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UNITED STATES
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): September 1, 1999
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Fonix Corporation
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation or organization)
0-23862 22-2994719
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(Commission file number) (I.R.S. Employer Identification No.)
60 East South Temple, Suite 1225
Salt Lake City, Utah 84111
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 328-8700
Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 1, 1999, Fonix Corporation, a Delaware corporation, (the
"Company" or "Fonix") closed the sale (the "Sale") of the operations and a
significant portion of the assets of its HealthCare Solutions Group (the "HSG")
to Lernout & Hauspie Speech Products N.V., a Belgian corporation ("L&H") with
its principal place of business in Ieper, Belgium.
The Board of Directors recommended the Sale to the officers of the
Company, and the officers entered into an Asset Purchase Agreement (the
"Agreement") on May 19, 1999. Pursuant to the Agreement, L&H purchased the HSG
for $28,000,000 (the "Purchase Price"). Of the Purchase Price, $24,000,000 was
payable in cash at the closing of the Sale. Of that amount, $5,000,000 was to be
deposited into escrow for 18 months for potential indemnification of L&H by the
Company against certain matters including, but not limited to, breaches of
representations, warranties, covenants, and agreements made by the Company in
the Agreement. In addition, $4,000,000 of the Purchase Price may be paid over
two years as follows: (i) if L&H generates gross revenues of at least $9,000,000
from sales or licensing of PowerScribe (R) ("PowerScribe") branded products and
services, together with products and services that include or incorporate
PowerScribe technology (the "PowerScribe Products"), L&H will pay an additional
$2,000,000 to the Company; and (ii) if L&H generates at least $20,000,000 of
gross revenues from the sales or licensing of the PowerScribe Products during
the second consecutive year it sells or licenses the PowerScribe Products, L&H
will pay an additional $2,000,000 to the Company. The Purchase Price was
negotiated between the Company and L&H based on a discounted earnings multiple
of the three-year projected operations of the HSG.
Subsequent to the execution of the Agreement, the Company and L&H
agreed that the escrow amount would be reduced from $5,000,000 to $2,500,000.
Background of the Sale
L&H is a global leader in advanced speech and language solutions for
vertical markets, computers, automobiles, telecommunications, embedded products,
consumer goods and the Internet. L&H is attempting to make the speech user
interface the keystone of simple, convenient interaction between humans and
technology, and is using advanced translation technology to break down language
barriers. L&H provides a wide range of offerings, including: customized
solutions for corporations; core speech technologies marketed to original
equipment manufacturers; end user and retail applications for continuous speech
products in horizontal and vertical markets; document creation, human and
machine translation services, Internet translation offerings; and linguistic
tools. L&H's products and services originate in four basic areas: automatic
speech recognition, text-to-speech, digital speech and music compression, and
text-to-text (translation). Prior to the negotiations resulting in the Sale, the
Company had no affiliation or contractual relations with L&H.
The HSG is a leader in the application of advanced speech recognition
technology to the healthcare market with its PowerScribe line of integrated
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dictation/transcription systems. The HSG produces and sells its PowerScribe
dictation system to hospitals for radiology and emergency medicine applications.
The HSG also supports and services installed PowerScribe systems within the
United States. PowerScribe, the winner of a 1998 Microsoft Healthcare Solution
Award, cost-effectively and rapidly captures, transcribes, and manages dictated
clinical information across a computer network.
Business plan of the Company
Following the Sale, the Company's business plan is to produce and
market a suite of Fonix-branded technologies for high value end-user products
and applications and to license these technologies through strategic alliances.
Potential partners include Internet content and service providers, consumer
electronics manufacturers and independent software vendors. These partners can
incorporate the Company's technology solutions to simplify the use of their own
products. Multiple hardware and software platforms can be supported via the the
Company's FAASTTM application development kit for embedded systems.
Because of the Company's focus on forming new strategic partnerships
and licensing opportunities for the development of its products and
applications, the Board of Directors of the Company acknowledged that the sale
of the HSG would allow the Company to focus on its core competencies and to
employ more efficiently its automated speech recognition, speech synthesis, and
handwriting interface technologies in handheld computers, Internet applications,
and embedded systems. In keeping with this focus, a portion of the Sale proceeds
will be used to permit the Company to focus on licensing opportunities for its
core technologies and related applications currently available and in
development, including the following:
o Voice Internet/Web access and navigation to retrieve information and
execute e-commerce transactions such as stock trades and quotes, news,
weather, sports, travel and entertainment reservations.
o Speech and handwriting recognition technologies for embedded systems in
mobile consumer electronics including personal digital assistants,
smart phones, and automobile navigation systems.
o Integrated pen and voice input for the next generation of computing
devices and intelligent appliances such as palmPCs, tablets, smart
phones and kiosks.
o Automated dictation and transcription speech recognition for use in
natural, open environments without individual training requirements to
facilitate personal dictation, meeting and conference transcription,
and live closed captioning.
Use of proceeds
The Company anticipates that it will use a majority of the proceeds
from the Sale to pay its outstanding debt obligations and certain accounts
payable. Specifically, the Company anticipates using approximately $7,200,000 of
the proceeds to pay off certain loans made to the Company by
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L&H; $2,500,000 into escrow pursuant to an escrow agreement entered into in
relation to the Sale; approximately $8,177,000 to pay outstanding notes payable
and related accrued interest payable; approximately $1,440,000 to pay certain
HSG employees for extraordinary services performed prior to the Sale;
approximately $260,000 for fees for professional services; and approximately
$250,000 for state and federal income taxes arising in connection with the Sale.
The Company plans to use the remaining $1,673,000 as working capital.
Because the Sale was for cash, and because the Company did not issue
any securities or receive any securities of L&H in connection with the
transaction, the transaction created no material differences in the rights of
the shareholders of the Company.
Pursuant to the terms of the Agreement, the Company sought approval of
the Sale from its shareholders pursuant to a proxy solicitation by consent
resolution. The Company received the approval of approximately 57.36% of its
shareholders prior to the closing of the Sale.
Item 7. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
It is impracticable for the Company to provide the required pro forma
financial information as required by Item 7(b)of Form 8-K at this time. The
Company undertakes that it will file the required pro forma financial
information within the time period allowed by Form 8-K.
(c) Exhibits. The following are filed as exhibits to this Current
Report:
Exhibit
No. Description
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(10)(a) Asset Purchase Agreement - Acquisition of
Certain Assets of Fonix Corporaion and
Fonix/ASI Corporation by Lernout & Hauspie
Speech Products N.V., dated as of May 19,
1999.
(10)(b) Escrow Agreement, dated as of September 1, 1999.
(10)(c) Technology Option Agreement, dated as of May 19,
1999.
(10)(d) Assignment and Assumption Agreement, dated as of
September 1, 1999.
(10)(e) License Agreement by and between Fonix/ASI
Corporation and Lernout & Hauspie Speech
Products N.V., dated as of May 19, 1999.
(10)(f) Loan Agreement, dated as of April 22, 1999.
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(10)(g) Amendment to Loan Agreement, dated as of May 12,
1999.
(10)(h) Second Amendment to Loan Agreement, dated as of
May 19, 1999.
(10)(i) Loan Agreement, dated as of May 19, 1999.
(10)(j) First Amendment to Loan Agreement, dated as of
August 12, 1999.
(10)(k) Agreement, dated as of July 31, 1999.
SIGNATURES
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/
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Douglas L. Rex,
Chief Financial Officer
Date: September 16, 1999
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EXHIBIT INDEX
Exhibit
No. Description
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(10)(a) Asset Purchase Agreement - Acquisition of
Certain Assets of Fonix Corporaion and
Fonix/ASI Corporation by Lernout & Hauspie
Speech Products N.V., dated as of May 19,
1999.
(10)(b) Escrow Agreement, dated as of September 1, 1999.
(10)(c) Technology Option Agreement, dated as of May 19,
1999.
(10)(d) Assignment and Assumption Agreement, dated as of
September 1, 1999.
(10)(e) License Agreement by and between Fonix/ASI
Corporation and Lernout & Hauspie Speech
Products N.V., dated as of May 19, 1999.
(10)(f) Loan Agreement, dated as of April 22, 1999.
(10)(g) Amendment to Loan Agreement, dated as of May 12,
1999.
(10)(h) Second Amendment to Loan Agreement, dated as of
May 19, 1999.
(10)(i) Loan Agreement, dated as of May 19, 1999.
(10)(j) First Amendment to Loan Agreement, dated as of
August 12, 1999.
(10)(k) Agreement, dated as of July 31, 1999.
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ASSET
PURCHASE AGREEMENT
ACQUISITION OF CERTAIN ASSETS OF FONIX CORPORATION AND
FONIX/ASI CORPORATION
BY LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
DATED: May 19, 1999
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Asset Purchase Agreement Page i
Execution Copy
TABLE OF CONTENTS
ARTICLE 1. PURCHASE AND SALE OF ASSETS.............................1
1.1 SALE OF ASSETS.......................................................1
1.2 ASSUMPTION OF LIABILITIES............................................4
1.3 PURCHASE PRICE AND PAYMENT...........................................6
1.4 TIME OF CLOSING......................................................8
1.5 DELIVERY OF ASSUMPTION OF LIABILITIES................................8
1.6 TRANSFER OF SUBJECT ASSETS...........................................8
1.7 DELIVERY OF RECORDS AND CONTRACTS; ELECTRONIC TRANSFER...............9
1.8 TAX RETURNS..........................................................9
1.9 FURTHER ASSURANCES...................................................9
1.10 ALLOCATION OF PURCHASE PRICE........................................10
1.11 RIGHT TO HIRE EMPLOYEES.............................................10
1.12 LICENSE OF ASI TECHNOLOGY; TECHNOLOGY OPTION AGREEMENT..............10
1.13 COLLECTION OF ACCOUNTS RECEIVABLE...................................10
1.14 CERTAIN MATTERS REGARDING APPLE LITIGATION..........................11
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF SELLERS..............12
2.1 ORGANIZATION AND QUALIFICATION OF SELLER............................12
2.2 AUTHORIZATION OF TRANSACTION........................................12
2.3 PRESENT COMPLIANCE WITH OBLIGATIONS AND LAWS........................12
2.4 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS; APPROVALS.....12
2.5 FINANCIAL INFORMATION...............................................13
2.6 ABSENCE OF UNDISCLOSED LIABILITIES..................................13
2.7 ABSENCE OF CERTAIN CHANGES..........................................14
2.8 TITLE TO PROPERTIES; LIENS; CONDITION OF PROPERTIES.................14
2.9 PAYMENT OF TAXES....................................................15
2.10 INVENTORIES.........................................................15
2.11 INTELLECTUAL PROPERTY RIGHTS........................................16
2.12 WARRANTY OR OTHER CLAIMS............................................17
2.13 LITIGATION..........................................................17
2.14 PERMITS.............................................................18
2.15 TRANSACTIONS WITH INTERESTED PERSONS................................18
2.16 CONTRACTS AND COMMITMENTS...........................................18
2.17 LABOR AND EMPLOYEE RELATIONS........................................18
2.18 EMPLOYEES...........................................................19
2.19 FINDER'S FEE........................................................19
2.20 DISCLOSURE OF MATERIAL INFORMATION..................................19
2.21 SUPPLIERS, CUSTOMERS AND DISTRIBUTORS...............................19
2.22 INTENTIONALLY OMITTED...............................................19
2.23 BORROWINGS AND GUARANTEES...........................................19
2.24 INSURANCE...........................................................20
2.25 PREPAID MAINTENANCE AMOUNTS AND PREPAID SALES ORDER AMOUNTS.........20
2.26 ABSENCE OF SENSITIVE PAYMENTS.......................................20
2.27 SEC FILINGS.........................................................21
2.28 ENVIRONMENTAL MATTERS...............................................21
2.29 YEAR 2000...........................................................21
2.30 EXCLUDED TECHNOLOGY.................................................22
2.31 STOCKHOLDER ACTION..................................................22
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF BUYER................23
3.1 ORGANIZATION OF BUYER...............................................23
3.2 AUTHORIZATION OF TRANSACTION........................................23
3.3 NO CONFLICT OF TRANSACTION WITH OBLIGATIONS AND LAWS................23
3.4 CLAIMS AND LEGAL PROCEEDINGS........................................24
3.5 DISCLOSURE OF MATERIAL INFORMATION..................................24
3.6 BROKER'S AND FINDER'S FEES..........................................24
ARTICLE 4. COVENANTS OF SELLERS...................................24
4.1 EXPENSES............................................................24
4.2 NONDISCLOSURE.......................................................24
4.3 NONCOMPETITION BY SELLERS...........................................25
4.4. ACQUIRED SALES ORDERS AND LICENSE AGREEMENT.........................25
4.5 PAYMENT OF DEBTS....................................................26
4.6 CONDUCT OF BUSINESS.................................................26
4.7 EXCLUSIVITY.........................................................26
4.8 WARRANTY AND SERVICE OBLIGATIONS....................................28
4.9 BREACH OF REPRESENTATIONS AND WARRANTIES............................28
4.10 CONSUMMATION OF AGREEMENT...........................................28
4.11 HSR FILINGS.........................................................28
4.12 APPROVAL OF STOCKHOLDERS............................................28
4.13 PREPARATION OF SOLICITATION STATEMENT...............................29
4.14 MERGER ESCROW AGREEMENT.............................................30
ARTICLE 5. COVENANTS OF BUYER.....................................30
5.1 EXPENSES............................................................30
5.2 PAYMENT OF DEBTS....................................................30
5.3 CONSUMMATION OF THE AGREEMENT.......................................30
5.4 HSR FILINGS.........................................................30
5.5 LEGAL REQUIREMENTS..................................................31
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BUYER.....................31
6.1 REPRESENTATIONS; WARRANTIES; COVENANTS..............................31
6.2 OPINION OF SELLERS'COUNSEL..........................................31
6.3 ABSENCE OF CERTAIN LITIGATION.......................................31
6.4 NO BANKRUPTCY.......................................................32
6.5 NO ADVERSE CHANGE...................................................32
6.6 RELEASE OF LIENS, SECURITY INTERESTS AND OTHER ENCUMBRANCES.........32
6.7 AUTHORIZATION FROM OTHERS...........................................32
6.8 EMPLOYMENT OF KEY PERSONNEL.........................................32
6.9 APPROVAL OF BUYER'S COUNSEL.........................................33
6.10 ESCROW AGREEMENT....................................................33
6.11 GOVERNMENTAL CONSENTS AND APPROVALS; TERMINATION OR EXPIRATION OF
HSR WAITING PERIOD.................................................33
6.12 SHAREHOLDER AUTHORIZATION...........................................33
6.13 PAYMENT OF ATTORNEYS'FEES...........................................33
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF SELLERS...................33
7.1 REPRESENTATIONS; WARRANTIES; COVENANTS..............................34
7.2 ABSENCE OF CERTAIN LITIGATION.......................................34
7.3 AUTHORIZATION FROM OTHERS...........................................34
7.4 GOVERNMENTAL CONSENTS AND APPROVALS; TERMINATION OR EXPIRATION OF
HSR WAITING PERIOD.................................................34
7.5 SHAREHOLDER AUTHORIZATION...........................................34
7.6 APPROVAL OF SELLER'S COUNSEL........................................34
ARTICLE 8. INDEMNIFICATION........................................35
8.1 DEFINITIONS.........................................................35
8.2 INDEMNIFICATION BY SELLER...........................................35
8.3 INDEMNIFICATION BY BUYER............................................36
8.4 LIMITATIONS ON INDEMNIFICATION......................................36
8.5 NOTICE..............................................................37
8.6 DEFENSE OF THIRD PARTY ACTIONS......................................38
8.7 MISCELLANEOUS.......................................................39
8.8 PAYMENT OF INDEMNIFICATION..........................................39
ARTICLE 9. TERMINATION OF AGREEMENT...............................39
9.1 TERMINATION.........................................................39
9.2 TERMINATION BY THE BUYER............................................40
9.3 TERMINATION BY THE SELLERS..........................................40
9.4 PROCEDURE FOR TERMINATION...........................................41
9.5 EFFECT OF TERMINATION AND ABANDONMENT...............................41
ARTICLE 10. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING....................41
10.1 SURVIVAL OF WARRANTIES..............................................41
10.2 COLLECTION OF ASSETS................................................41
10.3 PAYMENT OF DEBTS AND REFUND OF CASH.................................42
10.4 COBRA COMPLIANCE....................................................42
ARTICLE 11. MISCELLANEOUS..........................................42
11.1 BULK SALES LAW......................................................42
11.2 NOTICES.............................................................42
11.3 PUBLICITY AND DISCLOSURES...........................................43
11.4 CONFIDENTIALITY.....................................................44
11.5 ENTIRE AGREEMENT....................................................44
11.6 SEVERABILITY........................................................44
11.7 ASSIGNABILITY.......................................................44
11.8 RELATIONSHIP OF SELLERS.............................................44
11.9 AMENDMENT...........................................................45
11.10 GOVERNING LAW; VENUE................................................45
11.11 COUNTERPARTS........................................................45
11.12 EFFECT OF TABLE OF CONTENTS AND HEADINGS............................45
11.13 RULES OF CONSTRUCTION...............................................45
11.14 DEFINITION OF MATERIAL..............................................45
11.15 INTERPRETATION......................................................46
List of Schedules and Exhibits...............................................48
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Asset Purchase Agreement Page 1
Execution Copy
ASSET PURCHASE AGREEMENT
AGREEMENT entered into as of the 19th day of May, 1999, between Lernout
& Hauspie Speech Products N.V., a Belgian corporation with its principal place
of business in Ieper, Belgium ("Buyer"), and Fonix Corporation, a Delaware
corporation with its principal headquarters in Salt Lake City, Utah ("Fonix")
and Fonix/ASI Corporation, a Utah corporation with its principal place of
business in Woburn, Massachusetts ("ASI") (Fonix and ASI together, the
"Sellers").
RECITALS:
WHEREAS, Sellers are in the business, among others, of the development,
marketing and support of an integrated dictation/transcription solutions process
for healthcare organizations which includes a distributed architecture,
telephony based large vocabulary speech recognition and dictation/transcription
workflow, conducted principally through ASI (formerly Articulate Systems, Inc.)
but also through certain operations conducted by Fonix (such business, as it is
conducted by ASI and by Fonix, the "Articulate Division");
WHEREAS, the Buyer wishes to acquire (directly or indirectly through
subsidiaries) from Sellers all of the assets and properties held in connection
with, necessary for, or material to the business and operations of the
Articulate Division (the "Business"), and Sellers wish to convey such assets to
Buyer, subject to the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration for the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, in order to consummate said sale,
the parties hereto agree as follows:
ARTICLE 1 PURCHASE AND SALE OF ASSETS.
1.1 Sale of Assets
(a) Assets of ASI. Subject to the provisions of this Agreement
and except as expressly excluded in paragraph (c), Sellers agree to sell and
Buyer agrees to purchase, at the Closing (as defined in Section 1.4 hereof), all
of the properties, assets and business of ASI of every kind and description,
tangible and intangible, real, personal or mixed, and wherever located,
including without limitation all assets shown or reflected on the most recent
balance sheet of ASI attached hereto as Schedule 2.5 and all of ASI's goodwill
and the following:
(i) all copies of the source code of ASI now in
possession of ASI and copies of the source code and object code of ASI's
products, together with all other dictation/transcription related source code
(whether licensed, owned or under development) of ASI (collectively,
"Transferred Code") and all trade secrets, formulae, algorithms, methods,
technical data and other proprietary information relating to the Transferred
Code (collectively, "Transferred Software");
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(ii) all of ASI's raw materials, work in process
and finished goods (the "Inventory");
(iii) all of ASI's machinery, furniture, fixtures,
equipment, computer hardware and other tangible assets (collectively, the
"Equipment");
(iv) all of the following materials pertaining to
the Transferred Software: (A) pre-existing database customer lists, including
all customer and technical support databases and end-user registration
databases, (B) training manuals and materials, (C) advertising and promotional
materials, (D) plans, designs, procedures, research data, drawings, models, blue
prints, specifications, flow sheets, equipment and parts list and descriptions
and related instructions, and (E) all other business records (the "Business
Records");
(v) all of ASI's right, title and interest in and to
the "PowerScribe", "PowerScribe Radiology," "PowerScribe for Radiology",
"PowerScribe EM", "PowerScribe for Emergency Medicine," "PowerCare," and
"Articulate" names and ASI logo (including all related trademark applications
and registrations), and the goodwill of ASI associated with such names and the
related business;
(vi) all of ASI's rights, title and interests in and
to any and all intellectual property and proprietary information, including,
without limitation, all goodwill, computer software and networks, all data
bases, all data control and analysis systems and processes, strategic and
technical data, customer lists, service marks, trademarks, trade names and all
applications therefor, marketing plans and data, know-how, trade secrets,
formulae, methods, algorithms and inventions including all rights, title and
interests in and to any of the foregoing pursuant to any contract, agreement or
license;
(vii) to the extent transferable, all of ASI's
rights, title and interests in and to any and all contracts, agreements,
warranties, licenses or purchase or sales orders, including, without limitation,
client and customer contracts, non-disclosure, confidentiality and invention
agreements with present and former employees and consultants who are to be hired
by Buyer, leases for real or personal property or other arrangements and
contracts, agreements and purchase orders for the purchase or sale of materials,
supplies or services (the "Purchased Contracts");
(viii) all of ASI's rights, title and interests in
and to the patent applications and patents of ASI, including without limitation,
those listed in Schedule 1.1(a)(viii), and any invention disclosures, including
any patents issuing therefrom, and any reissues, reexaminations, divisions,
continuations in whole or in part, extensions and foreign counterparts thereof;
(ix) all of ASI's rights, title and interests in and
to any claims relating to the infringement of the patents, copyrights,
trademarks or other intellectual property rights being transferred hereunder,
including, without limitation, at Buyer's sole option pursuant to Section 1.14
hereof, ASI's claims against Apple Computer Corporation ("Apple") currently
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pending in the United States District Court for the District of Massachusetts
(the "Apple Litigation") and the right to collect damages for infringement of
such intellectual property rights by Apple or others incurred while ASI owned
such rights;
(x) all of ASI's right, title and interests in and to
technical documentation, including, but not limited to, all materials which
reproduce, patterns, plans, designs, research data, drawings, models,
blueprints, specifications, flow sheets, equipment and parts lists and
descriptions and related instructions, manuals, data, records and procedures;
(xi) to the extent transferable, any and all
permits, licenses, orders, ratings and approvals of federal, state or local
governmental or regulatory authorities; and
(xii) all of ASI's rights to indemnification under
agreements to which ASI is a party in connection with the merger of Articulate
Systems, Inc. into ASI, including, without limitation, ASI's right to receive
the shares of restricted common stock of Fonix held in escrow pursuant to the
Escrow Agreement executed on September 2, 1998 in connection with the
indemnification obligations of other parties to the merger (the "Merger Escrow
Agreement") subject to the obligation of Fonix and ASI to disburse such shares
at the end of the escrow period provided that claims by Buyer against and/or
disbursements by Fonix and ASI of the restricted common stock of Fonix held in
escrow shall be pursuant to Section 4.14 hereof.
(b) Assets of Fonix. Subject to the provisions of this
Agreement and except as expressly excluded in paragraph (c), Sellers agree to
sell and Buyer agrees to purchase, at the Closing all of the assets and
properties held by Fonix in connection with, necessary for, or material to the
Business of every kind and description, tangible and intangible, whether or not
currently used in the Business, and wherever located including, without
limitation all of the assets acquired by Fonix pursuant to the Asset Acquisition
Agreement (the "MRC Agreement"), dated as of December 31, 1998, by and between
Fonix and The MRC Group, Inc., a Missouri corporation ("MRC"), and the Bill of
Sale delivered by MRC to Fonix pursuant thereto, effective December 31, 1998,
including, without limitation, those assets described on Schedule 1.1(b) hereto
and including any assets of Fonix which would fall under paragraphs 1.1(a)(i)
through 1.1(a)(xii) with respect to Fonix to the extent held in connection with,
necessary for, or material to the Business.
The assets, property and business of ASI and of Fonix to be sold to and
purchased by Buyer under this Agreement are hereinafter sometimes referred to as
the "Subject Assets."
(c) Excluded Assets. Assets and property not disposed of
pursuant to this Agreement, including the remaining businesses of Fonix, shall
be excluded from the Subject Assets and are referred to herein as the "Excluded
Assets." Such Excluded Assets include, without limitation:
(i) all real property owned by Sellers;
(ii) Sellers' corporate franchise, stock record
books, corporate record books containing minutes of meetings of directors and
stockholders, original tax returns and financial statements, and such other
records as have to do with Sellers' organization or stock capitalization;
provided that, Sellers shall retain those records for a period of six (6) years
from the Closing Date and shall afford to Buyer and its accountants and
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attorneys reasonable access to such records and shall permit Buyer to make
extracts and copies therefrom for any purpose;
(iii) all rights, title and interests in and to any
insurance policies;
(iv) pension, profit sharing and savings plans
and trusts and any assets thereof, and, all rights of Sellers with respect to
their employees and agents;
(v) all cash, accounts and other amounts receivable,
marketable securities, cash equivalents, notes receivable, deposit accounts and
similar type investments, and prepaid expenses of Sellers relating to any
Excluded Asset, including all accounts receivable ("Accounts Receivable")
relating to the Business that are outstanding on the Closing Date, but excluding
amounts receivable for uncompleted purchase or sales orders of customers unless
the related installation has "gone live", i.e. orders which are fully installed,
have gone live or are in the thirty (30) day post-installation customer
cancellation period on the Closing Date shall be included as Accounts
Receivable;
(vi) all personal property (including all
machinery, equipment and inventory, but excluding the Inventory, the Equipment,
the Business Records and all other Subject Assets) not related to the Business;
(vii) all rights, title and interests to the
contracts and licenses set forth on Schedule 1.1(c)(vii) (the "Excluded
Contracts") and the technology and intellectual property described on Schedule
1.1(c)(vii) (the "Excluded Technology"); and
(viii) all Prepaid Maintenance Amounts (as defined
in Section 1.3(b)) allocated to Sellers pursuant to Section 1.3(b).
1.2 Assumption of Liabilities.
(a) Upon the sale and purchase of the Subject Assets,
except as excluded in paragraph (b), Buyer shall assume and agree to perform and
discharge in the ordinary course of business the following:
(i) all of the liabilities and obligations of
Sellers arising under the unfilled portions of those purchase or sales orders
from customers of Sellers, as identified in Schedule 1.2(a)(i) (the "Acquired
Sales Orders"), (ii) effective as of the Closing Date, all of the liabilities
and obligations of Sellers arising under the software license agreements being
transferred to Buyer, as identified in Schedule 1.2(a)(ii) (the "License
Agreements") (including service, warranty and upgrade obligations) solely to the
extent such obligations and liabilities arise and relate to events, acts or
omissions occurring after the Closing Date and become due and payable after the
Closing Date, and (iii) liabilities and obligations related to the Prepaid
Maintenance Amounts set forth on Schedule 1.3(b). The liabilities to be assumed
by Buyer under this Section 1.2(a) are hereinafter sometimes referred to as the
"Assumed Liabilities."
(b) Except to the extent expressly assumed pursuant to
Section 1.2(a) above, Buyer shall not assume or be bound by or be liable for any
debt, obligation, responsibility or liability of Sellers or any Affiliate (as
defined below) of any kind or nature, known, unknown, accrued, absolute,
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contingent, or otherwise. Without limiting the foregoing sentence, Buyer shall
have no responsibility with respect to the following, whether or not disclosed
in the Base Balance Sheet or a Schedule hereto:
(i) liabilities and obligations related to or
arising from the Excluded Assets and/or related to or arising from Fonix's
operations and assets other than the operations and assets of the Business
acquired under this Agreement;
(ii) liabilities and obligations related to or
arising from transactions with any officer, director or stockholder of either of
the Sellers or any person or organization controlled by, controlling, or under
common control with any of them (an "Affiliate");
(iii) liabilities and obligations for taxes of any
kind, including taxes related to or arising from the transfers contemplated
hereby;
(iv) liabilities and obligations for damage or
injury to person or property based upon events occurring prior to the date of
Closing;
(v) liabilities and obligations to employees of
Sellers, whether for accident, disability, or workers compensation insurance or
benefits, benefits under employee benefit plans, back pay, accrued vacation, or
obligations related to or resulting from severance of employment by Sellers;
(vi) workmen's liens on any of the Subject Assets;
(vii) liabilities incurred by Sellers in connection
with this Agreement and the transactions provided for herein, including counsel
and accountant's fees, filing fees and expenses, transfer and other taxes, and
expenses pertaining to ASI's liquidation or the performance by either of the
Sellers of their obligations hereunder;
(viii) liabilities of Sellers with respect to any
options, warrants, agreements or convertible or other rights to acquire or cause
registration of any shares of their capital stock of any class;
(ix) liabilities and obligations related to or
arising from products or services delivered or performed prior to the Closing
Date (including warranty or service claims and upgrades of existing products);
(x) liabilities and obligations under outstanding
indebtedness of Sellers or otherwise to the former shareholders of Articulate
Systems, Inc.;
(xi) all liabilities and obligations with respect
to any claims or litigation, except as described in Schedule 1.2(b)(xi) hereof,
including liabilities and obligations for attorneys' fees for work performed and
expenses incurred prior to the Closing;
(xii) all liabilities and obligations under the
Excluded Contracts or under any Purchased Contracts not identified on Schedule
1.2(a)(i) or Schedule 1.2(a)(ii);
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(xiii) all liabilities and obligations of Fonix under
the MRC Agreement, including, without limitation, the obligation to pay
royalties received under any of the License Agreements to MRC.
(c) The assumption of the Assumed Liabilities by Buyer
hereunder shall be treated as independent of Buyer's existing business and shall
not enlarge any rights of third parties under contracts or arrangements with
Buyer or Sellers or any of their respective affiliates or subsidiaries. Nothing
herein shall prevent Buyer from contesting in good faith any of the Assumed
Liabilities; provided, however, no such contest by Buyer shall relieve Buyer of
its indemnification obligations under Section 8.3 hereof. Nothing herein shall
prevent Sellers from contesting in good faith any of the liabilities retained by
them; provided, however, no such contest by Sellers shall relieve Sellers of
their indemnification obligations under Section 8.2 hereof.
1.3 Purchase Price and Payment.
(a) In consideration of the sale by Sellers to Buyer of
the Subject Assets, Buyer will, in full payment therefor, pay to Seller a total
purchase price (the "Purchase Price") of Twenty Eight Million Dollars
($28,000,000), subject to adjustment as set forth in this Section 1.3, payable
as follows:
(i) by cancellation of the outstanding balance under
the Promissory Note entered into by the parties dated April 22, 1999 and the
Amendment to Promissory Note dated May 12, 1999 delivered by Sellers to Buyer in
the principal amount of One Million One Hundred Thousand Dollars ($1,100,000),
including all interest and late fees accrued thereon, and including any
increases in the principal amount of such Promissory Note and the outstanding
balance and accrued interest and late fees on any other subsequent loans from
Buyer or any of its affiliates to either Seller;
(ii) by wire transfer of Five Million Dollars
($5,000,000) to the escrow agent under the escrow agreement as provided by
Section 6.11 of this Agreement;
(iii) by wire transfer of the remaining balance of
the Purchase Price (less the Earnout Payment (as defined in the next paragraph)
and less any amounts paid by Buyer to Sellers in respect of royalties under the
License Agreement required by Section 1.12 hereof), in immediately available
funds to a bank account or accounts of Sellers as per written instructions of
Sellers, consistent with the memorandum required by Section 1.10 hereof, given
to Buyer not less than twenty-four (24) hours prior to the Closing;
(iv) (A) if Buyer has generated Nine Million Dollars
($9,000,000) in gross revenues (determined in accordance with U.S. generally
accepted accounting principles used by the Buyer in the preparation of its
financial statements) from the sale and/or licensing of PowerScribe branded
products and services, together with products and services that include or
incorporate, PowerScribe technology, including distributed architecture,
telephony based large vocabulary speech recognition and dictation/transcription
workflow (collectively, the "PowerScribe Products"), during the one (1) year
period (the "First Earnout Period")beginning on the Sales Commencement Date,
then on the date that is one (1) year and thirty (30) days from the Sales
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Commencement Date, Two Million Dollars ($2,000,000) (the "First Earnout
Payment"), and (B) if Buyer has generated Twenty Million Dollars ($20,000,000)
in gross revenues (determined as provided in (A) above) from the sale and/or
licensing of the PowerScribe Products during the one (1) year period (the
"Second Earnout Period") beginning at the end of the First Earnout Period, then
on the date that is two (2) years and thirty (30) days from the Sales
Commencement Date, Two Million Dollars ($2,000,000) (the "Second Earnout
Payment") (the First and Second Earnout Payments, together, the "Earnout
Payment") in each case, payable either in cash or by certified or bank cashier's
check or by wire transfer of immediately available funds. Notwithstanding the
foregoing, for purposes of calculating gross revenues from the sale and/or
licensing of PowerScribe Products, only 50% of revenues generated from the sale
and/or licensing of PowerScribe Products which include or incorporate technology
other than PowerScribe, will be included in gross revenues, provided that such
limitation shall not apply to radiology and telephony PowerScribe Products for
which 100% of revenues will be included. For purposes hereof, the "Sales
Commencement Date" shall be that date on or after the Closing Date, but in any
event no later than six (6) months after the Closing Date, on which Buyer gives
notice to Sellers that Buyer is ready to begin selling the PowerScribe Products.
It is understood and agreed that, during each Earnout Period, Buyer currently
intends, as of the date of this Agreement, to conduct its operations of the
Business and the sale and/or licensing of the PowerScribe Products reasonably
consistent with the two (2) year post-closing business and marketing plan
approved by the parties prior to Closing. Nothing contained herein shall
preclude Buyer from changing such intention, it being understood that the Buyer
operates and shall continue to operate its business, including with respect to
the PowerScribe Products, in such manner as it deems necessary or desirable in
its sole and absolute discretion. Without limiting the foregoing, the Buyer
shall, during the term of this Agreement and thereafter, maintain full
discretion with respect to all operations of the Buyer and with respect to the
PowerScribe Products, including but not limited to determination of pricing of
products and acceptance or rejection of any product sales or orders.
Specifically, it is agreed that no damages shall have been incurred or caused in
the event revenues from the sale and/or licensing of PowerScribe Products
decrease in a manner to adversely affect the Earnout Payment. At the end of each
of the First Earnout Period and the Second Earnout Period, Buyer shall provide
an accounting of the revenues generated during such Earnout Period to Sellers.
In the event that at the end of the First or Second Earnout Period, Buyer
determines that no related Earnout Payment is payable to Sellers, Sellers shall
have the right to employ an auditor to audit the books and records of Buyer in
connection with the sales and licensing of the PowerScribe Products, at the sole
cost and expense of Sellers; provided, however, in the event such audit results
in a determination that the related Earnout Payment is payable to Sellers, all
costs and expenses in connection with such audit shall be borne by Buyer.
(b) At the Closing, Sellers shall, to the Buyer's
satisfaction, prepare and deliver to Buyer a Schedule 1.3(b) containing a list
of all customers which have prepaid to Sellers any amounts with respect to
maintenance and/or servicing agreements (the "Prepaid Maintenance Amounts"). The
Prepaid Maintenance Amounts will be allocated between Buyer and Sellers on a pro
rata basis based upon the number of months elapsed from the beginning of the
service period to the Closing Date rounded up or down to the nearest whole
month. The Purchase Price to be paid to Sellers hereunder shall be reduced by
the aggregate amount of such Prepaid Maintenance Amounts which have been
allocated to Buyer.
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(c) At the Closing, Sellers shall, to the Buyer's
satisfaction, prepare and deliver to Buyer a Schedule 1.3(c) containing a list
of all customers which have prepaid to Sellers any amounts with respect to
Acquired Sales Orders (the "Prepaid Sales Order Amounts"). The Purchase Price to
be paid to Sellers hereunder shall be reduced by the total amount of such
Prepaid Sales Order Amounts.....
1.4 Time of Closing.
The closing of the purchase and sale provided for in this Agreement
(herein called the "Closing") shall be held at the offices of Brown, Rudnick,
Freed & Gesmer, in Boston, Massachusetts at 10:00 a.m. on the second business
day immediately following the date on which the approval required by Section
6.13 is obtained, or at such other place, time or date as is mutually agreeable
to the parties (the "Closing Date").
1.5 Delivery of Assumption of Liabilities.
At the Closing, Buyer shall deliver or cause to be delivered to
Sellers, among other things, an agreement to assume the Assumed Liabilities in
form and substance satisfactory to Sellers.
1.6 Transfer of Subject Assets.
At the Closing, Sellers shall deliver or cause to be delivered to Buyer
good and sufficient instruments of transfer transferring to Buyer title to all
the Subject Assets, including without limitation, bills of sale, assignments of
trademarks and patents, assignments of leases, and such other instruments of
transfer as may be required, if any. Such instruments of transfer (a) shall be
in the form and will contain the warranties, covenants and other provisions (not
inconsistent with the provisions hereof) which are usual and customary for
transferring the type of property involved under the laws of the jurisdictions
applicable to such transfers, (b) shall be in form and substance satisfactory to
counsel for Buyer, and (c) shall effectively vest in Buyer good and valid title
to all the Subject Assets, free and clear of all liens, restrictions and
encumbrances, except for and to the extent of the Assumed Liabilities. Sellers
shall, at Buyer's expense, crate, remove and transport the Subject Assets from
ASI's facility in Woburn, Massachusetts and from the other facilities of
Sellers, wherever located, to such destinations as Buyer shall request.
1.7 Delivery of Records and Contracts; Electronic Transfer.
(a) At the Closing Sellers shall deliver or cause to be
delivered to Buyer all of the Purchased Contracts with such assignments thereof
and consents to assignments as are necessary to assure Buyer of the full benefit
of the same. Sellers shall also deliver to Buyer at the Closing all of Sellers'
business records, tax returns, books and other data relating to its assets,
business and operations (except corporate records and other property of Sellers
excluded under Subsection 1.1(c)) and Sellers shall take all requisite steps to
put Buyer in actual possession and operating control of the assets and business
of the Articulate Division. After the Closing Buyer shall afford to Sellers and
their accountants and attorneys reasonable access to the books and records of
Sellers delivered to Buyer under this Section 1.7 and shall permit Sellers to
make extracts and copies therefrom for the purpose of preparing such tax returns
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of Sellers and periodic and other reports to the Securities and Exchange
Commission as may be required after the Closing and for other proper purposes
reasonably approved by Buyer. Buyer will also provide Fonix, upon request
therefor, electronic copies of this Agreement and all exhibits thereto,
including any subsequent amendments or modifications thereof.
(b) At the Closing and at Buyer's election, Sellers shall
cause those Subject Assets which are capable of being transferred by remote
telecommunications and for which Buyer has elected remote transfer, including,
without limitation, the Transferred Code, Transferred Software and Business
Records of Sellers, to be transferred (the "Transfer") by remote
telecommunications from the applicable Seller's place of business to the Buyer
at the destination designated by the Buyer prior to the Transfer. Upon
successful completion of the Transfer, based upon notice from the Buyer to the
Sellers of Buyer's receipt of all Subject Assets included in the Transfer, the
Sellers agree to destroy all copies, regardless of the medium in which the same
exist, of the Subject Assets included in the Transfer.
1.8 Tax Returns.
Sellers, with the assistance and approval of Buyer, shall promptly
prepare and file on or before the due date or any extension thereof all required
federal, state and local tax returns with respect to Sellers' operations prior
to the Closing. Unless Buyer otherwise requests, Sellers shall also take all
necessary steps to terminate ASI's fiscal year for federal income tax purposes
on the Closing Date.
1.9 Further Assurances.
Sellers from time to time after the Closing at the request of Buyer and
without further consideration shall execute and deliver further instruments of
transfer and assignment (in addition to those delivered under Section 1.6) and
take such other action as Buyer may reasonably require to more effectively
transfer and assign to, and vest in, Buyer each of the Subject Assets. To the
extent that the assignment of any lease, contract, license, commitment or right
shall require the consent of other parties thereto, this Agreement shall not
constitute an assignment thereof; however, prior to the Closing, Sellers shall
obtain any necessary consents or waivers to assure Buyer of the benefits of such
leases, contracts, commitments or rights. Nothing herein shall be deemed a
waiver by Buyer of its right to receive at the Closing an effective assignment
of each of the leases, contracts, licenses, commitments or rights of Sellers.
1.10 Allocation of Purchase Price.
The purchase price payable by Buyer for the Subject Assets pursuant to
Section 1.3 and the face amount of the Assumed Liabilities assumed pursuant to
Section 1.2 shall represent payment for the noncompetition agreement set forth
in Section 4.3 hereof and the Subject Assets at the prices shown on a memorandum
to be prepared, initialed by the parties and delivered at the Closing. Such
memorandum shall further allocate such amounts between each of the Sellers in
proportion to the assets sold by each of them and the liabilities of each of
them assumed by Buyer. The parties hereto agree that they will not take a
position inconsistent with such allocation for Federal income tax purposes or
any other purposes.
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1.11 Right to Hire Employees.
Sellers shall make available to Buyer all of Sellers' employees for
hire at or after the Closing, to the extent such employees perform services in
connection with the Business, although Buyer shall have no obligation to hire
any of such employees. In the event that Buyer hires any of Sellers' employees,
Sellers shall be responsible for all wages, benefits, severance obligations,
vacation and sick leave accruals and other obligations for such employees, up to
the date such employee is no longer an employee of a Seller.
1.12 License of ASI Technology; Technology Option Agreement.
Simultaneously with the execution of this Agreement, Sellers and Buyer
shall enter into a License Agreement, in substantially the form attached hereto
as Exhibit A, pursuant to which ASI shall grant to Buyer a non-exclusive license
to use the ASI Technology (as defined in the License Agreement) (the "ASI
License"). In addition, simultaneously with the execution of this Agreement,
Seller and Buyer shall enter into a Technology Option Agreement in substantially
the form attached hereto as Exhibit E pursuant to which Buyer may be appointed
as a non-exclusive distributor for certain technology licensed to ASI or Buyer
may become the assignee of ASI thereunder.
