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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-23607
APPLIED VOICE RECOGNITION, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 76-0513154
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
1717 St. James, Suite 242, Houston, TX 77056
(Address of principal executive offices)
(713) 621-3131
(Issuer's telephone number, including area code)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2)has been subject to such filing requirements for the past 90 days.
YES [X] NO [_]
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AS OF May 15, 2000: 41,051,418
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE):
YES [_] NO [X]
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APPLIED VOICE RECOGNITION, INC.
DBA E-DOCS.NET
TABLE OF CONTENTS
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 2000.................................................. 4
Consolidated Statements of Operations for the three months ended March 31, 2000 and
March 31, 1999.................................................................................. 5
Consolidated Statements of Cash Flows for the three months ended March 31, 2000 and March 31,
1999............................................................................................ 6
Notes to Unaudited Consolidated Financial Statements............................................. 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................................................ 13
Item 2. Changes in Securities............................................................................ 13
Item 5. Other Information................................................................................ 15
Item 6. Exhibits and Reports on Form 8-K................................................................. 15
Signatures....................................................................................................... 18
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PART I.
FINANCIAL INFORMATION
This report includes "forward looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact included in this report are forward looking statements. Such
forward looking statements include, without limitation, statements as to
estimates, expectations, beliefs, plans, and objectives concerning the Company's
future financial and operating performance, and as included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" regarding the Company's estimate of sufficiency
of existing capital resources and its ability to raise additional capital to
fund cash requirements for future operations and acquisitions. The forward
looking statements are subject to assumptions and beliefs based on current
information known to the Company and factors that are subject to uncertainties,
risk and other influences, which are outside the Company's control, and could
yield results differing materially from those anticipated. The ability to
achieve the Company's expectations is contingent upon a number of factors which
include (i) availability of sufficient capital and capital market conditions,
(ii) the Company's ability to produce and market its products in the healthcare
transcription industry, (iii) effect of any current or future competitive
products, (iv) ongoing cost of research and development activities, and (v) the
retention of key personnel. "e-DOCS.net(TM)" is our trademarks. This report may
contain trademarks and service marks of other companies.
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ITEM 1. FINANCIAL STATEMENTS
APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
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MARCH 31, 2000 DECEMBER 31, 1999
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ASSETS
Current Assets
Cash and cash equivalents $ 1,093,467 $ 53,529
Accounts receivable, net 303,521 258,668
Other receivable - 747,137
Inventory 4,434 20
Deposits and prepaid expenses 18,344 6,054
Deferred expense 167,092 -
---------------- ---------------
TOTAL CURRENT ASSETS 1,586,858 1,065,408
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PROPERTY AND EQUIPMENT, NET 692,262 858,492
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OTHER ASSETS
Prepaid software rights 970,900 970,900
Other intangibles, net 435,969 447,310
Goodwill, net 495,760 504,899
---------------- ---------------
TOTAL OTHER ASSETS 1,902,629 1,923,109
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TOTAL ASSETS $ 4,181,749 $ 3,847,009
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables $ 255,362 $ 365,639
Accrued expenses 1,002,919 1,167,416
Stock dividend payable - 246,774
Current portion of preferred stock payable 320,887 474,000
Note payable to related party 250,000 250,000
Current portion of capital lease obligation 64,354 64,354
Current portion of long term debt 65,977 65,977
---------------- ---------------
TOTAL CURRENT LIABILITIES 1,959,499 2,634,160
Preferred stock payable, net of current portion 683,460 683,460
Capital lease liability, net of current portion 239,424 279,670
Long-term debt, net of current portion 47,054 141,091
---------------- ---------------
TOTAL LIABILITIES 2,929,437 3,738,381
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STOCKHOLDERS' EQUITY
Preferred stock, $.10 par value, 2,000,000 shares authorized
Series B - - 168
Series 2 - 64 50
Common stock, $.001 par, 50,000,000 shares authorized, 38,808 35,269
Paid in capital 19,741,893 18,199,066
Accumulated deficit (18,528,453) (18,125,925)
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TOTAL STOCKHOLDERS' EQUITY 1,252,312 108,628
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 4,181,749 $ 3,847,009
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See Notes to Unaudited Consolidated Financial Statements.
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended March 31
---------------------------
2000 1999
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Revenue:
Medical Transcription $ 607,375 $ 749,169
Consulting, hardware, software and related - 469,949
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TOTAL REVENUE 607,375 1,219,118
Cost of Sales:
Medical Transcription 472,285 500,745
Consulting, hardware, software and related - 52,567
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GROSS MARGIN 135,090 665,806
Operating expenses:
Marketing and sales 12,156 169,292
General and administrative 500,535 1,525,327
Research and development 13,752 263,241
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OPERATING LOSS (391,353) (1,292,054)
Other income (expense):
Rental income - 3,600
Gain on disposal of asset - 4,003
Other income (expense) (1,330) -
Interest income - 11,961
Interest expense (67,000) (46,833)
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TOTAL OTHER INCOME (EXPENSE) (34,291) (27,269)
Net loss $(459,683) $(1,319,323)
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Statement of comprehensive loss:
Comprehensive loss $(459,683) $(1,319,323)
========= ===========
Basic and diluted loss per share $ (0.01) $ (0.09)
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See Notes to Unaudited Consolidated Financial Statements.
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
DBA E-DOCS.NET
CONSOLIDATED STATEMENTS OF CASH FLOW
(unaudited)
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THREE MONTHS ENDED MARCH 31,
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2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net loss $(459,683) $(1,319,323)
Adjustments to reconcile net loss
to cash provided by (used in) operating activities:
Accretion of interest on preferred stock payable 37,097 -
Depreciation and amortization 80,101 122,575
Gain on disposal of asset - (4,003)
Amortization of deferred compensation 59,144 -
Changes in operating assets and liabilites:
Accounts receivable (44,853) (599,346)
Other receivable 747,137 -
Inventory (4,414) (21,038)
Other assets (12,290) (110,147)
Deferred revenues - (26,500)
Accounts payable and accruals (15,476) (336,251)
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Net cash provided by (used in) operating activites 386,763 (2,294,033)
CASH FLOW FROM INVESTING ACTIVITIES:
Cash paid for acquisitions - (490,000)
Purchase of equipment (19,799) (105,516)
Capitalizes software costs (18,896) -
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Net cash used by investing activities (38,695) (595,516)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock - 3,000,000
Proceeds from sales and leaseback arrangement - 240,000
Proceeds from the exercise of common stock options
and warrants 826,153 10,000
Debt and capital lease repayment (134,283) (534,833)
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Net cash provided by financing activities 691,870 2,715,167
NET INCREASE (DECREASE) IN CASH 1,039,938 (174,382)
CASH AND CASH EQUIVALENTS:
Beginning of period 53,529 1,377,913
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End of period $ 1,093,467 $ 1,203,531
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NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for dividends 189,606
Issuance of common stock for accrued liabilities 113,350
Payment of preferred stock payable in common stock 190,210
Issuance of common stock for deferred compensation 226,893
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
dba e-DOCS.net
Footnotes to the Financial Statements
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Applied Voice
Recognition, Inc., a Delaware corporation (the "Company"), have been prepared in
accordance with generally accepted accounting principles and the rules of the
Securities and Exchange Commission (the "SEC"), and should be read in
conjunction with the audited financial statements and notes thereto contained in
the Company's latest Annual Report filed with the SEC on Form 10-KSB. All
significant intercompany accounts and transactions have been eliminated. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. Notes to the
financial statements which would substantially duplicate the disclosure
contained in the audited financial statements for the most recent fiscal year,
1999, as reported in the Form 10-KSB, have been omitted.
The Company has incurred significant losses and cash deficits since inception.
The Company has been dependent upon outside financing to develop its software
products and to provide working capital. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
Beginning in the fourth quarter of 1999, the Company suspended its acquisitions
program and focused on restructuring the core operations of the transcription
companies acquired. As of December 31, 1999, the Company had reduced its
corporate head count from 35 to 7 and had sold its operations in Manila, New
York, New Jersey and a portion of its Houston operations. These actions reduced
the monthly losses by approximately $300,000, while reducing revenue by
$250,000 per month.
Since the Company's announcement of its restructuring on January 7, 2000,
liquidity has significantly improved. Gross revenues averaging $200,000 per
month have been achieved, and warrants and options have been exercised,
resulting in net proceeds to the Company of approximately $825,000 as of
March 31, 2000. Management believes current resources are adequate for the
development costs of the e-Docs Physician's Network (EPN) as well as the
Company's working capital needs through December 31, 2000.
It will be necessary for the Company to raise additional capital for the rollout
of EPN intended to occur in the fourth quarter of 2000. While management is
confident capital is available, there are no assurances that the necessary
capital can be obtained.
Certain reclassifications have been made to prior year balances in order to be
consistent with current year presentation.
2. E-DOCS PHYSICIAN NETWORK (EPN)
The e-DOCS Physician Network (EPN) is a secure, browser based document handling
system for physician offices, currently under development by e-DOCS.net. It
will encrypt, store and retrieve patient records, both medically transcribed and
the Physicians' own hand written notes. The EPN will be provided on an
Application Service Provider basis for a quarterly fee paid by the Physician. A
selection of other services requested by Physicians and their staff will also be
available on the EPN.
A contract has been signed with Intel Authentication Services to provide the
American Medical Association (AMA) digital credential for Physicians using the
EPN. This will enhance the security of the EPN and provide users with up-to-
date information from the AMA for enhanced protection of documents.
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APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
dba e-DOCS.net
Footnotes to the Financial Statements
(unaudited)
A contract has been signed with Thought Interactive of Austin, Texas to develop
the EPN. The EPN development is currently proceeding on time and under budget.
The EPN is expected to be in Beta testing in July 2000 and in general release by
September 2000. Nine contracts with national service providers to the medical
community are currently under negotiation, and the Company expects to announce
selected participants over the next few weeks.
3. STOCKHOLDERS' EQUITY
Effective as of March 11, 2000 the then remaining 920 shares of Series B
Preferred Stock and related accrued dividends of $96,759 were automatically
converted into 560,766 shares of common stock.
On February 23, 2000, the Company issued 1,911 shares of Series 2 Preferred
Stock as planned deferred purchase price payments for transcription company
acquisitions. These shares were subsequently converted into 115,755 shares of
Common Stock.
All other change in securities discussed in Part II, Item 1 had previously been
reflected in the December 31, 1999 financial statements included in Form 10KSB.
4. COMMITMENTS AND CONTINGENCIES
The Company was obligated to register the shares issued in the acquisition of
Cornell Transcription, Inc. on or before December 31, 1999. The Company was
unable to register these shares on a timely basis and entered into an agreement
granting the Company an extension until August 15, 2000 to register the shares.
The Company has agreed to pay interest of 1% per month based on the market value
of the securities to be registered. The market value is calculated using the
average final transaction price for the 30 day period prior to May 5, 2000. The
agreed market value of the securities is $1,523,240. In addition, warrants to
purchase 118,500 shares of Common Stock at $1.04 per share were issued as
additional compensation for the registration delay. The market value of the
warrants and an estimate of interest to be incurred through August 15, 2000 was
included in accrued liabilities at December 31, 1999. If the Company does not
complete the registration by August 15, 2000, the interest rate increases to
1.5% per month, and for each day until registration, additional warrants to
purchase 3,300 common shares will be issued.
4. EARNINGS PER SHARE
Basic earnings per common share is based on the weighted average number of
common shares outstanding during the period, while diluted earnings per common
share considers all potentially dilutive securities that were outstanding during
the period. The Company has potentially dilutive securities outstanding
including stock options, warrants, convertible debt and convertible preferred
stock. Both basic and diluted earnings per common share are the same for each
of the periods presented as inclusion of such potentially dilutive securities
was antidilutive.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
e-DOCS' current revenue is derived from the out-sourced medical transcription of
patient records for physicians, clinics and hospitals through its wholly owned
subsidiary e-DOCS Health Care Information Systems ("EDOCS HCIS"). Our current
customer base includes approximately 1,200 physicians in six states.
After ten months of usage by physicians, we recognized that the voice
recognition component of our previous product, VoiceCOMMANDER 99 was not
generating the cost and labor savings previously believed possible. However, the
market clearly indicated a preference for a browser-oriented tool for
Internet-based transcription and medical records storage services. Utilizing the
experience gained from our first Internet-based service, VoiceCOMMANDER 99, we
have begun development of our next generation browser-based service, titled
e-DOCS Physician Network.
While we continue to provide outsource medical transcription services, we are
developing the EPN, through our wholly-owned subsidiary the e-DOCS Physician
Network, Inc., as a medically centric, business-to-business application service
provider. The EPN will provide a secure, browser-based document handling
solution directed at the independent transcription company and the nation's
475,000 clinical physicians, 70% of whom practice in groups of five or less. We
are utilizing our experience in previously acquiring eight independent
transcription companies to provide a common technology platform to these
independent, capital-deficient businesses.
The EPN will be designed to become the standard technology platform for the
independent transcription company and the individual practicing physician. It is
being developed in response to a need identified by our existing customer base
for a simple, secure document handling solution to the daily needs of the
medical services community.
The EPN is being designed to provide an efficient Internet-based delivery system
for medical transcription documents and an infrastructure for capturing,
organizing, storing and retrieving medical information. The services may include
medical transcription and storage, training, legacy system integration, and the
electronic storage and retrieval of the physician's hand-written notes of a
patient encounter. The EPN will be designed to simplify how physicians interact
with medical information, without attempting to change their current practice
methodology. It will also support opportunities for other physician interests
and alliances into content, services and products.
We intend to provide the services of the EPN on a monthly subscription basis.
Medical transcription companies will pay a basic monthly fee for maintenance of
their web page on the system. This will entitle the transcription company to
deliver its medically transcribed documents through the EPN browser, allowing
physicians to review their transcription online and digitally sign the document.
It will be available all of the time from any location upon authorization of the
user.
The basic browser based service will be provided to the physician at no cost.
The EPN will offer secure, long-term, HIPAA-compliant document storage for a
monthly subscription fee. Other services anticipated to be provided include a
basic online medical record, including the capture of the physician's
handwritten patient notes without scanning. Our study of 42 practices
throughout Texas and Colorado showed that only one in fourteen physicians
currently use an electronic medical record entry system. The remainder rely on
handwritten patient notes. Our research indicates many physicians prefer a
simple document solution that does not alter the way the physician practices
medicine. Additionally, cost reductions in medicine demand an approach based on
usage, rather than large, up-front investments.
We believe that the important competitive advantage of the EPN will be its
presentation of information to the physician rather than requiring the physician
to search the net to find information and services. A medical search engine
button will always be available adjacent to the patient record, allowing the
physician instant access to this resource at all times. We further intend to
enter into strategic relationships with well-known providers of other services,
such as banking, medical and office supplies, and an upgrade path to a more
sophisticated medical record, if desired by the physician.
Furthermore, the EPN will provide enabling infrastructure and services for
secure, online medical transactions. It will provide an integrated service
solution designed specifically for healthcare that will include roaming user
credentials, complete audit trail, fraud detection and directed delegation of
authority to medical records. Thus, the EPN is being designed to be a secure
facility with "state of the art" protection.
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RESULTS OF OPERATIONS
Due to the evolution of our business strategy, we believe that our historical
results of operations for the periods presented may not be directly comparable.
Further, we believe the historical results of operations do not fully reflect
the operating efficiencies and improvements that are expected to be achieved by
the continued integration of our acquired businesses and the corporate
restructuring from the sale of our primary loss-generating assets.
The Company's Revenue is derived primarily from its wholly owned subsidiary
e-Docs Health Care Information Services (EDOCS HCIS). For the first time in
the Company's history, EDOCS HCIS was profitable for the three months ending
March 31, 2000 (before the allocation of corporate general and administrative
expense).
REVENUES
Our primary source of revenues originated from the sale of transcription
services. During the three months ended March 31, 1999, we also generated
$469,949 in revenues from the sale of bundled products comprised of software and
hardware. Net transcription service revenues decreased to $607,375 for the three
months ended March 31, 2000, a decrease of $141,794 from 1999. The decrease is
primarily attributable to the sale of the net assets and contracts of certain of
the Company's medical transcription services effective December 20, 1999.
COST OF SALES
Cost of sales for medical transcription consists primarily of labor costs. Cost
of sales for Medical transcription decreased $28,460, as a result of the reduced
transcription revenues. Related gross margin on medical transcription services
was $135,090, resulting in a gross margin on transcription services of 22%
compared to 31% in 1999. The decreased gross margin primarily reflects increases
in labor costs resulting from a shortage in skilled medical transcriptionists.
Cost of sales for bundled products in 1999 was $52,567 and related gross margin
was $417,382.
MARKETING AND SALES EXPENSE
Marketing and sales expense consists primarily of marketing and sales salaries
and commissions and advertising/promotional expenditures. Marketing and sales
expense decreased to $12,156 for the three months ended March 31, 2000, down
approximately $157,000 from 1999. The decrease is the direct result of our
increased focus on the transcription business. The transcription industry does
not require significant marketing efforts.
GENERAL AND ADMINISTRATIVE EXPENSE
General and administrative expense is comprised primarily of compensation and
related expenditures for administrative and executive personnel, professional
fees associated with legal, consulting, and accounting services, and general
corporate overhead. General and administrative expense decreased for the three
months ended March 31, 2000 to $500,535, a decrease of approximately $1,025,000
from 1999. The increase was primarily attributable to decreases in compensation,
legal & accounting fees, travel and consulting in 2000 related to the
decreased level of operations, and reflecting in 1999 a high level of
acquisition related activities.
Compensation decreased by approximately $450,000 from the comparative quarter
ended March 31, 1999. The decrease reflected the headcount decreases for
disposed operations, as well as a reduction in corporate office staff from 35 to
seven.
Legal and accounting fees decreased by approximately $150,000 and consulting
fees decreased by approximately $250,000 compared to the same quarter in 1999.
The first quarter of 1999 reflected
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significant professional fees as a result of ongoing acquisition activities. The
company has cutailed their acquisition policy with an emphasis on internal
growth of their transcription business and development of the EPN.
Travel related costs decreased approximately $100,000 for the three months ended
March 31, 2000 to the comparative period in 1999. Significant acquisition
activities and a larger network of transcription companies in 1999 were the
primary reasons for the decrease.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense consists primarily of personnel costs including
salaries, benefits and consultant costs related to the research and preliminary
development efforts on new software products. Research and development expense
decreased to $13,752 in the three months ended March 31, 2000, down
approximately $250,000 from 1999. The decrease in research and development costs
is attributable to our change in business focus from software development to
transcription service provider. During 2000 the Company capitalized
approximately $35,000 in development costs related to the e-DOCS Physicians
Network (EPN). In 1999 no development costs were capitalized. Development costs
associated with the EPN will largely be incurred in the second and third
quarters of 2000.
Through the period ended March 31, 2000, we have incurred operating losses,
since our inception, of approximately $22.4 million. To date, our operations
have not been profitable and there is no assurance that they will become
profitable in the future. Significant acquisitions and dispositions in 1999
distort the comparability between periods and as to future operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999 the Company had cash and cash equivalents of $1,093,467 and a
working capital deficiency of $372,641. This compares to cash and cash
equivalents of $53,529 and a working capital deficiency of $1,568,752 at
December 31,1999. The increase in working capital of approximately $1,194,453 is
attributable to: cash received from exercise of stock options and warrants
of approximately $825,000; approximately $370,000 from issuance of common
stock reflected as a liability in the December 31, 1999 financial statements;
and offset by current year operating losses.
Our cash position, less known commitments and contingencies, plus outside
financing received through March 31, 2000, plus cash generated from operations
for the balance of fiscal year 2000 should be adequate to fund our on-going
operations and fund the development of the EPN. Although we should have improved
operating results, we will still require substantial additional capital during
fiscal 2000 to implement and market the EPN once its development is complete.
Our capital requirements will depend on many factors, including, cash flow from
operations, additional working capital requirements, additional product
development expenses and capital expenditures. To the extent that existing
resources are insufficient to fund our operations in the short- or long-term, we
will need to raise additional funds through public or private financings. We may
not be able to raise additional financing on terms favorable to us or to our
stockholders without substantial dilution of their ownership and rights. If we
are unable to raise sufficient funds to satisfy either short- or long-term
requirements,
11
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there would be substantial doubt as to our ability to continue as a going
concern and we may be required to significantly curtail our operations,
significantly alter our business strategy, forego market opportunities or obtain
funds through arrangements with strategic partners or others that may require us
to relinquish material rights to certain of our technologies or potential
markets.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which e-DOCS is a party or of which
any of its property is the subject other than ordinary, routine claims
incidental to e-DOCS' business.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES
The following sales of unregistered securities occurred during the three months
ended March 31, 2000, and through May 15, 2000 (the date of this filing), in
private transactions, which e-DOCS relied on the exemption from registration
available under Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), unless otherwise indicated:
COMMON STOCK. On January 7, 2000, the Company issued Lonestar Medical
Transcription USA, Inc., in accordance with the Asset Purchase Agreement between
the Company and Lonestar Medical Transcription dated effective December 20,
1999, a warrant to purchase 800,000 unregistered shares of the Company's Common
Stock at an exercise price of $0.37 per share subject to adjustment. The shares
are also subject to a Registration Rights Agreement dated effective December 20,
1999. Lonestar Medical Transcription USA, Inc. performed a cashless exercise of
the warrant on May 15, 2000 and has been issued 533,813 shares of Common Stock.
SERIES A PREFERRED STOCK. On January 20, 2000, we entered into a Stock Exchange
Agreement with the holder of the our Series A Preferred Stock, Entrepreneurial
Investors, Ltd. ("EIL"), to exchange their shares of preferred stock for shares
of Series G Preferred Stock based on the primary terms set forth in a Letter
Agreement dated January 7, 2000. Those terms included 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 our common stock within
seven days of their issuance. The effective result being the resetting of the
conversion price for the Series A Preferred Stock from $1.48 to $.30, followed
by the prompt conversion of the preferred stock into our common stock. On March
23, 2000, EIL converted its 186,000 of Series A Preferred Stock into 14,880
shares of Series G Preferred Stock. Upon conversion, EIL also received stock
dividends amounting to 347.166 shares of Series G Preferred Stock. On March 30,
those 15,227.166 shares of Series G Preferred Stock converted into 5,075,722
shares of our common stock. We relied upon the exemption provided by Section
3(a)(9) under the Securities Act for these issuances.
