<PAGE>
================================================================================
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or 240.14a-12
FONIX/TM/ CORPORATION
...............................................................................
(Name of Registrant as Specified in Charter)
...............................................................................
(Name of Person(s) Filing Proxy Statement If Other Than The Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
....................................................................
2) Aggregate number of securities to which transaction applies:
....................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
....................................................................
4) Proposed maximum aggregate value of transaction:
....................................................................
5) Total fee paid:
....................................................................
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:................................................
2) Form, Schedule or Registration Statement No............................
3) Filing Party:..........................................................
4) Date Filed:............................................................
<PAGE>
FONIX(TM) CORPORATION
1225 EAGLE GATE TOWER
60 EAST SOUTH TEMPLE STREET
SALT LAKE CITY, UTAH 84111
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 30, 1998
----------------
To the Shareholders:
Notice is hereby given that a special meeting (the "Special Meeting") of the
shareholders of FONIX(TM) corporation (the "Company") will be held at 600 West
Cummings Park, Suite 4500, Woburn, Massachusetts 01801, on Monday, November
30, 1998, at 6:00 p.m., E.S.T. for the following purposes, which are discussed
in the following pages and which are made part of this Notice:
1. To approve a series of transactions pursuant to which the Company has
issued its Series D 4% Convertible Preferred Stock and Series E 4%
Convertible Preferred Stock to seven institutional investors, which
preferred stock may be convertible into more than 20% of the total
number of shares of the Company's common stock, par value $.0001 per
share ("Common Stock") issued and outstanding prior to the commencement
of such series of transactions;
2. To consider and act upon a proposed amendment to the Company's
Certificate of Incorporation that would: (A) create a new class of Class
B Non-Voting Common Stock; (B) redesignate the Corporation's current
Common Stock as Class A Common Stock and change each share of existing
Common Stock into a share of Class A Common Stock; and (C) increase the
authorized capital of the Company to 150,000,000 shares of Common Stock;
and
3. To consider and act upon any other matters that properly may come before
the Special Meeting or any adjournment thereof.
The Company's Board of Directors has fixed the close of business on
Wednesday, October 28, 1998 as the record date (the "Record Date") for the
determination of shareholders having the right to notice of, and to vote at,
the Special Meeting and any adjournment thereof. A list of such shareholders
will be available for examination by a shareholder as of the record date for
any purpose germane to the meeting during ordinary business hours at the
offices of the Company at 1225 Eagle Gate Tower, 60 East South Temple Street,
Salt Lake City, Utah 84111, during the 10 business days prior to the Special
Meeting.
You are requested to date, sign and return the enclosed proxy, which is
solicited by the Board of Directors of the Company and will be voted as
indicated in the accompanying proxy statement. YOUR VOTE IS IMPORTANT. PLEASE
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN
ENVELOPE WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING. The giving of your
proxy as requested hereby will not affect your right to vote in person should
you decide to attend the Special Meeting. The return envelope requires no
postage if mailed in the United States. If mailed elsewhere, foreign postage
must be affixed. Your proxy is revocable at any time before the Special
Meeting.
By Order of the Board of Directors,
/s/ Stephen M. Studdert
Stephen M. Studdert,
Chairman
Salt Lake City, Utah
November 13, 1998
<PAGE>
FONIX(TM) CORPORATION
1225 EAGLE GATE TOWER
60 EAST SOUTH TEMPLE STREET
SALT LAKE CITY, UTAH 84111
(801) 328-0161
----------------
PROXY STATEMENT
----------------
SPECIAL MEETING OF SHAREHOLDERS
The enclosed proxy is solicited by the Board of Directors of FONIX(TM)
corporation ("fonix(TM)" or the "Company") for use in voting at the special
meeting of shareholders (the "Special Meeting") to be held at 600 West
Cummings Park, Suite 4500, Woburn, Massachusetts 01801, on Monday, November
30, 1998, at 6:00 p.m., E.S.T., and at any postponement or adjournment
thereof, for the purposes set forth in the attached notice. When proxies are
properly dated, executed and returned, the shares they represent will be voted
at the Special Meeting in accordance with the instructions of the shareholder
completing the proxy. If a signed proxy is returned but no specific
instructions are given, the shares will be voted:
1. FOR approval of a series of transactions pursuant to which the Company
has issued its Series D 4% Convertible Preferred Stock and Series E 4%
Convertible Preferred Stock to 7 institutional investors, which
preferred stock may be convertible into more than 20% of the total
number of shares of the Company's Common Stock issued and outstanding
prior to the commencement of such series of transactions; and
2. FOR approval of a proposed amendment to the Company's Certificate of
Incorporation that would: (A) create a new class of Class B Non-Voting
Common Stock; (B) redesignate the Company's current Common Stock as
Class A Common Stock and change each share of existing Common Stock into
a share of Class A Common Stock; and (C) increase the authorized capital
of the Company to 150,000,000 shares of Common Stock.
