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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported)
January 24, 2000 (January 7, 2000)
APPLIED VOICE RECOGNITION, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 0-23607 76-0513154
(State of Incorporation) (Commission File Number) (IRS Employer
Identification No.)
1717 ST. JAMES PLACE, SUITE 242
HOUSTON, TEXAS 77056
(Address of Registrant's principal executive offices)
(713) 621-3131
(Registrant's telephone number, including area code)
4615 POST OAK PLACE, SUITE 111
HOUSTON, TEXAS 77027
(Former name or former address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
Pursuant to an Asset Purchase Agreement dated January 7, 2000 and effective
as of December 31, 1999, Applied Voice Recognition, Inc. dba e-DOCS.net, (the
"Company") sold the net assets and contracts of its medical transcription
service operations based in New York, New Jersey, Houston, Texas and Manila the
Philippines for approximately $8.5 million to Lonestar Medical Transcription
USA, Inc. ("Lonestar"), a Delaware corporation and a wholly-owned subsidiary of
L&H Investment Co., N.V., a Belgium company ("LHIC"), and to LHIC, who was a
preferred stockholder in the Company prior to the consummation of this
transaction. Additionally, Lonestar and LHIC will obtain non-exclusive rights
to the Company's VoiceCommander 99 code.
The $8.8 million purchase price consists of the forgiveness of a $2.0
million promissory note, plus accrued interest, held by Lernout & Hauspie Speech
Products, N.V., a Belgium company and an affliate of LHIC ("LHSP"), the
forgiveness of a $1.5 million promissory note, plus accrued interest, held by
LHIC, and the retirement of $5.0 million in Series D Preferred Stock held by
LHIC. The Company will also convert warrants held by LHIC to purchase
approximately 3.5 million shares of the Company's common stock at $1.25 per
share into warrants to purchase 800,000 shares of the Company's common stock at
$0.37 per share. The LHSP promissory note, the LHIC promissory note and the
Series D Preferred Stock were convertible into 5,405,405, 4,054,054 and
13,513,513 shares of the Company's common stock, respectively. The Company
currently has 16,746,875 shares of common stock outstanding. The disposition
removes substantial indebtedness from the Company and potential dilution to the
Company's common stockholders.
In addition to the purchase price, Lonestar agreed to assume certain
employment contracts including those of Eric A. Black, President and Chief
Executive Officer of e-DOCS.net, and Richard A. Cabrera, Chief Financial Officer
and Secretary of e-DOCS.net. Mr. Black and Mr. Cabrera resigned their positions
at the Company, effective as of the close of this transaction. The Company
agreed to release Mr. Black and Mr. Cabrera from the non-compete clauses of
their employment contracts and anticipates that Mr. Black and Mr. Cabrera will
continue their employment with Lonestar.
ITEM 5. OTHER EVENTS
In a Letter Agreement dated January 7, 2000 (the "Letter
Agreement"), the Company agreed with the holders of the Company's Series A,
Series C and Series E Preferred Stock to exchange their shares of preferred
stock for shares of Series G Preferred Stock subject to the execution of Stock
Exchange Agreements by all parties based on the primary terms set forth in the
Letter Agreement. Those terms include the Series G Preferred Stock having a
reduced conversion price with a mandatory conversion provision that requires the
Series G shares to be converted into common stock of the Company, par value
$.001 per share (the "Common Stock"), within seven days of their issuance. The
effective result will be the resetting of the conversion price for the Series A,
Series C and Series E Preferred Stock from $1.48, $1.00 and $1.00, respectively,
to $.30, followed by the prompt conversion of the preferred stock into Common
Stock. The stock exchange, when consummated, will help to clean up the Company's
capital structure with the intent of improving the Company's ability to obtain
future financing.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(b) PRO FORMA FINANCIAL INFORMATION
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EXPLANATORY NOTE
On January 7, 2000, Applied Voice Recognition, Inc. (the "Company") sold
the net assets and contracts of certain of its Medical Transcription Service
operations. The following Pro Forma Financial Statements present the financial
position of the Company and the results of its operations as if the sale of its
Medical Transcription Service operations had occurred on January 1, 1999. The
Company did not Pro-Forma and Present the 1998 financial position of the Company
on the results of its operations as the majority of the assets sold were
acquired by the Company in 1999.
<TABLE>
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PAGE
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1. Applied Voice Recognition, Inc. Unaudited Condensed Consolidated Pro Forma
Balance Sheet as of November 30, 1999......................................... F-1
2. Applied Voice Recognition, Inc. Unaudited Condensed Consolidated Pro Forma
Statement of Operations for the Eleven Months Ended November 30, 1999......... F-2
3. Applied Voice Recognition, Inc. Notes to Unaudited Consolidated Pro Forma
Financial Statements.......................................................... F-3
</TABLE>
(c) EXHIBITS
Exhibit 2.1 Asset Purchase Agreement dated January 7, 2000
Exhibit 99.1 Press Release of Applied Voice Recognition, Inc. dated
Jaunary 11, 2000
SIGNATURE
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 thereunto duly authorized.
Date: January 24, 2000
Applied Voice Recognition, Inc.
By: /s/ Timothy J. Connolly
------------------------
Timothy J. Connolly,
Chairman of the Board
<PAGE>
APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
NOVEMBER 30, 1999
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ASSETS AS REPORTED ADJUSTMENTS PRO FORMA
---------------- ---------------- --------------
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Current Assets
Cash and cash equivalents..................................... $ 686,699 $ 734,888 (a) $ 1,421,587
Accounts receivable, net...................................... 1,375,825 (734,888)(a) 640,937
Other current assets.......................................... 154,369 - 154,369
------------ ----------- ------------
TOTAL CURRENT ASSETS...................................... 2,216,893 - 2,216,893
Prepaid licenses.................................................. 1,300,000 - 1,300,000
Property and equipment, net....................................... 1,799,396 (950,591)(b) 848,805
Goodwill, net..................................................... 1,467,917 (959,925)(c) 507,992
Intangible and other assets....................................... 1,707,753 (917,570)(c) 790,183
------------ ----------- ------------
TOTAL ASSETS.............................................. $ 8,491,959 $(2,828,086) $ 5,663,873
============ =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables and accruals................................... $ 1,036,074 $ (167,518)(d) $ 868,556
Notes payable................................................. 312,716 - 312,716
Current portion of long-term debt............................. 3,614,275 (3,500,000)(e) 114,275
Obligations payable in common stock........................... 636,357 (306,962)(f) 329,395
Current portion of preferred stock obligations................ 1,126,406 - 1,126,406
Other current liabilities..................................... 275,233 - 275,233
------------ ----------- ------------
TOTAL CURRENT LIABILITIES................................. 7,001,061 (3,974,480) 3,026,581
Preferred stock obligations....................................... 656,404 - 656,404
Long-term debt, net of current portion............................ 415,347 - 415,347
------------ ----------- ------------
TOTAL LIABILITIES......................................... 8,072,812 (3,974,480) 4,098,332
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 2,000,000
shares authorized
Series A - 186,000 shares issued and outstanding........... 1,488,000 (1,488,000)(g) -
Series B - 2,285 and 1,680 shares issued and outstanding... 1,843,345 - 1,843,345
Series C - 153,538 shares issued and outstanding........... 1,129,108 (1,129,108)(g) -
Series D - 3,000 and 5,000 shares issued and outstanding... 3,940,000 (3,940,000)(h) -
Series E - none and 2,000 shares issued and outstanding.... 1,896,000 (1,896,000)(g) -
Common stock, $.001 par, 50,000,000 shares
authorized, 16,040,994 and 16,746,875 issued
and outstanding............................................. 16,747 17,046 (g) 33,793
Additional paid in capital.................................... 9,971,079 4,325,645 (g,h,i) 14,296,724
Warrants...................................................... 2,420,244 (1,156,710)(i) 1,263,534
Accumulated deficit........................................... (22,285,376) 6,413,521 (j) (15,871,855)
TOTAL STOCKHOLDERS' EQUITY................................ 419,147 1,146,394 1,565,541
------------ ----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $ 8,491,959 $(2,828,086) $ 5,663,873
============ =========== ============
</TABLE>
See Notes to Unaudited Consolidated Pro Forma Financial Statements.
F-1
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF OPERATIONS
(unaudited)
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<CAPTION>
ELEVEN MONTHS ENDED NOVEMBER 30, 1999
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AS REPORTED ADJUSTMENTS PRO FORMA
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Revenue:
Medical Transcription.................................. $ 4,335,596 $(2,157,766)(k) $ 2,177,830
Consulting, hardware, software and
related.............................................. 444,310 - 444,310
----------- ----------- -----------
TOTAL REVENUE..................................... 4,779,906 (2,157,766) 2,622,140
Cost of Sales:
Medical Transcription.................................. 3,154,342 (1,392,128)(k) 1,762,214
Consulting, hardware, software and
related.............................................. 102,037 - 102,037
----------- ----------- -----------
GROSS MARGIN...................................... 1,523,527 (765,638) 757,889
OPERATING EXPENSES:
Marketing and sales.................................... 459,298 (201,093)(k) 258,205
General and administrative............................. 6,441,293 (1,943,955)(k) 4,497,338
Research and development............................... 672,617 (538,310)(k) 134,307
----------- ----------- -----------
OPERATING LOSS.................................... (6,049,681) (1,917,720) (4,131,961)
OTHER INCOME (EXPENSE):
Interest income........................................ 35,033 - 35,033
Interest expense....................................... (717,474) 551,820 (l) (165,654)
Other, net............................................. (96,489) (10,555)(m) (107,044)
----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE)...................... (778,930) 541,265 (237,665)
----------- ----------- -----------
NET LOSS................................................... $(6,828,611) $ 2,458,985 $(4,369,626)
=========== =========== ===========
PREFERRED STOCK DIVIDENDS.................................. 607,049 (306,962)(n) 300,087
----------- ----------- -----------
NET LOSS TO COMMON STOCKHOLDERS............................ $(7,435,660) $ 2,765,947 $(4,669,714)
=========== =========== ===========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED.............. $ (0.45) $ (0.14)
=========== ===========
SHARES USED IN COMPUTING NET LOSS PER COMMON
SHARE - BASIC AND DILUTED................................. 16,443,763 17,045,918(o) 33,489,681
=========== =========== ===========
</TABLE>
See Notes to Unaudited Consolidated Pro Forma Financial Statements.
F-2
<PAGE>
APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
FOOTNOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
ASSET PURCHASE AGREEMENT
Pursuant to an Asset Purchase Agreement dated January 7, 2000, Applied Voice
Recognition, Inc. dba e-DOCS.net, (the "Company") sold the net assets and
contracts of its medical transcription service operations based in New York, New
Jersey, Houston, Texas and Manila the Philippines for approximately $8.5 million
(the "Sale") to Lonestar Medical Transcription USA, Inc. ("Lonestar"), a
Delaware corporation and a wholly-owned subsidiary of L&H Investment Co., N.V.,
a Belgium company ("LHIC"), and to LHIC, who was a preferred stockholder in the
Company prior to the consummation of this transaction. The $8.5 million
consideration is comprised of:
1. Cancellation of approximately $3.5 million of the Company's promissory notes
held by LHIC plus accrued interest of approximately $115,000,
2. Cancellation of $5 million in book value of Series D Preferred stock of the
Company held by LHIC plus accrued dividends of approximately $178,000 and
3. Cancellation of old warrants that allow for purchase of at least
approximately 3,300,000 shares of the Company's common stock held by LHIC.
