SERIES P 9% CONVERTIBLE PREFERRED STOCK EXCHANGE AGREEMENT Between Fonix Corporation, as Issuer, And Sovereign Partners LP, And McCormack Avenue, Ltd., as Purchasers. Dated as of September 30, 2008
Exhibit
10
SERIES
P 9% CONVERTIBLE PREFERRED STOCK
EXCHANGE
AGREEMENT
Between
Fonix
Corporation,
as
Issuer,
And
Sovereign
Partners LP,
And
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.,
as
Purchasers.
_________
Dated
as of September 30, 2008
______________________________
THIS SERIES P 9% CONVERTIBLE PREFERRED
STOCK EXCHANGE AGREEMENT, dated as of September 30, 2008 (this “Agreement”), is
entered into between Fonix
Corporation, a Delaware corporation (the “Company”) as Issuer,
and Sovereign Partners LP (“Sovereign”) and
▇▇▇▇▇▇▇▇▇ Avenue, Ltd. (“▇▇▇▇▇▇▇▇▇”), as Purchasers. The Company,
Sovereign, and ▇▇▇▇▇▇▇▇▇ may each be referred to herein as a "Party" and
collectively as the "Parties."
Recitals
A. Between
March 2006 and the date of this Agreement, the Parties entered into various
transactions whereby the Company issued certain of its debt or convertible
equity securities to some or all of the Purchasers.
B. The
Purchasers desire to convert the debt and convertible equity obligations set
forth on Appendix A hereto and exchange such obligations (the “Exchanged
Obligations”) for shares of the Company’s Series P 9% Convertible
Preferred Stock (the “Series P Preferred
Stock”).
C. The
Parties intend that the exchange of the Exchanged Obligations for the shares of
the Series P Preferred Stock constitute a private exchange of the Exchanged
Obligations for the shares of the Series P Preferred Stock, and no additional
compensation or other consideration will be paid or required.
D. Sovereign,
▇▇▇▇▇▇▇▇▇, and the Company now desire to set forth their agreement with respect
to the rights, duties, and obligations of Sovereign, ▇▇▇▇▇▇▇▇▇, and the Company
with respect to the Series P Preferred Stock.
Agreement
IN CONSIDERATION of the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Parties agree as follows:
ARTICLE
1.
CERTAIN
DEFINITIONS
Section
1. Certain
Definitions. As used in this Agreement, unless the
context requires a different meaning, the following terms have the meanings
indicated in this Section 1.1:
“Affiliate” means,
with respect to any Person, any Person that, directly or indirectly, controls,
is controlled by, or is under common control with, such Person. For
purposes of this definition, “control” (including,
with correlative meanings, the terms “controlled by” and
“under common
control with”) shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by contract
or otherwise.
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“Agreement” shall have
the meaning set forth in the recitals hereto.
“Business Day” means
any day except Saturday, Sunday and any day which shall be a Federal legal
holiday or a day on which banking institutions in the State of Delaware are
authorized or required by law or other government actions to
close.
“Certificate of
Designation” shall mean that document setting forth the respective
rights, preferences and privileges of the Preferred Stock as set forth in Appendix
B.
“Commission” means the
Securities and Exchange Commission.
“Common Stock” means
the Company’s Class A common stock, par value $.0001 per share.
“Company” shall have
the meaning set forth in the recitals hereto.
“Conversion Price”
shall have the meaning set forth in the Certificate of Designation.
“Conversion Ratio”
shall have the meaning set forth in the Certificate of Designation.
“Disclosure Materials”
means, collectively, the SEC Documents and the Schedules to this Agreement and
all other information furnished by or on behalf of the Company relating to or
concerning the Company and provided to Sovereign, ▇▇▇▇▇▇▇▇▇, or their agents and
counsel in connection with the transactions contemplated by this
Agreement.
“Exchange Act” means
the Securities Exchange Act of 1934, as amended.
“Holder” shall mean
the then-current holder of the Shares.
“Initial Reserve”
shall have the meaning set forth in Section 3.1(d).
“Intellectual Property
Rights” shall have the meaning set forth in Section 3.1(q).
“Issuance Date” shall
mean the date on which Sovereign or ▇▇▇▇▇▇▇▇▇ under this Agreement received
shares of the Preferred Stock, regardless of the number of certificates which
may be issued to evidence any particular Share.
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“Legal Opinion” means
the legal opinion letter of Durham ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., outside counsel to
the Company, addressed to Sovereign and ▇▇▇▇▇▇▇▇▇, dated the Closing Date and in
form and substance acceptable to Sovereign and ▇▇▇▇▇▇▇▇▇.
“Lien” means, with
respect to any asset, any mortgage, lien, pledge, right of first refusal,
charge, security interest or encumbrance of any kind in or on such asset or the
revenues or income thereon or therefrom.
“Material Adverse
Effect” shall mean any event which has an adverse effect on the results
of operations, assets, prospects, or condition (financial or otherwise) of the
Company and the Subsidiaries, and which, taken as a whole adversely impairs the
Company’s ability to perform fully on a timely basis its obligations under any
Transaction Document.
“Per Share Market
Value” shall have the meaning set forth in the Certificate of
Designation.
“Person” means an
individual or a corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or other entity of
any kind.
“Preferred Stock”
shall mean the Series P 9% Preferred Stock.
