THIS AMENDED AND RESTATED PURCHASE AGREEMENT, dated as of October 24,
1997 (this "Agreement"), between fonix corporation, a corporation organized
and existing under the laws of Delaware (the "Company"), and Southbrook
International Investments, Ltd., a corporation organized and existing under
the laws of the British Virgin Islands (the "Purchaser"), amends and
restates in their entirety all of the terms of the Convertible Debenture
Purchase Agreement between the parties dated June 18, 1997 (the "Convertible
Debenture Purchase Agreement");
WHEREAS, on or about June 18, 1997, the Purchaser entered into the
Convertible Debenture Purchase Agreement with the Company whereby the
Purchaser agreed, subject to the terms and conditions set forth therein, to
purchase up to $10,000,000 of Series B 5% Convertible Debentures of the
Company (the "Convertible Debentures");
WHEREAS, on June 18, 1997, Purchaser paid the Company $2,500,000 to
purchase the aggregate principal amount of $2,500,000 of Convertible
Debentures pursuant to the terms of the Convertible Debenture Purchase
Agreement;
WHEREAS, on or before the date hereof, Purchaser has converted the
entire principal amount of $3,000,000 of Convertile Debentures into shares
of the Company's common stock, par value $.0001 per share (the "Common
Stock");
WHEREAS, the Company has requested that the Purchaser agree that to
the extent Purchaser invests any portion of the balance of the amount
anticipated to be paid under the Convertible Debenture Purchase Agreement,
Purchaser shall acquire the Company's Series B Convertible Preferred Stock,
par value $.0001 per share, (the "Preferred Stock"), rather than additional
Convertible Debentures pursuant to the Convertible Debenture Purchase
Agreement;
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to acquire shares of Preferred Stock; and
WHEREAS, as set forth in this Agreement, the Company and the Purchaser
have agreed to amend and restate all of the terms of the Convertible
Debenture Purchase Agreement.
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED STOCK
1.1 Purchase and Sale. (a) Subject to the terms and conditions set
forth herein, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company, an aggregate of 125,000 shares of
Preferred Stock at a price per share of $20 (the "Stated Value"). The
aggregate purchase price (the "Purchase Price") for the Preferred Stock is
$2,500,000.
(b) The Preferred Stock shall have the respective rights,
preferences and privileges set forth in Exhibit A attached hereto, which
shall be incorporated into a Certificate of Designation to be approved by
the Purchaser and filed on or prior to the Closing (as defined below) by the
Company with the Secretary of State of Delaware (the "Certificate of
Designation").
1.2 The Closing.
(a) The closing of the purchase and sale of the Preferred
Stock (the "Closing") shall take place at the offices of Durham, Evans,
▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., Suite 850 Key Bank Tower, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇ (the "Escrow Agent"), immediately following the
execution hereof or such later date as the parties shall agree. The date of
the Closing is hereinafter referred to as the "Closing Date."
(i) Prior to the Closing, the parties shall deliver to
the Escrow Agent such items as are required to be delivered by them in
accordance with and subject to the terms and conditions of the escrow
agreement, dated as of the date hereof, by and among the Company, the
Purchaser and the Escrow Agent (the "Escrow Agreement"), including the
following: (a) the Company shall deliver (1) certificates representing the
Preferred Stock and the Closing Date Warrants (as defined in Section 3.15),
each registered in the name of the Purchaser, (2) the legal opinion of
Durham, Evans, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C. substantially in the form attached
hereto as Exhibit C, and (3) all other documents, instruments and writings
required to have been delivered at or prior to the Closing by the Company
pursuant to this Agreement and the registration rights agreement covering
the shares of Common Stock issuable upon conversion of the Preferred Stock
(the "Registration Rights Agreement") and (b) the Purchaser shall deliver
(1) the Purchase Price, less the fees contemplated in Section 5.1, in United
States dollars in immediately available funds by wire transfer to an account
designated in writing by the Company for such purpose on or prior to the
Closing Date and (2) all documents, instruments and writings required to
have been delivered at or prior to the Closing by the Purchaser pursuant to
this Agreement and the Registration Rights Agreement.
1.3 Certain Definitions. For purposes of this Agreement,
"Conversion Price," "Original Issue Date," "Conversion Date" "Trading Day"
and "Per Share Market Value" shall
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have the meanings set forth in the Certificate of Designation; and "Market
Price" as at any date shall mean the average Per Share Market Value for the
five (5) Trading Days immediately preceding such date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby represents and warrants to the Purchaser as follows:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under
the laws of the State of Delaware, 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 2.1(a) attached hereto (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 full 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, (x) adversely affect the
legality, validity or enforceability of this Agreement, the Certificate of
Designation, the Warrants, the Escrow Agreement, the Put Option (as defined
in Section 3.3) and the Registration Rights Agreement (collectively, the
"Transaction Documents"), (y) have a material adverse effect on the results
of operations, assets, prospects, or financial condition of the Company and
the Subsidiaries, taken as a whole, or (z) adversely impair the Company's
ability to perform fully on a timely basis its obligations under the
Transaction Documents (a "Material Adverse Effect").
(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 otherwise to
carry out its obligations thereunder. The execution and delivery of each of
the Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby has been duly authorized by all necessary
action on the part of the Company. Each of the Transaction Documents
executed at or prior to the date hereof has been duly executed by the
Company and when delivered in accordance with the terms hereof constitutes
the 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
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general application. Neither the Company nor any Subsidiary is in violation
of any of the provisions of its respective certificate of incorporation, by-
laws or other charter documents.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder
of the Common Stock entitled to preemptive or similar rights arising out of
any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as disclosed in Schedule 2.1(c), there are no
outstanding options, warrants, script 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 Preferred Stock and Warrants hereunder,
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 (as defined below) or
Schedule 2.1(c), no Person (as defined below) beneficially owns (as
determined pursuant to Rule 13d-3 promulgated under the Securities Exchange
Act of 1934, as amended (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. A "Person" means an
individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other
entity of any kind.
(d) Issuance of Preferred Stock and Warrants. The Preferred
Stock and the Warrants are duly authorized, and, when issued exchanged and
paid for in accordance with the terms hereof, shall be validly issued, fully
paid and nonassessable. The Company, as at the Closing Date, has and at all
times while the Preferred Stock and the Warrants are outstanding will
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, the Certificate of Designation and the Warrants, which
reserve shall be no less than the sum of (i) two times the number of shares
of Common Stock which would be issuable upon conversion in full of the
Preferred Stock ("Underlying Shares"), were such conversion effected on the
Original Issue Date, (ii) the number of shares of Common Stock as are
issuable as payment of dividends on the Preferred Stock, and (iii) the
number of shares of Common Stock which would be issuable upon exercise in
full of the Warrants (the "Warrant Shares"). When issued in accordance with
the terms hereof and the Certificate of Designation, the Underlying Shares
will be duly authorized, validly issued, fully paid and nonassessable; and
when issued upon exercise of the Warrants in accordance with its respective
terms, the Warrant Shares will be duly authorized, validly issued, fully
paid and nonassessable.
(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
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Certificate of Incorporation or bylaws (each as amended through the date
hereof) or (ii) subject to obtaining the consents referred to in Section
2.1(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 to which the Company is a party,
or (iii) to the knowledge of the Company, 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 material property or asset of the Company is bound or affected, except
in the case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations 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 or in the aggregate, do not have a
Material Adverse Effect.
(f) Consents and Approvals. Except as specifically set forth
in Schedule 2.1(f), 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 or other govern-
mental 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 Underlying Securities Registration Statements with the
Commission, which shall be filed in the time periods set forth in the
Registration Rights Agreement, (ii) the applications for the listing of the
Underlying Shares and the Warrant Shares with the Nasdaq Stock Market (and
with any other national securities exchange or market on which the Common
Stock is then listed), and (iii) 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 have or result in, individually or
in the aggregate, a Material Adverse Effect and to deliver to the Purchaser
the Preferred Stock (and, upon conversion thereunder, the Underlying Shares)
or the Warrants (and, upon exercise of the Warrants, the Warrant Shares)
(the Preferred Stock, Underlying Shares, Warrants and Warrant Shares are
collectively, the "Securities") in the manner contemplated hereby and by the
Registration Rights Agreement free and clear of all liens and encumbrances
of any nature whatsoever (together with the consents, waivers,
authorizations, orders, notices and filings referred to in Schedule 2.1(f),
the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Materials (as hereinafter defined) or in a writing to
Purchaser, 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 of the Transaction Documents or the Securities or (ii)
could not, individually or in the aggregate, have or result in a Material
Adverse Effect.
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(h) No Default or Violation. Neither the Company nor any
Subsidiary (i) is in default under or in violation of any indenture, loan or
credit agreement or any other agreement or instrument to which it is a party
or by which it or any of its properties is bound, (ii) is in violation of
any order of any court, arbitrator or governmental body, or (iii) is in
violation of any statute, rule or regulation of any governmental authority,
except as could not individually or in the aggregate, have or result in,
individually or in the aggregate, Material Adverse Effect and except in the
case of clause (i) above as has not been waived.
(i) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action which might subject
the offering, issuance or sale of the Securities to the registration
requirements of Section 5 of the Securities Act. Notwithstanding the
foregoing sentence, the Company has engaged in unregistered sales of its
debt and equity securities as described in Schedule 2.1(i), and the Company
makes no warranty or representation about the extent to which such prior
unregistered offerings may be integrated with each other or with any public
resales of the securities sold in such unregistered offering, whether
pursuant to an effective registration statement filed with the Commission or
otherwise.
(j) SEC Documents. 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" and, together with the Schedules to this Agreement and
other documents and information furnished by or on behalf of the Company, as
the "Disclosure Materials") on a timely basis or has filed the documents
required to obtain a valid extension of such time of filing. 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 published
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 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 last filed Quarterly Report on Form 10-Q prior to the date of this
Agreement, there has been no event, occurrence or development that has had
or that could have or result in a Material Adverse Effect which has not been
specifically disclosed in writing to the Purchaser by the Company. The
Company last filed audited financial statements with the Commission on
September 8, 1997, and has not received any comments from the Commission in
respect thereof.
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(k) Investment Company. The Company is not, and is not an
Affiliate of an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(l) Certain Fees. Except for the fees payable to Allied
Capital International, Inc. and Tuscan Finance & Trade Establishment, no
fees or commissions will be payable by the Company to any broker, financial
advisor, finder, investment banker, or bank with respect to the transactions
contemplated by this Agreement. The Purchaser 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 by this Agreement. The
Company shall indemnify and hold harmless the Purchaser, its employees,
officers, directors, agents, and partners, and their respective Affiliates
(as such term is defined under Rule 405 promulgated under the Securities
Act), 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.
(m) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering and sale
of the Securities other than the Disclosure Materials and any amendments and
supplements thereto or (ii) solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under
the Securities Act.
(o) Exclusivity. The Company shall not issue and sell the
Preferred Stock to any Person other than the Purchaser other than with the
specific prior written consent of the Purchaser.
(p) Listing and Maintenance Requirements Compliance. Other
than as specifically listed in a writing to Purchaser the Company has not in
the two years preceding the date hereof received written notice from any
stock exchange or market on which the Common Stock is or has been listed (or
on which it has been quoted) to the effect that the Company is not in
compliance with the listing or maintenance requirements of such exchange or
market. The Company has provided to the Purchaser true and complete copies
of any notices referenced in any applicable writing to the Purchaser.
(q) Use of Proceeds. The Company shall use all of the
proceeds from the placement of the Securities for working capital purposes
and not for the satisfaction of any portion of Company debt or to redeem
Company equity or equity-equivalent securities. Pending application of the
proceeds of this placement in the manner permitted hereby the Company will
invest such proceeds in interest bearing accounts and/or short-term,
investment grade interest bearing securities.
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2.2 Representations and Warranties of the Purchaser. The Purchaser
hereby represents and warrants to the Company as follows:
(a) Organization; Authority. The Purchaser 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 enter into and to consummate the transactions contemplated
hereby and by the Registration Rights Agreement and otherwise to carry out
its obligations hereunder and thereunder. The purchase of the Preferred
Stock and the Warrants and the payment of the Purchase Price thereof by the
Purchaser has been duly authorized by all necessary action on the part of
the Purchaser. Each of this Agreement and the Registration Rights Agreement
has been duly executed and delivered by the Purchaser and constitutes the
valid and legally binding obligation of the Purchaser, enforceable against
the Purchaser, 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. The Purchaser is acquiring the
Securities 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 the Purchaser's right,
subject to the provisions of this Agreement and the Registration Rights
Agreement, at all times to sell or otherwise dispose of all or any part of
such Preferred Stock, Underlying Shares, Warrants or Warrant Shares 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.