The warrants will be replaced with new warrants for 800,000 shares of the
Company's common stock at a lower exercise price.
Lonestar and LHIC will obtain non-exclusive rights to all of the intellectual
property of the Company.
In addition to the above, LHIC purchased the accounts receivable of the medical
transcription service operations LHIC acquired. The accounts receivable were
purchased for cash. Eighty percent of the balance was paid up front with the
balance payable in ninety days of the date of purchase.
LETTER AGREEMENT
In a Letter Agreement dated January 7, 2000 (the "Letter Agreement"), the
Company agreed with the holders of the Company's Series A, Series C and Series E
Preferred Stock to exchange their shares of preferred stock for shares of Series
G Preferred Stock based on the primary terms set forth in the Letter Agreement.
Those terms include the Series G Preferred Stock having a reduced conversion
price with a mandatory conversion provision that requires the Series G shares to
be converted into common stock of the Company, par value $.001 per share (the
"Common Stock"), within seven days of their issuance. The effective result will
be the resetting of the conversion price for the Series A, Series C and Series E
Preferred Stock from $1.48, $1.00 and $1.00, respectively, to $.30, followed by
the prompt conversion of the preferred stock into
See Notes to Unaudited Consolidated Pro Forma Financial Statements.
F-3
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Common Stock.
PRO FORMA FINANCIAL STATEMENTS
The accompanying un-audited Condensed Consolidated Pro Forma Balance Sheet as of
November 30, 1999 presents the financial position of the Company as if the Sale
had occurred on November 30, 1999. The accompanying un-audited Condensed
Consolidated Pro Forma Statements of Operations for the eleven months ended
November 30, 1999 present the results of operations of the Company as if the
Sale had occurred at the beginning of 1999. The Company did not pro forma and
present the 1998 financial position of the Company or the results of its
operations as the majority of the assets sold were acquired by the Company in
1999. On the same note, all of the promissory notes, the majority of the Series
D Preferred Stock and related warrants were consummated in 1999. The pro forma
results have been prepared for illustrative purposes only and do not purport to
be indicative of future results or what would have occurred had the sale
actually been made at the beginning of 1999.
The accompanying un-audited pro forma financial statements should be read in
conjunction with the consolidated financial statements and the notes there to
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1998 and Forms 10-Q for the periods ended September 30, 1999, June 30, 1999
and March 31, 1999.
2. PRO FORMA ADJUSTMENTS
(a) This entry reflects the sale of the accounts receivable of the medical
transcription service operations sold to LHIC. The accounts receivable
were sold for cash. Eighty percent of the balance was received up front
with the balance remittable in ninety days of the date of purchase.
(b) The assets sold include property and equipment of the medical transcription
service operations LHIC purchased. This entry reflects the elimination of
these assets.
(c) Goodwill and customer list intangibles attributable to the medical
transcription service operations, sold to LHIC, no longer have value to the
company. This reflects the elimination of the net book value of these
intangibles.
(d) The cancellation of the $3.5 million in promissory notes included the
cancellation of related accrued interest. As with the promissory notes,
the cancellation of approximately $5 million in Series D Preferred Stock
resulted in the cancellation of related accrued stock dividends. These
stock dividends were subject to federal withholding tax that was booked as
a payable when the dividends were accrued. This entry reflects the
elimination of the aggregate of the interest of approximately $96,000 and
federal withholding tax payable of approximately $72,000.
(e) This entry reflects the cancellation of the $3.5 million in promissory
notes held by LHIC.
See Notes to Unaudited Consolidated Pro Forma Financial Statements.
F-4
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(f) The cancellation of the Series D Preferred Stock resulted in the
cancellation of related accrued stock dividends. In addition, the
conversion of the Series A, C and E Preferred Stock resulted in the
elimination of related accrued stock dividends added to the conversion
basis of these shares. This entry reflects the aggregate of these stock
dividends.
(g) In accordance with the Letter Agreement, the Company agreed with the
holders of the Company's Series A, C and E Preferred Stock to convert their
shares of preferred stock for Series G Preferred Stock. The Letter
Agreement also requires that the holders of the Series G Preferred Stock
convert their shares into common stock within seven days of issuance of the
Series G Preferred Stock. These entries reflect the conversion of the
Series A, C and E and subsequent conversion into common stock.
(h) This entry reflects the cancellation of approximately $5 million in Series
D Preferred Stock held by LHIC. Of this amount $3.9 million was eliminated
from Series D Preferred Stock. The balance was eliminated from additional
paid in capital.
(i) The cancellation of warrants to purchase approximately 3,300,000 shares of
common stock resulted in the approximately $1,157,000 in warrants.
(j) This entry records the effect of the net gain of approximately $5,977,000 on
the sale of the medical transcription service operations sold to LHIC and
the elimination of approximately $437,000 of charges related to warrants
cancelled.
(k) The operations of the medical transcription service operations, sold to
LHIC, have been eliminated from the condensed consolidated pro forma
statements of operations for the eleven months ended November 30, 1999. No
consideration has been given to the gain on the sale of the medical
transcription service operations for the eleven months then ended as the
gain is a non-recurring item directly attributable to the sale.
(l) This entry reflects the elimination of warrant charges of approximately
$437,000 related to warrants cancelled and interest expense of
approximately $115,000 eliminated upon the cancellation of the promissory
notes and reversal of the operations of the medical transcription service
operations sold to LHIC.
(m) This entry reflects the elimination of rental income of $10,555
attributable to one of the medical transcription service operations sold.
(n) The cancellation of the Series D Preferred Stock resulted in the
cancellation of related stock dividends. In addition, the conversion of the
Series A, C and E Preferred Stock resulted in the elimination of related
stock dividends added to the conversion basis of these shares. The
aggregate of stock dividends cancelled amounts to $306,962.
(o) This entry reflects the common stock that will be issued upon the
conversion of the Series A, C and E Preferred Stock to Series G Preferred
Stock and subsequent conversion to common stock.
See Notes to Unaudited Consolidated Pro Forma Financial Statements.
F-5
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EXHIBIT 2.1
ASSET PURCHASE AGREEMENT
(PROJECT GREEN)
BY AND AMONG
LONESTAR MEDICAL TRANSCRIPTION USA, INC.,
L & H INVESTMENT COMPANY N.V.,
AS PURCHASER
AND
APPLIED VOICE RECOGNITION, INC.,
E-DOCS HEALTH CARE INFORMATION SERVICES, INC. AND
A WORD ABOVE, INC.,
AS SELLERS
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INDEX
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1. Purchase and Sale....................................................... 3
1.1 Purchase and Sale................................................. 3
1.2 Excluded Assets................................................... 3
1.3 Assumed Liabilities............................................... 4
1.4 Excluded Liabilities.............................................. 4
2. Consideration for Assets................................................ 4
3. Accounts Receivable Reconciliation; Security Interest................... 5
4. Representations and Warranties of Seller................................ 5
4.1 Organization and Existence........................................ 5
4.2 Sellers' Authority Relative to this Agreement..................... 6
4.3 Sellers' Authority to Conduct Business............................ 6
4.4 Rights to Purchase the Company Assets............................. 6
4.5 Title to Company Assets........................................... 6
4.6 Litigation........................................................ 6
4.7 Financial Statements.............................................. 7
4.8 Compliance with Laws.............................................. 7
4.9 Illegal Payments.................................................. 7
4.10 Employees........................................................ 7
2.15 Labor and Employee Relations..................................... 8
4.11 Licenses and Permits............................................. 8
4.12 Contracts........................................................ 8
4.13 Representations and Warranties Regarding the Shares and OTPI..... 8
4.14 Notes and Accounts Receivable.................................... 9
4.15 Present Compliance with Obligations and Laws..................... 9
4.16 Absence of Undisclosed Liabilities............................... 9
4.17 Payment of Taxes................................................. 10
4.18 Intellectual Property Rights..................................... 10
4.19 Employee Benefits and ERISA...................................... 10
4.20 Insurance........................................................ 10
4.21 Disclosure of Material Information............................... 11
4.22 Year 2000 Compliance............................................. 11
4.23 Covenant to Reserve Shares....................................... 11
4.24 Covenant to Make Filings......................................... 11
4.25 Transition....................................................... 11
5. Representations, Warranties and Covenants of Purchaser.................. 13
5.1 Organization and Existence........................................ 13
</TABLE>
i
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<TABLE>
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5.2 Purchasers' and Lonestar's Authority Relative to this Agreement... 13
5.3 Title to Notes, Stock and Warrants................................ 13
5.4 Acquisition Entirely for Own Account.............................. 13
5.5 Reliance Upon Lonestar's Representations.......................... 14
5.6 Receipt of Information............................................ 14
5.7 Investment Experience............................................. 14
5.8 Accredited Investor............................................... 14
5.9 Restricted Securities............................................. 14
5.10 Legends........................................................... 15
5.11 Foreign Investor.................................................. 15
5.12 Stock Options..................................................... 15
5.13 Transition........................................................ 15
6. Nature and Survival of Representations and Warranties; Indemnities....... 16
6.1 Nature of Statements.............................................. 16
6.2 Survival of Representations, Warranties and Covenants............. 16
6.3 Sellers' Indemnity................................................ 16
6.4 Purchasers' and Lonestar's Indemnity.............................. 16
7. The Closing.............................................................. 18
7.1 Lien Releases..................................................... 18
7.2 Bill of Sale, Assignment and Assumption Agreement................. 18
7.3 Assignment and Assumption of Douglas Employment Agreement......... 18
7.4 Amendment II to Value Added Reseller Agreement.................... 19
7.5 Technology License Agreement...................................... 19
7.6 Medical Transcription Services Agreement.......................... 19
7.7 Termination of Voting Agreement................................... 19
7.8 Termination of Co-Sale and Tag-Along Rights Agreement............. 19
7.9 Series D Stock.................................................... 19
7.10 LHIC Note......................................................... 19
7.11 LHSP Note......................................................... 20
7.12 LISP Warrants..................................................... 20
7.13 Replacement Warrants.............................................. 20
7.14 UCC-3 Termination Statements...................................... 20
7.15 Termination of Trademark Security Agreement....................... 20
7.16 Termination of Patent Security Agreement.......................... 20
7.17 Termination of Copyright Security Agreement....................... 20
7.18 Pledged Stock..................................................... 20
7.19 UCC-1 Financing Statement......................................... 20
7.20 OTPI Stock Certificates........................................... 20
7.21 Trust Agreements.................................................. 20
7.22 Officer and Director Resignation Letters.......................... 20
7.23 Termination of Employment Agreements.............................. 21
7.24 Employee Termination Letters...................................... 21
7.25 Indemnity Agreements.............................................. 21
</TABLE>
ii
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<TABLE>
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7.26 Sellers' Legal Opinion............................................ 21
7.27 Purchasers' Legal Opinions........................................ 21
7.28 Apportionments; Closing Statement................................. 22
7.29 Cash Portion of Consideration..................................... 22
8. Conditions to Closing.................................................... 22
9. Further Acts............................................................. 22
10. Possession............................................................... 23
11. Expenses and Commissions................................................. 23
12. Miscellaneous............................................................ 23
12.1. Notices............................................................ 23
12.2. Assignment......................................................... 25
12.3. Entire Agreement................................................... 25
12.4. Schedules and Exhibits............................................. 25
12.5. Governing Law; Venue............................................... 25
12.6. Dispute Resolution................................................. 25
</TABLE>
iii
<PAGE>
ASSET PURCHASE AGREEMENT
(Project Green)
This ASSET PURCHASE AGREEMENT (the "Agreement"), is executed on January 7,
2000, to be effective as of December 20, 1999 (the "Effective Date"), is by and
among LONESTAR MEDICAL TRANSCRIPTION USA, INC., a Delaware corporation
("Lonestar"), L & H INVESTMENT COMPANY N.V., a Belgium company ("LHIC") (LHIC is
sometimes hereinafter referred to as a "Purchaser", and as the "Purchasers"),
and APPLIED VOICE RECOGNITION, INC., a Delaware corporation doing business as e-
DOCS.net ("AVRI"), E-DOCS HEALTH CARE INFORMATION SERVICES, INC., a Delaware
corporation ("HCIS"), and A WORD ABOVE, INC., a Texas corporation ("AWA"; AVRI,
HCIS and AWA are sometimes hereinafter each referred to individually as a
"Seller", and collectively as the "Sellers").
