Exhibit
10.1
 
 SEPARATION
AND RELEASE OF CLAIMS AGREEMENT
 
 This Separation and Release of Claims
Agreement (the “Agreement”) is
entered into by Fonix Corporation, a Delaware corporation (“Fonix”), and Thomas
A. Murdock (“Murdock”).
 
 RECITALS
 
 A. 
         Murdock was a founder of
Fonix and has been a director and executive officer of Fonix since its
inception.  Presently, Murdock is the Chief Executive Officer,
President and a member of the Board of Directors of Fonix.
  B            Fonix
and Murdock entered into an Employment Agreement on November 1, 1996, which was
subsequently modified on January 31, 2000 and January 31, 2005 (the Employment
Agreement and each modification are hereinafter referred to as the “Employment
Agreement”).
  C.           Murdock’
employment with Fonix will terminate on March 5, 2008.
  D.          Fonix
and Murdock desire to resolve all matters regarding Murdock’s separation from
Fonix and, to that end, agree as set forth below.
 
 AGREEMENT
 
 1.           Murdock
acknowledges that he received a copy of this Agreement on February 26, 2008, and
that he was given twenty-one days from that date to determine whether to execute
this Agreement.
 
 2.           In
consideration of Murdock entering into this Agreement, Fonix agrees as
follows:
 
 a.         Murdock
has previously deferred, and Fonix has accrued on its books and records,
$319,035.41 of unpaid salary (the “Deferred Salary”)
under the terms of the Employment Agreement for the period from October 6, 2006
to February 29, 2008 (the “Deferred Salary
Period”).  Murdock agrees that Fonix is under no obligation to
pay the Deferred Salary or any portion thereof to Murdock, except as expressly
set forth below:
 
 i.         Upon
(i) the occurrence of a Liquidity Event (as defined below), and then in
proportion to the amount that Roger Dudley (“Dudley”) is paid for
salary that he also deferred during the Deferred Salary Period or (ii) Fonix
begins to make payments to Dudley for salary which he has deferred for the
Deferred Salary Period, and then in proportion to the amount that Dudley is paid
for salary that he deferred during the Deferred Salary Period.  All
payments to Murdock under this section 2(a) shall be made concurrent with
payments from Fonix to Dudley, shall be paid in the same form of consideration
and shall be reduced by withholding and other charges consistent with Fonix’s
payroll policies.  Dudley agrees to discuss with Murdock the
circumstances under which he would agree to accept less than the full amount due
him for the Deferred Salary Period in connection with any potential Liquidity
Event.  Should Dudley agree to accept less than the full amount due
him for the Deferred Salary Period in connection with any potential Liquidity
Event, Dudley will advise Murdock thereof and seek Murdock’s consent as to the
reduced amount of Deferred Salary to be paid to him, such consent not to be
unreasonably withheld, conditioned or delayed.
 