SERIES B PREFERRED STOCK. During 1999, we periodically issued shares of common
stock when the holders of our Series B Preferred Stock (the "Series B
Investors") exercised their conversion rights and converted an aggregate of 605
shares of the Series B Preferred Stock into 608,680 shares of our common stock.
As of December 31, 1999, the Series B Investors received stock dividends
amounting to 51,523 shares of common stock. On March 11, 2000, the remaining
919.715 shares of Series B Preferred Stock were automatically converted into
514,059 additional shares of our common stock in accordance with the terms of
the Certificate of Designation for the Series B Preferred Stock. Upon
conversion, the Series B Investors also received stock dividends amounting to
51,476 shares of our common stock. We relied upon the exemption provided by
Section 3(a)(9) under the Securities Act for these issuances.
SERIES D PREFERRED STOCK. Effective December 20, 1999, the Company sold the net
assets and contracts of certain of the Company's medical transcription service
operations to Lonestar Medical Transcription USA, Inc. ("Lonestar"). The parent
of Lonestar, L&H Investment Co., N.V. was the Series D Preferred Stock Holder
prior to the sale. In exchange for the sale, the Series D Preferred Stock
Holder retired all of its holdings in Series D Preferred Stock, which amounted
to $5 million. In addition to this, the Series D Preferred Stock Holder also
forgave $3.5 million in debt; $94,360 of accrued interest; $318,458 of accrued,
unpaid dividends; and converted warrants to purchase 3.5 million shares of the
Company's common stock at $1.25 a share to warrants to purchase 800,000 shares
of the Company's common stock at $.37 share.
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SERIES C PREFERRED STOCK. On February 11, 2000, we entered into a Stock
Exchange Agreement with the holders of the our Series C Preferred Stock (the
"Series C Investors") to exchange their shares of preferred stock for shares of
Series G Preferred Stock based on the primary terms set forth in a Letter 13
Agreement dated January 7, 2000. Those terms included 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 our common stock within
seven days of their issuance. The effective result being the resetting of the
conversion price for the Series C Preferred Stock from $1.00 to $.30, followed
by the prompt conversion of the preferred stock into our common stock. On March
1, 2000 and March 23, 2000 the Series C Investors converted their 153,538 shares
into 15,353.8 shares of Series G Preferred Stock. Upon conversion, the holders
of the Series C Preferred Stock received stock dividends amounting to 287.34
shares of Series G Preferred Stock. On March 8, 2000, 14,516.68 shares of those
Series G Preferred Stock were converted into 4,838,894 shares of our common
stock, and on March 30, 2000, the remaining 1,124.458 were converted into
374,819 shares of our common stock. We relied upon the exemption provided by
Section 3(a)(9) under the Securities Act for these issuances.
SERIES E PREFERRED STOCK. On August 18, 1999, we completed a $2,000,000 private
placement by the issuance of 2,000 shares of Series E Convertible Preferred
Stock. These shares have a par value of $.10 and were priced at $1,000 per
share and were sold to Greenwich AG. On February 11, 2000, we entered into a
Stock Exchange Agreement with the Greenwich AG to exchange its shares of
preferred stock for shares of Series G Preferred Stock based on the primary
terms set forth in a Letter Agreement dated January 7, 2000. Those terms
included 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 our common stock within seven days of their issuance. The effective result
being the resetting of the conversion price for the Series E Preferred Stock
from $1.00 to $.30, followed by the prompt conversion of the preferred stock
into our common stock. On March 23, 2000, Greenwich AG conversion, Greenwich AG
received stock dividends amounting to 269.448 shares of Series G Preferred
Stock. On March 8, 2000, those 20,269.448 shares of Series G Preferred Stock
were converted into 6,756,483 shares or our common stock. We relied upon the
exemption provided by Section 3(a)(9) under the Securities Act for these
issuances.
SERIES 1 PREFERRED STOCK. On December 31, 1999, we issued 448.866 shares of
Series 1 Preferred Stock as deferred payment of a portion of the purchase price
for the acquisition of Cornell Transcription, Inc. in accordance with the terms
of the Asset Purchase Agreement dated December 1, 1998. On December 31, 1999,
Cornell Transcription, Inc. converted those 448.866 shares of Series 1 Preferred
Stock into 1,468,539 shares of our common stock. We relied upon the exemption
provided by Section 3(a)(9) under the Securities Act for these issuances.
SERIES 2 PREFERRED STOCK. On December 31, 1999, we issued 500 shares of Series
2 Preferred Stock as deferred payment of a portion of the purchase price for the
acquisition of Linda Willhite Transcription in accordance with the terms of the
Asset Purchase Agreement dated December 31, 1998. On February 23, 2000, we
issued 1,256.66 shares of Series 2 Preferred Stock as deferred payment of a
portion of the purchase price for the acquisition of PRN Transcription, Inc. in
accordance with the terms of the Asset Purchase Agreement dated February 22,
1999. On March 14, 2000, we converted those 1,256.66 shares of Series 2
Preferred Stock into 82,822 shares of our common stock. We relied upon the
exemption provided by Section 3(a)(9) under the Securities Act of these
issuances. On February 23, 2000, we issued 645.44 shares of Series 2 Preferred
Stock as deferred payment of a portion of the purchase price for the acquisition
of AM Transcription, Inc. in accordance with the terms of the Asset Purchase
Agreement dated February 26, 1999. On March 14, 2000, we converted those 645.44
shares of
14
<PAGE>
Series 2 Preferred Stock into 32,953 shares of our common stock. We relied upon
the exemption provided by Section 3(a)(9) under the Securities Act for these
issuances.
ITEM 5. OTHER INFORMATION
On May 3, 2000, the Company entered into a Forbearance Agreement with each of
Hillel Bronstein, Stuart Szpicek, and Yaniv Dagan relating to the issuance of
575 shares of the Company's convertible Series 1 Preferred Stock to Cornell
Transcription, Inc. as part of the purchase price under the terms of the Asset
Purchase Agreement between the AVRI Health Care Information Services, Inc., a
Delaware corporation and wholly-owned subsidiary of the Company, and Cornell
Transcription, Inc., a New York corporation of which Mr. Bronstein, Mr. Szpicek,
and Mr. Dagan are shareholders. The terms of the Forbearance Agreements require
Mr. Bronstein, Mr. Szpicek, and Mr. Dagan to not exercise any enforcement rights
or remedies under, or with respect to, the Asset Purchase Agreement resulting
from the Company's inability to register the shares of the Company's Common
Stock underlying the Series 1 Preferred Stock until the earlier of when the
Common Stock is registered or August 15, 2000.
As consideration for the forbearance, the Company will (i) grant Mr. Bronstein
warrants to purchase 118,750 shares of Common Stock, grant Mr. Szpicek warrants
to purchase 118,750 shares of Common Stock, and grant Mr. Dagan warrants to
purchase 12,500 shares of Common Stock, and (ii) pay interest to each of Mr.
Bronstein, Mr. Szpicek and Mr. Dagan at a rate of 1% per month on the cash value
of the shares of Common Stock held by, and owed to under the Forbearance
Agreements, Mr. Bronstein, Mr. Szpicek and Mr. Dagan through the expiration of
the forbearance period. In addition, the Company has paid the legal fees of Mr.
Bronstein and Mr. Szpicek totaling $40,000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS.
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1 Asset Purchase Agreement between the Company and Lonestar Medical
Transcription USA, Inc. and L&H Investment Co., N.V., dated January 7,
2000, to be effective as of December 20, 1999 (Exhibit 2.1 to the
Company's Current Report on Form 8-K as filed with the Commission on
January 24, 2000, is incorporated herein by reference).
3.1 Certificate of Designation for the Series G Preferred Stock (Exhibit 3.10
to the Company's Form 10-KSB for the period ended December 31, 1999, as
filed with the Commission on March 30, 2000, is incorporated herein by
reference).
*4.1 Warrant Agreement issued to Lonestar Medical Transcription USA, Inc. dated
effective as of December 20, 1999.
*4.2 Registration Rights Agreement between the Company and Lonestar Medical
Transcription USA, Inc., dated January 7, 2000, to be effective as of
December 20, 1999.
5.1 Opinion of Porter & Hedges, L.L.P. with respect to legality of securities
(Exhibit 5.1 to the Company's Form S-8 (No. 333-31040) as filed with the
Commission on February 24, 2000).
10.1 Stock Exchange Agreement between the Company and Entrepreneurial
Investors, Ltd. dated January 20, 2000 (Exhibit 10.39 to the Company's
Form 10-KSB for the period ended December 31, 1999, as filed with the
Commission on March 30, 2000, is incorporated herein by reference).
10.2 Stock Exchange Agreement between the Company and the holders of the
Company's Series C Preferred Stock dated February 11, 2000 (Exhibit 10.40
to the Company's Form 10-KSB for the
15
<PAGE>
APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
dba e-DOCS.net
Footnotes to the Financial Statements
(unaudited)
period ended December 31, 1999, as filed with the Commission on March 30,
2000, is incorporated herein by reference).
10.3 Stock Exchange Agreement between the Company and Greenwich AG dated
February 11, 2000 (Exhibit 10.41 to the Company's Form 10-KSB for the
period ended December 31, 1999, as filed with the Commission on March 30,
2000, is incorporated herein by reference).
10.4 Agreement with Respect to Termination of Employment by and between the
Company, Richard A. Cabrera, and Lonestar Medical Transcription USA, Inc.
dated effective as of December 20, 1999 (Exhibit 10.42 to the Company's
Form 10-KSB for the period ended December 31, 1999, as filed with the
Commission on March 30, 2000, is incorporated herein by reference).
10.5 Agreement with Respect to Termination of Employment by and between the
Company, Eric A. Black, and Lonestar Medical Transcription USA, Inc.
dated effective as of December 20, 1999 (Exhibit 10.43 to the Company's
Form 10-KSB for the period ended December 31, 1999, as filed with the
Commission on March 30, 2000, is incorporated herein by reference).
10.6 First Amended and Restated Employment Agreement between the Company and
Timothy J. Connolly dated effective as of January 1, 2000 (Exhibit 4.1 to
the Company's Form S-8 (No. 333-31040) as filed with the Commission on
February 24, 1999).
10.7 First Amended and Restated Employment Agreement between the Company and
Milton A. Spiegelhauer dated effective as of January 1, 2000 (Exhibit 4.2
to the Company's Form S-8 (No. 333-31040) as filed with the Commission on
February 24, 1999).
10.8 First Amended and Restated Employment Agreement between the Company and
Robin P. Ritchie dated effective January 1, 2000 (Exhibit 4.3 to the
Company's Form S-8 (No. 333-31040) as filed with the Commission on
February 24, 1999).
10.9 First Amended and Restated Employment Agreement between the Company and
Robin P. Ritchie dated effective January 1, 2000 (Exhibit 4.3 to the
Company's Form S-8 (No. 333-31040) as filed with the Commission on
February 24, 1999).
10.10 Consulting Agreement between the Company and Jackson L. Nash dated
February 8, 2000 (Exhibit 10.47 to the Company's Form 10-KSB for the
period ended December 31, 1999, as filed with the Commission on March 30,
2000, is incorporated herein by reference).
*10.11 Amendment II to Value Added Reseller Agreement between the Company and
Lernout & Hauspie Speech Products, N.V. executed January 7, 2000, to be
effective as of December 20, 1999.
*10.12 Technology License Agreement between the Company and Lonestar Medical
Transcription USA, Inc. dated January 7, 2000, to be effective as of
December 20, 1999.
*10.13 Medical Transcription Services Agreement between the Company and
Lonestar Medical Transcription USA, Inc. dated January 7, 2000, to be
effective as of December 20, 1999.
*10.14 Employment Agreement between the Company and H. Russel Douglas dated
effective as of April 1, 2000.
*10.15 Forbearance Agreement between the Company, e-DOCS Health Care
Information Services, Inc., Hillel Bronstein, and Cornell Transcription,
Inc. dated May 4, 2000.
*10.16 Warrant Agreement issued by the Company to Hillel Bronstein dated May 4,
2000.
*10.17 Forbearance Agreement between the Company, e-DOCS Health Care Information
Services, Inc. and Stuart Szpicek dated May 4, 2000.
*10.18 Warrant Agreement issued by the Company to Stuart Szpicek dated
May 4, 2000.
*10.19 Forbearance Agreement between the Company, e-DOCS Health Care
Information Services, Inc., and Yaniv Dagan dated May 4, 2000.
*10.20 Warrant Agreement issued by the Company to Yaniv Dagan dated
May 4, 2000.
*27.1 Financial Data Schedule.
_____________
* Filed herewith.
(b) REPORTS ON FORM 8-K.
We filed a Current Report on Form 8-K on January 24, 2000, to report the
following:
. The sale of certain of our assets to Lonestar Medical Transcription USA,
Inc., a Delaware corporation and a wholly-owned subsidiary of L&H
Investment Co., N.V., a Belgium company ("LHIC"), and to LHIC for an
aggregate purchase price of $8,500,000 pursuant to
16
<PAGE>
APPLIED VOICE RECOGNITION, INC. AND SUBSIDIARIES
dba e-DOCS.net
Footnotes to the Financial Statements
(unaudited)
an Asset Purchase Agreement dated January 7, 2000 and effective as of
December 31, 1999; and
. The execution of a Letter Agreement dated January 7, 2000 between e-DOCS
and the holders of our Series A, Series C and Series E Preferred Stock. The
Letter Agreement provides for the exchange of 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
In addition, we filed a Current Report on Form 8-K on March 15, 2000, to
report our engagement of Weinstein Spira & Company, P.C. as our independent
accountants as of March 1, 2000.
17
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on behalf by the undersigned, thereunto duly authorized
on this 15th day of May, 2000.
APPLIED VOICE RECOGNITION, INC.
/s/ Jackson Nash
--------------------------------
Jackson Nash
Chief Financial Officer and Secretary
(on behalf of the registrant)
<PAGE>
EXHIBIT 4.1
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR THE
SECURITIES LAWS OF ANY STATE; THEREFORE, THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE
OR TRANSFER.
WARRANT TO PURCHASE COMMON STOCK
OF
APPLIED VOICE RECOGNITION, INC., d/b/a e-DOCS.net
VOID AFTER DECEMBER 31, 2003
This certifies that LONESTAR MEDICAL TRANSCRIPTION USA, INC., a
Delaware corporation ("Lonestar"), is entitled to purchase Eight Hundred
Thousand (800,000) Shares of fully paid and nonassessable shares of Common
Stock, $0.001 par value (the "Common Stock"), of Applied Voice Recognition,
Inc., a Delaware corporation doing business as e-DOCS.net (the "Company"), at a
price equal to $0.37 per share. Shares may be purchased at any time, in whole
or in part, until the expiration of this Warrant. This Warrant is issued
pursuant to that certain Asset Purchase Agreement executed as of even date
herewith and dated as of December 20, 1999 (the "Purchase Agreement"), executed
by and among Lonestar, the Company and certain of their affiliates. This
Warrant and the Common Stock issuable upon exercise of this Warrant is subject
to the terms of a Registration Rights Agreement dated effective December 20,
1999, between Lonestar and the Company, which agreement provides certain
piggyback and demand registration rights in favor of Lonestar.
The purchase price per share of Common Stock from time to time in
effect under this Warrant, and the number and character of shares covered
hereby, shall be subject to adjustments from time to time in certain instances
as follows, and the term "Exercise Price" shall mean the price per share
originally set forth in this Warrant or any price resulting from adjustments
pursuant to the terms hereof. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Stock". The term "Holder" shall refer to Lonestar or any person
or entity holding this Warrant in accordance with the terms hereof.
(a) Exercise of Warrant. Subject to and in accordance with the provisions
hereof, this Warrant may be exercised in whole or in part after the date
appearing above the signature of the Company below (the "Effective Date"), but
not later than 5:00 p.m., Houston time, on December 31, 2003; or if such day is
a day on which United States government offices are closed, then on the next
succeeding day which shall not be such a day, by presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, with
the Purchase Form annexed hereto
1
<PAGE>
duly executed and accompanied by payment of the Exercise Price for the number of
shares specified in such form, together with all applicable federal and state
taxes. If this Warrant should be exercised in part only, the Company shall, upon
surrender of this Warrant for cancellation, execute and deliver a new Warrant
evidencing the right of the Holder to purchase the balance of the shares
purchasable hereunder. Upon receipt by the Company of this Warrant at the office
or agency of the Company, in proper form for exercise and pursuant to compliance
herewith, together with payment of the Exercise Price, the Holder shall be
deemed to be the holder of record, for all purposes, of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder. Upon
receipt of the required deliveries, the Company shall, as promptly as
practicable, and in any event within ten (10) days thereafter, cause to be
issued and delivered to the Holder hereof or the transferee designated in the
Purchase Form a certificate or certificates representing the aggregate number of
full shares of Common Stock issuable upon such exercise registered in the name
of the Holder hereof, or the name of the transferee so designated, as the case
may be.
(b) No Impairment. The Company hereby agrees that (i) at all times there
shall be reserved for issuance and delivery upon exercise of this Warrant such
number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of this Warrant, and (ii) it will take all action as may
be necessary in order that all shares of stock as may be issued pursuant to this
Warrant shall, upon issuance, be duly and validly issued, fully paid, non-
assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(c) Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, after
payment of the Exercise Price for such fractional share by the Holder, the
Company shall round the number of shares issued upon the exercise of this
Warrant to the next highest full share.
(d) Assignment of Warrant or Warrant Stock or Loss of Warrant.
---------------------------------------------------------
(1) This Warrant may not be sold, transferred, assigned or
hypothecated at any time after its execution and delivery, except upon
compliance with the requirements of this Warrant and any applicable state
or federal securities laws. The Holder agrees to hold the shares of Common
Stock of the Company for a period of ninety (90) days after the issuance of
such shares upon the exercise of this Warrant.
(2) Any sale, assignment, transfer or hypothecation of this Warrant
shall be made by surrender of this Warrant to the Company or at the office
of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and accompanied with funds sufficient to pay any
transfer tax; whereupon, the Company shall, after first receiving such
evidence as the Company may reasonably require as to compliance with this
Warrant, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled.
2
<PAGE>
(3) The term "Warrant" as used herein includes any Warrant issued in
substitution for or replacement of this Warrant. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of this
Warrant, and upon surrender and cancellation of this Warrant, if mutilated,
the Company will at its expense execute and deliver a new Warrant of like
tenor and date. When authorizing the execution and delivery of a new
Warrant to replace a Warrant lost, stolen or destroyed, the Board of
Directors of the Company may, in its sole discretion and as a condition
precedent thereto, require the Holder to deliver an affidavit in a form
satisfactory to the Board of Directors of the Company and to indemnify the
Company against any claim that may be made against the Company with respect
to such lost, stolen or destroyed Warrant.
(e) Anti-dilution and Adjustment Provisions. The purchase price per share
of Common Stock from time to time in effect under this Warrant, and the number
and character of shares covered hereby, shall be subject to adjustments from
time to time in certain instances as follows, and the term "Exercise Price"
shall mean the price per share originally set forth in this Warrant or any price
resulting from adjustments pursuant to the terms hereof.
(1) In case the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares or shall issue in exchange for
its outstanding shares of Common Stock a greater number of shares of Common
Stock, then in each such case from and after the record date for such
subdivision or exchange, the number of shares of Common Stock covered by
this Warrant shall be increased in proportion to such increase in the
number of outstanding shares of Common Stock and the Exercise Price then in
effect shall be correspondingly decreased; and in the case the Company
shall reduce the number of shares of its Common Stock by a combination of
shares or shall issue in exchange for its outstanding shares of Common
Stock a lesser number of shares of Common Stock, then in each such case
from and after the record date for such combination or exchange, the number
of shares of Common Stock covered by this Warrant shall be decreased in
proportion to such reduction in the number of outstanding shares of Common
Stock, and the then prevailing Exercise Price shall be correspondingly
increased.
(2) In case the Company shall declare and pay a dividend upon its
Common Stock payable in Common Stock, then in each such case from and after
the record date for determining the stockholders entitled to receive such
dividend, the number of shares of Common Stock covered by this Warrant
shall be increased in proportion to the increase in the number of
outstanding shares of Common Stock through such stock dividend, and the
then prevailing Exercise Price shall be correspondingly decreased.
(3) In case of any reclassification or change of outstanding shares
of Common Stock (other than as a result of a subdivision, combination or
stock dividend) or in case of the consolidation or merger of the Company
with or into any other corporation (other than a merger in which the
Company is the continuing corporation and which does not result in any
reclassification or change in its outstanding shares of Common Stock), or
in case of any sale by the Company of all or substantially all of its
assets to another corporation (as determined in accordance with the
Delaware General Corporation Law), the Holder shall have the right
thereafter to receive upon exercise of this Warrant the amount and kind of
3
<PAGE>
shares of capital stock and other securities and property entitled to be
received upon such reclassification, change, consolidation, merger or sale
by a holder of the number of shares of Common Stock of the Company covered
by this Warrant at the then prevailing Exercise Price, subject to
subsequent adjustments as provided herein.
(f) Notices to Holder. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation (as determined in accordance with Delaware General Corporation Law),
or voluntary or involuntary dissolution, liquidation or winding up of the
Company shall be effected, then, in any such case, the Company shall cause to be
delivered to the Holder, at least ten days prior to the date specified in (x)
and at least thirty days prior to the date specified in (y) below, as the case
may be, a notice containing a brief description of the proposed action and
stating the date on which (x) a record is to be taken for the purpose of such
dividend, distribution or rights, or (y) such reclassification reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and at least twenty days prior notice as to the date, if any is
to be fixed, as of which the holders of Common Stock of record shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation, or winding up.
(g) Transfer to Comply with the Securities Act.
------------------------------------------
(1) This Warrant or the Warrant Stock or any other security issued or
issuable upon exercise of this Warrant may not be offered or sold except in
conformity with the Securities Act, and then only against receipt of an
agreement of such person to whom such offer of sale is made to comply with
the provisions of this Section (g) with respect to any resale or other
disposition of such securities.