A SHAREHOLDER GIVING A PROXY HAS THE POWER TO REVOKE IT AT ANY TIME PRIOR TO
ITS EXERCISE BY VOTING IN PERSON AT THE SPECIAL MEETING, BY GIVING WRITTEN
NOTICE TO THE COMPANY PRIOR TO THE SPECIAL MEETING OR BY GIVING A LATER DATED
PROXY.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the Company's Common Stock issued and outstanding and
entitled to vote at the Special Meeting is necessary to constitute a quorum to
transact business. Each share of Common Stock represented at the Special
Meeting in person or by proxy will be counted for purposes of determining
whether a quorum is present. In deciding all matters, a holder of Common Stock
on the Record Date shall be entitled to cast one vote for each share of Common
Stock then registered in such holder's name. Abstentions and broker non-votes
will count for purposes of establishing a quorum, but will not count as votes
cast for any matter presented for the vote of the shareholders and accordingly
will have no effect. Votes cast by shareholders who attend and vote in person
or by proxy at the Special Meeting will be counted by inspectors to be
appointed by the Company (the Company anticipates that the inspectors will be
employees, attorneys or agents of the Company).
Approval of Proposal No. 1 requires the affirmative vote of a majority of
the shares of Common Stock present or represented at the Special Meeting and
entitled to vote thereon. Abstentions on this proposal may be specified and
will be counted for purposes of determining the number of shares present or
represented and entitled to vote thereon. As a result, abstentions will have
the same effect as votes against this proposal.
Approval of Proposal No. 2 requires the affirmative vote of a majority of
the shares of Common Stock outstanding and entitled to vote as of the Record
Date. Abstentions on this proposal may be specified and will have the same
effect as a vote against the proposal.
<PAGE>
The close of business on Wednesday, October 28, 1998, has been fixed as the
Record Date for determining the shareholders entitled to notice of, and to
vote at, the Special Meeting. Each share shall be entitled to one vote on all
matters. As of the Record Date there were 58,586,633 shares of the Company's
Common Stock outstanding and entitled to vote. For a description of the
principal holders of such stock, see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT" below.
This Proxy Statement and the enclosed Proxy are being furnished to
shareholders on or about November 13, 1998.
----------------
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of October 30, 1998, the number of shares
of Common Stock of the Company beneficially owned by all persons known to be
holders of more than 5 percent of the Company's Common Stock and by the
executive officers and directors of the Company individually and as a group.
Unless indicated otherwise, the address of the shareholder is the Company's
principal executive offices, 1225 Eagle Gate Tower, 60 East South Temple
Street, Salt Lake City, Utah 84111.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME AND ADDRESS OF 5% BENEFICIAL OWNERS, BENEFICIALLY PERCENT OF
EXECUTIVE OFFICERS AND DIRECTORS OWNED CLASS(1)
----------------------------------------- ------------ ----------
<S> <C> <C>
Thomas A. Murdock............................ 25,350,894(2) 40.3%
President, COO and Director
Alan C. Ashton, Ph.D. ....................... 12,329,167(3)(4) 19.7%
c/o Beesmark Investments, L.C.
5% Beneficial Owner
261 East 1200 South
Orem, Utah 84097
Beesmark Investments, L.C. .................. 11,729,167(4) 19.0%
5% Beneficial Owner
261 East 1200 South
Orem, Utah 84097
Roger D. Dudley.............................. 6,818,296(5) 10.9%
Executive Vice President
and Director
Stephen M. Studdert.......................... 6,817,996(6) 10.9%
Chairman of the Board
Chief Executive Officer
Joseph Verner Reed........................... 1,020,000(7) 1.6%
Director
73 Sterling Road
Greenwich, Connecticut 06831
Rick D. Nydegger............................. 400,000 *
Director
10217 North Oak Creek Lane
Highland, Utah 84003
John A. Oberteuffer, Ph.D. .................. 180,000 *
Director
Vice President
Voice Information Associates, Inc.
14 Glen Road South
Lexington, Massachusetts 02173
Reginald K. Brack............................ 226,500(8) *
Director
Douglas L. Rex............................... 205,300(9) *
Vice President
Officers and Directors as a Group (8 per-
sons)....................................... 30,455,287 45.4%
</TABLE>
- --------
*Less than 1 percent.
3
<PAGE>
(1) Percentages rounded to nearest 1/10th of one percent. Except as indicated
in the footnotes below, each of the persons listed exercises sole voting
and investment power over the shares of the Company's Common Stock listed
for each such person in the table.
(2) Includes 24,046,449 shares of Common Stock deposited in a voting trust
(the "Voting Trust") as to which Mr. Murdock is the sole trustee. Persons
who have deposited their shares of the Company's Common Stock into the
Voting Trust have dividend and liquidation rights in proportion to the
number of shares of the Company's Common Stock they have deposited in the
Voting Trust, but have no voting rights with respect to such shares. All
voting rights associated with the shares deposited into the Voting Trust
are exercisable solely and exclusively by the Trustee of the Voting Trust.
The Voting Trust expires, unless extended according to its terms, on the
earlier of September 30, 1999 or any of the following events: (i) the
Trustee terminates it; (ii) the participating shareholders unanimously
terminate it; or (iii) the Company is dissolved or liquidated. Although as
the sole trustee of the Voting Trust Mr. Murdock exercises the voting
rights of all of the shares deposited into the Voting Trust, and
accordingly has listed all shares in the Table above, he has no economic
or pecuniary interest in any of the shares deposited into the Voting Trust
except 3,415,083 shares as to which he directly owns the economic
interest, 2,238,700 shares the economic rights as to which are owned by
SCC, of which Mr. Murdock is a 1/3 equity owner and 11,400 shares the
economic rights as to which are owned by a limited liability company of
which Mr. Murdock is a 1/3 equity owner. Also includes 2,813 shares owned
directly by Mr. Murdock, 140,232 shares (including shares issuable upon
the exercise of options) beneficially owned by members of Mr. Murdock's
immediate family and 1,150,000 shares of Common Stock underlying stock
options exercisable presently or within 60 days.