1.13 Collection of Accounts Receivable.
(a) Buyer agrees that it shall use its commercially
reasonable efforts to collect all of the Accounts Receivable outstanding less
than ninety (90) days as of the Closing Date, as set forth on Schedule 1.13 (a),
on behalf of Sellers. On a quarterly basis, Buyer shall remit to Sellers all
funds collected in respect of such Accounts Receivable, less any amounts
deducted by Buyer to reimburse Buyer for any cost of goods incurred. In the
event that any Account Receivable is not fully collected with 90 days of the
applicable invoice date, Buyer shall no longer be obligated to use its best
efforts to collect such Account Receivable, and Sellers may request that Buyer
reassign such Account Receivable to Sellers for collection. Any efforts of
Sellers to collect such receivables shall be in compliance with all applicable
laws, rules and regulations and shall conform with good commercial business
practice.
(b) Sellers shall have the right and authority to collect
the Accounts Receivable outstanding 90 days or more as of the Closing Date,
provided such collection shall be conducted in compliance with all applicable
laws, rules and regulations and shall conform with good commercial business
practice. Buyer shall cooperate with Sellers in connection with Sellers' efforts
to collect such Accounts Receivable, and shall promptly pay over to Sellers
amounts paid to Buyer in respect of such receivables.
1.14 Certain Matters Regarding Apple Litigation.
In connection with the Apple Litigation, Buyer shall have the right,
exercisable prior to the Closing Date, to contact Apple for the purpose of
discussing settlement or other resolution of ASI's claims against Apple as
asserted in the Apple Litigation. In the course of such discussions, Buyer shall
not (i) disclose any confidential or proprietary information of Sellers with
respect to ASI's claims, strategy or legal theories concerning the Apple
Litigation, nor (ii) settle or agree to settle the Apple Litigation on terms
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which would in any way be binding upon Fonix or ASI if Buyer elects option (a)
below or the Closing does not occur because of any event or circumstance
described in Sections 9.1 or 9.2 below. Within two (2) business days before the
Closing, Buyer shall notify Sellers in writing that it has elected one (1) of
the following two (2) options: (a) Buyer may designate the Apple Litigation and
the patents and other intellectual property which are the subject thereof
(collectively, the "Apple Claims") as Excluded Assets pursuant to Section 1.1(c)
hereof; or (b) Buyer may designate the Apple Claims as Subject Assets pursuant
to Sections 1.1(a)(viii) and (ix) hereof. If Buyer designates the Apple Claims
as Excluded Assets, then at Closing ASI and Buyer shall enter into a
Non-Exclusive License Agreement pursuant to which ASI shall grant to Buyer a
non-exclusive, perpetual, fully-paid worldwide license to make, use and sell
technology covered by the patents and other intellectual property which are the
subject of the Apple Litigation on substantially the same terms and conditions
as the license previously granted pursuant to the Agreement between ASI
Holdings, Inc. and Dragon Systems, Inc., dated as of January 10, 1995. If Buyer
designates the Apple Claims as Subject Assets, then Sellers and Buyer agree that
the proceeds of the Apple Litigation, whether received as a result of a
settlement of the Apple Litigation or as a result of a court judgment, shall be
allocated as follows: (i) first, to Buyer to cover all expenses and attorney's
fees paid by Buyer in connection with the Apple Litigation from and after the
Closing Date to the final date of the receipt of proceeds, (ii) second, fifty
percent (50%) of the next three million dollars ($3,000,000) or the remainder of
the proceeds if a lesser amount to each of Sellers and Buyer, and (iii) third,
the remainder of the proceeds, if any, to be split sixty percent (60%) to Buyer
and forty percent (40%) to Sellers. It is understood and agreed that the conduct
of the Apple Litigation from and after the Closing Date shall be under the sole
and absolute control and discretion of Buyer. Without limitation of the
foregoing, following the Closing Date, any settlement of the Apple Litigation
and the amount and nature of proceeds to be received in connection with any such
settlement shall be in Buyer's sole and absolute discretion. It is further
expressly agreed that in the event that the proceeds received consist of
consideration other than cash or marketable securities, such proceeds shall be
allocated solely to Buyer and shall not be considered for purposes of the
allocation of proceeds agreed to herein.
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF SELLERS.
Each of the Sellers hereby represents and warrants to Buyer as follows:
2.1 Organization and Qualification of Seller.
Each Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of its incorporation, with full power
and authority to own or lease the Subject Assets and to conduct its business,
including the Business. Each Seller is duly qualified to do business as a
foreign corporation in all jurisdictions where the failure to be so qualified
would have a material adverse effect upon the Business or the Subject Assets.
Fonix owns all of the issued and outstanding capital stock of ASI.
2.2 Authorization of Transaction.
Each Seller has the full power and authority to execute and deliver
this Agreement and subject to the authorization and approval of the transaction
contemplated hereunder by the shareholders of Fonix to perform this Agreement
and to carry out the transactions contemplated hereby. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby have been authorized by all necessary corporate action on
the part of each of the Sellers,, subject to authorization and approval of the
transaction contemplated hereunder by the shareholders of Fonix to perform this
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Agreement, and this Agreement and each other agreement, document and instrument
executed by each Seller pursuant to or in connection with this Agreement
constitute, or when executed and delivered will constitute, the valid and
binding obligation of such Seller, enforceable in accordance with their
respective terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditor's rights generally or by general equitable
principles.
2.3 Present Compliance with Obligations and Laws.
Neither Seller is in violation of its Certificate or Articles of
Incorporation ("Charter") or bylaws. Neither the ownership nor use of the
Subject Assets by Sellers nor the conduct of the Business by Sellers violates
or, with or without the passage of time or the giving of notice, or both, would
violate, conflict with or result in a default or right to accelerate under, any
term of any material lien, encumbrance, mortgage, deed of trust, lease, license,
agreement or condition of any debt instrument or any law, regulation,
administrative order or judicial order applicable to either Seller, the Business
or the Subject Assets.
2.4 No Conflict of Transaction With Obligations and Laws; Approvals.
(a) Except as set forth in Schedule 2.4(a), neither the
execution and delivery nor, subject to authorization and approval of this
transaction by the shareholders of Fonix, the performance of this Agreement and
the transactions contemplated hereby by the Sellers, will: (i) constitute a
breach or violation of the Charter or bylaws of either Seller; (ii) conflict
with or constitute (with or without the passage of time or the giving of notice)
a breach of, or default under, any debt instrument to which either Seller is a
party, or give any person the right to accelerate any material indebtedness or
terminate any material right; (iii) result in the creation of any lien, charge
or encumbrance on the Subject Assets; (iv) constitute (with or without the
passage of time or giving of notice) a default under or breach of any other
agreement, instrument or obligation to which either Seller is a party or by
which it or any of the Subject Assets are bound; or (v) result in a violation of
any law, regulation, administrative order or judicial order applicable to either
Seller, the Business or the Subject Assets.
(b) Except for the appropriate filing (the "HSR Filing")
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"Hart-Scott-Rodino Act") filing and related requirements, and except as set
forth in Schedule 2.4(b), the execution, delivery and performance of this
Agreement and the transactions contemplated hereby by the Sellers do not require
either Seller to obtain any consent, waiver, approval, authorization, exemption
of or giving of notice to any governmental authority or other third party.
2.5 Financial Information.
Attached as Schedule 2.5 hereto are the following unaudited financial
statements of ASI (which include all of the assets and liabilities of the
Articulate Division held by Fonix), , which statements are prepared from and in
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accordance with the books and records of ASI, fairly present the financial
position of ASI on the date of such statements and the results of its operations
for the period covered thereby, and such financial statements have been prepared
consistent with past practices:
Balance Sheet and Statement of Operations for the four months ending
December 31, 1998.
Balance Sheet and Statement of Operations for the period ending March
31, 1999
(the balance sheet dated March 31, 1999 included in the above financial
statements of ASI, including notes as to subsequent events, if any, are
sometimes referred to together as the "Base Balance Sheet"). The Base Balance
Sheet fairly presents the assets and liabilities of the Articulate Division as
of the date thereof.
2.6 Absence of Undisclosed Liabilities.
As of the date of the Base Balance Sheet, the Articulate Division had
no liabilities of any nature, whether accrued, absolute, contingent or otherwise
except (a) liabilities stated or adequately reserved against the Base Balance
Sheet, (b) liabilities not in excess of twenty-five thousand dollars ($25,000)
arising in the ordinary course of business, and (c) liabilities disclosed in
Schedule 2.6 hereto. To the knowledge of Sellers, there is no fact which
materially adversely affects the Subject Assets or the operations or condition
of the Business provided that no representation is made as to general economic
conditions or the general conditions of the dictation/transcription industry.
2.7 Absence of Certain Changes.
Except as disclosed in Schedule 2.7 hereto, since the date of the Base
Balance Sheet, there has not been (a) any material adverse change in the
relationships of the Sellers with respect to their suppliers, distributors,
customers or others with whom they have business relationships which would have
a material adverse effect on the Business, and Sellers do not have knowledge of
any fact or contemplated event which could reasonably be expected to cause any
such material adverse change, (b) any material alteration or change in the
methods of operation employed by Sellers in the Business, (c) any material
change in the properties, assets, liabilities or operations of the Articulate
Division which change by itself or in conjunction with all other changes,
whether or not arising in the ordinary course of business, has had or would
reasonably be likely to have a material adverse effect on the Business, (d) any
encumbrance or lien placed on any of the Subject Assets which remains in
existence, (e) any disposal, or lapse of any rights to the use of any trademark,
tradename, patent or copyright, or disposal of or disclosure to any person other
than the Buyer of any trade secret, formula, process or know how relating to the
Business, not previously a matter of public knowledge, other than pursuant to
confidentiality agreements, (f) any obligation or liability incurred by the
Sellers with respect to the Business other than obligations and liabilities
incurred in the ordinary course of business, consistent with past practice, (g)
any purchase, sale or other disposition, or any agreement or other arrangement
for the purchase, sale or other disposition of any assets included among the
Purchased Assets other than in the ordinary course of the Business, (h) any
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damage, destruction or loss, whether or not covered by insurance, materially and
adversely affecting the Business or the Purchased Assets, (i) any change in
Sellers' accounting procedures or practices as it relates to the Business, (j)
any waiver, release, cancellation or compromise of any debts owed to them or
claims or rights against others, in each case, relating to the Business,
exceeding ten thousand dollars ($10,000) in the aggregate, or (k) any business
conducted by Sellers with respect to the Business other than that conducted in
the ordinary and regular course.
2.8 Title to Properties; Liens; Condition of Properties.
(a) The Subject Assets do not include any real property.
The assets set forth in Schedule 2.8 constitute a complete and correct listing
of the Inventory, equipment and other tangible personal property included in the
Subject Assets, and all leases under which the Sellers lease any real or
personal property included in the Subject Assets. Sellers own all of the Subject
Assets, and Sellers have and are conveying to Buyer hereunder good and valid
title to all the Subject Assets. None of the Subject Assets, tangible or
intangible, shall be subject at Closing to any mortgage, pledge, lien, tax lien,
conditional sale agreement, security interest, encumbrance, claim or other
charge or restraint on transfer of any nature whatsoever. All financing
statements under the Uniform Commercial Code previously filed with respect to
any of the Subject Assets in any jurisdiction have or will be simultaneously
with the Closing terminated, together with the security interests and rights
created thereby, and Sellers have not signed any other such financing statement
or any security agreement authorizing any secured party thereunder to file any
such financing statement. Except as set forth in Schedule 2.8, the Subject
Assets comprise of all assets required for the continued conduct of the Business
by the Buyer as currently conducted by Sellers. The Subject Assets, taken as a
whole, constitute all of the properties and assets relating to or used or held
for use in connection with the Business as the same has been operated prior to
the date hereof, except inventory sold, prepaid expenses realized, contracts
fully performed, properties or assets replaced by equivalent or superior
properties or assets, in each case in the ordinary course of business, employees
not hired by the Buyer and the Excluded Assets.
(b) The Subject Assets are in good working order, normal
wear and tear excepted, and are reasonably suitable for the purpose or purposes
for which they are being used and, to the knowledge of Seller, there does not
exist any defect in any such item or property that is of the nature of a latent
defect which would render the particular item unfit for its continued use in its
current mode.
2.9 Payment of Taxes.
Sellers have filed all federal, state, local, and foreign government
income excise or franchise tax returns, real estate and personal property tax
returns, sales and use tax returns and all other tax returns required to be
filed by them, and they have paid all taxes owing by them except taxes which
have not yet accrued or otherwise become due for which adequate provision has
been made in the pertinent financial statements referred to in Section 2.5,
above. All transfer, excise and other taxes payable to any jurisdiction by
reason of the sale and transfer of the Subject Assets pursuant to this Agreement
shall be paid or provided for by Sellers after the Closing out of the
consideration payable by Buyer hereunder. The federal income tax returns of
Fonix and its subsidiaries have never been examined by the Internal Revenue
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Service and no extension of time for the assessment of deficiencies for any year
is in effect. The provisions for taxes reflected in the above-mentioned
financial statements are adequate to cover any tax liabilities of the Sellers in
respect of their respective businesses, properties and operations during the
periods covered by said financial statements and all prior periods. Neither the
Internal Revenue Service nor any other taxing authority is now asserting or, to
the knowledge of the Sellers, threatening to assert against either Seller any
deficiency or claim for additional taxes or interest thereon or penalties in
connection therewith.
2.10 Inventories.
All inventories of finished goods and raw materials of the Sellers with
respect to the Business existing on the Closing Date will be of a quantity and
quality normally saleable or usable in the ordinary course of business at
commercially reasonable prices without discounts. All such inventories are
valued on a lower of cost (FIFO) or market basis and in accordance with the
Sellers' normal valuation methods and policies, consistently applied. Except for
the items listed on Schedule 2.10, all inventories of finished goods and raw
material existing on the Closing Date shall be either saleable or useable (with
respect to anticipated orders in-hand or reasonably forecast) on or before the
twelve-month anniversary of the Closing Date consistent with the past practices
of the Sellers.
2.11 Intellectual Property Rights.
(a) Sellers own, or are licensed or otherwise possess
legally enforceable rights to use all Intellectual Property Rights (as defined
below) necessary to the conduct of the Business as it is presently being
conducted or as presently contemplated to be conducted and, except for Excluded
Assets, all such Intellectual Property Rights are being transferred as part of
the Subject Assets. Schedule 2.11(a) contains a list of all patents, patent
applications registered copyrights, trade names, trademarks and service marks,
and registrations and applications for the same owned by Sellers relating to or
used or held for use in connection with the Business. Except as set forth on
Schedule 2.11(a), Sellers have unencumbered title to the Intellectual Property
Rights set forth in Schedule 2.11(a) which are listed as owned by Sellers and to
Sellers' knowledge there are no pending challenges to such title nor, to the
knowledge of Sellers, have others threatened to challenge such title. No rights
or licenses to use Intellectual Property Rights have been granted or acquired by
a Seller in connection with the Business except licenses associated with sales
of products to end user customers in the ordinary course of business and
consistent with past practice or those listed in Schedule 2.11(b). Schedules
2.11(c) lists all material licenses, agreements, obligations and contracts
relating to the Intellectual Property Rights to which a Seller is a party or by
which, to Seller's knowledge, a Seller is bound, except licenses associated with
sales of products to end user customers in the ordinary course of business and
consistent with past practice. Each of the licenses, agreements, obligations and
contracts listed in Schedules 2.11(b) and 2.11(c) (i) is in full force and
effect, (ii) except as set forth in Schedule 2.4(b), may be freely assigned to
Buyer, (iii) is not subject to any current default of Sellers, and (iv) is not
subject to any outstanding, or to the knowledge of Sellers, threatened, disputes
or disagreements. Except as listed in Schedule 2.11(d), there have been (i) no
claims or assertions made by others that a Seller has infringed any intellectual
property rights of others by the sale of products or any other activity and (ii)
to Sellers' knowledge no infringements of any intellectual property rights of
others by Sellers. Except as set forth in Schedule 2.11(e), Sellers have no
knowledge, of any infringement of Intellectual Property Rights of Seller by
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others. All such patents, registered trademarks, service marks, and copyrights
owned by Sellers and relating to or used or held for use in connection with the
Business are in good standing and are recorded on the public record in the name
of a Seller. True, complete and correct copies of all material listed in
Schedules 2.11(a), 2.11(b), 2.11(c), 2.11(d) and 2.11(e) have been delivered or
made available to the Buyer. For purposes of this Agreement, "Intellectual
Property Rights" shall mean all of Sellers' rights relating to patents, patent
applications, trademarks, service marks, trade names, copyrights, applications
to register or registrations of any of the foregoing, mask works, inventions,
processes, methods, trade secrets, know-how, employee invention disclosures,
software (in both source code and object code form) and any documentation
relating to the manufacture, marketing and maintenance of products by Sellers to
the extent relating to or used or held for use in connection with the Business.
(b) Except as listed on Schedule 2.11(f), all employees
of and technical consultants to Sellers, who have contributed to or have access
to Intellectual Property Rights relating to or used or held for use in
connection with the Business have entered into proprietary information and
invention agreements with Sellers and copies of such agreements have been made
available or provided to the Buyer. Except as set forth on Schedule 2.11(f), to
Sellers' knowledge, no employee of the Articulate Division has entered into any
agreement that prohibits him from performing the work in which the employee is
presently engaged or requires the employee to transfer, assign, or disclose
information concerning his work to anyone other than Sellers.
(c) The manner in which Sellers have manufactured,
packaged, shipped, advertised, labeled and sold its products, to the extent such
products are a part of the Business, complies in all material respects with all
the material applicable laws and regulations pertaining thereto. Except as set
forth on Schedule 2.11(g), Sellers have not deposited, and are not obligated to
deposit, any source code regarding their products, to the extent such products
or source code are a part of the Business, into any source code escrows or
similar arrangements and Sellers are not under any contractual or other
obligation to disclose the source code; or, other than to end-users or bundlers,
any other material proprietary information included in or relating to its
products.
(d) Sellers neither sell nor have under development any
product or service relating to dictation/transcription technology for the
medical industry other than those represented by the Business.
2.12 Warranty or Other Claims.
Except as set forth in Schedule 2.12, no product manufactured, sold,
licensed or delivered by the Sellers in connection with the Business is subject
to any contractual guarantee, warranty, right of return or other indemnity
beyond the applicable standard terms and conditions of sale or lease described
in Schedule 2.12. Schedule 2.12 sets forth the aggregate expenses incurred by
Sellers in fulfilling its obligations under its guarantee, warranty, right of
return and indemnity provisions with respect to the Business during fiscal 1998
and the first three (3) months of fiscal 1999, and Sellers know of no reason why
the warranty expenses with regard to the Business will significantly increase as
a percentage of sales in the future. Sellers do not know of any existing or
threatened claims, or any facts upon which a claim could be based, including
product liability or other tort claims, against either Seller related to
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services or products sold as part of the Business. No claim has been asserted
against either Seller for renegotiation or price redetermination of any business
transaction relating to the Business, and Sellers have no knowledge of any facts
upon which any such claim could be based, other than routine price negotiation
consistent with past practice.
2.13 Litigation.
Except for matters described in Schedule 2.13 hereto, there is no suit,
claim, action, proceeding or governmental investigation pending or, to the
Sellers' knowledge, threatened, against either Seller, before any court or any
governmental agencies or regulatory authorities which could reasonably be
expected to have a material adverse effect on the Business or the Purchased
Assets or which, if adversely determined would materially impair or preclude
Sellers' ability to consummate the transactions contemplated by this Agreement
or which seeks to enjoin or otherwise hinder or prevent the consummation of the
transactions contemplated by this Agreement and neither Seller is subject to any
order, injunction or decree relating to or affecting the Business or the
Purchased Assets.
2.14 Permits.
Each Seller holds all licenses, permits and franchises which are
required to permit it to operate the Business as presently conducted, and all
such licenses, permits and franchises are listed on Schedule 2.14 hereto.
2.15 Transactions with Interested Persons.
Except as shown on Schedule 2.15, to the knowledge of Sellers, no
officer, supervisory employee, director or stockholder of either Seller or any
affiliate, or their respective spouses or children (i) owns, directly or
indirectly, on an individual or joint basis, any material interest in, or serves
as an officer or director of, any customer, competitor or supplier of the
Business or any organization which has a material contract or arrangement with a
Seller pertaining to the Business, or (ii) has any contract or agreement with a
Seller pertaining to the Business.
2.16 Contracts and Commitments.
All contracts, commitments, plans, agreements and licenses of any
nature that relate to the Business are listed on Schedule 2.16. Except as set
forth in Schedule 2.16, each of the Purchased Contracts is in full force and
effect and constitutes a valid and binding obligation of, and is enforceable in
accordance with its terms against the related Seller and, to Seller's knowledge,
the other parties thereto (in the latter case, subject to laws of general
application affecting creditor's rights), is subsisting and is fully assignable
by such Seller. Except as set forth in Schedule 2.16, each Seller has made all
payments due under the Purchased Contracts and performed all the obligations
required to be performed by it under such contracts so as not to be in default
thereunder, and there has not occurred any event which (whether with or without
the passage of time or the giving of notice or both) would constitute a default
of a Seller under a Purchased Contract, or, to the knowledge of Sellers, a
default of any other party under a Purchased Contract.
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2.17 Labor and Employee Relations.
(a) Except as set forth on Schedule 2.17, there are no
complaints against either Seller pending or, to the knowledge of Sellers,
threatened before the National Labor Relations Board or any similar state or
local labor agencies, or before the Equal Employment Opportunity Commission or
similar state or local agency, by or on behalf of any employee or former
employee who performs or performed services in connection with the Business.
(b) Sellers have provided to Buyer a complete description
of all material written and other employment policies under which each Seller
has operated or which have been communicated in writing to employees who perform
services in connection with the Business.
(c) Neither Seller has received notice from or is aware
of any key employee or key group of employees who perform services in connection
with the Business, that any such person or persons have plans to terminate his,
her or their employment with such Seller.
2.18 Employees.
The salaries and employee benefits of the employees of the Business
listed on Schedule 2.18 are accurately summarized in all material respects on
Schedule 2.18 hereto. Except as set forth in Schedule 2.18, Sellers have accrued
or paid in full to those employees listed on Schedule 2.18 all wages,
commissions, bonuses, vacation pay and other direct compensation for all
services performed by them. There are no grievances or claims by any of such
employees pending with respect to their employment by the related Seller,
including, but not limited to, sexual harassment and discrimination claims and
claims arising under workers' compensation laws.
2.19 Finder's Fee.
No Seller has incurred or become liable for any broker's commission or
finder's fee relating to or in connection with the transactions contemplated by
this Agreement.
2.20 Disclosure of Material Information.
No representation or warranty of either Seller contained in this
Agreement, or any other document, certificate or other instrument delivered to
or to be delivered by or on behalf of a Seller pursuant to this Agreement,
contains or will contain any untrue statement of a material fact or omits, or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading.
2.21 Suppliers, Customers and Distributors.
Schedule 2.21 lists the two largest (by dollar volume) suppliers and
customers of Sellers during the immediately preceding twelve (12) month period
with respect to the Business. To the best knowledge of Sellers, the
relationships of Sellers with such suppliers and customers are good commercial
working relationships and Sellers have no knowledge of any intention on the part
of any such supplier or customer to modify or amend in any material manner or
terminate any such relationship, except as disclosed in Schedule 2.21.
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2.22 Intentionally Omitted.
2.23 Borrowings and Guarantees.
Except as shown on Schedule 2.23 hereto, there are no
agreements and undertakings pursuant to which ASI and/or Fonix, in connection
with the Business, (a) is borrowing or is entitled to borrow any money, (b) is
lending or has committed itself to lend any money, or (c) is a guarantor or
surety with respect to the obligations of any person. Complete and accurate
copies of all such written agreements have been delivered to Buyer.
2.24 Insurance.
Schedule 2.24 contains a complete and correct list of all
policies of insurance maintained by the Sellers (including insurance providing
benefits for employees) in effect on the date hereof in connection with the
Business, together with complete and correct information with respect to the
premiums, coverages, insurers, expiration dates, and deductibles in respect of
such policies. Except for amounts deductible under policies of insurance
described on such schedule or with respect to risks assumed as a self-insurer
and described on such schedule, neither Seller is, or has been at any time,
subject to any liability as a self-insurer of the businesses or assets of the
Sellers that is reasonably likely to have a material adverse effect upon the
businesses, assets, revenues, condition (financial or otherwise) or prospects of
the Business. Except as set forth on the schedule, there are no claims pending
or, to the knowledge of Sellers, overtly threatened, under any of said policies,
or disputes with insurers, and all premiums due and payable thereunder have been
paid, and all such policies are in full force and effect in accordance with
their respective terms.
2.25 Prepaid Maintenance Amounts and Prepaid Sales Order Amounts
Set forth on Schedule 1.3(b) and Schedule 1.3(c) are the Prepaid
Maintenance Amounts and Prepaid Sales Order Amounts, respectively, in each case,
listed separately by customer, amount, date of receipt, applicable customer
contract, and the service period or stage of product installation for which such
payment was received as of the Closing Date. All of such information is true,
complete and accurate in all material respects as of the Closing Date.
2.26 Absence of Sensitive Payments.
Neither Seller, nor to the knowledge of the Sellers, any of the
Sellers' directors, officers, agents, stockholders or employees, on behalf of a
Seller:
(a) has made or has agreed to make any contributions,
payments or gifts of funds or property to any governmental official, employee or
agent where either the payment or the purpose of such contribution, payment or
gift was or is illegal under the laws of the United States, any state thereof,
or any other jurisdiction (foreign or domestic);
(b) has established or maintained for any purpose any
unrecorded fund or asset relating to or concerning the Business, or has made any
false or artificial entries on any of the books or records of the Business for
any reason; or
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(c) has made or has agreed to make any contribution or
expenditure, or has reimbursed any political gift or contribution or expenditure
made by any other person to candidates for public office, whether federal, state
or local (foreign or domestic) where such contributions were or would be a
violation of applicable law.
2.27 SEC Filings.
Since December 31, 1997, Fonix has filed or caused to be filed all
registration statements, reports or statements, and any amendments thereto,
required to be filed by it pursuant to Sections 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and, as of
their respective filing dates, all such documents were prepared in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations thereunder in all material respects and did not contain any
misstatement of a material fact or omit to state a material fact necessary in
order to make the statements contained therein, in light of the circumstances,
not misleading, except to the extent corrected by a subsequently filed
registration statement, report or statement.
2.28 Environmental Matters.
(a) In connection with the Business, the Sellers have
materially complied with all applicable foreign, national, federal, state and/or
local laws (including without limitation case law, rules, regulations, orders,
judgments, decrees, permits, licenses and governmental approvals) that are
intended to protect the environment and/or human health or safety (collectively,
"Environmental Laws").
(b) In connection with the operation of the Business,
neither of the Sellers have ever handled, generated, used, stored, transported
or disposed of any material, substance or waste that is regulated by
Environmental Laws, except for reasonable amounts of ordinary office supplies
and/or office-cleaning supplies that have been handled in compliance with
Environmental Laws.
(c) To the Sellers' knowledge, there are no
"Environmental Liabilities," which, for purposes of this Agreement, means any
liabilities whatsoever of the Sellers which arise under any Environmental Laws
whether vested or unvested, contingent or fixed, actual or potential, and which
arise from or relate to the Business and any actions occurring (including any
failure to act) or conditions existing on or before the Closing Date.
2.29 Year 2000.
(a) The Transferred Software is designed to be used prior
to, during and after calendar year 2000 and will operate during each such time
period without error relating to date data, specifically including any error
relating to, or the conduct of, date data which represents or references
different centuries or more than one century. Without limiting the generality of
the foregoing, the Transferred Software (i) will not abnormally terminate or
provide invalid or incorrect results as a result of date data, and (ii) has been
designed to ensure year 2000 compatibility, including date data, century
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recognition, calculations which accommodate same century and multi-century
formulas and date values, and date data interface values that reflect the
correct century. The Transferred Software includes "Year 2000 Capabilities."
(b) "Year 2000 Capabilities" means the Transferred
Software (i) will manage and manipulate data involving dates, including single
century formulas and multi-century formulas, and will not cause an abnormally
ending scenario within an application or generate incorrect values or invalid
results involving such dates, (ii) provides that all date-related users
interface functionalities and data fields include the indication of century, and
(iii) provides that all date-related data interface functionalities include the
indication of century.
(c) Except as set forth on Schedule 2.29(c), all mission
critical computer-based systems and software used by the Business whether
developed by Sellers or developed or provided by third parties (collectively,
"Computer Systems") will record, store, process and present calendar dates
falling on or after January 1, 2000 in the same manner and with the same
functionality as such Computer Systems record, store, process and present
calendar dates falling on or before December 31, 1999. The upgrade to Microsoft
SQL referenced on Schedule 2.29(c) can be accomplished by Sellers or Buyer in
the ordinary course of business without unreasonable effort or expense. Set
forth on Schedule 2.29(c) is a description of the investigation and inquiries
made and work undertaken by Sellers in connection with the Computer Systems and
their Year 2000 Capabilities. To the knowledge of Sellers, in all other
respects, such Computer Systems shall not in any way lose functionality or
degrade in performance as a consequence of such Computer Systems operating at a
date later than December 31, 1999. Sellers shall jointly and severally indemnify
and hold Buyer harmless for any claims by third parties against Buyer, arising
from sales by the Sellers prior to the Closing Date, for failure of the
Transferred Software to perform in accordance with the Year 2000 Capabilities,
provided, however, that no such indemnification shall be available if such a
third party claim relates to Buyer's failure to provide the upgrade to Microsoft
SQL referenced on Schedule 2.29(c) in the ordinary course of business.
2.30 Excluded Technology.
Excluding the Excluded Technology not intended to be transferred to
Buyer, but including the rights to be granted to Buyer by the Technology Option
Agreement required by Section 6.13 hereof, Sellers have and by transfer of the
Subject Assets to Buyer, Buyer will have, legally enforceable rights to all of
the technology and Intellectual Property Rights necessary to operate the
Business and to produce, install and maintain the PowerScribe Products. At
Closing, none of the Acquired Sales Orders will contemplate any product
customization or other requirements that would necessitate use of the Excluded
Technology in order for Buyer to fulfill such Acquired Sales Orders in all
respects without incurring any additional material cost or material time delay
which Sellers would have been able to avoid by using the Excluded Technology.
None of the employees of Sellers who accept offers of employment from Buyer will
retain documentation concerning or any tangible or electronic evidence of any
proprietary information related to the Excluded Technology after the Closing.
Sellers shall ensure that no such information is delivered to Buyer, except as
may be contemplated by the Technology Option Agreement.
2.31 Stockholder Action.
On or prior to the date hereof, each of the individuals listed on
Schedule 2.31 has delivered to the Sellers a letter substantially in the form
set forth on Schedule 2.31 pursuant to which each of them have agreed to vote
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all shares of Fonix owned by them or as over which they have voting control in
favor of the transactions contemplated by this Agreement and irrevocably granted
a proxy, coupled with an interest, to Fonix or its designee to vote all such
shares in favor of such transactions.
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF BUYER.
Buyer hereby represents and warrants to Sellers as follows:
3.1 Organization of Buyer.
The Buyer and any subsidiary through which Buyer completes the
transaction contemplated hereby are corporations duly organized, validly
existing and in good standing under the laws of Belgium or the state of its
incorporation with full corporate power to own or lease its properties and to
conduct its business in the manner and in the places where such properties are
owned or leased or such business is conducted by it.
3.2 Authorization of Transaction.
The Buyer has all requisite power and authority to execute and deliver
this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement and the performance of this Agreement and the
consummation by the Buyer of the transactions contemplated hereby have been duly
and validly authorized by all necessary corporate action on the part of the
Buyer. This Agreement has been duly and validly executed and delivered by the
Buyer and constitutes a valid and binding obligation of the Buyer, enforceable
against the Buyer in accordance with its terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors'
rights generally or by general equitable principles.
3.3 No Conflict of Transaction with Obligations and Laws.
(a) Neither the execution, delivery and performance of
this Agreement or any of the agreements contemplated hereby, nor the performance
of the transactions contemplated hereby, will (i) constitute a breach or
violation of the Buyer's Restated Articles of Association or bylaws; (ii)
conflict with or constitute (with or without the passage of time or the giving
of notice) a breach of, or default under any material agreement, instrument or
obligation to which the Buyer is a party or by which it or its assets are bound
which would materially affect the performance by the Buyer of its obligations
under this Agreement; or (iii) result in a violation of any law, regulation,
administrative order or judicial order applicable to the Buyer.
(b) Except for the Hart-Scott-Rodino Act filing and
related requirements, the execution, delivery and performance of this Agreement
and the transactions contemplated hereby by the Buyer do not require the
consent, waiver, approval, authorization, exemption of or giving of notice to
any governmental authority or other third party.
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3.4 Claims and Legal Proceedings.
There are no claims, actions, suits, arbitration, proceedings or
investigations pending (or, to the best knowledge of the Buyer, threatened)
against the Buyer or any of its subsidiaries, and there are no outstanding court
orders, court decrees, or court stipulations to which the Buyer or any of its
subsidiaries is a party or by which any of their respective assets are bound,
any of which (a) question this Agreement or affect the transactions contemplated
hereby or (b) would, individually or in the aggregate materially impair or
preclude the Buyer's ability to consummate the transactions contemplated hereby.
The Buyer has no reason to believe that any such claim, action, suit,
arbitration, proceeding or investigation may be brought against it.
3.5 Disclosure of Material Information.
No representation or warranty by the Buyer contained in this Agreement,
or any other document, certificate or other instrument delivered to or to be
delivered by or on behalf of the Buyer pursuant to this Agreement, contains or
will contain any untrue statement of a material fact or omits, or will omit to
state any material fact necessary, in light of the circumstances under which it
was or will be made, in order to make the statements herein or therein not
misleading.
3.6 Broker's and Finder's Fees.
Buyer has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finder's fees or agent's commissions or investment
banker fees or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
ARTICLE 4 COVENANTS OF SELLERS.
The Sellers hereby jointly and severally covenant and agree with the
Buyer as follows:
4.1 Expenses.
Sellers hereby agrees that (i) all expenses of Sellers in connection
with the negotiation and performance of this Agreement and the transactions
contemplated hereby, including one-half of the Hart-Scott-Rodino Act filing fee,
and (ii) all transfer, excise or other taxes payable by any party to this
Agreement to any jurisdiction by reason of the sale or transfer of the Subject
Assets pursuant to this Agreement, if any, shall be paid by Sellers out of the
proceeds of the sale of the Subject Assets or otherwise, and, notwithstanding
anything contained in Section 5.1 to the contrary, no such expenses shall be
payable by Buyer or any affiliate of Buyer.
4.2 Nondisclosure.
After the Closing Date, neither Seller, nor any person controlling,
controlled by or under common control with a Seller will, for any reason,
directly or indirectly, for itself or any other person, use or disclose any
trade secrets or confidential information, know-how or proprietary information
transferred pursuant to this Agreement, except to Buyer, its officers,
directors, employees or agents, in connection with the operation of the Business
by Sellers before or by Buyer after the Closing Date, except as may be required
to be disclosed by law. Confidential and proprietary information for purposes of
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this Agreement shall not include information which is or becomes publicly known
through no fault of a Seller or any of the aforementioned affiliates of Sellers.
4.3 Noncompetition by Sellers.
Sellers, in order to induce Buyer to enter into this Agreement,
expressly covenant and agree that neither Seller, nor any of its affiliates
will, directly or indirectly, for a period of three (3) years following the
Closing Date, own, manage, operate, join, control, joint venture with, act as
agent, consultant, surety or guarantor, or render any services of a business,
commercial or professional nature to or have a financial interest in any
business, individual, partnership, firm, corporation or other organization
which, to the knowledge of Sellers, is at the time engaged, wholly or partly, in
the development or sale of (a) dictation/transcription products or technology
specifically designed or marketed for use in the medical (i.e., patient charting
and/or patient care) field or which use language modeling or vocabularies
designed for medical (i.e., patient charting and/or patient care) applications
or (b) products or technology which allows for the distribution, retrieval or
use of data over a network or enterprise system, or in any activity which
competes with the Business as presently conducted by ASI during such three (3)
year period. Further, for a period of three (3) years following the Closing
Date, none of the Sellers nor their affiliates shall, directly or indirectly,
solicit, induce or encourage any person employed by the Buyer in the operation
of the Business to terminate his or her employment with the Buyer. Sellers agree
that this provision is reasonable in view of the nature of the business being
transferred hereby and the relevant market for products and services of the
Business and that any breach hereof would result in continuing and irreparable
harm to Buyer and would adversely affect the value to Buyer of the Subject
Assets and related goodwill being transferred under this Agreement. Sellers
expressly covenant and agree that the remedy at law for any breach of this
Section 4.3 will be inadequate and that, in addition to any other remedies Buyer
may have, Buyer shall be entitled to temporary and permanent injunctive relief
without the necessity of proving actual damage. To the extent that any part of
this provision may be invalid, illegal or unenforceable for any reason, it is
intended that such part shall be enforceable to the extent that a court of
competent jurisdiction shall determine that such part if more limited in scope
would have been enforceable and such part shall be deemed to have been so
written and the remaining parts shall as written be effective and enforceable in
all events. Notwithstanding the foregoing, Fonix shall not be prohibited from
owning in the aggregate less than five percent (5%) of any class of securities
of any particular company.
4.4 Acquired Sales Orders and License Agreement.
Each Seller agrees that in the event it receives a payment from any
customer with respect to any Acquired Sales Order or License Agreement acquired
or assumed by Buyer hereunder, which payment is not made on account of an
Account Receivable, such Seller will promptly remit such payment to Buyer.
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4.5 Payment of Debts.
On or after the Closing Date, Sellers shall pay as and when due all
debts and obligations relating to the Business not assumed by Buyer hereunder,
provided that, the foregoing shall not prevent Sellers from contesting in good
faith any of such debts or obligations.
4.6 Conduct of Business.
Between the date of this Agreement and the Closing, the Sellers will do
the following in connection with the conduct of the Business unless the Buyer
shall otherwise consent in writing:
(a) conduct the Business only in the ordinary course and
refrain from changing or introducing any method of management or operations with
regard to the Articulate Division except in the ordinary course of business and
consistent with prior practices;
(b) refrain from making any purchase, sale or disposition
of any asset or property other than in the ordinary course of business and from
mortgaging, pledging, subjecting to a lien or otherwise encumbering any of its
properties or assets, in each case to the extent the asset or property relates
to the Articulate Division;
(c) except with respect to the sale of Inventory in the
ordinary course of business, refrain from entering into any material agreements
or amending or terminating any material contract agreement or license relating
to the Articulate Division or waiving or releasing any material right or claim;
(d) maintain the Equipment and other assets of the
Articulate Division according to the standards that it has maintained the same
prior to the date of this Agreement;
(e) refrain from entering into any employment contract
(other than as may be contemplated by this Agreement) or making any material
change in the compensation payable or to become payable to any of its employees;
(f) withhold or remit with respect to its employees all
employment taxes;
(g) use its best efforts to keep intact the Business, to
keep available the employees and to preserve the goodwill of all suppliers,
customers and others having business relations with it in relation to the
Articulate Division; and
(h) permit the Buyer and its authorized representatives
to have full access to all its properties, assets, records, tax returns,
contracts and documents with respect to the Business and furnish to the Buyer or
its authorized representatives such financial and other information with respect
to the Business and the assets and properties of the Articulate Division as the
Buyer may from time to time reasonably request.
4.7 Exclusivity.
(a) Sellers shall not, and Sellers shall use reasonable best
efforts to cause each of their officers, directors, employees, representatives
and agents not to, directly or indirectly, (a) encourage, solicit, initiate,
engage or participate in discussions or negotiations with any person or entity
(other than the Buyer) concerning any Acquisition Transaction, (b) provide any
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information concerning the Business or the properties or assets of the Business
to any person or entity (other than the Buyer) other than in the ordinary course
of business, or (c) take any other action intended or designed to facilitate the
efforts of any person or entity (other than Buyer) relating to a possible
Acquisition Transaction. For purposes of this Agreement, the term "Acquisition
Transaction" shall mean any of the following involving the Business, that is
material to the business, results of operation, prospects or financial condition
of the Business: (i) any sale, lease, exchange, transfer or other disposition of
all or substantially all of the assets of the Articulate Division or any merger,
consolidation, business combination, stock acquisition or other transaction
which results in Fonix owning less than one hundred percent (100%) of the
outstanding stock of ASI; or (ii) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
(b) Notwithstanding anything herein to the contrary, in the
event that there is an unsolicited proposal for or an unsolicited indication of
a serious interest in entering into an Acquisition Transaction from a bona fide
financially capable third party that contains no financing contingency, Sellers,
at their discretion, shall be permitted to furnish to and communicate with any
such party all publicly available information requested by such party. In the
event that such party requests information in addition to that which is publicly
available, Sellers may furnish to and communicate with such third party
non-public information and otherwise negotiate with such party, only if (i) two
(2) business days prior written notice shall have been given to Buyer and
(ii)(A) Fonix's Board of Directors shall have been advised in writing by its
investment banker that it believes such third party is financially capable,
without any financing contingency, of consummating an Acquisition Transaction,
(B) Fonix's Board of Directors shall have been advised, by the written opinion
of outside counsel to Sellers, that any failure to provide such non-public
information to such party would constitute a breach of the fiduciary
responsibilities of the Board of Directors to shareholders of Fonix and (C)
Fonix's Board of Directors, after weighing such advice, determines that failing
to furnish such information would constitute a breach of the Board's fiduciary
duties. Notwithstanding anything herein to the contrary, nothing shall prohibit
the Board of Directors of Fonix from responding to a tender offer or complying
with its obligations under Sections 14d-9 or 14e-2 of the Exchange Act.
