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SECURITIES AND EXCHANGE COMMISSION 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):
January 15, 1999 (December 31, 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
------------------------------------------------
(Commission File (IRS Employer
Number) 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 31, 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"),
acquired the assets of Linda R. Willhite Transcription ("LRW Transcription") a
sole proprietorship owned by Linda R. Willhite.
LRW Transcription has been in business since November 1989, and specializes in
providing transcription services to the healthcare industry in the Denver,
Colorado metropolitan area. With offices in Arvada, Colorado LRW Transcription
provides transcription services to over 15 clients.
Pursuant to the Asset Purchase Agreement (the "Agreement") the Company acquired
certain assets owned by LRW Transcription 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) $75,000 in
cash, including amounts paid by the Company to the creditors of LRW
Transcription, (ii) and $150,000 of the Company's Series 2 Preferred Stock, par
value $.10 per share (the "Preferred Stock"). The Preferred Stock will issue in
three equal annual installments with a stated value of $50,000, each
installment. These installments are payable on December 31, 1999, December 31,
2000 and December 31, 2001. In addition, the Company may issue additional
Preferred Stock to LRW Transcription, if LRW Transcription meets or exceeds
certain revenue targets, as set forth in the agreement, over the next three
years with a stated value of up to $125,000.
The Preferred Stock carries an 8% cumulative dividend payable in cash or in
additional 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, 2000. Each share of the Preferred Stock
when issued will be convertible, at any time, into a number of shares of Common
Stock equal to (i) $100 per share of Preferred Stock being converted, plus any
earned, but unpaid dividends, if any, divided by (ii) the greater of $1.00 per
share or the average daily closing price of the Company's Common Stock for the
thirty day
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period immediately preceding the effective date of any such
conversion on the Over-The-Counter Bulletin Board. The Company has agreed to
register such shares of Common Stock issued upon conversion of the Preferred
Stock for resale under the Securities Act of 1933, as amended, at the expense of
the Company. These shares of preferred stock are subject to automatic conversion
if the Company undertakes an underwritten public offering with an aggregate
market value of $10,000,000 or more. 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 $100 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, pro forma financial information and exhibits
(a) Financial Statements
None
(b) Pro Forma Financial Statements
None
(c) Exhibits
The following exhibits are filed with this report on Form 8-K:
2.1 Asset purchase agreement by and among the Company and LRW Transcription
dated December 31, 1998
3.1 Series 2 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.
January 15, 1999 /s/ William T. Kennedy
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William T. Kennedy
Chief Financial Officer and
Assistant Secretary
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ASSET PURCHASE AGREEMENT
(Linda R. Willhite Transcription)
This ASSET PURCHASE AGREEMENT (the "Agreement"), dated as of the ___ day of
December, 1998 (the "Effective Date"), is by and between LINDA R. WILLHITE, an
individual residing in Arvada, Colorado, d/b/a Linda R. Willhite Transcription
("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 the sole proprietor of, and does business as, Linda R.
Willhite Transcription (the "Company");
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 the
Company, 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 6, 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) All real property, if any, owned or leased by Seller for the
use of the Company, and the improvements, if any, located within such leased
space (collectively, the "Company Facilities");
(b) 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(b) attached hereto (the "Company
Personal Property");
(c) All contracts and agreements listed on SCHEDULE 1.1(c)
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");
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(d) All rights of Seller in and to the computer hardware and
computer software listed on SCHEDULE 1.1(d) attached hereto;
(e) 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 the Company, including, without limitation, all such rights listed on
SCHEDULE 1.1(e) attached hereto;
(f) All existing books and records of the Company through the
Closing, including, without limitation, all of the Company's customer lists; and
(g) The licenses, permits and certifications listed on SCHEDULE
1.1(g) attached hereto.
