SERIES L 9% CONVERTIBLE PREFERRED STOCK EXCHANGE AGREEMENT Between Fonix Corporation, and McCormack Avenue, Ltd., Dated as of September 7, 2006
SERIES
L 9% CONVERTIBLE PREFERRED STOCK
Between
Fonix
Corporation,
and
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.,
_________
Dated
as of September 7, 2006
______________________________
THIS
SERIES L 9% CONVERTIBLE PREFERRED STOCK EXCHANGE AGREEMENT, dated as of
September 7, 2006 (this “Agreement”),
is
entered into between Fonix
Corporation,
a
Delaware corporation (the “Company”),
▇▇▇▇▇▇▇▇▇
Avenue, Ltd.,
a
British Virgin Island corporation (“▇▇▇▇▇▇▇▇▇”). The Company and ▇▇▇▇▇▇▇▇▇ may
each be referred to herein as a "Party"
and
collectively as the "Parties."
Recitals
A. In
February 2004, the Company issued to ▇▇▇▇▇▇▇▇▇ 1,960.8 shares of Series H
Preferred Stock (“Series
H Preferred”),
of
which ▇▇▇▇▇▇▇▇▇ holds 1,960.8 shares.
▇. ▇▇▇▇▇▇▇▇▇
has agreed to exchange the shares of Series H Preferred for an equal number
of
Series L 9% Convertible Preferred Stock (the “Series
L Preferred”).
C. The
Parties intend that the exchange of the shares of Series H Preferred for the
shares of the Series L Preferred Stock constitute a private exchange of the
Series H Preferred for the shares of the Series L Preferred Stock, and no
additional compensation or other consideration will be paid or
required.
▇. ▇▇▇▇▇▇▇▇▇
and the Company now desire to set forth their agreement with respect to the
rights, duties, and obligations of ▇▇▇▇▇▇▇▇▇ and the Company with respect to
the
Series L Preferred Stock.
Agreement
IN
CONSIDERATION of the mutual covenants and agree-ments 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 Agree-ment, 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
com-mon control with”)
shall
mean the possession, directly or indi-rectly, 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.
“Agreement”
shall
have the meaning set forth in the recitals hereto.
-2-
“Business
Day”
means
any day except Saturday, Sunday and any day which shall be a Federal legal
holiday or a day on which bank-ing institutions in the State of Delaware are
autho-rized 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 Exhibit
A.
“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 ▇▇▇▇▇▇▇▇▇ or its 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 ▇▇▇▇▇▇▇▇▇ under this Agreement received shares of the
Preferred Stock, regardless of the number of certificates which may be issued
to
evidence any particular Share.
“Lien”
means,
with respect to any asset, any ▇▇▇▇-▇▇▇▇, ▇▇▇▇, 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.
-3-
“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 L 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
L Preferred Stock”
shall
have the meaning set forth in the recitals hereto.
“Shares”
means
the shares of Series L 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.
ARTICLE
2.
EXCHANGE
OF SHARES OF PREFERRED STOCK
Section
2.1 Exchange
of Shares; Closing.
(a) Subject
to the terms and conditions set forth below, the ▇▇▇▇▇▇▇▇▇ shall tender to
the
Company One Thousand, Nine Hundred Sixty and eight-tenths (1,960.8) shares
of
Series H Preferred Stock, and in exchange (the “Exchange”),
▇▇▇▇▇▇▇▇▇ shall receive One Thousand, Nine Hundred Sixty and eight-tenths
(1,960.8) shares of Series L Preferred Stock. The Shares issued pursuant to
this
Agreement shall have the respective rights, preferences and privileges set
forth
in Exhibit
A
(the
“Certificate
of Designation”).