(2) The Company may cause the legends set forth at the top of the
first page hereof to be set forth on each Warrant and the following legends
to be set forth on each certificate representing Warrant Stock, unless
counsel for the Company is of the opinion as to any such certificate that
such legend is unnecessary:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE OR THE SECURITIES
LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
EXCEPT UPON SUCH REGISTRATION OR UPON DELIVERY TO THE CORPORATION OF
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER.
4
<PAGE>
(h) Applicable Law. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
(i) Notice. Any notices or certificates by the Company to the Holder and
by the Holder to the Company shall be deemed delivered if in writing and
delivered personally or five (5) days after being sent by certified mail or
registered mail, return receipt requested, to the Holder. For purposes hereof,
the address of the Holder shall be c/o Lernout & Hauspie Speech Products USA,
Inc., 52 Third Avenue, Burlington, Massachusetts 01803, Attention: Chief
Financial Officer, and the address of the Company shall be 1717 St. James Place,
Suite 242, Houston, Texas 77056, Attention: Chief Financial Officer; provided,
however, either address may be changed by notice given in accordance herewith.
(j) Nonwaiver. No course of dealing or any delay or failure to exercise
any right, power or remedy hereunder on the part of the Holder hereof shall
operate as a waiver of or otherwise prejudice such Holder's rights, powers or
remedies.
(k) Holder Not a Stockholder. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder hereof shall not, by virtue of its ownership
of this Warrant, except as specifically provided herein, be entitled to any of
the rights of a stockholder of the Company including, without limitation, the
right as a stockholder to (a) vote on or consent to any proposed action of the
Company, or (b) receive notice of or attend any meetings of stockholders of the
Company or notice of any other proceedings of the Company.
(l) Successors and Assigns. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the Holder hereof and the Holder of the shares of Common Stock
issued upon the exercise hereof, and shall be enforceable by any such Holder.
IN WITNESS WHEREOF, THE COMPANY HAS CAUSED THIS WARRANT TO BE EXECUTED
EFFECTIVE AS OF DECEMBER 20, 1999.
APPLIED VOICE RECOGNITION, INC.,
d/b/a e-DOCS.net
By: _________________________________
Name:________________________________
Title:_______________________________
5
<PAGE>
PURCHASE FORM
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase rights represented by said Warrant for, and to
purchase thereunder, ________ shares of Common Stock, $0.001 par value per
share, of Applied Voice Recognition, Inc., d/b/a e-DOCS.net and herewith makes
payment of $___________ in cash therefor and requests that the certificates for
such shares be issued in the name of _____________________________________ and
delivered to ________________________________________________, whose address is
_____________________________________________________ and, if such shares shall
not be all of the shares purchasable hereunder, that a new Warrant of like tenor
for the balance of the shares purchasable hereunder be delivered to the
undersigned.
Dated: _________________ _________________________________
Name:____________________________
Title:___________________________
Address: ______________________
______________________
______________________
Social Security
or Tax I.D. No. _________________
6
<PAGE>
ASSIGNMENT IN FULL
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto _______________________________ the within Warrant
and all rights evidenced thereby and does irrevocably constitute and appoint
______________________________, attorney, to transfer the said Warrant on the
books of the within named Company.
Dated: _________________ _________________________________
_________________________________
Address: ______________________
______________________
______________________
Social Security
or Tax I.D. No. _________________
7
<PAGE>
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________________ a portion of the
within Warrant and the rights evidenced thereby, to wit: the right to purchase
______ shares of Common Stock of Applied Voice Recognition, Inc.,
d/b/a e-DOCS.net and does irrevocably constitute and appoint
_________________________, attorney, to transfer to such extent the said Warrant
on the books of the within named Corporation.
Dated: _________________ _________________________________
_________________________________
Address: _______________________
_______________________
_______________________
Social Security
or Tax I.D. No. _________________
8
<PAGE>
EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into this 7th day of January, 2000, to be effective as of the 20th day of
December, 1999, by and between APPLIED VOICE RECOGNITION, INC., a Delaware
corporation doing business as e-DOCS.net (the "Company") and LONESTAR MEDICAL
TRANSCRIPTION USA, INC., a Delaware company (the "Investor").
R E C I T A L S:
---------------
WHEREAS, on even date herewith, the Investor, the Company and others have
executed that certain Asset Purchase Agreement (the "Purchase Agreement"),
pursuant to which the Company and certain of its subsidiaries have agreed to
transfer certain of their assets to the Investor;
WHEREAS, pursuant to the terms of the Purchase Agreement, the Company and
the Investor have executed that certain Warrant Agreement of even date herewith
(the "Warrant Agreement"), which Warrant Agreement grants to the Investor
warrants (the "Warrants") to purchase 800,000 share shares of common stock (the
"Common Stock") of the Company; and
WHEREAS, the Company desires to grant to the Investor certain registration
rights relating to the shares of Common Stock issuable upon exercise of all or a
portion of the Warrants (the "Shares"), and the Investor desires to obtain such
registration rights, subject to the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual premises, representations,
warranties and conditions set forth in this Agreement, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Definitions and References. For purposes of this Agreement, in
addition to the definitions set forth above and elsewhere herein, the following
terms shall have the following meanings:
(a) The term "Commission" shall mean the Securities and Exchange
Commission and any successor agency.
(b) The terms "register", "registered" and "registration" shall refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the 1933 Act (as herein defined) and
the declaration or ordering of effectiveness of such registration statement
or document.
(c) For purposes of this Agreement, the term "Registrable Stock" shall
mean (i) the Shares, (ii) any shares of Common Stock issued to the Holder
by way of a stock split, reorganization, merger or consolidation, and (iii)
any Common Stock issued to the Holder as a dividend on the Shares. For
purposes of this Agreement, any Registrable
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Stock shall cease to be Registrable Stock when (v) a registration statement
covering such Registrable Stock has been declared effective and such
Registrable Stock has been disposed of pursuant to such effective
registration statement, (w) such Registrable Stock is sold pursuant to Rule
144 (or any similar provision then in force) under the 1933 Act, (x) such
Registrable Stock is eligible to be sold pursuant to Rule 144(k) under the
1933 Act, (y) such Registrable Stock has been otherwise transferred, no
stop transfer order affecting such stock is in effect and the Company has
delivered new certificates or other evidences of ownership for such
Registrable Stock not bearing any legend indicating that such shares have
not been registered under the 1933 Act, or (z) such Registrable Stock is
sold by a person in a transaction in which the rights under the provisions
of this Agreement are not assigned.
(d) The term "Holder" shall mean the Investor or any transferee or
assignee thereof to whom the rights under this Agreement are assigned in
accordance with Section 10 hereof, provided that the Investor or such
transferee or assignee shall then own the Registrable Stock.
(e) The term "1933 Act" shall mean the Securities Act of 1933, as
amended.
(f) An "affiliate of such Holder" shall mean a person who controls, is
controlled by or is under common control with a Holder, or the spouse or
children (or a trust exclusively for the benefit of the spouse and/or
children) of a Holder, or, in the case of a Holder that is a partnership,
its partners.
(g) The term "Person" shall mean an individual, corporation,
partnership, trust, limited liability company, unincorporated organization
or association or other entity, including any governmental entity.
(h) The term "Requesting Holder" shall mean a Holder or Holders of in
the aggregate at least a majority of the Registrable Stock.
(i) References in this Agreement to any rules, regulations or forms
promulgated by the Commission shall include rules, regulations and forms
succeeding to the functions thereof, whether or not bearing the same
designation.
2. Demand Registration
(a) Commencing immediately upon the date hereof, any Requesting Holders
may make a written request to the Company (specifying that it is being made
pursuant to this Section 2) that the Company file a registration statement
under the 1933 Act (or a similar document pursuant to any other statute
then in effect corresponding to the 1933 Act) covering the registration of
Registrable Stock. In such event, the Company shall (x) within ten (10)
days thereafter notify in writing all other Holders of Registrable Stock of
such request, and (y) use its best efforts to cause to be registered under
the 1933 Act all Registrable Stock that the Requesting Holders and such
other Holders have, within forty-five (45) days after the Company has given
such notice, requested be registered.
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(b) If the Requesting Holders intend to distribute the Registrable Stock
covered by their request by means of an underwritten offering, they shall so
advise the Company as a part of their request pursuant to Section 2(a) above,
and the Company shall include such information in the written notice referred to
in clause (x) of Section 2(a) above. In such event, the Holder's right to
include its Registrable Stock in such registration shall be conditioned upon
such Holder's participation in such underwritten offering and the inclusion of
such Holder's Registrable Stock in the underwritten offering to the extent
provided in this Section 2. All Holders proposing to distribute Registrable
Stock through such underwritten offering shall enter into an underwriting
agreement in customary form with the underwriter or underwriters. Such
underwriter or underwriters shall be selected by a majority in interest of the
Requesting Holders and shall be approved by the Company, which approval shall
not be unreasonably withheld; provided, that all of the representations and
warranties by, and the other agreements on the part of, the Company to and for
the benefit of such underwriters shall also be made to and for the benefit of
such Holders; and provided further, that no Holder shall be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding such
Holder, the Registrable Stock of such Holder and such Holder's intended method
of distribution and any other representation required by law or reasonably
required by the underwriter.
(c) Notwithstanding any other provision of this Section 2 to the contrary,
if the managing underwriter of an underwritten offering of the Registrable Stock
requested to be registered pursuant to this Section 2 advises the Requesting
Holders in writing that in its opinion marketing factors require a limitation of
the number of shares to be underwritten, the Requesting Holders shall so advise
all Holders of Registrable Stock that would otherwise be underwritten pursuant
hereto, and the number of shares of Registrable Stock that may be included in
such underwritten offering shall be allocated among all such Holders, including
the Requesting Holders, in proportion (as nearly a practicable) to the amount of
Registrable Stock requested to be included in such registration by each Holder
at the time of filing the registration statement; provided, that in the event of
such limitation of the number of shares of Registrable Stock to be underwritten,
the Holders shall be entitled to an additional demand registration pursuant to
this Section 2. If any Holder of Registrable Stock disapproves of the terms of
the underwriting, such Holder may elect to withdraw by written notice to the
Company, the managing underwriter and the Requesting Holders. The securities so
withdrawn shall also be withdrawn from registration.
(d) Notwithstanding any provision of this Agreement to the contrary, the
Company shall not be required to effect a registration pursuant to this Section
2 during the period starting with the fourteenth (14th) day immediately
preceding the date of an anticipated filing by the Company of, and ending on a
date ninety (90) days following the effective dte of, a registration statement
pertaining to a public offering of securities for the account of the Company;
provided, that the Company shall actively employ in good faith all reasonable
efforts to cause such registration statement to become effective; and
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<PAGE>
provided further, that the Company's estimate of the date of filing such
registration statement shall be made in good faith.
(e) Subject to the additional terms contained herein, the Requesting
Holders shall be entitled to an unlimited number of registrations on Form
S-3, but shall only be allowed three demands that utilize forms other than
Form S-3. The Company shall use Form S-3 for registrations pursuant hereto
if such form is available to the Company. If federal law precludes the use
of Form S-3, the Company shall use whatever form is necessary; however, the
Company shall not be obligated to use such non Form S-3 forms more than a
total of three times, unless increased pursuant to Section 2(c) hereof;
provided, that a registration requested pursuant ot this Section 2 shall
not be deemed to have been effected for purposes of this Section 2(e),
unless (i) it has been deemed to have been effected for purposes of this
Section 2(e), unless (i) it has been declared effective by the Commission,
(ii) if it is a shelf registration, it has remained effective for the
period set forth in Section 3(b), (iii) the offering of Registrable Stock
pursuant to such registration is not subject to any stop order, injunction
or other order or requirement of the Commission (other than any such action
prompted by any act or omission of the Holders), and (iv) no limitation of
the number of shares of Registrable Stock to be underwritten has been
required pursuant to Section 2(c) hereof.
3. Obligations of the Company. Subject to the provisions of Section 2(e)
hereof, whenever required under Section 2 hereof to use its best efforts to
effect the registration of any Registrable Stock, the Company shall, as
expeditiously as possible:
(a) prepare and file with the Commission, not later than ninety (90)
days after receipt of a request to file a registration statement with
respect to such Registrable Stock, a registration statement on any form for
which the Company then qualifies or which counsel for the Company shall
deem appropriate and which form shall be available for the sale of such
issue of Registrable Stock in accordance with the intended method of
distribution thereof, and use its best efforts to cause such registration
statement to become effective as promptly as practicable thereafter;
provided that before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company will (i) furnish to one (1)
counsel selected by the Requesting Holders copies of all such documents
proposed to be filed, and (ii) notify each Holder of any stop order issued
or threatened by the Commission and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;
(b) prepare and file with the commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for such period of time as would satisfy the holding
period requirements of Rule 144(k) promulgated by the Commission with
respect to the Shares or such shorter period which will terminate when all
Registrable Stock covered by such registration statement has been sold (but
not before the expiration of the forty (40) or ninety (90) day period
referred to in Section 4(3) of the 1933 Act and Rule 174 thereunder, if
applicable), and comply with the provisions of the 1933 Act with respect to
the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition
by the sellers thereof set forth in such registration statement;
4
<PAGE>
(c) furnish to each Holder and any underwriter of Registrable Stock
to be included in a registration statement copies of such registration statement
as filed and each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such Holder
may reasonably request in order to facilitate the disposition of the Registrable
Stock owned by such Holder;
(d) use its best efforts to register or qualify such Registrable
Stock under such other securities or blue sky laws of such jurisdictions as any
selling Holder or any underwriter of Registrable Stock reasonably requests, and
do any and all other acts which may be reasonably necessary or advisable to
enable such Holder to consummate the disposition in such jurisdictions of the
Registrable Stock owned by such Holder; provided that the Company will not be
required to (i) qualify generally to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d) hereof,
(ii) subject itself to taxation in any such jurisdiction, or (iii) consent to
general service of process in any such jurisdiction;
(e) use its best efforts to cause the Registrable Stock covered by
such registration statement to be registered with or approved by such other
governmental agencies or other authorities as may be necessary by virtue of the
business and operations of the Company to enable the selling Holders thereof to
consummate the disposition of such Registrable Stock;
(f) notify each selling Holder of such Registrable Stock and any
underwriter thereof, at any time when a prospectus relating thereto is required
to be delivered under the 1933 Act (even if such time is after the period
referred to in Section 3(b)), of the happening of any event as a result of which
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Stock such prospectus will not
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
in light of the circumstances under which they were made not misleading;
(g) make available for inspection by any selling Holder, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
seller or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company
(collectively, the "Records"), and cause the Company's officers, directors and
employees to supply all information reasonably requested by an such Inspector,
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, in connection with such registration statement. Records or
other information which the Company determines, in good faith, to be
confidential and which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records or other
information is necessary to avoid or correct a misstatement or omission in the
registration statement, or (ii) the release of such Records
5
<PAGE>
or other information is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction. Each selling Holder shall, upon learning that
disclosure of such Records or other information is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company, at the
Company's expense, to undertake appropriate action to prevent disclosure of the
Records or other information deemed confidential;
(h) furnish, at the request of any Requesting Holder, on the date that
such shares of Registrable Stock are delivered to the underwriters for sale
pursuant to such registration or, if such Registrable Stock is not being sold
through underwriters, on the date that the registration statement with respect
to such shares of Registrable Stock becomes effective, (1) a signed opinion,
dated such date, of the legal counsel representing the Company for the purposes
of such registration, addressed to the underwriters, if any, and if such
Registrable Stock is not being sold through underwriters, then to the Requesting
Holders as to such matters as such underwriters or the Requesting Holders, as
the case may be, may reasonably request and as would be customary in such a
transaction; and (2) a letter dated such date, from the independent certified
public accountants of the Company, addressed to the underwriters, if any, and if
such Registrable Stock is not being sold through underwriters, then to the
Requesting Holders and, if such accountants refuse to deliver such letter to
such Holder, then to the Company (i) stating that they are independent certified
public accountants within the meaning of the 1933 Act and that, in the opinion
of such accountants, the financial statements and other financial data of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereto, comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act, and (ii) covering such
other financial matters (including information as to the period ending not more
than five (5) business days prior to the date of such letter) with respect to
the registration in respect of which such letter is being given as the
Requesting Holders may reasonably request and as would be customary in such a
transaction;
(i) enter into customary agreements (including if the method of
distribution is by means of an underwriting, an underwriting agreement in
customary form) and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Stock to be so
included in the registration statement;
(j) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission, and make available to its security holders, as
soon as reasonably practicable, but not later than eighteen (18) months after
the effective date of the registration statement, an earnings statement covering
the period of at least twelve (12) months beginning with the first full month
after the effective date of such registration statement, which earnings
statements shall satisfy the provisions of Section 11(a) of the 1933 Act; and
(k) use its best efforts to cause all such Registrable Stock to be listed
on The Nasdaq Small Cap Market and/or any other securities exchange on which
similar securities issued by the Company are then listed or traded.
6
<PAGE>
The Company may require each selling Holder of Registrable Stock as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Stock as the Company
may from time to time reasonably request in writing.
Each Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3(f) hereof, such Holder
will forthwith discontinue disposition of Registrable Stock pursuant to the
registration statement covering such Registrable Stock until such Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 3(f) hereof, and, if so directed by the Company, such Holder will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such Holder's possession, of the prospectus
covering such Registrable Stock current at the time of receipt of such notice.
In the event the Company shall give any such notice, the Company shall extend
the period during which such registration statement shall be maintained
effective pursuant to this Agreement (including the period referred to in
Section 3(b)) by the number of days during the period from and including the
date of the giving of such notice pursuant to Section 3(f) hereof to and
including the date when each selling Holder of Registrable Stock covered by such
registration statement shall have received the copies of the supplemented or
amended prospectus contemplated by Section 3(f) hereof.
4. Incidental Registration. Commencing immediately after the date of
Closing (as defined in the Investor Agreement), if the Company determines that
it shall file a registration statement under the 1933 Act (other than a
registration statement on a Form S-4 or S-8 or filed in connection with an
exchange offer or an offering of securities solely to the Company's existing
stockholders) on any form that would also permit the registration of the
Registrable Stock and such filing is to be on its behalf and/or on behalf of
selling holders of its securities for the general registration of its common
stock to be sold for cash, at each such time the Company shall promptly give
each Holder written notice of such determination setting forth the date on which
the Company proposes to file such registration statement, which date shall be no
earlier than thirty (30) days from the date of such notice, and advising each
Holder of its right to have Registrable Stock included in such registration.
Upon the written request of any Holder received by the Company shall use its
best efforts to cause to be registered under the 1933 Act all of the Registrable
Stock that each such Holder has so requested to be registered. If, in the
written opinion of the managing underwriter or underwriters (or, in the case of
a non-underwritten offering, in the written opinion of the placement agent, or
if there is none, the Company), the total amount of such securities to be so
registered, including such Registrable Stock, will exceed the maximum amount of
the Company's securities which can be marketed (i) at a price reasonably related
to the then current market value of such securities, or (ii) without otherwise
materially and adversely affecting the entire offering, then the amount of
Registrable Stock to be offered for the accounts of Holders shall be reduced pro
rata to the extent necessary to reduce the total amount of securities to be
included in such offering to the recommended amount; provided, that if
securities are being offered for the account of other Persons as well as the
Company, such reduction shall not represent a greater fraction of the number of
securities intended to be offered by Holders than the fraction of similar
reductions imposed on such other Persons other than the Company over the amount
of securities they intended to offer.
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<PAGE>
5. Holdback Agreement - Restrictions on Public Sale by Holder.
(a) To the extent not inconsistent with applicable law, each Holder
whose Registrable Stock is included in a registration statement agrees not
to effect any public sale or distribution of the issue being registered or
a similar security of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, including a sale pursuant
to Rule 144 under the 1933 Act, during the fourteen (14) days prior to, and
during the ninety (90) day period beginning on, the effective date of such
registration statement (except as part of the registration), if and to the
extent requested by the Company in the case of a nonunderwritten public
offering or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering.
(b) Restrictions on Public Sale by the Company and Others. The Company
agrees (i) not to effect any public sale or distribution of any securities
similar to those being registered, or any securities convertible into or
exchangeable or exercisable for such securities, during the fourteen (14)
days prior to, and during the ninety (90) day period beginning on, the
effective date of any registration statement in which Holders are
participating (except as part of such registration), if and to the extent
requested by the Holders in the case of a non-underwritten public offering
or if and to the extent requested by the managing underwriter or
underwriters in the case of an underwritten public offering; and (ii) that
any agreement entered into after the date of this Agreement pursuant to
which the Company issues or agrees to issue any securities convertible into
or exchangeable or exercisable for such securities (other than pursuant to
an effective registration statement) shall contain a provision under which
holders of such securities agree not to effect any public sale or
distribution of any such securities during the periods described in (i)
above, in each case including a sale pursuant to Rule 144 under the 1933
Act.
6. Expenses of Registration. The Company shall bear all expenses incurred
in connection with each registration pursuant to Sections 2 and 4 of this
Agreement, excluding underwriters' discounts and commissions, but including,
without limitation, all registration, filing and qualification fees, word
processing, duplicating, printers' and accounting fees (including the expenses
of any special audits or "cold comfort" letters required by or incident to such
performance and compliance), exchange listing fees or National Association of
Securities Dealers fees, messenger and delivery expenses, all fees and expenses
of complying with securities or blue sky laws, and fees and disbursements of
counsel for the Company. The selling Holders shall bear and pay the underwriting
commissions and discounts applicable to the Registrable Stock offered for their
account in connection with any registrations, filings and qualifications made
pursuant to this Agreement.
7. Indemnification and Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify,
to the full extent permitted by law, each Holder, its officers, directors
and agents and each Person who controls such Holder (within the meaning of
the 1933 Act) against all losses, claims, damages, liabilities and expenses
caused by any untrue or alleged untrue
8
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statement of material fact contained in any registration statement, prospectus
or preliminary prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
therein (in case of a prospectus or preliminary prospectus, in the light of the
circumstances under which they were made) not misleading. The Company will also
indemnify any underwriters of the Registrable Stock, their officers and
directors and each Person who controls such underwriters (within the meaning of
the 1933 Act) to the same extent as provided above with respect to the
indemnification of the selling Holders.