1.2 EXCLUDED ASSETS AND LIABILITIES. Except for the Company Assets
specifically described herein, no other assets owned by Seller or utilized by
the Company shall be conveyed pursuant to this Agreement. All of the accounts
receivable (the "Seller Accounts Receivable") of Seller for services rendered
prior to the Closing Date are excluded from this sale transaction and shall be
retained by Seller. Purchaser shall promptly forward to Seller all payments
received by Purchaser with respect to such Seller Accounts Receivable. Except
for obligations of Seller under the Assigned Contracts and the ad valorem taxes,
if any, relating to the Company Assets for 1998 (as described in Section 7.3
below, and referred to herein as the "Seller's Tax Share"), Purchaser shall not
assume or be subject to, or in any way be liable or responsible for, and Seller
shall indemnify and hold Purchaser harmless from, any liabilities or obligations
of Seller of any kind or nature, known or unknown, relating to the Company
Assets or Seller.
2. PURCHASE PRICE. The Purchase Price for the Company Assets shall be
$350,000.00 less (A) the aggregate amount of Seller's liabilities, if any, to be
assumed by Purchaser under the Assigned Contracts, as set forth on SCHEDULE 2
attached hereto, and (B) Seller's Tax Share. The Purchase Price shall be paid
as follows:
(a) Purchaser's delivery to Seller of $75,000.00 in cash at Closing,
less all amounts paid by Purchaser directly to the creditors of Seller, as
reflected on the Closing Statement to be executed by Purchaser and Seller at the
Closing.
(b) The issuance and delivery by AVRI to Seller of such number of
shares of convertible preferred stock of AVRI that have 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 $150,000.00
(the "AVRI Stock"), which AVRI Stock shall be issued and delivered by AVRI in
three (3) equal annual installments of AVRI Stock, each with a Stated Value of
$50,000 on December 31, 1999, December 31, 2000 and December 31, 2001,
respectively. See EXHIBIT "A" attached hereto and incorporated herein for a
description of the AVRI Stock. Purchaser hereby agrees that the provisions of
the last sentence of Paragraph I of EXHIBIT "A" shall not apply to any AVRI
Stock distributed to Seller under this Agreement.
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(c) Provided that Purchaser meets the gross revenue goals for each
yearly period set forth on EXHIBIT "B" attached hereto (collectively, the
"Targets," and separately, a "Target), 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 yearly period (the
"Contingent Purchase Price"). Any Contingent Purchase Price earned hereunder
shall be paid by Purchaser to Seller no later than sixty (60) days after
December 31 of the particular year for which the Contingent Purchase Price was
earned. In the event that for any particular year the estimated aggregate gross
revenues fail to meet the Target for such yearly period, then no Contingent
Purchase Price shall be earned by, or paid to, Seller with respect to such
yearly period, and such Contingent Purchase Price shall not be carried over to
any subsequent yearly period.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and
warrants to and agrees with Purchaser that:
3.1 SELLER'S AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement
has been duly executed and delivered by Seller, and no further action is
necessary with respect to Seller to make this Agreement a valid and binding
obligation of Seller, enforceable in accordance with its terms. The conveyance
evidenced by this Agreement does not include all or substantially all of the
assets of Seller, but merely substantially all of the assets of Seller utilized
by the Company. 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.
3.2 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.
3.3 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.
3.4 TITLE TO COMPANY ASSETS. Seller has good and marketable 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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3.5 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, the Company or the Company Assets.
3.6 FINANCIAL STATEMENTS. Seller has heretofore furnished Purchaser
with complete copies of (a) all currently available unaudited financial
statements relating to the Company for the year ending December 31, 1997, and
(b) currently available unaudited financial statements relating to the Company
for the month ended November 30, 1998 (collectively, the "Financial
Statements"), and 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 Financial Statements (including items delivered
after the Effective Date in accordance with this Section 3.6) are true and
complete in all material respects, have been prepared from the books and records
of the Company in accordance with generally accepted accounting principles
consistently applied throughout the entire period presented (except as disclosed
therein) and present fairly the financial condition of the Company at such dates
and the results of operations of the Company for the periods reflected therein.
