Certificate of Designation of Rights and Preferences 
                for Series B Convertible Preferred Stock
                                     of
                              fonix corporation
 
     Pursuant to Section 151 of the General Corporation Law of the State of
Delaware, fonix corporation, a Delaware corporation (the "Company"), does
hereby certify:
 
     FIRST: That pursuant to authority expressly vested in it by the
Certificate of Incorporation of the Company, the Board of Directors of the
Company has adopted the following unanimous consent resolution(s)
establishing a new series of Preferred Stock of the Company, consisting of
125,000 shares designated "Series B Convertible Preferred Stock," with such
powers, designations, preferences and relative participating, optional or
other rights, if any, and the qualifications, limitations or restrictions
thereof, as are set forth in the resolutions :

     FURTHER RESOLVED, that the Company's Board of Directors
     hereby unanimously approves the designation and issuance of the
     Series B Preferred Stock according to the terms and conditions
     as set forth in Exhibit B and authorizes and instructs the
     Company's officers to proceed in filing the Certificate of
     Designation with the State of Delaware and to take such other
     action as shall be appropriate in connection with the issuance
     of the Series B Preferred Stock.

     SECOND: That said resolutions of the directors of the Company were
duly adopted in accordance with the provisions of Section 151(g)  of the
General Corporation Law of the State of Delaware.
 
     IN WITNESS WHEREOF, the undersigned hereby affirms, under penalties of
perjury, that the foregoing instrument is the act and deed of the Company
and that the facts stated therein are true.  Dated this 24th day of October,
1997.
 
                                        fonix corporation
 


                                        By: /s/ ROGER D. DUDLEY
                                           ----------------------------
                                           Roger D. Dudley

                                           Title: Executive Vice President

<PAGE>
EXHIBIT B

            SERIES B CONVERTIBLE PREFERRED STOCK TERMS

      Section 1.  Designation, Amount and Par Value.  The series of
preferred stock shall be designated as the Series B Convertible Preferred
Stock (the "Preferred Stock"), and the number of shares so designated shall
be 125,000.  Each share of Preferred Stock shall have a par value of $.0001
per share and a stated value of $20 per share (the "Stated Value").

      Section 2.  Dividends.

     (a) Holders of Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors out of funds legally
available therefor, and the Company shall pay, quarterly in arrears on March
31, June 30, September 30 and December 31 of each year, commencing December
31, 1997, and on each Conversion Date (as hereinafter defined), cumulative
dividends on the Preferred Stock at the rate per share (as a percentage of
the Stated Value per share) equal to 5% per annum, payable in cash or shares
of Common Stock (as defined in Section 6) at the option of the Company.  The
number of shares of Common Stock issuable as payment of dividends hereunder
shall equal the aggregate dollar amount of dividends then being paid,
divided by the Conversion Price (as defined in Section 5(c)(i)) then in
effect.  Dividends on the Preferred Stock shall be calculated on the basis
of a 360-day year, shall accrue daily commencing the Original Issue Date (as
defined in Section 6), and shall be deemed to accrue on such date whether or
not earned or declared and whether or not there are profits, surplus or
other funds of the Company legally available for the payment of dividends. 
The party that holds the Preferred Stock on an applicable record date for
any dividend payment will be entitled to receive such dividend payment and
any other accrued and unpaid dividends which accrued prior to such dividend
payment date, without regard to any sale or disposition of such Preferred
Stock subsequent to the applicable record date but prior to the applicable
dividend payment date.  Except as otherwise provided herein, if at any time
the Company pays less than the total amount of dividends then accrued on
account of the Preferred Stock, such payment shall be distributed ratably
among the holders of the Preferred Stock based upon the number of shares
then held by each holder.  In order for the Company to exercise its right to
pay dividends in shares of Common Stock, the Company shall, no less than
five (5) Trading Days prior to the first day of the calendar quarter in
which a dividend payment date (other than a Conversion Date) occurs, provide
the holders of the Preferred Stock written notice of its intention to pay
dividends in shares of Common Stock.