(c) Except as permitted by this Section 4.7(c), Fonix's
Board of Directors shall not enter into any agreement with respect to any
Acquisition Transaction. Notwithstanding the preceding sentence, if Fonix's
Board of Directors determines in its good faith judgment after consultation with
outside counsel that it has received a Superior Proposal (as defined below),
Fonix's Board of Directors may terminate this Agreement pursuant to Section
9.3(c) by providing written notice to Buyer (a "Notice of Superior Proposal")
advising Buyer that Fonix's Board of Directors has received a Superior Proposal,
specifying the material terms and conditions of such Superior Proposal and
providing notice of termination of this Agreement. For purposes of this
Agreement, the term "Superior Proposal" means any proposal made by a third party
to acquire, directly or indirectly, including pursuant to a merger, liquidation,
dissolution or other similar transaction, one hundred percent (100%) of the
Business for aggregate consideration with a fair market value in excess of
thirty-four million dollars ($34,000,000).
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4.8 Warranty and Service Obligations.
During the period beginning on the Closing Date and ending on the third
anniversary thereof (the "Warranty Period"), Buyer shall retain records in
accordance with sound accounting practices with regard to its expenses incurred
with respect to fulfilling warranty, service or upgrade obligations in
connection with the Transferred Software. Buyer will provide Sellers, on a
monthly basis during the Warranty Period, within thirty (30) days after the end
of each month, a written certification of all expenses of Buyer reasonably
incurred by Buyer in fulfilling warranty or service obligations with respect to
products or services delivered or performed prior to the Closing Date, to the
extent that such obligations are not covered by a service or maintenance
agreement as to which there has been a Prepaid Maintenance Amount, which amount
shall be paid by Sellers within thirty (30) days.
4.9 Breach of Representations and Warranties.
Promptly upon the occurrence of, or promptly upon a Seller becoming
aware of the impending or threatened occurrence of, any event which would cause
or constitute a breach, or would have caused or constituted a breach had such
event occurred or been known to a Seller prior to the date hereof, of any of the
representations and warranties of the Sellers contained in or referred to in
this Agreement, such person shall give detailed written notice thereof to the
Buyer and the Sellers shall use their best efforts to prevent or promptly remedy
the same.
4.10 Consummation of Agreement.
Sellers shall use their best efforts to perform and fulfill all
conditions and obligations on their part to be performed and fulfilled under
this Agreement, to the end that the transactions contemplated by this Agreement
shall be fully carried out. To this end, Sellers will obtain all necessary
authorizations or approvals of their stockholders and Boards of Directors, to
the sale of assets contemplated by this Agreement which shall include as
integral parts thereof:
(a) the transfer to Buyer of the Subject Assets upon the
terms and conditions set forth in this Agreement; and
(b) authorization to the officers and directors of Sellers and
to discharge all debts and obligations of Sellers relating to the Articulate
Division (other than those assumed by Buyer hereunder).
4.11 HSR Filings.
Promptly following the execution and delivery of this Agreement, the
Sellers shall cause to be made on their behalf an HSR Filing under the
Hart-Scott-Rodino Act. The Sellers shall also cooperate with the Buyer in
connection with the Buyer's preparation of its HSR Filing.
4.12 Approval of Stockholders.
Fonix shall promptly after the date hereof use its best efforts to
solicit consents from the Fonix stockholders in favor of the sale of the
Articulate Division to Buyer. Should Fonix reasonably determine that it cannot
obtain sufficient stockholder consents within a reasonable time, then, after
consultation with the Buyer, Fonix shall take all action necessary in accordance
with the Delaware General Corporation Law and its Certificate of Incorporation
and Bylaws to provide notice of and conduct a special meeting of stockholders
and, in connection therewith, obtain the approval of the Fonix stockholders of
the sale of the Articulate Division to Buyer.
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4.13 Preparation of Solicitation Statement.
(a) As soon as practicable after Fonix has determined pursuant
to Section 4.12, above, whether it can obtain sufficient consents of its
stockholders in favor of the sale of the Articulate Division to Buyer, Fonix
shall either prepare a solicitation statement or information statement
(collectively, the "Solicitation Statement") for the solicitation of approval of
the Fonix stockholders describing this Agreement and the transactions
contemplated hereby. The information in the Solicitation Statement about Buyer
shall be supplied by and shall be the sole responsibility of Buyer.
(b) The information supplied by Fonix for inclusion in the
Solicitation Statement to be sent to the Fonix stockholders shall not, on the
date the Solicitation Statement is first mailed to the Fonix stockholders or at
the Closing Date, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omits to state any material
fact necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading, or omit to
state any material fact necessary to correct any statement in any earlier
communication which has become false or misleading. Notwithstanding the
foregoing, Fonix makes no representation, warranty or covenant with respect to
any information supplied by Buyer which is contained in any of the foregoing
documents.
(c) The information supplied by Buyer for inclusion in the
Solicitation Statement shall not, on the date the Solicitation Statement is
first mailed to Fonix's stockholders, or at the Closing Date, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
false or misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication which has become false or misleading.
Notwithstanding the foregoing, Buyer makes no representation, warranty or
covenant with respect to any information which is contained in any of the
foregoing documents, other than information supplied in writing by Buyer to
Sellers.
(d) The Solicitation Statement shall constitute a proxy
statement for use by Fonix at a special meeting of Fonix stockholders, if Fonix
determines to conduct such special meeting of stockholders rather than obtain
approval of this Agreement and the transactions contemplated hereby via
stockholder consent. Fonix shall use reasonable commercial efforts to cause the
Solicitation Statement to comply with applicable federal and state securities
laws requirements, Delaware General Corporation Law and any other laws of any
other jurisdiction applicable to soliciting proxies or stockholder consents.
Buyers agrees to provide promptly to Fonix such information concerning Buyer's
business and financial statements and affairs as may be reasonably required or
appropriate for inclusion in the Solicitation Statement or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with
Fonix's counsel and auditors in the preparation of the Solicitation Statement.
Sellers shall promptly advise Buyer, and Buyer shall promptly advise Fonix, in
writing, if at any time prior to the Closing Date either Sellers or Buyer shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the Solicitation Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. The Solicitation Statement shall contain the recommendation of
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the boards of directors of Sellers that the Fonix stockholders approve the sale
of the Articulate Division to Buyer and this Agreement and the conclusion of the
boards of directors that the terms and conditions of the sale are fair and
reasonable to the Fonix stockholders.
4.14 Merger Escrow Agreement. Fonix and/or ASI shall give written
notice to Buyer ten (10) business days prior to the date (the "Release Date") on
which they will be obligated to release the escrowed shares pursuant to the
Merger Escrow Agreement. Unless Buyer has given Fonix written notice of its
intent to assert a claim against the escrow on or prior to the Release Date,
Fonix and/or ASI may release the escrowed shares on or after the business day
following the Release Date, free of any claim of Buyer. To the extent that Buyer
makes a claim against the escrowed shares, Fonix and/or ASI agree to pursue such
claim on Buyer's behalf and to cooperate with Buyer in asserting such claim. The
reasonable out of pocket expenses incurred by Fonix and/or ASI in pursuing such
claims on Buyer's behalf shall be paid by Buyer.
ARTICLE 5. COVENANTS OF BUYER.
The Buyer hereby covenants and agrees with the Sellers as follows:
5.1 Expenses.
Buyer hereby agrees that all expenses of Buyer in connection with the
negotiation and performance of this Agreement and the transactions contemplated
hereby, including one-half of the Hart-Scott-Rodino Act filing fee, shall be the
responsibility of Buyer, it being understood, however, by the parties hereto
that those expenses set forth in clause (ii) of Section 4.1 shall be borne by
the Sellers.
5.2 Payment of Debts.
Buyer shall pay as and when due the Assumed Liabilities, provided that
the foregoing shall not prevent Buyer from contesting in good faith any of the
debts or obligations comprising part of the Assumed Liabilities.
5.3 Consummation of the Agreement.
The Buyer shall use its best efforts to perform and fulfill all
conditions and obligations on its part to be performed or fulfilled under this
Agreement, to the end that the transactions contemplated by this Agreement shall
be fully carried out. In this regard, the Buyer will obtain any approvals of its
Board of Directors which may be required in order to consummate the transactions
contemplated by this Agreement.
5.4 HSR Filings.
Promptly following the execution and delivery of this Agreement, the
Buyer shall cause to be made on its behalf an appropriate HSR Filing under the
Hart-Scott-Rodino Act. The Buyer shall also cooperate with the Sellers in
connection with the Sellers' preparation of their HSR Filing.
5.5 Legal Requirements.
Buyer will, and will cause its respective subsidiaries to, take all
reasonable actions necessary to comply promptly with all legal requirements
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which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with and
furnish information to Sellers necessary in connection with any such
requirements imposed upon Sellers in connection with the consummation of the
transactions contemplated by this Agreement and will take all reasonable actions
necessary to obtain (and will cooperate with Sellers in obtaining) any consent,
approval, order and authorization of or any registration, declaration or filing
with, any governmental entity or other person, required to be obtained or made
in connection with the taking of any action contemplated by this Agreement.
ARTICLE 6. CONDITIONS TO OBLIGATIONS OF BUYER.
The obligations of the Buyer to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing the actions required by this Article 6 will have been accomplished
or waived in writing by Buyer.
6.1 Representations; Warranties; Covenants.
Each of the representations and warranties of the Sellers contained in
Article 2 shall be true and correct in all material respects as though made on
and as of the Closing. The Sellers shall, on or before the Closing, have
performed in all material respects all of their obligations hereunder which by
the terms hereof are to be performed on or before the Closing; and the Sellers
shall have delivered to Buyer a certificate of the President of each of the
Sellers dated as of the Closing to the foregoing effect and further confirming
that the condition set forth in Section 6.12 with respect to shareholder
authorization has been fulfilled.
6.2 Opinion of Sellers' Counsel.
At the Closing, Buyer shall have received from Durham Jones & Pinegar,
P.C., counsel for the Sellers, an opinion dated as of the Closing, substantially
in the form set forth as Exhibit B hereto.
6.3 Absence of Certain Litigation.
There shall not be any (a) injunction, restraining order or order of
any nature issued by any court of competent jurisdiction which directs that this
Agreement or any material transaction contemplated hereby shall not be
consummated as herein provided, (b) suit, action or other proceeding by any
federal, state, local or foreign government (or any agency thereof) pending
before any court or governmental agency, or threatened to be filed or initiated,
wherein such complainant seeks the restraint or prohibition of the consummation
of any material transaction contemplated by this Agreement or asserts the
illegality thereof or (c) suit, action or other proceeding by a private party
pending before any court or governmental agency, or threatened to be filed or
initiated, which in the reasonable opinion of counsel for the Buyer is likely to
result in the restraint or prohibition of the consummation of any material
transaction contemplated hereby or the obtaining of an amount in payment (or
indemnification) of material damages from or other material relief against any
of the parties or against any directors or officers of the Buyer, in connection
with the consummation of any material transaction contemplated hereby.
6.4 No Bankruptcy.
Neither Seller shall (i) have commenced a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law now or
hereafter in effect or seeking the appointment of a trustee, receiver,
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liquidator, custodian or other similar official of it or substantially all of
its property, or have consented to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or have made a general assignment for the
benefit of its creditors, or (ii) have an involuntary case or other proceeding
commenced against it seeking liquidation, reorganization or other relief with
respect to it or its debts under any bankruptcy, insolvency or other similar law
now or hereinafter in effect or seeking the appointing of a trustee, receiver,
liquidator, custodian or similar official of it or substantially all of its
property or (iii) have an attachment placed on all or a significant portion of
its assets.
6.5 No Adverse Change.
Except for changes which have been disclosed to and accepted in writing
by the Buyer prior to the Closing, there shall be no material adverse change to
the Business or the Subject Assets taken as a whole since the date of this
Agreement.
6.6 Release of Liens, Security Interests and Other Encumbrances.
The Sellers shall have delivered to the Buyer evidence satisfactory to
the Buyer and its counsel that the Sellers are able to deliver the Subject
Assets free and clear of all material liens (other than for taxes not yet due
and payable), attachments, mortgages, security interests or other encumbrances
of any nature whatsoever.
6.7 Authorization from Others.
The Sellers shall have obtained all of the waivers, permits, consents,
approvals or other authorizations disclosed in Schedule 2.4(b) hereto, and
effected all of the registrations, filings and notices that are reasonably
deemed necessary by the Buyer, upon advice of counsel, (i) to provide for the
continuation by the Buyer of the Business consistent with Section 2.30 above,
(ii) to assign to Buyer all material agreements of the Sellers and (iii) to
consummate the transactions contemplated by this Agreement.
6.8 Employment of Key Personnel.
Not less than thirty (30) of those employees of the Sellers to whom
offers of employment are extended by the Buyer, including all of those key
employees listed on Schedule 6.8 hereof, shall have accepted the Buyer's offer
of employment, provided that such offers of employment include salaries at least
equal to the salaries currently paid to such employees by Sellers and benefits
comparable to those provided by Buyer to similarly situated employees of Buyer.
Notwithstanding the foregoing, no more than two (2) employees from each of the
following business groups shall have declined the Buyer's offer of employment:
Engineering, Sales, Implementation and Customer Support. The key employees
listed on Schedule 6.8 and all other employees of Sellers who accept Buyer's
offer of employment shall have entered into proprietary
information/non-competition agreements having substantially the terms and
conditions of Exhibit D attached hereto.
6.9 Approval of Buyer's Counsel.
All actions, proceedings, instruments and documents required to carry
out this Agreement and all related legal matters contemplated by this Agreement,
including, without limitation, opinions of counsel, shall have been approved by
counsel for Buyer, provided that the approval of such counsel shall not be
unreasonably withheld.
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6.10 Escrow Agreement.
There shall have been executed and delivered to Buyer an Escrow
Agreement in substantially the form attached hereto as Exhibit D, pursuant to
which Five Million Dollars ($5,000,000) of the purchase price shall be deposited
in escrow (the "Escrow Fund") to secure payment of indemnification payable to
Buyer hereunder by reason of the breach of any of the representations and
warranties of Sellers or failure of Sellers to perform any of their obligations
hereunder, and said amounts shall have been deposited with the Escrow Agent
pursuant to said Escrow Agreement.
6.11 Governmental Consents and Approvals; Termination or Expiration
of HSR Waiting Period.
All governmental consents and approvals required in order to permit the
Buyer to complete the transactions in compliance with all applicable U.S.
federal, state and local laws, rules and regulations shall have been received by
the Buyer. The applicable waiting period under the Hart-Scott-Rodino Act shall
have been terminated or shall have expired without a request for further
information under the Hart-Scott-Rodino Act, or in the event of such a request
for further information, the waiting period following delivery of such
information shall have expired without the objection of either the Federal Trade
Commission or the U.S. Justice Department.
6.12 Shareholder Authorization.
This Agreement and the transactions contemplated hereby shall have been
duly approved by the affirmative vote of the holders of more than fifty percent
(50%) of the outstanding shares of Fonix's voting stock.
6.13 Payment of Attorneys' Fees.
If Buyer designates the Apple Claims as Subject Assets pursuant to
Section 1.14 hereof, Sellers shall have paid or made arrangement for the payment
at the Closing of the fees and expenses of their counsel in the Apple Litigation
for all services rendered and expenses incurred on or prior to the Closing.
ARTICLE 7. CONDITIONS TO OBLIGATIONS OF SELLERS.
The obligations of the Sellers to consummate this Agreement and the
transactions contemplated hereby are subject to the condition that on or before
the Closing the actions required by this Article 7 will have been accomplished
or waived in writing by Sellers:
7.1 Representations; Warranties; Covenants.
Each of the representations and warranties of the Buyer contained in
Article 3, other than those contained in Section 3.4, shall be true and correct
in all material respects as though made on and as of the Closing; the Buyer
shall, on or before the Closing, have performed in all material respects all of
its obligations hereunder which by the terms hereof are to be performed on or
before the Closing; and the Buyer shall have delivered to the Sellers a
certificate of the President or any Vice President of the Buyer dated as of the
Closing to such effect.
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7.2 Absence of Certain Litigation.
There shall not be any injunction, restraining order or order of any
nature issued by any court of competent jurisdiction which directs that this
Agreement or any material transaction contemplated hereby shall not be
consummated as herein provided.
7.3 Authorization from Others.
Buyer shall have obtained all of the waivers, permits, consents,
approvals or other authorizations that are reasonably deemed necessary by the
Sellers, upon advice of counsel, to consummate the transactions contemplated by
this Agreement.
7.4 Governmental Consents and Approvals; Termination or Expiration
of HSR Waiting Period.
All governmental consents and approvals required in order to permit the
Sellers to complete the transactions in compliance with all applicable U.S.
federal, state and local laws, rules and regulations shall have been received by
the Sellers. The applicable waiting period under the Hart-Scott-Rodino Act shall
have been terminated or shall have expired without a request for further
information under the Hart-Scott-Rodino Act, or in the event of such a request
for further information, the waiting period following delivery of such
information shall have expired without the objection of either the Federal Trade
Commission or the U.S.
Justice Department.
7.5 Shareholder Authorization.
This Agreement and the transactions contemplated hereby shall have been
duly approved by the affirmative vote of the holders of more than fifty percent
(50%) of the outstanding shares of Fonix's voting stock.
7.6 Approval of Seller's Counsel.
All actions, proceedings, instruments and documents required to carry
out this Agreement and all related legal matters contemplated by this Agreement
shall have been approved by counsel for Sellers, provided that the approval of
such counsel shall not be unreasonably withheld.
ARTICLE 8. INDEMNIFICATION.
8.1 Definitions.
For purposes of this Article 8:
"Losses" means all losses, damages, liabilities, payments and
obligations, and all expenses related thereto. Losses shall include any
reasonable attorneys' fees and legal costs incurred by any of the Indemnified
Persons subsequent to the Closing in defense of or in connection with any
alleged or asserted liability, payment or obligation, whether or not any
liability or payment, obligation or judgment is ultimately imposed against the
Indemnified Persons and whether or not the Indemnified Persons are made or
become parties to any such action; provided that Losses shall include punitive
and consequential damages only with respect to third party actions.
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"Buyer's Indemnified Persons" means the Buyer, its subsidiaries and
affiliated corporations, and their respective directors, officers, employees,
and agents.
"Indemnified Person" means any person entitled to be indemnified under
this Article 8.
"Indemnifying Person" means any person obligated to indemnify another
person under this Article 8.
"Sellers' Indemnified Persons" means the Sellers, their subsidiaries
and affiliated corporations, and their respective directors, officers,
employees, and agents.
"Third Party Action" means any written assertion of a claim, or the
commencement of any action, suit, or proceeding, by a third party as to which
any person believes it may be an Indemnified Person hereunder.
8.2 Indemnification by Seller.
Sellers, jointly and severally, agree to defend, indemnify and hold
harmless Buyer's Indemnified Persons from and against all Losses directly or
indirectly incurred by or sought to be imposed upon any of them:
(i) resulting from or arising out of any breach
of any of the representations or warranties (other than Sections 2.1, 2.2, 2.4,
2.8, 2.11, 2.16 and 2.28) made by Sellers in or pursuant to this Agreement or in
any agreement, document or instrument executed and delivered pursuant hereto or
in connection with the Closing;
(ii) resulting from or arising out of any breach of
any covenant or agreement made by Sellers in or
pursuant to this Agreement or in any agreement, document or instrument executed
and delivered pursuant hereto or in connection with the Closing or resulting
from or arising out of any breach of any of the representations or warranties
made by Sellers in Sections 2.1, 2.2, 2.4, 2.8, 2.11, 2.16 or 2.28 hereof;
(iii) in respect of any liability, or obligation of
Sellers, including without limitation any liability or obligation resulting from
or arising out of the conduct of the Business prior to Closing, not included in
the Assumed Liabilities;
(iv) resulting from or arising out of Buyer's
fulfilling Sellers' warranty or service obligations with
respect to products or services delivered or performed prior to the Closing
Date, to the extent that such obligations are not covered by a service or
maintenance agreement as to which there has been a Prepaid Maintenance Amount or
resulting from customer returns of product for which Sellers have completed
installation other than where the product or a portion thereof has been replaced
with a product of Buyer;
(v) resulting from or arising out of any of the
matters disclosed in the Schedules required by Section 2.11 hereof;
(vi) resulting from or arising out of the matters
set forth on Schedule 8.2(vi); or
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(vii) resulting from or arising out of the actual
fraud of Sellers.
8.3 Indemnification by Buyer.
From and after the Closing Date, Buyer shall indemnify and hold
harmless Sellers' Indemnified Persons from any and all Losses directly or
indirectly incurred by them:
(i) resulting from or arising out of any breach
of any of the representations or warranties (other than Sections 3.1, 3.2 or
3.4) made by Buyer, in or pursuant to this Agreement or in any agreement,
document or instrument executed and delivered pursuant hereto or in connection
with the Closing;
(ii) resulting from or arising out of any breach of
any covenant or agreement made by Buyer in or pursuant to this Agreement or in
any agreement, document or instrument executed and delivered pursuant hereto or
in connection with the Closing or resulting from or arising out of any breach of
any of the representations or warranties made by Buyer in Sections 3.1, 3.3 or
3.4 hereof;
(iii) resulting from or arising out of any liability
or obligation included in the Assumed Liabilities;
or
(iv) resulting from or arising out of actual fraud of
Buyer.
8.4 Limitations on Indemnification.
(a) Period. Neither Sellers nor Buyer shall have any
indemnification liability under Sections 8.2 or 8.3, respectively, unless one or
more of the Indemnified Persons gives written notice to the Indemnifying Persons
asserting a claim for Losses in accordance with Section 8.5 hereof, on or before
the expiration of the date or the period set forth below:
(i) for claims under clauses (i) of Section 8.2
and Section 8.3, respectively, for a period ending eighteen (18) months
following the date of this Agreement; and
(ii) for claims under clauses (ii) through (vii)
of Section 8.2 and clauses (ii), (iii) and (iv) of Section 8.3, respectively,
without limitation as to time.
(b) Amounts. The aggregate liability of an Indemnifying Party
resulting from or arising out of any breach of any of the representations or
warranties made by the Indemnifying Party, in or pursuant to this Agreement
and/or in any agreement, document or instrument executed and delivered by the
Indemnifying Party pursuant hereto or in connection with the Closing shall not
exceed the Purchase Price. Indemnification claims pursuant to Sections 8.2(i)
and (ii) and Sections 8.3(i) and (ii) resulting from or arising out of any
breach of any of the representations or warranties made by the Indemnifying
Party, in or pursuant to this Agreement or in any agreement, document or
instrument executed and delivered by the Indemnifying Party pursuant hereto or
in connection with the Closing shall be payable hereunder only if and to the
extent the aggregate amount of all such claims exceeds fifty thousand dollars
($50,000), but upon reaching such amount the Indemnifying Party shall be liable
from the first dollar to the extent of all such claims. Notwithstanding the
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foregoing, there shall be no limitations on Sellers' obligation to Indemnify
Buyer pursuant to Section 8.2(ii) or Section 8.3(ii) above with respect to
breaches of covenants or agreements.
(c) Right of Set-Off. Buyer may, at its option, upon at least
thirty (30) days' prior written notice to Sellers recover such indemnification
claims by set-off against any amounts that may otherwise be due from the Buyer
to the Sellers whether hereunder or otherwise, including, without limitation,
the Earnout Payment, provided that Buyer shall not be required to recover said
claims in such manner and may proceed against the Indemnifying Party at any time
or times for recovery of indemnification claims. Sellers shall have ten (10)
business days following Buyer's notice to Sellers to respond in writing to
Buyer's notice. Should Buyer continue in its intent to set-off as hereinabove
provided following receipt of Sellers' response, Buyer shall within five (5)
business days notify Sellers, and Sellers shall have the option to demand that
the parties enter into non-binding mediation or arbitration, and if such demand
is made, the parties shall as quickly as reasonably possible commence such
non-binding mediation or arbitration.
8.5 Notice.
The Indemnified Person shall give prompt written notice to the
Indemnifying Person of each claim for indemnification hereunder, specifying in
reasonable detail the amount and nature of the claim, and of any matter which in
the opinion of the Indemnifying Person is likely to give rise to an
indemnification claim. Subject to the provisions of Section 8.4(a) hereof, the
omission to give such notice to the Indemnifying Person will not relieve the
Indemnifying Person of any liability hereunder unless and only to the extent the
Indemnifying Person was prejudiced thereby under this Article 8.
8.6 Defense of Third Party Actions.
(a) Promptly after receipt of notice of any Third Party
Action, any person who believes he, she or it may be an Indemnified Person will
give notice to the potential Indemnifying Person of such action. Subject to the
provisions of Section 8.4(a) hereof, the omission to give such notice to the
Indemnifying Person will not relieve the Indemnifying Person of any liability
hereunder unless and only to the extent the Indemnifying Person was prejudiced
thereby, nor will it relieve the Indemnifying Person of any liability which it
may have other than under this Article 8.
(b) Upon receipt of a notice of a Third Party Action, the
Indemnifying Person shall have the right, at its option and at its own expense,
to participate in and be present at the defense of such Third Party Action, but
not to control the defense, negotiation or settlement thereof, which control
shall remain with the Indemnified Person, unless the Indemnifying Person makes
the election provided in paragraph (c) below.
(c) Subject to paragraph (d) below, by written notice within
forty-five (45) days after receipt of a notice of a Third Party Action, an
Indemnifying Person may elect to assume control of the defense, negotiation and
settlement thereof, with counsel reasonably satisfactory to the Indemnified
Person; provided, however, that the Indemnifying Person agrees (i) to promptly
indemnify the Indemnified Person for its reasonable expenses to date, and (ii)
to hold the Indemnified Person harmless from and against any and all Losses,
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caused by or arising out of any settlement of the Third Party Action or any
judgment in connection with that Third Party Action. The Indemnifying Persons
shall not in the defense of the Third Party Action enter into any settlement
which does not include as a term thereof the unconditional release by the third
party claimant of the Indemnified Person, or consent to entry of any judgment,
except with the consent of the Indemnified Person.
(d) Upon assumption of control of the defense of a Third Party
Action under paragraph (c) above, the Indemnifying Person will not be liable to
the Indemnified Person hereunder for any legal or other expenses subsequently
incurred by the Indemnified Person in connection with the defense of the Third
Party Action, other than reasonable expenses of investigation, unless the
Indemnified Person shall have reasonably concluded that there are defenses
available to it that are different from or additional to those available to the
Indemnifying Person, in which case the Indemnified Person may retain counsel of
its own to participate in the defense and the Indemnifying Person shall
reimburse the Indemnified Person for expenses reasonably incurred in connection
with the defense of such Third party Action, as and when the same shall be
incurred by the Indemnified Person.
(e) If the Indemnifying Person does not elect to control the
defense of a Third Party Action under paragraph (c), the Indemnifying Person
shall promptly reimburse the Indemnified Person for expenses reasonably incurred
by the Indemnified Person in connection with defense of such Third Party Action,
as and when the same shall be incurred by the Indemnified Person.
(f) Any person who has not assumed control of the defense of
any Third Party Action shall have the duty to cooperate with the party which
assumed such defense.
8.7 Miscellaneous.
(a) Buyer's Indemnified Persons shall be entitled to
indemnification under Section 8.2 and Sellers' Indemnified Persons shall be
entitled to indemnification under Section 8.3, regardless of whether the matter
giving rise to the applicable liability, payment, obligation or expense may have
been previously disclosed to any such person unless disclosed in writing herein
in the Disclosure Schedule unless otherwise indicated to the contrary thereon.
(b) If any Loss is recoverable under more than one provision
hereof, the Indemnified Person shall be entitled to assert a claim for such Loss
until the expiration of the longest period of time within which to assert a
claim for Loss under any of the provisions which are applicable.
8.8 Payment of Indemnification.
Claims for indemnification under this Article 8 shall be paid or
otherwise satisfied by the Indemnifying Persons within thirty (30) days after
notice thereof is given by the Indemnified Person. Any amount which may become
due and payable to any of the Buyer's Indemnified Persons under Section 8.2
shall first be paid or otherwise be satisfied out of the Escrow Fund until the
same has been exhausted, provided that such claims may be satisfied, at Buyer's
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election, pursuant to Buyer's right of set-off as set forth in Section 8.4(b)
before proceeding against the Escrow Fund. Any claims may be satisfied by
whatever remedy available at law or equity.
ARTICLE 9. TERMINATION OF AGREEMENT.
9.1 Termination.
In connection with the transactions as described in this Agreement, the
parties have agreed that this Agreement shall not be terminated, except in
accordance with the provisions of this Article 9, all strictly construed against
the Party seeking such termination. This Agreement may be terminated any time
prior to the Closing, whether before or after approval by the stockholders of
Fonix:
(a) by mutual consent of the parties with the approval of
their respective Board of Directors;
(b) by either party, if any court of competent jurisdiction in
the United States or other governmental body in the United States shall have
issued an order (other than a temporary restraining order), decree or ruling or
taken any other action restraining, enjoining or otherwise prohibiting the
transactions contemplated by this Agreement (the "Acquisition"), and such order,
decree ruling or other action shall have become final and nonappealable provided
that the party seeking termination shall have diligently contested such ruling;
(c) by either party, if this Agreement fails to receive
the shareholder approval required by Sections 6.13 and 7.6 hereof; or
(d) by either party if (i) the Board of Directors of Fonix
shall withdraw, modify or change its recommendation so that it is not in favor
of this Agreement or the Acquisition or shall have resolved to do any of the
foregoing or (ii) the Board of Directors of Fonix shall have recommended or
resolved to recommend to its stockholders an Acquisition Transaction other than
the Acquisition.
9.2 Termination by the Buyer.
This Agreement may be terminated and the Acquisition may be abandoned
by action of the Board of Directors of the Buyer, at any time prior to the
Closing, before or after the approval by the shareholders of Fonix, if:
(a) the Sellers shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement
which failure has not been cured after five (5) business days from the delivery
of notice of such failure such that the Closing condition set forth in Section
6.1 or 6.2 would not be satisfied or events shall have occurred such that the
Closing condition set forth in Section 6.4 would not be satisfied;
(b) there exists a breach or breaches of any representation or
warranty of the Sellers contained in this Agreement in any material respect
which breach has not been cured after five (5) business days from delivery of
notice of such breach such that the Closing condition set forth in Section 6.1
or 6.2 would not be satisfied; or
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(c) the Sellers shall furnish or disclose non-public
information to a third party with respect to any Acquisition Transaction, or
shall have resolved to do the foregoing and publicly disclosed such resolution.
9.3 Termination by the Sellers.
This Agreement may be terminated and the Acquisition may be abandoned
at any time prior to the Closing, before or after the approval by the
shareholders of Fonix, by action of the Boards of Directors of the Sellers, if:
(a) the Buyer shall have failed to comply in any material
respect with any of the covenants or agreements contained in this Agreement
which failure has not been cured after five (5) business days from the delivery
of notice of such failure such that the closing condition set forth in Section
7.1 would not be satisfied;
(b) there exists a breach or breaches of any representation or
warranty of the Buyer contained in this Agreement in any material respect which
breach has not been cured after five (5) business days from delivery of notice
of such breach such that the Closing condition set forth in Section 7.1 would
not be satisfied; or
(c) if the Sellers shall have delivered to the Buyer a Notice
of Superior Proposal in accordance with Section 4.7.
9.4 Procedure for Termination.
In the event of termination and abandonment of the Acquisition by the
Buyer or the Sellers pursuant to this Article 9, written notice thereof shall
forthwith be given to the other.
9.5 Effect of Termination and Abandonment.
(a) In the event of termination of this Agreement and
abandonment of the Acquisition pursuant to this Article 9, no Party hereto (or
any of its directors or officers) shall have any liability or further obligation
to any other Party to this Agreement, except as provided in Section 11.4
(regarding confidentiality) and this Section 9.5.
(b) In the event of termination of this Agreement pursuant to
Sections 9.1(c) or (d), by the Buyer pursuant to Section 9.2, or by the Sellers
pursuant to Section 9.3(c), then the Sellers shall, within five (5) business
days thereafter, pay the Buyer by wire transfer of immediately available funds
to an account specified by the Buyer up to $600,000 for all documented out of
pocket reasonable fees and expenses incurred by the Buyer (including the
reasonable fees and expenses of counsel, accountants, consultants and advisors)
in connection with this Agreement and the transactions contemplated hereby
(subject to such $600,000 limit, "Buyer Documented Expenses").
(c) In the event of a termination of this Agreement by the
Sellers, pursuant to Section 9.3(a) or (b) then the Buyer shall promptly pay the
Sellers by wire transfer of immediately available funds to an account specified
by the Sellers up to $600,000 for all documented fees and expenses incurred by
the Sellers (including the reasonable fees and expenses of counsel, accountants,
consultants and advisors) in connection with this Agreement and the transactions
contemplated hereby (subject to such $600,000 limit "Sellers' Documented
Expenses").
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ARTICLE 10. RIGHTS AND OBLIGATIONS SUBSEQUENT TO CLOSING.
10.1 Survival of Warranties.
All representations, warranties, agreements, covenants and obligations
herein or in any schedule, certificate or financial statement delivered by
either party to the other party incident to the transactions contemplated hereby
are material, shall be deemed to have been relied upon by the other party and
shall survive the Closing, except as specifically set forth in Article 8 hereof,
regardless of any investigation and shall not merge in the performance of any
obligation by either party hereto.
10.2 Collection of Assets.
Subsequent to the Closing, Buyer shall have the right and authority to
collect all receivables, including Accounts Receivable pursuant to Section 1.13
hereof, and other items transferred and assigned to it by Sellers hereunder and
to endorse with the name of Sellers any checks received on account of such
receivables or other items, and Sellers agree that they will promptly transfer
or deliver to Buyer from time to time, any cash or other property that Sellers
may receive with respect to any claims, contracts, licenses, leases,
commitments, sales orders, purchase orders, receivables of any character or any
other items required to be transferred by it to Buyer pursuant to the provisions
hereof.
10.3 Payment of Debts and Refund of Cash.
Sellers shall as promptly as possible after the Closing pay all debts
and obligations relating to the Business not to be assumed by Buyer hereunder.
10.4 COBRA Compliance.
Sellers will timely provide all notices and any continuation of health
benefit coverage required to be provided to any of the Business' employees,
former employees, or the beneficiaries or dependents of such employees or former
employees, under COBRA, to the extent such notices and continuation of health
benefit coverage are required to be provided by the Sellers by reason of events
occurring prior to or on the Closing Date or by reason of the transactions
contemplated by this Agreement.
ARTICLE 11. MISCELLANEOUS.
11.1 Bulk Sales Law.
Buyer and Sellers waive compliance with the provisions of any
applicable bulk sales, fraudulent conveyance or other law for the protection of
creditors, and Sellers agree to indemnify and hold Buyer harmless from, and to
reimburse Buyer for, any loss, cost expense, liability or damage (including
reasonable counsel fees, disbursements and expenses) which Buyer suffers or
incurs by virtue of noncompliance with such laws.
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11.2 Notices.
Any notice or other communication in connection with this Agreement
shall be deemed to be delivered if in writing (or in the form of a facsimile
transmission, receipt telephonically confirmed) addressed as provided below and
if either (a) actually delivered electronically or physically at said address,
or (b) in the case of a letter, three (3) business days shall have elapsed after
the same shall have been sent by internationally recognized overnight courier:
If to Sellers to:
Fonix Corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
Attn: Chief Executive Officer
Tel: (801) 328-8100
Fax: (801) 328-8778
with a copy to:
Durham, Jones & Pinegar, P.C.
50 South Main Street, Suite 800
Salt Lake City, Utah 84144
Attn: Jeffrey M. Jones, Esquire
Tel: (801) 538-2424
Fax: (801) 538-2435
If to Buyer, to:
Lernout & Hauspie Speech Products N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Attn: President
Tel: 011 32 57228888
Fax: 011 32 57208489
with a copy to:
Lernout & Hauspie Speech Products N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Attn: Legal Department
Tel: 011 32 57229500
Fax: 011 32 57208489
and
Brown, Rudnick, Freed & Gesmer, P.C.
One Financial Center
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Boston, Massachusetts 02111
Attn: Philip J. Flink, Esquire
Tel: 617-856-8200
Fax: 617-856-8201
and in any case at such other address as the addressee shall have specified by
written notice. All periods of notice shall be measured from the date of
delivery thereof.
11.3 Publicity and Disclosures.
No press releases or any public disclosure, either written or oral, of
the transactions contemplated by this Agreement shall be made by any party
without the prior knowledge and written consent of all other parties, except as
otherwise required by applicable law.
11.4 Confidentiality.
Without limitation of any obligations under Section 4.2, the parties
agree that they will keep confidential and not disclose or divulge any
confidential, proprietary or secret information which they may obtain from the
other in connection with the transactions contemplated herein, or pursuant to
inspection rights granted hereunder unless such information is or hereafter
becomes public information.
11.5 Entire Agreement.
This Agreement (including all exhibits or schedules appended to this
Agreement and all documents delivered pursuant to this Agreement, all of which
are hereby incorporated herein by reference) constitutes the entire agreement
between the parties, and all promises, representations, understandings,
warranties and agreements with reference to the subject matter hereof and
inducements to the making of this Agreement relied upon by any party hereto,
have been expressed herein or in the documents incorporated herein by reference.
11.6 Severability.
The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision hereof.
11.7 Assignability.
This Agreement may not be assigned otherwise than by operation of law:
(a) by Buyer, provided, however, that Buyer may assign any of its rights under
this Agreement or in any agreement, document or instrument executed and
delivered pursuant hereto or in connection with the Closing (without the prior
written consent of either Seller): (i) to one or more banks or other lenders
which provide financing to the Buyer from time to time; (ii) to any successor to
all or substantially all of its business and assets relating to the subject
matter of this Agreement, to the extent that such entity agrees to assume all of
Buyer's obligations hereunder; and (iii) to one or more subsidiaries (including
subsidiaries of subsidiaries) of Buyer, to the extent that such entity agrees to
assume all of Buyer's obligation hereunder; or (b) by Sellers without the prior
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written consent of Buyer. This Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assigns.
11.8 Relationship of Sellers.
ASI hereby appoints Fonix as its attorney-in-fact for all purposes
hereunder. Any notice given to Fonix or consent or other agreement made by Fonix
shall constitute notice to, consent of or agreement of ASI hereunder without any
further action by ASI or any other party. Except as specifically provided in
Sections 4.12, 4.13 and 4.14, all obligations and liabilities of ASI and Fonix
hereunder shall be joint and several.
11.9 Amendment.
This Agreement may be amended only by a written agreement executed by
Buyer and Seller.
11.10 Governing Law; Venue.
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts (other than the choice of law
principles thereof). Any claim, action, suit or other proceeding initiated by
any of the Sellers' Indemnified Persons against Buyer, or by any of the Buyer's
Indemnified Persons against any Seller, under or in connection with this
Agreement may be asserted, brought, prosecuted and maintained in any Federal or
state court in the Commonwealth of Massachusetts, as the party bringing such
action, suit or proceeding shall elect, having jurisdiction over the subject
matter thereof, and Sellers and Buyer hereby waive any and all rights to object
to the laying of venue in any such court and to any right to claim that any such
court may be an inconvenient forum. Sellers and Buyer hereby submit themselves
to the jurisdiction of each such court and agree that service of process on them
in any such action, suit or proceeding may be effected by the means by which
notices are to be given to it under this Agreement.
11.11 Counterparts.
This Agreement may be executed in multiple counterparts and by
facsimile, each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
11.12 Effect of Table of Contents and Headings.
Any table of contents, title of an article or section heading herein
contained is for convenience of reference only and shall not affect the meaning
of construction of any of the provisions hereof.
11.13 Rules of Construction.
Neither this Agreement nor any other agreement, document or instrument
referred to herein or executed or delivered in connection herewith shall be
construed against either party as the principal drafts person hereof or thereof.
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11.14 Definition of Material.
For purposes of this Agreement, other than Article 2 hereof, the term
"material" or "material adverse effect" shall refer to amounts or events having
an economic effect in excess of Fifty Thousand Dollars ($50,000).
11.15 Interpretation.
The parties hereto acknowledge and agree that: (a) each party and its
counsel reviewed and negotiated the terms and provisions of this Agreement and
have contributed to its revision; (b) the rule of construction to the effect
that any ambiguities are resolved against the drafting party shall not be
employed in the interpretation of this Agreement; and (c) the terms and
provisions of this Agreement shall be construed fairly as to all parties hereto
and not in favor of or against any party, regardless of which party was
generally responsible for the preparation of this Agreement.
[SEE SIGNATURES ON NEXT PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal in multiple counterparts as of the date set forth above by
their duly authorized representatives.
FONIX CORPORATION
By: /s/
---------------------------------------------
Name: Thomas A. Murdock
Title: President and Chief Financial Officer
FONIX/ASI CORPORATION
By:/s/
---------------------------------------------
Name: Thomas A. Murdock
Title: President
LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V.