(c) Purchaser Status. At the time the Purchaser was offered
the Preferred Stock and the Warrants, it was, and at the date hereof, it is,
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. The 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.
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk and the Purchaser is able to bear the economic
risk of an investment in the Securities, and, at the present time, is able
to afford a complete loss of such investment.
(f) Access to Information. The 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 Preferred Stock
and the
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Warrants, and the merits and risks of investing in the Preferred Stock and
the Warrants; (ii) access to 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 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.
(g) Affiliate Status. On the date prior to this Agreement,
the Purchaser was not an Affiliate of the Company.
(h) Reliance. The Purchaser understands and acknowledges that
(i) the Preferred Stock and the Warrants are being offered and sold to the
Purchaser 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 the Purchaser hereby consents to such reliance.
The Company acknowledges and agrees that the Purchaser makes no
representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) If the Purchaser should decide to
dispose of any of the Preferred Stock or any portion of the Warrants (and
upon conversion or exercise thereof, as the case may be, any of the
Underlying Shares or Warrant Shares) held by it, the Purchaser understands
and agrees that it may do so only pursuant to an effective registration
statement under the Securities Act, to the Company or pursuant to an
available exemption from the registration requirements thereof. In
connection with any transfer of any portion of the shares of Preferred
Stock, any portion of the Warrants or any Underlying Shares or Warrant
Shares other than pursuant to an effective registration statement or to the
Company, the Company may require the transferor thereof at its sole expense
to provide to the Company an opinion of counsel experienced in the area of
United States securities laws 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 of such
transferred securities under the Securities Act.
(b) The Purchaser agrees to the imprinting, so long as is
required by this Section 3.1(b), of the following legend or a substantially
similar legend on the Securities:
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NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] 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.
[FOR PREFERRED STOCK ONLY] THE SHARES REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND CONVERSIONS SET
FORTH IN AN AMENDED AND RESTATED PURCHASE AGREEMENT, DATED AS OF
OCTOBER 24, 1997, BETWEEN fonix corporation (THE "COMPANY") AND THE
ORIGINAL HOLDER HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF THE COMPANY.
The Underlying Shares issuable upon conversion of Preferred
Stock and the Warrant Shares issuable upon exercise of the Warrants, as the
case may be, shall not contain the legend set forth above if the conversion
of such Preferred Stock or exercise of the Warrants, as the case may be,
occurs at any time while an Underlying Securities Registration Statement is
effective under the Securities Act or, in the event there is not an
effective Underlying Securities Registration Statement at such time, if in
the opinion of counsel to the Company experienced in the area of United
States securities laws such legend is not required under applicable
requirements of the Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The Securities shall
also bear any other legends required by applicable Federal or state
securities laws, which legends shall be removed when not required in
accordance with this Section 3.1(b). The Company agrees that it will
provide the Purchaser, upon request, with a certificate or certificates
representing Underlying Shares and Warrant Shares, free from such legend at
such time as such legend is no longer required hereunder.
3.2 Stop Transfer Instruction. 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 Section 3.1,
except that the Company may, to the extent and as long as appropriate,
enlarge such restrictions if it is determined by a court of competent
jurisdiction that the Purchaser has breached in any material respects the
transfer restrictions set forth in Section 3.1.
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3.3 Put Option. The Company shall execute and deliver the Preferred
Stock Put Option Agreement dated as of October 24, 1997 (the "Put Option")
in the form of Exhibit F, prior to the Closing.
3.4 Furnishing of Information. As long as the Purchaser owns the
Securities or any other securities of the Company, the Company covenants to
timely file (or obtain extensions in respect thereof) 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 and upon request therefor by the Purchaser, to
promptly furnish the Purchaser with true and complete copies of all such
filings. If the Company is not at the time required to file reports
pursuant to such sections, it will prepare and furnish to the Purchaser
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.
3.5 Copies and Use of Disclosure Materials. The Company consents to
the use of the Disclosure Materials, and any amendments and supplements
thereto, by the Purchaser in connection with resales of the Securities,
provided that the Purchaser agrees that by giving the consent set forth in
this Section 3.5, the Company undertakes no obligation to update any such
materials after the date of this Agreement except as required under the
Registration Rights Agreement with respect to the SEC Documents.
3.6 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify the Underlying Shares and the Warrant
Shares under the securities or Blue Sky laws of such jurisdictions as the
Purchaser may reasonably request and shall continue such qualification at
all times through first to occur of (i) the third anniversary of the last
Closing Date or (ii) until the Purchaser shall notify the Company in writing
that it no longer owns the 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
or payments of taxes in any such jurisdiction where it is not then so
subject.
3.7 Integration. The Company shall not, and shall use its best
efforts to ensure, that no Person controlling, controlled by or under common
control with the Company (an "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 or sale of the Securities
to the Purchaser.
3.8 Increase in Authorized Shares. At such time as the Company
would be, if a notice of conversion or exercise (as the case may be) were to
be delivered on such date, precluded from (a) converting in full all of the
outstanding shares of Preferred Stock (and paying any accrued but
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unpaid dividends in respect thereof in shares of Common Stock) that remain
unconverted at such date or (b) honoring the exercise in full of the
Warrants due to the unavailability of authorized but unissued or re-acquired
Common Stock, the Board of Directors of the Company shall promptly (and in
any case within thirty (30) Business Days from such date) prepare and mail
to the shareholders of the Company proxy materials requesting authorization
to amend the Company's restated certificate of incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to
at least 200,000,000 shares. In connection therewith, the Board of
Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special
meeting of the shareholders no later than the 60th day after delivery of the
proxy materials relating to such meeting) and (c) within five (5) Business
Days of obtaining such shareholder authorization, file an appropriate
amendment to the Company's certificate of incorporation to evidence such
increase.
3.9 Purchaser Ownership of Common Stock. The Purchaser may not use
its ability to convert Preferred Stock hereunder or use its ability to
acquire Warrant Shares upon exercise of the Warrants, to the extent that
such conversion or exercise would result in the Purchaser beneficially
owning (for purposes of Rule 13d-3 under the Exchange Act) more than 4.999%
of the outstanding shares of the Common Stock; provided, however, that if
ten (10) days shall have elapsed since Purchaser has declared an event of
default under any Transaction Document and such event shall not have been
cured to Purchaser's satisfaction prior to the expiration of such ten-day
period, the provisions of this Section 3.8 shall be null and void ab initio.
3.10 Listing of Underlying Shares. The Company shall (a) not later
than the fifth Business Day following the applicable Closing Date prepare
and file with the Nasdaq Stock Market (as well as any other national
securities exchange or market on which the Common Stock is then listed) an
additional shares listing application covering at least the sum of (i) two
times the number of Underlying Shares as would be issuable upon a conversion
in full of the Preferred Stock to be issued on the Closing Date, assuming
such conversion occurred on the Original Issue Date, and (ii) the Warrant
Shares issuable upon exercise in full of the Warrants, (b) take all steps
necessary to cause the such shares to be approved for listing in the Nasdaq
Stock Market (as well as on any other national securities exchange or market
on which the Common Stock is then listed) as soon as possible thereafter,
and (c) provide to the Purchaser evidence of such listing, and the Company
shall maintain the listing of its Common Stock on such exchange or market.
3.11 Conversion Procedures. Exhibit E attached hereto sets forth the
procedures with respect to the conversion of the Preferred Stock, including
the forms of conversion notice to be provided upon conversion, instructions
as to the procedures for conversion, the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent and such
other information and instructions as may be reasonably necessary to enable
the Purchaser to exercise its right of conversion smoothly and
expeditiously.
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3.12 Notice of Breaches. Each of the Company and the Purchaser shall
give prompt written notice to the other of any breach of any representation,
warranty or other agreement contained in this Agreement or in the
Registration Rights Agreement, 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 herein to be incorrect or breached as of the Closing Date.
However, no disclosure by either party pursuant to this Section 3.12 shall
be deemed to cure any breach of any representation, warranty or other
agreement contained herein or in the Registration Rights Agreement.
Notwithstanding the generality of the foregoing, the Company shall
promptly notify the Purchaser 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 hereby and by the Registration
Rights Agreement 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 holders of the Preferred Stock a copy
of any written statement in support of or relating to such claim or notice.
3.13 Conversion Obligations of the Company. The Company covenants to
convert Preferred Stock and to deliver Underlying Shares in accordance with
the terms and conditions and time period set forth in the Certificate of
Designation, and to deliver the Warrant Shares in accordance with the terms
and conditions and time periods set forth in the Warrants.
3.14 Right of First Refusal; Subsequent Registrations; Certain
Company Actions. The Company shall not, directly or indirectly, without the
prior written consent of Purchaser, offer, sell, grant any option to
purchase, or otherwise dispose (or announce any offer, sale, grant or any
option to purchase or other disposition) of any of its or its Affiliates
equity or equity-equivalent securities at a price which is on the face
thereof or implied therein, less than either the market price or fair market
value for such securities (a "Subsequent Offering") for a period of 100 days
after the Closing Date, except (i) the granting of options to employees,
officers and directors, and the issuance of shares upon exercise of options
granted, under any stock option plan heretofore or hereinafter duly adopted
by the Company, (ii) shares issued upon exercise of any currently
outstanding warrants and upon conversion of any currently outstanding
convertible preferred stock in each case as and to the extent disclosed in
Schedule 2.1(c), (iii) shares of Common Stock issued upon conversion of
Preferred Stock in accordance herewith, (iv) shares of Common Stock issuable
to ▇▇▇▇▇▇▇ and Associates (and any Person affiliated with it) in connection
with the Company's issuance of up to $20,000,000 of convertible debentures
or convertible preferred stock to such Persons, and (v) shares issued in
connection with the creation or capitalization of a joint venture, an
acquisition of assets of a Person (excluding an individual) a merger or any
public offering unless (A) the Company delivers to Purchaser a written
notice (the "Subsequent Offering Notice") of its intention to effect such
Subsequent Offering, which Subsequent Offering Notice shall describe in
reasonable detail the proposed terms of such Subsequent Offering, the amount
of proceeds intended to be raised thereunder, the Person with whom such
Subsequent Offering shall be affected, and a term sheet or similar document
relating thereto (which shall be attached to such
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Subsequent Offering Notice) and (B) Purchaser shall not have notified the
Company by 5:00 p.m. (Salt Lake City time) on the second Business Day after
its receipt of the Subsequent Offering Notice of its willingness to provide
(or to cause its sole designee to provide) financing to the Company on
substantially the terms set forth in the Subsequent Offering Notice subject
to completion of mutually acceptable and appropriate documentation therefor.
If Purchaser does not notify the Company of its intention to enter into such
negotiations within such time period, the Company may effect the Subsequent
Offering substantially upon the terms and to the Persons (or Affiliates of
such Persons) set forth in the Subsequent Offering Notice or to ▇▇▇▇▇▇▇
Associates (and any Person affiliated with it) or other Persons which have a
right of first refusal substantially similar to the foregoing, but
subordinate to the rights granted to Purchaser above; provided, that the
Company shall provide Purchaser with a second Subsequent Offering Notice,
and Purchaser shall again have the right of first refusal set forth above in
this paragraph, if the Subsequent Offering subject to the initial Subsequent
Offering Notice shall not have been consummated for any reason on the terms
set forth in such Subsequent Offering Notice within 60 Business Days after
the date of the initial Subsequent Offering Notice with the Person (or an
Affiliate of such Person) identified in the Subsequent Offering Notice.
Other than Underlying Shares and other "Registrable Securities" (as
such term is defined in the Registration Rights Agreement) to be registered
in accordance with the Registration Rights Agreement and except as set forth
in Schedule 7(c) to the Registration Rights Agreement and in the preceding
paragraph (which securities may not be registered prior to the time the
Registrable Securities are registered), the Company shall, for a period of
not less than ninety (90) Trading Days after the date that the Underlying
Shares Registration Statement relating to the securities issued is declared
effective by the Commission, not, without the prior written consent of
Purchaser, (i) issue or sell any of its or any of its Affiliates' equity or
equity-equivalent securities pursuant to Regulation S promulgated under the
Securities Act, or (ii) register for resale any securities of the Company.
Any days that Purchaser is unable (either because the Company has notified
the Purchaser that the Purchaser may not utilize such Underlying Shares
Registration Statement, or because any securities exchange or market has
suspended trading in the Common Stock or because any governmental authority
has suspended the use of such Underlying Shares Registration Statement) to
sell Underlying Shares under the Underlying Shares Registration Statement
shall be added to such ninety (90) Trading Day period for the purposes of
(i) and (ii) above.