       (b) Notwithstanding anything to the contrary contained herein, the
Company may not issue shares of Common Stock in payment of dividends on the
Preferred Stock (and must deliver cash in respect thereof) if:  (  the
number of shares of Common Stock at the time authorized, unissued and
unreserved for all purposes, or held as treasury stock, is either
insufficient to issue such dividends in shares of Common Stock or the
Company has not duly reserved for issuance in respect of such dividends a
sufficient number of shares of Common Stock, ( such shares are not
registered for resale pursuant to an effective Underlying Securities
<PAGE>Registration Statement (as defined in Section 6) and may not be sold
without volume restrictions pursuant to Rule 144(k) promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), as determined by
counsel to the Company pursuant to a written opinion letter, addressed and
acceptable to the Company's transfer agent or other Person performing
functions similar thereto, ( such shares are not listed for trading on the
Nasdaq SmallCap Market, Nasdaq National Market, The New York Stock Exchange
or the American Stock Exchange (and any other exchange, market or trading
facility in which the Common Stock is then listed for trading), (  the
issuance of such shares would result in the recipient thereof beneficially
owning, determined in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended, more than 4.999% of the then
issued and outstanding shares of Common Stock, unless the issuance of shares
of Common Stock in excess of such amount is then permitted by Section 3.9 of
the Purchase Agreement, or (v) the Company shall have failed to timely
satisfy its obligations pursuant to any Conversion Notice.

     Payment of dividends in shares of Common Stock is further
subject to the provision of Section 5(a)(ii).
 
     (c) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined
in Section 6), nor shall the Company directly or indirectly pay or declare
any dividend or make any distribution (other than a dividend or distribution
described in Section 5) upon, nor shall any distribution be made in respect
of, any Junior Securities, nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of any
Junior Securities or shares pari passu with the Preferred Stock.

      Section 3.  Voting Rights.  Except as otherwise provided herein
and as otherwise required by law, the Preferred Stock shall have no voting
rights.  However, so long as any shares of Preferred Stock are outstanding,
the Company shall not and shall cause its subsidiary not to, without the
affirmative vote of 66  of the holders of all of the shares of the Preferred
Stock then outstanding,  alter or change adversely the powers, preferences
or rights given to the Preferred Stock, (b) alter or amend this Certificate
of Designation, (c) authorize or create any class of stock ranking as to
dividends or distribution of assets upon a Liquidation (as defined in
Section 4) or otherwise senior to or pari passu with the Preferred Stock,
(d) amend its Certificate of Incorporation, bylaws or other charter
documents so as to affect adversely any rights of any holders of the
Preferred Stock, (e) increase the authorized or designated number of shares
of Preferred Stock, (f) issue any additional shares of Preferred Stock or
(g) enter into any agreement with respect to the foregoing. 
 
      Section 4.  Liquidation.  Upon any liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary (a
"Liquidation"), the holders of Preferred Stock shall be entitled to receive
out of the assets of the Company, whether such assets are capital or
surplus, for each share of Preferred Stock an amount equal to the Stated
Value plus all accrued but unpaid
                                       -2-
<PAGE>
dividends per share, whether declared or not, before any distribution or
payment shall be made to the holders of any Junior Securities, and if the
assets of the Company shall be insufficient to pay in full such amounts,
then the entire assets to be distributed to the holders of Preferred Stock
shall be distributed among the holders of Preferred Stock ratably in
accordance with the respective amounts that would be payable on such shares
if all amounts payable thereon were paid in full.  A sale, conveyance or
disposition of all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related
transactions in which more than 50% of the voting power of the Company is
disposed of, or a consolidation or merger of the Company with or into any
other company or companies shall not be treated as a Liquidation, but
instead shall be subject to the provisions of Section 5.  The Company shall
mail written notice of any such Liquidation, not less than 45 days prior to
the payment date stated therein, to each record holder of Preferred Stock.

      Section 5.  Conversion.

     (a)(i)  Each share of Preferred Stock is convertible at the option
of the holder in whole or in part at any time after the Original Issue Date
into shares of Common Stock (subject to reduction pursuant to Section
5(a)(ii) hereof and Section [ ] of the Purchase Agreement) at the Conversion
Ratio (as defined in Section 6).  The holder shall effect conversions by
surrendering the certificate or certificates representing the shares of
Preferred Stock to be converted to the Company, together with the form of
conversion notice attached hereto as Exhibit A (the "Conversion Notice"). 
Each Conversion Notice shall specify the number of shares of Preferred Stock
to be converted and the date on which such conversion is to be effected,
which date may not be prior to the date the holder delivers such Conversion
Notice by facsimile (the "Conversion Date").  If no Holder Conversion Date
is specified in a Holder Conversion Notice, the Holder Conversion Date shall
be the date that the Holder Conversion Notice is deemed delivered pursuant
to Section 5(i).  Subject to Sections 5(b) and 5(a)(ii) hereof and Section [ 
] of the Purchase Agreement, each Conversion Notice, once given, shall be
irrevocable.  If the holder is converting less than all shares of Preferred
Stock represented by the certificate or certificates tendered by the holder
with the Conversion Notice, or if a conversion hereunder cannot be effected
in full for any reason, the Company shall promptly deliver to such holder
(in the manner and within the time set forth in Section 5(b)) a certificate
for such number of shares as have not been converted.
     
