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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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):
December 16, 1998 (December 1, 1998)
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APPLIED VOICE RECOGNITION, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-23607 76-0513154
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(Commission File Number) (IRS Employer Identification No.)
4615 POST OAK PLACE, SUITE 111, HOUSTON, TEXAS 77027
(Address of Principal Executive Offices) (Zip Code)
(713) 621-5678
(Registrant's telephone number, including area code)
N/A
(Former Name or Former Address, if Changed Since Last Report)
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Item 2. Acquisition or Disposition of Assets
On December 1, 1998, Applied Voice Recognition, Inc., a Delaware corporation
("the Company"), through its wholly-owned subsidiary, AVRI Health Care
Information Services, Inc., a Delaware corporation (the "Acquisition Sub"),
entered into an Asset Purchase Agreement (the "Agreement") with Cornell
Transcription, Inc., a New York corporation ("Cornell").
Cornell has been in business since March of 1998 and specializes in providing
transcription services to the healthcare industry in the New York and
surrounding areas. With offices in Hackensack, New Jersey; Miami, Florida; and
Manila in the Philippines, Cornell provides transcription services to over 22
hospitals in New York and Florida. All of Cornell's transcription services are
performed by its wholly-owned subsidiary Outsource Transcription Philippines,
Inc., a stock corporation formed under the laws of the Republic of the
Philippines ("Cornell-Philippines").
Pursuant to the Agreement, the Company acquired all of the issued and
outstanding stock of Cornell-Philippines and certain assets owned by Cornell
including tangible personal property consisting of: equipment; computer hardware
and software; furniture and fixtures; general intangibles; contracts; certain
intellectual property; and certain business licenses. The total purchase price
consisted of: (i) promissory note issued by the Acquisition Sub in the
aggregate principal amount of $270,000 (the "Note"), (ii) $275,000 in cash,
(iii) the assumption of certain capital lease obligations, and (iv)
approximately 684 shares of the Company's Series 1 Preferred Stock, par value
$.10 per share (the "Preferred Stock"). In addition to the above mentioned
shares of Preferred Stock, the Company may issue up to an additional 160 shares
of Preferred Stock to Cornell if Cornell's former employees are responsible for
the execution of new agreements for transcription services in excess of certain
quarterly targets over the next four calendar quarters.
The Note is a non-interest bearing unsecured obligation of the Acquisition Sub
payable to Cornell, which is payable as follows: (i) $150,000 on or before
February 28, 1999, and (ii) $120,000 in twelve equal monthly installments of
$10,000 each, payable on the first day of each month commencing on January 1,
1999, and continuing thereafter until December 1, 1999. In the case of an Event
of Default (as defined in the Note), Cornell may accelerate the entire unpaid
principal balance of the Note. After any such acceleration, any outstanding
principal amount shall bear interest at the rate of 18% per annum.
The Preferred Stock, which will not be issued to Cornell until December 31,
1999, carries a 10% cumulative dividend payable in cash or in additional shares
or fractional shares of Preferred Stock at the Company's option. Dividends are
payable quarterly and in arrears on the first day of each January, April, July
and October commencing on January 1, 2001. Each share of the Preferred Stock
will be convertible, at any time, into a number of shares of common stock equal
to (i) $1,000 per share of Preferred Stock being converted, plus any earned, but
unpaid dividends, if any, divided by (ii) the average closing price of the
Company's Common Stock for the thirty day period immediately preceding the
effective date of such conversion on The Nasdaq Over-the-Counter Bulletin
Board. Any such shares of Common Stock issued upon conversion of the Preferred
Stock shall be registered for resale under the Securities Act of 1933, as
amended, at the expense of the Company. The shares of Preferred Stock are not
subject to automatic conversion. Any shares of the Preferred Stock may be
redeemed, at the Company's option, after the third anniversary of the date of
their issuance, at a redemption price of $1,000 per share plus any accrued but
unpaid dividends. Except as otherwise required by the Delaware General Corporate
Law, the holders of the Preferred Stock shall have no voting rights.
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Item 7. Financial statements, proforma financial information and exhibits
(a) Financial Statements
The Company will file the required financial statements and proforma
information on or before February 15, 1999
(b) Pro Forma Financial Statements
The Company will file the required financial statements on or before
February 15, 1999
(c) Exhibits
The following exhibits are filed with this report on Form 8-K:
2.1 Asset purchase agreement by and among the Company, Cornell and Acquisition
Sub dated December 1, 1998
4.1 Unsecured promissory note payable to Cornell in the amount of $270,000
4.2 Series 1 Preferred Stock Certificate of Designation
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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.
December 15, 1998 /s/ William T. Kennedy
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William T. Kennedy
Chief Financial Officer and
Assistant Secretary
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
(Cornell Transcription, Inc.)
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of the 1st day of
December, 1998 (the "Effective Date"), is by and among HILLEL BRONSTEIN, an
individual residing in New York, New, an individual residing in New York, New
York ("Bronstein"), CORNELL TRANSCRIPTION, INC., a New York corporation
("Seller"), and AVRI HEALTH CARE INFORMATION SERVICES, INC., a Delaware
corporation ("Purchaser").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the medical transcription business (the
"Business");
WHEREAS, Purchaser is a wholly owned subsidiary of APPLIED VOICE RECOGNITION,
INC., a Delaware corporation ("AVRI");
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, certain assets owned by Seller and utilized by Seller in
connection with the Business, and Seller and Purchaser desire to set forth the
terms and conditions of their agreement;
NOW THEREFORE, for and in consideration of the premises, and the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Seller and Purchaser hereby agree as follows:
1. PURCHASE AND SALE.
1.1. PURCHASE AND SALE. On the terms and subject to the conditions of
this Agreement, Seller, at the Closing referred to in Section 8, agrees to
grant, sell, transfer, convey and deliver to Purchaser, free and clear of all
liens, claims, encumbrances and interests, and Purchaser agrees to purchase from
Seller, certain assets of Seller (collectively, the "Company Assets"), which
Company Assets shall consist of the following:
(a) The 997 shares of common stock (the "Stock") of Outsource
Transcription Philippines, Inc., a stock corporation formed under the laws of
the Republic of the Philippines ("OTP");
(b) All real property leased by Seller for use in connection
with the Business, including, without limitation, (i) that certain space leased
on an oral basis located at 42 Clinton Place, Hackensack, New Jersey, and (ii)
that certain space leased pursuant to the terms of a written lease located in
the ground floor of JM Building located along South Superhighway, Makati City,
the Republic of the Philippines, and the improvements located within such leased
spaces (collectively, the "Company Facilities");
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(c) The machinery, equipment, furniture, fixtures, supplies,
materials and other tangible personal property (other than computer hardware and
software) that are described on Schedule 1.1(c) attached hereto (the "Company
Personal Property");
(d) All contracts and agreements listed on SCHEDULE 1.1(d)
attached hereto (the "Assigned Contracts"); and all warranties and guarantees,
if any, originally given to Seller relating to all or any portion of the Company
Personal Property (the "Warranties");
(e) All rights of Seller in and to the computer hardware and
computer software listed on SCHEDULE 1.1(e) attached hereto;
(f) All rights of Seller in and to all existing or pending trade
names, trade marks, copyrights, patents and other intellectual property and all
marketing literature and other materials owned, licensed or otherwise utilized
by Seller, including, without limitation, all such rights listed on SCHEDULE
1.1(f) attached hereto;
(g) All existing books and records of Seller through the Closing
relating to the Business, including, without limitation, all of Seller's
customer lists; and
(h) The licenses, permits and certifications listed on SCHEDULE
1.1(h) attached hereto.
1.2. EXCLUDED ASSETS. Except for the Company Assets specifically
described herein, no other assets owned by Seller shall be conveyed pursuant to
this Agreement.
1.3. ASSUMED LIABILITIES. On the terms and subject to the conditions
of this Agreement, Purchaser, at the Closing, agrees to assume all of the
following obligations of Seller (collectively, the "Assumed Liabilities"):
(a) The liabilities and obligations of Seller under the Assigned
Contracts; and
(b) The ad valorem taxes, if any, relating to the Company Assets
for 1998 (as described in Section 8.7 below, and referred to herein as the
"Seller's Tax Share").
1.4. EXCLUDED LIABILITIES. Except for the Assumed Liabilities,
Purchaser shall not assume or be subject to, or in any way be liable or
responsible for, and Seller shall retain responsibility for all liabilities and
obligations of Seller of any kind or nature, known or unknown, relating to the
Company Assets, the Business or Seller. Notwithstanding the foregoing,
Purchaser shall deduct from the stated value of the AVRI Stock (as defined in
Section 2(c)) to be delivered to Seller, an amount equal to the amount necessary
to prepay and pay off in full Seller's obligations under those certain Master
Equipment Leases, each dated May 13, 1998 (the "Equipment Leases"), whereby
Sterling National Bank (the "Bank") leased certain computer equipment more
particularly described therein to Seller. Further, Purchaser will, at its
option, either (i) pay such obligations
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owed to the Bank in full, or (ii) assume Seller's obligations under the
Equipment Leases, provided that Purchaser receives a written consent from the
Bank with respect to such assignment.
2. PURCHASE PRICE. The purchase price for the Company Assets (the
"Purchase Price") shall be ONE MILLION TWO HUNDRED EIGHTY THOUSAND AND NO/100
DOLLARS ($1,280,000) less (A) the aggregate amount of Seller's liabilities to be
assumed by Purchaser under the Assigned Contracts, and (B) Seller's Tax Share.