“Required Approvals”
shall have the meaning set forth in Section 3.1(f).
“SEC Documents” shall
have the meaning set forth in Section 3.1(c).
“Securities” means,
collectively, the Shares and the Underlying Shares.
“Securities Act” means
the Securities Act of 1933, as amended.
“Series P Preferred
Stock” shall have the meaning set forth in the recitals
hereto.
“Shares” means the
shares of Series P Preferred Stock, subject to the terms and conditions as filed
by the Company with the State of Delaware.
“Stated Value” means
$10,000 per share of Preferred Stock.
“Subsidiaries” shall
have the meaning set forth in Section 3.1(a).
“Trading Day” shall
have the meaning set forth in the Certificate of Designation.
“Transaction
Documents” means collectively, this Agreement, the Certificate of
Designation, and the Registration Rights Agreement.
“Underlying Shares”
means the shares of Common Stock issuable upon conversion of the Shares and as
payment of dividends thereon in accordance with the terms of the Certificate of
Designation.
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ARTICLE
2.
EXCHANGE OF OBLIGATIONS FOR
SHARES OF PREFERRED STOCK
Section
2.1 Exchange of Shares;
Closing.
(a) Subject
to the terms and conditions set forth below, the Purchasers shall tender to the
Company the documentation set forth in Appendix A below, and in exchange (the
“Exchange”), the
Purchasers shall receive that number of shares of Series P Preferred Stock set
forth in Appendix A below. The Shares issued pursuant to this
Agreement shall have the respective rights, preferences and privileges set forth
in Appendix B
(the “Certificate of
Designation”).
(b) The
closing of the Exchange of the Shares (the “Closing”) shall take
place at the offices of Durham ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇. The date of the Closing for
each Purchaser shall be the date on which such Purchaser tenders to the Company
the documentation set forth in Appendix A below and receives in return the
shares of Series P Preferred Stock pursuant to this Agreement, and is
hereinafter referred to as the “Closing
Date.”
(c) At
the Closing the parties shall deliver the following:
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(i)
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The
Company shall deliver or cause to be
delivered:
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(A)
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Stock
certificates representing the number of Shares of Series P Preferred Stock
as set forth below in Appendix A, registered according to instructions to
be provided by the Purchasers at or before the
Closing.
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(ii)
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Each
Purchaser shall deliver or cause to be
delivered:
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(A)
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The
documentation (i.e. original promissory note, debenture, preferred stock
certificate, or other documentation) as set forth in Appendix A
below.
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(iii)
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Each
party hereto shall deliver or cause to be delivered all other executed
instruments, agreements and certificates as are required to be delivered
by or on their behalf at the
Closing.
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Section
2.2 Dividends. The
Company, Sovereign, and ▇▇▇▇▇▇▇▇▇ expressly agree and acknowledge that dividends
on the Shares of Series P Preferred Stock shall begin to accrue on September 30,
2008, payable pursuant to the terms of the Certificate of Designation attached
hereto as Appendix B, and that there are no other dividends previously accrued
or unpaid.
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ARTICLE
3.
REPRESENTATIONS AND
WARRANTIES
Section
3.1 Representations and
Warranties of the Company. The Company hereby represents and
warrants to the Purchasers as follows:
(a) Organization and
Qualification. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no subsidiaries other than as
set forth in Schedule
3.1(a) (collectively, the “Subsidiaries”). Each
of the Subsidiaries is a corporation, duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, with the
requisite corporate power and authority to own and use its properties and assets
and to carry on its business as currently conducted. Each of the
Company and the Subsidiaries is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, adversely affect
the legality, validity or enforceability of the Shares or any Transaction
Document.
(b) Authorization;
Enforcement. The Company has the requisite corporate power and
authority to enter into and to consummate the transactions contemplated by the
Transaction Documents and to otherwise carry out its obligations
thereunder. The execution and delivery of each Transaction Document
by the Company and the consummation by it of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of the
Company. Each Transaction Document has been duly executed by the
Company and, when delivered in accordance with the terms hereof, each
Transaction Document shall constitute the legal, valid and binding obligation of
the Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors’ rights and remedies or by
other equitable principles of general application. Neither the
Company nor any Subsidiary is in violation of any provision of its respective
certificate or articles of incorporation, bylaws or other charter
documents.
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(c) Capitalization. The
authorized, issued and outstanding capital stock of the Company is set forth in
Schedule
3.1(c). No shares of Common Stock are entitled to preemptive
or similar rights. Except as specifically disclosed in Schedule 3.1(c),
there are no outstanding options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the Exchange of the Shares, securities, rights or obligations convertible into
or exchangeable for, or giving any Person any right to subscribe for or acquire,
any shares of Common Stock, or contracts, commitments, understandings, or
arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock or securities or rights convertible or
exchangeable into shares of Common Stock. To the knowledge of the
Company, except as specifically disclosed in the SEC Documents or Schedule 3.1(c), no
Person or group of Persons beneficially owns (as determined pursuant to Rule
13d-3 promulgated under the Exchange Act) or has the right to acquire by
agreement with or by obligation binding upon the Company beneficial ownership of
in excess of 5% of the Common Stock.
(d) Issuance of
Securities. The Shares are duly authorized and, when issued in
accordance with the terms hereof, shall be validly issued, fully paid and
nonassessable, free and clear of all Liens.