As long as there are Common Stock and Preferred Stock outstanding, the
Company shall not and shall cause the Subsidiaries not to, without the
consent of Purchaser, (i) amend its certificate of incorporation, bylaws or
other charter documents so as to adversely affect any rights of Purchaser;
(ii) repay, repurchase or offer to repay, repurchase or otherwise acquire
shares of its Common Stock other than as to the Underlying Shares; or
(iii) enter into any agreement with respect to any of the foregoing.
3.15 The Warrants. The Company shall issue to the Purchaser, common
stock purchase warrants, in the form of Exhibit D, pursuant to which the
Purchaser shall have the right at any
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time thereafter through the fifth anniversary of the date of issuance
thereof, to acquire (i) 175,000 shares of Common Stock on the Closing Date
(the "Closing Date Warrants"), (ii) 10,000 shares of Common Stock six (6)
months from the Closing Date, for (a) every 50,000 shares of Preferred Stock
and (b) Underlying Shares, then held by the Purchaser having an aggregate
Per Share Market Value of $1,000,000 (the "Six Month Warrants"), and (iii)
30,000 shares of Common Stock twelve (12) months from the Closing Date
hereof, for (a) every 50,000 shares of Preferred Stock, and (b) Underlying
Shares, then held by the Purchaser having an aggregate Per Share Market
Value of $1,000,000 (the "Twelve Month Warrants"), The exercise price per
share of the Warrants shall be equal to 125% of the average price per share
of Common Stock for the five (5) Trading Days immediately preceding the date
on which the Closing Date Warrants, Six Month Warrants and Twelve Month
Warrants, respectively, are made. The Closing Date Warrants, Six Month
Warrants and Twelve Month Warrants shall collectively be referred to as the
"Warrants".
ARTICLE IV
MISCELLANEOUS
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
as set forth in the Registration Rights Agreement and except that the
Company shall reimburse the Purchaser for its of legal fees in connection
with the negotiation and preparation of the Transaction Documents. The
Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares pursuant hereto. The Purchaser shall be
responsible for the Purchaser's own tax liability that may arise as a result
of the investment hereunder or the transactions contemplated by this
Agreement.
5.2 Entire Agreement; Amendments. This Agreement, together
with the Exhibits and Schedules hereto, the Registration Rights Agreement,
the Certificate of Designation, Put Option and the Warrants 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.
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 4:30 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 4:30 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
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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: fonix corporation
▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
With copies to: Durham, Evans, ▇▇▇▇▇ & ▇▇▇▇▇▇▇
Key Bank Tower
▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If to the Purchaser: Southbrook International Investments, Ltd.
c/o Trippoak Advisors, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
With copies to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Aronsohn & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
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 both the Company and the Purchaser; or, in the case of a
waiver, by the party against whom enforcement of any such waiver is sought.
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.
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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.
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. Neither the Company nor any Purchaser may assign this
Agreement or any rights or obligations hereunder without the prior written
consent of the other. The assignment by a party of this Agreement or any
rights hereunder shall not affect the obligations of such party under this
Agreement.
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.
5.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without regard to the principles of conflicts of law thereof.
5.9 Survival. The agreements and covenants contained in
Article IV and this Article V shall survive the delivery and conversion of
the Preferred Stock pursuant to this Agreement and the representations and
warranties of the Company and the Purchaser contained in Article III shall
survive until a date that is three years after the last Closing Date.
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 party, it being understood
that both 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.
Notwithstanding the foregoing, the parties agree that the Company may file
conformed copies of the Transaction Documents as exhibits to the reports
required under the Exchange Act and no prior written notice of such filing
shall be required under this Section 5.10.
5.11 Publicity. The Company and the Purchaser shall consult
with each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby and neither
party shall issue any such press release or otherwise make any such public
statement without the prior written consent of the other, 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 party with prior notice of such
public statement.
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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 affecting 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.
5.13 ▇▇▇▇▇. The Purchaser agrees to provide to the Company
upon request therefor electronic copies of this Agreement and all exhibits
thereto, including any subsequent amendments or modifications thereof.
5.14 Effective Date. Notwithstanding anything to the contrary
in this Agreement, Purchaser and the Company expressly agree that the
transactions contemplated by this Agreement are in furtherance of the
transactions contemplated by that certain Memorandum of Understanding by and
between Purchaser and the Company and dated as of September 30, 1997 (the
"MOU"). Furthermore, Purchaser agrees that, for purposes of financial
accounting, the Company may record the transactions contemplated by this
Agreement as if they occurred on September 30, 1997 in furtherance of the
MOU, although Purchaser's agreement in such regard shall have no effect on
the substance of this Agreement or any document or instrument executed in
connection with this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized persons as of
the date first indicated above.
Company:
fonix corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
Purchaser:
SOUTHBROOK INTERNATIONA INVESTMENTS, LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Assistant Secretary
SCHEDULE 2.1 (a)
1. fonix systems corporation, a Utah corporation, wholly owned by the
Company.
SCHEDULE 2.1 (c)
Capitalization
1. Authorized Common Stock - 100,000,000 shares, $.0001 per share
2. Authorized Preferred Stock - 20,000,000 shares, $.0001 per share
3. Issued Common Stock - 42,723,989 shares at October 24, 1997
4. Issued Preferred Stock -
Series A Preferred Stock, 166,667 shares authorized for
issuance, 166,667 shares issued and outstanding (certificate of
designation of rights and preferences of which is attached
hereto)
Series C Preferred Stock, 187,500 shares authorized for
issuance, 187,500,000 shares issued and outstanding (certificate
of designation of rights and preferences of which is attached
hereto)
5. Outstanding Options, Warrants and Similar Rights at October 24, 1997-
(a) Total Warrants-600,000 Warrants granted (1)
(b) Total Options-9,075,000 Options granted (2)
________________________
(1) Excludes the 200,000 Warrants to be issued under the Purchase
Agreement
(2) Estimate. Actual number of warrants issued as of October 24,
1997 could be as much as 200,000 shares lower, depending on the
outcome of pending negotiations with and deliberations about
employee stock option grants.
EXHIBIT A
SERIES B CONVERTIBLE PREFERRED STOCK TERMS
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as the Series B Convertible Preferred
Stock (the "Preferred Stock"), and the number of shares so designated shall
be 125,000. Each share of Preferred Stock shall have a par value of $.0001
per share and a stated value of $20 per share (the "Stated Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, quarterly in arrears on March
31, June 30, September 30 and December 31 of each year, commencing December
31, 1997, and on each Conversion Date (as hereinafter defined), cumulative
dividends on the Preferred Stock at the rate per share (as a percentage of
the Stated Value per share) equal to 5% per annum, payable in cash or shares
of Common Stock (as defined in Section 6) at the option of the Company. The
number of shares of Common Stock issuable as payment of dividends hereunder
shall equal the aggregate dollar amount of dividends then being paid,
divided by the Conversion Price (as defined in Section 5(c)(i)) then in
effect. Dividends on the Preferred Stock shall be calculated on the basis
of a 360-day year, shall accrue daily commencing the Original Issue Date (as
defined in Section 6), and shall be deemed to accrue on such date whether or
not earned or declared and whether or not there are profits, surplus or
other funds of the Company legally available for the payment of dividends.
The party that holds the Preferred Stock on an applicable record date for
any dividend payment will be entitled to receive such dividend payment and
any other accrued and unpaid dividends which accrued prior to such dividend
payment date, without regard to any sale or disposition of such Preferred
Stock subsequent to the applicable record date but prior to the applicable
dividend payment date. Except as otherwise provided herein, if at any time
the Company pays less than the total amount of dividends then accrued on
account of the Preferred Stock, such payment shall be distributed ratably
among the holders of the Preferred Stock based upon the number of shares
then held by each holder. In order for the Company to exercise its right to
pay dividends in shares of Common Stock, the Company shall, no less than
five (5) Trading Days prior to the first day of the calendar quarter in
which a dividend payment date (other than a Conversion Date) occurs, provide
the holders of the Preferred Stock written notice of its intention to pay
dividends in shares of Common Stock.
(b) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends on the
Preferred Stock (and must deliver cash in respect thereof) if: ( the
number of shares of Common Stock at the time authorized, unissued and
unreserved for all purposes, or held as treasury stock, is either
insufficient to issue such dividends in shares of Common Stock or the
Company has not duly reserved for issuance in respect of such dividends a
sufficient number of shares of Common Stock, ( such shares are not
registered for resale pursuant to an effective Underlying Securities
Registration Statement (as defined in Section 6) and may not be sold
without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), as determined by
counsel to the Company pursuant to a written opinion letter, addressed and
acceptable to the Company's transfer agent or other Person performing
functions similar thereto, ( such shares are not listed for trading on the
Nasdaq SmallCap Market, Nasdaq National Market, The New York Stock Exchange
or the American Stock Exchange (and any other exchange, market or trading
facility in which the Common Stock is then listed for trading), ( the
issuance of such shares would result in the recipient thereof beneficially
owning, determined in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, more than 4.999% of the then
issued and outstanding shares of Common Stock, unless the issuance of shares
of Common Stock in excess of such amount is then permitted by Section 3.9 of
the Purchase Agreement, or (v) the Company shall have failed to timely
satisfy its obligations pursuant to any Conversion Notice.
Payment of dividends in shares of Common Stock is further
subject to the provision of Section 5(a)(ii).
(c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined
in Section 6), nor shall the Company directly or indirectly pay or declare
any dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect
of, any Junior Securities, nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of any
Junior Securities or shares pari passu with the Preferred Stock.
Section 3. Voting Rights. Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights. However, so long as any shares of Preferred Stock are outstanding,
the Company shall not and shall cause its subsidiary not to, without the
affirmative vote of 66 of the holders of all of the shares of the Preferred
Stock then outstanding, alter or change adversely the powers, preferences
or rights given to the Preferred Stock, (b) alter or amend this Certificate
of Designation, (c) authorize or create any class of stock ranking as to
dividends or distribution of assets upon a Liquidation (as defined in
Section 4) or otherwise senior to or pari passu with the Preferred Stock,
(d) amend its Certificate of Incorporation, bylaws or other charter
documents so as to affect adversely any rights of any holders of the
Preferred Stock, (e) increase the authorized or designated number of shares
of Preferred Stock, (f) issue any additional shares of Preferred Stock or
(g) enter into any agreement with respect to the foregoing.
Section 4. Liquidation. Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a
"Liquidation"), the holders of Preferred Stock shall be entitled to receive
out of the assets of the Company, whether such assets are capital or
surplus, for each share of Preferred Stock an amount equal to the Stated
Value plus all accrued but unpaid -2-
dividends per share, whether declared or not, before any distribution or
payment shall be made to the holders of any Junior Securities, and if the
assets of the Company shall be insufficient to pay in full such amounts,
then the entire assets to be distributed to the holders of Preferred Stock
shall be distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares
if all amounts payable thereon were paid in full. A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related
transactions in which more than 50% of the voting power of the Company is
disposed of, or a consolidation or merger of the Company with or into any
other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5. The Company shall
mail written notice of any such Liquidation, not less than 45 days prior to
the payment date stated therein, to each record holder of Preferred Stock.
Section 5. Conversion.
(a)(i) Each share of Preferred Stock is convertible at the option
of the holder in whole or in part at any time after the Original Issue Date
into shares of Common Stock (subject to reduction pursuant to Section
5(a)(ii) hereof and Section [ ] of the Purchase Agreement) at the Conversion
Ratio (as defined in Section 6). The holder shall effect conversions by
surrendering the certificate or certificates representing the shares of
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (the "Conversion Notice").
Each Conversion Notice shall specify the number of shares of Preferred Stock
to be converted and the date on which such conversion is to be effected,
which date may not be prior to the date the holder delivers such Conversion
Notice by facsimile (the "Conversion Date"). If no Holder Conversion Date
is specified in a Holder Conversion Notice, the Holder Conversion Date shall
be the date that the Holder Conversion Notice is deemed delivered pursuant
to Section 5(i). Subject to Sections 5(b) and 5(a)(ii) hereof and Section [
] of the Purchase Agreement, each Conversion Notice, once given, shall be
irrevocable. If the holder is converting less than all shares of Preferred
Stock represented by the certificate or certificates tendered by the holder
with the Conversion Notice, or if a conversion hereunder cannot be effected
in full for any reason, the Company shall promptly deliver to such holder
(in the manner and within the time set forth in Section 5(b)) a certificate
for such number of shares as have not been converted.