     (ii)  Certain Regulatory Approval.  If on the Conversion
Date applicable to any conversion, (A) the Common Stock is then listed for
trading on the Nasdaq National Market, The New York Stock Exchange, the
American Stock Exchange or if the rules of The Nasdaq Stock Market, Inc. are
hereafter amended to extend or adopt rules similar to Rule 4460(i)
promulgated thereby (or any successor or replacement provision thereof) to
the Nasdaq SmallCap Market and the Company's Common Stock is listed for
trading on such market or exchange, (B) the Conversion Price then in effect
is such that the aggregate number of shares of Common Stock that would then
be issuable upon conversion of all outstanding shares of Preferred Stock,
together with any shares of Common Stock previously issued upon conversion
of Preferred Stock and in 

                                      -3-
<PAGE>
respect of payment of dividends hereunder, would equal or exceed 20% of the
number of shares of Common Stock outstanding on the Original Issue Date (the
"Issuable Maximum"), and (C) the Company has not previously obtained
Shareholder Approval (as defined below), then the Company shall issue to the
holder so requesting a conversion of Preferred Stock its pro rata portion of
the Issuable Maximum in the same ratio that the number of shares of
Preferred Stock then outstanding and held by such holder bears to the
aggregate number of shares of Preferred Stock then outstanding and, with
respect to the remainder of the shares of Preferred Stock then held by such
holder for which a conversion in accordance with the Conversion Price would
result in an issuance of Common Stock in excess of such holder's pro rata
portion of the Issuable Maximum, the converting holder shall have the option
to require the Company to either (1) use its best efforts to obtain the
Shareholder Approval applicable to such issuance as soon as is possible, but
in any event not later than the 60th day after such request, or (2)(i) issue
and deliver to such holder a number of shares of Common Stock as equals (x)
the number of shares of Preferred Stock (or such portions thereof) tendered
for conversion in respect of the Conversion Notice at issue but for which a
conversion in accordance with the other terms hereof would result in an
issuance of Common Stock in excess of such holder's pro rata portion of the
Issuable Maximum, divided by (y) the Initial Conversion Price (as defined in
Section 5(c)(i)), and (ii) cash in an amount equal to the product of (x) the
Per Share Market Value on the Conversion Date and (y) the number of shares
of Common Stock in excess of such holder's pro rata portion of the Issuable
Maximum that would have otherwise been issuable to the holder in respect of
such conversion but for the provisions of this Section (such amount of cash
being hereinafter referred to as the "Discount Equivalent").  If the Company
fails to pay the Discount Equivalent in full pursuant to this Section within
seven (7) days after the date payable, the Company will pay interest thereon
at a rate of 18% per annum to the converting holder, accruing daily from the
Conversion Date until such amount, plus all such interest thereon, is paid
in full.  The entire Discount Equivalent, including interest thereon, shall
be paid in cash.  "Shareholder Approval" means the approval by a majority of
the total votes cast on the proposal, in person or by proxy, at a meeting of
the shareholders of the Company held in accordance with the Company's
Certificate of Incorporation and by-laws, of the issuance by the Company of
shares of Common Stock exceeding the Issuable Maximum as a consequence of
the conversion of Preferred Stock into Common Stock at a price less than the
greater of the book or market value on the Original Issue Date as and to the
extent required pursuant to Rule 4460(i) of the Nasdaq Stock Market or Rule
713 of the American Stock Exchange (or any successor or replacement
provision thereof), as applicable.

     (b) Not later than three (3) Trading Days after a Conversion
Date, the Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions (other than those required by Section 3.1(b) of the Purchase
Agreement) representing the number of shares of Common Stock being issued
upon the conversion of shares of Preferred Stock (subject to reduction
pursuant to Section 5(a)(ii) hereof and Section 3.9 of the Purchase
Agreement), (ii) one or more certificates representing the number of shares
of Preferred Stock not converted, (iii) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected or is required to
pay accrued and unpaid dividends in cash) and (iv) if the Company has
elected and is permitted hereunder to pay accrued dividends in shares 

