FIRST AMENDMENT
EXHIBIT
99.1
FIRST
AMENDMENT
TO
THE
THIS
FIRST AMENDMENT TO THE EXCHANGE AGREEMENT (this “Amendment”) is made
as of the 12th day of
December, 2008, by and among FONIX CORPORATION, a Delaware corporation (“Fonix”), FONIX GS
ACQUISITION CORPORATION, a Delaware corporation and wholly owned subsidiary of
Fonix (“Buyer”), SOUTHRIDGE
LLC, a Connecticut, limited liability company (the “Funds”), G-SOFT
LIMITED, a Hong Kong corporation (“G-Soft”), and those
certain persons who are the capital stock holders of G-Soft whose names are
listed on Exhibits
A to the Exchange Agreement (as defined below) (the “Sellers”). Fonix,
Buyer, the Funds and the Sellers are referred to collectively herein as the
“Parties”. Except
as otherwise provided in this Amendment, all capitalized terms used but not
defined in this Amendment shall have the meanings given to them in the Exchange
Agreement.
RECITALS
WHEREAS,
the Parties executed that certain Exchange Agreement dated June 27, 2008 (the
“Exchange
Agreement”) pursuant to which the Sellers agreed to sell, and Buyers and
the Funds agreed to purchase, one hundred percent (100%) of the issued and
outstanding shares of G-Soft; and
WHEREAS,
the Parties desire to amend the Exchange Agreement as provided
herein.
NOW,
THEREFORE, in consideration of the agreements and obligations set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Parties hereby agree as follows:
1. Section
2.2. Section 2.2 (Purchase Price) of the Exchange Agreement is
hereby amended in its entirety to read as follows:
“2.2 Purchase
Price. Fonix
and the Funds agree to issue and deliver to the Sellers at the Closing, in
exchange for the transfer to Buyer of 80% of the G-Soft Shares and to the Funds
of 20% of the G-Soft Shares, consideration (collectively the “Purchase Price”) as
follows:
(i) Series
L. The Funds shall deliver to Xxxx X. Xxxxxxxx, Trustee for
the Sellers who are holders of G-Soft common stock in the percentage amounts set
forth on Exhibit
A, a total of One Hundred Eighty (180) shares of Fonix’s Series L
Preferred Stock, par value $0.0001 per share (“Series L Preferred
Stock”), with each such share of Series L Preferred Stock having a stated
value $10,000 per share.
(ii) Series
P. Fonix shall issue and deliver to Xxxx X. Xxxxxxxx, Trustee
for the Sellers who are the holders of G-Soft Preferred Stock in the percentage
amounts set forth on Exhibit A, a total of
One Hundred Twenty (120) shares of Fonix’s newly authorized Series P Preferred
Stock, par value $0.0001 per share (“Series P Preferred
Stock”), with each such share of Series P Preferred Stock having a stated
value $10,000 per share. The Series P Preferred Stock shall have the
preferences, rights and obligations as set forth on the Certificate of
Designations attached hereto as Exhibit B and which
are similar in all material respects to the preferences, rights and obligations
of the Series L Preferred Stock. The Series L Preferred Stock and the
Series P Preferred Stock may be referred to collectively herein as the “Fonix
Securities.”
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(iii) Earn-Out
Payments. Subject to the remainder of this Section 2.2(iii),
Sellers will be entitled to annual payments of Fifty Percent (50%) of the prior
year’s Net Income (each an “Earn-Out Payment” or
collectively the “Earn-Out Payments”)
of Shanghai Gaozhi Software Systems Limited (the “Company”) for each of
the Company’s fiscal years ending 2009, 2010, 2011 and 2012 (the “Earn-Out Period”);
provided however, the
aggregate Earn-Out Amount shall not exceed Three Million Eight Hundred Thousand
Dollars ($3,800,000) (the “Earn-Out
Cap”). For the avoidance of doubt, this Section 2.2(iii)
shall lapse, the Earn-Out Payments shall be deemed fully paid and no additional
Earn-Out Payment can be earned or become payable upon the earlier to occur of:
(1) payment of the Earn-Out Cap or (2) the end of the Earn-Out Period,
irrespective of whether the Earn-Out Payments equal the Earn-Out
Cap.