By: /s/
---------------------------------------------
Name: Gaston Bastiaens
Title: President and Chief Executive Officer
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ASSET PURCHASE AGREEMENT
List of Schedules and Exhibits
Schedule 1.1(a)(viii) Patent Applications and Patents of ASI
Schedule 1.1(b) Fonix Assets
Schedule 1.1(c)(vii) Excluded Contracts
Schedule 1.2(a)(i) Acquired Sales Orders
Schedule 1.2(a)(ii) License Agreements
Schedule 1.2(b)(xi) Assumed Litigation
Schedule 1.3(b) Prepaid Maintenance Amounts
Schedule 1.3(c) Prepaid Sales Order Amounts
Schedule 1.13(a) Accounts Receivable less than 90 Days
Schedule 2.4(a) Sellers' Conflicts
Schedule 2.4(b) Required Consents
Schedule 2.5 Financial Statements of ASI
Schedule 2.6 Liabilities
Schedule 2.7 Changes Since Base Balance Sheet
Schedule 2.8 Subject Assets
Schedule 2.10 Unsaleable Inventory
Schedule 2.11(a) Patents, Patent Applications Registered Copyrights,
Trade Names, Trademarks and Service Marks
Schedule 2.11(b) Licenses Granted out of Ordinary Course
Schedule 2.11(c) Material Licenses, Agreements, Obligations and
Contracts Relating to Intellectual Property Rights
Schedule 2.11(c)(i) Licenses, Agreements, Obligations and Contracts
Schedule 2.11(d) Infringement by Sellers
Schedule 2.11(e) Infringement by Others
Schedule 2.11(f) List of Employees who have not entered into
Agreements
Schedule 2.11(g) Source Code Deposits
Schedule 2.12 Warranty Matters
Schedule 2.13 Litigation Matters
Schedule 2.14 Licenses, Permits and Franchises
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Schedule 2.15 Transactions with Interested Persons
Schedule 2.16 Contracts and Commitments
Schedule 2.17 Labor and Employee Relations
Schedule 2.18 Salaries and Employee Benefits
Schedule 2.21 Suppliers and Customers
Schedule 2.23 Borrowings and Guarantees
Schedule 2.24 All Policies of Insurance
Schedule 2.29(c) Description of Y2K Investigation and Inquiries Made
Schedule 2.31 Proxies Required
Schedule 6.8 Key Employees
Schedule 8.2(vi) Indemnification Matters
Exhibit A: ASI License
Exhibit B: Legal Opinion of Sellers' Counsel
Exhibit C: Form of Proprietary/Non-Competition Agreement
Exhibit D: Escrow Agreement
Exhibit E: Technology Option Agreement
<PAGE>
ESCROW AGREEMENT
This ESCROW AGREEMENT (this "Escrow Agreement") dated as of September
1, 1999 (the "Effective Date") by and among Lernout & Hauspie Speech Products
N.V., a Belgian corporation (the "Buyer"), Fonix Corporation, a Delaware
corporation (the "Seller") and State Street Bank and Trust Company, as escrow
agent only (along with any and all successor escrow agents, the "Escrow Agent").
WHEREAS, pursuant to an Asset Purchase Agreement dated May 19, 1999
(the "Purchase Agreement") by and among the Buyer, the Seller and Fonix/ASI
Corporation ("ASI"), a former subsidiary of Seller which has been merged with
and into Seller prior to the date hereof (the "Merger"), the Buyer has purchased
and the Seller has sold certain assets of the Seller;
WHEREAS, pursuant to the Merger, the Seller has succeeded to all
rights and obligations of ASI pursuant to the Purchase Agreement;
WHEREAS, the Buyer has delivered to the Seller all of the Purchase
Price (as defined in the Purchase Agreement) pursuant to the terms of Section
1.3 of the Purchase Agreement, other than the Earnout Payment (as defined in the
Purchase Agreement) and the sum of Two Million Five Hundred Thousand Dollars
($2,500,000.00) (the "Escrow Amount");
WHEREAS, under the terms of the Purchase Agreement, the Seller has
agreed to indemnify the Buyer against certain matters including, but not limited
to, breaches of representations, warranties, covenants and agreements made by
them thereunder;
WHEREAS, the Buyer has agreed to deliver the Escrow Amount to the
Escrow Agent to be held, subject to the terms and conditions hereinafter set
forth, to satisfy any claims for indemnification against the Seller;
WHEREAS, the parties have agreed that, to the extent that the Escrow
Amount is not required to satisfy any such indemnification claims, any balance
of the Escrow Amount shall be paid to the Seller as part of the Purchase Price
subject to and in accordance with the terms and conditions hereinafter set
forth; and
WHEREAS, the Escrow Agent has agreed to act as Escrow Agent hereunder
in accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises of the parties
and other good and valuable consideration, the parties agree as follows:
Section 1. Appointment of Escrow Agent. The Seller and the Buyer hereby
mutually appoint and designate the Escrow Agent as escrow agent to receive, hold
and disburse the Escrow Fund (as such term is defined in Section 2), and the
Escrow Agent hereby accepts such appointment and designation.
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Section 2. Establishment of Escrow Fund. The Buyer shall deposit with
the Escrow Agent and, upon receipt, the Escrow Agent shall acknowledge receipt
of the Escrow Amount (such amount, together with investment income earned
thereon pursuant to the terms hereof, collectively, the "Escrow Fund"). The
Escrow Fund shall be segregated from other assets of the Escrow Agent. The
Escrow Agent agrees to hold and administer the Escrow Fund subject to the terms
of this Escrow Agreement.
Section 3. Investment of Escrow Fund. The Escrow Agent shall invest the
Escrow Fund as directed in writing by the Seller received by the Escrow Agent
from time to time, only in one or more of the following: (a) direct, short-term
obligations of the United States Government or its instrumentalities; (b) mutual
funds which invest all or substantially all of their assets in direct,
short-term obligations of the United States Government (including those offered
by the Escrow Agent); (c) variable rate certificates of deposit (including those
of the Escrow Agent); (d) short-term investments in money market accounts of one
or more United States banks (which may include the Escrow Agent if it is a bank)
having total assets in excess of One Hundred Million Dollars ($100,000,000), in
each case having maturities of not more than ninety (90) days; or (e) municipal
or corporate bonds having a credit rating of A (Moody's or Standard & Poors) or
better; provided that the maximum maturity of any single issue will not exceed
ninety (90) days. The total amount of income which is credited to the Escrow
Fund from the date of the establishment of the Escrow Fund shall be referred to
as the "Accumulated Income." The Escrow Agent shall have no liability for any
investment losses on investments permitted under this Section 3, including any
losses on any investment required to be liquidated prior to maturity in order to
make a payment required hereunder. Investments pursuant to such investment
instructions described above shall in all instances be subject to availability
(including any time-of-day requirements). In no instance shall the Escrow Agent
have any obligation to provide investment advice of any kind. Absent its receipt
of any written investment instruction from the Seller, the Escrow Agent shall
invest the Escrow Fund in the Evergreen Select Treasury Money Market Fund. All
Accumulated Income shall be credited to, and shall become a part of the Escrow
Fund (and any losses on such investments shall be debited to the Escrow Fund).
Section 4. Payments from Escrow Fund; Actions on Escrow Assets.
(a) At any time or times subsequent to the Closing Date (as defined in
the Purchase Agreement) and prior to the Termination Date (as defined in Section
5 hereof), the Buyer may make claims against the Escrow Fund for reimbursement
for claims pursuant to Article 8 of or otherwise under the Purchase Agreement.
Such claims shall be made by the Buyer by giving written notice to the Seller
and the Escrow Agent of each such claim, specifying in reasonable detail the
amount and basis thereof (a "Notice of Claim").
(b) If the Seller shall dispute such claim (or a portion thereof) (a
"Disputed Claim"), it shall give written notice of such objection to the Escrow
Agent and the Buyer at any time within ten (10) business days after the Buyer's
giving of the Notice of Claim (a "Dispute Notice"). All such notices shall be
delivered as provided in Section 14 hereof. Absent the Seller giving a Dispute
Notice to a Disputed Claim and the receipt by the Escrow Agent thereof within
such time period, such claim shall be deemed to have been approved as a valid
claim in the full amount thereof (an "Accepted Claim").
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(c) If the Seller shall dispute a claim (or portion thereof) of the
Buyer as above provided, then the Escrow Agent shall retain a portion of the
Escrow Fund sufficient to pay said Disputed Claim in full, together with the
Allocable Income Amount (as that term is hereinafter defined) and shall make no
distribution thereof (except for the amount of any Accepted Claim as set forth
above) unless and until the Escrow Agent receives joint written instructions
from the Buyer and the Seller or a final court order indicating the amount and
recipient of such distribution, at which point such Disputed Claim shall be
deemed an "Accepted Claim" for purposes of this Escrow Agreement.
(d) All Accepted Claims shall be paid promptly from the Escrow Fund;
provided, however, that the Escrow Agent shall not be obligated to release or
distribute amounts sooner than two (2) business days after the Escrow Agent has
received the requisite notice or paperwork in good form. All payments shall be
made by the Escrow Agent to the Buyer by delivery of an amount equal to the sum
of: (i) the amount of the applicable Accepted Claim (the "Subject Amount"); plus
(ii) the Allocable Income Amount earned to the last day of the month preceding
the month in which payment is made. However, in no event shall the total amount
of payments (the aggregate of the Subject Amounts and the Allocable Income
Amounts) to the Buyer on all Accepted Claims exceed the amount originally
deposited in the Escrow Fund and the Accumulated Income at the date of such
release or distribution. For purposes of this Escrow Agreement, the term
"Allocable Income Amount" with respect to a claim, distribution, or any amounts
to be retained in escrow pursuant to Section 4(c) shall mean the amount of
income (including reinvestment income), if any, that has been earned on the
amount of any such payment (equal to the Subject Amount) from the date of the
commencement of the Escrow Fund.
Section 5. Release and Termination of Escrow Fund.
(a) This Escrow Agreement shall terminate eighteen months following the
Closing Date (as defined in the Purchase Agreement) with such Closing Date
certified in writing to the Escrow Agent by the Buyer and the Seller (the
"Termination Date"); provided, however, that if there are otherwise outstanding
claims on the Termination Date made pursuant to the terms of the Purchase
Agreement and as to which the Escrow Agent has before such date received a
Notice of Claim pursuant to Section 4 of this Escrow Agreement, this Escrow
Agreement shall continue in effect until all such claims shall have been
resolved. As of the Termination Date, an amount adequate to cover the sum of
amounts specified in all Notices of Claim received by the Escrow Agent prior to
the Termination Date and which remain outstanding without having been paid or
otherwise resolved will be held by the Escrow Agent together with the Allocable
Income Amount with respect thereto (the "Holdback") to the extent such amount
remains available, and, the Escrow Agent shall distribute the balance of the
Escrow Fund, if any, to the Seller, as the Seller shall direct in writing
promptly following the Termination Date. At such time as all such remaining
claims hereunder have been paid or otherwise resolved pursuant to Section 4
(unless the Aggregate Amount of such pending claims not paid or otherwise
resolved exceeds the Holdback), the Escrow Agent shall distribute the remaining
Escrow Fund, if any, (or such excess portion of the Holdback, as the case may
be) to the Seller, as provided above.
(b) Notwithstanding anything herein to the contrary, the Escrow Agent
shall promptly dispose of all or any part of the Escrow Fund as directed by a
writing signed jointly by the Seller and the Buyer. The Escrow Agent shall be
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entitled to rely on the instructions received from the Seller and the Buyer,
jointly, and shall have no liability to the Seller or the Buyer for any and all
payments made in accordance with such instructions.
Section 6. Duties and Responsibilities of Escrow Agent.
(a) Seller and Buyer acknowledge and agree that the Escrow Agent: (i)
shall not be responsible for any of the agreements (other than those agreements
made by Escrow Agent) referred to herein (including without limitation the
Purchase Agreement) but shall be obligated only for the performance of such
duties as are specifically set forth in this Escrow Agreement on its part to be
performed, each of which are ministerial (and shall not be construed to be
fiduciary) in nature, and no implied duties or obligations shall be read into
this Agreement against or on the part of the Escrow Agent; (ii) shall not be
obligated to take any legal or other action hereunder which might in its
judgment involve any expense or liability unless it shall have been furnished
with indemnification acceptable to it in its sole discretion; (iii) may rely on
and shall be protected in acting or refraining from acting upon any written
notice, instruction (including, without limitation, wire transfer instructions,
whether incorporated herein or provided in a separate written instruction),
instrument, statement, request or document furnished to it hereunder and
believed by it to be genuine and to have been signed or presented by the proper
person, and shall have no responsibility for determining the accuracy thereof;
and (iv) may consult counsel satisfactory to it, including in-house counsel, if
it reasonably determines that such consultation is necessary and the opinion or
advice of such counsel in any instance shall be full authorization and
protection in respect of any action taken, suffered or omitted by the Escrow
Agent in good faith and in accordance with the opinion or advice of such
counsel.
(b) Neither the Escrow Agent nor any of its directors, officers or
employees shall be liable to anyone for any action taken or omitted to be taken
by it or any of its directors, officers, or employees hereunder except in the
case of gross negligence, bad faith or willful misconduct. Seller and Buyer,
jointly and severally, covenant and agree to indemnify the Escrow Agent (and its
directors, officers and employees) and hold it (and its directors, officers and
employees) harmless without limitation from and against any claim, loss,
liability or expense of any nature incurred by the Escrow Agent arising out of
or in connection with this Agreement or with the administration of its duties
hereunder, including but not limited to reasonable legal fees and other costs
and expenses of defending or preparing to defend against any claim or liability
hereunder, and payment of any legal fees and expenses incurred by the Escrow
Agent in connection with resolution of any claim by any party hereunder, unless
such loss, liability or expense shall be caused by the Escrow Agent's gross
negligence, bad faith, or willful misconduct. In no event shall the Escrow Agent
be liable for indirect, punitive, special or consequential damages.
(c) The Escrow Agent shall have no responsibility or liability on
account of any action or omission of any book-entry depository or subescrow
agent employed by the Escrow Agent, except to the extent that such action or
omission of any book-entry depository or subescrow agent was caused by the
Escrow Agent's own gross negligence, bad faith or willful misconduct.
(d) The Buyer and the Seller each agree, jointly and severally, to pay
or reimburse the Escrow Agent for legal fees incurred in connection with the
preparation of this Escrow Agreement and to pay the Escrow Agent's reasonable
compensation for its normal services hereunder in accordance with the fee
schedule attached hereto as Schedule 6, except that the Seller shall pay any per
trade fees related to the Escrow Fund. The Escrow Agent shall be entitled to
reimbursement by the Buyer and the Seller (and the Buyer and the Seller hereby
agree, jointly and severally to pay) on demand for all reasonable costs and
expenses incurred in connection with the administration of this Escrow Agreement
or the Escrow Fund created hereby which are in excess of its compensation for
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normal services. Without altering or limiting the joint and several liability of
the Buyer and the Seller to the Escrow Agent hereunder, the Buyer and the Seller
each agree that any fees, expenses or reimbursements to be paid to the Escrow
Agent, shall be shared equally by the Buyer and the Seller.
(e) The provisions of this Section 6 shall survive termination of this
Escrow Agreement as well as resignation or removal of the Escrow Agent.
Section 7. Resignation of Escrow Agent. The Escrow Agent may resign at
any time upon giving sixty (60) days written notice to the other parties hereto.
The Buyer and the Seller agree that they will jointly appoint a successor escrow
agent within thirty (30) days after receipt of such notice, and the Escrow Agent
hereby agrees that, upon receiving joint written instructions from the Buyer and
the Seller, it shall turn over and deliver to such successor Escrow Agent the
Escrow Fund and other amounts held by it pursuant to this Escrow Agreement in
accordance with the terms of such written instructions (as well as all
applicable records and a list of disbursements) and render an accounting as
required by Section 10 hereof. If a successor Escrow Agent is not appointed by
the Buyer and the Seller within such thirty (30) day period, the Escrow Agent
may tender the Escrow Fund to the Buyer and the Seller a check or checks payable
jointly in an amount equal to the balance of the Escrow Fund, as a result of
which the Escrow Agent herein shall be fully relieved of any liabilities under
this Escrow Agreement to any and all parties.
Section 8. Removal of Escrow Agent. The Buyer and the Seller together
shall have the right to remove the Escrow Agent hereunder by giving notice in
writing to the Escrow Agent, specifying the date upon which such removal shall
take effect and executed by both the Buyer and the Seller. In the event of such
removal, the Buyer and the Seller agree that they will jointly appoint a
successor Escrow Agent within thirty (30) days after the giving of such notice,
and the Escrow Agent hereby agrees that, upon receiving joint written
instructions from the Buyer and the Seller it shall turn over and deliver to
such successor Escrow Agent the Escrow Fund and other amounts held by it
pursuant to this Escrow Agreement in accordance with the terms of such written
instructions (as well as all applicable records and a list of disbursements) and
render an accounting as required by Section 10 hereof.
Section 9. Successor Escrow Agent. Upon receipt of the Escrow Fund
pursuant to this Escrow Agreement, the successor Escrow Agent shall thereupon be
bound by all of the provisions hereof and the term "Escrow Agent" as used herein
shall mean such a successor Escrow Agent.
Section 10. Accounting. In the event of the resignation or removal of
the Escrow Agent, upon the termination of the Escrow Fund or the termination of
this Escrow Agreement or upon written request by either the Buyer or the Seller
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under reasonable circumstances, the Escrow Agent shall render to the Buyer and
the Seller and to the successor Escrow Agent, if any, a written accounting of
its management of the Escrow Fund and all distributions thereof.
Section 11. Tax Matters.
(a) The parties agree that, for tax reporting purposes, all Accumulated
Income earned from the investment of the Escrow Fund in any Tax Year shall: (i)
to the extent such interest or other income is distributed by the Escrow Agent
to any person or entity pursuant to the terms of this Escrow Agreement during
such Tax Year, be allocated to the person or entity receiving such interest or
other income; and (ii) otherwise be allocated to the Seller.
(b) The parties hereto agree to provide the Escrow Agent with a
certified tax identification number by signing and returning a Form W-9 (or Form
W-8, in case of non-U.S. persons) to the Escrow Agent within 30 days from the
date hereof. The parties understand that, in the event their tax identification
numbers are not certified to the Escrow Agent, the Internal Revenue Code, as
amended from time to time, may require withholding of a portion of any
Accumulated Income earned on the investment of the Escrow Fund.
(c) Tax Indemnification. Each of the Seller and the Buyer agrees,
jointly and severally: (i) to assume any and all obligations imposed now or
hereafter by any applicable tax law with respect to any payment or distribution
of the Escrow Funds or performance of other activities under this Escrow
Agreement; (ii) to instruct the Escrow Agent in writing with respect to the
Escrow Agent's responsibility for withholding and other taxes, assessments or
other governmental charges, and to instruct the Escrow Agent with respect to any
certifications and governmental reporting that may be required under any laws or
regulations that may be applicable in connection with its acting as Escrow Agent
under this Escrow Agreement; and (iii) to indemnify and hold the Escrow Agent
harmless for and from any liability or obligation on account of taxes,
assessments, additions for late payment, interest, penalties, and other
governmental charges that may be or become due, or that may be assessed or
asserted against the Escrow Agent (other than in respect of its own income from
compensation paid to it hereunder, and other than arising from its gross
negligence or willful misconduct), in connection with or relating to any payment
made or other activities performed under the terms of this Escrow Agreement,
including without limitation any liability for the withholding or deduction (or
the failure to withhold or deduct) of the same, and any liability for failure to
obtain proper certifications or to report properly to governmental authorities
in connection with this Escrow Agreement, including costs and expenses (and
including reasonable legal fees and expenses), interest and penalties. The
foregoing indemnification and agreement to hold harmless shall survive the
termination of this Agreement.
Section 12. Assignability. This Escrow Agreement may not be assigned
other than by operation of law: (i) by the Buyer without the prior written
consent of the Seller; or (ii) by the Seller without the prior written consent
of the Buyer, except that any successor to the Escrow Agent on merger or
consolidation or any corporation which acquires all or substantially all of the
corporate assets or business of the Escrow Agent shall become Escrow Agent
hereunder. This Escrow Agreement shall inure to the benefit of and be binding
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<PAGE>
upon the parties hereto and their respective heirs, legal representatives,
successors and permitted assigns. Nothwithstanding the foregoing, the Buyer may
assign any or all of its rights hereunder as provided for in Section 11.7 of the
Purchase Agreement.
Section 13. Law Governing. This Escrow Agreement shall be
governed by and construed in accordance with the laws of the Commonwealth of
Massachusetts (other than choice of law provisions thereof).
Section 14. Notices.
(a) Any notice or other communication in connection with this Escrow
Agreement shall be deemed to be delivered if in writing (or in the form of a
telegram or facsimile transmission, receipt telephonically communicated)
addressed as provided below and if either: (i) actually delivered electronically
or physically at said address (provided that if said address is a business,
delivery is made during normal business hours); or (ii) in the case of a letter,
three (3) business days shall have elapsed after the same shall have been
deposited in the United States mail, postage prepaid and registered or
certified, return receipt requested; or (iii) forty eight (48) hours shall have
elapsed after the same shall have been sent by nationally recognized overnight
receipted courier:
If to the Escrow Agent:
Mailing Address:
State Street Bank and Trust Company
Global Investor Services Group
Corporate Trust Division
P.O. Box 778
Boston, Massachusetts 02102-0778
Attention: Lernout/Seller Escrow
Fax: (617) 662-1463
Courier Address:
2 Avenue de Lafayette -6th Floor
Boston, Massachusetts 02110
If to the Buyer:
Lernout & Hauspie Speech Products N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Telephone: 011-32-57-228-888
Facsimile: 011-32-57-219-661
Attn: Legal Department
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<PAGE>
with a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Telephone: (617) 856-8200
Facsimile: (617) 856-8201
Attn: Philip J. Flink, Esquire
If to the Seller:
Fonix Corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
Telephone: (801) 328-8700
Facsimile: (801) 328-8778
Attn: Thomas A. Murdock, President
with a copy to:
Durham, Jones & Pinegar
50 South Main Street
Suite 800
Salt Lake City, Utah 84111
Telephone: (801) 538-2424
Facsimile: (801) 538-2425
Attn: Jeffrey Jones, Esquire
or to such other address which any party may be certified or registered mail
notify the other.
(b) Wiring Instructions. Any funds to be paid to or by the Escrow Agent
hereunder shall be sent by wire transfer pursuant to the following instructions
(or by such method of payment and pursuant to such instruction as may have been
given in advance and in writing to or by the Escrow Agent, as the case may be,
in accordance with Section 14(a) above):
If to the Buyer:
Bank: Artesia Bank Belgie NV
Zuidstratt 14
B-8800 Roeselare, BELGIUM
A/C #: 551-3865100-10
Swift Code: PARBBEBB
Ref: Lernout & Hauspie Speech Products N.V.
8
<PAGE>
If to Seller:
Bank: Key Bank of Utah
ABA #: 124000737
A/C #: 4450-1000-1292
Account: Durham, Jones & Pinegar
If to the Escrow Agent:
Bank: State Street Bank and Trust Company
ABA #: 0110 0002 8
A/C #: 9903-990-1
Ref: Lernout/Seller Escrow
Section 15. Counterparts. This Agreement may be executed in
multiple counterparts, each which shall be an original, but all of which
together shall constitute one and the same agreement.
Section 16. Dispute Resolution. It is understood and agreed that should
any dispute arise with respect to the delivery, ownership, right of possession,
and/or disposition of the Escrow Fund, or should any claim be made upon the
Escrow Agent or the Escrow Fund by a third party, the Escrow Agent upon receipt
of notice of such dispute or claim is authorized and shall be entitled (at its
sole option and election) to retain in its possession, without liability to
anyone, all or any of said Escrow Fund until such dispute shall have been
settled either by the mutual written agreement of the parties involved or by a
final order, decree or judgment of a court in the United States of America, the
time for perfection of an appeal of such order, decree or judgment having
expired. The Escrow Agent may, but shall be under no duty whatsoever to,
institute or defend any legal proceedings which relate to the Escrow Fund. To
the extent that the Buyer and the Seller shall be engaged in a dispute between
themselves with respect to the delivery, ownership, right of possession, and/or
distribution of the Escrow Fund: (a) any such dispute shall be adjudicated in
the Superior Court of the Commonwealth of Massachusetts or the United States
District Court, District of Massachusetts located in said Commonwealth; and (b)
the losing party to the dispute shall pay all reasonable costs and expenses
(including, but limited to, attorneys' fees) of the prevailing party.
Section 17. Consent to Jurisdiction and Service. Each of the Buyer and
the Seller hereby absolutely and irrevocably consent and submit to the
jurisdiction of the Superior Court of the Commonwealth of Massachusetts and the
United States District Court, District of Massachusetts located in said
Commonwealth in connection with any actions or proceedings brought against any
of the parties hereto (or each of them) by the Escrow Agent arising out of or
relating to this Escrow Agreement. In any such action or proceeding, the Buyer
and the Seller each hereby absolutely and irrevocably: (i) waives any objection
to jurisdiction or venue; (ii) waives personal service of any summons,
complaint, declaration or other process; and (iii) agrees that the service
thereof may be made by certified or registered first-class mail directed to such
party, as the case may be, at their respective addresses in accordance with
Section 14 hereof.
Section 18. Force Majeure. Neither the Seller nor the Buyer nor the
Escrow Agent shall be responsible for delays or failures in performance
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<PAGE>
resulting from acts beyond its control. Such acts shall include but not be
limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
Section 19. Modifications. This Agreement may not be altered or
modified without the express written consent of the parties hereto. No course of
conduct shall constitute a waiver of any of the terms and conditions of this
Escrow Agreement, unless such waiver is specified in writing, and then only to
the extent so specified. A waiver of any of the terms and conditions of this
Escrow Agreement on one occasion shall not constitute a waiver of the other
terms of this Escrow Agreement, or of such terms and conditions on any other
occasion.
Section 20. Reproduction of Documents. This Agreement and all documents
relating thereto, including, without limitation: (a) consents, waivers and
modifications which may hereafter be executed; and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-card, miniature
photographic or other similar process. The parties agree that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding, whether or not the original is in
existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Section 21. Entire Agreement, Severability and Further Assurances. This
Escrow Agreement together with all schedules hereto constitutes the entire
agreement among the parties, and all promises, representations, undertakings,
warranties and agreements with reference to the subject matter hereof and
inducements to the making of this Escrow Agreement relied upon by any party
hereto, have been expressed herein or in the documents incorporated herein by
reference. The invalidity or unenforceability of any provision of this Escrow
Agreement shall not affect the validity or enforceability of any other provision
hereof. Each of the parties shall, at the reasonable request of another party,
deliver to the requesting party all further documents or other assurances as may
reasonably be necessary or desirable in connection with this Escrow Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Escrow Agreement or
caused the same to be executed by their duly authorized representatives, as of
the date first stated hereinabove.
ESCROW AGENT:
STATE STREET BANK & TRUST COMPANY
By:/s/
--------------------------------------
Name:Chi C. Me
Title:Vice President
hereunder duly authorized
officer of the Escrow Agent
SELLER:
FONIX CORPORATION
By:/s/
------------------------------------
Thomas A. Murdock
President and Chief Executive Officer
BUYER:
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By:/s/
------------------------------------
Carl Dammekens
Chief Financial Officer and Senior
Vice President of Finance
<PAGE>
TECHNOLOGY OPTION AGREEMENT
Agreement made as of this 19th day of May 1999, by and between Fonix
Corporation, a Delaware corporation ("Fonix"), and Fonix/ASI Corporation, a Utah
corporation ("ASI"; collectively with Fonix, the "Sellers"), and Lernout &
Hauspie Speech Products N.V., a Belgian corporation ("L&H").
RECITALS:
A. The Sellers are engaged in the business of the development,
marketing and support of integrated dictation/transcription solution processes
for healthcare organizations (the "Business") conducted principally through ASI
(formerly Articulate Systems, Inc.);
B. Pursuant to an Asset Purchase Agreement dated of even date herewith
between L&H and the Sellers (the "Purchase Agreement"), the Sellers have agreed
to sell and L&H has agreed to purchase substantially all the assets and business
comprising the Business (such assets and business to be acquired by L&H are
collectively referred to as the "Acquired Business");
C. Pursuant to that certain Technology License Agreement dated July 7,
1998 between Articulate Systems, Inc. and Dragon Systems, Inc. ("Dragon") (the
"Technology License Agreement"), ASI has licensed certain speech recognition
engines, tools and language models developed with those tools (the "Dragon
Recognition Technology") from Dragon for use in conjunction with ASI Products
(as defined in the Technology License Agreement), which products are included in
the Acquired Business;
D. L&H has developed its own speech recognition engine and associated
language modeling tools (the "L&H Technology"), which it intends to use for the
purpose, in part, of replacing the Dragon Recognition Technology used in
conjunction with the ASI Products;
E. In order to maintain the continuity of the Acquired Business prior
to the replacement of the Dragon Recognition Technology with the L&H Technology,
L&H may desire to have the right to become an assignee of ASI or an ASI
Distributor (as defined in the Technology License Agreement) under the
Technology License Agreement under the terms and conditions set forth herein.
In consideration of the execution of the Purchase Agreement and their
mutual covenants and agreements contained herein, and the mutual benefits to be
derived herefrom, the parties, intending to be legally bound, hereby agree as
follows:
ARTICLE I. REPRESENTATIONS AND WARRANTIES
1.1 Representation of Sellers. This Agreement has been duly authorized
and delivered by each Seller and is enforceable against each Seller in
accordance with its terms. Attached hereto as Exhibit A is a true and complete
copy of the Technology License Agreement together with all amendments and
modifications thereto. The Technology License Agreement is in full force and
1
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effect and is fully assignable by ASI as set forth in Section 13 therein. ASI
has made all payments due under the Technology License Agreement and performed
all the obligations required to be performed by it under the Technology License
Agreement so as not to be in default thereunder, and there has not occurred any
event which (whether with or without the passage of time or the giving of notice
or both) would constitute such a default under the Technology License Agreement.
Neither the execution, delivery nor the performance of this Agreement by either
Seller nor the consummation of the transactions contemplated by this Agreement
or the Purchase Agreement will conflict with or otherwise constitute a breach
of, or default under, the Technology License Agreement or any other agreement or
other instrument to which either of the Sellers are a party or to which either
of them or any of their assets is bound.
1.2 Representation of L&H. This Agreement has been duly authorized and
delivered by L&H and is enforceable against L&H in accordance with its terms.
Neither the execution, delivery nor the performance of this Agreement by L&H nor
the consummation of the transactions contemplated by this Agreement or the
Purchase Agreement will conflict with or otherwise constitute a breach of, or
default under, any agreement or other instrument to which L&H is a party or to
which it or any of its assets are bound.
ARTICLE II. OPTION TO ASSUME
2.1 Assumption Option. In consideration of the Purchase Price to be
paid under the Purchase Agreement, as it may be adjusted pursuant to the terms
of that agreement at the Closing, at any time prior to the end of the term of
the Technology License Agreement (the "Assumption Exercise Period"), L&H shall
have the option to acquire and assume, for no additional consideration, all of
ASI's right, title and interest to the Technology License Agreement, under
Section 13.1 of the Technology License Agreement, as if the Technology License
Agreement were included in the Subject Assets (the "Assumption Option"). Such
assignment and assumption shall be effected by execution and delivery to Sellers
and Dragon by L&H, or its designated subsidiary, of an Assignment and Assumption
Agreement in the form attached hereto as Exhibit B (the "Assignment and
Assumption Agreement"), without any further action required on the part of the
Sellers. In connection with and subsequent to the delivery of the Assignment and
Assumption Agreement, without otherwise limiting L&H's rights to the Dragon
Confidential Information and the Non-Distributable Technology (as such terms are
defined in the Technology License Agreement), ASI shall not disclose or provide
access to L&H, its designated subsidiary or any affiliates thereof, of the
Dragon Confidential Information or the Non-Distributable Technology.
ARTICLE III. APPOINTMENT AS DISTRIBUTOR
3.1 Appointment as Distributor; Term. During the following two periods,
L&H or its designated subsidiary (the "L&H Distributor") shall have the option
to be appointed by ASI in accordance with Section 2(d) of the Technology License
Agreement, at L&H's sole discretion, as a nonexclusive, worldwide ASI
Distributor of ASI Products using the Dragon Recognition Technology: (a)
beginning at the time of the execution of the Purchase Agreement and through the
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Closing Date; and (b) as long as L&H does not exercise the Assumption Option,
throughout the Assumption Exercise Period. The L&H Distributor's appointment as
a distributor hereunder shall be for an initial term ending on the earlier of
the termination of the Purchase Agreement prior to Closing or six months after
the Closing; provided, however, that at its election, the L&H Distributor may
extend the term for up to an additional six month period; and provided further
that the L&H Distributor may terminate its appointment as a distributor
hereunder, effective immediately, at any time.
At L&H's sole election, the L&H Distributor's distribution rights shall
include one or more of the following within the permitted Fields of Use set
forth in the Technology License Agreement: (i) the right to fulfill outstanding
purchase orders of either Seller received prior to the Closing; (ii) the right
to provide certain warranty, maintenance and service with respect to ASI
Products and Dragon Distributable Technology (as defined in the Technology
License Agreement) sold by either Seller prior to the Closing; and (iii) the
right to distribute ASI Products and Dragon Distributable Technology and provide
warranty and maintenance services with respect thereto. Such distribution rights
shall include the right to sublicense the Dragon Distributable Technology for
such purposes. The L&H Distributor shall have no right to the Dragon
Non-Distributable Technology or Dragon Confidential Information or access to any
source code embodied in the Dragon Recognition Technology, and Sellers agree not
to provide the L&H Distributor with any access thereto. The L&H Distributor is
not granted any right to copy or reproduce the Dragon Distributable Technology
(or any other Dragon Recognition Technology); such rights shall remain with ASI.
Nothing herein shall limit L&H's rights to use its own technology or technology
of persons other than Dragon with the ASI Products and sell and service the ASI
Products using such non-Dragon Recognition Technology independent of this
Agreement. L&H shall exercise its option to be appointed as an ASI Distributor
of ASI Products using the Dragon Recognition Technology under this Section 3.1
by notifying Sellers of such exercise, in writing, in accordance with the notice
procedures contained in Section 4.6 of this Agreement, which notice shall
describe the scope of the distributorship with specific reference to the rights
described in (i), (ii) and/or (iii) above. L&H shall not be deemed to have
elected to exercise any of its options hereunder until it so notifies Fonix
pursuant to the procedure contained in the previous sentence.
Subject to the foregoing and in connection with its notice to become a
distributor as described above, L&H agrees that:
a) Nothing herein shall grant any rights to the L&H
Distributor to the Dragon Recognition Technology and
Dragon Confidential Information, including without
limitation all intellectual property rights therein
and therefor, other than as set forth herein.
b) Other than as set forth herein, the L&H Distributor
shall in no way use its access, if any, to the Dragon
Confidential Information or Dragon Recognition
Technology under this Agreement to:
(i) reproduce, sublicense, distribute or
dispose of the Dragon Recognition
Technology;
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(ii) alter, create derivative works of, edit,
modify, or revise the Dragon Recognition
Technology;
(iii) reverse engineer, reverse compile, or
disassemble the Dragon Recognition
Technology, in whole or in part, except as
expressly permitted by this Agreement, the
Technology License Agreement or pursuant to
applicable law.
c) With respect to this Agreement and the ASI Products,
the L&H Distributor agrees not to in any way
misrepresent, or to mislead (especially with respect
to prospective customers, journalists, or market
analysts, etc.) any person about the relationship
between Sellers and Dragon and/or Sellers and the L&H
Distributor, the duties of the L&H Distributor as
specified in this Agreement, the features of Dragon's
products including any technical specifications,
expected benefits of use, and the origin of Dragon's
products.
d) Should at any time the L&H Distributor acquire
access to Dragon Confidential Information pursuant
to this Agreement, the L&H Distributor agrees not
to disclose any Dragon Confidential Information and
to maintain such Dragon Confidential Information in
strictest confidence, to take all reasonable
precautions to prevent its unauthorized
dissemination, to refrain from sharing any or all
of the information with any third party for any
reason whatsoever except as required by court order,
both during and after the termination of this
Agreement and not to use the Dragon Confidential
Information for its own benefit or for the
benefit of anyone other than Dragon.
e) Upon written request of Sellers, or upon the
expiration or other termination of this Agreement,
the L&H Distributor agrees to return to Sellers or
destroy any Dragon Confidential Information, if any,
obtained by the L&H Distributor pursuant to this
Agreement, including but not limited to all copies
thereof.
f) The L&H Distributor shall not alter or remove any
copyright, trademark, trade secret, patent,
proprietary and/or other legal notices contained on
or in copies of the Dragon Recognition Technology and
Dragon Documentation (as defined in the Technology
Transfer Agreement) provided to it hereunder. The L&H
Distributor shall reproduce and include any Dragon
trademark, copyright, trade secret or proprietary
information notices and other legends on every copy,
in whole or in part, of the Dragon Recognition
Technology subject to this Agreement.
g) For so long as the L&H Distributor is a distributor
under this Agreement, the L&H Distributor shall
cooperate with Sellers to prevent end users from
copying or using Dragon Recognition Technology and
Dragon Documentation provided to the end users by the
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L&H Distributor as a distributor hereunder, outside
the scope of the Technology License Agreement, or the
End User License Agreement (as defined in the
Technology License Agreement).
h) Any End User License Agreement entered into by L&H as
a distributor hereunder shall be consistent with the
Technology License Agreement.
i) The L&H Distributor represents and warrants that it
does not intend to, or will, directly or indirectly,
export or transmit the Dragon Recognition Technology,
in whole or in part, or any Dragon Confidential
Information or technical data relating thereto, to
any country to which such export or transmission is
restricted by any applicable U.S. regulation or
statute, with out prior written consent, if required,
of the Bureau of Export Administration of the U.S.
Department of Commerce, or other such governmental
entity as may have jurisdiction over such export or
transmission.
3.2 Confidentiality Exceptions. Notwithstanding anything to the
contrary in the foregoing, the obligations of the L&H Distributor under Section
3.1 shall not apply to the extent that the L&H Distributor can demonstrate that
the applicable confidential information:
(a) was in the public domain prior to the time of its
disclosure;
(b) entered the public domain after the time of its disclosure
through means other than an unauthorized disclosure resulting from an act or
omission by the L&H Distributor or Sellers;
(c) was independently developed or discovered by the
L&H Distributor without use of the Confidential Information;
(d) is or was disclosed to the L&H Distributor at any time,
whether prior to or after the time of its disclosure under this Agreement, by a
third party having no obligation of confidentiality with respect to such
confidential information; or
(e) is required to be disclosed to comply with applicable laws
or regulations, or with a court or administrative order.
3.3 Fees. If the L&H Distributor shall become an ASI Distributor under
this Agreement, the L&H Distributor shall pay to ASI for each ASI Product sold
that incorporates the Dragon Recognition Technology an amount equal to the
payment that ASI is required to make to Dragon under Section 8 of the Technology
License Agreement. Such payment shall be made on a timely basis prior to the due
date of the payment from ASI to Dragon. The L&H Distributor shall provide ASI
with such documentation and other information that is necessary for ASI to
calculate such payment.
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3.4 Disclaimers. L&H AND ITS DESIGNATED SUBSIDIARY WHICH MAY BECOME THE
L&H DISTRIBUTOR HEREUNDER ACKNOWLEDGE AND AGREE THAT DRAGON DISCLAIMS ALL
WARRANTIES, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE DRAGON RECOGNITION
TECHNOLOGY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL DRAGON
BE LIABLE FOR ANY DAMAGES RESULTING FROM LOSS OF DATA, PROFITS OR USE OF
EQUIPMENT, OR FOR ANY SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES
ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE DRAGON
RECOGNITION TECHNOLOGY.
3.5 Speech Technology Disclaimers. IT IS ALSO UNDERSTOOD AND AGREED
THAT SPEECH RECOGNITION IS INHERENTLY A STATISTICAL PROCESS; THAT SPEECH
RECOGNITION ERRORS ARE INHERENT IN THE PROCESS OF SPEECH RECOGNITION; THAT
SPEECH RECOGNITION APPLICATIONS AND USAGE MUST BE DESIGNED TO ALLOW FOR SUCH
ERRORS IN THE SPEECH RECOGNITION PROCESS. L&H AND ITS DESIGNATED SUBSIDIARY
WHICH MAY BECOME THE L&H DISTRIBUTOR HEREUNDER UNDERSTAND THAT SUCH ERRORS ARE
INEVITABLE AND THAT THE APPLICATION IN WHICH SUCH TECHNOLOGY IS USED MUST
PROVIDE FOR HANDLING SUCH ERRORS AND THE USER MUST MONITOR THE SPEECH
RECOGNITION PROCESS AND CORRECT ANY ERRORS. DRAGON SHALL IN NO EVENT BE LIABLE
FOR ANY DIRECT OR INDIRECT DAMAGES, INCLUDING PERSONAL INJURY RESULTING FROM
ERRORS IN THE RECOGNITION PROCESS.
ARTICLE IV. GENERAL PROVISIONS
4.1 Independent Contractor. L&H shall not be considered an agent or
legal representative of the Sellers for any purpose under this Agreement, and
neither L&H nor any of its designated subsidiaries and their respective
directors, officers, agents, or employees shall be, or be considered, an agent
or employee of the Sellers. L&H is not granted and shall not exercise the right
or authority to assume or create any obligation or responsibility, including
without limitation contractual obligations and obligations based on warranties
or guarantees, on behalf of or in the name of the Sellers.
4.2 Further Assurances. Sellers from time to time after the execution
of the Purchase Agreement (as applicable), at the request of L&H and without
further consideration shall execute and deliver further instruments of transfer
and assignment and shall take such other action as L&H may reasonably require
to: (a) effectively assign the Technology License Agreement to L&H upon the
exercise of the option referenced in Section 2.1 of this Agreement; or (b)
enable L&H to become a distributor hereunder.
4.3 Appointment of Attorney-in-Fact. Each Seller hereby grants to L&H,
and any officer or agent of L&H, as L&H may designate in its sole discretion, a
power of attorney, thereby constituting and appointing L&H (and L&H's designee)
its true and lawful attorney-in-law and attorney-in-fact, coupled with an
interest, for the purpose of: (a) effecting the assignment of the Technology
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License Agreement pursuant to this Agreement and the Assignment and Assumption
Agreement; or (b) becoming an ASI Distributor under this Agreement. The Sellers
hereby ratify all that such attorney shall lawfully do or cause to be done by
virtue hereof.
4.4 No Modification. Sellers shall not modify, alter or amend any terms
or provisions of the Technology License Agreement or take any action that would
otherwise materially and adversely affect L&H's rights hereunder without the
written consent of L&H.