W I T N E S S E T H:
-------------------
WHEREAS, Lonestar is an indirect, wholly-owned subsidiary of LHIC;
WHEREAS, HCIS is the wholly-owned subsidiary of AVRI, and AWA is a wholly-
owned subsidiary of HCIS;
WHEREAS, Sellers are engaged in the medical transcription business (the
"Business");
WHEREAS, as of December 31, 1998, AVRI issued to LHIC (i) 5,000 shares of
Series D Preferred Stock of AVRI (the "Series D Stock"), and (ii) three (3)
separate warrant agreements to purchase an aggregate of 2,500,000 shares of
common stock of AVRI at an exercise price of $1.25 per share (the "1998
Warrants"), which Series D Stock and 1998 Warrants were issued pursuant to that
certain Series D Preferred Stock and Warrant Purchase Agreement dated as of
December 31, 1998 (the "Series D Purchase Agreement");
WHEREAS, as of May 24, 1999, AVRI issued to LHIC that certain Convertible
Promissory Note (the "LHIC Note"), in the original principal amount of
$1,500,000, which LHIC Note was issued pursuant to that certain Convertible
Promissory Note Purchase Agreement dated May 24, 1999 (the "LHIC Note Purchase
Agreement"), executed by and between AVRI and LHIC;
WHEREAS, as of May 24, 1999, AVRI issued to LHIC one (1) warrant agreement to
purchase such number of shares of common stock of AVRI as determined in
accordance with a formula set forth in such warrant agreement at a price of
$1.25 per share (the "1999 Warrants"), which 1999 Warrants were issued pursuant
to that certain LHIC Note Purchase Agreement (the 1998 Warrants and the 1999
Warrants are collectively referred to herein as the "LHIC Warrants");
1
<PAGE>
WHEREAS, as of November 5, 1999, AVRI issued to LERNOUT & HAUSPIE SPEECH
PRODUCTS, N.V., a Belgium company ("LHSP"), that certain Convertible Secured
Promissory Note (the "LHSP Note"), in the original principal amount of
$2,000,000, which LHSP Note was issued pursuant to that certain Convertible
Secured Promissory Note Purchase Agreement dated November 5, 1999, executed by
and between AVRI and LHSP;
WHEREAS, as security for the repayment of the LHIC Note and the LHSP Note,
LHIC and LHSP collectively hold a first lien priority security interest in all
of the assets of AVRI other than accounts receivable pursuant to that certain
Security Agreement dated as of November 5, 1999 (the "Security Agreement"),
which lien is evidenced by those certain UCC Financing Statements executed by
AVRI for the benefit of LHIC and LHSP listed on SCHEDULE A attached hereto (the
"Financing Statements");
WHEREAS, as further security for the repayment of the LHIC Note and the LHSP
Note, AVRI granted to LHIC and LHSP a first lien priority security interest in
AVRI's patents, trademarks and copyrights pursuant to that certain (i) Patent
Security Agreement dated as of November 5, 1999 (the "Patent Security
Agreement"), filed for record in the United States Patent and Trademark Office;
(ii) Trademark Security Agreement dated as of November 5, 1999 (the "Trademark
Security Agreement"), filed for record in the United States Patent and Trademark
Office; and (iii) Copyright Security Agreement dated as of November 5, 1999 (the
"Copyright Security Agreement"), filed for record in the United States Copyright
Office, each executed by and among AVRI, LHIC and LHSP;
WHEREAS, as further security for the repayment of the LHIC Note and the LHSP
Note, AVRI pledged to LHIC and LHSP all of the stock owned by AVRI in HCIS, and
all of the stock owned by HCIS in AWA and in Outsource Transcription
Philippines, Inc., a stock corporation formed under the laws of the Republic of
the Philippines ("OTPI"), pursuant to that certain Pledge Agreement dated as of
November 5, 1999 (the "Pledge Agreement"), executed by and among AVRI, LHIC and
LHSP;
WHEREAS, as of the Effective Date, LHSP has assigned to LHIC the LHSP Note;
WHEREAS, pursuant to the terms of that certain Term Sheet dated as of the
Effective Date, executed by and among AVRI, LHIC and LHSP, Sellers desire to
sell to Purchasers, and Purchasers desire to purchase from Sellers (with
Purchasers' designee, Lonestar, designated to take title to), certain assets
owned by Sellers and utilized by Sellers in connection with the Business, and
Sellers, Purchasers and Lonestar 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,
Sellers, Purchasers and Lonestar hereby agree as follows:
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1. PURCHASE AND SALE.
1.1. PURCHASE AND SALE. On the terms and subject to the conditions of this
Agreement, Sellers agree to grant, sell, transfer, convey and deliver to
Lonestar, as Purchasers' designee, free and clear of all liens, claims,
encumbrances and interests (except those specifically set forth herein), and
Purchasers agree to purchase from Sellers (with Lonestar designated to take
title), certain assets of Sellers (collectively, the "Company Assets"), which
Company Assets shall consist of the following:
(a) The 997 shares of common stock of OTPI (the "OTPI Stock");
(b) Those certain leases of real property covering the facilities
commonly known as (i) 4615 Post Oak Place, Suite 111, Houston, Texas, (ii)
42 Clinton Place, Hackensack, New Jersey, and (iii) 7602 Lakeview Haven
Drive, Suite 105, Houston, Texas, together with the improvements, if any,
located within such leased facilities (collectively, the "Assigned
Facilities");
(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, including, without limitation, the contracts of each of the Assumed
Contractors (as defined in Section 4.10) (the "Assigned Contracts"); and
all warranties and guarantees, if any, originally given to Sellers relating
to all or any portion of the Company Personal Property (the "Warranties");
(e) All rights of Sellers in and to the computer hardware and computer
software listed on SCHEDULE 1.1(E) attached hereto (the "Computer Hardware
and Software");
(f) All rights of Sellers, if any, in and to the trade names, trade
marks, copyrights, patents and other intellectual property listed on
SCHEDULE 1.1(F) attached hereto (the "Intellectual Property");
(g) The licenses, permits and certifications listed on SCHEDULE 1.1(G)
attached hereto (the "Licenses and Permits");
(h) The accounts and notes receivable of Sellers listed on SCHEDULE
1.1(H) (collectively, the "Accounts Receivable"); and
(i) All customer lists used in operating the portion of the Business
represented by the Company Assets, which lists shall be delivered by
Sellers to Lonestar at Closing.
1.2. EXCLUDED ASSETS. Except for the Company Assets specifically described
herein, no other assets owned by Sellers shall be conveyed pursuant to this
Agreement.
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1.3. ASSUMED LIABILITIES . On the terms and subject to the conditions of
this Agreement, Lonestar, at the Closing, agree to assume all of the following
obligations of Sellers, but only to the extent that such obligations arise after
the Effective Date (collectively, the "Assumed Liabilities"):
(a) The liabilities and obligations of Sellers under the Assigned
Contracts (including the contracts of the Assumed Employees and the Assumed
Contractors) and the leases for the Assigned Facilities;
(b) The liabilities and obligations of Sellers listed on SCHEDULE 1.3
attached hereto; and
(c) The accrued vacation, sick leave and other obligations and
liabilities relating to the Executives, the Assumed Employees, the Hired
Employees, and the Assumed Contractors (each as defined in Section 4.10).
At the Closing, Lonestar will reimburse AVRI for all employment and
contract costs accruing after the Effective Date for the Executives, the
Assumed Employees, the Hired Employees and the Assumed Contractors, such
costs to include salary, bonuses, "stay bonuses" and all benefits,
including taxes and insurance, with such amount to be paid being
specifically set forth on the Closing Statement (as defined in Section
7.28(b)).
1.4. EXCLUDED LIABILITIES. Except for the Assumed Liabilities, Lonestar
shall not assume or be subject to, or in any way be liable or responsible for,
and Sellers shall retain responsibility for all liabilities and obligations of
Sellers of any kind or nature, known or unknown, relating to the Company Assets,
the Business or Sellers.
2. CONSIDERATION FOR ASSETS. The consideration to be given to Sellers by the
Purchasers and Lonestar for the Company Assets (the "Consideration") shall be as
follows:
(a) the surrender to AVRI for cancellation of the LHIC Note;
(b) the surrender to AVRI for cancellation of the LHSP Note;
(c) the surrender to AVRI for cancellation of the certificate held by
LHIC evidencing the Series D Stock for retirement and cancellation,
accompanied by a blank stock power duly endorsed by LHIC;
(d) the surrender to AVRI for cancellation of the LHIC Warrants in
exchange for the issuance and delivery by AVRI to Lonestar of (i) new
warrants (the "Replacement Warrants") to purchase 800,000 shares of common
stock of AVRI at an exercise price of $0.37 per share, and (ii) a
Registration Rights Agreement between AVRI and Lonestar (the "Lonestar
Registration Rights Agreement");
(e) the payment to Sellers by Lonestar of an amount equal to the face
value of the Accounts Receivable on the Closing Date, eighty percent (80%)
of which amount shall be paid by Lonestar to Sellers at the Closing (the
"Closing A/R Payment"), and the balance will be paid pursuant to Section 3;
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(f) Lonestar's offer of employment to each of the Hired Employees,
pursuant to the employee termination letters described in Section 7.24.
(g) the assumption by Lonestar of the Assumed Liabilities, as
reflected in the Closing Statement.
3. ACCOUNTS RECEIVABLE RECONCILIATION; SECURITY INTEREST.
(a) Lonestar shall collect the Accounts Receivable after the Closing.