-4-
(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 shall
be the date on which ▇▇▇▇▇▇▇▇▇ tender the shares of Series H Preferred Stock
and
receives in return the shares of Series L 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:
|
(i)
|
The
Company shall deliver or cause to be delivered stock certificates
representing One Thousand, Nine Hundred Sixty and eight-tenths (1,960.8)
shares of Series L Preferred Stock to
▇▇▇▇▇▇▇▇▇.
|
| (ii) |
▇▇▇▇▇▇▇▇▇
shall deliver or cause to be delivered stock certificates representing
One
Thousand, Nine Hundred Sixty and eight-tenths (1,960.8) shares of
Series H
Preferred Stock.
|
|
(iii)
|
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.
|
Section
2.2 Dividends.
The
Company and ▇▇▇▇▇▇▇▇▇ expressly agree and acknowledge that dividends on the
Shares of Series L Preferred Stock shall begin to accrue on October 1, 2006,
payable pursuant to the terms of the Certificate of Designation attached hereto
as Exhibit A, and that there are no other dividends previously accrued or
unpaid.
ARTICLE
3.
REPRESENTATIONS
AND WARRANTIES
Section
3.1 Representations
and Warranties of the Company.
The
Company hereby represents and warrants to ▇▇▇▇▇▇▇▇▇ 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.
-5-
(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.
(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. Subject to Section 4.7, the Company has and at all times while any Shares
are outstanding shall use its best efforts to maintain an adequate reserve
of
duly authorized shares of Common Stock to enable it to perform its conversion,
exercise and other obligations under this Agreement and the Certificate of
Designation which reserve, subject to Section 4.7, shall be no less than the
sum
of (i) 100% of (A) the number of shares of Common Stock as would be issuable
upon conversion in full of the Shares, were such conversion effected on the
Issuance Date, and (B) the number of shares of Common Stock as are issuable
as
payment of dividends on the Shares (assuming such dividends are to be paid
in
Common Stock) (such sum, the “Initial
Reserve”).
If at
any time the sum of the number of shares of Common Stock issuable (a) upon
conversion in full of the then outstanding Shares and (b) as the payment of
dividends on the Shares (assuming all such dividends are to be paid in Common
Stock) exceeds 75% of the Initial Reserve, then the Company shall use its best
efforts to duly reserve 120% of the number of shares of Common Stock equal
to
such excess to fulfill such obligations. This obligation shall similarly apply
to successive excesses. When issued in accordance with the Certificate of
Designation, the Underlying Shares will be duly authorized, validly issued,
fully paid and nonassessable, and free and clear of all Liens.
-6-
(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, indi-vidually 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.
(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 govern-mental authority or other
Person in connection with the execution, delivery and performance by the Company
of the Transaction Documents, other than (i) the filing of the 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, indi-vidually 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.
-7-
(h) No
Default or Violation.
Except
as disclosed in Schedule 3.1(h), 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 ▇▇▇▇▇▇▇▇▇
contained in this Article 3, 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. ▇▇▇▇▇▇▇▇▇ shall not have any 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.
(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, 2006, as
amended to the date hereof, (a) there has been no material change in the
Company’s accounting principles, practices or methods, and (b) the Company has
conducted its business only in the ordinary course of such business. The Company
last filed audited financial statements with the Commission on March 21, 2006,
and has not received any comments from the Commission in respect thereof which
have not been resolved.
-8-
(l) Seniority.
Except
for the Company’s Series A 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.
(o) Listing
and Maintenance Requirements Compliance.
Other
than as previously disclosed in writing to ▇▇▇▇▇▇▇▇▇, 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 ▇▇▇▇▇▇▇▇▇ 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.
-9-
(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 ▇▇▇▇▇▇▇▇▇ or any of their representatives, agents
or
counsel any information that constitutes or might constitute material nonpublic
information. The Company understands and confirms that ▇▇▇▇▇▇▇▇▇ shall be
relying on the foregoing representation in effecting transactions in securities
of the Company.
Section
3.2 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 busi-ness 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.
-10-
(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.
(g) 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
truth-fulness 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 3.2.
Section
3.3 Other
Agreements of the Parties.
|
(a)
|
Transfer
Restrictions.
|
-11-
|
(I)
|
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 ▇▇▇▇▇▇▇▇▇ to an Affiliate of ▇▇▇▇▇▇▇▇▇ or any transfers among
any such
Affiliates, and (b) any transfer by ▇▇▇▇▇▇▇▇▇ to any investment entity
under common management with ▇▇▇▇▇▇▇▇▇, 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 ▇▇▇▇▇▇▇▇▇ under this
Agreement.
|
|
(II)
|
▇▇▇▇▇▇▇▇▇
agrees to the imprinting, so long as is required by this Article
3, of the
following legend (or such substantially similar legend as is acceptable
to
▇▇▇▇▇▇▇▇▇ 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:
|
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.
