REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of April 6, 2001,by and among Fonix Corporation, a Delaware corporation
(the "Company"), and Queen LLC, referred to herein as "Investor."
This Agreement is made pursuant to the Second Private Equity Line
Agreement, dated as of the date hereof among the Company and the Investor (the
"Equity Line Agreement").
The Company and the Investors hereby agree as follows:
1. Definitions. Capitalized terms used and not otherwise defined herein
shall have the meanings given such terms in the Equity Line ▇▇▇▇▇▇▇▇▇.▇▇ used in
this Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(p).
"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.
"Class A Common Stock" means the Company's Class A Common Stock, par
value $.0001 per share.
"Commission" means the United States Securities and Exchange
Commission.
"Effectiveness Date" means sixty (60) days following the date on which
the Company files the Registration Statement.
"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 30th day following the Subscription Date.
"Holder" or "Holders" means the holder or holders, as the case may be,
from time to time of Registrable Securities.
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"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.
"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.
"Registrable Securities" means the shares of Class A Common Stock
issuable upon exercise by the Company of its right to put shares of
its Class A Common Stock to the Investor under the Equity Line
Agreement; provided, however that in order to account for the fact
that the number of shares of Class A Common Stock that are issuable
under the Equity Line Agreement is determined in part upon the market
price of the Class A Common Stock at the time of conversion,
Registrable Securities shall include (but not be limited to) up to
sixty million (60,000,000) shares of Class A Common Stock.
"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.
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"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.
"Subscription Date" shall have the meaning set forth in the Equity
Line Agreement.
"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.
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 all Registrable
Securities for an offering to be made on a continuous basis pursuant to
Rule 415. The Registration Statement shall be on Form S-2 (if the Company
is not then eligible to register for resale the Registrable Securities on
Form S-2, such registration shall be on another appropriate form in
accordance herewith as the Holders of a majority in interest of the
Registrable Securities may consent). The Company shall 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 shall use its best efforts to
keep such Registration Statement continuously effective under the
Securities Act until the date which is two years after the last Put Date 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(k) as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent (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) Reserved.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will
administer the offering will be selected by the Holders of a majority of
the Registrable Securities included in such offering upon consultation with
the Company. No Holder may participate in any Underwritten Offering
hereunder unless such Holder (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.
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3. Registration Procedures. In connection with the Company's registration
obliga tions hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-2 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-2 such
registration shall be on another appropriate form in accordance herewith,
or, in connection with an Underwritten Offering hereunder, such other form
available to the Company and acceptable to 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 or
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 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 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 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 to which the Holders of
a majority of the Registrable Securities, their Special Counsel, or any
managing underwriters, shall reasonably object on a timely basis.
(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 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 reasonably possible to any comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as reasonably possible provide the Holders true and
complete copies of all correspondence from and to the Commission relating
to the Registration Statement; and (iv) comply in all material respects
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) File additional Registration Statements if the number of
Registrable Securities at such time exceeds the number of shares of Class A
Common Stock then registered in a Registration Statement. In such event,
the Registration Statement required to be filed by the Company shall
include no less than a number of shares of Class A Common Stock equal to no
less than sixty million (60,000,000) shares of Class A Common Stock
issuable in connection with any funds under the Maximum Commitment Amount
which remain undrawn (assuming
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such drawdown occurred on the Filing Date or the date of the filing of the
final acceleration request therefor, whichever date yields a lower Purchase
Price) and any other Registrable Securities not then registered in a
Registration Statement.
(d) Permit a single firm of counsel designated by the Investor to
review the Registration Statement and all amendments and supplements
thereto a reasonable period of time (but not less than three (3) business
days) prior to their filing with the SEC, and not file any document in a
form to which such counsel reasonably objects.
(e) Notify the Investor, such Investor's legal counsel identified to
the Company (which, until further notice, shall be deemed to be ▇▇▇▇▇▇▇ &
Prager, LLP, ATTN: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.; each, an "Investor's 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
including changes in the provisions relating to the Investor, the
Registrable Securities, or the transactions reflected in the Transaction
Agreements (collectively, "Investor Matters") is proposed to be filed; (B)
whenever the SEC notifies the Company whether there will be a "review" of
such Registration Statement; (C) whenever the Company receives (or a
representative of the Company receives on its behalf) any oral or written
comments from the SEC respect of a Registration Statement (copies or, in
the case of oral comments, summaries of such comments shall be promptly
furnished by the Company to the Investors); and (D) with respect to the
Registration Statement or any post-effective amendment, when the same has
become effective; (ii) of any request by the SEC 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 SEC 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 or 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 best 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 furnish to the
Investor's Counsel copies of all intended written responses to the comments
contemplated in clause (C) of this Section 3(e) to the extent such
responses relate to Investor Matters not later than one (1) business day in
advance of the filing of such responses with the SEC so that the Investors
shall have the opportunity to comment thereon.