                                    -4-
<PAGE>
of Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (other than those required by Section 3.1(b) of the
Purchase Agreement), representing such number of shares of Common Stock as
are issuable on account of accrued dividends in such number as determined in
accordance with Section 2(a); provided, however, that the Company shall not
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of any shares of Preferred Stock until certificates
evidencing such shares of Preferred Stock are delivered for conversion to
the Company, or the holder of such Preferred Stock notifies the Company that
such certificates have been lost, stolen or destroyed and provides a bond
(or other adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith. 
The Company shall, upon request of the holder, use its best efforts to
deliver any certificate or certificates required to be delivered by the
Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions.  If in the case of any Conversion Notice such certificate or
certificates, including for purposes hereof, any shares of Common Stock to
be issued on the Conversion Date on account of accrued but unpaid dividends
hereunder, are not delivered to or as directed by the applicable holder by
the third Trading Day after the Conversion Date, the holder shall be
entitled by written notice to the Company at any time on or before its
receipt of such certificate or certificates, to rescind such conversion, in
which event the Company shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion.  If the
Company fails to deliver to the holder such certificate or certificates
pursuant to this Section, including for purposes hereof, any shares of
Common Stock to be issued on the Conversion Date on account of accrued but
unpaid dividends hereunder, prior to the fifth (5th) Trading Day after the
Conversion Date, the Company shall pay to such holder, in cash, as
liquidated damages and not as a penalty, $2,500 for each day after such
fifth (5th) Trading Day until the tenth (10th) Trading Day after the
Conversion Date, thereafter, the Company shall, pay to such holder, in cash,
as liquidated damages and not as a penalty, $5,000 for each day after such
tenth (10th) Trading Day after the Conversion Date until such certificates
are delivered.  Nothing herein shall limit a holder's right to pursue actual
damages for the Company's failure to deliver certificates representing
shares of Common Stock upon conversion within the period specified herein
(including, without limitation, damages relating to any purchase of shares
of Common Stock by such holder to make delivery on a sale effected in
anticipation of receiving certificates representing shares of Common Stock
upon conversion, such damages to be in an amount equal to (A) the aggregate
amount paid by such holder for the shares of Common Stock so purchased minus
(B) the aggregate amount of net proceeds, if any, received by such holder
from the sale of the shares of Common Stock issued by the Company pursuant
to such conversion), and such holder shall have the right to pursue all
remedies available to it at law or in equity (including, without limitation,
a decree of specific performance and/or injunctive relief).

     (c)  (i)  The conversion price for each share of Preferred
Stock (the "Conversion Price") in effect on any Conversion Date shall be the
lesser of (A) the average Per Share Market Value for the five (5) Trading
Days immediately preceding the Original Issue Date (the "Initial Conversion
Price") and (B) the product of the average Per Share Market Value for the
five (5) Trading Days immediately preceding the Conversion Date multiplied
by the Applicable 

                                     -5-
<PAGE>
Percentage (as defined in Section 6); provided that, (a) if the Underlying
Shares Registration Statement is not filed on or prior to the 20th day after
the Original Issue Date, or (b) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2
promulgated under the Securities Exchange Act of 1934, as amended, within
five (5) Trading Days of the date that the Company is notified (orally or in
writing, whichever is earlier) by the staff of the Commission that an
Underlying Shares Registration Statement will not be "reviewed," or not
subject to further review or (c) if the Underlying Shares Registration
Statement is not declared effective by the Commission on or prior to the
60th day after the Original Issue Date, or (d) if such Underlying Shares
Registration Statement is filed with and declared effective by the
Commission but thereafter ceases to be effective as to all Registrable
Securities (as such term is defined in the Registration Rights Agreement) at
any time prior to the expiration of the "Effectiveness Period" (as such term
as defined in the Registration Rights Agreement), without being succeeded
within ten (10) Trading Days by a subsequent Underlying Shares Registration
Statement filed with and declared effective by the Commission, or (e) if
trading in the Common Stock shall be suspended for any reason (other than as
a result of the suspension of trading in securities generally) for more than
four days in the aggregate, or (f) if the conversion rights of the holders
of Preferred Stock hereunder are suspended for any reason or (g) if the
Company breaches in a material respect any covenant or other material term
or condition to the Purchase Agreement, the Registration Rights Agreement or
any other agreement, document, certificate or other instrument delivered in
connection with the transactions contemplated thereby, and such breach
continues for a period of thirty (30) days after written notice thereof to
the Company (any such failure being referred to as an "Event," and for
purposes of clauses (a), (c) and (f) the date on which such Event occurs, or
for purposes of clause (b) the date on which such five (5) Trading Days
period is exceeded, or for purposes of clause (d) the date which such 10
Trading Day-period is exceeded, or for purposes of clause (e) the date on
which such four day period is exceeded, or for clause (g) the date on which
such thirty (30) day period is exceeded, being referred to as "Event Date"),
the Applicable Percentage shall be decreased by 2.5% each month (i.e., the
Applicable Percentage would decrease by 2.5% as of the Event Date and an
additional 2.5% as of the first monthly anniversary of the Event Date) until
the later to occur of the second month anniversary after the Event Date and
such time as the applicable Event is cured.  Commencing the second month
anniversary after the Event Date, the Company shall pay to each holder of
Preferred Stock the product of 2.5% and the aggregate of the Stated Values
for the shares of Preferred Stock then held by such holder, in cash as
liquidated damages, and not as a penalty on the first day of each monthly
anniversary of the Event Date until such time as the applicable Event, is
cured.  Any decrease in the Conversion Price pursuant to this Section shall
continue notwithstanding the fact that the Event causing such decrease has
been subsequently cured.  The provisions of this Section are not exclusive
and shall in no way limit the Company's obligations under the Registration
Rights Agreement.