3.7 MISCELLANEOUS. All agreements, reports and other documents
furnished by Seller to Purchaser are true, accurate and complete copies of the
agreements, reports and other documents they purport to be.
3.8 SECURITIES REPRESENTATIONS AND WARRANTIES. Seller represents and
warrants the following with respect to 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, 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 AVRI, an exemption from the registration requirements of the Act and such
laws is available; and (ii) AVRI 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) AVRI's Annual Report on Form 10-K for fiscal year ended December 31,
1997; (ii) AVRI's Quarterly Report on Form 10-Q for fiscal quarter ended March
31, 1998; (iii) AVRI's
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Quarterly Report on Form 10-Q for fiscal quarter ended June 30, 1998; and (iv)
AVRI's Quarterly Report on Form 10-Q for fiscal quarter ended September 30,
1998. In evaluating the suitability of an investment in AVRI, Seller has not
relied upon any representations or other information (whether oral or written)
from AVRI or any of AVRI'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
which were in any way inconsistent with the information set forth in the
documents listed in the first sentence of this Section 3.8(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 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) AVRI has made available to Seller all documents and
information that Seller has requested relating to an investment in AVRI.
(d) Seller recognizes that an investment in AVRI involves
substantial risks, and Seller has taken full cognizance of and understands all
of the risk factors related to the acceptance of 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 AVRI 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.
4. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents and
warrants to and agrees with Seller that:
4.1 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.
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4.2 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. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
5.1 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 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.
5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
investigation at any time made by or on behalf of any party hereto or of any
information any party may have in respect thereof, all representations and
warranties made hereunder or pursuant hereto shall survive the Closing.
5.3 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
Company 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 Company prior to the Closing Date.
5.4 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 Company following the Closing Date.
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5.5. 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 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 or is otherwise entitled to indemnity from Seller
pursuant to Section 5.3, Purchaser shall be entitled to offset the amount of
such claim(s) or indemnity against the AVRI Stock.
6. COVENANTS OF SELLER. Seller covenants with Purchaser that:
6.1 EMPLOYEES. Attached hereto as SCHEDULE 6.1 is a list of all
employees of the Seller, other than Seller, and all independent contractors
utilized by the Seller in connection with the Company's business. 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 with respect to all persons employed by Seller prior to the
Closing Date, and (ii) fees and commissions with respect to independent
contractors engaged by Seller 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 provides benefits for any of its
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 (b) engage any independent contractors of Seller. Also
indicated on SCHEDULE 6.1 are those employees and contractors that Purchaser
will not utilize as employees or independent contractors, as the case may be, in
Purchaser's business.
6.2 NO TAX DUE CERTIFICATE. Promptly after the Closing, Seller will
order a certificate from the Comptroller of the State of Colorado 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.
7. 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:
7.1 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 "C", (a) conveying good
and marketable 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.
7.2 PURCHASE PRICE. Purchaser shall pay the amount of the Purchase
Price in the manner set forth in Section 2 above.
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7.3 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.
7.4 EMPLOYMENT AGREEMENT. Seller and Purchaser shall execute an
Employment Agreement in the form attached hereto as EXHIBIT "D" (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 $4,166.66 per month, (iii) Seller's agreement not to compete with
Purchaser following the termination of such Employment Agreement in accordance
with the terms of such Employment Agreement, and (iv) the bonus compensation
plan set forth in the Employment Agreement.
7.5 OPTION AGREEMENT. Seller and Purchase shall execute a
Nonqualified Stock Option Agreement in the form attached hereto as EXHIBIT "E"
(the "Option Agreement'), which Option Agreement shall provide, in addition to
the other terms set forth therein, for (i) the grant to Seller options to
acquire 15,000 shares of AVRI's common stock (the "Stock Options") at a price
per share equal to the closing price of AVRI's common stock on the Closing Date,
(ii) for so long as Seller is an employee of Purchaser, one-third (1/3) of such
Stock Options will vest, if ever, each year on the anniversary of the Closing
Date, in other words, 5,000 Stock Options will vest on the first anniversary of
the Closing Date, 5,000 Stock Options will vest on the second anniversary of the
Closing Date, and 5,000 Stock Options will vest on the third anniversary of the
Closing Date, and (iii) the Stock Options will be unregistered and restricted
from being sold for the period established by federal law.