The Purchase Price shall be paid as follows:
(a) $275,000 in cash at Closing (the "Cash Portion of the
Purchase Price").
(b) Purchaser's execution and delivery to Seller at Closing of a
non-interest bearing, unsecured promissory note in the original principal amount
of $270,000 in the form attached hereto as Exhibit "A" (the "Note"), which Note
shall be payable as follows:
(i) $150,000 shall be due and payable on or before February
28, 1999. Of such $150,000 payment, Purchaser shall deliver $25,000
directly to Seller's lender, Innodata Corporation, a Delaware corporation
("Seller's Lender"), as a payment on behalf of Seller, in satisfaction of
that certain $25,000 installment note payment due on or before April 30,
1999, pursuant to the terms of that certain Promissory Note dated as of
April 22, 1998 in the original principal amount of up to $100,000 (the
"Seller's Note"). Notwithstanding Purchaser's agreement to make such
installment payment on behalf of Seller, Purchaser shall not assume nor
become liable for any of Seller's obligations under the Seller's Note, it
being Seller's and Purchaser's intention and agreement that Purchaser is
merely agreeing to pay such amount directly to Seller's Lender on behalf
of, and as an accommodation to, Seller.
(ii) $120,000 shall be payable in twelve equal monthly
installments of $10,000 each, payable on the first day of each month
commencing on January 1, 1999, and continuing thereafter until December 1,
1999, when, if not sooner paid, all outstanding amounts under the Note
shall be due and payable in full.
(c) At Purchaser's request, AVRI hereby agrees to issue and
deliver to Seller on December 31, 1999, 735 shares of convertible preferred
stock of AVRI that has an aggregate stated value (which shall be the liquidation
preference other than accrued but unpaid dividends, if any), herein referred to
as the "Stated Value," of $735,000 (the "AVRI Stock"). See EXHIBIT "B" for a
description of the AVRI Stock.
3. CONTINGENT PURCHASE PRICE. In addition to the Purchase Price and as
additional consideration for the sale of the Company Assets from Seller to
Purchaser, with respect to each quarterly period of 1999, if the former
employees of Seller are responsible for Purchaser's execution of new agreements
for medical transcription services ("New Agreements") that are estimated to
generate revenues, in the aggregate over the next twelve month period (as
determined by Purchaser in Purchaser's reasonable discretion), that are greater
than or equal to the quarterly
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threshold applicable to such quarterly period set forth on EXHIBIT "C"
(collectively, the "Targets," and separately, a "Target"), then Seller shall be
entitled to receive such number of shares of AVRI Stock that has an aggregate
Stated Value equal to the dollar amounts shown on such exhibit corresponding to
such quarterly period (the "Contingent Purchase Price"). Within sixty (60) days
after each of March 30, 1999, June 30, 1999, September 30, 1999 and December 31,
1999 (each being referred to separately as a "Reconciliation Date"), Purchaser
shall calculate the estimated aggregate gross revenues to be generated over the
next twelve month period from the New Agreements entered into during the
quarterly period ending on the subject Reconciliation Date. Any Contingent
Purchase Price earned hereunder shall be paid by Purchaser to Seller on or
before February 28, 2000. In the event that for any particular quarterly period
the estimated aggregate gross revenues to be generated over the next twelve
month period from the New Agreements fails to meet the Target for such quarterly
period, then no Contingent Purchase Price shall be earned by, or paid to, Seller
with respect to such quarterly period, and such Contingent Purchase Price shall
not be carried over to any subsequent quarterly period. Seller shall have the
right to inspect Purchaser's books and records relating to the Business upon
three (3) business days advance notice. Such inspection shall take place at the
address for Purchaser set forth in Section 13.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to and agrees with Purchaser that:
4.1. SELLER'S AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement
has been duly executed and delivered by Seller, and no further corporate action
is necessary with respect to Seller to make this Agreement a valid and binding
obligation of Seller, enforceable in accordance with its terms. Neither the
execution, delivery nor performance of this Agreement by Seller will:
(a) Violate any order, writ, injunction or decree of any court,
administrative agency or governmental body;
(b) Require any consent, authorization or approval of any
person, entity or governmental authority; or
(c) Result in the creation or imposition of any lien, charge or
encumbrance upon the property of Seller.
4.2. SELLER'S AUTHORITY TO CONDUCT BUSINESS. Seller has all
requisite power and authority to carry on its business as now conducted and to
enter into and perform this Agreement.
4.3. RIGHTS TO PURCHASE THE COMPANY ASSETS. Other than Purchaser
pursuant to this Agreement, no person, firm or entity has any right to purchase
any of the Company Assets or any part thereof.
4.4. TITLE TO COMPANY ASSETS. Seller has good title to the Company
Assets, is in possession of all of the Company Assets, and will convey the
Company Assets to Purchaser, free and clear of all liens, claims, security
interests and encumbrances. Other than ad valorem taxes for 1998 which are not
yet past due, there are no sales or ad valorem taxes due and unpaid by Seller.
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4.5. LITIGATION. There are no private or governmental actions,
suits, proceedings or investigations, pending, or to Seller's knowledge
threatened, against, affecting or on behalf of Seller, OTP or the Company
Assets.
4.6 SELLER FINANCIAL STATEMENTS. Seller has heretofore furnished
Purchaser with complete copies of all currently available unaudited financial
statements relating to Seller and OTP for the month ended August 31, 1998 (the
"Seller Financial Statements"), and until Closing shall continue to provide
Purchaser with copies of each successive month's financial statements as soon as
they become available. To the best of Seller's knowledge, the Seller Financial
Statements (including items delivered after the Effective Date in accordance
with this Section 4.6) are true and complete in all material respects, have been
prepared from the books and records of Seller and OTP in accordance with
generally accepted accounting principles consistently applied throughout the
entire period presented (except as disclosed therein and except for the absence
of footnotes) and present fairly the financial condition of Seller and OTP at
such dates and the results of operations of Seller and OTP for the periods
reflected therein.
4.7 COMPLIANCE WITH LAWS. Seller and OTP have each complied in all
material respects with all applicable foreign, federal, state, municipal and
other political subdivision or governmental agency statutes, ordinances and
regulations, including, without limitation, those imposing taxes, in every
applicable jurisdiction, in respect of the ownership of their respective
properties and the conduct of their respective businesses, and Seller and OTP
are not parties to any investigation or inquiry by any foreign, federal, state
or local governmental body or agency pending or, to Seller's knowledge,
threatened into the business, operations, affairs or properties of Seller or
OTP.
4.8 ILLEGAL PAYMENTS. Neither Seller, OTP, nor any shareholder,
director, officer, partner, employee or agent of Seller or OTP, has, directly or
indirectly, given or agreed to give any illegal payment (in kind or in cash),
gift or similar benefit to any customer, supplier, governmental employee,
lobbyist, labor union, political action committee, candidate for public office
or other person or entity who is or may be in a position to help or hinder the
business of Seller or OTP which (i) might subject Seller or OTP to any damage or
penalty in any civil, criminal or governmental litigation or proceeding, (ii) if
not given in the past, might have had a material adverse effect on the Company's
Assets, its business or its operations, or (iii) if not continued in the future,
might materially adversely affect the Company's Assets or the Business.
4.9 EMPLOYEES. Attached hereto as Schedule 4.9 is a schedule listing
(i) the names and annual rates of compensation (not including bonuses, profit
sharing, incentive compensation and benefits) of each of the present officers,
employees, agents and independent contractors of Seller and OTP. Except as set
forth and described on such schedule, there are no "employee pension benefit
plans", as such term is defined in Section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended, or any other pension, profit sharing,
savings, bonus, incentive, option, insurance, welfare, stock purchase, stock
option, deferred compensation or other employee benefit plan or arrangement
maintained by Seller or OTP or to which either Seller or OTP contributes or is
required to contribute.
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4.10 ENVIRONMENTAL MATTERS. To Seller's knowledge, there is no
violation by Seller of any of the following (herein collectively called the
"ENVIRONMENTAL LAWS") on, under, within or with respect to the Company
Facilities: any other federal, state or local statute, law, ordinance, code,
rule, regulation, order or decree regulating, relating to, or imposing liability
or standards of conduct concerning, any substance deemed or considered hazardous
to human health, wildlife or the environment or giving rise to any clean-up or
remediation obligation on the part of the owner or operator of the property
affected thereby, or any party discharging or disposing of same, including,
without limitation, asbestos and the group or organic compounds known as
polychlorinated biphenyls (collectively, "HAZARDOUS SUBSTANCES"). There are no
liens on or affecting the Company Facilities created, permitted or imposed by
any Environmental Laws and there is no actual, asserted or threatened liability
or obligation of the Seller or OTP, related to the Company Facilities, under any
Environmental Laws. Further, to Seller's knowledge (i) no Hazardous Substances
have been generated, treated, stored, or disposed of, or otherwise deposited in
or located on, or released on or to the Company Facilities, including, without
limitation, the surface and subsurface waters of the Company Facilities, in
violation of any Environmental Laws, (ii) no party has engaged in any activity
on the Company Facilities which would cause (A) the Company Facilities to be a
hazardous waste treatment, storage or disposal facility within the meaning of or
otherwise bring such Property within the ambit of any Environmental Laws, or (B)
the discharge of pollutants or effluents into any water source or system, or the
discharge into the air of any emissions, which would require a permit under any
Environmental Laws, and (iii) no underground storage tank is located on or under
the Company Facilities.