     (ii)  If the Company, at any time while any shares of
Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise
make a distribution or distributions on shares of its Junior Securities
payable in shares of Common Stock, (b) subdivide outstanding shares of
Common Stock into a larger number of shares, (c) combine outstanding shares
of 

                                     -6-
<PAGE>
Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of
the Company, the Conversion Price shall be multiplied by a fraction of which
the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after
such event.  Any adjustment made pursuant to this Section 5(c)(ii) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

       (iii)   If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares
of Common Stock at a price per share less than the Per Share Market Value of
Common Stock at the record date mentioned below, the Initial Conversion
Price shall be multiplied by a fraction, of which the denominator shall be
the number of shares of Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the
number of additional shares of Common Stock offered for subscription or
purchase, and of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding on the date of
issuance of such rights or warrants plus the number of shares which the
aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value.  Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights or warrants.  However, upon the expiration
of any right or warrant to purchase Common Stock the issuance of which
resulted in an adjustment in the Conversion Price pursuant to this Section
5(c)(iii), if any such right or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to
the price which it would have been (but reflecting any other adjustments in
the Conversion Price made pursuant to the provisions of this Section 5 after
the issuance of such rights or warrants) had the adjustment of the
Conversion Price made upon the issuance of such rights or warrants been made
on the basis of offering for subscription or purchase only that number of
shares of Common Stock actually purchased upon the exercise of such rights
or warrants actually exercised.

      (iv)   If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders of Common
Stock (and not to holders of Preferred Stock) evidences of its indebtedness
or assets or rights or warrants to subscribe for or purchase any security
(excluding those referred to in Sections 5(c)(ii) and (iii) above), then in
each such case the Conversion Price at which each share of Preferred Stock
shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Per Share Market Value of
Common Stock determined as of the record date mentioned above, and of which
the numerator shall be such Per Share Market 

                                    -7-
<PAGE>
Value of the Common Stock on such record date less the then fair market
value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common
Stock as determined by the Board of Directors in good faith; provided,
however, that in the event of a distribution exceeding ten percent (10%) of
the net assets of the Company, such fair market value shall be determined by
a nationally recognized or major regional investment banking firm or firm of
independent certified public accountants of recognized standing (which may
be the firm that regularly examines the financial statements of the Company)
(an "Appraiser") selected in good faith by the holders of a majority in
interest of the shares of Preferred Stock then outstanding; and provided,
further, that the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional Appraiser, in good
faith, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser.  In either case the adjustments
shall be described in a statement provided to the holders of Preferred Stock
of the portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock.  Such
adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.

       (v)  In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another Person pursuant
to which the Company will not be the surviving entity, the sale or transfer
of all or substantially all of the assets of the Company or any compulsory
share exchange pursuant to which the Common Stock is converted into other
securities, cash or property, the holders of the Preferred Stock then
outstanding shall have the right thereafter to, at their option, (A) convert
such shares of Preferred Stock, together with all accrued and unpaid
dividends thereon, only into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such reclassification, consolidation, merger, sale, transfer or
share exchange, and the holders of the Preferred Stock shall be entitled
upon such event to receive such amount of securities, cash or property as
the shares of the Common Stock of the Company into which such shares of
Preferred Stock, together with all accrued and unpaid dividends thereon
could have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange would have been
entitled or (B) to require that the Person with whom such consolidation,
merger, sale or transfer or share exchange takes place issue and deliver to
the holders of the Preferred Stock shares of convertible preferred stock or
convertible debentures of such Person which newly issued shares or
debentures (as the case may be) shall have terms substantially similar in
all material respects to the terms of the Preferred Stock (including with
respect to conversion) and shall be entitled to all of the rights and
privileges of a holder of Preferred Stock set forth herein, in the
Registration Rights Agreement and in the Purchase Agreement (including
without limitation, such rights as relates to the acquisition,
transferability, registration and listing of the stock or other securities
issuable upon conversion of such convertible preferred stock or convertible
debentures).  In such case, the conversion price for such newly issued
convertible securities shall be based upon the amount of securities, cash or
property that each share of Common Stock would receive in the transaction
giving rise to the obligation to issue such securities, the Conversion Ratio
immediately prior to the effective or closing date for such transaction and
the Conversion 