(3) Includes all Common Stock beneficially owned by Beesmark Investments, L.C.
("Beesmark") but only to the extent that Dr. Ashton is one of two managers
of Beesmark, and, as such, is deemed to share investment power with
respect to shares beneficially owned by Beesmark. Also includes 600,000
shares of Common Stock underlying stock options exercisable by Dr. Ashton
presently or within 60 days.
(4) Beesmark's beneficial ownership includes 166,667 shares of Common Stock
presently issuable upon the conversion of shares of Series A Preferred
Stock. All common shares are deposited into the Voting Trust. The managers
of Beesmark are Alan C. Ashton and Karen Ashton. As managers of Beesmark,
they each are deemed to share voting control over shares beneficially
owned by Beesmark. Mrs. Ashton beneficially owns no shares other those
deemed to be owned by her as a control person of Beesmark, and
consequently her beneficial ownership is not separately reported.
(5) Includes (i) 3,415,083 shares owned by Mr. Dudley and deposited into the
Voting Trust, (ii) 2,238,700 shares owned by SCC as to which Mr. Dudley
shares investment power because of his management position with and 1/3
ownership of SCC, which shares are deposited in the Voting Trust; (iii)
2,813 shares owned directly by Mr. Dudley; (iv) 300 shares owned by Mr.
Dudley's minor children; (v) 11,400 shares owned by a limited liability
company of which Mr. Dudley is a 1/3 equity owner and that are deposited
into the Voting Trust; and (vi) 1,150,000 shares underlying stock options
exercisable presently or within 60 days.
(6) Includes (i) 3,415,083 shares owned by Mr. Studdert and deposited into the
Voting Trust, (ii) 2,238,700 shares owned by SCC as to which Mr. Studdert
shares investment power because of his management position with and 1/3
ownership of SCC, which shares are deposited in the Voting Trust; (iii)
2,813 shares owned directly by Mr. Studdert; (iv) 11,400 shares owned by a
limited liability company of which Mr. Studdert is a 1/3 equity owner and
control and which are deposited in the Voting Trust; and (v) 1,150,000
shares underlying stock options exercisable presently or within 60 days.
(7) Includes 1,000,000 shares of Common Stock underlying presently exercisable
stock options.
(8) Includes 26,000 shares owned directly by Mr. Brack and 500 shares owned by
Mr. Brack's son and 200,000 shares underlying options.
(9) Includes 2,400 shares owned directly by Mr. Rex, 2,400 shares owned by his
spouse, 500 shares owned by an entity owned and controlled by him, and
200,000 shares underlying presently exercisable stock options.
4
<PAGE>
PROPOSAL 1
TO APPROVE A SERIES OF TRANSACTIONS PURSUANT TO WHICH THE COMPANY HAS ISSUED
ITS SERIES D 4% CONVERTIBLE PREFERRED STOCK AND SERIES E 4% CONVERTIBLE
PREFERRED STOCK TO SEVEN INSTITUTIONAL INVESTORS, WHICH PREFERRED STOCK MAY BE
CONVERTIBLE INTO MORE THAN 20% OF THE TOTAL NUMBER OF SHARES OF COMMON STOCK
ISSUED AND OUTSTANDING PRIOR TO THE COMMENCEMENT OF SUCH SERIES OF
TRANSACTIONS.
BACKGROUND OF TRANSACTIONS
In March 1998, the Company sold 3,333,333 shares of its Common Stock to 7
institutional investors (the "Investors') for a total of $15,000,000. In
connection with the sale of those shares, the investors acquired "reset"
rights obligating the Company to issue to them additional shares of Common
Stock ("Reset Shares") for no additional consideration if the average market
price of the Company's Common Stock for the 60-day period preceding July 27,
1998 did not equal or exceed $5.40 per share. In separate transactions in June
and August 1998, certain of the Investors provided $3,000,000 of additional
equity financing to the Company, in return for which the Company issued to
them 666,667 additional shares of Common Stock.
Effective as of August 31, 1998, the Company and the Investors entered into
a Series D Preferred Stock Purchase Agreement ("Series D Agreement"). Under
the Series D Agreement, the Company issued a total of 500,000 shares of its
newly authorized Series D 4% Convertible Preferred Stock to 5 of the Investors
in return for the payment by them of a total of $10,000,000. Additionally, the
Company issued to all of the Investors, pro rata according to the number of
shares of Common Stock acquired by them in the March 1998 transaction, a total
of 608,334 shares of Series D preferred stock in return for their
relinquishment of their contractual right to receive Reset Shares as to the
Common Stock acquired in the March 1998 placement. The Company agreed to and
did issue a total of 1,390,476 Reset Shares in respect of the $3,000,000
invested in June and August 1998.
