EXHIBIT K
AUDIUM NOTE
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THIS NOTE AND THE SECURITIES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD, PLEDGED, OR OTHERWISE TRANSFERRED
OR DISPOSED OF UNLESS AND UNTIL THIS NOTE AND/OR SUCH SECURITIES ARE REGISTERED
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
LEGAL COUNSEL IS DELIVERED TO THE COMPANY STATING THAT AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE.
THIS NOTE AND THE SECURITIES ISSUABLE HEREUNDER ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN FIRST REFUSAL AND CO-SALE AGREEMENT BY AND AMONG THE
COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY, AND TO CERTAIN OTHER
LIMITATIONS ON TRANSFER SET FORTH THEREIN AND MAY NOT BE OFFERED, SOLD, PLEDGED,
OR OTHERWISE TRANSFERRED OR DISPOSED OF OR ENCUMBERED, EXCEPT IN STRICT
ACCORDANCE WITH THE TERMS OF SUCH AGREEMENT. A TRANSFEREE OF THIS NOTE OR THE
SECURITIES ISSUABLE HEREUNDER SHALL BE BOUND BY SUCH AGREEMENT. UPON WRITTEN
REQUEST TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE,
THE COMPANY WILL PROVIDE THE RECORD HOLDER OF THIS NOTE OR THE SECURITIES
ISSUABLE HEREUNDER WITH A COPY OF SUCH AGREEMENT.
PROMISSORY NOTE
$400,000.00 April 9, 2001
FOR VALUE RECEIVED, the undersigned, AUDIUM CORPORATION, a Delaware
corporation ("Maker"), promises to pay to the order of Fonix Corporation
("Payee") at 00 Xxxx Xxxxx Xxxxxx, Xxxx Xxxx Xxxx, Xxxx 00000 (or such other
place as Payee may from time to time designate), the sum of Four Hundred
Thousand and No/100 Dollars ($400,000.00), together with interest on the unpaid
principal balance from time to time outstanding at a rate per annum equal to 5%
(calculated on the basis of actual days elapsed, but computed as if each
calendar year consisted of 360 days), compounded annually; provided that, in no
event shall the interest rate hereunder exceed the highest rate permitted by
law.
1. Funding of Note by Payee. On or about February 28, 2001, Payee
loaned Maker $200,000, which was evidenced by a promissory note Maker executed
and delivered to Payee in the amount of such loan, bearing interest at the rate
of 12% per annum (the "Old Note"). In connection with the execution and delivery
of this Promissory Note (the "Note"), Payee will deliver to Maker the Old Note.
In exchange for cancellation and delivery of the Old Note by Payee, Maker and
Payee agree to transfer the $200,000 outstanding under the Old Note, plus $2,400
in accrued and unpaid interest under the Old Note, to this Note (collectively,
the "First Advance"). On May 1, 2001 (the "Second Advance Date"), Payee shall
advance to Maker, in cash or other immediately available funds, $197,600, to
satisfy Payee's funding obligation under this Note.
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2. Payment, Maturity Date. Interest on the First Advance shall accrue
from the date of this Note to the Second Advance Date. Interest on the entire
amount evidenced by this Note shall accrue from the Second Advance Date until
this Note and all accrued interest are paid in full. The outstanding principal
amount of this Note and all accrued but unpaid interest shall be payable in full
on April 9, 2005 (or earlier as set forth in Sections 3 and 5). All past due
principal of, and accrued interest on, this Note shall bear interest from
maturity (stated, by acceleration, or otherwise) until indefeasibly paid in full
at the lesser of 12% or the highest rate permitted by law.
