expenses.
Buyer hereby agrees that all expenses of Buyer in connection with the
negotiation and performance of this Agreement and the transactions contemplated
hereby, including one-half of the Xxxx-Xxxxx-Xxxxxx Act filing fee, shall be the
responsibility of Buyer, it being understood, however, by the parties hereto
that those expenses set forth in clause (ii) of Section 4.1 shall be borne by
the Sellers.
5.2 Payment of Debts.
Buyer shall pay as and when due the Assumed Liabilities, provided that
the foregoing shall not prevent Buyer from contesting in good faith any of the
debts or obligations comprising part of the Assumed Liabilities.
5.3 Consummation of the Agreement.
The Buyer shall use its best efforts to perform and fulfill all
conditions and obligations on its part to be performed or fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be fully carried out. In this regard, the Buyer will obtain any approvals of its
Board of Directors which may be required in order to consummate the transactions
contemplated by this Agreement.
5.4 HSR Filings.
Promptly following the execution and delivery of this Agreement, the
Buyer shall cause to be made on its behalf an appropriate HSR Filing under the
Xxxx-Xxxxx-Xxxxxx Act. The Buyer shall also cooperate with the Sellers in
connection with the Sellers' preparation of their HSR Filing.
5.5 Legal Requirements.
Buyer will, and will cause its respective subsidiaries to, take all
reasonable actions necessary to comply promptly with all legal requirements
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which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to Sellers necessary in connection with any such
requirements imposed upon Sellers in connection with the consummation of the
transactions contemplated by this Agreement and will take all reasonable actions
necessary to obtain (and will cooperate with Sellers in obtaining) any consent,
approval, order and authorization of or any registration, declaration or filing
with, any governmental entity or other person, required to be obtained or made
in connection with the taking of any action contemplated by this Agreement.
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of the Buyer to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing the actions required by this Article 6 will have been accomplished
or waived in writing by Buyer.
6.1 Representations; Warranties; Covenants.
Each of the representations and warranties of the Sellers contained in
Article 2 shall be true and correct in all material respects as though made on
and as of the Closing. The Sellers shall, on or before the Closing, have
performed in all material respects all of their obligations hereunder which by
the terms hereof are to be performed on or before the Closing; and the Sellers
shall have delivered to Buyer a certificate of the President of each of the
Sellers dated as of the Closing to the foregoing effect and further confirming
that the condition set forth in Section 6.12 with respect to shareholder
authorization has been fulfilled.
6.2 Opinion of Sellers' Counsel.
At the Closing, Buyer shall have received from Durham Xxxxx & Xxxxxxx,
P.C., counsel for the Sellers, an opinion dated as of the Closing, substantially
in the form set forth as Exhibit B hereto.
6.3 Absence of Certain Litigation.
There shall not be any (a) injunction, restraining order or order of
any nature issued by any court of competent jurisdiction which directs that this
Agreement or any material transaction contemplated hereby shall not be
consummated as herein provided, (b) suit, action or other proceeding by any
federal, state, local or foreign government (or any agency thereof) pending
before any court or governmental agency, or threatened to be filed or initiated,
wherein such complainant seeks the restraint or prohibition of the consummation
of any material transaction contemplated by this Agreement or asserts the
illegality thereof or (c) suit, action or other proceeding by a private party
pending before any court or governmental agency, or threatened to be filed or
initiated, which in the reasonable opinion of counsel for the Buyer is likely to
result in the restraint or prohibition of the consummation of any material
transaction contemplated hereby or the obtaining of an amount in payment (or
indemnification) of material damages from or other material relief against any
of the parties or against any directors or officers of the Buyer, in connection
with the consummation of any material transaction contemplated hereby.
6.4 No Bankruptcy.
Neither Seller shall (i) have commenced a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
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liquidator, custodian or other similar official of it or substantially all of
its property, or have consented to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or have made a general assignment for the
benefit of its creditors, or (ii) have an involuntary case or other proceeding
commenced against it seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereinafter in effect or seeking the appointing of a trustee, receiver,
liquidator, custodian or similar official of it or substantially all of its
property or (iii) have an attachment placed on all or a significant portion of
its assets.
6.5 No Adverse Change.
Except for changes which have been disclosed to and accepted in writing
by the Buyer prior to the Closing, there shall be no material adverse change to
the Business or the Subject Assets taken as a whole since the date of this
Agreement.
6.6 Release of Liens, Security Interests and Other Encumbrances.
The Sellers shall have delivered to the Buyer evidence satisfactory to
the Buyer and its counsel that the Sellers are able to deliver the Subject
Assets free and clear of all material liens (other than for taxes not yet due
and payable), attachments, mortgages, security interests or other encumbrances
of any nature whatsoever.