4.5 Entire Agreement. This Agreement, including the Exhibits hereto,
represents the entire agreement between the parties on the subject matter hereof
and supersedes all prior discussions, agreements, and understandings of every
kind and nature between them. No modification of this Agreement will be
effective unless in writing and signed by L&H and Fonix.
4.6 Notices. All notices under this Agreement shall be given in
accordance with the terms of Section 11.2 of the Purchase Agreement.
4.7 Force Majeure. Neither party shall be in default hereunder by
reason of any failure or delay in the performance of any obligation under this
Agreement where such failure or delay arises out of any cause beyond the
reasonable control and without the fault or negligence of such party. Such
causes shall include, without limitation, storms, floods, other acts of nature,
fires, explosions, riots war or civil disturbance, strikes or other labor
unrests, embargoes and other governmental actions or regulations that would
prohibit either party from performing any aspects of the obligations hereunder,
delays in transportation, and inability to obtain necessary labor, supplies, or
manufacturing facilities.
4.8 Severability. The illegality or unenforceability of any provision
of this Agreement shall not effect the validity and enforceability of any legal
and enforceable provisions hereof.
4.9 Successors and Assigns. This Agreement shall be binding on and
inure to the benefit of the successors and assigns of the parties. L&H shall be
able to assign its rights and obligations under this Agreement, in whole or in
part, to any subsidiary of L&H or otherwise in accordance with the provisions of
Section 11.7 of the Purchase Agreement.
4.10 Governing Law; Venue. The Governing Law and Venue provisions of
Section 11.10 of the Purchase Agreement shall govern this Agreement.
4.11 Interpretation. The parties hereto acknowledge and agree that: (a)
each party and its counsel reviewed and negotiated the terms and provisions of
this Agreement and have contributed to its revision; (b) the rule of
construction to the effect that any ambiguities are resolved against the
drafting party shall not be employed in the interpretation of this Agreement;
and (c) the terms and provisions of this Agreement shall be construed fairly as
to all parties hereto and not in favor of or against any party, regardless of
which party was generally responsible for the preparation of this Agreement.
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4.12 Headings. Any headings used herein are for convenience in
reference only and are not a part of this Agreement, nor shall they in any way
affect the interpretation hereof.
IN WITNESS WHEREOF, the Sellers and L&H have caused this instrument to
be executed by their duly authorized employees, as of the day and year first
above written.
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. FONIX CORPORATION
BY:/s/
------------------------------------
Gaston Bastiaens BY:/s/
President and Chief Executive Officer -------------------------------
Thomas A. Murdock
President and Chief Executive
Officer
FONIX/ASI CORPORATION
BY:/s/
-------------------------------
Thomas A. Murdock
President
<PAGE>
ASSIGNMENT AND ASSUMPTION AGREEMENT
Reference is made to that certain Technology License Agreement dated
July 7, 1998 (the "License Agreement") between Articulate Systems, Inc.
("Articulate") and Dragon Systems, Inc. ("Dragon") pursuant to which Articulate
assigned all of its rights, duties and obligations under said agreement to
Fonix/ASI Corporation, a Utah corporation ("ASI"), on September 2, 1998.
Pursuant to Section 13.1 of the License Agreement: (a) ASI hereby assigns all of
its rights, duties and/or obligations under the License Agreement to Lernout &
Hauspie Speech Products N.V. or its designated subsidiary ("L&H"); and (b) L&H
or its designated subsidiary hereby agrees to assume all of ASI's rights, duties
and/or obligations under the License Agreement.
IN WITNESS WHEREOF, ASI and L&H or its designated subsidiary have
caused this Agreement to be executed under seal in multiple counterparts by
their duly authorized representatives.
FONIX/ASI CORPORATION
By:/s/
---------------------------------
Name: Thomas A. Murdock
Title: President and Chief Executive Officer
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By:/s/
---------------------------------
Name: Gaston Bastiaens
Title: President and Chief Executive Officer
Dated: September 1, 1999
<PAGE>
LICENSE AGREEMENT
by and between
FONIX/ASI CORPORATION ("LICENSOR")
and
LERNOUT & HAUSPIE SPEECH PRODUCTS, N.V. ("LICENSEE")
Effective Date: May 19, 1999
LICENSOR Corporate Name: Fonix/ASI Corporation
Incorporated under the Laws of: State of Utah
Address: 1225 Eagle Gate Tower,
60 East South Temple Street
Salt Lake City, Utah 84111
Attention: Thomas A. Murdock, President
Phone: (801) 328-8700 Fax: (801) 328-8778
LICENSOR Notices Address: Same as above.
LICENSEE Name: Lernout & Hauspie Speech Products N.V.
Incorporated under the Laws of: Belgium
Address: Flanders Language Valley 50
B-8900 Ieper - Belgium
Phone: +32.57.22.88.88. Fax: +32.57.20.84.89.
LICENSEE Notices Address: Same as above, Attn. Legal Department
AND COPY TO:
Lernout & Hauspie Speech Products USA, Inc.
52 Third Avenue, Burlington, MA 01803
Attention: Contracts Manager
Phone: (781) 203-5000 Fax: (781) 238-0987
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THIS AGREEMENT IS GOVERNED BY THE ATTACHED TERMS AND CONDITIONS. LICENSEE AND
LICENSOR ACKNOWLEDGE THAT THEY HAVE READ AND AGREE TO BE BOUND BY THE ATTACHED
TERMS AND CONDITIONS. IN WITNESS WHEREOF, THIS AGREEMENT HAS BEEN DULY EXECUTED
BY THE PARTIES HERETO, AS OF THE EFFECTIVE DATE.
LICENSEE: LICENSOR:
LERNOUT & HAUSPIE SPEECH FONIX/ASI CORPORATION
PRODUCTS N.V.
By: By:
Name: Gaston Bastiaens Name: Thomas A. Murdock
Title: President and Chief Executive Title: President
Officer
Whereas, LICENSOR and LICENSEE have negotiated an Asset Purchase Agreement (the
"Asset Purchase Agreement"),
Whereas, LICENSEE desires to license LICENSOR's technology and software as of
the Effective Date of this Agreement,
Whereas, LICENSOR is willing to grant such license on its technology and
software as of the Effective Date,
IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE I: DEFINITIONS
The following terms shall have the meanings ascribed to them herein whenever
they are used in this Agreement, unless otherwise clearly indicated by the
context.
1.1. "Corrections" shall mean changes made in the Development Software and/or
Documentation by LICENSOR to correct errors or defects in the Development
Software and/or Documentation.
1.2. "Designated Application" shall mean all existing and future
application(s) made and all existing and future services provided by
LICENSEE as identified in Addendum B and the Amendments to this
Agreement.
1.3. "Development Software" shall mean all existing and future software of
LICENSOR or other items listed in Addendum A, in source code, object
code, and linguistic tools, API's and technical interface to source code
as outlined in Addendum A, to be adapted to work with the Designated
Application; Documentation, which is customarily provided by LICENSOR as
a part of the software or other items listed in Addendum A; and all
Corrections. This shall include any enhancements or upgrades of the
software or other items listed in Addendum A.
1.4. "Documentation" shall mean those visually-readable materials, in English,
developed by or for LICENSOR for use in connection with the Development
Software. Documentation includes operating instructions, input
information and format specifications.
1.5. "End User" shall mean the customers of LICENSEE or of Third Parties, who
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will only be granted the right to use the Run-Time Software in connection
with the Designated Application.
1.6. "Run-Time Software" shall mean an object code/executable copy of software
derived from the Development Software (or any portion thereof) which is
integrated by LICENSEE within the Designated Application and executable
only in association with the Designated Application.
1.7. "Third Party" shall include original equipment manufacturers, system
houses, value added resellers and other such entities engaged in doing
business with LICENSEE, and who acquire the Designated Application,
incorporating the Run-Time Software, for distribution purposes only.
ARTICLE II: GRANT OF SOFTWARE LICENSE
2.1. Subject to all applicable terms and conditions hereof, LICENSOR hereby
grants to LICENSEE and LICENSEE accepts from LICENSOR, a world-wide,
perpetual, non-exclusive, non-transferable (except as described in
Article 14.9) license to:
a) use, copy and modify the Development Software in connection with
LICENSEE's development, distribution and provision of technical
support for Designated Applications incorporating Run-Time Software;
b) make Run-Time Software copies based on the Development Software with
the purpose to incorporate into the Designated Application;
c) distribute to End Users directly or through Third Parties, copies of
the Run-Time Software incorporated into the Designated Application;
each copy of the Run-Time Software shall be distributed pursuant to
and together with an end user license agreement, in a form reasonably
acceptable to LICENSOR, which shall contain standard software
licensing provisions, and which may be in on-line or in written form;
and
d) incorporate all or part of the Documentation into LICENSEE's
Designated Application documentation, provided LICENSEE properly
incorporates and references LICENSOR's trademarks and copyrights in
the documentation.
2.2. All distributions by Third Parties in accordance with Article 2.1.c shall
be pursuant to written agreements that incorporate applicable terms and
conditions hereof, including appropriate methods of calculation,
reporting and payment of applicable royalties (as described in Article
III hereof).
2.3. It is furthermore expressly agreed that the only right granted to Third
Parties is the right to distribute the Designated Application
incorporating the Run-Time Software.
2.4. LICENSOR hereby grants to LICENSEE a nonexclusive, non-transferable,
royalty-free license to use and to authorize Third Parties to use, in
those ways in which LICENSOR uses the Licensed Marks, the following
trademarks associated with the Run-Time Software: PowerScribe,
PowerScribe Radiology, PowerScribe for Radiology, PowerScribe EM,
PowerScribe for Emergency Medicine, PowerCare, and the ASI logo (the
"Licensed Marks"). LICENSEE shall comply with LICENSOR policies and
guidelines for use of its Licensed Marks, as they may be revised and
issued from time to time, and shall comply with proper legal
standards. LICENSEE acknowledges that as between the parties, LICENSOR
shall own all interest in the Licensed Marks and all valid trademark
registrations throughout the world which are obtained in LICENSOR's
name. LICENSEE agrees not to attack the validity of the Licensed Marks
or LICENSOR's title thereto. All goodwill accrued through use of the
Licensed Marks by LICENSEE and its Distributors shall inure to the
benefit of LICENSOR. LICENSEE acknowledges that nothing in this
Agreement shall give LICENSEE any right, title or interest in the
Licensed Marks other than the right to use the Licensed Marks in
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accordance with this Agreement.
2.4.1. LICENSEE acknowledges that the good will and value of the Licensed Marks
may be adversely affected unless the Software meets the compatibility and
quality standards of LICENSOR. LICENSOR shall have the right from time to
time during the term of this Agreement to review any manufacturing
facility used by LICENSEE to produce goods hereunder and to determine, in
its reasonable discretion, whether the quality of goods produced by
LICENSEE are so adequate; such review may occur from time to time upon
reasonable notice and during regular business hours. If the Run-Time
Software reproduced and distributed by LICENSEE fails at any time to meet
LICENSOR's standards, LICENSOR may notify LICENSEE in writing and
LICENSEE shall promptly cure the sub-standard quality and/or
compatibility.
2.4.2. LICENSEE shall give LICENSOR at least 60 days prior written notice of
LICENSEE's intent to distribute the Run-Time Software in any country
other than the U.S. If LICENSOR determines that registration of a
Licensed Mark or filing or recording of a license or a registered user
agreement is required or advisable, the parties shall cooperate in
preparing and executing all necessary documents. Registration of any
LICENSOR trademark shall be in LICENSOR's name and at its expense.
LICENSEE shall pay all costs of filing or recording of a license or
registered user agreement.
2.5. LICENSOR grants LICENSEE a license under all present or future patent
rights held by LICENSOR that would be infringed upon the use of the
Development Software or Run-Time Software as contemplated by this
Agreement.
ARTICLE III: ROYALTIES/PAYMENTS
3.1. Royalties
In consideration for the rights granted under Article II, except as
provided in Article VI hereof, LICENSEE shall make royalty payments to
LICENSOR for the Run-Time Software, pursuant to Addendum C.
3.2. Other Fees
Any training provided by LICENSOR under this Agreement will be invoiced
at the end of each month in which said services are provided at the then
current fees. Unless otherwise provided in writing, all invoices are
payable within thirty (30) days after invoice date.
ARTICLE IV: WARRANTY
4.1. LICENSOR warrants that it has the right to grant the licenses contained in
this Agreement.
4.2. LICENSOR warrants that the Development Software will perform in
accordance with the specifications as mentioned in the Documentation.
LICENSOR agrees that if any material deviations from the Documentation
exist, LICENSOR shall use commercially reasonable and diligent efforts to
eliminate promptly any deviations reported to it by LICENSEE in writing.
This warranty for a given item of the Development Software shall expire
twelve (12) months after the supply of such item to LICENSEE (the
"Warranty Period").
4.3. LICENSOR warrants and represents that the Development Software and
Run-Time Software is capable of processing, recording, storing and
presenting data containing four-digit years in substantially the same
manner and with substantially the same functionality as it performed
before January 1, 2000. In the event of breach of this warranty, LICENSOR
shall use reasonable efforts to correct or provide a work around for
reproducible errors what cause this breach of warranty. If LICENSOR is
unable to make the Development Software and Run-Time Software operate as
warranted herein within a reasonable period of time, LICENSEE shall be
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<PAGE>
entitled to recover all royalties paid under this Agreement.
4.4. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR MAKES, AND
LICENSEE RECEIVES, NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. LICENSOR DOES NOT WARRANT THAT THE FUNCTIONS CONTAINED IN THE
DEVELOPMENT SOFTWARE WILL MEET CUSTOMER'S REQUIREMENTS. LICENSEE
ACKNOWLEDGES THAT LICENSOR HAS MADE NO REPRESENTATIONS REGARDING WARRANTY
OR LIABILITY OTHER THAN AS STATED IN THIS AGREEMENT. LICENSEE is not
authorized to make any warranty commitment on LICENSOR's behalf to any
end user or other third party, whether written or oral, other than those
provided or approved by an authorized representative of LICENSOR.
ARTICLE V: SUPPORT
5.1. During the term of the Warranty Period as defined above in Article IV,
LICENSOR shall, upon request of LICENSEE, provide the following support
to LICENSEE, free of charge:
a) Telephone Support
LICENSOR shall provide telephone consulting services to LICENSEE's
designated personnel to assist such personnel in resolving problems,
obtaining clarification relative to the Development Software and
Documentation and providing assistance regarding suspected defects or
errors in the Development Software or Documentation. Said services
shall be provided during normal business hours (Eastern Time),
Mondays through Fridays (excluding US legal holidays). The names,
telephone, fax numbers of LICENSOR's support personnel, as well as a
list of the current holidays, are specified in Addendum D.
b) Written Support
LICENSOR agrees to diligently work for the resolution of defects and
errors in the Development Software and/or Documentation.
c)Corrections
LICENSOR shall keep LICENSEE advised of the status of all Corrections
done by LICENSOR for the Development Software and Documentation
during the term of the support. At the request of LICENSEE, LICENSOR
shall provide one (1) copy of the current release of the Development
Software incorporating such Corrections.
d) Training
Training can be given to LICENSEE by LICENSOR as an additional
service which will be invoiced at the applicable training fees.
5.2. After the term of the Warranty Period, LICENSEE may purchase additional
support and training from LICENSOR by entering into a maintenance and
support agreement.
5.3. LICENSEE shall be responsible for first-line customer support for the
Run-Time Software as contained in the Designated Application. LICENSEE
shall provide, to end users who receive copies of the Run-Time Software
through LICENSEE, telephonic advice by knowledgeable personnel on
installation, operation and other questions with respect to the Run-Time
Software and the Designated Application.
ARTICLE VI: TERM
6.1. The Term of this Agreement shall commence on the Effective Date herein
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<PAGE>
and shall continue for a period of twenty (20) years, unless otherwise
terminated by LICENSEE or unless terminated or canceled as provided in
Article 6.2 or 6.5.
6.2. This Agreement may be terminated for cause, as follows:
a) by LICENSOR, if LICENSEE fails to make timely payments or provide
royalty reports as required hereunder, and any such failure is not
remedied within thirty (30) days after receipt of written notice from
LICENSOR;
b) by LICENSOR, if LICENSEE expressly or impliedly repudiates this
license by refusing to observe the restricted use or confidentiality
requirements as mentioned in this Agreement, or otherwise commits a
material breach of this Agreement, and any such failure is not
remedied within thirty (30) days after receipt of written notice; or
c) by either party, if a party ceases its business activities as a
result of bankruptcy, dissolution, liquidation, or other causes, the
other party may immediately terminate this Agreement by providing
written notice to that party.
6.3. Any termination or cancellation of this Agreement shall not terminate or
affect sublicenses previously and properly granted to End Users and Third
Parties, who have purchased sublicenses.
6.4. No termination or cancellation of this Agreement shall affect the
obligation of LICENSEE to collect and distribute to LICENSOR all
payments, which have become or will be due from Third Parties and End
Users and any other payments which have become due hereunder.
6.5. Should LICENSOR and LICENSEE effect the Closing, as defined in the Asset
Purchase Agreement, all licenses granted under this License Agreement
shall terminate, except as provided under Article 6.3 hereof. Should
LICENSOR and LICENSEE not effect Closing, this License Agreement shall
remain fully in force, subject to the following terms:
a) Breach by Seller (LICENSOR) In the event of the termination of the
Asset Purchase Agreement under conditions that require the Seller to pay
the Buyer Documented Expenses pursuant to Section 9.5(b) of the Asset
Purchase Agreement, then (1) LICENSOR grants LICENSEE a perpetual,
non-exclusive license in accordance with Articles 2.1, 2.2, 2.3 and 2.5
hereof for LICENSOR's software as specified in Addendum E, effective upon
the termination of the Asset Purchase Agreement, and subject to all terms
of this Agreement, including royalty payments to LICENSOR pursuant to
Addendum F; and (2) LICENSEE shall owe no royalties under Article 3.1 and
Addendum F of this Agreement for distribution of royalty-bearing copies
up to an aggregate sum of five million U.S. dollars ($5,000,000)
effective commencing with the termination of the Asset Purchase
Agreement. Subsequent royalty payments shall continue thereafter under
Article 3.1 and Addendum F of this Agreement.
Notwithstanding the foregoing, in the event that on or before the date on
which the outstanding principal balance under each of (a) Promissory Note
executed by Fonix Corporation and Fonix/ASI Corporation dated as of April
22, 1999, as amended pursuant to Amendment to Promissory Note dated May
12, 1999, in the principal amount of one million one hundred thousand
U.S. dollars ($1,100,000) (the "April 22 Note"), and (b) Promissory Note
executed by Fonix/ASI Corporation dated as of May 19, 1999, as amended,
in the original principal amount of four million nine hundred thousand
U.S. dollars ($4,900,000) (the "May 19 Note") becomes due and payable,
LICENSOR pays LICENSEE the following: (1) all amounts including without
limitation, all principal, interest, fees, and charges due under the
April 22 Note and the May 19 Note; (2) all Buyer Documented Expenses
pursuant to Section 9.5(b) of the Asset Purchase Agreement; and (3) an
additional license agreement termination fee of five million U.S. dollars
($5,000,000), then all licenses granted under this License Agreement
shall terminate, except as provided in Article 6.3 hereof.
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b) Breach by Buyer (LICENSEE) In the event of the termination of the
Asset Purchase Agreement under conditions that require the Buyer to pay
the Seller Documented Expenses pursuant to Section 9.5(c) of the Asset
Purchase Agreement, then all licenses granted under this License
Agreement shall terminate, except as provided under Article 6.3 hereof.
c) Mutual Agreement or Court Order If the Buyer and Seller mutually agree
to terminate the Asset Purchase Agreement, or either party terminates
under conditions pursuant to Section 9.1(b) of the Asset Purchase
Agreement, then this agreement shall remain in full force and effect and
LICENSEE shall owe royalties under Article 3.1 of this License Agreement.
ARTICLE VII: INDEMNITY
7.1. LICENSOR shall indemnify and defend LICENSEE and Third Parties
against any claim that the Development Software or Run-Time Software
infringes any third party patent, copyright, trademark, trade secret
or other intellectual property right when used in accordance with the
terms of this Agreement, provided however that LICENSEE shall give
LICENSOR prompt notice of any such claim and shall give information,
reasonable assistance and authority to defend or settle the claim.
LICENSOR shall have the right, at its option, either to obtain for
LICENSEE the right to continue using the Development Software and
Run-Time Software, substitute other software with equivalent
functional capabilities, or modify the Development Software and
Run-Time Software so that it is no longer infringing while retaining
equivalent functions. LICENSOR shall have no liability for
infringement based on (A) use of other than the current release of the
Development Software or Run-Time Software, (B) modification of the
Development Software or Run-Time Software by any party other than
LICENSOR, or (C) the combination or use of the Development Software or
Run-Time Software with the Designated Application or any other
software, equipment, product or process not furnished or approved
(which approval will not be unreasonably withheld or delayed) by
LICENSOR to the extent such combination or use relates to such
infringement. IN NO EVENT SHALL LICENSOR'S LIABILITY WITH REGARD TO
THIRD PARTY PATENT INFRINGEMENT UNDER THIS SECTION EXCEED THE GREATER
OF (1) LICENSEE'S REASONABLE LEGAL FEES, PLUS: THE AGGREGATE SUM OF
ROYALTIES PAID TO LICENSOR UNDER ARTICLE 3.1 (IF THE PATENT
INFRINGEMENT RELATES TO DEVELOPMENT SOFTWARE AND RUN-TIME SOFTWARE
UNDER ADDENDUM A), OR UNDER ADDENDUM F (IF THE PATENT INFRINGEMENT
RELATES TO DEVELOPMENT SOFTWARE AND RUN-TIME SOFTWARE UNDER ADDENDUM
E) OR (2) FIVE MILLION U.S. DOLLARS ($5,000,000).
7.2. Except as provided above, LICENSOR shall have no liability to LICENSEE,
Third Parties and End Users in the event infringement of any intellectual
property right arises from components of a Designated Application which
are not derived directly from the Development Software or Run-Time
Software operating on the Designated Application.
7.3. Except to the extent LICENSOR is responsible for a claim under Section
7.1 above, LICENSEE shall indemnify and defend LICENSOR from and against
any and all claims, liabilities, damages and expenses (including
reasonable attorneys' fees) arising out of or in connection with
LICENSEE's use, reproduction, marketing, distribution or sublicensing of
the Development Software or Run-Time Software, to the extent that such
claim or liability arose from LICENSEE's breach of this Agreement.
ARTICLE VIII: LIABILITY
8.1. Limitation on Damages
IN NO EVENT SHALL LICENSOR BE LIABLE FOR ANY LOSS OF OR DAMAGE TO
REVENUES, PROFITS OR GOODWILL OR OTHER SPECIAL, INCIDENTAL, INDIRECT OR
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CONSEQUENTIAL DAMAGES OF ANY KIND, RESULTING FROM ITS PERFORMANCE OR
FAILURE TO PERFORM PURSUANT TO THE TERMS OF THIS AGREEMENT OR ANY OF THE
ATTACHMENTS HERETO, OR RESULTING FROM THE FURNISHING, PERFORMANCE, OR USE
OR LOSS OF USE OF ANY DEVELOPMENT SOFTWARE, RUN-TIME SOFTWARE OR OTHER
MATERIALS DELIVERED TO LICENSEE HEREUNDER, INCLUDING, WITHOUT LIMITATION,
ANY LOSS OF DATA OR INTERRUPTION OF BUSINESS, WHETHER RESULTING FROM
BREACH OF CONTRACT, BREACH OF WARRANTY, OR ANY OTHER CAUSE (INCLUDING
NEGLIGENCE), EVEN IF LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
ARTICLE IX: CONFIDENTIAL INFORMATION
9.1. "Confidential Information" shall mean (a) all source code for the
Development Software; (b) any information conveyed in written,
graphic, machine-readable or other tangible form, provided that such
information is conspicuously marked and/or considered by a party as
confidential or proprietary; or (c) any information conveyed orally
where such information is designated as confidential or proprietary at
the time of such oral disclosure, and confirmed in writing within
thirty (30) days. Notwithstanding the above, information shall not be
deemed Confidential Information to the extent that it (i) was
generally known and available in the public domain at the time it was
disclosed or subsequently becomes generally known and available in the
public domain through no fault of the recipient; (ii) was known to the
recipient at the time of disclosure; (iii) is disclosed with the prior
written approval of the disclosing party; (iv) was independently
developed by the recipient without any use of the Confidential
Information of the disclosing party, as evidenced by contemporaneous
written documentation; or (v) becomes known to the recipient from a
source other than the disclosing party without breach of this
Agreement. The obligation not to use or disclose said Confidential
Information will remain in effect until one of these exceptions
occurs.
9.2. Both parties agree not to disclose any trade secrets or Confidential
Information transferred to it by the other party or by third parties
which are identified in writing and/or are considered by a party as
confidential. Each party shall protect the other's Confidential
Information from unauthorized dissemination and use with the same
degree of care that such party uses to protect its own like
information, but not less than a reasonable degree of care. Neither
party will use the other's Confidential Information for purposes other
than necessary to directly further the purposes of this Agreement.
Neither party will disclose to third parties the other's Confidential
Information without the prior written consent of the other party.
Except as expressly provided in this Agreement, no ownership or
license rights is granted in any Confidential Information.
9.3. Since unauthorized transfer of one party's Confidential Information may
substantially diminish their value and injure that party in ways that
cannot be remedied fully by money, the other party's breach of these
Article IX obligations will entitle first party to equitable relief
(including orders for specific performance and injunctions), as well as
monetary damages.
9.4. Both parties agree that the terms and conditions, and this Agreement
itself shall be considered as Confidential Information, except as
expressly otherwise stated in this Agreement.
ARTICLE X: RESTRICTED USE
10.1. LICENSEE shall not distribute or have distributed the Development
Software as such, nor shall LICENSEE distribute or have distributed any
Run-Time Software in connection with or on any application other than the
Designated Application.
10.2. LICENSEE acknowledges that unauthorized reproduction or use of the
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Development Software and/or Run-Time Software as provided in this Article
X is a breach of a material obligation of this Agreement and is subject
to any available remedies for such breach.
ARTICLE XI: TITLE AND RIGHTS TO SOFTWARE AND MODIFICATIONS
11.1. The grant of license and distribution rights by LICENSOR to LICENSEE
under Article II hereof is LICENSEE's only right to the Development
Software and the Run-Time Software. Title, interests and rights to the
Development Software, the Run-Time Software, and Documentation in all
language versions delivered or to be delivered hereunder shall always
remain in LICENSOR. Furthermore, the grant of such license shall not
restrict licensing by LICENSOR in any manner.
11.2. LICENSEE shall grant to LICENSOR a non-exclusive, non-transferable,
royalty-free, perpetual license for the right to make, use, sell, and
sublicense end users to use, technology which is the subject of any
patents obtained by LICENSEE for derivative works or improvements made by
LICENSEE to the Development Software and the Run-Time Software.
ARTICLE XII: TAXES
12.1. The Run-Time Software licensed hereunder is intended principally for
use by End Users and therefore should be exempt from sales, use, excise
and other similar taxes. However, if such tax, or any import duty, or
export duty, should be imposed on LICENSOR, LICENSEE shall either bear
such tax or duty by a direct payment to the taxing authority or shall
reimburse LICENSOR for such tax or duty paid by LICENSOR.
ARTICLE XIII: MOST FAVORED NATIONS
13.1. In the event that LICENSOR provides royalty pricing with terms and
conditions similar to this Agreement to any other person or party more
favorable than these provided to LICENSEE, and for similar volumes of
distributed Run-Time Software, LICENSEE's royalty pricing shall be
automatically amended and revised without further action of the parties,
commensurate with such royalty pricing, and effective as of the effective
date of such royalty pricing.
ARTICLE XIV: MISCELLANEOUS
14.1. This Agreement shall be deemed to have been entered into and shall be
construed, governed and interpreted in accordance with the laws of the
Commonwealth of Massachusetts, without giving effect to principles of
conflict of law.
14.2. The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions, and this Agreement shall
be construed in all respects as if such invalid or unenforceable
provisions were omitted.
14.3. The failure of either party to insist, in any one or more instances, upon
the performance of any of the terms of this Agreement or to exercise any
right hereunder, shall not be construed as a waiver of the future
performance of any such term or the future exercise of such right.
14.4. Whenever any occurrence (e.g. an event of force majeure) is delaying or
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threatens to delay either party's timely performance under this
Agreement, such party will promptly give notice thereof, including all
relevant information with respect thereto, to the other party.
14.5. It is hereby agreed that the rights and obligations of the parties hereto
contained in Articles VII, VIII, IX, XI and the Addenda referenced
therein, shall survive and continue after any termination or cancellation
of this Agreement and shall bind the parties, their successors, their
assigns and their legal representatives.
14.6 LICENSEE shall not export or transfer, whether directly or indirectly,
any part of the Software to any country without first complying strictly
and fully with all export controls that may be imposed on such products
by the United States government or any other applicable country or
organization of nations. LICENSEE shall obtain all necessary governmental
consents before distributing any Run-Time Software. LICENSEE will comply,
at its own expense, with all statutes, regulations, rules, ordinances,
and orders of any governmental body, department or agency which apply to
or result from LICENSEE's obligations under the Agreement.
14.7. This Agreement sets forth and shall constitute the entire agreement
between LICENSEE and LICENSOR with respect to the subject matter thereof,
and shall supersede any and all prior agreements, understandings,
promises and representations made by one party to the other concerning
the subject matter herein and the terms and conditions applicable
thereto. This Agreement may not be released, discharged, supplemented,
interpreted, amended or modified in any manner except by an instrument in
writing signed by a duly authorized officer or representative of each of
the parties hereto as is specially provided elsewhere in this Agreement.
14.8. In making and performing this Agreement, the parties act and shall act at
all times as independent contractors and nothing contained in this
Agreement shall be construed or implied to create the relationship of
partner or of employer and employees between the parties. At no time
shall either party act as an agent for or make commitments for or in the
name of the other party.
14.9. LICENSEE may assign or sublicense the license rights granted hereunder to
LICENSEE's affiliates. LICENSEE is not allowed to assign the license
rights granted hereunder to any other party without LICENSOR's prior
written consent, which shall not be unreasonably withheld or delayed.
14.10. All notices under this Agreement shall be sent to the address here above
mentioned. All such notices shall be deemed to be received by the other
party three (3) days after the postal date or on the date of signature of
the receipt of delivery by a courier mail company.
14.11. The Addenda referenced in this Agreement, and the specifications
referenced therein, as well as other documentation referenced in this
Agreement which define the obligations of the parties, are a part of this
Agreement with the same force and effect as if fully set forth herein.
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ADDENDUM A
SOFTWARE
1. Software.
1.1. The Development Software, having the following reference:
Software and/or tools used to develop PowerScribe.
1.2. Both parties agree that LICENSOR shall deliver on a regular basis
all available updates and upgrades of the Development Software to
LICENSEE, being at least once every six (6) months.
2. Interface to LICENSOR's Source Code and Tools.
2.1. LICENSOR will provide LICENSEE with linguistic tools to modify
rules in the lexicons and build subject specific dictionaries.
Additionally, LICENSOR will provide LICENSEE with all existing and
future API's, required to interface LICENSEE's technology with
LICENSOR's technology. LICENSOR will provide any necessary
technical support requiring interface with LICENSOR's source code.
2.2. LICENSOR shall provide LICENSEE with necessary assistance,
training and support by its technical staff, to enable LICENSEE to
use the above mentioned interfaces, API's and tools to incorporate
the Run-Time Software in its applications.
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ADDENDUM B
DESIGNATED APPLICATION
Designated Application
The Run-Time Software will be incorporated into the following application(s):
Applications using Powerscribe within the healthcare market.
Both parties agree that if future applications incorporating the Run-Time
Software are developed by LICENSEE, such applications will be added to this
Agreement.
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ADDENDUM C
POWERSCRIBE ROYALTY PRICING
1. Royalties
a) LICENSEE shall pay to LICENSOR royalties as follows:
Four Hundred U.S. dollars ($400), or amount as adjusted under
Article 13.1 (Most Favored Nations), per station.
b) LICENSEE will provide LICENSOR with calendar quarterly reports
showing the quantity of royalty-bearing copies of the Designated
Application shipped and/or distributed hereunder, commencing three
(3) months after first shipment. These quarterly reports shall be
provided to LICENSOR within thirty (30) days after each quarter.
LICENSEE shall at the same time pay the amount of royalties due to
LICENSOR for all such royalties due. All amounts are payable in U.S.
dollars.
c) LICENSEE shall keep a separate register in which it shall record the
exact number of royalty- bearing copies, as well as the type of the
Designated Application incorporating the Run-Time Software and any
other information relevant for determining the amounts of royalties
payable.
LICENSOR shall have the right, at LICENSOR's expense (except as noted
below), to conduct an audit of LICENSEE's records relative to the
performance of this Agreement during normal business hours upon
reasonable notice to LICENSEE, no more than once yearly. Such audit
shall be conducted by a mutually acceptable auditing firm,
independent from the parties.
In the event such audit reveals an underpayment to LICENSOR, LICENSEE
shall pay LICENSOR such underpayment within thirty (30) days, as well
as the audit costs. Those audit costs shall only be paid by LICENSEE
if the underpayment is greater than ten percent (10%) of the annual
royalties for the relevant year.
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ADDENDUM D
SUPPORT DURING WARRANTY PERIOD
1. LICENSOR's contact information for technical support during the warranty
period will be:
tel: fax:
e-mail address:
2. LICENSOR's normal business hours are as follows (Eastern Time):
Monday: 8.30 - 5.30
Tuesday: 8.30 - 5.30
Wednesday: 8.30 - 5.30
Thursday: 8.30 - 5.30
Friday: 8.30 - 5.30
3. The current legal holidays are as follows:
U.S.A.:
Date Holiday
Thursday, January 1 New Year's Day
Monday, February 16 President's Day
Monday, April 20 Patriot's Day
Monday, May 25 Memorial Day
Friday, July 3 Independence Day
Monday, September 7 Labor Day
Monday, October 12 Columbus Day
Thursday, November 26 Thanksgiving Day
Friday, November 27 Day after Thanksgiving
Friday, December 25 Christmas
4. LICENSEE shall contact the above mentioned persons of LICENSOR's personnel
via the telephone and fax numbers mentioned here above or as otherwise
provided, to request for the technical support services as described in
Article V of this Agreement. LICENSOR's technical support personnel will
provide LICENSEE with a resolution within a reasonable period of time
according to the request and the difficulty of the problem.
If LICENSEE is willing to receive more and/or other technical support during
the warranty period, or wishes to expand the technical support after the
warranty period, LICENSEE has to enter into a separate maintenance and
support agreement with LICENSOR.
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ADDENDUM E
HANDWRITING SOFTWARE
1. Software
1.1. The Software, having the following reference:
Software and/or tools used to develop Allegro
handwriting software.
1.2. Both parties agree that LICENSOR shall deliver on a regular basis
all available updates and upgrades of the Allegro Software to
LICENSEE, being at least once every six (6) months.
2. Interface to LICENSOR's Source Code and Tools.
2.1. LICENSOR will provide LICENSEE with tools to modify and build
subject Designated Applications. Additionally, LICENSOR will
provide LICENSEE with all existing and future API's, required to
interface LICENSEE's technology with LICENSOR's technology.
LICENSOR will provide any necessary technical support requiring
interface with LICENSOR's source code.
2.2. LICENSOR shall provide LICENSEE with necessary assistance,
training and support by its technical staff, to enable LICENSEE to
use the above mentioned interfaces, API's and tools to incorporate
the Run-Time Software in its applications.
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ADDENDUM F
ALLEGRO ROYALTY PRICING
1. Royalties
a) For sales of Designated Applications including Development Software
pursuant to Addendum E, LICENSEE shall pay to LICENSOR royalties
according to the following schedule, or an amount as adjusted under
Article 13.1 (Most Favored Nations):
7% of cumulative Net Revenues for sales up to the first one million
U.S. dollars ($1,000,000).
6% of cumulative Net Revenues for sales between one million U.S.
dollars ($1,000,000) and two million U.S. dollars ($2,000,000).
5% of cumulative Net Revenues for sales between two million U.S.
dollars ($2,000,000) and three million U.S. dollars ($3,000,000).
4% of cumulative Net Revenues for sales between three million U.S.
dollars ($3,000,000) and four million U.S. dollars ($4,000,000).
3% of cumulative Net Revenues for sales in excess of four million U.S.
dollars ($4,000,000).
For purposes hereof "Net Revenues" means all revenue received from the
commercialization, license and distribution or other exploitation of the
Allegro Software, provided however, Net Revenues shall exclude (a) any
government taxes or levies collected from customers with respect to sales
which are to be paid over to any applicable governmental authority
(including without limitation excise, import and export taxes), (b) any
cost of packing, shipment and delivery, including without limitation, all
freight charges, freight forwarding fees, customs fees and insurance
premiums, (c) any amounts for maintenance and service of the technology
or service which are billed to customers separately from billing for sale
or licensing of the product or technology, (d) any amount received in
connection with the sale, license or other disposition of the product or
technology which is refunded to the customer, or which is treated by the
licensee as uncollectible on its financial statements, (e) usual trade
discounts or allowances actually allowed, including advertising
allowances, or (f) any other amounts agreed to in writing by the Parties.
b) LICENSEE will provide LICENSOR with calendar quarterly reports
showing the quantity of royalty-bearing copies of the Designated
Application shipped and/or distributed hereunder, commencing three
(3) months after first shipment. These quarterly reports shall be
provided to LICENSOR within thirty (30) days after each quarter.
LICENSEE shall at the same time pay the amount of royalties due to
LICENSOR for all such royalties due. All amounts are payable in U.S.
dollars.
c) LICENSEE shall keep a separate register in which it shall record the
exact number of royalty- bearing copies, as well as the type of the
Designated Application incorporating the Run-Time Software and any
other information relevant for determining the amounts of royalties
payable.
LICENSOR shall have the right, at LICENSOR's expense (except as noted
below), to conduct an audit of LICENSEE's records relative to the
performance of this Agreement during normal business hours upon
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reasonable notice to LICENSEE, no more than once yearly. Such audit
shall be conducted by a mutually acceptable auditing firm,
independent from the parties.
In the event such audit reveals an underpayment to LICENSOR, LICENSEE
shall pay LICENSOR such underpayment within thirty (30) days, as well
as the audit costs. Those audit costs shall only be paid by LICENSEE
if the underpayment is greater than ten percent (10%) of the annual
royalties for the relevant year.
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LOAN AGREEMENT
LOAN AGREEMENT dated as of April 22, 1999 entered into by and among
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V., a Belgian corporation ("Lender"), with a
place of business at Flanders Language Valley 50, B-8900, Ieper, Belgium, on the
one hand, and FONIX CORPORATION, a Delaware corporation having its principal
place of business at 60 East South Temple Street, Salt Lake City, Utah 84111,
and FONIX/ASI CORPORATION, a Utah corporation, having its principal place of
business at 1225 Eagle Gate Tower, 60 East South Temple Street, Salt Lake City,
Utah, 84111, and a place of business at 600 West Cummings Park, Suite 4500,
Woburn, Massachusetts 01801, on the other hand. Each of Fonix Corporation and
Fonix/ASI Corporation is a "Borrower" and they are collectively referred to
herein as the "Borrowers".
W I T N E S S E T H:
WHEREAS, the Borrowers have requested that Lender make available to
Borrowers a loan in the amount of $1,000,000.00 to finance the working capital
needs of Fonix/ASI Corporation, a wholly owned subsidiary of Fonix Corporation,
and Fonix Corporation;
WHEREAS, Lender is willing to do so, but only on the terms and subject
to the conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrowers and
Lender agree as follows.
1. CERTAIN DEFINITIONS. As used herein the terms set forth on
Schedule I attached hereto shall have the meanings set forth therein.
2. THE LOAN.
(a) On April __, 1999, the Lender shall make a loan to Borrowers (the
"Loan") in the original principal amount of $1,000,000.00, subject to the terms
and conditions contained in this Agreement. Once repaid, the Loan may not be
reborrowed. The Loan shall be due and payable as set forth in the Note in the
form attached hereto as Exhibit A.
(b) The Loan shall be evidenced by the Note and shall be secured by:
(i) a first priority security interest in all of the assets of Fonix/ASI
Corporation pursuant to a Security Agreement in the form attached hereto as
Exhibit B (the "Security Agreement"); (ii) a Patent Security Agreement in the
form attached hereto as Exhibit C ; (iii) a Copyright Security Agreement in the
form attached hereto as Exhibit D ; and (iv) a Trademark Security Agreement in
the form attached hereto as Exhibit E . The Loan shall bear interest and be
payable as set forth in the Note. The term "Loan Documents", as used herein when
discussing Fonix/ASI Corporation, shall mean this Agreement and the documents
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referred to in this subsection. The term "Loan Documents", as used herein when
discussing Fonix Corporation, shall mean this Agreement and the Note.
(c) Proceeds of the Loan will be used by the Borrowers solely to
finance the working capital needs of Fonix/ASI Corporation and the working
capital needs of Fonix Corporation.
3. REPRESENTATIONS AND WARRANTIES.
The Borrowers hereby jointly and severally represent and warrant to the
Lender that:
(a) Organization and Qualification. The Borrowers are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and have all required corporate power
and authority to own or lease their property, to carry on their businesses as
presently conducted and to carry out the transactions contemplated hereby.
(b) Charter. The Borrowers have delivered to counsel to the Lender true
and complete copies of their respective Certificates of Incorporation or
equivalent documents as amended from time to time (the "Charters") and their
by-laws ("By-laws") as currently in effect.
(c) Authorization of Transaction. The execution, delivery and
performance of the Loan Documents by Borrowers have been duly authorized by all
necessary corporate action of the Borrowers. The Loan Documents are the legal,
valid and binding obligations of the Borrowers, enforceable against the
Borrowers in accordance with their terms, subject to laws of general application
relating to bankruptcy, insolvency and the relief of debtors. The issuance of
the Note by Borrowers pursuant to the terms of this Agreement is duly and
validly authorized, and no further approval or authority of the shareholders or
the directors of the Borrowers or of any governmental authority or agency will
be required for the issuance and sale of the Note as contemplated by this
Agreement.