8. 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.
9. POSSESSION. At the Closing, Seller shall be obligated to deliver to
Purchaser at the Company Facilities all tangible items constituting the Company
Assets.
10. 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
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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.
11. MISCELLANEOUS.
11.1 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: Linda R. Willhite Transcription
8999 W. 57th Avenue
Arvada, CO 80002
Telecopy No. (303) 420-8714
With a copy to: David Summers, Esq.
5670 Greenwood Plaza, Suite 422
Englewood, CO 80111
Telecopy No. (303) 220-7755
If to Purchaser, to: AVRI Health Care Information Services, Inc.
4615 Post Oak Place, Suite 111
Houston, Texas 77027
Attention: President
Telecopy No. (713) 621-5870
With a copy to: Brian D. Baird, Esq.
Boyar, Simon & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
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 11.1, 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 11.1. Notices delivered by any other means
shall be deemed given and received upon actual receipt of the above specified
address of the addressee.
11.2 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
9
<PAGE>
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.
11.3 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.
11.4 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.
11.5 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 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.
11.6 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 an din 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.
11.7 SCHEDULES AND EXHIBITS. All schedules and exhibits attached to
and referenced in this Agreement are incorporated in this Agreement and made a
part hereof.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties as
of the Effective Date.
SELLER:
______________________________________
LINDA R. WILLHITE
PURCHASER:
AVRI HEALTH CARE INFORMATION SERVICES,
INC., a Delaware corporation
By:
-----------------------------------
(Signature)
Name:
---------------------------------
(Printed Name)
Title:
--------------------------------
Schedules:
1.1(b) Company Personal Property
1.1(c) Assigned Contracts
1.1(d) List of Computer Hardware and Software
1.1(e) List of Intellectual Property
1.1(g) List of Licenses and Permits
2 Assumed Liabilities
6.1 List of Employees and Contract Workers
Exhibits:
"A" Description of Stock
"B" Targets
"C" Bill of Sale, Assignment and Assumption Agreement
"D" Employment Agreement
"E" Nonqualified Option Agreement
Signature Page to
Asset Purchase Agreement
(Linda R. Willhite Transcription)
11
<PAGE>
SCHEDULE 1.1(b)
TO
ASSET PURCHASE AGREEMENT
Company Personal Property
<PAGE>
SCHEDULE 1.1(c)
TO
ASSET PURCHASE AGREEMENT
Assigned Contracts
<PAGE>
SCHEDULE 1.1(d)
TO
ASSET PURCHASE AGREEMENT
List of Computer Hardware and Software
<PAGE>
SCHEDULE 1.1(e)
TO
ASSET PURCHASE AGREEMENT
List of Intellectual Property
1. Name: "Linda R. Willhite Transcription"
<PAGE>
SCHEDULE 1.1(g)
TO
ASSET PURCHASE AGREEMENT
List of Licenses and Permits
1. All software licenses utilized in the operation of the business of
Linda R. Willhite Transcription.
<PAGE>
SCHEDULE 2
TO
ASSET PURCHASE AGREEMENT
Assumed Liabilities
None.