4.11 REPRESENTATIONS AND WARRANTIES REGARDING THE SHARES AND OTP.
Seller hereby makes the following additional representations and warranties to
Purchaser regarding the Shares and OTP:
(a) As of the Closing, Seller will have full legal right, power and
authority to transfer and deliver to the Purchaser the Shares; and the delivery
to the Purchaser of the Shares will transfer valid title thereto, free and clear
of all liens, encumbrances, preemptive rights and claims of every kind.
(c) The authorized capital stock of OTP consists of 4,000 shares of
common stock, $100 par value, of which 1,000 shares are issued and outstanding
on the Effective Date. OTP has no treasury shares. All of the Shares are
validly issued, fully paid and nonassessable and shall be owned of record on the
Closing Date by Seller, and were not issued in violation of the preemptive
rights of any shareholder of the OTP. There are no existing subscriptions,
options, warrants, calls, obligations or agreements (voting or otherwise)
relating to any of the authorized or outstanding capital stock of the OTP.
(d) OTP has no subsidiaries and does not, directly or indirectly, own
or control any capital stock, bonds or other securities of, or have any
proprietary interest in, any corporation, association, partnership, firm, joint
venture or other business organization or enterprise, and OTP does not, directly
or indirectly, control the management of any such entities. Between the
Effective Date and the Closing Date, OTP will not create or acquire any
subsidiary or
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make any investments in any corporation, association, partnership, firm, joint
venture or other business organization or enterprise.
(e) OTP has (i) good and indefeasible title to all of it's assets
reflected on any of the schedules attached hereto as being owned by OTP, and
(ii) right to possession of all such assets, free and clear of all liens,
mortgages, pledges, title retention agreements, and security interests. To the
Seller's knowledge, (i) the buildings, plants, structures, appurtenances,
machinery, equipment and other property owned or used by OTP have been
maintained and repaired and are in good operating condition, ordinary wear and
tear excepted, and are free from any known defects, except such as require
routine maintenance and except such minor defects as do not substantially
interfere with the continued use thereof; (ii) all such buildings, plants,
structures, appurtenances, machinery, equipment and other property and their
operation and maintenance conform in all material respects to all applicable
laws; and (iii) no notice of any violation of employment laws, building or
zoning laws or other ordinances, regulations or provisions of law relating to
such assets and their use have been received by Seller or OTP.
(f) The Seller Financial Statements accurately and separately list
all indebtedness (as the term "indebtedness" is defined in accordance with
generally accepted accounting principles) owed by OTP as of the date thereof, or
to which any of OTP's assets or properties are subject, including a description
of the assets pledged or otherwise subject thereto. A complete and correct copy
of each loan agreement, credit agreement or other similar instrument pursuant to
which any such indebtedness was incurred has been furnished to the Purchaser
prior to the Effective Date.
(g) The Seller Financial Statements accurately and separately list all
guaranties, matters of suretyship and, to Seller's knowledge, contingent
liabilities (required to be disclosed in financial statements in accordance with
generally accepted accounting principles) of OTP.
(h) OTP does not have, and none of OTP's assets are subject to, any
liabilities, debts or obligations of any nature incurred by OTP, whether
accrued, absolute, contingent or otherwise (required to be disclosed in
financial statements in accordance with generally accepted accounting
principles), whether due or to become due, including, without limitation,
liabilities, debts or obligations on account of taxes or other governmental
charges, or penalties, interest or fines thereon or in respect thereof, and
whether such liabilities are normally shown or reflected on a balance sheet
prepared in a manner consistent with generally accepted accounting principles.
(i) OTP has filed, or has filed appropriate requests for extensions
of, all federal, foreign, state, county, and local tax returns required to be
filed by it for periods ending on or before the Effective Date, and OTP has paid
all taxes shown to be due on such returns. For purposes of this Agreement, the
term "taxes" shall mean, without limitation, income taxes, corporate franchise
taxes, payroll taxes, social security taxes, sales taxes, value added taxes, and
ad valorem taxes. The liabilities for such taxes reflected in the Seller
Financial Statements represent, as of the date thereof, reasonable provision for
the payment of all accrued and unpaid taxes of OTP
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accrued through that date, whether or not disputed, as well as deferred taxes
required under generally accepted accounting principles. The income tax returns
of OTP are not currently under audit by any federal, state or foreign taxing
authorities, and no taxable period has been audited by federal authorities.
There are no agreements, waivers or other arrangements providing for an
extension of time with respect to the payment of any tax or the assessment of
any tax or deficiency of any nature against OTP, nor are any suits or any other
actions, proceedings, investigations or claims now pending or threatened against
OTP with respect to any tax or assessment, nor are any matters under discussion
with any federal, state, foreign or local authority relating to any such taxes
or assessments, or to any claims for additional taxes or assessments asserted by
any such authority. Seller has made available to the Purchaser all income tax
returns and schedules thereto or requests for extensions thereof of OTP. Seller
will not cause or voluntarily permit a change in any income tax method of
accounting by OTP or in the method of allocation of the income tax liability of
OTP during or applicable to its current tax year which would render inaccurate,
misleading or incomplete the information concerning taxes set forth or referred
to in this section, or which would have a material adverse effect on OTP for any
period prior to the Closing Date.
(j) SCHEDULE 4.11(j) attached hereto sets forth a list and brief
description of all of the policies of insurance held by or for the benefit of
OTP on its property, assets, business or personnel. True and correct copies of
such policies or certificates evidencing such policies have heretofore been
furnished to Purchaser. OTP is not in default with respect to any provision
contained in any such insurance policy and all such policies carried by OTP are
in full force and effect except as noted on SCHEDULE 4.11(j). All such policies
of insurance will be outstanding and in force on the Closing Date.
(k) Attached hereto as SCHEDULE 4.11(k) is a list setting forth (i)
the name of each bank, savings and loan or other financial institution in which
OTP has any account or safe deposit box, the style and number of each such
account or safe deposit box and the names of all persons authorized to draw
thereon or have access thereto, (ii) the name of each person, corporation, firm,
association or business entity or enterprise holding a general or special power
of attorney from OTP and the summary of the terms thereof, and (iii) the names
of all persons authorized to execute notes, agreements or other instruments
relating to the borrowing of money or the extension of credit.
(l) OTP has no collective bargaining agreements with any labor unions.
As of the Effective Date, there have not been and there are not pending or, to
Seller's knowledge, threatened, any labor disputes, strikes or work stoppages
which may have a materially adverse effect upon the continued business or
operation of OTP. OTP is in substantial compliance with all laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours.
(m) There has been no default in any respect to, and OTP is currently
not in default under, any obligation to be performed by OTP under any contract,
lease, agreement, commitment or undertaking to which OTP is a party or by which
OTP or its assets or properties are bound, including, without limitation, OTP's
contractual and statutory obligations to provide medical, health and other
benefits to its employees.
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4.12 MISCELLANEOUS. All agreements, reports, exhibits, schedules and
other documents furnished by Seller to Purchaser are true, accurate and complete
copies of the agreements, reports, exhibits, schedules and other documents they
purport to be.
4.13 SECURITIES REPRESENTATIONS AND WARRANTIES. Seller hereby makes
each of the following representations and warranties to, and agreements with,
Purchaser regarding the AVRI Stock:
(a) The shares of AVRI Stock are being acquired for Seller's own
account, for investment purposes only, and not for the account of any other
person (other than the shareholders of Seller), and not with a view to
distribution, assignment, or resale to others or to fractionalization in whole
or in part and that the transfer of the shares of AVRI Stock is intended to be
exempt from registration under the Securities Act of 1933 (the "Act") by virtue
of the so-called 4(2) exemption under the Act. Seller understands that the
shares of AVRI Stock are and will be "restricted securities," as said term is
defined in Rule 144 of the Rules and Regulations promulgated under the Act, that
the certificates representing the shares of AVRI Stock will bear a legend to the
effect that the transfer of the securities represented thereby is subject to the
provisions hereof; and that stop transfer instructions will be placed with the
transfer agent for the shares of AVRI Stock. In furtherance thereof, Seller
represents, warrants, and agrees as follows: (i) no other person has or will
have a direct or indirect beneficial interest in such shares of AVRI Stock, and
Seller will not sell, hypothecate, or otherwise transfer any of the shares of
AVRI Stock except in accordance with the Act and applicable state securities
laws or unless, in the opinion of counsel for Purchaser, an exemption from the
registration requirements of the Act and such laws is available; and (ii)
Purchaser is under no obligation to register the shares of AVRI Stock on behalf
of Seller or to assist Seller in complying with any exemption from registration.
(b) Seller has been furnished with and has carefully read each of (i)
Purchaser's Annual Report on Form 10-K for fiscal year ended December 31, 1997;
(ii) Purchaser's Quarterly Report on Form 10-Q for fiscal quarter ended March
31, 1998; and (iii) Purchaser's Quarterly Report on Form 10-Q for fiscal quarter
ended June 30, 1998. Purchaser has provided, or immediately upon availability
shall provide, to Seller a copy of Purchaser's Quarterly Report on Form 10-Q for
fiscal quarter ended September 30, 1998. In evaluating the suitability of an
investment in Purchaser, Seller has not relied upon any representations or other
information (whether oral or written) from Purchaser or any of Purchaser's
agents, and no oral or written representations have been made or oral or written
information furnished to Seller or Seller's advisors, if any, in connection with
the acceptance of the shares of AVRI Stock in payment of the Note which were in
any way inconsistent with the information set forth in the documents listed in
the first sentence of this Section 4.13(b). To the best knowledge of Seller,
Purchaser and AVRI have granted to Seller and its representatives the
opportunity to examine such documents and ask such questions of Purchaser and
AVRI as Seller has deemed necessary, and Seller has received satisfactory
answers from Purchaser and AVRI (or person's acting on Purchaser's or AVRI's
behalf) concerning the business of AVRI and the terms and conditions of the AVRI
Stock described herein. Purchaser will provide to Seller copies of all
Quarterly
9
<PAGE>
Reports on 10-Q filed after the Effective Date, together with such additional
information as Seller may reasonably request from Purchaser that is readily
available to Purchaser.