-12-
|
(III)
|
Reserved.
|
|
(iv)
|
The
Underlying Shares shall not contain any legend other than as set
forth
above. The Company agrees that it will provide ▇▇▇▇▇▇▇▇▇, 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
3.4.
|
(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.
Reports
under Securities Act and Exchange Act. To permit ▇▇▇▇▇▇▇▇▇ to sell securities
of
the Company to the public without Registration (“Rule 144”), the Company agrees
to:
(I) make
and
keep public information available, as those terms are understood and defined
in
Rule 144;
(II)
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
(III)
furnish
to the Investor so long as ▇▇▇▇▇▇▇▇▇ owns Securities, promptly upon request,
(i)
a written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act, (ii) if
not
available on the SEC’s ▇▇▇▇▇ system, 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 ▇▇▇▇▇▇▇▇▇ to sell such securities pursuant to Rule 144 without
Registration; and
-13-
(IV)
at
the
request of ▇▇▇▇▇▇▇▇▇ or any Investor holding Registrable Securities (a
“Holder”), give its Transfer Agent instructions (supported by an opinion of
counsel to the Company, if required or requested by the Transfer Agent) to
the
effect that, upon the Transfer Agent’s receipt from such Holder of a certificate
(a “Rule 144 Certificate”) certifying (A) that the Holder’s holding period (as
determined in accordance with the provisions of Rule 144) for the shares of
Registrable Securities which the Holder proposes to sell (the “Securities Being
Sold”) is not less than (1) year and (B) as to such other matters as may be
appropriate in accordance with Rule 144 under the Securities Act, the Transfer
Agent is to effect the transfer of the Securities Being Sold and issue to the
buyer(s) or transferee(s) thereof one or more stock certificates representing
the transferred Securities Being Sold without any restrictive legend and without
recording any restrictions on the transferability of such shares on the Transfer
Agent’s books and records (except to the extent any such legend or restriction
results from facts other than the identity of the Holder, as the seller or
transferor thereof, or the status, including any relevant legends or
restrictions, of the shares of the Securities Being Sold while held by the
Holder). If the Transfer Agent reasonably requires any additional documentation
at the time of the transfer, the Company shall deliver or cause to be delivered
all such reasonable additional documentation as may be necessary to effectuate
the issuance of an unlegended certificate.
(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 ▇▇▇▇▇▇▇▇▇ in connection with resales
of
the Securities other than pursuant to an effective registration
statement.
(e) Blue
Sky Laws.
The
Company shall qualify the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as ▇▇▇▇▇▇▇▇▇ may reasonably request and shall
continue such qualification at all times until ▇▇▇▇▇▇▇▇▇ notifies the Company
in
writing that they no longer own Securities; provided,
however,
that
neither the Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not now so
qualified or to take any action that would subject the Company to general
service of process in any such jurisdiction where it is not then so
subject.
(f) 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 ▇▇▇▇▇▇▇▇▇.
(g) Reserved.
-14-
(h) Notice
of Breaches.
Each of
the Company and ▇▇▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇▇▇ 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
▇▇▇▇▇▇▇▇▇ a copy of any written statement in support of or relating to such
claim or notice.
(i) 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. If the Company changes its transfer agent at any time prior to
the
conversion of all of the Shares held by ▇▇▇▇▇▇▇▇▇, the Company shall deliver
any
transfer agent instructions contained in Exhibit “B” to such replacement
transfer agent and cause such transfer agent to comply therewith.
(j) 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
3.5 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
3.6 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
3.7 Covenants
of the Company.
