SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 13, 1997
fonix Corporation
(Exact Name of registrant as specified in its charter)
Delaware 0-23862 22-2994719
(State or other (Commission (IRS Employer
jurisdiction File Number) Identification No.)
of incorporation)
60 East South Temple Street, Suite 1225,
Salt Lake City, Utah 84111
(Address of Principal Executive Offices)
(Zip Code)
Registrant's telephone number, including area code: (801) 328-0161
..............................................................................
(Former name or former address if changed since last report)
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ITEM 5. OTHER EVENTS
Modification to Product Development and Assignment Agreement with Synergetics,
Inc.
fonix Corporation, a Delaware corporation (the "Company"), is filing this
Current Report to file the attached press release of March 13, 1997,
announcing that the Company has reached agreement in principle with
Synergetics, Inc., a Utah corporation ("Synergetics"), to modify their
previous agreements with regard to the development and assignment of certain
speech recognition technology. The prior arrangement provided, among other
things, for Synergetics to assign to fonix or its predecessor all of the
then-existing and to-be-developed technologies and related property for a
speech recognition project known as "VoiceBox" (collectively, the
"Technology") and to continue development of the Technology under the
direction of fonix. In consideration for that assignment, fonix agreed to pay
Synergetics a continuing royalty equal to 10 percent of gross revenues
received from the use, marketing and/or sale of the Technology and products
incorporating the Technology (the "Royalty") and fonix was obligated to
provide financial resources to enable such development to continue.
Synergetics compensated engineers, employees, members of its development team
and other financial backers, in part, with the issuance of "Project Shares"
granting the holders of such shares the right to share pro rata in the Royalty
payments. In addition to issuance of Project Shares, Synergetics had made
loans and advances to some members of its project team (collectively, the
"Advances") on a non-recourse basis. Repayment of the Advances was secured by
future disbursements under the Project Shares.
Pursuant to a Memorandum of Understanding executed by fonix, Synergetics
and the principal shareholder of Synergetics, Hal Hansen, on March 13, 1997,
the parties have agreed to modify their previous agreements (collectively, the
"Agreement") as follows:
1. The rights and obligations of Synergetics under the Agreement,
including the Royalty, will be assigned to a new wholly-owned subsidiary of
fonix ("fonix Acquisition");
2. fonix Acquisition will also assume the obligations of Synergetics to
all holders of Project Shares;
3. fonix and fonix Acquisition will release Synergetics from any further
obligation or duty under the Agreement;
4. In consideration for the assignment of the rights to the Royalty by
Synergetics to fonix Acquisition, fonix will issue warrants to Synergetics and
the Project Share holders to acquire, in the aggregate, not more than
4,800,000 shares of fonix Common Stock at an exercise price of $10.00 per
share (the "Warrants"). A holder of Project Shares will be entitled to
receive Warrants to purchase 800 shares of fonix Common Stock for each Project
Share held; provided, however, that the number of Warrants to be issued will
be reduced by the amount of one Warrant for each $37.50 in Advances;
5. The Warrants will become exercisable subject to progress made in
further development of the Technology and the first to occur of (i) a minimum
daily closing bid price for shares of fonix Common Stock of $37.50 for a
period of at least 15 consecutive trading days, or (ii) thirty months from the
date the Warrants are issued. The exercise date shall be accelerated upon
certain business combinations or reorganizations, such as a merger, involving
fonix. The terms relating to Technology development will be subject to a
confidentiality and non-disclosure agreement and covenants;
6. In consideration of the assumption by fonix Acquisition of the
obligations of Synergetics, the release of Synergetics from its further duties
under the Agreement, and the issuance of the Warrants to Synergetics and
holders of Project Shares, the Royalty will be canceled and fonix will no
longer be obligated to pay any additional amounts to Synergetics;
7. All Project Shares tendered in exchange for Warrants will be canceled;
8. fonix will employ certain present members of the Synergetics project
team as fonix employees on terms and conditions approximately equivalent to
the terms and conditions of their present employment with Synergetics, but
including the right to participate in fonix employee stock option plans; and
9. fonix will engage Hal Hansen, the founder and principal stockholder of
Synergetics, and/or Synergetics as a consultant to assist with the further
development of the Technology.
The parties have acknowledged that the completion of the transactions
will require, among other things, execution of definitive agreements and
compliance with applicable federal and state laws, including securities laws.
