<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report: (Date of earliest event reported): January 20, 1998
APPLIED VOICE RECOGNITION, INC.
(Exact name of registrant as specified in its charter)
UTAH
(State or other jurisdiction of incorporation)
33-1210-D 87-042552
(Commission File Number) (IRS Employer Identification No.)
4615 POST OAK PLACE, SUITE 111, HOUSTON, TEXAS 77027
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 621-5678
N/A
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
Pursuant to action taken by the written consent of certain of the
shareholders of Applied Voice Recognition, Inc., a Utah corporation (the
"Company"), the Company plans to reincorporate in Delaware (the
"Reincorporation") and has adopted the 1997 Incentive Plan (the "Incentive
Plan") allowing the Company to grant stock awards of up to 3,000,000 shares (the
"Incentive Shares") of the Company's common stock, par value $.001 per share
(the "Common Stock"). The Reincorporation and the Incentive Plan are sometimes
collectively referred to herein as the "Shareholder Actions." Specifically, the
Board of Directors of the Company (the "Board"), at a special meeting of the
Board held on September 26, 1997, and certain shareholders of the Company (the
"Consenting Shareholders") who own shares which together represent 54.8% of the
issued and outstanding shares of the Company's common stock, par value $.001 per
share (the "Common Stock"), by written consent dated December 3, 1997, approved
the Shareholder Actions. Certain other shareholders of the Company (the
"Consenting Preferred Shareholders") who own shares which together represent
100% of the issued and outstanding shares of the Company's Series A Preferred
Stock, par value $.10 per share (the "Series A Preferred Stock"), approved the
Reincorporation by written consent dated November 28, 1997. If the Board
determines to consummate the Reincorporation, a Certificate of Ownership and
Merger in Delaware (the "Delaware Certificate") and Articles of Merger in Utah
(the "Utah Articles") will be filed with the appropriate Secretaries of State on
or about January 26, 1998. A registration statement on Form S-8 (the
"Registration Statement") was filed with the Securities and Exchange Commission
(the "SEC") on January 13, 1998 to register the Incentive Shares.
In order to accomplish the Reincorporation in accordance with the laws of
the States of Utah and Delaware, the Company proposes to merge (the "Merger")
with and into Applied Voice Recognition, Inc., a Delaware corporation and a
wholly-owned subsidiary of the Company (the "Delaware Corporation"), pursuant to
the terms and provisions of the Plan and Agreement of Merger (the "Merger Plan")
which is filed as Exhibit 2.1 hereto. Under Utah law, shareholders who oppose
the proposed Merger have the right to receive payment for the estimated fair
value of their shares if they comply with the dissenters' rights provisions
under the Utah Revised Business Corporation Act. At the discretion of the Board
of Directors, the Company may choose not to consummate the Merger, and
ultimately the Reincorporation, if it receives a number of payment demands under
the applicable Utah dissenters' rights provisions so as to make the
Reincorporation no longer in the best interest of the Company.
Under the terms of the Merger Plan, the Delaware Corporation will be the
surviving corporation; the separate corporate existence of the Company will
cease; the Delaware Corporation will succeed to all of the business, properties,
assets, and liabilities of the Company; the directors, officers, and employees
of the Company will become the directors, officers, and employees of the
Delaware Corporation; each outstanding share of the Company's Common Stock and
each outstanding share of the Company's Series A Preferred Stock will
automatically be converted into one share of the Delaware Corporation's Common
Stock and Series A Preferred Stock, respectively. On completion of the change of
domicile, the Company will be governed by the Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation"), as further amended by the
Certificate of Designation, Preferences, Rights and Limitations of the Series A
Preferred Stock (the "Series A Designation"), and the Amended and Restated
Bylaws (the "Bylaws") of the Delaware
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Corporation. The proposed Certificate of Incorporation, Series A Designation and
Bylaws of the Delaware Corporation have been filed herewith as Exhibits 4.1, 4.2
and 4.3, respectively. According to Delaware and Utah law, the Merger will
become effective (the "Effective Date") immediately upon filing of the Delaware
Certificate and the Utah Articles. Immediately following the Merger and at the
Effective Time, all stock certificates which represented shares of Common Stock
or Series A Preferred Stock of the Company shall automatically represent and
evidence ownership of shares of Common Stock or Series A Preferred Stock of the
Delaware Corporation, respectively.
For more information about the Merger, see the Notice of Action by Written
Consent and the Dissenters' Rights Notice to Certain Shareholders filed herewith
as Exhibits 20.1 and 20.2, respectively.
DESCRIPTION OF CAPITAL STOCK AFTER THE MERGER
Under the Certificate of Incorporation and Bylaws of the Delaware
Corporation, the authorized capital stock of the Company will consist of
50,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"), and 2,000,000 shares of preferred stock, par value $.10 per share (the
"Preferred Stock"). As of the Effective Date, the Company will have
approximately 13,230,234 shares of Common Stock and 312,500 shares of Preferred
Stock outstanding, and will have reserved approximately 660,000 shares of Common
Stock for issuance upon exercise of outstanding options and 770,000 shares of
Common Stock for issuance upon exercise of outstanding warrants.
Common Stock Under the Certificate of Incorporation and Bylaws of the
Delaware Corporation. The holders of Common Stock are entitled to one vote per
share with respect to all matters required by law to be submitted to the
stockholders of the Company. The holders of Common Stock have the sole right to
vote, except as otherwise provided by law or by the Company's Certificate of
Incorporation. The Common Stock does not have any cumulative voting rights. A
majority of the issued and outstanding Common Stock constitutes a quorum at any
meeting of stockholders and the vote by the holders of a majority of the
outstanding shares is required to effect certain fundamental corporate changes
such as liquidation, merger or amendment of the Certificate of Incorporation.
Holders of shares of Common Stock are entitled to receive dividends, if,
as, and when declared by the Board out of funds legally available therefore.
Upon liquidation of the Company, holders of shares of Common Stock are entitled
to share ratably in all assets of the Company remaining after payment of
liabilities. Holders of shares of Common Stock have no preemptive rights or
other rights to subscribe for unissued or treasury shares or securities
convertible into shares. The outstanding shares of Common Stock are fully paid
and nonassessable.
Preferred Stock Under the Certificate of Incorporation and Bylaws of the
Delaware Corporation. The Board of Directors of the Company, without any action
by the stockholders of the Company, is authorized to issue up to a total of
2,000,000 shares of Preferred Stock in one or more series and to determine the
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and in liquidation and the conversion and other
rights of each such series. The Board of Directors could issue a series of
Preferred Stock that could, depending on the terms
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of such series, provide for a liquidation preference over the Common Stock or
impede the completion of a merger, tender offer or other takeover attempt. The
Board of Directors, in so acting, could issue Preferred Stock having terms that
discourage an acquisition attempt through which an acquiror may be otherwise
able to change the composition of the Board of Directors, including a tender or
exchange offer or other transaction that some, or a majority, of the Company's
stockholders might believe to be in their best interest. As of the date of this
Report, the Series A Preferred Stock (as described below) is the only series of
Preferred Stock so established by the Board of Directors.
Series A Preferred Stock Under the Series A Designation of the Delaware
Corporation. As of the Effective Date, all of the 312,500 shares of Series A
Preferred Stock, per value $.10 per share (the "Series A Preferred"), authorized
by the Company's Certificate of Incorporation will be outstanding. The dividend
on the Series A Preferred is $.32 per annum per share, and is paid in shares of
the Company's Common Stock based on the Common Stock's 30 day average closing
price prior to the dividend date. Such dividends are cumulative and are payable
quarterly, without interest on the accumulation thereof. Except as required by
the Delaware General Corporation Law (the "DGCL") or the Company's Certificate
of Incorporation, the holders of the Series A Preferred have no voting rights,
and no consent of any such holder is required for the taking of any corporate
action. However, the vote or the prior written consent of a majority of the
holders of the Series A Preferred is required for any modification to the terms
of that series or for the authorization of any other class of Preferred Stock
having superior rights and preferences to those of the Series A Preferred.
The Series A Preferred has a liquidation preference of $8.00 per share,
subject to adjustment. The liquidation preference is payable on any liquidation,
dissolution, or winding up of the Company. Each share of Series A Preferred is
presently convertible, at the option of the holder, into 5.4 shares of Common
Stock. The number of shares of Common Stock into which a share of Series A
Preferred may be converted is subject to adjustment pursuant to the anti-
dilution provisions of the Series A Designation. Generally, adjustments will be
made for any merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event.
In accordance with the Series A Designation, the Company has the right to
redeem not less than all of the Series A Preferred at a price of $8.00 per
share. The shares of Series A Preferred may be converted into shares of Common
Stock until the date fixed for redemption by the Board of Directors. The
Company may not redeem the Series A Preferred until after the third anniversary
of their issuance.
The Board of Directors Under the Certificate of Incorporation and Bylaws of
the Delaware Corporation. The Company's Board of Directors is divided into
three classes: Class I, Class II and Class III. The Directors in each of the
classes are elected to staggered three-year terms. Therefore, the holders of
the Common Stock are only entitled to vote in the election of any single class
of directors once every three years. Directors can only be removed for "cause"
as that term is defined in the Certificate of Incorporation. For purposes of
director removal, cause means (i) the conviction of that director, or where a
director is granted immunity to testify the conviction of another, for a felony,
(ii) the affirmative vote by a majority of the Board of Directors that such
directors was grossly negligent or guilty of misconduct in the performance of
his duties to the Company in a matter of substantial importance to the Company,
or (iii) such director has been adjudicated to be mentally incompetent.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS AFTER THE MERGER
Section 145 of the DGCL permits a corporation to indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action. In an action brought to obtain a
judgment in the corporation's favor, whether by the corporation itself or
derivatively by a stockholder, the corporation may only indemnify for expenses,
including attorney's fees, actually and reasonably incurred in connection with
the defense or settlement of such action, and the corporation may not indemnify
for amounts paid in satisfaction of a judgment or in settlement of the claim. In
any such action, no indemnification may be paid in respect of any claim, issue
or matter as to which such person shall have been adjudged liable to the
corporation except as otherwise approved by the Delaware Court of Chancery or
the court in which the claim was brought. In any other type of proceeding, the
indemnification may extend to judgments, fines and amounts paid in settlement,
actually and reasonably incurred in connection with such other proceeding, as
well as to expenses.
The statute does not permit indemnification unless the person seeking
indemnification has acted in good faith and in a manner be reasonably believed
to be in, or not opposed to, the best interests of the corporation and, in the
case of criminal actions or proceedings, the person had no reasonable cause to
believe his conduct was unlawful. The statute contains additional limitations
applicable to criminal actions and to actions brought by or in the name of the
corporation. The determination as to whether a person seeking indemnification
has met the required standard of conduct is to be made (1) by a majority vote of
a quorum of disinterested members of the board of directors, (2) by independent
legal counsel in a written opinion, if such a quorum does not exist or if the
disinterested directors so direct, or (3) by the stockholders.
The Certificate of Incorporation and Bylaws of the Delaware Corporation
require the Company to indemnify its directors to the fullest extent permitted
under Delaware law. Pursuant to employment agreements entered into by the
Company with its executive officers and certain other key employees, the Company
must indemnify such officers and employees in the same manner and to the same
extent that the Company is required to indemnify its directors under the
Company's Bylaws. The Certificate of Incorporation limits the personal liability
of a director to the corporation or its stockholders to damages for breach of
the director's fiduciary duty.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
The following exhibits are filed with this report on Form 8-K:
<TABLE>
<CAPTION>
<S> <C>
2.1 - Plan and Agreement of Merger between the Company and the Delaware
Corporation dated November 7, 1997.
4.1 - Amended and Restated Certificate of Incorporation for the Delaware
Corporation to be filed on or about January 26, 1998 in Delaware.
4.2 - Certificate of Designation for the Series A Preferred Stock for the
Delaware Corporation to be filed on or about January 26, 1998 in
Delaware.
4.3 - Amended and Restated Bylaws of the Delaware Corporation adopted on
November 7, 1997.
20.1 - Notice of Action by Written Consent dated December 22, 1997.
20.2 - Dissenters' Rights Notice to Certain Shareholders dated December 22,
1997.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
APPLIED VOICE RECOGNITION, INC.
January 20, 1998 /s/ William T. Kennedy
--------------------------------
William T. Kennedy,
Chief Financial Officer and
Assistant Secretary
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EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO.
<S> <C>
2.1 - Plan and Agreement of Merger between the Company and the Delaware
Corporation dated November 7, 1997.
4.1 - Amended and Restated Certificate of Incorporation for the Delaware
Corporation to be filed on or about January 26, 1998 in Delaware.
4.2 - Certificate of Designation for the Series A Preferred Stock for the
Delaware Corporation to be filed on or about January 26, 1998 in
Delaware.
4.3 - Amended and Restated Bylaws of the Delaware Corporation adopted on
November 7, 1997.
20.1 - Notice of Action by Written Consent dated December 22, 1997.
20.2 - Dissenters' Rights Notice to Certain Shareholders dated December 22,
1997.
</TABLE>
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Exhibit 2.1
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (this "Merger Plan") is entered into on
this 7th day of November, 1997, pursuant to Section 16-10a-1104 of the Utah
Revised Business Corporation Act, as amended (the "URBCA"), and Section 253 of
the Delaware General Corporation Law, as amended (the "DGCL"), by and between
Applied Voice Recognition, Inc., a Utah corporation ("AVRI-UT"), and Applied
Voice Recognition, Inc., a Delaware corporation ("AVRI-DE"). AVRI-UT and AVRI-
DE are collectively referred to herein as the "Constituent Corporations."
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, AVRI-UT is a corporation duly organized and existing under the
laws of the State of Utah, and has authorized capital stock consisting of
50,000,000 shares of common stock, par value $.001 per share ("UT-Common
stock"), of which 13,119,800 shares of common stock are issued and outstanding,
and 2,000,000 shares of preferred stock, par value $.10 per share, of which
312,500 shares are designated as Series A Preferred Stock ("UT-Series A
Preferred Stock") and are issued and outstanding;
WHEREAS, AVRI-DE is a corporation duly organized and existing under the
laws of the State of Delaware, and has authorized capital stock consisting of
50,000,000 shares of common stock, par value $.001 per share ("DE-Common
Stock"), of which 1,000 shares of common stock are issued and outstanding, and
2,000,000 shares of preferred stock, par value $.10 per share, of which 312,500
shares are designated as Series A Preferred Stock ("DE-Series A Preferred
Stock") all of which are issued and outstanding;
WHEREAS, the respective Boards of Directors of the Constituent Corporations
deem it advisable and in the best interests of the Constituent Corporations that
AVRI-UT be merged with and into AVRI-DE, with AVRI-DE being the surviving
corporation (the "Merger"), as authorized by the laws of the State of Utah and
the State of Delaware, under and pursuant to the terms and conditions
hereinafter set forth, and the Board of Directors of each of the Constituent
Corporations has duly approved this Merger Plan and recommended its approval to
the stockholders of each of the Constituent Corporations; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization within the meaning of Sections 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the mutual and dependent covenants and
agreements herein contained, and for the purpose of setting forth the terms and
conditions of the Merger, the mode of carrying the same into effect, and such
other details and provisions as are deemed necessary or desirable, the parties
hereto have agreed and do hereby agree, subject to the approval of this Merger
Plan by the requisite consent of the Stockholders of each of the Constituent
Corporations, and subject to the conditions hereinafter set forth, as follows:
<PAGE>
1. THE MERGER. At the Effective Time (as defined in Section 7 below) of
the Merger, AVRI-UT shall be merged with and into AVRI-DE, with AVRI-DE being
the surviving corporation, which shall not be a new corporation, but which shall
continue its corporate existence as a Delaware corporation to be governed by the
laws of the State of Delaware, which shall continue to be named "Applied Voice
Recognition, Inc." and which shall maintain a registered office in the State of
Delaware at Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware
19801.
2. TERMS AND CONDITIONS OF MERGER. At the Effective Time of the Merger:
2.1 THE SURVIVING CORPORATION. The Constituent Corporations shall be
a single corporation, which shall be AVRI-DE, the corporation designated
herein as the surviving corporation;
2.2 EXISTENCE OF AVRI-UT. The separate corporate existence of AVRI-
UT shall cease;
2.3 RIGHTS OF CONSTITUENT CORPORATIONS. AVRI-DE shall thereupon and
thereafter possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the
restrictions, disabilities and duties of each Constituent Corporation; and
all rights, privileges, powers and franchises of each Constituent
Corporation, and all property, real, personal and mixed, and all debts due
to any Constituent Corporation on whatever account, as well as for stock
subscriptions, and all other things in action or belonging to each
Constituent Corporation shall be vested in AVRI-DE; and all property,
rights, privileges, powers and franchises, and all and every other interest
shall be thereafter as effectually the property of AVRI-DE as they were of
the respective Constituent Corporations, and the title to any real estate
vested by deed or otherwise in the Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger; but all rights of
creditors and all liens upon any property of the Constituent Corporations
shall be preserved unimpaired, and all debts, liabilities and duties of the
respective Constituent Corporation shall thenceforth attach to AVRI-DE and
may be enforced against AVRI-DE to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it.
Specifically, but not by way of limitation, any action or proceeding,
whether civil, criminal or administrative, pending by or against either
Constituent Corporation shall be prosecuted as if the Merger had not taken
place, or AVRI-DE may be substituted in such action or proceeding;
2.4 ACTS OF CONSTITUENT CORPORATIONS PRIOR TO EFFECTIVE TIME. All
corporate acts, plans, policies, contracts, approvals and authorizations of
the Constituent Corporations and their stockholders, Boards of Directors,
committees elected or appointed by their Boards of Directors, officers and
agents, which were valid and effective immediately prior to the Effective
Time of the Merger, shall be taken for all purposes as the acts, plans,
policies, contracts, approval and authorizations of AVRI-DE and shall be
effective and binding thereon as the same were with respect to the
Constituent Corporations; and
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2.5 ASSETS OF THE CONSTITUENT CORPORATIONS. The assets, liabilities,
reserves and accounts of each Constituent Corporation shall be recorded on
the books of AVRI-DE, the surviving corporation, in accordance with
generally accepted accounting principles, and the capital surplus and
retained earnings of AVRI-DE, the surviving corporation, shall be
determined in accordance with generally accepted accounting principles, by
the Board of Directors of AVRI-DE.
3. CANCELLATION OF DE-COMMON STOCK. At the Effective Time, each share of
DE-Common Stock") then issued and outstanding shall, without any action on the
part of the stockholder thereof, be cancelled and cease to exist, and, at or
before the Effective Time, the stockholder of the then issued and outstanding
shares of DE-Common Stock shall surrender each outstanding certificate or
certificates theretofore representing shares of DE-Common Stock.
4. CONVERSION OF UT-COMMON STOCK. At the Effective Time of the Merger,
each share of UT-Common Stock issued and outstanding immediately preceding the
Effective Time of the Merger shall, without any action on the part of the
holders thereof, be converted into an identical number of shares of DE-Common
Stock.
5. CONVERSION OF UT-SERIES A PREFERRED STOCK. At the Effective Time of
the Merger, each share of UT-Series A Preferred Stock issued and outstanding
immediately preceding the Effective Time of the Merger shall, without any action
on the part of the holders thereof, be converted into an identical number of
shares of DE-Series A Preferred Stock.
6. THE SURVIVING CORPORATION.
6.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation
of AVRI-DE as existing and constituted immediately prior to the Effective
Time of the Merger shall, at and after the Effective Time of the Merger, be
and constitute the Certificate of Incorporation of AVRI-DE, as the
corporation surviving the Merger.