6.7 Authorization from Others.
The Sellers shall have obtained all of the waivers, permits, consents,
approvals or other authorizations disclosed in Schedule 2.4(b) hereto, and
effected all of the registrations, filings and notices that are reasonably
deemed necessary by the Buyer, upon advice of counsel, (i) to provide for the
continuation by the Buyer of the Business consistent with Section 2.30 above,
(ii) to assign to Buyer all material agreements of the Sellers and (iii) to
consummate the transactions contemplated by this Agreement.
6.8 Employment of Key Personnel.
Not less than thirty (30) of those employees of the Sellers to whom
offers of employment are extended by the Buyer, including all of those key
employees listed on Schedule 6.8 hereof, shall have accepted the Buyer's offer
of employment, provided that such offers of employment include salaries at least
equal to the salaries currently paid to such employees by Sellers and benefits
comparable to those provided by Buyer to similarly situated employees of Buyer.
Notwithstanding the foregoing, no more than two (2) employees from each of the
following business groups shall have declined the Buyer's offer of employment:
Engineering, Sales, Implementation and Customer Support. The key employees
listed on Schedule 6.8 and all other employees of Sellers who accept Buyer's
offer of employment shall have entered into proprietary
information/non-competition agreements having substantially the terms and
conditions of Exhibit D attached hereto.
6.9 Approval of Buyer's Counsel.
All actions, proceedings, instruments and documents required to carry
out this Agreement and all related legal matters contemplated by this Agreement,
including, without limitation, opinions of counsel, shall have been approved by
counsel for Buyer, provided that the approval of such counsel shall not be
unreasonably withheld.
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6.10 Escrow Agreement.
There shall have been executed and delivered to Buyer an Escrow
Agreement in substantially the form attached hereto as Exhibit D, pursuant to
which Five Million Dollars ($5,000,000) of the purchase price shall be deposited
in escrow (the "Escrow Fund") to secure payment of indemnification payable to
Buyer hereunder by reason of the breach of any of the representations and
warranties of Sellers or failure of Sellers to perform any of their obligations
hereunder, and said amounts shall have been deposited with the Escrow Agent
pursuant to said Escrow Agreement.
6.11 Governmental Consents and Approvals; Termination or Expiration
of HSR Waiting Period.
All governmental consents and approvals required in order to permit the
Buyer to complete the transactions in compliance with all applicable U.S.
federal, state and local laws, rules and regulations shall have been received by
the Buyer. The applicable waiting period under the Xxxx-Xxxxx-Xxxxxx Act shall
have been terminated or shall have expired without a request for further
information under the Xxxx-Xxxxx-Xxxxxx Act, or in the event of such a request
for further information, the waiting period following delivery of such
information shall have expired without the objection of either the Federal Trade
Commission or the U.S. Justice Department.
6.12 Shareholder Authorization.
This Agreement and the transactions contemplated hereby shall have been
duly approved by the affirmative vote of the holders of more than fifty percent
(50%) of the outstanding shares of Fonix's voting stock.
6.13 Payment of Attorneys' Fees.
If Buyer designates the Apple Claims as Subject Assets pursuant to
Section 1.14 hereof, Sellers shall have paid or made arrangement for the payment
at the Closing of the fees and expenses of their counsel in the Apple Litigation
for all services rendered and expenses incurred on or prior to the Closing.
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF SELLERS.
The obligations of the Sellers to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing the actions required by this Article 7 will have been accomplished
or waived in writing by Sellers:
7.1 Representations; Warranties; Covenants.
Each of the representations and warranties of the Buyer contained in
Article 3, other than those contained in Section 3.4, shall be true and correct
in all material respects as though made on and as of the Closing; the Buyer
shall, on or before the Closing, have performed in all material respects all of
its obligations hereunder which by the terms hereof are to be performed on or
before the Closing; and the Buyer shall have delivered to the Sellers a
certificate of the President or any Vice President of the Buyer dated as of the
Closing to such effect.
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7.2 Absence of Certain Litigation.
There shall not be any injunction, restraining order or order of any
nature issued by any court of competent jurisdiction which directs that this
Agreement or any material transaction contemplated hereby shall not be
consummated as herein provided.
7.3 Authorization from Others.
Buyer shall have obtained all of the waivers, permits, consents,
approvals or other authorizations that are reasonably deemed necessary by the
Sellers, upon advice of counsel, to consummate the transactions contemplated by
this Agreement.