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(f) Furnish to the Investor and the Investor's Counsel (i) promptly
after the same is prepared and publicly distributed, filed with the SEC, or
received by the Company, one (1) copy of the Registration Statement, each
preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, and all amendments
and supplements thereto and such other documents, as such Investor may
reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Investor.
(g) 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.
(h) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) (subject to a permitted Blackout Period)
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(f) that
would, in the opinion of counsel for the Company, violate applicable law or
be materially detrimental to the business prospects of the Company.
(i) Furnish to each Holder 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.
(j) Promptly deliver to each Holder 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.
(k) Prior to any public offering of Registrable Securities, use its
best efforts to register or qualify or cooperate with the selling Holders
and any underwriters 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
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Effectiveness Period and to do any and all other 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 subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(l) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, 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
three (3) Business Days prior to any sale of Registrable Securities.
(m) Upon the occurrence of any event contemplated by Section 3(d)(vi),
as promptly as reasonably possible, 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.
(n) Use its best efforts to cause all Registrable Securities relating
to such Registration Statement to be listed on the OTC Bulletin Board,
Nasdaq SmallCap Market and any other subsequent market (or qualified for
trading on the OTC Bulletin Board, if applicable), if any, on which similar
securities issued by the Company are then listed as and when required
pursuant to the Equity Line Agreement.
(o) In the case of an Underwritten Offering, 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 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 Holder and each such underwriter, in form, scope and substance
reasonably satisfactory to any such managing underwriters and 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 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
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pursuant thereto, use its best reasonable efforts to 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 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 the Company 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 5 (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 and any managing underwriters to evidence the
continued validity of the representations and warranties made pursuant to
clause 3(m)(i) above and to evidence compliance with any customary
conditions contained in the underwriting agreement or other agreement
entered into by the Company.
(p) 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
reasonably 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) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard by
such Person; or (iii) 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.
(q) Comply with all applicable rules and regulations of the
Commission.
(r) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Class A Common Stock held by
such Holder as is required by law to be disclosed in the Registration
Statement, and the Company may exclude from such registration, without any
penalty otherwise provided by this Agreement, the Registrable Securities of
any such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request.
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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 rec ommendation 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.
Each Holder covenants and agrees that (i) it will not 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(h) and notice from the Company that such
Registration Statement and any post-effective amendments thereto have
become effective as contemplated by Section 3(d) and (ii) it and its
officers, directors or Affiliates, if any, will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the
Registration Statement.
Each 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(d)(ii), 3(d)(iii), 3(d)(iv),
3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue disposition of
such Registrable Securities under the Registration Statement until such
Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(k), 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, except as and to the extent specified
in Section 4(b), shall be borne by the Company whether or not pursuant to
an Underwritten Offering and whether or not 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 OTC
Bulletin Board and any subsequent market on which the Class A Common Stock
is then listed for trading, and (B) in compliance with state securities or
Blue Sky laws (including, without limitation, fees and disbursements of its
counsel or, if its counsel fails to timely make such determinations,
counsel for the Holders (which will not be subject to the restrictions set
forth below) in connection with Blue Sky qualifications or exemptions 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
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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
of the Company, (iv) fees and disbursements of counsel for the Company, (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 costs, fees and
expenses in connection therewith, except for the fees and disbursements of
the Underwriters (including any underwriting commissions and discounts) and
their legal counsel and accountants, which shall be borne by the Holders.
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.
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 Class A 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,
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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, its directors, officers,
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, 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 contained in the
Registration Statement, any Prospectus, or any form of prospectus, or in
any amendment or supplement thereto, or arising solely out of or based
solely upon any 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, such Prospectus
or such form of prospectus and that such information was reasonably relied
upon by the Company for use in the Registration Statement, such Prospectus
of 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, or in any amendment or supplement
thereto. 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. The breach, default or other action by or claim
against one Holder will not be deemed a breach, default or action of or
claim against any other Holder or in any way adversely affect the rights of
each of the other Holders.