6.2 BYLAWS. The Bylaws of AVRI-DE as existing and constituted
immediately prior to the Effective Time of the Merger shall, at and after
the Effective Time of the Merger, be and constitute the Bylaws of AVRI-DE,
as the corporation surviving the Merger, until amended in the manner
provided by law.
6.3 BOARD OF DIRECTORS. Upon the Effective Time, the number of
members who shall comprise the entire board of directors shall be increased
from 1 to 11. The names and addresses of the persons who, upon the
Effective Time, shall constitute the board of directors of AVRI-DE, as the
corporation surviving the Merger, and who shall hold office until their
successor(s) are elected and qualified, are as follows:
<TABLE>
<CAPTION>
NAME POSITION ADDRESS
- ---------------------- ---------------------------------- -----------------------------
<S> <C> <C>
Timothy J. Connolly Chairman of the Board and Director 4615 Post Oak Lane, Suite 111
Houston, Texas 77027
Jan Carson Connolly Director 4615 Post Oak Lane, Suite 111
Houston, Texas 77027
</TABLE>
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<TABLE>
<S> <C> <C>
H. Russell Douglas Director 4615 Post Oak Lane, Suite 111
Houston, Texas 77027
Charles W. Skamser Director 4615 Post Oak Lane, Suite 111
Houston, Texas 77027
Jesse R. Marion Director 2909 Hillcroft, Suite 450
Houston, Texas 77057
J. Nolan Bedford Director P.O. Box 40488
Houston, Texas 77240-0488
Frederick A. Huttner Director 13634 Taylorcrest
Houston, Texas 77079
G. Edward Powell Director 3355 West Alabama, Suite 580
Houston, Texas 77098
Michael Wilson Director 132 Settlers Drive
Naperville, Illinois 60565
J. William Boyar Director 4265 San Felipe, Suite 1200
Houston, Texas 77027
Raymond Betz Director 610 West Greens Road
Houston, Texas 77067
</TABLE>
6.4 OFFICERS. The names and addresses of the persons who, upon the
Effective Time, shall constitute the officers of AVRI-DE, as the
corporation surviving the Merger, and who shall hold office, subject to the
bylaws of AVRI-DE, until their successor(s) are elected and qualified, are
as follows:
<TABLE>
<CAPTION>
NAME OFFICE ADDRESS
- --------------------- ------------------------------ -----------------------------
<S> <C> <C>
Timothy J. Connolly Chief Executive Officer 4615 Post Oak Lane, Suite 111
Houston, Texas 77027
Charles W. Skamser President and Chief Operating 4615 Post Oak Lane, Suite 111
Officer Houston, Texas 77027
William T. Kennedy Chief Financial Officer and 4615 Post Oak Lane, Suite 111
Assistant Secretary Houston, Texas 77027
Jan Carson Connolly Vice President -- 4615 Post Oak Lane, Suite 111
Communications Houston, Texas 77027
H. Russell Douglas Vice President -- Research 4615 Post Oak Lane, Suite 111
and Development Houston, Texas 77027
</TABLE>
7. APPROVAL AND EFFECTIVE TIME OF MERGER. This Merger Plan shall be
submitted to the stockholders of AVRI-UT as provided by the DGCL and the URBCA.
After the approval of this Merger Plan by the stockholders of AVRI-UT in
accordance with the requirements of the DGCL and the URBCA, all required
documents shall be executed, filed and recorded and all required acts shall be
done in order to accomplish the Merger under the provisions of the DGCL, the
URBCA and this Merger Plan; provided, however, that if any shareholders of AVRI-
UT elect to exercise their dissenter's rights, the board of directors of the
AVRI-UT may still decide, in its sole discretion, that the consummation of the
Merger Plan is not in the best interests of the Constituent Corporations and
that the transactions contemplated herein should not be completed. The Merger
shall become effective upon the issuance of certificates of merger by each of
the Secretaries of State of the States
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of Utah and Delaware subsequent to the filing of (i) a Certificate of Merger by
the Constituent Corporations with Secretary of State of the State of Delaware
and (ii) Articles of Merger by the Constituent Corporations with the Secretary
of State of the State of Utah, which filings shall occur subsequent to the date
this Merger Plan is executed and delivered by the parties hereto (the "Effective
Time").
8. OTHER PROVISIONS.
8.1 FURTHER ASSURANCES. If at any time AVRI-DE shall consider or be
advised that any further assignment or assurance in law or other action is
necessary or desirable to vest, perfect or confirm, or record or otherwise,
in AVRI-DE the title to any property or rights of AVRI-UT acquired or to be
acquired by or as a result of the Merger, the proper officers and directors
of the Constituent Corporations, respectively, shall be, and they hereby
are, severally and fully authorized to execute and deliver such deeds,
assignments and assurances in law and take such other action as may be
necessary or proper in the name of AVRI-DE or AVRI-UT to vest, perfect or
confirm title to such property or rights in AVRI-DE and otherwise carry out
the purposes of this Merger Plan.
8.2 TERMINATION PRIOR TO EFFECTIVE TIME. This Merger Plan may be
terminated at any time prior to the Effective Time of the Merger, whether
before or after action thereon by the stockholders of the Constituent
Corporations (if such stockholder approval is required), by mutual consent
of the Constituent Corporations, expressed by action of their respective
Boards of Directors.
8.3 COUNTERPARTS. For the convenience of the parties and to
facilitate the filing and recording of this Merger Plan, any number of
counterparts hereof may be executed, and each such counterpart shall be
deemed to be an original instrument.
8.4 DISSENTER'S RIGHTS. AVRI-DE is obligated for the payment of the
fair value of any shares of AVRI-UT held by a shareholder who has complied
with the requirements of Section 16-10a-1328 of the URBCA for the recovery
of the fair value of such shares.
8.5 AMENDMENTS. This Merger Plan cannot be altered or amended except
pursuant to an instrument in writing signed on behalf of all parties
hereto.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Merger Plan to be
executed as of the date first above written.
APPLIED VOICE TECHNOLOGIES, INC.,
A Utah corporation
By: /s/ Timothy J. Connolly
-----------------------------------
Timothy J. Connolly,
Chief Executive Officer and
Chairman of the Board
APPLIED VOICE TECHNOLOGIES, INC.,
A Delaware corporation
By: /s/ Timothy J. Connolly
------------------------------------
Timothy J. Connolly,
President
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Exhibit 4.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
APPLIED VOICE RECOGNITION, INC.
APPLIED VOICE RECOGNITION, INC., a Delaware corporation which originally
filed its Certificate of Incorporation with the Secretary of State on December
5, 1996 (the "Corporation"), pursuant to Sections 242 and 245 of the Delaware
General Corporation Law (the "DGCL"), does hereby certify the following:
1. This Amended and Restated Certificate of Incorporation has been
adopted in conformity with the provisions of Sections 242 and 245 of the
DGCL.
2. This Amended and Restated Certificate of Incorporation was adopted
by the written consent of the Corporation's sole stockholder on November 7,
1997. At the time of such adoption, the Corporation's total authorized
capitalization consisted of 15,000,000 shares of common stock, par value
$.01 per share (the "Common Stock"), of which 9,073,000 shares were issued
and outstanding. The holder of 100% of the Corporation's outstanding
Common Stock, has signed a consent in writing adopting this Amended and
Restated Certificate of Incorporation, such written consent having been
given in accordance with Article 228 of the DGCL.
3. The Certificate of Incorporation of the Corporation is hereby
amended in its entirety, by substitution or addition, as the case may be,
by this Amended and Restated Certificate of Incorporation.
NOW, THEREFORE, the Certificate of Incorporation of the Corporation is
hereby amended and restated to read as follows in its entirety:
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
APPLIED VOICE RECOGNITION, INC.
ARTICLE I
NAME
The name of the corporation is Applied Voice Recognition, Inc. (the
"Corporation").
ARTICLE II
REGISTERED OFFICE AND AGENT
The address of its registered office in the State of Delaware is The
Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, New
Castle County. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
PURPOSES
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the DGCL.
ARTICLE IV
EXISTENCE
The existence of the Corporation is to be perpetual.
ARTICLE V
AUTHORIZED CAPITAL STOCK
The aggregate number of shares of all classes of stock which the
Corporation shall have authority to issue is 52,000,000 shares, consisting of:
(i) 50,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"), and (ii) 2,000,000 shares of preferred stock, par value $.10 per share
(the "Preferred Stock"). Shares of any class of capital stock of the
Corporation may be issued for such consideration and for such corporate purposes
as the Board of Directors of the
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Corporation (the "Board of Directors") may from time to time determine. Each
share of Common Stock shall be entitled to one vote.
A. Preferred Stock. The Preferred Stock may be divided into and issued
from time to time in one or more series as may be fixed and determined by the
Board of Directors. The relative rights and preferences of the Preferred Stock
of each series shall be such as shall be stated in any resolution or resolutions
adopted by the Board of Directors setting forth the designation of the series
and fixing and determining the relative rights and preferences thereof (a
"Directors' Resolution"). The Board of Directors is hereby authorized to fix and
determine the powers, designations, preferences, and relative, participating,
optional or other rights, including, without limitation, voting powers, full or
limited, preferential rights to receive dividends or assets upon liquidation,
rights of conversion or exchange into Common Stock, Preferred Stock of any
series or other securities, any right of the Corporation to exchange or convert
shares into Common Stock, Preferred Stock of any series or other securities, or
redemption provision or sinking fund provisions, as between series and as
between the Preferred Stock or any series thereof and the Common Stock, and the
qualifications, limitations or restrictions thereof, if any, all as shall be
stated in a Directors' Resolution, and the shares of Preferred Stock or any
series thereof may have full or limited voting powers, or be without voting
powers, all as shall be stated in a Directors' Resolution. Except where
otherwise set forth in the Directors' Resolution providing for the issuance of
any series of Preferred Stock, the number of shares comprising such series may
be increased or decreased (but not below the number of shares then outstanding)
from time to time by like action of the Board of Directors. The shares of
Preferred Stock of any one series shall be identical with the other shares in
the same series in all respects except as to the dates from and after which
dividends thereon shall cumulate, if cumulative.
B. Reacquired Shares of Preferred Stock. Shares of any series of any
Preferred Stock that have been redeemed (whether through the operation of a
sinking fund or otherwise), purchased by the Corporation, or which, if
convertible or exchangeable, have been converted into, or exchanged for, shares
of stock of any other class or classes or any evidences of indebtedness shall
have the status of authorized and unissued shares of Preferred Stock and may be
reissued as a part of the series of which they were originally a part or may be
reclassified and reissued as part of a new series of Preferred Stock or as part
of any other series of Preferred Stock, all subject to the conditions or
restrictions on issuance set forth in the Directors' Resolution providing for
the issuance of any series of Preferred Stock and to any filing required by law.
C. Increase in Authorized Preferred Stock. The number of authorized
shares of Preferred Stock may be increased or decreased by the affirmative vote
of the holders of a majority of the stock of the Corporation entitled to vote
without the separate vote of holders of Preferred Stock as a class.
ARTICLE VI
NO PREEMPTIVE RIGHTS
No stockholder shall be entitled, as a matter of right, to subscribe for or
acquire additional, unissued or treasury shares of any class of capital stock of
the Corporation whether now or hereafter authorized, or any bonds, debentures or
other securities convertible into, or carrying a right to
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subscribe to or acquire such shares, but any shares or other securities
convertible into, or carrying a right to subscribe to or acquire such shares may
be issued or disposed of by the Board of Directors to such persons and on such
terms as in its discretion it shall deem advisable.
ARTICLE VII
NO CUMULATIVE VOTING
At each election of directors, every stockholder entitled to vote at such
election shall have the right to vote in person or by proxy the number of shares
owned by him for as many persons as there are directors to be elected and for
whose election he has a right to vote. No stockholder shall have the right to
cumulate his votes in any election of directors.
ARTICLE VII
STOCKHOLDER ACTION WITHOUT A MEETING
Any action required to be taken at any annual or special meeting of the
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders of the Corporation, may be taken without
a meeting without prior notice and without a vote, if a consent or consents in
writing setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted; provided, however, that from
and after the first date as of which the Corporation has a class or series of
capital stock registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders, and a special meeting of stockholders of the
Corporation may be called only by the Chairman of the Board, the Chief Executive
Officer, the President or the Board of Directors by the written order of a
majority of the entire Board of Directors, and not by the stockholders except as
otherwise provided by law or the Bylaws.
ARTICLE IX
BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors. In addition to the authority and
powers conferred upon the Board of Directors by the DGCL or by the other
provisions of this Certificate of Incorporation (this "Certificate of
Incorporation"), the Board of Directors is hereby authorized and empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject to the provisions of the DGCL, this Certificate
of Incorporation and the Bylaws; provided, however, that no Bylaws hereafter
adopted by the stockholders of the Corporation, or any amendments thereto,
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shall invalidate any prior act of the Board of Directors that would have been
valid if such Bylaws or amendment had not been adopted.
A. Number, Election and Terms of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed from time to
time by a majority of the directors then in office and shall be divided into
three classes: Class I, Class II and Class III; provided, however, that from and
after the first date as of which the Corporation has a class or series of
capital stock registered under the Exchange Act, the number of directors which
shall constitute the whole Board of Directors shall be not less than three nor
more than twelve. Each director shall serve for a term ending on the third
annual meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class I shall serve for a
term expiring at the annual meeting next following the end of the calendar year
1997, the directors first elected to Class II shall serve for a term expiring at
the annual meeting next following the end of the calendar year 1998, and the
directors first elected to Class III shall serve for a term expiring at the
annual meeting next following the end of the calendar year 1999. Each director
shall hold office until the annual meeting at which such director's term expires
and, the foregoing notwithstanding, shall serve until his successor shall have
been duly elected and qualified or until his earlier death, resignation or
removal.
At such annual election, the directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless, by
reason of any intervening changes in the authorized number of directors, the
Board of Directors shall have designated one or more directorships whose terms
then expires as directorships of another class in order to more nearly achieve
equality of number of directors among the classes.
In the event of any changes in the authorized number of directors, each
director then continuing to serve shall nevertheless continue as a director of
the class of which he is a member until the expiration of his current term, or
his prior death, resignation or removal. The Board of Directors shall specify
the class to which a newly created directorship shall be allocated and shall
specify the class to which all existing directors are a member following the
effective date of this Article IX.
Election of directors need not be by written ballot unless the Bylaws of
the Corporation shall so provide.
B. Removal of Directors. No director of the Corporation shall be removed
from office as a director by vote or other action of the stockholders or
otherwise except for cause, and then only by the affirmative vote of the holders
of at least a majority of the voting power of all outstanding shares of capital
stock of the Corporation generally entitled to vote in the election of
directors, voting together as a single class. Except as may otherwise be
provided by law, cause of removal of a director shall be deemed to exist only
if: (i) the director whose removal is proposed has been convicted, or where a
director is granted immunity to testify where another has been convicted, of a
felony by a court of competent jurisdiction and such conviction is no longer
subject to direct appeal; (ii) such director has been found by the affirmative
vote of a majority of the entire Board of Directors at any regular or special
meeting of the Board of Directors called for that purpose or by a court of
competent jurisdiction to have been grossly negligent or guilty of misconduct in
the performance of his duties to the Corporation in a matter of substantial
importance to the Corporation; or (iii) such
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director has been adjudicated by a court of competent jurisdiction to be
mentally incompetent, which mental incompetency directly affects his ability as
a director of the Corporation.
C. Vacancies. Newly created directorships resulting from any increase in
the number of directors and any vacancies on the Board of Directors resulting
from death, resignation, removal or other cause shall be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the class of directors in which the new directorship was
created or the vacancy occurred and until such director's successor shall have
been elected and qualified or until his earlier death, resignation or removal.
No decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
ARTICLE X
INDEMNIFICATION
A. Mandatory Indemnification. Each person who at any time is or was a
director or officer of the Corporation, and is threatened to be or is made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative (a
"Proceeding"), by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, member,
employee, trustee, agent or similar functionary of another domestic or foreign
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other for-profit or non-profit enterprise, whether the basis of
a Proceeding is an alleged action in such person's official capacity or in
another capacity while holding such office, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the DGCL, or any
other applicable law as may from time to time be in effect (but, in the case of
any such amendment or enactment, only to the extent that such amendment or law
permits the Corporation to provide broader indemnification rights than such law
prior to such amendment or enactment permitted the Corporation to provide),
against all expense, liability and loss (including, without limitation, court
costs and attorneys' fees, judgments, fines, excise taxes or penalties, and
amounts paid or to be paid in settlement) actually and reasonably incurred or
suffered by such person in connection with a Proceeding, and such
indemnification shall continue as to a person who has ceased to be a director or
officer of the Corporation or a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise, and shall inure to the benefit of such person's heirs, executors and
administrators. The Corporation's obligations under this Section A include, but
are not limited to, the convening of any meeting, and the consideration of any
matter thereby, required by statute in order to determine the eligibility of any
person for indemnification.
B. Prepayment of Expenses. Expenses incurred by a director or officer of
the Corporation in defending a Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding to the fullest extent
permitted by, and only in compliance with, the
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DGCL or any other applicable laws as may from time to time be in effect,
including, without limitation, any provision of the DGCL which requires, as a
condition precedent to such expense advancement, the delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under Section A of this Article X or
otherwise. Repayments of all amounts so advanced shall be upon such terms and
conditions, if any, as the Corporation's Board of Directors deems appropriate.
C. Vesting. The Corporation's obligation to indemnify and to prepay
expenses under Sections A and B of this Article X shall arise, and all rights
granted to the Corporation's directors and officers hereunder shall vest, at the
time of the occurrence of the transaction or event to which a Proceeding
relates, or at the time that the action or conduct to which such Proceeding
relates was first taken or engaged in (or omitted to be taken or engaged in),
regardless of when such Proceeding is first threatened, commenced or completed.
Notwithstanding any other provision of this Certificate of Incorporation or the
Bylaws of the Corporation, no action taken by the Corporation, either by
amendment of this Certificate of Incorporation or the Bylaws of the Corporation
or otherwise, shall diminish or adversely affect any rights to indemnification
or prepayment of expenses granted under Sections A and B of this Article X which
shall have become vested as aforesaid prior to the date that such amendment or
other corporate action is effective or taken, whichever is later.
D. Enforcement. If a claim under Section A or Section B or both Sections
A and B of this Article X is not paid in full by the Corporation within thirty
(30) days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit in a court of competent
jurisdiction against the Corporation to recover the unpaid amount of the claim
and, if successful in whole or in part, the claimant shall also be entitled to
be paid the expense of prosecuting such claim. It shall be a defense to any
such suit (other than a suit brought to enforce a claim for expenses incurred in
defending any Proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that the
claimant has not met the standards of conduct which make it permissible under
the DGCL or other applicable law to indemnify the claimant for the amount
claimed, but the burden of proving such defense shall be on the Corporation.
The failure of the Corporation (including its Board of Directors, independent
legal counsel, or stockholders) to have made a determination prior to the
commencement of such suit as to whether indemnification is proper in the
circumstances based upon the applicable standard of conduct set forth in the
DGCL or other applicable law shall neither be a defense to the action nor create
a presumption that the claimant has not met the applicable standard of conduct.
The termination of any Proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal Proceeding, had reasonable cause
to believe that his conduct was unlawful.
