Execution Copy
EXCHANGE AGREEMENT
AMONG
FONIX CORPORATION,
a Delaware corporation,
LTEL ACQUISITION CORPORATION,
a Delaware corporation,
LTEL HOLDINGS CORPORATION,
a Delaware corporation,
AND
Certain Holders of the Capital Stock of
LTEL HOLDINGS CORPORATION
February 24, 2004
Exhibit List iv
ARTICLE I . Definitions 1
ARTICLE II . EXCHANGE OF LTEL SHARES 7
SECTION 2.1 Basic Transaction 7
SECTION 2.2 Purchase Price. 7
SECTION 2.3 The Closing. 8
SECTION 2.4 Deliveries at the Closing. 8
SECTION 2.5 Seller Representative. 8
SECTION 2.6 Regulation D Restrictions. 9
ARTICLE III . REPRESENTATIONS AND WARRANTIES
CONCERNING THIS TRANSACTION 10
SECTION 3.1 Representations and Warranties of the Sellers. 10
SECTION 3.2 Representations and Warranties of Fonix and Buyer. 12
ARTICLE IV . REPRESENTATIONS AND WARRANTIES
CONCERNING LTEL AND ITS SUBSIDIARIES 13
SECTION 4.1 Organization, Qualification, and Corporate Power. 13
SECTION 4.2 Capitalization. 14
SECTION 4.3 Noncontravention. 14
SECTION 4.4 Brokers' Fees. 14
SECTION 4.5 Title to Assets. 15
SECTION 4.6 Subsidiaries. 15
SECTION 4.7 Financial Statements. 15
SECTION 4.8 Events Subsequent to Most Recent Fiscal Month End. 16
SECTION 4.9 Undisclosed Liabilities. 17
SECTION 4.10 Legal Compliance and Authorizations. 17
SECTION 4.11 Tax Matters. 19
SECTION 4.12 Intellectual Property. 20
SECTION 4.13 Assets. 21
SECTION 4.14 Sufficiency of Assets and Real Property. 22
SECTION 4.15 Contracts. 22
SECTION 4.16 Notes and Accounts Receivable. 23
SECTION 4.17 Powers of Attorney. 23
SECTION 4.18 Insurance. 23
SECTION 4.19 Litigation. 24
SECTION 4.20 Books and Records. 24
SECTION 4.21 Agreements with Regulatory Agencies. 25
SECTION 4.22 Regulatory Approvals. 25
SECTION 4.23 Employees. 25
SECTION 4.24 Employee Benefits. 26
SECTION 4.25 Guaranties. 28
SECTION 4.26 Environment, Health, and Safety Matters. 28
SECTION 4.27 Certain Business Relationships With LTEL and
Its Subsidiaries. 29
SECTION 4.28 Operation of LTEL's and its Subsidiaries'
Business; Relationships. 29
SECTION 4.29 Customers; Rates; Form of Agreements. 30
SECTION 4.30 Disclosure. 30
ARTICLE V . REPRESENTATIONS AND WARRANTIES
CONCERNING FONIX AND ITS SUBSIDIARIES 30
SECTION 5.1 Organization, Qualification, and Corporate Power. 30
SECTION 5.2 Capitalization. 30
SECTION 5.3 SEC Documents; Financial Statements. 31
SECTION 5.4 Absence of Certain Changes. 31
SECTION 5.5 Absence of Undisclosed Liabilities. 32
SECTION 5.6 Litigation. 32
SECTION 5.7 Governmental Authorization. 32
SECTION 5.8 Disclosure. 32
ARTICLE VI . CONDITIONS PRECEDENT TO THE CLOSING 33
SECTION 6.1 Conditions to Fonix's and Buyer's Obligation to Close 33
SECTION 6.2 Conditions of the Sellers' Obligations to Close 34
SECTION 6.3 Conditions to All Parties' Obligations to Close 35
ARTICLE VII . POST-CLOSING COVENANTS 36
SECTION 7.1 General. 36
SECTION 7.2 Litigation Support. 36
SECTION 7.3 Transition. 36
SECTION 7.4 Confidentiality. 36
SECTION 7.5 Public Announcements. 37
SECTION 7.6 Regulatory Approvals 37
SECTION 7.7 Post-Closing Merger. 37
ARTICLE VIII . INDEMNIFICATION AND ESCROW 37
SECTION 8.1 Survival of Representations, Warranties and Covenants. 37
SECTION 8.2 Indemnification. 38
SECTION 8.3 Limitations on Claims for Damages. 40
SECTION 8.4 Adjustment For Insurance and Tax Benefits. 41
SECTION 8.5 Payment. 41
SECTION 8.6 Matters Involving Third Parties. 41
SECTION 8.7 Escrow 42
SECTION 8.8 Exclusive Remedy. 44
ARTICLE IX TAX MATTERS 44
SECTION 9.1 Cooperation on Tax Matters. 45
SECTION 9.2 Certain Taxes. 45
ARTICLE X . MISCELLANEOUS 45
SECTION 10.1 Nature of Certain Obligations. 45
SECTION 10.2 No Third-Party Beneficiaries. 46
SECTION 10.3 Entire Agreement. 46
SECTION 10.4 Succession and Assignment. 46
SECTION 10.5 Counterparts. 46
SECTION 10.6 Headings. 46
SECTION 10.7 Notices. 46
SECTION 10.8 Governing Law. 47
SECTION 10.9 Amendments and Waivers. 47
SECTION 10.10 Severability. 48
SECTION 10.11 Expenses. 48
SECTION 10.12 Construction and Interpretation. 48
SECTION 10.13 Incorporation of Exhibits, Annexes, and
Schedules. 48
Exhibit List
A List of LTEL Series B and Common Stock Holders
B Form of Registration Rights Agreement
C Form of Certificate of Designations of Fonix Series H Preferred Stock
D Form of Secured Note
E Form of Collateral Pledge Agreement
F Form of Security Agreement
G Lost Certificate Affidavit
H LTEL Financial Statements
I Form of Opinion of Counsel to LTEL and Sellers
J Form of Escrow Agreement
K Form of Opinion of Counsel to Fonix and Buyer
EXCHANGE AGREEMENT
EXCHANGE AGREEMENT (the "Agreement") entered into as of February 24,
2004, by and among FONIX CORPORATION, a Delaware corporation ("Fonix"), LTEL
ACQUISITION CORPORATION, a Delaware corporation and wholly owned subsidiary of
Fonix ("Buyer"), LTEL Holdings Corporation, a Delaware corporation ("LTEL"),
those persons who are the capital stock holders of LTEL whose names are listed
on Exhibit A hereto and who have executed a signature page to this Agreement
(the "Sellers"), and XxXxxxxxx Avenue Ltd., a British Virgin Islands corporation
that is a Seller ("XxXxxxxxx"). Fonix, Buyer, LTEL, the Sellers and XxXxxxxxx
are referred to collectively herein as the "Parties".
Recitals
A........Each of the Sellers set forth on Exhibit A owns the number of
shares of common stock, no par value per share (the "LTEL Common Stock"), or
Series B Preferred stock, no par value per share (the "LTEL Series B Stock"), of
LTEL set forth opposite his or its name on Exhibit A hereto (with the LTEL
Common Stock and the LTEL Series B Stock being referred to collectively herein
as the "LTEL Shares"). The LTEL Shares constitute all of the issued and
outstanding capital stock of LTEL.
B........Each of the Sellers desires to exchange his or its LTEL Shares
for shares of common stock and preferred stock of Fonix and for the delivery by
Fonix of a secured promissory note, all as more particularly set forth below.
THEREFORE, in consideration of the mutual representations, warranties,
covenants and indemnifications set forth below, and for other good and valuable
consideration the receipt and adequacy of which the Parties acknowledge by their
signatures below, the Parties agree as follows.
ARTICLE I
Definitions
"Accredited Investor" has the meaning set forth in Regulation D.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of
Code Section 1504(a) or any similar group defined under a similar provision of
state, local, or foreign law.
"Agreement" has the meaning set forth in the preface to this Agreement.
"Buyer" has the meaning set forth in the preface above.
"Buyer Deductible" has the meaning set forth in Section 8.3 below.
"Buyer Indemnified Persons" has the meaning set forth in Section 8.2
below.
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"Business Day" means any day other than a Saturday, Sunday or legal
holiday in New York, New York.
"CERCLA" has the meaning set forth in Section 8.9 below.
"Closing" has the meaning set forth in Section 2.3 below.
"Closing Date" has the meaning set forth in Section 2.3 below.
"COBRA" means the requirements of Part 6 of Subtitle B of Title I of
ERISA and Code 4980B.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of LTEL and its Subsidiaries or Fonix and its
Subsidiaries that is not already generally available to the public.
"Controlled Group" has the meaning set forth in Code Section 1563.
"Damages" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, liabilities,
obligations, Taxes, liens, losses, expenses, and fees, including court costs and
reasonable attorneys' fees and expenses.
"Disclosure Schedule" has the meaning set forth in Article IV below.
"Disputed Claim Release Date" has the meaning set forth in Section 8.7
below.
"Due Date" has the meaning set forth in Section 8.5 below.
"Employee Benefit Plan" means any (a) nonqualified deferred
compensation or retirement plan or arrangement, (b) qualified defined
contribution retirement plan or arrangement which is an Employee Pension Benefit
Plan, (c) qualified defined benefit retirement plan or arrangement which is an
Employee Pension Benefit Plan (including any Multiemployer Plan), or (d) an
Employee Welfare Benefit Plan.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
Section 3(1).
"Environmental, Health, and Safety Requirements" shall mean all
federal, state, local and foreign statutes, regulations, ordinances and similar
provisions having the force or effect of law, all judicial and administrative
orders and determinations, and all common law concerning public health and
safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
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or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means each entity which is treated as a single
employer with Seller for purposes of Code 414.
"Escrow Agent" has the meaning set forth in Section 8.7 below.
"Escrow Fund" has the meaning set forth in Section 8.7 below.
"Escrow Shares" has the meaning set forth in Section 8.7 below.
"FCC" means the United States Federal Communications Commission.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
"Financial Statements" has the meaning set forth in Section 4.7 below.
"Fonix" has the meaning set forth in the preface above.
"Fonix Authorizations" has the meaning set forth in Section 5.7 below.
"Fonix Balance Sheet" has the meaning set forth in Section 5.5 below.
"Fonix Balance Sheet Date" has the meaning set forth in Section 5.4
below.
"Fonix Common Stock" has the meaning set forth in Section 2.2 below.
"Fonix Disclosure Schedule" has the meaning set forth in Article V
below.
"Fonix Financial Statements" has the meaning set forth in Section 5.3
below.
"Fonix Restricted Stock" has the meaning set forth in Section 2.2
below.
"Fonix SEC Documents" has the meaning set forth in Section 5.3 below.
"Fonix Securities" has the meaning set forth in Section 2.2 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof or any entity or enterprise (including,
without limitation, a court) exercising executive, legislative, judicial,
regulatory or administrative functions of or pertaining to government.
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"Xxxx Xxxxx Xxxxxx Act" means the Xxxx Xxxxx Xxxxxx Antitrust
Improvements Act of 1976, as amended.
"Income Tax" means any federal, state, local, or foreign income Tax,
including any interest, penalty, or addition thereto, whether disputed or not.
"Income Tax Return" means any return, declaration, report, claim for
refund, or information return or statement relating to Income Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"Indemnified Party" has the meaning set forth in Section 8.6 below.
"Indemnifying Party" has the meaning set forth in Section 8.6 below.
"Indemnitee" has the meaning set forth in Section 8.4 below.
"Indemnitor" has the meaning set forth in Section 8.5 below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (e) all computer software (including data and related
documentation), (f) all Internet web-site URL or other addresses, (g) other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other security
interest, voting trust agreement, or other adverse claim of any kind or nature
whatsoever (including, without limitation, any conditional sale or other title
retention agreement and any financing lease having substantially the same
economic effect as any of the foregoing).
"LTEL" has the meaning set forth in the preface above.
"LTEL Common Stock" has the meaning set forth in the recitals above.
"LTEL Permits" has the meaning set forth in Section 4.28 below.
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"LTEL Series B Stock" has the meaning set forth in the recitals above.
"LTEL Shares" has the meaning set forth in the recitals, and shall be
understood to mean any and all shares of capital stock of LTEL, whether
preferred or common.
"Material Adverse Effect" shall mean any event or effect or any related
series of events or effects, individually or in the aggregate, that (i) would
materially and adversely affect the business, operations, properties, prospects
or financial condition of the Person to which such term is applied, including
such Person's Subsidiaries and all other Persons controlling or controlled by
such Person, and/or (ii) that would prohibit or otherwise materially interfere
with the ability of Fonix, Sellers, LTEL or the Subsidiaries (as may be
applicable to each of them) to enter into and perform their respective
obligations under this Agreement.
"XxXxxxxxx" has the meaning set forth in introductory paragraph above.
"Most Recent Balance Sheet" means the balance sheet contained within
the Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
4.7 below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4.7
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4.7
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(37).
"Note" has the meaning set forth in Section 2.2(c) below.
"Offering Memorandum" has the meaning set forth in Section 3.1(e)
below.
"Officer's Certificate" has the meaning set forth in Section 8.7 below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means (i) Liens for current Taxes and assessments not
yet due and payable, (ii) standard utility easements, covenants and restrictions
of record that are immaterial in character, amount and extent, do not secure
indebtedness, and that do not detract from the value or interfere with the
present or reasonably intended use of the assets or properties they affect,
(iii) mechanics', carriers', workers', repairers' and other statutory Liens
arising in the Ordinary Course of Business and which have not become due and
payable, (iv) existing zoning or similar requirements of law or ordinances that
do not materially, individually or in the aggregate, interfere with the present
or reasonably intended use of the assets or properties they affect, (v) leases
disclosed in the Disclosure Schedule or the Fonix Disclosure Schedule, as
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applicable, and (vii) any other Liens that do not materially, individually or in
the aggregate, interfere with the present or reasonably intended use of the
assets or properties they affect.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Prohibited Transaction" has the meaning set forth in ERISA Section 406
and Code 4975.