Sellers and Lonestar shall reconcile the collected Accounts Receivable
within 120 days after the Closing Date. Sellers shall cooperate with
Lonestar and take all reasonable action to notify the account debtors
obligated under the Accounts Receivable to forward payment to Lonestar
instead of Sellers or Sellers' lockbox. Sellers shall hold in trust for
Lonestar and promptly deliver to Lonestar, in the same form received, any
payments that Sellers receive with respect to the Accounts Receivable. If
the aggregate amount received by Lonestar with respect to the Accounts
Receivable after the Closing exceeds the Closing A/R Payment, then Lonestar
shall pay to Sellers in cash the amount by which such aggregate collections
exceed the Closing A/R Payment. No adjustment shall be made if the
aggregate amount of Accounts Receivable collected by Lonestar after the
Closing is less than the Closing A/R Payment. Notwithstanding the
foregoing, however, during the interim period between the Closing Date and
the date of such final reconciliation of the Accounts Receivable, as
Lonestar collects the Accounts Receivable, Lonestar will forward to the
Sellers on a monthly basis any aggregate collections in excess of the
Closing A/R Payment. From and after the Closing Date, Lonestar shall
prepare and deliver to AVRI within five (5) days after the end of each
month a written report listing the Accounts Receivable collected by
Lonestar during the prior month; provided, however, that upon Lonestar's
collection of an amount equal to the Closing A/R Payment, Lonestar will
prepare and deliver to AVRI on Tuesday of each week during the remainder of
the interim period between the Closing Date and the date of such final
reconciliation a written report listing the Accounts Receivable collected
by Lonestar during the prior week. Such monthly and weekly reports shall be
in such form as is mutually agreeable to Lonestar and AVRI. Lonestar's
obligation to make payments required hereunder shall be limited to the
extent provided in Section 6.5 (which section sets forth Lonestar's set off
rights with respect to costs incurred by Lonestar to bring OTPI into
compliance with Philippines corporate and tax laws with respect to prior
transactions involving the transfers of the stock of OPTI).
(b) In the event that the purchase of the Accounts Receivable provided
for herein is deemed to be a financing rather than a true sale, as security
for Sellers' obligation to repay the financing associated with the Accounts
Receivable, the Sellers hereby grant to Lonestar a continuing security
interest in and line on, and assign, transfer, set over and pledge to
Lonestar, the Accounts Receivable and the proceeds thereof.
4. REPRESENTATIONS AND WARRANTIES OF SELLER. Each Seller jointly and
severally represents and warrants to and agrees with Purchasers and Lonestar
that:
4.1 ORGANIZATION AND EXISTENCE. Each Seller is a corporation duly
organized and validly existing and in good standing under the laws of the state
of its incorporation and has all
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requisite corporate power to own, lease and otherwise operate its properties and
assets and to carry on its business as now being conducted and is duly qualified
as a foreign corporation and is in good standing in each jurisdiction in which
the nature of its business or the location of its properties requires such
qualification, and is duly authorized and licensed and, except as set forth on
SCHEDULE 4.1, has all licenses, franchises, permits and other governmental
authorizations required under all applicable laws, regulations, ordinances and
orders of public authorities to carry on its business in the places and in the
manner as now conducted.
4.2 SELLERS' AUTHORITY RELATIVE TO THIS AGREEMENT. This Agreement has
been duly executed and delivered by each Seller, this Agreement is a valid and
binding obligation of each Seller, and no further corporate or shareholder
action is necessary with respect to any Seller to make this Agreement a valid
and binding obligation of each Seller, enforceable in accordance with its terms.
Neither the execution, delivery nor performance of this Agreement by any 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 the Sellers.
4.3 SELLERS' AUTHORITY TO CONDUCT BUSINESS. Except as set forth on
SCHEDULE 4.1, each Seller has all requisite power and authority to carry on its
business as now conducted and to enter into and perform this Agreement.
4.4 RIGHTS TO PURCHASE THE COMPANY ASSETS. Other than Lonestar pursuant to
this Agreement, no person, firm or entity has any right to purchase any of the
Company Assets or any part thereof.
4.5 TITLE TO COMPANY ASSETS. Except as set forth in SCHEDULE 4.5, Sellers
have good title to the Company Assets, are in possession of all of the Company
Assets, and will convey the Company Assets to Lonestar, free and clear of all
liens, claims, security interests and encumbrances.
4.6 LITIGATION. Except for matters described in SCHEDULE 4.6, there is no
action, suit, claim, proceeding, investigation or arbitration proceeding pending
(or, to the knowledge of Sellers', threatened) against or otherwise involving
Sellers or OTPI or any of the officers, directors, former officers or directors,
employees, shareholders or agents of Sellers (in their capacities as such) and
there are no outstanding court orders to which any of the Sellers or OTPI are a
party or by which any of their assets are bound, any of which (a) question this
Agreement, or any action to be taken hereunder or affect the transactions
contemplated hereby, or (b) materially restrict the present business properties,
operations, prospects, assets or condition, financial or otherwise, of Sellers,
or (c) will result in any materially adverse change in
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the business, properties, operations, prospects, assets or the condition,
financial or otherwise, of Sellers.
4.7 FINANCIAL STATEMENTS. AVRI has heretofore furnished Purchasers and
Lonestar with complete copies of all currently available (i) audited financial
statements relating to AVRI for (a) the year ended December 31, 1998, (b) the
quarter ended September 30, 1999, and (ii) unaudited financial statements for
each of the months ended October 31, 1999 and November 30, 1999, including in
each case, income statements through such dates and balance sheets as of such
dates (the "Seller Financial Statements"). The Seller Financial Statements are
true and complete in all material respects, have been prepared from the books
and records of AVRI in accordance with generally accepted accounting principles
consistently applied throughout the entire period presented (except as disclosed
therein and except for the unaudited financial statements which do not contain
notes) for the periods reflected therein. The balance sheets contained within
the Seller Financial Statements fairly present the financial condition of AVRI
as of their respective dates; and the income statements contained within the
Seller Financial Statements fairly present the results of operations of AVRI for
their respective periods. None of the Seller Financial Statements, as of the
dates and the periods thereof, misstates or omits to state any liability,
absolute or contingent, the omission of which renders the Seller Financial
Statements materially misleading.
4.8 COMPLIANCE WITH LAWS. Except as set forth on SCHEDULE 4.1, Sellers
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
Sellers are not parties to any investigation or inquiry by any foreign, federal,
state or local governmental body or agency pending or, to Sellers' knowledge,
threatened into the business, operations, affairs or properties of Sellers.
4.9 ILLEGAL PAYMENTS. None of the Sellers, OTPI nor any director, officer,
employee or agent of the Sellers or OTPI, have, 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 the
Sellers which (i) might subject the Company Assets 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 Assets, or
(iii) if not continued in the future, might materially adversely affect the
Company Assets.
4.10 EMPLOYEES. Attached hereto as SCHEDULE 4.10 is a schedule listing the
names of certain officers and employees of the Sellers that are employed
pursuant to employment agreements with Sellers that Lonestar will employ
pursuant to employment agreements to be executed between such employees and
Lonestar at Closing (the "Executives"). Also listed on Schedule 4.10 is a list
of employees who have employment agreements with Sellers that Lonestar will
assume at the Closing (the "Assumed Employees"). Also listed on SCHEDULE 4.10
is a list of employees that do not have employment agreements with Sellers but
that Lonestar has agreed to employ after Closing (the "Hired Employees"). Also
listed on SCHEDULE 4.10 is a list of
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independent contractors who have written or oral agreements with Sellers for the
provision of medical transcription services (the "Assumed Contractors"). Nothing
herein is intended to, nor shall it be construed to, provide any third party
beneficiary rights upon any of the Executives, Hired Employees or the Assumed
Contractors. Except with respect to H. Russel Douglas, OTPI and as shown on
SCHEDULE 4.10 and SCHEDULE 1.1(D), there are no currently effective consulting
or employment agreements or other agreements with individual consultants or
employees to which Sellers are a party or of which Sellers are a beneficiary
(including noncompetition covenants) relating to the portion of the Business
made up of the Company Assets.
4.11 LICENSES AND PERMITS. SCHEDULE 1.1(G) describes all material
Licenses and Permits relating to the Company Assets, all of which have been
obtained by the Company and are valid and in full force. Copies of any such
Licenses and Permits have heretofore been furnished to the Purchasers and
Lonestar. Each of the Licenses and Permits is in full force and effect and
Sellers are current on all of their obligations with respect thereto. No
notices of violations of any such Licenses and Permits have been received by the
Sellers, and no proceeding is pending, or, to Sellers' knowledge, threatened
seeking the revocation or limitation of any of such Licenses and Permits.
4.12 CONTRACTS. A true copy of each Assigned Contract (including the leases
covering the Assigned Facilities) listed in SCHEDULE 1.1(D) has heretofore been
made available to the Purchasers and Lonestar, and each Assigned Contract is in
full force and effect and the parties thereto are not in default thereunder.
4.13 REPRESENTATIONS AND WARRANTIES REGARDING THE SHARES AND OTPI.
Sellers hereby make the following additional representations and warranties to
Lonestar regarding the OTPI Stock:
(a) The authorized capital stock of OTPI consists of 4,000 shares of
common stock, $100 par value, of which 1,000 shares are issued and
outstanding on the Effective Date, of which HCIS owns 997 shares. OTP has
no treasury shares. 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 OTPI.
(b) OTPI 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 OTPI does
not, directly or indirectly, control the management of any such entities.
(c) OTPI has (i) good and indefeasible title to all of its assets
reflected on any of the schedules attached hereto as being owned by OTPI,
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 OTPI 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;
and (ii) no written notice of any violation of building or
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zoning laws or other ordinances, regulations or provisions of law relating
to such assets and their use have been received by Sellers or OTPI.
(d) Attached hereto as SCHEDULE 4.13(D) is a list setting forth the
name of each bank, savings and loan or other financial institution in which
OTPI 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.
(e) OTPI has no collective bargaining agreements with any labor
unions. As of the Closing 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 OTPI.
Purchasers and Lonestar hereby acknowledge that Purchasers' and Lonestar
are aware that OTPI may not be in compliance with applicable laws with respect
to, without limitation, employment practices and procedures, provision of
benefits to its employees, filing of tax returns, payment of taxes and filing of
corporate documents with the applicable authorities. Section 6.5 sets forth the
terms relating to resolving the non-compliance issues.
4.14 NOTES AND ACCOUNTS RECEIVABLE. The allowance for doubtful accounts
shown on SCHEDULE 1.1(H) has been determined in a manner consistent with that
applied in the preparation of the Seller Financial Statements, and such
allowance is adequate to account for those accounts receivable and notes
receivable that are not expected to be collected by the Sellers in the ordinary
course of the Sellers' business. As of the Closing Date, each of the Accounts
Receivable will be (a) valid and enforceable claims, (b) which arose out of
transactions with unaffiliated parties, and (c) to the Sellers' knowledge
subject to no set-off, defense or counterclaim. Seller has not entered into any
agreement for the prepayment (whether actual or accrued) of services to be
performed after the Effective Date. No agreements or deductions or discounts
have been made with respect to any services to be performed on or after the
Effective Date or to encourage or induce the early collection of Accounts
Receivable. None of Accounts Receivable has at any time been placed for
collection with any attorney, collection agency or similar individual or entity.
4.15 PRESENT COMPLIANCE WITH OBLIGATIONS AND LAWS. Each Seller is not:
(a) in violation of its Certificate of Incorporation or Articles of
Incorporation, as applicable, to its bylaws; (b) in default in the performance
of any material obligation, agreement or condition of any material debt
instrument which (with or without the passage of time or the giving of notice)
affords to any person the right to accelerate any material indebtedness or
terminate any material right; (c) in material default of or material breach of
(with or without the passage of time or the giving of notice) any other material
contract to which it is a party or by which it or any of the Company Assets are
bound; or (d) except as disclosed on SCHEDULE 4.1, in material violation of any
law, regulation, administrative order or judicial order applicable to it or its
business or the Company Assets.