  
  ii.         Upon
conversion by Murdock into shares of the Company's Common Stock at any time or
times on or after the date hereof, at the Murdock’s sole option, any portion of
the outstanding and unpaid Deferred Salary (the “Conversion Amount”)
into fully paid and nonassessable shares of Common Stock, at the Conversion Rate
(as defined below).  The Company shall not issue any fraction of a
share of Common Stock upon any conversion.  If the issuance would
result in the issuance of a fraction of a share of Common Stock, the Company
shall round such fraction of a share of Common Stock up to the nearest whole
share.  Murdock shall pay any and all income taxes that may be payable
with respect to the issuance and delivery of Common Stock upon conversion of any
Conversion Amount.
  The
number of shares of Common Stock issuable upon conversion of any Conversion
Amount shall be determined by dividing (x) such Conversion Amount by (y) the
then applicable Conversion Price (the "Conversion
Rate").  "Conversion Price"
means, as of any Conversion Date (as defined below) or other date of
determination, the average of the closing bid prices over the ten (10) trading
days prior to the Conversion Date.
  To
convert any Conversion Amount into shares of Common Stock on any date (a "Conversion Date"),
the Murdock shall (A) transmit by facsimile (or otherwise deliver), for receipt
on or prior to 5:00 p.m., Salt lake City Time, on such date, a copy of an
executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice")
to the Company.  On or before the second (2nd)
trading day following the date of receipt of a Conversion Notice, the Company
shall transmit by facsimile a confirmation of receipt of such Conversion Notice
to the Holder and the Company's transfer agent.
  b.         In
connection with his separation from Fonix, Murdock agrees that Fonix shall not
pay Murdock any severance under the Employment Agreement.  However,
upon the occurrence of a Liquidity Event, then Fonix will pay to Murdock an
amount which is equal to the lower of (i) the Annual Base Salary (as defined in
the Employment Agreement) or (ii) the severance paid to Dudley under his
existing employment agreement in connection with the Liquidity
Event.  Concurrent with Dudley’s separation from Fonix , Fonix will
pay to Murdock an amount which is equal to the severance paid to Dudley under
his existing employment agreement.  All payments to Murdock under this
section 2(b) shall be make concurrent with payments from Fonix to Dudley or the
Liquidity Event, as applicable, and shall be reduced by withholding and other
charges consistent with Fonix’s payroll policies.  For purposes of
this Agreement, a “Liquidity Event”
shall be deemed to have occurred if (x) individuals who are directors of Fonix
immediately prior to a Control Transaction (as defined below) shall cease,
within one (1) year after such Control Transaction, to constitute a majority of
the Board of Directors of Fonix (or of the Board of Directors of any successor
to Fonix, or of any company to which all or substantially all of Fonix's assets
may have been sold or transferred), or (y) any entity, person or Group (as
defined below)(other than Fonix or a subsidiary corporation of Fonix and any
company directly or indirectly controlled by Steven Hicks, Southridge Capital or
their affiliates) acquires shares of Fonix that result in such entity, person or
Group directly or indirectly owning beneficially over forty percent (40%) of the
outstanding shares of Fonix.  As used herein, "Control Transaction"
shall mean (1) any tender offer for or acquisition of capital stock of Fonix,
(2) any merger, consolidation, reorganization or sale of all or substantially
all of the assets of Fonix which has been approved by the shareholders,
(3) any contested election of directors of Fonix or threat of such a
contested election, or (4) any combination of the foregoing.  As
used herein, "Group" shall mean
persons who act in concert as described in Sections 13(d)(3) and/or 14(d)(2) of
the Securities Exchange Act of 1934, as amended.
 