(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 shall promptly 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
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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
in writing 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
ten (10) Business Days of written notice thereof to the Indemnifying Party
(regardless 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).
(d) Contribution. If a claim for indemnification under Section 5(a) or
5(b) is unavailable to an Indemnified Party (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,
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subject to the limitations set forth in Section 5(c), any reasonable
attorneys' or other reasonable 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),
no Holder shall be required to contribute, in the aggregate, any amount in
excess of the amount by which the proceeds actually received by such Holder
from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder 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.
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. Other Company Registration Obligations; Piggy-Back Registration.
(a) No Inconsistent Agreements. Except as and to the extent
specifically set forth in Schedule 6(a) 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 as and to the extent
specifically set forth in Schedule 6(a) attached hereto, 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,
without the written consent of the Holders, 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.
(b) No Piggyback on Registrations. Except as and to the extent
specifically set forth in Schedule 6(a) attached hereto, neither the
Company nor 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 security holders.
(c) Piggy-Back Registrations. If at any time during the Effectiveness
Period there is not an effective Registration Statement covering all of the
Registrable Securities and the Company shall determine to prepare and file
with the Commission a registration statement
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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,
then the Company shall send to each Holder 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. No right to registration of
Registrable Securities under this Section shall be construed to limit any
registration otherwise required hereunder.
6A. Reports under Securities Act and Exchange Act. With a view to making
available to Investor the benefits of Rule 144 promulgated under the Securities
Act or any other similar rule or regulation of the SEC that may at any time
permit Investor to sell securities of the Company to the public without
Registration ("Rule 144"), until such time as all of the Registrable Securities
may be sold without volume limitation pursuant to subsection (k) of Rule 144,
the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to Investor promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements of the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so
filed by the Company and (iii) such other information as may be reasonably
requested to permit Investor to sell such securities pursuant to Rule 144
without Registration.
(d) at the request of any Holder of Registrable Securities, upon
receipt from such Holder of a certificate certifying (i) that such Holder
has held such Registrable Securities for a period of not less than two (2)
years, (ii) that such Holder has not been an affiliate (as defined in Rule
144) of the company for more than the ninety (90) preceding days, and (iii)
as to such other matters as may be appropriate in accordance with such
Rule, remove from the stock certificate representing such Registrable
Securities that portion of any restrictive legend which relates to the
registration provisions of the Securities Act, provided, however, counsel
to Investor may provide such instructions and opinion to the transfer agent
regarding the removal of the restrictive legend.
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
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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
agrees 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) 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 all 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, 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.
(c) 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 Equity Line
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:
If to the Company: Fonix Corporation
▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
Executive Vice President
With copies to: Durham ▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile No.: (▇▇▇) ▇▇▇-▇▇▇▇
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Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If to the Investor, at the address indicated on the signature page to
this Agreement.
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, in each instance, to any party at such other address as may be
designated in writing hereafter, in the same manner, by such Person.
(d) 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 Investors may assign its rights hereunder in
the manner and to the Persons as permitted under the Equity Line Agreement.
(e) 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
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.
(f) 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. The parties hereby consent to the
jurisdiction of the courts of such state and agree that any litigation
commenced or arising under this Agreement may be brought in the courts in
Wilmington, Delaware.
(g) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(h) Severability. If any term, provision, covenant or restriction of
this Agree ment 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 restric tion. 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.
(i) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(j) 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,
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Registrable Securities held by the Company or its Affiliates (other than
the Investors 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.
(k) Counsel Fees. Except as set forth below, each of the Company and
the Investor agrees to pay its own expenses incident to the performance of
its obligations hereunder. Notwithstanding the foregoing, the Company
agrees to pay reasonable legal fees of the Investor in connection with the
review and execution of this Agreement and all documents contemplated
herein, upon receipt by the Company of a ▇▇▇▇ from the Investor's counsel
for such services.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK. THE
SIGNATURES OF THE PARTIES APPEAR ON THE FOLLOWING PAGE.]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
QUEEN LLC
By: Address:
---------------------------- ----------------------------------------
Its:
---------------------------- ----------------------------------------
With copies to:
▇▇▇▇▇▇▇ & Prager
▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fonix Corporation
By:
-------------------------------------
Name:
Its:
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SCHEDULE 6(a)
Other Registration Rights
1. AcuVoice, Inc. In March 1998, the Company acquired AcuVoice, Inc, a
California corporation ("AcuVoice"), pursuant to a statutory merger of
AcuVoice with and into a wholly-owned subsidiary of the Company. The former
shareholders of AcuVoice received cash payment and Fonix Class A Common
Stock in exchange for their Class A Common Stock of AcuVoice. Pursuant to
the Agreement and Plan of Reorganization executed by the parties to the
AcuVoice merger, the shareholders of AcuVoice obtained demand registration
rights that may be exercised at any time 12 months after the effective time
of the merger, provided that such demand does not occur during the period
starting with the date 60 days prior to Fonix's filing of, and ending on
the date 90 days after the effective date of any other registration
statement.