(c) Purchaser has made available to Seller all documents and
information that Seller has requested relating to an investment in Purchaser.
(d) Seller recognizes that an investment in Purchaser involves
substantial risks, and Seller has taken full cognizance of and understand all of
the risk factors related to the AVRI Stock.
(e) Seller has carefully considered and has, to the extent Seller
believes such discussion necessary, discussed with Seller's professional legal,
tax and financial advisers the suitability of an investment in Purchaser for
Seller's particular tax and financial situation and Seller has determined that
the AVRI Stock is a suitable investment for Seller.
(f) All information which Seller has provided to Purchaser concerning
Seller and the financial position of Seller is correct and complete as the date
set forth below.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER. Purchaser
represents, warrants and, as applicable, covenants, to and agrees with Seller
that:
5.1. PURCHASER'S AUTHORITY RELATIVE TO THIS AGREEMENT. This
Agreement has been duly executed and delivered by Purchaser, and no further
corporate action is necessary with respect to Purchaser to make this Agreement a
valid and binding obligation of Purchaser, enforceable in accordance with its
terms. Neither the execution, delivery nor performance of this Agreement by
Purchaser will result in a violation or breach of any term or provision under
the Articles of Incorporation or Bylaws or any resolution of the Board of
Directors or shareholders of Purchaser or constitute a default or breach of, or
accelerate the performance required under, or require the consent of any person
or entity under any indenture, mortgage, deed of trust or other contract or
agreement to which Purchaser is a party or by which it or any of its assets are
bound, or violate any order, writ, injunction or decree of any court,
administrative agency or governmental body.
5.2. ORGANIZATION AND EXISTENCE. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power to carry on its business as now
conducted and to enter into and perform this Agreement.
5.3. PURCHASER FINANCIAL STATEMENTS. Purchaser has heretofore
furnished Seller with complete copies of all of the financial information
described in Section 4.13(b) (the "Purchaser Financial Statements"), and until
Closing shall continue to provide Seller with copies of each successive month's
financial statements as soon as they become available. To the best of
Purchaser's knowledge, the Purchaser Financial Statements (including items
delivered after the Effective Date in accordance with this Section 5.3) are true
and complete in all material respects, have been prepared from the books and
records of Purchaser in accordance with generally accepted
10
<PAGE>
accounting principles consistently applied throughout the entire period
presented (except as disclosed therein and except for the absence of footnotes)
and present fairly the financial condition of Purchaser at such dates and the
results of operations of Purchaser for the periods reflected therein.
5.4. PURCHASER'S PAYMENT OF TAXES. Purchaser has filed, or has
filed appropriate requests for extensions of, all federal, foreign, state,
county, and local tax returns required to be filed by it for periods ending on
or before the Effective Date, and Purchaser has paid all taxes shown to be due
on such returns. For purposes of this Section 5.4, the term "taxes" shall have
the same meaning as set forth in Section 4.11(i). The liabilities for such
taxes reflected in the Purchaser Financial Statements represent, as of the date
thereof, reasonable provision for the payment of all accrued and unpaid taxes of
Purchaser accrued through that date, whether or not disputed, as well as
deferred taxes required under generally accepted accounting principles. The
income tax returns of Purchaser are not currently under audit by any federal,
state or foreign taxing authorities, and no taxable period has been audited by
federal authorities. There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the payment of any tax or the
assessment of any tax or deficiency of any nature against Purchaser, nor are any
suits or any other actions, proceedings, investigations or claims now pending or
threatened against Purchaser with respect to any tax or assessment, nor are any
matters under discussion with any federal, state, foreign or local authority
relating to any such taxes or assessments, or to any claims for additional taxes
or assessments asserted by any such authority. Purchaser has made available to
the Seller all income tax returns and schedules thereto or requests for
extensions thereof of Purchaser. Purchaser will not cause or voluntarily permit
a change in any income tax method of accounting by Purchaser or in the method of
allocation of the income tax liability of Purchaser during or applicable to its
current tax year which would render inaccurate, misleading or incomplete the
information concerning taxes set forth or referred to in this section, or which
would have a material adverse effect on Purchaser for any period prior to the
Closing Date.
5.5. COVENANT TO RESERVE SHARES. Purchaser hereby covenants that
Purchaser will cause AVRI at all times to reserve and keep available out of its
authorized and unissued Common Stock or treasury shares, solely for issuance
upon the conversion of shares of AVRI Stock in accordance with its terms, free
from any preemptive rights, such number of shares of Common Stock of AVRI as
shall be issuable upon the conversion of all the shares of the AVRI Stock then
outstanding.
5.6. COVENANT TO MAKE FILINGS. Purchaser hereby covenants that
Purchaser will cause AVRI to use reasonable efforts to complete such actions as
may be necessary to ensure the continued availability to Seller of Rule 144 of
the Securities and Exchange Act of 1934 (in accordance with its terms),
including the filing all required documents with the Securities and Exchange
Commission.
6. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITIES.
6.1. NATURE OF STATEMENTS. All statements contained in any Schedule
hereto or in any supplemental Schedule or in any certificate or other document
executed in connection with
11
<PAGE>
these transactions delivered by or on behalf of Seller or Purchaser pursuant to
this Agreement, or in connection with the transactions contemplated hereby,
shall be deemed representations and warranties by Seller or Purchaser, as the
case may be.
6.2. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Seller and Purchaser set forth herein shall survive the
Closing for a period of two (2) years and shall not be merged with the Bill of
Sale; provided that claims regarding a breach of a representation or warranty
made in writing by either party to the other within two (2) years shall survive
until resolution of such claims even if resolution extends beyond two (2)
years.
6.3. SELLER'S INDEMNITY. Seller agrees to indemnify, defend and hold
Purchaser forever harmless from and against any and all liability, demands,
claims, actions, or causes of action, assessments, losses, costs, damages or
expenses, whether asserted or unasserted, direct or indirect, existing or
inchoate, known or unknown, having arisen or to arise in the future, including
reasonable attorney's fees and court costs, sustained or incurred by Purchaser
resulting from or arising out of, relating to, or by virtue of (i) any breach by
Seller of its representations, warranties and covenants in this Agreement; (ii)
except for the Assumed Liabilities, all liabilities and obligations of Seller of
any kind or nature, known or unknown, relating to the Company Assets, the
Business or Seller; (iii) with respect to the Assigned Contracts, all
liabilities and obligations resulting from or arising out of the performance and
observance by Seller of, or the failure of Seller to perform and observe, any of
the covenants, terms and conditions of the Assigned Contracts prior to the
Closing Date; and (iv) Seller's operation of the Business prior to the Closing
Date. This indemnity shall survive Closing, provided, however, that with respect
to Section 6.3(i), this indemnity shall survive the Closing only for the period
described in Section 6.2 that the representations and warranties survive the
Closing.
6.4. PURCHASER'S INDEMNITY. Purchaser agrees to indemnify, defend
and hold Seller forever harmless from and against any and all liability,
demands, claims, actions, or causes of action, assessments, losses, costs,
damages or expenses, whether asserted or unasserted, direct or indirect,
existing or inchoate, known or unknown, having arisen or to arise in the future,
including reasonable attorney's fees and court costs, sustained or incurred by
Seller resulting from or arising out of, relating to, or by virtue of (i) any
breach by Purchaser of its representations, warranties and covenants in this
Agreement; (ii) all liabilities and obligations of Purchaser of any kind or
nature, known or unknown, relating to the Assumed Liabilities or Purchaser;
(iii) with respect to the Assigned Contracts, all liabilities and obligations
resulting from or arising out of the performance and observance by Purchaser of,
or the failure of Purchaser to perform and observe, any of the covenants, terms
and conditions of the Assigned Contracts on and after the Closing Date; and (iv)
Purchaser's operation of the Business following the Closing Date. This
indemnity shall survive Closing, provided, however, that with respect to Section
6.4(i), this indemnity shall survive the Closing only for the period described
in Section 6.2 that the representations and warranties survive the Closing.
6.5. PURCHASER'S RIGHT OF OFFSET. In addition to Purchaser's other
rights and remedies under this Agreement and notwithstanding any other provision
of this Agreement, for so long as any portion of (i) any amounts due from
Purchaser to Seller remain outstanding under the
12
<PAGE>
Note, or (ii) any shares of the AVRI Stock have not been issued to Seller, in
the event Purchaser has a claim against Seller for breach of any of the
representations, warranties and covenants made by Seller in this Agreement,
Purchaser shall be entitled to offset the amount of such claim(s) against (A)
the amounts owed by Purchaser to Seller under the Note, or (B) the AVRI Stock .