                                    -8-
<PAGE>
Price stated herein.  The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to
give to the holder of Preferred Stock the right to receive the securities,
cash or property set forth in this Section upon any conversion following
such consolidation, merger, sale, transfer or share exchange.  This
provision shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.

       (vi)  All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.

       (vii)  Whenever the Initial Conversion Price is adjusted
pursuant to Section 5(c)(ii), (iii), (iv) or (v) the Company shall promptly
mail to each holder of Preferred Stock, a notice setting forth the Initial
Conversion Price after such adjustment and setting forth a brief statement
of the facts requiring such adjustment.

       (viii)  If:

             A.   the Company shall declare a dividend (or any
                  other distribution) on its Common Stock; or

             B.   the Company shall declare a special
                  nonrecurring cash dividend on or a redemption
                  of its Common Stock; or

             C.   the Company shall authorize the granting to
                  all holders of the Common Stock rights or
                  warrants to subscribe for or purchase any
                  shares of capital stock of any class or of any
                  rights; or

             D.   the approval of any stockholders of the
                  Company shall be required in connection with
                  any reclassification of the Common Stock of
                  the Company, any consolidation or merger to
                  which the Company is a party, any sale or
                  transfer of all or substantially all of the
                  assets of the Company, of any compulsory share
                  of exchange whereby the Common Stock is
                  converted into other securities, cash or
                  property; or

             E.   the Company shall authorize the voluntary or
                  involuntary dissolution, liquidation or
                  winding up of the affairs of the Company;

then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Preferred Stock, and shall cause to be
mailed to the holders of Preferred Stock at their last addresses as they
shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a
notice stating 

                                    -9-
<PAGE>
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange is
expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale,
transfer or share exchange; provided, however, that the failure to mail such
notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice. 
Holders are entitled to convert shares of Preferred Stock during the 30-day
period commencing the date of such notice to the effective date of the event
triggering such notice. 

      (ix)   If the Company (i) makes a public announcement that
it intends to enter into a Change of Control Transaction (as defined below)
or (ii) any person, group or entity (including the Company, but excluding a
Holder or any affiliate of a Holder) publicly announces a bona fide tender
offer, exchange offer or other transaction to purchase 50% or more of the
Common Stock (such announcement being referred to herein as a "Major
Announcement" and the date on which a Major Announcement is made, the
"Announcement Date"), then, in the event that a Holder seeks to convert
shares of Preferred Stock on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the earlier to occur of the consummation of the proposed transaction
or tender offer, exchange offer or other transaction and the Abandonment
Date (as defined below), be equal to the lower of (x) the average Per Share
Market Value on the five Trading Days immediately preceding (but not
including) the Announcement Date and (y) the Conversion Price in effect on
the Conversion Date for such Preferred Stock.  "Abandonment Date" means with
respect to any proposed transaction or tender offer, exchange offer or other
transaction for which a public announcement as contemplated by this
paragraph has been made, the date upon which the Company (in the case of
clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or another transaction which
caused this paragraph to become operative.  

     (d)  If at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially
and adversely affect the rights of the holders of Preferred Stock (different
than or distinguished from the effect generally on rights of holders of any
class of the Company's capital stock) or if at any time any such conditions
are expected to arise by reason of any action contemplated by the Company,
the Company shall mail a written notice briefly describing the action
contemplated and the material adverse effects of such action on the rights
of the holders of Preferred Stock at least 30 calendar days prior to the
effective date of such action, and an Appraiser selected by the holders of
majority in interest of the Preferred Stock shall give its opinion as to the
adjustment, if any (not inconsistent with the standards established in this
Section 5), of the Conversion Price (including, if necessary, any adjustment
as 

                                   -10-
<PAGE>
to the securities into which shares of Preferred Stock may thereafter be
convertible) and any distribution which is or would be required to preserve
without diluting the rights of the holders of shares of Preferred Stock;
provided, however, that the Company, after receipt of the determination by
such Appraiser, shall have the right to select an additional Appraiser, in
good faith, in which case the adjustment shall be equal to the average of
the adjustments recommended by each such Appraiser.  The Board of Directors
shall make the adjustment recommended forthwith upon the receipt of such
opinion or opinions or the taking of any such action contemplated, as the
case may be; provided, however, that no such adjustment of the Conversion
Price shall be made which in the opinion of the Appraiser(s) giving the
aforesaid opinion or opinions would result in an increase of the Conversion
Price to more than the Conversion Price then in effect.