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  c.         Fonix
agrees to provide, at its expense, continuation medical coverage for Murdock and
his wife under the federal law known as COBRA through such period as permitted
under applicable law or by Fonix’s insurance carrier.  Should Fonix
cancel its group insurance plan as to all employees, then Fonix will pay to
Murdock every month through December 31, 2009 the amount that Fonix was paying
at the time that the group insurance policy was cancelled for coverage for
Murdock and his wife.
  d.        All
of the stock options, warrants and other similar rights granted by Fonix to
Murdock, shall immediately and entirely be vested and shall be immediately
delivered to Murdock without restriction or limitation of any kind (except for
normal transfer restrictions).
  e.         Fonix
shall maintain in full force and effect until December 31, 2009, Murdock’s life
insurance, disability insurance and 401(k) plan, in which Murdock, his wife, or
both, were participants immediately prior to termination; provided that such
continued participation is possible under the general terms and provisions of
such plans and programs.  Should Fonix cancel its life insurance,
disability insurance and 401(k) plans as to all employees, then Fonix will pay
to Murdock every month through December 31, 2009 the amount that Fonix was
paying for the benefit of Murdock and his wife under the life insurance,
disability insurance and 401(k) plans at the time that such policies and plans
were cancelled.
  f.         Murdock
shall retain as his personal property his computer, computer software and
peripherals, printer, cell phones and current office furniture and fixtures and
his personal copy of records and documents of Fonix.
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  g.         Fonix
hereby agrees to defend, indemnify and hold harmless, Murdock, his heirs and
successors, against and in respect of: (i) any and all losses, damages,
deficiencies or liabilities resulting from any claims against Murdock relating
to his service to Fonix, its present and past affiliates and subsidiaries, as an
officer, employee, agent or director (whether based on statute, negligence,
breach of warranty, strict liability or any other theory); (ii) any and all
losses, damages, deficiencies or liabilities resulting from any claims against
Fonix, its officers, directors, agents, attorneys and successors with respect to
a lawsuit filed in the United States District Court for the District of Utah,
entitled “The
Breckenridge Fund LLC, a New York limited liability company, plaintiff, vs.
Fonix Corporation, a Delaware corporation; Fonix Speech, Inc., a Delaware
corporation; Thomas A. Murdock, an individual; Roger D. Dudley, an individual;
defendants,” Case No. 2:07CV00279 (the “Breckenridge
Lawsuit”); and (iii) any and all actions, suits, proceedings, claims,
liabilities, demands, assessments, judgments, costs and expenses, including
reasonable attorneys' fees, incident to any of the foregoing; (the items
referred to in clauses (i) - (iii) collectively being referred to in this
Section 2(g) as the “Indemnified
Claims").  If any claim, liability, demand, assessment, action,
suit or proceeding (herein­af­ter referred to as a "Proceeding") shall be
asserted against Murdock, his heirs or successors in respect of which he
proposes to demand indemnification, Murdock shall promptly notify the Fonix
thereof.  Subject to rights of or duties to any insurer or other third
person having liability therefor, Fonix shall, while cooperating
appropri­ately with Murdock, have the right promptly upon receipt of such
notice to assume the control of the defense, compromise or settlement of any
such Proceeding, includ­ing, at its own expense, employment of counsel
reasonably satisfac­tory to Murdock; provided, however, that if Fonix shall
have exercised its right to assume such control, Murdock may, in his sole
discre­tion, employ counsel to represent him (in addition to counsel
employed by Fonix, and in the latter case, at his sole expense) in any such
matter, and in such event counsel selected by Fonix shall be required to
cooperate with such counsel of Murdock in such defense, compromise or
settlement, but Fonix shall have the final right to determine the manner of
defense and to compromise any such claims.  If Fonix elects not to
exercise its right to assume such control, Murdock may take whatever action he
deems appropriate, and any final action with respect to such claim shall be
binding on Fonix as to the amount of such Indemnified Claim.
  h.         Murdock’s
personnel file shall be delivered to and be retained by counsel for Fonix,
Durham Jones & Pinegar, provided that executive officers of Fonix shall have
access to the contents of such file.
  i.
         Fonix presently owes
Murdock $24,643.23 in unpaid expenses incurred by Murdock on behalf of
Fonix.  Fonix shall pay those expenses in full to Murdock at the time
of a Liquidity Event; provided, that at Murdock’s request at any time Fonix
agrees that the unpaid balance of the expenses shall be added to the unpaid
balance due and owing under the Amended and Restated Revolving Line of Credit
Agreement between Murdock, as trustee, and Fonix dated October 7,
2002.
  g.         Fonix
will pay as and when due in regular monthly installments the balance of
$23,922.75 under the terms a loan from the Company’s 401(k) plan, as lender, to
Murdock, as borrower.
 
 3.           In
consideration of Fonix entering into this Agreement, Murdock agrees as
follows:
 
  4
  a.         Murdock
releases Fonix and each of its subsidiaries, affiliates, successors, assigns,
agents, directors, officers, employees, shareholders and representatives
(collectively the “Releasees”), from all
Claims.  The term “Claims” includes
(without limitation) all liabilities, obligations, duties, agreements, demands,
charges of discrimination, costs, attorney’s fees, expenses, and claims for
relief of every kind.  The claims released by Murdock include (without
limitation): (a) breach of contract, libel, slander, wrongful discharge or
termination; (b) discrimination claims arising under Title VII of the Civil
Rights Act of 1964 (as amended), the Americans with Disabilities Act of 1990 (as
amended), the Worker Adjustment and Retraining Notification Act, 29 U.S.C. §§
2101-2109 (as amended), the Age Discrimination in Employment Act of 1967 (as
amended) (“ADEA”), the Utah
Anti-Discrimination Act (as amended), any other federal, state or local laws
prohibiting age, race, religion, sex, national origin, disability and other
forms of discrimination, or any other federal or state laws that may be
applicable; (c) claims arising out of any legal restrictions on Fonix’s right to
terminate its employees; and (d) any tort claim or other claim arising out of
the employment relationship between Murdock and Fonix or the termination of that
relationship.
 
