ESCROW AGREEMENT
EXHIBIT
99.2
ESCROW AGREEMENT (the “Agreement”), dated
December 12, 2008, by and among TAFNIT COMMUNICATIONS, LTD., XXXXX
XXXXXXX, XXXXXX XXXXXXXXX AND IECHIEL XXXXXXX WIGDERHAUS (the “Seller” or “Sellers”), FONIX CORPORATION, a Delaware
corporation (“Buyer”), and XXXX X. XXXXXXXX (the “Escrow
Agent”).
RECITALS
A. Seller
and Buyer are parties to that certain Exchange Agreement dated June 27, 2008, as
amended (the “Exchange
Agreement”), pursuant to which Sellers are exchanging their G-Soft Shares
with Buyer for the consideration described in Section 2.2 of the Exchange
Agreement. Capitalized terms that are used and not defined in this
Agreement but that are defined in the Exchange Agreement shall have the meanings
set forth in the Exchange Agreement.
B. As
a condition of Closing, Buyer requires that Sellers obtain an amendment to the
Equity Purchase Agreement (the “Equity Purchase
Amendment”) and a related resolution of the board of directors of
Shanghai Gaozhi Software Systems Limited (“SG”), in the form set
forth in Exhibit
A. Sellers have requested that Buyer Close the transaction
which is the subject of the Exchange Agreement before Sellers obtain the
execution and delivery of the Equity Purchase Amendment.
C. Buyer
is willing to Close the transaction which is the subject of the Exchange
Agreement before Sellers obtain the execution and delivery of the Equity
Purchase Amendment, so long as Sellers deliver the Fonix Securities and the
Series P Preferred Stock to be issued in connection with the Earn-Out Payments
(the “Earn-Out
Shares” and collectively with the Fonix Securities, the “Securities”) to the
Escrow Agent pursuant to the terms of this Agreement until the date on which the
Sellers obtain the execution and delivery of the Equity Purchase
Amendment.
D. The
Escrow Agent is willing to act as escrow agent pursuant to the terms of this
Agreement with respect to the receipt and then delivery of the
Securities.
AGREEMENT
NOW,
THEREFORE, in consideration of the premises, mutual covenants and conditions
contained herein, and other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, the parties agree as follows:
1. Deposit of the
Securities.
(a) Concurrently
with the execution hereof, Buyer shall cause to be issued in the name of Seller
the Securities and shall deposit with the Escrow Agent the
Securities.
(b) The
Securities shall be delivered by Buyer to the Escrow Agent at its address for
notice indicated in Section 5(a).
2. Terms of
Escrow.
(a) The
Escrow Agent shall hold the Securities in escrow as hereinafter set forth in
this Section 2.
(b) When
the Sellers deliver to the Buyer and the Escrow Agent the duly executed Equity
Purchase Amendment and a related resolution of the board of directors of SG
after the Buyer gives written notice to the Escrow Agent that it reasonably
accepts the executed Equity Purchase Amendment, the Escrow Agent shall promptly
deliver the Fonix Securities to the Sellers. Upon receipt of the
Fonix Securities after their release by the Escrow Agent, the Sellers shall
promptly comply with their obligations under the Contribution Agreement and
contribute the portion of the Fonix Securities to G-Soft as required under
Section 1 thereof.
(c) If
the Escrow Agent does not receive written notice from the Buyer authorizing the
release of the Fonix Securities as described in Section 2(b) above or within
five (5) Business Days after its receipt of a copy of the duly executed Equity
Purchase Amendment it receives written notice from Buyer (a “Buyer Objection”)
disputing the existence, enforceability or validity of the Equity Purchase
Agreement, the Escrow Agent shall deliver to Seller that number of Fonix
Securities which it is then holding under the terms of this
Agreement. Buyer shall provide copies of all Buyer Objections to
Seller simultaneously with its delivery of such to the Escrow
Agent.
(d) If
prior to delivery of the Fonix Securities to Sellers as described above, the
Escrow Agent receives a Buyer Objection, the Escrow Agent shall delay its
delivery of the Fonix Securities to Seller for an additional period of five (5)
Business Days, during which time Buyer and Seller shall have an opportunity to
resolve any dispute between them. If at the conclusion of such five
(5) Business Day period Buyer and Seller have not resolved their dispute, the
Escrow Agent shall proceed to deliver that number of Fonix Securities to a state
or federal court in New York, New York in an interpleader action thereafter
promptly give notice of such action to the Buyer and the Sellers.
