PURCHASE AGREEMENT By and Among FONIX CORPORATION, and AUGUST ___, 2007
PURCHASE
AGREEMENT
By
and Among
FONIX
CORPORATION,
[_____________________________________],
[_____________________________________],
[_____________________________________],
[_____________________________________],
and
[_____________________________________]
AUGUST
___, 2007
SERIES
N
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT, dated as of August ___, 2007
(this “Agreement”), between Fonix Corporation, a
Delaware corporation (the “Company”),
_________________________________, a [__________] corporation
(“_________”),_________________________________, a
[__________] corporation
(“_________”),_________________________________, a
[__________] corporation
(“_________”),_________________________________, a
[__________] corporation (“_________”), and
_________________________________, a [__________] corporation
(“_________”), (_____________,_____________,_____________,_____________,
and _____________are each referred to as a “Purchaser” and collectively
as the “Purchasers”).
Recitals
A. The
Purchasers each desire to purchase, and the Company desires to issue and sell
to
each of them shares of Series N 9% Convertible Preferred Stock, $.0001 par
value
per share and stated value of $1,000 per share (“Series N Preferred”) (or a
total of 2,400 shares) for an aggregate purchase price of $2,400,000, in the
share amounts set forth on Appendix A hereto according to the terms and
conditions set forth below.
Agreement
IN
CONSIDERATION of the mutual covenants and agreements set forth herein and
for other good and valuable consideration, the receipt and adequacy of which
are
hereby acknowledged, the parties agree as follows:
ARTICLE
I.
CERTAIN
DEFINITIONS
Section
1. Certain Definitions. As used
in this Agreement, unless the context requires a different meaning, the
following terms have the meanings indicated in this Section 1.1:
“Affiliate”
means, with respect to any Person, any Person that, directly or indirectly,
controls, is controlled by, or is under common control with, such
Person. For purposes of this definition, “control” (including,
with correlative meanings, the terms “controlled by” and “under
common control with”) shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting securities
or by contract or otherwise.
“Agreement”
shall have the meaning set forth in the recitals hereto.
“Business
Day” means any day except Saturday, Sunday and any day which shall be a
Federal legal holiday or a day on which banking institutions in the State
of Delaware are authorized or required by law or other government actions
to close.
2
“Certificate
of Designation” shall have the meaning set forth in Section
2.1(a).
“Closing”
shall have the meaning set forth in Section 2.1(b).
“Closing
Date” shall have the meaning set forth in Section 2.1(b).
“Commission”
means the Securities and Exchange Commission.
“Common
Stock” means the Company’s Class A common stock, par value $.0001 per
share.
“Company”
shall have the meaning set forth in the recitals hereto.
“Conversion
Price” shall have the meaning set forth in the Certificate of
Designation.
“Conversion
Ratio” shall have the meaning set forth in the Certificate of
Designation.
“Disclosure
Materials” means, collectively, the SEC Documents and the Schedules to this
Agreement and all other information furnished by or on behalf of the Company
relating to or concerning the Company and provided to the Purchasers or their
agents and counsel in connection with the transactions contemplated by this
Agreement.
“Exchange
Act” means the Securities Exchange Act of 1934, as amended.
“Initial
Reserve” shall have the meaning set forth in Section 3.1(d).
“Intellectual
Property Rights” shall have the meaning set forth in Section
3.1(q).
“Legal
Opinion” means the legal opinion letter of Durham Xxxxx & Xxxxxxx, P.C.,
outside counsel to the Company, addressed to the Purchasers, dated the Closing
Date and in form and substance acceptable to the Purchasers.
“Lien”
means, with respect to any asset, any mortgage, lien, pledge, right of
first refusal, charge, security interest or encumbrance of any kind in or on
such asset or the revenues or income thereon or therefrom.
“Material
Adverse Effect” shall mean any event which has an adverse effect on the
results of operations, assets, prospects, or condition (financial or otherwise)
of the Company and the Subsidiaries, and which, taken as a whole adversely
impairs the Company’s ability to perform fully on a timely basis its obligations
under any Transaction Document.
3
“Original
Issue Date” shall mean the first issuance of any Shares, regardless of the
number of transfers of any particular Share and regardless of the number of
certificates which may be issued to evidence any particular Share.
“Per
Share Market Value” shall have the meaning set forth in the Certificate of
Designation.
“Person”
means an individual or a corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or political subdivision thereof) or
other entity of any kind.
“Preferred
Stock” shall mean the Series N 9% Convertible Preferred Stock.
“Purchaser(s)”
shall have the meaning set forth in the recitals hereto.
“Required
Approvals” shall have the meaning set forth in Section 3.1(f).
“SEC
Documents” shall have the meaning set forth in Section 3.1(c).
“Securities”
means, collectively, the Shares and the Underlying Shares
“Securities
Act” means the Securities Act of 1933, as amended.
“Shares”
means the shares of Series N Preferred Stock to be purchased or issued pursuant
to this Agreement.