"Purchase Price" has the meaning set forth in Section 2.2 below.
"Registration Rights Agreement" has the meaning set forth in Section
2.2 below.
"Regulation D" means Regulation D promulgated under the Securities Act.
"Regulatory Approvals" has the meaning set forth in Section 4.22 below.
"Release Date" has the meaning set forth in Section 8.7 below.
"Reportable Event" has the meaning set forth in ERISA Section 4043.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) liens for Taxes not yet due
and payable, (b) purchase money liens and liens securing rental payments under
capital lease arrangements, and (c) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Seller Indemnified Person" has the meaning set forth in Section 8.2
below.
"Seller Representative" has the meaning set forth in Section 2.5 below.
"Seller's Deductible" has the meaning set forth in Section 8.3 below.
"Series H Preferred Stock" has the meaning set forth in Section 2.2
below.
"Subsidiary" means any corporation or other entity with respect to
which a specified Person (or a Subsidiary thereof) owns a majority of the common
stock, membership interests or other form of equity ownership or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors or managers.
"Tax" or "Taxes" means any federal, state, local or foreign tax
(including, without limitation, any income tax, franchise tax, doing business
tax, branch profits tax, capital gains tax, value-added tax, ad valorem tax,
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excise tax, transfer tax, employment tax, social security tax, sales tax, use
tax, property tax, or any other kind of tax or payment in lieu of tax no matter
how denominated), levy, assessment, tariff, duty (including any customs duty),
deficiency or other fee, and any related charge or amount (including any fine,
penalty, interest or addition to tax), imposed, assessed or collected by or
under the authority of any Governmental Authority or payable in accordance with
any tax-sharing agreement or any other contract relating to the sharing or
payment of any such tax, levy, assessment, tariff, duty, deficiency or fee.
"Tax Return" means any return (including any information return),
report, statement, schedule, notice, form or other document or information filed
with or submitted to or required to be filed with or submitted to, any
Governmental Authority in connection with the determination, assessment,
collection or payment of any Tax or in connection with the administration,
implementation or enforcement of or compliance with any legal requirement
relating to any Tax.
"Termination Date" has the meaning set forth in Section 8.7 below.
"Third Party Claim" has the meaning set forth in Section 8.6 below.
Other defined terms shall have the meanings set forth herein.
ARTICLE II
EXCHANGE of LTEL Shares
SECTION 2.1.......Basic Transaction
On and subject to the terms and conditions of this Agreement, Buyer
agrees to acquire and purchase from each of the Sellers, and each of the Sellers
agrees to transfer and sell to Buyer, all of his, her or its LTEL Shares, as set
forth for each Seller on Exhibit A, for the consideration specified below in
Section 2.2.
SECTION 2.2 Purchase Price.
Fonix agrees to issue and deliver to the Sellers at the Closing, in
exchange for the transfer to Buyer of the LTEL Shares, consideration
(collectively the "Purchase Price") as follows:
(a) Fonix shall issue and deliver at Closing to the Sellers who are
the holders of LTEL Common Stock in the percentage amounts set forth on
Exhibit A that number of restricted shares (the "Fonix Restricted Stock")
of Fonix's common stock, par value $0.0001 per share ("Fonix Common
Stock"), equal to (i) Three Million Dollars ($3,000,000) divided by (ii)
the product of (A) the average closing bid price of Fonix Common Stock for
the first 30 of the 33 consecutive trading days immediately preceding the
date the Regulatory Approvals are deemed effective, multiplied by (B) 0.90.
Fonix shall further agree with each of the Sellers who are recipients of
Fonix Restricted Stock to register the Fonix Restricted Stock for public
resales within 120 days after the Closing, which agreement shall be as set
forth in a Registration Rights Agreement ("Registration Rights Agreement")
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in the form attached hereto as Exhibit B, which shall be executed and
delivered by each of the Sellers who are receiving Fonix Restricted Stock
and who desire to have such registration rights.
(b) Fonix shall issue and deliver to the Sellers who are the holders
of LTEL Preferred Stock in the percentage amounts set forth on Exhibit A a
total of Two Thousand (2,000) shares of Fonix's newly authorized Series H
Preferred Stock, par value $0.0001 per share ("Series H Preferred Stock"),
with each such share of Series H Preferred Stock having a stated value
$10,000 per share. The Series H Preferred Stock shall have the preferences,
rights and obligations as set forth on the Certificate of Designations
attached hereto as Exhibit C. The Fonix Restricted Stock and the Series H
Preferred Stock may be referred to collectively herein as the "Fonix
Securities."
(c) Fonix shall execute and deliver to XxXxxxxxx a promissory note (the
"Note") in the form attached as Exhibit D hereto, which Note shall be
in the aggregate principal amount of Ten Million Dollars ($10,000,000)
and shall be secured by (i) the capital stock of Buyer and other
collateral pursuant to a Collateral Pledge Agreement ("Pledge
Agreement") in the form attached hereto as Exhibit E, and (ii) the
assets of Buyer (including the capital stock of LTEL and its
Subsidiaries) pursuant to a Security Agreement (the "Security
Agreement") in the form attached hereto as Exhibit F.
SECTION 2.3 The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Durham Xxxxx & Xxxxxxx, P.C., in
Salt Lake City, Utah, or such other place as is mutually agreed, commencing at
9:00 a.m. local time on the earlier of (i) February 24, 2004, or (ii) the third
Business Day after the Business Day on which the Regulatory Approvals have been
obtained, which determination shall be made in the reasonable discretion of
Fonix (the "Closing Date").
SECTION 2.4 Deliveries at the Closing.
At the Closing, (i) the Sellers will deliver to Buyer the various
certificates, instruments, and documents referred to in Section 6.1 below, (ii)
Buyer will deliver to the Sellers the various certificates, instruments, and
documents referred to in Section 6.2 below, (iii) each of the Sellers will
deliver to Buyer stock certificates representing all of his or its LTEL Shares
(or affidavits of lost instrument in the form attached to this Agreement as
Exhibit G), endorsed in blank or accompanied by duly executed assignment
documents, and (iv) Buyer will deliver to each of the Sellers the consideration
specified in Section 2.2 above.
SECTION 2.5 Seller Representative.
Each of the Sellers hereby irrevocably constitutes and appoints Xxxxxxx
Xxxxx, with full power of substitution and re-substitution, as its and their
true and lawful agent, attorney-in-fact and representative (such person and his
appointed and designated successor or successors being herein referred to as the
"Seller Representative"), with full power to act for and on behalf of the
Sellers, and each of them, for all purposes under this Agreement and in
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connection with the transactions contemplated hereby including, without
limitation, for purposes of: (i) determining the amount of any damages suffered
or incurred by Fonix or Buyer and the payment or satisfaction of such amounts in
satisfaction of the Sellers' indemnification obligations, (ii) determining the
amount of any Seller damages suffered or incurred by the Sellers, (iii)
receiving notices from Fonix or Buyer given under this Agreement, of which the
Seller Representative will give a copy to the other Sellers, (iv) approving and
agreeing with Buyer or Fonix as to additions, deletions, changes, modifications
and amendments to this Agreement and the exhibits hereto, except with respect to
any addition, deletion, change, modification or amendment to a material
financial term or condition of any of such documents that would materially,
financially and adversely affect the Sellers, and (v) settling finally and
completely any disputes or controversies among the parties hereto (other than
solely among the Sellers) with respect to the interpretation or effect of or
damages or relief under this Agreement and any and all transactions contemplated
hereby. The Seller Representative shall be entitled to reimbursement by the
Sellers from the consideration actually payable to the Sellers or otherwise for
all reasonable costs and expenses incurred by him in fulfilling his duties
hereunder, and the Sellers agree among themselves that such costs and expenses
shall be borne pro rata among them according to the number of LTEL Shares (on an
as-converted basis) owned immediately prior to the Closing. The Sellers agree
that the Seller Representative may make reasonable requests for advances to
cover such costs and expenses, and the Sellers will promptly make such advances.
In no event will Buyer or Fonix be liable for any costs or expenses of any
nature incurred by the Seller Representative in its capacity as such. EACH
SELLER, JOINTLY AND SEVERALLY, AGREES THAT THE SELLER REPRESENTATIVE SHALL HAVE
NO LIABILITY TO THE SELLERS FOR ACTION TAKEN OR OMITTED IN GOOD FAITH IN
EXERCISING THE AUTHORITY GRANTED UNDER THIS SECTION 2.5. Neither Buyer nor Fonix
shall have any obligation or liability to indemnify or defend the Seller
Representative in respect of any claim or liability asserted against the Seller
Representative by any Seller or its successors or assigns. All determinations,
decisions, actions and the like made by the Seller Representative shall be
final, conclusive and binding upon all Sellers and all persons claiming under or
through them.
SECTION 2.6 Regulation D Restrictions.
Notwithstanding anything to the contrary herein, Fonix shall have no
obligation to offer, sell, issue or deliver any Fonix Securities to any Seller
who Fonix does not reasonably believe to be an Accredited Investor, or who Buyer
does not reasonably believe has, either alone or with his or its purchaser
representative, such knowledge and experience in financial and business matters
that he or it is capable of evaluating the merits and risks of exchanging his or
its LTEL Shares for Fonix Securities. Additionally, Buyer shall not offer, sell,
issue or deliver Fonix Securities to more than thirty-five (35) Sellers who are
not Accredited Investors but who Buyer reasonably believes have, either alone or
with their purchaser representatives, such knowledge and experience in financial
and business matters that they are capable of evaluating the merits and risks of
exchanging their LTEL Shares for Fonix Securities.
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ARTICLE III
Representations and Warranties CONCERNING THIS TRANSACTION
SECTION 3.1 Representations and Warranties of the Sellers.
Each of the Sellers severally, for and on behalf of such Seller but not
on behalf of any other Seller, and XxXxxxxxx, on behalf of itself and every
other Seller, represents and warrants to Fonix and Buyer that the
representations and warranties contained in this Section 3.1 are correct and
complete as of the date of this Agreement and will be correct and complete as of
the Closing Date.
(a) Organization of Entity Sellers. If the Seller is a corporation,
limited liability company, partnership, trust or other entity, such Seller
is duly organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation.
(b) Validity of Transaction. The Seller has full power and authority
(including, if the Seller is a corporation or other entity, full corporate
power and authority) to execute and deliver this Agreement and to perform
his or its obligations hereunder. All necessary corporate proceedings or
other similar actions by such Seller have been duly taken to authorize the
execution, delivery, and performance of this Agreement by such Seller. This
Agreement has been duly executed, and delivered by such Seller, is the
legal, valid, and binding obligation of such Seller, and is enforceable as
to such Seller in accordance with its terms except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting
creditors' rights generally, and subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law). No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other Governmental Authority or of any court or
other tribunal is required by such Seller for the execution, delivery, or
performance of this Agreement by such Seller, except as would not affect
the ability of the Seller to perform any of its obligations under this
Agreement. No consent of any party to any contract, agreement, instrument,
lease, license, arrangement, or understanding to which such Seller is a
party, or by which any of its properties or assets is bound, is required
for the execution, delivery, or performance by such Seller of this
Agreement, except for such consents as have been obtained at or prior to
the date of this Agreement, and except as would not affect the ability of
the Seller to perform any of its obligations under this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject
or, if the Seller is a corporation or other entity, any provision of its
charter or bylaws or comparable organizational documents or, if the Seller
is a partnership, any provision of its partnership agreement, or (ii)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
10
contract, lease, license, instrument, or other arrangement to which the
Seller is a party or by which he or it is bound or to which any of his or
its assets is subject.
(d) Ownership and Exchange of LTEL Shares. Such Seller owns the number
of LTEL Shares set forth opposite his or its name on Exhibit A free and
clear of any restrictions on transfer (other than any restrictions under
the Securities Act and state securities laws), Taxes, Security Interests,
options, warrants, purchase rights, contracts, commitments, equities,
claims, and demands. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of LTEL
(other than this Agreement). The Seller is not a party to any voting trust,
proxy, or other agreement or understanding with respect to the voting of
any capital stock of LTEL. The LTEL Shares to be exchanged by such Seller
have been duly authorized and validly issued and are fully paid and
nonassessable and have not have been issued in violation of any preemptive
right of stockholders or rights of first refusal. Upon the transfer of the
LTEL Shares at the Closing, Buyer will acquire good and valid title to such
LTEL Shares free and clear of all claims, liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and voting
trusts.
(e) Accredited Investor. Such Seller is an "accredited investor," as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act. Such Seller has received all requested documents from
Fonix, including without limitation, the Confidential Offering Memorandum,
dated as of January 21, 2004, relating to the Fonix Restricted Shares,
Series H Preferred Stock and the Note (the "Offering Memorandum") and has
had an opportunity to ask questions of and receive answers from the
officers of Fonix with respect to the business, results of operations,
financial condition, and prospects of Fonix. The Seller, either acting
alone or in conjunction with his or its purchaser representative, is a
sophisticated investor with knowledge and experience in business and
financial matters, and is able to bear the economic risk and lack of
liquidity inherent in holding the Fonix Securities.
(f) Investment Intent. Such Seller is acquiring Fonix Securities
pursuant hereto for its own account for investment and not with a view to,
or for sale in connection with, any public distribution thereof in
violation of the Securities Act, it being understood that such Seller has
the right to sell such shares in its sole discretion in accordance with the
terms of the Registration Rights Agreement, and that by this representation
and warranty, no Seller is required to hold any Fonix Securities for any
period of time, subject to the requirements of applicable law. Such Seller
understands that such Fonix Securities, as of Closing, have not been
registered for sale under the Securities Act or qualified under applicable
state securities laws, that the Series H Preferred stock will not be
registered for sale under the Securities Act, and that the Fonix Securities
will be delivered to such Seller pursuant to one or more exemptions from
the registration or qualification requirements of such securities laws and
that the representations and warranties contained in this Section 3.1 are
given with the intention that Fonix may rely thereon for purposes of
claiming such exemptions.