4.16 ABSENCE OF UNDISCLOSED LIABILITIES. As of the date of the most recent
Seller Financial Statements, Seller had no material liabilities of any nature,
whether accrued,
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absolute, contingent or otherwise (including without limitation liabilities as
guarantor or otherwise with respect to obligations of others, or liabilities for
taxes due or then accrued or to become due), except: (a) liabilities stated or
adequately reserved against on the Seller Financial Statements; (b) liabilities
arising in the ordinary course of business since the date of the Seller
Financial Statements; and (c) liabilities disclosed in the schedules hereto.
4.17 PAYMENT OF TAXES. Other than with respect to OTPI, Sellers have filed
all Federal, state, local, and foreign government income, excise, gross receipts
and franchise tax returns, real estate and personal property tax returns, sales
and use tax returns and all other tax returns required to be filed by them, and
they have paid all taxes owing by them except taxes which have not yet accrued
or otherwise become due, for which adequate provision has been made in the
Seller Financial Statements. Except as specifically provided in this Agreement,
all transfer, excise and other taxes payable to any jurisdiction by reason of
the sale and transfer of the Company Assets pursuant to this Agreement shall be
paid or provided for by Seller.
4.18 INTELLECTUAL PROPERTY RIGHTS.
(a) For purposes of this Section 4.18, "Intellectual Property" means
all patents, patent applications, trade marks (whether registered or
unregistered) or service marks, trade marks, trade names, copyrights,
applications to register or registrations of any of the foregoing,
inventions, processes, methods, trade secrets, know-how, employee invention
disclosures, licenses and computer software (in both source code and object
code form), owned or used, or held for use by, Sellers.
(b) All rights of ownership of, or material licenses to use,
Intellectual Property held by Sellers and that are included in the Company
Assets are listed on SCHEDULE 1.1(E). There are no Intellectual Property
rights other than those set forth on SCHEDULE 1.1(E), necessary to or
regularly used in, the conduct of the portion of the Business made up of
the Company Assets being transferred hereunder.
(c) No claim is pending or, to the best knowledge of Seller,
threatened, relating to Seller's ownership or present or past use of the
Intellectual Property or that alleges that such ownership or present or
past use conflicts with or infringes upon any rights of any third party.
4.19 EMPLOYEE BENEFITS AND ERISA. The Sellers have an employee funded 401K
savings plan in which certain of their employees who meet the applicable
eligibility requirements are entitled to participate. Sellers are current on
their obligations to deposit employee withholdings into the 401K savings plan.
Sellers do not have any other profit sharing plans, programs or arrangements
relating to employee benefits or fringe benefits.
4.20 INSURANCE. Except for amounts deductible under policies of insurance
maintained by the Sellers, Sellers are not, nor have been at any time, subject
to any liability as a self-insurer of the business or assets of Sellers that is
reasonably likely to have a material adverse effect upon the business, assets,
revenues, condition (financial or otherwise) or prospects of Sellers. There are
no claims pending or, to the knowledge of Sellers, overtly threatened, under
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any of Sellers' policies of insurance, or disputes with insurers, and all
premiums due and payable thereunder have been paid, and all such policies are in
full force and effect in accordance with their respective terms. No notice of
cancellation or termination has been received with respect to any such policy.
4.21 DISCLOSURE OF MATERIAL INFORMATION. Neither this Agreement nor any
schedule or exhibit hereto or certificate issued pursuant hereto contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements herein or therein not misleading, relating to the
business or affairs of Sellers.
4.22 YEAR 2000 COMPLIANCE. To the best of Sellers' knowledge, all hardware,
software and embedded systems owned, leased or licensed and currently used by
Sellers, including any hardware, software and embedded systems used in
connection with product and service development, operations and production,
financial operations, office and administration operations, human resources
functions, and legal and audit functions (the "Systems") are designed to be used
prior to, during, and for a reasonable period of time after the calendar year
2000. To the best of Sellers' knowledge, the Systems operate and will operate
during each such time periods without material error relating to date data.
4.23 COVENANT TO RESERVE SHARES. Sellers hereby covenant that AVRI shall at
all times reserve and keep available out of its authorized and unissued common
stock or treasury shares, solely for issuance upon the exercise of the
Replacement Warrants, free from any preemptive rights, 800,000 shares of common
stock of AVRI.
4.24 COVENANT TO MAKE FILINGS. Sellers hereby covenant that AVRI will use
reasonable efforts to complete such actions as may be necessary to ensure the
continued availability to Lonestar 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.
4.25 TRANSITION. Except as provided in Section 6.5, for a period of ninety
(90) days after the Closing Date, AVRI will provide reasonable transitional
advisory assistance to Lonestar in connection with the Manila and New Jersey
operations being acquired by Lonestar, and will cooperate in all aspects of
ensuring continued health insurance coverage (at Lonestar's cost and at no cost
to Sellers) for all of Seller's employees who become Lonestar employees.
Additionally, until the end of January, 2000, Lonestar shall be entitled to
utilize the office equipment (e.g., telephones and telephone system, computers,
servers, fax machines, copiers) currently located in AVRI's corporate offices at
4615 Post Oak Place, Suite 111, Houston, Texas.
PURCHASERS AND LONESTAR ACKNOWLEDGE AND AGREE THAT PURCHASERS AND LONESTAR
ARE EXPERIENCED IN THE OWNERSHIP AND OPERATION OF ASSETS SIMILAR TO THE COMPANY
ASSETS AND THAT PURCHASERS AND LONESTAR'S PRIOR TO THE CLOSING DATE WILL HAVE
INSPECTED THE COMPANY ASSETS TO THEIR SATISFACTION AND ARE QUALIFIED TO MAKE
SUCH INSPECTION. PURCHASERS AND LONESTAR ACKNOWLEDGE THAT PURCHASERS AND
LONESTAR ARE FULLY RELYING
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ON PURCHASERS' AND LONESTAR'S (OR PURCHASERS' AND LONESTAR'S REPRESENTATIVES')
INSPECTIONS OF THE COMPANY ASSETS AND NOT UPON ANY STATEMENTS (ORAL OR WRITTEN)
WHICH MAY HAVE BEEN MADE OR MAY BE MADE (OR PURPORTEDLY MADE) BY SELLERS OR ANY
OF SELLERS' REPRESENTATIVES EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT. AS
A MATERIAL PART OF THE CONSIDERATION FOR THIS AGREEMENT AND THE ACQUISITION
CONTEMPLATED HEREIN, LONESTAR HEREBY AGREES TO ACCEPT THE COMPANY ASSETS ON THE
CLOSING DATE IN THEIR "AS-IS, WHERE IS" CONDITION, WITH ALL FAULTS, AND WITHOUT
REPRESENTATIONS AND WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, OR ARISING BY
OPERATION OF LAW, EXCEPT ONLY THE REPRESENTATIONS OF SELLERS SET FORTH IN THIS
AGREEMENT AND THE WARRANTIES EXPRESSLY SET FORTH IN THE DOCUMENTS EXECUTED BY
SELLERS AT THE CLOSING. WITHOUT IN ANY WAY LIMITING THE GENERALITY OF THE
FOREGOING, IN CONNECTION WITH THE CONVEYANCE OF THE COMPANY ASSETS TO LONESTAR,
THE CONVEYANCE OF THE COMPANY ASSETS IS WITHOUT ANY WARRANTY, AND SELLERS AND
SELLERS' OFFICERS, AGENTS, DIRECTORS, EMPLOYEES, ATTORNEYS, CONTRACTORS AND
AFFILIATES (COLLECTIVELY, "SELLERS' RELATED PARTIES") HAVE MADE NO, AND
EXPRESSLY AND SPECIFICALLY DISCLAIM, AND PURCHASERS AND LONESTAR ACCEPT THAT
SELLERS AND SELLERS' RELATED PARTIES HAVE DISCLAIMED, ANY AND ALL
REPRESENTATIONS, GUARANTIES OR WARRANTIES, EXPRESS OR IMPLIED, OR ARISING BY
OPERATION OF LAW (EXCEPT AS SET FORTH IN THIS AGREEMENT AND THE DOCUMENTS
EXECUTED BY SELLERS AT THE CLOSING), OF OR RELATING TO THE COMPANY ASSETS,
INCLUDING WITHOUT LIMITATION, OF OR RELATING TO: (I) THE USE, INCOME POTENTIAL,
EXPENSES, OPERATION, CHARACTERISTICS OR CONDITION OF THE COMPANY ASSETS OR ANY
PORTION THEREOF, INCLUDING WITHOUT LIMITATION, WARRANTIES OF SUITABILITY,
HABITABILITY, MERCHANTABILITY, DESIGN OR FITNESS FOR ANY SPECIFIC PURPOSE OR A
PARTICULAR PURPOSE, OR GOOD AND WORKMANLIKE DESIGN OR MANUFACTURE; AND (II) THE
NATURE, MANNER OR CONDITION OF THE COMPANY ASSETS, WHETHER OR NOT OBVIOUS,
VISIBLE OR APPARENT. OTHER THAN IN CONNECTION WITH ANY BREACH OF A
REPRESENTATION OR WARRANTY CONTAINED IN THIS AGREEMENT OR ANY DOCUMENT EXECUTED
BY SELLERS AT THE CLOSING, PURCHASERS AND LONESTAR HEREBY WAIVE, RELEASE, ACQUIT
AND FOREVER DISCHARGE SELLERS, SELLERS' RELATED PARTIES AND ANY OTHER PERSON
ACTING ON BEHALF OF SELLERS OF AND FROM, ANY CLAIMS, ACTIONS, CAUSES OF ACTION,
DEMANDS, RIGHTS, DAMAGES, LIABILITIES, COSTS AND EXPENSES WHATSOEVER (INCLUDING
COURT COSTS AND ATTORNEYS' FEES), DIRECT OR INDIRECT, KNOWN OR UNKNOWN, FORESEEN
OR UNFORESEEN, WHICH PURCHASERS OR LONESTAR NOW HAVE OR WHICH MAY ARISE IN THE
FUTURE, ON ACCOUNT OF OR IN ANY WAY GROWING OUT OF OR IN CONNECTION WITH THE
PHYSICAL CONDITION OF THE COMPANY ASSETS
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OR ANY LAW OR REGULATION APPLICABLE THERETO. THE PROVISIONS OF THIS SECTION
SHALL SURVIVE THE CLOSING.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER. Purchaser and
Lonestar jointly and severally represents, warrants and, as applicable,
covenants, to and agrees with Sellers that:
5.1 ORGANIZATION AND EXISTENCE. Purchaser and Lonestar each is a
corporation duly organized and validly existing and in good standing under the
laws of the state or country of its incorporation and has all requisite
corporate power to own, lease and otherwise operate its properties and assets
and to carry on its business as now being conducted and is duly qualified as a
foreign corporation and is in good standing in each jurisdiction in which the
nature of its business or the location of its properties requires such
qualification, and is duly authorized and licensed and has all licenses,
franchises, permits and other governmental authorizations required under all
applicable laws, regulations, ordinances and orders of public authorities to
carry on its business in the places and in the manner as now conducted.