 Murdock
specifically waives all claims for back pay, front pay, or any other form of
compensation for services, whether arising under the Employment Agreement or
otherwise, except as set forth in this Agreement.
  Murdock
waives any right to recover damages, costs, attorneys’ fees, and any other
relief in any proceeding or action brought against Fonix by any other party,
including (without limitation) the Equal Employment Opportunity Commission and
the Utah Labor Commission, Anti-Discrimination and Labor Division, on Murdock’s
behalf asserting any claim, charge, demand, grievance, or cause of action
released by Murdock above.
  With
regard to claims under the ADEA, Murdock agrees to sign the attached Statement
of Rights Under the Older Workers Benefit Protection Act (the “OWBPA Statement”),
the terms of which are incorporated into this Agreement.
  Murdock
expressly acknowledges that this Agreement in intended to include in its effect
(without limitation) all claims referenced above that he did not know of or
suspect to exist in his favor at the time of the execution of this Agreement,
regardless of whether the knowledge of such claims, or the facts upon which they
might be based, would have materially affected the settlement of this matter,
and that the consideration received from Fonix was also for, and contemplates
the extinguishment of, any such claims.
  b.         Murdock
agrees that he will not at any time, directly or indirectly, without written
authorization from Fonix, make use of or disclose to any person or entity any
business-related, proprietary, secret and/or confidential information,
knowledge, trade secrets, or other confidential data relative to the business,
products, services, practices or customers of Fonix coming within his possession
during his employment with Fonix.  Such information includes, but is
not limited to, trade secrets, salaries, financial information, customer lists,
marketing information, pricing, leads, reports of all kinds, customer profiles,
all documents relating to the rates charged by Fonix, memoranda, notes,
software, computers, computer disks, manuals, computerized information and
reports, products, product lists, sales information, personal employee
information, or any other information of a similar confidential, sensitive or
competitive nature.
 