(e) No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its certificate of incorporation, bylaws or other
charter documents (each as amended through the date hereof), (ii) subject
to obtaining the consents referred to in Section 3.1(f), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including federal and state securities laws and
regulations), or by which any property or asset of the Company is bound or
affected; except in the case of each of clauses (ii) and (iii), as could not,
individually or in the aggregate, have or result in a Material Adverse
Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually and in the aggregate, could not have
or result in a Material Adverse Effect.
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(f) Consents and
Approvals. Neither the Company nor any Subsidiary is required
to obtain any consent, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state, local, foreign or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) the filing of the Certificate of Designation with the Secretary of State of
Delaware, and (ii) other than, in all other cases, where the failure to obtain
such consent, waiver, authorization or order, or to give or make such notice or
filing, could not, individually or in the aggregate, have or result in a
Material Adverse Effect (the “Required
Approvals”).
(g) Litigation;
Proceedings. Except as specifically disclosed in the
Disclosure Materials, there is no action, suit, notice of violation, proceeding
or investigation pending or, to the best knowledge of the Company, threatened
against or affecting the Company or any of its Subsidiaries or any of their
respective properties before or by any court, governmental or administrative
agency or regulatory authority (federal, state, county, local or foreign) which
(i) adversely affects or challenges the legality, validity or enforceability of
any Transaction Document or the Securities or (ii) could, individually or in the
aggregate, have or result in a Material Adverse Effect.
(h) No Default or
Violation. Neither the Company nor any Subsidiary (i) is in
default under or in violation of (or has received notice of a claim that it is
in default under or that it is 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 a Material Adverse Effect
or, except in the case of clause (i) above, as has not been waived pursuant to
an effective waiver.
(i) Private
Offering. Assuming the accuracy of the representations and
warranties of Sovereign and ▇▇▇▇▇▇▇▇▇ contained in Sections 3.3 and 3.4, the
offering, issuance or sale of the Securities as contemplated hereunder are
exempt from the registration requirements of the Securities Act.
(j) Certain
Fees. No fees or commissions will be payable by the Company to
any broker, financial advisor, finder, investment banker, placement agent, or
bank with respect to the transactions contemplated hereby. Sovereign
and ▇▇▇▇▇▇▇▇▇ shall have no obligation with respect to such fees or with respect
to any claims made by or on behalf of other Persons for fees of a type
contemplated in this Section that may be due in connection with the transactions
contemplated hereby. The Company shall indemnify and hold harmless
Purchaser, its respective employees, officers, directors, agents, and partners,
and their respective Affiliates, from and against all claims, losses, damages,
costs (including the costs of preparation and attorney’s fees) and expenses
suffered in respect of any such claimed or existing fees, as and when
incurred.
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(k) SEC Documents; Financial
Statements; No Adverse Change. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the three years preceding the date hereof
(or such shorter period as the Company was required by law to file such
material) (the foregoing materials being collectively referred to herein as the
“SEC
Documents”) on a timely basis or has received a valid extension of such
time of filing and has filed any such SEC Documents prior to the expiration of
any such extension. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Documents, when filed, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The
financial statements of the Company included in the SEC Documents comply in all
material respects with applicable accounting requirements and the rules and
regulations of the Commission with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved, except as
may be otherwise specified in such financial statements or the notes thereto,
and fairly present in all material respects the financial position of the
Company as of and for the dates thereof and the results of operations, retained
earnings and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal year-end audit adjustments. Since the
date of the financial statements included in the Company’s Quarterly Report on
Form 10-Q for the period ended June 30, 2008, as amended to the date hereof, (a)
there has been no event, occurrence or development that has had or that could
have or result in a Material Adverse Effect, (b) there has been no material
change in the Company’s accounting principles, practices or methods and (c) the
Company has conducted its business only in the ordinary course of such
business. The Company last filed audited financial statements with
the Commission in connection with its fiscal year ended on December 31, 2007,
and has not received any comments from the Commission in respect
thereof.
(l) Seniority. Except
for the Company’s Series A Preferred Stock and Series H Preferred Stock, no
class of equity securities of the Company is senior to the Shares in right of
payment, whether with respect to dividends or upon liquidation, dissolution or
otherwise.
(m) Reserved.
(n) Investment
Company. The Company is not, and is not an “Affiliate person”
of, an “investment company” within the meaning of the Investment Company Act of
1940, as amended.
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(o) Listing and Maintenance
Requirements Compliance. Other than as previously disclosed in
writing to Sovereign and ▇▇▇▇▇▇▇▇▇, the Company has not in the two years prior
to the date hereof received written notice from any stock exchange, market or
trading facility on which the Common Stock is or has been listed (or on which it
is or has been quoted) to the effect that the Company is not in compliance with
the listing or maintenance requirements of such exchange, market or trading
facility. The Company has provided to Sovereign and ▇▇▇▇▇▇▇▇▇ true
and complete copies of all such notices contemplated by this
Section.
(p) Patents and
Trademarks. The Company has, or has rights to use, all
patents, patent applications, trademarks, trademark applications, service marks,
trade names, copyrights, licenses, trade secrets and other intellectual property
rights which are necessary for use in connection with its business or which the
failure to so have would have a Material Adverse Effect (collectively, the
“Intellectual Property
Rights”). To the best knowledge of the Company, none of the
Intellectual Property Rights infringe on any rights of any other Person, and the
Company either owns or has duly licensed or otherwise acquired all necessary
rights with respect to the Intellectual Property Rights. The Company
has not received any notice from any third party of any claim of infringement by
the Company of any of the Intellectual Property Rights, and has no reason to
believe there is any basis for any such claim. To the best knowledge
of the Company, there is no existing infringement by another Person on any of
the Intellectual Property Rights.