5.2 PURCHASERS' AND LONESTAR'S AUTHORITY RELATIVE TO THIS AGREEMENT.
This Agreement has been duly executed and delivered by each Purchaser and
Lonestar, this Agreement is a valid and binding obligation of each Purchaser and
Lonestar, and no further corporate action is necessary with respect to any
Purchaser or Lonestar to make this Agreement a valid and binding obligation of
each Purchaser and Lonestar, enforceable in accordance with its terms. Neither
the execution, delivery nor performance of this Agreement by any Purchaser or
Lonestar 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 the Purchasers or Lonestar.
5.3 TITLE TO NOTES, STOCK AND WARRANTS. Purchasers will convey, transfer,
assign and surrender the LHIC Note, the LHSP Note, the Series D Stock, and the
LHIC Warrants to Sellers, free and clear of all liens, claims, security
interests and encumbrances.
5.4 ACQUISITION ENTIRELY FOR OWN ACCOUNT. This Agreement is made with the
Purchasers and Lonestar in reliance upon the Purchasers' and Lonestar's
representation to the Sellers, which by Purchasers' and Lonestar's execution of
this Agreement Purchasers and Lonestar hereby confirm, that the Replacement
Warrants and the common stock of AVRI issuable upon exercise of the Replacement
Warrants (collectively, the "Securities") are being acquired for investment for
Lonestar's own account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and that Lonestar has no present
intention of selling, granting any participation in, or otherwise distributing
the same. By executing this Agreement, Lonestar further represents that Lonestar
does not have any contract, undertaking,
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agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to any of the
Securities.
5.5 RELIANCE UPON LONESTAR'S REPRESENTATIONS. Each Purchaser and Lonestar
understands that the Replacement Warrants and the common stock of AVRI acquired
on exercise thereof, at the time of issuance will not be, registered under the
Securities Act because the issuance of securities hereunder is exempt from
registration under the Securities Act pursuant to Section 4(2) thereof, and that
the Sellers' reliance on such exemption is predicated on Purchasers' and
Lonestar's representations set forth herein. Purchasers and Lonestar realize
that the basis for the exemption may not be present if, notwithstanding such
representations, Lonestar has in mind merely acquiring the Replacement Warrants
with a present intention to sell those securities in the near future.
5.6 RECEIPT OF INFORMATION . Each Purchaser and Lonestar believes it has
received all the information it considers necessary or appropriate for deciding
whether to enter into the transactions made the subject of this Agreement. Each
Purchaser and Lonestar further represents that it has had an opportunity to ask
questions and receive answers from the Sellers regarding the condition of the
Sellers' business, properties, prospects and financial condition and to obtain
additional information (to the extent the Sellers possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. The
foregoing, however, does not limit or modify the representations and warranties
of the Sellers in Section 4 of this Agreement or the right of Purchasers or
Lonestar to rely thereon.
5.7 INVESTMENT EXPERIENCE. Each Purchaser represents that such Purchaser is
experienced in evaluating and investing in securities of companies in the
development stage and acknowledges that it is able to fend for itself, can bear
the economic risk of its investment, and has such knowledge and experience in
financial or business matters that it is capable of evaluating the merits and
risks of the transactions made the subject of this Agreement. Lonestar also
represents that Lonestar has not been organized for the sole purpose of
acquiring the an interest in the Replacement Warrants.
5.8 ACCREDITED INVESTOR. Each of the Purchasers and Lonestar is an
"Accredited Investor" within the meaning of Securities and Exchange Commission
rule 501 of Regulation D, as now in effect.
5.9 RESTRICTED SECURITIES. Lonestar understands that the Replacement
Warrants (and any common stock of AVRI issued on exercise thereof) may not be
sold, transferred, or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Replacement Warrants (or any
common stock of AVRI issued on exercise thereof) or an available exemption from
registration under the Securities Act, the Replacement Warrants (and any common
stock of AVRI issued upon exercise thereof) must be held indefinitely. In
particular, Lonestar is aware that the Replacement Warrants (and any common
stock of AVRI issued on exercise thereof) may not be sold pursuant to Rule 144
promulgated under the
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Securities Act unless all of the conditions of that Rule are met. Among the
conditions for use of Rule 144 is the availability of current information to the
public about AVRI.
5.10 LEGENDS. Each certificate or other document evidencing any of the
Replacement Warrants or any common stock of AVRI issued upon exercise thereof,
shall be endorsed with the legends set forth below, and Lonestar covenants that,
except to the extent such restrictions are waived by AVRI, Lonestar shall not
transfer the shares represented by any such certificate without complying with
the restrictions on transfer described in the legends endorsed on such
certificate:
"THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE
REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH RULE 144
PROMULGATED UNDER SUCH ACT, OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
5.11 FOREIGN INVESTOR. To the extent that Lonestar is not a U.S. person or
entity, Lonestar hereby represents that it has satisfied itself as to the full
observance of the laws of its jurisdiction in connection with its acquisition of
the Replacement Warrants or any use of this Agreement, including (i) the legal
requirements within Lonestar's jurisdiction for the acquisition of the
Replacement Warrants, (ii) any foreign exchange restrictions applicable to such
acquisition, (iii) any governmental or other consents which may need to be
obtained, and (iv) the income tax and other tax consequences, if any, which may
be relevant to the acquisition, holding, redemption, sale or transfer of the
Replacement Warrants or the common stock of AVRI issued upon the exercise
thereof. Lonestar's acquisition, and its continued beneficial ownership, of the
Replacement Warrants will not violate any applicable securities or other laws of
Lonestar's jurisdiction.
5.12 STOCK OPTIONS. Following the Closing, Purchasers and Lonestar shall
use reasonable efforts to obtain cancellations or releases of all options to
acquire shares of common stock of AVRI held by Raoul Teh, Myla Rose Mundo-Reyes
and Geraldine San Juan pursuant to written stock option agreements between AVRI
and each of such persons.
5.13 TRANSITION. For a period of ninety (90) days after the Closing Date,
Lonestar (and LHSP with respect to the services of H. Russel Douglas) will
provide reasonable transitional advisory assistance to AVRI in connection with
(i) the transition of AVRI's auditor relationship from Ernst & Young, (ii) the
preparation of AVRI's 2000 business plan and budget, (iii) the completion of
AVRI's 1999 audit and annual 10K report, (iv) technical support for AVRI's
transcription business, (v) the services of Russ Douglas in connection with the
design of the AVRI's Virtual Physician Network ("VPN"), and (vi) the transition
of operating
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responsibility to the extent that any of AVRI's employees involved in operations
accept employment with Lonestar.
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 these transactions delivered by or on behalf of Sellers,
Purchasers or Lonestar pursuant to this Agreement, or in connection with the
transactions contemplated hereby, shall be deemed representations and warranties
by Sellers, Purchasers or Lonestar, as the case may be, under this Agreement.
6.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Sellers, Purchasers and Lonestar set forth
herein shall survive the Closing for a period beginning on the Closing Date and
expiring on the date that is thirty (30) days following completion of the
financial audit by AVRI's independent certified public accountants for the year
ended December 31, 2000, except for claims under Sections 4.1, 4.2, 4.4, 4.5,
4.6, 4.17 and 4.21, which shall continue without limitation as to time, and
shall not be merged with the Bill of Sale (as defined in Section 7.2); provided
that claims regarding a breach of a representation or warranty (that is subject
to the forgoing limitation as to time) made in writing by any party to any other
within such period shall survive until resolution of such claims even if
resolution extends beyond such period. All covenants contained herein that by
their nature require performance following the Closing shall be automatically
deemed to survive the Closing until the performance is no longer required.
6.3 SELLERS' INDEMNITY. Sellers jointly and severally agree to indemnify,
defend and hold Purchasers, Lonestar, their affiliates, directors, officers,
employees, stockholders and agents 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
Purchasers or Lonestar resulting from or arising out of, relating to, or by
virtue of (i) any breach by Sellers of their representations, warranties and
covenants in this Agreement; (ii) except for the Assumed Liabilities, all
liabilities and obligations of Sellers of any kind or nature, known or unknown,
relating to the Company Assets, or the Sellers; (iii) with respect to the
Assigned Contracts, all liabilities and obligations resulting from or arising
out of the performance and observance by Sellers of, or the failure of Sellers
to perform and observe, any of the covenants, terms and conditions of the
Assigned Contracts prior to the Effective Date; and (iv) Sellers' operation of
the Company Assets other than the Assigned Contracts prior to the Effective
Date.
6.4 PURCHASERS' AND LONESTAR'S INDEMNITY. Purchasers and Lonestar
jointly and severally agree to indemnify, defend and hold Sellers, their
affiliates, directors, officers, employees, stockholders and agents 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,
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sustained or incurred by Sellers resulting from or arising out of, relating to,
or by virtue of (i) any breach by Purchasers or Lonestar of their
representations, warranties and covenants in this Agreement; (ii) all
liabilities and obligations of Purchasers or Lonestar of any kind or nature,
known or unknown, relating to the Assumed Liabilities or Purchasers or Lonestar,
including, without limitation, with respect to the employment agreement with H.
Russel Douglas assumed by LHSP; (iii) with respect to the Assigned Contracts,
all liabilities and obligations resulting from or arising out of the performance
and observance by Lonestar of, or the failure of Lonestar to perform and
observe, any of the covenants, terms and conditions of the Assigned Contracts on
and after the Effective Date; and (iv) Lonestar's operation of the Company
Assets other than the Assigned Contracts as of and after the Effective Date.
6.5 COSTS ASSOCIATED WITH OTPI; OFFSET RIGHTS.
(a) Sellers jointly and severally agree to indemnify and hold harmless
Purchasers and Lonestar for all amounts that Purchasers, Lonestar or OTPI
may incur in connection with paying (i) all capital gains taxes,
documentary stamp taxes, and other taxes, fees and charges, including
penalties, interest and surcharges relating thereto, with respect to the
original formation of OTPI, the transfer of the shares of OTPI from Hillel
Bronstein and Stuart Szpicek, to Cornell Transcription, Inc., the transfer
of shares of OTPI from Cornell Transcription, Inc. to HCIS, and the
transfer of shares of OTPI from HCIS to Lonestar (which taxes, fees,
penalties, interest and surcharges are estimated by OTPI's Philippines
legal counsel to be approximately $2,000), and (ii) all penalties and
surcharges relating to OTPI's failure to file annual corporate reports and
financial statements required under Philippines law for the years 1998 and
1999 (which penalties and surcharges are estimated by OTPI's Philippines
legal counsel to be approximately $1,500).
(b) Sellers shall take all action necessary to resolve the non-
compliance matters described in Section 6.5(a), and pay costs associated
therewith. If Sellers do not diligently pursue the resolution of such
matters, Purchaser, Lonestar or OTPI may take such actions deemed by them
to be necessary to resolve such matters and Sellers shall immediately
reimburse Purchaser, Lonestar or OTPI, as applicable, for such costs,
including reasonable attorneys fees and expenses of Philippines legal
counsel in connection with completing such filings and tax returns (and
Purchaser, Lonestar and OTPI will provide Sellers with reasonable evidence
of such payment and completion in reasonable detail).
(c) Sellers' reimbursement of Purchasers, Lonestar or OTPI pursuant to
Section 6.5(b) shall be made from time to time within five (5) business
days after AVRI's receipt from Purchasers, Lonestar or OTPI of a written
request for reimbursement of such expense (together with evidence of the
payment thereof). If Sellers fail to reimburse Purchasers, Lonestar or OTPI
such requested amount within such five (5) business day period, Lonestar
shall be entitled to offset such reimbursement amount against any payment
then due and owing by Lonestar to Sellers with respect to collected
Accounts Receivable in excess of the Closing A/R Payment that would
otherwise be payable by Lonestar to Sellers pursuant to the terms of
Section 3(a).