E. Nonexclusive. The indemnification provided by this Article X shall
not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any statute, bylaw, other provisions of
this Certificate of Incorporation, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
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F. Permissive Indemnification. The rights to indemnification and
prepayment of expenses which are conferred to the Corporation's directors and
officers by Sections A and B of this Article X may be conferred upon any
employee or agent of the Corporation if, and to the extent, authorized by the
Board of Directors.
G. Insurance. The Corporation shall have power to purchase and maintain
insurance, at its expense, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise against any expense, liability or loss asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
provisions of this Article X, the Corporation's Bylaws, the DGCL or other
applicable law.
H. Implementing Arrangements. Without limiting the power of the
Corporation to procure or maintain insurance or other arrangement on behalf of
any of the persons as described in Section G of this Article X, the Corporation
may, for the benefit of persons eligible for indemnification by the Corporation,
(i) create a trust fund, (ii) establish any form of self-insurance, (iii) secure
its indemnity obligation by grant of a security interest or other lien on the
assets of the Corporation, or (iv) establish a letter of credit, guaranty or
surety arrangement.
ARTICLE XI
LIMITED DIRECTOR LIABILITY
A. No director of the Corporation shall be personally liable to the
Corporation or to its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this Article XI shall not eliminate or limit
the liability of a director: (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, as it may hereafter be amended from
time to time, for any unlawful payment of a dividend or unlawful stock purchase
or redemption, or (iv) for any transaction from which the director derived an
improper personal benefit.
B. If the DGCL is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the DGCL, as so amended. No amendment to or repeal of this
Article XI will apply to, or have any effect on, the liability or alleged
liability of any director of the Corporation for or with respect to any acts or
omissions of the director occurring prior to such amendment or repeal.
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ARTICLE XII
BYLAWS
The Board of Directors is expressly authorized to adopt, amend or repeal
the Bylaws of the Corporation, or adopt new Bylaws, without any action on the
part of the stockholders, except as may be otherwise provided by applicable law
or the Bylaws of the Corporation.
ARTICLE XII
ARRANGEMENTS WITH CREDITORS
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for the Corporation under Section 291 of
Title 8 of the Delaware Code, order a meeting of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If the majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders, of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
ARTICLE XIV
CURRENT BOARD OF DIRECTORS
The name and mailing address of the sole current member of the Board of
Directors is:
Timothy J. Connolly
4615 Post Oak Place, Suite 111
Houston, Texas 77027
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IN WITNESS WHEREOF, Applied Voice Recognition, Inc. has caused this Amended
and Restated Certificate of Incorporation to be signed by Timothy J. Connolly,
its President and Secretary, this ___ day of January, 1998.
APPLIED VOICE RECOGNITION, INC.
---------------------------------
Timothy J. Connolly,
President and Secretary
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Exhibit 4.2
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES A PREFERRED STOCK
OF
APPLIED VOICE RECOGNITION, INC.
PURSUANT to Section 151(g) of the Delaware General Corporation Law (the
"DGCL"), APPLIED VOICE RECOGNITION, INC., a corporation organized and existing
under the DGCL (herein referred to as the "Corporation"), DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of the
Corporation by its Certificate of Incorporation, and pursuant to the provisions
of Section 151(g) of the DGCL, such Board of Directors, at a special meeting
dated November 7, 1997, duly adopted a resolution providing for the issuance of
a series of Three Hundred Twelve Thousand Five Hundred (312,500) shares of the
Corporation's Preferred Stock, par value $.001 per share, to be designated
"Series A Preferred Stock," and fixing the voting powers, preferences and
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, which resolution is as follows:
RESOLVED, that pursuant to the authority expressly granted and vested in
the Board of Directors of the Corporation in accordance with the provisions of
its Certificate of Incorporation, there shall be established and authorized for
issuance a series of the Corporation's Preferred Stock, par value $.001 per
share, designated "Series A Preferred Stock" (herein referred to as "Series A
Preferred Stock"), consisting of Three Hundred Twelve Thousand Five Hundred
(312,500) shares, each of the par value of $.001 per share, and having the
voting powers, preferences and relative, participating, optional and other
rights, and the qualifications, limitations or restrictions set forth below:
A. Designation. The Preferred Stock having the rights, preferences,
privileges and restrictions set forth below shall be designated and known as
"Series A Preferred Stock."
<PAGE>
B. Number of Shares of Series A Preferred Stock. The number of shares
constituting all of the Series A Preferred Stock shall be THREE HUNDRED TWELVE
THOUSAND FIVE HUNDRED (312,500).
C. Dividends. The holders of the then outstanding shares of the Series A
Preferred Stock shall be entitled to dividends ("Preferred Dividends") equal to
thirty two hundredths of a dollar ($0.32) per annum per share of Series A
Preferred Stock, which Preferred Dividends shall be paid in shares of Common
Stock, $0.001 par value per share, of the Corporation. The number of shares of
Common Stock to be issued as Preferred Dividends pursuant hereto shall be based
upon the thirty (30) day average closing price prior to the dividend date of the
Common Stock on the Nasdaq Over the Counter Bulletin Board (the "OTCBB"). If
the Common Stock is no longer trading on the OTCBB, then the number of shares of
Common Stock to be issued as Preferred Dividends shall be based upon such other
trading forum or exchange, if any, under which the Common Stock is trading, and
if no established market exist for the Common Stock, the Board of Directors of
the Corporation (the "Board of Directors") shall determine the number of shares
of Common Stock to be issued as Preferred Dividends in the exercise of their
reasonable discretion. Preferred Dividends shall, when and as declared by the
Corporation's Board of Directors, be payable quarterly on the first day of each
April, July, October and January, commencing on the first such date following
the issuance of such shares, except that if such date is not a business day,
then such dividends shall be payable on the first day immediately succeeding
that business day. No dividend shall be declared or paid if such declaration or
payment would result in a violation of the DGCL.
The Preferred Dividends shall be cumulative, and no dividends shall be
declared or paid with respect to the Common Stock, nor may any distribution be
made to the holders of Common Stock, until all accrued Preferred Dividends have
been paid, or declared and shares of Common Stock are set apart for payment, for
the current and all prior dividend periods. No interest shall accumulate on any
unpaid dividends, distributions, or dividend arrearages with respect to the
Series A Preferred Stock, regardless of whether the Board of Directors has
declared such dividends. Payment of Preferred Dividends shall be in preference
to dividends on Common Stock or any other shares of stock of the Corporation
ranking junior to the Series A Preferred Stock.
D. Liquidation Preference. In the event of any liquidation, dissolution,
or winding up of the Corporation, either voluntary or involuntary, the holders
of the Series A Preferred Stock shall be entitled to be paid out of the assets
of the Corporation available for distribution to its shareholders, before any
payment or declaration and setting apart for payment of any amount shall be made
with respect to the Common Stock, or stock of any other class ranking junior as
to the assets in liquidation to the Series A Preferred Stock, Eight Dollars
($8.00) per share, and no more. If upon the occurrence of such event the assets
distributable among the holders of the Series A Preferred Stock and stock
ranking on parity with the Series A Preferred Stock, if any, as to assets in
liquidation (collectively, "Parity Stock") shall
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be insufficient to permit the payment of the full preferential amounts for the
Series A Preferred Stock and Parity Stock, then the entire assets and funds of
the Corporation legally available for distribution to its shareholders shall be
distributed among the holders of the Series A Preferred Stock and Parity Stock
then outstanding ratably per share in proportion to the full preferential
amounts per share to which they are respectively entitled. After the payment or
distribution to the holders of the Series A Preferred Stock and the Parity Stock
of their full preferential amounts have been made, the holders of Series A
Preferred Stock shall not be entitled to any additional distributions with
respect to the Series A Preferred Stock.
E. Redemption. Any shares of the Series A Preferred Stock that have not
been converted to Common Stock by the third anniversary of the date of their
issuance, may, at the option of the Corporation, at any time thereafter be
redeemed at a redemption price of Eight Dollars ($8.00) per share plus any
earned but unpaid dividends (the actual date of redemption being referred to as
the "Preferred Stock Redemption Date"). Either all or none of the outstanding
shares of Series A Preferred Stock must be redeemed. If on or before the
Preferred Stock Redemption Date all funds necessary for such redemption shall
have been set aside by the Corporation, separate and apart from its other funds,
in trust for the pro rata benefit of the holders of the Series A Preferred
Stock, so as to be and continue to be available therefor, then from and after
the Preferred Stock Redemption Date, notwithstanding that any certificate for
shares of the Series A Preferred Stock shall not have been surrendered for
cancellation, the shares represented thereby shall no longer be deemed
outstanding, and all rights with respect to shares of the Series A Preferred
Stock shall forthwith on the Preferred Stock Redemption Date cease and terminate
except only as to the right of the holders thereof to receive the redemption
price of such shares so to be redeemed. Any monies so set aside by the
Corporation and unclaimed at the end of five (5) years from the Preferred Stock
Redemption Date shall revert to the general funds of the Corporation (provided
that the holders of Series A Preferred Stock have received notice of the
redemption within 90 days after the Preferred Stock Redemption Date).
The respective holders of record of the Series A Preferred Stock to be
redeemed shall be entitled to receive the redemption price upon actual delivery
to the Corporation of certificates for the shares to be redeemed, duly endorsed
in blank or accompanied by proper instruments of assignment and transfer duly
endorsed in blank.
F. Conversion Rights.
(i) Each holder of shares of Series A Preferred Stock shall be
entitled to cause any or all of such shares to be converted into Common
Stock. Each share of Series A Preferred Stock shall be convertible into
five and four-tenths (5.4) shares of Common Stock.
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(ii) Each holder of Series A Preferred Stock desiring to convert any
or all of such shares into shares of Common Stock pursuant to paragraph (i)
of this Section F shall surrender the certificate or certificates
representing the shares of Series A Preferred Stock being converted, duly
assigned or endorsed for conversion (or accompanied by duly executed stock
powers relating thereto), at the principal executive office of the
Corporation or the offices of the transfer agent for the Series A Preferred
Stock or such office or offices in the continental United States of an
agent for conversion as may from time to time be designed by notice to the
holders of the Series A Preferred Stock by the Corporation or the transfer
agent for the Series A Preferred Stock, accompanied by written notice of
conversion. Such notice of conversion shall specify (1) the number of
shares of Series A Preferred Stock to be converted and (2) the address to
which such holder wishes delivery to be made of such new certificates to be
issued upon such conversion.
(iii) Upon surrender of a certificate representing a share or shares
of Series A Preferred Stock for conversion pursuant to paragraph (i) of
this Section F, the Corporation shall, within five (5) business days of
such surrender, issue and send (with receipt to be acknowledged) to the
holder thereof, at the address designated by such holder, a certificate or
certificates for the number of validly issued, fully paid and non-
assessable shares of Common Stock to which such holder shall be entitled
upon conversion. In the event that there shall have been surrendered a
certificate or certificates representing shares of Series A Preferred
Stock, only part of which are to be converted, the Corporation shall issue
and deliver to such holder a new certificate or certificates representing
the number of shares of Series A Preferred Stock which shall not have been
converted.
(iv) The issuance by the Corporation of shares of Common Stock
pursuant to paragraph (i) of this Section F shall be effective as of the
earlier of (1) the delivery to such holder of the certificates representing
the shares of Common Stock issued upon conversion thereof, or (2)
immediately prior to the close of business on the day of surrender of the
certificate or certificates for the shares of Series A Preferred Stock to
be converted, duly assigned or endorsed for conversion (or accompanied by
duly executed stock powers relating thereto) as provided in these Articles
of Incorporation. On and after the effective day of the conversion, the
person or persons entitled to receive the Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock, but no allowance or adjustment
shall be made in respect of dividends payable to holders of Common Stock of
record on any date prior to such effective date.
(v) The Corporation shall not be obligated to issue and deliver any
fractional share of Common Stock upon any conversion of shares of Series A
Preferred Stock, but in lieu thereof shall pay to the holder converting
such
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Series A Preferred Stock an amount of cash equal to the fractional share of
Common Stock that otherwise would have been issued upon conversion rounded
to the nearest 1/100 th of a share of Common Stock multiplied by the
current market price (as reasonably determined by the Corporation) on the
business day preceding the effective date of the conversion.
(vi) The Corporation shall at all times reserve and keep available out
of its authorized and unissued Common Stock or treasury shares, solely for
issuance upon the conversion of shares of Series A Preferred Stock as
herein provided, free from any preemptive rights, such number of shares of
Common Stock as shall be issuable upon the conversion of all the shares of
Series A Preferred Stock then outstanding.
G. Anti-dilution Adjustments.
(i) In case the Corporation shall at any time change as a whole, by
subdivision or combination in any manner or by the making of a stock
dividend, the number of outstanding shares of Common Stock into a different
number of shares (i.e. forward or reverse stock split), (i) the number of
shares of Common Stock to which the holders of Series A Preferred Stock may
convert such Series A Preferred Stock shall be increased or decreased in
direct proportion to such increase or decrease of shares, as the case may
be, and (ii) the conversion price (but not the aggregate conversion price)
in effect immediately prior to such change shall be increased or decreased
in inverse proportion to such increase or decrease of shares, as the case
may be.
(ii) If, prior to the conversion of all the Series A Preferred Stock,
there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of
which shares of Common Stock of the Corporation shall be changed into the
same or a different number of shares of the same or another class or
classes of stock or securities of the Corporation or another entity or
there is a sale of all or substantially all the Corporation's assets that
is not deemed to be a liquidation pursuant to Section D hereof, then the
holders of Series A Preferred Stock shall thereafter have the right to
receive upon conversion of Series A Preferred Stock, upon the basis and
upon the terms and conditions specified herein and in lieu of shares of
Common Stock, immediately theretofore issuable upon conversion, such stock,
securities and/or other assets which the holder would have been entitled to
receive in such transaction had the Series A Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the
holders of the Series A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
conversion rate and the number of shares issuable upon conversion of the
Series A Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities thereafter deliverable upon
the
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conversion thereof. The Corporation shall not effect any transaction
described in this subsection (ii) unless (a) it first gives fifteen (15)
calendar days prior notice of such merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event (during
which time the holders of the Series A Preferred stock shall be entitled to
convert their Series A Preferred Stock into shares of Common Stock to the
extent permitted hereby) and (b) the resulting successor or acquiring
entity (if not the Corporation) assumes by written instrument the
obligation of the Corporation under the Articles of Incorporated, as
amended, of the Corporation, including the obligation of this subsection
(ii).
H. Voting Rights. Except as otherwise required by the DGCL or these
Articles of Incorporation, the holders of Series A Preferred Stock shall have
the following voting rights:
(i) So long as any shares of the Series A Preferred Stock are
outstanding, the Corporation shall not, without the affirmative vote or
written consent of the holders of 51% of the outstanding shares of the
Series A Preferred Stock voting separately as a class, (1) amend, alter or
repeal any provision of the Articles of Incorporation or the By-Laws of the
Corporation so as to adversely affect the relative rights, preferences,
qualifications, limitations or restrictions of the Series A Preferred
Stock, or (2) authorize or issue, or increase the authorized amount of any
then existing or additional class or series of stock or any security
convertible into stock of such class or series, ranking as to dividends or
as to distributions in the event of a liquidation, dissolution or winding
up of the Corporation, or parity with or senior to the Series A Preferred
Stock.
(ii) Except as otherwise required by the DGCL or these Articles of
Incorporation, the holders of the Series A Preferred Stock shall have no
voting rights, and no consent of any holder shall be required for the
taking of any corporate action.
I. Protective Provision. So long as shares of Series A Preferred Stock
are outstanding, the Corporation shall not without first obtaining the approval
(by vote or written consent as provided by Delaware Law) of the holders of at
least sixty-six and two-thirds percent (66 2/3%) of the then outstanding Series
A Preferred Stock, and at least sixty-six and two-third percent (66 2/3%) of the
then outstanding holders of Series A Preferred Stock:
(i) alter or change the rights, preferences or privileges of the
Series A Preferred Stock or any senior securities so as to affect adversely
the Series A Preferred Stock;
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(ii) create any new class or series of stock having a preference over
the Series A Preferred Stock or increase the size of the authorized number
of Series A Preferred Stock; or
(iii) do any act or thing not authorized or contemplated by these
Articles of Incorporation, as amended, which would result in taxation of
the holders of shares of the Series A Preferred Stock under section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision
of the Internal Revenue Code as hereafter from time to time amended).
J. Miscellaneous.
(i) Except as specifically set forth herein, all notices or
communications provided for or permitted hereunder shall be made in writing
by hand delivery, express overnight courier, registered first class mail,
or telecopier addressed (1) if to the Corporation, to its office at 4615
Post Oak Place, Suite 111, Houston, Texas 77027, Attention: Timothy J.
Connolly, Chairman and CEO, Telecopier: (713) 621-5870, and (2) if to the
holder of the Series A Preferred Stock, to such holder at the address of
such holder as listed in the stock record books of the Corporation or to
such other address as the Corporation or such holder, as the case may be,
shall have designated by notice similarly given. All such notices and
communications shall be deemed to have been duly given: when delivered by
hand, if personally delivered; five (5) business days after being deposited
in the mail, registered or certified mail, return receipt requested,
postage prepaid, if mailed; when received after being deposited in the
regular mail; the next business day after being deposited with an overnight
courier, if deposited with a nationally recognized, overnight courier
service; when receipt is acknowledged, if by telecopier, so long as
followed up on the same day by overnight courier.
(ii) The Corporation shall pay any and all stock transfer and
documentary stamp taxes that may be payable in respect of any issuance or
delivery of shares of Series A Preferred Stock or shares of Common Stock or
other securities issued on account of Series A Preferred Stock pursuant
hereto or certificates representing such shares or securities. The
Corporation shall not, however, be required to pay any such tax which may
be payable in respect of any transfer involved in the issuance or delivery
of shares of Series A Preferred Stock or Common Stock or other securities
in a name other than that in which the shares of Series A Preferred Stock
with respect to which such shares or other securities are issued or
delivered were registered, or in respect of any payment to any person with
respect to any such shares or securities other than a payment to the
registered holder thereof, and shall not be required to make any such
issuance, delivery or payment described in this sentence unless and until
the person otherwise entitled to such issuance, delivery or payment has
paid to the Corporation the amount of
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any such tax or has established, to the satisfaction of the Corporation,
that such tax has been paid or is not payable.
(iii) In the event that the holder of shares of Series A Preferred
Stock shall not by written notice designate the address to which the
certificate or certificates representing shares of Common Stock to be
issued upon conversion of such shares should be sent, the Corporation shall
be entitled to send the certificate or certificates representing such
shares to the address of such holder shown on the records of the
Corporation or any transfer agent for the Series A Preferred Stock.
(iv) The Corporation may appoint, and from time to time discharge and
change, a transfer agent of the Series A Preferred Stock. Upon any such
appointment or discharge of a transfer agent, the Corporation shall send
notice thereof by first-class mail, postage prepaid, to each holder of
record of Series A Preferred Stock.
(v) The Corporation shall appoint, and from time to time may replace,
a conversion agent for the Series A Preferred Stock. Upon any such
replacement of the conversion agent, the Corporation shall send notice
thereof by first-class mail, postage prepaid, to each holder of record of
Series A Preferred Stock.
IN WITNESS WHEREOF, APPLIED VOICE RECOGNITION, INC. has caused this
certificate to be signed by Timothy J. Connolly, its President and Secretary, as
of the ___ day of January, 1998.
APPLIED VOICE RECOGNITION, INC.
----------------------------------
Timothy J. Connolly,
President and Secretary
8
<PAGE>
EXHIBIT 4.3
AMENDED AND RESTATED
BYLAWS
OF
APPLIED VOICE RECOGNITION, INC.