(q) Disclosure. All
information relating to or concerning the Company set forth in the Transaction
Documents or the Disclosure Materials (other than the SEC Documents) is true and
correct in all material respects and does not fail to state any material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. The Company
confirms that it has not provided to Sovereign, ▇▇▇▇▇▇▇▇▇, or any of their
representatives, agents or counsel any information that constitutes or might
constitute material nonpublic information. The Company understands
and confirms that Sovereign and ▇▇▇▇▇▇▇▇▇ shall be relying on the foregoing
representation in effecting transactions in securities of the
Company.
Section
3.2 Reserved.
Section
3.3 Representations and
Warranties of Sovereign. Sovereign hereby represents and
warrants to the Company as follows:
(a) Organization;
Authority. Sovereign is an entity organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
the requisite power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and to carry out its
obligations thereunder. The acquisition of the Securities to be
acquired hereunder and the payment of the purchase price therefor by Sovereign
have been duly authorized by all necessary action on the part of
Sovereign. This Agreement has been duly executed by Sovereign and,
when delivered by Sovereign in accordance with the terms hereof, shall
constitute the valid and legally binding obligation of Sovereign, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights generally and to
general principles of equity.
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(b) Investment
Intent. Sovereign is acquiring the Securities to be acquired
hereunder for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to Sovereign’s right, subject to
the provisions of this Agreement, at all times to sell or otherwise dispose of
all or any part of such Securities pursuant to an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from such registration.
(c) Investor
Status. At the time Sovereign was offered the Securities to be
acquired hereunder by Sovereign, it was, at the date hereof, it is, and at the
Closing Date, it will be, an “accredited investor” as defined in Rule 501(a)
under the Securities Act.
(d) Experience of
Sovereign. Sovereign, 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 Sovereign to Bear
Risk of Investment. Sovereign acknowledges that an investment
in the Securities is speculative and involves a high degree of
risk. Sovereign is able to bear the economic risk of an investment in
the Securities to be acquired hereunder by Sovereign, and, at the present time,
is able to afford a complete loss of such investment.
(f) Access to Public
Information. Sovereign acknowledges receipt of the Disclosure
Materials and further acknowledges that it has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Securities, and the merits and risks of investing in the
Securities, (ii) access to public information about the Company and the
Company’s financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment and
(iii) the opportunity to obtain such additional public information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other
investigation conducted by or on behalf of Sovereign or its representatives,
agents or counsel shall modify, amend or affect Sovereign’s right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction
Documents.
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(g) Reliance. Sovereign
understands and acknowledges that (i) the Securities to be acquired by it
hereunder are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and Sovereign hereby
consents to such reliance.
The Company acknowledges and agrees
that Sovereign makes no representations or warranties with respect to
transactions contemplated hereby other than those specifically set forth in this
Section 3.3.
Section
3.4 Representations and
Warranties of ▇▇▇▇▇▇▇▇▇. ▇▇▇▇▇▇▇▇▇ hereby represents and
warrants to the Company as follows:
(a) Organization;
Authority. ▇▇▇▇▇▇▇▇▇ is an entity organized, validly existing
and in good standing under the laws of the jurisdiction of its organization with
the requisite power and authority to enter into and to consummate the
transactions contemplated by the Transaction Documents and to carry out its
obligations thereunder. The acquisition of the Securities to be
acquired hereunder and the payment of the purchase price therefor by ▇▇▇▇▇▇▇▇▇
have been duly authorized by all necessary action on the part of
▇▇▇▇▇▇▇▇▇. This Agreement has been duly executed by ▇▇▇▇▇▇▇▇▇ and,
when delivered by ▇▇▇▇▇▇▇▇▇ in accordance with the terms hereof, shall
constitute the valid and legally binding obligation of ▇▇▇▇▇▇▇▇▇, enforceable
against it in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors’ rights generally and to
general principles of equity.
(b) Investment
Intent. ▇▇▇▇▇▇▇▇▇ is acquiring the Securities to be acquired
hereunder for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof or
interest therein, without prejudice, however, to ▇▇▇▇▇▇▇▇▇’▇ right, subject to
the provisions of this Agreement, at all times to sell or otherwise dispose of
all or any part of such Securities pursuant to an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from such registration.
(c) Investor
Status. At the time ▇▇▇▇▇▇▇▇▇ was offered the Securities to be
acquired hereunder by ▇▇▇▇▇▇▇▇▇, it was, at the date hereof, it is, and at the
Closing Date, it will be, an “accredited investor” as defined in Rule 501(a)
under the Securities Act.
(d) Experience of
▇▇▇▇▇▇▇▇▇. ▇▇▇▇▇▇▇▇▇, 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.
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(e) Ability of ▇▇▇▇▇▇▇▇▇ to Bear
Risk of Investment. ▇▇▇▇▇▇▇▇▇ acknowledges that an investment
in the Securities is speculative and involves a high degree of
risk. ▇▇▇▇▇▇▇▇▇ is able to bear the economic risk of an investment in
the Securities to be acquired hereunder by ▇▇▇▇▇▇▇▇▇, and, at the present time,
is able to afford a complete loss of such investment.