3. Conversion.
(a) Mandatory Conversion. The outstanding principal balance
and unpaid accrued interest evidenced by this Note shall be converted
into fully paid and nonassessable shares of Series A Preferred Stock
(as defined in Maker's Certificate of Designation ("Certificate") filed
with the Delaware Secretary of State on April 9, 2001) in accordance
with Section 3(b) in lieu of payment under Section 2 (a "Mandatory
Conversion") upon the occurrence of any of the following events
(individually, a "Triggering Event"):
(i) the completion by Maker of a Funding (as defined
in Section 4) with aggregate net proceeds to Maker of at least
$2,000,000 resulting from a single transaction (including a
series of financings or payments intended to be part of a
single transaction) (a "Qualified Funding") on or before
October 6, 2002;
(ii) in the event that Maker's aggregate revenues, on
a cash basis, for the months of July, August and September,
2002, are not less than $750,000;
(iii) in the event of a voluntary sale by Maker of
all or substantially all of the assets of Maker in which the
holders of the Series A Preferred Stock are paid in full the
Liquidation Preference (as defined in the Certificate);
(iv) in the event of a merger or consolidation of
Maker in which the holders of the Series A Preferred Stock are
paid in full the Liquidation Preference (as defined in the
Certificate);
(v) in the event of a firm commitment underwritten
public offering pursuant to a registration statement filed
under the Securities Act, with an initial "Price to the
Public" of at least $10.00 per share and aggregate offering
proceeds to Maker of not less than $25,000,000 (net of
underwriting discounts and commissions); or
(vi) the occurrence of an "Event of Default" under
that certain Promissory Note in the original principal amount
of $2.6 million executed by Payee in favor of Maker on or
about the date hereof or the related Security Agreement in
which Payee is the Debtor (the "Fonix Security Agreement").
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(b) Conversion Formula. Upon the occurrence of a Triggering
Event, Maker shall provide Payee written notice of the occurrence of
such event. In the event of a Mandatory Conversion, this Note shall
automatically be converted, in whole but not in part, in lieu and in
satisfaction of the principal and accrued but unpaid interest due and
payable at such time, into that number of fully paid and nonassessable
shares of Series A Preferred Stock as is equal to the quotient of the
unpaid principal amount of this Note plus the accrued but unpaid
interest hereon divided by the Conversion Price (as defined in Section
4).
(c) Conversion Procedures. At the time of Mandatory
Conversion, Payee shall surrender this Note to Maker at its principal
executive offices, accompanied by proper instruments of transfer to
Maker or in blank, and the name or names (with address) in which a
certificate or certificates for Series A Preferred Stock are to be
issued. Maker shall, as soon as practicable after compliance with all
conditions herein contained, deliver at such office to Payee,
certificates for the number of full shares of Series A Preferred Stock
to which it shall be entitled. Such Mandatory Conversion shall be
deemed to have been made as of the date of such surrender of this Note,
and the person or persons entitled to receive Series A Preferred Stock
or other securities deliverable upon conversion shall be treated for
all purposes as the record holder or holders thereof on such date.
(d) No Fractional Shares. No fractional shares or scrip
representing fractional shares of Series A Preferred Stock shall be
issued upon conversion of this Note. All calculations of the number of
shares of Series A Preferred Stock to be issued upon conversion of this
Note shall be rounded to the nearest whole share.
(e) Reservation of Shares; Transfer Taxes; Etc. Maker shall,
at the time of the conversion of this Note, have available, out of its
authorized and unissued stock, solely for the purpose of effecting the
conversion of this Note, such number of shares of Series A Preferred
Stock and other securities free of preemptive rights as shall from time
to time be sufficient to effect the conversion of this Note. Maker
shall pay any and all documentary, stamp or similar issue or other
taxes that may be payable in respect of any issue or delivery of shares
of Series A Preferred Stock or other securities upon conversion of this
Note by Payee. Maker shall not, however, be required to pay any tax
which may be payable in respect of any transfer involved in the
issuance or delivery of certificates representing Series A Preferred
Stock in a name other than that of Payee at the time of conversion, and
until the payment of such tax, shall not be required to issue such
certificates representing Series A Preferred Stock.
