Exhibit (10)(v)
Memorandum of Understanding
To: Synergetics, Inc. and Xxx Xxxxxx
From: fonix Corporation
Date: March 13, 1997
Subject: Capitalization of Royalty Fee
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The purpose of this Memorandum of Understanding ("Memorandum") is to set
forth the material elements of an agreement between fonix Corporation
("fonix") and Synergetics, Inc. ("Synergetics") whereby (a) the Royalty (as
defined below) will be canceled; (b) the VoiceBox Project Shares (as defined
below) will be surrendered and canceled; (c) fonix will issue Warrants (as
defined below) to purchase shares of fonix Common Stock to Synergetics and
other holders of Project Shares; (d) selected employees and engineers of
Synergetics (the "Synergetics Engineering Teem") will become employees of
fonix; and (e) Xxx Xxxxxx ("Xxxxxx") and/or synergetics will become
consultants to fonix.
The parties recognize that the proposed transactions described below
will require further documentation, including the preparation and approval of
definitive agreements (the "Definitive Agreement") which will set forth all of
the terms and conditions of the transactions and the filing by fonix of a
Registration Statement with the Securities and Exchange Commission (the
"Commission"). Nevertheless, the parties desire to execute this memorandum to
evidence their intention to proceed in mutual good faith to complete the work
required to negotiate the Definitive Agreement on terms that are consistent
with this Memorandum.
BACKGROUND
In October 1993, the predecessor of fonix, Phonic Technologies, Inc.
("PTI"), entered into a Product Development and Assignment Agreement (the
"Agreement") with Synergetics whereby Synergetics assigned to PTI all of the
then-existing and to-be-developed technologies and related property for the
"VoiceBox" project (the "Technology"). In consideration for that assignment,
PTI agreed to pay Synergetics a royalty (the "Royalty") of 10% of gross
revenues from the marketing and/or sale of the Technology and products
incorporating the Technology. Pursuant to the terms of the Agreement,
Synergetics continued to develop the Technology to the specifications provided
by fonix and fonix provided the financial resources necessary to continue the
development of the Technology. All Technology is owned by fonix.
With the Agreement with fonix in hand, Synergetics engaged the
Synergetics Engineering Team to assist in the development of the Technology.
In addition to salary, Synergetics offered some of the Synergetics Engineering
Team members an interest in the Synergetics revenues to be generated in the
future from the Royalty. Synergetics called this interest in future revenues
"Project Shares". Synergetics determined to issue no more than 6000 project
shares.
Synergetics has made loans or given advances ("Advances") to some
members of the Synergetics Engineering Team. Those loans and/or advances were
made on a non-recourse basis, payment of which has been secured by future
disbursements from Project Shares.
fonix and Synergetics amended and restated the Agreement in March 1995
to expand the scope of the Technology under development and to make other
technical changes (the "Restated Agreement").
UNDERSTANDING
The material elements of the proposed transaction between the parties
are as follows:
I. A new, wholly-owned subsidiary of fonix will acquire the rights of
Synergetics to the Royalty and the current and future obligations of
Synergetics under the Project Shares, as follows:
A. fonix will create a new, wholly-owned subsidiary (for purposes of
this memorandum, "fonix Acquisition").
B. fonix Acquisition and Synergetics will enter into an Assignment
Agreement [or a Second Amended and Restated Product Development
and Assignment Agreement] pursuant to which: (i) fonix
Acquisition will assume and undertake all of Synergetics'
obligations under the Project Shares; (ii) in consideration
thereof, Synergetics will assign its rights to the Royalty to
fonix Acquisition; (iii) Synergetics will assign all Advances to
fonix Acquisition; (iv) Synergetics will be released from any
further obligation with respect to the development and/or
completion of the Technology other than the continuing non-
competition, confidentiality and assignment of intellectual
property covenants and right of first refusal existing in the
Restated Agreement, as amended; and (v) Synergetics will ratify
its prior assignment and conveyance and continuing obligation to
assign and convey to fonix all Existing Technology, New
Technology, Existing Intellectual Property and New Intellectual
Property (all as defined in the Restated Agreement).
II. Issuance of Warrants to holders of Project Shares in exchange for
surrender and cancellation of Project Shares, as follows:
A. fonix will prepare an offering (the "Offering") to each of the
holders of Project Shares of warrants (the "Warrants") to purchase
up to 4,800,000 shares of fonix Common Stock. Each Warrant shall
have an exercise price of $10.00 and be subject to other
conditions, including Technology development progress and the
first to occur of (i) a minimum daily closing bid price for fonix
shares of $37.50 for a period of at least 15 consecutive trading
days or (ii) 30 months after the date the Warrants are issued
provided, however, that the Warrants shall become immediately
exercisable in the event of a takeover or a merger of fonix. All
matters relating to Technology development progress shall be the
subject of a confidentiality agreement. Each holder of a Project
Share will be offered Warrants to purchase 800 shares of fonix
Common Stock in exchange for one (1) Project Share; provided that
the number of Warrants offered to holders of Project Shares shall
be reduced by one (1) Warrant for each $37.50 in Advances.