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(g) Transfer of Fonix Securities. Such Seller will not sell or
otherwise dispose of any Fonix Securities unless (a) a registration
statement with respect thereto has become effective under the Securities
Act and such securities have been qualified under applicable state
securities laws or (b) such registration and qualification are not required
and, if Fonix so requests, there is presented to Fonix a legal opinion
reasonably satisfactory to Fonix to such effect. Such Seller consents that
the transfer agent for the Fonix Securities may be instructed not to
transfer any Fonix Securities unless it receives satisfactory evidence of
compliance with the foregoing provisions, and that there may be endorsed
upon any certificate representing the Fonix Securities (and any
certificates issued in substitution therefor) the following legend calling
attention to the foregoing restrictions on transferability and stating in
substance:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFICATION UNDER THE BLUE SKY LAWS OF ANY
JURISDICTION. SUCH SECURITIES MAY NOT BE SOLD, ASSIGNED, TRANSFERRED OR
OTHERWISE DISPOSED OF, BENEFICIALLY OR ON THE RECORDS OF THE
CORPORATION, UNLESS THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT AND QUALIFIED UNDER APPLICABLE
BLUE SKY LAWS, OR AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION
IS AVAILABLE."
Fonix shall, upon the request of any holder of a certificate bearing
the foregoing legend and the surrender of such certificate, issue a new
certificate without such legend if (i) the security evidenced by such
certificate has been effectively registered under the Securities Act
and qualified under any applicable state securities law and sold by the
holder thereof in accordance with such registration and qualification
or (ii) such holder shall have delivered to Fonix a legal opinion
reasonably satisfactory to Fonix to the effect that the restrictions
set forth herein are no longer required or necessary under the
Securities Act or any applicable state law.
(h) Brokers' Fees. The Seller has no liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Fonix or Buyer could
become liable or obligated.
SECTION 3.2 Representations and Warranties of Fonix and Buyer.
Fonix and Buyer jointly and severally represent and warrant to the
Sellers that the statements contained in this 3.2 are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date.
(a) Organization of Fonix and Buyer. Fonix and Buyer are corporations
duly organized, validly existing, and in good standing under the laws of
the jurisdiction of their incorporation.
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(b) Authorization of Transaction. Fonix and Buyer each have full power
and authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform their respective obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of Fonix and Buyer, enforceable in accordance with its terms and
conditions. Neither Fonix nor Buyer need give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the transactions
contemplated by this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which Buyer or Fonix is
subject or any provision of their respective charters or bylaws or (B)
conflict with, result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which Buyer
or Fonix is a party or by which either of them is bound or to which any of
their respective assets is subject.
(d) Brokers' Fees. Neither Fonix nor Buyer has any liability or
obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
(e) Investment. Buyer is not acquiring the LTEL Shares with a view to
or for sale in connection with any distribution thereof within the meaning
of the Securities Act.
ARTICLE IV.
Representations and Warranties Concerning
LTEL and Its Subsidiaries
LTEL and XxXxxxxxx, individually and on behalf of all Sellers,
represent and warrant to Fonix and Buyer that the statements contained in this
Article IV are correct and complete as of the date of this Agreement, except as
set forth in a disclosure schedule separately delivered by LTEL and XxXxxxxxx to
Fonix and Buyer on or prior to the date hereof (the "Disclosure Schedule").
SECTION 4.1 Organization, Qualification, and Corporate Power.
Each of LTEL and its Subsidiaries is a corporation or limited liability
company duly organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation or organization. Each of LTEL and its
Subsidiaries is duly authorized to conduct business and is in good standing
under the laws of each jurisdiction where such qualification is required, except
where the lack of such qualification would not have a Material Adverse Effect on
LTEL and/or its Subsidiaries. Each of LTEL and its Subsidiaries has full
corporate power and authority to carry on the businesses in which it is engaged
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and to own and use the properties owned and used by it. Section 4.1 of the
Disclosure Schedule lists the directors and officers of LTEL.
SECTION 4.2 Capitalization.
The entire authorized capital stock of LTEL consists of (i) Eight
Thousand (8,000) shares of Class A Common Stock, no par value per share, of
which 400 shares are issued and outstanding, (ii) Two Thousand (2,000) shares of
Class B Common Stock, no par value per share, of which no shares are issued and
outstanding, and (iii) One Thousand (1,000) shares of preferred stock, no par
value per share, of which (A) Twenty (20) shares have been designated Series A
Convertible Preferred Stock, of which no shares are issued and outstanding, and
(B) Four Hundred (400) shares are designated as Series B Convertible Preferred
Stock, of which 306 shares are issued and outstanding. All of the issued and
outstanding LTEL Shares have been duly authorized, are validly issued, fully
paid, and nonassessable, and are held of record by the respective Sellers as set
forth in Section 4.2 of the Disclosure Schedule. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
LTEL to issue, sell, or otherwise cause to become outstanding any of its capital
stock. There are no outstanding or authorized stock appreciation, phantom stock,
profit participation, or similar rights with respect to LTEL. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of LTEL.
SECTION 4.3 Noncontravention.
Neither the execution and the delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which any of LTEL and its Subsidiaries is subject or any provision of
the charter or bylaws of any of LTEL and its Subsidiaries or (ii) conflict with,
result in a breach of, constitute a default under, result in the acceleration
of, create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which any of LTEL and its Subsidiaries is a party or by
which it is bound or to which any of its assets is subject (or result in the
imposition of any Security Interest upon any of its assets), except where the
violation, conflict, breach, default, acceleration, termination, modification,
cancellation, failure to give notice, or Security Interest would not have a
Material Adverse Effect on LTEL and its Subsidiaries. None of LTEL and its
Subsidiaries needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency in
order for the Parties to consummate the transactions contemplated by this
Agreement, except where the failure to give notice, to file, or to obtain any
authorization, consent, or approval would not have a Material Adverse Effect on
LTEL and its Subsidiaries.
SECTION 4.4 Brokers' Fees.
None of LTEL and its Subsidiaries has any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
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SECTION 4.5 Title to Assets.
Except as set forth in Section 4.5 of the Disclosure Schedule, LTEL and
its Subsidiaries have good and marketable title to, or a valid leasehold
interest in, the properties and assets used by them in the operation of their
respective businesses, located on their premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and clear of all Security
Interests, except for properties and assets disposed of in the Ordinary Course
of Business since the date of the Most Recent Balance Sheet.
SECTION 4.6 Subsidiaries.
Section 4.6 of the Disclosure Schedule sets forth for each Subsidiary
of LTEL (i) its name and jurisdiction of incorporation or organization, (ii) if
such Subsidiary is a corporation, (A) the number of shares of authorized capital
stock of each class of its capital stock, (B) the number of issued and
outstanding shares of each class of its capital stock, (C) the names of the
holders thereof, (D) the number of shares held by each such holder, and (E) the
number of shares of its capital stock held in treasury, and (iii) if such
Subsidiary is a limited liability company or partnership, (x) the names of the
members or partners thereof and (y) their respective equity ownership interests
of such Subsidiary (or capital account balances as the case may be). All of the
issued and outstanding shares of capital stock or membership or partnership
interests of each Subsidiary of LTEL have been duly authorized and are validly
issued, fully paid, and nonassessable. Except as set forth on Section 4.6 of the
Disclosure Schedule, one of LTEL or its Subsidiaries holds of record and owns
beneficially all of the outstanding shares or membership or partnership
interests of each Subsidiary of LTEL, free and clear of any restrictions on
transfer (other than restrictions under the Securities Act and state securities
laws), Taxes, Security Interests, options, warrants, purchase rights, contracts,
commitments, equities, claims, and demands. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
any of LTEL and its Subsidiaries to sell, transfer, or otherwise dispose of any
capital stock or other membership or partnership interests of any of its
Subsidiaries or that could require any Subsidiary of LTEL to issue, sell, or
otherwise cause to become outstanding any of its own capital stock or ownership
interests. There are no outstanding stock appreciation, phantom stock, profit
participation, or similar rights with respect to any Subsidiary of LTEL. There
are no voting trusts, proxies, or other agreements or understandings with
respect to the voting of any capital stock of any Subsidiary of LTEL. None of
LTEL and its Subsidiaries controls directly or indirectly or has any direct or
indirect equity participation in any corporation, partnership, trust, or other
business association which is not a Subsidiary of LTEL.
SECTION 4.7 Financial Statements.
Attached hereto as Exhibit H are the following financial statements
(collectively the "Financial Statements"): (i) audited, consolidated balance
sheets and statements of operations, changes in accumulated deficit, and cash
flow as of and for the fiscal year ended December 31, 2002, (the "Most Recent
Fiscal Year End") and for the years ended December 31, 2001 and 2000, for LTEL
and its Subsidiaries; and (ii) unaudited consolidated balance sheets and
statements of operations, changes in stockholders' equity, and cash flow (the
"Most Recent Financial Statements") as of and for the twelve months ended
December 31, 2003 (the "Most Recent Fiscal Month End") for LTEL and its
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Subsidiaries. The Financial Statements (including the notes thereto) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby and present fairly the financial condition of LTEL and
its Subsidiaries as of such dates and the results of operations of LTEL and its
Subsidiaries for such periods; provided, however, that the Most Recent Financial
Statements are subject to normal year-end adjustments (which except as set forth
in Section 4.7 of the Disclosure Schedule will not be material individually or
in the aggregate) and may lack footnotes and other presentation items otherwise
required under GAAP. Fonix shall have the right to approve of the auditor that
provides the audit opinion for the Financial Statements that are required to be
audited.
SECTION 4.8 Events Subsequent to Most Recent Fiscal Month End.
Except as set forth on Section 4.8 of the Disclosure Schedule, since
the Most Recent Fiscal Month End, there has not been any Material Adverse Effect
on or to LTEL and its Subsidiaries. Without limiting the generality of the
foregoing, since that date:
(a) none of LTEL and its Subsidiaries has sold, leased, transferred,
or assigned any material assets, tangible or intangible, outside the
Ordinary Course of Business;
(b) none of LTEL and its Subsidiaries has entered into any material
agreement, contract, lease, or license outside the Ordinary Course of
Business;
(c) no party (including any of LTEL and its Subsidiaries) has
accelerated, terminated, made material modifications to, or canceled any
material agreement, contract, lease, or license to which any of LTEL and
its Subsidiaries is a party or by which any of them is bound;
(d) none of LTEL and its Subsidiaries has imposed or allowed to be
imposed any Security Interest upon any of its assets, tangible or
intangible;
(e) none of LTEL and its Subsidiaries has made any material capital
expenditures outside the Ordinary Course of Business;
(f) none of LTEL and its Subsidiaries has made any material capital
investment in, or any material loan to, any other Person outside the
Ordinary Course of Business;
(g) LTEL and its Subsidiaries have not created, incurred, assumed, or
guaranteed more than $50,000 in aggregate indebtedness for borrowed money
and capitalized lease obligations;
(h) none of LTEL and its Subsidiaries has granted any license or
sublicense of any material rights under or with respect to any Intellectual
Property;
(i) there has been no change made or authorized in the charter or
bylaws of any of LTEL and its Subsidiaries;
16
(j) none of LTEL and its Subsidiaries has issued, sold, or otherwise
disposed of any of its capital stock, or granted any options, warrants, or
other rights to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(k) none of LTEL and its Subsidiaries has declared, set aside, or paid
any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased, or otherwise acquired
any of its capital stock;
(l) none of LTEL and its Subsidiaries has experienced any material
damage, destruction, or loss (whether or not covered by insurance) to its
property;
(m) none of LTEL and its Subsidiaries has made any loan to, or entered
into any other transaction with, any of its directors, officers, and
employees outside the Ordinary Course of Business;
(n) none of LTEL and its Subsidiaries has entered into any employment
contract or collective bargaining agreement, written or oral, or modified
the terms of any existing such contract or agreement;
(o) none of LTEL and its Subsidiaries has granted any increase in the
base compensation of any of its directors, officers, and employees outside
the Ordinary Course of Business;
(p) none of LTEL and its Subsidiaries has adopted, amended, modified,
or terminated any bonus, profit-sharing, incentive, severance, or other
plan, contract, or commitment for the benefit of any of its directors,
officers, and employees (or taken any such action with respect to any other
Employee Benefit Plan);
(q) none of LTEL and its Subsidiaries has made any other material
change in employment terms for any of its directors, officers, and
employees outside the Ordinary Course of Business; and
(r) none of LTEL and its Subsidiaries has committed to any of the
foregoing.
SECTION 4.9 Undisclosed Liabilities.
None of LTEL and its Subsidiaries has any material liability (whether
known or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or unliquidated,
and whether due or to become due, including any liability for Taxes), except for
(i) liabilities set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) and (ii) liabilities which have arisen after the Most
Recent Fiscal Month End in the Ordinary Course of Business.
SECTION 4.10 Legal Compliance and Authorizations.
(a) Each of LTEL and its Subsidiaries, as may be specifically
applicable to LTEL or its Subsidiaries, has complied with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local,
17
and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failure
so to comply, except where the failure to comply would not have a Material
Adverse Effect on LTEL and its Subsidiaries. Without limiting the
generality of the foregoing, neither LTEL nor any of its Subsidiaries has
committed any unfair trade practice with respect to its customers,
suppliers or agents in connection with the operation of their business.