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
STOCKHOLDERS
1.1 Place of Meetings.................................................. 1
1.2 Annual Meetings.................................................... 1
1.3 Special Meetings................................................... 2
1.4 Notice of Meeting; Waiver of Notice................................ 2
1.5 Adjournments....................................................... 2
1.6 Quorum............................................................. 2
1.7 Voting............................................................. 2
1.8 Proxies............................................................ 3
1.9 Fixing Date for Determination of Stockholders of Record............ 3
1.10 Stockholder List................................................... 3
1.11 Action by Consent of Stockholders.................................. 4
ARTICLE 2
BOARD OF DIRECTORS
2.1 General Powers..................................................... 4
2.2 Number............................................................. 4
2.3 Classification of Directors........................................ 4
2.4 Nomination......................................................... 4
2.5 Election and Term.................................................. 5
2.6 Vacancies.......................................................... 5
2.7 Resignation; Removal............................................... 5
2.8 First Meeting...................................................... 6
2.9 Regular Meetings................................................... 6
2.10 Special Meetings................................................... 6
2.11 Telephonic Meetings Permitted...................................... 6
2.12 Quorum; Vote Required for Action................................... 6
2.13 Action by Consent of Directors..................................... 6
2.14 Compensation of Directors.......................................... 7
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TABLE OF CONTENTS
(Continued)
PAGE
----
ARTICLE 3
COMMITTEES
3.1 Committees......................................................... 7
3.2 Executive Committee................................................ 7
3.3 Audit Committee.................................................... 8
3.4 Compensation Committee............................................. 8
3.5 Other Committees................................................... 8
3.6 Advisory Directors................................................. 8
ARTICLE 4
OFFICERS
4.1 Number, Titles and Term of Office.................................. 8
4.2 Removal............................................................ 9
4.3 Vacancies.......................................................... 9
4.4 Salaries........................................................... 9
4.5 Chairman of the Board.............................................. 9
4.6 Chief Executive Officer............................................ 9
4.7 President.......................................................... 9
4.8 Vice Presidents.................................................... 9
4.9 Chief Financial Officer and/or Treasurer........................... 10
4.10 Assistant Treasurers............................................... 10
4.11 Secretary.......................................................... 10
4.12 Assistant Secretaries.............................................. 10
4.13 Officer's Bond..................................................... 10
ARTICLE 5
STOCK
5.1 Certificates....................................................... 11
5.2 Transfer of Shares................................................. 11
5.3 Registered Stockholders............................................ 11
5.4 Lost, Stolen or Destroyed Stock Certificates; Issuance of
New Certificates................................................... 11
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<PAGE>
TABLE OF CONTENTS
(Continuted)
PAGE
----
ARTICLE 6
INDEMNIFICATION
6.1 Mandatory Indemnification.......................................... 12
6.2 Prepayment of Expenses............................................. 12
6.3 Vesting............................................................ 12
6.4 Enforcement........................................................ 13
6.5 Nonexclusive....................................................... 13
6.6 Permissive Indemnification......................................... 13
6.7 Insurance.......................................................... 13
6.8 Implementing Arrangements.......................................... 14
ARTICLE 7
MISCELLANEOUS
7.1 Dividends.......................................................... 14
7.2 Reserves........................................................... 14
7.3 Directors' Annual Statement........................................ 14
7.4 Checks............................................................. 14
7.5 Principal Office................................................... 14
7.6 Other Offices...................................................... 14
7.7 Fiscal Year........................................................ 14
7.8 Seal............................................................... 14
7.9 Interested Directors............................................... 15
7.10 Form of Records.................................................... 15
7.11 Amendment of Bylaws................................................ 15
7.12 Notices............................................................ 15
7.13 Controlling Documents.............................................. 16
7.14 Severability....................................................... 16
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<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
APPLIED VOICE RECOGNITION, INC.
(a Delaware corporation)
ARTICLE 1
STOCKHOLDERS
1.1 PLACE OF MEETINGS. All meetings of the stockholders will be held at
the principal office of the Corporation, or at such other place within or
without the State of Delaware as may be determined by the Board of Directors and
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
1.2 ANNUAL MEETINGS. An annual meeting of stockholders shall be held for
the election of directors at such date, time and place, either within or without
the State of Delaware, as may be designated by resolution of the Board of
Directors from time to time; provided, that each successive annual meeting shall
be held on a date within 13 months after the date of the preceding annual
meeting. Only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be (a) specified in the notice of meeting given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
meeting or at the direction of the Board of Directors, or (c) otherwise properly
brought before the meeting by a stockholder of the Corporation. For business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, no
less than 60 days nor more than 180 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in the event that
the date of the annual meeting is changed by more than 30 days from such
anniversary date, notice by the stockholder to be timely must be received not
later than the close of business on the tenth day following the earlier of the
date on which a written statement setting forth the date of such meeting was
mailed to stockholders or the date on which it is first disclosed to the public.
A stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (a) a brief description
of the business desired to be brought before the annual meeting, (b) the name
and address, as they appear on the Corporation's books, of the stockholder
proposing such proposal, (c) the class and number of shares of the Corporation
that are beneficially owned by the stockholder, and (d) any material interest of
the stockholder in such business. In addition, if the stockholder's ownership
of shares of the Corporation, as set forth in the notice, is solely beneficial,
documentary evidence of such ownership must accompany the notice.
Notwithstanding anything else in these Bylaws to the contrary, no business shall
be conducted at an annual meeting except in accordance with the procedures set
forth in this Section 1.2. The presiding officer of an annual meeting shall, if
the facts warrant, determine and declare to the meeting that any business that
was not properly brought before the meeting is out of order and shall not be
transacted at the meeting.
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1.3 SPECIAL MEETINGS. Except as otherwise required by law or the
Certificate of Incorporation, special meetings of the stockholders of the
Corporation may be called only by the Chairman of the Board of Directors (the
"Chairman of the Board"), the Chief Executive Officer, the President, or the
Board of Directors by the written order of a majority of the entire Board of
Directors. Only such business shall be transacted at a special meeting as may
be stated or indicated in the notice of such meeting.
1.4 NOTICE OF MEETING; WAIVER OF NOTICE. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose(s) for which the
meeting is called. Unless otherwise provided by law, the written notice of any
meeting shall be given not less than ten nor more than 60 days before the date
of the meeting to each stockholder entitled to vote at such meeting. If mailed,
such notice shall be deemed to be given when deposited in the mail, postage
prepaid, directed to the stockholder at his address as it appears on the records
of the Corporation. Notice need not be given to any stockholder who submits a
written waiver of notice, signed by such stockholder, whether before or after
the time stated therein. Attendance of a person at a meeting of the
stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
1.5 ADJOURNMENTS. Any meeting of stockholders, annual or special, may
adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than 30
days, or, if after the adjournment, a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
1.6 QUORUM. At each meeting of stockholders, except where otherwise
provided by law, the Certificate of Incorporation or these Bylaws, the holders
of a majority of the outstanding shares of stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum. In the
absence of a quorum, the stockholders so present may, by majority vote, adjourn
the meeting from time to time in the manner provided in Section 15 of these
Bylaws until a quorum shall be present in person or by proxy. Shares of its own
stock belonging to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for purposes of determining the existence of
a quorum; provided, however, that the foregoing shall not limit the right of any
corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
1.7 VOTING. Unless otherwise provided by law, the Certificate of
Incorporation or these Bylaws, each stockholder will have one vote for each
share of stock having voting power, registered in his name on the books of the
Corporation. When a quorum is present at any meeting, the vote of the holders
of a majority of the shares having voting power represented in person or by
proxy will decide any question brought before such meeting, unless the question
is one upon which, by express provision of law, the Certificate of Incorporation
or these Bylaws, a different vote is required, in
2
<PAGE>
which case such express provision will govern and control the decision of such
question. In the case of a matter submitted for a vote of the stockholders as to
which a stockholder approval requirement is applicable under the stockholder
approval policy of any stock exchange or quotation system on which the capital
stock of the Corporation is traded or quoted, the requirements under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
provisions of the Internal Revenue Code, in each case for which no higher voting
requirement is specified by the Delaware General Corporation Law, as amended
(the "DGCL"), the Certificate of Incorporation or these Bylaws, the vote
required for approval shall be the requisite vote specified in such stockholder
approval policy, the Exchange Act or Internal Revenue Code provision, as the
case may be (or the highest such requirement if more than one is applicable).
Unless otherwise provided in the Certificate of Incorporation or these Bylaws in
accordance with the DGCL, directors shall be elected by a plurality of the votes
cast by the holders of outstanding shares of capital stock of the Corporation
entitled to vote in the election of directors at a meeting of stockholders at
which a quorum is present.
1.8 PROXIES. At any meeting of the stockholders every stockholder having
the right to vote will be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such stockholder or his duly authorized
attorney in fact and bearing a date not more than eleven months prior to said
meeting.
1.9 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD. For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of stockholders for
any other proper purpose, the Board of Directors may provide that the stock
transfer books be closed for a stated period but not to exceed, in any case,
sixty days. If the stock transfer books are closed for the purpose of
determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books must be closed for at least ten days immediately
preceding such meeting. In lieu of closing the stock transfer books, the Board
of Directors may fix in advance a date as the record date for any such
determination of stockholders, such date, in any case, to be not more than sixty
days and, in case of a meeting of stockholders, not less than ten days prior to
the date on which the particular action requiring such determination of
stockholders is to be taken. If the stock transfer books are not closed and no
record date is fixed for the determination of stockholders entitled to notice of
or to vote at a meeting of stockholders, or stockholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or the
date on which the resolution of the Board of Directors declaring such dividend
is adopted, as the case may be, will be the record date for such determination
of stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as herein provided, such determination
will apply to any adjournment thereof except where the determination has been
made through the closing of stock transfer books and the stated period of
closing has expired.
1.10 STOCKHOLDER LIST. At least ten days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, will be prepared by the
Secretary. Such list, for a period of ten days prior to such meeting, will be
kept on file at the registered office of the Corporation and will be subject to
inspection by any stockholder at any time during usual business hours. Such
list will also be produced and kept open at the time and place of the meeting
and shall be subject to the inspection of any stockholder during the whole time
of the meeting.
3
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1.11 ACTION BY CONSENT OF STOCKHOLDERS. Unless otherwise restricted by the
Certificate of Incorporation, any action required or permitted to be taken at
any annual or special meeting of the stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. Prompt notice of the taking of the
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE 2
BOARD OF DIRECTORS
2.1 GENERAL POWERS. The property, affairs and business of the Corporation
shall be managed by, or under the direction of, the Board of Directors. The
Board of Directors may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by law, by the Certificate of
Incorporation or these Bylaws directed or required to be exercised or done by
the stockholders.
2.2 NUMBER. The number of directors which shall constitute the whole
Board of Directors will be no more than twelve, as such number shall be
determined by resolution of the Board of Directors from time to time; provided,
however, that no decrease in the number of directors shall have the effect of
shortening the term of any incumbent director; provided further, however, that
from and after the first date as of which the Corporation has a class or series
of capital stock registered under the Exchange Act, the number of directors
which shall constitute the whole Board of Directors shall be not less than
three.
2.3 CLASSIFICATION OF DIRECTORS. In lieu of electing the entire number of
directors annually, the board of directors may provide that the directors be
divided into either two or three classes, each class to be as nearly equal in
number as possible, the term of office of directors of the first class to expire
at the first annual meeting of shareholders after their election, that of the
second class to expire at the second annual meeting after their election, and
that of the third class, if any, to expire at the third annual meeting after
their election. At each annual meeting after such classification the number of
directors equal to the number of the class whose term expires at the time of
such meeting shall be elected to hold office until the second succeeding annual
meeting, if there be two classes, or until the third succeeding annual meeting
if there be three classes.
2.4 NOMINATION. Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible to serve as directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders (a) by or at the direction of the Board
of Directors or (b) by any stockholder of the Corporation who is a stockholder
of record at the time of giving of notice provided for in this Section 2.4, who
shall be entitled to vote for the election of directors at the meeting and who
complies with the notice procedures set forth in this Section 2.4.
Nominations by stockholders shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation (a) in the case of an annual meeting, not
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<PAGE>
less than 60 days nor more than 180 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is changed by more than 30 days from such anniversary
date, notice by the stockholder to be timely must be so received not later than
the close of business on the tenth day following the earlier of the date on
which a written statement setting forth the date of such meeting was mailed to
stockholders or the date on which it is first disclosed to the public, and (b)
in the case of a special meeting at which directors are to be elected, not later
than the close of business on the tenth day following the earlier of the date on
which a written statement setting forth the date of such meeting was mailed to
stockholders or the date on which it is first disclosed to the public. Such
stockholder's notice shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or reelection as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Exchange Act (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to the stockholder giving the notice
(i) the name and address, as they appear on the Corporation's books, of such
stockholder and (ii) the class and number of shares of the Corporation which are
beneficially owned by such stockholder and which are owned of record by such
stockholder; and (c) as to the beneficial owner, if any, on whose behalf the
nomination is made, (i) the name and address of such person and (ii) the class
and number of shares of the Corporation which are beneficially owned by such
person. At the request of the Board of Directors, any person nominated by the
Board of Directors for election as a director shall furnish to the Secretary of
the Corporation that information required to be set forth in a stockholder's
notice of nomination which pertains to the nominee.
The presiding officer of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by this Section 2.4 and he shall so declare to the
meeting, and the defective nomination shall be disregarded.
2.5 ELECTION AND TERM. Subject to the requirements of the Certificate of
Incorporation, the directors of each class shall be elected at the annual
meeting of stockholders, except as provided in Section 2.6, and each director
elected shall hold office until the expiration of his term and until his
successor shall be elected and shall qualify. Directors need not be residents
of Delaware or stockholders of the Corporation.
2.6 VACANCIES. If any vacancy occurs in the Board of Directors caused by
death, resignation, retirement, disqualification, or removal from office of any
director, or otherwise, or if any new directorship is created by an increase in
the authorized number of directors, a majority of the directors then in office,
though less than a quorum, or a sole remaining director, may choose a successor
or fill the newly created directorship; and a director so chosen shall hold
office until his term expires and until his successor shall be duly elected and
shall qualify, unless sooner displaced.
2.7 RESIGNATION; REMOVAL. Any director may resign at any time. Unless
otherwise prescribed by law or the Certificate of Incorporation, a director may
be removed from office only for cause and then only by the affirmative vote of
the holders of at least a majority of the voting power of all outstanding shares
of capital stock of the Corporation generally entitled to vote in the election
of directors, voting together as a single class. Except as may otherwise be
provided by law, cause of removal of a director shall be deemed to exist only
if: (i) the director whose removal is proposed has been convicted, or where a
director is granted immunity to testify where another has been convicted, of a
felony by a court of competent jurisdiction and such conviction is no longer
subject
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to direct appeal; (ii) such director has been found by the affirmative vote of a
majority of the entire Board of Directors at any regular or special meeting of
the Board of Directors called for that purpose or by a court of competent
jurisdiction to have been grossly negligent or guilty of misconduct in the
performance of his duties to the Corporation in a matter of substantial
importance to the Corporation; or (iii) such director has been adjudicated by a
court of competent jurisdiction to be mentally incompetent, which mental
incompetency directly affects his ability as a director of the Corporation.
2.8 FIRST MEETING. The Board of Directors may hold its first meeting for
the purpose of organization and the transaction of business, if a quorum is
present, immediately after and at the same place as the annual meeting of the
stockholders, and no notice of such meeting shall be necessary; or the Board of
Directors may meet such place and time as is fixed by the consent in writing of
all the directors.
2.9 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held at such places within or without the State of Delaware and at such times as
the Board of Directors may from time to time determine, and if so determined
notices thereof need not be given.
2.10 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
held at any time or place within or without the State of Delaware whenever
called by the Chairman of the Board, the President, any Vice President, or by
any two member of the Board of Directors. Reasonable notice thereof shall be
given by the person or persons calling the meeting, which notice shall be given
by first class mail, or comparable manner of delivery, sent at least five
business days prior to the date of the special meeting or by causing the same to
be delivered to each director personally or to be transmitted by telegraph,
cable, wireless, telephone or orally at least 24 hours before the meeting is
scheduled to commence.
2.11 TELEPHONIC MEETINGS PERMITTED. The Board of Directors may hold
meetings in any manner permitted by law. Members of the Board of Directors, or
any committee designated by the Board of Directors, may participate in a meeting
of such Board of Directors or committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
bylaw shall constitute presence in person at such meeting for all purposes
including the determination of whether a quorum is present.
2.12 QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the Board of
Directors a majority of the Board of Directors shall constitute a quorum for the
transaction of business. Except as otherwise provided by the Certificate of
Incorporation or these Bylaws, the vote of a majority of the directors present
at a meeting at which a quorum is present shall be the act of the Board of
Directors. In the absence of a quorum, a majority of the directors present may
adjourn any meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present.
2.13 ACTION BY CONSENT OF DIRECTORS. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board of Directors
or of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or of such committee.
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2.14 COMPENSATION OF DIRECTORS. Directors may receive such sums as
compensation for their services and expenses as may be directed by resolution of
the Board of Directors; provided that nothing herein contained shall be
construed to preclude any director from serving the Corporation in any other
capacity, and receiving compensation therefor. Members of special or standing
committees may be allowed additional compensation for their service and
expenses.
ARTICLE 3
COMMITTEES
3.1 COMMITTEES. The Board of Directors may establish an Audit Committee
and a Compensation Committee, and may establish an Executive Committee and such
other committees as may be established by resolution of a majority of the whole
Board of Directors. Each of such committees shall consist of one or more members
of the Board of Directors and shall have a chairman that is selected by the
Board of Directors. Members of committees of the Board of Directors shall be
elected annually by vote of a majority of the Board of Directors. The Chief
Executive Officer shall be an ex-officio nonvoting member of each committee
(except the Audit and Compensation Committees) of which he is not an official
voting member. With respect to any committee (including the Audit and
Compensation Committees) of which the Chief Executive Officer is not an official
voting member, the Chief Executive Officer shall be given notice of all
committee meetings at the same time notice is given to committee members, and
the Chief Executive Officer shall be afforded the opportunity to speak at the
committee meeting. Presence of a majority of the committee members (not
counting any ex-officio nonvoting members) shall constitute a quorum.
Committees may act by majority vote of the voting members present at a meeting.
Each of such committees shall have and may exercise such of the powers of the
Board of Directors in the management of the business and affairs of the
Corporation as may be provided in these Bylaws or by resolution of the Board of
Directors. Each of such committees may authorize the seal of the Corporation to
be affixed to any document or instrument. The Board of Directors may designate
one or more directors as alternate members of any such committee, who may
replace any absent or disqualified member at any meeting of such committee.
Meetings of committees may be called by the chairman of the committee by
written, telegraphic or telephonic notice to all members of the committee and
the Chief Executive Officer and shall be at such time and place as shall be
stated in the notice of such meeting. Any member of a committee may participate
in any meeting by means of conference telephone or similar communications
equipment. In the absence or disqualification of a member of any committee the
chairman of such committee may, if deemed advisable, appoint another member of
the Board of Directors to act at the meeting in the place of the disqualified or
absent member. The chairman of the committee may fix such other rules and
procedures governing conduct of meetings as he shall deem appropriate.
3.2 EXECUTIVE COMMITTEE. The Board of Directors, by resolution adopted by
a majority of the whole Board of Directors, may designate two or more directors
to constitute an Executive Committee, which committee, to the extent provided in
such resolution, will have and may exercise all of the authority of the Board of
Directors in the business and affairs of the Corporation, and may have power to
authorize the seal of the Corporation to be affixed to all papers which may
require it, except where action by the Board of Directors is specified by law.