(ii) Certain Regulatory Approval. If on the Conversion
Date applicable to any conversion, (A) the Common Stock is then listed for
trading on the Nasdaq National Market, The New York Stock Exchange, the
American Stock Exchange or if the rules of The Nasdaq Stock Market, Inc. are
hereafter amended to extend or adopt rules similar to Rule 4460(i)
promulgated thereby (or any successor or replacement provision thereof) to
the Nasdaq SmallCap Market and the Company's Common Stock is listed for
trading on such market or exchange, (B) the Conversion Price then in effect
is such that the aggregate number of shares of Common Stock that would then
be issuable upon conversion of all outstanding shares of Preferred Stock,
together with any shares of Common Stock previously issued upon conversion
of Preferred Stock and in
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respect of payment of dividends hereunder, would equal or exceed 20% of the
number of shares of Common Stock outstanding on the Original Issue Date (the
"Issuable Maximum"), and (C) the Company has not previously obtained
Shareholder Approval (as defined below), then the Company shall issue to the
holder so requesting a conversion of Preferred Stock its pro rata portion of
the Issuable Maximum in the same ratio that the number of shares of
Preferred Stock then outstanding and held by such holder bears to the
aggregate number of shares of Preferred Stock then outstanding and, with
respect to the remainder of the shares of Preferred Stock then held by such
holder for which a conversion in accordance with the Conversion Price would
result in an issuance of Common Stock in excess of such holder's pro rata
portion of the Issuable Maximum, the converting holder shall have the option
to require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but
in any event not later than the 60th day after such request, or (2)(i) issue
and deliver to such holder a number of shares of Common Stock as equals (x)
the number of shares of Preferred Stock (or such portions thereof) tendered
for conversion in respect of the Conversion Notice at issue but for which a
conversion in accordance with the other terms hereof would result in an
issuance of Common Stock in excess of such holder's pro rata portion of the
Issuable Maximum, divided by (y) the Initial Conversion Price (as defined in
Section 5(c)(i)), and (ii) cash in an amount equal to the product of (x) the
Per Share Market Value on the Conversion Date and (y) the number of shares
of Common Stock in excess of such holder's pro rata portion of the Issuable
Maximum that would have otherwise been issuable to the holder in respect of
such conversion but for the provisions of this Section (such amount of cash
being hereinafter referred to as the "Discount Equivalent"). If the Company
fails to pay the Discount Equivalent in full pursuant to this Section within
seven (7) days after the date payable, the Company will pay interest thereon
at a rate of 18% per annum to the converting holder, accruing daily from the
Conversion Date until such amount, plus all such interest thereon, is paid
in full. The entire Discount Equivalent, including interest thereon, shall
be paid in cash. "Shareholder Approval" means the approval by a majority of
the total votes cast on the proposal, in person or by proxy, at a meeting of
the shareholders of the Company held in accordance with the Company's
Certificate of Incorporation and by-laws, of the issuance by the Company of
shares of Common Stock exceeding the Issuable Maximum as a consequence of
the conversion of Preferred Stock into Common Stock at a price less than the
greater of the book or market value on the Original Issue Date as and to the
extent required pursuant to Rule 4460(i) of the Nasdaq Stock Market or Rule
713 of the American Stock Exchange (or any successor or replacement
provision thereof), as applicable.
(b) Not later than three (3) Trading Days after a Conversion
Date, the Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the Purchase
Agreement) representing the number of shares of Common Stock being issued
upon the conversion of shares of Preferred Stock (subject to reduction
pursuant to Section 5(a)(ii) hereof and Section 3.9 of the Purchase
Agreement), (ii) one or more certificates representing the number of shares
of Preferred Stock not converted, (iii) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected or is required to
pay accrued and unpaid dividends in cash) and (iv) if the Company has
elected and is permitted hereunder to pay accrued dividends in shares
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of Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of Common Stock as
are issuable on account of accrued dividends in such number as determined in
accordance with Section 2(a); provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of any shares of Preferred Stock until certificates
evidencing such shares of Preferred Stock are delivered for conversion to
the Company, or the holder of such Preferred Stock notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond
(or other adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith.
The Company shall, upon request of the holder, use its best efforts to
deliver any certificate or certificates required to be delivered by the
Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. If in the case of any Conversion Notice such certificate or
certificates, including for purposes hereof, any shares of Common Stock to
be issued on the Conversion Date on account of accrued but unpaid dividends
hereunder, are not delivered to or as directed by the applicable holder by
the third Trading Day after the Conversion Date, the holder shall be
entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates, to rescind such conversion, in
which event the Company shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion. If the
Company fails to deliver to the holder such certificate or certificates
pursuant to this Section, including for purposes hereof, any shares of
Common Stock to be issued on the Conversion Date on account of accrued but
unpaid dividends hereunder, prior to the fifth (5th) Trading Day after the
Conversion Date, the Company shall pay to such holder, in cash, as
liquidated damages and not as a penalty, $2,500 for each day after such
fifth (5th) Trading Day until the tenth (10th) Trading Day after the
Conversion Date, thereafter, the Company shall, pay to such holder, in cash,
as liquidated damages and not as a penalty, $5,000 for each day after such
tenth (10th) Trading Day after the Conversion Date until such certificates
are delivered. Nothing herein shall limit a holder's right to pursue actual
damages for the Company's failure to deliver certificates representing
shares of Common Stock upon conversion within the period specified herein
(including, without limitation, damages relating to any purchase of shares
of Common Stock by such holder to make delivery on a sale effected in
anticipation of receiving certificates representing shares of Common Stock
upon conversion, such damages to be in an amount equal to (A) the aggregate
amount paid by such holder for the shares of Common Stock so purchased minus
(B) the aggregate amount of net proceeds, if any, received by such holder
from the sale of the shares of Common Stock issued by the Company pursuant
to such conversion), and such holder shall have the right to pursue all
remedies available to it at law or in equity (including, without limitation,
a decree of specific performance and/or injunctive relief).
(c) (i) The conversion price for each share of Preferred
Stock (the "Conversion Price") in effect on any Conversion Date shall be the
lesser of (A) the average Per Share Market Value for the five (5) Trading
Days immediately preceding the Original Issue Date (the "Initial Conversion
Price") and (B) the product of the average Per Share Market Value for the
five (5) Trading Days immediately preceding the Conversion Date multiplied
by the Applicable
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Percentage (as defined in Section 6); provided that, (a) if the Underlying
Shares Registration Statement is not filed on or prior to the 20th day after
the Original Issue Date, or (b) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2
promulgated under the Securities Exchange Act of 1934, as amended, within
five (5) Trading Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the staff of the Commission that an
Underlying Shares Registration Statement will not be "reviewed," or not
subject to further review or (c) if the Underlying Shares Registration
Statement is not declared effective by the Commission on or prior to the
60th day after the Original Issue Date, or (d) if such Underlying Shares
Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at
any time prior to the expiration of the "Effectiveness Period" (as such term
as defined in the Registration Rights Agreement), without being succeeded
within ten (10) Trading Days by a subsequent Underlying Shares Registration
Statement filed with and declared effective by the Commission, or (e) if
trading in the Common Stock shall be suspended for any reason (other than as
a result of the suspension of trading in securities generally) for more than
four days in the aggregate, or (f) if the conversion rights of the holders
of Preferred Stock hereunder are suspended for any reason or (g) if the
Company breaches in a material respect any covenant or other material term
or condition to the Purchase Agreement, the Registration Rights Agreement or
any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby, and such breach
continues for a period of thirty (30) days after written notice thereof to
the Company (any such failure being referred to as an "Event," and for
purposes of clauses (a), (c) and (f) the date on which such Event occurs, or
for purposes of clause (b) the date on which such five (5) Trading Days
period is exceeded, or for purposes of clause (d) the date which such 10
Trading Day-period is exceeded, or for purposes of clause (e) the date on
which such four day period is exceeded, or for clause (g) the date on which
such thirty (30) day period is exceeded, being referred to as "Event Date"),
the Applicable Percentage shall be decreased by 2.5% each month (i.e., the
Applicable Percentage would decrease by 2.5% as of the Event Date and an
additional 2.5% as of the first monthly anniversary of the Event Date) until
the later to occur of the second month anniversary after the Event Date and
such time as the applicable Event is cured. Commencing the second month
anniversary after the Event Date, the Company shall pay to each holder of
Preferred Stock the product of 2.5% and the aggregate of the Stated Values
for the shares of Preferred Stock then held by such holder, in cash as
liquidated damages, and not as a penalty on the first day of each monthly
anniversary of the Event Date until such time as the applicable Event, is
cured. Any decrease in the Conversion Price pursuant to this Section shall
continue notwithstanding the fact that the Event causing such decrease has
been subsequently cured. The provisions of this Section are not exclusive
and shall in no way limit the Company's obligations under the Registration
Rights Agreement.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities
payable in shares of Common Stock, (b) subdivide outstanding shares of
Common Stock into a larger number of shares, (c) combine outstanding shares
of
-6-
Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of
the Company, the Conversion Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this Section 5(c)(ii) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Per Share Market Value of
Common Stock at the record date mentioned below, the Initial Conversion
Price shall be multiplied by a fraction, of which the denominator shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights or warrants. However, upon the expiration
of any right or warrant to purchase Common Stock the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this Section
5(c)(iii), if any such right or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to
the price which it would have been (but reflecting any other adjustments in
the Conversion Price made pursuant to the provisions of this Section 5 after
the issuance of such rights or warrants) had the adjustment of the
Conversion Price made upon the issuance of such rights or warrants been made
on the basis of offering for subscription or purchase only that number of
shares of Common Stock actually purchased upon the exercise of such rights
or warrants actually exercised.
(iv) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common
Stock (and not to holders of Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security
(excluding those referred to in Sections 5(c)(ii) and (iii) above), then in
each such case the Conversion Price at which each share of Preferred Stock
shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and of which
the numerator shall be such Per Share Market
-7-
Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith; provided,
however, that in the event of a distribution exceeding ten percent (10%) of
the net assets of the Company, such fair market value shall be determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may
be the firm that regularly examines the financial statements of the Company)
(an "Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Preferred Stock then outstanding; and provided,
further, that the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional Appraiser, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. In either case the adjustments
shall be described in a statement provided to the holders of Preferred Stock
of the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
(v) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another Person pursuant
to which the Company will not be the surviving entity, the sale or transfer
of all or substantially all of the assets of the Company or any compulsory
share exchange pursuant to which the Common Stock is converted into other
securities, cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to, at their option, (A) convert
such shares of Preferred Stock, together with all accrued and unpaid
dividends thereon, only into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or
share exchange, and the holders of the Preferred Stock shall be entitled
upon such event to receive such amount of securities, cash or property as
the shares of the Common Stock of the Company into which such shares of
Preferred Stock, together with all accrued and unpaid dividends thereon
could have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange would have been
entitled or (B) to require that the Person with whom such consolidation,
merger, sale or transfer or share exchange takes place issue and deliver to
the holders of the Preferred Stock shares of convertible preferred stock or
convertible debentures of such Person which newly issued shares or
debentures (as the case may be) shall have terms substantially similar in
all material respects to the terms of the Preferred Stock (including with
respect to conversion) and shall be entitled to all of the rights and
privileges of a holder of Preferred Stock set forth herein, in the
Registration Rights Agreement and in the Purchase Agreement (including
without limitation, such rights as relates to the acquisition,
transferability, registration and listing of the stock or other securities
issuable upon conversion of such convertible preferred stock or convertible
debentures). In such case, the conversion price for such newly issued
convertible securities shall be based upon the amount of securities, cash or
property that each share of Common Stock would receive in the transaction
giving rise to the obligation to issue such securities, the Conversion Ratio
immediately prior to the effective or closing date for such transaction and
the Conversion
-8-
Price stated herein. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to
give to the holder of Preferred Stock the right to receive the securities,
cash or property set forth in this Section upon any conversion following
such consolidation, merger, sale, transfer or share exchange. This
provision shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
(vi) All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Initial Conversion Price is adjusted
pursuant to Section 5(c)(ii), (iii), (iv) or (v) the Company shall promptly
mail to each holder of Preferred Stock, a notice setting forth the Initial
Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.