Subject
to (i) the completeness and accuracy of all representations and warranties
made
by ▇▇▇▇▇▇▇▇▇ in connection with the original issuance of the shares of Series
H
Preferred Stock from the Company; and (ii) the completeness and accuracy of
all
representations and warranties made by ▇▇▇▇▇▇▇▇▇ in connection with (a) its
acquisition of the shares of Series H Preferred from the Company; (b) this
Agreement; and (iii) 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 ▇▇▇▇▇▇▇▇▇ under Rule 144(d) relating to
▇▇▇▇▇▇▇▇▇’▇ holding period of the Shares of Preferred Stock, upon request by
▇▇▇▇▇▇▇▇▇.
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, except that the Company agrees to pay ▇▇▇▇▇▇▇▇▇’▇ legal fees in
connection with the negotiation of the exchange of the Series L Preferred Stock.
The Company shall pay all stamp and other taxes and duties levied in connection
with the issuance of the Shares pursuant hereto. ▇▇▇▇▇▇▇▇▇ 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.
-16-
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:
Ifto
the
Company: Fonix
Corporation
▇▇▇▇
▇
▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇
▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn:
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Executive Vice President
With
copies (which shall Durham
▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C.
not
constitute notice) to: ▇▇▇
▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇
▇▇▇▇
▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
If
to
▇▇▇▇▇▇▇▇▇: ▇▇▇▇▇▇▇▇▇
Partners LP
_______________________
_______________________
Fax:
_______________________
Attn.:
_______________________
With
copies to: Southridge
Capital Management, LLC
▇▇
▇▇▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Fax:
▇▇▇.▇▇▇.▇▇▇▇
Attn.:
▇▇▇▇▇ ▇▇▇▇▇▇▇
and
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇
▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax
▇▇▇
▇▇▇ ▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
or
such
other address as may be designated in writing hereafter, in the same manner,
by
such Person.
-17-
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 the Company and ▇▇▇▇▇▇▇▇▇,
or, in the case of a waiver, by the party against whom enforce-ment 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 require-ment 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 ▇▇▇▇▇▇▇▇▇
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.
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. The
Parties hereby consent to a non-jury trial proceeding, and waive any right
to
demand a trial by jury.
Section
4.9 Survival.
The
representations, war-ranties, 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.
-18-
Section
4.11 Publicity.
The
Company and ▇▇▇▇▇▇▇▇▇ 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, in
which such case the disclosing party shall provide the other parties with prior
notice of such public statement. Notwithstanding the foregoing, the Company
shall not publicly disclose the name of ▇▇▇▇▇▇▇▇▇ without the prior written
consent of ▇▇▇▇▇▇▇▇▇, except to the extent required by law, in which case the
Company shall provide ▇▇▇▇▇▇▇▇▇ with prior written notice of such public
disclosure.
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.
Section
4.14 Rights
in Bankruptcy.
The
holder of any shares of Series L Preferred shall be entitled to exercise its
conversion privilege with respect to the Series L 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 L Preferred.
Section
4.15 Information.
The
Company will authorize its transfer agent to give information relating to the
Company directly to ▇▇▇▇▇▇▇▇▇, or ▇▇▇▇▇▇▇▇▇’▇ representatives, upon the request
of ▇▇▇▇▇▇▇▇▇, 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
▇▇▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇▇▇ with a copy of the
authorization so given to the transfer agent.
-19-
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.
Section
4.17 Registration
Rights.
The
Company hereby grants to ▇▇▇▇▇▇▇▇▇ the right to make written demand that the
Company file, within 30 days of receipt by the Company of such written demand,
a
registration statement to register the resales by ▇▇▇▇▇▇▇▇▇ of shares of the
Company’s common stock issued to ▇▇▇▇▇▇▇▇▇ upon conversion of the Series L
Preferred Stock, and to use its best efforts to have such registration statement
declared effective as soon as feasible by the Securities and Exchange
Commission; provided,
however,
that
while ▇▇▇▇▇▇▇▇▇ may make multiple demands for registration, ▇▇▇▇▇▇▇▇▇ may not
make a second or any subsequent demand for registration while a registration
statement is pending and has not been declared effective. Additionally, the
Company , in connection therewith shall at its cost and expense make all
necessary regulatory or other filings including without limitation any filings
under applicable "blue sky" laws, the rules of the NASD and of any applicable
securities exchange or trading market
Section
4.18 Indemnification
(a) Indemnification
by the Company.
