of Acquisition or Disposition of Assets
Final Closing of G-Soft
Fonix Corporation (the “Company”) has
closed a previously announced transaction whereby its subsidiary Fonix GS
Acquisition Corporation, Inc. (“FGSA”) acquired 80% of the issued and
outstanding shares of G-Soft Limited, a Hong Kong corporation (“G-Soft”), which
is the ultimate parent of Shanghai Gaozhi Software Systems Limited
("GaozhiSoft"), a Chinese software developer and solutions provider in 2G
(second-generation) and 3G (third-generation) mobile networks in China and
throughout the Asian Pacific region.
In a Current Report filed with the SEC
on August 12, 2008, the Company announced that it had formed FGSA for the
purpose of acquiring the GaozhiSoft shares.
On June 27, 2008, the Company and FGSA
entered into an exchange agreement (the “Exchange Agreement”), with Southridge
LLC, a Connecticut limited liability company (“Southridge”), G-Soft and the
shareholders of G-Soft (the “Sellers”). G-Soft, through its wholly
owned subsidiary, owns 100% of the outstanding equity of GaozhiSoft. Pursuant to
the Exchange Agreement, FGSA agreed to purchase 80% of the issued and
outstanding shares of G-Soft from the Sellers, and Southridge agreed to purchase
the remaining 20% of the issued and outstanding G-Soft shares, thereby making
FGSA and Southridge the ultimate shareholders of GaozhiSoft.
The Exchange Agreement was amended by
that certain First Amendment to the Exchange Agreement, dated as of December 12,2008 (the “First Amendment”), modifying the consideration for the purchase of
the G-Soft shares and certain other closing conditions, as set forth
therein. Pursuant to the Exchange Agreement, as amended, in exchange
for 20% of the outstanding shares of G-Soft, Southridge agreed to transfer
shares of the Company’s Series L Convertible Preferred Stock (the “Series L
Preferred Stock”) in the amounts set forth in the First Amendment. In
return for the purchase of 80% of the outstanding shares of G-Soft, the Company
agreed to issue an aggregate of one hundred and twenty shares (120) of a new
series of preferred stock (the “Series P Preferred Stock”) to the
Sellers. Additionally, subject to the terms of the First Amendment,
the Sellers are entitled to annual earn-out payments equal to fifty percent
(50%) of the prior year’s net income of GaozhiSoft, to be paid in the form of
Series P Preferred Stock (the “Earn-Out Payments”). The aggregate of
the Earn-Out Payments is limited to three hundred and eighty (380) shares of
Series P Preferred. The First Amendment also amended and restated
section 6.1 of the Exchange Agreement, relating to additional closing
conditions, and section 8.2 of the original agreement relating to
The Sellers and Fonix entered into an
Escrow Agreement (the “Escrow Agreement”) with Adam L. Goldberg, whereby Mr.
Goldberg agreed to act as escrow agent and hold the Series P Preferred Stock
issued or issuable to the Sellers to purchase their interests in
G-Soft. The Escrow Agreement outlined Mr. Goldberg’s duties and
obligations as Escrow Agent.
The First Amendment and the Escrow
Agreement were described in more detail in, and attached as exhibits to, the
Current Report on Form 8K, filed with the SEC on December 19, 2008.
Additionally, FGSA and the Sellers
entered into a side letter agreement, dated February 18, 2009 (the “Side
Letter”), attached hereto as an exhibit, modifying certain closing conditions of
the Exchange Agreement, as amended by the First Amendment. The Side
Letter establishes certain conditions regarding: (1) management and
directorships of GaozhiSoft; (2) filing of certain administrative government
documents in China; and (3) operations of GaozhiSoft.
The final closing conditions have been
met, and the share exchange transaction closed as of March 27,2009.
The foregoing summaries of the terms
and conditions of the Exchange Agreement, First Amendment, Escrow Agreement and
Side Letter do not purport to be complete and are qualified in their entirety by
reference to the full text of the Exchange Agreement, First Amendment, Escrow
Agreement and Side Letter.