(d) Following the Closing, Purchasers, Lonestar and OTPI shall
cooperate with Sellers in connection with Sellers' efforts under Section
6.5(a), including, without
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limitation, executing such documents, certificates and affidavits as
Sellers may reasonably request, which agreement to cooperate shall survive
the closing indefinitely. Sellers shall provide similar cooperation to
Purchasers, Lonestar and OPTI in the event, pursuant to Section 6.5(b),
Purchasers, Lonestar or OTPI undertake such efforts.
7. THE CLOSING. Sellers, Purchasers and Lonestar hereby agree to consummate
the closing of the sale and purchase of the Company Assets (the "Closing") at
the offices of Sellers' legal counsel, Boyar, Simon & Miller, located at 4265
San Felipe, Suite 1200, Houston, Texas 77027 (or such other place as Purchasers,
Lonestar and Sellers so determine) immediately following execution of this
Agreement on January 7, 2000 (the "Closing Date"). At the option of Purchasers,
Lonestar and Sellers, 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 LIEN RELEASES. Sellers shall obtain and file for record in the
appropriate offices each of the releases and partial releases listed on SCHEDULE
7.1.
7.2 BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT. Sellers and Lonestar
shall execute a Bill of Sale, Assignment and Assumption Agreement (the "Bill of
Sale"), in the form attached hereto as EXHIBIT "7.2", (a) conveying good title
to the Company Assets to Lonestar free and clear of all liens, claims,
encumbrances and interests (except as otherwise as set forth in this Agreement),
and (b) effecting the assumption by Lonestar of the Assigned Contracts,
including, without limitation, the following:
(a) Master Equipment Lease, No. 2147, dated May 13, 1998 (the
"Sterling Bank Lease"), executed by and between HCIS, as successor-in-
interest to Cornell Transcription, Inc. and Sterling National Bank.
(b) Promissory Note in the original principal amount of $42,000, dated
June 17, 1998 (the "Southwest Bank of Texas Note"), executed by AWA in
favor of Southwest Bank of Texas, N.A.
(c) Office Lease Agreement dated December 4, 1996, executed by and
between AVRI, as lessee, and T. Rowe Price Renaissance Fund, Ltd., as
lessor, with respect to the office space located at 4615 Post Oak Place,
Suite 111, Houston, Texas;
(d) Office Lease Agreement dated November 29, 1999, executed by and
between AVRI, as lessee, and HSDRY, LLC, as lessor, with respect to the
office space located at 42 Clinton Place, Hackensack, New Jersey; and
(e) Office Lease Agreement dated March 23, 1999, executed by and
between AWA, as lessee, and Lutheran Brotherhood d/b/a Copperfield
Professional Center, predecessor in interest to Bernstein Perwien
Properties, as lessor, with respect to the office space located at 7602
Lakeview Haven Drive, Suite 105, Houston, Texas.
7.3 ASSIGNMENT AND ASSUMPTION OF EMPLOYMENT AGREEMENTS.
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(a) AVRI, LHSP and H. Russel Douglas shall execute an Assignment and
Assumption Agreement with respect to Mr. Douglas' Employment Agreement, in
a form acceptable to all such parties.
(b) AVRI and Lonestar shall execute an Assignment and Assumption
Agreement with respect to each of the following Assumed Employee's
Employment Agreements, in a form acceptable to such parties (following the
closing, AVRI and Lonestar will obtain the execution to such Assignment and
Assumption Agreements by each of the respective employees):
(i) Cathy Clemons
(ii) Yaniv Dagan
(iii) Kay Cook
7.4 AMENDMENT II TO VALUE ADDED RESELLER AGREEMENT. AVRI and LHSP shall
execute an amendment (the "Amendment to VAR") in a form mutually acceptable to
both parties extending the term of that certain Value Added Reseller Agreement
dated September 30, 1998, executed by and between AVRI and LHSP.
7.5 TECHNOLOGY LICENSE AGREEMENT. Sellers and Lonestar shall execute a
perpetual, nonexclusive, royalty-free license agreement for the use of the
technology included within the Company Assets in a form mutually acceptable to
both parties, pursuant to which agreement Lonestar will license the technology
listed on SCHEDULE 1.1(E) and SCHEDULE 1.1(F) back to AVRI, which license will
be transferable by Sellers only in connection with a sale by Sellers of the
Sellers' medical transcription business or the VPN.
7.6 MEDICAL TRANSCRIPTION SERVICES AGREEMENT. AVRI and Lonestar shall
execute an agreement regarding the processing of AVRI data through OTPI's
facility in Manila, The Philippines, for a period of up to eighteen (18) months,
in a form mutually acceptable to both parties.
7.7 TERMINATION OF VOTING AGREEMENT. Voice Technologies Partners, Ltd., a
shareholder of AVRI, AVRI and LHIC will execute an agreement terminating that
certain Voting Agreement dated as of December 31, 1998.
7.8 TERMINATION OF CO-SALE AND TAG-ALONG RIGHTS AGREEMENT. Each of Voice
Technologies Partners, Ltd., a shareholder of AVRI, AVRI and LHIC will execute
an agreement terminating that certain Co-Sale and Tag-Along Rights Agreement
dated as of December 31, 1998.
7.9 SERIES D STOCK. LHIC shall deliver to Sellers certificate(s)
representing the Series D Stock , duly endorsed or accompanied by a duly
executed stock power in blank, and in proper form for transfer.
7.10 LHIC NOTE. LHIC shall deliver to Sellers for cancellation the LHIC
Note.
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7.11 LHSP NOTE. LHIC shall deliver to Sellers for cancellation the LHSP
Note.
7.12 LHIC WARRANTS. AVRI and LHIC shall execute an agreement terminating
the LHIC Warrants.
7.13 REPLACEMENT WARRANTS. AVRI shall issue to Lonestar the Replacement
Warrants, and AVRI and Lonestar shall execute the Lonestar Registration Rights
Agreement.
7.14 UCC-3 TERMINATION STATEMENTS. Each of LHIC and LHSP shall deliver to
Sellers executed UCC-3 Termination Statements terminating each of the Financing
Statements.
7.15 TERMINATION OF TRADEMARK SECURITY AGREEMENT. AVRI, LHIC and LHSP shall
enter into an agreement terminating the Trademark Security Agreement.
7.16 TERMINATION OF PATENT SECURITY AGREEMENT. AVRI, LHIC and LHSP shall
enter into an agreement terminating the Patent Security Agreement.
7.17 TERMINATION OF COPYRIGHT SECURITY AGREEMENT. AVRI, LHIC and LHSP shall
enter into an agreement terminating the Copyright Security Agreement.
7.18 PLEDGED STOCK. Purchasers shall deliver to Sellers each certificate
representing shares of stock in HCIS, AWA and OTPI held by Purchasers as
security pursuant to the Pledge Agreement, together with the original blank
stock powers relating thereto.
7.19 UCC-1 FINANCING STATEMENT. The Sellers shall execute and deliver to
Lonestar new UCC-1 Financing Statements to be filed with the Texas Secretary of
State evidencing Sellers' grant of a lien in favor of Lonestar covering the
Accounts Receivable purchased by Lonestar.
7.20 OTPI STOCK CERTIFICATES. Upon Sellers' receipt from Purchasers of the
original certificates representing the shares of OTPI stock owned by HCIS,
Sellers shall deliver to Lonestar such certificate, duly endorsed or accompanied
by a duly executed stock power in blank, in proper form for transfer to
Lonestar.
7.21 TRUST AGREEMENTS. Following the Closing, Sellers shall deliver to
Lonestar written trust agreements regarding the ownership of shares of OTPI
executed by Raoul Teh, Myla Rose Mundo-Reyes and Geraldine San Juan.
7.22 OFFICER AND DIRECTOR RESIGNATION LETTERS. Sellers shall have received
letters of resignation in a form acceptable to Sellers executed by the persons
listed on SCHEDULE 7.22 for purposes of resigning their respective positions
with AVRI, HCIS and AWA, as applicable, which letters shall expressly set forth
that, as of the Effective Date, each such person (i) is not a party to any
agreement with Sellers, or, alternatively, that each resigns from all of such
person's respective salaried positions from Sellers, and (ii) does not have any
claim of any nature whatsoever against Sellers, including, without limitation,
claims for unpaid wages, severance expenses or
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wrongful termination. Lonestar shall appoint such new officers and directors of
OTPI as Lonestar shall designate.
7.23 TERMINATION OF EMPLOYMENT AGREEMENTS. Sellers and each of the
Executives shall execute and deliver to each other written agreements
terminating the respective employment agreements of each of the Executives.
7.24 EMPLOYEE TERMINATION LETTERS. Sellers and Lonestar shall execute and
deliver to each other termination of employment letters in the form attached
hereto as EXHIBIT "7.24" with respect to the Hired Employees (following the
closing, AVRI and Lonestar will obtain the execution to such termination letters
by each of the employees shown therein). The execution of such letters shall
not impart any third party beneficiary rights upon any such employees.
7.25 INDEMNITY AGREEMENTS. Lonestar shall have executed an indemnification
agreement with each of Eric A. Black and Richard A. Cabrera, in the form
attached hereto as EXHIBIT "7.25".
7.26 SELLERS' LEGAL OPINION. Porter & Hedges, LLP, special counsel to AVRI,
shall deliver to the Purchasers a legal opinion in a form acceptable to the
parties, opining on the due organization of the Sellers and their authority to
consummate the transactions made subject of this Agreement, and such other
matters as may be reasonably requested by Purchasers.
7.27 PURCHASERS' LEGAL OPINIONS.
(a) Brown, Rudnick, Freed & Gesmer, counsel to Lonestar and
Purchasers, shall deliver to Sellers a legal opinion in a form acceptable
to the parties, opining on the due organization of Lonestar and its
authority to consummate the transactions made subject of this Agreement,
and such other matters as may be reasonably requested by Sellers.
(b) A Belgian law firm reasonably acceptable to Sellers shall deliver
to Sellers a legal opinion in a form acceptable to the parties, opining on
the due organization of LHIC and their authority to consummate the
transactions made subject of this Agreement, and such other matters as may
be reasonably requested by Sellers.
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7.28 APPORTIONMENTS; CLOSING STATEMENT.
(a) All revenue and expenses relating to the Company Assets, the
Executive, the Hired Employees and the Assigned Contractors shall be
prorated as of the Effective Date, including, without limitation, the
Accounts Receivable, all recurring fees paid or payable, all utility
expenses, all marketing expenses, and all personal property taxes, income
and employment taxes and other assessments. Purchasers and Lonestar shall
be entitled to a credit for all such revenue collected by Sellers on and
after the Effective Date, and Sellers shall be entitled to retain all such
revenue collected by Sellers prior to the Effective Date. Similarly,
Purchasers and Lonestar shall be responsible for and shall reimburse
Sellers at Closing for all such expenses incurred by Sellers on and after
the Effective Date, and Sellers shall retain responsibility for all such
expenses incurred by Sellers prior to the Effective Date. In the event that
any post Closing payments or adjustments are due to Lonestar by Sellers
that are not addressed on the Closing Statement with respect to (i)
Accounts Receivable collected in trust for the benefit of Lonestar pursuant
to Section 3(a), (ii) reimbursements under Section 6.5(c), or (iii) any
post Closing adjustments of expenses and income pursuant to the terms of
the Closing Statement, Lonestar shall be entitled to offset such amount
against any payment then due and owing by Lonestar to Sellers with respect
to collected Accounts Receivable in excess of the Closing A/R Payment that
would otherwise be payable by Lonestar to Sellers pursuant to Section 3(a).