“Stated
Value” means $10,000.00 per share of Preferred Stock.
“Subsidiaries”
shall have the meaning set forth in Section 3.1(a).
“Trading
Day” shall have the meaning set forth in the Certificate of
Designation.
“Transaction
Documents” means collectively, this Agreement, and the Certificate of
Designation.
“Underlying
Shares” means the shares of Common Stock issuable upon conversion of the
Shares and as payment of dividends thereon in accordance with the terms of
the
Certificate of Designation.
4
ARTICLE
II.
PURCHASE
OF SHARES OF PREFERRED STOCK
Section
2 Purchase and Exchange of Shares;
Closing.
(a) Subject
to the terms and conditions set forth below, the Company shall sell to the
Purchasers, and the Purchasers shall purchase an aggregate of Two Thousand
Four
Hundred (2,400) Shares for the aggregate purchase price of Two Million Four
Hundred Thousand Dollars ($2,400,000) (the “Purchase Price”) in the amounts set
forth in Appendix A hereto. The Shares issued pursuant to this
Agreement shall have the respective rights, preferences and privileges set
forth
in Exhibit A (the “Certificate of Designation”).
(b) The
closing of the purchase and sale of the Shares (the “Closing”) shall take
place at the offices of Durham Xxxxx & Xxxxxxx, P.C., 000 Xxxx Xxxxxxxx,
Xxxxx 000, Xxxx Xxxx Xxxx, Xxxx 00000. There shall be an initial
closing (the “Initial Closing”) and may be subsequent closings (each, a
“Subsequent Closing”). The date of the final closing (the
“Final Closing”) is hereinafter referred to as the “Final Closing
Date.”
(c) At
or by the time of the Final Closing the parties shall deliver the
following:
(i)
The
Company shall deliver or cause to be delivered:
(A) stock certificates representing an aggregate of
two thousand four hundred (2,400) Shares, registered according to instructions
to be provided by the Purchasers at or before such Closing;
(B) a legal opinion addressed to the
Purchasers.
(ii) The Purchasers shall deliver or cause to
be delivered:
(A) Two million four hundred thousand dollars
($2,400,000) in United States dollars in presently available funds according
to
wire instructions to be provided by the Company at or before Closing, minus
any
funds advanced prior to the Closing.
(iii) Each party hereto shall deliver or cause to be
delivered all other executed instruments, agreements and certificates as are
required to be delivered by or on their behalf at or by the Final
Closing.
5
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES
Section 3.1 Representations and Warranties of the
Company. The Company hereby represents and warrants to the
Purchasers as follows:
(a) Organization
and Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no subsidiaries other than as
set forth in Schedule 3.1(a) (collectively, the
“Subsidiaries”). Each of the Subsidiaries is a corporation,
duly incorporated, validly existing and in good standing under the laws of
the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be
so qualified or in good standing, as the case may be, could not, individually
or
in the aggregate, adversely affect the legality, validity or enforceability
of
the Shares or any Transaction Document.
(b) Authorization;
Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by
the
Transaction Documents and to otherwise carry out its obligations
thereunder. The execution and delivery of each Transaction Document
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of the
Company. Each Transaction Document has been duly executed by the
Company and, when delivered in accordance with the terms hereof, each
Transaction Document shall constitute the legal, valid and binding obligation
of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application. Neither the
Company nor any Subsidiary is in violation of any provision of its respective
certificate or articles of incorporation, bylaws or other charter
documents.
(c) Capitalization. The
authorized, issued and outstanding capital stock of the Company is set forth
in
Schedule 3.1(c). No shares of Common Stock are entitled to
preemptive or similar rights. Except as specifically disclosed in
Schedule 3.1(c), there are no outstanding options, warrants, rights to
subscribe to, calls or commitments of any character whatsoever relating to,
or,
except as a result of the Exchange of the Shares, securities, rights or
obligations convertible into or exchangeable for, or giving any Person any
right
to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock
or
securities or rights convertible or exchangeable into shares of Common
Stock. To the knowledge of the Company, except as specifically
disclosed in the SEC Documents or Schedule 3.1(c), no Person or group of
Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act) or has the right to acquire by agreement with or by
obligation binding upon the Company beneficial ownership of in excess of 5%
of
the Common Stock.
6
(d) Issuance
of Securities. The Shares are duly authorized and, when issued in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all Liens. Subject to Section 4.7,
the Company has and at all times while any Shares are outstanding shall use
its
best efforts to maintain an adequate reserve of duly authorized shares of Common
Stock to enable it to perform its conversion, exercise and other obligations
under this Agreement and the Certificate of Designation which reserve, subject
to Section 4.7, shall be no less than the sum of (i) 100% of (A) the number
of
shares of Common Stock as would be issuable upon conversion in full of the
Shares, were such conversion effected on the Issuance Date, and (B) the number
of shares of Common Stock as are issuable as payment of dividends on the Shares
(assuming such dividends are to be paid in Common Stock) (such sum, the
“Initial Reserve”). If at any time the sum of the number of
shares of Common Stock issuable (a) upon conversion in full of the then
outstanding Shares and (b) as the payment of dividends on the Shares (assuming
all such dividends are to be paid in Common Stock) exceeds 75% of the Initial
Reserve, then the Company shall use its best efforts to duly reserve 200% of
the
number of shares of Common Stock equal to such excess to fulfill such
obligations. This obligation shall similarly apply to successive
excesses. When issued in accordance with the Certificate of
Designation, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, and free and clear of all Liens.