(viii) If:
A. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a redemption
of its Common Stock; or
C. the Company shall authorize the granting to
all holders of the Common Stock rights or
warrants to subscribe for or purchase any
shares of capital stock of any class or of any
rights; or
D. the approval of any stockholders of the
Company shall be required in connection with
any reclassification of the Common Stock of
the Company, any consolidation or merger to
which the Company is a party, any sale or
transfer of all or substantially all of the
assets of the Company, of any compulsory share
of exchange whereby the Common Stock is
converted into other securities, cash or
property; or
E. the Company shall authorize the voluntary or
involuntary dissolution, liquidation or
winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Preferred Stock, and shall cause to be
mailed to the holders of Preferred Stock at their last addresses as they
shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a
notice stating
-9-
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided, however, that the failure to mail such
notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
Holders are entitled to convert shares of Preferred Stock during the 30-day
period commencing the date of such notice to the effective date of the event
triggering such notice.
(ix) If the Company (i) makes a public announcement that
it intends to enter into a Change of Control Transaction (as defined below)
or (ii) any person, group or entity (including the Company, but excluding a
Holder or any affiliate of a Holder) publicly announces a bona fide tender
offer, exchange offer or other transaction to purchase 50% or more of the
Common Stock (such announcement being referred to herein as a "Major
Announcement" and the date on which a Major Announcement is made, the
"Announcement Date"), then, in the event that a Holder seeks to convert
shares of Preferred Stock on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the earlier to occur of the consummation of the proposed transaction
or tender offer, exchange offer or other transaction and the Abandonment
Date (as defined below), be equal to the lower of (x) the average Per Share
Market Value on the five Trading Days immediately preceding (but not
including) the Announcement Date and (y) the Conversion Price in effect on
the Conversion Date for such Preferred Stock. "Abandonment Date" means with
respect to any proposed transaction or tender offer, exchange offer or other
transaction for which a public announcement as contemplated by this
paragraph has been made, the date upon which the Company (in the case of
clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another transaction which
caused this paragraph to become operative.
(d) If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially
and adversely affect the rights of the holders of Preferred Stock (different
than or distinguished from the effect generally on rights of holders of any
class of the Company's capital stock) or if at any time any such conditions
are expected to arise by reason of any action contemplated by the Company,
the Company shall mail a written notice briefly describing the action
contemplated and the material adverse effects of such action on the rights
of the holders of Preferred Stock at least 30 calendar days prior to the
effective date of such action, and an Appraiser selected by the holders of
majority in interest of the Preferred Stock shall give its opinion as to the
adjustment, if any (not inconsistent with the standards established in this
Section 5), of the Conversion Price (including, if necessary, any adjustment
as
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to the securities into which shares of Preferred Stock may thereafter be
convertible) and any distribution which is or would be required to preserve
without diluting the rights of the holders of shares of Preferred Stock;
provided, however, that the Company, after receipt of the determination by
such Appraiser, shall have the right to select an additional Appraiser, in
good faith, in which case the adjustment shall be equal to the average of
the adjustments recommended by each such Appraiser. The Board of Directors
shall make the adjustment recommended forthwith upon the receipt of such
opinion or opinions or the taking of any such action contemplated, as the
case may be; provided, however, that no such adjustment of the Conversion
Price shall be made which in the opinion of the Appraiser(s) giving the
aforesaid opinion or opinions would result in an increase of the Conversion
Price to more than the Conversion Price then in effect.
(e) The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely
for the purpose of issuance upon conversion of Preferred Stock and payment
of dividends on Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Preferred Stock, not less than such number of
shares of Common Stock as shall (subject to any additional requirements of
the Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and restrictions
of Section 5(c)) upon the conversion of all outstanding shares of Preferred
Stock and payment of dividends hereunder. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly
and validly authorized, issued and fully paid, nonassessable and freely
tradeable.
(f) Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time.
If the Company elects not, or is unable, to make such a cash payment, the
holder of a share of Preferred Stock shall be entitled to receive, in lieu
of the final fraction of a share, one whole share of Common Stock.
(g) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the holder of such
shares of Preferred Stock so converted and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued
shares of undesignated stock.
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(i) Any and all notices or other communications or
deliveries to be provided by the holders of the Preferred Stock hereunder,
including, without limitation, any Conversion Notice, shall be in writing
and delivered personally, by facsimile or sent by a nationally recognized
overnight courier service, addressed to the attention of the Legal
Department of the Company at the facsimile telephone number or address of
the principal place of business of the Company as set forth in the Purchase
Agreement. Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight
courier service, addressed to each holder of Preferred Stock at the
facsimile telephone number or address of such holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears,
at the principal place of business of the holder. Any notice or other
communication or deliveries hereunder 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 4:30 p.m. (New York), (ii) the date after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later
than 7:00 p.m. (New York Time) on any date and earlier than 11:59 p.m. (New
York Time) on such date, (iii) upon receipt, if sent by a nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given.
Section 6. Optional Redemption.
(a) All outstanding and unconverted shares of Preferred Stock
after the Original Issue Date may, at the Company's option upon at least ten
(10) days notice to the Purchaser, be redeemed by the Company pursuant to
this Section 6(a), from funds legally available therefor at a price per
share of Preferred Stock equal to the Conversion Price in Section 5, plus
accrued dividends. Thereafter, all shares of Preferred Stock shall cease to
be outstanding and shall have the status of authorized but undesignated
stock. The entire redemption price shall be paid in cash.
(b) If any portion of the applicable redemption price under
Section 6(a) shall not be paid by the Company within seven (7) calendar days
after the date due, interest shall accrue thereon at the rate of 8% per
annum until the redemption price plus all such interest is paid in full
(which amount shall be paid as liquidated damages and not as a penalty). In
addition, if any portion of such redemption price remains unpaid for more
than 7 calendar days after the date due, the holder of the Preferred Stock
subject to such redemption may elect, by written notice to the Company given
within 30 days after the date due, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth in Section
5 of all of the shares of Preferred Stock for which such redemption price,
plus accrued liquidated damages thereof, has not been paid in full (the
"Unpaid Redemption Shares"), in which event the Per Share Market Price for
such shares shall be the lower of the Per Share Market Price calculated on
the date such redemption price was originally due and the Per Share Market
Price as of the holder's written demand for conversion, or (ii) invalidate
ab initio such redemption, notwithstanding anything herein contained to the
contrary. If the holder elects option (i) above, the Company shall within
three (3) Trading Days of its receipt of such election deliver to the holder
the shares of Common
-12-
Stock issuable upon conversion of the Unpaid Redemption Shares subject to
such holder conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above,
the Company shall promptly, and in any event not later than three (3)
Trading Days from receipt of holder's notice of such election, return to the
holder all of the Unpaid Redemption Shares.
Section 7. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Applicable Percentage" means (i) 90% for any conversion honored
on or prior to the expiration of the 120th day after the Original Issue Date
and (ii) 87.5% for any conversion honored thereafter.
"Common Stock" means the Company's common stock, $.0001 par
value per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon) but only to the extent not paid in
shares of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation
preference to the Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance
of any shares of the Preferred Stock regardless of the number of transfers
of any particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
SmallCap Market or other stock exchange or quotation system on which the
Common Stock is then listed or if there is no such price on such date, then
the closing bid price on such exchange or quotation system on the date
nearest preceding such date, or (b) if the Common Stock is not listed then
on the Nasdaq SmallCap Market or any stock exchange or quotation system, the
closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the Nasdaq Stock Market or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c)
if the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions
of reporting prices), then the average of the "Pink Sheet" quotes for the
relevant conversion period, as determined in good faith by the holder, or
(d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as
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determined by an Appraiser selected in good faith by the holders of a
majority in interest of the shares of the Preferred Stock; provided,
however, that the Company, after receipt of the determination by such
Appraiser, shall have the right to select an additional Appraiser, in which
case, the fair market value shall be equal to the average of the
determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock
Purchase and Exchange Agreement, dated as of October 24, 1997, between the
Company and the original holder of the Preferred Stock.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 24, 1997, between the Company and the
original holder of Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq SmallCap Market or other stock exchange or market on
which the Common Stock has been listed, or (b) if the Common Stock is not
listed on the Nasdaq National Market or any stock exchange or market, a day
on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted
on the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions
of reporting prices); provided, however, that in the event that the Common
Stock is not listed or quoted as set forth in (a), (b) and (c) hereof, then
Trading Day shall mean any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State
of New York are authorized or required by law or other government action to
close.
"Underlying Shares" means the number of shares of Common Stock
into which the Shares are convertible in accordance with the terms hereof
and the Purchase Agreement.
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the registered holder
in order to convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series [ ]
Convertible Preferred Stock indicated below, into shares of Common Stock,
par value $.0001 per share (the "Common Stock"), of fonix corporation (the
"Company") according to the conditions hereof, as of the date written below.
If shares are to be issued in the name of a person other than undersigned,
the undersigned will pay all transfer taxes payable with respect thereto and
is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to
the holder for any conversion, except for such transfer taxes, if any.
Conversion calculations:
__________________________________________________
Date to effect conversion
__________________________________________________
Number of shares of Preferred Stock to be converted
_________________________________________________
Number of shares of Common Stock to be issued
__________________________________________________
Applicable conversion price
__________________________________________________
Name of Holder
____________________________________________________
Address of Holder
__________________________________
Authorized Signature
Exhibit B
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made and entered into as of October 24, 1997, between fonix
corporation, a Delaware corporation (the "Company"), and Southbrook
International Investments, Ltd., a corporation existing under the laws of
the British Virgin Islands (the "Purchaser") and amends and restates in its
entirety all of the terms of the Registration Rights Agreement between the
parties dated June 18, 1997 with respect to the certain Series B 5%
Convertible Debentures.
This Agreement is made pursuant to the Amended and Restated
Purchase Agreement, dated as of the date hereof between the Company and the
Purchaser (the "Purchase Agreement").
The Company and the Purchaser hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein shall
have the meanings given such terms in the Purchase Agreement. As used in
this Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other Person
that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control,"
when used with respect to any Person, means the possession, direct or
indirect, of the power to direct or cause the direction of the management
and policies of such Person, whether through the ownership of voting
securities, by contract or otherwise; and the terms of "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
state of Delaware generally are authorized or required by law or other
government actions to close.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the United States Securities and Exchange
Commission.
"Common Stock" means the Company's Common Stock, par value
$.0001 per share.
"Effectiveness Date" means December 23, 1997.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means November 13, 1997.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"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 Shares" means the shares of Series B Preferred Stock,
par value $.0001 per share of the Company issued to the Purchaser on the
Closing Date.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated
under the Securities Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
-2-
"Registrable Securities" means the shares of Common Stock
issuable (a) upon conversion in full of the Preferred Shares, (b) upon
exercise in full of the Warrants and (c) as payment in full of dividends on
the Preferred Shares; provided, however that in order to account for the
fact that the number of shares of Common Stock that are issuable upon
conversion of Preferred Shares is determined in part upon the market price
of the Common Stock at the time of conversion, Registrable Securities shall
include (but not be limited to) a number of shares of Common Stock equal to
no less than the sum of (1) two times the number of shares of Common Stock
(i) into which the Preferred Shares are convertible and (ii) issuable as
payment in full of dividends on the Preferred Shares, assuming such
conversion occurred on the Closing Date and (2) the number of shares of
Common Stock issuable upon exercise in full of the Warrants, or such other
number of shares of Common Stock as agreed to by the parties to the Purchase
Agreement. Notwithstanding anything herein contained to the contrary, if
the actual number of shares of Common Stock into which the Preferred Shares
are convertible exceeds twice the number of shares of Common Stock into
which Preferred Shares are convertible based upon a computation as of the
Closing Date, the term "Registrable Securities" shall be deemed to include
such additional shares of Common Stock. If an additional Registration
Statement is required to be filed because the actual number of shares of
Common Stock into which the Preferred Shares are convertible, plus shares
issuable upon payment of dividends as described above and shares issuable
upon exercise of the Warrants exceeds the number of shares of Common Stock
initially registered, the Company shall have 10 Business Days after it makes
such a determination or receives notice from the Holders of Registrable
Securities as to such a determination to file such additional Registration
Statement.
"Registration Statement" means the registration statement
contemplated by Section 2(a) (and any additional Registration Statements
contemplated in the definition of Registrable Securities), including (in
each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant
to the Securities Act, as such Rule may be amended from time to time, or any
similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
-3-
"Special Counsel" means any special counsel to the Holders, for
which the Holders will be reimbursed by the Company pursuant to Section 4.
"Underwritten Registration or Underwritten Offering"
means a registration in connection with which securities of the Company are
sold to an underwriter for reoffering to the public pursuant to an effective
registration statement.