The Executive Committee will keep regular minutes of its proceedings and report
the same to the Board of Directors when required.
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3.3 AUDIT COMMITTEE. The Audit Committee shall consist of not less than
two members of the Board of Directors. The Audit Committee shall be responsible
for recommending to the entire Board of Directors engagement and discharge of
independent auditors of the financial statements of the Corporation, shall
review the professional service provided by the independent auditors, shall
review the independence of independent auditors, shall review with the auditors
the plan and results of the auditing engagement, shall consider the range of
audit and non-audit fees, shall review the adequacy of the Corporation's system
of internal audit controls, shall review the results of procedures for internal
auditing and shall consult with the internal auditor of the Corporation with
respect to all aspects of the Corporation's internal auditing program. In
addition, the Audit Committee shall direct and supervise special investigations
as deemed necessary by the Audit Committee.
3.4 COMPENSATION COMMITTEE. The Compensation Committee shall consist of
not less than two members of the Board of Directors. The Compensation Committee
shall recommend to the Board of Directors the compensation to be paid to
officers and key employees of the Corporation and the compensation of the Board
of Directors. Except as otherwise provided in any specific plan adopted by the
Board of Directors, the Compensation Committee shall be responsible for
administration of executive compensation plans, stock option plans and other
forms of direct or indirect compensation of officers and key employees, and each
member of the Compensation Committee shall have the power and authority to
execute and bind the Corporation to such documents, agreements and instruments
related to such plans and compensation as are approved by the Compensation
Committee. In the alternative, the Compensation Committee may authorize any
officer of the Corporation to execute such documents, agreements and instruments
on behalf of the Corporation. In addition, the Compensation Committee shall
review levels of pension benefits and insurance programs for officers and key
employees.
3.5 OTHER COMMITTEES. The Board of Directors may similarly create other
committees for such terms and with such powers and duties as the Board of
Directors deems appropriate except as provided to the contrary by law, the
Certificate of Incorporation, or these Bylaws.
3.6 ADVISORY DIRECTORS. The Board of Directors may, by majority vote,
appoint one or more advisory directors. Advisory directors shall serve at the
Board of Directors' convenience solely to advise the Board of Directors, and
shall have no formal responsibilities. No advisory director shall be entitled
to vote at meetings of the Board of Directors, nor shall any advisory director
be counted when determining whether there is a quorum at meetings of the Board
of Directors. Advisory directors shall not be, by virtue of their position as
advisory directors, agents of the Corporation, and they shall not have the power
to bind the Corporation.
ARTICLE 4
OFFICERS
4.1 NUMBER, TITLES AND TERM OF OFFICE. The officers of the Corporation
shall consist of a president and a secretary, and such other officers as the
Board of Directors may from time to time elect or appoint, including, without
limitation, a chairman of the board, a chief executive officer, a chief
financial officer, a chief operating officer, a treasurer, and one or more vice
presidents. Each officer shall hold office until his successor shall have been
duly elected by the Board of Directors and qualified or until his death or until
he shall resign or shall have been removed in the manner hereinafter provided.
One person may hold more than one office. None of the officers, except the
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chairman of the board, need be a director. Except as may be explicitly provided
for in these Bylaws, each duly elected or appointed officer of the Corporation
shall have such powers and duties as may from time to time be prescribed by duly
adopted resolution of the Board of Directors.
4.2 REMOVAL. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever, in its judgment,
the best interests of the corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights. Unless otherwise provided in the resolution of election
or appointment, each officer shall hold office until his successor has been
elected and qualified, or until his earlier death, resignation or removal.
4.3 VACANCIES. A vacancy in the office of any officer may be filled by
the requisite vote of the Board of Directors for the unexpired portion of the
term.
4.4 SALARIES. The salaries of all officers of the corporation shall be
fixed by the Board of Directors except as otherwise directed by the Board of
Directors.
4.5 CHAIRMAN OF THE BOARD. The chairman of the board, if one is elected,
shall preside at all meetings of the Board of Directors and stockholders, and
shall have such other powers and duties as may from time to time be prescribed
by duly adopted resolution of the Board of Directors.
4.6 CHIEF EXECUTIVE OFFICER. The chief executive officer, if one is
elected, shall be either the chairman of the board or the president of the
corporation, as determined from time to time by duly adopted resolution of the
Board of Directors. The chief executive officer, if one is elected, shall
preside at all meetings of the Board of Directors and stockholders if there is
no chairman of the board, and shall have such other powers and duties as may
from time to time be prescribed by duly adopted resolution of the Board of
Directors.
4.7 PRESIDENT. The president shall, subject to the Board of Directors,
have general executive charge, management and control of the properties and
operations of the corporation in the ordinary course of its business with all
such powers with respect to such responsibilities including the powers of a
general manager; the president shall preside at all meetings of the Board of
Directors and stockholders if there is no chairman of the board or the chairman
of the board is absent or disabled from acting; the president shall be ex-
officio a member of all standing committees; subject to approval by the Board of
Directors, the president may agree upon and execute all division and transfer
orders, bonds, contracts and other obligations in the name of the corporation;
the president may sign all certificates for shares of capital stock of the
corporation; and the president shall see that all orders and resolutions of the
Board of Directors are carried into effect. The president shall have such other
powers and duties as may from time to time be prescribed by duly adopted
resolution of the Board of Directors.
4.8 VICE PRESIDENTS. Each vice president shall have such powers and
duties as may from time to time be prescribed by duly adopted resolution of the
Board of Directors or by the president. The vice presidents in the order of
their seniority, unless otherwise determined by the Board of Directors, shall,
if the president is absent or disabled from acting, have the authority, exercise
the powers and perform the duties of the president during the president's
absence or inability to act.
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4.9 CHIEF FINANCIAL OFFICER AND/OR TREASURER. If the Board of Directors
determines to elect both a chief financial officer and a treasurer, both offices
shall be held by the same person. The chief financial officer, if one is
elected, and/or the treasurer, if one is elected, shall have custody of all the
funds and securities of the corporation which come into his hands. When
necessary or proper, he may, on behalf of the corporation, endorse for
collection checks, notes and other obligations, and shall deposit the same to
the credit of the corporation in such bank or banks or depositories as shall be
designated in the manner prescribed by the Board of Directors; and he may sign
all receipts and vouchers for payments made to the corporation, either alone or
jointly with such other office as is designated by the Board of Directors.
Whenever required by the Board of Directors, he shall render a statement of his
cash account; he shall enter or cause to be entered regularly in the books of
the corporation to be kept by him for that purpose full and accurate accounts of
all moneys received and paid out on account of the corporation; he shall perform
all acts incident to the position of treasurer subject to the control of the
Board of Directors, and he shall, if required by the Board of Directors, give
such bond for the faithful discharge of his duties in such form as the Board of
Directors may require. The chief financial officer and/or the treasurer shall
have such other powers and duties as may from time to time be prescribed by duly
adopted resolution of the Board of Directors or by the president.
4.10 ASSISTANT TREASURERS. Each assistant treasurer, if any is elected,
shall have the usual powers and duties pertaining to his office, together with
such other powers and duties as may from time to time be prescribed by duly
adopted resolution of the Board of Directors or by the president. The assistant
treasurers in the order of their seniority, unless otherwise determined by the
Board of Directors, shall, if the chief financial officer and/or treasurer is
absent or disabled from acting, have the authority, exercise the powers and
perform the duties of the chief financial officer and/or treasurer during that
officer's absence of inability to act.
4.11 SECRETARY. The secretary shall keep the minutes of all meetings of
the Board of Directors and the minutes of all meetings of the stockholders in
books provided for that purpose or in any other form capable of being converted
into written form within a reasonable time; he shall attend to the giving and
serving of all notices; he may sign with the president in the name of the
corporation all contracts of the corporation and affix the seal of the
corporation thereto; he may sign with the president all certificates for shares
of the capital stock of the corporation; he shall have charge of the certificate
books, transfer books and stock ledgers, and such other books and papers as the
Board of Directors may direct, all of which shall at all reasonable times be
open to the inspection of any director upon application at the office of the
corporation during business hours; and he shall in general perform all duties
incident to the office of secretary, subject to the control of the Board of
Directors.
4.12 ASSISTANT SECRETARIES. Each assistant secretary shall have the powers
and duties pertaining to his office, together with such other powers and duties
as may from time to time be prescribed by duly adopted resolution of the Board
of Directors or by the president. The assistant secretaries in the order of
their seniority, unless otherwise determined by the Board of Directors, shall,
if the secretary is absent or disabled from acting, have the authority, exercise
the powers and perform the duties of the secretary during the secretary's
absence or inability to act.
4.13 OFFICER'S BOND. If required by the Board of Directors, any officer so
required shall give the corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office or for the restoration
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to the corporation, in case of his death, resignation, retirement, or removal
from office, of any and all books, papers, vouchers, money, and other property
of whatever kind in his possession or under his control belonging to the
corporation.
ARTICLE 5
STOCK
5.1 CERTIFICATES. The certificates representing shares of capital stock
of the Corporation will be numbered and entered in the books of the Corporation
as they are issued. They will exhibit the holder's name and number of shares
and will be signed by the Chief Executive Officer, President or Vice-President
and the Secretary or an Assistant Secretary. The signature of any such officer
may be facsimile if the certificate is countersigned by a transfer agent or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. In case any officer who has signed or whose facsimile
signature has been placed upon such certificate has ceased to be such officer
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he were such officer at the date of its issuance.
5.2 TRANSFER OF SHARES. Upon surrender to the Corporation of a
certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it will be the duty of the
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books. Notwithstanding
the foregoing, no transfer will be recognized by the Corporation if such
transfer would violate federal or state securities laws, the Certificate of
Incorporation, or any stockholders' agreements which may be in effect at the
time of the purported transfer. The Corporation may, prior to any such
transfer, require an opinion of counsel to the effect that any such transfer
does not violate applicable securities laws requiring registration or an
exemption from registration prior to any such transfer.
5.3 REGISTERED STOCKHOLDERS. The Corporation is entitled to recognize the
exclusive right of a person registered on its books as the owner of the share to
receive dividends, and to vote as such owner, and for all other purposes as such
owner; and the Corporation is not bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it has express or other notice thereof, except as otherwise
provided by the laws of Delaware.
5.4 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF NEW
CERTIFICATES. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate to be lost or destroyed. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of such lost
or destroyed certificate or certificates, or his legal representatives, to
advertise the same in such manner as it shall require and/or give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed.
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ARTICLE 6
INDEMNIFICATION
6.1 MANDATORY INDEMNIFICATION. Each person who at any time is or was a
director or officer of the Corporation, and is threatened to be or is made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative (a
"Proceeding"), by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, partner, venturer, proprietor, member,
employee, trustee, agent or similar functionary of another domestic or foreign
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan or other for-profit or non-profit enterprise, whether the basis of
a Proceeding is alleged action in such person's official capacity or in another
capacity while holding such office, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the DGCL, or any other
applicable law as may from time to time be in effect (but, in the case of any
such amendment or enactment, only to the extent that such amendment or law
permits the Corporation to provide broader indemnification rights than such law
prior to such amendment or enactment permitted the Corporation to provide),
against all expense, liability and loss (including, without limitation, court
costs and attorneys' fees, judgments, fines, excise taxes or penalties, and
amounts paid or to be paid in settlement) actually and reasonably incurred or
suffered by such person in connection with a Proceeding, and such
indemnification shall continue as to a person who has ceased to be a director or
officer of the Corporation or a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise, and shall inure to the benefit of such person's heirs, executors and
administrators. The Corporation's obligations under this Section 6.1 include,
but are not limited to, the convening of any meeting, and the consideration of
any matter thereby, required by statute in order to determine the eligibility of
any person for indemnification.
6.2 PREPAYMENT OF EXPENSES. Expenses incurred by a director or officer of
the Corporation in defending a Proceeding shall be paid by the Corporation in
advance of the final disposition of such Proceeding to the fullest extent
permitted by, and only in compliance with, the DGCL or any other applicable laws
as may from time to time be in effect, including, without limitation, any
provision of the DGCL which requires, as a condition precedent to such expense
advancement, the delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under Section 61 or otherwise. Repayments of all amounts so
advanced shall be upon such terms and conditions, if any, as the Corporation's
Board of Directors deems appropriate.
6.3 VESTING. The Corporation's obligation to indemnify and to prepay
expenses under Sections 6.1 and 6.2 shall arise, and all rights granted to the
Corporation's directors and officers hereunder shall vest, at the time of the
occurrence of the transaction or event to which a Proceeding relates, or at the
time that the action or conduct to which such Proceeding relates was first taken
or engaged in (or omitted to be taken or engaged in), regardless of when such
Proceeding is first threatened, commenced or completed. Notwithstanding any
other provision of these Bylaws or the Corporation's Certificate of
Incorporation, no action taken by the Corporation, either by amendment of its
Certificate of Incorporation or these Bylaws or otherwise, shall diminish or
adversely affect any
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rights to indemnification or prepayment of expenses granted under Sections 6.1
and 6.2 which shall have become vested as aforesaid prior to the date that such
amendment or other corporate action is effective or taken, whichever is later.
6.4 ENFORCEMENT. If a claim under Sections 6.1 or 6.2 or both Sections 6.1
and 6.2 is not paid in full by the Corporation within thirty (30) days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit in a court of competent jurisdiction against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. It shall be a defense to any such suit (other than a
suit brought to enforce a claim for expenses incurred in defending any
Proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the DGCL or
other applicable law to indemnify the claimant for the amount claimed, but the
burden of proving such defense shall be on the Corporation. The failure of the
Corporation (including its Board of Directors, independent legal counsel, or
stockholders) to have made a determination prior to the commencement of such
suit as to whether indemnification is proper in the circumstances based upon the
applicable standard of conduct set forth in the DGCL or other applicable law
shall neither be a defense to the action nor create a presumption that the
claimant has not met the applicable standard of conduct. The termination of any
Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal Proceeding, had reasonable cause
to believe that his conduct was unlawful.
6.5 NONEXCLUSIVE. The indemnification provided by this Article 6 shall
not be deemed exclusive of any other rights to which a person seeking
indemnification may be entitled under any statute, these Bylaws, the
Corporation's Certificate of Incorporation, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
6.6 PERMISSIVE INDEMNIFICATION. The rights to indemnification and
prepayment of expenses which are conferred to the Corporation's directors and
officers by Sections 6.1 and 6.2 may be conferred upon any employee or agent of
the Corporation if, and to the extent, authorized by the Board of Directors.
6.7 INSURANCE. The Corporation shall have power to purchase and maintain
insurance, at its expense, on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise against any expense, liability or loss asserted against such person
and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Corporation would have the power to
indemnify such person against such expense, liability or loss under the
Corporation's Certificate of Incorporation, the provisions of this Article 6,
the DGCL or other applicable law.
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6.8 IMPLEMENTING ARRANGEMENTS. Without limiting the power of the
Corporation to procure or maintain insurance or other arrangement on behalf of
any of the persons as described in Section 6.7, the Corporation may, for the
benefit of persons eligible for indemnification by the Corporation, (1) create a
trust fund, (2) establish any form of self-insurance, (3) secure its indemnity
obligation by grant of a security interest or other lien on the assets of the
Corporation, or (4) establish a letter of credit, guaranty or surety
arrangement.
ARTICLE 7
MISCELLANEOUS
7.1 DIVIDENDS. The Board of Directors may from time to time declare, and
the Corporation pay, dividends on its outstanding shares of capital stock in
cash, in property, or in its own shares, except when the declaration or payment
thereof would be contrary to law, the Certificate of Incorporation or these
Bylaws. Such dividends may be declared at any regular or special meeting of the
Board of Directors, and the declaration and payment will be subject to all
applicable provisions of law, the Certificate of Incorporation and these Bylaws.
7.2 RESERVES. Before payment of any dividend, there may be set aside out
of any funds of the Corporation available for dividends such sum or sums as the
Board of Directors from time to time, in its absolute discretion, deems proper
as a reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Board of Directors may determine to be in the interest of the
Corporation, and the Board of Directors may modify or abolish any such reserve
in the manner in which it was created.
7.3 DIRECTORS' ANNUAL STATEMENT. The Board of Directors will present at
each annual meeting and when called for by vote of the stockholders at any
special meeting of the stockholders, a full and clear statement of the business
and condition of the Corporation.
7.4 CHECKS. All checks or demands for money and notes of the Corporation
will be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
7.5 PRINCIPAL OFFICE. The principal office of the Corporation will be in
Houston, Texas. The Board of Directors may elect to relocate the principal
office of the Corporation from time to time as it shall deem necessary and
proper.
7.6 OTHER OFFICES. The Corporation may also have offices at such other
places within or without the State of Delaware as the Board of Directors may
from time to time determine or the business of the Corporation may require.
7.7 FISCAL YEAR. The fiscal year of the Corporation shall end on December
31 or such other date as the Board of Directors shall from time to time
establish by resolution.
7.8 SEAL. The corporate seal shall have the name of the Corporation
inscribed thereon and shall be in such form as may be approved from time to time
by the Board of Directors.
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7.9 INTERESTED DIRECTORS. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board of Directors or the committee, and the Board of Directors or committee in
good faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (2) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
stockholders entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or (3) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or a
committee which authorizes the contract or transaction.
7.10 FORM OF RECORDS. Any records maintained by the Corporation in the
regular course of its business, including its stock ledger, books of account,
and minutes books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs, or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time. The Corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same.
7.11 AMENDMENT OF BYLAWS. The Board of Directors shall have the power to
make, alter, amend and repeal the Bylaws. Any Bylaws made by the Board of
Directors under the powers conferred hereby may be altered, amended or repealed
by the directors or by the stockholders; provided, however, that the Bylaws
shall not be altered, amended or repealed and no provision inconsistent
therewith shall be adopted by stockholder action without the affirmative vote of
at least two-thirds of the voting power of the then outstanding shares entitled
to vote generally in the election of directors, voting together as a single
class.
7.12 NOTICES. Whenever any notice is required to be given to any
stockholder or director under the provisions of any statute, the Certificate of
Incorporation or these Bylaws, it will not be construed to require personal
notice, but such notice may be given in writing by mail addressed to such
stockholder or director at such address as appears on the books of the
Corporation, and such notice shall be deemed to be given at the time when the
same shall be deposited in the United States mail with postage thereon prepaid.
Notice to directors may also be given by telegram, and notice given by such
means shall be deemed given at the time it is delivered to the telegraph office.
Whenever any notice is required to be given to any stockholder or director under
the provisions of any statute, the Certificate of Incorporation or these Bylaws,
a waiver thereof in writing signed by the person or persons entitled to said
notice, whether before or after the time stated therein, will be deemed
equivalent to the giving of such notice. Attendance at any meeting will
constitute a waiver of notice thereof except as otherwise provided by statute.
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7.13 CONTROLLING DOCUMENTS. These Bylaws are subject to, and governed by,
the DGCL and the Certificate of Incorporation. In the event of a direct
conflict between the provisions of these Bylaws and the mandatory provisions of
the DGCL or the provisions of the Certificate of Incorporation, such provisions
of the DGCL or the Certificate of Incorporation, as the case may be, will be
controlling.
7.14 SEVERABILITY. If any part of these Bylaws shall be held invalid or
inoperative for any reason, the remaining parts, so far as it is possible and
reasonable, shall remain valid and operative.
Adopted by the Board of Directors
on November 7, 1997.