(g) Until
the Sellers deliver to the Buyer and the Escrow Agent the duly executed Equity
Purchase Amendment and a related resolution of the board of directors of SG, the
Escrow Agent shall sell the common stock of the Buyer into which the Securities
are convertible in a prudent manner, with an objective to realize at least
US$300,000 from the liquidation thereof per calendar quarter. The
Escrow Agent will use 80% of the proceeds of the liquidation of the Securities
(or such lesser amount, where the liquidation proceeds are in excess of $300,000
per month) to pay any and all obligation of G-Soft, Inc. under the Equity
Purchase Agreement as and when due. If 80% of the liquidation
proceeds in any calendar quarter are not sufficient to pay the obligations of
G-Soft, Inc. under the terms of the Equity Purchase Agreement, then (i) the
Escrow Agent shall use such portion of the remaining liquidation proceeds to pay
any and all obligation of G-Soft, Inc. in the applicable calendar quarter under
the Equity Purchase Agreement as and when due and (ii) thereafter continue to
use such portion of the gross liquidation proceeds of the Securities as may be
required to pay any and all obligation of G-Soft, Inc. for applicable calendar
quarters under the Equity Purchase Agreement as and when due, until such time as
80% of the liquidation proceeds of the Securities are sufficient to pay any and
all obligation of G-Soft, Inc. for the applicable calendar
quarter. After, but only after, the Escrow Agent has realized
liquidation proceeds sufficient to pay the quarterly obligation of G-Soft, Inc.
under the Equity Purchase Agreement; the Escrow Agent may disburse the balance
of the net liquidation proceeds to the Sellers.
- 2
-
(h) Subject
to Section 2(g), the Escrow Agent shall disburse the Ear-Out Shares pursuant to
the terms of the Exchange Agreement and the Equity Purchase Agreement, as
amended.
(i) During
the period that the Escrow Agent holds common stock from the conversion of the
Securities, the Escrow Agent shall vote the Securities in respect of any matter
proposed for action by the Buyer’s board of directors.
(j) Fees
and expenses of the Escrow Agent incurred in connection with its performance
under this Agreement shall be invoiced to the Sellers and shall be paid within
thirty (30) days after the invoice date for such fees and expenses.
3. Duties and Obligations of
the Escrow Agent.
(a) The
parties hereto agree that the duties and obligations of the Escrow Agent are
only such as are herein specifically provided and no other. The
Escrow Agent shall incur no liability whatsoever, except as a direct result of
his gross negligence or willful misconduct.
(b) The
Escrow Agent may consult with counsel of his choice and shall not be liable for
any action taken, suffered, or omitted by him in accordance with the advice of
such counsel.
(c) The
Escrow Agent shall not be bound in any way by the terms of any other agreement
to which Buyer and Seller are parties, whether or not he has knowledge thereof,
and the Escrow Agent shall not in any way be required to determine whether or
not any other agreement has been complied with by Buyer and Seller, or any other
party thereto. The Escrow Agent shall not be bound by any
modification, amendment, termination, cancellation, rescission, or supersession
of this Agreement unless the same shall be in writing and signed by each of
Buyer and Seller, and agreed to in writing by the Escrow Agent.
(d) In
the event that the Escrow Agent shall be uncertain as to his duties or rights
hereunder or shall receive instructions, claims, or demands which, in his
opinion, are in conflict with any of the provisions of this Agreement, he shall
be entitled to refrain from taking any action, other than to keep safely, all
Securities held in escrow until he shall jointly be directed otherwise in
writing by Buyer and Seller or by a final judgment of a court of competent
jurisdiction.
- 3
-
(e) The
Escrow Agent shall be fully protected in relying upon any written notice,
demand, certificate, or document which he, in good faith, believes to be
genuine. The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity, or genuineness of
documents or securities now or hereafter deposited hereunder, or of any
endorsement thereon, or for any lack of endorsement thereon, or for any
description therein; nor shall the Escrow Agent be responsible or liable in any
respect on account of the identity, authority, or rights of the persons
executing or delivering or purporting to execute or deliver any such document,
security, or endorsement.
(f) Except
as expressly required hereunder, the Escrow Agent shall not be required to
institute legal proceedings of any kind and shall not be required to defend any
legal proceedings that may be instituted against him or in respect to the
Securities.