7.4 Governmental Consents and Approvals; Termination or Expiration
of HSR Waiting Period.
All governmental consents and approvals required in order to permit the
Sellers to complete the transactions in compliance with all applicable U.S.
federal, state and local laws, rules and regulations shall have been received by
the Sellers. The applicable waiting period under the Xxxx-Xxxxx-Xxxxxx Act shall
have been terminated or shall have expired without a request for further
information under the Xxxx-Xxxxx-Xxxxxx Act, or in the event of such a request
for further information, the waiting period following delivery of such
information shall have expired without the objection of either the Federal Trade
Commission or the U.S.
Justice Department.
7.5 Shareholder Authorization.
This Agreement and the transactions contemplated hereby shall have been
duly approved by the affirmative vote of the holders of more than fifty percent
(50%) of the outstanding shares of Fonix's voting stock.
7.6 Approval of Seller's Counsel.
All actions, proceedings, instruments and documents required to carry
out this Agreement and all related legal matters contemplated by this Agreement
shall have been approved by counsel for Sellers, provided that the approval of
such counsel shall not be unreasonably withheld.
ARTICLE 8. INDEMNIFICATION.
8.1 Definitions.
For purposes of this Article 8:
"Losses" means all losses, damages, liabilities, payments and
obligations, and all expenses related thereto. Losses shall include any
reasonable attorneys' fees and legal costs incurred by any of the Indemnified
Persons subsequent to the Closing in defense of or in connection with any
alleged or asserted liability, payment or obligation, whether or not any
liability or payment, obligation or judgment is ultimately imposed against the
Indemnified Persons and whether or not the Indemnified Persons are made or
become parties to any such action; provided that Losses shall include punitive
and consequential damages only with respect to third party actions.
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"Buyer's Indemnified Persons" means the Buyer, its subsidiaries and
affiliated corporations, and their respective directors, officers, employees,
and agents.
"Indemnified Person" means any person entitled to be indemnified under
this Article 8.
"Indemnifying Person" means any person obligated to indemnify another
person under this Article 8.
"Sellers' Indemnified Persons" means the Sellers, their subsidiaries
and affiliated corporations, and their respective directors, officers,
employees, and agents.
"Third Party Action" means any written assertion of a claim, or the
commencement of any action, suit, or proceeding, by a third party as to which
any person believes it may be an Indemnified Person hereunder.
8.2 Indemnification by Seller.
Sellers, jointly and severally, agree to defend, indemnify and hold
harmless Buyer's Indemnified Persons from and against all Losses directly or
indirectly incurred by or sought to be imposed upon any of them:
(i) resulting from or arising out of any breach
of any of the representations or warranties (other than Sections 2.1, 2.2, 2.4,
2.8, 2.11, 2.16 and 2.28) made by Sellers in or pursuant to this Agreement or in
any agreement, document or instrument executed and delivered pursuant hereto or
in connection with the Closing;
(ii) resulting from or arising out of any breach of
any covenant or agreement made by Sellers in or
pursuant to this Agreement or in any agreement, document or instrument executed
and delivered pursuant hereto or in connection with the Closing or resulting
from or arising out of any breach of any of the representations or warranties
made by Sellers in Sections 2.1, 2.2, 2.4, 2.8, 2.11, 2.16 or 2.28 hereof;
(iii) in respect of any liability, or obligation of
Sellers, including without limitation any liability or obligation resulting from
or arising out of the conduct of the Business prior to Closing, not included in
the Assumed Liabilities;
(iv) resulting from or arising out of Buyer's
fulfilling Sellers' warranty or service obligations with
respect to products or services delivered or performed prior to the Closing
Date, to the extent that such obligations are not covered by a service or
maintenance agreement as to which there has been a Prepaid Maintenance Amount or
resulting from customer returns of product for which Sellers have completed
installation other than where the product or a portion thereof has been replaced
with a product of Buyer;
(v) resulting from or arising out of any of the
matters disclosed in the Schedules required by Section 2.11 hereof;
(vi) resulting from or arising out of the matters
set forth on Schedule 8.2(vi); or
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(vii) resulting from or arising out of the actual
fraud of Sellers.