/s/ William T. Kennedy
---------------------------------
William T. Kennedy,
Vice President and Assistant Secretary
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Exhibit 20.1
APPLIED VOICE RECOGNITION, INC.
4615 POST OAK PLACE, SUITE 111
HOUSTON, TEXAS 77027
Dear Shareholder:
Recently, the Board of Directors of Applied Voice Recognition, Inc. (the
"Company") unanimously approved (i) a change in the state of incorporation of
the Company from Utah to Delaware (the "Reincorporation") and (i) the adoption
of the Company's 1997 Incentive Plan (the "Incentive Plan") as an amendment and
restatement of the Company's previous incentive plans. Since the Board's
approval of such actions, certain shareholders of the Company have executed
written consents approving the Reincorporation and the adoption of the Incentive
Plan. Included with this letter is a Notice of Action by Written Consent
containing an explanation of the reasons for the actions taken and a description
thereof.
The Reincorporation is intended to bring the Company into line with
numerous other public companies also located in Delaware. Over the years, the
State of Delaware has developed a comprehensive and flexible body of corporate
law that is responsive to the needs of modern business. Many of the largest and
most successful corporations in the United States have either chosen Delaware as
their initial state of incorporation or reincorporated there. Due to the large
number of corporations seeking incorporation under the laws of that state, its
government has taken steps to encourage corporations to establish themselves in
that state and have developed a comprehensive body of law which affords
corporations a degree of certainty and predictability with respect to the legal
aspects of their corporate existence, and facilitates the efforts of
corporations to attract and retain capable directors. In addition, financial
institutions, third party lenders, and other potential sources of financing are
familiar with Delaware's corporate law, which can facilitate the acquisition of
financing when needed for corporate activities and operations.
The improvements to the Incentive Plan are intended to update the Company's
incentive compensation plan to account for recent changes in the laws concerning
such plans, to foster and promote the long-term financial success of the Company
and its Subsidiaries, to increase stockholder value by attracting and retaining
key employees, consultants and outside directors by providing competitive
incentive compensation opportunities, and to enable key employees, consultants
and outside directors to share in the long-term growth and success of the
Company.
Please take a moment to review the enclosed Notice of Action by Written
Consent and the Dissenters' Notice to Certain Shareholders. We hope that you
will continue to support our efforts to improve the Company's structure and
efficiency.
By Order of the Board of Directors,
/S/ WILLIAM T. KENNEDY
William T. Kennedy,
Assistant Secretary
Houston, Texas
December 22, 1997
<PAGE>
APPLIED VOICE RECOGNITION, INC.
4615 POST OAK PLACE, SUITE 111
HOUSTON, TEXAS 77027
-----------------------------
NOTICE OF ACTION BY WRITTEN CONSENT
DATED DECEMBER 22, 1997
-----------------------------
This Notice of Action By Written Consent (this "Notice") is being furnished
to the shareholders of Applied Voice Recognition, Inc., a Utah corporation (the
"Company"), in connection with the recently executed written consents of certain
of the Company's shareholders relating to the reincorporation of the Company in
Delaware (the "Reincorporation") and the approval of the Company's 1997
Incentive Plan (the "Incentive Plan"). The Reincorporation and the Incentive
Plan are sometimes collectively referred to herein as the "Shareholder Actions."
The Board of Directors of the Company (the "Board"), at a special meeting of the
Board held on September 26, 1997, and certain shareholders of the Company (the
"Consenting Shareholders") who own shares which together represent 54.8% of the
issued and outstanding shares of the Company's common stock, par value $.001 per
share (the "Common Stock"), by written consent dated December 3, 1997, approved
the Shareholder Actions. Certain other shareholders of the Company (the
"Consenting Preferred Shareholders") who own shares which together represent
100% of the issued and outstanding shares of the Company's Series A Preferred
Stock, par value $.10 per share (the "Series A Preferred Stock"), approved the
Reincorporation by written consent dated November 28, 1997. A Certificate of
Ownership and Merger in Delaware (the "Delaware Certificate") and Articles of
Merger in Utah (the "Utah Articles") will be filed with the appropriate
Secretaries of State on or about January 26, 1998. A registration statement on
Form S-8 (the "Registration Statement") will be filed with the Securities and
Exchange Commission (the "SEC") on or about January 1, 1998 to register up to
3,000,000 shares of the Company's Common Stock to be issued under the Incentive
Plan.
ACCORDINGLY, YOUR CONSENT IS NOT REQUIRED FOR THE APPROVAL OF THE
SHAREHOLDER ACTIONS, AND IS NOT, THEREFORE, BEING SOLICITED BY THE COMPANY. IN
ADDITION, THE COMPANY IS NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO
SEND A PROXY. NO MEETING IS BEING HELD; THIS NOTICE IS BEING SENT TO INFORM YOU
OF THE APPROVAL OF THE SHAREHOLDER ACTIONS.
This Notice concerning the approval of the Shareholder Actions is being
mailed on or about December 22, 1997 to all shareholders of record. The Board
has fixed the close of business on December 3, 1997 as the record date (the
"Record Date") for the determination of shareholders entitled to receive this
Notice. As of the Record Date, there were outstanding 13,119,800 shares of
Common Stock of the Company and 312,500 shares of Series A Preferred Stock.
<PAGE>
REINCORPORATION IN DELAWARE
The Board of Directors of the Company has unanimously approved a change in
the state of incorporation of the Company from Utah to Delaware. Delaware has
an extensive and flexible body of corporate law set forth in its statutes and
judicial interpretations that is familiar to many of the advisors,
professionals, and business entities with which the Company has dealings, and
management has determined that it would be advantageous for the Company to be
reincorporated under the laws of that state. In connection with the
Reincorporation, certain changes in the governing instruments of the Company
will be effected as set forth below. The summary set forth in this Notice of
the effects of the Merger (as defined below) and the terms and provisions of the
Utah Articles of Merger, the Delaware Certificate of Ownership and Merger, the
Plan and Agreement of Merger, and the Amended and Restated Certificate of
Incorporation (the "Certificate of Incorporation") and Amended and Restated
Bylaws (the "Bylaws") of the Delaware Corporation (as defined below), which will
govern the corporate affairs of the Company subsequent to the Merger, does not
purport to be complete and is qualified in its entirety by the provisions of
such documents, copies of which are available from the Assistant Secretary of
the Company, William T. Kennedy, at the offices of the Company located at 4615
Post Oak Place, Suite 111, Houston, Texas 77027, (713) 621-5678.
In order to accomplish the change in the state of incorporation in
accordance with the laws of the States of Utah and Delaware, the Company
proposes to merge (the "Merger") with and into Applied Voice Recognition, Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company (the
"Delaware Corporation") pursuant to the terms and provisions of the Plan and
Agreement of Merger (the "Merger Plan"). Under the terms of the Merger Plan,
the Delaware Corporation will be the surviving corporation; the separate
corporate existence of the Company will cease; the Delaware Corporation will
succeed to all of the business, properties, assets, and liabilities of the
Company; the directors, officers, and employees of the Company will become the
directors, officers, and employees of the Delaware Corporation; each outstanding
share of the Company's Common Stock and each outstanding share of the Company's
Series A Preferred Stock will automatically be converted into one share of the
Delaware Corporation's Common Stock and Series A Preferred Stock, respectively.
On completion of the change of domicile, the Company will be governed by the
Certificate of Incorporation and the Bylaws of the Delaware Corporation.
According to Delaware and Utah law, the Merger will become effective (the
"Effective Date") immediately upon filing of the Delaware Certificate and the
Utah Articles. Immediately following the Merger at the Effective Time, all
stock certificates which represented shares of Common Stock or Series A
Preferred Stock of the Company shall automatically represent and evidence
ownership of shares of Common Stock or Series A Preferred Stock of the Delaware
Corporation, respectively. Each shareholder will be entitled to submit his or
her old certificates to the transfer agent of the Company, American Stock
Transfer & Trust Company, 6201 15th Avenue, 3rd Floor, Brooklyn, New York 11219;
telephone number (718) 921-8200, and be issued in exchange therefor new Delaware
Corporation certificates representing the same number of shares represented by
the old certificates. THERE IS NO REQUIREMENT THAT THE SHAREHOLDERS SUBMIT
THEIR CURRENT CERTIFICATES FOR CANCELLATION AND ISSUANCE OF NEW CERTIFICATES.
THE NAME OF THE COMPANY SUBSEQUENT TO THE MERGER WILL CONTINUE TO BE APPLIED
VOICE RECOGNITION, INC., AND THE OLD STOCK CERTIFICATES REPRESENTING SHARES OF
STOCK IN THE COMPANY WILL
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AUTOMATICALLY REPRESENT A CORRESPONDING NUMBER OF SHARES IN THE DELAWARE
CORPORATION. FOLLOWING THE MERGER, THE SHARES OF COMMON STOCK OF THE COMPANY
WILL CONTINUE TO BE TRADED, WITHOUT INTERRUPTION.
REASONS FOR REINCORPORATION
Over the years, the State of Delaware, through legislative action and court
decisions, has developed a comprehensive and flexible body of corporate law that
is responsive to the needs of modern business. Many of the largest and most
successful corporations in the United States have either chosen Delaware as
their initial state of incorporation or reincorporated there. Due to the large
number of corporations seeking incorporation under the laws of the State of
Delaware, the legislative, executive, and judicial branches of the state
government have taken affirmative steps to encourage corporations to establish
themselves in the State of Delaware and have developed a comprehensive body of
law which affords corporations a degree of certainty and predictability with
respect to the legal aspects of their corporate existence. In addition, the
Delaware legislature has enacted amendments to the Delaware law regarding the
limitation of liability of directors in certain circumstances (as discussed
below) to facilitate the efforts of corporations to attract and retain capable
directors. Due to the large number of corporations incorporated in Delaware,
financial institutions, third party lenders, and other potential sources of
financing are familiar with the Delaware corporation law, which can facilitate
the acquisition of financing when needed for corporate activities and
operations.
EFFECT OF REINCORPORATION
As previously noted, the Certificate of Incorporation of the Delaware
Corporation will be the governing instrument of the surviving corporation
following the Merger with the Company, resulting in several changes from the
current Articles of Incorporation of the Company. Some of these changes are
purely procedural in nature, such as a change in the registered office and agent
of the Company. Some changes, however, will be substantive in nature. Set forth
below is a discussion of all effects of the Reincorporation of the Company in
the State of Delaware that management deems to be material. In most other
respects, the Certificate of Incorporation of the Delaware Corporation is
essentially the same as the Company's present Articles of Incorporation. The
summary of the provisions of the Certificate of Incorporation and changes to the
existing Articles of the Company set forth below is not intended to be complete
and is qualified in its entirety by the provisions of the Certificate of
Incorporation and the Articles of Incorporation.
AUTHORIZATION OF STOCK
The Articles of Incorporation of the Company currently authorize 50,000,000
shares of common stock, par value $.001 per share (the "Common Stock"). The
authorized but unissued Common Stock may be issued from time to time by the
Board of Directors without further shareholder action. In addition, the
Articles of Incorporation of the Company currently authorize 2,000,000 shares of
preferred stock, par value $.10 per share (the "Preferred Stock"). The shares
of Preferred Stock may be designated and issued by the Board of Directors, from
time to time, without further shareholder action. Currently, the Articles of
Incorporation establish and designate
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the rights, privileges and preferences for one series of Preferred Stock, Series
A Preferred Stock. As of the date hereof, there are currently outstanding
13,119,800 shares of Common Stock and 312,500 shares of Series A Preferred
Stock.
The Certificate of Incorporation of the Delaware Corporation provides for
the same capital structure and authorizes 50,000,000 shares of common stock, par
value $.001 per share, and 2,000,000 shares of Preferred Stock, par value $.10
per share. The authorized and unissued Common and Preferred Stock can be issued
from time to time without further shareholder action. The shares of Preferred
Stock are issuable in such series as the Board of Directors determines from time
to time. The Board of Directors will also have the right to designate the
rights, privileges, and preferences of each series. The Certificate of
Incorporation currently establishes and designates the rights, privileges and
preferences for one series of preferred stock, the Series A Preferred Stock.
The Delaware Corporation's Series A Preferred Stock has the same rights,
privileges and preferences as the Company's current Series A Preferred Stock.
LIMITATION ON LIABILITY OF DIRECTORS
The Certificate of Incorporation of the Delaware Corporation contains a
provision limiting the liability of directors as permitted under the Delaware
General Corporation Law (the "DGCL"). The pertinent provision is designated to
limit the personal liability of directors to the Company or its stockholders
under certain circumstances involving a breach of the director's fiduciary duty
of care. No officer or director of the Company has been involved in any
litigation that would have been affected by a provision such as the one
proposed. However, the proposed provision is clearly in the interests of the
directors as it would limit their personal liability in certain circumstances at
the potential expense of the Company and its shareholders.
The provision in the Certificate of Incorporation is included under a
Delaware law which is primarily intended to permit corporations and their
stockholders to remove directors' exposure to liability for certain breaches of
a director's fiduciary duty, either in a suit or by or on behalf of the
corporation or in an action by stockholders of the corporation. The directors'
liability has been eliminated to the fullest extent permitted under paragraph
(7) of subsection (b) of (S)102 of the DGCL. The law represents a legislative
response to changes in the market for directors' liability insurance. The
difficulty of obtaining such insurance and the significantly increased cost of
such insurance were viewed by the Delaware legislature as threatening the
quality and stability of corporate governance in Delaware because many directors
became unwilling to serve without insurance protection, and those who did serve
may have been inhibited, because of the unavailability of insurance, from making
business decisions which may be in the best interests of the corporation. The
law thus provides that a certificate of incorporation may contain provisions to
limit directors' liability and thereby provide additional protection to
directors.
Neither the law nor the pertinent provisions in the Certificate of
Incorporation of the Delaware Corporation limits the liability of officers of
the Delaware Corporation who are not directors or of a director while acting in
his capacity as an officer. The Certificate of Incorporation, in conformity
with the law, eliminates each director's liability to stockholders or to the
corporation for monetary damages arising out of the director's breach of his
fiduciary duty of care. The duty of care refers to the fiduciary duty of
directors to be sufficiently diligent and careful in considering a transaction
or taking or refusing to take some corporate action. A breach of the duty of
care by a
4
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director ordinarily gives rise to liability for monetary damages caused to the
corporation or stockholders of the corporation. The provision in the Certificate
of Incorporation of the Delaware Corporation does not eliminate the duty of
care, it only eliminates monetary damage awards occasioned by a breach of that
duty. Thus, a breach of the duty of care would remain a valid basis for a suit
seeking injunctive relief or rescission.
This provision does not limit or eliminate liability based on other claims,
such as violation of federal or state securities laws. In addition, it would
not eliminate director liability or monetary damages based on the following six
types of claims: (i) liability based on a breach of the duty of loyalty to the
Company or the stockholders; (ii) liability based on the payment of an improper
dividend or an improper repurchase of the Company's stock under Section 174 of
the DGCL; (iii) liability for actions which the director knows are in violation
of a law, (iv) liability arising out of intentional misconduct by the director;
(v) liability for actions or omissions pursuant to which the director will
receive some improper personal benefit; and (vi) liability for a director's
actions not taken in good faith. Thus, liability for monetary damages still
exists under the provision if liability is based on one of the foregoing six
grounds.
Under the Certificate of Incorporation, Director liability will be limited
for future conduct and for past conduct which predates the change of domicile of
the Company to the extent such liability is limited pursuant to the Company's
Articles of Incorporation and Utah law. The Company is not aware of any pending
or threatened claims which would be covered by the subject provision in the
Certificate of Incorporation. It should be noted that the provision does limit
the remedies available to a shareholder dissatisfied with a board decision which
is protected by the provision. An aggrieved shareholder's only remedy in such a
circumstance may be to sue to stop the completion of the board's action. In
many situations this remedy may not be effective. Shareholders, for example,
may not be aware of a transaction or an event until it is too late to prevent
it. In these cases, the shareholders and the Company could be injured by a
board decision and yet have no effective remedy.
The Board of Directors believes that this provision is in the best
interests of the shareholders and the Company, as it should enhance the
Company's ability to attract and retain qualified individuals to serve as
directors of the Company by assuring directors (and potential directors) that
their good faith decisions will not be second-guessed by a court evaluating
decisions with the benefit of hindsight. In fact, most companies adopt such
provisions limiting the liabilities of their directors. While the Company has
been able to attract directors in the past, the limitation on the potential
liability of directors of the Company should help facilitate attracting
qualified directors in the future. The Board of Directors believes that the
diligence exercised by directors stems primarily from their desire to act in the
best interests of the Company and not from a fear of monetary damage awards.
Consequently, the board believes that the level of scrutiny and care exercised
by directors will not be lessened by this provision in the Certificate of
Incorporation.
Utah has a similar statute which permits the limitation of money damages
for breach of a director's fiduciary duty, except for breaches of loyalty to the
corporation or its shareholders, for acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law, for improper
payments of dividends, distribution of assets, or redemption of stock, or from
any transaction from which the director derived an improper personal benefit.
As discussed above, the Certificate of Incorporation of the Delaware Corporation
contains a provision limiting the liability of directors and the Articles of
Incorporation of the Company now in effect also contain such a provision.
5
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SHAREHOLDER ACTION WITHOUT A MEETING
Under the Company's Articles of Incorporation and Utah law, any action
required by the URBCA to be taken at any annual or special meeting of
shareholders, or any action which may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice, and
without a vote, if one or more consents in writing, setting forth the action so
taken, shall be signed by the holders of shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted. To
be effective, all of such consents with respect to any shareholder action must
be signed within sixty (60) days of one another. Notice of the taking of any
action by shareholders without a meeting by less than unanimous written consent
shall be given to those shareholders who did not consent in writing to the
taking of such action at least 10 days before the consummation of the
transactions, action, or event authorized by the shareholder action.
The Certificate of Incorporation of the Delaware Corporation initially
allows the stockholders from taking action by written consent, however, it
prohibits such action by written consent by the shareholders after such time as
the Delaware Corporation has a class or series of capital stock registered under
the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Therefore, after any registration of the Delaware Corporation's capital stock
under the Exchange Act, any action required or permitted to be taken by the
stockholders of the Delaware Corporation must be effected at an annual or
special meeting of stockholders of the Delaware Corporation and may not be
effected by any consent in writing by such stockholders.
FEDERAL TAX CONSEQUENCES
The Reincorporation of the Company in the State of Delaware pursuant to the
terms of the Merger Plan is intended to qualify as a "tax-free" reorganization
under (S)368 of the Internal Revenue Code. Under such provisions, the
Reincorporation, for federal income tax purposes, will not result in any gain or
loss recognized by the Company, the Delaware Corporation or the shareholders.
The tax basis of the stock of the Delaware Corporation received by each
shareholder will be equal to the basis of the stock of the Company currently
held by that shareholder, and the holding period for the Delaware stock will
include the period during which he or she held the stock of the Company,
provided that such stock was held as a capital asset as of the Effective Date of
the Merger.
WHILE THE FOREGOING SETS FORTH THE MATERIAL TAX CONSEQUENCES OF THE MERGER
FOR FEDERAL INCOME TAX PURPOSES, EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN
TAX ADVISOR AS TO THE TAX EFFECTS OF THE MERGER ON THEIR PARTICULAR TAX
SITUATION AND ANY POTENTIAL TAX EFFECT OF THE MERGER PURSUANT TO THE PROVISIONS
OF STATE, LOCAL, OR FOREIGN INCOME TAX LAWS TO WHICH HE OR SHE MAY BE SUBJECT.