(e) No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of
the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), (ii) subject
to obtaining the consents referred to in Section 3.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is
a
party or by which any property or asset of the Company is bound or affected,
or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws
and
regulations), or by which any property or asset of the Company is bound or
affected; except in the case of each of clauses (ii) and (iii), as could not,
individually or in the aggregate, have or result in a Material Adverse
Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually and in the aggregate, could not have
or result in a Material Adverse Effect.
7
(f) Consents
and Approvals. Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, or make any filing
or
registration with, any court or other federal, state, local, foreign or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other
than
(i) the filing of the Certificate of Designation with the Secretary of State
of
Delaware, and (ii) other than, in all other cases, where the failure to obtain
such consent, waiver, authorization or order, or to give or make such notice
or
filing, could not, individually or in the aggregate, have or result in a
Material Adverse Effect (the “Required Approvals”).
(g) Litigation;
Proceedings. Except as specifically disclosed in the Disclosure
Materials, there is no action, suit, notice of violation, proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) which
(i) adversely affects or challenges the legality, validity or enforceability
of
any Transaction Document or the Securities or (ii) could, individually or in
the
aggregate, have or result in a Material Adverse Effect.
(h) (Reserved.)
(i) Private
Offering. Assuming the accuracy of the representations and
warranties of the Purchasers contained in Sections 3.2(b)-3.2(f), the offering,
issuance or sale of the Securities as contemplated hereunder are exempt from
the
registration requirements of the Securities Act.
(j) Certain
Fees. Except for finders fees, which fees will be paid by the
Company, no fees or commissions will be payable by the Company to any broker,
financial advisor, finder, investment banker, placement agent, or bank with
respect to the transactions contemplated hereby. The Purchasers shall
have no obligation with respect to such fees or with respect to any claims
made
by or on behalf of other Persons for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated
hereby. The Company shall indemnify and hold harmless Purchasers,
their respective employees, officers, directors, agents, and partners, and
their
respective Affiliates, from and against all claims, losses, damages, costs
(including the costs of preparation and attorney’s fees) and expenses suffered
in respect of any such claimed or existing fees, as and when
incurred.
8
(k) SEC
Documents; Financial Statements; No Adverse Change. The Company
has filed all reports required to be filed by it under the Exchange Act,
including pursuant to Section 13(a) or 15(d) thereof, for the three years
preceding the date hereof (or such shorter period as the Company was required
by
law to file such material) (the foregoing materials being collectively referred
to herein as the “SEC Documents”) on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC Documents
prior to the expiration of any such extension. As of their respective
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act and the Exchange Act and the rules and regulations of
the
Commission promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the
SEC Documents comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto. Such financial statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
during the periods involved, except as may be otherwise specified in such
financial statements or the notes thereto, and fairly present in all material
respects the financial position of the Company as of and for the dates thereof
and the results of operations, retained earnings and cash flows for the periods
then ended, subject, in the case of unaudited statements, to normal year-end
audit adjustments. Since the date of the financial statements
included in the Company’s Quarterly Report on Form 10-Q for the period ended
March 31, 2007, as amended to the date hereof, (a) there has been no event,
occurrence or development that has had or that could have or result in a
Material Adverse Effect, (b) there has been no material change in the Company’s
accounting principles, practices or methods and (c) the Company has conducted
its business only in the ordinary course of such business. The
Company last filed audited financial statements with the Commission on March
29,
2007, and has not received any comments from the Commission in respect
thereof.
(l) Seniority. Except
for the Company’s Series A Preferred Stock and the Series D Preferred Stock, no
class of equity securities of the Company is senior to the Shares in right
of
payment, whether with respect to dividends or upon liquidation, dissolution
or
otherwise.
(m) Reserved.
(n) Investment
Company. The Company is not, and is not an “Affiliate person” of,
an “investment company” within the meaning of the Investment Company Act of
1940, as amended.
(o) Listing
and Maintenance Requirements Compliance. Other than as previously
disclosed in writing to the Purchasers, the Company has not in the two years
prior to the date hereof received written notice from any stock exchange, market
or trading facility on which the Common Stock is or has been listed (or on
which
it is or has been quoted) to the effect that the Company is not in compliance
with the listing or maintenance requirements of such exchange, market or trading
facility. The Company has provided to the Purchasers true and
complete copies of all such notices contemplated by this Section.