(d) Approvals; Compliance With Laws. The execution, delivery and
performance of this Agreement by Borrowers and the transactions contemplated
hereby: (i) do not require any approval or consent of, or filing with, any
governmental agency or authority in the United States of America or otherwise
which has not been obtained and which is not in full force and effect as of the
date hereof; (ii) will not conflict with or constitute a breach or violation of
the Charters or By-laws of the Borrowers; and (iii) will not result in a
violation of any law or regulation to which they are subject.
(e) Disclosure. This Agreement, together with any financial statement,
schedule, exhibit or other statement (written or oral) pertaining to the
Borrowers, made, delivered or communicated to the Lender by the Borrowers, or
any representative thereof, in connection with this Agreement and the
transactions related thereto, contains no untrue statement of a material fact
and does not omit to state any material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which they were made.
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(f) Title. Fonix/ASI Corporation has good and marketable title to all
of the Collateral (as defined in the Security Agreement), free and clear of any
liens other than the liens disclosed on Schedule 3(f) attached hereto (the
"Permitted Liens").
(g) Enforcement; No Other Liens. The Borrowers have not performed any
acts which might prevent the Lender from enforcing any of the terms of this
Agreement or the Loan Documents or which would limit the Lender in any such
enforcement. Other than financing statements or other similar or equivalent
documents or instruments in favor of the Lender or with respect to the Permitted
Liens, no financing statement, mortgage or security agreement or similar or
equivalent document or instrument covering all or any part of the Collateral is
on file or of record in any jurisdiction in which such filing or recording would
be effected to perfect a lien on such Collateral. No Collateral is in the
possession of any person (other than the Borrowers) asserting any claim thereto
or security interest therein other than Collateral being repaired by third
parties in the ordinary course of business and inventory in transit.
(h) Perfection. The liens granted to Lender pursuant to the Loan
Documents constitute valid first priority security interests in the Collateral
securing the Obligations (as defined in the Security Agreements) and constitute
first priority perfected security interests in the Collateral to the extent that
a security interest therein may be perfected by filing pursuant to the UCC prior
to all other liens and rights of others therein except for the Permitted Liens.
(i) Accounts. Each Account which is reflected on Fonix/ASI
Corporation's books as an Account is a bona fide, valid and legally each
enforceable obligation of the account debtor in respect thereof, arising in the
ordinary course of Fonix/ASI Corporation's business.
(j) Perfection Certificate: The information set forth in the Perfection
Certificate attached hereto as Exhibit F is true and complete as of the date
hereof.
(k) Litigation. There are no actions, suits or proceedings pending
(nor, to the knowledge of Fonix/ASI Corporation, are there any actions, suits or
proceedings threatened, nor is there any basis therefor) against or affecting
Fonix/ASI Corporation's property in any court or before any arbitrator of any
kind or before or by any governmental body which would have a materially adverse
effect on either Borrower. There are no strikes or walkouts in progress relating
to any labor contracts to which Fonix/ASI Corporation is a party.
(l) No Material Adverse Change. Other than as disclosed in Schedule
3(l) attached hereto or as otherwise disclosed in the periodic reports filed by
Fonix Corporation with the Securities and Exchange Commission, there has
occurred, since December 31, 1998, no event which has had or is reasonably
likely to have a material adverse change on either Borrower or any of their
subsidiaries.
(m) Intellectual Property. Fonix/ASI Corporation owns or possesses the
adequate right to use all Intellectual Property Rights (as defined below)
necessary to the conduct of its business as presently conducted or presently
contemplated to be conducted as of the date of this Agreement. Schedule 3(m)
attached hereto contains a list of all patents, tradenames, trademarks, service
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marks, and registered copyrights and applications for the same owned by
Fonix/ASI Corporation or any of its subsidiaries. Fonix/ASI Corporation has
unencumbered title to the Intellectual Property Rights which are owned by
Fonix/ASI Corporation and such title has not been challenged (pending, or to the
knowledge of the Borrowers, threatened) by others. All such patents, registered
trademarks, service marks, and copyrights owned by Fonix/ASI Corporation are in
good standing and are recorded on the public record in the name of Fonix/ASI
Corporation, except for those failures to be in good standing and so recorded
that would not, individually or in the aggregate, have a material adverse
effect. For purposes of this Agreement, "Intellectual Property Rights" shall
mean and include all of Fonix/ASI Corporation's rights relating to patents,
trademarks, service marks, tradenames, copyrights, inventions, processes, trade
secrets, know-how, software and any documentation relating to the manufacture,
marketing and maintenance of products by Fonix/ASI Corporation.
(n) Subsidiaries. Schedule 3(n) attached hereto sets forth for each
corporation with respect to which the Borrowers, directly or indirectly, have
the power to vote or direct the voting of sufficient securities to elect all of
the directors (a "subsidiary") its name and jurisdiction of incorporation. Each
subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each
subsidiary is duly qualified to conduct business and is in good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to so qualify would not, individually or in the aggregate, have a
material adverse effect. Each subsidiary has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
4. BORROWER'S AGREEMENTS. The Borrowers jointly and severally agree as
follows:
(a) Borrowers will notify Lender, at least thirty (30) days prior to
any such event, of any change in any Borrower's exact legal name, any change in
their places of business or location as set forth in the preamble to this
Agreement, or their establishment of any new place of business or location, or
any change in either Borrowers' organizational structure.
(b) Except as consented to by the Lender, the Borrowers shall not pay
or set apart for payment to holders of their capital stock, any dividends, and
the Borrowers shall not redeem or purchase any shares of capital stock.
(c) The Borrowers may not amend their respective Charters or By-laws in
such a manner as may adversely affect the rights of the Lender hereunder, or
under any of the Loan Documents.
(d) The Borrowers will permit representatives designated by the Lender,
at Lender's expense, to visit and inspect any of the properties of Fonix/ASI
Corporation(or any subsidiary), and to inspect and make extracts of the books
and records of the Borrowers, and to discuss the affairs, finances, and accounts
of the Borrowers with its officers, all to such reasonable extent and at such
reasonable times and intervals as the representatives may reasonably request.
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(e) The Borrowers will maintain and cause each of their subsidiaries
now in existence or hereinafter acquired or created to maintain their corporate
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or states thereof or of any political
subdivisions thereof or of any government authority, where failure to so comply
would have a material adverse effect on either respective Borrower and its
subsidiaries, taken as a whole; provided, however, that nothing herein shall
prohibit the Borrowers from liquidating or dissolving any of their subsidiaries
into the Borrowers or merging any of their subsidiaries with or into the
Borrowers or any other subsidiary.
(f) Fonix/ASI Corporation will not create, assume, incur or permit or
suffer to exist or to be created, assumed or incurred, any lien upon any of its
properties or assets of any character whether now owned or hereafter acquired
other than Permitted Liens.
(g) Fonix/ASI Corporation will not create, assume, or otherwise become
or remain obligated in respect of, or permit or suffer to exist or to be
created, assumed or incurred or to be outstanding any indebtedness (other than
current trade payables and accrued expenses incurred in the ordinary course of
business and payable in accordance with customary practice).
(h) Fonix/ASI Corporation will not sell, transfer, lease or otherwise
dispose of any of the Collateral except in the ordinary course of business.
(i) The Borrowers acknowledge that the Lender has no existing
commitments, obligations or agreements to pay any monies, advance credits or
loans or make other financial accommodations to the Borrowers.
5. EVENTS OF DEFAULT; REMEDIES. Upon the occurrence and during the
continuance of an Event of Default: (a) the Loan shall bear interest at the
Default Rate of Interest (as defined in the Note); (b) the Lender may by notice
to Borrowers accelerate the payment of the Loan and all other obligations of
Borrowers hereunder and demand payment thereof; provided however, that, no such
notice shall be required and the principal and interest due under the Note shall
become immediately due and payable if the Event of Default is one under clause
(f), (g) or (h) of the definition of Event of Default; and (c) Lender may
proceed to enforce payment of any of the foregoing and shall have and may
exercise any and all rights under the UCC or which are afforded to Lender herein
or in the Loan Documents.
6. EXPENSES. Borrowers jointly and severally agree to pay Lender on
demand any and all reasonable out-of-pocket costs and expenses of any nature
(including without limitation reasonable attorneys' fees and disbursements)
which may be incurred by Lender in connection with exercise of Lender's rights
against the Borrowers after an Event of Default; any exercise of Lender's right
of acceleration; any enforcement, collection or other proceedings with respect
to the Loan; or any bankruptcy, insolvency or other similar proceedings of
either Borrower.
5
<PAGE>
7. CONDITIONS PRECEDENT.
Borrowers acknowledge and agree that Lender will not make the Loan
hereunder, unless and until all of the following conditions have been satisfied
and remain satisfied as of the date of funding the Loan:
(a) Representations and Warranties. Borrowers' representations
and warranties contained herein shall be correct and complete in all material
respects;
(b) Covenants. Borrowers shall be in compliance in all material
respects with all covenants and agreements contained herein;
(c) No Events of Default. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default; and
(d) Delivery of Documents. Borrowers shall have delivered, or caused to
be delivered, to Lender: (i) each of the Loan Documents; (ii) such legal
opinions as in its reasonable judgment the Lender deems necessary in form and
substance satisfactory to Lender in the form attached hereto as Exhibit G; (iii)
UCC-1 financing statements naming Lender as secured party, duly executed by
Fonix/ASI Corporation, in form and substance reasonably satisfactory to Lender,
as Lender shall reasonably request in its sole discretion; and (iv) a Common
Stock Warrant in the form attached hereto as Exhibit H.
(e) No Material Adverse Effect. No event or condition having a material
adverse effect with respect to either Borrower shall have occurred.
8. MISCELLANEOUS PROVISIONS.
(a) Indemnification. The Borrowers, severally and jointly, shall
indemnify and hold harmless Lender from and against any and all claims, actions,
suits, judgments, penalties, losses, damages, costs, disbursements, expenses,
obligations or liabilities of any kind or nature (except those resulting from
Lender's gross negligence or willful misconduct) arising in any way out of or in
connection with the Loan Documents and shall pay to Lender on demand any and all
amounts in connection therewith. The Borrowers shall make no claim against
Lender for or in connection with the exercise or enforcement by Lender of any
right or remedy granted to it under or any of the Loan Documents, or any action
taken or omitted to be taken by Lender hereunder (except for the gross
negligence or willful misconduct of Lender).
(b) Notices. Unless otherwise specified herein, all notices hereunder
shall be in writing directed to the addresses shown below:
6
<PAGE>
Lernout & Hauspie Speech Products N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Attn: Legal Department
Telephone: 011-32-57-228-888
Facsimile: 011-32-57-21-9661
with a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attn: Lawrence M. Levy, Esquire
Telephone: (617) 856-8200
Facsimile: (617) 856-8201
Fonix Corporation
60 East South Temple Street
Salt Lake City, Utah 84111
Attn: Thomas A. Murdock, President
Telephone: (801) 328-8700
Facsimile: (801) 328-8778
Fonix/ASI Corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
Attn: Thomas A. Murdock, President
Telephone: (801) 328-8700
Facsimile: (801) 328-8778
with a copy to:
Durham, Jones & Pinegar
50 South Main Street
Suite 800
Salt Lake City, Utah 84111
Attn: Jeffrey M. Jones, Esquire
Telephone: (801) 538-2424
Facsimile: (801) 538-2425
Written notices and communications shall be effective and shall be deemed
received on the day when delivered by hand or by facsimile transmission (with
written confirmation of transmission); on the next business day, if by
commercial overnight courier; and on the third business day, if by registered or
certified mail, postage prepaid.
7
<PAGE>
(c) No Waiver. No failure to exercise and no delay in exercising, on
the part of Lender, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right or remedy. Waiver by
Lender of any right or remedy on any one occasion shall not be construed as a
bar to or waiver thereof or of any other right or remedy on any future occasion.
Lender's rights and remedies hereunder, under any agreement or instrument
supplemental hereto or under any other agreement or instrument shall be
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
(d) Assignment. This Agreement shall be binding upon and shall inure to
the benefit of Borrowers and Lender and their respective successors and assigns;
provided that, Borrowers may not assign or transfer any rights or obligations
hereunder without Lender's prior written consent.
(e) Governing Law; Jurisdiction. This Agreement shall be governed by
the laws of the Commonwealth of Massachusetts (other than its laws relating to
conflicts of laws).
(f) Waiver of Jury Trial. The Borrowers irrevocably waive any and all
right to trial by jury in any legal proceeding arising out of or relating to the
Loan Documents or the transactions contemplated thereby.
(g) Amendments. The Parties may mutually amend any provision of the
Loan Documents, but only in a writing signed by all of the Parties.
(h) Break-Up. If Lender has not acquired all of the assets of Fonix/ASI
Corporation and certain assets of Fonix Corporation on or before 90 days from
the date of this Agreement, Fonix/ASI Corporation will grant Lender a worldwide,
perpetual, nonexclusive license, at commercially reasonable rates, to offer,
sell, offer to sell, distribute, market, make, develop or otherwise use any and
all intellectual property and proprietary technology of Fonix/ASI Corporation.
(i) Co-Borrowing Guaranties and Waivers; Contribution Agreement.
(i) Joint and Several Liability. All Loans made hereunder are
made to or for the benefit of each of the Borrowers. The Borrowers are jointly
and severally, directly and primarily liable for the full and indefeasible
payment when due and performance of all Obligations and for the prompt and full
payment and performance of all of the promises, covenants, representations, and
warranties made or undertaken by each Borrower under the Loan Documents and
Borrowers agree that such liability is independent of the duties, obligations,
and liabilities of each of the joint and several Borrowers. In furtherance of
the foregoing, each Borrower jointly and severally, absolutely and
unconditionally guaranties to Lender and agrees to be liable for the full and
indefeasible payment and performance when due of all the Obligations. This
guarantee is a continuing guarantee, and shall apply to all Obligations whenever
arising.
8
<PAGE>
(ii) Suretyship Waivers and Consents. Each Borrower
acknowledges that the obligations of such Borrower undertaken herein might be
construed to consist, at least in part, of the guaranty of obligations of
persons other than such Borrower (including the other Borrower) and, in full
recognition of that fact, each Borrower consents and agrees that Lender may, at
any time and from time to time, without notice or demand (except as provided in
and in accordance with the terms of this Agreement), whether before or after any
actual or purported termination, repudiation or revocation of this Agreement by
any Borrower, and without affecting the enforceability or continuing
effectiveness hereof as to each Borrower: (i) increase, extend, lengthen, or
otherwise change the time for payment or the terms of the Obligations or any
part thereof; (ii) supplement, restate, modify, amend, increase, decrease, or
waive, or enter into or give any agreement, approval or consent with respect to,
the Obligations or any part thereof, or any of the Loan Documents or any
additional security or guarantees, or any condition, covenant, default, remedy,
right, representation, or term thereof or thereunder, provided, however, that
such supplementation, restatement, amendment, modification, increase, decrease,
waiver or otherwise shall not impose, in writing (as opposed to by effect), any
greater or more onerous duty on a Borrower than as provided for in the Loan
Documents; (iii) accept new or additional instruments, documents, or agreements
in exchange for or relative to any of the Loan Documents or the Obligations or
any part thereof; (iv) accept partial payments on the Obligations; (v) receive
and hold additional security or guarantees for the Obligations or any part
thereof; (vi) release, reconvey, terminate, waive, abandon, fail to perfect,
subordinate, exchange, substitute, transfer, or enforce any Collateral, security
or guarantees, and apply any Collateral or security and direct the order or
manner of sale thereof as Lender in its sole and absolute discretion may
determine; (vii) release any person from any personal liability with respect to
the Obligations or any part thereof; (viii) settle, release on terms
satisfactory to Lender or by operation of applicable laws or otherwise liquidate
or enforce any Obligations and any Collateral or security therefor or guaranty
thereof in any manner, consent to the transfer of any Collateral or security and
bid and purchase at any sale; or (ix) consent to the merger, change or any other
restructuring or termination of the corporate existence of any Borrower, and any
corresponding restructuring of the Obligations, and any such merger, change,
restructuring or termination shall not affect the liability of any Borrower or
the continuing effectiveness hereof, or the enforceability hereof with respect
to all or any part of the Obligations.
(iii) Independent Enforcement. Lender may enforce this
Agreement independently as to each Borrower and independently of any other
remedy or security Lender at any time may have or hold in connection with the
Obligations, and it shall not be necessary for Lender to marshal assets in favor
of any Borrower or any guarantor or to proceed upon or against or exhaust any
Collateral or security or remedy before proceeding to enforce this Agreement
against any Borrower. Each Borrower expressly waives any right to require Lender
to marshal assets in favor of any Borrower or any guarantor of the Obligations
or to proceed against any other Borrower, and agrees that Lender may proceed
against any Borrower or any Collateral in such order as Lender shall determine
in its sole an absolute discretion.
(iv) Separate Actions. Lender may file a separate action or
actions against any Borrower, whether such action is brought or prosecuted with
9
<PAGE>
respect to any security or against any guarantor of the Obligations, or whether
any other person is joined in any such action or actions. Each Borrower agrees
that Lender and each Borrower and any affiliate of any Borrower may deal with
each other in connection with the Obligations or otherwise, or alter any
contracts or agreements now or hereafter existing between any of them, in any
manner whatsoever, all without in any way altering or affecting the continuing
enforceability of this Agreement. Each Borrower, as a joint and several Borrower
hereunder, expressly waives the benefit of any statute of limitations affecting
its joint and several liability hereunder (but not its primary liability) or the
enforcement of the Obligations or any rights of Lender created or granted
herein.
(v) Reinstatement of Rights and Remedies. Lender's rights
hereunder shall be reinstated and revived, and the enforceability of this
Agreement shall continue, with respect to any amount at any time paid on account
of the Obligations which thereafter shall be required to be restored or returned
by Lender, all as though such amount had not been paid. The rights of Lender
created or granted herein and the enforceability of this Agreement at all times
shall remain effective to cover the full amount of all the Obligations even
though the Obligations, including any part thereof or any Collateral, other
security or guaranty therefor, may be or hereafter may become invalid or
otherwise unenforceable as against any Borrower and whether or not any Borrower
shall have any personal liability with respect thereto.
(vi) Additional Waivers; Subordination. Each Borrower
expressly waives any and all defenses now or hereafter arising or asserted by
reason of (i) any disability or other defense of any other Borrower with respect
to the Obligations; (ii) the unenforceability or invalidity of any security or
guaranty for the Obligations or the lack of perfection or continuing perfection
or failure of priority of any security for the Obligations; (iii) the cessation
for any cause whatsoever of the liability of any Borrower (other than by reason
of the full payment and performance of all Obligations); (iv) any failure of
Lender to marshal assets in favor of any Borrower; (v) any failure of Lender to
give notice to any Borrower of sale or other disposition of Collateral of
another Borrower or any defect in any notice that may be given in connection
with any such sale or disposition of Collateral of any Borrower securing the
Obligations; (vi) any failure of Lender to comply with applicable law in
connection with the sale or other disposition of any Collateral or other
security of any Borrower, for any Obligation, including any failure of Lender to
conduct a commercially reasonable sale or other disposition of any Collateral or
other security of any Borrower for any Obligation; (vii) any act or omission of
Lender or others that directly or indirectly results in or aids the discharge or
release of any Borrower or the Obligations of any Borrower or any security or
guaranty therefor by operation of law or otherwise; (viii) any law which
provides that the obligation of a surety or guarantor must neither be larger in
amount nor in other respects more burdensome than that of the principal or which
reduces a surety's or guarantor's obligation in proportion to the principal
obligation; (ix) any failure of Lender to file or enforce a claim in any
bankruptcy or other proceeding with respect to any Borrower; (x) the avoidance
of any lien or security interest in assets of any Borrower in favor of Lender
for any reason; or (xi) any action taken by Lender that is authorized by this
section or any other provision of any Loan Document. Until such time, if any, as
all of the Obligations have been indefeasibly paid and performed in full and no
portion of any commitment of Lender to Borrowers under any Loan Document remains
in effect, each Borrower's indebtedness, claims and rights of subrogation,
contribution, reimbursement, or indemnity against the other Borrowers shall be
10
<PAGE>
fully and completely subordinated to the indefeasible repayment in full of the
Obligations, and each Borrower expressly waives until such indefeasible payment
any right to enforce any remedy that it now has or hereafter may have against
any other Person and waives the benefit of, or any right to participate in, any
Collateral now or hereafter held by Lender.
(vii) Subrogation Claims. To the fullest extent permitted by
applicable law, each Borrower expressly waives and agrees not to assert, any and
all defenses in its favor based upon an election of remedies by Lender which
destroys, diminishes, or affects such Borrower's subrogation rights against the
other Borrowers, and/or (except as explicitly provided for herein) any rights to
proceed against each other Borrower, or any other party liable to Lender, for
reimbursement, contribution, indemnity, or otherwise.
(viii) Waivers Given Knowingly. Borrowers and each of them
warrant and agree that each of the waivers and consents set forth herein are
made after consultation with legal counsel and with full knowledge of their
significance and consequences, with the understanding that events giving rise to
any defense or right waived may diminish, destroy, or otherwise adversely affect
rights which Borrowers otherwise may have against each other, Lender or others,
or against Collateral, and that, under the circumstances, the waivers and
consents herein given are reasonable and not contrary to public policy or law.
If any of the waivers or consents herein are determined to be contrary to any
applicable law or public policy, such waivers and consents shall be effective to
the maximum extent permitted by law.
(ix) Contribution Agreement. As an inducement to Lender to
enter into the Loan Documents and to make the Loan and extend credit to the
Borrowers, each Borrower agrees to indemnify and hold the other harmless from
and each shall have a continuing right of contribution against the other
Borrower,. These indemnification and contribution obligations shall be
unconditional and continuing obligations of the Borrowers and shall not be
waived, rescinded, modified, limited or terminated in any way whatsoever without
the prior written consent of Lender, in its sole discretion.
[SIGNATURE PAGE TO FOLLOW]
11
<PAGE>
[SIGNATURE PAGE TO LOAN AGREEMENT]
Executed as an instrument under seal on the date set forth above.
FONIX/ASI CORPORATION
By:/s/
----------------------------------------
Thomas A. Murdock
President
FONIX CORPORATION
By:/s/
----------------------------------------
Thomas A. Murdock
President and Chief Executive Officer
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By:/s/
----------------------------------------
Gaston Bastiaens
President and Chief Executive Officer
12
<PAGE>
EXHIBIT A
[NOTE]
13
<PAGE>
EXHIBIT B
[SECURITY AGREEMENT]
14
<PAGE>
EXHIBIT C
[PATENT SECURITY AGREEMENT]
15
<PAGE>
EXHIBIT D
[COPYRIGHT SECURITY AGREEMENT]
16
<PAGE>
EXHIBIT E
[TRADEMARK SECURITY AGREEMENT]
17
<PAGE>
EXHIBIT F
PERFECTION CERTIFICATE
The undersigned, the chief executive or financial officer of FONIX/ASI
CORPORATION, a Utah corporation (the "Company"), hereby certifies with reference
to the Loan Agreement dated as of April ___, 1999, among the Company, Fonix
Corporation, as Borrowers and Lernout & Hauspie Speech Products N.V., as Lender
(terms defined therein being used herein as therein defined), to the Lender and
each Lender as follows:
1. Names. (a) The exact corporate name of the Company as it
appears in its articles of organization is as follows:
Fonix/ASI Corporation
(b) Set forth below is each other corporate name the Company has had
since its organization, together with the date of the relevant change:
ASI Acquisition Corporation (incorporated on 6/26/98). ASI
Acquisition Corporation changed its name to Fonix/ASI
Corporation on 1/7/99.
(c) Except as set forth in Schedule 1 attached hereto, the Company has
not changed its identity or corporate structure in any way within the past five
years.
(SEE SCHEDULE I ATTACHED HERETO)
(d) The following is a list of all other names (including trade names
or similar appellations) used by the Company or any of its divisions or other
business units at any time during the past five years:
None.
2. Current Locations. (a) The chief executive office of the
Company is located at the following address:
Mailing Address County State
1225 Eagle Gate Tower Salt Lake County Utah
60 East South Temple
Salt Lake City
18
<PAGE>
(b) The following are all the locations where the Company maintains any
books or records relating to any Accounts:
1225 Eagle Gate Tower 600 West Cummings Park
60 East South Temple Suite 4500
Salt Lake City, UT 84111 Woburn, MA 01801
(c) The following are all the places of business of the Company not
identified above:
None.
(d) The following are all the locations where the Company maintains any
Inventory not identified above:
None.
(e) The following are the names and addresses of all persons other than
the Company which have possession of any of the Company's Inventory:
None.
3. Prior Locations. (a) Set forth below is the information required by
subparagraphs (a), (b) and (c) of paragraph 2 with respect to each location or
place of business maintained by the Company at any time during the past five
years:
N/A.
(b) Set forth below is the information required by subparagraphs (d)
and (e) of paragraph 2 with respect to each location or bailee where or with
whom Inventory has been lodged at any time during the past four months:
N/A.
4. File Search Reports. Attached hereto as Schedule 4(a) is a true copy of a
file search report from the UCC filing officer in each jurisdiction identified
in paragraph 2 or 3 above with respect to each name set forth in paragraph 1
above. Attached hereto as Schedule 4(b) is a true copy of each financing
statement or other filing identified in such file search reports.
Utah UCC searches shows nothing as of 4/5/99 for
Fonix/ASI Corporation, ASI Acquisition Corporation, or
Articulate Systems, Inc., or ASI Holdings, Inc.
Utah UCC search shows debtor Fonix to Secured Party
UTCO Associates, Ltd. Copies of UCC search, UCC-1 and related
Security Agreement are attached.
19
<PAGE>
SCHEDULE 1(c)
Articulate Systems, Inc., a Delaware corporation, merged into
ASI Acquisition Corporation on September 2, 1998; ASI
Acquisition Corporation is the surviving corporation.
Articulate Systems, Inc. changed its name from ASI Holdings,
Inc., on January 1, 1995.
ASI Holdings, Inc. was incorporated in the State of Delaware
on December 20, 1994.
20
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hands this _____ day of
April, 1999.
FONIX/ASI CORPORATION
By:/s/
----------------------------------
Name: Thomas A. Murdock
Title: President
21
<PAGE>
EXHIBIT G
[LEGAL OPINIONS]
(a) Fonix/ASI Corporation is validly existing and in good standing as a
corporation under the laws of the State of Utah and has full corporate power and
authority to own, lease and operate its properties, to carry on its business as
now being conducted by it and to execute, deliver and perform each Loan Document
to which it is a party.
(b) Each Loan Document constitutes the legal, valid and binding
agreement of Fonix/ASI Corporation and/or Fonix Corporation, as applicable,
enforceable against Fonix/ASI Corporation and/or Fonix Corporation, as
applicable, in accordance with its terms.
(c) The Common Stock Warrant constitutes the legal, valid and binding
obligation of Fonix Corporation enforceable against Fonix Corporation in
accordance with its terms.
(d) The execution, delivery and performance by Fonix/ASI Corporation of
each Loan Document and the consummation of the transactions contemplated thereby
will not: (i) conflict with any term or provision of the certificate of
incorporation or the by-laws of Fonix/ASI Corporation, (ii) result in any breach
of, or constitute a default under, or result in the creation of any Lien (except
as contemplated by the Loan Documents) in respect of any property of Fonix/ASI
Corporation under any indenture, mortgage, deed of trust, bank loan or credit
agreement, or other agreement or instrument; (iii) conflict with or result in a
breach of any terms, conditions or provisions of any judgment, decree or order
of any court or governmental authority or agency to which Fonix/ASI Corporation
or any of its properties are bound and which is known to us; or (iv) violate any
provision of any United States Federal, State of Utah or Commonwealth of
Massachusetts law or any rule or regulation of any United States Federal or
State of Utah or Commonwealth of Massachusetts governmental body applicable to
Fonix/ASI Corporation.
(e) To the extent the Fonix/ASI Corporation has rights in the
Collateral and value has been given, the Security Agreement creates a valid and
enforceable security interest in such Collateral, to the extent that valid
security interests can be created therein under the Uniform Commercial Code
presently in effect in the State of Utah and the Commonwealth of Massachusetts,
in favor of the Lender, as security for the payment of the Obligations (as
defined in the Security Agreement).
(f) The Financing Statements on Form UCC-1 naming Fonix/ASI Corporation
as secured party to be filed in the filing offices in the State of Utah and the
Commonwealth of Massachusetts, delivered in connection with the Loan Documents
are in appropriate form and, when duly filed and indexed in the filing offices
identified above, will result in the perfection of aforesaid security interests
in the Collateral to the extent such security interests can be perfected under
the Uniform Commercial Code, as in effect in such State, by the filing of a
Financing Statement in such State. No further action will be required in order
22
<PAGE>
to perfect such security interests and to preserve protect and continue such
perfection, except for the filing of periodic continuation statements with
respect to such Financing Statements.
(g) To our knowledge, there is no pending or threatened action, suit or
proceeding before any court, governmental or regulatory authority, agency,
commission or board arbitration, by or against Fonix/ASI Corporation, which we
believe could materially adversely affect Fonix/ASI Corporation.
(h) The shares issuable upon the exercise of the Common Stock Warrant
have been duly and validly authorized and, upon issuance, delivery and payment,
as described in the Common Stock Warrant, will be validly issued, fully paid and
nonassessable and free and clear of any preemptive or similar rights.
23
<PAGE>
EXHIBIT H
[COMMON STOCK WARRANT]
24
<PAGE>
SCHEDULE I - DEFINITIONS
"Accounts" means all "accounts" (as defined in the UCC) now owned or hereafter
acquired by Fonix/ASI Corporation and shall also mean and include all accounts
receivable, contract rights, book debts, notes, drafts and other obligations or
indebtedness owing to Fonix/ASI Corporation arising from the sale, lease or
exchange of goods or other property by it and/or the performance of services by
it (including, without limitation, any such obligation which might be
characterized as an account, contract right or general intangible under the
Uniform Commercial Code in effect in any jurisdiction) and all of Fonix/ASI
Corporation's rights in, to and under all purchase orders for goods, services or
other property, and all of Fonix/ASI Corporation's rights to any goods, services
or other property represented by any of the foregoing (including returned or
repossessed goods and unpaid sellers' rights of rescission, replevin,
reclamation and rights to stoppage in transit) and all monies due to or to
become due to Fonix/ASI Corporation under all contracts for the sale, lease or
exchange of goods or other property and/or the performance of services by it
(whether or not yet earned by performance on the part of Fonix/ASI Corporation),
including, without limitation, credit card receivables and credit card charge
records and evidences of credit card transactions, in each case whether now in
existence or hereafter arising or acquired including, without limitation, the
right to receive the proceeds of said purchase orders and contracts and all
collateral security and guarantees of any kind given by any Person with respect
to any of the foregoing.
"Event of Default" means any one or more of the following events:
(a) failure by either Borrower to pay any principal,
interest or other amount due hereunder or on account of the Loan when
due;
(b) failure by either Borrower to perform or discharge,
observe or comply with any of their covenants or agreements set forth
herein or in any of the Loan Documents (or any of the other security
documents delivered in connection herewith);
(c) if any representation or warranty of either Borrower to
Lender set forth herein is found to have been false or misleading in
any material respect as of the time when made;
(d) either Borrower's liquidation, termination, dissolution or
ceasing to carry on any substantial part of its current business;
(e) a change in control with respect to either Borrower or
consummation by either Borrower of a reorganization, merger or
consolidation with any other person or entity, transfer of all or
substantially all of their assets or properties or consummation of any
other plan or arrangement involving a similar extraordinary corporate
transaction;
(f) service upon the Lender of a writ of levy or attachment,
or naming Lender as trustee for either Borrower, or of any other
similar process of attachment.
25
<PAGE>
(g) commencement by either Borrower of a voluntary proceeding
seeking relief with respect to itself or its debts under any
bankruptcy, insolvency or other similar law, or seeking appointment of
a trustee, receiver, liquidator or other similar official for it or any
substantial part of its assets; or its consent to any of the foregoing
in an involuntary proceeding against it; or either Borrower shall
generally not be paying its debts as they become due or admit in
writing its inability to do so; or an assignment for the benefit of, or
the offering to or entering into by either Borrower of any composition,
extension, reorganization or other agreement or arrangement with, its
creditors; or
(h) commencement of an involuntary proceeding against either
Borrower seeking relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law, or seeking appointment of
a trustee, receiver, liquidator or other similar official for it or any
substantial part of its assets, which proceeding is not dismissed or
stayed within sixty (60) days.
"Inventory" means all "inventory" (as defined in the UCC), now owned or
hereafter acquired by Fonix/ASI Corporation, wherever located, and shall also
mean and include, without limitation, all consigned goods, all raw materials and
other materials and supplies, work-in-process and finished goods and any
products made or processed therefrom and all substances, if any, commingled
therewith or added thereto.
"Investment Property" shall mean all of Fonix/ASI Corporation's now owned and
hereafter existing or acquired securities, financial assets, securities
accounts, securities entitlements and all other investment property of
whatsoever kind or nature, wherever located.
"Loan" has the meaning given in Section 2(a) hereof.
"Note" means the note executed and delivered by Borrowers to Lender in the form
of Exhibit A attached hereto, made to evidence the Loan.
"Proceeds" has the meaning given such term under the UCC, and in any event
includes, without limitation, all proceeds of, and all other profits, products,
rentals or receipts, in whatever form, arising from the collection, sale, lease,
exchange, assignment, licensing or other disposition of, or other realization
upon, collateral, including, without limitation, all claims of the Borrowers
against third parties for loss of, damage to or destruction of, or for proceeds
payable under, or unearned premiums with respect to, policies of insurance in
respect of, any collateral, and any condemnation or requisition payments with
respect to any collateral, in each case whether now existing or hereafter
arising.
"Security Agreement" means the security agreement executed and delivered by
Fonix/ASI Corporation to Lender in the form of Exhibit B attached hereto,
entered into in connection with the Loan.
26
<PAGE>
AMENDMENT TO LOAN AGREEMENT
(Increase in Loan Amount and Other Changes)
Amendment to Loan Agreement ("Amendment") made as of the 12th day of
May, 1999, by and among FONIX CORPORATION, a Delaware corporation, and FONIX/ASI
CORPORATION, a Utah corporation, jointly and severally (each a "Borrower", and
collectively, the "Borrowers"), and LERNOUT & HAUSPIE SPEECH PRODUCTS N.V., a
Belgian corporation ("Lender"), with respect to that certain Loan Agreement
dated April 22, 1999 by and among Borrowers and Lender (as amended, the "April
Loan Agreement"). Capitalized terms not defined herein shall have the meanings
ascribed thereto in the April Loan Agreement.
WHEREAS, Borrowers and the Lender are parties to the April Loan
Agreement pursuant to which the Lender has provided a loan of $1,000,000 on
April 28, 1999 to the Borrowers;
WHEREAS, the Borrowers have requested and the Lender has agreed that
the Lender will provide an additional loan of One Hundred Thousand Dollars
($100,000.00) on or before May 15, 1999 to the Borrowers, under the terms and
subject to the conditions of the April Loan Agreement, as amended hereby;
NOW THEREFORE, based on these premises, and in consideration of the
mutual promises contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties, the
Borrowers and the Lender hereby agree as follows:
1. Amendments to Loan Agreement.
a. Loan Amount. Section 2(a) of the April Loan Agreement is hereby
stricken and deleted in its entirety and replaced with the following in lieu
thereof:
"(a) The Lender shall make a loan to Borrowers in the original
principal amount of One Million One Hundred Thousand Dollars
($1,100,000.00) (the "Loan") by advancing One Million Dollars
($1,000,000) on April 28, 1999 and One Hundred Thousand Dollars
($100,000.00) on or before May 15, 1999, subject to the terms and
conditions contained in this Agreement, as amended. Once repaid,
the Loan may not be reborrowed. The Loan shall be due and payable
as set forth in the Note in the form attached hereto as Exhibit A,
as amended."
b. Loan Documents. Section 2(b) of the April Loan Agreement is hereby
stricken and deleted in its entirety and replaced with the following in lieu
thereof:
1
<PAGE>
"(b)The Loan shall be evidenced by the Note and shall be
secured by: (i) a first priority security interest in all of the
assets of Fonix/ASI Corporation pursuant to a Security Agreement
in the form attached hereto as Exhibit B, as amended (as amended,
the "Security Agreement"); (ii) a Patent Security Agreement in the
form attached hereto as Exhibit C ; (iii) a Copyright Security
Agreement in the form attached hereto as Exhibit D ; and (iv) a
Trademark Security Agreement in the form attached hereto as
Exhibit E . The Loan shall bear interest and be payable as set
forth in the Note. The term "Loan Documents", as used herein when
discussing Fonix/ASI Corporation, shall mean this Agreement and
the documents referred to in this subsection, as each such
document may be amended. The term "Loan Documents", as used herein
when discussing Fonix Corporation, shall mean this Agreement and
the Note."
c. Title. Section 3(f) of the April Loan Agreement is hereby stricken
and deleted in its entirety and replaced with the following in lieu thereof:
"(f)Title. Fonix/ASI Corporation has good and marketable title to
all of the Collateral (as defined in the Security Agreement), free
and clear of any liens other than the liens disclosed on Schedule
3(f) attached hereto or liens held by the Lender (the "Permitted
Liens")."
d. Note. The definition of "Note" in Schedule I - Definitions of the
April Loan Agreement is hereby amended to add the words "as amended" after the
word "hereto," as it appears therein.
2. Conditions Precedent.
Each Borrower acknowledges and agrees that Lender will not enter into
this Amendment unless and until all of the following conditions have been
satisfied and remain satisfied:
(a) Representations and Warranties. Borrowers' representations and
warranties contained herein and in each and every Loan Document shall be correct
and complete in all material respects;
(b) Covenants. Borrowers shall be in compliance in all material
respects with all covenants and agreements contained herein and in each and
every Loan Document;
(c) No Events of Default. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default; and
2
<PAGE>
(d) Delivery of Documents. Borrowers shall have executed and delivered,
or caused to be delivered, to Lender: (i) this Amendment, (ii) the Amendment To
Promissory Note in the form attached hereto as Exhibit A, and (iii) the
Amendment to Security Agreement in the form attached hereto as Exhibit B.
(e) No Material Adverse Effect. No event or condition having a material
adverse effect with respect to either Borrower shall have occurred.
3. Additional Provisions.
(a) No Prepayment of Indebtedness. Each Borrower represents, warrants,
covenants and agrees that it shall not prepay any indebtedness to any party
other than the Lender.
4. Representations and Warranties. To induce the Lender to enter into
this Amendment and perform its obligations hereunder, Borrowers hereby jointly
and severally represent and warrant as follows:
(a) Organization and Qualification. The Borrowers are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and have all required corporate power
and authority to own or lease their property, to carry on their businesses as
presently conducted and to carry out the transactions contemplated hereby.
(b) Charter. The Borrowers have delivered to counsel to the Lender true
and complete copies of their respective Certificates of Incorporation or
equivalent documents as amended from time to time (the "Charters") and their
by-laws ("By-laws") as currently in effect.
(c) Authorization of Transaction. The execution, delivery and
performance of this Amendment, the other documents executed and/or delivered in
connection herewith, and the other Loan Documents by Borrowers have been duly
authorized by all necessary corporate action of the Borrowers. The Loan
Documents are the legal, valid and binding obligations of the Borrowers,
enforceable against the Borrowers in accordance with their terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors. The issuance of the Amendment to Promissory Note by Borrowers pursuant
to the terms of this Amendment is duly and validly authorized, and no further
approval or authority of the shareholders or the directors of the Borrowers or
of any governmental authority or agency will be required for the issuance and
sale of the Note as contemplated by this Agreement.
(d) Approvals; Compliance With Laws. The execution, delivery and
performance of this Amendment by Borrowers and the transactions contemplated
hereby: (i) do not require any approval or consent of, or filing with, any
governmental agency or authority in the United States of America or otherwise
which has not been obtained and which is not in full force and effect as of the
date hereof; (ii) will not conflict with or constitute a breach or violation of
3
<PAGE>
the Charters or By-laws of the Borrowers; and (iii) will not result in a
violation of any law or regulation to which they are subject.
(e) Disclosure. This Amendment, together with any financial statement,
schedule, exhibit or other statement (written or oral) pertaining to the
Borrowers, made, delivered or communicated to the Lender by the Borrowers, or
any representative thereof, in connection with this Amendment and the
transactions related thereto, contains no untrue statement of a material fact
and does not omit to state any material fact necessary in order to make the
statements contained therein not misleading in light of the circumstances under
which they were made.
(f) Title. Fonix/ASI Corporation has good and marketable title to all
of the Collateral (as defined in the Security Agreement), free and clear of any
liens other than the liens disclosed on Schedule 3(f) attached to the April Loan
Agreement or liens held by the Lender (the "Permitted Liens"), and Fonix
Corporation has good and marketable title to all of the capital stock of
Fonix/ASI Corporation, free and clear of any liens other than the Permitted
Liens.
(g) Enforcement; No Other Liens. The Borrowers have not performed any
acts which might prevent the Lender from enforcing any of the terms of this
Amendment or the Loan Documents or which would limit the Lender in any such
enforcement. Other than financing statements or other similar or equivalent
documents or instruments in favor of the Lender or with respect to the Permitted
Liens, no financing statement, mortgage or security agreement or similar or
equivalent document or instrument covering all or any part of the Collateral is
on file or of record in any jurisdiction in which such filing or recording would
be effected to perfect a lien on such Collateral. No Collateral is in the
possession of any person (other than the Borrowers) asserting any claim thereto
or security interest therein other than Collateral being repaired by third
parties in the ordinary course of business and inventory in transit.
