Execution copy
COLLATERAL PLEDGE AGREEMENT
This Collateral Pledge Agreement ("Agreement") dated February 24, 2004
is made by FONIX CORPORATION, a Delaware corporation ("Fonix") and its wholly
owned subsidiaries, LTEL ACQUISITION CORPORATION, a Delaware corporation
("Acquisition") and LTEL HOLDINGS CORPORATION ("Holdings"), a Delaware
corporation (collectively, the "Pledgors"), in favor of XxXXXXXXX AVENUE, LTD.,
a British Virgin Islands corporation ("Secured Party").
BACKGROUND
A. To induce Secured Party to extend credit to Fonix, as evidenced by that
certain Secured Note dated as of even date herewith from Fonix to Secured Party
(as amended, restated, modified or replaced from time to time, the "Note"),
Pledgors execute and deliver this Agreement to Secured Party. All capitalized
terms used herein and not otherwise defined shall have the same meanings
assigned to such terms in the Note or the Security Agreement, as hereinafter
defined.
B. This Agreement is given and is intended to provide additional security for
the Obligations as defined in the Security Agreement of even date herewith among
Fonix, Secured Party and Acquisition (the "Security Agreement").
NOW THEREFORE, for other good and sufficient consideration, the receipt
of which is hereby acknowledged, Pledgors, intending to be legally bound hereby,
covenants and agrees as follows:
1. Each Pledgor, for the purpose of granting a continuing lien and security
interest to secure the Obligations, does hereby assign, pledge, hypothecate,
deliver and set over to Secured Party, its successors and assigns, 100% of its
interest in all of the shares of capital stock of those corporations listed on
Schedule I attached hereto, whether now owned or hereafter acquired by Pledgors
or in which Pledgors now or hereafter has any rights, options or warrants,
together with all certificates representing such shares and all rights (but none
of the obligations) under or arising out of the applicable organizational
documents of such corporations, together with any additions, exchanges,
replacements and substitutions therefor, dividends and distributions with
respect thereto, and the proceeds thereof (collectively, the "Pledged
Collateral").
2. The pledge and security interest described herein shall continue in
effect to secure all Obligations from time to time incurred or arising unless
and until all Obligations have been indefeasibly paid and satisfied in full.
3. Each Pledgor, severally hereby represents and warrants that:
(a) Except as pledged herein, Pledgor has not sold, assigned,
transferred, pledged or granted any option or security interest in or
otherwise hypothecated the Pledged Collateral in any manner whatsoever and
the Pledged Collateral is pledged herewith free and clear of any and all
liens, security interests, encumbrances, claims, pledges, restrictions,
legends, and options, except for Permitted Liens, as defined in the
Security Agreement.
(b) Pledgor has the full power and authority to execute, deliver, and
perform under this Agreement and to pledge the Pledged Collateral
hereunder.
(c) This Agreement constitutes the valid and binding obligation of
Pledgor, enforceable in accordance with its terms, and the pledge of the
Pledged Collateral referred to herein is not in violation of and shall not
create any default under any agreement, undertaking or obligation of
Pledgor.
(d) Pledgor is pledging hereunder all of the Pledgor's interest and
ownership in all entities listed on Schedule I.
(e) Contemporaneously with the execution hereof, Pledgor is delivering
to Secured Party all certificates representing or evidencing the Pledged
Collateral, accompanied by duly executed instruments of transfer or
assignments in blank, to be held by Secured Party in accordance with the
terms hereof.
(f) Contemporaneously with the execution hereof, Pledgor is delivering
to Secured Party a good standing certificate dated within 30 days of the
date hereof for Pledgor. The Secured Party is authorized to file such UCC
financing statements as it may deem necessary to perfect the pledge
anticipated hereby.
(g) Pledgor shall not merge or consolidate with any other person or
commence a dissolution or liquidation, except for the merger or
consolidation of any of Pledgor's subsidiaries with and into any other
Pledgor, or the merger or consolidation of Pledgor with and into Fonix. In
the event of any such permitted merger or consolidation, Pledgor shall
deliver to Secured Party: (i) notice thereof at least five (5) days prior
to the effective date of such event; and (ii) a UCC-3 amendment reflecting
any changes to the existing UCC financing statement necessary in light of
such transaction.
4. If an Event of Default (as defined in the Note) occurs, then Secured
Party may, at its sole option, exercise from time to time with respect to the
Pledged Collateral any and/or all rights and remedies available to it hereunder,
under the Uniform Commercial Code as adopted in the State of Delaware ("UCC"),
or otherwise available to it, at law or in equity, including, without
limitation, the right to dispose of the Pledged Collateral at public or private
sale(s) or other proceedings, and Pledgors agree that, if permitted by law,
Secured Party or its nominee may become the purchaser at any such sale(s).