9
(p) Patents
and Trademarks. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses, trade secrets and other intellectual property
rights which are necessary for use in connection with its business or which
the
failure to so have would have a Material Adverse Effect (collectively, the
“Intellectual Property Rights”). To the best knowledge of the
Company, none of the Intellectual Property Rights infringe on any rights of
any
other Person, and the Company either owns or has duly licensed or otherwise
acquired all necessary rights with respect to the Intellectual Property
Rights. The Company has not received any notice from any third party
of any claim of infringement by the Company of any of the Intellectual Property
Rights, and has no reason to believe there is any basis for any such
claim. To the best knowledge of the Company, there is no existing
infringement by another Person on any of the Intellectual Property
Rights.
(q) Disclosure. All
information relating to or concerning the Company set forth in the Transaction
Documents or the Disclosure Materials (other than the SEC Documents) is true
and
correct in all material respects and does not fail to state any material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. The Company
confirms that it has not provided to the Purchasers or any of their
representatives, agents or counsel any information that constitutes or might
constitute material nonpublic information. The Company understands
and confirms that the Purchasers shall be relying on the foregoing
representation in effecting transactions in securities of the
Company.
Section
3.2 Representations and Warranties of the
Purchasers. The Purchasers hereby jointly and not severally
represent and warrant to the Company as follows:
(a) Organization;
Authority. Such Purchaser is an entity organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization with the requisite power and authority to enter into and to
consummate the transactions contemplated by the Transaction Documents and to
carry out its obligations thereunder. The acquisition of the
Securities to be acquired hereunder and the payment of the purchase price
therefor by such Purchaser have been duly authorized by all necessary action
on
the part of such Purchaser. This Agreement has been duly executed by
such Purchaser and, when delivered by such Purchaser in accordance with the
terms hereof, shall constitute the valid and legally binding obligation of
such
Purchaser, enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors’ rights
generally and to general principles of equity.
(b) Investment
Intent. Such Purchaser is acquiring the Securities to be acquired
hereunder for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to such Purchaser’s right,
subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable state securities laws or under an exemption from such
registration.
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(c)
Purchaser Status. At the time such
Purchaser was offered the Securities to be acquired hereunder by such Purchaser,
it was, at the date hereof, it is, and at the Closing Date, it will be, an
“accredited investor” as defined in Rule 501(a) under the Securities
Act.
(d)
Experience of Purchaser. Such Purchaser,
either alone or together with its representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of the prospective investment in
the
Securities, and has so evaluated the merits and risks of such
investment.
(e) Ability
of Purchaser to Bear Risk of Investment. Such Purchaser
acknowledges that an investment in the Securities is speculative and involves
a
high degree of risk. Such Purchaser is able to bear the economic risk
of an investment in the Securities to be acquired hereunder by such Purchaser,
and, at the present time, is able to afford a complete loss of such
investment.
(f) Access
to Public Information. Such Purchaser acknowledges receipt of the
Disclosure Materials and further acknowledges that it has been afforded (i)
the
opportunity to ask such questions as it has deemed necessary of, and to receive
answers from, representatives of the Company concerning the terms and conditions
of the offering of the Securities, and the merits and risks of investing in
the
Securities, (ii) access to public information about the Company and the
Company’s financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment
and (iii) the opportunity to obtain such additional public information
which the Company possesses or can acquire without unreasonable effort or
expense that is necessary to make an informed investment decision with respect
to the investment and to verify the accuracy and completeness of the information
contained in the Disclosure Materials. Neither such inquiries nor any
other investigation conducted by or on behalf of such Purchaser or its
representatives, agents or counsel shall modify, amend or affect such
Purchaser’s right to rely on the truth, accuracy and completeness of the
Disclosure Materials and the Company’s representations and warranties contained
in the Transaction Documents.
(g) Reliance. Such
Purchaser understands and acknowledges that (i) the Securities to be acquired
by
it hereunder are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and such Purchaser hereby
consents to such reliance.
The
Company acknowledges and agrees that Purchasers makes no representations or
warranties with respect to transactions contemplated hereby other than those
specifically set forth in this Section 3.2.
11
ARTICLE
IV.
OTHER
AGREEMENTS OF THE PARTIES
Section
4.1 Transfer Restrictions. (a) The
Securities may only be disposed of pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant
to
an available exemption from or in a transaction not subject to the registration
requirements thereof. In connection with any transfer of any
Securities other than pursuant to an effective registration statement or to
the
Company, the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form and substance
of which opinion shall be reasonably satisfactory to the Company, to the
effect that such transfer does not require registration under the Securities
Act. Notwithstanding the foregoing, the Company hereby consents to
and agrees to register (i) any transfer of Securities by the Purchasers to
an
Affiliate of the Purchasers, or any transfers among any such Affiliates, and
(ii) any transfer by the Purchasers to any investment entity under common
management with the Purchasers, provided in each case of clauses (i)
and (ii) the transferee certifies to the Company that it is an “accredited
investor” as defined in Rule 501(a) under the Securities Act. Any
such transferee shall have the rights of the Purchasers under this
Agreement.