(b) LTEL and its Subsidiaries, as may be specifically applicable to
LTEL or its Subsidiaries, have received all authorizations or permissions
of the FCC and state public service or utilities commissions (the "State
Commissions") in the states in which LTEL and its Subsidiaries operate
their business as are necessary and appropriate for them to own or operate
their business and their respective assets, properties and rights. Section
4.10 of the Disclosure Schedule sets forth a true, correct and complete
list of the authorizations, registrations and permits received from the FCC
and the State Commissions (collectively the "LTEL Authorizations"). All
LTEL Authorizations are valid and in full force and effect, exclusively
held by LTEL or one of its Subsidiaries, free and clear of any legal
disqualifications, conditions or other restrictions. There is not pending
or, to the Knowledge of LTEL, its officers and directors, or the Sellers,
threatened against LTEL or any of its Subsidiaries and, to the Knowledge of
LTEL, its officers and directors and Sellers, there is not pending or
threatened against LTEL or any of its Subsidiaries, any application,
action, petition, objection or other pleading, or any proceeding, with the
FCC or any State Commission or any other Governmental Authority that
challenges, questions or contests the validity of, or any right, title and
interest of the holder under, or nonrenewal, termination, revocation,
forfeiture or suspension of, any LTEL Authorization. None of LTEL or any of
its Subsidiaries is in default or has received any notice of any claim of
default, with respect to any LTEL Authorization. Each of LTEL and its
Subsidiaries has complied in all respects with, and is not in violation of,
any requirement of law to which the LTEL Authorizations are subject,
including, without limitation, rules, regulations or orders of the FCC and
any applicable State Commission. None of LTEL or its Subsidiaries has
failed to adhere to the requirements, terms, conditions or restrictions of
any license, permit or authorization necessary to the ownership of the LTEL
Authorizations. Each of LTEL and its Subsidiaries has fully and timely paid
and is current in all respects all local, state and federal fees, charges
and assessments relating to their business and the LTEL Authorizations.
Except as otherwise governed by any applicable requirement of law, all of
the LTEL Authorizations that are material to LTEL or any of its
Subsidiaries are renewable by their terms without the need to comply with
any special qualification procedures.
(c) Each of the LTEL and its Subsidiaries are currently, and have been
at all times with respect to the operation of their business, in material
compliance with all applicable rules and regulations of the FCC and the
State Commissions.
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SECTION 4.11 Tax Matters.
(a) Each of LTEL and its Subsidiaries has filed all Income Tax Returns
that it was required to file. All such Income Tax Returns were correct and
complete in all material respects when filed. All Income Taxes owed by any
of LTEL and its Subsidiaries (whether or not shown on any Income Tax
Return) have been paid. None of LTEL and its Subsidiaries currently is the
beneficiary of any extension of time within which to file any Income Tax
Return.
(b) There is no material dispute or claim concerning any Income Tax
liability of any of LTEL and its Subsidiaries either (A) claimed or raised
by any authority in writing or (B) as to which any of the Sellers and the
directors and officers of LTEL and its Subsidiaries has Knowledge based
upon personal contact with any agent of such authority.
(c) Section 4.11 of the Disclosure Schedule lists all federal, state,
local, and foreign Income Tax Returns filed with respect to any of LTEL and
its Subsidiaries for taxable periods ended on or after January 1, 1998,
indicates those Income Tax Returns that have been audited, and indicates
those Income Tax Returns that currently are the subject of audit. The
Sellers have delivered to Buyer correct and complete copies of all federal
Income Tax Returns, examination reports, and statements of deficiencies
assessed against, or agreed to by any of LTEL and its Subsidiaries since
January 1, 1998. None of LTEL and its Subsidiaries has waived any statute
of limitations in respect of Income Taxes or agreed to any extension of
time with respect to an Income Tax assessment or deficiency.
(d) None of LTEL and its Subsidiaries has filed a consent under Code
341(f) concerning collapsible corporations. None of LTEL and its
Subsidiaries has made any material payments, is obligated to make any
material payments, or is a party to any agreement that under certain
circumstances could obligate it to make any material payments that will not
be deductible under Code Section 280G. None of LTEL and its Subsidiaries
has been a United States real property holding corporation within the
meaning of Code Section 897(c)(2) during the applicable period specified in
Code Section 897(c)(1)(A)(ii). None of LTEL and its Subsidiaries is a party
to any Tax allocation or sharing agreement. None of LTEL and its
Subsidiaries (A) has been a member of an Affiliated Group filing a
consolidated federal Income Tax Return (other than a group the common
parent of which was LTEL) or (B) has any liability for the Taxes of any
Person (other than any of LTEL and its Subsidiaries) under Reg. 1.1502-6
(or any similar provision of state, local, or foreign law), as a transferee
or successor, by contract, or otherwise.
(e) The unpaid Income Taxes of LTEL and its Subsidiaries (A) did not,
as of the Most Recent Fiscal Month End, exceed by any material amount the
reserve for Income Tax liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax
income) set forth on the face of the Most Recent Balance Sheet (rather than
in any notes thereto) and (B) will not exceed by any material amount that
reserve as adjusted for operations and transactions through the Closing
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Date in accordance with the past custom and practice of LTEL and its
Subsidiaries in filing their Income Tax Returns.
SECTION 4.12 Intellectual Property.
(a) None of LTEL and its Subsidiaries has interfered with, infringed
upon, misappropriated, or violated any material Intellectual Property
rights of third parties in any material respect, and none of the Sellers
and the directors and officers of LTEL and its Subsidiaries has ever
received any charge, complaint, claim, demand, or notice alleging any such
interference, infringement, misappropriation, or violation (including any
claim that any of LTEL and its Subsidiaries must license or refrain from
using any Intellectual Property rights of any third party). To the
Knowledge of any of the Sellers and the directors and officers of LTEL and
its Subsidiaries, no third party has interfered with, infringed upon,
misappropriated, or violated any material Intellectual Property rights of
any of LTEL and its Subsidiaries in any material respect.
(b) Section 4.12 of the Disclosure Schedule identifies each patent or
patent registration which has been issued to any of LTEL and its
Subsidiaries with respect to any of its Intellectual Property, identifies
each pending patent application or application for patent registration
which any of LTEL and its Subsidiaries has made with respect to any of its
Intellectual Property, and identifies each material license, agreement, or
other permission which any of LTEL and its Subsidiaries has granted to any
third party with respect to any of its Intellectual Property (together with
any exceptions). The Sellers have delivered to Buyer correct and complete
copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date). Section 4.12 of the
Disclosure Schedule also identifies each material trade name or
unregistered trademark used by any of LTEL and its Subsidiaries in
connection with any of its businesses, and any web-site URL or other
addresses used in connection with the business of LTEL or its Subsidiaries.
With respect to each item of Intellectual Property required to be
identified in Section 4.12 of the Disclosure Schedule:
(i) LTEL and its Subsidiaries possess all right, title, and
interest in and to the item, free and clear of any Security Interest,
license, or other restriction;
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending or, to the Knowledge of
any of the Sellers and the directors and officers of LTEL and its
Subsidiaries, is threatened which challenges the legality, validity,
enforceability, use, or ownership of the item; and
(iv) none of LTEL and its Subsidiaries has ever agreed to
indemnify any Person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
20
(c) Section 4.12 of the Disclosure Schedule identifies each material
item of Intellectual Property that any third party owns and that any of
LTEL and its Subsidiaries uses pursuant to license, sublicense, agreement,
or permission. The Sellers have delivered to Buyer correct and complete
copies of all such licenses, sublicenses, agreements, and permissions (as
amended to date). With respect to each item of Intellectual Property
required to be identified in Section 4.12 of the Disclosure Schedule:
(i) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect in all material respects;
(ii) no party to the license, sublicense, agreement, or
permission is in material breach or default, and no event has occurred
which with notice or lapse of time would constitute a material breach
or default or permit termination, modification, or acceleration
thereunder;
(iii) no party to the license, sublicense, agreement, or
permission has repudiated any material provision thereof; and
(iv) none of LTEL and its Subsidiaries has granted any sublicense
or similar right with respect to the license, sublicense, agreement,
or permission.
SECTION 4.13 Assets.
(a) Section 4.13 of the Disclosure Schedule contains a true, correct
and complete listing of substantially all of the assets of LTEL and each of
its Subsidiaries (the "Assets"), including without limitation office
equipment, furniture, vehicles, leasehold improvements, personal computers
and other information technology equipment and peripherals, copy machines,
facsimile machines, scanners and telecommunications (voice or data)
equipment and peripherals. Such asset listing included as part of Section
4.12 of the Disclosure Schedule may omit certain Assets that are
immaterial, individually and in the aggregate. Section 4.13 of the
Disclosure Schedule specifies whether LTEL or which of its Subsidiaries
owns, leases, licenses or otherwise uses the asset listed thereon, the
nature of the Asset, the current acquired value, accumulated depreciation
and book value, whether the Asset is owned, leased, licensed or used, and
with respect to leased and licensed Assets, the identity of the lessor or
licensor. Except as disclosed on Section 4.13 of the Disclosure Schedule,
there are no material assets, properties or rights located on or situated
on the premises of LTEL or any of its Subsidiaries other than the Assets.
(b) Each of LTEL or any of its Subsidiaries purporting to own, lease
or license any Asset has good, valid and marketable title to, or a valid
leasehold interest or license in, such Asset, free and clear of all Liens,
except for Permitted Liens and Liens disclosed on Section 4.13 of the
Disclosure Schedule. No Person other than LTEL or an LTEL Subsidiary
identified as the owner on Section 4.13 of the Disclosure Schedule owns any
interest in any Asset, except with respect to the leased or licensed Assets
disclosed on Section 4.13 of the Disclosure Schedule, and all Assets are or
at the Closing will be in the possession and subject to the control of LTEL
or one of its Subsidiaries.
21
(c) All Assets, including without limitation all buildings, structures,
facilities, and equipment, are in good operating condition and repair,
subject to normal wear and maintenance, are useable in the Ordinary
Course of Business of LTEL and its Subsidiaries consistent with past
practice and are fit for their intended purpose, and conform in all
material respects to all applicable requirements of law relating to
their construction, use and operation. There are no facts or conditions
affecting the Assets which could, individually or in the aggregate,
interfere in any material respect with the use, occupancy or operation
thereof as currently used, occupied or operated, or their adequacy for
such use.
(d) Except as set forth in Section 4.13 of the Disclosure Schedule, neither
any Seller nor any of LTEL's or its Subsidiaries Affiliates has any
license, lease, options or ownership interests in, or other right to
use, any of the Assets.
SECTION 4.14 Sufficiency of Assets and Real Property.
Except as disclosed on Section 4.14 of the Disclosure Schedule, the
Assets, the real property owned or leased by LTEL and its Subsidiaries, the
Intellectual Property, the contracts set forth on Section 4.15 of the Disclosure
Schedule, and the LTEL Authorizations comprise all the rights, assets and
properties used primarily in the operation of the business of LTEL and its
Subsidiaries in the manner conducted by LTEL and its Subsidiaries during the
twelve month period preceding the date of this Agreement.
SECTION 4.15 Contracts.
Section 4.15 of the Disclosure Schedule lists the following contracts
and other agreements to which any of LTEL and its Subsidiaries is a party:
(a) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $25,000 per annum;
(b) any agreement (or group of related agreements) for the purchase or
sale of raw materials, commodities, supplies, products, or other personal
property, or for the furnishing or receipt of services, the performance of
which will extend over a period of more than one year or involve
consideration in excess of $25,000;
(c) any agreement concerning a partnership or joint venture;
(d) any agreement (or group of related agreements) under which it has
created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $25,000 or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(e) any material agreement concerning confidentiality or
noncompetition;
(f) any material agreement with any of the Sellers and their
Affiliates (other than LTEL and its Subsidiaries);
22
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a full-time,
part-time, consulting, or other basis providing annual compensation in
excess of $75,000 or providing any severance benefits;
(j) any agreement under which it has advanced or loaned any amount to
any of its directors, officers, and employees outside the Ordinary Course
of Business;
(k) any agreement under which the consequences of a default or
termination could have a Material Adverse Effect on LTEL and its
Subsidiaries; or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $75,000.
The Sellers have delivered to Buyer a correct and complete copy of each written
agreement listed in Section 4.15 of the Disclosure Schedule (as amended to date)
and a written summary setting forth the material terms and conditions of each
oral agreement referred to in Section 4.15 of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect in all material respects; (B) no party
is in material breach or default, and no event has occurred which with notice or
lapse of time would constitute a material breach or default, or permit
termination, modification, or acceleration, under the agreement; and (C) no
party has repudiated any material provision of the agreement.
SECTION 4.16 Notes and Accounts Receivable.
All notes and accounts receivable of LTEL and its Subsidiaries are
reflected properly on their books and records, are valid receivables subject to
no setoffs or counterclaims, are current and collectible, and will be collected
in accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for operations and transactions
through the Closing Date in accordance with the past custom and practice of LTEL
and its Subsidiaries.
SECTION 4.17 Powers of Attorney.
To the Knowledge of any of the Sellers and the directors and officers
of LTEL and its Subsidiaries, there are no material outstanding powers of
attorney executed on behalf of any of LTEL and its Subsidiaries.
SECTION 4.18 Insurance.
Section 4.18 of the Disclosure Schedule sets forth the following
information with respect to each material insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
23
bond and surety arrangements) with respect to which any of LTEL and its
Subsidiaries is a party, a named insured, or otherwise the beneficiary of
coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage is on a
claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(e) a description of any retroactive premium adjustments or other
material loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal,
valid, binding, enforceable, and in full force and effect in all material
respects; (B) neither any of LTEL and its Subsidiaries nor any other party to
the policy is in material breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such a material breach or
default, or permit termination, modification, or acceleration, under the policy;
and (C) no party to the policy has repudiated any material provision thereof.
Section 4.18 of the Disclosure Schedule describes any material self-insurance
arrangements affecting any of LTEL and its Subsidiaries.
SECTION 4.19 Litigation.
Section 4.19 of the Disclosure Schedule sets forth each instance in
which any of LTEL and its Subsidiaries (i) is subject to any outstanding
injunction, judgment, order, decree, ruling, or charge or (ii) is a party or, to
the Knowledge of any of the Sellers and the directors and officers of LTEL and
its Subsidiaries, is threatened to be made a party to any action, suit,
proceeding, hearing, or investigation of, in, or before any court or
quasi-judicial or administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator.