(b) Indemnification by Holders. In connection with any registration
statement in which a Holder is participating, each such Holder will furnish to
the Company in writing such information with respect to such Holder as the
Company reasonable requests for use in connection with any such registration
statement or prospectus and agrees to indemnify, to the extent permitted by law,
the Company, its directors and officers and each Person who controls the Company
(within the meaning of the 1933 Act) against any losses, claims, damages,
liabilities and expenses resulting from any untrue or alleged untrue statement
of material fact or any omission or alleged omission of a material fact required
to be stated in the registration statement, prospectus or preliminary prospectus
or any amendment thereof or supplement thereto or necessary to make the
statements therein (in the case of a prospectus or preliminary prospectus, in
the light of the circumstances under which they were made) not misleading, to
the extent, but only to the extent, that such untrue statement or omission is
contained in any information with respect to such Holder so furnished in writing
by such Holder. Notwithstanding the foregoing, the liability of each such Holder
under this Section 7(b) shall be limited to an amount equal to the initial
public offering price of the Registrable Stock sold by such Holder, unless such
liability arises out of or is based on willful misconduct of such Holder.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such Person of any written notice of the
commencement of any action, suit, proceeding or investigation or threat thereof
made in writing for which such Person will claim indemnification or contribution
pursuant to this Agreement and, unless in the reasonable judgment of such
indemnified party, a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claim, permit the
indemnifying party to assume the defense of such claims with counsel reasonably
satisfactory to such indemnified party. Whether or not such defense is assumed
by the indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent will not
be unreasonably withheld). Failure by such Person to provide said notice to the
indemnifying party shall itself not create liability except to the extent of any
injury caused thereby. No indemnifying party will consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect of such claim or litigation. If the
indemnifying party is not entitled to, or elects not to, assume the defense of a
claim, it will not be obligated to pay the fees and expenses of more than one
(1) counsel with respect to such claim, unless in the reasonable judgment of any
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indemnified party a conflict of interest may exist between such indemnified
party and any other such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
(d) Contribution. If for any reason the indemnity provided for in
this Section 7 is unavailable to, or is insufficient to hold harmless, an
indemnified party, then the indemnifying party shall contribute to the
amount paid or payable by the indemnified party as a result of such losses,
claims, damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other, or (ii) if
the allocation provided by clause (i) above is not permitted by applicable
law, or provides a lesser sum to the indemnified party than the amount
hereinafter calculated, in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other but also the relative fault of
the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified parties shall be determined by reference to, among
other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to information
supplied by, such indemnifying party or indemnified parties; and the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such action. The amount paid or payable by a party as
a result of the losses, claims, damages, liabilities and expenses referred
to above shall be deemed to include, subject to the limitations set forth
in Section 7(c), any legal or other fees or expenses reasonably incurred by
such party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the 1933 Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 7, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Sections 7(a) and 7(b) without regard to the relative fault of said indemnifying
party or indemnified party or any other equitable consideration provided for in
this Section 7.
8. Participation in Underwritten Registrations. No Holder may participate
in any underwritten registration hereunder unless such Holder (a) agrees to sell
such Holder's securities on the basis provided in any underwriting arrangements
approved by the Holders entitled hereunder to approve such arrangements, and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under the terms
of such underwriting arrangements.
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9. Rule 144. The Company covenants that it will file the reports required
to be filed by it under the 1933 Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations adopted by the Commission thereunder; and
it will take such further action as any Holder may reasonably request, all to
the extent required from time to time to enable such Holder to sell Registrable
Stock without registration under the 1933 Act within the limitation of the
exemptions provided by (a) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Holder, the Company will
deliver to such Holder a written statement as to whether it has complied with
such requirements.
10. Transfer of Registration Rights. The registration rights of any Holder
under this Agreement with respect to any Registrable Stock may be transferred to
any transferee of such Registrable Stock; provided that such transfer may
otherwise be effected in accordance with applicable securities laws; provided
further, that the transferring Holder shall give the Company written notice at
or prior to the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which the rights under
this Agreement are being transferred; provided further, that such transferee
shall agree in writing, in form and substance satisfactory to the Company, to be
bound as a Holder by the provisions of this Agreement; and provided further,
that such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by such transferee is
restricted under the 1933 Act. Except as set forth in this Section 10, no
transfer of Registrable Stock shall cause such Registrable Stock to lose such
status.
11. Mergers, Etc. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the surviving corporation unless the proposed surviving corporation shall,
prior to such merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company under this Agreement, and for that purpose
references hereunder to "Registrable Stock" shall be deemed to be references to
the securities which the Holders would be entitled to receive in exchange for
Registrable Stock under any such merger, consolidation or reorganization;
provided, however, that the provisions of this Section 11 shall not apply in the
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation if each Holder is entitled to receive in exchange for
its Registrable Stock consideration consisting solely of (i) cash, (ii)
securities of the acquiring corporation which may be immediately sold to the
public without registration under the 1933 Act, or (iii) securities of the
acquiring corporation which the acquiring corporation has agreed to register
within ninety (90) days of completion of the transaction for resale to the
public pursuant to the 1933 Act.
12. Miscellaneous.
(a) No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities which is inconsistent
with the rights granted to the Holders in this Agreement.
(b) Remedies. Each Holder, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled
to specific performance of its rights under this Agreement. The Company
agrees that monetary damages would
11
<PAGE>
not be adequate compensation for any loss incurred by reason of a breach by
it of the provisions of this Agreement and hereby agrees to waive (to the
extent permitted by law) the defense in any action for specific performance
that a remedy of law would be adequate.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given unless the Company has obtained
the written consent of the Holders of at least a majority of the
Registrable Stock then outstanding affected by such amendment,
modification, supplement, waiver or departure.
(d) Successors and Assigns. Except as otherwise expressly provided
herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties hereto. Nothing in this Agreement, express or implied, is intended
to confer upon any Person other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, except as expressly provided in this
Agreement.
(e) Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware applicable to
contracts made and to be performed wholly within that state, without regard
to the conflict of law rules thereof.
(f) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(g) Headings. The headings in this Agreement are used for convenience
of reference only and are not to be considered in construing or
interpreting this Agreement.
(h) Notices. Any notice required or permitted under this Agreement
shall be given in writing and shall be delivered in person or by telecopy
or by overnight courier guaranteeing no later than second business day
delivery, directed to (i) the Company at the address set forth below its
signature hereof or (ii) a Holder at the address of the Investor set forth
below its signature hereof. Any party may change its address for notice by
giving ten (10) days advance written notice to the other parties. Every
notice or other communication hereunder shall be deemed to have been duly
given or served on the date on which personally delivered, or on the date
actually received, if sent by telecopy or overnight courier service, with
receipt acknowledged.
(i) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in
any way impaired thereby, it being intended that all of the rights and
privileges of the Holders shall be enforceable to the fullest extent
permitted by law.
12
<PAGE>
(j) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings other than those set
forth or referred to herein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to such subject matter.
(k) Enforceability. This Agreement shall remain in full force and
effect notwithstanding any breach or purported breach of, or relating to,
the Investor Agreement.
(l) Recitals. The recitals are hereby incorporated in the Agreement
as if fully set forth herein.
(m) Attorneys Fees. If any action is necessary to enforce or
interpret the terms of this agreement, the prevailing party shall be
entitled to reasonable attorneys' fees and costs, in addition to any other
relief to which he is or may be entitled. This provision shall be construed
as applicable to the entire agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written hereinabove.
APPLIED VOICE RECOGNITION, INC.
By: /s/ TIMOTHY J. CONNOLLY
----------------------------
Timothy J. Connolly
Chairman
4615 Post Oak Place, Suite 111
Houston, Texas 77027
Telephone: (713) 621-5678
Telecopier: (713) 621-5870
LONESTAR MEDICAL TRANSCRIPTION USA, INC.
By: /s/ CARL DAMMEKENS
----------------------------
Name: Carl Dammekens
----------------------------
Title: President of Finance
----------------------------
c/o Lernout & Hauspie Speech Products USA
52 Third Avenue
Burlington, Massachusetts 01803
Telephone: ( )________________
Telecopier: ( )________________
14
<PAGE>
EXHIBIT 10.11
AMENDMENT II TO VALUE ADDED RESELLER AGREEMENT
----------------------------------------------
This AMENDMENT II TO VALUE ADDED RESELLER AGREEMENT (this "Amendment"), is
executed this 7th day of January, 2000, to be effective as of December 20, 1999
(the "Effective Date"), by and between APPLIED VOICE RECOGNITION, INC., a
Delaware corporation doing business as e-DOCS.net ("VAR"), and LERNOUT & HAUSPIE
SPEECH PRODUCTS, N.V., a Belgium company ("L&H").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, VAR and L&H executed that certain Value Added Reseller Agreement
dated September 30, 1998 (the "Original VAR Agreement"), whereby L&H granted to
VAR certain rights relating to dictation software programs relating to the
medical field which were developed and licensed by L&H, which Original VAR
Agreement was amended pursuant to the terms of that certain Amendment I to Value
Added Reseller Agreement dated to be effective as of September 30, 1998 (the
"First Amendment; the Original VAR Agreement and the First Amendment are
hereinafter collectively referred to as the "VAR Agreement");
WHEREAS, VAR and L&H desire to further amend the VAR Agreement to allow VAR
to sell the Software (as defined in the VAR Agreement) directly to its customers
without any additional development by VAR and to extend the term of such VAR
Agreement;
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein and in the VAR Agreement, and other good and valuable
consideration, the sufficiency of which are hereby acknowledged, VAR and L&H
hereby agree to the following:
1. CAPITALIZED TERMS. All capitalized terms used herein but not otherwise
defined shall have the same meaning as set forth in the VAR Agreement.
2. GRANT OF LICENSE.
(i) Section 3.1 of Article III: Grant of License is hereby deleted in its
entirety and the following provision is inserted in its place:
"3.1 In consideration for the payments made under this Agreement, L&H
hereby grants to VAR and VAR accepts from L&H, a worldwide, non-exclusive,
non-transferable license, subject to all applicable terms hereof, to sell,
distribute or give to End Users copies of the Software and the Services
Software in stand-alone form."
(ii) ADDENDUM A to VAR agreement is hereby deleted in its entirety and
replaced with ADDENDUM A attached hereto.
(iii) ADDENDUM C to VAR Agreement paragraph 2 a) is amended to add:
1
<PAGE>
--------------------------------------------------------------------------
Software SRP VAR Discount VAR Price
--------------------------------------------------------------------------
(royalty)
--------------------------------------------------------------------------
L&H Voice Xpress Medical $799 50% $399.50
Specialty Edition
--------------------------------------------------------------------------
3. RELEASE OF OBLIGATIONS. Notwithstanding any terms or provisions in the
VAR Agreement to the contrary, L&H hereby waives and releases all requirements
of VAR to (i) incorporate the Software into VAR Products or (ii) develop VAR
Products. All prohibitions in the VAR Agreement against sale or distribution of
the Software or the Services Software not in connection with a VAR Product are
hereby waived by L&H.
4. TERM. The first sentence of Section 8.1 of the VAR Agreement shall be
amended by deleting the reference to "December 31, 1999" and inserting in its
place a reference to "December 31, 2000." From and after the Effective Date of
this Agreement, all other references in the VAR Agreement to December 31, 1999
shall automatically be deemed to mean December 31, 2000.
5. SERVICE FEES. Section 3(a)(i) of Addendum C to the VAR Agreement is
hereby deleted in its entirety.
6. NO FURTHER AMENDMENT; AGREEMENT CONTROLLING. Except as provided
herein, all other terms and provisions of the VAR Agreement shall remain in full
force and effect. To the extent that the terms of this Amendment conflict with
the terms of the VAR Agreement, the terms and provisions of this Amendment shall
control.
7. GOVERNING LAW. This Amendment shall be governed by the laws of the
State of Texas.
8. SUCCESSOR AND ASSIGNS. The terms and provisions of this Amendment
inure to the benefit of, and shall be binding upon, the successors and assigns
of the parties hereto.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
EXECUTED this 7th day of January, 2000, to be effective as of December 20,
1999.
VAR:
---
APPLIED VOICE RECOGNITION, INC., a Delaware
corporation
By: /s/ Timothy J. Connolly
-------------------------------
Timothy J. Connolly, Chairman of
the Board
L&H:
---
LERNOUT & HAUSPIE SPEECH
PRODUCTS, N.V., a Belgium company
By: /s/ Carl Dammekens
-----------------------------
Name: Carl Dammekens
Title: Senior Vice President Finance
Signature Page
To
Amendment II to Value Added Reseller Agreement
3
<PAGE>
ADDENDUM A
SOFTWARE FUNCTIONAL SPECIFICATION
- ---------------------------------
L&H Voice Express Medical Specialty Edition
4
<PAGE>
EXHIBIT 10.12
TECHNOLOGY LICENSE AGREEMENT
This TECHNOLOGY LICENSE AGREEMENT (the "Agreement") is to be effective as of
December 20, 1999 (the "Effective Date"), by and between LONESTAR MEDICAL
TRANSCRIPTION USA, INC., a Delaware corporation ("Licensor"), and APPLIED VOICE
RECOGNITION, INC., a Delaware corporation ("Licensee").
W I T N E S S E T H:
-------------------
WHEREAS, Licensee has developed certain software and programs for use in
general computer speech recognition fields and the medical transcription
industry (collectively, the "Technology"), which Technology is more particularly
described on EXHIBIT "A" attached hereto and incorporated herein;
-----------
WHEREAS, Licensee has sold the Technology to Licensor pursuant to that certain
Asset Purchase Agreement dated effective as of the Effective Date by and among
Licensee, Licensor and others (the "Purchase Agreement");
WHEREAS, Licensor desires to grant to Licensee, and Licensee desires to obtain
from Licensor, pursuant to the terms and provisions of the Purchase Agreement, a
perpetual, royalty-free, nonexclusive license to use the Technology;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in the Purchase Agreement, the receipt and adequacy of which
are hereby acknowledged by both parties, Licensor and Licensee agree as follows:
1. Grant of License. Subject to the terms and conditions hereof,
Licensor hereby grants to Licensee a perpetual, royalty-free, nonexclusive
license to use and develop the Technology.
2. No Conveyance of Ownership. Nothing in this Agreement shall give
Licensee or others any right, title, or interest whatsoever in and to the
Technology other than the rights expressly granted herein.
3. No Stand-Alone Use or Sale. Licensee hereby agrees that Licensee
shall be prohibited from using or selling the Technology for use in its current
state in a stand-alone mode. Licensee shall be entitled to incorporate the
Technology into any products designed, developed or created by Licensee, and
thereafter utilize such products in the course of Licensee's business.
4. No Third Party Beneficiary. The provisions of this Agreement are and
will be for the benefit of Licensor and Licensee and their respective successors
and assigns only and are not for the benefit of any third party. No third party
shall have the right to enforce the
1
<PAGE>
provisions of this Agreement or any other document executed and delivered
contemporaneously herewith.
4. Use Not Required. Nothing contained in the Agreement or any other
agreement is intended to require Licensee to use the Technology in connection
with Licensee's business.
5. Compliance with Laws. The use of the Technology by the parties hereto
shall at all times be in compliance with all applicable laws and governmental
regulations.
6. Modification to Technology. Licensor shall be entitled to modify the
Technology at Licensor's discretion. Licensor shall not be obligated to provide
Licensee with any updates, modifications or subsequent versions of the
Technology or with any technical support with respect to the Technology.
Licensee shall be entitled to modify the Technology in Licensee's discretion.
All such modifications and improvements of the Technology shall be the sole and
exclusive property of the Licensee.
7. Assignment. This Agreement may not be assigned by Licensee without
the prior written consent of Licensor; provided however, that Licensee may
assign this Agreement, the license granted hereunder, or any of Licensee's
rights hereunder without the prior consent of Licensor if such assignment is
made in conjunction with a sale to a third party of (i) all or substantially all
of Licensee's assets relating to its transcription business, or (ii) the assets
of Licensee related to Licensee's "Virtual Physician Network". This Agreement
shall inure to the benefit of the permitted successors and permitted assigns of
either party hereto.
9. Notices. All notices to be given under this Agreement shall be made
and delivered pursuant to the terms of the notice provisions of the Purchase
Agreement.
10. Miscellaneous.
(a) The provisions contained herein constitute the entire agreement
between the parties, and supersedes any and all prior written or oral
agreements. Any change, amendment, or modification of this Agreement must be in
writing and executed by both parties.
(b) This Agreement shall be governed and construed in accordance with
the internal laws, and not the laws governing conflicts of laws, of the State of
Texas.
(c) If any provision of this Agreement is found to be unlawful, void,
or unenforceable, then that provision shall be severed from this Agreement and
will not affect the validity and enforceability of any of the remaining
provisions.
(d) This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement.
[REST OF PAGE INTENTIONALLY LEFT BALNK]
2
<PAGE>
EXECUTED this ____ day of January, 2000, to be effective as of the
Effective Date.
LICENSOR:
--------
LONESTAR MEDICAL
TRANSCRIPTION USA, INC.
By: ________________________________
Name:_______________________________
Title:______________________________
LICENSEE:
--------
APPLIED VOICE RECOGNITION, INC.
By: ______________________________________
Timothy J. Connolly, Chairman of the
Board
Signature Page to
Technology License Agreement
3
<PAGE>
EXHIBIT 10.13
MEDICAL TRANSCRIPTION SERVICES AGREEMENT
This MEDICAL TRANSCRIPTION SERVICES AGREEMENT (the "Agreement") is to be
effective as of December 20, 1999 (the "Effective Date"), by and between
LONESTAR MEDICAL TRANSCRIPTION USA, INC., a Delaware corporation ("Lonestar"),
and APPLIED VOICE RECOGNITION, INC., a Delaware corporation ("AVRI").
W I T N E S S E T H:
-------------------
WHEREAS, AVRI is in the business of providing medical transcription services
to health care professionals;
WHEREAS, AVRI has conveyed certain of its assets utilized by AVRI in the
performance of its transcription services, including, without limitation, the
stock of Outsource Transcription Philippines, Inc. ("OTPI"), to Lonestar
pursuant to that certain Asset Purchase Agreement dated effective as of the
Effective Date by and among AVRI, Lonestar and others (the "Purchase
Agreement");
WHEREAS, AVRI has requested that Lonestar agree to authorize OTPI to provide
AVRI with medical transcription services on an "as available", "cost plus"
basis, if, as and when Lonestar determines that it will authorize OTPI to
provide transcription services to third parties not in any way affiliated with
Lonestar;
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and in the Purchase Agreement, the receipt and adequacy of which
are hereby acknowledged by both parties, Lonestar and AVRI agree as follows:
1. Agreement to Provide Transcription Services. If, as and when Lonestar
determines, in Lonestar's sole discretion, that Lonestar will authorize OTPI to
provide third parties not in any way affiliated with Lonestar with transcription
services, Lonestar shall notify AVRI of such decision and OTPI will offer to
provide AVRI with transcription services pursuant to the terms of a mutually
acceptable written agreement between OTPI and AVRI, which agreement will
provide, in addition to the other terms thereof, that the fee charged by OTPI to
AVRI for such transcription services shall be not more than the fee charged by
OTPI to OTPI's best third party customers not in any way affiliated with
Lonestar for transcription services, as such fee may change from time to time
(in other words, on a "most favored nations basis").
2. Term. This Agreement shall commence on the Effective Date and shall
continue in effect for a period of eighteen (18) months.
3. No Third Party Beneficiary. The provisions of this Agreement are and
will be for the benefit of Lonestar and AVRI and their respective successors and
assigns only and are not for the benefit of any third party. No third party
shall have the right to enforce the provisions of this Agreement or any other
document executed and delivered contemporaneously herewith.
1
<PAGE>
4. Assignment. This Agreement may not be assigned by either party hereto
without the prior written consent of the other. This Agreement shall inure to
the benefit of the permitted successors and permitted assigns of either party
hereto.
5. Notices. All notices to be given under this Agreement shall be made
and delivered pursuant to the terms of the notice provisions of the Purchase
Agreement.
6. Miscellaneous.
-------------
(a) The provisions contained herein constitute the entire agreement
between the parties, and supersedes any and all prior written or oral
agreements. Any change, amendment, or modification of this Agreement must be in
writing and executed by both parties.
(b) This Agreement shall be governed and construed in accordance with
the internal laws, and not the laws governing conflicts of laws, of the State of
Texas.
(c) If any provision of this Agreement is found to be unlawful, void,
or unenforceable, then that provision shall be severed from this Agreement and
will not affect the validity and enforceability of any of the remaining
provisions.
(d) This Agreement may be executed in one or more counterparts, all
of which shall be considered one and the same agreement.
[REST OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
EXECUTED this ____ day of January, 2000, to be effective as of the Effective
Date.
LONESTAR:
--------
LONESTAR MEDICAL
TRANSCRIPTION USA, INC.
By: _____________________________________
Name:____________________________________
Title:___________________________________
AVRI:
----
APPLIED VOICE RECOGNITION, INC.
By:______________________________________
Timothy J. Connolly, Chairman of the
Board
Signature Page to
Medical Transcription Services Agreement
3
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
(H. Russel Douglas)
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made as of April 1, 2000
(the "Effective Date"), by and between APPLIED VOICE RECOGNITION, INC., a
Delaware corporation doing business as e-DOCS.net ("Employer"), and H. RUSSEL
DOUGLAS, an individual residing in Sugar Land, Texas ("Employee").
W I T N E S S E T H:
-------------------
WHEREAS, Employer and Employee desire to enter into an agreement regarding
Employee's employment with Employer pursuant to the terms and conditions set
forth herein;
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and the
premises and the mutual covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, the parties covenant and agree as follows:
1. EMPLOYMENT.
a. Employer agrees to employ Employee on the terms and conditions set
forth herein and in that certain Employment Agreement dated April 1, 1997 (the
"L&H Employment Agreement"), executed by and between Employee, as employee, and
Applied Voice Recognition, Inc., a Utah corporation, predecessor-in-interest by
merger of Employer, as employer, and subsequently assigned (with the consent of
Employee) to Lernout & Hauspie Speech Products N.V., which L&H Employment
Agreement is hereby incorporated herein by this reference.
b. To the extent that any terms or provisions set forth in this
Agreement conflict with the terms and provisions of the L&H Employment
Agreement, the terms and provisions set forth in this Agreement shall control.