(b) The
Purchasers agree to the imprinting, so long as is required by this Section
4.1(b), of the following legend (or such substantially similar legend as is
acceptable to the Purchasers and their counsel, the parties agreeing that any
unacceptable legended Securities shall be replaced promptly by and at the
Company’s cost) on the Securities:
NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
[ONLY
FOR
UNDERLYING SHARES TO THE EXTENT THE RESALE THEREOF IS NOT COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT AT THE TIME OF CONVERSION, ISSUANCE OR
EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
12
The
Underlying Shares shall not contain any legend other than as set forth above.
The Company agrees that it will provide each Purchaser, upon request, with
a
certificate or certificates representing Underlying Shares, free from such
legend at such time as such legend is no longer required
hereunder. The Company may not make any notation on its records or
give instructions to any transfer agent of the Company which enlarge the
restrictions of transfer set forth in this SectionSection 4.1(b).
Section
4.2 Acknowledgment of Dilution. The Company
acknowledges that the issuance of Underlying Shares upon conversion of the
Shares and as payment of dividends thereon may result in dilution of the
outstanding shares of Common Stock, which dilution may be substantial under
certain market conditions. The Company further acknowledges that its
obligation to issue Underlying Shares in accordance with the Certificate of
Designation is unconditional and absolute regardless of the effect of any such
dilution.
Section
4.3 Furnishing of Information. As long as the
Purchasers own Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace period)
all
reports required to be filed by the Company after the date hereof pursuant
to
Section 13(a) or 15(d) of the Exchange Act. If at any time prior to
the date on which the Purchasers may resell all of their Underlying Shares
without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act (as determined by counsel to the Company pursuant to a written
opinion letter to such effect, addressed and acceptable to the Company’s
transfer agent for the benefit of and enforceable by the Purchasers) the Company
is not required to file reports pursuant to such sections, it will prepare
and
furnish to the Purchasers and make publicly available in accordance with Rule
144(c) promulgated under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of such financial statements
in form and substance substantially similar to those that would otherwise be
required to be included in reports required by Section 13(a) or 15(d) of the
Exchange Act in the time period that such filings would have been required
to
have been made under the Exchange Act. The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person
to
sell Securities without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including the legal opinion referenced above in this
Section. Upon the request of any such Person, the Company shall
deliver to such Person a written certification of a duly authorized officer
as
to whether it has complied with such requirements.
13
Section
4.4 Use of Disclosure Materials. The Company
consents to the use of the Disclosure Materials and any information provided
by
or on behalf of the Company pursuant to Section 4.3, and any amendments and
supplements thereto, by the Purchasers in connection with resales of the
Securities other than pursuant to an effective registration
statement.
Section
4.5 Blue Sky Laws. The Company shall qualify
the Underlying Shares under the securities or Blue Sky laws of such
jurisdictions as the Purchasers may reasonably request and shall continue such
qualification at all times until the Purchasers notify the Company in writing
that they no longer own Securities; provided, however, that
neither the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not now so
qualified or to take any action that would subject the Company to general
service of process in any such jurisdiction where it is not then so
subject.
Section 4.6 Integration. The
Company shall not and shall use its best efforts to ensure that no Affiliate
shall sell, offer for sale or solicit offers to buy or otherwise negotiate
in
respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the issue, offer
or
sale of the Securities to the Purchasers.
Section
4.7 (Reserved.)
Section 4.8 (Reserved.)
Section 4.9
(Reserved.)
Section
4.10 Notice of Breaches. Each of the Company and the
Purchasers shall give prompt written notice to the other of any breach by it
of
any representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof,
which would reasonably be likely to cause any representation or warranty or
other agreement of such party, as the case may be, contained in the Transaction
Document to be incorrect or breached as of such Closing
Date. However, no disclosure by either party pursuant to this Section
shall be deemed to cure any breach of any representation, warranty or other
agreement contained in any Transaction Document. Notwithstanding the
generality of the foregoing, the Company shall promptly notify the Purchasers
of
any notice or claim (written or oral) that it receives from any lender of the
Company to the effect that the consummation of the transactions contemplated
by
the Transaction Documents violates or would violate any written agreement or
understanding between such lender and the Company, and the Company shall
promptly furnish by facsimile to the Purchasers a copy of any written statement
in support of or relating to such claim or notice.
Section 4.11 Conversion
procedures. Exhibit "A" to the Certificate of Designation sets
forth all procedures, required information and instructions that are required
to
be followed in order to permit holders of Shares to smoothly and expeditiously
exercise their rights to convert Shares and which are not specifically set
forth
in the Certificate of Designation, including the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent to effect
the
delivery of Underlying Shares in compliance with the terms hereof and of the
Certificate of Designation. If the Company changes its transfer agent
at any time prior to the conversion of all of the Shares held by the Purchasers,
the Company shall deliver any transfer agent instructions contained in Exhibit
“B” to such replacement transfer agent and cause such transfer agent to comply
therewith.