8.3 Indemnification by Buyer.
From and after the Closing Date, Buyer shall indemnify and hold
harmless Sellers' Indemnified Persons from any and all Losses directly or
indirectly incurred by them:
(i) resulting from or arising out of any breach
of any of the representations or warranties (other than Sections 3.1, 3.2 or
3.4) made by Buyer, in or pursuant to this Agreement or in any agreement,
document or instrument executed and delivered pursuant hereto or in connection
with the Closing;
(ii) resulting from or arising out of any breach of
any covenant or agreement made by Buyer in or pursuant to this Agreement or in
any agreement, document or instrument executed and delivered pursuant hereto or
in connection with the Closing or resulting from or arising out of any breach of
any of the representations or warranties made by Buyer in Sections 3.1, 3.3 or
3.4 hereof;
(iii) resulting from or arising out of any liability
or obligation included in the Assumed Liabilities;
or
(iv) resulting from or arising out of actual fraud of
Buyer.
8.4 Limitations on Indemnification.
(a) Period. Neither Sellers nor Buyer shall have any
indemnification liability under Sections 8.2 or 8.3, respectively, unless one or
more of the Indemnified Persons gives written notice to the Indemnifying Persons
asserting a claim for Losses in accordance with Section 8.5 hereof, on or before
the expiration of the date or the period set forth below:
(i) for claims under clauses (i) of Section 8.2
and Section 8.3, respectively, for a period ending eighteen (18) months
following the date of this Agreement; and
(ii) for claims under clauses (ii) through (vii)
of Section 8.2 and clauses (ii), (iii) and (iv) of Section 8.3, respectively,
without limitation as to time.
(b) Amounts. The aggregate liability of an Indemnifying Party
resulting from or arising out of any breach of any of the representations or
warranties made by the Indemnifying Party, in or pursuant to this Agreement
and/or in any agreement, document or instrument executed and delivered by the
Indemnifying Party pursuant hereto or in connection with the Closing shall not
exceed the Purchase Price. Indemnification claims pursuant to Sections 8.2(i)
and (ii) and Sections 8.3(i) and (ii) resulting from or arising out of any
breach of any of the representations or warranties made by the Indemnifying
Party, in or pursuant to this Agreement or in any agreement, document or
instrument executed and delivered by the Indemnifying Party pursuant hereto or
in connection with the Closing shall be payable hereunder only if and to the
extent the aggregate amount of all such claims exceeds fifty thousand dollars
($50,000), but upon reaching such amount the Indemnifying Party shall be liable
from the first dollar to the extent of all such claims. Notwithstanding the
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foregoing, there shall be no limitations on Sellers' obligation to Indemnify
Buyer pursuant to Section 8.2(ii) or Section 8.3(ii) above with respect to
breaches of covenants or agreements.
(c) Right of Set-Off. Buyer may, at its option, upon at least
thirty (30) days' prior written notice to Sellers recover such indemnification
claims by set-off against any amounts that may otherwise be due from the Buyer
to the Sellers whether hereunder or otherwise, including, without limitation,
the Earnout Payment, provided that Buyer shall not be required to recover said
claims in such manner and may proceed against the Indemnifying Party at any time
or times for recovery of indemnification claims. Sellers shall have ten (10)
business days following Buyer's notice to Sellers to respond in writing to
Buyer's notice. Should Buyer continue in its intent to set-off as hereinabove
provided following receipt of Sellers' response, Buyer shall within five (5)
business days notify Sellers, and Sellers shall have the option to demand that
the parties enter into non-binding mediation or arbitration, and if such demand
is made, the parties shall as quickly as reasonably possible commence such
non-binding mediation or arbitration.
8.5 Notice.
The Indemnified Person shall give prompt written notice to the
Indemnifying Person of each claim for indemnification hereunder, specifying in
reasonable detail the amount and nature of the claim, and of any matter which in
the opinion of the Indemnifying Person is likely to give rise to an
indemnification claim. Subject to the provisions of Section 8.4(a) hereof, the
omission to give such notice to the Indemnifying Person will not relieve the
Indemnifying Person of any liability hereunder unless and only to the extent the
Indemnifying Person was prejudiced thereby under this Article 8.
8.6 Defense of Third Party Actions.
(a) Promptly after receipt of notice of any Third Party
Action, any person who believes he, she or it may be an Indemnified Person will
give notice to the potential Indemnifying Person of such action. Subject to the
provisions of Section 8.4(a) hereof, the omission to give such notice to the
Indemnifying Person will not relieve the Indemnifying Person of any liability
hereunder unless and only to the extent the Indemnifying Person was prejudiced
thereby, nor will it relieve the Indemnifying Person of any liability which it
may have other than under this Article 8.
(b) Upon receipt of a notice of a Third Party Action, the
Indemnifying Person shall have the right, at its option and at its own expense,
to participate in and be present at the defense of such Third Party Action, but
not to control the defense, negotiation or settlement thereof, which control
shall remain with the Indemnified Person, unless the Indemnifying Person makes
the election provided in paragraph (c) below.