SECTION 4.20 Books and Records.
The books of account, minute books and other records of LTEL and its
Subsidiaries, all of which have been made available in their entirety to Fonix,
are complete and correct and have been maintained in accordance with sound
business practices, including the maintenance of an adequate system of internal
controls. The minute books of LTEL and its Subsidiaries contain accurate and
complete records of all meetings held of, and corporate action taken by the
stockholders, the Board of Directors of LTEL and its Subsidiaries and any
committee thereof, and no meeting of any such stockholders, Board of Directors
or committee thereof has been held for which minutes have not been prepared and
are not contained in such minute books.
24
SECTION 4.21 Agreements with Regulatory Agencies.
Neither LTEL nor any of its Subsidiaries is subject to any
cease-and-desist or other order issued by, or is a party to any written
agreement, consent agreement or memorandum of understanding, commitment letter,
suspension order, or similar undertaking (each a "Regulatory Agreement") with
any regulatory agency or any other governmental entity that restricts the
conduct of its business in any material respect, nor have LTEL or any of its
Subsidiaries been notified by any regulatory agency or any other governmental
entity that it is considering issuing or requesting any Regulatory Agreement.
SECTION 4.22 Regulatory Approvals.
Section Schedule 4.22 of the Disclosure Schedule sets forth all
telecommunications approvals and other material regulatory approvals which must
be obtained by Fonix, LTEL or any of its Subsidiaries to enable Fonix to
purchase the LTEL Shares and continue the operations of LTEL and its
Subsidiaries on and after the Closing Date (the "Regulatory Approvals").
SECTION 4.23 Employees.
To the Knowledge of any of the Sellers and the directors and officers
of LTEL and its Subsidiaries, no executive, key employee, or significant group
of employees plans to terminate employment with any of LTEL and its Subsidiaries
during the next twelve (12) months. Section 4.23 of the Disclosure Schedule sets
forth the names of all directors and officers of LTEL and its Subsidiaries, the
total salary, bonus, fringe benefits and perquisites each received from LTEL or
its Subsidiaries in the period ended September 30, 2003, and there have been no
changes to the foregoing which have occurred subsequent to September 30, 2003,
other than changes in the Ordinary Course of Business consistent with past
practice. Except as disclosed in Section 4.23 of the Disclosure Schedule, there
are no other forms of compensation paid to any such director or officer of LTEL
or its Subsidiaries. Except as set forth in Section 4.23 of the Disclosure
Schedule, neither LTEL nor any of its Subsidiaries has become obligated,
directly or indirectly, to any stockholder, director or officer of LTEL or its
Subsidiaries or any person related to such person by blood or marriage, except
for current liability for such compensation. Except as set forth in Section 4.23
to the Disclosure Schedule, to the Knowledge of the Sellers and the directors
and officers of LTEL, no stockholder, director, officer, agent or employee of
LTEL or its Subsidiaries or any person related to such person by blood or
marriage holds any position or office with or has any material financial
interest, direct or indirect, in any supplier, customer or account of, or other
outside business which has material transactions with, LTEL or its Subsidiaries.
None of LTEL and its Subsidiaries is a party to or bound by any collective
bargaining agreement, nor has any of them experienced any strike or material
grievance, claim of unfair labor practices, or other collective bargaining
dispute within the past three years. None of LTEL and its Subsidiaries has
committed any material unfair labor practice. None of the Sellers and the
directors and officers of LTEL and its Subsidiaries has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of any of LTEL and its Subsidiaries.
25
SECTION 4.24 Employee Benefits.
(a) Section 4.24 of the Disclosure Schedule lists each Employee
Benefit Plan that any of LTEL and its Subsidiaries maintains or to which
any of LTEL and its Subsidiaries contributes or has any obligation to
contribute.
(i) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(ii) All required reports and descriptions (including Form 5500
Annual Reports, summary annual reports, PBGC-l's, and summary plan
descriptions) have been timely filed and distributed appropriately
with respect to each such Employee Benefit Plan. The requirements of
COBRA have been met in all material respects with respect to each such
Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(iii) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of LTEL and its Subsidiaries. All premiums or
other payments for all periods ending on or before the Closing Date
have been paid with respect to each such Employee Benefit Plan which
is an Employee Welfare Benefit Plan.
(iv) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
Section 401(a), has received, within the last two years, a favorable
determination letter from the Internal Revenue Service that it is a
"qualified plan," and Seller is not aware of any facts or
circumstances that could result in the revocation of such
determination letter.
(v) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
(vi) The Sellers have delivered to Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related
trust agreements, insurance contracts, and other funding agreements
which implement each such Employee Benefit Plan.
26
(b) With respect to each Employee Benefit Plan that any of LTEL, its
Subsidiaries, and any ERISA Affiliate maintains or ever has maintained or
to which any of them contributes, ever has contributed, or ever has been
required to contribute:
(i) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or, to
the Knowledge of any of the Sellers and the directors and officers of
LTEL and its Subsidiaries, threatened.
(ii) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any liability for
material breach of fiduciary duty or any other material failure to act
or comply in connection with the administration or investment of the
assets of any such Employee Benefit Plan. No action, suit, proceeding,
hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than
routine claims for benefits) is pending or, to the Knowledge of any of
the Sellers and the directors and officers of LTEL and its
Subsidiaries, threatened.
(iii) None of LTEL and its Subsidiaries has incurred any material
liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether
liquidated or unliquidated, and whether due or to become due) to the
PBGC (other than PBGC premium payments) or otherwise under Title IV of
ERISA (including any withdrawal liability as defined in ERISA Section
4201) or under the Code with respect to any such Employee Benefit Plan
which is an Employee Pension Benefit Plan.
(c) None of LTEL, its Subsidiaries, and the other members of the
Controlled Group that includes LTEL and its Subsidiaries contributes
to, ever has contributed to, or ever has been required to contribute
to any Multiemployer Plan or has any material liability (whether known
or unknown, whether asserted or unasserted, whether absolute or
contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due), including any
withdrawal liability (as defined in ERISA Section 4201), under any
Multiemployer Plan.
(d) None of LTEL and its Subsidiaries maintains or ever has
maintained or contributes, ever has contributed, or ever has been
required to contribute to any Employee Welfare Benefit Plan providing
medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or
their dependents (other than in accordance with COBRA).
27
SECTION 4.25 Guaranties.
None of LTEL and its Subsidiaries is a guarantor or otherwise is
responsible for any liability or obligation (including indebtedness) of any
other Person.
SECTION 4.26 Environment, Health, and Safety Matters.
(a) To Sellers' Knowledge, each of LTEL, its Subsidiaries, and
their respective predecessors and Affiliates has complied and is in
compliance, in each case in all material respects, with all
Environmental, Health, and Safety Requirements.
(b) Without limiting the generality of the foregoing, each of
LTEL, its Subsidiaries, and their respective Affiliates, has obtained,
has complied, and is in compliance with, in each case in all material
respects, all material permits, licenses and other authorizations that
are required pursuant to Environmental, Health, and Safety
Requirements for the occupation of its facilities and the operation of
its business; a list of all such material permits, licenses and other
authorizations is set forth on Section 4.26 of the Disclosure
Schedule.
(c) None of LTEL, its Subsidiaries, or their respective
Affiliates has received any written or oral notice, report or other
information regarding any actual or alleged material violation of
Environmental, Health, and Safety Requirements, or any material
liabilities or potential material liabilities (whether accrued,
absolute, contingent, unliquidated or otherwise), including any
material investigatory, remedial or corrective obligations, relating
to any of them or its facilities arising under Environmental, Health,
and Safety Requirements.
(d) Except as set forth on the attached "Environmental and Safety
Matters Schedule", none of the following exists at any property or
facility owned or operated by LTEL or its Subsidiaries: (1)
underground storage tanks, (2) asbestos-containing material in any
friable and damaged form or condition, (3) materials or equipment
containing polychlorinated biphenyls, or (4) landfills, surface
impoundments, or disposal areas.
(e) None of LTEL, its Subsidiaries, or any of their respective
predecessors or Affiliates has treated, stored, disposed of, arranged
for or permitted the disposal of, transported, handled, or released
any substance, including without limitation any hazardous substance,
or owned or operated any property or facility (and no such property or
facility is contaminated by any such substance) in a manner that has
given or would give rise to material liabilities, including any
material liability for response costs, corrective action costs,
personal injury, property damage, natural resources damages or
attorney fees, pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA") or the
Solid Waste Disposal Act, as amended ("SWDA") or any other
Environmental, Health, and Safety Requirements.
(f) Neither this Agreement nor the consummation of the
transaction that is the subject of this Agreement will result in any
material obligations for site investigation or cleanup, or
notification to or consent of government agencies or third parties,
pursuant to any of the so-called "transaction-triggered" or
28
"responsible property transfer" Environmental, Health, and Safety
Requirements.
SECTION 4.27 Certain Business Relationships With LTEL and Its Subsidiaries.
None of the Sellers and their Affiliates has been involved in any
material business arrangement or relationship with any of LTEL and its
Subsidiaries within the past twelve (12) months, and none of the Sellers and
their Affiliates owns any material asset, tangible or intangible, which is used
in the business of any of LTEL and its Subsidiaries.
SECTION 4.28 Operation of LTEL's and its Subsidiaries' Business; Relationships.
(a) Sellers and LTEL's officers and directors believe that the
relationships of LTEL and its Subsidiaries with their customers,
suppliers, distributors and value added resellers (including, without
limitation, data suppliers, Intellectual Property licensors and
product distributors) are satisfactory and that the execution of this
Agreement and the consummation of the transactions contemplated hereby
will not have a Material Adverse Effect on LTEL and its Subsidiaries.
(b) LTEL and its Subsidiaries are in possession of all
governmental franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals
and orders necessary to own, lease and operate their properties and to
carry on their business as it is now being conducted (collectively,
the "LTEL Permits") except where the failure to possess such LTEL
Permits, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on LTEL and its
Subsidiaries, and there is no action pending or, to the Knowledge of
the Sellers or the officers and directors of LTEL and its
Subsidiaries, threatened regarding any of the LTEL Permits. Neither
LTEL nor its Subsidiaries is in conflict with, or in default or
violation of any of the LTEL Permits in any material respect, except
for any such conflicts, defaults or violations which, individually or
in the aggregate, could not reasonably be expected to have a Material
Adverse Effect on LTEL and its Subsidiaries.
(c) Except as set forth in Section 4.28 of the Disclosure
Schedule, as of the date hereof, no customer which individually
accounted for more than five percent (5%) of LTEL's consolidated gross
revenues, and no supplier or vendor which accounted for more than
fifteen percent (15%) of LTEL's consolidated expenses during the
twelve (12) month period preceding the date hereof, has canceled or
otherwise terminated, or made any written threat to LTEL or its
Subsidiaries to cancel or otherwise terminate its relationship with
LTEL or it Subsidiaries or has at any time on or after December 31,
2002 decreased materially its services or supplies to LTEL or its
Subsidiaries in the case of any such supplier, or its usage of the
services or products of LTEL or its Subsidiaries in the case of such
customer, and to the Knowledge of the Sellers and the officers and
directors of LTEL, no such supplier or customer has indicated either
orally or in writing that it will cancel or otherwise terminate its
relationship with LTEL or its Subsidiaries or decrease materially its
services or supplies to LTEL or its Subsidiaries or its usage of the
services or products of LTEL or its Subsidiaries, as the case may be.
29
SECTION 4.29 Customers; Rates; Form of Agreements.
As of December 31, 2003, the aggregate number of business and
residential customers of LTEL's Subsidiaries was not fewer than the
corresponding amount disclosed for each such category of customers as set forth
on Section 4.29 of the Disclosure Schedule. Section 4.29 of the Disclosure
Schedule also sets forth a true, correct and complete (a) description of the
terms of each primary residential and business service package, with the prices
for each component of each service package offered by LTEL's Subsidiaries
January 1, 2002, and (b) a copy of each form of customer agreement used in the
business of LTEL's subsidiaries during the 24 month period preceding the date
hereof.
SECTION 4.30 Disclosure.
The representations and warranties contained in this Article IV do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements and information contained in this
Article IV not misleading.
ARTICLE V
Representations and Warranties Concerning
FONIX and Its Subsidiaries
Fonix represents and warrants to the Sellers that the statements
contained in this Article V are correct and complete as of the date of this
Agreement, except as set forth in a disclosure schedule separately delivered by
Fonix to the Sellers on the date hereof (the "Fonix Disclosure Schedule").
SECTION 5.1 Organization, Qualification, and Corporate Power.
Each of Fonix and its Subsidiaries is a corporation duly organized,
validly existing, and in good standing under the laws of the jurisdiction of its
incorporation or organization. Each of Fonix and its Subsidiaries is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required, except where the lack of such
qualification would not have a Material Adverse Effect on Fonix and its
Subsidiaries. Each of Fonix and its Subsidiaries has full corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
SECTION 5.2 Capitalization.
Fonix has authorized capital consisting of 800,000,000 shares of Class
A Common Stock, par value $.0001 per share, and 50,000,000 shares of preferred
stock, par value $.0001 per share. As of February 23, 2004, Fonix has issued and
outstanding 64,291,840 shares of Class A Common Stock, and 864,163 shares of
Class A Common Stock are subject to issuance upon the conversion or exercise of
presently issued and outstanding warrants and options of Fonix. Fonix has issued
166,667 shares of Series A Preferred Stock, and 166,667 shares of Series A
Preferred Stock are outstanding, which shares are convertible into 4,167 shares
of Class A Common Stock.
30
SECTION 5.3 SEC Documents; Financial Statements.