1) Earn-Out
Calculation.
a) Within
ninety (90) days after the completion of any fiscal year of the Company ending
during the Earn-Out Period, Buyer will cause the Company to prepare and deliver
to the Sellers’ Representative audited financial statements, including a
statement setting forth a calculation of the Company’s Net Income (each a “Net Income
Statement”), for each of such fiscal years, provided that if the Earn-Out
Amount is paid in full and the Earn-Out Cap has been achieved in any such fiscal
year, the obligations of Buyer set forth in this Section
2.2(iii)(1)(a) shall terminate and have no further force or
effect.
b) Each
Net Income Statement shall be prepared by an independent accountant (the “Independent
Accountant”) appointed by Buyer, in Buyer’s sole and absolute discretion,
and shall include a calculation of the Earn-Out Amount. The determination by the
Independent Accountant of Net Income will be final, binding and conclusive upon
Buyer and Sellers. Net Income for purposes of this Section 2.2(iii)
shall be defined as the net income of the Company as determined by the
Independent Accountant using United States generally accepted accounting
principles.
2) Payment of Earn-Out
Amount. Unless otherwise provided in this Section 2.2, the
Earn-Out Payments shall be paid to Sellers in the form of Series P Preferred
Stock issued and delivered to Xxxx X. Xxxxxxxx, Trustee for the Sellers, pro
rata in the percentage amounts set forth on Exhibit A, within one
hundred (100) days after the end of each fiscal year during the Ear-Out Period
unless the Earn-Out Cap has been achieved.
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(iv) Management of Fonix
Securities. All of the Fonix Securities exchanged pursuant to
this Agreement, including the Series P Preferred Stock issued in accordance with
this Section
2.2, shall be managed and traded by Xxxx X. Xxxxxxxx.”
2. Section
6.1. Section 6.1 of the Exchange Agreement shall be amended to
include a new sub-section (n) as follows:
“(n) Additional Closing
Conditions. The following additional conditions shall have
occurred: (i) Closing must occur within thirty (30) days after the date set
forth on the First Amendment to this Agreement, (ii) Fonix shall receive within
three (3) business days written assurance (including citations to the applicable
legal authority) of G-Soft Inc.’s (the “WOFE”) Chinese
counsel that at the closing (y) Buyer (via the WOFE) will have control of
Shanghai Gaozhi Software System Limited (the “Company”) and (z) the
Chinese government (or applicable subdivisions thereof) has approved in all
respects the transfer of the shares of the Company to the WOFE, and (iii) within
three (3) business days after the WOFE's counsel provides the assurances set
forth in Section
6.1(n)(ii), Buyer’s Chinese counsel concurs with the conclusions of the
WOFE's Chinese counsel.”
3. Section
8.2(a)(ii)(H). Section 8.2 of the Exchange Agreement shall be
amended to include anew sub-section 8.2(a)(ii)(H) as follows:
“(H) any
claim of any kind against Buyer, Fonix or the Funds after Closing by or from any
of the owners, immediately prior to the date of this Agreement,
of Shanghai Gaozhi Software System Limited, namely Shanghai Gaozhi
Technology Development Limited and Xxx Xxx Ming (or any holder, actual or
claimed, of any capital stock of Shanghai Gaozhi Software System Limited)
(collectively, the “GS
Shareholders”) related to that certain Equity Interest Purchase Agreement
by and between the GS Shareholders and G-Soft, Inc. (a.k.a. WOFE).”
4. Exchange Agreement
Affirmed. Except as specifically set forth herein, the
Exchange Agreement is hereby affirmed and deemed to continue in full force and
effect.
5. Incorporation by
Reference. The terms of the Exchange Agreement are hereby
incorporated herein by this reference.
6. Counterparts. This
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same
instrument.
[SIGNATURES
TO FOLLOW]
3
IN
WITNESS WHEREOF, the parties have executed this First Amendment to the Exchange
Agreement as of the date first written above.
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G-Soft:
G-SOFT
LIMITED,
a
Hong Kong corporation
By:
Xxxx Xxxxxxx
Title:
President and Chairman
|
Buyer:
G-SOFT
ACQUISITION CORPORATION,
a
Delaware corporation
By:
Xxxxx Xxxxxx
Title:
President
|
|
Funds:
SOUTHRIDGE,
LLC, a Connecticut limited
liability
company
By:
Xxxxxx Xxxxx
Title:
Chairman
|
Fonix:
FONIX
CORPORATION,
a
Delaware corporation
By:
Xxxxx Xxxxxx
Title:
President
|
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The
Shareholder Representative:
XXXX
XXXXXXX
Xxxx
Xxxxxxx
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Sellers:
Xxxxxxx
Widgerhaus
Xxxxx
Xxxxxxx
Tafnit
Communications, Ltd.
By:
Xxxx Xxxxxxx
Its:
President and Chairman
Xxxxxx
Xxxxxxxxx
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SIGNATURE
PAGE
TO
THE
FIRST
AMENDMENT TO THE
EXCHANGE
AGREEMENT