  5
  c.         Murdock
acknowledges that nothing in this Agreement shall alter or affect his continuing
obligations under any confidentiality, non-competition or non-solicitation
agreement he signed with Fonix during his employment, including under the
Employment Agreement.
  d.         Murdock:
(i) warrants that he has not filed any complaints, charges, or claims for relief
against Fonix or any other Releasee with any local, state or federal court or
administrative agency which currently are outstanding; and/or (ii) agrees that
if he has done so, he will dismiss all such complaints, charges and/or claims
for relief with prejudice.  Murdock furthers agrees and covenants not
to bring any complaints, charges or claims against  Fonix or any other
Releasee with respect to any matters arising out of his employment with Fonix or
the termination of that employment.
  e.         Murdock
agrees that if he breaches any provision of this Agreement, Fonix shall give
Murdock written notice of the breach and Murdock shall have sixty (60) days to
cure the default.  If Murdock fails to cure the default within the
grace period, then Fonix may cancel this Agreement and be relieved of all future
obligations under this Agreement.
  f.         Murdock
represents and warrants that as of the date he signs this Agreement, he has not
been involved in any on-the-job accidents, or sustained any on-the-job injuries,
compensable by Fonix’s worker’s compensation insurance that have not previously
been reported to Fonix.
  4.           Murdock
and Fonix acknowledge that this Agreement does not constitute an admission of
any fault, liability or wrongdoing by Fonix or any other Releasee, nor an
admission that Murdock has any claim whatsoever against Fonix or any other
Releasee.  Fonix and all other Releasees specifically deny any
liability to, or wrongful acts against, Murdock.
  5.           Murdock
warrants that he has not previously assigned, conveyed or pledged to any third
person any claims released by this Agreement, and that he has full right and
authorization to release those claims as set forth above.
  6.           Murdock
and Fonix agree that this Agreement contains the entire agreement and
understanding between them concerning the subject matter addressed in this
Agreement, and that this Agreement supersedes and replaces all prior
negotiations, proposed agreements, agreements or representations, whether
written or oral.  Fonix and Murdock agree that neither Fonix, Murdock,
nor any agent or attorney of either, has made any representation, warranty,
promise or covenant whatsoever, express or implied, not contained in this
Agreement, to induce the other to execute this Agreement.
  7.           Murdock
and Fonix agree that each party shall bear its own attorneys’ fees and costs
incurred in connection with this Agreement.
  6
  8.           Murdock
and Fonix agree that this Agreement, and any claims related to this Agreement,
and/or Murdock’ employment with Fonix, whether such claims are in the nature of
tort, contract, or otherwise, shall be construed in accordance with the laws of
the State of Utah.
  9.           Murdock
and Fonix consent and submit to the jurisdiction of any state or federal court
of the State of Utah in any action or proceeding arising out of, or related in
any way to, this Agreement.  Both Murdock and Fonix waive any right
they may have to contest the personal jurisdiction of the courts of the State of
Utah.
  10.         Murdock
and Fonix agree that all claims of whatever type arising out of, or related in
any way to, this Agreement, the employment relationship between them, or the
termination of that relationship, shall be brought exclusively in a state or
federal court in Salt Lake County, Utah.  Murdock and Fonix waive any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought, and waive any bond, surety, or other security that might be required of
any party.  Murdock and Fonix each agree that if any action or
proceeding arising out of, or related in any way to, this Agreement is brought
in any other court or forum other than a state or federal court in Salt Lake
County, Utah, the action or proceeding shall be dismissed with prejudice and the
party bringing the action or proceeding shall pay the other party’s legal fees
and costs.
  11.          Murdock
and Fonix agree that in the event that a dispute shall arise concerning this
Agreement, the prevailing party shall be entitled to recover from the
non-prevailing party all attorneys’ fees and costs incurred by the prevailing
party in connection with such dispute, regardless of whether such dispute
results in the filing of a lawsuit.
  12.          Murdock
acknowledges that he has read this Agreement carefully and that he fully
understands this Agreement.  Murdock acknowledges that he has executed
this Agreement voluntarily and of his own free will, and that he is knowingly
and voluntarily releasing and waiving all Claims he may have against Fonix and
any other Releasee.
  13.          This
Agreement shall be binding upon and inure to the benefit of the heirs,
executors, administrators, successors, and assigns of each of the
parties.
 
 FONIX
CORPORATION
 
 
 By:
              /s/
              
              /s/Roger
      D. Dudley
              
              Thomas
      A. MurdockIts:
  March
      5, 2008
              
              March 5, 2008Date
              
              Date
 
  7
  STATEMENT
OF RIGHTS UNDER
 THE
OLDER WORKERS BENEFIT PROTECTION ACT
 
 This Statement is part of an Agreement
containing a waiver of rights and claims under the federal Age Discrimination in
Employment Act of 1967 (“ADEA”).  Waiver
of these rights must be knowing and voluntary, which means, as a minimum, that
you understand that:
 
 1.           The
waiver is part of an agreement between you and Fonix Inc. which is written so
that you understand it;
 
 2.           The
waiver specifically refers to rights or claims under ADEA;
 
 3.           You
do not waive any rights or claims that may arise after the Agreement is executed
by you;
 
 4.           Your
waiver is in exchange for consideration that is more valuable than what you are
already entitled to;
 
 5.           You
are advised to consult with an attorney prior to executing this Statement or the
Agreement;
 
 6.           You
have at least 21 days after receipt of this Statement and the Agreement to
decide whether to execute it; and
 
 7.           You
have 7 days after you execute the Agreement to revoke it, and the Agreement will
not be enforceable until this 7-day period has expired.
 
 Your signature below acknowledges that
(a) you understand the above points, and, therefore, your waiver of your rights
and claims under ADEA is knowing and voluntary; and (b) if you receive any sum
under the Agreement and you later revoke it, that you must repay Fonix
Corporation all sums received by you under the Agreement as to which you are not
otherwise entitled.
 
 March 5, 2007.
 
 
 
 /s/Thomas
      A. Murdock
    
 
 8