(c) Subject to paragraph (d) below, by written notice within
forty-five (45) days after receipt of a notice of a Third Party Action, an
Indemnifying Person may elect to assume control of the defense, negotiation and
settlement thereof, with counsel reasonably satisfactory to the Indemnified
Person; provided, however, that the Indemnifying Person agrees (i) to promptly
indemnify the Indemnified Person for its reasonable expenses to date, and (ii)
to hold the Indemnified Person harmless from and against any and all Losses,
36
caused by or arising out of any settlement of the Third Party Action or any
judgment in connection with that Third Party Action. The Indemnifying Persons
shall not in the defense of the Third Party Action enter into any settlement
which does not include as a term thereof the unconditional release by the third
party claimant of the Indemnified Person, or consent to entry of any judgment,
except with the consent of the Indemnified Person.
(d) Upon assumption of control of the defense of a Third Party
Action under paragraph (c) above, the Indemnifying Person will not be liable to
the Indemnified Person hereunder for any legal or other expenses subsequently
incurred by the Indemnified Person in connection with the defense of the Third
Party Action, other than reasonable expenses of investigation, unless the
Indemnified Person shall have reasonably concluded that there are defenses
available to it that are different from or additional to those available to the
Indemnifying Person, in which case the Indemnified Person may retain counsel of
its own to participate in the defense and the Indemnifying Person shall
reimburse the Indemnified Person for expenses reasonably incurred in connection
with the defense of such Third party Action, as and when the same shall be
incurred by the Indemnified Person.
(e) If the Indemnifying Person does not elect to control the
defense of a Third Party Action under paragraph (c), the Indemnifying Person
shall promptly reimburse the Indemnified Person for expenses reasonably incurred
by the Indemnified Person in connection with defense of such Third Party Action,
as and when the same shall be incurred by the Indemnified Person.
(f) Any person who has not assumed control of the defense of
any Third Party Action shall have the duty to cooperate with the party which
assumed such defense.
8.7 Miscellaneous.
(a) Buyer's Indemnified Persons shall be entitled to
indemnification under Section 8.2 and Sellers' Indemnified Persons shall be
entitled to indemnification under Section 8.3, regardless of whether the matter
giving rise to the applicable liability, payment, obligation or expense may have
been previously disclosed to any such person unless disclosed in writing herein
in the Disclosure Schedule unless otherwise indicated to the contrary thereon.
(b) If any Loss is recoverable under more than one provision
hereof, the Indemnified Person shall be entitled to assert a claim for such Loss
until the expiration of the longest period of time within which to assert a
claim for Loss under any of the provisions which are applicable.
8.8 Payment of Indemnification.
Claims for indemnification under this Article 8 shall be paid or
otherwise satisfied by the Indemnifying Persons within thirty (30) days after
notice thereof is given by the Indemnified Person. Any amount which may become
due and payable to any of the Buyer's Indemnified Persons under Section 8.2
shall first be paid or otherwise be satisfied out of the Escrow Fund until the
same has been exhausted, provided that such claims may be satisfied, at Buyer's
37
election, pursuant to Buyer's right of set-off as set forth in Section 8.4(b)
before proceeding against the Escrow Fund. Any claims may be satisfied by
whatever remedy available at law or equity.
ARTICLE 9. TERMINATION OF AGREEMENT.
9.1 Termination.
In connection with the transactions as described in this Agreement, the
parties have agreed that this Agreement shall not be terminated, except in
accordance with the provisions of this Article 9, all strictly construed against
the Party seeking such termination. This Agreement may be terminated any time
prior to the Closing, whether before or after approval by the stockholders of
Fonix:
(a) by mutual consent of the parties with the approval of
their respective Board of Directors;
(b) by either party, if any court of competent jurisdiction in
the United States or other governmental body in the United States shall have
issued an order (other than a temporary restraining order), decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement (the "Acquisition"), and such order,
decree ruling or other action shall have become final and nonappealable provided
that the party seeking termination shall have diligently contested such ruling;
(c) by either party, if this Agreement fails to receive
the shareholder approval required by Sections 6.13 and 7.6 hereof; or
(d) by either party if (i) the Board of Directors of Fonix
shall withdraw, modify or change its recommendation so that it is not in favor
of this Agreement or the Acquisition or shall have resolved to do any of the
foregoing or (ii) the Board of Directors of Fonix shall have recommended or
resolved to recommend to its stockholders an Acquisition Transaction other than
the Acquisition.