(f) Access to Public
Information. ▇▇▇▇▇▇▇▇▇ acknowledges receipt of the Disclosure
Materials and further acknowledges that it has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Securities, and the merits and risks of investing in the
Securities, (ii) access to public information about the Company and the
Company’s financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment and
(iii) the opportunity to obtain such additional public information which the
Company possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other
investigation conducted by or on behalf of ▇▇▇▇▇▇▇▇▇ or its representatives,
agents or counsel shall modify, amend or affect ▇▇▇▇▇▇▇▇▇’▇ right to rely on the
truth, accuracy and completeness of the Disclosure Materials and the Company’s
representations and warranties contained in the Transaction
Documents.
(h) Reliance. ▇▇▇▇▇▇▇▇▇
understands and acknowledges that (i) the Securities to be acquired by it
hereunder are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and ▇▇▇▇▇▇▇▇▇ hereby
consents to such reliance.
The Company acknowledges and agrees
that ▇▇▇▇▇▇▇▇▇ makes no representations or warranties with respect to
transactions contemplated hereby other than those specifically set forth in this
Section 3.4.
Section
3.5 Other Agreements of the
Parties
(a) Transfer
Restrictions.
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(I)
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The
Securities may only be disposed of pursuant to an effective registration
statement under the Securities Act, to the Company or pursuant to an
available exemption from or in a transaction not subject to the
registration requirements thereof. In connection with any
transfer of any Securities other than pursuant to an effective
registration statement or to the Company, the Company may require the
transferor thereof to provide to the Company an opinion of counsel
selected by the transferor, the form and substance of which opinion shall
be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities
Act. Notwithstanding the foregoing, the Company hereby consents
to and agrees to register (a) any transfer of Securities by Sovereign or
▇▇▇▇▇▇▇▇▇ to an Affiliate of Sovereign or ▇▇▇▇▇▇▇▇▇, or any transfers
among any such Affiliates, and (b) any transfer by Sovereign or ▇▇▇▇▇▇▇▇▇
to any investment entity under common management with Sovereign or
▇▇▇▇▇▇▇▇▇, provided in each case of clauses (a) and (b) the transferee
certifies to the Company that it is an “accredited investor” as defined in
Rule 501(a) under the Securities Act. Any such transferee shall
have the rights of Sovereign and ▇▇▇▇▇▇▇▇▇ under this
Agreement.
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12
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(II)
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Sovereign
and ▇▇▇▇▇▇▇▇▇ agree to the imprinting, so long as is required by this
Section 3.2, of the following legend (or such substantially similar legend
as is acceptable to Sovereign and ▇▇▇▇▇▇▇▇▇ and its counsel, the parties
agreeing that any unacceptable legended Securities shall be replaced
promptly by and at the Company’s cost) on the
Securities:
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NEITHER
THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
[ONLY FOR
UNDERLYING SHARES TO THE EXTENT THE RESALE THEREOF IS NOT COVERED BY AN
EFFECTIVE REGISTRATION STATEMENT AT THE TIME OF CONVERSION, ISSUANCE OR
EXERCISE] THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED
OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION
NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
13
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(III)
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Reserved.
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(iv)
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The
Underlying Shares shall not contain any legend other than as set forth
above. The Company agrees that it will provide Sovereign and ▇▇▇▇▇▇▇▇▇,
upon request, with a certificate or certificates representing Underlying
Shares, free from such legend at such time as such legend is no longer
required hereunder. The Company may not make any notation on
its records or give instructions to any transfer agent of the Company
which enlarge the restrictions of transfer set forth in this Section
3.2.
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(b) Acknowledgment of
Dilution. The Company acknowledges that the issuance of
Underlying Shares upon conversion of the Shares and as payment of dividends
thereon may result in dilution of the outstanding shares of Common Stock, which
dilution may be substantial under certain market conditions. The
Company further acknowledges that its obligation to issue Underlying Shares in
accordance with the Certificate of Designation is unconditional and absolute
regardless of the effect of any such dilution.
(c) Furnishing of
Information. As long as any of the Purchasers owns the
Securities, the Company covenants to file in a timely manner (or obtain
extensions in respect thereof and file within the applicable grace period) all
reports required to be filed by the Company after the date hereof pursuant to
Section 13(a) or 15(d) of the Exchange Act. If at any time prior to
the date on which a Purchaser may resell all of its Underlying Shares without
volume restrictions pursuant to Rule 144(k) promulgated under the Securities Act
(as determined by counsel to the Company pursuant to a written opinion letter to
such effect, addressed and acceptable to the Company’s transfer agent for the
benefit of and enforceable by a Purchaser) the Company is not required to file
reports pursuant to such sections, it will prepare and furnish to Each Purchaser
and make publicly available in accordance with Rule 144(c) promulgated under the
Securities Act annual and quarterly financial statements, together with a
discussion and analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to be included
in reports required by Section 13(a) or 15(d) of the Exchange Act in the time
period that such filings would have been required to have been made under the
Exchange Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time to enable such Person to sell Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 promulgated under the Securities Act,
including the legal opinion referenced above in this Section. Upon
the request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
14
(d) Use of Disclosure
Materials. The Company consents to the use of the Disclosure
Materials and any information provided by or on behalf of the Company pursuant
to Section 3.1, and any amendments and supplements thereto, by Each Purchaser in
connection with resales of the Securities other than pursuant to an effective
registration statement.