(h) Perfection. The liens granted to Lender pursuant to the Loan
Documents constitute valid first priority security interests in the Collateral
securing the Obligations (as defined in the Security Agreements) and constitute
first priority perfected security interests in the Collateral to the extent that
a security interest therein may be perfected by filing pursuant to the UCC prior
to all other liens and rights of others therein except for the Permitted Liens.
(i) No Material Adverse Change. Other than as disclosed in Schedule
3(l) to the April Loan Agreement or as otherwise disclosed in the periodic
reports filed by Fonix Corporation with the Securities and Exchange Commission,
there has occurred, since December 31, 1998, no event which has had or is
reasonably likely to have a material adverse change on either Borrower or any of
their subsidiaries.
(j) Intellectual Property. Fonix/ASI Corporation owns or possesses the
adequate right to use all Intellectual Property Rights necessary to the conduct
of its business as presently conducted or presently contemplated to be conducted
as of the date of this Agreement. Schedule 3(m) attached to the April Loan
4
<PAGE>
Agreement contains a list of all patents, tradenames, trademarks, service marks,
and registered copyrights and applications for the same owned by Fonix/ASI
Corporation or any of its subsidiaries. Fonix/ASI Corporation has unencumbered
title to the Intellectual Property Rights which are owned by Fonix/ASI
Corporation and such title has not been challenged (pending, or to the knowledge
of the Borrowers, threatened) by others. All such patents, registered
trademarks, service marks, and copyrights owned by Fonix/ASI Corporation are in
good standing and are recorded on the public record in the name of Fonix/ASI
Corporation, except for those failures to be in good standing and so recorded
that would not, individually or in the aggregate, have a material adverse
effect.
(k) No Conflict. The execution, delivery and performance of this
Amendment and each document executed and/or delivered in connection herewith by
the Borrowers will not violate (i) any organizational documents of any Borrower,
or (ii) any requirement of law affecting any of the Borrowers or any of their
properties, and will not result in or require the creation (except as provided
in or contemplated by this Amendment) of any security interest or lien upon any
of such properties. None of the Borrowers is in violation of or default in any
material respect under any requirement of law, and no condition exists that
would, with the giving of notice or lapse of time, or both, constitute such a
violation or default.
(l) Loan Documents. Each Borrower represents and warrants to the Lender
that each of the representations and warranties in the Loan Documents,
including, without limitation, the April Loan Agreement (in Section 3 of the
April Loan Agreement or elsewhere) are still true as of the date hereof.
5. Confirmation. Except as specifically provided herein, all other terms
and conditions of the April Loan Agreement and the other Loan Documents shall
remain in full force and effect in accordance with their original terms. Without
limitation of the foregoing, Borrowers confirm that the new loans made by Lender
pursuant to this Amendment shall be governed by, secured by and entitled to the
benefit of the terms and conditions of the April Loan Agreement and the other
Loan Documents.
Each Borrower each hereby (a) consents to the execution of the
Amendment To Promissory Note, the Amendment to Security Agreement, and each
other document relating thereto, all of even date herewith, executed by each
other Borrower, and (b) agrees and confirms that any and all documents and
instruments securing any of their obligations shall be deemed to secure any
obligation of such party as it may be amended or affected hereby.
6. References. All references in the April Loan Agreement to "this
Agreement" shall hereafter be deemed to refer to the April Loan Agreement as
amended hereby and as otherwise hereafter amended, supplemented or modified. All
references in the Loan Documents shall hereafter be deemed to refer to the April
Loan Agreement as amended hereby and as otherwise hereafter amended,
supplemented or modified.
5
<PAGE>
7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the Borrowers and the Lender have executed this
Amendment as of the date first above written, by their respective officers
hereunto duly authorized, under Massachusetts law as a document under seal.
WITNESS: FONIX CORPORATION
By:/s/
- ----------------------------- --------------------------------------
Thomas A. Murdock
President and Chief Executive Officer
WITNESS: FONIX/ASI CORPORATION
By:/s/
- ----------------------------- --------------------------------------
Thomas A. Murdock
President
WITNESS: LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V.
By:/s/
- ----------------------------- --------------------------------------
Gaston Bastiaens
President and Chief Executive Officer
6
<PAGE>
EXHIBIT A
Form of Amendment To Promissory Note
7
<PAGE>
EXHIBIT B
Form of Amendment To Security Agreement
8
<PAGE>
SECOND AMENDMENT TO LOAN AGREEMENT
Second Amendment to Loan Agreement ("Amendment") made as of the 19th
day of May, 1999, by and among FONIX CORPORATION, a Delaware corporation, and
FONIX/ASI CORPORATION, a Utah corporation, jointly and severally (each a
"Borrower", and collectively, the "Borrowers"), and LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V., a Belgian corporation ("Lender"), with respect to that certain
Loan Agreement dated April 22, 1999 by and among Borrowers and Lender, as
amended by that certain Amendment to Loan Agreement dated as of May 12, 1999 (as
amended, the "April Loan Agreement"). Capitalized terms not defined herein shall
have the meanings ascribed thereto in the April Loan Agreement.
WHEREAS, Borrowers and the Lender are parties to the April Loan
Agreement pursuant to which the Lender has provided a loan of $1,000,000 on
April 28, 1999 and a loan of $100,000 on or about May 12, 1999 to the Borrowers;
WHEREAS, Fonix/ASI Corporation and Lender have agreed to enter into an
additional Loan Agreement dated as of the date hereof (the "May Loan
Agreement"), under which the Lender will provide additional loans of up to
$4,900,000 to Fonix/ASI Corporation, under the terms and conditions thereof;
WHEREAS, in connection with the May Loan Agreement, Borrowers and the
Lender have agreed to certain amendments to the terms of the April Loan
Agreement and the Loan Documents;
NOW THEREFORE, based on these premises, and in consideration of the
mutual promises contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties, the
Borrowers and the Lender hereby agree as follows:
1. Amendments to Loan Agreement.
(a) Loans to Fonix Corporation. Section 4(b) of the April Loan
Agreement is hereby stricken and deleted in its entirety, and replaced with the
following in lieu thereof:
" (b) Except as consented to by the Lender, the Borrowers shall
not pay or set apart for payment to holders of their capital
stock, any dividends, and the Borrowers shall not redeem or
purchase any shares of capital stock, provided, however, that
notwithstanding anything to the contrary herein and subject to
satisfaction of all of the conditions precedent set forth in
Section 7 hereof, Fonix/ASI Corporation may loan such amounts to
Fonix Corporation as may be permitted under Section 4(b) of the
Loan Agreement between Fonix/ASI Corporation and Lender dated as
of May 19, 1999, and subject to the conditions thereof."
1
<PAGE>
(b) Indebtedness. Section 4(g) of the Loan Agreement is hereby stricken
and deleted in its entirety and replaced with the following in lieu thereof:
"(g) Fonix/ASI Corporation will not create, assume, or otherwise become
or remain obligated in respect of, or permit or suffer to exist or
to be created, assumed or incurred or to be outstanding any
indebtedness (other than current trade payables and accrued
expenses incurred in the ordinary course of business and payable
in accordance with customary practice), or indebtedness to the
Lender."
(c) Break-Up. Section 8(h) of the Loan Agreement is hereby stricken and
deleted in its entirety and replaced with the following in lieu thereof:
"h. Intentionally omitted."
2. Conditions Precedent.
Each Borrower acknowledges and agrees that Lender will not enter into
this Amendment unless and until all of the following conditions have been
satisfied and remain satisfied:
(a) Representations and Warranties. Borrowers' representations and
warranties contained herein and in each and every Loan Document shall be correct
and complete in all material respects;
(b) Covenants. Borrowers shall be in compliance in all material
respects with all covenants and agreements contained herein and in each and
every Loan Document;
(c) No Events of Default. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default; and
(d) Delivery of Documents. Borrowers shall have executed and delivered,
or caused to be delivered, to Lender: (i) this Amendment, (ii) the Second
Amendment To Promissory Note in the form attached hereto as Exhibit A, (iii) the
Second Amendment to Security Agreement in the form attached hereto as Exhibit B,
(iv) such legal opinions as in its reasonable judgment the Lender deems
necessary in form and substance satisfactory to Lender in the form attached
hereto as Exhibit C; and (v) a completed Exhibit D showing bank accounts as set
forth in Section 3(a) hereof.
(e) No Material Adverse Effect. No event or condition having a material
adverse effect with respect to either Borrower shall have occurred.
3. Additional Provisions.
2
<PAGE>
(a) Bank Accounts. Each Borrower represents, warrants,
covenants and agrees that it shall hold all proceeds of the Loan at only those
bank accounts set forth on Exhibit D attached hereto, until such time the
Borrowers make disbursements from such accounts for the purposes set forth in
Section 2(c) of the April Loan Agreement.
(b) No Prepayment of Indebtedness. Each Borrower represents,
warrants, covenants and agrees that it shall not prepay any indebtedness to any
party other than the Lender.
4. Representations and Warranties. To induce the Lender to enter into
this Amendment and perform its obligations hereunder, Borrowers hereby jointly
and severally represent and warrant as follows:
(a) Organization and Qualification. The Borrowers are corporations duly
organized, validly existing and in good standing under the laws of their
respective jurisdictions of incorporation and have all required corporate power
and authority to own or lease their property, to carry on their businesses as
presently conducted and to carry out the transactions contemplated hereby.
(b) Charter. The Borrowers have delivered to counsel to the Lender true
and complete copies of their respective Certificates of Incorporation or
equivalent documents as amended from time to time (the "Charters") and their
by-laws ("By-laws") as currently in effect.
(c) Authorization of Transaction. The execution, delivery and
performance of this Amendment, the other documents executed and/or delivered in
connection herewith, and the other Loan Documents by Borrowers have been duly
authorized by all necessary corporate action of the Borrowers. The Loan
Documents are the legal, valid and binding obligations of the Borrowers,
enforceable against the Borrowers in accordance with their terms, subject to
laws of general application relating to bankruptcy, insolvency and the relief of
debtors. The issuance of the Amendment to Promissory Note by Borrowers pursuant
to the terms of this Amendment is duly and validly authorized, and no further
approval or authority of the shareholders or the directors of the Borrowers or
of any governmental authority or agency will be required for the issuance and
sale of the Note as contemplated by this Agreement.
(d) Approvals; Compliance With Laws. The execution, delivery and
performance of this Amendment by Borrowers and the transactions contemplated
hereby: (i) do not require any approval or consent of, or filing with, any
governmental agency or authority in the United States of America or otherwise
which has not been obtained and which is not in full force and effect as of the
date hereof; (ii) will not conflict with or constitute a breach or violation of
the Charters or By-laws of the Borrowers; and (iii) will not result in a
violation of any law or regulation to which they are subject.
(e) Disclosure. This Amendment, together with any financial statement,
schedule, exhibit or other statement (written or oral) pertaining to the
Borrowers, made, delivered or communicated to the Lender by the Borrowers, or
any representative thereof, in connection with this Amendment and the
transactions related thereto, contains no untrue statement of a material fact
and does not omit to state any material fact necessary in order to make the
3
<PAGE>
statements contained therein not misleading in light of the circumstances under
which they were made.
(f) Title. Fonix/ASI Corporation has good and marketable title to all
of the Collateral (as defined in the Security Agreement), free and clear of any
liens other than the liens disclosed on Schedule 3(f) attached to the April Loan
Agreement or liens held by the Lender (the "Permitted Liens"), and Fonix
Corporation has good and marketable title to all of the capital stock of
Fonix/ASI Corporation, free and clear of any liens other than the Permitted
Liens.
(g) Enforcement; No Other Liens. The Borrowers have not performed any
acts which might prevent the Lender from enforcing any of the terms of this
Amendment or the Loan Documents or which would limit the Lender in any such
enforcement. Other than financing statements or other similar or equivalent
documents or instruments in favor of the Lender or with respect to the Permitted
Liens, no financing statement, mortgage or security agreement or similar or
equivalent document or instrument covering all or any part of the Collateral is
on file or of record in any jurisdiction in which such filing or recording would
be effected to perfect a lien on such Collateral. No Collateral is in the
possession of any person (other than the Borrowers) asserting any claim thereto
or security interest therein other than Collateral being repaired by third
parties in the ordinary course of business and inventory in transit.
(h) Perfection. The liens granted to Lender pursuant to the Loan
Documents constitute valid first priority security interests in the Collateral
securing the Obligations (as defined in the Security Agreements) and constitute
first priority perfected security interests in the Collateral to the extent that
a security interest therein may be perfected by filing pursuant to the UCC prior
to all other liens and rights of others therein except for the Permitted Liens.
(i) No Material Adverse Change. Other than as disclosed in Schedule
3(l) to the April Loan Agreement or as otherwise disclosed in the periodic
reports filed by Fonix Corporation with the Securities and Exchange Commission,
there has occurred, since December 31, 1998, no event which has had or is
reasonably likely to have a material adverse change on either Borrower or any of
their subsidiaries.
(j) Intellectual Property. Fonix/ASI Corporation owns or possesses the
adequate right to use all Intellectual Property Rights necessary to the conduct
of its business as presently conducted or presently contemplated to be conducted
as of the date of this Agreement. Schedule 3(m) attached to the April Loan
Agreement contains a list of all patents, tradenames, trademarks, service marks,
and registered copyrights and applications for the same owned by Fonix/ASI
Corporation or any of its subsidiaries. Fonix/ASI Corporation has unencumbered
title to the Intellectual Property Rights which are owned by Fonix/ASI
Corporation and such title has not been challenged (pending, or to the knowledge
of the Borrowers, threatened) by others. All such patents, registered
trademarks, service marks, and copyrights owned by Fonix/ASI Corporation are in
good standing and are recorded on the public record in the name of Fonix/ASI
Corporation, except for those failures to be in good standing and so recorded
that would not, individually or in the aggregate, have a material adverse
effect.
4
<PAGE>
(k) No Conflict. The execution, delivery and performance of this
Amendment and each document executed and/or delivered in connection herewith by
the Borrowers will not violate (i) any organizational documents of any Borrower,
or (ii) any requirement of law affecting any of the Borrowers or any of their
properties, and will not result in or require the creation (except as provided
in or contemplated by this Amendment) of any security interest or lien upon any
of such properties. None of the Borrowers is in violation of or default in any
material respect under any requirement of law, and no condition exists that
would, with the giving of notice or lapse of time, or both, constitute such a
violation or default.
(l) Loan Documents. Each Borrower represents and warrants to the Lender
that each of the representations and warranties in the Loan Documents,
including, without limitation, the April Loan Agreement (in Section 3 of the
April Loan Agreement or elsewhere) are still true as of the date hereof.
5. Confirmation. Except as specifically provided herein, all other terms
and conditions of the April Loan Agreement and the other Loan Documents shall
remain in full force and effect in accordance with their original terms. Without
limitation of the foregoing, Borrowers confirm that the new loans made by Lender
pursuant to this Amendment shall be governed by, secured by and entitled to the
benefit of the terms and conditions of the April Loan Agreement and the other
Loan Documents.
Each Borrower each hereby (a) consents to the execution of the
Amendment To Promissory Note, the Amendment to Security Agreement, and each
other document relating thereto, all of even date herewith, executed by each
other Borrower, and (b) agrees and confirms that any and all documents and
instruments securing any of their obligations shall be deemed to secure any
obligation of such party as it may be amended or affected hereby.
6. References. All references in the April Loan Agreement to "this
Agreement" shall hereafter be deemed to refer to the April Loan Agreement as
amended hereby and as otherwise hereafter amended, supplemented or modified. All
references in the Loan Documents shall hereafter be deemed to refer to the April
Loan Agreement as amended hereby and as otherwise hereafter amended,
supplemented or modified.
7. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall be deemed to constitute one and the same agreement.
5
<PAGE>
IN WITNESS WHEREOF, the Borrowers and the Lender have executed this
Amendment as of the date first above written, by their respective officers
hereunto duly authorized, under Massachusetts law as a document under seal.
WITNESS: FONIX CORPORATION
By:/s/
- ----------------------------- --------------------------------------
Thomas A. Murdock
President and Chief Executive Officer
WITNESS: FONIX/ASI CORPORATION
By:/s/
- ----------------------------- --------------------------------------
Thomas A. Murdock
President
WITNESS: LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V.
By:/s/
- ----------------------------- --------------------------------------
Gaston Bastiaens
President and Chief Executive Officer
6
<PAGE>
EXHIBIT A
Form of Amendment To Promissory Note
7
<PAGE>
EXHIBIT B
Form of Amendment To Security Agreement
8
<PAGE>
EXHIBIT C
Form of Legal Opinion
(a) Fonix Corporation is validly existing and in good standing as a
corporation under the laws of the State of Delaware and has full corporate power
and authority to own, lease and operate its properties, to carry on its business
as now being conducted by it and to execute, deliver and perform each Loan
Document (defined herein to include each Loan Document under either or both of
the Loan Agreement dated as of May 19, 1999 between Fonix/ASI Corporation and
Lender or the Loan Agreement dated as of April 22, 1999 among Fonix Corporation,
Fonix/ASI Corporation, and Lender) to which it is a party.
(b) Fonix/ASI Corporation is validly existing and in good standing as a
corporation under the laws of the State of Utah and has full corporate power and
authority to own, lease and operate its properties, to carry on its business as
now being conducted by it and to execute, deliver and perform each Loan Document
to which it is a party.
(c) Each Loan Document constitutes the legal, valid and binding
agreement of Fonix/ASI Corporation and/or Fonix Corporation, as applicable,
enforceable against Fonix/ASI Corporation and/or Fonix Corporation, as
applicable, in accordance with its terms.
(d) The Common Stock Warrant dated as of May 19, 1999 constitutes the
legal, valid and binding obligation of Fonix Corporation enforceable against
Fonix Corporation in accordance with its terms.
(e) The execution, delivery and performance by Fonix Corporation of
each Loan Document and the consummation of the transactions contemplated thereby
will not: (i) conflict with any term or provision of the certificate of
incorporation or the by-laws of Fonix Corporation, (ii) result in any breach of,
or constitute a default under, or result in the creation of any Lien (except as
contemplated by the Loan Documents) in respect of any property of Fonix
Corporation under any indenture, mortgage, deed of trust, bank loan or credit
agreement, or other agreement or instrument, including, without limitation any
agreement with, or document or instrument delivered to Dragon Systems, Inc.
("Dragon"); (iii) conflict with or result in a breach of any terms, conditions
or provisions of any judgment, decree or order of any court or governmental
authority or agency to which Fonix Corporation or any of its properties are
bound and which is known to us; or (iv) violate any provision of any United
States Federal, State of Delaware, or Commonwealth of Massachusetts law or any
rule or regulation of any United States Federal or State of Delaware or
Commonwealth of Massachusetts governmental body applicable to Fonix Corporation.
(f) The execution, delivery and performance by Fonix/ASI Corporation of
each Loan Document and the consummation of the transactions contemplated thereby
will not: (i) conflict with any term or provision of the certificate of
incorporation or the by-laws of Fonix/ASI Corporation, (ii) result in any breach
of, or constitute a default under, or result in the creation of any Lien (except
as contemplated by the Loan Documents) in respect of any property of Fonix/ASI
Corporation under any indenture, mortgage, deed of trust, bank loan or credit
9
<PAGE>
agreement, or other agreement or instrument, including, without limitation any
agreement with, or document or instrument delivered to Dragon;; (iii) conflict
with or result in a breach of any terms, conditions or provisions of any
judgment, decree or order of any court or governmental authority or agency to
which Fonix/ASI Corporation or any of its properties are bound and which is
known to us; or (iv) violate any provision of any United States Federal, State
of Utah or Commonwealth of Massachusetts law or any rule or regulation of any
United States Federal or State of Utah or Commonwealth of Massachusetts
governmental body applicable to Fonix/ASI Corporation.
(g) To the extent that Fonix Corporation has rights in the capital
stock of Fonix/ASI Corporation and value has been given, the Pledge and Security
Agreement creates a valid and enforceable security interest in such capital
stock, to the extent that valid security interests can be created therein under
the Uniform Commercial Code presently in effect in the State of Utah, the State
of Delaware, and the Commonwealth of Massachusetts, in favor of the Lender, as
security for the payment of the Obligations (as defined in the Security
Agreement).
(h) To the extent that Fonix/ASI Corporation has rights in the
Collateral and value has been given, the Security Agreement creates a valid and
enforceable security interest in such Collateral, to the extent that valid
security interests can be created therein under the Uniform Commercial Code
presently in effect in the State of Utah and the Commonwealth of Massachusetts,
in favor of the Lender, as security for the payment of the Obligations (as
defined in the Security Agreement).
(i) The Financing Statements on Form UCC-1 naming Fonix/ASI Corporation
as secured party to be filed in the filing offices in the State of Utah and the
Commonwealth of Massachusetts, delivered in connection with the Loan Documents
executed as of April 22, 1999, are in appropriate form and, when duly filed and
indexed in the filing offices identified above, will result in the perfection of
aforesaid security interests in the Collateral to the extent such security
interests can be perfected under the Uniform Commercial Code, as in effect in
such State, by the filing of a Financing Statement in such State. No further
action will be required in order to perfect such security interests and to
preserve protect and continue such perfection, except for the filing of periodic
continuation statements with respect to such Financing Statements.
(j) To our knowledge, there is no pending or threatened action, suit or
proceeding before any court, governmental or regulatory authority, agency,
commission or board arbitration, by or against Fonix Corporation or Fonix/ASI
Corporation, which we believe could materially adversely affect either Fonix
Corporation or Fonix/ASI Corporation.
(k) The shares issuable upon the exercise of the Common Stock Warrant
dated as of May 19, 1999 have been duly and validly authorized and, upon
issuance, delivery and payment, as described in the Common Stock Warrant, will
be validly issued, fully paid and nonassessable and free and clear of any
preemptive or similar rights.
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EXHIBIT D
<TABLE>
<CAPTION>
Bank Accounts
Borrower Bank Address of Bank Bank Account No.
<S> <C> <C> <C>
FONIX CORPORATION Key Bank National Salt Lake City, Utah 4450-1000-1292
Association Account Name: Durham Jones &
Pinegar Trust Account
FONIX/ASI CORPORATION Cambridge Trust 1336 Massachusetts Ave. 57-509-7-01
Company Cambridge, MA 02138 Account Name: Articulate Systems
</TABLE>
<PAGE>
LOAN AGREEMENT
LOAN AGREEMENT dated as of May 19, 1999 entered into by and among
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V., a Belgian corporation ("Lender"), with a
place of business at Flanders Language Valley 50, B-8900, Ieper, Belgium, on the
one hand, and FONIX/ASI CORPORATION, a Utah corporation, having its principal
place of business at 1225 Eagle Gate Tower, 60 East South Temple Street, Salt
Lake City, Utah, 84111, and a place of business at 600 West Cummings Park, Suite
4500, Woburn, Massachusetts 01801, on the other hand (the "Borrower").
W I T N E S S E T H:
WHEREAS, the Borrower and Fonix Corporation are parties to a Loan
Agreement dated as of April 22, 1999 with Lender, pursuant to which the Lender
has previously provided a loan of One Million One Hundred Thousand
($1,100,000.00) Dollars to the Borrower and Fonix Corporation, as amended, (the
"April Loan Agreement"); and
WHEREAS, the Borrower has requested that Lender make available to
Borrower an additional loan in the amount of up to Four Million Nine Hundred
Thousand ($4,900,000.00) Dollars to finance the working capital needs of
Fonix/ASI Corporation, a wholly owned subsidiary of Fonix Corporation; and
Lender is willing to do so, but only on the terms and subject to the conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Borrowers and
Lender agree as follows.
1. CERTAIN DEFINITIONS. As used herein the terms set forth on
Schedule I attached hereto shall have the meanings set forth therein.
2. THE LOAN.
(a) The Lender shall make loans to the Borrower (the "Loan") in the
following amounts on each of the following dates, if, as of each such date, each
of the following shall be true: (i) all of the conditions precedent set forth in
Section 7 hereof have been satisfied and continue to be satisfied (provided
that, the documents listed in Section 7(d), once delivered, need not be
re-delivered if they remain valid and in effect); (ii) there exists no breach by
the Borrower or Fonix Corporation under the Asset Purchase Agreement among
Borrower, Fonix Corporation, and Lender dated as of even date herewith (the
"APA"), and the APA has not terminated; (iii) neither Borrower nor Fonix
Corporation has furnished or disclosed non-public information to a third party
with respect to any Acquisition Transaction (as defined in the APA); (iv) since
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<PAGE>
the date hereof through such date, neither Borrower, Fonix Corporation, nor any
of their agents, directors, affiliates, officers, or employees has directly or
indirectly, (A) encouraged, solicited, initiated, engaged or participated in
discussions or negotiations with any person or entity (other than Lender and its
affiliates) concerning any merger, consolidation, sale of material assets,
recapitalization, accumulation of shares of capital stock of Borrower or Fonix
Corporation as to the Articulate Division (as defined in the APA), or other
business combination involving Borrower or Fonix Corporation as to the
Articulate Division or (B) provided any information concerning the business,
properties, or assets of the Borrower or Fonix Corporation as the Articulate
Division to any person or entity (other than the Lender and its representatives
or Borrower's or Fonix Corporation's representatives); and (v) there shall exist
no Event of Default or any event which, with the passage of time or the giving
of notice or both, would constitute an Event of Default:
(1) Two Million Nine Hundred Thousand Dollars
($2,900,000), on the date hereof;
(2) Nine Hundred Thousand Dollars ($900,000), on May 28, 1999,
provided further that the Lender's obligation to make such advance is subject to
the additional condition precedent that Borrower shall have delivered on or
before May 25, 1999 to Lender a certificate of Borrower's chief financial
officer stating that: (A) each of the conditions set forth in clauses (i)
through (v) above are true; and (B) Borrower has disbursed One Million
Seventy-Five Thousand Dollars ($1,075,000) to Dragon Systems, Inc. ("Dragon")
(either directly or through an intermediate loan to Fonix Corporation) towards
payment on the Demand Note dated September 2, 1998 in the original principal
amount of Two Million Five Hundred Thirty-Five Thousand Two Hundred Thirty Four
and 67/100 Dollars ($2,535,234.67) from Fonix Corporation to Dragon; and
(3) One Million One Hundred Thousand Dollars ($1,100,000), on
June 11, 1999, provided further that Borrower shall have delivered on or before
June 8, 1999 to Lender a certificate of Borrower's chief financial officer
stating that each of the conditions set forth in clauses (i) through (v) above
are true.
The Loan shall be due and payable as set forth in the Note in the form attached
hereto as Exhibit A, as amended.
(b) The Loan shall be evidenced by the Note and shall be secured by:
(i) a first priority security interest in all of the assets of Fonix/ASI
Corporation pursuant to a Security Agreement dated as of April 22, 1999 from
Borrower to Lender, as amended by the Amendment to Security Agreement dated May
12, 1999 and the Second Amendment to Security Agreement in the form attached
hereto as Exhibit B (as amended, the "Security Agreement"); (ii) a Patent
Security Agreement from Borrower to Lender dated as of April 22, 1999 ; (iii) a
Copyright Security Agreement from Borrower to Lender dated as of April 22, 1999;
(iv) a Trademark Security Agreement from Borrower to Lender dated as of April
22, 1999; (v) a Continuing Guaranty Agreement from Fonix Corporation to Lender
in the form attached hereto as Exhibit C; and (vi) a Pledge and Security
Agreement from Fonix Corporation and a Stock Power and Assignment from Fonix
Corporation in the form attached hereto as Exhibit D, with the original stock
certificate of Fonix/ASI Corporation attached thereto. The Loan shall bear
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<PAGE>
interest and be payable as set forth in the Note. The term "Loan Documents", as
used herein, shall mean this Agreement and the documents referred to in this
subsection, as each may be amended.
(c) Proceeds of the Loan will be used by the Borrower solely to finance
the working capital needs of Fonix/ASI Corporation and for Fonix/ASI Corporation
to loan funds to Fonix Corporation to finance the working capital needs of Fonix
Corporation.
3. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Lender that:
(a) Organization and Qualification. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdictions of incorporation and has all required corporate power and
authority to own or lease its property, to carry on its businesses as presently
conducted and to carry out the transactions contemplated hereby.
(b) Charter. The Borrower has delivered to counsel to the Lender true
and complete copies of its Certificates of Incorporation or equivalent documents
as amended from time to time (the "Charters") and its by-laws ("By-laws") as
currently in effect.
(c) Authorization of Transaction. The execution, delivery and
performance of the Loan Documents by Borrower have been duly authorized by all
necessary corporate action of the Borrower. The Loan Documents are the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their terms, subject to laws of general application relating
to bankruptcy, insolvency and the relief of debtors. The issuance of the Note by
Borrower pursuant to the terms of this Agreement is duly and validly authorized,
and no further approval or authority of the shareholders or the directors of the
Borrower or of any governmental authority or agency will be required for the
issuance and sale of the Note as contemplated by this Agreement.
(d) Approvals; Compliance With Laws. The execution, delivery and
performance of this Agreement by Borrower and the transactions contemplated
hereby: (i) do not require any approval or consent of, or filing with, any
governmental agency or authority in the United States of America or otherwise
which has not been obtained and which is not in full force and effect as of the
date hereof; (ii) will not conflict with or constitute a breach or violation of
the Charters or By-laws of the Borrower; and (iii) will not result in a
violation of any law or regulation to which they are subject.
(e) Disclosure. This Agreement, together with any financial statement,
schedule, exhibit or other statement (written or oral) pertaining to the
Borrower, made, delivered or communicated to the Lender by the Borrower, or any
representative thereof, in connection with this Agreement and the transactions
related thereto, contains no untrue statement of a material fact and does not
omit to state any material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
3
<PAGE>
(f) Title. Fonix/ASI Corporation has good and marketable title to all
of the Collateral (as defined in the Security Agreement), free and clear of any
liens other than the liens disclosed on Schedule 3(f) attached to the April Loan
Agreement or liens in favor of the Lender (the "Permitted Liens").
(g) Enforcement; No Other Liens. The Borrower has not performed any
acts which might prevent the Lender from enforcing any of the terms of this
Agreement or the Loan Documents or which would limit the Lender in any such
enforcement. Other than financing statements or other similar or equivalent
documents or instruments in favor of the Lender or with respect to the Permitted
Liens, no financing statement, mortgage or security agreement or similar or
equivalent document or instrument covering all or any part of the Collateral is
on file or of record in any jurisdiction in which such filing or recording would
be effected to perfect a lien on such Collateral. No Collateral is in the
possession of any person (other than the Borrower) asserting any claim thereto
or security interest therein other than Collateral being repaired by third
parties in the ordinary course of business and inventory in transit.
(h) Perfection. The liens granted to Lender pursuant to the Loan
Documents constitute valid first priority security interests in the Collateral
securing the Obligations (as defined in the Security Agreements) and constitute
first priority perfected security interests in the Collateral to the extent that
a security interest therein may be perfected by filing pursuant to the UCC prior
to all other liens and rights of others therein except for the Permitted Liens.
(i) Accounts. Each Account which is reflected on Borrower's books as an
Account is a bona fide, valid and legally each enforceable obligation of the
account debtor in respect thereof, arising in the ordinary course of Borrower's
business.
(j) Perfection Certificate: The information set forth in the Perfection
Certificate attached as Exhibit F to the April Loan Agreement remain true and
complete as of the date hereof, except that Section 4 thereof does not include
UCC financing statements held by Lender that would show up on the type of search
referred to therein.
(k) Litigation. There are no actions, suits or proceedings pending
(nor, to the knowledge of Borrower, are there any actions, suits or proceedings
threatened, nor is there any basis therefor) against or affecting Borrower's
property in any court or before any arbitrator of any kind or before or by any
governmental body which would have a materially adverse effect on Borrower.
There are no strikes or walkouts in progress relating to any labor contracts to
which Borrower is a party.
(l) No Material Adverse Change. Other than as disclosed in Schedule
3(l) attached hereto or as otherwise disclosed in the periodic reports filed by
Fonix Corporation with the Securities and Exchange Commission, there has
occurred, since December 31, 1998, no event which has had or is reasonably
likely to have a material adverse change on either the Borrower or any of their
its subsidiaries.
4
<PAGE>
(m) Intellectual Property. Borrower owns or possesses the adequate
right to use all Intellectual Property Rights (as defined below) necessary to
the conduct of its business as presently conducted or presently contemplated to
be conducted as of the date of this Agreement. Schedule 3(m) to the April Loan
Agreement contains a list of all patents, tradenames, trademarks, service marks,
and registered copyrights and applications for the same owned by Borrower or any
of its subsidiaries. Borrower has unencumbered title to the Intellectual
Property Rights which are owned by Borrower and such title has not been
challenged (pending, or to the knowledge of the Borrower, threatened) by others.
All such patents, registered trademarks, service marks, and copyrights owned by
Borrower are in good standing and are recorded on the public record in the name
of Borrower, except for those failures to be in good standing and so recorded
that would not, individually or in the aggregate, have a material adverse
effect. For purposes of this Agreement, "Intellectual Property Rights" shall
mean and include all of Borrower's rights relating to patents, trademarks,
service marks, tradenames, copyrights, inventions, processes, trade secrets,
know-how, software and any documentation relating to the manufacture, marketing
and maintenance of products by Borrower.
(n) Subsidiaries. Schedule 3(n) to the April Loan Agreement sets forth
for each corporation with respect to which the Borrower, directly or indirectly,
has the power to vote or direct the voting of sufficient securities to elect all
of the directors (a "subsidiary") its name and jurisdiction of incorporation.
Each subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each
subsidiary is duly qualified to conduct business and is in good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to so qualify would not, individually or in the aggregate, have a
material adverse effect. Each subsidiary has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it.
(o) Solvent Financial Condition. Borrower represents to Lender that
after giving effect to this Loan Agreement, the transactions contemplated hereby
(and after taking into account all recoveries Lender is likely to realize from
Borrower on Borrower's obligations to Lender), and any loans that the Borrower
may make to Fonix Corporation as permitted hereunder or otherwise: the Borrower:
(i) owns assets whose fair saleable value is greater than the amount required to
pay all of Guarantor's indebtedness (including contingent debts), (ii) is able
to pay all of its indebtedness as such indebtedness matures and (iii) has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage.
4. BORROWER'S AGREEMENTS. The Borrower agree as follows:
(a) Borrower will notify Lender, at least thirty (30) days prior to any
such event, of any change in Borrower's exact legal name, any change in its
places of business or location as set forth in the preamble to this Agreement,
or its establishment of any new place of business or location, or any change in
Borrower's organizational structure.
5
<PAGE>
(b) Except as consented to by the Lender, the Borrower shall not pay or
set apart for payment to holders of their capital stock, any dividends, and the
Borrower shall not redeem or purchase any shares of capital stock, provided,
however, that notwithstanding anything to the contrary herein and subject to
satisfaction of all of the conditions precedent set forth in Section 7 hereof as
of the date of such loan, Borrower may loan to Fonix Corporation the proceeds of
the Loan hereunder, provided that the Borrower shall hold the proceeds of loans
from Lender, and Fonix Corporation shall hold the proceeds of loans from Lender
or Borrower only in those bank accounts set forth on Exhibit E attached hereto.
(c) The Borrower may not amend its Charters or By-laws in such a manner
as may adversely affect the rights of the Lender hereunder, or under any of the
Loan Documents.
(d) The Borrower will permit representatives designated by the Lender,
at Lender's expense, to visit and inspect any of the properties of Borrower (or
any subsidiary), and to inspect and make extracts of the books and records of
the Borrower, and to discuss the affairs, finances, and accounts of the Borrower
with its officers, all to such reasonable extent and at such reasonable times
and intervals as the representatives may reasonably request.
(e) The Borrower will maintain and cause each of its subsidiaries now
in existence or hereinafter acquired or created to maintain their corporate
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or states thereof or of any political
subdivisions thereof or of any government authority, where failure to so comply
would have a material adverse effect on either respective Borrower and its
subsidiaries, taken as a whole; provided, however, that nothing herein shall
prohibit the Borrower from liquidating or dissolving any of its subsidiaries
into the Borrower or merging any of their subsidiaries with or into the Borrower
or any other subsidiary.
(f) Borrower will not create, assume, incur or permit or suffer to
exist or to be created, assumed or incurred, any lien upon any of its properties
or assets of any character whether now owned or hereafter acquired other than
Permitted Liens.
(g) Borrower will not create, assume, or otherwise become or remain
obligated in respect of, or permit or suffer to exist or to be created, assumed
or incurred or to be outstanding any indebtedness (other than current trade
payables and accrued expenses incurred in the ordinary course of business and
payable in accordance with customary practice).
(h) Fonix/ASI Corporation will not sell, transfer, lease or otherwise
dispose of any of the Collateral except in the ordinary course of business.
(i) The Borrower acknowledges that the Lender has no existing
commitments, obligations or agreements to pay any monies, advance credits or
loans or make other financial accommodations to the Borrower.
(j) The Borrower will take all steps and make all payments as may be
required or appropriate to preserve its intellectual property rights and to
prevent any decrease in the value thereof, including, without limitation, to
6
<PAGE>
prevent the imposition of any encumbrances against such intellectual property
rights and to prevent the lapse or abandonment of any such intellectual property
rights.
5. EVENTS OF DEFAULT; REMEDIES. Upon the occurrence and during the
continuance of an Event of Default: (a) the Loan shall bear interest at the
Default Rate of Interest (as defined in the Note); (b) the Lender may by notice
to Borrower accelerate the payment of the Loan and all other obligations of
Borrower hereunder and demand payment thereof; provided however, that, no such
notice shall be required and the principal and interest due under the Note shall
become immediately due and payable if the Event of Default is one under clause
(f), (g) or (h) of the definition of Event of Default; and (c) Lender may
proceed to enforce payment of any of the foregoing and shall have and may
exercise any and all rights under the UCC or which are afforded to Lender herein
or in the Loan Documents.
6. EXPENSES. Borrower agrees to pay Lender on demand any and all
reasonable out-of-pocket costs and expenses of any nature (including without
limitation reasonable attorneys' fees and disbursements) which may be incurred
by Lender in connection with exercise of Lender's rights against the Borrower
after an Event of Default; any exercise of Lender's right of acceleration; any
enforcement, collection or other proceedings with respect to the Loan; or any
bankruptcy, insolvency or other similar proceedings of Borrower.
7. CONDITIONS PRECEDENT.
Borrower acknowledges and agrees that Lender will not make the Loan
hereunder, unless and until all of the following conditions have been satisfied
and remain satisfied as of the date of funding the Loan:
(a) Representations and Warranties. Borrower's representations
and warranties contained herein shall be correct and complete in all material
respects;
(b) Covenants. Borrower shall be in compliance in all material respects
with all covenants and agreements contained herein;
(c) No Events of Default. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default; and
(d) Delivery of Documents. Borrower shall have delivered, or caused to
be delivered, to Lender: (i) each of the Loan Documents; (ii) such legal
opinions as in its reasonable judgment the Lender deems necessary in form and
substance satisfactory to Lender in the form attached hereto as Exhibit F; (iii)
UCC-1 financing statements naming Lender as secured party, duly executed by
Borrower, in form and substance reasonably satisfactory to Lender, as Lender
shall reasonably request in its sole discretion; and (iv) a Common Stock Warrant
in the form attached hereto as Exhibit G.
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<PAGE>
(e) No Material Adverse Effect. No event or condition having a material
adverse effect with respect to either Borrower shall have occurred.
8. MISCELLANEOUS PROVISIONS.
(a) Indemnification. The Borrower shall indemnify and hold harmless
Lender from and against any and all claims, actions, suits, judgments,
penalties, losses, damages, costs, disbursements, expenses, obligations or
liabilities of any kind or nature (except those resulting from Lender's gross
negligence or willful misconduct) arising in any way out of or in connection
with the Loan Documents and shall pay to Lender on demand any and all amounts in
connection therewith. The Borrower shall make no claim against Lender for or in
connection with the exercise or enforcement by Lender of any right or remedy
granted to it under or any of the Loan Documents, or any action taken or omitted
to be taken by Lender hereunder (except for the gross negligence or willful
misconduct of Lender).
(b) Notices. Unless otherwise specified herein, all notices hereunder
shall be in writing directed to the addresses shown below:
Lernout & Hauspie Speech Products N.V.
Flanders Language Valley 50
B-8900 Ieper, Belgium
Attn: Legal Department
Telephone: 011-32-57-228-888
Facsimile: 011-32-57-21-9661
with a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attn: Lawrence M. Levy, Esquire
Telephone: (617) 856-8200
Facsimile: (617) 856-8201
Fonix/ASI Corporation
1225 Eagle Gate Tower
60 East South Temple Street
Salt Lake City, Utah 84111
Attn: Thomas A. Murdock, President
Telephone: (801) 328-8700
Facsimile: (801) 328-8778
with a copy to:
Durham, Jones & Pinegar
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<PAGE>
50 South Main Street
Suite 800
Salt Lake City, Utah 84111
Attn: Jeffrey M. Jones, Esquire
Telephone: (801) 538-2424
Facsimile: (801) 538-2425
and a copy to:
Fonix Corporation
60 East South Temple Street
Salt Lake City, Utah 84111
Attn: Thomas A. Murdock, President
Telephone: (801) 328-8700
Facsimile: (801) 328-8778
Written notices and communications shall be effective and shall be deemed
received on the day when delivered by hand or by facsimile transmission (with
written confirmation of transmission); on the next business day, if by
commercial overnight courier; and on the third business day, if by registered or
certified mail, postage prepaid.
(c) No Waiver. No failure to exercise and no delay in exercising, on
the part of Lender, any right or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right or remedy. Waiver by
Lender of any right or remedy on any one occasion shall not be construed as a
bar to or waiver thereof or of any other right or remedy on any future occasion.
Lender's rights and remedies hereunder, under any agreement or instrument
supplemental hereto or under any other agreement or instrument shall be
cumulative, may be exercised singly or concurrently and are not exclusive of any
rights or remedies provided by law.
