AGREEMENT
AGREEMENT made as of the 31st day of July, 1999 between Lernout &
Hauspie Speech Products N.V., a Belgian corporation with its principal place of
business in Ieper, Belgium ("Buyer"), and Fonix Corporation, a Delaware
corporation with its principal headquarters in Salt Lake City, Utah ("Fonix")
and Fonix/ASI Corporation, a Utah corporation with its principal place of
business in Woburn, Massachusetts ("ASI") (Fonix and ASI together, the
"Sellers").
W I T N E S S E T H:
WHEREAS, Buyer and the Sellers have entered into an Asset Purchase
Agreement, dated as of May 19, 1999 (the "Asset Purchase Agreement") pursuant to
which Buyer has agreed to buy and Sellers have agreed to sell all of the assets
and properties held in connection with, necessary for, or material to the
business and operations of the Articulate Division (as defined in the Asset
Purchase Agreement) (the "Transaction");
WHEREAS, pursuant to the Asset Purchase Agreement, Buyer and ASI have
entered into a License Agreement, dated May 19, 1999 (the "License Agreement"),
and Buyer and the Sellers have entered into a Technology Option Agreement, dated
as of May 19, 1999 (the "Technology Option Agreement");
WHEREAS, the Closing of the Transaction has been delayed beyond the
expectations of the parties, and the parties wish to amend the Asset Purchase
Agreement and the License Agreement in certain respects as a result of such
delay; and
WHEREAS, the parties also wish to enter into certain agreements which
will enable Buyer to begin to sell the products of the Articulate Division ("ASI
Products") in consideration of Buyer providing to ASI certain additional
financing.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties hereto hereby agree as follows:
AGREEMENTS
1. Buyer hereby exercises its option to be appointed as an ASI
Distributor of ASI Products using the Dragon Recognition Technology under
Section 3.1 of the Technology Option Agreement, effective as of July 1, 1999.
The scope of the distributorship shall include, without limitation, the
following rights within the permitted Fields of Use: (i) the right to fulfill
outstanding purchase orders of either Seller received prior to the Closing; (ii)
the rights to provide certain warranty, maintenance and service with respect to
ASI Products and Dragon Distributable Technology sold by either Seller prior to
the Closing; and (iii) the right to distribute ASI Products and Dragon
Distributable Technology and provide warranty and maintenance services with
respect thereto.
2. Sellers hereby transfer and assign to Buyer the following assets
related to the Business determined as if the Closing of the Transaction occurred
on July 1, 1999: (i) all Acquired Sales Orders, including those set forth on
Schedule 2(i), (ii) all License Agreements, including those set forth on
Schedule 2(ii) hereof, (iii) all client and customer contracts related to
ongoing maintenance and servicing obligations (the "Maintenance Contracts"), and
(iv) the right to use and exploit for Buyer's benefit all of the existing sales
leads and opportunities of Sellers. Buyer shall have any and all rights to
receive any payments due and owning under the Acquired Sales Orders, License
Agreements and Maintenance Contracts as if the Closing of the Transaction had
occurred on July 1, 1999. Following the execution of this Agreement, Sellers and
Buyer shall jointly notify all applicable customers of this change. Sellers
1
shall promptly pay over to Buyer any such payments received by them after the
date hereof. The amount, not less than zero, determined by subtracting (a) four
hundred thousand dollars ($400,000) from (b) the aggregate amounts paid to
Sellers prior to the date hereof that constitute Prepaid Sales Order Amounts,
Prepaid Maintenance Amounts or prepaid License Agreement amounts, as if the
Closing of the Transaction had occurred on July 1, 1999, shall reduce the
Purchase Price (to be offset against that portion of the Purchase Price to be
paid pursuant to Section 1.3(a)(iii)) consistent with the provisions of Section
1.3(b) and (c). If the Closing of the Transaction does not occur by September 3,
1999, such prepaid amounts shall become immediately due and payable by Sellers
to Buyer. Buyer hereby agrees to assume and perform pursuant to their terms all
of the liabilities and obligations of Sellers arising under the Acquired Sales
Orders, the License Agreements, and the Maintenance Contracts, from and after
July 1, 1999, provided, however, that Buyer's assumption of such liabilities and
obligations shall only be effective for so long as ASI provides to Buyer certain
services as set forth in Section 3 hereof.