Those agreements will include standard terms and provisions that are typical
of such transactions, including mutual releases and indemnification
covenants. Synergetics has other business interests and activities and will
continue to conduct its business in the usual course following the closing.
If all of the Warrants were immediately exercisable and were fully exercised,
the Company would receive cash of $48,000,000 and Synergetics and the former
Project Share holders exercising the Warrants would own 4,800,000 shares of
the Company's Common Stock, or approximately 9.0% of the issued and
outstanding shares of the Company's Common Stock.
Certain Relationships. As previously disclosed in the Company's annual
report for fiscal 1995, Thomas A. Murdock, a director and the Chief Operating
Officer of fonix, is also one of seven directors of Synergetics. In addition,
Mr. Murdock, Stephen M. Studdert and Roger D. Dudley, each of whom is an
executive officer and director of fonix, own shares of the common stock of
Synergetics, although such share ownership in the aggregate constitutes less
than 5% of the total shares of Synergetics common stock issued and
outstanding. The transaction described above will not result in any change in
the ownership of Synergetics.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
fonix Corporation
By: /s/ THOMAS A. MURDOCK
--------------------------
Thomas A. Murdock, President
Dated: March 17, 1997
<PAGE>
Press Release:
fonix (TM)
FREEDOM OF SPEECH
NEWS RELEASE
Thursday, March 13, 1997
CONTACT: Roger D. Dudley Madeleine Franco
Executive Vice President or Eric Simonsen
(801) 328-0161 Jordan Richard Associates
(801) 595-8611
$37.50 SHARE PRICE LOCK-UP AGREED BY ENGINEERS
SALT LAKE CITY, UTAH -- Stephen M. Studdert, Chairman and Chief Executive
Officer of fonix™ corporation (NASDAQ: FONX), today announced an
agreement in principal with Synergetics, Inc. (independent engineering firm
developing fonix proprietary speech recognition technologies) to convert the
Synergetics royalty fee to warrants for common stock of fonix. The agreement
provides that the Synergetics engineering team will lock up their warrants and
underlying shares until a sustained share price of $37.50 is reached or until
after thirty months from the issuance of the warrants.
Under the terms of the agreement, the royalty fee of 10% of fonix gross
revenue that would have been payable to Synergetics will be converted to 4.8
million warrants for common stock of fonix. The warrants, when exercised at
$10.00 per share after the lock-up terms are satisfied, represents a net cash
flow to the company of $48 million. Subject to a registration statement to be
filed with and declared effective by the Securities and Exchange Commission,
the warrants will be made eligible for distribution to Synergetics and
individual members of the engineering team.
"Our acceptance of this $37.50 share price threshold is a clear
expression of our belief in the fonix technology. We are confident that fonix
will seize the opportunities to make this technology the standard of the
speech recognition industry," said Hal Hansen, president of Synergetics.
"The fonix technologies are a complete shift in the speech recognition
paradigm. The potential for licensed applications throughout the commercial
and educational sectors causes us to be enthusiastic about the conversion of
our royalty fee to fonix equity participation," said Lynn Shepherd, senior
fonix project team leader. "We are looking forward to sharing in the future
of fonix and in the company's overall value as employees and shareholders," he
said.
Studdert indicated that conversion of the royalty fee will allow fonix to
optimize its licensing and strategic partnering opportunities and enable the
company to reward engineers and shareholders alike through earnings and
shareholder value. Further, Studdert said most members of the Synergetic
Engineering team will become fonix employees.
fonix(tm) corporation, public since 1994, is a development-stage
company producing speech recognition technologies using specific-speech
knowledge, proprietary speech modeling, and a linguistic process that includes
neural networks (artificial intelligence) to recognize natural language speech
and at minimum continuous speech rates of 120 words per minute. As a
technology vendor, fonix will license its proprietary speech recognition
technologies for use in computer devices for the Internet, commercial,
professional, and industrial markets.
NOTE: Any statements released by fonix(tm) corporation that are forward
looking are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Editors and investors are cautioned
that forward-looking statements involve risk and uncertainties which may
affect the company's business prospects and performance. This includes
economic, competitive, governmental, technical and other factors discussed in
the company's filings with the SEC on forms 10-KSB, 10-QSB and 8-K.