"Warrants" means the Common Stock purchase warrants to be issued
and sold to the Purchaser on the Closing Date.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering the
applicable Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form S-3
(except if otherwise directed by the Holders in accordance herewith or if
the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith). The Company shall (i) not permit
any securities other than the Registrable Securities to be included in the
Registration Statement and the additional securities permitted thereunder in
accordance with Section 7(c) hereof and (ii) use its best efforts to cause
the Registration Statement to be declared effective under the Securities Act
as promptly as possible after the filing thereof, but in any event prior to
the Effectiveness Date, and to keep such Registration Statement continuously
effective under the Securities Act until the date which is three years after
the date that such Registration Statement is declared effective by the
Commission or such earlier date when all Registrable Securities covered by
such Registration Statement have been sold or may be sold without volume
restrictions pursuant to Rule 144 as determined by the counsel to the
Company pursuant to a written opinion letter, addressed to the Holders to
such effect (the "Effectiveness Period"); provided, however, that the
Company shall not be deemed to have used its best efforts to keep the
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holders not being able
to sell the Registrable Securities covered by such Registration Statement
during the Effectiveness Period, unless such action is required under
applicable law or the Company has filed a post-effective amendment to the
Registration Statement and the Commission has not declared it effective.
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and if the managing underwriters advise the Company and such Holders
in writing that in their opinion the amount of Registrable Securities
proposed to be sold in such Underwritten Offering exceeds the amount of
Registrable Securities which can be sold in such Underwritten Offering,
there shall be included in such Underwritten Offering the amount of such
Registrable Securities which in the opinion of such managing
-4-
underwriters can be sold, and such amount shall be allocated pro rata among
the Holders proposing to sell Registrable Securities in such Underwritten
Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by
the Holders of a majority of the Registrable Securities included in such
offering. No Holder may participate in any Underwritten Offering hereunder
unless such Person (i) agrees to sell its Registrable Securities on the
basis provided in any underwriting agreements approved by the Persons
entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such
arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-3 (or such other form if
directed by the Holders in connection with an Underwritten Offering
hereunder or if the Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such registration shall be
on another appropriate form in accordance herewith) in accordance with the
method or methods of distribution thereof as specified by the Holders
(except if otherwise directed by the Holders), and cause the Registration
Statement to become effective and remain effective as provided herein;
provided, however, that not less than five (5) Business Days prior to the
filing of the Registration Statement or any related Prospectus and two (2)
Business Days prior to the filing of any amendment or supplement thereto
(including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all
such documents proposed to be filed, which documents (other than those
incorporated or deemed to be incorporated by reference) will be subject to
the review of such Holders, their Special Counsel and such managing
underwriters, and (ii) cause its officers and directors, counsel and
independent certified public accountants to respond to such inquiries as
shall be reasonably necessary, in the opinion of respective counsel to such
Holders and such underwriters, to conduct a reasonable investigation within
the meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or
supplements thereto if the Holders of a majority of the Registrable
Securities, their Special Counsel, or any managing underwriters, shall
reasonably object to the "selling stockholders" or "plan of distribution"
sections thereof within five (5) Business Days of their receipt thereof.
(b)(i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement as may be
necessary to keep the Registration Statement continuously effective as to
the applicable Registrable Securities for the
-5-
Effectiveness Period and prepare and file with the Commission such
additional Registration Statements in order to register for resale under the
Securities Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Prospectus
supplement, and as so supplemented or amended to be filed pursuant to Rule
424 (or any similar provisions then in force) promulgated under the
Securities Act; (iii) respond as promptly as practicable to any comments
received from the Commission with respect to the Registration Statement or
any amendment thereto and promptly provide the Holders true and complete
copies of all correspondence from and to the Commission relating to the
Registration Statement; and (iv) comply with the provisions of the
Securities Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by
the Holders thereof set forth in the Registration Statement as so amended or
in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters immediately (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and
(if requested by any such Person) confirm such notice in writing no later
than one (1) Business Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration
Statement is proposed to be filed; (B) when the Commission notifies the
Company whether there will be a "review" of such Registration Statement and
whenever the Commission comments in writing on such Registration Statement
and (C) with respect to the Registration Statement or any post-effective
amendment, when the same has become effective; (ii) of any request by the
Commission or any other Federal or state governmental authority for
amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering
any or all of the Registrable Securities or the initiation of any
Proceedings for that purpose; (iv) if at any time any of the representations
and warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and correct in
all material respects; (v) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any
jurisdiction, or the initiation or threatening of any Proceeding for such
purpose; and (vi) of the occurrence of any event that, to the knowledge of
the Company, makes any statement made in the Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein
by reference untrue in any material respect or that requires any revisions
to the Registration Statement, Prospectus or other documents so that, in the
case of the Registration Statement or the Prospectus, as the case may be, it
will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. In addition, the Company shall promptly provide the
Holders with copies of all oral and written comments received by or on its
behalf from the Commission in respect of a Registration Statement, and shall
furnish such Holders with copies of all intended written responses thereto
one (1) Business Day in advance of their filing with the Commission so that
the Holders shall have the opportunity to comment thereon.
-6-
(d) Use its best efforts to avoid the issuance of, or, if
issued, obtain the withdrawal of (i) any order suspending the effectiveness
of the Registration Statement or (ii) any suspension of the qualification
(or exemption from qualification) of any of the Registrable Securities for
sale in any jurisdiction, at the earliest practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority of the Registrable Securities to be sold in connection with an
Underwritten Offering, (i) promptly incorporate in a Prospectus supplement
or post-effective amendment to the Registration Statement such information
as such managing underwriters and such Holders reasonably agree should be
included therein and (ii) make all required filings of such Prospectus
supplement or such post-effective amendment as soon as practicable after the
Company has received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; provided, however, that
the Company shall not be required to take any action pursuant to this
Section 3(e) that would, in the opinion of counsel for the Company, violate
applicable law.
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested
by such Person (including those previously furnished or incorporated by
reference) promptly after the filing of such documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders and any underwriters in
connection with the offering and sale of the Registrable Securities covered
by such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States
as any Holder or underwriter requests in writing, to keep each such
registration or qualification (or exemption therefrom) effective during the
Effectiveness Period and to do any and all other reasonable acts or things
necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by a Registration Statement; provided,
however, that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so
-7-
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, which certificates shall,
after the Registration Statement is declared effective by the Commission, be
free of all restrictive legends, and to enable such Registrable Securities
to be in such denominations and registered in such names as any such
managing underwriters or Holders may request at least two Business Days
prior to any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section
3(c)(vi), as promptly as practicable, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, and file any other required
document so that, as thereafter delivered, neither the Registration
Statement nor such Prospectus will contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on The Nasdaq SmallCap
Market and any other securities exchange, quotation system, market or over-
the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith
(including those reasonably requested by any managing underwriters and the
Holders of a majority of the Registrable Securities being sold) in order to
expedite or facilitate the disposition of such Registrable Securities, and
whether or not an underwriting agreement is entered into, (i) make such
representations and warranties to such Holders and such underwriters as are
customarily made by issuers to underwriters in underwritten public
offerings, and confirm the same if and when requested; (ii) obtain and
deliver copies thereof to each Holder and the managing underwriters, if any,
of opinions of counsel to the Company and updates thereof addressed to each
selling Holder and each such underwriter, in form, scope and substance
reasonably satisfactory to any such managing underwriters and Special
Counsel to the selling Holders covering the matters customarily covered in
opinions requested in Underwritten Offerings and such other matters as may
be reasonably requested by such Special Counsel and underwriters; (iii)
immediately prior to the effectiveness of the Registration Statement, and,
in the case of an Underwritten Offering, at the time of delivery of any
Registrable Securities sold pursuant thereto, obtain and deliver copies to
the Holders and the managing underwriters, if any, of "cold comfort" letters
and updates thereof from the independent certified public accountants of the
Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the
-8-
Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to each selling Holder and each of the
underwriters, if any, in form and substance as are customary in connection
with Underwritten Offerings; (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and procedures no
less favorable to the selling Holders and the underwriters, if any, than
those set forth in Section 6 (or such other provisions and procedures
acceptable to the managing underwriters, if any), and holders of a majority
of Registrable Securities participating in such Underwritten Offering; and
(v) deliver such documents and certificates as may be reasonably requested
by the Holders of a majority of the Registrable Securities being sold, their
Special Counsel and any managing underwriters to evidence the continued
validity of the representations and warranties made pursuant to clause
3(l)(i) above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any
disposition of Registrable Securities, and any attorney or accountant
retained by such selling Holders or underwriters, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors, agents and employees of the
Company and its subsidiaries to supply all information in each case
requested by any such Holder, representative, underwriter, attorney or
accountant in connection with the Registration Statement; provided, however,
that any information that is determined in good faith by the Company in
writing to be of a confidential nature at the time of delivery of such
information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative order
or is necessary to respond to inquiries of regulatory authorities; (ii)
disclosure of such information, in the opinion of counsel to such Person, is
required by law; (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard by
such Person; or (iv) such information becomes available to such Person from
a source other than the Company and such source is not known by such Person
to be bound by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission and make generally available to its security holders earning
statements satisfying the provisions of Section 11(a) of the Securities Act
and Rule 158 not later than 45 days after the end of any 12-month period (or
90 days after the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
Underwritten Offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Registration Statement, which
statement shall cover said 12-month period, or end shorter periods as is
consistent with the requirements of Rule 158.
-9-
(o) Provide a CUSIP number for all Registrable Securities, not
later than the effective date of the Registration Statement.
The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities as is required by law to be disclosed in the Registration
Statement and the Company may exclude from such registration the Registrable
Securities of any such Holder who unreasonably fails to furnish such
information within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder
shall have the right to require (i) the inclusion therein of language, in
form and substance reasonably satisfactory to such Holder, to the effect
that the ownership by such Holder of such securities is not to be construed
as a recommendation by such Holder of the investment quality of the
Company's securities covered thereby and that such ownership does not imply
that such Holder will assist in meeting any future financial requirements of
the Company, or (ii) if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force, the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
The Purchaser covenants and agrees that (i) it will not offer or
sell any Registrable Securities under the Registration Statement until it
has received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such
Registration Statement and any post-effective amendments thereto have become
effective as contemplated by Section 3(c) and (ii) the Purchaser and its
officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to them in
connection with sales of Registrable Securities pursuant to the Registration
Statement. The Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence
of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), the Holder will forthwith discontinue disposition of
such Registrable Securities until such Holder's receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated
by Section 3(j), or until it is advised in writing (the "Advice") by the
Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings
that are incorporated or deemed to be incorporated by reference in such
Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall, except as and to the
extent specified in Section 4(c), be borne by the Company whether or not
pursuant to an Underwritten Offering and whether or not
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the Registration Statement is filed or becomes effective and whether or not
any Registrable Securities are sold pursuant to the Registration Statement.
The fees and expenses referred to in the foregoing sentence shall include,
without limitation, (i) all registration and filing fees (including, without
limitation, fees and expenses (A) with respect to filings required to be
made with the Nasdaq Stock Market and each other securities exchange or
market on which Registrable Securities are required hereunder to be listed
and (B) in compliance with state securities or Blue Sky laws (including,
without limitation, fees and disbursements of counsel for the Holders in
connection with Blue Sky qualifications of the Registrable Securities and
determination of the eligibility of the Registrable Securities for
investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities
may designate)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriters, if any, or by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger,
telephone and delivery expenses, (iv) fees and disbursements of counsel for
the Company and Special Counsel for the Holders; provided, however, that the
Company shall not be obligated to pay fees and expenses of Special Counsel
for the Holders in a total amount greater than $10,000, (v) Securities Act
liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with
the consummation of the transactions contemplated by this Agreement. In
addition, the Company shall be responsible for all of its internal expenses
incurred in connection with the consummation of the transactions
contemplated by this Agreement (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit, the fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the terms
hereof, the Company shall be responsible for all usual and customary costs,
fees and expenses in connection therewith, except for the fees and
disbursements of the Underwriters and their legal counsel and accountants
(which shall be borne by the Holders). Therefore, in such circumstances the
Holder shall bear the expenses of the fees and disbursements of any legal
counsel or accounting firm retained by the underwriters in connection with
such Underwritten Offering and the costs of any determination (but not
filing) by the underwriters of the eligibility of the Registrable Securities
for investment under the applicable state securities laws. By way of
illustration which is not intended to diminish from the provisions of
Section 4(a), the Holders shall not be responsible for, and the Company
shall be required to pay the fees or disbursements incurred by the Company
(including by its legal counsel and accountants) in connection with, the
preparation and filing of a Registration Statement and related Prospectus
for such offering, the maintenance of such Registration Statement in
accordance with the terms hereof, the listing of the Registrable Securities
in accordance with the requirements hereof, and printing expenses incurred
to comply with the requirements hereof.