9.2 Termination by the Buyer.
This Agreement may be terminated and the Acquisition may be abandoned
by action of the Board of Directors of the Buyer, at any time prior to the
Closing, before or after the approval by the shareholders of Fonix, if:
(a) the Sellers shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement
which failure has not been cured after five (5) business days from the delivery
of notice of such failure such that the Closing condition set forth in Section
6.1 or 6.2 would not be satisfied or events shall have occurred such that the
Closing condition set forth in Section 6.4 would not be satisfied;
(b) there exists a breach or breaches of any representation or
warranty of the Sellers contained in this Agreement in any material respect
which breach has not been cured after five (5) business days from delivery of
notice of such breach such that the Closing condition set forth in Section 6.1
or 6.2 would not be satisfied; or
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(c) the Sellers shall furnish or disclose non-public
information to a third party with respect to any Acquisition Transaction, or
shall have resolved to do the foregoing and publicly disclosed such resolution.
9.3 Termination by the Sellers.
This Agreement may be terminated and the Acquisition may be abandoned
at any time prior to the Closing, before or after the approval by the
shareholders of Fonix, by action of the Boards of Directors of the Sellers, if:
(a) the Buyer shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement
which failure has not been cured after five (5) business days from the delivery
of notice of such failure such that the closing condition set forth in Section
7.1 would not be satisfied;
(b) there exists a breach or breaches of any representation or
warranty of the Buyer contained in this Agreement in any material respect which
breach has not been cured after five (5) business days from delivery of notice
of such breach such that the Closing condition set forth in Section 7.1 would
not be satisfied; or
(c) if the Sellers shall have delivered to the Buyer a Notice
of Superior Proposal in accordance with Section 4.7.
9.4 Procedure for Termination.
In the event of termination and abandonment of the Acquisition by the
Buyer or the Sellers pursuant to this Article 9, written notice thereof shall
forthwith be given to the other.
9.5 Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and
abandonment of the Acquisition pursuant to this Article 9, no Party hereto (or
any of its directors or officers) shall have any liability or further obligation
to any other Party to this Agreement, except as provided in Section 11.4
(regarding confidentiality) and this Section 9.5.
(b) In the event of termination of this Agreement pursuant to
Sections 9.1(c) or (d), by the Buyer pursuant to Section 9.2, or by the Sellers
pursuant to Section 9.3(c), then the Sellers shall, within five (5) business
days thereafter, pay the Buyer by wire transfer of immediately available funds
to an account specified by the Buyer up to $600,000 for all documented out of
pocket reasonable fees and expenses incurred by the Buyer (including the
reasonable fees and expenses of counsel, accountants, consultants and advisors)
in connection with this Agreement and the transactions contemplated hereby
(subject to such $600,000 limit, "Buyer Documented Expenses").
(c) In the event of a termination of this Agreement by the
Sellers, pursuant to Section 9.3(a) or (b) then the Buyer shall promptly pay the
Sellers by wire transfer of immediately available funds to an account specified
by the Sellers up to $600,000 for all documented fees and expenses incurred by
the Sellers (including the reasonable fees and expenses of counsel, accountants,
consultants and advisors) in connection with this Agreement and the transactions
contemplated hereby (subject to such $600,000 limit "Sellers' Documented
Expenses").
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ARTICLE 10. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
10.1 Survival of Warranties.
All representations, warranties, agreements, covenants and obligations
herein or in any schedule, certificate or financial statement delivered by
either party to the other party incident to the transactions contemplated hereby
are material, shall be deemed to have been relied upon by the other party and
shall survive the Closing, except as specifically set forth in Article 8 hereof,
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto.
10.2 Collection of Assets.
Subsequent to the Closing, Buyer shall have the right and authority to
collect all receivables, including Accounts Receivable pursuant to Section 1.13
hereof, and other items transferred and assigned to it by Sellers hereunder and
to endorse with the name of Sellers any checks received on account of such
receivables or other items, and Sellers agree that they will promptly transfer
or deliver to Buyer from time to time, any cash or other property that Sellers
may receive with respect to any claims, contracts, licenses, leases,
commitments, sales orders, purchase orders, receivables of any character or any
other items required to be transferred by it to Buyer pursuant to the provisions
hereof.
10.3 Payment of Debts and Refund of Cash.
Sellers shall as promptly as possible after the Closing pay all debts
and obligations relating to the Business not to be assumed by Buyer hereunder.