Each share of Series D preferred stock has a "stated" or principal value of
$20, on which amount dividends accrue at the rate of 4% per annum and are
payable annually or upon conversion in cash or Common Stock at the option of
the Company. The Series D preferred stock is convertible into Common Stock at
anytime after the earlier of November 29, 1998 or the date the registration
statement of which this prospectus is a part is declared effective by the
Commission. Holders of Series D preferred stock, however, may not convert
during each month more than 25% of the total number of shares of Series D
preferred stock originally issued to such holder on a cumulative basis. For
example, during the first month a holder may convert up to 25% of the total
preferred stock issued to it, and during the following month that same holder
may convert, on an aggregate to date basis, up to 50% of the total number of
shares of Series D Preferred Stock held by it. Additionally, any holder of
Series D preferred stock may convert up to 50% of the number of shares of
Series D preferred stock originally issued to it per month, on a cumulative
basis, if both of the following conditions are satisfied:
1. the average daily trading volume of the Company Common Stock is more
than 500,000 shares for the 10-trading-day period before the conversion;
and
2. the average per share closing bid price for such 10-trading-day period
has not decreased by more than 5% during that 10-trading-day period.
As of September 30, 1998, the Company and 2 of the Investors entered into a
Series E Preferred Stock Purchase and Exchange Agreement ("Series E
Agreement"). Under the Series E Agreement, the Company issued a total of
100,000 shares of its newly authorized Series E 4% Convertible Preferred Stock
to two of the Investors in return for the payment by them of a total of
$2,000,000. Additionally, the Company issued to the purchasers of the Series E
preferred stock a total of 150,000 additional shares of Series E preferred
stock in exchange for which those purchasers surrendered a total of 150,000
shares of Series D preferred stock.
Each share of Series E preferred stock has a "stated" or principal value of
$20, on which amount dividends accrue at the rate of 4% per annum and are
payable annually or upon conversion in cash or Common Stock at
5
<PAGE>
the option of the Company. The Series E preferred stock is convertible, in
whole or in part, into Common Stock at anytime after its issuance.
Each share of Series D and Series E preferred stock is convertible into that
number of shares of Common Stock as is determined by dividing $20 by the
lesser of any of the following (at the option of the converting holder):
1.$3.50, or
2.the lesser of
. 110% of the average per share closing bid prices for the 15 trading
days immediately preceding August 31, 1998 (for Series D) or September
30, 1998 (for Series E); or
. 90% of the average of the 3 lowest per share closing bid prices during
the 22 trading days immediately preceding the conversion date.
If the converting holder elects conversion option 1, in addition to the
shares of Common Stock issued upon the conversion, the converting holder will
receive a warrant to purchase 0.8 shares of Common Stock. Those warrants will
have an exercise price that will be 120% of the per share closing bid price of
the Common Stock on the date the warrants are issued and will have a 3-year
term. Any shares of Series D or Series E preferred stock not converted as of
August 31, 2001 will automatically be converted into Common Stock according to
whichever of the conversion formulas described above yields the greatest
number of shares of Common Stock.
The Company entered into a registration rights agreement with the purchasers
of the Series D and Series E preferred stock under which the Company must
register the Common Stock issuable upon conversion of the Series D and Series
E preferred stock, payment of stock dividends on the Series D and Series E
preferred stock and exercise of any warrants issued upon conversion of the
Series D and Series E preferred stock. The Company also covenanted to reserve
out of its authorized and unissued shares of Common Stock no less than that
number of shares that would be issuable upon the conversion of the Series D
and Series E preferred stock and any dividends payable in stock on the
preferred stock and the exercise of the warrants, if any.
NASDAQ SMALLCAP MARKET SHAREHOLDER APPROVAL REQUIREMENT
Nasdaq SmallCap Market Rule 4310(c)(25)(H), which governs the Company for so
long as the Company's Common Stock is quoted on such market, requires
shareholder approval for the issuance of shares of Common Stock in a
transaction or series of transactions involving, among other types of
transactions, the sale or issuance by the issuer of Common Stock (or
securities convertible into or exercisable for Common Stock) equal to 20% or
more of the Common Stock or 20% or more of the voting power obtained before
the issuance for less than the greater of book or market value of the stock.
The number of shares of Common Stock issuable upon conversion of the Series
D and Series E preferred stock as described above, and the exercise of any
warrants issued in connection with such conversions, depending upon the market
price of the Common Stock at and preceding the time of any conversion, could
exceed 20% of the voting power outstanding prior to the sale by the Company of
the Series D and Series E preferred stock. In such event, under applicable
Nasdaq Stock Market Rules, the approval of the Company's shareholders would be
necessary prior to the issuance of the total number of shares of Common Stock
issuable upon such conversions.
In recognition of this possibility and the requirements of the Nasdaq
SmallCap Market rule as described above, the Company covenanted as part of
both the Series D and Series E Agreements that it would hold the Special
Meeting at which the Board of Directors would recommend that the shareholders
approve the transactions contemplated by the Series D and Series E Agreements
to the extent such transactions could result in the issuance of more than 20%
of the Company's voting Common Stock outstanding immediately prior to such
series of transactions. Additionally, in connection with the Series D and
Series E Agreements, Thomas A. Murdock, an executive officer and director of
the Company, and the sole trustee of a voting trust into which is deposited a
total of 23,894,949 shares of the Company's Common Stock (as of October 30,
1998), covenanted that he would vote all of the shares of Common Stock
deposited into the voting trust in favor of this Proposal.
6
<PAGE>
The Company's Board of Directors has determined that the consummation of the
transactions contemplated by the Series D and Series E Agreements furthered
the best interests of the Company and therefore approved such transactions.