(e) Integration. The
Company shall not and shall use its best efforts to ensure that no Affiliate
shall sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities Act) that
would be integrated with the offer or sale of the Securities in a manner that
would require the registration under the Securities Act of the issue, offer or
sale of the Securities to Sovereign and ▇▇▇▇▇▇▇▇▇.
(f) Notice of
Breaches. The Company and each of the Purchasers shall give
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof, which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained in the Transaction Document to be incorrect
or breached as of such Closing Date. However, no disclosure by either
party pursuant to this Section shall be deemed to cure any breach of any
representation, warranty or other agreement contained in any Transaction
Document. Notwithstanding the generality of the foregoing, the
Company shall promptly notify each 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 by the Transaction Documents
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
each Purchaser a copy of any written statement in support of or relating to such
claim or notice.
(g) Conversion
Procedures. Exhibit "A" to the Certificate of Designation sets
forth all procedures, required information and instructions that are required to
be followed in order to permit holders of Shares to smoothly and expeditiously
exercise their rights to convert Shares, including the form of legal opinion, if
necessary, that shall be rendered to the Company's transfer agent to effect the
delivery of Underlying Shares in compliance with the terms hereof and of the
Certificate of Designation.
(h) Conversion and Exercise
Obligations of the Company. The Company shall honor
conversions of the Shares and shall deliver Underlying Shares upon such
conversions and exercises in accordance with the respective terms and conditions
and time periods set forth in the Certificate of Designation.
Section
3.6 Transfer of Intellectual
Property Rights. Except in the ordinary course of the
Company’s business consistent with past practice or in connection with the sale
of all or substantially all of the assets of the Company, the Company shall not
transfer, sell or otherwise dispose of, any Intellectual Property Rights, or
allow the Intellectual Property Rights to become subject to any Liens, or fail
to renew such Intellectual Property Rights (if renewable and would otherwise
expire) while any shares of the Preferred Stock remain
outstanding.
15
Section
3.7 Certain Conversion
Restrictions. In no event (except (i) if the Company is in
default of any of its obligations hereunder or any of the Transaction Documents,
as defined in Section 7 of the Certificate of Designation, or (ii) except as
otherwise set forth in the Certificate of Designation) shall any Holder be
entitled to convert any Preferred Stock to the extent that, after such
conversion, the sum of (1) the number of shares of Common Stock beneficially
owned by such Holder and its affiliates (other than the shares of Common Stock
which may be deemed beneficially owned through the ownership of the unconverted
portion of the Preferred Stock), and (2) the number of shares of Common Stock
issuable upon the conversion of the Preferred Stock with respect to which the
determination of this proviso is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.99% of the outstanding
shares of Common Stock. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
except as otherwise provided in clause (1) of the preceding
sentence. To the extent that the limitation contained in this
paragraph applies, the determination of whether shares of Preferred Stock are
convertible (in relation to other securities owned by a Holder) and of which
shares of Preferred Stock are convertible shall be in the sole discretion of the
Holder, and the submission of shares of Preferred Stock for conversion shall be
deemed to be the Holder's determination of whether such shares of Preferred
Stock are convertible (in relation to other securities owned by the Holder) and
of which portion of such shares of Preferred Stock are convertible, in each case
subject to such aggregate percentage limitation, and the Company shall have no
obligation to verify or confirm the accuracy of such
determination. Nothing contained in this paragraph shall be
deemed to restrict the right of the Holder to convert shares of Preferred Stock
at such time as such conversion will not violate the provisions of this
paragraph. The provisions of this paragraph may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 65 days
prior notice to the Company (in which case, the Holder shall make such filings
with the Commission, including under Rule 13D or 13G, as are required by
applicable law), and the provisions of this Section shall continue to apply
until such 65th day (or later, if stated in the notice of
waiver). Other Holders shall be unaffected by any such
waiver.
Section
3.8 Covenants of the
Company. Subject to (i) the completeness and accuracy of all
representations and warranties made by each of the Purchasers in connection with
this Agreement; and (ii) any material change in the law relating to the sale of
restricted securities, the Company covenants that it will cause its counsel to
issue appropriate opinions to each Purchaser under Rule 144(d) relating to such
Purchaser’s holding period of the Shares of Preferred Stock, upon request by
such Purchaser.
16
ARTICLE
4.
MISCELLANEOUS
Section
4.1 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. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Shares pursuant hereto. Each Purchaser shall be responsible for its
own respective tax liability that may arise as a result of the investment
hereunder or the transactions contemplated by this Agreement.
Section
4.2 Entire Agreement;
Amendments, Exhibits and Schedules. This Agreement, together
with the Exhibits and Schedules hereto, and the Certificate of Designation
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters. The Exhibits and Schedules to
this Agreement are hereby incorporated herein and made a part hereof for all
purposes as if fully set forth herein.