5. (a) In addition to all other rights granted to Secured Party herein or
otherwise available at law or in equity, Secured Party shall have the following
rights, each of which may be exercised at Secured Party's sole discretion (but
without any obligation to do so), at any time following the occurrence of an
Event of Default under the Note, without further consent of Pledgors: (i)
transfer the whole or any part of the Pledged Collateral into the name of itself
or its nominee for the purpose of selling the same, or to conduct a sale of the
Pledged Collateral pursuant to the UCC or pursuant to any other applicable law;
(ii) vote the Pledged Collateral; (iii) notify the persons obligated on any of
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the Pledged Collateral to make payment to Secured Party of any amounts due or to
become due thereon; and (iv) release, surrender or exchange any of the Pledged
Collateral at any time, or to compromise any dispute with respect to the same.
Secured Party may proceed against the Pledged Collateral, or any other
collateral securing the Obligations, in any order, and against Pledgors and any
other obligor, jointly and/or severally, in any order to satisfy the
Obligations. Each Pledgor waives and releases any right to require Secured Party
to first collect any of the Obligations secured hereby from any other collateral
of Pledgors, any other Pledgor, or any other party securing the Obligations
under any theory of marshalling of assets, or otherwise. All rights and remedies
of Secured Party are cumulative, not alternative.
(b) Each Pledgor hereby irrevocably appoints Secured Party its
attorney-in-fact, subject to the terms hereof, following the occurrence of
an Event of Default under the Note, at Secured Party's option, (i) to
effectuate the transfer of the Pledged Collateral on the books of the
issuer thereof to the name of Secured Party or to the name of Secured
Party's nominee, designee or assignee; (ii) to endorse and collect checks
payable to such Pledgor representing distributions or other payments on the
Pledged Collateral; and (iii) to carry out the terms and provisions hereof.
6. The proceeds of any Pledged Collateral received by Secured Party at any
time, whether from the sale of Pledged Collateral or otherwise, may be applied
to or on account of the Obligations and in such order as Secured Party may
elect. In addition, Secured Party may, in its discretion, apply any such
proceeds to or on account of the payment of all costs, fees and expenses
(including, without limitation, attorneys' fees) which may be incurred by
Secured Party.
7. Pledgors recognize that Secured Party may be unable to effect, or may
effect only after such delay which would adversely affect the value that might
be realized from the Pledged Collateral, a public sale of all or part of the
Pledged Collateral by reason of certain prohibitions contained in the Securities
Act of 1933, as amended ("Securities Act"), and may be compelled to resort to
one or more private sales to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such securities for their own
account, for investment and not with a view to the distribution or resale
thereof. Pledgors agree that any such private sale may be at prices and on terms
less favorable to Secured Party or the seller than if sold at public sales, and
therefore recognizes and confirms that such private sales shall not be deemed to
have been made in a commercially unreasonable manner solely because they were
made privately. Pledgors agree that Secured Party has no obligation to delay the
sale of any such securities for the period of time necessary to permit the
issuer of such securities to register such securities for public sale under the
Securities Act.
8. In the event that any stock dividend, reclassification, readjustment or
other change is made or declared in the capital structure of any entity listed
on Schedule I or any option included within the Pledged Collateral is exercised,
any and all new, substituted or additional shares, or other securities, issued
by reason of any such change or exercise, shall be delivered to and held by
Secured Party under the terms hereof in the same manner as the Pledged
Collateral originally pledged hereunder. No distribution may be paid to or
retained by Pledgors unless expressly permitted in writing by the Note.
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9. So long as no Event of Default has occurred under the Note, and, until
Secured Party notifies Pledgors in writing of the exercise of its rights
hereunder, Pledgors shall retain the sole right to vote the Pledged Collateral
and exercise all rights of ownership with respect to all corporate questions for
all purposes not inconsistent with the terms hereof.
10. Secured Party shall have no obligation to take any steps to preserve,
protect or defend the rights of Pledgors or Secured Party in the Pledged
Collateral against other parties. Secured Party shall have no obligation to sell
or otherwise deal with the Pledged Collateral at any time for any reason,
whether or not upon request of any Pledgor, and whether or not the value of the
Pledged Collateral, in the opinion of Secured Party or Pledgors, is more or less
than the aggregate amount of the Obligations secured hereby, and any such
refusal or inaction by Secured Party shall not be deemed a breach of any duty
which Secured Party may have under law to preserve the Pledged Collateral.
Except as provided by applicable law, no duty, obligation or responsibility of
any kind is intended to be delegated to or assumed by Secured Party at any time
with respect to the Pledged Collateral.
11. To the extent Secured Party is required by law to give Pledgors prior
notice of any public or private sale, or other disposition of the Pledged
Collateral, Pledgors agree that ten (10) days prior written notice to Pledgors
shall be a commercially reasonable and sufficient notice of such sale or other
intended disposition.
12. Pledgors shall indemnify, defend and hold harmless Secured Party from
and against any and all claims, losses and liabilities resulting from any breach
by Pledgors of Pledgors', or any of their, representations and covenants under
this Agreement.