In addition, Sellers shall be entitled to be reimbursed by Purchasers and
Lonestar for all security and other deposits held by third parties as of
the Effective Date with respect to the Company Assets.
(b) Prior to Closing, Sellers, Purchasers and Lonestar shall jointly
prepare a closing statement (the "Closing Statement") containing a schedule
of all payments, reimbursements, prorations and other adjustments as of the
Effective Date between the Sellers, the Purchasers and Lonestar as the
result of the transactions made the subject of this Agreement, including,
without limitation, the adjustments and prorations made pursuant to Section
7.28(a) and the Closing A/R Payment.
7.29 CASH PORTION OF CONSIDERATION. Purchasers and Lonestar shall deliver
to Sellers via wire transfer of immediately available funds to an account to be
designated by Sellers the aggregate amount owed by Purchasers and Lonestar to
Sellers with respect to the transactions made the subject of this Agreement
pursuant to the adjustments and calculations reflected on the Closing Statement.
8. CONDITIONS TO CLOSING. Sellers have obtained an opinion from Harris, Webb
& Garrison regarding the "fairness" of the transactions contemplated by this
Agreement to AVRI and its holders of common stock, which opinion is satisfactory
to Sellers, Purchasers and Lonestar.
9. FURTHER ACTS. The parties hereto hereby covenant and agree that, from
time to time on and after the Closing Date, at the request of any other party,
each party hereto will execute and deliver all confirmatory bills of sale,
assignments and other documents that such party may reasonably request,
including, without limitation, using reasonable efforts to obtain written
consents from Sterling Bank, Southwest Bank of Texas, N.A., HSDRY, LLC, T. Rowe
Price Renaissance Fund, Ltd., and Lutheran Brotherhood d/b/a Copperfield
Professional Center, predecessor in interest to
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Berstein Perwien Properties, to the assignment and assumption of their
respective agreements to Lonestar.
10. POSSESSION. Immediately following the Closing, Sellers shall deliver to
Lonestar at the Assigned Facilities all tangible items constituting the Company
Assets.
11. EXPENSES AND COMMISSIONS. Each of Sellers, Purchasers and Lonestar will pay
their own expenses incident to the transactions contemplated by this Agreement.
Purchasers, Lonestar and Sellers each represent to the other that there are no
agents or brokers entitled to a commission in connection with the transactions
made the subject of this Agreement. Sellers hereby agree to indemnify and hold
harmless Purchasers and Lonestar against any and all claims of any agent,
broker, finder or similar party claiming through Sellers, and Purchasers and
Lonestar hereby agree to indemnify and hold harmless Sellers against any and all
claims of any agent, broker, finder, or other similar party claiming through
Sellers. Sellers, Purchasers and Lonestar agree to share equally the cost of the
fairness opinion described in Section 8.
12. MISCELLANEOUS.
12.1. 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 Sellers, to: c/o Applied Voice Recognition, Inc.
4615 Post Oak Place, Suite 111
Attention: Mr. Timothy J. Connolly, Chairman
Telecopy No.: (713) 621-5870
Email: [email protected]
With copy to: Boyar & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
Attention: J. William Boyar, Esq.
Telecopy No.: (713) 552-1758
Email: [email protected]
With copy to: Porter & Hedges, L.L.P.
700 Louisiana, 35th Floor
Houston, Texas 77002
Attention: Samuel N. Allen, Esq.
Telecopy No.: (713) 226-0229
Email: [email protected]
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If to Purchasers, to: c/o Lernout & Hauspie Speech Products, N.V.
Flanders Language Valley 50, B-8900
Ieper Belgium
Attention: Mr. Thomas Denys
Telecopy No.: 011 325 722 9545
Email: [email protected]
AND
c/o Lernout & Hauspie Speech Products USA, Inc.
52 Third Avenue
Burlington, Massachusetts 01803
Attention: Mr. Allan Forsey
Telecopy No.: (781) 238-0986
Email: [email protected]
With copy to: Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attention: Steven D. Pohl, Esq.
Telecopy No.: (617) 856-8201
Email: [email protected]
If to Lonestar, to: c/o Lernout & Hauspie Speech Products USA, Inc.
52 Third Avenue
Burlington, Massachusetts 01803
Attention: Mr. Allan Forsey
Telecopy No.: (781) 238-0986
Email: [email protected]
With copy to: Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attention: Steven D. Pohl, Esq.
Telecopy No.: (617) 856-8201
Email: [email protected]
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 12.1, 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 or email, provided that
such facsimile or email transmission is confirmed within one business day
thereafter by U.S. mail in accordance with this Section 12.1. Notices delivered
by any other means shall be deemed given and received upon actual receipt of the
above specified address of the addressee.
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12.2. ASSIGNMENT. This Agreement may not be assigned by any party without
the prior written consent of the other parties. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
12.3. 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.
12.4. SCHEDULES AND EXHIBITS. All schedules and exhibits attached to and
referenced in this Agreement are incorporated in this Agreement and made a part
hereof.
12.5. GOVERNING LAW; VENUE. This Agreement shall be governed by the laws
of the State of Texas. This Agreement is to be performed and consummated in
Houston, Harris County, Texas.
12.6. 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 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.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties on
this the 7th day of January, 2000, to be effective as of the Effective Date.
AVRI:
APPLIED VOICE RECOGNITION, INC.,
a Delaware corporation
By: /s/ Timothy J. Connolly
-----------------------
Name: Timothy J. Connolly
------------------------
Title: Chairman of the Board
--------------------------
HCIS:
----
e-DOCS HEALTH CARE INFORMATION
SERVICES, INC.,
a Delaware corporation
By: /s/ Timothy J. Connolly
-----------------------
Name: Timothy J. Connolly
------------------------
Title: President
--------------
AWA:
---
A WORD ABOVE, INC.,
a Texas corporation
By: /s/ Timothy J. Connolly
-----------------------
Name: Timothy J. Connolly
------------------------
Title: President
--------------
LONESTAR:
--------
LONESTAR MEDICAL TRANSCRIPTION
USA, INC., a Delaware corporation
By: /s/ Carl Dammekens
------------------
Name: Carl Dammekens
-------------------
Title: President
--------------
LHIC:
----
L & H INVESTMENT COMPANY N.V.,
a Belgium company
By: /s/ Chantal Mestdagh
--------------------
Name: Chantal Mestdagh
---------------------
Title: Financial Officer
----------------------
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* The following Schedules and Exhibits have been omitted. The Company agrees to
furnish supplementally a copy of any omitted Schedule or Exhibit to the
Securities and Exchange Commission upon its request.
Schedules:
- ---------
A List of Financing Statements
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(g) List of Licenses and Permits
1.1(h) List of Accounts Receivable
1.3 List of Assumed Liabilities
4.1 Disclosures Regarding Compliance
4.5 List of Liens and Security Interests Encumbering the Company Assets
4.6 Litigation
4.10 List of Executives, Hired Employees and Assumed Contractors
4.13(d) List of OTPI Banking Information
7.1 List of Releases and Partial Releases
7.22 List of Persons to Resign Prior to Closing (Directors & Officers)
Exhibits:
- --------
"7.2" Bill of Sale, Assignment and Assumption Agreement
"7.24" Employee Termination Letter Form
"7.25" Indemnity Agreement Form
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EXHIBIT 99.1
NEWS RELEASE
Contact:
Timothy J. Connolly
Chairman of the Board
e-DOCS.net
713/621-3131
E-DOCS.NET ANNOUNCES MAJOR CORPORATE RESTRUCTURING;
DEAL ELIMINATES TOTAL OF $13.5 MILLION IN DEBT AND PREFERRED SHARES IN COMPANY
HOUSTON, TX -- (BUSINESS WIRE) -- JANUARY 11, 2000 -- e-DOCS.net
(OTCBB:EDOC) announced today a major corporate restructuring relieving e-DOCS of
a total of $13.5 million in debt and preferred equity shares. The Company has
agreed to a partial asset exchange for all issues of preferred stock and debt in
e-DOCS owned by L & H Investment Company, N.V. ("LHIC") and the current Series
A, C and E convertible preferred shareholders have agreed to convert their
preferred shares into common stock of e-DOCS.
Tim Connolly, Chairman of e-DOCS stated, "e-DOCS emerges as a
healthier company, focused on the growth of our medical transcription
operations, our VoiceCOMMANDER transcription technology and the strategy and
development of e-DOCS new B2B e-commerce subsidiary, the Virtual Physician
Network. This transaction is estimated to substantially reduce the Company's
negative cash flow and returns approximately 20% of e-DOCS fully diluted common
stock ownership back to the Company treasury, resulting in a significant equity
benefit to our shareholders."
e-DOCS is retaining approximately sixty percent of all pre-transaction
assets. The assets retained by e-DOCS include district operations in Dallas,
Denver and Tyler as well as ownership of all other previously developed
VoiceCOMMANDER source code, all patents granted or pending, and the non-
exclusive rights to VoiceCOMMANDER 99 for the use of e-DOCS and its new
subsidiary, the Virtual Physician Network. The assets to be exchanged include
the Company's district operations in Manila, New York and Houston, and the
rights to e-DOCS VoiceCOMMANDER 99 programming code.
The exchange includes forgiveness of $3.5 million of promissory notes,
and the return to e-DOCS treasury of all previous warrants and the $5,000,000
Series D Preferred Stock. The promissory note and the Series D Preferred Stock
were convertible into 22,972,972 shares of e-DOCS' common stock. LHIC will
receive 800,000 new warrants at $.37 per share in the
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transaction. Additionally, the series A, C, and E investors have agreed to
exchange their preferred shares for common stock at $.30 per share. A fairness
opinion of the asset exchange transaction has been obtained from the investment
banking firm, Harris, Webb & Garrison in Houston, TX.
Eric Black, former CEO of e-DOCS and Rick Cabrera, former CFO are
leaving e-DOCS to join a new entity created as a result of the transaction.
e-DOCS has agreed to release Mr. Black and Mr. Cabrera from their contracts,
including a release from their non-compete clauses. Mr. Rob Ritchie, VP of
International Operations and Milt Spiegelhauer, VP of Sales, will also be
leaving e-DOCS effective Dec. 31, 1999. Both LHIC representatives resigned from
the Board at the closing of the transaction. Tim Connolly, Founder and Chairman
of e-DOCS, will serve as interim President of the Company until an appropriate
candidate is located by the Board of Directors.
This press release contains forward-looking statements relating to
future revenues and operating information and their impact on future results.
Actual results could differ materially from those projected in the forward-
looking statements as a result of risk factors such as the availability of
sufficient capital on terms favorable to the company, market conditions, product
life cycles, customer delays in purchasing products, technology shifts,
potential difficulties in introducing new products, competition, price
sensitivity and the uncertainty of continuing market acceptance of the Company's
products by distributors, retailers and consumers. E-DOCS.net is a registered
assumed name for Applied Voice Recognition Inc.
2