The Company's Board of Directors now recommends that the Company's
shareholders vote to approve the transactions contemplated by those
Agreements. Approval by a majority of the votes cast by the holders of shares
entitled to vote thereon will be required to approve the proposal.
THE BOARD OF DIRECTORS RECOMMENDS APPROVAL OF PROPOSAL 1
----------------
PROPOSAL NO. 2
PROPOSED AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
AUTHORIZE CLASS B COMMON STOCK, TO REDESIGNATE THE COMPANY'S EXISTING COMMON
STOCK AS CLASS A COMMON STOCK, AND TO INCREASE THE AUTHORIZED CAPITAL OF THE
COMPANY TO 150,000,000 SHARES OF COMMON STOCK, PAR VALUE $.0001 PER SHARE
The Company's Board of Directors has approved and recommends to the
shareholders the adoption of an amendment to Article Fourth of the Company's
Certificate of Incorporation (the "Amendment"). The amended Article Fourth
would (a) increase the number of shares of Common Stock that the Company is
authorized to issue from 100,000,000 shares to 150,000,000, (b) redesignate
the existing Common Stock as Class A Common Stock, and (c) authorize the
issuance of 1,985,000 shares of new Class B Common Stock. The text of Article
Fourth, as proposed to be amended, is attached as Exhibit A. The summary of
the amended Article Fourth contained herein should be read in conjunction
with, and is qualified in its entirety by reference to, the full text of the
proposed Article Fourth set forth as Exhibit A.
BACKGROUND OF THE AMENDMENT
Increase in Authorized Number of Shares of Common Stock
As part of the Series D and Series E Agreements, the Company covenanted that
it would hold the Special Meeting and seek the Company's shareholders'
approval both with respect to the issues described in Proposal 1, above, and
to amend the Company's certificate of incorporation to increase the authorized
shares of the Company's Common Stock from 100,000,000 shares to 150,000,000
shares.
As of the date of this Proxy Statement, there are 61,697,747 shares of the
Company's Common Stock issued and outstanding. 13,224,000 shares of Common
Stock are reserved for issuance pursuant to presently issued and outstanding
options, warrants and similar rights. 10,576,000 shares have been set aside
for issuance under the Company's existing incentive stock option plans.
Depending on the market price for the Company's Common Stock as related to the
conversion of the Series D and Series E preferred stock, the Company may have
to increase the number of shares of authorized Common Stock in order to
recognize the conversions of all of the issued and outstanding shares of
Series D and Series E preferred stock.
Management believes that, in addition to complying with the Company's
contractual obligations as set forth in the Series D and Series E Agreements,
this amendment would benefit the Company by providing greater flexibility to
the Board of Directors to issue additional equity securities, for example, to
raise additional capital, to facilitate possible future acquisitions and to
provide stock-related employee benefits.
If the amendment is approved at the Special Meeting, generally, no
shareholder approval would be necessary for the issuance of all or any portion
of the additional shares of Common Stock unless required by law or any rules
or regulations to which the Company is subject. However, as long as the Common
Stock is quoted for trading on the Nasdaq SmallCap Market, the flexibility
that this amendment would provide the Board of Directors will be limited by
the rules of such market which, as presently in effect, would generally
require shareholder approval for the issuance of Common Stock when: (i) a
stock option or purchase plan is to be
7
<PAGE>
established or other arrangements made pursuant to which Common Stock may be
acquired by directors or officers, except for warrants or rights issued
generally to security holders of the Company or broadly-based plans or
arrangements including other employees; (ii) the issuance would result in a
change in control of the Company; (iii) the stock or assets of another company
are acquired if any director, officer or substantial shareholder of the
Company has a 5% or greater interest (or such persons collectively have a 10%
or greater interest), directly or indirectly, in the company or assets to be
acquired or in the consideration to be paid in the transaction or series of
related transactions and the present or potential issuance of Common Stock, or
securities convertible into or exercisable for Common Stock, could result in
an increase in outstanding common shares or voting power of 5% or more; or
where, due to the present or potential issuance of Common Stock, or securities
convertible into or exercisable for Common Stock, other than a public offering
for cash: (A) the Common Stock has or will have upon issuance voting power
equal to or in excess of 20% of the voting power outstanding before the
issuance of stock or securities convertible into or exercisable for Common
Stock; or (B) the number of shares of Common Stock to be issued is or will be
equal to or in excess of 20% of the number of shares of Common Stock
outstanding before the issuance of the stock or securities; or (iv) in
connection with a transaction other than a public offering involving: (1) the
sale or issuance by the issuer of Common Stock (or securities convertible into
or exercisable for Common Stock) at a price less than the greater of book or
market value which together with sales by officers, directors or substantial
shareholders of the company equals 20% or more of Common Stock or 20% or more
of the voting power outstanding before the issuance; or (2) the sale or
issuance by the company of Common Stock (or securities convertible into or
exercisable Common Stock) equal to 20% or more of the Common Stock or 20% or
more of the voting power outstanding before the issuance for less than the
greater of book or market value of the stock.
To date during 1998, the Company has acquired two companies that have
technologies complementary to the Company's core voice recognition and related
technologies. The purchase prices for those acquisitions was paid, in part,
through the issuance of the Company's Common Stock, and in part, through cash
received from private sales of the Company's Common Stock or securities
convertible into the Company's Common Stock. The Company has identified other
companies with complementary technologies with which the Company is
negotiating acquisition transactions. Consequently, the Company anticipates
that it will issue additional shares of Common Stock from time to time in
order to finance additional acquisitions and to obtain additional operating
capital.