The
Company shall, notwithstanding any termination of this Agreement and without
limitation as to time, indemnify and hold harmless each Holder, the officers,
directors, agents (including any underwriters retained by such Holder in
connection with the offer and sale of Registrable Securities), brokers
(including brokers who offer and sell Registrable Securities as principal as
a
result of a pledge or any failure to perform under a margin call of Common
Stock), investm-ent advisors and employees of each of them, each Person who
con-trols any such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the offi-cers, 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, with-out limitation, costs of preparation and
attor-neys' 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 prospec-tus, 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 mis-leading, 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 writ-ing 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 pro-posed 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 Prospec-tus 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.
-20-
(b) Indemnification
by Holders.
Each
Holder shall, severally and not jointly, indemnify and hold harmless the
Com-pany, 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 mate-rial 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 pro-posed 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 Prospec-tus
or
such form of Prospectus, or in any amendment or supplement thereto. In no event
shall the lia-bility of any selling Holder hereun-der 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.
(i) 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 determi-nation
is
not subject to appeal or further review) that such failure shall have
proximately and materially adversely prejudiced the Indemnifying
Party.
-21-
(ii) 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 Indem-nified 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 Indem-nifying Party (in which
case, if such Indemnified Party noti-fies 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.
(iii) All
fees
and expenses of the Indemnified Party (in-cluding 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 Indem-nifying Party (regard-less of whether it is
ultimately deter-mined that an Indemnified Party is not entitled to
indemnifica-tion 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.
(i) If
a
claim for indemnification under Section 4.18(a) or 4.18(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 Indem-nified 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 ques-tion, 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 sup-plied by, such
Indemnifying Party or Indemnified Party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include, subject to the limita-tions set forth
in Section 4.18(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.
-22-
(ii) The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 4.18(d) were determined by pro rata
allocation or by any other method of allo-cation that does not take into account
the equitable considera-tions referred to in the immediately preceding
para-graph. Not-withstanding the provisions of this Section 4.18(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 Pro-ceeding 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 misrep-resentation (within the meaning of Section 11(f)
of
the Securities Act) shall be entitled to contribution from any Per-son who
was
not guilty of such fraudulent misrepresentation.
(iii) 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.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK.]
-23-
IN
WITNESS WHEREOF, the parties hereto have caused this Series L Convertible
Preferred Stock Exchange Agreement to be duly executed as of the date first
indicated above.
|
FONIX
CORPORATION
|
|
|
By::_______________________________________
|
|
|
Name:
____________________________________
|
|
|
Its:
____________________________________
|
|
|
▇▇▇▇▇▇▇▇▇
AVENUE, LTD.
|
|
|
By:_______________________________________
|
|
|
Name:
____________________________________
|
|
|
Title:
_____________________________________
|
-24-
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
|
| 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
|
| 11. |
Fonix
Speech Inc., a Delaware corporation, wholly owned by
▇▇▇▇▇
|
-▇▇-
▇▇▇▇▇▇▇▇
3.1(c)
CAPITALIZATION
The
Company has an authorized capitalization consisting of 5,000,000,000 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 date hereof, the Company has
issued and outstanding 820,095,891 shares of Common Stock. As of the date of
this agreement, 1,325,705 shares of Class A Common Stock are 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, except that the Company has entered
into a Seventh Equity Line of Credit Agreement with a third party investor
(the
“Equity Line Investor”). The Company granted registration rights to the Equity
Line Investor and a registration statement covering the resale of shares by
the
Equity Line Investor has been declared effective by the U.S. Securities and
Exchange Commission. Upon effectiveness of the registration statement, if and
when the Company draws funds under the equity line of credit, the Equity Line
Investor has the right to receive shares as repayment of such
draws.
-26-
SCHEDULE
3.1(h)
As
of
September 7, 2006, the Company had received oral advice from ▇▇▇▇▇▇▇▇▇ Avenue,
Ltd., through counsel, of the Company’s default in connection with the Company’s
obligations under a Secured Note, dated February 24, 2004, principal amount
of
$10,000,000, and related security agreements.
-27-
EXHIBIT
A
CERTIFICATE
OF DESIGNATION
-28-