     (e)   The Company covenants that it will at all times reserve
and keep available out of its authorized and unissued Common Stock solely
for the purpose of issuance upon conversion of Preferred Stock and payment
of dividends on Preferred Stock, each as herein provided, free from
preemptive rights or any other actual contingent purchase rights of persons
other than the holders of Preferred Stock, not less than such number of
shares of Common Stock as shall (subject to any additional requirements of
the Company as to reservation of such shares set forth in the Purchase
Agreement) be issuable (taking into account the adjustments and restrictions
of Section 5(c)) upon the conversion of all outstanding shares of Preferred
Stock and payment of dividends hereunder.  The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly
and validly authorized, issued and fully paid, nonassessable and freely
tradeable.

     (f)   Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of Common
Stock, but may if otherwise permitted, make a cash payment in respect of any
final fraction of a share based on the Per Share Market Value at such time. 
If the Company elects not, or is unable, to make such a cash payment, the
holder of a share of Preferred Stock shall be entitled to receive, in lieu
of the final fraction of a share, one whole share of Common Stock.

     (g)    The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the holder of such
shares of Preferred Stock so converted and the Company shall not be required
to issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that
such tax has been paid.

     (h)   Shares of Preferred Stock converted into Common Stock
shall be canceled and shall have the status of authorized but unissued
shares of undesignated stock.

                                     -11-
<PAGE>
      (i)   Any and all notices or other communications or
deliveries to be provided by the holders of the Preferred Stock hereunder,
including, without limitation, any Conversion Notice, shall be in writing
and delivered personally, by facsimile or sent by a nationally recognized
overnight courier service, addressed to the attention of the Legal
Department of the Company at the facsimile telephone number or address of
the principal place of business of the Company as set forth in the Purchase
Agreement.  Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and delivered
personally, by facsimile or sent by a nationally recognized overnight
courier service, addressed to each holder of Preferred Stock at the
facsimile telephone number or address of such holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears,
at the principal place of business of the holder.  Any notice or other
communication or deliveries hereunder shall be deemed given and effective on
the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone number
specified in this Section prior to 4:30 p.m. (New York), (ii) the date after
the date of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this Section later
than 7:00 p.m. (New York Time) on any date and earlier than 11:59 p.m. (New
York Time) on such date, (iii) upon receipt, if sent by a nationally
recognized overnight courier service, or (iv) upon actual receipt by the
party to whom such notice is required to be given.  

      Section 6.  Optional Redemption.  

       (a)   All outstanding and unconverted shares of Preferred Stock
after the Original Issue Date may, at the Company's option upon at least ten
(10) days notice to the Purchaser, be redeemed by the Company pursuant to
this Section 6(a), from funds legally available therefor at a price per
share of Preferred Stock equal to the Conversion Price in Section 5, plus
accrued dividends.  Thereafter, all shares of Preferred Stock shall cease to
be outstanding and shall have the status of authorized but undesignated
stock.  The entire redemption price shall be paid in cash.

       (b)  If any portion of the applicable redemption price under
Section 6(a) shall not be paid by the Company within seven (7) calendar days
after the date due, interest shall accrue thereon at the rate of 8% per
annum until the redemption price plus all such interest is paid in full
(which amount shall be paid as liquidated damages and not as a penalty).  In
addition, if any portion of such redemption price remains unpaid for more
than 7 calendar days after the date due, the holder of the Preferred Stock
subject to such redemption may elect, by written notice to the Company given
within 30 days after the date due, to either (i) demand conversion in
accordance with the formula and the time frame therefor set forth in Section
5 of all of the shares of Preferred Stock for which such redemption price,
plus accrued liquidated damages thereof, has not been paid in full (the
"Unpaid Redemption Shares"), in which event the Per Share Market Price for
such shares shall be the lower of the Per Share Market Price calculated on
the date such redemption price was originally due and the Per Share Market
Price as of the holder's written demand for conversion, or (ii) invalidate
ab initio such redemption, notwithstanding anything herein contained to the
contrary.  If the holder elects option (i) above, the Company shall within
three (3) Trading Days of its receipt of such election deliver to the holder
the shares of Common 

                                     -12-
<PAGE>
Stock issuable upon conversion of the Unpaid Redemption Shares subject to
such holder conversion demand and otherwise perform its obligations
hereunder with respect thereto; or, if the Holder elects option (ii) above,
the Company shall promptly, and in any event not later than three (3)
Trading Days from receipt of holder's notice of such election, return to the
holder all of the Unpaid Redemption Shares.