10.4 COBRA Compliance.
Sellers will timely provide all notices and any continuation of health
benefit coverage required to be provided to any of the Business' employees,
former employees, or the beneficiaries or dependents of such employees or former
employees, under COBRA, to the extent such notices and continuation of health
benefit coverage are required to be provided by the Sellers by reason of events
occurring prior to or on the Closing Date or by reason of the transactions
contemplated by this Agreement.
ARTICLE 11. MISCELLANEOUS.
11.1 Bulk Sales Law.
Buyer and Sellers waive compliance with the provisions of any
applicable bulk sales, fraudulent conveyance or other law for the protection of
creditors, and Sellers agree to indemnify and hold Buyer harmless from, and to
reimburse Buyer for, any loss, cost expense, liability or damage (including
reasonable counsel fees, disbursements and expenses) which Buyer suffers or
incurs by virtue of noncompliance with such laws.
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11.2 Notices.
Any notice or other communication in connection with this Agreement
shall be deemed to be delivered if in writing (or in the form of a facsimile
transmission, receipt telephonically confirmed) addressed as provided below and
if either (a) actually delivered electronically or physically at said address,
or (b) in the case of a letter, three (3) business days shall have elapsed after
the same shall have been sent by internationally recognized overnight courier:
If to Sellers to:
Fonix Corporation
0000 Xxxxx Xxxx Tower
00 Xxxx Xxxxx Xxxxxx Xxxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Chief Executive Officer
Tel: (000) 000-0000
Fax: (000) 000-0000
with a copy to:
Durham, Xxxxx & Xxxxxxx, P.C.
00 Xxxxx Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Attn: Xxxxxxx X. Xxxxx, Esquire
Tel: (000) 000-0000
Fax: (000) 000-0000
If to Buyer, to:
Lernout & Hauspie Speech Products N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Attn: President
Tel: 000 00 00000000
Fax: 000 00 00000000
with a copy to:
Lernout & Hauspie Speech Products N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Attn: Legal Department
Tel: 000 00 00000000
Fax: 000 00 00000000
and
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
41
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxxx, Esquire
Tel: 000-000-0000
Fax: 000-000-0000
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
11.3 Publicity and Disclosures.
No press releases or any public disclosure, either written or oral, of
the transactions contemplated by this Agreement shall be made by any party
without the prior knowledge and written consent of all other parties, except as
otherwise required by applicable law.
11.4 Confidentiality.
Without limitation of any obligations under Section 4.2, the parties
agree that they will keep confidential and not disclose or divulge any
confidential, proprietary or secret information which they may obtain from the
other in connection with the transactions contemplated herein, or pursuant to
inspection rights granted hereunder unless such information is or hereafter
becomes public information.
11.5 Entire Agreement.
This Agreement (including all exhibits or schedules appended to this
Agreement and all documents delivered pursuant to this Agreement, all of which
are hereby incorporated herein by reference) constitutes the entire agreement
between the parties, and all promises, representations, understandings,
warranties and agreements with reference to the subject matter hereof and
inducements to the making of this Agreement relied upon by any party hereto,
have been expressed herein or in the documents incorporated herein by reference.
11.6 Severability.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision hereof.
11.7 Assignability.
This Agreement may not be assigned otherwise than by operation of law:
(a) by Buyer, provided, however, that Buyer may assign any of its rights under
this Agreement or in any agreement, document or instrument executed and
delivered pursuant hereto or in connection with the Closing (without the prior
written consent of either Seller): (i) to one or more banks or other lenders
which provide financing to the Buyer from time to time; (ii) to any successor to
all or substantially all of its business and assets relating to the subject
matter of this Agreement, to the extent that such entity agrees to assume all of
Buyer's obligations hereunder; and (iii) to one or more subsidiaries (including
subsidiaries of subsidiaries) of Buyer, to the extent that such entity agrees to
assume all of Buyer's obligation hereunder; or (b) by Sellers without the prior
42
written consent of Buyer. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns.
11.8 Relationship of Sellers.
ASI hereby appoints Fonix as its attorney-in-fact for all purposes
hereunder. Any notice given to Fonix or consent or other agreement made by Fonix
shall constitute notice to, consent of or agreement of ASI hereunder without any
further action by ASI or any other party. Except as specifically provided in
Sections 4.12, 4.13 and 4.14, all obligations and liabilities of ASI and Fonix
hereunder shall be joint and several.
11.9 Amendment.
This Agreement may be amended only by a written agreement executed by
Buyer and Seller.