Depending upon the consideration per share received by the Company for any
subsequent issuance of Common Stock, such issuance could have a dilutive
effect on those shareholders who paid a higher consideration per share for
their stock. Also, future issuances of Common Stock will increase the number
of outstanding shares, thereby decreasing the percentage ownership in the
Company (for voting, distributions and all other purposes) represented by
existing shares of Common Stock. The availability for issuance of the
additional shares of Common Stock may be viewed as having the effect of
discouraging an unsolicited attempt by another person or entity to acquire
control of the Company. Although the Board of Directors has no present
intention of doing so, the Company's authorized but unissued Common Stock
could be issued in one or more transactions that would make a takeover of the
Company more difficult or costly, and therefore less likely. The Company is
not aware of any person or entity who is seeking to acquire control of the
Company. Holders of Common Stock do not have any preemptive rights to acquire
any additional securities issued by the Company.
Authorization of Class B Common Stock
On July 31, 1998, the Company entered into an Agreement and Plan of Merger
by and among the Company, ASI Acquisition Corporation, a wholly-owned
subsidiary of the Company, and Articulate Systems, Inc. The merger (the "ASI
Merger") closed on September 2, 1998. At closing, the parties executed
Amendment No. 1 to Agreement and Plan of Merger ("Amendment No. 1"). Under
Amendment No. 1, and in order for the ASI Merger to constitute a tax-free
reorganization within the meaning of Section 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended, the Company agreed to issue 1,985,000
additional shares of Common Stock as consideration for the ASI Merger
("Exchange Shares"). The parties further agreed, however, that such additional
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number of shares would be issued to an escrow agent following the closing of
the ASI Merger and could be exchanged at any time during the 90 day period
following the closing for an equal number of shares of the Company's Class B
Non-Voting Common Stock, subject to the approval by the Company's shareholders
of the authorization of such class of Common Stock at the Special Meeting.
SUMMARY OF THE TERMS OF THE CLASS B NON-VOTING COMMON STOCK (AS COMPARED TO
CLASS A)
Voting Rights
Except as otherwise provided by law, the holders of the redesignated Class A
Common Stock will have full voting rights and powers to vote on all matters
submitted to shareholders of the Company for vote, consent or approval, and
each holder of Class A Common Stock shall be entitled to one vote for each
share of Class A Common Stock held of record by such holder. Except as
otherwise provided by law, the holders of Class B Common Stock shall have no
right to vote on any matter submitted to shareholders of the Company for vote,
consent or approval, and the Class B Common Stock shall not be included in
determining the number of shares voting or entitled to vote on such matters.
Dividend, Liquidation and Other Rights of Common Stock.
Except as specifically otherwise provided in the Amendment, all shares of
Common Stock shall be identical and shall entitle the holders thereof to the
same rights and privileges, including without limitation, the payment of
dividends and rights upon dissolution and liquidation of the Company. The
Company shall not subdivide or combine any shares of Common Stock, or pay any
dividend or retire any share or make any other distribution on any share of
Common Stock or accord any other payment, benefit or preference to any share
of Common Stock, except by extending such subdivision, combination,
distribution, payment, benefit or preference equally to all shares of Common
Stock. If dividends are declared which are payable in shares of Common Stock,
such dividends shall be payable in shares of Class A Common Stock to holders
of Class A Common Stock and in shares of Class B Common Stock to holders of
Class B Common Stock. Subject to the rights of the holders of the Company's
preferred stock, the holders of Common Stock will be entitled to dividends out
of funds legally available therefor, when declared by the Board of Directors
in respect of Common Stock, and, upon any liquidation of the Company, to share
ratably in the assets of the Company available for distribution to the holders
of Common Stock.
Redemption
Except as otherwise provided by law, the Company shall have no right or
obligation to redeem the Class A Common Stock. At any time after September 2,
2003, the Company shall have the right, exercisable at any time, to redeem
from funds legally available therefor all or any portion of the then
outstanding shares of Class B Common Stock at a per share price equal to the
"Redemption Price"; provided that such redemption is made on a pro rata basis
with respect to all holders of Class B Common Stock. "Redemption Price" shall
be (i) during the period between September 2, 2003 and that date 60 days
thereafter, $2.75 per share of Class B Common Stock redeemed, and (ii) at any
time after the 61st day following September 2, 2003, the closing bid price per
share of the Class A Common Stock.
Effectiveness
Upon the filing of the Amendment with the Delaware Secretary of State, each
outstanding share of Common Stock, will be reclassified as and changed into
one share of Class A Common Stock. Shareholders do not need to, and are
requested not to, submit their certificates representing Common Stock for
reissuance as Class A Common Stock. Outstanding certificates representing
shares of Common Stock will be deemed to represent Class A Common Stock
following the effective date of the Amendment, assuming shareholder approval.
Certificates of Class A Common Stock will be issued in the normal course as
transfers occur. Assuming the Company's shareholders approve the Amendment,
the Company will exchange the Exchange Shares, and shall issue the
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Class B Common Stock, pro rata, to the former shareholders of Articulate
Systems, Inc. If the Company's shareholders do not approve the amendment to
the certificate of incorporation set forth above, the escrow pursuant to which
the Exchange Shares are held will expire, and the Exchange Shares shall be
distributed, pro rata, to the former shareholders of Articulate Systems, Inc.