Fonix has furnished or otherwise made available to the Sellers a true
and complete copy of each statement, report, registration statement, definitive
proxy statement, and other filing filed with the SEC by Fonix since December 31,
2002, and, prior to the Closing, Fonix will have furnished or otherwise made
available to the Sellers with true and correct copies of any additional
documents filed with the SEC by Fonix prior to the Closing (collectively, the
"Fonix SEC Documents"). In addition, Fonix has made available to the Sellers all
material exhibits to the Fonix SEC Documents filed prior to the date hereof and
will promptly make available upon request therefor to the Sellers all material
exhibits to any additional Fonix SEC Documents filed prior to the Closing. All
documents required to be filed as exhibits to the Fonix SEC Documents have been
so filed, and all material contracts so filed as exhibits are in full force and
effect except those which have expired in accordance with their terms, and
neither Fonix nor any of its subsidiaries is in default thereunder. As of their
respective filing dates, the Fonix SEC Documents complied in all material
respects with the requirements of the Exchange Act, and the Securities Act and
none of the Fonix SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading, except to the extent corrected by a
subsequently filed Fonix SEC Document prior to the date hereof. The financial
statements of Fonix, including the notes thereto, included in the Fonix SEC
Documents (the "Fonix Financial Statements"), complied as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto as of their respective
dates, and have been prepared in accordance with GAAP applied on a basis
consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Fonix Financial Statements fairly present the consolidated
financial condition and operating results of Fonix and its Subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There has been
no material change in Fonix's accounting policies except as described in the
notes to the Fonix Financial Statements. Since December 31, 2002, no event has
occurred that would have required the filing of any report that otherwise would
have been included among the SEC Documents and for which an appropriate report
was not filed.
SECTION 5.4 Absence of Certain Changes.
Except as set forth on Section 5.4 of the Fonix Disclosure Schedule,
and except as contemplated by this Agreement, since September 30, 2003 (the
"Fonix Balance Sheet Date"), except as described in the Fonix SEC Documents,
Fonix has conducted its business in the Ordinary Course of Business consistent
with past practice and there has not occurred: (i) any change, event or
condition (whether or not covered by insurance) that has resulted in, or might
reasonably be expected to result in, a Material Adverse Effect on Fonix; (ii)
any acquisition, sale or transfer of any material asset of Fonix or any of its
subsidiaries other than in the Ordinary Course of Business and consistent with
past practice; (iii) any material change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
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Fonix or any revaluation by Fonix of any of its assets; (iv) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Fonix, or any direct or indirect redemption, purchase or other
acquisition by Fonix of any of its shares of capital stock; (v) any amendment or
change to Fonix's Certificate of Incorporation or Bylaws; or (vi) any
negotiation or agreement by Fonix or any of its subsidiaries to do any of the
things described in the preceding clauses (i) through (v) (other than
negotiations with the Sellers and their representatives regarding the
transactions contemplated by this Agreement).
SECTION 5.5 Absence of Undisclosed Liabilities.
Fonix has no material obligations or liabilities of any nature (matured
or unmatured, fixed or contingent) other than (i) those set forth or adequately
provided for in the Balance Sheet included in Fonix's Quarterly Report on Form
10-Q for the period ended September 30, 2003 (the "Fonix Balance Sheet"), (ii)
those incurred in the Ordinary Course of Business and not required to be set
forth in the Fonix Balance Sheet under GAAP, and (iii) those incurred in the
Ordinary Course of Business since the Fonix Balance Sheet Date and consistent
with past practice.
SECTION 5.6 Litigation.
Except as described in the Fonix SEC Documents, there is no private or
governmental action, suit, proceeding, claim, arbitration or investigation
pending before any agency, court or tribunal, foreign or domestic, or, to the
knowledge of Fonix or any of its Subsidiaries, threatened against Fonix or any
of its Subsidiaries or any of their respective properties or any of their
respective officers or directors (in their capacities as such) that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Fonix or its Subsidiaries or their respective
operations or financial condition. There is no judgment, decree or order against
Fonix or any of its Subsidiaries or, to the Knowledge of Fonix or any of its
Subsidiaries, any of their respective directors or officers (in their capacities
as such) that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Fonix or its Subsidiaries.
SECTION 5.7 Governmental Authorization.
Fonix and each of its Subsidiaries have obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or other
authorization of a governmental entity (i) pursuant to which Fonix or any of its
Subsidiaries currently operates or holds any interest in any of its properties
or (ii) that is required for the operation of Fonix's or any of its
Subsidiaries' business or the holding of any such interest ((i) and (ii) herein
collectively called "Fonix Authorizations"), and all of such Fonix
Authorizations are in full force and effect, except where the failure to obtain
or have any of such Fonix Authorizations could not reasonably be expected to
have a Material Adverse Effect on Fonix or its Subsidiaries.
SECTION 5.8 Disclosure.
The representations and warranties contained in this Article V do not
contain any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements and information contained in this
Article V not misleading. The Confidential Private Placement Memorandum will not
32
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; provided, however,
that Fonix makes no representation or warranty with respect to any information
that LTEL will supply specifically for use in the Offering Memorandum.
ARTICLE VI .
CONDITIONS PRECEDENT TO THE CLOSING
SECTION 6.1 Conditions to Fonix's and Buyer's Obligation to Close
(a) Regulatory Consents and Approvals. LTEL, its Subsidiaries and
Fonix shall have filed (and where applicable received favorable action in
response to) all necessary applications and notices (which applications and
notices will comply in all material respects with all requirements of
applicable law, including, without limitation, the regulations and orders
of the FCC) with the FCC and the State Commissions to obtain the Regulatory
Approvals.
(b) Accuracy of Representations and Warranties. The representations
and warranties of LTEL, XxXxxxxxx and the Sellers set forth in this
Agreement are true and correct in all material respects on and as of the
Closing Date.
(c) Employment Agreements. LTEL or its Subsidiaries shall have made
such arrangements for employment and compensation (including arrangements
for non-competition and non-solicitation covenants) with each of W. Xxxx
Xxxxx, Xxxxx X. Xxxxxx, and Xxxxxxx Xxxxx and such other employees of LTEL
or its Subsidiaries, all as Fonix deems satisfactory in Fonix's sole
discretion.
(d) Good Standing Certificates. LTEL shall have delivered on the
Closing Date good standing certificates of each of LTEL and its
Subsidiaries from the Secretary of State (or comparable authority) of the
state of their formation and any other jurisdiction where LTEL or any of
its Subsidiaries is required to be qualified to do business, obtained at
the expense of LTEL, dated within five (5) days of the Closing.
(e) Secretary's Certificate. A certificate, dated the Closing Date and
delivered on the Closing Date, executed by the Secretary of LTEL, which
shall (i) attach a certified copy of the resolutions of the board of
directors of LTEL authorizing and approving this Agreement and the
consummation of the transactions contemplated by this Agreement; (ii)
identify by name and title and bear the signature of its officer authorized
to execute this Agreement or any other agreement or instrument to be
executed by LTEL in connection with the Closing; and (iii) attach (x) a
certified copy of the certificates or articles or incorporation, or the
certificate of organization or formation, as the case may be, of each of
LTEL and its Subsidiaries, including all amendments, certified by the
relevant Secretary of State (or comparable authority) of the state of
incorporation or organization of each of LTEL and its Subsidiaries.
(f) Surrender and Issuance of Certificates. The Sellers shall have
delivered to Buyer original certificates representing LTEL Shares, or
affidavits of lost instrument in the form attached as Exhibit G, endorsed
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for transfer or with duly executed stock powers, together with such other
documents and instruments, if any, as may be necessary to permit Buyer to
acquire the LTEL Shares, free and clear of any and all Security Interests
or voting or other restrictions of any kind whatsoever adverse to Buyer.
(g) Officer's Certificate. The Seller Representative and the Chief
Executive Officer of LTEL and its Subsidiaries shall have delivered to
Buyer a certificate, dated the Closing Date, stating that (i) all
representations and warranties made herein by LTEL and the Sellers are true
and accurate as of the Closing Date, (ii) as of the Closing Date, the
assets of LTEL and its Subsidiaries shall be free of any Security Interests
or other Liens or encumbrances except for Permitted Liens and as set forth
on the Disclosure Schedule, (iii) as of December 31, 2003, LTEL did not
have consolidated liabilities in excess of $8,850,000, and (iv) for the
year ended December 31, 2003, LTEL's consolidated gross revenue was at
least $15,800,000.
(h) Opinion of Counsel. Buyer shall have received the opinion of
Xxxxxxx & Xxxxxx, LLP, counsel to the Sellers, dated the Closing Date,
substantially in the form and to the effect of Exhibit I hereto.
(i) Board Resignations. Buyer shall have received the written
resignations, effective as of the Closing, of the members of the Board of
Directors of LTEL.
(j) Acquisition of All LTEL Capital Stock. The holders of one hundred
percent (100%) of LTEL's Series B Preferred Stock, and one hundred percent
(100%)of LTEL's common stock shall have executed and delivered this
Agreement.
(k) Escrow Agreement. The execution and delivery by the Escrow Agent,
XxXxxxxxx and Fonix of the Escrow Agreement in the form attached as Exhibit
J.
(l) Third Party Consents. Fonix, the Sellers and/or LTEL and its
Subsidiaries shall have received any consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to
which any of them is a party, or by which any of their properties or assets
is bound, that is required for the execution, delivery, or performance by
such party of this Agreement.
(m) Operations in Ordinary Course. From and after September 30, 2003,
and through the Closing Date, the operations and business of LTEL and its
Subsidiaries shall have been conducted in the Ordinary Course of Business.
SECTION 6.2 Conditions of the Sellers' Obligations to Close
(a) Good Standing Certificates. Fonix and Buyer shall have delivered
to the Sellers a certified copy of the certificates or articles or
incorporation, or the certificate of organization or formation, as the case
may be, of each of Fonix and Buyer, including all amendments, certified by
the relevant Secretary of State (or comparable authority) of the state of
incorporation or organization of each of Fonix and Buyer.
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(b) Officer's Certificate. The Chief Executive Officer of Fonix and
Buyer shall have delivered to the Sellers a certificate, dated the Closing
Date, stating that all representations and warranties made herein by Fonix
and Buyer are true and accurate as of the Closing Date.
(c) Opinions of Counsel. The Sellers shall have received the opinion
of Durham Xxxxx & Xxxxxxx, P.C., counsel to Fonix and Buyer, dated the
Closing Date, substantially in the form and to the effect of Exhibit K
hereto.
SECTION 6.3 Conditions to All Parties' Obligations to Close
(a) No Injunctions or Restraints; Illegality. No action, suit or
proceeding before any court of competent jurisdiction or any governmental
entity shall have been commenced or, to the actual knowledge of the
parties, threatened, and no investigation by any governmental entity shall
have been commenced or, to the actual knowledge of the parties, threatened,
against Fonix, Buyer, LTEL or any of its Subsidiaries, McCormack, Sellers,
or any of their respective Affiliates, (i) seeking to restrain, prohibit or
enjoin the consummation of the transactions contemplated hereby or to
change any of the terms thereof, (ii) challenging the validity, legality or
enforceability of, or seeking damages of at least $250,000 in respect of,
the transactions contemplated hereby or any transactions by which LTEL or
its predecessor(s) in interest acquired any of its assets, (iii) seeking to
encumber or restrict any of LTEL's or its Subsidiaries' assets or to in any
way limit the conduct of LTEL's and its Subsidiaries' business or
operations in the Ordinary Course of Business, or (iv) otherwise that would
have, if successful, any Material Adverse Effect on LTEL or its
Subsidiaries or on Buyer's ability to operate the business of LTEL or its
Subsidiaries after the Closing in the Ordinary Course of Business. No
temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal or
regulatory body of competent jurisdiction granting any of the relief
described in clauses (i) through (iv) above shall have been entered or
ordered and remain effective as of the Closing, and no other restraint or
prohibition preventing the consummation of the transactions contemplated by
this Agreement shall be and remain in effect, nor shall any proceeding or
investigation brought by any administrative agency or commission or other
Governmental Authority or instrumentality, domestic or foreign, seeking any
of the foregoing be pending, which would which would be reasonably likely,
based on information available to the Parties, as of the Closing Date, to
have a Material Adverse Effect on either Fonix, Buyer or LTEL or its
Subsidiaries after the Closing or on the ability of the Parties to
consummate the transactions contemplated by this Agreement, nor shall there
be any action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to this Agreement, which makes the
consummation of the transactions contemplated by this Agreement illegal.
(b) No Material Adverse Effect. Since September 30, 2003, no Material
Adverse Effect as to LTEL or any of its Subsidiaries or Fonix or any of its
Subsidiaries shall have occurred, except to the extent disclosed to the
other Parties.
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ARTICLE VII.
Post-Closing Covenants
The Parties agree as follows with respect to the period
following the Closing.
SECTION 7.1 General.
In case at any time after the Closing any further action is necessary
to carry out the purposes of this Agreement, each of the Parties will take such
further action (including the execution and delivery of such further instruments
and documents) as any other Party reasonably may request, all at the sole cost
and expense of the requesting Party (unless the requesting Party is entitled to
indemnification therefor under Article VIII below). The Sellers acknowledge and
agree that from and after the Closing, Buyer will be entitled to possession of
all documents, books, records (including Tax records), agreements, and financial
data of any sort relating to LTEL and its Subsidiaries.
SECTION 7.2 Litigation Support.
In the event and for so long as any Party actively is contesting or
defending against any action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand in connection with (i) any transaction contemplated
under this Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving any of
LTEL and its Subsidiaries, each of the other Parties will cooperate with him or
it and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Article VIII
below).
SECTION 7.3 Transition.
None of the Sellers will take any action that is designed or intended
to have the effect of discouraging any lessor, licensor, customer, supplier, or
other business associate of any of LTEL and its Subsidiaries from maintaining
the same business relationships with LTEL and its Subsidiaries after the Closing
as it maintained with LTEL and its Subsidiaries prior to the Closing.
SECTION 7.4 Confidentiality.