B. The issuance of the Warrants to holders of Project Shares will be
subject to a registration statement filed with and declared
effective by the Commission pursuant to the least demanding form
of registration available to fonix.
III. Upon issuance of the Warrants, fonix and fonix Acquisition will cancel
the Royalty and all obligations of fonix thereunder. Concurrently,
fonix and fonix Acquisition will (A) cancel the Project Shares received
from all holders to whom Warrants were issued and (B) indemnify and hold
Synergetics and Xxxxxx harmless from any claims or demands by holders of
Project Shares who did not exchange Project Shares for Warrants.
IV. Each member of the Synergetics Engineering Team selected by fonix will
become a full time employee of fonix on terms and conditions equivalent
to those presently existing with Synergetics, but also including a right
to participate in the fonix Employee Stock Option Plan.
X. Xxxxxx will be retained by fonix as a consultant on terms consistent
with the Agreement.
VI. The shares of fonix Common Stock underlying the Warrants will be the
subject of a registration statement on Form S-3 or such other form as
may be available to fonix for this purpose. Such registration statement
will be filed with the Commission within 90 days after the Warrants
become exercisable.
GENERAL TERMS AND CONDITIONS
1. Definitive Agreement. The transactions described above will be
subject to the negotiation and execution of the Definitive Agreement with
terms satisfactory to fonix, fonix Acquisition, Synergetics and Xxxxxx. The
Definitive Agreement will contain representations, warranties and covenants,
conditions, and indemnification and set-off provisions customary in
transactions of this size and type, subject to the agreement of all parties.
2. Due Diligence. fonix shall have the right to do customary due
dilligence and Synergetics will cause its officers and employees to cooperate
in such due dilligence.
3. Nondisclosure. Except as required by applicable securities laws,
rules and regulations, no press release or other announcement concerning the
proposed acquisition will be issued except by mutual consent of fonix and
Synergetics. Notwithstanding the foregoing, the parties agree that fonix will
issue a press release announcing the execution of this Memorandum and
describing the general scope of the proposed transaction.
4. Conduct of Business; Interim Operations. As long as this Memorandum
remains in effect, Synergetics will use its best efforts to conduct its
business in a reasonable and prudent manner in accordance with past practices,
to preserve its existing business organizations and relationships with its
employees, customers, suppliers, and others with whom it has business
relationships.
5. Broker's Fees. Neither fonix nor Synergetics has entered into any
arrangements with any broker, finder, or investment banker that will result in
payment of a fee in connection with the transactions described above.
6. Expenses. Each party shall be responsible for and shall pay its own
costs and expenses, including without limitation attorneys' fees and
accountants' fees and expenses, in connection with the conduct of the due
diligence inquiry, and negotiation, execution and delivery of this Memorandum.
fonix will reimburse Synergetics its reasonable costs and expenses associated
with the preparation, execution and delivery of the Definitive Agreement.
7. Effect of This Memorandum. The parties do not intend this
Memorandum to be and it is not an offer, purchase or sale of securities and,
except as provided in this paragraph, it reflects only preliminary
negotiations. This Memorandum sets forth the intent of the parties only, is
not binding on the parties, and may not be relied on as the basis for a
contract by estoppel or be the basis for a claim based on detrimental reliance
or any other theory; provided that paragraphs 2, 3 and 6 and this paragraph 7
will be enforceable in accordance with their terms. With the exceptions of
paragraphs 2, 3, 6 and this paragraph 7, the parties understand that no party
shall be bound until the Definitive Agreement has been negotiated, executed,
delivered and approved by the Board of Directors of fonix and the Board of
Directors and shareholders of Synergetics.
If this Memorandum sets forth your intent to proceed in good faith
substantially in the manner outlined in this letter, please sign a copy of
this Memorandum and return it to fonix.
Very truly yours,
fonix Corporation
By /s/ Xxxxxx X. Xxxxxxx
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Xxxxxx X. Xxxxxxx, President
Accepted and agreed to this ____ day of March, 1997.
Synergetics, Inc.
By: /s/ Xxx Xxxxxx
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Its: CEO
/s/ Xxx Xxxxxx
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Xxx Xxxxxx