CHANGE IN BYLAWS
In connection with the Reincorporation, the Bylaws of the Delaware
Corporation will become the Bylaws of the Company and will thereafter govern the
corporate affairs of the Company. The material differences between the Bylaws
of the Company and the Bylaws of the Delaware Corporation are discussed below.
The summary of the provisions of the Bylaws of the Delaware
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Corporation and the changes from the current Bylaws of the Company is qualified
in its entirety by reference to the exact provisions of the Delaware Corporation
Bylaws.
SHAREHOLDERS' MEETINGS
The Bylaws of the Company provide that a majority of the outstanding shares
of the Company entitled to vote at a meeting of shareholders, whether
represented in person or by proxy, constitute a quorum. Under current Utah law,
a special meeting of shareholders may be called by the holders of ten (10%)
percent of all shares entitled to vote thereat. The Bylaws of the Company also
allow for the president, any vice president or the secretary to call a special
meeting. The Bylaws of the Delaware Corporation, by their reference to the
Delaware Corporation's Certificate of Incorporation, provide that (i) a majority
of the outstanding shares entitled to vote at a meeting of shareholders, and
(ii) a majority of the holders of the shares of Series A Preferred Stock (for
purposes of class voting) constitute a quorum and further provide that a special
meeting may only be called by the Chairman of the Board, the Chief Executive
Officer, the President or the Board of Directors by written order of a majority
of the entire Board. Therefore, under the Certificate of Incorporation and
current Delaware law, the shareholders of the Delaware Corporation will not be
able to call a special meeting of the shareholders.
MEETINGS OF DIRECTORS
The Bylaws of the Company provide that a majority of the Board of Directors
constitutes a quorum. The Bylaws further provide that a special meeting of the
Board of Directors must be called upon the request of the president, any vice
president or by any two members of the Board. Notice of a special meeting must
be given by mail at least five days prior thereto. The Bylaws of the Delaware
Corporation provide that unless otherwise provided in the Delaware Corporation's
Certificate of Incorporation, a majority of the Board of Directors constitutes a
quorum. A special meeting of the Board of Directors may be called at the
request of the Chairman of the Board, the President, any vice president or any
two members of the Board. Notice of a special meeting must be reasonable and in
any event at least 24 hours before the meeting is scheduled to commence.
TRANSFER BOOKS AND RECORD DATE
The transfer books of the Company may be closed or a record date may be set
up to 50 days prior to the date of any meeting of shareholders or prior to the
date for payment of any dividend. The Bylaws of the Delaware Corporation
provide for a 60-day period for these actions.
AMENDMENT OF BYLAWS
The Bylaws of the Company provide that the Bylaws may be amended or
repealed by a majority of the entire board and that any Bylaw adopted by the
Board of Directors may be altered or repealed by action of the shareholders.
The Bylaws of the Delaware Corporation provide that the Bylaws may be amended by
the Board or by the affirmative vote of at least two-thirds of the then
outstanding shares entitled to vote generally in the election of directors,
voting together as a single class.
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CORPORATE LAWS OF DELAWARE
The Delaware General Corporation Law, as amended (the "DGCL"), differs from
the Utah Revised Business Corporation Act, as amended (the "URBCA") in certain
respects in addition to those set forth above. It is impractical to state all
such differences, but the changes which management of the Company deems to be
material are set forth below:
(1) Delaware law provides that proxies are valid for three years
unless otherwise provided in the proxy; Utah law provides that proxies may
not be valid for longer than 11 months unless otherwise provided in the
proxy.
(2) Under Delaware law, dividends to the shareholders may be paid
either out of surplus, or if there is no surplus, the net profits of the
corporation in the preceding and current fiscal years. Current Utah law
provides that dividends may be paid only out of unreserved and unrestricted
earned surplus, with certain limited exceptions.
(3) For corporations, like the Company, which were in existence prior
to July 1, 1992, Utah law grants shareholders the preemptive right to
acquire unissued shares of the corporation, except as limited by the
Articles of Incorporation. However, the Company's Articles of
Incorporation have eliminated this provision of Utah law. Delaware law
denies preemptive rights to shareholders unless the Certificate of
Incorporation provides otherwise. The Company's current Articles of
Incorporation deny any preemptive rights of shareholders and the
Certificate of Incorporation of the Delaware Corporation does not provide
for such rights.
(4) Utah law provides appraisal rights for any shareholder who
dissents from a merger, consolidation, or sale or exchange of all or
substantially all of a corporation's assets. However, appraisal rights are
not available if the shares are registered on a national securities
exchange or held of record by not less than 2,000 stockholders. The shares
of the Company are not traded on a national securities exchange and, the
Company believes, are not held of record by more than 2,000 shareholders.
Delaware law provides for appraisal rights for shareholders dissenting from
a merger of consolidation which requires the vote of the shareholders, but
does not provide for appraisal rights for a sale of substantially all of
the corporation's assets; provided, that no appraisal rights are available
to holders of a class or series of stock that is listed on a national
securities exchange or that is held of record by more than 2,000
stockholders. The Company believes that if the shareholders of the Company
approve the Merger, immediately following the Merger, the Common Stock of
the Delaware Corporation will not be listed on a national stock exchange
and will not be held of record by more than 2,000 stockholders. Under such
circumstances, holders of the Common Stock who in the future dissent from a
merger will be entitled to appraisal rights under the Delaware statute.
(5) Delaware law prohibits a business combination with an interested
shareholder for a period of three years following the date that such
stockholder became an interested stockholder unless (1) the transaction
that resulted in the stockholder becoming an interested stockholder was
approved by the Board of Directors of the corporation prior to the
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transaction; (2) the stockholder owns at least 85% of the issued and
outstanding stock not held by officers and directors or employee stock
plans; or (3) the combination is approved by the board and the affirmative
vote of at least 66 2/3% of the outstanding voting stock not owned by the
interested stockholder. This provision does not apply to a corporation if
the original certificate of incorporation contains a provision expressly
electing not to be governed by the provision, which the Certificate of
Incorporation of the Delaware Corporation does not.
RIGHTS OF DISSENTING SHAREHOLDERS
Shareholders who oppose the proposed Merger will have the right to receive
payment for the value of their shares as set forth in Sections 16-10a-1302 and
16-10a-1320 of the URBCA. A copy of these sections and related sections are
attached to the Dissenters' Notice to Certain Shareholders enclosed herewith as
Appendix "A" thereto. The requirements for a shareholder to properly exercise
his rights under these provisions are very technical in nature, and the
following summary is qualified in its entirety by the actual statutory
provisions which should be carefully reviewed by any shareholder wishing to
assert such rights.
Under the Utah statutes, such appraisal rights will be available only to
those shareholders of the Company who (i) do not consent to the proposed action;
(ii) file a written demand with the Company within thirty (30) days after notice
has been sent to the shareholders that the Merger has been or will be effected,
requesting payment of the fair value of the shares of capital stock which they
hold; (iii) were shareholders as of the date ten (10) days after the action by
written consent approving the Reincorporation; and (iv) meet the other
requirements of the governing Utah provisions.
Within sixty (60) days after the later of the Effective Date of the Merger
or the due date for shareholder payment demands, the Company shall pay the
amount the Company estimates to be the fair value of the dissenters' shares,
plus interest to each dissenter who has complied with the procedures for
demanding payment. If the dissenting shareholder is not satisfied with the fair
value that the Company has determined for the dissenter's shares, the dissenter
must notify the Company within thirty (30) days after he or she received the
Company's offer of payment. After receipt of any such notice, the Company and
the dissenting shareholder shall try to agree on fair value of the dissenter's
shares for a period of sixty (60) days.
If the Company and the shareholder are unable to agree on the payment for
such shares during such 60 day period, then the Company shall commence a
proceeding in the county in Utah in which its registered office is located to
determine the fair value of the shareholder's shares. Upon the commencement of
such proceeding, the Company is required to file with the court a list of names
of all of the dissenting shareholders with whom the Company has not agreed to a
price for the purchase of their shares whom shall be joined in the suit. All of
such shareholders shall be bound by the fair value determination made by the
court.
As long as the Company complies with the procedures for appraisal rights
described above, this will be the sole remedy that a shareholder will have for
the recovery of the value of his or her shares. The loss or forfeiture of
appraisal rights simply means the loss of the right to receive cash payment from
the Company in exchange for shares; in such event the shareholder would still
hold the appropriate number of shares of the Delaware Corporation.
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Under the Merger Plan, the Board of Directors may terminate the Merger at
any time prior to the Effective Date for any reason if it determines that the
Merger is not in the best interests of the Company including, without
limitation, the receipt of payment demands under the dissenters' rights
provisions discussed above.
VOTE REQUIRED
The affirmative vote of a majority of the Company's issued and outstanding
shares of Common Stock was required to approve the proposed Reincorporation in
the State of Delaware.
THE COMPANY RESERVES THE RIGHT TO WITHDRAW THE REINCORPORATION PROPOSAL AND
TERMINATE THE MERGER PLAN AT ANY TIME PRIOR TO THE EFFECTIVE DATE IN THE EVENT
THAT A MAJORITY OF THE BOARD OF DIRECTORS DETERMINES THAT THE MERGER IS NO
LONGER IN THE BEST INTERESTS OF THE COMPANY TO CONSUMMATE THIS TRANSACTION.
APPROVAL OF THE PLAN OF MERGER AND THE REINCORPORATION
By written consents dated November 28 and December 3, 1997, the Consenting
Preferred Shareholders and the Consenting Shareholders, respectively, have given
their written consent to the approval of the Plan of Merger, the Reincorporation
and the subsequent filing of the appropriate documents with Secretaries of State
of Utah and Delaware on or about January 26, 1998. THEREFORE, NO FURTHER
SHAREHOLDER CONSENTS ARE REQUIRED.
APPROVAL AND ADOPTION
OF THE COMPANY'S
1997 INCENTIVE PLAN
On September 26, 1997, the Board of Directors unanimously adopted the
Company's 1997 Incentive Plan effective as of October 1, 1997 (the "Plan") as an
amendment and restatement of the Company's 1996 Stock Option Plan (the "1996
Employee Plan") and 1996 Director Stock Option Plan (the "1996 Director Plan").
The Plan was approved and adopted by the Consenting Shareholders by written
consents dated December 3, 1997.
The Plan is summarized below. The full text of the Plan is available from
the Assistant Secretary of the Company, William T. Kennedy, at the offices of
the Company located at 4615 Post Oak Place, Suite 111, Houston, Texas 77027,
(713) 621-5678.
PLAN DESCRIPTION
The Plan is intended to foster and promote the long-term financial success
of the Company and its Subsidiaries and to increase stockholder value by: (a)
encouraging the commitment of selected key Employees, Consultants and Outside
Directors, (b) motivating superior performance of key Employees, Consultants and
Outside Directors by means of long-term performance related incentives, (c)
encouraging and providing key Employees, Consultants and Outside Directors with
a program
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for obtaining ownership interests in the Company which link and align their
personal interests to those of the Company's stockholders, (d) attracting and
retaining key Employees, Consultants and Outside Directors by providing
competitive incentive compensation opportunities, and (e) enabling key
Employees, Consultants and Outside Directors to share in the long-term growth
and success of the Company.
Under the Plan, the Company may grant the following awards to key
employees, directors who are not employees ("Outside Directors") and consultants
of the Company, its controlled subsidiaries, and its parent corporation, if any:
(i) incentive stock options ("ISOs") as defined in Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) "nonstatutory" stock options
("NSOs"), (iii) stock appreciation rights ("SARs"), (iv) shares of restricted
stock, (v) performance shares and performance units, (vi) other stock-based
awards and (vii) supplemental tax bonuses (collectively, "Incentive Awards").
ISOs and NSOs are sometimes referred to collectively herein as "Options." The
Company may grant Incentive Awards covering an aggregate of the greater of (a)
3,000,000 shares of the Company's common stock, par value $.001 per share
("Common Stock") and (b) 20% of the number of shares of Common Stock issued and
outstanding on the last day of each calendar quarter, of which an aggregate of
no more than 1,000,000 shares of Common Stock shall be available for Incentive
Awards granted to Outside Directors and the remainder shall be available for
Incentive Awards to Employees and Consultants. No more than 3,000,000 shares of
Common Stock shall be available for Incentive Stock Options.
Any shares of Common Stock which were issued and have been forfeited or
were subject to Incentive Awards under the Plan which have expired or terminated
for any reason will remain available for issuance with respect to the granting
of Incentive Awards during the term of the Incentive Plan, except as may
otherwise be provided by applicable law. Shares of Common Stock issued under
the Plan may be either newly issued or treasury shares, including shares of
Common Stock received by the Company in connection with the exercise of an
Incentive Award. The number and kind of securities which may be issued under
the Incentive Plan and pursuant to then outstanding Incentive Awards are subject
to adjustments to prevent enlargement or dilution of rights resulting from stock
dividends, stock splits, recapitalizations, reorganizations or similar
transactions.
The maximum number of shares of Common Stock subject to Incentive Awards
that may be granted or that may vest, as applicable, to any one Covered Employee
during any calendar year shall be 2,000,000 shares, subject to adjustment under
the provisions of the Plan. The maximum aggregate cash payout subject to
Incentive Awards (including SARs, performance units and performance shares
payable in cash, or other stock-based awards payable in cash) that may be
granted to any one Covered Employee during any calendar year shall be
$5,000,000. For purposes of the Plan, "Covered Employee" means a named
executive officer who is one of the group of covered employees as defined in
Section 162(m) of the Code and the regulations promulgated thereunder (i.e.,
generally the chief executive officer and the other four most highly compensated
executives for a given year).
No participants shall have any rights as a stockholder with respect to
shares relating to an Incentive Award until the date of issuance of a stock
certificate or certificates representing such shares. Nothing contained in the
Plan or an Incentive Award shall confer any right with respect to continuation
of employment or adjustment of compensation to a participant. Furthermore, no
person shall have a right to claim an Incentive Award under the Plan.
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The Company shall not be required to effect registration pursuant to the
Securities Act of 1933, as amended (the "Securities Act") or state law of any
shares of Common Stock. In addition, the Company shall not be required to issue
or deliver certificates evidencing shares of Common Stock under the Plan until
the Company is advised by its counsel that the issuance and delivery of such
certificates is in compliance with all applicable laws, regulations of
governmental authorities and the requirements of any securities exchange on
which shares of Common Stock are traded.
ADMINISTRATION
The Plan is administered by the Committee appointed by the board of
directors consisting of directors each of whom is (i) an "outside director"
under Section 162(m) of the Code and (ii) a "non-employee director" under Rule
16b-3 of the Exchange Act. Subject to the express provisions of the Plan, the
Committee is authorized to, among other things, determine those eligible
individuals to whom Incentive Awards may be granted, grant Incentive Awards to
individuals eligible to participate in the Incentive Plan and determine the
terms and conditions (which need not be identical) of each Incentive Award. The
Plan does not prescribe any factors to be considered by the Committee in
determining the individual participants and types of Incentive Awards granted.
The Committee also interprets, construes and administers the Plan and any
related incentive agreements; and makes all of the determinations necessary or
advisable with respect to the Incentive Plan or any Incentive Award granted
thereunder. All decisions and determinations of the Committee are final and
binding on all parties. The Company will indemnify members of the Committee
against any cost, expenses or liabilities arising out of any action, omission or
determination relating to the Incentive Plan, unless such action, omission or
determination was taken or made with gross negligence or willful misconduct.
Subject to certain amendments which require stockholder approval, the
Committee may, in its absolute discretion (i) extend the exercisability of an
Incentive Award, (ii) accelerate the vesting or exercisability of an Incentive
Award, (iii) eliminate or reduce the restrictions contained in an Incentive
Award, (iv) waive any restriction or other provisions of an Incentive Award or
(v) otherwise amend or modify an Incentive Award in any manner that is either
not adverse to the grantee of such Incentive Award or is consented to by such
grantee.
In addition, the Company's board of directors (the "Board") may grant
Incentive Awards under the Plan including the grant of Incentive Awards to
Outside Directors who are also members of the Committee. In such cases, the
Board shall have all the powers and responsibilities of the Committee under the
Plan as to the Incentive Awards so granted. However, the Board will not act in
the Committee's capacity to the extent that doing so would disqualify an
employee from an exemption under Section 16(b) of the Exchange Act, violate
applicable stock exchange rules or result in the non-deductibility of
compensation under Section 162(m) of the Code.
GENERAL TERMS AND TAX INFORMATION RELATING TO INCENTIVE AWARDS
The material terms of each Incentive Award is reflected in an agreement
(the "Incentive Agreement") between the participant and the Company. A summary
of the most significant features of the Incentive Awards and their tax
consequences to participants who are United States persons and the Company is
set out below.
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Incentive and Nonstatutory Stock Options. Except in limited cases
involving certain 10% stockholders or where the terms of the grant specify
otherwise, ISOs and NSOs must be exercised within ten years of the grant date.
ISOs may only be granted to employees and the exercise price of each ISO granted
may not be less than 100% (110% in the case of certain 10% stockholders) of the
fair market value of a share of Common Stock on the date of grant. The
Committee will have the discretion to determine the exercise price of each NSO
granted under the Plan; however, an NSO that is intended to qualify as
performance based compensation to an officer subject to Section 162(m) of the
Code must be granted with an exercise price equal to 100% of the fair market
value of a share of Common Stock on the grant date. To the extent that the
aggregate fair market value of shares of Common Stock with respect to which ISOs
are exercisable for the first time by any employee during calendar year exceeds
$100,000, such options must be treated as NSOs.
The exercise price of each Option is payable in cash upon the exercise of
the Option or, in the discretion of the Committee and upon such terms and
conditions as it may deem appropriate, through the delivery of shares of Common
Stock owned by the Option holder and valued at their fair market value, by
withholding shares which would otherwise be acquired on the exercise of the
Option and having an aggregate fair market value equal to the total exercise
price or in a combination of the following.
If a participant's employment or other service with the Company is
terminated other than for Cause (as defined in the Plan), or by reason of
Disability (as defined in the Plan) or death, his vested Options, whether ISOs
or NSOs, shall remain exercisable for 60 days after such termination. If a
participant's employment or other service with the Company is terminated by
reason of Disability or death, his vested Options, whether ISOs or NSOs, shall
remain exercisable for one year following such termination. If an employee's
employment with the Company is terminated due to his retirement at or after
attaining age 65, his vested NSOs shall remain exercisable for six months, and
his vested ISOs shall remain exercisable for three months, following such
termination. No Option shall be exercisable after the expiration of its term,
in any case. If a participant's employment or other service with the Company is
terminated for Cause, all outstanding Options, whether vested or otherwise,
shall expire at the commencement of business on the date of such termination.
The Committee, in its discretion, may prescribe time periods different than
those set out in the foregoing provisions of this paragraph for the exercise of
Options following a participant's termination of employment or other service.
Such rights shall be reflected in the Incentive Agreement evidencing the
participant's Incentive Award.
Upon a Change in Control of the Company (as defined in the Plan) all
outstanding Options become immediately exercisable. The Plan defines Change in
Control generally to mean (i) a change in control as contemplated in the federal
securities laws, (ii) the acquisition by any person of 20% or more of the shares
of voting securities of the Company, (iii) certain changes in the composition of
the Board (existing as of the effective date of the Plan) as a result of a
contested election for positions on the Board, or (iv) any other event which the
Board determines to constitute a change in the control of the Company. The
Board may determine in its discretion, if it deems to be in the best interest of
the Company, that an event otherwise constituting a Change in Control of the
Company shall not be considered a Change in Control.