7. COVENANTS OF SELLER. Seller covenants with Purchaser that:
7.1. EMPLOYEES. Seller will pay, on or before the Closing Date, all
outstanding liability for the payment of (i) wages, vacation pay (whether
accrued or otherwise), salaries, bonuses or any other compensation accrued
through the Closing Date with respect to all persons employed by Seller and OTP
prior to the Closing Date, and (ii) fees and commissions accrued through the
Closing Date with respect to independent contractors engaged by Seller or OTP
prior to the Closing Date. Purchaser shall assume no liability, obligation or
responsibility under any bonus, life insurance, health insurance, or other plan
whereby Seller or OTP provides benefits for any of their respective employees,
independent contractors or their respective beneficiaries, and Purchaser shall
be permitted, but not obligated, to (a) hire any of the employees of Seller or
OTP, or (b) engage any independent contractors of Seller or OTP.
Notwithstanding the foregoing sentence, however, Purchaser hereby agrees to hire
those employees of Seller and Purchaser listed on Schedule 4.9; provided,
however, that Seller and Purchaser hereby agree that as a result of such hiring,
Purchaser shall not become liable or responsible for any bonus, life insurance,
health insurance, or other plan whereby Seller or OTP provided, or failed to
provide, benefits for any of their respective employees, independent contractors
or their respective beneficiaries relating to any period prior to Closing.
7.2. NO TAX DUE CERTIFICATE. Promptly after the Closing, Seller will
order a certificate from the Secretary of State of the State of New York as to
no sales taxes being due and unpaid by Seller, and Seller will deliver such
certificate to Purchaser as soon thereafter after as practicable.
8. THE CLOSING. Seller and Purchaser hereby agree to consummate the
closing of the sale and purchase of the Company Assets (the "Closing") at the
offices of Purchaser's legal counsel, Boyar, Simon & Miller, located at 4265 San
Felipe, Suite 1200, Houston, Texas 77027 (or such other place as Purchaser and
Seller so determine) immediately following execution of this Agreement (the
"Closing Date"). At the option of Purchaser and Seller, the documents relating
to the Closing may be exchanged by overnight courier without the necessity of
all parties being present at the Closing. At the Closing, the following shall
occur:
8.1. BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT. Seller and
Purchaser shall execute a Bill of Sale, Assignment and Assumption Agreement (the
"Bill of Sale"), in the form attached hereto as EXHIBIT "D", (a) conveying good
title to the Company Assets to Purchaser free and clear of all liens, claims,
encumbrances and interests, and (b) effecting the assumption by Purchaser of the
Assigned Contracts.
13
<PAGE>
8.2. STOCK CERTIFICATES. Seller shall deliver to Purchaser
certificate(s) representing the Shares, duly endorsed or accompanied by a duly
executed stock power in blank, and in proper form for transfer.
8.3. PURCHASE PRICE. Purchaser shall pay the amount of the Purchase
Price in the manner set forth in Section 2 above, including, without limitation,
the cash portion of such purchase price, the Note and one or more certificates
evidencing the AVRI Stock.
8.4. BANK SIGNATURE CARDS. Seller shall deliver to Purchaser
original replacement bank signature cards for all bank accounts owned by OTP.
8.5. RESIGNATION LETTERS. Seller shall deliver to Purchaser executed
letters of resignation from all existing officers and directors of OTP and each
of the persons listed on Schedule 8.5 for purposes of resigning their respective
positions, which letters shall expressly set forth that, as of the Closing Date,
each such person (i) is not a party to any agreement with OTP, or,
alternatively, that each resigns from all of such person's respective salaried
positions from the OTP, and (ii) does not have any claim of any nature
whatsoever against OTP, including, without limitation, claims for unpaid wages,
severance expenses or wrongful termination. Purchaser shall appoint new
officers and directors as Purchaser shall designate.
8.6. DELIVERY OF BOOKS AND RECORDS. Seller shall deliver to
Purchaser all of the original books and records of OTP, including, without
limitation, the original corporate minute book, and all employee files.
8.7. APPORTIONMENT. All ad valorem taxes, if any, shall be prorated
through the date of Closing, with such prorations based on tax rates and
assessments for the calendar year during which the Closing occurs unless such
rates and assessments are unavailable, in which event such prorations shall be
made based on the rates and assessments for the prior year. At the Closing,
Purchaser agrees to assume Seller's pro rated portion of the ad valorem taxes
and, Purchaser shall be entitled to offset such portion from the Purchase Price.
Notwithstanding that the parties intend to make a final settlement with respect
to certain items as of the Closing Date (i) all payments for utility services,
contract services, ad valorem and personal property taxes relating to the
Company Assets (which are not prorated as of the Closing Date) shall be prorated
between Seller and Purchaser as soon as reasonably practicable as of the Closing
Date, and (ii) settlement of such items shall occur within five (5) business
days after receipt of a request therefor accompanied by evidence that such
proration and payment is required hereunder.
8.8. EMPLOYMENT AGREEMENT. Purchaser and Yaniv Dagan shall execute
an Employment Agreement in the form attached hereto as EXHIBIT "E" (the
"Employment Agreement"), which Employment Agreement shall provide, in addition
to the other terms set forth therein, for (i) an initial term of three (3)
years, (ii) a base salary of $9,083.33 per month, and (iii) Mr. Dagan's
agreement not to compete with Purchaser following the termination of such
Employment Agreement in accordance with the terms of such Employment Agreement.
14
<PAGE>
9. CONDITIONS TO CLOSING.
9.1 SELLER AS RECORD OWNER OF THE SHARES OF OTP. Seller shall own
all of the issued and outstanding shares of OTP common stock, save and except
the three (3) shares of OTP common stock owned by Raoul Teh, Myla Rose Mundo and
Geraldine San Juan (the "Philipino Shareholders").
9.2 TRUST AGREEMENTS. Each of the Philipino Shareholders shall have
executed and delivered to Purchaser trust agreements in such form as may be
reasonably acceptable to Purchaser.
9.3 AVRI BOARD APPROVAL. AVRI's Board of Directors shall have
approved the transaction described in this Agreement.
9.4 RECEIPT OF COMFORT LETTER. Purchaser shall have received from
Statline, Inc. a comfort letter in such form as may be reasonably acceptable to
Purchaser regarding the accounting practices of the Business prior to Seller's
acquisition thereof.
10. FURTHER ACTS. Seller covenants and agrees that, from time to time on
and after the Closing Date, at the request of the Purchaser, Seller will execute
and deliver all consummatory bills of sale, assignments and other documents that
may reasonably be required to confirm and assure Purchaser of its title and
interest in the entirety of the Company Assets.
11. POSSESSION. At the Closing, Seller shall be obligated to deliver to
Purchaser at the Leased Premises all tangible items constituting the Company
Assets.
12. EXPENSES AND COMMISSIONS. Each of Seller and Purchaser will pay their
own expenses incident to the transaction contemplated by this Agreement.
Purchaser and Seller each represent to the other that there are no agents or
brokers entitled to a commission in connection with this purchase and sale of
the Company Assets. Seller hereby agrees to indemnify and hold harmless
Purchaser against any and all claims of any agent, broker, finder or similar
party claiming through Seller, and Purchaser hereby agrees to indemnify and hold
harmless Seller against any and all claims of any agent, broker, finder, or
other similar party claiming through Purchaser.
13. MISCELLANEOUS.
13.1. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
given if personally delivered or mailed, first class, registered or certified
mail, postage prepaid to the following:
If to Seller, to: Cornell Transcription, Inc.
16 W. 36st Street, 10th Floor
New York, New York 10018
Attention: Mr. Hillel Bronstein
Telecopy No. (212) 268-8878
15
<PAGE>
With a copy to: Golenbock, Eiseman, Assor & Bell
437 Madison Avenue
New York, New York 10022
Attention: Larry Haut
Telecopy No. (212) 754-0330
If to Purchaser, to: Applied Voice Recognition, Inc.
4615 Post Oak Place, Suite 111
Houston, Texas 77027
Attention: Chief Financial Officer
Telecopy No. (713) 621-5870
With a copy to: Boyar, Simon & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
Attention: Brian D. Baird
Telecopy No. (713) 552-1758
or to such other address as shall be given in writing by any party to the
others. If sent by U.S. mail in accordance with this Section 13.1, such notices
shall be deemed given and received on the earlier to occur of (a) actual receipt
at the above specified address of the mailed addressee, or (b) the third (3rd)
business day after deposit with the U.S. Postal Service in the manner herein
provided. Notices may also be transmitted by facsimile, provided that such
facsimile transmission is confirmed within one business day thereafter by U.S.
mail in accordance with this Section 13.1. Notices delivered by any other means
shall be deemed given and received upon actual receipt of the above specified
address of the addressee.
13.2. ASSIGNMENT. Except for assignment by Purchaser to an affiliate
company, this Agreement may not be assigned by either party without the prior
written consent of the other. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, personal legal
representatives, successors and permitted assigns.
13.3. ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules attached hereto) is the entire agreement among the parties hereto
regarding the subject matter dealt with herein and supersedes all prior
agreements and understandings whether written or oral.
13.4. SCHEDULES AND EXHIBITS. All schedules and exhibits attached to
and referenced in this Agreement are incorporated in this Agreement and made a
part hereof.
13.5. GOVERNING LAW; VENUE. This Agreement shall be governed by the
laws of the State of Texas. Venue for any dispute arising out of this Agreement
shall be proper in Houston, Harris County, Texas.
13.6. DISPUTE RESOLUTION. The parties agree that all disputes,
claims, damages and questions arising in connection with this Agreement or
between the parties hereto shall be
16
<PAGE>
settled by arbitration in accordance with the rules of the American Arbitration
Association in effect in Houston, Texas. Any dispute may be submitted by either
party to the American Arbitration Association and all proceedings with respect
thereto shall be conducted in Houston, Texas by a one person arbitrator, unless
the parties mutually agree otherwise. The award of the arbitrator shall be
final, conclusive, non-appealable and enforceable in a court of competent
jurisdiction. The prevailing party shall be entitled to costs and reasonable
attorney's fees arising out of such arbitration.