Adoption of the proposal to approve the Amendment requires the affirmative
vote of the holders of a majority of the outstanding shares of Common Stock on
the Record Date. If approved by the shareholders, the increase in the number
of authorized shares will become effective upon the filing with the Secretary
of State of the State of Delaware of a Certificate of Amendment to the
Certificate of Incorporation setting forth such increase.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 2
----------------
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not intend to present and has not been informed that any other
person intends to present a matter for action at the Special Meeting other
than as set forth herein and in the Notice of the Special Meeting. If any
other matter properly comes before the meeting, it is intended that the
holders of proxies will act in accordance with their best judgment.
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. In addition to the solicitation of proxies by mail,
certain of the officers and employees of the Company, without extra
compensation, may solicit proxies personally or by telephone, and, if deemed
necessary, third party solicitation agents may be engaged by the Company to
solicit proxies by means of telephone, facsimile or telegram, although no such
third party has been engaged by the Company as of the date hereof. The Company
will also request brokerage houses, nominees, custodians and fiduciaries to
forward soliciting materials to the beneficial owners of Common Stock held of
record and will reimburse such persons for forwarding such material. The cost
of this solicitation of proxies will be borne by the Company.
----------------
SHAREHOLDER PROPOSALS
Any shareholder proposal intended to be considered for inclusion in the
proxy statement for presentation in connection with the 1999 Annual Meeting of
Shareholders must be received by the Company by December 31, 1998. The
proposal must be in accordance with the provisions of Rule 14a-8 promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934. The Company suggests that any such request be submitted by certified
mail--return receipt requested. The Board of Directors will review any
proposal which is received by December 31, 1998, and determine whether it is a
proper proposal to present to the 1999 Annual Meeting.
The enclosed Proxy is furnished for you to specify your choices with respect
to the matters referred to in the accompanying notice and described in this
Proxy Statement. If you wish to vote in accordance with the Board's
recommendations, merely sign, date and return the Proxy in the enclosed
envelope which requires no postage if mailed in the United States. A prompt
return of your Proxy will be appreciated.
By Order of the Board of Directors
Stephen M. Studdert,
Chairman
Salt Lake City, Utah
November 13, 1998
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EXHIBIT A
The text of the proposed amendment is as follows:
"FOURTH: The total number of shares of stock which the Company shall have
authority to issue is ONE HUNDRED FIFTY MILLION (150,000,000) shares of Common
Stock and TWENTY MILLION (20,000,000) shares of Preferred Stock. All shares of
stock authorized hereunder shall have a par value of 1/100th of one cent
($.0001) per share.
A. Common Stock. The Common Stock shall be of two classes, each without
cumulative voting rights and without any preemptive rights, which classes
shall be designated as Class A Common Stock and Class B Common Stock.
1. Dividend and Other Rights of Common Stock.
a. Ratable Treatment. Except as specifically otherwise provided
herein, all shares of Common Stock shall be identical and shall entitle
the holders thereof to the same rights and privileges. The Company
shall not subdivide or combine any shares of Common Stock, or pay any
dividend or retire any share or make any other distribution on any
share of Common Stock or accord any other payment, benefit or
preference to any share of Common Stock, except by extending such
subdivision, combination, distribution, payment, benefit or preference
equally to all shares of Common Stock. If dividends are declared which
are payable in shares of Common Stock, such dividends shall be payable
in shares of Class A Common Stock to holders of Class A Common Stock
and in shares of Class B Common Stock to holders of Class B Common
Stock.
b. Dividends. Subject to the rights of the holders of Preferred
Stock, the holders of Common Stock shall be entitled to dividends out
of funds legally available therefor, when declared by the Board of
Directors in respect of Common Stock, and, upon any liquidation of the
Company, to share ratably in the assets of the Company available for
distribution to the holders of Common Stock.
2. Voting Rights of Common Stock.
a. Class A Common Stock. Except as otherwise provided by law, the
holders of Class A Common Stock shall have full voting rights and
powers to vote on all matters submitted to stockholders of the Company
for vote, consent or approval, and each holder of Class A Common Stock
shall be entitled to one vote for each share of Class A Common Stock
held of record by such holder.
b. Class B Common Stock. Except as otherwise provided by law, the
holders of Class B Common Stock shall have no right to vote on any
matter submitted to stockholders of the Company for vote, consent or
approval, and the Class B Common Stock shall not be included in
determining the number of shares voting or entitled to vote on such
matters.
3. Redemption.
a. Class A Common Stock. Except as otherwise provided by law, the
Company shall have no right or obligation to redeem the Class A Common
Stock.
b. Class B Common Stock. At any time after September 2, 2003, the
Company shall have the right, exercisable at any time, to redeem from
funds legally available therefor all or any portion of the then
outstanding shares of Class B Common Stock at a per share price equal
to the Redemption Price (as herein defined); provided that such
redemption is made on a pro rata basis with respect to all holders of
Class B Common Stock. Any redemption of the Class B Common Stock shall
be effected by the delivery of a notice to each holder of Class B
Common Stock, which notice shall indicate the number of shares of Class
B Common Stock of each holder to be redeemed and the date that such
redemption is to be effected, which shall be the date (the "Redemption
Date") which is five (5) business days after the date such notice is
delivered. All redeemed shares of Class B Common Stock shall cease to
be outstanding and shall have the status of authorized but undesignated
stock, but may not be reissued as Class B Common Stock. The entire
Redemption Price payable to any holder shall be paid in cash by the
Redemption Date.