13. Pledgors, in their capacity as a pledgors hereunder, hereby waive
notice of (a) acceptance of this Agreement and (b) demand and default hereunder.
14. This Agreement shall remain in full force and effect and shall not be
limited, impaired or otherwise affected in any way by reason of (a) any delay in
making demand on Pledgors for, or delay in enforcing or failure to enforce,
performance or payment of Pledgors' Obligations, (b) any failure, neglect or
omission on Secured Party's part to perfect any lien upon, protect, exercise
rights against, or realize on, any property of Pledgors or any other party
securing the Obligations, (c) any failure to obtain, retain or preserve, or the
lack of prior enforcement of, any rights against any person or persons
(including Pledgors) or in any property, (d) the invalidity or unenforceability
of any Obligations or rights in any collateral, (e) the existence of
nonexistence of any defenses which may be available to Pledgors with respect to
the Obligations, or (f) the commencement of any bankruptcy, reorganization,
liquidation, dissolution or receivership proceeding or case filed by or against
Pledgors.
15. Pledgors covenant and agree that Pledgors shall not, without the prior
written consent of Secured Party, sell, encumber or grant any lien, security
interest or option on or with respect to any of the Pledged Collateral.
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16. Pledgors hereby authorize and instruct each issuer of the Pledged
Collateral to comply with any instruction received by it from Secured Party in
writing that (a) states that an Event of Default has occurred and (b) is
otherwise in accordance with the terms of this Agreement, without any other or
further instructions from Pledgors, and Pledgors agree that each such issuer
shall be fully protected in so complying.
17. Any failure of or delay by Secured Party to exercise any right or
remedy hereunder shall not be construed as a waiver of the right to exercise the
same or any other right or remedy at any other time.
18. This Agreement constitutes the entire agreement between the parties
hereto regarding the subject matter hereof and may be modified only by a written
instrument signed by Pledgors and Secured Party.
19. This Agreement is made in and shall be governed by and construed in
accordance with the laws of the State of Delaware, and the provisions hereof
shall be deemed severable in the event of the invalidity of any provision.
Pledgors irrevocably consents to the exclusive jurisdiction of the any state or
Federal court in the Wilmington, Delaware in any and all actions and proceedings
whether arising hereunder or in connection herewith.
20. All communications which Secured Party may provide to any party herein
shall be sent in the manner set forth in the Exchange Agreement. If to Pledgors
at Fonix Corporation, 0000 Xxxxx 000 Xxxx, Xxxxx 000, Xxxxx, Xxxx 00000, Fax:
000-000-0000 Attn: President, with a copy to Xxxxxxx X. Xxxxx, Xxxxxx Xxxxx &
Xxxxxxx, 000 Xxxx Xxxxxxxx, Xxxxx 000, Xxxx Xxxx Xxxx, Xxxx 00000, Fax:
000-000-0000.
21. This Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and assigns.
22. EACH PLEDGOR HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE NOTE, THE OBLIGATIONS OR THE PLEDGED COLLATERAL.
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Dated as of the date and year first set forth above.
FONIX CORPORATION
By:________________________________
Xxxxxx X. Xxxxxxx, President
LTEL ACQUISITION CORPORATION
By:________________________________
Xxxxxx X. Xxxxxxx, President
LTEL HOLDINGS CORPORATION
By:________________________________
Xxxxxx X. Xxxxxxx, President
SCHEDULE I
Pledged Collateral
The following Collateral is hereby pledged by Secured Party pursuant to
the Collateral Pledge Agreement to which this Schedule is attached:
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Number Number Number Stock
Jurisdiction of of of Certificate
of Shares Shares Shares Number(s)
Name of Corporation Incorp. Authorized Issued Pledged Pledged Pledgor
----------------------------- -------------- ------------ ------------ ------------- --------------- ---------------------
LTEL Acquisition
LTEL Holdings Corporation DE 8,000 400 400 A42 Corporation
(Class A Common Stock)
----------------------------- -------------- ------------ ------------ ------------- --------------- ---------------------
LTEL Holdings Corporation DE 400 306 306 LTEL Acquisition
(Series B Preferred Stock) BP4 Corporation
----------------------------- -------------- ------------ ------------ ------------- --------------- ---------------------
LTEL Acquisition Corporation DE 1,000 100 100 1 Fonix Corporation
----------------------------- -------------- ------------ ------------ ------------- --------------- ---------------------
LecStar Telecom, Inc. GA 1,000,000 1,000 1,000 3 LTEL Holdings
Corporation
----------------------------- -------------- ------------ ------------ ------------- --------------- ---------------------
LecStar Datanet, Inc GA 1,000,000 1,000 1,000 3 LTEL Holdings
Corporation
----------------------------- -------------- ------------ ------------ ------------- --------------- ---------------------