Section
4.3 Notices. Any
and all notices or other communications or deliveries required or permitted to
be provided hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 5:00 p.m. (Salt Lake City time) on a Business
Day, (ii) the Business Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in the Purchase Agreement later than 5:00 p.m. (Salt Lake City time)
on any date and earlier than 11:59 p.m. (Salt Lake City time) on such date,
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
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If
to the Company:
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Fonix
Corporation
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||
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▇▇▇
▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
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|||
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▇▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇
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|||
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Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
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|||
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Attn:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, President
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|||
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With
copies to:
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Durham
▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
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||
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▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
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|||
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▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
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|||
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Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
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|||
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Attn:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
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If
to Sovereign:
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Fax:
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Attn.:
▇▇▇▇▇ ▇▇▇▇▇
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17
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With
copies to:
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Southridge
Capital Management, LLC
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||
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▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
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|||
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▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
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|||
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Fax:
▇▇▇.▇▇▇.▇▇▇▇
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|||
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Attn.:
▇▇▇▇▇ ▇▇▇▇▇▇▇
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|||
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If
to ▇▇▇▇▇▇▇▇▇:
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Fax:
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Attn.:
▇▇▇▇▇ ▇▇▇▇▇
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|||
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With
copies to:
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Southridge
Capital Management, LLC
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||
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▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
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|||
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▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
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Fax:
▇▇▇.▇▇▇.▇▇▇▇
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Attn.:
▇▇▇▇▇ ▇▇▇▇▇▇▇
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or such
other address as may be designated in writing hereafter, in the same manner, by
such Person.
Section
4.4 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 each of the Purchasers, or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought, provided however that
Section 4.7 and to the extent it affects such sections, this Section 4.4 may not
be waived or amended without the prior written consent of any party identified
therein as a third party beneficiary. No waiver of any default with
respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
either party to exercise any right hereunder in any manner impair the exercise
of any such right accruing to it thereafter.
Section
4.5 Headings. The
headings herein are for convenience only, do not constitute a part of this
Agreement and shall not be deemed to limit or affect any of the provisions
hereof.
Section
4.6 Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties and their successors and permitted assigns, including any
Persons to whom Sovereign or ▇▇▇▇▇▇▇▇▇ transfers Shares. The
assignment by a party of this Agreement or any rights hereunder shall not affect
the obligations of such party under this Agreement.
18
Section
4.7 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 4.6, is not for the
benefit of, nor may any provision hereof be enforced by, any other
Person.
Section
4.8 Governing Law;
Venue. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. Additionally,
any action arising out of the interpretation of or performance under this
Agreement by either party shall be brought in a court of competent jurisdiction
in the State of New York.
Section
4.9 Survival. The
representations, warranties, agreements and covenants contained in this
Agreement shall survive the Closing and the conversion of the
Shares.
Section
4.10 Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement, and shall become
effective when counterparts have been signed by each party and delivered to the
other parties, it being understood that all parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid and binding
obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
Section
4.11 Publicity. The
Company and each of the Purchasers shall consult with each other in issuing any
press releases or otherwise making public statements with respect to the
transactions contemplated hereby and no party shall issue any such press release
or otherwise make any such public statement without the prior written consent of
the other party, which consent shall not be unreasonably withheld or delayed,
except that no prior consent shall be required if such disclosure is required by
law.
Section
4.12 Severability. In
case any one or more of the provisions of this Agreement shall be invalid or
unenforceable in any respect, the validity and enforceability of the remaining
terms and provisions of this Agreement shall not in any way be affected or
impaired thereby and the parties will attempt to agree upon a valid and
enforceable provision which shall be a reasonable substitute therefor, and upon
so agreeing, shall incorporate such substitute provision in this
Agreement.
Section
4.13 Remedies. Each
of the parties to this Agreement acknowledges and agrees that the other parties
would be damaged irreparably in the event any of the provisions of this
Agreement are not performed in accordance with their specific terms or otherwise
are breached. Accordingly, each of the parties hereto agrees that the
other parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions of this Agreement in any action
instituted in any court of the United States of America or any state thereof
having jurisdiction over the parties to this Agreement and the matter, in
addition to any other remedy to which they may be entitled, at law or in
equity.
19
Section 4.14
Rights in
Bankruptcy. The holder of any shares of Series P Preferred
shall be entitled to exercise its conversion privilege with respect to the
Series P Preferred notwithstanding the commencement of any case under 11 U.S.C.
§101 et seq. (the “Bankruptcy
Code”). In the event the Company is a debtor under the Bankruptcy
Code, the Company hereby waives, to the fullest extent permitted, any rights to
relief it may have under 11 U.S.C. §362 in respect of the conversion of the
Series P Preferred.
Section 4.15
Information. The
Company will authorize its transfer agent to give information relating to the
Company directly to each Purchaser or to such Purchaser’s representatives upon
the request of a Purchaser or any such representative, to the extent such
information relates to (i) the status of shares of Common Stock issued or
claimed to be issued to such Purchaser in connection with a Notice of
Conversion, or (ii) the number of outstanding shares of Common Stock of all
stockholders as of a current or other specified date. The Company
will provide each Purchaser with a copy of the authorization so given to the
transfer agent.
Section 4.16
Trading in
Securities. The Company specifically acknowledges that, except
to the extent specifically provided herein or in any of the other Transaction
Documents (but limited in each instance to the extent so specified), the Holder
retains the right (but is not otherwise obligated) to buy, sell, engage in
hedging transactions or otherwise trade in the securities of the Company,
including, but not necessarily limited to, the Securities, at any time before,
contemporaneous with or after the execution of this Agreement or from time to
time, but only, in each case, in any manner whatsoever permitted by applicable
federal and state securities laws, including but not limited to Regulation M
promulgated under the Securities Act of 1933, as amended.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK.]