14
Section 4.12
Conversion and Exercise Obligations of the Company. The
Company shall honor conversions of the Shares and shall deliver Underlying
Shares upon such conversions and exercises in accordance with the respective
terms and conditions and time periods set forth in the Certificate of
Designation.
Section
4.13 (Reserved.)
Section
4.14 Transfer of Intellectual Property
Rights. Except in the ordinary course of the Company’s business
consistent with past practice or in connection with the sale of all or
substantially all of the assets of the Company, the Company shall not transfer,
sell or otherwise dispose of, any Intellectual Property Rights, or allow the
Intellectual Property Rights to become subject to any Liens, or fail to renew
such Intellectual Property Rights (if renewable and would otherwise
expire).
Section
4.15 Certain Conversion Restrictions. In no event
(except (i) with respect to an automatic conversion of the Preferred Stock
as
provided in Section 5(a)(ii) of the Certificate of Designation, (ii) if the
Company is in default of any of its obligations hereunder or any of the
Transaction Documents, as defined in Section 7 of the Certificate of
Designation, or (iii) except as otherwise set forth in the Certificate of
Designation) shall any Holder be entitled to convert any Preferred Stock to
the
extent that, after such conversion, the sum of (1) the number of shares of
Common Stock beneficially owned by such Holder and its affiliates (other than
the shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the Preferred Stock), and (2) the number
of shares of Common Stock issuable upon the conversion of the Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by the Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), except as otherwise provided in clause (1) of the
preceding sentence. To the extent that the limitation contained
in this paragraph applies, the determination of whether shares of Preferred
Stock are convertible (in relation to other securities owned by a Holder) and
of
which shares of Preferred Stock are convertible shall be in the sole discretion
of the Holder, and the submission of shares of Preferred Stock for conversion
shall be deemed to be the Holder's determination of whether such shares of
Preferred Stock are convertible (in relation to other securities owned by the
Holder) and of which portion of such shares of Preferred Stock are convertible,
in each case subject to such aggregate percentage limitation, and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. Nothing contained in this paragraph shall be
deemed to restrict the right of the Holder to convert shares of Preferred Stock
at such time as such conversion will not violate the provisions of this
paragraph. The provisions of this paragraph will not apply to any
conversion pursuant to Section 5 (a)(ii) of the Certificate of Designation,
and
may be waived by a Holder (but only as to itself and not to any other Holder)
upon not less than 75 days prior notice to the Company (in which case, the
Holder shall make such filings with the Commission, including under Rule 13D
or
13G, as are required by applicable law), and the provisions of this Section
shall continue to apply until such 75th day (or later, if stated in the notice
of waiver). Other Holders shall be unaffected by any such
waiver.
15
Section
4.16 (Reserved.)
Section
4.17 Restrictions. Subject to the completeness and
accuracy of the Purchasers’ representations and warranties herein and provided
that all of the qualifications and requirements of Regulation S under the
Securities Act of 1933 ("Regulation S") are met, upon the conversion of any
Series N Preferred by a person who is not a U.S. Person as defined in Regulation
S (a "non-U.S. Person"), the Company shall, at its expense, take all necessary
action (including the issuance of an opinion of counsel) to assure that the
Company’s transfer agent shall issue stock certificates without restrictive
legend or stop orders, other than as required for compliance with applicable
statutes and laws, including but not limited to securities laws, in the name
of
the Buyer (or its nominee (being a non-U.S. Person) or such non-U.S. Persons
as
may be designated by the Buyer) and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon
such
conversion, as applicable. The Company warrants that no instructions
(other than these instructions or instructions to impose a "stop transfer"
instruction with respect to the Series F Preferred until the end of the
Restricted Period) have been or will be given to the transfer agent and that
the
Shares will not be subject to any transfer limitations other than those imposed
by applicable securities laws.
ARTICLE
V.
MISCELLANEOUS
Section
5.1 Fees and Expenses. Each party shall pay
the fees and expenses of its advisers, counsel, accountants and other experts,
if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement,
except that the Company agrees to pay Purchasers’ legal fees in connection with
the negotiation of the exchange of the Series N Preferred Stock. The
Company shall pay all stamp and other taxes and duties levied in connection
with
the issuance of the Shares pursuant hereto. The Purchasers shall each
be responsible for its own respective tax liability that may arise as a result
of the investment hereunder or the transactions contemplated by this
Agreement.