2. Articulate Systems, Inc. On July 31, 1998, the Company entered into a
definitive Agreement and Plan of Merger pursuant to which it acquired
Articulate Systems, Inc, a Delaware corporation ("Articulate"), through a
statutory merger of Articulate with and into a wholly-owned subsidiary of
the Company effective as of September 2, 1998. The stockholders of
Articulate received cash payment and Fonix restricted Class A Common Stock
in exchange for their capital stock of Articulate. Pursuant to the
Agreement and Plan of Merger executed by the parties to the Articulate
merger, the shareholders of Articulate obtained piggyback registration
rights that may be exercised at any time 6 months after the effective time
of the merger. The piggyback rights do not apply to (i) a registration
relating solely to employee benefit plans, (ii) a registration relating
solely to a Rule 145 transaction or (iii) a registration pursuant to
registration rights granted as of the date of the merger agreement.
3. Papyrus Transactions. On September 10, 1998, the Company entered into an
Agreement and Plan of Merger among the Company, Papyrus Acquisition
Corporation, a Utah corporation and wholly-owned subsidiary of the Company,
and Papyrus Associates, Inc., a Pennsylvania corporation. In a related
transaction, on September 10, 1998, the Company entered into an Agreement
and Plan of Merger among the Company, Papyrus Acquisition Corporation and
Papyrus Development Corporation, a Massachusetts corporation. Pursuant to
the merger agreements described above (the "Papyrus Agreements"), the
Company agreed to acquire by merger the Papyrus entities, in return for
which the Company issued a total of $3,111,114 shares of Class A Common
Stock and promissory notes aggregating $1,710,000. Pursuant to the Papyrus
Agreements, the shareholders of the Papyrus entities also obtained
piggyback registration rights exercisable at any time 6 months after the
effective time of the mergers. The piggyback rights do not apply to (i) a
registration relating solely to employee benefit plans, (ii) a registration
relating solely to a Rule 145 transaction or (iii) a registration pursuant
to registration rights granted as of the date of the merger agreement.
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After the Papyrus acquisition closed in October 1998, the Company
determined that certain of the representations made b y the Papyrus
entities and their executive officers appeared to be inaccurate. On
February 26, 1999, the Company filed an action against the former
stockholders of the Papyrus entities alleging misrepresentation and breach
of contract. In March and April 1999, five of the former stockholders of
the Papyrus entities filed actions against the Company alleging default
under the terms of the promissory notes issued to them in connection with
the Papyrus acquisition and certain other claims. Subsequently, the Company
entered into agreements with the five former stockholders of the Papyrus
entities for dismissal of the actions and cancellation of the promissory
notes upon payment to the former stockholders of $1,217,384 (the
"Settlement Payment") and return of 970,586 shares of restricted common
stock previously issued to the five former stockholders in connection with
the acquisition of the Papyrus entities. The Company paid the Settlement
Payment in September 1999 and the lawsuits described above have been
dismissed. The 970,586 shares were effectively canceled in September 1999
in connection with the Settlement Payment.
4. Fonix has registered under a registration statement on Form S-2 the resale
by Queen LLC of shares received and to be received in connection with the
Private Equity Line of Credit Agreement dated August 7, 2000, and the
related promissory noted dated June 20, 2000. That registration statement
is currently effective.
5. In addition to the foregoing, the Company presently has 4 effective S-3
registration statements covering resales of Class A Common Stock underlying
warrants issued in connection with previous financings, and would be, under
certain circumstances, obligated to file additional registration statements
in respect of those securities. Moreover, the Company has filed a
post-effective amendment to a registration statement on Form S-2, which was
declared effective June 15, 2000.
Permissible Piggyback Securities
None.
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