20
IN WITNESS WHEREOF, the parties hereto
have caused this Series P Convertible Preferred Stock Exchange Agreement to be
duly executed as of the date first indicated above.
FONIX CORPORATION
By:
Name:
Its:
SOVEREIGN PARTNERS, LP
By:_______________________________________
Name:____________________________________
Title:_____________________________________
▇▇▇▇▇▇▇▇▇ AVENUE LTD.
By:_______________________________________
Name:____________________________________
Title:_____________________________________
21
SCHEDULE
3.1(a)
SUBSIDIARIES
|
1.
|
Fonix/AcuVoice,
Inc., a Utah corporation, wholly owned by
Fonix
|
|
2.
|
Fonix/Papyrus
Corporation, a Utah corporation, wholly owned by
Fonix
|
|
3.
|
Fonix
UK Ltd., a limited company organized under the laws of the United Kingdom,
wholly owned by Fonix
|
|
4.
|
Fonix
Sales, Korea Group, Ltd., a Korean entity wholly owned by
Fonix
|
|
5.
|
LTEL
Acquisition Corp., a Delaware corporation, wholly owned by
Fonix
|
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6.
|
LTEL
Holdings Corporation, a Delaware corporation, wholly owned by LTEL
Acquisition Corp.
|
|
7.
|
LecStar
Telecom, Inc., a Georgia corporation, wholly owned by LTEL Holdings
Corporation
|
|
8.
|
LecStar
DataNet, Inc., a Georgia corporation, wholly owned by LTEL Holdings
Corporation
|
|
9.
|
Fonix
Telecom, Inc., a Delaware corporation, wholly owned by
Fonix
|
|
10.
|
TOE
Acquisition Corporation, a Delaware corporation, wholly owned by
Fonix
|
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11.
|
Fonix
Speech, Inc., a Delaware corporation, wholly owned by
Fonix
|
22
SCHEDULE
3.1(c)
CAPITALIZATION
The
Company has an authorized capitalization consisting of 20,000,000,000 shares of
Common Stock, par value $.0001 per share, and 50,000,000 shares of Preferred
Stock, par value $.0001 per shares. As of the September 10, 2008, the
Company has issued and outstanding 13,066,684,976 shares of Common
Stock. As of September 10, 2008, 170,834 shares of Class A Common
Stock were subject to issuance upon the conversion or exercise of presently
issued and outstanding warrants and options of the Company. 166,667
shares of Series A Preferred Stock have been issued and 166,667 shares are
outstanding, which shares are convertible into 4,167 shares of Class A Common
Stock. Except as set forth above, as of the date of this Agreement,
there are no outstanding options, warrants, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or, except as a result of
the purchase and sale of the Shares, securities, rights or obligations
convertible into or exchangeable for, or giving any Person any right to
subscribe for or acquire, any shares of Class A Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Class A Common
Stock or securities or rights convertible or exchangeable into shares of Class A
Common Stock, except as disclosed herein.
23
APPENDIX
A
PURCHASERS
AND OBLIGATIONS EXCHANGED
|
Purchaser
|
Nature
of Obligation Exchanged
|
Amount
of Obligation Exchanged
|
Number
of Series P Preferred Shares to be Issued
|
Documentation
to be Tendered to Company (i.e. Note, Debenture, Certificate,
etc.)
|
||||||
|
Sovereign
Partners LP
|
Promissory
Note, dated February 22, 2007, in the principal amount of $100,000, and
interest of $16,278
|
$ | 116,278 | 11.6278 | ||||||
|
Sovereign
Partners LP
|
Promissory
Note, dated March 13, 2007, in the principal amount of $100,000, and
interest of $15,750
|
$ | 115,750 | 11.575 | ||||||
|
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Avenue, Ltd.
|
Promissory
Note, dated January 11, 2007, in the principal amount of $50,000, and
interest of $8,722
|
$ | 58,722 | 5.8722 | ||||||
|
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.
|
Promissory
Note, dated January 19, 2007, in the principal amount of $100,000, and
interest of $17,222
|
$ | 117,222 | 11.7222 | ||||||
|
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.
|
Promissory
Note, dated January 26, 2007, in the principal amount of $100,000, and
interest of $17,028
|
$ | 117,028 | 11.7028 | ||||||
|
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.
|
Promissory
Note, dated December 28, 2006, in the principal amount of $95,000, and
16,942
|
$ | 111,942 | 11.1942 | ||||||
|
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.
|
Promissory
Note, dated December 15, 2006, in the principal amount of $235,000, and
interest of $42,701
|
$ | 277,701 | 27.7701 | ||||||
|
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.
|
Note
Payable, dated February, 2004, in the principal amount of $8,732,620, and
interest of $1,311,105
|
$ | 10,043,725 | 1,004.3725 | ||||||
|
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.
|
Series
E Debenture, dated December 7, 2007, in the principal amount of
$1,754,464, and interest of $291,763
|
$ | 2,046,227 | 204.6227 | ||||||
▇▇
▇▇▇▇▇▇▇▇
▇
CERTIFICATE
OF DESIGNATION
25