Section
5.2 Entire Agreement; Amendments, Exhibits and
Schedules. This Agreement, together with the Exhibits and
Schedules hereto, and the Certificate of Designation contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters. The Exhibits and Schedules to this Agreement are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
16
Section
5.3 Notices. Any and all notices or
other communications or deliveries required or permitted to be provided
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 5:00 p.m. (Salt Lake City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication
is
delivered via facsimile at the facsimile telephone number specified in the
Purchase Agreement later than 5:00 p.m. (Salt Lake City time) on any date and
earlier than 11:59 p.m. (Salt Lake City time) on such date, (iii) the Business
Day following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice
is
required to be given. The address for such notices and communications
shall be as follows:
|
If
to the Company:
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Fonix
Corporation
|
|
|
0000
X 000 X, Xxxxx 000
|
||
|
Xxxx
Xxxx Xxxx, Xxxx 00000
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||
|
Facsimile
No.: (000) 000-0000
|
||
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Attn:
Xxxxx X. Xxxxxx, Executive Vice President
|
||
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With
copies (which shall
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Durham
Xxxxx & Xxxxxxx, P.C.
|
|
|
not
constitute notice) to:
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000
Xxxx Xxxxxxxx, Xxxxx 000
|
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Xxxx
Xxxx Xxxx, Xxxx 00000
|
||
|
Facsimile
No.: (000) 000-0000
|
||
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Attn:
Xxxxxxx X. Xxxxx, Esq.
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||
|
If
to the Purchasers:
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[At
the address indicated on Exhibit A]
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|
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With
copies to:
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________________________________
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|
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________________________________
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||
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________________________________
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||
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Fax:
____________________________
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||
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Attn.:
___________________________
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or
such
other address as may be designated in writing hereafter, in the same manner,
by
such Person.
17
Section
5.4 Amendments; Waivers. No provision
of this Agreement may be waived or amended except in a written instrument
signed, in the case of an amendment, by the Company, or the Purchasers, or,
in
the case of a waiver, by the party against whom enforcement of any such
waiver is sought, provided however that Section 5.7 and to the extent it
affects such sections, this Section 5.4 may not be waived or amended without
the
prior written consent of any party identified therein as a third party
beneficiary. No waiver of any default with respect to any provision,
condition or requirement of this Agreement shall be deemed to be a
continuing waiver in the future or a waiver of any other provision, condition
or
requirement hereof, nor shall any delay or omission of either party to exercise
any right hereunder in any manner impair the exercise of any such right accruing
to it thereafter.
Section
5.5 Headings. The headings herein are
for convenience only, do not constitute a part of this Agreement and shall
not
be deemed to limit or affect any of the provisions hereof.
Section 5.6 Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns, including
any
Persons to whom any of the Purchasers transfers Shares. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
Section
5.7 No Third-Party Beneficiaries. This
Agreement is intended for the benefit of the parties hereto and their respective
permitted successors and assigns and, other than with respect to permitted
assignees under Section 5.6, is not for the benefit of, nor may any provision
hereof be enforced by, any other Person.
Section
5.8 Governing Law; Venue. This
Agreement shall be governed by and construed and enforced in accordance with
the
internal laws of the State of New York without regard to the principles of
conflicts of law thereof. Additionally, any action arising out of the
interpretation of or performance under this Agreement by either party shall
be
brought in a court of competent jurisdiction in the State of New
York.
Section
5.9 Survival. The representations,
warranties, agreements and covenants contained in this Agreement shall
survive the Closing and the conversion of the Shares.
Section
5.10 Execution. This Agreement may be executed in
two or more counterparts, all of which when taken together shall be considered
one and the same agreement, and shall become effective when counterparts have
been signed by each party and delivered to the other parties, it being
understood that all parties need not sign the same counterpart. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid and binding obligation of the party executing
(or
on whose behalf such signature is executed) the same with the same force and
effect as if such facsimile signature page were an original
thereof.
Section
5.11 Publicity. The Company and the Purchasers
shall consult with each other in issuing any press releases or otherwise making
public statements with respect to the transactions contemplated hereby and
no
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other party, which consent
shall not be unreasonably withheld or delayed, except that no prior consent
shall be required if such disclosure is required by law, in which such case
the
disclosing party shall provide the other parties with prior notice of such
public statement. Notwithstanding the foregoing, the Company shall
not publicly disclose the name of any Purchaser without the prior written
consent of such Purchaser, as applicable, except to the extent required by
law,
in which case the Company shall provide to the Purchasers with prior written
notice of such public disclosure.
18
Section
5.12 Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in any respect,
the validity and enforceability of the remaining terms and provisions of this
Agreement shall not in any way be affected or impaired thereby and the parties
will attempt to agree upon a valid and enforceable provision which shall be
a
reasonable substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
Section
5.13 Remedies. Each of the parties to this
Agreement acknowledges and agrees that the other parties would be damaged
irreparably in the event any of the provisions of this Agreement are not
performed in accordance with their specific terms or otherwise are
breached. Accordingly, each of the parties hereto agrees that the
other parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions of this Agreement in any action
instituted in any court of the United States of America or any state thereof
having jurisdiction over the parties to this Agreement and the matter, in
addition to any other remedy to which they may be entitled, at law or in
equity.
Section
5.14 Rights in
Bankruptcy. The holder of any shares of Series N Preferred shall
be entitled to exercise its conversion privilege with respect to the Series
N
Preferred notwithstanding the commencement of any case under 11 U.S.C. §101
etseq. (the “Bankruptcy Code”). In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives, to
the
fullest extent permitted, any rights to relief it may have under 11 U.S.C.