2. TERM OF EMPLOYMENT. Section 2 of the L&H Employment Agreement is
hereby replaced in its entirety with the following:
"The term of Employee's employment hereunder (the "Term") shall commence as
of April 1, 2000 (the "Commencement Date") and shall continue (subject to
termination by either Employer or Employee as hereinafter provided) for a
term (the "Term") expiring on September 30, 2000 (the "Expiration Date").
At the expiration of the Term, Employer shall have no further obligation to
Employee other than payment of any earned and unpaid Base Salary (as
hereafter defined) under Section 3(a) and Bonus (as hereafter defined)
under Section 3(b), and Employee shall have no further obligation to
Employer except as set forth in Sections 7, 8, 9 and 10."
<PAGE>
3. COMPENSATION AND BENEFITS. Section 3 of the L&H Employment Agreement
is hereby replaced in its entirety with the following:
"a. As compensation for services rendered by Employee as an employee of
Employer, Employer shall pay Employee a monthly base salary of Fourteen
Thousand Five Hundred Eighty-Three and 33/100 Dollars ($14,583.33) (the
"Base Salary"). Such compensation shall be payable in equal semi-monthly
installments or in the manner and on the timetable which Employer's payroll
is customarily handled or at such intervals as Employee and Employer may
agree from time to time.
"b. In addition to receiving the Base Salary provided for in Section
3(a), Employee shall be entitled to a bonus equal to twelve and one half
(12 1/2%) of Employee's annualized Base Salary (the "Bonus"). The Bonus
shall be earned if, and only if, Employee has met the criteria set by
Employer for the Term. In connection therewith, Employer agrees that prior
to April 30, 2000, it shall set criteria for Employee's Bonus to be earned
during the Term and shall communicate such criteria to Employee in writing.
If Employee successfully meets the criteria established by Employer (in the
discretion of Employer), Employer shall pay to Employee the Bonus at the
end of the Term.
"c. Employee shall be entitled to be reimbursed by Employer for all
reasonable and necessary expenses incurred by Employee in carrying out
Employee's duties under this Agreement in accordance with Employer's
standard policies regarding such reimbursements.
"d. Employee shall be entitled during the Term, upon satisfaction of
all eligibility requirements, if any, to participate in all health, dental,
disability, life insurance and other benefit programs now or hereafter
established by Employer which cover substantially all other of Employer's
employees and shall receive such other benefits as may be approved from
time to time by Employer.
"e. Employee shall be entitled to receive one week of paid vacation
during the Term and shall be entitled to receive paid holidays as enjoyed
by all other employees of Employer.
"f. Employee shall be entitled to receive an automobile allowance of
$750 per month, payable on the first day of each month during the Term.
Employee shall be responsible for paying all costs related to ownership of
Employee's vehicle, including maintenance and repairs, insurance and fuel."
4. NO STOCK OPTIONS. Section 5 of the L&H Employment Agreement is hereby
replaced in its entirety with the following:
"Except as otherwise agreed to by Employee and Employer, Employee shall not
be entitled to receive any stock options of Employer pursuant to this
Agreement."
2
<PAGE>
5. TERMINATION OF EMPLOYMENT.
a. Sections 6.a. and 6.e. of the L&H Employment Agreement are hereby
deleted in their entirety.
b. Section 6.f. of the L&H Employment Agreement is hereby replaced in
its entirety with the following:
"Employer shall have the right to terminate Employee's employment hereunder
without prior notice and without cause; provided, however, in such event,
Employee shall continue to receive his Base Salary for the remaining
portion of the Term. In such event, Employee shall not be eligible to
receive the Bonus for any quarter beyond the quarter in which Employee's
employment is terminated."
6. NOTICES. Employer's address for notice in Section 14 of the L&H
Employment Agreement is hereby replaced in its entirety with the following:
"If to Employer, at: Applied Voice Recognition, Inc.
1717 St. James Place, Suite 242
Houston, TX 77056
Attention: President
Facsimile No.: (713) 621-7059
"With a copy to: Boyar & Miller
4265 San Felipe, Suite 1200
Houston, TX 77027
Attention: J. William Boyar, Esq.
Facsimile No.: (713) 552-1758"
7. GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas.
8. ENTIRE AGREEMENT; AMENDMENTS. This Agreement sets forth the entire
understanding of the parties hereto. This Agreement may not be amended or
modified except by a written instrument executed by the parties hereto.
9. BINDING ON SUCCESSORS. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
10. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original, but all of which shall
constitute one and the same agreement.
EXECUTED this 5th day of March, 2000, to be effective as of the Effective
Date.
3
<PAGE>
EMPLOYER:
--------
APPLIED VOICE RECOGNITION, INC., d/b/a e-DOCS.net
By: /s/ Timothy J. Connolly
_______________________________________
Timothy J. Connolly, President
EMPLOYEE:
--------
/s/ H. Russel Douglas
_____________________________
H. RUSSEL DOUGLAS
Signature Page to
Employment Agreement
(H. Russel Douglas)
4
<PAGE>
EXHIBIT 10.15
FORBEARANCE AGREEMENT
AGREEMENT (this "Agreement") made as of the Effective Date (as defined in
Section 18) by and among Hillel Bronstein, an individual residing in New York,
New York ("Bronstein"); Cornell Transcription, Inc., a New York corporation
("CTI"); e-DOCS Health Care Information Services, Inc., a Delaware corporation
formerly known as AVRI Health Care Information Services, Inc. ("HCIS"); and
Applied Voice Recognition, Inc., a Delaware corporation d/b/a e-DOCS.net
("E-Docs").
W I T N E S S E T H
WHEREAS, as of December 1, 1998, CTI, Bronstein, HCIS and E-Docs executed
an Asset Purchase Agreement (the "Purchase Agreement"), whereby CTI agreed to
sell to HCIS and HCIS agreed to purchase from CTI and Bronstein, certain assets
of CTI and certain shares of common stock of CTI's subsidiary, Outsource
Transcription Philippines, Inc., a stock corporation formed under the laws of
the Republic of the Philippines ("OTPI"); and
WHEREAS, a portion of the Purchase Price, as defined in the Purchase
Agreement, included the issuance and delivery on December 31, 1999 by E-Docs to
CTI of 735 shares of convertible Series 1 Preferred Stock of E-Docs ("E-Docs
Preferred Stock"), with an aggregate stated value of $735,000; and
WHEREAS, on or about February 17, 1999, CTI, Bronstein, HCIS and E-Docs
entered into the First Amendment to Asset Purchase Agreement ("First
Amendment"), wherein the number of shares of E-Docs Preferred Stock to be issued
to CTI on December 31, 1999 was corrected to 575, with an aggregate stated value
of $575,000; and
WHEREAS, the Certificate of Designation, Preferences, Rights and
Limitations of Series 1 Preferred Stock (the "Certificate of Designation")
describing the shares of E-Docs Preferred Stock provides that each holder of
shares of E-Docs Preferred Stock shall be entitled to cause any and all such
shares to be converted into shares of E-Docs Common Stock ("E-Docs Common
Stock"), which shares of E-Docs Common Stock will have been registered by E-Docs
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "SEC") for public offering and sale of stock, pursuant to the
Securities Act of 1933, as amended, or any similar federal statute, and the
rules and regulations promulgated thereunder, all as the same shall be in effect
at the time (the "1933 Act"); and
WHEREAS, the E-Docs Common Stock has not been registered, as provided for
under the Purchase Agreement and the Certificate of Designation; and
WHEREAS, under the terms of Section 6.5 of the Purchase Agreement, HCIS and
E-Docs are entitled to offset against the shares of E-Docs Preferred Stock to be
delivered to CTI the amount equal of any claims by HCIS resulting from breaches
by CTI or Bronstein of any of their respective representations, warranties or
covenants in the Purchase Agreement; and
<PAGE>
WHEREAS, pursuant to the terms of the Closing Statement executed by the
parties in connection with the Purchase Agreement and the First Amendment,
Bronstein, CTI, E-Docs and HCIS agreed to offset $51,134 against the E-Docs
Preferred Stock to be distributed to CTI in consideration for HCIS' assumption
of a lease with Sterling Bank, which offset is not in dispute among the parties
hereto, and
WHEREAS, HCIS and E-Docs are in the process of determining the amount of
claimed offsets pursuant to such Section 6.5, which amounts include fees and
expenses relating to filing certain corporate and tax reports and returns with
respect to the formation of OTPI, which fees and expenses E-Docs has
preliminarily estimated to be approximately $41,000 (the "Potential Offset
Claims"); and
WHEREAS, on or about February 17, 2000, CTI, Bronstein, HCIS and E-Docs
agreed that E-Docs would issue to CTI 448.866 shares of E-Docs Preferred Stock,
such number of shares being determined by reducing the 575 shares of E-Docs
Preferred Stock owed by E-Docs to CTI by (i) 51.134 shares having a stated value
of $51,134 with respect to the Sterling Bank lease obligation, and (ii) 75
shares (the "Disputed Shares") having a stated value of $75,000 as a holdback
for purposes of satisfying the Potential Offset Claims, although the parties did
not agree as to the resolution of the amount of such Potential Offset Claims and
reserved their rights to resolve such claims and offset amounts at a later date;
and
WHEREAS, prior to the issuance of the 448.866 shares of E-Docs Preferred
Stock to CTI, CTI delivered to HCIS and E-Docs (i) a notice of conversion
instructing E-Docs to convert the shares of E-Docs Preferred Stock to be issued
to CTI into unrestricted shares of E-Docs Common Stock, in accordance with the
terms of the Certificate of Designation, and (ii) a corporate resolution
executed by Bronstein, in his capacity as the sole director of CTI, and further
executed by Bronstein and Yaniv Dagan, in their capacities as the sole
shareholders of CTI, directing that all shares of E-Docs Common Stock to be
issued to CTI should be issued to Bronstein individually; and
WHEREAS, on or about February 17, 2000, E-Docs converted the 448.866 shares
of E-Docs Preferred Stock into 1,468,539 restricted shares of E-Docs Common
Stock at a conversion rate of one (1) share of E-Docs Common Stock for each
0.0003056548 of a share of E-Docs Preferred Stock (the "12/31/99 Conversion
Rate"), which rate is the conversion rate determined as of December 31, 1999
pursuant to the terms of the Certificate of Designation; and
WHEREAS, to date, Bronstein has sold 167,468 shares of E-Docs Common Stock,
which sale has occurred pursuant to SEC Rule 144; and
WHEREAS, Bronstein has demanded that E-Docs issue and deliver duly
registered shares of E-Docs Common Stock in an amount equal to the balance of
1,301,071 restricted shares of E-Docs Common Stock that Bronstein presently
holds (the "Bronstein Shares"); and
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WHEREAS, E-Docs and HCIS have advised Bronstein that they are currently
unable to issue and deliver registered shares of E-Docs Common Stock in the
amount of the Bronstein Shares; and
WHEREAS, E-Docs and HCIS have requested that Bronstein agree to
forbear from the exercise of certain of Bronstein's rights and remedies under
the Purchase Agreement during the Forbearance Period (as hereinafter defined) in
consideration for the terms, and subject to the conditions, contained in this
Agreement; and
WHEREAS, in addition to the forgoing, a dispute has arisen among
Bronstein, Stuart Szpicek ("Szpicek") and Yaniv Dagan ("Dagan") with respect to
Szpicek's and Dagan's respective beneficial ownership interests in and to the
Bronstein Shares, if any, and to any other shares of E-Docs Common Stock that
E-Docs is required to issue and deliver to CTI or Bronstein in connection with
the Purchase Agreement (the "Share Dispute"); and
WHEREAS, E-Docs and HCIS have received an instrument dated as of March 2,
2000, apparently executed by Bronstein and Szpicek (the "March 2 Instrument"),
pursuant to which issues were raised regarding the distribution of the E-Docs
Preferred Stock among Bronstein, Szpicek and Dagan (which issues remain
unresolved and the legal effect of which March 2 Instrument remains unclear) and
which March 2 Instrument purports to reflect an agreement among Bronstein and
Szpicek that the $575,000 worth of E-Docs Preferred Stock was to be distributed
among Bronstein, Szpicek and Dagan as follows:
To be Immediately Distributed:
Bronstein $232,116
Szpicek $187,116
Dagan $ 16,000
--------
Total: $435,232
The Amount Remaining From $126,134 Following the Offset of Known and
Potential Claims Under Section 6.5 of the Purchase Agreement ("Remaining
Balance"), which Remaining Balance is to be Distributed to Bronstein,
Szpicek and Dagan in the Following Percentages:
Bronstein 47.5%
Szpicek 47.5%
Dagan 5.0%
--------
Total: 100.0%
In addition to the amount to be immediately distributed, and the
Remaining Balance, $13,634 is a Reserve Amount (the "Reserve Amount"),
which Reserve Amount is to be distributed in accordance with Section 3 of
this Agreement.
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The totals are: ($435,232 + $126,134 + $13,634 = $575,000);
WHEREAS, E-Docs, HCIS, CTI and Bronstein would like to resolve all
disputes among them and the "Share Dispute" to the fullest extent possible; and
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1) Forbearance. During the period commencing as of the Effective Date
and ending on the earlier to occur of (i) the date that E-Docs (A) notifies
Bronstein that the Bronstein Remaining Shares (as definied in paragraph 5(b)
herein), the Bronstein Warrant Shares (as defined in paragraph 5(a) herein), and
the Bronstein Interest Shares (as defined in paragraph 5(b) herein), if any,
have been registered pursuant to a registration statement filed with the SEC for
public offering and sale of stock pursuant to the 1933 Act, and (B) has
delivered to Bronstein or the Transfer Agent for E-Docs' common stock, as
applicable, such other documents that may be necessary to effectuate the public
sale of the Bronstein Remaining Shares, the Bronstein Warrant Shares and the
Bronstein Interest Shares, if any, pursuant to such registration statement,
including, without limitation, legal opinions of E-Docs' securities counsel with
respect thereto, or (ii) August 15, 2000 (the "Forbearance Period"), Bronstein
and CTI agree that they will not exercise any enforcement rights or remedies
under, or otherwise with respect to, the Purchase Agreement, including, without
limitation, asserting or pursuing any claim or commencing any lawsuit or
arbitration under, pursuant to or otherwise in connection with, the Purchase
Agreement. Such forbearance shall not apply to claims for breach of this
Agreement.
2) Confirmation of Agreement and Reaffirmation. Each of E-Docs, HCIS,
CTI and Bronstein hereby ratifies and confirms each of their respective
obligations under the Purchase Agreement and confirms and agrees that the
Purchase Agreement remains in full force and effect in accordance with its
terms, without modification or waiver except as modified by this Agreement and
except as previously amended, restated, modified and supplemented from time to
time in accordance with the terms of the Purchase Agreement. Except as expressly
provided to the contrary herein, Bronstein, CTI, E-Docs and HCIS each hereby
reserve all of their respective rights and remedies against each other with
respect to, and under the terms of, the Purchase Agreement.
3) Surrender of Stock Certificate(s) by Bronstein and Allocation and
Reissuance to Bronstein, Szpicek and Dagan. Upon the execution of this Agreement
by Bronstein, Bronstein will deliver to E-Docs (i) the stock certificate(s)
representing the Bronstein Shares; and (ii) written instructions addressed to
E-Docs' Stock Transfer Agent instructing such Stock Transfer Agent to cancel
such stock certificate(s) and to reissue three (3) new certificates to each of
the following recipients in the following number of shares of E-Docs Common
Stock (which includes a distribution of the Reserve Amount in the following
percentages: 47.5% to Bronstein; 47.5% to Szpicek and 5% to Dagan):
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# of Shares
Shareholder of E-Docs
Name Common Stock
----------- ------------
Bronstein 613,126 (determined by subtracting 167,468 from
759,406 and adding 21,188)
Szpicek 633,369 (determined by adding 21,188 to 612,181)
Dagan 54,576 (determined by adding 2,230 to 52,246)
---------
Total: 1,301,071
The certificate(s) described under subparagraph (i) above and the written
instructions described under subparagraph (ii) above, will be delivered to
E-Docs' counsel by Bronstein and CTI by Federal Express delivery to be
transmitted on the same day as the exchange, by Facsimile, by the parties of
duly executed original counterparts of this Agreement. Originals of the duly
executed Agreement shall be exchanged by the Parties by Federal Express delivery
to be transmitted the same day as the Facsimile exchange.
4) Compromise and Settlement of Potential Offset Claims. E-Docs, HCIS,
CTI and Bronstein hereby compromise and settle all Potential Offset Claims for
the aggregate amount of $25,000. As a result, E-Docs hereby agrees to issue to
Bronstein, Szpicek and Dagan an aggregate of 50 additional shares of E-Docs
Preferred Stock, allocated among, and issued in the form of E-Docs Common Stock
within five (5) days after the Effective Date of this Agreement to, each of
Bronstein, Szpicek and Dagan as follows (the "Compromise Shares"):
# of Shares 12/31/99 # of Shares
Shareholder of E-Docs Conversion of E-Docs
Name Preferred Stock Rate Common Stock
-------------- --------------- ----------- ------------
Bronstein 23.75 0.3056548 77,702
Szpicek 23.75 0.3056548 77,702
Dagan 2.50 0.3056548 8,179
The Compromise Shares shall be registered by E-Docs in accordance with the same
terms as Section 1 (i) (A) and (B) of this Agreement.
5) Additional Consideration. In consideration for the forbearance of
Bronstein and CTI, as described in Section 1 above, E-Docs hereby agrees as
follows:
(a) E-Docs shall grant to Bronstein warrants to purchase 118,750 shares
of E-Docs' Common Stock which shares are to be registered on or prior to August
15, 2000 (the "Bronstein Warrant Shares"), pursuant to a registration statement
filed with the SEC for public offering and sale of stock pursuant to the 1933
Act. Such warrants shall be issued to Bronstein as additional consideration for
the forbearance of Bronstein and CTI described in Section 1. Such warrants
shall be evidenced by E-Docs' execution and delivery to Bronstein of a Warrant
in the form attached hereto as EXHIBIT "A" (the "Warrant"), which Warrant is
exercisable by Bronstein on or
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before December 31, 2000 at a purchase price per share equal to the lower of (i)
$1.75, or (ii) the average closing price for E-Docs' common stock for the 30-day
period immediately prior to the Effective Date of this Agreement (the "30-Day
Average Closing Price"). E-Docs affirms that the registration of the Bronstein
Warrant Shares will remain effective continuously from the date of registration
until the end of the exercise period.
(b) E-Docs shall pay interest to Bronstein at a rate of 1.00% per month
(12% per annum) for the period commencing on January 1, 2000, through the
expiration of the Forbearance Period, on the cash value of the 690,828 shares of
E-Docs Common Stock owned by Bronstein from time to time (and issued to
Bronstein by E-Docs pursuant to Section 3 and Section 4 hereof - the "Bronstein
Remaining Shares"), which cash value will be calculated by multiplying the
number of Bronstein Remaining Shares by the lower of (i) $1.75 per share, or
(ii) the 30-Day Average Closing Price (the "Cash Value"). Such aggregate
interest shall be paid by E-Docs upon the end of the Forbearance Period and
shall be payable in E-Docs' sole discretion either in (a) cash, or (b)
additional shares of E-Docs common stock (the "Bronstein Interest Shares") (if
E-Docs utilizes shares of stock to pay such interest, the Bronstein Interest
Shares will have been registered on or prior to the expiration of the
Forbearance Period, pursuant to a registration statement filed with the SEC for
public offering and sale of stock pursuant to the 1933 Act). The number of
Bronstein Interest Shares to be issued, if E-Docs utilizes shares of stock to
pay such interest, will be determined by dividing the dollar amount of the
aggregate interest due to Bronstein by the lower of (i) $1.75 per share, or (ii)
the 30-Day Average Closing Price. Interest is due and payable to Bronstein
within five (5) days after the end of the Forbearance Period.
6) Payment of Bronstein's and CTI's Legal Fees. Within two (2) days
after the Effective Date, E-Docs shall pay $35,000 in cash to Blank Rome Tenzer
Greenblatt LLP in full and complete satisfaction of Bronstein's and CTI's legal
fees and expenses up to, through and including the Effective Date of this
Agreement, with respect to all claims between Bronstein and CTI, on the one
hand, and E-Docs and HCIS, on the other hand, under the terms of, or otherwise
in connection with, the Purchase Agreement and the negotiation and execution of
this Agreement. E-Docs shall cause such payment to be transmitted by wire
transfer pursuant to the following wiring instructions:
The Chase Manhattan Bank
ABA number 021-000021
Account Number 114-026602 (account of Blank Rome Tenzer Greenblatt LLP)
Blank Rome Tenzer Greenblatt LLP reference number 25182-0002
7) Covenants.
(a) E-Docs and HCIS hereby covenant and agree as follows:
(i) From and after the Effective Date through the expiration of the
Forbearance Period, neither E-Docs nor HCIS shall pay any cash compensation to
Timothy J. Connolly for services rendered to E-Docs or HCIS (although E-Docs and
HCIS shall be entitled to reimburse Mr. Connolly for business expenses incurred
by Mr. Connolly on behalf of E-Docs
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<PAGE>
or HCIS in accordance with E-Docs' expense reimbursement policy), and that any
compensation provided to Mr. Connolly during such period shall only be in the
form of shares of E-Docs common stock.
(ii) E-Docs will use its best efforts to cause the registration of the
Bronstein Remaining Shares, the Bronstein Warrant Shares and the Bronstein
Interest Shares, if any, pursuant to a registration statement filed with the SEC
for public offering and sale of stock pursuant to the 1933 Act prior to the
expiration of the Forbearance Period, which efforts shall include, but not be
limited to, hiring appropriate accounting and legal professionals to assist
E-Docs in making the appropriate filings with the SEC.
(iii) E-Docs shall provide Bronstein and CTI with a written report on
the fifteenth day of each month following the Effective Date (commencing on May
15, 2000) through the expiration of the Forbearance Period (A) describing the
status of the registration of the Bronstein Remaining Shares, the Bronstein
Warrant Shares and the Bronstein Interest Shares, and (B) certifying to CTI that
no cash compensation has been paid to Mr. Connolly since the Effective Date
through the date of such report.