4. Defined Terms. As used in this Note, the following terms have the
respective meanings set forth below:
(a) "Conversion Price" shall mean $1.46 (as may be adjusted in
accordance with the definition of Series A Conversion Price set forth
in the Certificate).
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(b) "Funding" shall mean any sale or issuance by Maker of any
class or series of capital stock or any note or debenture pursuant to a
private or public round of financing (which could include options,
warrants or other rights to acquire such or similar stock or
instruments after the date of this Note).
5. Events of Default and Remedies. Without notice or demand (which are
hereby waived), the entire unpaid principal balance of and all accrued interest
on this Note shall immediately become due and payable at the option of the
holder hereof upon the occurrence of any one or more of the following events of
default (each an "Event of Default"):
(a) the failure or refusal of Maker to pay all or any part of
the principal of or accrued interest on this Note as and when the same
becomes due and payable in accordance with the terms hereof within ten
days of written notice by Payee of such non-payment;
(b) the occurrence of an Event of Default under that certain
Security Agreement dated as of even date herewith by and between Payee,
as Secured Party, and Maker, as Debtor (the "Security Agreement"), and
the continuation of such Event of Default for a period of 30 days after
written notice thereof is delivered by Payee to Maker; or
(c) Maker shall (i) become insolvent within the meaning of the
Bankruptcy Code of the United States, as amended, (ii) voluntarily
seek, consent to, or acquiesce in the benefit or benefits of any Debtor
Relief Law (meaning the Bankruptcy Code of the United States, as
amended, and all other applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief laws from time to time in
effect affecting the rights of creditors generally), or (iii) be made
the subject of any involuntary proceeding provided for by any Debtor
Relief Law that could suspend or otherwise materially affect any of the
rights of the holder hereof.
Upon the occurrence of an Event of Default, the holder of this Note may
(a) offset against this Note any sum or sums owed by the holder hereof to Maker,
and (b) proceed to protect and enforce its rights either by suit in equity
and/or by action at law, or by other appropriate proceedings, whether for the
specific performance of any covenant or agreement contained in this Note or any
document or instrument executed and delivered by Maker in connection with this
Note or in aid of the exercise of any power or right granted by this Note or any
document or instrument executed and delivered by Maker in connection with this
Note or to enforce any other legal or equitable right of the holder of this
Note.
6. Security Agreement and License Agreement. This Note is secured by
the Collateral (as defined in the Security Agreement), as well as the license
(the "License") granted to Payee in Maker's technology, as more particularly
described in the License Agreement between Maker and Payee of even date herewith
(the "License Agreement"). In the event of Mandatory Conversion pursuant to
Section 3 above, or Maker's payment of the outstanding principal balance and
accrued and unpaid interest in accordance with Section 2 above, Maker's right,
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title and interest in and to the Collateral (including the Security Agreement)
and the License shall automatically and immediately terminate.
7. Prepayment. Except as expressly set forth in Section 3 above, Maker
shall have no right to prepay the outstanding principal balance or accrued
interest evidenced by this Note.
8. No Impairment. Maker will not, by amendment of its Amended
Certificate of Incorporation or through any reorganization, transfer of assets,
merger, dissolution, issuance or sale of securities or any other voluntary
action or inaction, intentionally avoid or seek to avoid the observance or
performance of any of the material terms to be observed or performed hereunder
by Maker but will at all times in good faith assist in the carrying out of all
the provisions of this Note.
9. Cumulative Rights. No delay on the part of the holder of this Note
in the exercise of any power or right under this Note, or under any document or
instrument executed in connection herewith, shall operate as a waiver thereof,
nor shall a single or partial exercise of any other power or right.