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5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement and without limitation as
to time, indemnify and hold harmless each Holder, the officers, directors,
agents (including any underwriters retained by such Holder in connection
with the offer and sale of Registrable Securities), brokers (including
brokers who offer and sell Registrable Securities as principal as a result
of a pledge or any failure to perform under a margin call of Common Stock),
investment advisors and employees of each of them, each Person who controls
any such Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling Person, to the fullest extent permitted
by applicable law, from and against any and all losses, claims, damages,
liabilities, costs (including, without limitation, costs of preparation and
attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of any Prospectus or form of
prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by or
on behalf of such Holder expressly for use therein, which information was
reasonably relied on by the Company for use therein or to the extent that
such information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any amendment or
supplement thereto. The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is
aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, the directors,
officers, attorneys, agents and employees, each Person who controls the
Company (within the meaning of Section 15 of the Securities Act and Section
20 of the Exchange Act), and the directors, officers, attorneys, agents or
employees of such controlling Persons, to the fullest extent permitted by
applicable law, from and against all Losses (as determined by a court of
competent jurisdiction in a final judgment not subject to appeal or review)
arising solely out of or based solely upon any untrue statement of a
material fact or alleged untrue statement of material fact contained in the
Registration Statement, any Prospectus, or any form of prospectus, or
arising solely out of or based solely upon any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading to the extent, but only to the extent,
that such untrue statement or omission is contained in any information so
furnished in writing by such Holder to the Company specifically for
inclusion in the Registration Statement or such Prospectus and that such
information was reasonably relied upon by the Company for use in the
Registration
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Statement, such Prospectus or such form of prospectus or to the extent that
such information relates to such Holder or such Holder's proposed method of
distribution of Registrable Securities and was reviewed and expressly
approved in writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus. In no event shall
the liability of any selling Holder hereunder be greater in amount than the
dollar amount of the net proceeds received by such Holder upon the sale of
the Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity
hereunder (an "Indemnified Party"), such Indemnified Party promptly shall
notify the Person from whom indemnity is sought (the "Indemnifying Party")
in writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses incurred in
connection with defense thereof; provided, that the failure of any
Indemnified Party to give such notice shall not relieve the Indemnifying
Party of its obligations or liabilities pursuant to this Agreement, except
(and only) to the extent that it shall be finally determined by a court of
competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed
to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any such
Proceeding; or (3) the named parties to any such Proceeding (including any
impleaded parties) include both such Indemnified Party and the Indemnifying
Party, and such Indemnified Party shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to
represent such Indemnified Party and the Indemnifying Party (in which case,
if such Indemnified Party notifies the Indemnifying Party in writing that it
elects to employ separate counsel at the expense of the Indemnifying Party,
the Indemnifying Party shall not have the right to assume the defense
thereof and such counsel shall be at the expense of the Indemnifying Party).
The Indemnifying Party shall not be liable for any settlement of any such
Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior
written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party,
unless such settlement includes an unconditional release of such Indemnified
Party from all liability on claims that are the subject matter of such
Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within 10 Business Days of written notice thereof to the
Indemnifying Party (regard
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less of whether it is ultimately determined that an Indemnified Party is not
entitled to indemnification hereunder; provided, that the Indemnifying Party
may require such Indemnified Party to undertake to reimburse all such fees
and expenses to the extent it is finally judicially determined that such
Indemnified Party is not entitled to indemnification hereunder).
The Indemnified Party shall notify the Indemnifying Party
promptly of any Proceeding of which the Indemnified Party shall have been
notified in writing in connection with the transactions contemplated by this
Agreement and as to which the Indemnified Party believes it may be entitled
to indemnification hereunder. The failure of the Indemnified Party to so
notify the Indemnifying Party of such a Proceeding shall not impair or
affect the Indemnified Party's rights to indemnification hereunder except
and only to the extent that such failure is shown to be the proximate cause
of additional Loss.
(d) Contribution. If a claim for indemnification under
Section 5(a) or 5(b) is unavailable to an Indemnified Party because of a
failure or refusal of a governmental authority to enforce such
indemnification in accordance with its terms (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions
that resulted in such Losses as well as any other relevant equitable
considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission of a material
fact, has been taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a
result of any Losses shall be deemed to include, subject to the limitations
set forth in Section 5(c), any attorneys' or other fees or expenses incurred
by such party in connection with any Proceeding to the extent such party
would have been indemnified for such fees or expenses if the indemnification
provided for in this Section was available to such party in accordance with
its terms.
The parties hereto agree that it would not be just and equitable
if contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately
preceding paragraph. Notwithstanding the provisions of this Section 5(d),
the Purchaser shall not be required to contribute, in the aggregate, any
amount in excess of the amount by which the proceeds actually received by
the Purchaser from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that the Purchaser has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any Person who was not guilty of
such fraudulent misrepresentation.
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The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may
have to the Indemnified Parties.
6. Rule 144
The Company shall file the reports required to be filed by it
under the Securities Act and the Exchange Act in a timely manner and, if at
any time the Company is not required to file such reports, it will, upon the
request of any Holder, make publicly available other information so long as
necessary to permit sales of its securities pursuant to Rule 144. The
Company further covenants that it will take such further action as any
Holder may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions provided by
Rule 144. Upon the request of any Holder, the Company shall deliver to such
Holder a written certification of a duly authorized officer as to whether it
has complied with such requirements.
7. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary damages would
not provide adequate compensation for any losses incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect
of such breach, it shall waive the defense that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. Except as and to the extent
specifically set forth in Schedule 7(b) attached hereto, neither the Company
nor any of its subsidiaries has, as of the date hereof, nor shall the
Company or any of its subsidiaries, on or after the date of this Agreement,
enter into any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement or otherwise
conflicts with the provisions hereof. Except and to the extent specifically
set forth on Schedule 7(b) attached hereto or in the Purchase Agreement,
neither the Company nor any of its subsidiaries has previously entered into
any agreement granting any registration rights with respect to any of its
securities to any Person. Without limiting the generality of the foregoing,
during the Effectiveness Period, without the written consent of the Holders
of a majority of the then outstanding Registrable Securities, the Company
shall not grant to any Person the right to request the Company to register
any securities of the Company under the Securities Act unless the rights so
granted are subject in all respects to the prior rights in full of the
Holders set forth herein, and are not otherwise in conflict or inconsistent
with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the
extent specifically set forth on Schedule 7(c) attached hereto or in the
Purchase Agreement, neither the Company nor
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any of its security holders (other than the Holders in such capacity
pursuant hereto) may include securities of the Company in the Registration
Statement other than the Registrable Securities, and the Company shall not
enter into any agreement providing any such right to any of its
securityholders.
(d) Piggy-Back Registrations. If at any time the Company
shall determine to prepare and file with the Commission a registration
statement relating to an offering for its own account or the account of
others under the Securities Act of any of its equity securities, other than
on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or
their then equivalents relating to equity securities to be issued solely in
connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee
benefit plans, the Company shall send to each Holder of Registrable
Securities written notice of such determination and, if within twenty (20)
days after receipt of such notice, any such Holder shall so request in
writing, the Company shall include in such registration statement all or any
part of the Registrable Securities such Holder requests to be registered,
except that if, in connection with any Underwritten Offering for the account
of the Company the managing underwriter(s) thereof shall impose a limitation
on the number of shares of Common Stock which may be included in the
registration statement because, in such underwriter(s)' judgment, such
limitation is necessary to effect an orderly public distribution of
securities covered thereby, then the Company shall be obligated to include
in such registration statement only such limited portion of the Registrable
Securities for to which such Holder has requested inclusion hereunder. Any
exclusion of Registrable Securities shall be made pro rata among the Holders
seeking to include Registrable Securities, in proportion to the number of
Registrable Securities sought to be included by such Holders; provided,
however, that the Company shall not exclude any Registrable Securities
unless the Company has first excluded all outstanding securities the Holders
of which are not entitled by right to inclusion of securities in such
registration statement; and provided, further, however, that, after giving
effet to the immediately preceding proviso, any exclusion of Registrable
Securities shall be made pro rata with holders of other securities having
the right to include such securities in such registration statement. No
right to registration of Registrable Securities under this Section shall be
construed to limit any registration otherwise required hereunder.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the same shall be in writing and signed by
the Company and the Holders of at least a majority of the then outstanding
Registrable Securities; provided, however, that, for the purposes of this
sentence, Registrable Securities that are owned, directly or indirectly, by
the Company, or an Affiliate of the Company are not deemed outstanding.
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders and that does not directly or indirectly affect the rights
of other Holders may be given by Holders of at least a majority of the
Registrable Securities to which such waiver or consent relates; provided,
-16-
however, that the provisions of this sentence may not be amended, modified,
or supplemented except in accordance with the provisions of the immediately
preceding sentence.
(f) 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 4:30 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 4:30 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.
If to the Company: fonix corporation
▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to: Durham, Evans, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
Suite 850 Key Bank Tower
▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Purchaser: Southbrook International Investments, Ltd.
c/o Trippoak Advisors, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
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With copies to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Aronsohn & ▇▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to any other Person who is then the registered Holder:
To the address of such Holder as it appears
in the stock transfer books of the Company
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each
of the parties and shall inure to the benefit of each Holder. The Company
may not assign its rights or obligations hereunder without the prior written
consent of each Holder. The Purchaser may assign its rights hereunder in
the manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of the
Purchaser hereunder, including the right to have the Company register for
resale Registrable Securities in accordance with the terms of this
Agreement, shall be automatically assignable by the Purchaser to any
assignee or transferee of all or a portion of the Preferred Shares, the
Warrants or the Registrable Securities if: (i) the Purchaser agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after
such assignment, (ii) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (a) the name and
address of such transferee or assignee, and (b) the securities with respect
to such registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of such
securities by the transferee or assignees restricted under the Securities
Act and applicable state securities laws, (iv) at or before the time the
Company receives the written notice contemplated by clause (ii) of this
Section, the transferee or assignee agrees in writing with the Company to be
bound by all of the provisions of this Agreement, and (v) such transfer
shall have been made in accordance with the applicable requirements of the
Purchase Agreement. The rights to assignment shall apply to the Purchaser's
(and to subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed shall be deemed to be
an original and, all of which taken together shall constitute one and the
same Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
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party executing (or on whose behalf such signature is executed) the same
with the same force and effect as if such facsimile signature were the
original thereof.
(j) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
regard to principles of conflicts of law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated,
and the parties hereto shall use their reasonable efforts to find and employ
an alternative means to achieve the same or substantially the same result as
that contemplated by such term, provision, covenant or restriction. It is
hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and
restrictions without including any of such that may be hereafter declared
invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company
or its Affiliates (other than the Purchaser or transferees or successors or
assigns thereof if such Persons are deemed to be Affiliates solely by reason
of their holdings of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders of
such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
fonix corporation
By: /S/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Assistant Secretary
EXHIBIT C
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION
OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER 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 THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
fonix corporation
WARRANT
Warrant No. 1 Dated October 24, 1997
fonix corporation, a Delaware corporation (the "Company"), hereby
certifies that, for value received, Southbrook International Investments,
Ltd., or its registered assigns ("Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company up to a total of 175,000
shares of Common Stock, $.0001 par value per share (the "Common Stock"), of
the Company (each such share, a "Warrant Share" and all such shares, the
"Warrant Shares") at an exercise price equal to $7.48 per share (as adjusted
from time to time as provided in Section 9 (the "Exercise Price"), at any
time and from time to time from and after the date hereof and through and
including October 24, 2002 (the "Expiration Date"), and subject to the
following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to
time. The Company may deem and treat the registered Holder of this Warrant
as the absolute owner hereof for the purpose of any exercise hereof or any
distribution to the Holder, and for all other purposes, and the Company
shall not be affected by notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any
portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and
signed, to the Transfer Agent or to the Company at the office specified
in or pursuant to Section 3(b), provided, however that the Holder shall not
make any transfers to any transferee pursuant to this Section for the right
to acquire less than 25,000 Warrant Shares (or the balance of the Warrant
Shares to which this Warrant relates). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form
of this Warrant (any such new warrant, a "New Warrant"), evidencing the
portion of this Warrant so transferred shall be issued to the transferee and
a New Warrant evidencing the remaining portion of this Warrant not so
transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a
holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant
to Section 3(b) for one or more New Warrants, evidencing in the aggregate
the right to purchase the number of Warrant Shares which may then be
purchased hereunder. Any such New Warrant will be dated the date of such
exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered
Holder on any business day before 4:30 P.M., Salt Lake City time, at any
time and from time to time on or after the date hereof to and including the
Expiration Date. At 4:30 P.M., Salt Lake City time on the Expiration Date,
the portion of this Warrant not exercised prior thereto shall be and become
void and of no value. Prior to the Expiration Date, the Company may not
call or otherwise redeem this Warrant without the prior written consent of
the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender
of this Warrant, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its office at ▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, Attention: Chief Financial
Officer, or at such other address as the Company may specify in writing to
the then registered Holder, and upon payment of the Exercise Price
multiplied by the number of Warrant Shares that the Holder intends to
purchase hereunder, in lawful money of the United States of America, in cash
or by certified or official bank check or checks, all as specified by the
Holder in the Form of Election to Purchase, the Company shall promptly (but
in no event later than three (3) business days after the Date of Exercise)
issue or cause to be issued and cause to be delivered to or upon the written
order of the Holder and in such name or names as the Holder may designate, a
certificate for the Warrant Shares issuable upon such exercise, free of
restrictive legends other than as required by applicable law. Any person so
designated by the Holder to receive Warrant Shares shall be deemed to have
become holder of record of such Warrant Shares as of the Date of Exercise of
this Warrant.