(iv) E-Docs shall take all steps necessary, including, but not limited
to, procuring all necessary opinions of counsel, to enable Bronstein to sell the
maximum number of shares of restricted E-Docs Common Stock issued to Bronstein
pursuant to the terms of this Agreement from time to time that Bronstein may be
entitled to sell from time to time during the Forbearance Period pursuant to SEC
Rule 144 ("Rule 144 Sales"), provided, however, that E-Docs shall only be
required to expend $750 in legal fees to obtain such opinions of counsel. In
the event that it becomes apparent that the opinions of counsel necessary to
effectuate Bronstein's Rule 144 Sales will cost more than $750, then E-Docs
counsel shall contact Bronstein's counsel, before incurring such expense, to
determine how to proceed.
(b) Bronstein and CTI hereby covenant and agree, at no cost or expense to
Bronstein or CTI, to reasonably cooperate with E-Docs and HCIS in connection
with E-Docs' and HCIS' efforts to correct and cure the filing and reporting
deficiencies in the Philippines with respect to OTPI, which cooperation may
include, without limitation, promptly executing such reasonably necessary
affidavits, certificates, confirmations, reports and applications as E-Docs or
HCIS may request.
8) Representations and Warranties.
(a) E-Docs and HCIS each hereby certify and confirm as of the Effective
Date in favor of Bronstein and CTI that all of E-Docs' and HCIS' respective
representations and warranties set forth in the Purchase Agreement are true and
correct as of the Effective Date (each of which representations and warranties
shall survive the execution and delivery hereof).
(b) Bronstein and CTI each hereby represent and warrant as of the
Effective Date to E-Docs and HCIS that:
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(i) This Agreement has been duly executed and delivered by Bronstein and
CTI, and no further corporate or other action is necessary with respect to
Bronstein or CTI to make this Agreement a valid and binding obligation of
Bronstein and CTI, enforceable in accordance with its terms. Neither the
execution, delivery nor performance of this Agreement by CTI will result in a
violation or breach of any term or provision under the Articles of Incorporation
or Bylaws or any resolution of the Board of Directors or shareholders of CTI or
constitute a default or breach of, or accelerate the performance required under,
or require the consent of any person or entity under any indenture, mortgage,
deed of trust or other contract or agreement to which Bronstein or CTI is a
party or by which they or any of their respective assets are bound, or violate
any order, writ, injunction or decree of any court, administrative agency or
governmental body.
(ii) CTI is a corporation duly organized, validly existing and good
standing under the laws of the State of New York and has all requisite corporate
power to enter into and perform this Agreement.
(c) Each of the persons executing this Agreement hereby certify to each
of the other parties hereto that they are duly authorized representatives of the
respective parties to this Agreement and that they are fully authorized to
execute this Agreement for the purposes stated herein and to effectuate the
mutual agreements set forth herein. They further acknowledge that they have
read and fully understand or have had explained to their satisfaction all of the
terms of this Agreement and are executing this Agreement knowingly and
voluntarily
9) Defaults. E-Docs and HCIS shall be deemed to be in default of the
terms and conditions of this Agreement upon any of the following (an "Event of
Default"):
(a) E-Docs shall fail to (i) complete its obligations under Section 1(i)
(A) and (B) of this Agreement by the end of the Forbearance Period, (ii) cause
to be delivered to Bronstein within ten (10) days after the Effective Date (A)
the Bronstein Remaining Shares as defined in Paragraph 5(b) herein; and (B) the
Warrant, and (iii) cause to be delivered to Blank Rome Tenzer Greenblatt LLP
within two (2) days after the Effective Date $35,000 in immediately available
funds in the manner provided in Section 6 of this Agreement.
(b) E-Docs shall fail to perform any of E-Docs' obligations under this
Agreement other than those described in Section 9(a) and such failure shall
continue for ten (10) days after E-Docs' receipt of written notice thereof from
Bronstein or CTI.
(c) Any of the representations or warranties made by E-Docs or HCIS
herein is determined to be materially false.
(d) (i) E-Docs shall commence any case, proceeding or other action under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts; or (ii) there shall be commenced against E-Docs any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any
8
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such adjudication or appointment, or (B) remains undismissed, undischarged or
unbonded for a period of forty-five (45) days; or (iii) there shall be commenced
against E-Docs any case, proceeding or other action seeking issuance of a
warrant of attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an order for
any such relief which shall not have been vacated, discharged, or stayed or
bonded pending appeal within forty-five (45) days from the entry thereof; or
(iv) E-Docs shall take any action indicating its consent to, approval of, or
acquiescence in any acts set forth in clause (i), (ii), or (iii) above; or (v)
E-Docs shall admit in writing its inability to pay its debts as they become due.
10) Penalties. In addition to Bronstein's and CTI's other remedies
hereunder and under the Purchase Agreement, or otherwise available in law or
equity, in the event that E-Docs fails to register the Bronstein Remaining
Shares, the Bronstein Warrant Shares and the Bronstein Interest Shares, if any,
pursuant to a registration statement filed with the SEC for public offering and
sale of stock pursuant to the 1933 Act by the expiration of the Forbearance
Period, then E-Docs and HCIS hereby agree that commencing on August 16, 2000,
and continuing on each day thereafter until the Bronstein Remaining Shares, the
Bronstein Warrant Shares and the Bronstein Interest Shares, if any, have been
registered pursuant to a registration statement filed with the SEC, the
following shall apply:
(a) E-Docs shall issue to Bronstein a warrant per day, for each day in
default, to purchase 1,567 additional shares of E-Docs common stock at a
purchase price per share equal to the lower of (i) $1.75, or (ii) the 30-Day
Average Closing Price. The shares of E-Docs common stock subject to such
warrants shall be registered pursuant to a registration statement filed with the
SEC for public offering of sale of stock pursuant to the 1933 Act at the same
time as, and contemporaneously with, the Bronstein Remaining Shares, the
Bronstein Warrant Shares and the Bronstein Interest Shares, if any.
(b) The interest rate payable by E-Docs on the Cash Value pursuant to
Section 5 shall automatically increase to 1.5% per month (18% per annum) (which
change in rate shall not be applied retroactively).
11) Contingent Release and Waiver of Claims.
(a) In the event that (A) E-Docs and HCIS fully perform their obligations
under Section 1(i)(A) and (B) of this Agreement, (B) E-Docs and HCIS have
performed all of their other material obligations under this Agreement, and (C)
E-Docs and HCIS are not then in default of any of its obligations hereunder,
then:
(i) Bronstein and CTI shall automatically be deemed to have released and
discharged E-Docs and HCIS and their respective subsidiaries, affiliates,
shareholders, officers, directors, employees, agents, representatives,
successors, predecessors and assigns (the "E-Docs Released Parties"), from all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, attorneys' fees, costs, disbursements, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages (including direct, special, consequential, remote,
foreseeable, unforeseeable, and punitive damages), judgments,
9
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extents, executions, claims, demands, obligations and liabilities whatsoever, at
law, in equity or otherwise, liquidated, unliquidated, known or unknown,
sounding in tort, in contract or under any other legal theory, or arising by
statute or under any other law or regulation, and whether contingent or matured,
against the E-Docs Released Parties that Bronstein or CTI have had, then have or
thereinafter can, shall or may have for, upon, or by reason of any matter,
including, without limitation, with respect to the Purchase Agreement, this
Agreement, the Potential Offset Claims and the prior failure of E-Docs to
register the E-Docs Common Stock, from the beginning of the world through the
date of such registration of the E-Docs Common Stock; except that the parties
agree that neither Szpicek or Dagan is an E-Docs Released Party and that neither
Bronstein nor CTI release either Szpicek or Dagan from any claim that Bronstein
or CTI may now or in the future have against either Szpicek or Dagan, whether or
not such claim arises out of the subject matter of this Agreement and/or the
Purchase Agreement.
(ii) E-Docs and HCIS shall automatically be deemed to have released and
discharged Bronstein and CTI and their respective subsidiaries, affiliates,
shareholders, officers, directors, employees, agents, representatives,
successors, predecessors, heirs, executors, administrators and assigns from all
actions, causes of action, suits, debts, dues, sums of money, accounts,
reckonings, attorneys' fees, costs, disbursements, bonds, bills, specialties,
covenants, contracts, controversies, agreements, promises, variances,
trespasses, damages (including direct, special, consequential, remote,
foreseeable, unforeseeable, and punitive damages), judgments, extents,
executions, claims, demands, obligations and liabilities whatsoever, at law, in
equity or otherwise, liquidated, unliquidated, known or unknown, sounding in
tort, in contract or under any other legal theory, or arising by statute or
under any other law or regulation, and whether contingent or matured against
Bronstein or CTI that E-Docs or HCIS have had, then have or thereinafter can,
shall or may have for, upon, or by reason of any matter, including, without
limitation, with respect to the Purchase Agreement, this Agreement and the
Potential Offset Claims, from the beginning of the world to the date of such
registration of the E-Docs Common Stock.
(iii) Notwithstanding the conditional nature of Sections (i) and (ii)
the parties hereby acknowledge and agree that upon Bronstein's receipt of the
certificate representing the Bronstein Remaining Shares, the parties shall
automatically be deemed to have released and discharged, and subject to receipt
of such certificate do hereby release and discharge each other and their
respective subsidiaries, affiliates, shareholders, officers, directors,
employees, agents, representatives, successors, predecessors, heirs, executors,
administrators and assigns, from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, attorneys' fees, costs,
disbursements, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages (including direct, special,
consequential, remote, foreseeable, unforeseeable, and punitive damages),
judgments, extents, executions, claims, demands, obligations and liabilities
whatsoever, at law, in equity or otherwise, liquidated, unliquidated, known or
unknown, sounding in tort, in contract or under any other legal theory, or
arising by statute or under any other law or regulation, and whether contingent
or matured, against each other that the parties have had, now have or
hereinafter can, shall or may have for, upon, or by reason of E-Docs' prior
issuance of 1,468,539 shares of E-Docs Common Stock to Bronstein individually
(the "Initial Issuance"); except that the parties agree that neither Szpicek or
Dagan are included in such release and that neither Bronstein nor CTI release
either Szpicek
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or Dagan from any claim that Bronstein or CTI may now or in the future have
against either Szpicek or Dagan, whether or not such claim arises out of the
subject matter of this Agreement and/or the Purchase Agreement. This is intended
as a limited release that concerns only the distribution of the shares in the
Initial Issuance, and does not release E-Docs or HCIS from all other claims with
respect to the Initial Issuance, including, but not limited to, the fact that
the shares distributed in the Initial Issuance were not registered, and does not
affect the parties' rights and remedies in any other way except in accordance
with the terms of this Agreement.
(iv) Notwithstanding anything to the contrary in Sections 2 and 12 of
this Agreement, no reservation of rights of the parties hereto shall survive the
conditional releases of Sections 11 (a)(i) and (ii), provided all of the
conditions necessary for those releases to be triggered have been met.
(b) The parties agree that the releases set forth in this Section 11
(a)(i) and (ii) are expressly contingent upon E-Docs and HCIS performing all of
the obligations referenced in Section 1(i) (A) and (B) and 11(a) of this
Agreement by August 15, 2000, and that if they fail to do so, then (i)
Bronstein's and CTI's agreement to forbear from pursuing their respective
rights, claims and remedies against E-Docs or HCIS (which agreement to forbear
is described in Section 1 hereof), and the contingent releases set forth in
Section 11(a)(i) and (ii), shall immediately and automatically become null and
void and of no further force or effect, and (ii) Bronstein and CTI shall be
entitled to pursue their respective remedies against E-Docs or HCIS with respect
to the Purchase Agreement and this Agreement and nothing contained in this
Agreement or otherwise shall be deemed to have waived or modified any of
Bronstein's, CTI's, E-Docs' or HCIS' respective rights or remedies under or in
connection with the Purchase Agreement or this Agreement or otherwise in law or
equity.
12) Amendments, Waivers. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters herein contained and any
agreement hereafter made shall be ineffective unless made in writing and signed
by all of the parties hereto. No provision of this Agreement shall be modified,
waived or terminated except by an instrument in writing signed by the party
against whom such modification, waiver or termination is to be enforced. The
failure by Bronstein, CTI, E-Docs or HCIS to insist upon the strict performance
of any one of the terms or conditions of this Agreement or to exercise any
right, remedy or election herein contained or permitted by law shall not
constitute or be construed as waiver or relinquishment for the future of that
term, condition, right, remedy or election, which shall continue and remain in
full force and effect.
13) Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, E-Docs, HCIS, Bronstein, and CTI and their respective
heirs, representatives, administrators, successors and assigns, except that none
of the parties hereto may assign, delegate or transfer their rights or
obligations hereunder. In the event that any provision of this Agreement becomes
or is declared by a court of competent jurisdiction to be unenforceable or void,
this Agreement shall continue in full force and effect without such provision to
the maximum extent permitted by law.
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14) Notices and Communications. Notwithstanding anything in the Purchase
Agreement to the contrary, all notices, demands, consents, approvals and other
communications under this Agreement or the Purchase Agreement shall be in
writing and mailed or delivered or sent by registered or certified mail (postage
prepaid, return receipt requested), by hand, by a nationally-recognized
overnight courier or by telecopier (provided that if sent by telecopier,
confirmed by one of the other methods for notice authorized herein):
If to Bronstein or CTI to:
Hillel Bronstein
c/o Beno Enterprises, Inc.
333 41st Street, Suite 900
Miami Beach, Florida 33140
Telecopy Number: (305) 531-6688
with a copy to:
Blank Rome Tenzer Greenblatt LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attn: Michael Z. Brownstein, Esq.
Telecopy Number: (212) 885-5002
If to E-Docs or HCIS to:
Applied Voice Recognition, Inc.
1717 Saint James Place, Suite 242
Houston, Texas 77056
Attn: Mr. Timothy J. Connolly
Telecopy Number: (713) 621-7059
with a copy to:
Boyar & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
Attn: Brian D. Baird, Esq.
Telecopy Number: (713) 552-1758
or at such other address of which Bronstein, CTI, E-Docs or HCIS shall have
notified the other parties in writing as aforesaid. All such notices and
communications shall be effective when received at the address specified as
aforesaid.
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15) Governing Law; Conflicts.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
(b) In the event of any conflicts between the provisions of the Purchase
Agreement and the provisions of this Agreement, the provisions of this Agreement
shall control.
16) Counterparts. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which shall constitute one and the same
Agreement.
17) No Third Party Beneficiaries. No individual or entity shall be a
third party beneficiary of the representations, warranties, covenants and
agreements made by any party hereto.
18) Effective Date. The date on which the parties exchange, by
Facsimile, duly executed original counterparts of this Agreement shall be the
effective date of this Agreement (the "Effective Date").
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
to be effective as of the Effective Date.
CORNELL TRANSCRIPTION, INC., a
New York corporation
Date: April ___, 2000 By:____________________________________
Hillel Bronstein, President
BRONSTEIN:
---------
Date: April ___, 2000 _______________________________________
Hillel Bronstein
HCIS:
----
E-DOCS HEALTH CARE INFORMATION
SERVICES, INC., a Delaware corporation
formerly known as AVRI Health Care
Information Services, Inc.
Date: April ___, 2000 By:____________________________________
Name:__________________________________
Title:_________________________________
E-DOCS:
------
APPLIED VOICE RECOGNITION, INC., a
Delaware corporation
Date: April ___, 2000 By:_____________________________________
(the "Effective Date")
Name:___________________________________
Title:__________________________________
Signature Page to
Forbearance Agreement
(Hillel Bronstein & Cornell Transcription, Inc.)
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EXHIBIT 10.17
FORBEARANCE AGREEMENT
AGREEMENT (this "Agreement") made as of the Effective Date (as defined in
Section 18) by and among Stuart Szpicek, an individual residing in ____________,
_________ ("Szpicek"); e-DOCS Health Care Information Services, Inc., a Delaware
corporation formerly known as AVRI Health Care Information Services, Inc.
("HCIS"); and Applied Voice Recognition, Inc., a Delaware corporation d/b/a
e-DOCS.net ("E-Docs").
W I T N E S S E T H
WHEREAS, as of December 1, 1998, Cornell Transcription, Inc., a New York
corporation ("CTI"), Hillel Bronstein ("Bronstein"), HCIS and E-Docs executed an
Asset Purchase Agreement (the "Purchase Agreement"), whereby CTI agreed to sell
to HCIS and HCIS agreed to purchase from CTI and Bronstein, certain assets of
CTI and certain shares of common stock of CTI's subsidiary, Outsource
Transcription Philippines, Inc., a stock corporation formed under the laws of
the Republic of the Philippines ("OTPI"); and
WHEREAS, a portion of the Purchase Price, as defined in the Purchase
Agreement, included the issuance and delivery on December 31, 1999 by E-Docs to
CTI of 735 shares of convertible Series 1 Preferred Stock of E-Docs ("E-Docs
Preferred Stock"), with an aggregate stated value of $735,000; and
WHEREAS, on or about February 17, 1999, CTI, Bronstein, HCIS and E-Docs
entered into the First Amendment to Asset Purchase Agreement ("First
Amendment"), wherein the number of shares of E-Docs Preferred Stock to be issued
to CTI on December 31, 1999 was corrected to 575, with an aggregate stated value
of $575,000; and
WHEREAS, the Certificate of Designation, Preferences, Rights and
Limitations of Series 1 Preferred Stock (the "Certificate of Designation")
describing the shares of E-Docs Preferred Stock provides that each holder of
shares of E-Docs Preferred Stock shall be entitled to cause any and all such
shares to be converted into shares of E-Docs Common Stock ("E-Docs Common
Stock"), which shares of E-Docs Common Stock will have been registered by E-Docs
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "SEC") for public offering and sale of stock, pursuant to the
Securities Act of 1933, as amended, or any similar federal statute, and the
rules and regulations promulgated thereunder, all as the same shall be in effect
at the time (the "1933 Act"); and
WHEREAS, the E-Docs Common Stock has not been registered, as provided for
under the Purchase Agreement and the Certificate of Designation; and
WHEREAS, under the terms of Section 6.5 of the Purchase Agreement, HCIS and
E-Docs are entitled to offset against the shares of E-Docs Preferred Stock to be
delivered to CTI the amount equal of any claims by HCIS resulting from breaches
by CTI or Bronstein of any of their respective representations, warranties or
covenants in the Purchase Agreement; and
<PAGE>
WHEREAS, pursuant to the terms of the Closing Statement executed by the
parties in connection with the Purchase Agreement and the First Amendment,
Bronstein, CTI, E-Docs and HCIS agreed to offset $51,134 against the E-Docs
Preferred Stock to be distributed to CTI in consideration for HCIS' assumption
of a lease with Sterling Bank, which offset is not in dispute among the parties
hereto, and
WHEREAS, HCIS and E-Docs are in the process of determining the amount of
claimed offsets pursuant to such Section 6.5, which amounts include fees and
expenses relating to filing certain corporate and tax reports and returns with
respect to the formation of OTPI, which fees and expenses E-Docs has
preliminarily estimated to be approximately $41,000 (the "Potential Offset
Claims"); and
WHEREAS, on or about February 17, 2000, CTI, Bronstein, HCIS and E-Docs
agreed that E-Docs would issue to CTI 448.866 shares of E-Docs Preferred Stock,
such number of shares being determined by reducing the 575 shares of E-Docs
Preferred Stock owed by E-Docs to CTI by (i) 51.134 shares having a stated value
of $51,134 with respect to the Sterling Bank lease obligation, and (ii) 75
shares (the "Disputed Shares") having a stated value of $75,000 as a holdback
for purposes of satisfying the Potential Offset Claims, although the parties did
not agree as to the resolution of the amount of such Potential Offset Claims and
reserved their rights to resolve such claims and offset amounts at a later date;
and
WHEREAS, prior to the issuance of the 448.866 shares of E-Docs Preferred
Stock to CTI, CTI delivered to HCIS and E-Docs (i) a notice of conversion
instructing E-Docs to convert the shares of E-Docs Preferred Stock to be issued
to CTI into unrestricted shares of E-Docs Common Stock, in accordance with the
terms of the Certificate of Designation, and (ii) a corporate resolution
executed by Bronstein, in his capacity as the sole director of CTI, and further
executed by Bronstein and Yaniv Dagan, in their capacities as the sole
shareholders of CTI, directing that all shares of E-Docs Common Stock to be
issued to CTI should be issued to Bronstein individually; and
WHEREAS, on or about February 17, 2000, E-Docs converted the 448.866 shares
of E-Docs Preferred Stock into 1,468,539 restricted shares of E-Docs Common
Stock at a conversion rate of one (1) share of E-Docs Common Stock for each
0.0003056548 of a share of E-Docs Preferred Stock (the "12/31/99 Conversion
Rate"), which rate is the conversion rate determined as of December 31, 1999
pursuant to the terms of the Certificate of Designation; and
WHEREAS, to date, Bronstein has sold 167,468 shares of E-Docs Common Stock,
which sale has occurred pursuant to SEC Rule 144; and
WHEREAS, Bronstein has demanded that E-Docs issue and deliver duly
registered shares of E-Docs Common Stock in an amount equal to the balance of
1,301,071 restricted shares of E-Docs Common Stock that Bronstein presently
holds (the "Bronstein Shares"); and
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<PAGE>
WHEREAS, E-Docs and HCIS have advised Bronstein that they are currently
unable to issue and deliver registered shares of E-Docs Common Stock in the
amount of the Bronstein Shares; and
WHEREAS, in addition to the forgoing, a dispute has arisen among
Bronstein, Szpicek and Yaniv Dagan ("Dagan") with respect to Szpicek's and
Dagan's respective beneficial ownership interests in and to the Bronstein
Shares, if any, and to any other shares of E-Docs Common Stock that E-Docs is
required to issue and deliver to CTI or Bronstein in connection with the
Purchase Agreement (the "Share Dispute"); and
WHEREAS, E-Docs and HCIS have received an instrument dated as of March 2,
2000, apparently executed by Bronstein and Szpicek (the "March 2 Instrument"),
pursuant to which issues were raised regarding the distribution of the E-Docs
Preferred Stock among Bronstein, Szpicek and Dagan (which issues remain
unresolved and the legal effect of which March 2 Instrument remains unclear) and
which March 2 Instrument purports to reflect an agreement among Bronstein and
Szpicek that the $575,000 worth of E-Docs Preferred Stock was to be distributed
among Bronstein, Szpicek and Dagan as follows:
To be Immediately Distributed:
Bronstein $232,116
Szpicek $187,116
Dagan $ 16,000
--------
Total: $435,232
The Amount Remaining From $126,134 Following the Offset of Known and
Potential Claims Under Section 6.5 of the Purchase Agreement ("Remaining
Balance"), which Remaining Balance is to be Distributed to Bronstein,
Szpicek and Dagan in the Following Percentages:
Bronstein 47.5%
Szpicek 47.5%
Dagan 5.0%
--------
Total: 100.0%
In addition to the amount to be immediately distributed, and the
Remaining Balance, $13,634 is a Reserve Amount (the "Reserve Amount"),
which Reserve Amount is to be distributed in accordance with Section 3 of
this Agreement.