11.10 Governing Law; Venue.
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts (other than the choice of law
principles thereof). Any claim, action, suit or other proceeding initiated by
any of the Sellers' Indemnified Persons against Buyer, or by any of the Buyer's
Indemnified Persons against any Seller, under or in connection with this
Agreement may be asserted, brought, prosecuted and maintained in any Federal or
state court in the Commonwealth of Massachusetts, as the party bringing such
action, suit or proceeding shall elect, having jurisdiction over the subject
matter thereof, and Sellers and Buyer hereby waive any and all rights to object
to the laying of venue in any such court and to any right to claim that any such
court may be an inconvenient forum. Sellers and Buyer hereby submit themselves
to the jurisdiction of each such court and agree that service of process on them
in any such action, suit or proceeding may be effected by the means by which
notices are to be given to it under this Agreement.
11.11 Counterparts.
This Agreement may be executed in multiple counterparts and by
facsimile, each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
11.12 Effect of Table of Contents and Headings.
Any table of contents, title of an article or section heading herein
contained is for convenience of reference only and shall not affect the meaning
of construction of any of the provisions hereof.
11.13 Rules of Construction.
Neither this Agreement nor any other agreement, document or instrument
referred to herein or executed or delivered in connection herewith shall be
construed against either party as the principal drafts person hereof or thereof.
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11.14 Definition of Material.
For purposes of this Agreement, other than Article 2 hereof, the term
"material" or "material adverse effect" shall refer to amounts or events having
an economic effect in excess of Fifty Thousand Dollars ($50,000).
11.15 Interpretation.
The parties hereto acknowledge and agree that: (a) each party and its
counsel reviewed and negotiated the terms and provisions of this Agreement and
have contributed to its revision; (b) the rule of construction to the effect
that any ambiguities are resolved against the drafting party shall not be
employed in the interpretation of this Agreement; and (c) the terms and
provisions of this Agreement shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
[SEE SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal in multiple counterparts as of the date set forth above by
their duly authorized representatives.
FONIX CORPORATION
By: /s/
---------------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President and Chief Financial Officer
FONIX/ASI CORPORATION
By:/s/
---------------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V.
By: /s/
---------------------------------------------
Name: Xxxxxx Xxxxxxxxx
Title: President and Chief Executive Officer
45
ASSET PURCHASE AGREEMENT
List of Schedules and Exhibits
Schedule 1.1(a)(viii) Patent Applications and Patents of ASI
Schedule 1.1(b) Fonix Assets
Schedule 1.1(c)(vii) Excluded Contracts
Schedule 1.2(a)(i) Acquired Sales Orders
Schedule 1.2(a)(ii) License Agreements
Schedule 1.2(b)(xi) Assumed Litigation
Schedule 1.3(b) Prepaid Maintenance Amounts
Schedule 1.3(c) Prepaid Sales Order Amounts
Schedule 1.13(a) Accounts Receivable less than 90 Days
Schedule 2.4(a) Sellers' Conflicts
Schedule 2.4(b) Required Consents
Schedule 2.5 Financial Statements of ASI
Schedule 2.6 Liabilities
Schedule 2.7 Changes Since Base Balance Sheet
Schedule 2.8 Subject Assets
Schedule 2.10 Unsaleable Inventory
Schedule 2.11(a) Patents, Patent Applications Registered Copyrights,
Trade Names, Trademarks and Service Marks
Schedule 2.11(b) Licenses Granted out of Ordinary Course
Schedule 2.11(c) Material Licenses, Agreements, Obligations and
Contracts Relating to Intellectual Property Rights
Schedule 2.11(c)(i) Licenses, Agreements, Obligations and Contracts
Schedule 2.11(d) Infringement by Sellers
Schedule 2.11(e) Infringement by Others
Schedule 2.11(f) List of Employees who have not entered into
Agreements
Schedule 2.11(g) Source Code Deposits
Schedule 2.12 Warranty Matters
Schedule 2.13 Litigation Matters
Schedule 2.14 Licenses, Permits and Franchises
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Schedule 2.15 Transactions with Interested Persons
Schedule 2.16 Contracts and Commitments
Schedule 2.17 Labor and Employee Relations
Schedule 2.18 Salaries and Employee Benefits
Schedule 2.21 Suppliers and Customers
Schedule 2.23 Borrowings and Guarantees
Schedule 2.24 All Policies of Insurance
Schedule 2.29(c) Description of Y2K Investigation and Inquiries Made
Schedule 2.31 Proxies Required
Schedule 6.8 Key Employees
Schedule 8.2(vi) Indemnification Matters
Exhibit A: ASI License
Exhibit B: Legal Opinion of Sellers' Counsel
Exhibit C: Form of Proprietary/Non-Competition Agreement
Exhibit D: Escrow Agreement
Exhibit E: Technology Option Agreement