10. Waiver. Maker, and any other party ever liable for the payment of
any sum of money payable on this Note, jointly and severally waive demand,
presentment, protest, notice of nonpayment, notice of intention to accelerate,
notice of acceleration, notice of protest, and any and all lack of diligence or
delay in collection or the filing of suit hereon which may occur; agree that
their liability on this Note shall not be affected by any renewal or extension
in the time of payment hereof, by any indulgences, or by any release or change
in any security for the payment of this Note; and hereby consent to any and all
renewals, extensions, indulgences, releases, or changes hereof or hereto,
regardless of the number of such renewals, extensions, indulgences, releases, or
changes.
11. Attorneys' Fees and Costs. In the event an Event of Default shall
occur, and in the event that thereafter this Note is placed in the hands of
attorneys for collection, or in the event this Note is collected in whole or in
part through legal proceedings of any nature, then and in any such case Maker
promises to pay all costs of collection, including, but not limited to,
reasonable attorneys' fees, incurred by the holder hereof on account of such
collection.
12. NO ORAL AGREEMENTS. THIS NOTE (ALONG WITH THE OTHER DOCUMENTS AND
INSTRUMENTS EXECUTED AND DELIVERED PURSUANT THERETO) REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
13. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of Delaware.
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14. Severability. If any provision of this Note shall be held to be
unenforceable by a court of competent jurisdiction, such provisions shall be
severed from this Note and the remainder of this Note shall continue in full
force and effect.
15. Assignment. This Note, or any portion hereof, may not be assigned
by Payee without the consent of Maker unless such assignment is to an affiliate
of Payee. Any such assignment by Payee shall be in compliance with the
Securities Act and applicable state securities laws.
16. Limitation on Interest. It is the intent of Payee and Maker in the
execution of this Note and all other instruments now or hereafter securing this
Note to contract in strict compliance with applicable usury law. In furtherance
thereof, Payee and Maker stipulate and agree that none of the terms and
provisions contained in this Note, or in any other instrument executed in
connection herewith, shall ever be construed to create a contract to pay for the
use, forbearance or detention of money, interest at a rate in excess of the
maximum interest rate permitted to be charged by applicable law; that neither
Maker nor any other parties now or hereafter becoming liable for payment of this
Note shall ever be obligated or required to pay interest on this Note at a rate
in excess of the maximum interest that may be lawfully charged under applicable
law; and that the provisions of this paragraph shall control over all other
provisions of this Note and any other instruments now or hereafter executed in
connection herewith which may be in apparent conflict herewith. The holder of
this Note expressly disavows any intention to charge or collect excessive
unearned interest or finance charges in the event the maturity of this Note is
accelerated. If the maturity of this Note shall be accelerated for any reason or
if the principal of this Note is paid prior to the end of the term of this Note,
and as a result thereof the interest received for the actual period of existence
of the loan evidenced by this Note exceeds the applicable maximum lawful rate,
the holder of this Note shall, at its option, either refund to Maker the amount
of such excess or credit the amount of such excess against the principal balance
of this Note then outstanding and thereby shall render inapplicable any and all
penalties of any kind provided by applicable law as a result of such excess
interest. In the event that Payee or any other holder of this Note shall
contract for, charge or receive any amount or amounts and/or any other thing of
value which are determined to constitute interest which would increase the
effective interest rate on this Note to a rate in excess of that permitted to be
charged by applicable law, an amount equal to interest in excess of the lawful
rate shall, upon such determination, at the option of the holder of this Note,
be either immediately returned to Maker or credited against the principal
balance of this Note then outstanding, in which event any and all penalties of
any kind under applicable law as a result of such excess interest shall be
inapplicable. The term "applicable law" as used in this Note shall mean the laws
of the State of Delaware or the laws of the United States, whichever laws allow
the greater rate of interest, as such laws now exist or may be changed or
amended or come into effect in the future.
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IN WITNESS WHEREOF, the undersigned has executed this Note as of the
day and year first above written.
AUDIUM CORPORATION
By:
Name: Xxxxxxx X. Xxxxxxxxx
Title: President
Address: 000 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, Xxx Xxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
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