The totals are: ($435,232 + $126,134 + $13,634 = $575,000);
WHEREAS, E-Docs and HCIS have requested that Szpicek agree to forbear
from the exercise of any of Szpicek's rights and remedies with respect to the
Purchase Agreement, if
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<PAGE>
any, during the Forbearance Period (as hereinafter defined) in consideration for
the terms, and subject to the conditions, contained in this Agreement; and
WHEREAS, E-Docs, HCIS and Szpicek would like to resolve all disputes
among them and the "Share Dispute" to the fullest extent possible; and
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1) Forbearance. During the period commencing as of the Effective Date
and ending on the earlier to occur of (i) the date that E-Docs (A) notifies
Szpicek that the Szpicek Remaining Shares (as defined in paragraph 5(b) herein),
the Szpicek Warrant Shares (as defined in paragraph 5(a) herein), and the
Szpicek Interest Shares (as defined in paragraph 5(b) herein), if any, have been
registered pursuant to a registration statement filed with the SEC for public
offering and sale of stock pursuant to the 1933 Act, and (B) has delivered to
Szpicek or the Transfer Agent for E-Docs' common stock, as applicable, such
other documents that may be necessary to effectuate the public sale of the
Szpicek Remaining Shares, the Szpicek Warrant Shares and the Szpicek Interest
Shares, if any, pursuant to such registration statement, including, without
limitation, legal opinions of E-Docs' securities counsel with respect thereto,
or (ii) August 15, 2000 (the "Forbearance Period"), Szpicek agrees that he will
not exercise any enforcement rights or remedies under, or otherwise with respect
to, the Purchase Agreement, including, without limitation, asserting or pursuing
any claim or commencing any lawsuit or arbitration under, pursuant to or
otherwise in connection with, the Purchase Agreement. Such forbearance shall not
apply to claims for breach of this Agreement.
2) Confirmation of Agreement and Reaffirmation. As of even date hereof,
each of E-Docs, HCIS, Bronstein and CTI have ratified and confirmed each of
their respective obligations under the Purchase Agreement, if any, and confirmed
and agreed that the Purchase Agreement remains in full force and effect in
accordance with its terms, without modification or waiver except as modified by
this Agreement and except as previously amended, restated, modified and
supplemented from time to time in accordance with the terms of the Purchase
Agreement.
3) Surrender of Stock Certificate(s) by Bronstein and Allocation and
Reissuance to Bronstein, Szpicek and Dagan. Upon the execution of a Forbearance
Agreement by Bronstein, CTI, E-Docs and HCIS (the "Bronstein Forbearance
Agreement"), Bronstein has agreed to deliver to E-Docs (i) the stock
certificate(s) representing the Bronstein Shares; and (ii) written instructions
addressed to E-Docs' Stock Transfer Agent instructing such Stock Transfer Agent
to cancel such stock certificate(s) and to reissue three (3) new certificates to
each of the following recipients in the following number of shares of E-Docs
Common Stock (which includes a distribution of the Reserve Amount in the
following percentages: 47.5% to Bronstein; 47.5% to Szpicek and 5% to Dagan):
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# of Shares
Shareholder of E-Docs
Name Common Stock
----------- ------------
Bronstein 613,126 (determined by subtracting 167,468 from 759,406
and adding 21,188)
Szpicek 633,369 (determined by adding 21,188 to 612,181)
Dagan 54,576 (determined by adding 2,230 to 52,246)
---------
Total: 1,301,071
The certificate(s) described under subparagraph (i) above and the written
instructions described under subparagraph (ii) above, will be delivered to
E-Docs' counsel by Bronstein and CTI by Federal Express delivery to be
transmitted on the same day as the exchange, by Facsimile, by the parties of
duly executed original counterparts of the Bronstein Forbearance Agreement.
Originals of this duly executed Agreement shall be exchanged by the Parties by
Federal Express delivery to be transmitted the same day as they exchange
Facsimile copies of such signature pages.
4) Compromise and Settlement of Potential Offset Claims. Under the terms
of the Bronstein Forbearance Agreement, E-Docs, HCIS, CTI and Bronstein have
compromised and settled all Potential Offset Claims for the aggregate amount of
$25,000. As a result, E-Docs hereby agrees to issue to Bronstein, Szpicek and
Dagan an aggregate of 50 additional shares of E-Docs Preferred Stock, allocated
among, and issued in the form of E-Docs Common Stock within five (5) days after
the Effective Date of this Agreement to, each of Bronstein, Szpicek and Dagan as
follows (the "Compromise Shares"):
# of Shares 12/31/99 # of Shares
Shareholder of E-Docs Conversion of E-Docs
Name Preferred Stock Rate Common Stock
-------------- --------------- ----------- ------------
Bronstein 23.75 0.3056548 77,702
Szpicek 23.75 0.3056548 77,702
Dagan 2.50 0.3056548 8,179
The Compromise Shares shall be registered by E-Docs in accordance with the same
terms as Section 1 (i) (A) and (B) of this Agreement.
5) Additional Consideration. In consideration for the forbearance of
Szpicek, as described in Section 1 above, E-Docs hereby agrees as follows:
(a) E-Docs shall grant to Szpicek warrants to purchase 118,750 shares of
E-Docs' Common Stock which shares are to be registered on or prior to August 15,
2000 (the "Szpicek Warrant Shares"), pursuant to a registration statement filed
with the SEC for public offering and sale of stock pursuant to the 1933 Act.
Such warrants shall be issued to Szpicek as additional consideration for the
forbearance of Szpicek described in Section 1. Such warrants shall be
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<PAGE>
evidenced by E-Docs' execution and delivery to Szpicek of a Warrant in the form
attached hereto as EXHIBIT "A" (the "Warrant"), which Warrant is exercisable by
Szpicek on or before December 31, 2000 at a purchase price per share equal to
the lower of (i) $1.75, or (ii) the average closing price for E-Docs' common
stock for the 30-day period immediately prior to the Effective Date of this
Agreement (the "30-Day Average Closing Price"). E-Docs affirms that the
registration of the Szpicek Warrant Shares will remain effective continuously
from the date of registration until the end of the exercise period.
(b) E-Docs shall pay interest to Szpicek at a rate of 1.00% per month
(12% per annum) for the period commencing on January 1, 2000, through the
expiration of the Forbearance Period, on the cash value of the 711,071 shares of
E-Docs Common Stock owned by Szpicek from time to time (and issued to Szpicek by
E-Docs pursuant to Section 3 and Section 4 hereof - the "Szpicek Remaining
Shares"), which cash value will be calculated by multiplying the number of
Szpicek Remaining Shares by the lower of (i) $1.75 per share, or (ii) the 30-Day
Average Closing Price (the "Cash Value"). Such aggregate interest shall be paid
by E-Docs upon the end of the Forbearance Period and shall be payable in E-Docs'
sole discretion either in (a) cash, or (b) additional shares of E-Docs common
stock (the "Szpicek Interest Shares") (if E-Docs utilizes shares of stock to pay
such interest, the Szpicek Interest Shares will have been registered on or prior
to the expiration of the Forbearance Period, pursuant to a registration
statement filed with the SEC for public offering and sale of stock pursuant to
the 1933 Act). The number of Szpicek Interest Shares to be issued, if E-Docs
utilizes shares of stock to pay such interest, will be determined by dividing
the dollar amount of the aggregate interest due to Szpicek by the lower of (i)
$1.75 per share, or (ii) the 30-Day Average Closing Price. Interest is due and
payable to Szpicek within five (5) days after the end of the Forbearance Period.
6) Payment of Szpicek's Legal Fees. Within two (2) days after the
Effective Date, E-Docs shall pay $5,000 to David Goldberg in full and complete
satisfaction of Szpicek's legal fees and expenses up to, through and including
the Effective Date of this Agreement, with respect to all claims between
Szpicek, on the one hand, and E-Docs and HCIS, on the other hand, under the
terms of, or otherwise in connection with, the Purchase Agreement and the
negotiation and execution of this Agreement. E-Docs shall cause such payment to
be transmitted by company check to Mr. Goldberg's address set forth in Section
14 of this Agreement.
7) Covenants.
(a) E-Docs and HCIS hereby covenant and agree as follows:
(i) From and after the Effective Date through the expiration of the
Forbearance Period, neither E-Docs nor HCIS shall pay any cash compensation to
Timothy J. Connolly for services rendered to E-Docs or HCIS (although E-Docs and
HCIS shall be entitled to reimburse Mr. Connolly for business expenses incurred
by Mr. Connolly on behalf of E-Docs or HCIS in accordance with E-Docs' expense
reimbursement policy), and that any compensation provided to Mr. Connolly during
such period shall only be in the form of shares of E-Docs common stock.
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(ii) E-Docs will use its best efforts to cause the registration of the
Szpicek Remaining Shares, the Szpicek Warrant Shares and the Szpicek Interest
Shares, if any, pursuant to a registration statement filed with the SEC for
public offering and sale of stock pursuant to the 1933 Act prior to the
expiration of the Forbearance Period, which efforts shall include, but not be
limited to, hiring appropriate accounting and legal professionals to assist
E-Docs in making the appropriate filings with the SEC.
(iii) E-Docs shall provide Szpicek with a written report on the
fifteenth day of each month following the Effective Date (commencing on May 15,
2000) through the expiration of the Forbearance Period (A) describing the status
of the registration of the Szpicek Remaining Shares, the Szpicek Warrant Shares
and the Szpicek Interest Shares, and (B) certifying to Szpicek that no cash
compensation has been paid to Mr. Connolly since the Effective Date through the
date of such report.
(iv) E-Docs shall take all steps necessary, including, but not limited
to, procuring all necessary opinions of counsel, to enable Szpicek to sell the
maximum number of shares of restricted E-Docs Common Stock issued to Szpicek
pursuant to the terms of this Agreement from time to time that Szpicek may be
entitled to sell from time to time during the Forbearance Period pursuant to SEC
Rule 144 ("Rule 144 Sales"), provided, however, that E-Docs shall only be
required to expend $750 in legal fees to obtain such opinions of counsel. In
the event that it becomes apparent that the opinions of counsel necessary to
effectuate Szpicek's Rule 144 Sales will cost more than $750, then E-Docs
counsel shall contact Mr. Szpicek's counsel identified in Section 14, before
incurring such expense, to determine how to proceed.
(b) Szpicek hereby covenants and agrees, at no cost or expense to
Szpicek, to reasonably cooperate with E-Docs and HCIS in connection with E-Docs'
and HCIS' efforts to correct and cure the filing and reporting deficiencies in
the Philippines with respect to OTPI, which cooperation may include, without
limitation, promptly executing such reasonably necessary affidavits,
certificates, confirmations, reports and applications as E-Docs or HCIS may
request.
8) Representations and Warranties.
(a) E-Docs and HCIS each hereby represent and warrant as of the Effective
Date to Szpicek that:
(i) This Agreement has been duly executed and delivered by E-Docs and
HCIS, and no further corporate or other action is necessary with respect to
E-Docs or HCIS to make this Agreement a valid and binding obligation of E-Docs
and HCIS, enforceable in accordance with its terms. Neither the execution,
delivery nor performance of this Agreement by E-Docs and HCIS will result in a
violation or breach of any term or provision under the respective Articles of
Incorporation or Bylaws or any resolution of the Board of Directors or
shareholders of either E-Docs or HCIS or constitute a default or breach of, or
accelerate the performance required under, or require the consent of any person
or entity under any indenture, mortgage, deed of trust or other contract or
agreement to which E-Docs or HCIS is a party or by which they or any of their
7
<PAGE>
respective assets are bound, or violate any order, writ, injunction or decree of
any court, administrative agency or governmental body.
(ii) Each of E-Docs and HCIS is a corporation duly organized, validly
existing and good standing under the laws of the State of Delaware and has all
requisite corporate power to enter into and perform this Agreement.
(b) Szpicek hereby represents and warrants as of the Effective Date to
E-Docs and HCIS that this Agreement has been duly executed and delivered by
Szpicek, and no further or other action is necessary with respect to Szpicek to
make this Agreement a valid and binding obligation of Szpicek, enforceable in
accordance with its terms. Neither the execution, delivery nor performance of
this Agreement by Szpicek will result in a violation or constitute a default or
breach of, or accelerate the performance required under, or require the consent
of any person or entity under any indenture, mortgage, deed of trust or other
contract or agreement to which Szpicek is a party or by which he or any of his
respective assets are bound, or violate any order, writ, injunction or decree of
any court, administrative agency or governmental body.
(c) Each of the persons executing this Agreement hereby certify to each
of the other parties hereto that they are duly authorized representatives of the
respective parties to this Agreement and that they are fully authorized to
execute this Agreement for the purposes stated herein and to effectuate the
mutual agreements set forth herein. They further acknowledge that they have
read and fully understand or have had explained to their satisfaction all of the
terms of this Agreement and are executing this Agreement knowingly and
voluntarily
9) Defaults. E-Docs and HCIS shall be deemed to be in default of the
terms and conditions of this Agreement upon any of the following (an "Event of
Default"):
(a) E-Docs shall fail to (i) complete its obligations under Section 1(i)
(A) and (B) of this Agreement by the end of the Forbearance Period, (ii) cause
to be delivered to Szpicek within ten (10) days after the Effective Date (A) the
Szpicek Remaining Shares as defined in Paragraph 5(b) herein; and (B) the
Warrant, and (iii) cause to be delivered to David Goldberg within two (2) days
after the Effective Date a company check for $5,000 as provided in Section 6 of
this Agreement.
(b) E-Docs shall fail to perform any of E-Docs' obligations under this
Agreement other than those described in Section 9(a) and such failure shall
continue for ten (10) days after E-Docs' receipt of written notice thereof from
Szpicek.
(c) Any of the representations or warranties made by E-Docs or HCIS
herein is determined to be materially false.
(d) (i) E-Docs shall commence any case, proceeding or other action under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or
8
<PAGE>
its debts; or (ii) there shall be commenced against E-Docs any case, proceeding
or other action of a nature referred to in clause (i) above which (A) results in
the entry of an order for relief or any such adjudication or appointment, or (B)
remains undismissed, undischarged or unbonded for a period of forty-five (45)
days; or (iii) there shall be commenced against E-Docs any case, proceeding or
other action seeking issuance of a warrant of attachment, execution, distraint
or similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within forty-five (45)
days from the entry thereof; or (iv) E-Docs shall take any action indicating its
consent to, approval of, or acquiescence in any acts set forth in clause (i),
(ii), or (iii) above; or (v) E-Docs shall admit in writing its inability to pay
its debts as they become due.
10) Penalties. In addition to Szpicek's other remedies hereunder or
otherwise available in law or equity, in the event that E-Docs fails to register
the Szpicek Remaining Shares, the Szpicek Warrant Shares and the Szpicek
Interest Shares, if any, pursuant to a registration statement filed with the SEC
for public offering and sale of stock pursuant to the 1933 Act by the expiration
of the Forbearance Period, then E-Docs and HCIS hereby agree that commencing on
August 16, 2000, and continuing on each day thereafter until the Szpicek
Remaining Shares, the Szpicek Warrant Shares and the Szpicek Interest Shares, if
any, have been registered pursuant to a registration statement filed with the
SEC, the following shall apply:
(a) E-Docs shall issue to Szpicek a warrant per day, for each day in
default, to purchase 1,567 additional shares of E-Docs common stock at a
purchase price per share equal to the lower of (i) $1.75, or (ii) the 30-Day
Average Closing Price. The shares of E-Docs common stock subject to such
warrants shall be registered pursuant to a registration statement filed with the
SEC for public offering of sale of stock pursuant to the 1933 Act at the same
time as, and contemporaneously with, the Szpicek Remaining Shares, the Szpicek
Warrant Shares and the Szpicek Interest Shares, if any.
(b) The interest rate payable by E-Docs on the Cash Value pursuant to
Section 5 shall automatically increase to 1.5% per month (18% per annum) (which
change in rate shall not be applied retroactively).
11) Contingent Release and Waiver of Claims.
(a) In the event that (A) E-Docs and HCIS fully perform their obligations
under Section 1(i)(A) and (B) of this Agreement, (B) E-Docs and HCIS have
performed all of their other material obligations under this Agreement, and (C)
E-Docs and HCIS are not then in default of any of its obligations hereunder,
then:
(i) Szpicek shall automatically be deemed to have released and discharged
E-Docs and HCIS and their respective subsidiaries, affiliates, shareholders,
officers, directors, employees, agents, representatives, successors,
predecessors and assigns (the "E-Docs Released Parties"), from all actions,
causes of action, suits, debts, dues, sums of money, accounts, reckonings,
attorneys' fees, costs, disbursements, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages
(including direct, special,
9
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consequential, remote, foreseeable, unforeseeable, and punitive damages),
judgments, extents, executions, claims, demands, obligations and liabilities
whatsoever, at law, in equity or otherwise, liquidated, unliquidated, known or
unknown, sounding in tort, in contract or under any other legal theory, or
arising by statute or under any other law or regulation, and whether contingent
or matured, against the E-Docs Released Parties that Szpicek has had, then has
or thereinafter can, shall or may have for, upon, or by reason of any matter,
including, without limitation, with respect to the Purchase Agreement, this
Agreement, the Potential Offset Claims and the prior failure of E-Docs to
register the E-Docs Common Stock, from the beginning of the world through the
date of such registration of the E-Docs Common Stock; except that the parties
agree that neither Bronstein or Dagan is an E-Docs Released Party and that
Szpicek does not release either Bronstein or Dagan from any claim that Szpicek
may now or in the future have against either Bronstein or Dagan, whether or not
such claim arises out of the subject matter of this Agreement and/or the
Purchase Agreement.
(ii) E-Docs and HCIS shall automatically be deemed to have released and
discharged Szpicek and his agents, representatives, successors, heirs,
executors, administrators and assigns from all actions, causes of action, suits,
debts, dues, sums of money, accounts, reckonings, attorneys' fees, costs,
disbursements, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages (including direct, special,
consequential, remote, foreseeable, unforeseeable, and punitive damages),
judgments, extents, executions, claims, demands, obligations and liabilities
whatsoever, at law, in equity or otherwise, liquidated, unliquidated, known or
unknown, sounding in tort, in contract or under any other legal theory, or
arising by statute or under any other law or regulation, and whether contingent
or matured against Szpicek that E-Docs or HCIS have had, then have or
thereinafter can, shall or may have for, upon, or by reason of any matter,
including, without limitation, with respect to the Purchase Agreement, this
Agreement and the Potential Offset Claims, from the beginning of the world to
the date of such registration of the E-Docs Common Stock.
(iii) Notwithstanding the conditional nature of Sections (i) and (ii)
the parties hereby acknowledge and agree that upon Szpicek's receipt of the
certificate representing the Szpicek Remaining Shares, the parties shall
automatically be deemed to have released and discharged, and subject to receipt
of such certificate do hereby release and discharge each other and their
respective subsidiaries, affiliates, shareholders, officers, directors,
employees, agents, representatives, successors, predecessors, heirs, executors,
administrators and assigns, from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, attorneys' fees, costs,
disbursements, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages (including direct, special,
consequential, remote, foreseeable, unforeseeable, and punitive damages),
judgments, extents, executions, claims, demands, obligations and liabilities
whatsoever, at law, in equity or otherwise, liquidated, unliquidated, known or
unknown, sounding in tort, in contract or under any other legal theory, or
arising by statute or under any other law or regulation, and whether contingent
or matured, against each other that the parties have had, now have or
hereinafter can, shall or may have for, upon, or by reason of E-Docs' prior
issuance of 1,468,539 shares of E-Docs Common Stock to Bronstein individually
(the "Initial Issuance"); except that the parties agree that neither Bronstein
or Dagan is included in such release and that Szpicek does not release either
Bronstein or Dagan from any claim that Szpicek may now or in the future have
against either Bronstein or Dagan,
10
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whether or not such claim arises out of the subject matter of this Agreement
and/or the Purchase Agreement. This is intended as a limited release that
concerns only the distribution of the shares in the Initial Issuance, and does
not release E-Docs or HCIS from all other claims with respect to the Initial
Issuance, including, but not limited to, the fact that the shares distributed in
the Initial Issuance were not registered, and does not affect the parties'
rights and remedies in any other way except in accordance with the terms of this
Agreement.
(iv) Notwithstanding anything to the contrary in Sections 2 and 12 of
this Agreement, no reservation of rights of the parties hereto shall survive the
conditional releases of Sections 11 (a)(i) and (ii), provided all of the
conditions necessary for those releases to be triggered have been met.
(b) The parties agree that the releases set forth in this Section 11
(a)(i) and (ii) are expressly contingent upon E-Docs and HCIS performing all of
the obligations referenced in Section 1(i) (A) and (B) and 11(a) of this
Agreement by August 15, 2000, and that if they fail to do so, then (i) Szpicek's
agreement to forbear from pursuing his rights, claims and remedies against
E-Docs or HCIS (which agreement to forbear is described in Section 1 hereof),
and the contingent releases set forth in Section 11(a)(i) and (ii), shall
immediately and automatically become null and void and of no further force or
effect, and (ii) Szpicek shall be entitled to pursue his remedies against E-Docs
or HCIS with respect to this Agreement and nothing contained in this Agreement
or otherwise shall be deemed to have waived or modified any of Szpicek's,
E-Docs' or HCIS' respective rights or remedies under or in connection with the
Purchase Agreement or this Agreement or otherwise in law or equity.