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c. Definitions.
(i) "Redemption Price" shall be (i) during the period between
September 2, 2003 and that date sixty (60) days thereafter, two and
75/100 dollars ($2.75) per share of Class B Common Stock redeemed,
and (ii) at any time after the sixty-first (61st) day following
September 2, 2003, the Fair Market Value (as defined herein) of the
Class A Common Stock on the Redemption Date.
(ii) "Fair Market Value" shall mean, on any particular date (a)
the closing bid price per share of the Class A Common Stock on the
last trading day immediately prior to such date on the Nasdaq
SmallCap Market or other principal stock exchange or quotation
system on which the Class A Common Stock is then listed or quoted or
if there is no such price on such date, then the closing bid price
on such exchange or quotation system on the date nearest preceding
such date, or (b) if the Class A Common Stock is not listed then on
the Nasdaq SmallCap Market or any stock exchange or quotation
system, the closing bid price for a share of Class A Common Stock in
the over-the-counter market, as reported by the Nasdaq Stock Market
or in the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting
prices at the close of business on such date, or (c) if the Class A
Common Stock is not then reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its
functions of reporting prices, then the average of the "Pink Sheet"
quotes for the relevant conversion period, as determined in good
faith by the holder, or (d) if the Class A Common Stock is not then
publicly traded the fair market value of a share of Class A Common
Stock as determined by an appraiser selected in good faith by the
Company.
B. Preferred Stock. The Preferred Stock shall be issued from time to time in
one or more series, with such distinctive serial designations as shall be
stated and expressed in the resolution or resolutions providing for the
issuance of such shares as are from time to time adopted by the Board of
Directors. In such resolution or resolutions providing for the issuance of
shares of each particular series of Preferred Stock, the Board of Directors is
expressly authorized, without further vote or action of the stockholders of
the Company and to the fullest extent allowed under Delaware law, to fix the
rights, preferences, privileges, and restrictions of such series of Preferred
Stock, including the annual rate or rates of dividends for the particular
series and whether such dividends shall be cumulative or noncumulative; the
redemption price or prices for the particular series; the rights, if any, of
holders of the shares of the particular series to convert the same into shares
of any other series or class or other securities of the Company or any other
corporation, with any provisions for the subsequent adjustment of such
conversion rights; the voting rights; anti-dilution rights; terms of
redemption (including sinking fund provisions); the number of shares
constituting any series, and the designation of such series; and to classify
or reclassify any unissued Preferred Stock by fixing or altering from time to
time any of the foregoing rights, privileges and qualifications. If pursuant
to this Article FOURTH, the Company's Board of Directors shall authorize the
issuance of any class or series of Preferred Stock, (i) such class or series
of Preferred Stock may be granted the right to elect one or more of the
Company's directors, as the Board of Directors shall prescribe, and said
directors shall have voting rights identical to the other directors of the
Company and shall serve until such time as their successors are elected or
until the class or series of Preferred Stock entitled to elect them shall
cease to be outstanding; and (ii) such class or series of Preferred Stock may
be granted preemptive rights to acquire additional issues of such Preferred
Stock or any other class or series of stock issued by the Company."
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PROXY
FONIX CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas A. Murdock and Roger D. Dudley and each
of them as Proxies, with full power of substitution, and hereby authorizes them
to represent and vote, as designated below, all shares of Common Stock of the
Company held of record by the undersigned at the Special Meeting of Shareholders
to be held at 600 West Cummings Park, Suite 4500, Woburn, Massachusetts, 01801,
on Monday, November 30, 1998, at 6:00 p.m., E.S.T., or at any adjournment
thereof.
1. To approve a series of transactions pursuant to which the Company has
issued its Series D 4% Convertible Preferred Stock and Series E 4%
Convertible Preferred Stock to seven institutional investors, which
preferred stock may be convertible into in excess of 20% of the total
number of shares of Common Stock issued and outstanding prior to the
commencement of such series of transactions.
FOR AGAINST ABSTAIN
/ / / / / /
2. To consider and act upon a proposed amendment to the Company's Certificate
of Incorporation that would: (A) create a new class of Class B Non-Voting
Common Stock; (B) redesignate the Corporation's current Common Stock as
Class A Common Stock and change each share of existing Common Stock into a
share of Class A Common Stock; and (C) increase the authorized capital of
the Company to 150,000,000 shares of Common Stock, par value $.0001 per
share.
FOR AGAINST ABSTAIN
/ / / / / /
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Special Meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR PROPOSALS 1 and 2.
Please sign and Date this Proxy Where Shown Below and Return it Promptly:
Date: _____________________________, 1998
Signed:
SIGNATURE(S)
________________________________________________________________________________
______________________________________________________________
<PAGE>
PLEASE SIGN ABOVE EXACTLY AS THE SHARES ARE ISSUED. WHEN SHARES ARE HELD BY
JOINT TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, AS EXECUTOR,
ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A
CORPORATION, PLEASE SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED
PERSON.