Each of the Sellers will treat and hold as such all of the Confidential
Information, refrain from using any of the Confidential Information except in
connection with this Agreement, and deliver promptly to Buyer or destroy, at the
request and option of Buyer, all tangible embodiments (and all copies) of the
Confidential Information which are in his or its possession. In the event that
any of the Sellers is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, that Seller will notify Buyer promptly of the request or
36
requirement so that Buyer may seek an appropriate protective order or waive
compliance with the provisions of this Section 7.4. If, in the absence of a
protective order or the receipt of a waiver hereunder, any of the Sellers is, on
the advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, that Seller may disclose the
Confidential Information to the tribunal; provided, however, that the disclosing
Seller shall use his or its reasonable best efforts to obtain, at the reasonable
request of Buyer, an order or other assurance that confidential treatment will
be accorded to such portion of the Confidential Information required to be
disclosed as Buyer shall designate.
SECTION 7.5 Public Announcements.
Unless otherwise permitted by this Agreement, the Parties shall consult
with each other before issuing any press release or otherwise making any public
statement or making any other public (or non-confidential) disclosure (whether
or not in response to an inquiry) regarding the terms of this Agreement and the
transactions contemplated hereby, and neither shall issue any such press release
or make any such statement or disclosure without the prior approval of the other
(which approval shall not be unreasonably withheld), except as may be required
by law or by obligations pursuant to any listing agreement with any national
securities exchange or with the Nasdaq Stock Market.
SECTION 7.6 Regulatory Approvals
To the extent that any Regulatory Approvals are not received by Fonix
or LTEL and its Subsidiaries, as the case may be, before Closing, and Fonix,
LTEL or Sellers, as the case may be agree to Close, Sellers, LTEL and Fonix
shall diligently and jointly prosecute all such applications and take all such
actions and give all such notices as may be required or requested by the FCC,
the State Commissions or other applicable governmental authorities or as may be
appropriate in an effort to expedite the grant of such consents, approvals and
authorizations by the FCC, the State Commissions or other applicable
governmental authorities.
SECTION 7.7 Post-Closing Merger.
If, after Closing, Fonix or Buyer elect to complete a merger of LTEL
with and into Buyer or Fonix, Buyer or Fonix, as the case may be, shall comply
in all materials respect with the requirements of applicable corporate law,
including without limitation, Section 262 of the Delaware General Corporation
Law.
ARTICLE VIII.
indemnification and escrow
SECTION 8.1 Survival of Representations, Warranties and Covenants.
(a) The representations and warranties contained in this Agreement
shall survive the Closing until one (1) year after the Closing Date;
provided, however, that:
37
(i) the representation and warranties contained in Sections
3.1(a), (b), (c) and (d), 3.2(a),(b), and (c), 4.1, 4.2, 4.3, 4.5,
4.6, 4.10 and 4.13(b) shall survive without limitation;
(ii) the representations and warranties contained in Sections
4.11 and 4.22 shall survive the Closing until the expiration date of
the applicable statute of limitations period;
(iii) the representations and warranties contained in Section
4.24 shall survive until the expiration of three (3) years after the
Closing Date; and
(iv) the representations and warranties contained in Section 4.26
shall survive until the expiration of four (4) years after the Closing
Date.
(b) The covenants and agreements of the parties contained in or made
in accordance with the Agreement shall survive Closing in accordance with
the terms of such covenant or agreement and shall remain operative and in
full force and effect until the expiration date of the statute of
limitations period applicable to contractual obligations.
(c) This Article VIII shall survive the Closing and shall remain in
effect indefinitely. Any claim by a party based upon breach of any
representation or warranty in this Agreement made in accordance with
Article VIII must be submitted to the breaching party prior to or at the
expiration of the applicable survival period specified in Section 8.1(a) or
such claim may not be pursued and is irrevocably waived. Notwithstanding
any investigation or audit conducted before or after the Closing Date or
the decision of any party to complete the Closing, each party shall be
entitled to rely upon the representations and warranties set forth herein.
The waiver of any condition based on the accuracy of any representation or
warranty or on the performance of or compliance with any covenant or
obligation, will not affect the right of indemnification, or any other
remedy based on such representations, warranties, covenants or obligations.
Notwithstanding anything herein to the contrary, any representation,
warranty, covenant and agreement that is the subject of a claim asserted in
writing prior to the expiration of the applicable survival period set forth
in Section 8.1(a) shall survive with respect to such claim or any dispute
with respect thereto until the final resolution thereof. No written
assertion described in the preceding sentence will extend the survival of
any claim unless the assertion describes the matters with sufficient
particularity to reasonably apprise the receiving party of the specific
subject matter of such claim.
SECTION 8.2 Indemnification.
(a) Notwithstanding any investigation of Buyer of Fonix, or their
representatives or Affiliates, and in addition to the indemnification
obligations of Sellers set forth elsewhere herein, from and after the
Closing:
(i) Each of Sellers, severally and not jointly, for and behalf of
themselves only, shall indemnify, defend and hold harmless each of
Buyer and Fonix ("Buyer Indemnified Persons"), against and in respect
38
of any and all Damages incurred or suffered by any Buyer Indemnified
Person that result from, relate to or arise out of (A) any inaccuracy
in or breach of any representation or warranty of such Seller made in
Section 3.1 hereof for the period of time specified in Section 8.1(a),
and/or (B) any transaction or event occurring prior to Closing and
related to such Seller's status as a holder of equity interests in
LTEL or its predecessors in interest as to its Subsidiaries; and
(ii) XxXxxxxxx, individually, and for and on behalf of all
Sellers, shall indemnify, defend and hold harmless the Buyer
Indemnified Persons, against and in respect of any and all Damages
incurred or suffered by any Buyer Indemnified Person that result from,
relate to or arise out of:
a) any inaccuracy in or breach of any representation or
warranty of LTEL, XxXxxxxxx or Sellers under any section or
provision of this Agreement (other than Section 3.1), the
Disclosure Schedule or any other exhibit, schedule or other
instrument made or given in connection with the execution and
delivery of this Agreement for the periods of time specified in
Section 8.1(a);
b) any material breach or nonfulfillment of any agreement or
covenant of Sellers or LTEL under this Agreement;
c) any claim of any kind against Buyer or Fonix after
Closing by or from any Seller (or any holder, actual or claimed,
of any capital stock of LTEL) related to any transaction or event
occurring prior to Closing and related to its status as a holder
of equity interests in LTEL or its predecessors in interest as to
its Subsidiaries;
d) any liability of LTEL or its Subsidiaries other than
liabilities set forth on or reserved for in the Most Recent
Balance Sheet; and
e) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments,
costs and other expenses incident to any of the foregoing or to
the enforcement of this Section 8.2(a).
(b) In addition to the indemnification obligations of Buyer and Fonix
set forth elsewhere herein, from and after the Closing, Buyer and Fonix,
jointly and severally, shall indemnify, defend and hold harmless each
Seller ("Seller Indemnified Persons"), against and in respect of any and
all Damages incurred or suffered by any Seller Indemnified Person that
result from, relate to or arise out of:
(i) any inaccuracy in or breach of any representation or warranty
of Buyer or Fonix under this Agreement, the Buyer Disclosure Schedule
or any other exhibit, schedule or other instrument made or given in
connection with the execution and delivery of this Agreement for the
periods of time specified in Section 8.1(a);
39
(ii) any material breach or nonfulfillment of any agreement or
covenant of Buyer under this Agreement;
(iii) any and all actions, suits, claims, proceedings or
investigations brought by any Third Party after the Closing that
relate to the business conducted by LTEL and its Subsidiaries to the
extent that the event giving rise thereto occurred after the Closing
or which result from or arise out of any action or inaction after the
Closing of Buyer or any of its Affiliates; and
(iv) any and all actions, suits, claims, proceedings,
investigations, demands, assessments, audits, fines, judgments, costs
and other expenses incident to any of the foregoing or to the
enforcement of this Section 8.2(b).
SECTION 8.3 Limitations on Claims for Damages.
(a) Following the Closing, claims for Damages caused by or arising out
of breach of warranty or representation under Section 8.2(a) or 8.2(b) may
be made only in accordance with this Article VIII.
(b) Anything to the contrary contained herein notwithstanding Sellers
and XxXxxxxxx shall not be liable for any Damages with respect to any
breach of warranty or representation under Section 8.2(a) unless and until
the total of all claims for indemnity or damages with respect thereto
exceeds $50,000 (the "Sellers' Deductible"), and then the Sellers or
XxXxxxxxx shall be liable for all such claims (including the Seller
Deductible).
(c) Anything to the contrary contained herein notwithstanding, Fonix
and Buyer shall not be liable for any Damages with respect to any breach of
warranty or representation under Section 8.2(b) unless and until the total
of all claims for indemnity or damages with respect thereto exceeds $50,000
(the "Buyer Deductible"), and then Fonix and Buyer shall be liable for all
such claims (including the Buyer Deductible).
(d) Any party seeking indemnification under this Article VIII shall be
required to act in good faith and in a commercially reasonable manner to
mitigate any Damages they may suffer.
(e) In no event shall either party hereto be liable for indirect,
special, consequential, punitive or exemplary damages resulting from,
relating to or arising out of a breach of or claim for indemnification
under this Agreement, even if advised at the time of breach of the
possibility of such damages, except to the extent such damages are the
subject of a Third Party Claim for which indemnification is available under
this Agreement.
(f) If, after a party or its Affiliates receive any indemnification
payment hereunder, the amount of such party's Damages to which such payment
relates is reduced by recovery, settlement or otherwise under any insurance
coverage (or other source of indemnity or reimbursement), or pursuant to
40
any claim, recovery, settlement or payment by or against any Third Party,
the amount of such reduction (less any costs, expenses, or Taxes incurred
in connection therewith) will promptly be repaid by the party receiving
such amount to the other party.
(g) Nothing in this Agreement shall limit the liability in amount or
otherwise of any Party with respect to fraud, criminal activity or
intentional breach of any covenant contained in this Agreement.
SECTION 8.4 Adjustment For Insurance and Tax Benefits.
Any indemnification payable in accordance with Section 8.2 shall be net
of any amounts actually recovered (after deducting related costs and expenses)
by the indemnitee under this Agreement (the "Indemnitee") for the Damages for
which such indemnification payment is made, under any insurance policy, warranty
or indemnity from any Third Party existing at the Closing Date, provided that no
Indemnitee shall be obligated to seek any recovery under any such insurance
policy, warranty, indemnity or any Tax benefits actually realized and recognized
by the Indemnitee in respect of any Losses for which indemnification is made.
SECTION 8.5 Payment.
(a) Upon a determination of liability by a court or adjudicatory body
of competent jurisdiction in respect of Article VIII of this Agreement, the
appropriate party shall pay the Indemnitee the amount so determined
(subject to the limitations of Section 8.3) within ten (10) Business Days
after the date of determination (such tenth Business Day, the "Due Date").
If -------- there should be a dispute as to the amount or manner of
determination of any indemnity obligation owed under this Agreement, the
indemnitor under this Agreement (the "Indemnitor") shall nevertheless pay
when due such portion, if any, of the ---------- obligation as shall not be
subject to dispute. The difference, if any, between the amount of the
obligation ultimately determined as properly payable under this Agreement
and the portion, if any, theretofore paid shall bear interest as provided
below in Section 8.5(b). Upon the payment in full of any claim, either by
setoff or otherwise, the Indemnitor or other Person making payment shall be
subrogated to the rights of the Indemnitee against any Person with respect
to the subject matter of such claim.
(b) If all or part of any indemnification obligation under this
Agreement is not paid when due, then the Indemnitor shall pay the
Indemnitee interest on the unpaid amount of the obligation for each
calendar day from the Due Date until payment in full, payable on demand, at
a rate per annum equal to eighteen percent (18%) per annum.
SECTION 8.6 Matters Involving Third Parties.
(a) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Article VIII, then the Indemnified Party
shall promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying Party from any
41
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(b) Any Indemnifying Party will have the right to assume the defense
of the Third Party Claim with counsel of his or its choice reasonably
satisfactory to the Indemnified Party at any time within fifteen (15) days
after the Indemnified Party has given notice of the Third Party Claim;
provided, however, that the Indemnifying Party must conduct the defense of
the Third Party Claim actively and diligently thereafter in order to
preserve its rights in this regard; and provided further that the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim.
(c) So long as the Indemnifying Party has assumed and is conducting
the defense of the Third Party Claim in accordance with Section 8.4 above,
(A) the Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be withheld
unreasonably) unless the judgment or proposed settlement involves only the
payment of money damages by one or more of the Indemnifying Parties and
does not impose an injunction or other equitable relief upon the
Indemnified Party and (B) the Indemnified Party will not consent to the
entry of any judgment or enter into any settlement with respect to the
Third Party Claim without the prior written consent of the Indemnifying
Party (not to be withheld unreasonably).
(d) In the event none of the Indemnifying Parties assumes and conducts
the defense of the Third Party Claim in accordance with this Section 8.6,
however, (A) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner he or it reasonably may deem appropriate
(and the Indemnified Party need not consult with, or obtain any consent
from, any Indemnifying Party in connection therewith), and (B) the
Indemnifying Parties will remain responsible for any Damages the
Indemnified Party may suffer resulting from, arising out of, relating to,
in the nature of, or caused by the Third Party Claim to the fullest extent
provided in this Article VIII.
SECTION 8.7 Escrow
(a) At the Closing, Eight Hundred (800) shares of the Series H
Preferred Stock otherwise issuable to XxXxxxxxx at Closing (the "Escrow
Shares") shall be registered in the name of, and be deposited with an
institution selected by Buyer with the reasonable consent of the Seller
Representative, as escrow agent (the "Escrow Agent"), such deposit to
constitute the escrow fund (the "Escrow Fund") and to be governed by the
terms set forth herein and in the Escrow Agreement attached hereto as
Exhibit J. The Escrow Fund shall be available to compensate Buyer and Fonix
pursuant to the indemnification obligations of the Sellers and XxXxxxxxx as
set forth in Section 8.2. The Escrow Fund shall be the initial but not the
exclusive recourse of the Buyer Indemnified Persons.