13.7. BULK SALES COMPLIANCE. Purchaser hereby waives compliance by
Seller with the provisions of any applicable bulk sales laws, and Seller
warrants and agrees to pay and discharge when due all claims of creditors,
taxes, fines, penalties and other liabilities which could be asserted against
Purchaser by reason of such non-compliance. Seller hereby indemnifies and holds
Purchaser harmless from, against and in respect of (and shall on demand from
Purchaser reimburse Purchaser for) any loss, liability, cost or expense,
including, without limitation, attorney's fees, suffered or incurred by
Purchaser by reason of the failure of Seller to pay or discharge such claims,
taxes, fines, penalties or other liabilities.
13.8. COLLECTION OF SELLER'S ACCOUNTS RECEIVABLE. Among the assets
of Seller that are not being conveyed to Purchaser under the terms of this
Agreement are Seller's accounts receivable. Notwithstanding the fact that
Purchaser is not purchasing such receivables from Seller, Purchaser does hereby
agree to use Purchaser's reasonable efforts to collect such receivables on
behalf of Seller. Any amounts collected by Purchaser shall be applied first to
the such customer's oldest receivables first, unless such customer designates
that such payment should be applied otherwise. Purchaser shall not be obligated
to institute any lawsuit or collection action against any party, or terminate
any agreement in connection with Purchaser's efforts to collect such receivables
on behalf of Seller, provided, however, that Purchaser shall be entitled to take
any such action in Purchaser's sole and exclusive discretion with respect to
Purchaser's efforts to collect any receivables owed to Purchaser or Seller.
Purchaser acknowledges and agrees that, if Purchaser receives any payments
attributable to the accounts receivable owed to Seller, then Purchaser shall
hold any and all such payments for the benefit of Seller and shall within thirty
days turn over to Seller any and all such payments.
13.9. NONCOMPETE; WORKING FOR COMPETITOR. As further inducement to
cause Purchaser to purchase the Assets, Seller and Bronstein agree that neither
of them will, at any time for twelve (12) months subsequent to the Closing Date,
directly or indirectly, within the United States, Canada, Mexico, South America,
Europe or the Republic of the Philippines, for Seller's or Bronstein's own
account or on behalf of any direct competitors of Purchaser, engage in any
business or transaction involving the design, installation, integration, service
or consulting with respect to (i) transcription services, or (ii) voice
recognition software designs and applications (whether as an employee, employer,
independent contractor, consultant, agent, principal, partner, stockholder,
corporate officer, director or in any other individual or representative
capacity), without the prior written consent of Purchaser, which consent may be
withheld by Purchaser in Purchaser's sole and absolute discretion.
17
<PAGE>
13.10. NON-SOLICITATION OF EMPLOYEES. Seller and Bronstein further
agree that, for a period of twenty-four (24) months after the Closing Date,
neither Seller nor Bronstein will in any way, directly or indirectly (i) induce
or attempt to induce any employee of Purchaser to quit employment with
Purchaser; (ii) otherwise interfere with or disrupt Purchaser's relationship
with its employees; (iii) solicit, entice or hire away any employee of
Purchaser; or (iv) hire or engage any employee of Purchaser or any former
employee of Purchaser whose employment with Purchaser ceased less than one year
before the date of such hiring or engagement. Seller and Bronstein each
acknowledge that any attempt on the part of Seller or Bronstein to induce others
to leave Purchaser's employ, or any effort by Seller or Bronstein to interfere
with Purchaser's relationship with its other employees would be harmful and
damaging to Purchaser.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties on
this the _____ day of November, 1998, to be effective as of the Effective Date.
SELLER:
CORNELL TRANSCRIPTION, INC., a New
York corporation
By:
-----------------------------------
Hillel Bronstein
President
PURCHASER:
AVRI HEALTH CARE INFORMATION
SERVICES, INC., a Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
AVRI:
APPLIED VOICE RECOGNITION, INC., a
Delaware corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
BRONSTEIN HEREBY EXECUTES THIS AGREEMENT FOR
THE EXPRESS PURPOSE OF AGREEING TO THE
PROVISIONS OF SECTIONS 13.9
BRONSTEIN:
_______________________________________
Hillel Bronstein
Signature Page to Asset Purchase Agreement
(Cornell Transcription, Inc.)
19
<PAGE>
Schedules:
1.1(c) List of Company Personal Property
1.1(d) List of Assigned Contracts
1.1(e) List of Computer Hardware and Software
1.1(f) List of Intellectual Property
1.1(h) List of Licenses and Permits
4.9 List of Employees and Contract Workers
4.11(j) Description of Insurance Policies
4.11(k) List of Banking Information
8.5 List of Persons to Resign Prior to Closing
Exhibits:
"A" Promissory Note
"B" Description of AVRI Stock
"C" Collection Targets
"D" Bill of Sale, Assignment and Assumption Agreement
"E" Employment Agreement
20
<PAGE>
SCHEDULE 1.1(c)
TO
ASSET PURCHASE AGREEMENT
Company Personal Property
-------------------------
Seller's:
- --------
None other than Schedule 1.1(e).
OTP's:
- -----
None other than Schedule 1.1(e).
<PAGE>
SCHEDULE 1.1(d)
TO
ASSET PURCHASE AGREEMENT
Assigned Contracts
------------------
Seller's:
- --------
Transcription Services Agreements Dated
---------------------------------- -----
1. Oakridge Medical Group August 1, 1998
2. Sample Road Rehabilitation Center August 1, 1998
Leases:
------
[1. Master Equipment Lease No. 2147 Schedule 1 dated May 13, 1998, by and
between Sterling National Bank, as lessor, and Seller, as lessee.]
[2. Master Equipment Lease No. 2147 Schedule 2 dated May 13, 1999, by and
between Sterling National Bank, as lessor, and Seller as lessee.]
OTP's:
- -----
None.
<PAGE>
SCHEDULE 1.1(e)
TO
ASSET PURCHASE AGREEMENT
List of Computer Hardware and Software
--------------------------------------
Seller's:
- --------
See attached list under "New York/New Jersey" and "Florida".
OTP's:
- -----
See attached list under "Philippines".
<PAGE>
SCHEDULE 1.1(f)
TO
ASSET PURCHASE AGREEMENT
List of Intellectual Property
-----------------------------
Seller's:
- --------
Names: "Statline" and "CTI Statline," and all trademark applications for such
names.
OTP's:
- -----
None.
<PAGE>
SCHEDULE 1.1(h)
TO
ASSET PURCHASE AGREEMENT
List of Licenses and Permits
-----------------------------
Seller's:
- --------
All software licenses utilized in the operation of the business of Seller:
(a) None.
OTP's:
- -----
All of the following software licenses utilized in the operation of the
business of OTP:
(a) None.
<PAGE>
SCHEDULE 4.9
TO
ASSET PURCHASE AGREEMENT
List of Employees and Independent Contractors
---------------------------------------------
Seller's:
- --------
See attached.
OTP's:
- -----
See attached.
<PAGE>
SCHEDULE 4.11(j)
TO
ASSET PURCHASE AGREEMENT
Description of Insurance Policies
---------------------------------
Seller's:
- --------
See attached.
OTP's:
- -----
See attached.
<PAGE>
SCHEDULE 4.11(k)
TO
ASSET PURCHASE AGREEMENT
List of Bank Information
------------------------
OTP's:
- -----
None.
<PAGE>
SCHEDULE 8.5
TO
ASSET PURCHASE AGREEMENT
List of Persons to Resign Prior to Closing
------------------------------------------
Mr. Hillel Bronstein
Mr. Stuart Szpicek
<PAGE>
EXHIBIT "A"
TO
ASSET PURCHASE AGREEMENT
Promissory Note
---------------
<PAGE>
EXHIBIT "B"
TO
ASSET PURCHASE AGREEMENT
Description of AVRI Stock
-------------------------
<PAGE>
EXHIBIT "C"
TO
ASSET PURCHASE AGREEMENT
Collection Targets
------------------
Collection Contingent
Quarterly Period Target Purchase Price*
- ---------------- ---------- ---------------
January 1, 1999 to March 30, 1999 $ 500,000 $ 40,000
April 1, 1999 to June 30, 1999 650,000 40,000
July 1, 1999 to September 30, 1999 850,000 40,000
August 1, 1999 to December 31, 1999 1,100,000 40,000
--------- -------
Total: $3,100,000 $160,000
* Contingent Purchase Price is payable in preferred stock pursuant to the
terms of Section 3 of the Agreement.
<PAGE>
EXHIBIT "D"
TO
ASSET PURCHASE AGREEMENT
Bill of Sale, Assignment and Assumption Agreement
-------------------------------------------------
<PAGE>
EXHIBIT "E"
TO
ASSET PURCHASE AGREEMENT
Employment Agreement
--------------------
<PAGE>
EXHIBIT 4.1
UNSECURED PROMISSORY NOTE
(Cornell Transcription, Inc.)