(d) Assignment. This Agreement shall be binding upon and shall inure to
the benefit of Borrower and Lender and their respective successors and assigns;
provided that, Borrower may not assign or transfer any rights or obligations
hereunder without Lender's prior written consent.
(e) Governing Law; Jurisdiction. This Agreement shall be governed by
the laws of the Commonwealth of Massachusetts (other than its laws relating to
conflicts of laws).
(f) Waiver of Jury Trial. The Borrower irrevocably waives any and all
right to trial by jury in any legal proceeding arising out of or relating to the
Loan Documents or the transactions contemplated thereby.
(g) Amendments. The Parties may mutually amend any provision of the
Loan Documents, but only in a writing signed by all of the Parties.
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<PAGE>
(h) Intentionally Omitted.
(i) Certain Waivers
(i) Independent Enforcement. Lender may enforce this Agreement
independently of any other remedy or security Lender at any time may have or
hold in connection with the Obligations, and it shall not be necessary for
Lender to marshal assets in favor of any party or any guarantor or to proceed
upon or against or exhaust any Collateral or security or remedy before
proceeding to enforce this Agreement against any Borrower or any guarantor.
Borrower expressly waives any right to require Lender to marshal assets in favor
of Borrower or any guarantor of the Obligations or to proceed against any other
party, and agrees that Lender may proceed against any Borrower or any Collateral
in such order as Lender shall determine in its sole an absolute discretion.
(ii) Separate Actions. Lender may file a separate action or
actions against Borrower or any guarantor, whether such action is brought or
prosecuted with respect to any security or against any guarantor of the
Obligations, or whether any other person is joined in any such action or
actions. Borrower agrees that Lender and Borrower and any affiliate of Borrower
may deal with each other in connection with the Obligations or otherwise, or
alter any contracts or agreements now or hereafter existing between any of them,
in any manner whatsoever, all without in any way altering or affecting the
continuing enforceability of this Agreement.
(iii) Reinstatement of Rights and Remedies. Lender's rights
hereunder shall be reinstated and revived, and the enforceability of this
Agreement shall continue, with respect to any amount at any time paid on account
of the Obligations which thereafter shall be required to be restored or returned
by Lender, all as though such amount had not been paid. The rights of Lender
created or granted herein and the enforceability of this Agreement at all times
shall remain effective to cover the full amount of all the Obligations even
though the Obligations, including any part thereof or any Collateral, other
security or guaranty therefor, may be or hereafter may become invalid or
otherwise unenforceable as against any Borrower and whether or not any Borrower
shall have any personal liability with respect thereto.
(iv) Waivers Given Knowingly. Borrower warrants and agrees
that each of the waivers and consents set forth herein are made after
consultation with legal counsel and with full knowledge of their significance
and consequences, with the understanding that events giving rise to any defense
or right waived may diminish, destroy, or otherwise adversely affect rights
which Borrower otherwise may have against any other party, Lender or others, or
against Collateral, and that, under the circumstances, the waivers and consents
herein given are reasonable and not contrary to public policy or law. If any of
the waivers or consents herein are determined to be contrary to any applicable
law or public policy, such waivers and consents shall be effective to the
maximum extent permitted by law.
[SIGNATURE PAGE TO FOLLOW]
10
<PAGE>
[SIGNATURE PAGE TO LOAN AGREEMENT]
Executed as an instrument under seal on the date set forth above.
FONIX/ASI CORPORATION
By:/s/
--------------------------------------
Thomas A. Murdock
President
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By:/s/
--------------------------------------
Gaston Bastiaens
President and Chief Executive Officer
11
<PAGE>
EXHIBIT A
[NOTE]
12
<PAGE>
EXHIBIT B
[AMENDMENT TO SECURITY AGREEMENT]
13
<PAGE>
EXHIBIT C
[CONTINUING GUARANTY AGREEMENT]
14
<PAGE>
EXHIBIT D
[PLEDGE AND SECURITY AGREEMENT AND STOCK POWER AND ASSIGNMENT]
15
<PAGE>
EXHIBIT E
<TABLE>
<CAPTION>
Bank Accounts
Borrower Bank Address of Bank Bank Account No.
<S> <C> <C> <C>
FONIX CORPORATION Key Bank National Salt Lake City, Utah 4450-1000-1292
Association Account Name: Durham Jones &
Pinegar Trust Account
FONIX/ASI CORPORATION Cambridge Trust 1336 Massachusetts Ave. 57-509-7-01
Company Cambridge, MA 02138 Account Name: Articulate Systems
</TABLE>
16
<PAGE>
EXHIBIT F
[LEGAL OPINIONS]
(a) Fonix Corporation is validly existing and in good standing as a
corporation under the laws of the State of Delaware and has full corporate power
and authority to own, lease and operate its properties, to carry on its business
as now being conducted by it and to execute, deliver and perform each Loan
Document (defined herein to include each Loan Document under either or both of
the Loan Agreement dated as of May 19, 1999 between Fonix/ASI Corporation and
Lender or the Loan Agreement dated as of April 22, 1999 among Fonix Corporation,
Fonix/ASI Corporation, and Lender) to which it is a party.
(b) Fonix/ASI Corporation is validly existing and in good standing as a
corporation under the laws of the State of Utah and has full corporate power and
authority to own, lease and operate its properties, to carry on its business as
now being conducted by it and to execute, deliver and perform each Loan Document
to which it is a party.
(c) Each Loan Document constitutes the legal, valid and binding
agreement of Fonix/ASI Corporation and/or Fonix Corporation, as applicable,
enforceable against Fonix/ASI Corporation and/or Fonix Corporation, as
applicable, in accordance with its terms.
(d) The Common Stock Warrant dated as of May 19, 1999 constitutes the
legal, valid and binding obligation of Fonix Corporation enforceable against
Fonix Corporation in accordance with its terms.
(e) The execution, delivery and performance by Fonix Corporation of
each Loan Document and the consummation of the transactions contemplated thereby
will not: (i) conflict with any term or provision of the certificate of
incorporation or the by-laws of Fonix Corporation, (ii) result in any breach of,
or constitute a default under, or result in the creation of any Lien (except as
contemplated by the Loan Documents) in respect of any property of Fonix
Corporation under any indenture, mortgage, deed of trust, bank loan or credit
agreement, or other agreement or instrument, including, without limitation any
agreement with, or document or instrument delivered to Dragon Systems, Inc.
("Dragon"); (iii) conflict with or result in a breach of any terms, conditions
or provisions of any judgment, decree or order of any court or governmental
authority or agency to which Fonix Corporation or any of its properties are
bound and which is known to us; or (iv) violate any provision of any United
States Federal, State of Delaware, or Commonwealth of Massachusetts law or any
rule or regulation of any United States Federal or State of Delaware or
Commonwealth of Massachusetts governmental body applicable to Fonix Corporation.
(f) The execution, delivery and performance by Fonix/ASI Corporation of
each Loan Document and the consummation of the transactions contemplated thereby
will not: (i) conflict with any term or provision of the certificate of
incorporation or the by-laws of Fonix/ASI Corporation, (ii) result in any breach
of, or constitute a default under, or result in the creation of any Lien (except
17
<PAGE>
as contemplated by the Loan Documents) in respect of any property of Fonix/ASI
Corporation under any indenture, mortgage, deed of trust, bank loan or credit
agreement, or other agreement or instrument, including, without limitation any
agreement with, or document or instrument delivered to Dragon;; (iii) conflict
with or result in a breach of any terms, conditions or provisions of any
judgment, decree or order of any court or governmental authority or agency to
which Fonix/ASI Corporation or any of its properties are bound and which is
known to us; or (iv) violate any provision of any United States Federal, State
of Utah or Commonwealth of Massachusetts law or any rule or regulation of any
United States Federal or State of Utah or Commonwealth of Massachusetts
governmental body applicable to Fonix/ASI Corporation.
(g) To the extent that Fonix Corporation has rights in the capital
stock of Fonix/ASI Corporation and value has been given, the Pledge and Security
Agreement creates a valid and enforceable security interest in such capital
stock, to the extent that valid security interests can be created therein under
the Uniform Commercial Code presently in effect in the State of Utah, the State
of Delaware, and the Commonwealth of Massachusetts, in favor of the Lender, as
security for the payment of the Obligations (as defined in the Security
Agreement).
(h) To the extent that Fonix/ASI Corporation has rights in the
Collateral and value has been given, the Security Agreement creates a valid and
enforceable security interest in such Collateral, to the extent that valid
security interests can be created therein under the Uniform Commercial Code
presently in effect in the State of Utah and the Commonwealth of Massachusetts,
in favor of the Lender, as security for the payment of the Obligations (as
defined in the Security Agreement).
(i) The Financing Statements on Form UCC-1 naming Fonix/ASI Corporation
as secured party to be filed in the filing offices in the State of Utah and the
Commonwealth of Massachusetts, delivered in connection with the Loan Documents
executed as of April 22, 1999, are in appropriate form and, when duly filed and
indexed in the filing offices identified above, will result in the perfection of
aforesaid security interests in the Collateral to the extent such security
interests can be perfected under the Uniform Commercial Code, as in effect in
such State, by the filing of a Financing Statement in such State. No further
action will be required in order to perfect such security interests and to
preserve protect and continue such perfection, except for the filing of periodic
continuation statements with respect to such Financing Statements.
(j) To our knowledge, there is no pending or threatened action, suit or
proceeding before any court, governmental or regulatory authority, agency,
commission or board arbitration, by or against Fonix Corporation or Fonix/ASI
Corporation, which we believe could materially adversely affect either Fonix
Corporation or Fonix/ASI Corporation.
(k) The shares issuable upon the exercise of the Common Stock Warrant
dated as of May 19, 1999 have been duly and validly authorized and, upon
issuance, delivery and payment, as described in the Common Stock Warrant, will
be validly issued, fully paid and nonassessable and free and clear of any
preemptive or similar rights.
18
<PAGE>
EXHIBIT G
[COMMON STOCK WARRANT]
19
<PAGE>
SCHEDULE I - DEFINITIONS
"Accounts" means all "accounts" (as defined in the UCC) now owned or hereafter
acquired by Borrower and shall also mean and include all accounts receivable,
contract rights, book debts, notes, drafts and other obligations or indebtedness
owing to Borrower arising from the sale, lease or exchange of goods or other
property by it and/or the performance of services by it (including, without
limitation, any such obligation which might be characterized as an account,
contract right or general intangible under the Uniform Commercial Code in effect
in any jurisdiction) and all of Borrower's rights in, to and under all purchase
orders for goods, services or other property, and all of Borrower's rights to
any goods, services or other property represented by any of the foregoing
(including returned or repossessed goods and unpaid sellers' rights of
rescission, replevin, reclamation and rights to stoppage in transit) and all
monies due to or to become due to Borrower under all contracts for the sale,
lease or exchange of goods or other property and/or the performance of services
by it (whether or not yet earned by performance on the part of Borrower),
including, without limitation, credit card receivables and credit card charge
records and evidences of credit card transactions, in each case whether now in
existence or hereafter arising or acquired including, without limitation, the
right to receive the proceeds of said purchase orders and contracts and all
collateral security and guarantees of any kind given by any Person with respect
to any of the foregoing.
"Event of Default" means any one or more of the following events:
(a) failure by Borrower to pay any principal, interest
or other amount due hereunder or on account of the Loan when due;
(b) failure by Borrower or any guarantor to perform or
discharge, observe or comply with any of their covenants or agreements
set forth herein or in any of the Loan Documents (or any of the other
security documents delivered in connection herewith);
(c) if any representation or warranty of Borrower or any
guarantor to Lender set forth herein is found to have been false or
misleading in any material respect as of the time when made;
(d) Borrower's or any guarantor's liquidation, termination,
dissolution or ceasing to carry on any substantial part of its current
business;
(e) a change in control with respect to either Borrower or any
guarantor or consummation by either Borrower or any guarantor of a
reorganization, merger or consolidation with any other person or
entity, transfer of all or substantially all of their assets or
properties or consummation of any other plan or arrangement involving a
similar extraordinary corporate transaction;
(f) service upon the Lender of a writ of levy or attachment,
or naming Lender as trustee for either Borrower or any guarantor, or of
any other similar process of attachment.
20
<PAGE>
(g) commencement by either Borrower or any guarantor of a
voluntary proceeding seeking relief with respect to itself or its debts
under any bankruptcy, insolvency or other similar law, or seeking
appointment of a trustee, receiver, liquidator or other similar
official for it or any substantial part of its assets; or its consent
to any of the foregoing in an involuntary proceeding against it; or
either Borrower or any guarantor shall generally not be paying its
debts as they become due or admit in writing its inability to do so; or
an assignment for the benefit of, or the offering to or entering into
by either Borrower or any guarantor of any composition, extension,
reorganization or other agreement or arrangement with, its creditors;
or
(h) commencement of an involuntary proceeding against either
Borrower or any guarantor seeking relief with respect to it or its
debts under any bankruptcy, insolvency or other similar law, or seeking
appointment of a trustee, receiver, liquidator or other similar
official for it or any substantial part of its assets, which proceeding
is not dismissed or stayed within sixty (60) days.
"Inventory" means all "inventory" (as defined in the UCC), now owned or
hereafter acquired by Borrower, wherever located, and shall also mean and
include, without limitation, all consigned goods, all raw materials and other
materials and supplies, work-in-process and finished goods and any products made
or processed therefrom and all substances, if any, commingled therewith or added
thereto.
"Investment Property" shall mean all of Borrower's now owned and hereafter
existing or acquired securities, financial assets, securities accounts,
securities entitlements and all other investment property of whatsoever kind or
nature, wherever located.
"Loan" has the meaning given in Section 2(a) hereof.
"Note" means the note executed and delivered by Borrower to Lender in the form
of Exhibit A attached hereto, made to evidence the Loan.
"Proceeds" has the meaning given such term under the UCC, and in any event
includes, without limitation, all proceeds of, and all other profits, products,
rentals or receipts, in whatever form, arising from the collection, sale, lease,
exchange, assignment, licensing or other disposition of, or other realization
upon, collateral, including, without limitation, all claims of the Borrower
against third parties for loss of, damage to or destruction of, or for proceeds
payable under, or unearned premiums with respect to, policies of insurance in
respect of, any collateral, and any condemnation or requisition payments with
respect to any collateral, in each case whether now existing or hereafter
arising.
"Security Agreement" means the security agreement executed and delivered by
Borrower to Lender dated April 22, 1999, as amended by the Amendment to Security
Agreement dated as of May 12, 1999 and the Second Amendment to Security
Agreement in the form of Exhibit B attached hereto, entered into in connection
with the Loan.
21
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
(Increase in Loan Amount and Other Changes)
First Amendment to Loan Agreement ("Amendment") made as of the 12th day
of August, 1999, by and between FONIX/ASI CORPORATION, a Utah corporation,
("Borrower"), and LERNOUT & HAUSPIE SPEECH PRODUCTS N.V., a Belgian corporation
("Lender"), with respect to that certain Loan Agreement dated May 19, 1999 by
and between Borrower and Lender (as amended, the "May Loan Agreement").
Capitalized terms not defined herein shall have the meanings ascribed thereto in
the May Loan Agreement.
WHEREAS, Borrower and Lender are parties to the May Loan Agreement
pursuant to which the Lender has provided a loan in the aggregate amount of
$4,900,000 to the Borrower;
WHEREAS, Borrower has requested that Lender provide an additional loan
of One Million Two Hundred Thousand Dollars ($1,200,000.00) on or before August
___, 1999 to the Borrower, under the terms and subject to the conditions of the
May Loan Agreement, as amended hereby;
NOW THEREFORE, based on these premises, and in consideration of the
mutual promises contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by the parties, the
Borrower and the Lender hereby agree as follows:
1. Amendments to Loan Agreement.
a. Loan Amount. Section 2(a) of the May Loan Agreement is amended in
the following manner:
(i) Section 2(a)(2) of the May Loan Agreement is hereby amended by
striking the word "and" as it appears at the end of such section;
(ii) Section 2(a)(3) of the May Loan Agreement is hereby amended by
striking the "." appearing at the end of the section and replacing
it with the following language: "; and"; and
(iii) The following Section 2(a)(4) is added immediately after
Section 2(a)(3) of the May Loan Agreement: "(4) One Million Two
Hundred Thousand Dollars ($1,200,000), which such monies shall be
transferred by Lender to Borrower by a wire initiated on August
___, 1999, provided further that: (A) Borrower shall have delivered
on or before August 12, 1999 a certificate of Borrower's chief
financial officer stating that each of the conditions set forth in
clauses (i) through (v) above are true; (B) Borrower shall have
1
<PAGE>
delivered, simultaneously with the delivery of the First Amendment
to Loan Agreement a Second Amendment to Promissory Note in the form
attached hereto as Exhibit W; (C) Borrower shall have delivered,
simultaneously with the delivery of the First Amendment to Loan
Agreement a Third Amendment to Security Agreement in the form
attached hereto as Exhibit X; (D) Borrower shall have delivered,
simultaneously with the delivery of the First Amendment to Loan
Agreement a First Amendment to Pledge and Security Agreement in the
form attached hereto as Exhibit Y; (E) Borrower shall have
delivered, simultaneously with the delivery of the First Amendment
to Loan Agreement such legal opinions as, in its reasonable
judgment, Lender deems necessary in form and substance satisfactory
to Lender in the form attached hereto as Exhibit Z; (F) Fonix
Corporation's ("Fonix") registration statement on Form S-3,
currently pending before the Securities and Exchange Commission
(the "SEC") shall have been declared effective before 5:00 p.m. on
August 12, 1999; (G) Fonix shall have filed with the SEC an
amendment to Fonix's proxy statement with respect to the
Transaction (as defined in the Agreement between Lender, Fonix, and
Borrower dated as of July 31, 1999 (the "July 31st Agreement")) in
a form reasonably acceptable to Lender and its counsel before 5:00
p.m. on August 13, 1999; and (H) Lender receives a letter from
counsel to Fonix and Borrower advising Lender that no further
consent from Beesmark is required in connection with the amendments
and agreements contemplated by the July 31st Agreement before 5:00
p.m. on August 12, 1999."
b. Loan Documents. Section 2(b) of the May Loan Agreement is hereby
amended in the following manner:
(i) Section 2(b)(i) is amended by inserting the following language
immediately after the language "Exhibit B": "and as amended by the
Third Amendment to Security Agreement in the form attached
heretoas Exhibit X".
(ii)Section 2(b)(vi) is hereby stricken and deleted in its
entirety from the May Loan Agreement and replaced with the
following in lieu thereof: "a Pledge and Security Agreement from
Fonix Corporation in the form attached to the May Loan Agreement
as Exhibit D, as amended by the First Amendment to Pledge and
Security Agreement by and between Lender and Fonix Corporation in
the form attached hereto as Exhibit Y, and a Stock Power and
Assignment from Fonix Corporation in the form attached to the May
Loan Agreement as Exhibit D with the original stock certificate of
Fonix/ASI Corporation attached thereto."
c. Note. The definition of "Note" in Schedule I to the May Loan
Agreement is hereby amended to add the words "as amended" after the word
"hereto," as it appears therein.
2
<PAGE>
d. Event of Default. The definition of "Event of Default" in Schedule I
to the May Loan Agreement is hereby amended to add the words "or the occurrence
of an Event of Default under the April Loan Agreement" before the ";" at the end
of subparagraph (b) of such definition.
2. Conditions Precedent.
Borrower acknowledges and agrees that Lender will not enter into this
Amendment unless and until all of the following conditions have been satisfied
and remain satisfied:
(a) Representations and Warranties. Borrower's representations and
warranties contained herein and in each and every Loan Document shall be correct
and complete in all material respects;
(b) Covenants. Borrower shall be in compliance in all material respects
with all covenants and agreements contained herein and in each and every Loan
Document;
(c) No Events of Default. There shall exist no Event of Default or any
event which, with the passage of time or the giving of notice or both, would
constitute an Event of Default; and
(d) Delivery of Documents. Borrower shall have executed and delivered,
or caused to be delivered, to Lender: (i) the Amendment, (ii) the Second
Amendment to Promissory Note in the form attached hereto as Exhibit W, (iii) the
Third Amendment to Security Agreement in the form attached hereto as Exhibit X;
(iv) the First Amendment to Pledge and Security Agreement in the form attached
hereto as Exhibit Y; and (v) a legal opinion of its outside counsel containing
the opinions in the form attached hereto as Exhibit Z.
(e) No Material Adverse Effect. No event or condition having a material
adverse effect with respect to Borrower shall have occurred.
3. Additional Provisions.
(a) No Prepayment of Indebtedness. Borrower represents, warrants,
covenants and agrees that it shall not prepay any indebtedness to any party
other than the Lender.
4. Representations and Warranties. To induce the Lender to enter into
this Amendment and perform its obligations hereunder, Borrower hereby represents
and warrants as follows:
(a) Organization and Qualification. The Borrower is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all required corporate power and authority
3
<PAGE>
to own or lease its property, to carry on its business as presently conducted
and to carry out the transactions contemplated hereby.
(b) Charter. The Borrower has delivered to counsel to the Lender a true
and complete copy of its Certificate of Incorporation or equivalent document as
amended from time to time (the "Charter") and its by-laws ("By-laws") as
currently in effect.
(c) Authorization of Transaction. The execution, delivery and
performance of this Amendment, the other documents executed and/or delivered in
connection herewith, and the other Loan Documents by Borrower has been duly
authorized by all necessary corporate action of the Borrower. The Loan Documents
are the legal, valid and binding obligations of the Borrower, enforceable
against the Borrowers in accordance with their terms, subject to laws of general
application relating to bankruptcy, insolvency and the relief of debtors. The
issuance of the Second Amendment to Promissory Note and the Third Amendment to
Security Agreement by Borrower pursuant to the terms of this Amendment is duly
and validly authorized, and no further approval or authority of the shareholders
or the directors of the Borrower or of any governmental authority or agency will
be required for the issuance and sale of the Note as contemplated by this
Agreement.
(d) Approvals; Compliance With Laws. The execution, delivery and
performance of this Amendment by Borrower and the transactions contemplated
hereby: (i) do not require any approval or consent of, or filing with, any
governmental agency or authority in the United States of America or otherwise
which has not been obtained and which is not in full force and effect as of the
date hereof; (ii) will not conflict with or constitute a breach or violation of
the Charter or By-laws of the Borrower; and (iii) will not result in a violation
of any law or regulation to which it is subject.
(e) Disclosure. This Amendment, together with any financial statement,
schedule, exhibit or other statement (written or oral) pertaining to the
Borrower, made, delivered or communicated to the Lender by the Borrower, or any
representative thereof, in connection with this Amendment and the transactions
related thereto, contains no untrue statement of a material fact and does not
omit to state any material fact necessary in order to make the statements
contained therein not misleading in light of the circumstances under which they
were made.
(f) Title. Borrower has good and marketable title to all of the
Collateral (as defined in the Security Agreement, as amended), free and clear of
any liens other than the liens disclosed on Schedule 3(f) attached to the May
Loan Agreement or liens held by the Lender (the "Permitted Liens"), and Fonix
Corporation has good and marketable title to all of the capital stock of
Fonix/ASI Corporation, free and clear of any liens other than the Permitted
Liens.
(g) Enforcement; No Other Liens. The Borrower has not performed any
acts which might prevent the Lender from enforcing any of the terms of this
Amendment or the Loan Documents or which would limit the Lender in any such
enforcement. Other than financing statements or other similar or equivalent
4
<PAGE>
documents or instruments in favor of the Lender or with respect to the Permitted
Liens, no financing statement, mortgage or security agreement or similar or
equivalent document or instrument covering all or any part of the Collateral is
on file or of record in any jurisdiction in which such filing or recording would
be effected to perfect a lien on such Collateral. No Collateral is in the
possession of any person (other than the Borrower) asserting any claim thereto
or security interest therein other than Collateral being repaired by third
parties in the ordinary course of business and inventory in transit.
(h) Perfection. The liens granted to Lender pursuant to the Loan
Documents constitute valid first priority security interests in the Collateral
securing the Obligations (as defined in the Security Agreements, as amended) and
constitute first priority perfected security interests in the Collateral to the
extent that a security interest therein may be perfected by filing pursuant to
the UCC prior to all other liens and rights of others therein except for the
Permitted Liens.
(i) No Material Adverse Change. Other than as disclosed in Schedule
3(l) to the May Loan Agreement or as otherwise disclosed in the periodic reports
filed by Fonix Corporation with the Securities and Exchange Commission, there
has occurred, since March 31, 1999 no event which has had or is reasonably
likely to have a material adverse change on Borrower or any of its subsidiaries.
(j) Intellectual Property. Borrower owns or possesses the adequate
right to use all Intellectual Property Rights necessary to the conduct of its
business as presently conducted or presently contemplated to be conducted as of
the date of this Amendment. Schedule 3(m) attached to the May Loan Agreement
contains a list of all patents, tradenames, trademarks, service marks, and
registered copyrights and applications for the same owned by Borrower or any of
its subsidiaries. Borrower has unencumbered title to the Intellectual Property
Rights which are owned by Borrower and such title has not been challenged
(pending, or to the knowledge of the Borrower, threatened) by others. All such
patents, registered trademarks, service marks, and copyrights owned by Borrower
are in good standing and are recorded on the public record in the name of
Borrower, except for those failures to be in good standing and so recorded that
would not, individually or in the aggregate, have a material adverse effect.
(k) No Conflict. The execution, delivery and performance of this
Amendment and each document executed and/or delivered in connection herewith by
the Borrower will not violate (i) any organizational documents of Borrower, or
(ii) any requirement of law affecting the Borrower or any of its properties, and
will not result in or require the creation (except as provided in or
contemplated by this Amendment) of any security interest or lien upon any of
such properties. The Borrower is not in violation of or default in any material
respect under any requirement of law, and no condition exists that would, with
the giving of notice or lapse of time, or both, constitute such a violation or
default.
5
<PAGE>
5. Loan Documents. The Borrower represents and warrants to the Lender
that each of the representations and warranties in the Loan Documents,
including, without limitation, the May Loan Agreement (in Section 3 of the May
Loan Agreement or elsewhere) are still true as of the date hereof.
6. Confirmation. Except as specifically provided herein, all other terms
and conditions of the May Loan Agreement and the other Loan Documents shall
remain in full force and effect in accordance with their original terms. Without
limitation of the foregoing, Borrower confirms that the new loans made by Lender
pursuant to this Amendment shall be governed by, secured by and entitled to the
benefit of the terms and conditions of the May Loan Agreement and the other Loan
Documents.
The Borrower hereby agrees and confirms that any and all documents and
instruments securing any of its obligations shall be deemed to secure any
obligation of it as it may be amended or affected hereby.
7. References. All references in the May Loan Agreement to "this
Agreement" shall hereafter be deemed to refer to the May Loan Agreement as
amended by this Amendment and as otherwise previously or hereafter amended,
supplemented or modified. All references in the Loan Documents shall hereafter
be deemed to refer to the May Loan Agreement as amended by this Amendment and as
otherwise previously or hereafter amended, supplemented or modified.
6
<PAGE>
8. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
taken together shall be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment as of
the date first above written, by their respective officers hereunto duly
authorized, under Massachusetts law as a document under seal.
WITNESS: FONIX/ASI CORPORATION
By:/s/
- ----------------------------- --------------------------------------
Thomas A. Murdock
President
WITNESS: LERNOUT & HAUSPIE SPEECH
PRODUCTS N.V.
By:/s/
- ----------------------------- --------------------------------------
Gaston Bastiaens
President and Chief Executive Officer
7
<PAGE>
Acknowledgement by Fonix Corporation
Fonix Corporation for value received, hereby assents to the Borrower's
execution, delivery and performance of this Amendment and agrees to be bound
hereby, jointly and severally with Borrower. This Amendment and the performance
or consummation of any transaction or matter contemplated under this Amendment,
shall not limit, restrict, extinguish or otherwise impair Fonix Corporation's
liability to Lender with respect to the payment and other performance of the
Obligations, including, without limitation, the Borrower's obligations under the
Note (as amended by the First Amendment to Promissory Note dated as of July 27,
1999 and the Second Amendment to Promissory Note dated as of August ___, 1999)
pursuant to such prior guarantee or guarantees executed for the benefit of
Lender, and all of such guarantees are hereby affirmed.
IN WITNESS WHEREOF, Fonix Corporation has executed this Acknowledgement as
of the date first above written, by its officer hereunto duly authorized, under
Massachusetts law as a document under seal.
FONIX CORPORATION
By:/s/
-----------------------------------
Thomas A. Murdock
President and Chief Executive Officer
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EXHIBIT W
Form of Second Amendment To Promissory Note
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EXHIBIT X
Form of Third Amendment To Security Agreement
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EXHIBIT Y
Form of First Amendment to Pledge and Security Agreement
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EXHIBIT Z
Form of Legal Opinion
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AGREEMENT
AGREEMENT made as of the 31st day of July, 1999 between Lernout &
Hauspie Speech Products N.V., a Belgian corporation with its principal place of
business in Ieper, Belgium ("Buyer"), and Fonix Corporation, a Delaware
corporation with its principal headquarters in Salt Lake City, Utah ("Fonix")
and Fonix/ASI Corporation, a Utah corporation with its principal place of
business in Woburn, Massachusetts ("ASI") (Fonix and ASI together, the
"Sellers").
W I T N E S S E T H:
WHEREAS, Buyer and the Sellers have entered into an Asset Purchase
Agreement, dated as of May 19, 1999 (the "Asset Purchase Agreement") pursuant to
which Buyer has agreed to buy and Sellers have agreed to sell all of the assets
and properties held in connection with, necessary for, or material to the
business and operations of the Articulate Division (as defined in the Asset
Purchase Agreement) (the "Transaction");
WHEREAS, pursuant to the Asset Purchase Agreement, Buyer and ASI have
entered into a License Agreement, dated May 19, 1999 (the "License Agreement"),
and Buyer and the Sellers have entered into a Technology Option Agreement, dated
as of May 19, 1999 (the "Technology Option Agreement");
WHEREAS, the Closing of the Transaction has been delayed beyond the
expectations of the parties, and the parties wish to amend the Asset Purchase
Agreement and the License Agreement in certain respects as a result of such
delay; and
WHEREAS, the parties also wish to enter into certain agreements which
will enable Buyer to begin to sell the products of the Articulate Division ("ASI
Products") in consideration of Buyer providing to ASI certain additional
financing.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
herein contained, the parties hereto hereby agree as follows:
AGREEMENTS
1. Buyer hereby exercises its option to be appointed as an ASI
Distributor of ASI Products using the Dragon Recognition Technology under
Section 3.1 of the Technology Option Agreement, effective as of July 1, 1999.
The scope of the distributorship shall include, without limitation, the
following rights within the permitted Fields of Use: (i) the right to fulfill
outstanding purchase orders of either Seller received prior to the Closing; (ii)
the rights to provide certain warranty, maintenance and service with respect to
ASI Products and Dragon Distributable Technology sold by either Seller prior to
the Closing; and (iii) the right to distribute ASI Products and Dragon
Distributable Technology and provide warranty and maintenance services with
respect thereto.
2. Sellers hereby transfer and assign to Buyer the following assets
related to the Business determined as if the Closing of the Transaction occurred
on July 1, 1999: (i) all Acquired Sales Orders, including those set forth on
Schedule 2(i), (ii) all License Agreements, including those set forth on
Schedule 2(ii) hereof, (iii) all client and customer contracts related to
ongoing maintenance and servicing obligations (the "Maintenance Contracts"), and
(iv) the right to use and exploit for Buyer's benefit all of the existing sales
leads and opportunities of Sellers. Buyer shall have any and all rights to
receive any payments due and owning under the Acquired Sales Orders, License
Agreements and Maintenance Contracts as if the Closing of the Transaction had
occurred on July 1, 1999. Following the execution of this Agreement, Sellers and
Buyer shall jointly notify all applicable customers of this change. Sellers
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shall promptly pay over to Buyer any such payments received by them after the
date hereof. The amount, not less than zero, determined by subtracting (a) four
hundred thousand dollars ($400,000) from (b) the aggregate amounts paid to
Sellers prior to the date hereof that constitute Prepaid Sales Order Amounts,
Prepaid Maintenance Amounts or prepaid License Agreement amounts, as if the
Closing of the Transaction had occurred on July 1, 1999, shall reduce the
Purchase Price (to be offset against that portion of the Purchase Price to be
paid pursuant to Section 1.3(a)(iii)) consistent with the provisions of Section
1.3(b) and (c). If the Closing of the Transaction does not occur by September 3,
1999, such prepaid amounts shall become immediately due and payable by Sellers
to Buyer. Buyer hereby agrees to assume and perform pursuant to their terms all
of the liabilities and obligations of Sellers arising under the Acquired Sales
Orders, the License Agreements, and the Maintenance Contracts, from and after
July 1, 1999, provided, however, that Buyer's assumption of such liabilities and
obligations shall only be effective for so long as ASI provides to Buyer certain
services as set forth in Section 3 hereof.
3. Effective as of July 1, 1999, Buyer hereby engages ASI to provide
marketing, sales, product implementation and installation and customer support
services (collectively, the "Services") on behalf of Buyer, in the manner that
Buyer shall reasonably request, and ASI hereby agrees to provide such Services
at its expense in consideration of the agreements made herein, until the earlier
of (i) the Closing of the Transaction, (ii) the later of September 30, 1999 or
the installation of all of the products required to be installed under the
Acquired Sales Orders and License Agreements, or (iii) such other date as the
parties may mutually agree. In connection with such Services, ASI agrees to
provide to Buyer the full-time services of all of the marketing, sales and
customer support personnel currently employed by ASI in connection with the
Business. Such employees shall apply their full time and effort on behalf of
Buyer and will be under the supervision and daily management of Buyer, and Buyer
may direct such personnel with respect to the sales and support of ASI Products,
sales of Buyer's Clinical Reporter product, and the Services, as it deems
appropriate, in its sole discretion. Prior to the Closing of the Transaction, if
ASI materially defaults in its obligations to perform the Services required
hereunder, in addition to any other remedies that the Buyer may have, if Buyer
gives written notice of such default to ASI and ASI shall fail to cure such
default within five (5) days, for so long as such default remains uncured and
provided that the Closing has not occurred, Buyer shall thereafter have the
right to transfer back to the respective Seller any Acquired Purchase Order,
License Agreement or Maintenance Contract, and the related liabilities and
obligations by written notice to Sellers. The parties acknowledge that employees
of ASI are not, and shall not be deemed to be employees of Buyer, but are, at
all times, employees of ASI. The parties acknowledge and agree that this
Agreement does not (a) authorize either Fonix or ASI to enter into any purchase
order, contract or other agreement or incur any other liability or obligation on
behalf of Buyer, (b) authorize Buyer to enter into any purchase order, contract
or other agreement or incur any liability or obligation on behalf of a Seller
(except as expressly provided in the Technology Option Agreement when Buyer is
acting as an ASI Distributor) or (c) create a partnership, agency or joint
venture, but a relationship of independent contractors.
4. ASI and Fonix each hereby agree that they will not, directly or
indirectly, conduct any sales, marketing or licensing activity with respect to
the Business or the ASI Products other than on behalf of Buyer while ASI is
required to provide Services to Buyer pursuant to Section 3 hereof, including,
but not limited to, through other distributors of ASI Products. It is understood
that for purposes of convenience a Seller, subject to the consent of Buyer, may
enter into sales orders, license agreements or maintenance contracts with
respect to the Business while ASI is performing Services hereunder. By way of
clarification, any such agreements shall be deemed to be Acquired Sales Orders,
License Agreements or Maintenance Contracts hereunder.
5. In the event that the Closing of the Transaction has not taken place
by September 3, 1999, then Sellers hereby grant to Buyer a perpetual,
royalty-free, non-exclusive license in accordance with Articles 2.1, 2.2, 2.3,
and 2.5 of the License Agreement for ASI's software as specified in Addendum E
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to the License Agreement, effective as of September 3, 1999, and subject to all
terms of the License Agreement, provided, however, that such license shall be
royalty-free notwithstanding the terms of the License Agreement; and provided
further that Buyer understands and agrees that Sellers grant hereunder shall be
subject to either Seller obtaining the license rights specified in said Addendum
E.
6. Buyer hereby agrees to provide to ASI an additional loan in the
principal amount of $1,200,000 (the "New Loan") pursuant to the following
documents: (1) Second Amendment to Promissory Note; (2) First Amendment to Loan
Agreement; (3) Third Amendment to Security Agreement; (4) First Amendment to
Pledge and Security Agreement; (5) Fourth Amendment to Promissory Note; and (6)
a letter agreement between the Buyer and Sellers, all of which shall be executed
by Buyer, ASI and Fonix substantially in the forms attached hereto.
Notwithstanding the foregoing, the New Loan shall not be funded unless and until
(a) Fonix's registration statement on Form S-3, currently pending before the
Securities and Exchange Commission (the "SEC") is declared effective, (b) Fonix
files with the SEC an amendment to Fonix's proxy statement with respect to the
Transaction in a form reasonably acceptable to Buyer and its counsel, and (c)
Buyer receives a letter from counsel to Sellers advising Buyer that no further
consent from Beesmark is required in connection with the amendments and
agreements contemplated hereby. Provided that: (i) Fonix satisfies all
conditions to receiving the New Loan on or before 5:00 p.m. Boston time on
Thursday, August 12, 1999; and (ii) Buyer's wire transfer of $1.2 Million to its
United States subsidiary made on August 10, 1999 is available to be wired
hereunder by the receiving bank on a timely basis, Buyer will arrange to have
the New Loan sent by wire transfer from a United States account on or before the
close of business on Friday, August 13, 1999. In addition, Fonix shall promptly
respond to all future SEC comments and provide to Buyer within one (1) business
day of delivery or receipt copies of all correspondence with the SEC with
respect to its Form S-3 Registration Statement, the proxy statement or otherwise
until the Closing, and, upon request of the Buyer, copies of all correspondence
with the SEC prior to the date hereof.
7. The parties hereby agree that the Purchase Price under the Asset
Purchase Agreement shall be offset at Closing by the amount of any sums owed to
Buyer by either of the Sellers pursuant to contractual arrangements between the
parties.
8. Fonix and ASI, jointly and severally, shall indemnify Buyer from and
against any and all claims, losses and liabilities, together with related
expenses and costs (including, without limitation, reasonable attorney's fees
and court costs) incurred as a result of or arising out of the performance by
ASI of the Services hereunder concerning or otherwise relating to Acquired Sales
Orders, License Agreements and Maintenance Contracts, including, but not limited
to, as a result of the acts or omissions of any employees, officers or agents of
ASI or as a result of their breach of this Agreement or their failure to perform
their obligations hereunder, except insofar as such claims, losses and
liabilities are incurred as a result of the gross negligence or willful
misconduct of Buyer. In addition, Fonix and/or ASI shall continue to maintain
adequate product liability insurance and any other form of insurance with
respect to the ASI Products in such amounts as is customary in the industry and
is currently maintained, subject to the terms of such existing policies.
9. Pursuant to Section 1.14 of the Asset Purchase Agreement, Buyer
hereby notifies Sellers of Buyer's election to designate the Apple Claims as
Subject Assets pursuant to Sections 1.1(a)(viii) and (ix) of the Agreement.
AMENDMENTS TO ASSET PURCHASE AGREEMENT
10. In the event of any inconsistency between this Agreement and the
Asset Purchase Agreement, the terms of this Agreement shall control, including
without limitation, the transfer hereunder of the Acquired Sales Orders, License
Agreements and Maintenance Contracts effective as of July 1, 1999 and the
calculation of the prepaid amounts with respect thereto.
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11. If (a) the Closing of the Transaction shall have occurred on or
before September 3, 1999 or (b) Buyer shall be reasonably satisfied at the
Closing that it has obtained the license rights referred to in Section 5 hereof,
without any further consents or payments being required, the amount to be placed
in escrow pursuant to Section 1.3(a)(ii) of the Asset Purchase Agreement shall
be reduced to Two Million Five Hundred Thousand Dollars ($2,500,000). Any and
all prior agreements and understandings not expressly set forth herein or in the
Asset Purchase Agreement with respect to the amount to be escrowed pursuant to
the Transaction are hereby terminated.
AMENDMENTS TO LICENSE AGREEMENT
12. The second paragraph of Section 6.5(a) of the License Agreement
shall be deleted in its entirety.
13. Section 6.5(b) of the License Agreement shall be deleted in its
entirety, and Section 6.5(c) shall be redesignated as Section 6.5(b).
MISCELLANEOUS
14. (a) Sellers and Buyer each remake each and every representation and
warranty made by them in each of the Asset Purchase Agreement, the License
Agreement and the Technology Option Agreement.
(b) This Agreement shall not be assignable by ASI or Fonix without the
prior written consent of Buyer. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and permitted
assigns.
(c) In the event of any conflict between the terms hereof and the terms
of any of the Asset Purchase Agreement, the License Agreement or the Technology
Option Agreement, the terms of this Agreement shall be controlling.
(d) Terms used herein but not defined shall have the meanings ascribed
thereto in the Asset Purchase Agreement, License Agreement or Technology Option
Agreement, as applicable.
(e) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
hereof.
(f) This Agreement, the Asset Purchase Agreement, the License Agreement
and the Technology Option Agreement, together with the schedules and other
attachments hereto and thereto constitute the entire agreement of the parties
with respect to the subject matter hereof. There are no other agreements and
understanding with respect thereto except as expressly set forth herein or
therein. No provision of this Agreement may be waived or amended, except in
writing executed by all parties hereto.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts (other than the choice of law
principles thereof).
(f) This Agreement may be executed in multiple counterparts and by
facsimile, each of which shall be deemed an original but all of which together
shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal in multiple counterparts as of the date set forth above by
their duly authorized representatives.
FONIX CORPORATION
By:/s/
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Name: Thomas A. Murdock
Title: President and Chief Executive Officer
FONIX/ASI CORPORATION
By:/s/
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Name: Thomas A. Murdock
Title: President
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V.
By:/s/
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Name: Gaston Bastiaens
Title: President and Chief Executive Officer
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