§362
in respect of the conversion of the Series N Preferred.
Section
5.15 Information. The Company will authorize its
transfer agent to give information relating to the Company directly to the
Purchasers, or to representatives of any of the Purchasers, as applicable,
upon
the request of any Purchaser, or any such representative, to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to such Purchaser in connection with a Notice of
Conversion, or (ii) the number of outstanding shares of Common Stock of all
stockholders as of a current or other specified date. The Company
will provide each Purchaser with a copy of the authorization so given to the
transfer agent.
19
Section
5.16 Trading in
Securities. The Company specifically acknowledges that, except to
the extent specifically provided herein or in any of the other Transaction
Documents (but limited in each instance to the extent so specified), the Holder
retains the right (but is not otherwise obligated) to buy, sell, engage in
hedging transactions or otherwise trade in the securities of the Company,
including, but not necessarily limited to, the Securities, at any time before,
contemporaneous with or after the execution of this Agreement or from time
to
time, but only, in each case, in any manner whatsoever permitted by applicable
federal and state securities laws, including but not limited to Regulation
M
promulgated under the Securities Act of 1933, as amended.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK.
SIGNATURE
PAGES FOLLOW]
20
IN
WITNESS WHEREOF, the parties hereto have caused this Series N Convertible
Preferred Stock Purchase Agreement to be duly executed as of the date first
indicated above.
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FONIX
CORPORATION
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By:
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By:
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Name:
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Name:
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Title:
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Title:
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By:
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Name:
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Title:
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By:
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|
|
Name:
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|
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Title:
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By:
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Name:
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Title:
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By:
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Name:
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Title:
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21
SCHEDULE
3.1(a)
SUBSIDIARIES
|
|
1.
|
Fonix/AcuVoice,
Inc., a Utah corporation, wholly owned by
Fonix
|
|
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2.
|
Fonix/Papyrus
Corporation, a Utah corporation, wholly owned by
Fonix
|
|
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3.
|
Fonix
UK Ltd., a limited company organized under the laws of the United
Kingdom,
wholly owned by Fonix
|
|
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4.
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Fonix
Sales, Korea Group, Ltd., a Korean entity wholly owned by
Fonix
|
|
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5.
|
LTEL
Acquisition Corp., a Delaware corporation, wholly owned by
Fonix
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|
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6.
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LTEL
Holdings Corporation, a Delaware corporation, wholly owned by LTEL
Acquisition Corp.
|
|
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7.
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LecStar
Telecom, Inc., a Georgia corporation, wholly owned by LTEL Holdings
Corporation
|
|
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8.
|
LecStar
DataNet, Inc., a Georgia corporation, wholly owned by LTEL Holdings
Corporation
|
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9.
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Fonix
Telecom, Inc., a Delaware corporation, wholly owned by
Fonix
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10.
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TOE
Acquisition Corporation, a Delaware corporation, wholly owned by
Fonix
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11.
|
Fonix
Speech Inc., a Delaware corporation, wholly owned by
Fonix
|
SCHEDULE
3.1(c)
CAPITALIZATION
The
Company has an authorized capitalization consisting of 5,000,000,000 shares
of
Common Stock, par value $.0001 per share, and 50,000,000 shares of Preferred
Stock, par value $.0001 per shares. As of the date hereof, the
Company has issued and outstanding 1,642,139,820 shares of Common
Stock. As of the date of this agreement, 922,642 shares of Class A
Common Stock are subject to issuance upon the conversion or exercise of
presently issued and outstanding warrants and options of the
Company. 166,667 shares of Series A Preferred Stock have been issued
and 166,667 shares are outstanding, which shares are convertible into 4,167
shares of Class A Common Stock. Except as set forth above, as of the
date of this Agreement, there are no outstanding options, warrants, rights
to
subscribe to, calls or commitments of any character whatsoever relating
to, or,
except as a result of the purchase and sale of the Shares, securities,
rights or
obligations convertible into or exchangeable for, or giving any Person
any right
to subscribe for or acquire, any shares of Class A Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Class A
Common
Stock or securities or rights convertible or exchangeable into shares of
Class A
Common Stock, except as disclosed herein.
APPENDIX
A
|
Investor
|
Shares
Received
|
Amount
Invested
|
|
Name
and Address
|
||
|
_______________________
|
__________
|
_____________
|
|
_______________________
|
||
|
_______________________
|
||
|
_______________________
|
__________
|
_____________
|
|
_______________________
|
||
|
_______________________
|
||
|
_______________________
|
__________
|
_____________
|
|
_______________________
|
||
|
_______________________
|
||
|
_______________________
|
__________
|
_____________
|
|
_______________________
|
||
|
_______________________
|
||
|
_______________________
|
__________
|
_____________
|
|
_______________________
|
||
|
_______________________
|