A "Date of Exercise" means the date on which the Company
shall have received (i) this Warrant (or any New Warrant, as applicable),
with the Form of Election to Purchase attached hereto (or attached to such
New Warrant) appropriately completed and duly signed, and (ii)
-2-
payment of the Exercise Price for the number of Warrant Shares so indicated
by the holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant
Shares. If less than all of the Warrant Shares which may be purchased under
this Warrant are exercised at any time, the Company shall issue or cause to
be issued, at its expense, a New Warrant evidencing the right to purchase
the remaining number of Warrant Shares for which no exercise has been
evidenced by this Warrant.
4. Piggyback Registration Rights. During the term of this
Warrant the Company may not file any registration statement with the
Securities and Exchange Commission (other than registration statements of
the Company filed on Form S-8 or Form S-4 including supplements thereto, but
not additionally filed registration statements in respect of such
securities, each as promulgated under the Securities Act of 1933, as
amended, pursuant to which the Company is registering securities pursuant to
a Company employee benefit plan or pursuant to a merger, acquisition or
similar transaction) unless the Company provides the Holder with not less
than five business days notice to each of the Holder and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Peace ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, attention ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, notice of its
intention to file such registration statement and provides the Purchaser the
option to include any or all of the applicable Warrant Shares therein. The
piggyback registration rights granted to the Holder pursuant to this Section
shall continue until all of the Holder's Warrant Shares have been sold in
accordance with an effective registration statement or upon the expiration
of this Warrant. The Company will pay all registration expenses in
connection therewith.
5. Demand Registration Rights. At any time during the term
of this Warrant when the Warrant Shares are not registered pursuant to an
effective registration statement, the Holder may make a written request for
the registration under the Securities Act of 1933, as amended (a "Demand
Registration"), of all or any portion of the Warrant Shares (the
"Registrable Securities"), and the Company shall use its best efforts to
effect such Demand Registration as promptly as possible, but in any case
within 90 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold
and shall also specify the intended method of disposition thereof. The
right to cause a registration of the Registrable Securities under this
Section 5 shall be limited to two such registrations. In any registration
initiated as a Demand Registration, the Company will pay all registration
expenses in connection therewith. A Demand Registration shall not be
counted as a Demand Registration hereunder until such Demand Registration
has been declared effective by the Securities and Exchange Commission and
maintained continuously effective for a period of at least 360 days or such
shorter period when all Registrable Securities included therein have been
sold in accordance with such Demand Registration, provided, however that any
days on which such registration statement is not effective or on which the
Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards
such 360 day period.
-3-
6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise
of this Warrant; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in
the registration of any certificates for Warrant Shares or Warrants in a
name other than that of the Holder, and the Company shall not be required to
issue or cause to be issued or deliver or cause to be delivered the
certificates for Warrant Shares unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such tax has been paid. The Holder shall be responsible for all other tax
liability that may arise as a result of holding or transferring this Warrant
or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated,
lost, stolen or destroyed, the Company may in its discretion issue or cause
to be issued in exchange and substitution for and upon cancellation hereof,
or in lieu of and substitution for this Warrant, a New Warrant, but only
upon receipt of evidence reasonably satisfactory to the Company of such
loss, theft or destruction and indemnity, if requested, satisfactory to it.
Applicants for a New Warrant under such circumstances shall also comply with
such other reasonable regulations and procedures and pay such other
reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it
to issue Warrant Shares upon exercise of this Warrant as herein provided,
the number of Warrant Shares which are then issuable and deliverable upon
the exercise of this entire Warrant, free from preemptive rights or any
other actual contingent purchase rights of persons other than the Holders
(taking into account the adjustments and restrictions of Section 9). The
Company covenants that all Warrant Shares that shall be so issuable and
deliverable shall, upon issuance and the payment of the applicable Exercise
Price in accordance with the terms hereof, be duly and validly authorized,
issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to
adjustment from time to time as set forth in this Section 9. Upon each such
adjustment of the Exercise Price pursuant to this Section 9, the Holder
shall thereafter prior to the Expiration Date be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of Warrant
Shares obtained by multiplying the Exercise Price in effect immediately
prior to such adjustment by the number of Warrant Shares issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid
on outstanding preferred stock as of the date hereof which contain a stated
divided rate) or otherwise make a distribution or distributions on shares of
its Common Stock (as defined below) or on any other class of capital stock
and not the Common Stock) payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock into
-4-
a larger number of shares, or (iii) combine outstanding shares of Common
Stock into a smaller number of shares, the Exercise Price shall be
multiplied by a fraction of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding
before such event and of which the denominator shall be the number of shares
of Common Stock (excluding treasury shares, if any) outstanding after such
event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision or
combination, and shall apply to successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person, the
sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is
converted into other securities, cash or property, then the Holder shall
have the right thereafter to exercise this Warrant only into the shares of
stock and other securities and property receivable upon or deemed to be held
by holders of Common Stock following such reclassification, consolidation,
merger, sale, transfer or share exchange, and the Holder shall be entitled
upon such event to receive such amount of securities or property equal to
the amount of Warrant Shares such Holder would have been entitled to had
such Holder exercised this Warrant immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange.
The terms of any such consolidation, merger, sale, transfer or share
exchange shall include such terms so as to continue to give to the Holder
the right to receive the securities or property set forth in this Section
9(b) upon any exercise following any such reclassification, consolidation,
merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to
holders of this Warrant) evidences of its indebtedness or assets or rights
or warrants to subscribe for or purchase any security (excluding those
referred to in Sections 9(a), (b) and (d)), then in each such case the
Exercise Price shall be determined by multiplying the Exercise Price in
effect immediately prior to the record date fixed for determination of
stockholders entitled to receive such distribution by a fraction of which
the denominator shall be the Exercise Price determined as of the record date
mentioned above, and of which the numerator shall be such Exercise Price on
such record date less the then fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable
to one outstanding share of Common Stock as determined by the Company's
independent certified public accountants that regularly examines the
financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is outstanding,
the Company shall issue or cause to be issued rights or warrants to acquire
or otherwise sell or distribute shares of Common Stock to all holders of
Common Stock for a consideration per share less than the Exercise Price then
in effect, then, forthwith upon such issue or sale, the Exercise Price shall
be reduced to the price (calculated to the nearest cent) determined by
dividing (i) an amount equal to the sum of (A) the number of shares of
Common Stock outstanding immediately prior to such issue or sale multiplied
-5-
by the Exercise Price, and (B) the consideration, if any, received or
receivable by the Company upon such issue or sale by (ii) the total number
of shares of Common Stock outstanding immediately after such issue or sale.
(e) For the purposes of this Section 9, the following
clauses shall also be applicable:
(i) Record Date. In case the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in Common Stock or
in Convertible Securities, or (B) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription
or purchase, as the case may be.
(ii) Treasury Shares. The number of shares of
Common Stock outstanding at any given time shall not include shares owned or
held by or for the account of the Company, and the disposition of any such
shares shall be considered an issue or sale of Common Stock.
(f) All calculations under this Section 8 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to
Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which
shall be a nationally recognized accounting firm), in which case the
adjustment shall be equal to the average of the adjustments recommended by
each of the Appraiser and such appraiser. The Holder shall promptly mail or
cause to be mailed to the Company, a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts
requiring such adjustment. Such adjustment shall become effective
immediately after the record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or
any other distribution) on its Common
Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the granting
to all holders of the Common Stock rights
or warrants to subscribe
-6-
for or purchase any shares of capital
stock of any class or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection
with any reclassification of the Common
Stock of the Company, any consolidation or
merger to which the Company is a party,
any sale or transfer of all or
substantially all of the assets of the
Company, or any compulsory share exchange
whereby the Common Stock is converted into
other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of
the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last
addresses as they shall appear upon the Warrant Register, at least 30
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of Common Stock of record shall
be entitled to exchange their shares of Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding
up; provided, however, that the failure to mail such notice or any defect
therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of
this Warrant. The number of full Warrant Shares which shall be issuable
upon the exercise of this Warrant shall be computed on the basis of the
aggregate number of Warrant Shares purchasable on exercise of this Warrant
so presented. If any fraction of a Warrant Share would, except for the
provisions of this Section 9, be issuable on the exercise of this Warrant,
the Company shall pay an amount in cash equal to the Exercise Price
multiplied by such fraction.
11. Notices. Any and all notices or other communications or
deliveries 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 4:30 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
-7-
at the facsimile telephone number specified in this Section later than 4:30
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 addresses for such communications shall be: (i) if to the
Company, to fonix corporation, ▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, Attention: Chief Financial Officer, or to facsimile
no. (▇▇▇) ▇▇▇-▇▇▇▇, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address
or facsimile number as the Holder may provide to the Company in accordance
with this Section 11.
12. Warrant Agent.
(a) The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any
consolidation to which the Company or any new warrant agent shall be a party
or any corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business
shall be a successor warrant agent under this Warrant without any further
act. Any such successor warrant agent shall promptly cause notice of its
succession as warrant agent to be mailed (by first class mail, postage
prepaid) to the Holder at the Holder's last address as shown on the Warrant
Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company
and the Holder.
(b) Subject to Section 13(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than
the Company and the Holder any legal or equitable right, remedy or cause
under this Warrant; this Warrant shall be for the sole and exclusive benefit
of the Company and the Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and
-8-
provisions of this Warrant shall not in any way be affected or impaired
thereby and the parties will attempt in good faith to agree upon a valid and
enforceable provision which shall be a commercially reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision
in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated
above.
fonix corporation
By: /S/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Executive Vice President
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of
Common Stock under the foregoing Warrant)
To fonix corporation
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase
_____________ shares of Common Stock ("Common Stock"), $.0001 par value per
share, of fonix corporation and encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the
aggregate Exercise Price (as defined in the Warrant) for the number of
shares of Common Stock to which this Form of Election to Purchase relates,
together with any applicable taxes payable by the undersigned pursuant to
the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
_______________________________
____________________________________________________________________________
(Please print name and address)
____________________________________________________________________________
____________________________________________________________________________
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is
entitled to purchase in accordance with the enclosed Warrant, the
undersigned requests that a New Warrant (as defined in the Warrant)
evidencing the right to purchase the shares of Common Stock not issuable
pursuant to the exercise evidenced hereby be issued in the name of and
delivered to:
____________________________________________________________________________
(Please print name and address)
____________________________________________________________________________
____________________________________________________________________________
Dated:_____________,_______ Name of Holder:____________________________
(Print)___________________________
(By:)______________________________
(Name:)___________________________
(Title:)__________________________
(Signature must conform in all respects to name of holder as specified on
the face of the Warrant)
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of fonix
corporation to which the within Warrant relates and appoints
________________ attorney to transfer said right on the books of fonix
corporation with full power of substitution in the premises.
Dated:
_______________, ____
_______________________________________
(Signature must conform in all respects to
name of holder as specified on the face of the
Warrant)
_______________________________________
Address of Transferee
_______________________________________
_______________________________________
In the presence of:
__________________________