<PAGE>
SCHEDULE 7.1
TO
ASSET PURCHASE AGREEMENT
List of Employees and Independent Contractors
(See attached list)
<PAGE>
EXHIBIT "B"
TO
ASSET PURCHASE AGREEMENT
Revenue Targets
Gross Revenue Contingent
Year Target Purchase Price*
1999 $665,000 $41,666
2000 $807,500 $41,667
2001 $950,000 $41,667
*Contingent Purchase Price is payable in AVRI Stock pursuant to the terms
of Section 2(c) of the Agreement.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION, PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES 2 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 a meeting on, or by unanimous consent of the directors dated as
of, December 16, 1998, duly adopted a resolution providing for the issuance of a
series of Two Hundred Fifty Thousand (250,000) shares of the Corporation's
Preferred Stock, par value $0.10 per share, to be designated "Series 2
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 2 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 2 Preferred Stock" (herein referred to as "Series 2
Preferred Stock"), consisting of Two Hundred Fifty Thousand (250,000) 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 2 Preferred Stock."
B. NUMBER OF SHARES OF SERIES 2 PREFERRED STOCK. The number of shares
constituting all of the Series 2 Preferred Stock shall be Two Hundred Fifty
Thousand (250,000).
C. DIVIDENDS. The holders of the then outstanding shares of the
Series 2 Preferred Stock shall be entitled to dividends ("Preferred Dividends")
equal to eight percent (8%) of the aggregate Liquidation Preference (as defined
in Section D) per annum per share of Series 2 Preferred Stock, payable quarterly
in arrears, which Preferred Dividends shall be paid, at the
<PAGE>
Company's option, either (i) in cash, or (ii) in additional shares or fractional
shares of Series 2 Preferred Stock. In the event the Corporation elects to pay
any such Preferred Dividends in Series 2 Preferred Stock, the number of shares
of Series 2 Preferred Stock to be issued as Preferred Dividends pursuant hereto
shall be equal to such number of shares that have an aggregate stated value
equal to the Preferred Dividends. The Corporation shall be entitled to issue
fractional shares of Series 2 Preferred Stock in the amount of 1/100 of a share
of Series 2 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 2 Preferred Stock shall begin to accrue and accrue from the
date of issuance of the Series 2 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"), or any class of stock ranking, as to
dividend rights, junior to the Series 2 Preferred Stock, until all accrued
Preferred Dividends have been paid, or declared and, if dividends are to be paid
in Series 2 Preferred Stock, shares of Series 2 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 or any
other shares of stock of the Corporation ranking junior to the Series 2
Preferred Stock, shall be on parity with payment of dividends on the
Corporation's Series 1 Preferred Stock and shall be junior to payment of
dividends on all series of preferred stock of the Corporation designated by a
letter of the alphabet (collectively, the "Lettered Series Preferred Stock").
D. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
the holders of the Series 2 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 Lettered 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 Hundred Dollars and 00/100 ($100.00) per
share, plus an amount per share equal to all earned but unpaid dividends, and no
more (the "Liquidation Preference"). If upon the occurrence of such event the
assets distributable among the holders of the Series 2 Preferred Stock and stock
ranking on parity with the Series 2 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 2 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 2 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 2 Preferred Stock and the Parity Stock of their full preferential amounts
have been made, the holders
2
<PAGE>
of Series 2 Preferred Stock shall not be entitled to
any additional distributions with respect to the Series 2 Preferred Stock.
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 2 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 Hundred Dollars and 00/100 ($100.00) 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 2 Preferred Stock then eligible for redemption 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 2 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 2 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 2 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 2 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 2 Preferred Stock to be
redeemed shall be entitled to receive the redemption price upon actual delivery
to the Corporation of certificates for
3
<PAGE>
the shares to be redeemed, duly endorsed in blank or accompanied by proper
instruments of assignment and transfer duly endorsed in blank.
F. CONVERSION RIGHTS.
(i) Each holder of shares of Series 2 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 2 Preferred Stock is convertible into such
number of shares of Common Stock equal to (i) the Liquidation Preference of the
Series 2 Preferred Stock being converted, divided by (ii) the greater of (A) One
Dollar and 00/100 ($1.00) per share, and (B) the average closing price per share
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
calculation of the number of shares of Common Stock to be issued in exchange for
each share of the Series 2 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 exists 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 2 Preferred Stock in the exercise of their
reasonable discretion. In the event the Company desires to sell any of its
securities with an aggregate market value of at least $10,000,000 by means of an
underwritten offering, each holder of shares of the Series 2 Preferred Stock
shall be obligated to convert all of their shares of Series 2 Preferred Stock
into shares of Common Stock.