$270,000 HOUSTON, TEXAS DECEMBER 1, 1998
FOR VALUE RECEIVED, the undersigned, AVRI HEALTH CARE INFORMATION SERVICES,
INC., a Delaware corporation with offices located at 4615 Post Oak Place, Suite
111, Houston, Texas 77027 (hereinafter called "Maker"), promises to pay to the
order of CORNELL TRANSCRIPTION, INC., a New York corporation (hereinafter called
"Payee"), which term shall herein in every instance refer to any owner or holder
of this Note, the sum of TWO HUNDRED SEVENTY THOUSAND AND NO/100 DOLLARS
($270,000), without interest until maturity. All amounts due hereunder shall be
payable at the offices of Payee, 16 W. 36th Street, 10th Floor, New York, New
York 10018, or at such other place which Payee may hereafter designate in
writing.
After maturity (whether by acceleration in the event of default or
otherwise), all amounts outstanding hereunder shall bear interest at the rate of
eighteen percent (18%) per annum (the "Agreed Rate"). All payments hereunder
shall be first credited against any accrued and unpaid interest hereunder, with
all remaining amounts credited against unpaid principal. Any interest that
shall accrue in accordance herewith on the indebtedness evidenced by this Note
shall be computed on the basis of a year of 365 or 366 days, as the case may be.
This Note shall be payable as follows:
(i) $150,000 shall be due and payable on or before February 28, 1999.
Of such $150,000 payment, Purchaser shall deliver $25,000 directly to
Seller's lender, Innodata Corporation, a Delaware corporation ("Seller's
Lender"), as a payment on behalf of Seller, in satisfaction of that certain
$25,000 installment note payment due on or before April 30, 1999, pursuant
to the terms of that certain Promissory Note dated as of April 22, 1998, in
the original principal amount of up to $100,000 (the "Seller's Note").
Notwithstanding Purchaser's agreement to make such installment payment on
behalf of Seller, Purchaser shall not assume nor become liable for any of
Seller's obligations under the Seller's Note, it being Seller's and
Purchaser's intention and agreement that Purchaser is merely agreeing to
pay such amount directly to Seller's Lender on behalf of, and as an
accommodation to, Seller.
(ii) $120,000 shall be payable in twelve (12) equal monthly
installments of $10,000 each, payable on the first day of each month
commencing on January 1, 1999, and continuing thereafter until December 1,
1999, when, if not sooner paid, all outstanding amounts under the Note
shall be due and payable in full.
Page 1 of a 4 Page Note
<PAGE>
In the case of an Event of Default (as defined below) which is not cured
within ten (10) days after Maker receives written notice from Payee of the
existence of such Event of Default, then Payee shall have the option, to the
extent permitted by applicable law, to declare this Note due and payable,
whereupon the entire unpaid principal balance of this Note and all accrued
unpaid interest thereon shall thereupon at once mature and become due and
payable without presentment, demand, protest or notice of any kind (including,
but not limited to, notice of intention to accelerate or notice of
acceleration), all of which are hereby expressly waived by Maker.
The occurrence of any one or more of the following events with regard to
Maker shall constitute an Event of Default hereunder:
(A) Maker shall fail to pay when due the principal or interest hereunder;
(B) Maker shall fail to perform any of the obligations, covenants or
agreements legally imposed by the terms of this Note;
(C) Maker shall admit its inability to pay its debts as they mature or
shall make any assignment for the benefit of itself or any of its
creditors; or
(D) A receiver or trustee shall be appointed for the Maker or for any
substantial part of its assets, or any proceedings shall be instituted
for the dissolution or the full or partial liquidation of the Maker
and such receiver or trustee shall not be discharged within ninety
(90) days of his appointment, or Maker shall discontinue business or
materially change the nature of its business.
It is the intention of the parties hereto to conform strictly to applicable
usury laws as in effect from time to time during the term of this Note.
Accordingly, it is agreed that, notwithstanding any provision of this Note to
the contrary, if any transaction or transactions contemplated hereby would be
usurious under applicable law (including the laws of the United States of
America, or of any other jurisdiction whose laws may be mandatorily applicable),
then, in that event, notwithstanding anything to the contrary in this Note, or
any agreement entered into in connection with this Note, it is agreed as
follows: (i) the provisions of this paragraph shall govern and control; (ii) the
aggregate of all interest under applicable law that is contracted for, charged
or received under this Note shall under no circumstances exceed the maximum
amount of interest allowed by applicable law, and any excess shall be promptly
credited to Maker by Payee (or, if such consideration shall have been paid in
full, such excess shall be promptly refunded to Maker by Payee); (iii) neither
Maker nor any other person or entity now or hereafter liable in connection with
this Note shall be obligated to pay the amount of such interest to the extent
that it is in excess of the maximum interest permitted by the applicable usury
laws; and (iv) the effective rate of interest shall be ipso facto reduced to the
Highest Lawful Rate. All sums paid, or agreed to be paid, to Payee for the use,
forbearance and detention of the indebtedness of Maker to Payee shall, to the
extent permitted by applicable law, be amortized, pro rated, allocated and
spread throughout the full term of the indebtedness described in this Note,
until
Page 2 of a 4 Page Note
<PAGE>
payment in full so that the actual rate of interest does not exceed the Highest
Lawful Rate in effect at any particular time during the full term thereof. The
maximum lawful interest rate, if any, referred to in this paragraph that may
accrue pursuant to this Note is referred to herein as the "Highest Lawful Rate".
If at any time the Agreed Rate shall exceed the Highest Lawful Rate, and
thereafter the Agreed Rate should become less than the Highest Lawful Rate, the
rate of interest payable in such latter time shall be the Highest Lawful Rate
until Payee shall have received the amount of interest which Payee would have
otherwise received if the Agreed Rate had not been limited by the Highest Lawful
Rate during the period of time that the Agreed Rate exceeded the Highest Lawful
Rate. If at maturity or final payment of this Note the total amount of interest
paid or accrued under the foregoing provisions is less than the total amount of
interest which would have accrued if the Agreed Rate had at all times been in
effect, then Maker agrees to pay to Payee, to the extent allowed by law, an
amount equal to the difference between (a) the lesser of (i) the amount of
interest which would have accrued if the Highest Lawful Rate had at all times
been in effect or (ii) the amount of interest which would have accrued if the
Agreed Rate had at all times been in effect, and (b) the amount of interest
accrued in accordance with the other provisions of this Note.
Except as otherwise provided herein, Maker and all other parties now or
hereafter liable hereon severally waive grace, demand, presentment for payment,
protest, notice of any kind (including, but not limited to, notice of dishonor,
notice of protest, notice of intention to accelerate and notice of acceleration)
and diligence in collecting and bringing suit against any party hereto and agree
(i) to all extensions and partial payments, with or without notice, before or
after maturity, (ii) to any substitution, exchange or release of any security
now or hereafter given for this Note, (iii) to the release of any party
primarily or secondarily liable hereon, and (iv) that it will not be necessary
for Payee, in order to enforce payment of this Note, to first institute or
exhaust Payee's remedies against Maker or any other party liable therefor or
against any security for this Note.
In the event of any default hereunder and this Note is collected by suit or
legal proceedings or through bankruptcy proceedings, Maker agrees to pay, in
addition to all other amounts owing hereunder, all expenses and costs of
collection, including reasonable attorney's fees incurred by the holder hereof.
If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or legal banking holiday, such payment shall be made on the
next succeeding business day and such extension of time shall in such case be
included in computing interest in connection with such payment.
This Note has been executed and delivered in and shall be construed in
accordance with and governed by the laws of the State of Texas and of the United
States of America, without giving effect to principals of conflicts of laws.
This Note is unsecured.
Page 3 of a 4 Page Note
<PAGE>
EXECUTED this ___ day of November, 1998, to be effective as of December 1,
1998.
AVRI HEALTH CARE INFORMATION SERVICES, INC., a
Delaware corporation
By: ___________________________________
Name:_________________________________
Title:__________________________________
Signature Page to
Unsecured Promissory Note
(Cornell Transcription, Inc.)
Page 4 of a 4 Page Note
<PAGE>
EXHIBIT 4.2
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES 1 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 (the "Board of Directors") by its Certificate of Incorporation, and
pursuant to the provisions of Section 151(g) of the DGCL, such Board of
Directors, by unanimous consent of the directors dated November ___, 1998, duly
adopted a resolution providing for the issuance of a series of Two Thousand
(2,000) shares of the Corporation's Preferred Stock, par value $0.10 per share,
to be designated "Series 1 Preferred Stock," and fixing the voting powers,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, all pursuant to this
Certificate of Designation, Rights and Preferences of Series 1 Preferred Stock
of Applied Voice Recognition, Inc. (the "Certificate of Designation"), 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 $0.10 per
share, designated "Series 1 Preferred Stock" (herein referred to as "Series 1
Preferred Stock"), consisting of Two Thousand (2,000) shares, each of the par
value of $0.10 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 1 Preferred Stock."
B. NUMBER OF SHARES OF SERIES 1 PREFERRED STOCK. The number of
shares constituting all of the Series 1 Preferred Stock shall be Two Thousand
(2,000).
C. DIVIDENDS. The holders of the then outstanding shares of the
Series 1 Preferred Stock shall be entitled to dividends ("Preferred Dividends")
equal to ten percent (10%) of the aggregate Liquidation Preference (which shall
be the stated value of the Series 1 Preferred Stock, plus accrued but unpaid
dividends, if any) per annum per share of Series 1 Preferred Stock, payable
quarterly in arrears, which Preferred Dividends shall be paid, at the Company's
option, either (i) in
<PAGE>
cash, or (ii) in additional shares or fractional shares of Series 1 Preferred
Stock. In the event the Corporation elects to pay any such Preferred Dividends
in Series 1 Preferred Stock, the number of shares of Series 1 Preferred Stock to
be issued as Preferred Dividends pursuant hereto shall be equal to such number
of shares that has an aggregate Stated Value equal to the Preferred Dividends.