3. Effective as of July 1, 1999, Buyer hereby engages ASI to provide
marketing, sales, product implementation and installation and customer support
services (collectively, the "Services") on behalf of Buyer, in the manner that
Buyer shall reasonably request, and ASI hereby agrees to provide such Services
at its expense in consideration of the agreements made herein, until the earlier
of (i) the Closing of the Transaction, (ii) the later of September 30, 1999 or
the installation of all of the products required to be installed under the
Acquired Sales Orders and License Agreements, or (iii) such other date as the
parties may mutually agree. In connection with such Services, ASI agrees to
provide to Buyer the full-time services of all of the marketing, sales and
customer support personnel currently employed by ASI in connection with the
Business. Such employees shall apply their full time and effort on behalf of
Buyer and will be under the supervision and daily management of Buyer, and Buyer
may direct such personnel with respect to the sales and support of ASI Products,
sales of Buyer's Clinical Reporter product, and the Services, as it deems
appropriate, in its sole discretion. Prior to the Closing of the Transaction, if
ASI materially defaults in its obligations to perform the Services required
hereunder, in addition to any other remedies that the Buyer may have, if Buyer
gives written notice of such default to ASI and ASI shall fail to cure such
default within five (5) days, for so long as such default remains uncured and
provided that the Closing has not occurred, Buyer shall thereafter have the
right to transfer back to the respective Seller any Acquired Purchase Order,
License Agreement or Maintenance Contract, and the related liabilities and
obligations by written notice to Sellers. The parties acknowledge that employees
of ASI are not, and shall not be deemed to be employees of Buyer, but are, at
all times, employees of ASI. The parties acknowledge and agree that this
Agreement does not (a) authorize either Fonix or ASI to enter into any purchase
order, contract or other agreement or incur any other liability or obligation on
behalf of Buyer, (b) authorize Buyer to enter into any purchase order, contract
or other agreement or incur any liability or obligation on behalf of a Seller
(except as expressly provided in the Technology Option Agreement when Buyer is
acting as an ASI Distributor) or (c) create a partnership, agency or joint
venture, but a relationship of independent contractors.
4. ASI and Fonix each hereby agree that they will not, directly or
indirectly, conduct any sales, marketing or licensing activity with respect to
the Business or the ASI Products other than on behalf of Buyer while ASI is
required to provide Services to Buyer pursuant to Section 3 hereof, including,
but not limited to, through other distributors of ASI Products. It is understood
that for purposes of convenience a Seller, subject to the consent of Buyer, may
enter into sales orders, license agreements or maintenance contracts with
respect to the Business while ASI is performing Services hereunder. By way of
clarification, any such agreements shall be deemed to be Acquired Sales Orders,
License Agreements or Maintenance Contracts hereunder.
5. In the event that the Closing of the Transaction has not taken place
by September 3, 1999, then Sellers hereby grant to Buyer a perpetual,
royalty-free, non-exclusive license in accordance with Articles 2.1, 2.2, 2.3,
and 2.5 of the License Agreement for ASI's software as specified in Addendum E
2
to the License Agreement, effective as of September 3, 1999, and subject to all
terms of the License Agreement, provided, however, that such license shall be
royalty-free notwithstanding the terms of the License Agreement; and provided
further that Buyer understands and agrees that Sellers grant hereunder shall be
subject to either Seller obtaining the license rights specified in said Addendum
E.
6. Buyer hereby agrees to provide to ASI an additional loan in the
principal amount of $1,200,000 (the "New Loan") pursuant to the following
documents: (1) Second Amendment to Promissory Note; (2) First Amendment to Loan
Agreement; (3) Third Amendment to Security Agreement; (4) First Amendment to
Pledge and Security Agreement; (5) Fourth Amendment to Promissory Note; and (6)
a letter agreement between the Buyer and Sellers, all of which shall be executed
by Buyer, ASI and Fonix substantially in the forms attached hereto.
Notwithstanding the foregoing, the New Loan shall not be funded unless and until
(a) Fonix's registration statement on Form S-3, currently pending before the
Securities and Exchange Commission (the "SEC") is declared effective, (b) Fonix
files with the SEC an amendment to Fonix's proxy statement with respect to the
Transaction in a form reasonably acceptable to Buyer and its counsel, and (c)
Buyer receives a letter from counsel to Sellers advising Buyer that no further
consent from Beesmark is required in connection with the amendments and
agreements contemplated hereby. Provided that: (i) Fonix satisfies all
conditions to receiving the New Loan on or before 5:00 p.m. Boston time on
Thursday, August 12, 1999; and (ii) Buyer's wire transfer of $1.2 Million to its
United States subsidiary made on August 10, 1999 is available to be wired
hereunder by the receiving bank on a timely basis, Buyer will arrange to have
the New Loan sent by wire transfer from a United States account on or before the
close of business on Friday, August 13, 1999. In addition, Fonix shall promptly
respond to all future SEC comments and provide to Buyer within one (1) business
day of delivery or receipt copies of all correspondence with the SEC with
respect to its Form S-3 Registration Statement, the proxy statement or otherwise
until the Closing, and, upon request of the Buyer, copies of all correspondence
with the SEC prior to the date hereof.