      Section 7.  Definitions.  For the purposes hereof, the following
terms shall have the following meanings:

     "Applicable Percentage" means (i) 90% for any conversion honored
on or prior to the expiration of the 120th day after the Original Issue Date
and (ii) 87.5% for any conversion honored thereafter.

     "Common Stock" means the Company's common stock, $.0001 par
value per share, of the Company and stock of any other class into which such
shares may hereafter have been reclassified or changed.

     "Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends (including any
accrued but unpaid interest thereon) but only to the extent not paid in
shares of Common Stock in accordance with the terms hereof, and of which the
denominator is the Conversion Price at such time.

     "Junior Securities" means the Common Stock and all other equity
securities of the Company which are junior in rights and liquidation
preference to the Preferred Stock.

     "Original Issue Date" shall mean the date of the first issuance
of any shares of the Preferred Stock regardless of the number of transfers
of any particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.

     "Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
SmallCap Market or other stock exchange or quotation system on which the
Common Stock is then listed or if there is no such price on such date, then
the closing bid price on such exchange or quotation system on the date
nearest preceding such  date, or (b) if the Common Stock is not listed then
on the Nasdaq SmallCap Market or any stock exchange or quotation system, the
closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the Nasdaq Stock Market or in the National Quotation
Bureau Incorporated or similar organization or agency succeeding to its
functions of reporting prices) at the close of business on such date, or (c)
if the Common Stock is not then reported by the National Quotation Bureau
Incorporated (or similar organization or agency succeeding to its functions
of reporting prices), then the average of the "Pink Sheet" quotes for the
relevant conversion period, as determined in good faith by the holder, or
(d) if the Common Stock is not then publicly traded the fair market value of
a share of Common Stock as 

                                    -13-
<PAGE>
determined by an Appraiser selected in good faith by the holders of a
majority in interest of the shares of the Preferred Stock; provided,
however, that the Company, after receipt of the determination by such
Appraiser, shall have the right to select an additional Appraiser, in which
case, the fair market value shall be equal to the average of the
determinations by each such Appraiser.

     "Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.

     "Purchase Agreement" means the Convertible Preferred Stock
Purchase and Exchange Agreement, dated as of October 24, 1997, between the
Company and the original holder of the Preferred Stock.

     "Registration Rights Agreement" means the Registration Rights
Agreement, dated as of October 24, 1997, between the Company and the
original holder of Preferred Stock.

     "Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq SmallCap Market or other stock exchange or market on
which the Common Stock has been listed, or (b) if the Common Stock is not
listed on the Nasdaq National Market or any stock exchange or market, a day
on which the Common Stock is traded in the over-the-counter market, as
reported by the OTC Bulletin Board, or (c) if the Common Stock is not quoted
on the OTC Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions
of reporting prices); provided, however, that in the event that the Common
Stock is not listed or quoted as set forth in (a), (b) and (c) hereof, then
Trading Day shall mean any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the State
of New York are authorized or required by law or other government action to
close.

     "Underlying Shares" means the number of shares of Common Stock
into which the Shares are convertible in accordance with the terms hereof
and the Purchase Agreement.

<PAGE>
                            EXHIBIT A
                       NOTICE OF CONVERSION

(To be executed by the registered holder
in order to convert shares of Preferred Stock)

The undersigned hereby elects to convert the number of shares of Series [ ]
Convertible Preferred Stock indicated below, into shares of Common Stock,
par value $.0001 per share (the "Common Stock"), of fonix corporation (the
"Company") according to the conditions hereof, as of the date written below. 
If shares are to be issued in the name of a person other than undersigned,
the undersigned will pay all transfer taxes payable with respect thereto and
is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith.  No fee will be charged to
the holder for any conversion, except for such transfer taxes, if any.

Conversion calculations:

                         __________________________________________________
                         Date to effect conversion


                         __________________________________________________
                         Number of shares of Preferred Stock to be converted


                         _________________________________________________
                         Number of shares of Common Stock to be issued


                         __________________________________________________
                         Applicable conversion price


                         __________________________________________________
                         Name of Holder



                         ____________________________________________________
                         Address of Holder


                         __________________________________
                         Authorized Signature