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An employee who is a participant in the Plan will not recognize any income
at the time an ISO is granted, nor on the qualified exercise of an ISO. If a
participant does not dispose of the shares acquired by exercise of an ISO within
two years after the grant date of the ISO and one year after the exercise of the
ISO, the exercise is qualified and the gain or loss (if any) on a subsequent
sale will be a long-term capital gain or loss. Such gain or loss equals the
difference between the sum of the sales proceeds and the exercise price of the
Common Stock sold. The Company is not entitled to a tax deduction as a result
of the grant or qualified exercise of an ISO. However, if the shares acquired
upon the exercise of an ISO are disposed of at a gain prior to the above one-
year and two-year holding periods and the fair market value of the shares at the
time of exercise exceeds the exercise price, the exercise is not qualified and
special rules apply that acquire the participant to recognize ordinary income
(at least in part) at the time of such disposition. The Company is generally
entitled to a tax deduction at the same time and in the same amount as the
ordinary income recognized by the participant from such disposition.
Although the qualified exercise of an ISO will not produce ordinary taxable
income to the participant, it will produce an increase in the participant's
alternative taxable income and may result in an alternative minimum tax
liability.
An optionee will not recognize any income for federal income tax purposes
at the time a NSO is granted, nor will the Company be entitled to a deduction at
that time. However, when any part of a NSO is exercised, the optionee will
recognize ordinary income in an amount equal to the difference between the fair
market value of the shares received and the exercise price of the NSO, and the
Company will generally recognize a corresponding tax deduction in the same
amount at the same time.
Stock Appreciation Rights (SARs). Upon exercise of an SAR, the holder
thereof will receive a number of shares of the Common Stock or cash, or a
combination thereof, as the Committee determines in the Incentive Agreement, the
aggregate value of which equals the amount by which the fair market value per
share of the Common Stock on the date of exercise exceeds the exercise price of
the SAR, multiplied by the number of shares underlying the exercised portion of
the SAR. An SAR may be granted in tandem with an Option or granted
independently of an Option. The grant price per share of any SAR will be
established by the Committee but must equal at least 100% of the fair market
value of a share of Common Stock on the date the SAR is granted. The term of
each SAR will be fixed by the Committee, but not extending beyond ten years from
the date of grant. SARs will be subject to such terms and conditions and will be
exercisable at such times as determined by the Committee. The value of an SAR
may be paid in cash, in shares of Common Stock, or in some combination, as
determined by the Committee. The Committee, in its discretion, will establish a
participant's right to exercise an SAR in the event the participant's employment
is terminated, such rights to be reflected in the participant's Incentive
Agreement. Upon a Change in Control of the Company, all outstanding SARs which
have not vested will fully vest automatically.
The exercise of an SAR will result in the recognition of ordinary income by
the participant on the date of exercise in the amount of cash, and/or the fair
market value on such date of the shares of Common Stock, acquired pursuant to
the exercise. The Company will generally be entitled to a tax deduction at the
same time and in the same amount as the ordinary income recognized by the
participant upon exercise of the SAR. The tax treatment of an SAR is the same
whether the SAR is exercised in conjunction with an ISO or an NSO.
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Restricted Stock. A restricted stock award consists of a grant of Common
Stock to a participant, which is subject to substantial risk of forfeiture and
the transfer of which is subject to restrictions which lapse upon the passage of
time, the achievement of performance goals or upon the occurrence of other
events as determined by the Committee. This period of restriction is
established by the Committee at the time of grant. Unless otherwise designated
by the Committee, during the period of restriction a stockholder of restricted
shares will have all other rights of a stockholder, including the right to vote
the shares and receive the dividends paid thereon. The Committee, in its
discretion, will establish a participant's rights to receive restricted stock in
the event the participant's employment is terminated prior to vesting, such
rights to be reflected in the participant's Incentive Agreement. If vesting
does not occur, shares of restricted stock are forfeited. Upon a Change in
Control of the Company, all shares of restricted stock which have not vested or
been forfeited will vest automatically.
A participant will not recognize any income for federal tax purposes at the
time shares of restricted stock are granted or issued, nor will the Company be
entitled to a tax deduction at that time. However, when either the transfer
restriction or the forfeiture risk lapses, such as on vesting, the participant
will recognize ordinary income in an amount equal to the fair market value of
the shares of restricted stock on the date on which they vest. A participant
may file an appropriate election under Section 83(b) of the Code with the
Internal Revenue Service within 30 days of the issue date of the restricted
stock (the "Election"), which results in the participant's receipt of deemed
ordinary income in an amount equal to the fair market value of the shares of
restricted stock on the date on which they are issued. However, if a
participant files the Election and the restricted stock is subsequently
forfeited, such participant is not allowed a tax deduction for the amount
previously reported as ordinary income due to the Election. Gain or loss (if
any) from a disposition of restricted stock after the participant recognizes any
ordinary income (whether by vesting or an Election) will generally constitute
short- or long-term capital gain or loss. The Company will generally be
entitled to a corresponding tax deduction at the time the participant recognizes
ordinary income on the restricted stock, whether by vesting or an Election, in
the same amount as the ordinary income recognized by the participant.
Performance Units and Performance Shares. Performance units and
performance shares may be granted to eligible individuals at any time as
determined by the Committee. The Committee will have discretion to establish
the initial number and value of such units and shares, the performance period,
and the other material terms of the units or shares as reflected in the
participant's Incentive Agreement. The Committee will establish performance
goals in its discretion which, depending on the level of performance achieved,
will determine the number and/or value of performance units/shares earned.
Where an award is intended to meet the requirements for the performance-based
exception to the deductibility limit imposed by Section 162(m) of the Code, the
performance goals will be based on the performance measures prescribed in
regulations issued under Section 162(m). The value of a performance share or
unit (whether or not vested) is paid immediately on the occurrence of a Change
in Control of the Company.
There are no tax consequences to the Company or the participant upon the
grant of performance shares or units. Upon payout of the shares or units, the
participant will recognize taxable ordinary income in the amount of the payout
and the Company will receive a corresponding tax deduction in the same amount
and at the same time.
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Other Stock-Based Awards. Other stock-based awards, payable in Common
Stock, may be granted by the Committee and may be payable at such times and
subject to such conditions as the Committee determines, in its discretion, as
reflected in the participant's Incentive Agreement. In order to enable the
Company and the Committee to respond quickly to significant developments in
applicable tax and other legislation and regulations and to trends in executive
compensation practices, the Plan also authorizes the Committee to grant other
stock-based awards to individuals eligible to participate in the Plan. Other
stock-based awards will consist of awards that are valued in whole or in part by
reference to, or otherwise based on, the Company's Common Stock. Subject to the
terms of the Plan, the Committee may determine any terms and conditions of other
stock-based awards. Payment or settlement of other stock-based awards will be in
cash or in shares of the Company's Common Stock or in any combination thereof as
the Committee determines in its discretion.
Generally, a participant will not realize any income upon the grant of
other stock-based awards. Upon the payment of other stock-based awards, a
participant will realize compensation taxable as ordinary income, and the
Company will be entitled to a corresponding tax deduction in the same amount and
at the same time. However, if any such shares are subject to substantial
restrictions, such as a requirement of continued employment or the attainment of
certain performance objectives, the participant will not recognize income and
the Company will not be entitled to a deduction until the restrictions lapse,
unless the participant elects otherwise by filing an Election (as described
under "Restricted Stock" above). The amount of the participant's ordinary
taxable income and the Company's deduction will generally be the fair market
value of the shares at the time the restrictions lapse.
Supplemental Tax Bonuses. The Committee may grant, in connection with a
grant of an Incentive Award, a supplemental tax bonus, payable when the
participant is required to recognize ordinary income for federal income tax
purposes with respect to such Incentive Award. Receipt of any such bonus will
result in ordinary income to the participant and generally a corresponding tax
deduction to the Company at the same time and for the same amount.
Other Tax Considerations. Upon accelerated exercisability of Options and
accelerated lapsing of restrictions upon Restricted Stock or other Incentive
Awards in connection with a Change in Control of the Company, certain amounts
associated with such Incentive Awards could, depending upon the individual
circumstances of the recipient participant, constitute "excess parachute
payments" under the golden parachute provisions of Section 280G of the Code.
Pursuant to these provisions, a participant will be subject to a 20% excise tax
on any "excess parachute payment" (as defined in Section 280G of the Code) and
the Company will be denied any deduction with respect to such excess parachute
payment. The limit on the deductibility of compensation under Section 162(m) of
the Code is also reduced by the amount of any excess parachute payments.
Whether amounts constitute excess parachute payments depends upon, among other
things, the value of the Incentive Awards accelerated and the past compensation
of the participant.
Taxable compensation earned by Covered Employees subject to Section 162(m)
of the Code in respect of Options, Restricted Stock, performance shares or
units, or other applicable Incentive Awards is intended to constitute qualified
"performance-based compensation." The Company should, therefore, be entitled to
a tax deduction for compensation paid in the same amount as the ordinary income
recognized by the Covered Employees without any reduction under the limitations
of Section 162(m) on deductible compensation paid to such employees. However,
the Committee may
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determine, within its sole discretion, to grant Incentive Awards to such Covered
Employees which does not qualify as performance based compensation. Under
Section 162(m), the Company is denied a deduction for annual compensation paid
to such employees in excess of $1,000,000.
The foregoing federal income tax information is a summary only and does not
purport to be a complete statement of the relevant provisions of the Code. The
effect of any state or local taxes is not addressed.
TRANSFER AND RESALE RESTRICTIONS
No Incentive Award may be assigned, transferred, pledged, or otherwise
encumbered by a participant, other than by will or by the laws of descent and
distribution. An Incentive Award may be exercised during the Participant's
lifetime only by the participant or the participant's legal representative.
The resale of the shares of Common Stock acquired upon exercise of Options
under the Plan may be subject to the provisions of Rule 144 promulgated under
the Securities Act. Under Rule 144, in relevant part, an affiliate of the
Company may resell unrestricted Common Stock without registration under the
Securities Act subject to Rule 144's volume limitation, aggregation, broker
transaction and notice-filing requirements, and requirements concerning
publicly-available information about the Company. The volume limitations
provide that a person (or persons who must aggregate their sales) cannot, within
any three-month period, sell more than the greater of 1% of then outstanding
shares, or the average weekly reported trading volume during the four calendar
weeks preceding each such sale.
Participants in the Plan may be subject to the short-swing profit liability
provisions of Section 16(b) of the Exchange Act. Section 16(b) makes any profit
realized from any sale and purchase or purchase and sale of Common Stock within
six months recoverable by the Company. For purposes of Section 16(b), the grant
of an option under the Plan is deemed a purchase of Common Stock. Generally,
however, under Exchange Act Rules 16b-3 and 16b-6, if the option grant is
approved by the Board, Committee or stockholders, or a Plan participant subject
to Section 16(b) does not dispose of the Common Stock issued upon exercise of an
option granted under the Plan until at least six months after the date on which
the option was granted, the participant's acquisition and disposition of such
Common Stock will be exempt from the operation of Section 16(b). The Plan is
intended to comply with the requirements of Rule 16b-3, and the Plan will be
construed in a manner to effectuate that intent.
PLAN AMENDMENT AND TERMINATION
The Board may amend or terminate the Plan at any time, except that the Plan
may not be modified or amended, without stockholder approval, if such amendment
would (i) increase the number of shares of Common Stock which may be issued
thereunder, except in connection with a recapitalization or reclassification of
the Common Stock, (ii) amend the eligibility requirements for individuals to
participate in the Plan, (iii) increase the maximum limits on Incentive Awards
that may be issued to certain named executive officers pursuant to Section
162(m) of the Code, (iv) extend the term of the Plan or (v) decrease the
authority granted to the Committee under the Plan in contravention of Rule 16b-3
under the Exchange Act. No termination or amendment of the Plan shall
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adversely affect in any material way any outstanding Incentive Award previously
granted to a participant without his consent. No Incentive Award may be granted
under the Plan after September 30, 2007.
APPROVAL OF THE 1997 INCENTIVE PLAN
By written consents dated December 3, 1997, the Consenting Shareholders
gave their written consent to the approval of the Plan. THEREFORE, NO FURTHER
SHAREHOLDER CONSENTS ARE REQUIRED.
This Notice contains, or incorporates by reference, certain statements that
may be deemed "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). All
statements, other than statements of historical facts so included in this Notice
that address activities, events or developments that the Company expects,
projects, believes or anticipates will or may occur in the future are forward-
looking statements. Such statements are based on certain assumptions and
analyses made by management of the Company in light of its experience and its
perception of historical trends, current conditions, expect future developments
and other factors it believes to be appropriate. The forward-looking statements
included in this Notice are also subject to a number of material risks and
uncertainties. Such forward-looking statements are not guarantees of future
performance and actual results, developments and business decisions may differ
from those envisaged by such forward-looking statements.
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Exhibit 20.2
APPLIED VOICE RECOGNITION, INC.
DISSENTERS' NOTICE TO CERTAIN SHAREHOLDERS
Pursuant to the provisions of Sections 16-10a-1302 and 16-10a-1320 of the
Utah Revised Business Corporation Act (the "Act"), Applied Voice Recognition,
Inc., a Utah corporation (the "Non-Surviving Corporation"), hereby provides the
following notice (this "Notice") to its shareholders (the "Notified
Shareholders"):
1. On September 26, 1997 the Board of Directors approved the Plan and
Agreement of Merger (the "Merger Plan," a copy of which is available from the
Assistant Secretary at the address listed in Paragraph 4 of this Notice) by and
between the Non-Surviving Corporation and Applied Voice Recognition, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Non-Surviving
Corporation (the "Merger Sub"), and recommended that the shareholders of the
Non-Surviving Corporation consider and approve the Merger Plan. On November 28
and December 3, 1997, certain shareholders of the Non-Surviving Corporation
holding the voting rights with respect to more than a majority of those shares
of common stock and Series A Preferred Stock of the Non-Surviving Corporation
entitled to vote on the Merger Plan executed those certain Written Consents of
Shareholders in Lieu of Special Meeting (copies of which are available from the
Assistant Secretary at the address listed in Paragraph 4 of this Notice) by
which they ratified, affirmed, adopted and approved the Merger Plan.
2. On or about January 26, 1998 the Non-Surviving Corporation and the
Merger Sub will cause Articles of Merger to be filed with the Secretary of State
of Utah and a Certificate of Ownership and Merger to be filed with the Secretary
of State of Delaware.
3. As a result of the actions specified in Paragraphs 1 and 2 above, the
Non-Surviving Corporation will merge (the "Merger") with and into the Merger Sub
(the corporation resulting from this merger is referred to hereinafter as the
"Surviving Corporation") effective on the date of the filings referred to in
Paragraph 2 above (the "Effective Time"), and in connection therewith, and
pursuant to the terms of the Merger Plan, at the Effective Time:
(a) The separate corporate existence of the Non-Surviving Corporation
will cease and the Surviving Corporation will succeed to all of the assets and
liabilities of the Non-Surviving Corporation.
(b) The charter and bylaws of the Merger Sub in effect immediately
prior to the Merger (copies of which are available from the Assistant Secretary
at the address listed in Paragraph 4 of this Notice) will become the charter and
bylaws of the Surviving Corporation (rather than the charter and bylaws of the
Non-Surviving Corporation).
(c) The officers and directors of the Non-Surviving Corporation in
office immediately prior to the Merger will become the officers and directors of
the Surviving Corporation.
(d) All of the shares of capital stock of the Merger Sub held by the
Non-Surviving Corporation immediately prior to the Merger will be cancelled.
Subject to the exercise of dissenters'
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rights pursuant to Sections 16-10a-1301 to 16-10a-1331 of the Act, inclusive
(the "Dissenter Provisions"), each share of common stock, par value $.001 per
share, and each share of Series A Preferred Stock, par value $.10 per share, of
the Non-Surviving Corporation, including those shares held by the Notified
Shareholders (the "Shareholders' Shares"), will be converted into one fully paid
and non-assessable share of common stock, par value $.001 per share (the
"Delaware Common Stock"), or one fully paid and non-assessable share of Series A
Preferred Stock, par value $.10 per share (the "Delaware Preferred Stock"), of
the Surviving Corporation, respectively.
(e) All other effects specified in the Merger Plan as resulting from
the Merger will occur.
4. In lieu of receiving those shares of Delaware Common Stock or Delaware
Preferred Stock, as the case may be, into which the Shareholders' Shares were
converted pursuant to the Merger Plan, a Notified Shareholder may be entitled to
assert dissenters' rights under the Dissenter Provisions (a copy of which is
attached hereto as APPENDIX A). In order to assert such dissenters' rights, a
Notified Shareholder must (i) make a demand for payment by completing the
attached form (the "Demand Form"), (ii) mail the Demand Form to the Surviving
Corporation by first class mail to the following address (an addressed stamped
envelope is enclosed):
Applied Voice Recognition, Inc.
4615 Post Oak Place, Suite 111
Houston, Texas 77027
Attn: William T. Kennedy/Demand Notice Enclosed
THE DEMAND FORM MUST BE RECEIVED AT THE ADDRESS ABOVE NO LATER THAN JANUARY 22,
1998. A NOTIFIED SHAREHOLDER WISHING TO ASSERT DISSENTERS' RIGHTS MUST INCLUDE
ANY CERTIFICATE(S) REPRESENTING THE CAPITAL STOCK OF THE NON-SURVIVING
CORPORATION WITH THE DEMAND FORM.
5. If any Notified Shareholder who is a record shareholder dissents with
respect to any shares held by any one or more beneficial shareholders, each
beneficial shareholder must certify to the corporation that both he or she and
the record shareholders of all shares beneficially by him have asserted, or will
timely assert, dissenters' rights as to all the shares unlimited on the ability
to exercise dissenters' rights.
6. The Notified Shareholders are advised to seek the advice of
independent legal counsel in connection with their decision as to whether to
assert dissenters' rights.
This Notice is dated on this 22 day of December, 1997.
APPLIED VOICE RECOGNITION, INC.
/S/ WILLIAM T. KENNEDY
William T. Kennedy,
Assistant Secretary
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DEMAND FORM
1. The undersigned holder of _________ shares of common stock, par value
$.001 per share, and/or __________ shares of Series A Preferred Stock, par value
$.10 per share, (the "Dissenting Shares") of Applied Voice Recognition, Inc., a
Utah corporation, hereby declares the undersigned's intent to assert dissenters'
rights under Sections 16-10a-1301 to 16-10a-1331 of the Utah Revised Business
Corporation Act, as amended (the "Act"), inclusive, and hereby DEMANDS PAYMENT
for the Dissenting Shares in accordance therewith to be sent to the address set
forth below.
2. The undersigned hereby certifies that the undersigned acquired
beneficial ownership of the Dissenting Shares before the date the undersigned
received that certain Applied Voice Recognition, Inc. Dissenters' Notice to
Certain Shareholders to which this Demand Form was attached.
3. The undersigned hereby certifies that, if he or she is a record
shareholder and dissents with respect to any shares held by any one or more
beneficial shareholders, each beneficial shareholder will certify to the
corporation that both he or she and the record shareholders of all shares owned
beneficially by him or her have asserted, or will timely assert, dissenters'
rights as to all the shares unlimited on the ability to exercise dissenters'
rights.
This Demand Form is executed this ___ day of ___________, 199__.
----------------------------------
[name of shareholder]
----------------------------------
NOTE: ADDRESS GIVEN WILL BE ADDRESS ----------------------------------
TO WHICH PAYMENT IS SENT.
----------------------------------
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[address of shareholder]
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