The Corporation shall be entitled to issue fractional shares of Series 1
Preferred Stock in the amount of 1/1,000 of a share of Series 1 Preferred Stock.
Preferred Dividends shall, when and as declared by the Corporation's Board of
Directors, be payable quarterly on the first day of each January, April, July
and October, 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 dividends on each share of Series 1 Preferred
Stock shall begin to accrue and accrue from the date of issuance of the Series 1
Preferred Stock, whether or not declared dividends on account of arrears for any
past dividend periods may be declared and paid at any time, without reference to
any regular dividend payment date, to holders of record on a record date fixed
for such payment by the Board of Directors of the Corporation or by a committee
of such Board of Directors duly authorized to fix such date by resolution
designating such committee.
The Preferred Dividends shall be cumulative, and no dividends shall be
declared or paid with respect to the Common Stock, $0.001 par value per share,
of the Corporation (the "Common Stock"), until all accrued Preferred Dividends
have been paid, or declared and, if dividends are to be paid in Series 1
Preferred Stock, shares of Series 1 Preferred Stock are set apart for payment,
for the current and all prior dividend periods. Payment of Preferred Dividends
shall be in preference to dividends on Common Stock and shall be junior to
payment of dividends on all other series of preferred stock of the Corporation.
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 1 Preferred Stock shall be entitled to be paid out of
the assets of the Corporation available for distribution to its shareholders,
after the payment or declaration and setting apart for payment of any amount
required with respect to all other series of preferred stock and before any
payment or declaration and setting apart for payment of any amount shall be made
with respect to the Common Stock, One Thousand Dollars and 00/100 ($1,000.00)
per share, plus an amount per share equal to all earned but unpaid dividends,
and no more. If upon the occurrence of such event the assets distributable
among the holders of the Series 1 Preferred Stock and stock ranking on parity
with the Series 1 Preferred Stock, if any, as to assets in liquidation
(collectively, "Parity Stock") shall be insufficient to permit the payment of
the full preferential amounts for the Series 1 Preferred Stock and Parity Stock,
then the assets and funds of the Corporation legally available for distribution
to such holders shall be distributed among the holders of the Series 1 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 1 Preferred Stock
and the Parity Stock of their full preferential amounts have been made, the
holders of Series 1 Preferred Stock shall not be entitled to any additional
distributions with respect to the Series 1 Preferred Stock.
2
<PAGE>
At each holder's option, a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation to a private entity, the
common stock of which is not publicly traded, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section D;
provided, however, that an event described in the prior clause that the holder
does not elect to treat as a liquidation, consolidation, merger, acquisition or
other business combination of the Corporation with or into any other company or
companies shall not be treated as a liquidation, dissolution or winding up
within the meaning of this Section D, but instead shall be treated pursuant to
the terms of the following paragraph (a holder who elects to have the
transaction treated as a liquidation is herein referred to as a "Liquidating
Holder").
Prior to the closing of a transaction described in the preceding
paragraph which would constitute a liquidation event, the Corporation shall
either (i) make all cash distributions it is required to make to the Liquidating
Holders pursuant to the first sentence of the first paragraph of this Section D,
(ii) set aside sufficient funds from which the cash distributions to the
Liquidating Holders can be made, or (iii) establish an escrow or other similar
arrangement with a third party pursuant to which the proceeds payable to the
Corporation from a sale of all or substantially all of the assets of the
Corporation will be used to make the liquidating payments to the Liquidating
Holders immediately after the consummation of such sale. In the event that the
Corporation has not fully complied with either of the foregoing alternatives,
the Corporation shall either: (x) cause such closing to be postponed until such
cash distributions have been made, or (y) cancel such transaction, in which the
rights of the holders shall be the same as existing immediately prior to such
proposed transaction.
E. REDEMPTION. Any shares of the Series 1 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 One Thousand Dollars and 00/100s ($1,000.00)
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 1 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 1
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 1 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 1
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 1 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 1 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.
3
<PAGE>
F. CONVERSION RIGHTS.
(i) Each holder of shares of Series 1 Preferred Stock
shall be entitled to cause any or all of such shares to be converted into shares
of Common Stock, which shares of Common Stock have been registered pursuant to a
registration statement filed by the Corporation with the Securities and Exchange
Commission for a public offering and sale of stock, pursuant to the terms of the
Securities Act of 1933, as amended, or any similar federal statute, and the
rules and regulations promulgated thereunder, all as the same shall be in effect
at the time. Each share of Series 1 Preferred Stock is convertible into such
number of shares of Common Stock equal to (i) the Liquidation Value of the
Series 1 Preferred Stock being converted, plus an amount per share equal to all
earned but unpaid dividends, if any, divided by (ii) the average closing price
of the Common Stock for the thirty (30) day period immediately preceding the
effective date of such conversion 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 in exchange for each share of the
Series 1 Preferred Stock 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
shall determine the number of shares of Common Stock to be issued for each share
of Series 1 Preferred Stock in the exercise of their reasonable discretion. In
the event the Company desires to sell any of its securities by means of an
underwritten offering, each holder of shares of the Series 1 Preferred Stock
shall be obligated to convert all of their shares of Series 1 Preferred Stock
into shares of Common Stock.
(ii) Each holder of Series 1 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 1 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 1 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 1
Preferred Stock by the Corporation or the transfer agent for the Series 1
Preferred Stock, accompanied by written notice of conversion. Such notice of
conversion shall specify (1) the number of shares of Series 1 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 1 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 1 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 1 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
4
<PAGE>
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 1
Preferred Stock to be converted, duly assigned or endorsed for conversion (or
accompanied by duly executed stock powers relating thereto) as provided in this
Certificate of Designation. 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 1 Preferred Stock, but in lieu thereof shall pay to the holder converting
such Series 1 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 1/100th of a share of Common Stock multiplied by the conversion
price described in paragraph (1) of this Section F.
(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 1 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 1 Preferred Stock then outstanding.
G. ANTI-DILUTION ADJUSTMENTS.
(i) If, prior to the conversion of all the Series 1
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 1 Preferred
Stock shall thereafter have the right to receive upon conversion of Series 1
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 1
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 1 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 1 Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any transaction described
in this subsection (i) 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 1 Preferred stock shall be entitled to convert their
Series 1 Preferred Stock into shares of Common Stock to the extent permitted
hereby), and (b) the resulting successor or acquiring entity (if not the
5
<PAGE>
Corporation) assumes by written instrument the obligation of the Corporation
under the Certificate of Incorporation of the Corporation, including the
obligation of this subsection (i).
(ii) The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all time in good faith assist in the carrying out of
all the provisions of this paragraph and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series 1 Preferred Stock against impairment.
(iii) Upon the occurrence of each adjustment or readjustment
pursuant to subparagraph (i) above, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series 1 Preferred Stock a
certificate signed by the Chief Financial Officer of the Corporation setting
forth (i) such adjustment or readjustment, and (ii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of his shares.
H. VOTING RIGHTS. Except as otherwise required by the DGCL or
this Certificate of Designation, the holders of Series 1 Preferred Stock shall
have no voting rights.
I. PROTECTIVE PROVISION. So long as shares of Series 1 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 1 Preferred Stock, and at least sixty-six and two-thirds percent
(66 2/3%) of the then outstanding holders of Series 1 Preferred Stock, alter or
change the rights, preferences or privileges of the Series 1 Preferred Stock.
6
<PAGE>
J. MISCELLANEOUS.
(i) So long as any shares of Series 1 Preferred Stock are
outstanding, the Corporation will not purchase, redeem or otherwise acquire or
retire for value any Parity Stock; provided, however, that the Corporation may
make such payments if in any given quarter holders of the Series 1 Preferred
Stock shall have received payment for all dividends due and payable in such
quarter.
(ii) 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 1
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.
(iii) 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 1 Preferred Stock or shares of Common Stock or
other securities issued on account of Series 1 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 1
Preferred Stock or Common Stock or other securities in a name other than that in
which the shares of Series 1 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 any such tax or has established, to
the satisfaction of the Corporation, that such tax has been paid or is not
payable.
(iv) In the event that the holder of shares of Series 1
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 1 Preferred Stock.
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(v) The Corporation may appoint, and from time to time
discharge and change, a transfer agent of the Series 1 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 1 Preferred Stock.
(vi) The Corporation shall appoint, and from time to time
may replace, a conversion agent for the Series 1 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 1
Preferred Stock.
(vii) Any Series 1 Preferred Stock redeemed, purchased,
converted or otherwise acquired by the Corporation in any manner whatsoever
shall not be reissued as part of such Series 1 Preferred Stock and shall be
retired promptly after the acquisition thereof.
(viii) The Series 1 Preferred Stock shall be transferable by
the holders, provided that such transfer is made in compliance with applicable
federal and state securities laws.
(ix) Nothing contained herein shall be construed to prevent
the Board of Directors of the Corporation from issuing one or more series of
preferred stock with dividend and/or liquidation preferences superior or junior
to the Series 1 Preferred Stock.
IN WITNESS WHEREOF, Applied Voice Recognition, Inc. has caused this
certificate to be signed by Timothy J. Connolly, its Chairman and Chief
Executive Officer, as of the ___ day of ______________, 199__.
APPLIED VOICE RECOGNITION, INC.
By:
---------------------------------
Timothy J. Connolly, Chairman and
Chief Executive Officer
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