42
(b) While the Escrow Shares remain in the Escrow Agent's possession
pursuant to this Agreement, XxXxxxxxx will retain and will be able to
exercise all other incidents of ownership of said Escrow Shares which are
not inconsistent with the terms and conditions of this Agreement.
(c) The Escrow Agent shall hold the Escrow Fund (or any then remaining
portion thereof), subject to any earlier releases of any portion of the
Escrow Fund pursuant to Section 8.7(f) below, in escrow until that date
which shall be the earlier of (i) the date on which the Escrow Agent
receives instructions to terminate the escrow and distribute the Escrow
Fund signed by each of Fonix, Buyer and XxXxxxxxx, and (ii) the second
anniversary of the date of this Agreement (the "Termination Date"),
provided, however, that if such termination is pursuant to clause (ii)
above, the Escrow Agent shall continue to hold and not release after the
Termination Date all or a portion of the Escrow Fund equal in stated value
to the dollar amount of any claim or claims described in any Officer's
Certificate (as defined in Section 8.7(f) below) that is submitted but not
resolved before the Termination Date (such amount being referred to as the
"Disputed Claim Amount").
(d) Within three (3) business days after the Termination Date (the
"Release Date"), the Escrow Agent shall release from escrow to XxXxxxxxx
all or any then remaining portion of the Escrow Fund, less the Disputed
Claim Amount, if applicable. The Escrow Agent shall in all events release
all of the remaining Escrow Fund (including the Disputed Claim Amount) on
or before that date that shall be three (3) months after the Release Date
(the "Disputed Claim Release Date") unless on or prior to the Disputed
Claim Release Date, the parties to this Agreement (other than the Escrow
Agent) shall have (i) resolved any dispute by settlement and provided the
Escrow Agent with mutually executed delivery instructions with respect to
the portion of the Escrow Fund then held by the Escrow Agent, of (ii) any
party shall have commenced a legal action or arbitration to resolve such
dispute, in which case the Escrow Agent shall continue to hold any then
remaining portion of the Escrow Fund (including the Disputed Claim Amount)
until such action or arbitration is concluded.
(e) The Escrow Fund, or any beneficial interest therein, may not be
pledged, sold, assigned or transferred, including by operation of law, by
XxXxxxxxx or be taken or reached by any legal or equitable process in
satisfaction of debt or other liability of XxXxxxxxx, prior to the delivery
to XxXxxxxxx of the Escrow Fund by the Escrow Agent as provided herein.
(f) Upon receipt by the Escrow Agent on or before the Termination Date
of a certificate signed by any executive officer of Fonix or Buyer (an
"Officer's Certificate") (i) stating that with respect to the
indemnification obligations of the Sellers and XxXxxxxxx pursuant to this
Agreement, Damages exist, and (ii) specifying in reasonable detail the
individual items of such Damages included in the amount so stated, the date
each such item was paid or became payable, and the nature of the
misrepresentation, breach of warranty or covenant, or other claim to which
such item is related, the Escrow Agent shall within two (2) Business Days
deliver to XxXxxxxxx a copy of the Officer's Certificate. No earlier than
ten (10) Business Days and no later than fifteen (15) Business Days after
43
the originally delivery of the Officer's Certificate to the Escrow Agent,
the Escrow Agent shall deliver to Fonix or Buyer (as specified in the
Officer's Certificate) out of the escrow, as promptly as practicable, all
or a portion of the Escrow Fund having a value equal to the dollar amount
of such Damages, unless prior to such delivery XxXxxxxxx commences an
action to prohibit such delivery, in which case, the Escrow Agent shall
continue to hold the amount of the claim set forth in the Officer's
Certificate until such dispute is resolved. For the purpose of compensating
Fonix for its Damages, Escrow Shares shall be valued at their stated value.
(g) The Escrow Agent shall have the authority to effect any transfer
of Escrow Shares contemplated by the Escrow Agreement. Fonix will cooperate
with the Escrow Agent in promptly issuing stock certificates to effect such
transfers or replacement stock certificates for any portion of the Escrow
Fund not transferred out of the escrow.
(h) Notwithstanding anything to the contrary herein or in the Escrow
Agreement, on the first anniversary of the Closing Date, the Escrow Agent
shall release and distribute to XxXxxxxxx a total of Four Hundred (400)
Escrow Shares, provided that, as of such date, and giving effect to and
after such distribution, the Escrow Fund continues to have deposited shares
having sufficient stated value at least equal to the amounts claimed under
any Officer's Certificate submitted on or prior to such release date.
SECTION 8.8 Exclusive Remedy.
Buyer and the Sellers acknowledge and agree that the foregoing
indemnification provisions in this Article VIII shall be the exclusive remedy of
Buyer and the Sellers with respect to LTEL, its Subsidiaries, and the
transactions contemplated by this Agreement. Without limiting the generality of
the foregoing, Buyer and the Seller hereby waive any statutory, equitable, or
common law rights or remedies relating to any environmental matters, including
without limitation any such matters arising under any Environmental, Health, and
Safety Requirements and including without limitation any arising under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"). Each of the Sellers hereby agrees that he or it will not make any
claim for indemnification against any of LTEL and its Subsidiaries by reason of
the fact that he or it was a director, officer, employee, or agent of any such
entity or was serving at the request of any such entity as a partner, trustee,
director, officer, employee, or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to any
action, suit, proceeding, complaint, claim, or demand brought by Buyer against
such Seller (whether such action, suit, proceeding, complaint, claim, or demand
is pursuant to this Agreement, applicable law, or otherwise).
ARTICLE IX
Tax Matters
The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for certain Tax matters following
the Closing Date:
44
SECTION 9.1 Cooperation on Tax Matters.
(a) Buyer, LTEL and its Subsidiaries and the Sellers shall cooperate
fully, as and to the extent reasonably requested by the other party, in
connection with the filing of Tax Returns after Closing and any audit,
litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon the other party's request) the
provision of records and information which are reasonably relevant to any
such audit, litigation or other proceeding and making employees available
on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. LTEL and its Subsidiaries
and the Sellers agree (A) to retain all books and records with respect to
Tax matters pertinent to LTEL and its Subsidiaries relating to any taxable
period beginning before the Closing Date until the expiration of the
statute of limitations (and, to the extent notified by Buyer or Sellers,
any extensions thereof) of the respective taxable periods, and to abide by
all record retention agreements entered into with any taxing authority, and
(B) to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and, if
the other party so requests, LTEL and its Subsidiaries or the Sellers, as
the case may be, shall allow the other party to take possession of such
books and records.
(b) Buyer and the Sellers further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
Governmental Authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(c) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
SECTION 9.2 Certain Taxes.
All transfer, documentary, sales, use, stamp, registration and other
such Taxes and fees (including any penalties and interest) incurred in
connection with this Agreement shall be paid by the Sellers when due, and the
Sellers will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law, Buyer
will, and will cause its affiliates to, join in the execution of any such Tax
Returns and other documentation.
ARTICLE X.
Miscellaneous
SECTION 10.1 Nature of Certain Obligations.
Subject to the agreement of XxXxxxxxx to deposit shares under the
Escrow Agreement, the covenants of each of the Sellers in Article II above
concerning the exchange of his or its LTEL Shares to Buyer and the
representations and warranties of each of the Sellers in Articles III and IV
above are several obligations. The remainder of the representations, warranties,
45
and covenants in this Agreement are joint and several obligations. This means
that each Seller will be responsible to the extent provided in Article VIII
above for the entirety of any Damages Buyer may suffer as a result of any breach
thereof.
SECTION 10.2 No Third-Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns.
SECTION 10.3 Entire Agreement.
This Agreement (including the documents referred to herein) constitutes
the entire agreement among the Parties and supersedes any prior understandings,
agreements, or representations by or among the Parties, written or oral, to the
extent they related in any way to the subject matter hereof.
SECTION 10.4 Succession and Assignment.
This Agreement shall be binding upon and inure to the benefit of the
Parties named herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of his or its rights, interests,
or obligations hereunder without the prior written approval of Fonix, Buyer and
the Seller Representative; provided, however, that Buyer may (i) assign any or
all of its rights and interests hereunder to one or more of its Affiliates and
(ii) designate one or more of its Affiliates to perform its obligations
hereunder (in any or all of which cases Buyer nonetheless shall remain
responsible for the performance of all of its obligations hereunder).
SECTION 10.5 Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together will constitute one
and the same instrument.
SECTION 10.6 Headings.
The section headings contained in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or interpretation
of this Agreement.
SECTION 10.7 Notices.
All notices, requests, demands, claims, and other communications
hereunder will be in writing. Any notice, request, demand, claim, or other
communication hereunder shall be deemed duly given if (and then two Business
Days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: To the Seller Representative:
Xxxxxx Xxxxx
00 Xxxxx Xxxxxx, Xxxxx #00
00
Xxxxxxxxxx, Xxxxxxxxxxx 00000
Fax: (000) 000-0000
With a copy to: Xxxxxx X. Xxxxxxx
Xxxxxxx & Xxxxxx LLP
00 Xxxxxxxx Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Fax: (000) 000-0000
If to Buyer: LTEL Acquisition Corporation
c/o Fonix Corporation
0000 Xxxxx 000 Xxxx, Xxxxx 000
Xxxxx, Xxxx 00000
Attn.: Xxxxx X. Xxxxxx, Executive Vice President
Fax: (000) 000-0000
With a copy to: Xxxxxxx X. Xxxxx
Durham Xxxxx & Xxxxxxx
000 Xxxx Xxxxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Fax: (000) 000-0000
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
SECTION 10.8 Governing Law; Jurisdiction.
This Agreement shall be governed by and construed in accordance with
the domestic laws of the State of Delaware without giving effect to any choice
or conflict of law provision or rule (whether of the State of Delaware or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware. Each of the parties hereto hereby
submits to the exclusive jurisdiction of the state and federal courts located in
New York County, State of New York, with respect to any dispute arising under
this Agreement or the documents or instruments executed in connection with this
Agreement (except for the Escrow Agreement) or in connection herewith or the
transactions contemplated hereby or thereby.
SECTION 10.9 Amendments and Waivers.
No amendment of any provision of this Agreement shall be valid unless
the same shall be in writing and signed by Buyer and the Seller Representative.
No waiver by any Party of any default, misrepresentation, or breach of warranty
or covenant hereunder, whether intentional or not, shall be deemed to extend to
any prior or subsequent default, misrepresentation, or breach of warranty or
47
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
SECTION 10.10 Severability.
Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
SECTION 10.11 Expenses.
Each of the Parties will bear his or its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Sellers agree that none of LTEL
and its Subsidiaries has borne or will bear any of the Sellers' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
SECTION 10.12 Construction and Interpretation.
The Parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the Parties and no presumption or burden of proof shall arise favoring or
disfavoring any Party by virtue of the authorship of any of the provisions of
this Agreement. Any reference to any federal, state, local, or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word "including" shall
mean including without limitation. The term "or" is not exclusive. All schedules
and exhibits hereto or expressly identified in this Agreement are incorporated
herein by reference and taken together with this Agreement constitute a single
agreement. Unless otherwise expressly indicated, the words "herein", hereof" and
"hereunder" or other words of similar import refer to this Agreement as a whole,
and not to any particular section, subsection or clause contained in this
Agreement. Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter. All references in this Agreement or in
the schedules and exhibits to this Agreement to sections, schedules, disclosure
schedules, exhibits, and attachments shall refer to the corresponding sections,
schedules, disclosure schedules, exhibits, and attachments of or to this
Agreement. All references to any instruments or agreements, including references
to any of this Agreement, shall include any and all modifications or amendments
thereto and any and all extensions or renewals thereof.
SECTION 10.13 Incorporation of Exhibits, Annexes, and Schedules.
The Exhibits, Annexes, and Schedules identified in this Agreement are
incorporated herein by reference and made a part hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
49
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
LTEL: Buyer:
LTEL HOLDINGS CORPORATION, LTEL ACQUISITION CORPORATION,
a Delaware corporation a Delaware corporation
By: By:
-------------------------------------- ------------------------
Title: Title:
----------------------------------- ---------------------
XxXxxxxxx: Fonix:
XxXXXXXXX AVENUE, LTD. FONIX CORPORATION,
a British Virgin Islands corporation a Delaware corporation
By: By:
-------------------------------------- ------------------------
Title: Title:
----------------------------------- ---------------------
Sellers:
REFERENCE IS MADE TO THE COUNTERPART SELLER'S SIGNATURE
PAGE EXECUTED BY EACH SELLER AND MADE A PART HEREOF
EXCHANGE agreement
Counterpart signature page
SELLERS:
Name of Seller:
------------------------------------------------------------
By:
---------------------------------------------------------------
(signature)
Name:
-------------------------------------------------------------
Title:
------------------------------------------------------------
Tax I.D. or Soc. Sec. No.:
----------------------------------------
No. of Shares of LTEL Common Stock to be Sold:
No. of Shares of LTEL Series B Preferred Stock to be Sold:
EXHIBIT A
LTEL SERIES B PREFERRED STOCK
AND CLASS A COMMON STOCK HOLDERS
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
EXHIBIT C
CERTIFICATE OF DESIGNATIONS OF SERIES H PREFERRED STOCK
EXHIBIT D
NOTE
EXHIBIT E
COLLATERAL PLEDGE AGREEMENT
EXHIBIT F
SECURITY AGREEMENT
EXHIBIT G
AFFIDAVIT OF LOST INSTRUMENT
EXHIBIT H
LTEL FINANCIAL STATEMENTS
EXHIBIT I
FORM OF OPINION OF XXXXXXX & PRAGER LLP
EXHIBIT J
ESCROW AGREEMENT
EXHIBIT K
FORM OF OPINION OF DURHAM XXXXX & XXXXXXX