(ii) Each holder of Series 2 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 2 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 2 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 2 Preferred Stock by the
Corporation or the transfer agent for the Series 2 Preferred Stock, accompanied
by written notice of conversion. Such notice of conversion shall specify (1) the
number of shares of Series 2 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 2 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 2 Preferred Stock, only part of which are to
4
<PAGE>
be converted, the Corporation shall issue and deliver to such holder a new
certificate or certificates representing the number of shares of Series 2
Preferred Stock which shall not have been converted.
(iv) The issuance by the Corporation of shares of Common Stock
pursuant to paragraph (i) of this Section F shall be effective as of the earlier
of (1) the delivery to such holder of the certificates representing the shares
of Common Stock issued upon conversion thereof, or (2) immediately prior to the
close of business on the day of surrender of the certificate or certificates for
the shares of Series 2 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 2
Preferred Stock, but in lieu thereof shall pay to the holder converting such
Series 2 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 (i) 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 2 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 2 Preferred Stock then outstanding.
G. ANTI-DILUTION ADJUSTMENTS.
(i) If, prior to the conversion of all the Series 2 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 2 Preferred
Stock shall thereafter have the right to receive upon conversion of Series 2
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 2
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 2 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 2 Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
conversion thereof. The
5
<PAGE>
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 2 Preferred
stock shall be entitled to convert their Series 2 Preferred Stock into shares of
Common Stock to the extent permitted hereby), and (b) the resulting successor or
acquiring entity (if not the Corporation) assumes by written instrument the
obligation of the Corporation under the 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 2 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 2 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 2 Preferred Stock shall have
no voting rights.
I. PROTECTIVE PROVISION; AMENDMENT. So long as shares of Series 2
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 2 Preferred Stock, and at least sixty-six and two-thirds
percent (66 2/3%) of the then outstanding holders of Series 2 Preferred Stock,
alter or change the rights, preferences or privileges of the Series 2 Preferred
Stock. Notwithstanding the foregoing sentence, however, the Corporation may
amend this Certificate of Designation with respect to any unissued shares of
Series 2 Preferred Stock, including, without limitation, increasing or
decreasing the number of shares constituting the Series 2 Preferred Stock.
J. MISCELLANEOUS.
(i) So long as any shares of Series 2 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
purchase, redeem or otherwise acquire or retire for value any Parity Stock if in
any given quarter holders of the Series 2 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
6
<PAGE>
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 2 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 2 Preferred Stock or shares of Common Stock or
other securities issued on account of Series 2 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 2
Preferred Stock or Common Stock or other securities in a name other than that in
which the shares of Series 2 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 2 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 2 Preferred Stock.
(v) The Corporation may appoint, and from time to time discharge
and change, a transfer agent of the Series 2 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
2 Preferred Stock.
(vi) The Corporation shall appoint, and from time to time may
replace, a conversion agent for the Series 2 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 2
Preferred Stock.
(vii) Any Series 2 Preferred Stock redeemed, purchased, converted
or otherwise acquired by the Corporation in any manner whatsoever shall not be
reissued as part of such Series 2 Preferred Stock and shall be retired promptly
after the acquisition thereof.
7
<PAGE>
(viii) The Series 2 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 2 Preferred Stock.
IN WITNESS WHEREOF, Applied Voice Recognition, Inc. has caused this
Certificate of Designation to be signed by Timothy J. Connolly, its Chairman and
Chief Executive Officer, as of the 31st day of December, 1998.
APPLIED VOICE RECOGNITION, INC.
By:
------------------------------------
Timothy J. Connolly
Chairman and Chief Executive Officer
8