(g) If
the Escrow Agent at any time, in his sole discretion, deems it necessary or
advisable to relinquish custody of the Securities, he may do so by giving five
(5) days written notice to the parties of his intention and thereafter
delivering the Securities to any other escrow agent mutually agreeable to Buyer
and Seller, and, if no such escrow agent shall be selected within three (3) days
of the Escrow Agent’s notification to Buyer and Seller of his desire to so
relinquish custody of the Securities, then the Escrow Agent may do so by
delivering the Securities (a) to any bank or trust company in New York, New
York, which is willing to act as escrow agent hereunder in place and instead of
the Escrow Agent, or (b) to the clerk or other proper officer of a court of
competent jurisdiction as may be permitted by law within New York, New
York. The fee of any such bank or trust company or court officer
shall be borne by Seller. Upon such delivery, the Escrow Agent shall
be discharged from any and all responsibility or liability with respect to the
Securities and Seller shall promptly pay to the Escrow Agent all monies which
may be owed him for his services hereunder, including, but not limited to,
reimbursement of his out-of-pocket expenses pursuant to paragraph (i)
below.
(h) This
Agreement shall not create any fiduciary duty on the Escrow Agent’s part to
Buyer or Seller, nor disqualify the Escrow Agent from representing either party
hereto in any dispute with the other, including any dispute with respect to the
Securities. Buyer understands that the Escrow Agent has acted and
will continue to act as counsel to Seller.
(i) The
reasonable out-of-pocket expenses paid or incurred by the Escrow Agent in the
administration of its duties hereunder, including, but not limited to, all
counsel and advisors’ and agents’ fees and all taxes or other governmental
charges, if any, shall be paid by Seller.
4. Indemnification. Buyer
and Seller, jointly and severally, hereby indemnify and hold the Escrow Agent
harmless from and against any and all losses, damages, taxes, liabilities, and
expenses that may be incurred, directly or indirectly, by the Escrow Agent,
arising out of or in connection with its acceptance of appointment as the Escrow
Agent hereunder and/or the performance of his duties pursuant to this Agreement,
including, but not limited to, all legal costs and expenses of the Escrow Agent
incurred defending itself against any claim or liability in connection with his
performances hereunder and the costs of recovery of amounts pursuant to this
Section 4.
- 4
-
5. Miscellaneous.
(a) All
notices, requests, demands, and other communications hereunder shall be in
writing, with copies to all the other parties hereto, and shall be deemed to
have been duly given when (i) if delivered by hand, upon receipt, (ii) if sent
by facsimile, upon receipt of proof of sending thereof, (iii) if sent by
nationally recognized overnight delivery service (receipt requested), the next
business day or (iv) if mailed by first-class registered or certified mail,
return receipt requested, postage prepaid, four days after posting in the U.S.
mails, in each case if delivered to the following addresses:
|
If
to Seller:
|
To
the Seller Representative
|
|
|
If
to Buyer:
|
Fonix
Corporation
|
|
|
000
Xxxxx 000 Xxxx, Xxxxx 000
|
||
|
Xxxxxx,
Xxxx 00000
|
||
|
Facsimile
No.: (000) 000-0000
|
||
|
Attn:
Xxxxx X. Xxxxxx
|
||
|
With
copies to:
|
Durham
Xxxxx & Xxxxxxx
|
|
|
000
Xxxx Xxxxxxxx, Xxxxx 000
|
||
|
Xxxx
Xxxx Xxxx, Xxxx 00000
|
||
|
Facsimile
No.: (000) 000-0000
|
||
|
Attn:
Xxxxxxx X. Xxxxx, Esq.
|
||
|
If
to the Escrow Agent
|
Xxxx
X. Xxxxxxxx, Esq.
|
|
|
(the
Escrow Agent shall
|
000
00xx
Xxxxxx
|
|
|
receive
copies of all
|
Xxx
Xxxx, Xxx Xxxx 00000
|
|
|
communications
under
|
||
|
this
Agreement)
|
or at
such other address as any of the parties to this Agreement may hereafter
designate in the manner set forth above to the others.
(b) This
Agreement shall be construed and enforced in accordance with the laws of the
State of Delaware without regard to choice of law principles.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
- 5
-
IN WITNESS WHEREOF, the parties hereto
have caused this Escrow Agreement to be signed the day and year first above
written.
|
FONIX
CORPORATION,
|
|
|
a
Delaware corporation
|
|
|
_____________________________________
|
|
|
By:
__________________________________
|
|
|
Its:
__________________________________
|
|
|
By:
__________________________________
|
|
|
Xxxxx
Xxxxxxx
|
|
|
By:
__________________________________
|
|
|
Xxxxxx
Xxxxxxxxx
|
|
|
By:
__________________________________
|
|
|
Iechiel
Xxxxxxx Wigderhaus
|
|
|
TAFNIT
COMMUNICATION LTD.
|
|
|
_____________________________________
|
|
|
By:
__________________________________
|
|
|
Its:
__________________________________
|
|
|
By:
__________________________________
|
|
|
Xxxx
X. Xxxxxxxx
|
- 6
-