7. The parties hereby agree that the Purchase Price under the Asset
Purchase Agreement shall be offset at Closing by the amount of any sums owed to
Buyer by either of the Sellers pursuant to contractual arrangements between the
parties.
8. Fonix and ASI, jointly and severally, shall indemnify Buyer from and
against any and all claims, losses and liabilities, together with related
expenses and costs (including, without limitation, reasonable attorney's fees
and court costs) incurred as a result of or arising out of the performance by
ASI of the Services hereunder concerning or otherwise relating to Acquired Sales
Orders, License Agreements and Maintenance Contracts, including, but not limited
to, as a result of the acts or omissions of any employees, officers or agents of
ASI or as a result of their breach of this Agreement or their failure to perform
their obligations hereunder, except insofar as such claims, losses and
liabilities are incurred as a result of the gross negligence or willful
misconduct of Buyer. In addition, Fonix and/or ASI shall continue to maintain
adequate product liability insurance and any other form of insurance with
respect to the ASI Products in such amounts as is customary in the industry and
is currently maintained, subject to the terms of such existing policies.
9. Pursuant to Section 1.14 of the Asset Purchase Agreement, Buyer
hereby notifies Sellers of Buyer's election to designate the Apple Claims as
Subject Assets pursuant to Sections 1.1(a)(viii) and (ix) of the Agreement.
AMENDMENTS TO ASSET PURCHASE AGREEMENT
10. In the event of any inconsistency between this Agreement and the
Asset Purchase Agreement, the terms of this Agreement shall control, including
without limitation, the transfer hereunder of the Acquired Sales Orders, License
Agreements and Maintenance Contracts effective as of July 1, 1999 and the
calculation of the prepaid amounts with respect thereto.
3
11. If (a) the Closing of the Transaction shall have occurred on or
before September 3, 1999 or (b) Buyer shall be reasonably satisfied at the
Closing that it has obtained the license rights referred to in Section 5 hereof,
without any further consents or payments being required, the amount to be placed
in escrow pursuant to Section 1.3(a)(ii) of the Asset Purchase Agreement shall
be reduced to Two Million Five Hundred Thousand Dollars ($2,500,000). Any and
all prior agreements and understandings not expressly set forth herein or in the
Asset Purchase Agreement with respect to the amount to be escrowed pursuant to
the Transaction are hereby terminated.
AMENDMENTS TO LICENSE AGREEMENT
12. The second paragraph of Section 6.5(a) of the License Agreement
shall be deleted in its entirety.
13. Section 6.5(b) of the License Agreement shall be deleted in its
entirety, and Section 6.5(c) shall be redesignated as Section 6.5(b).
MISCELLANEOUS
14. (a) Sellers and Buyer each remake each and every representation and
warranty made by them in each of the Asset Purchase Agreement, the License
Agreement and the Technology Option Agreement.
(b) This Agreement shall not be assignable by ASI or Fonix without the
prior written consent of Buyer. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns.
(c) In the event of any conflict between the terms hereof and the terms
of any of the Asset Purchase Agreement, the License Agreement or the Technology
Option Agreement, the terms of this Agreement shall be controlling.
(d) Terms used herein but not defined shall have the meanings ascribed
thereto in the Asset Purchase Agreement, License Agreement or Technology Option
Agreement, as applicable.
(e) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
hereof.
(f) This Agreement, the Asset Purchase Agreement, the License Agreement
and the Technology Option Agreement, together with the schedules and other
attachments hereto and thereto constitute the entire agreement of the parties
with respect to the subject matter hereof. There are no other agreements and
understanding with respect thereto except as expressly set forth herein or
therein. No provision of this Agreement may be waived or amended, except in
writing executed by all parties hereto.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts (other than the choice of law
principles thereof).
(f) This Agreement may be executed in multiple counterparts and by
facsimile, each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal in multiple counterparts as of the date set forth above by
their duly authorized representatives.
FONIX CORPORATION
By:/s/
-------------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President and Chief Executive Officer
FONIX/ASI CORPORATION
By:/s/
-------------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: President
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By:/s/
-------------------------------------------
Name: Xxxxxx Xxxxxxxxx
Title: President and Chief Executive Officer
5