12) Amendments, Waivers. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters herein contained and any
agreement hereafter made shall be ineffective unless made in writing and signed
by all of the parties hereto. No provision of this Agreement shall be modified,
waived or terminated except by an instrument in writing signed by the party
against whom such modification, waiver or termination is to be enforced. The
failure by Szpicek, E-Docs or HCIS to insist upon the strict performance of any
one of the terms or conditions of this Agreement or to exercise any right,
remedy or election herein contained or permitted by law shall not constitute or
be construed as waiver or relinquishment for the future of that term, condition,
right, remedy or election, which shall continue and remain in full force and
effect.
13) Binding Effect. This Agreement shall be binding upon, and shall
inure to the benefit of, E-Docs, HCIS and Szpicek and their respective heirs,
representatives, administrators, successors and assigns, except that none of the
parties hereto may assign, delegate or transfer their rights or obligations
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be unenforceable or void, this
Agreement shall continue in full force and effect without such provision to the
maximum extent permitted by law.
14) Notices and Communications. All notices, demands, consents,
approvals and other communications under this Agreement shall be in writing and
mailed or delivered or sent by registered or certified mail (postage prepaid,
return receipt requested), by hand, by a
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nationally-recognized overnight courier or by telecopier (provided that if sent
by telecopier, confirmed by one of the other methods for notice authorized
herein):
If to Szpicek to:
Stuart Szpicek
________________________
________________________
________________________
Telecopy Number: (___) ___-____
with a copy to:
David Goldberg, Esq.
11 Commerce Drive
Cranford, New Jersey 07016
Telecopy Number: (908) 276-6260
If to E-Docs or HCIS to:
Applied Voice Recognition, Inc.
1717 Saint James Place, Suite 242
Houston, Texas 77056
Attn: Mr. Timothy J. Connolly
Telecopy Number: (713) 621-7059
with a copy to:
Boyar & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
Attn: Brian D. Baird, Esq.
Telecopy Number: (713) 552-1758
or at such other address of which Szpicek, E-Docs or HCIS shall have notified
the other parties in writing as aforesaid. All such notices and communications
shall be effective when received at the address specified as aforesaid.
15) Governing Law; Conflicts.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
(b) In the event of any conflicts between the provisions of the Purchase
Agreement and the provisions of this Agreement, the provisions of this Agreement
shall control.
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16) Counterparts. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which shall constitute one and the same
Agreement.
17) No Third Party Beneficiaries. No individual or entity shall be a
third party beneficiary of the representations, warranties, covenants and
agreements made by any party hereto.
18) Effective Date. The date on which the parties exchange, by
Facsimile, duly executed original counterparts of this Agreement shall be the
effective date of this Agreement (the "Effective Date").
[REST OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
to be effective as of the Effective Date.
SZPICEK:
-------
Date: _________, 2000 _______________________________________
Stuart Szpicek
HCIS:
----
E-DOCS HEALTH CARE INFORMATION
SERVICES, INC., a Delaware corporation
formerly known as AVRI Health Care Information
Services, Inc.
Date: _________, 2000 By:____________________________________
Timothy J. Connolly, President
E-DOCS:
------
APPLIED VOICE RECOGNITION, INC., a
Delaware corporation
Date: _________, 2000 By:_____________________________________
(the "Effective Date") Timothy J. Connolly, President and Chairman
Signature Page to
Forbearance Agreement
(Stuart Szpicek)
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EXHIBIT 10.19
FORBEARANCE AGREEMENT
AGREEMENT (this "Agreement") made as of the Effective Date (as defined in
Section 18) by and among Yaniv Dagan, an individual residing in Hollendale,
Florida ("Dagan"); e-DOCS Health Care Information Services, Inc., a Delaware
corporation formerly known as AVRI Health Care Information Services, Inc.
("HCIS"); and Applied Voice Recognition, Inc., a Delaware corporation d/b/a
e-DOCS.net ("E-Docs").
W I T N E S S E T H
WHEREAS, as of December 1, 1998, Cornell Transcription, Inc., a New York
corporation ("CTI"), Hillel Bronstein ("Bronstein"), HCIS and E-Docs executed an
Asset Purchase Agreement (the "Purchase Agreement"), whereby CTI agreed to sell
to HCIS and HCIS agreed to purchase from CTI and Bronstein, certain assets of
CTI and certain shares of common stock of CTI's subsidiary, Outsource
Transcription Philippines, Inc., a stock corporation formed under the laws of
the Republic of the Philippines ("OTPI"); and
WHEREAS, a portion of the Purchase Price, as defined in the Purchase
Agreement, included the issuance and delivery on December 31, 1999 by E-Docs to
CTI of 735 shares of convertible Series 1 Preferred Stock of E-Docs ("E-Docs
Preferred Stock"), with an aggregate stated value of $735,000; and
WHEREAS, on or about February 17, 1999, CTI, Bronstein, HCIS and E-Docs
entered into the First Amendment to Asset Purchase Agreement ("First
Amendment"), wherein the number of shares of E-Docs Preferred Stock to be issued
to CTI on December 31, 1999 was corrected to 575, with an aggregate stated value
of $575,000; and
WHEREAS, the Certificate of Designation, Preferences, Rights and
Limitations of Series 1 Preferred Stock (the "Certificate of Designation")
describing the shares of E-Docs Preferred Stock provides that each holder of
shares of E-Docs Preferred Stock shall be entitled to cause any and all such
shares to be converted into shares of E-Docs Common Stock ("E-Docs Common
Stock"), which shares of E-Docs Common Stock will have been registered by E-Docs
pursuant to a registration statement filed with the Securities and Exchange
Commission (the "SEC") for public offering and sale of stock, pursuant to the
Securities Act of 1933, as amended, or any similar federal statute, and the
rules and regulations promulgated thereunder, all as the same shall be in effect
at the time (the "1933 Act"); and
WHEREAS, the E-Docs Common Stock has not been registered, as provided for
under the Purchase Agreement and the Certificate of Designation; and
WHEREAS, under the terms of Section 6.5 of the Purchase Agreement, HCIS and
E-Docs are entitled to offset against the shares of E-Docs Preferred Stock to be
delivered to CTI the amount equal of any claims by HCIS resulting from breaches
by CTI or Bronstein of any of their respective representations, warranties or
covenants in the Purchase Agreement; and
<PAGE>
WHEREAS, pursuant to the terms of the Closing Statement executed by the
parties in connection with the Purchase Agreement and the First Amendment,
Bronstein, CTI, E-Docs and HCIS agreed to offset $51,134 against the E-Docs
Preferred Stock to be distributed to CTI in consideration for HCIS' assumption
of a lease with Sterling Bank, which offset is not in dispute among the parties
hereto, and
WHEREAS, HCIS and E-Docs are in the process of determining the amount of
claimed offsets pursuant to such Section 6.5, which amounts include fees and
expenses relating to filing certain corporate and tax reports and returns with
respect to the formation of OTPI, which fees and expenses E-Docs has
preliminarily estimated to be approximately $41,000 (the "Potential Offset
Claims"); and
WHEREAS, on or about February 17, 2000, CTI, Bronstein, HCIS and E-Docs
agreed that E-Docs would issue to CTI 448.866 shares of E-Docs Preferred Stock,
such number of shares being determined by reducing the 575 shares of E-Docs
Preferred Stock owed by E-Docs to CTI by (i) 51.134 shares having a stated value
of $51,134 with respect to the Sterling Bank lease obligation, and (ii) 75
shares (the "Disputed Shares") having a stated value of $75,000 as a holdback
for purposes of satisfying the Potential Offset Claims, although the parties did
not agree as to the resolution of the amount of such Potential Offset Claims and
reserved their rights to resolve such claims and offset amounts at a later date;
and
WHEREAS, prior to the issuance of the 448.866 shares of E-Docs Preferred
Stock to CTI, CTI delivered to HCIS and E-Docs (i) a notice of conversion
instructing E-Docs to convert the shares of E-Docs Preferred Stock to be issued
to CTI into unrestricted shares of E-Docs Common Stock, in accordance with the
terms of the Certificate of Designation, and (ii) a corporate resolution
executed by Bronstein, in his capacity as the sole director of CTI, and further
executed by Bronstein and Dagan, in their capacities as the sole shareholders of
CTI, directing that all shares of E-Docs Common Stock to be issued to CTI should
be issued to Bronstein individually; and
WHEREAS, on or about February 17, 2000, E-Docs converted the 448.866 shares
of E-Docs Preferred Stock into 1,468,539 restricted shares of E-Docs Common
Stock at a conversion rate of one (1) share of E-Docs Common Stock for each
0.0003056548 of a share of E-Docs Preferred Stock (the "12/31/99 Conversion
Rate"), which rate is the conversion rate determined as of December 31, 1999
pursuant to the terms of the Certificate of Designation; and
WHEREAS, to date, Bronstein has sold 167,468 shares of E-Docs Common Stock,
which sale has occurred pursuant to SEC Rule 144; and
WHEREAS, Bronstein has demanded that E-Docs issue and deliver duly
registered shares of E-Docs Common Stock in an amount equal to the balance of
1,301,071 restricted shares of E-Docs Common Stock that Bronstein presently
holds (the "Bronstein Shares"); and
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<PAGE>
WHEREAS, E-Docs and HCIS have advised Bronstein that they are currently
unable to issue and deliver registered shares of E-Docs Common Stock in the
amount of the Bronstein Shares; and
WHEREAS, in addition to the forgoing, a dispute has arisen among
Bronstein, Stuart Szpicek ("Szpicek") and Dagan with respect to Szpicek's and
Dagan's respective beneficial ownership interests in and to the Bronstein
Shares, if any, and to any other shares of E-Docs Common Stock that E-Docs is
required to issue and deliver to CTI or Bronstein in connection with the
Purchase Agreement (the "Share Dispute"); and
WHEREAS, E-Docs and HCIS have received an instrument dated as of March 2,
2000, apparently executed by Bronstein and Szpicek (the "March 2 Instrument"),
pursuant to which issues were raised regarding the distribution of the E-Docs
Preferred Stock among Bronstein, Szpicek and Dagan (which issues remain
unresolved and the legal effect of which March 2 Instrument remains unclear) and
which March 2 Instrument purports to reflect an agreement among Bronstein and
Szpicek that the $575,000 worth of E-Docs Preferred Stock was to be distributed
among Bronstein, Szpicek and Dagan as follows:
To be Immediately Distributed:
Bronstein $232,116
Szpicek $187,116
Dagan $ 16,000
--------
Total: $435,232
The Amount Remaining From $126,134 Following the Offset of Known and
Potential Claims Under Section 6.5 of the Purchase Agreement ("Remaining
Balance"), which Remaining Balance is to be Distributed to Bronstein,
Szpicek and Dagan in the Following Percentages:
Bronstein 47.5%
Szpicek 47.5%
Dagan 5.0%
--------
Total: 100.0%
In addition to the amount to be immediately distributed, and the
Remaining Balance, $13,634 is a Reserve Amount (the "Reserve Amount"),
which Reserve Amount is to be distributed in accordance with Section 3 of
this Agreement.
The totals are: ($435,232 + $126,134 + $13,634 = $575,000);
WHEREAS, E-Docs and HCIS have requested that Dagan agree to forbear from
the exercise of any of Dagan's rights and remedies with respect to the Purchase
Agreement, if
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<PAGE>
any, during the Forbearance Period (as hereinafter defined) in consideration for
the terms, and subject to the conditions, contained in this Agreement; and
WHEREAS, E-Docs, HCIS and Dagan would like to resolve all disputes among
them and the "Share Dispute" to the fullest extent possible; and
NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1) Forbearance. During the period commencing as of the Effective Date and
ending on the earlier to occur of (i) the date that E-Docs (A) notifies Dagan
that the Dagan Remaining Shares (as defined in paragraph 5(b) herein), the Dagan
Warrant Shares (as defined in paragraph 5(a) herein), and the Dagan Interest
Shares (as defined in paragraph 5(b) herein), if any, have been registered
pursuant to a registration statement filed with the SEC for public offering and
sale of stock pursuant to the 1933 Act, and (B) has delivered to Dagan or the
Transfer Agent for E-Docs' common stock, as applicable, such other documents
that may be necessary to effectuate the public sale of the Dagan Remaining
Shares, the Dagan Warrant Shares and the Dagan Interest Shares, if any, pursuant
to such registration statement, including, without limitation, legal opinions of
E-Docs' securities counsel with respect thereto, or (ii) August 15, 2000 (the
"Forbearance Period"), Dagan agrees that he will not exercise any enforcement
rights or remedies under, or otherwise with respect to, the Purchase Agreement,
including, without limitation, asserting or pursuing any claim or commencing any
lawsuit or arbitration under, pursuant to or otherwise in connection with, the
Purchase Agreement. Such forbearance shall not apply to claims for breach of
this Agreement.
2) Confirmation of Agreement and Reaffirmation. As of even date hereof,
each of E-Docs, HCIS, Bronstein and CTI have ratified and confirmed each of
their respective obligations under the Purchase Agreement, if any, and confirmed
and agreed that the Purchase Agreement remains in full force and effect in
accordance with its terms, without modification or waiver except as modified by
this Agreement and except as previously amended, restated, modified and
supplemented from time to time in accordance with the terms of the Purchase
Agreement.
3) Surrender of Stock Certificate(s) by Bronstein and Allocation and
Reissuance to Bronstein, Szpicek and Dagan. Upon the execution of a Forbearance
Agreement by Bronstein, CTI, E-Docs and HCIS (the "Bronstein Forbearance
Agreement"), Bronstein has agreed to deliver to E-Docs (i) the stock
certificate(s) representing the Bronstein Shares; and (ii) written instructions
addressed to E-Docs' Stock Transfer Agent instructing such Stock Transfer Agent
to cancel such stock certificate(s) and to reissue three (3) new certificates to
each of the following recipients in the following number of shares of E-Docs
Common Stock (which includes a distribution of the Reserve Amount in the
following percentages: 47.5% to Bronstein; 47.5% to Szpicek and 5% to Dagan):
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# of Shares
Shareholder of E-Docs
Name Common Stock
----------- -------------
Bronstein 613,126 (determined by subtracting 167,468 from 759,406
and adding 21,188)
Szpicek 633,369 (determined by adding 21,188 to 612,181)
Dagan 54,576 (determined by adding 2,230 to 52,246)
-----------
Total: 1,301,071
The certificate(s) described under subparagraph (i) above and the written
instructions described under subparagraph (ii) above, will be delivered to E-
Docs' counsel by Bronstein and CTI by Federal Express delivery to be transmitted
on the same day as the exchange, by Facsimile, by the parties of duly executed
original counterparts of the Bronstein Forbearance Agreement. Originals of this
duly executed Agreement shall be exchanged by the Parties by Federal Express
delivery to be transmitted the same day as they exchange Facsimile copies of
such signature pages.
4) Compromise and Settlement of Potential Offset Claims. Under the terms of
the Bronstein Forbearance Agreement, E-Docs, HCIS, CTI and Bronstein have
compromised and settled all Potential Offset Claims for the aggregate amount of
$25,000. As a result, E-Docs hereby agrees to issue to Bronstein, Szpicek and
Dagan an aggregate of 50 additional shares of E-Docs Preferred Stock, allocated
among, and issued in the form of E-Docs Common Stock within five (5) days after
the Effective Date of this Agreement to, each of Bronstein, Szpicek and Dagan as
follows (the "Compromise Shares"):
# of Shares 12/31/99 # of Shares
Shareholder of E-Docs Conversion of E-Docs
Name Preferred Stock Rate Common Stock
-------------- --------------- ----------- ------------
Bronstein 23.75 0.3056548 77,702
Szpicek 23.75 0.3056548 77,702
Dagan 2.50 0.3056548 8,179
The Compromise Shares shall be registered by E-Docs in accordance with the same
terms as Section 1 (i) (A) and (B) of this Agreement.
5) Additional Consideration. In consideration for the forbearance of
Dagan, as described in Section 1 above, E-Docs hereby agrees as follows:
(a) E-Docs shall grant to Dagan warrants to purchase 12,500 shares of E-
Docs' Common Stock which shares are to be registered on or prior to August 15,
2000 (the "Dagan Warrant Shares"), pursuant to a registration statement filed
with the SEC for public offering and sale of stock pursuant to the 1933 Act.
Such warrants shall be issued to Dagan as additional consideration for the
forbearance of Dagan described in Section 1. Such warrants shall be
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<PAGE>
evidenced by E-Docs' execution and delivery to Dagan of a Warrant in the form
attached hereto as EXHIBIT "A" (the "Warrant"), which Warrant is exercisable by
Dagan on or before December 31, 2000 at a purchase price per share equal to the
lower of (i) $1.75, or (ii) the average closing price for E-Docs' common stock
for the 30-day period immediately prior to the Effective Date of this Agreement
(the "30-Day Average Closing Price"). E-Docs affirms that the registration of
the Dagan Warrant Shares will remain effective continuously from the date of
registration until the end of the exercise period.
(b) E-Docs shall pay interest to Dagan at a rate of 1.00% per month (12%
per annum) for the period commencing on January 1, 2000, through the expiration
of the Forbearance Period, on the cash value of the 62,755 shares of E-Docs
Common Stock owned by Dagan from time to time (and issued to Dagan by E-Docs
pursuant to Section 3 and Section 4 hereof - the "Dagan Remaining Shares"),
which cash value will be calculated by multiplying the number of Dagan Remaining
Shares by the lower of (i) $1.75 per share, or (ii) the 30-Day Average Closing
Price (the "Cash Value"). Such aggregate interest shall be paid by E-Docs upon
the end of the Forbearance Period and shall be payable in E-Docs' sole
discretion either in (a) cash, or (b) additional shares of E-Docs common stock
(the "Dagan Interest Shares") (if E-Docs utilizes shares of stock to pay such
interest, the Dagan Interest Shares will have been registered on or prior to the
expiration of the Forbearance Period, pursuant to a registration statement filed
with the SEC for public offering and sale of stock pursuant to the 1933 Act).
The number of Dagan Interest Shares to be issued, if E-Docs utilizes shares of
stock to pay such interest, will be determined by dividing the dollar amount of
the aggregate interest due to Dagan by the lower of (i) $1.75 per share, or (ii)
the 30-Day Average Closing Price. Interest is due and payable to Dagan within
five (5) days after the end of the Forbearance Period.
6) [INTENTIONALLY DELETED]
7) Covenants.
(a) E-Docs and HCIS hereby covenant and agree as follows:
(i) From and after the Effective Date through the expiration of the
Forbearance Period, neither E-Docs nor HCIS shall pay any cash compensation to
Timothy J. Connolly for services rendered to E-Docs or HCIS (although E-Docs and
HCIS shall be entitled to reimburse Mr. Connolly for business expenses incurred
by Mr. Connolly on behalf of E-Docs or HCIS in accordance with E-Docs' expense
reimbursement policy), and that any compensation provided to Mr. Connolly during
such period shall only be in the form of shares of E-Docs common stock.
(ii) E-Docs will use its best efforts to cause the registration of the
Dagan Remaining Shares, the Dagan Warrant Shares and the Dagan Interest Shares,
if any, pursuant to a registration statement filed with the SEC for public
offering and sale of stock pursuant to the 1933 Act prior to the expiration of
the Forbearance Period, which efforts shall include, but not be limited to,
hiring appropriate accounting and legal professionals to assist E-Docs in making
the appropriate filings with the SEC.
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<PAGE>
(iii) E-Docs shall provide Dagan with a written report on the fifteenth
day of each month following the Effective Date (commencing on May 15, 2000)
through the expiration of the Forbearance Period (A) describing the status of
the registration of the Dagan Remaining Shares, the Dagan Warrant Shares and the
Dagan Interest Shares, and (B) certifying to Dagan that no cash compensation has
been paid to Mr. Connolly since the Effective Date through the date of such
report.
(iv) E-Docs shall take all steps necessary, including, but not limited
to, procuring all necessary opinions of counsel, to enable Dagan to sell the
maximum number of shares of restricted E-Docs Common Stock issued to Dagan
pursuant to the terms of this Agreement from time to time that Dagan may be
entitled to sell from time to time during the Forbearance Period pursuant to SEC
Rule 144 ("Rule 144 Sales"), provided, however, that E-Docs shall only be
required to expend $750 in legal fees to obtain such opinions of counsel. In
the event that it becomes apparent that the opinions of counsel necessary to
effectuate Dagan's Rule 144 Sales will cost more than $750, then E-Docs counsel
shall contact Mr. Dagan's counsel identified in Section 14, before incurring
such expense, to determine how to proceed.
(b) Dagan hereby covenants and agrees, at no cost or expense to Dagan, to
reasonably cooperate with E-Docs and HCIS in connection with E-Docs' and HCIS'
efforts to correct and cure the filing and reporting deficiencies in the
Philippines with respect to OTPI, which cooperation may include, without
limitation, promptly executing such reasonably necessary affidavits,
certificates, confirmations, reports and applications as E-Docs or HCIS may
request.
8) Representations and Warranties.
(a) E-Docs and HCIS each hereby represent and warrant as of the Effective
Date to Dagan that:
(i) This Agreement has been duly executed and delivered by E-Docs and
HCIS, and no further corporate or other action is necessary with respect to E-
Docs or HCIS to make this Agreement a valid and binding obligation of E-Docs and
HCIS, enforceable in accordance with its terms. Neither the execution, delivery
nor performance of this Agreement by E-Docs and HCIS will result in a violation
or breach of any term or provision under the respective Articles of
Incorporation or Bylaws or any resolution of the Board of Directors or
shareholders of either E-Docs or HCIS or constitute a default or breach of, or
accelerate the performance required under, or require the consent of any person
or entity under any indenture, mortgage, deed of trust or other contract or
agreement to which E-Docs or HCIS is a party or by which they or any of their
respective assets are bound, or violate any order, writ, injunction or decree of
any court, administrative agency or governmental body.
(ii) Each of E-Docs and HCIS is a corporation duly organized, validly
existing and good standing under the laws of the State of Delaware and has all
requisite corporate power to enter into and perform this Agreement.
(b) Dagan hereby represents and warrants as of the Effective Date to E-
Docs and HCIS that this Agreement has been duly executed and delivered by Dagan,
and no further or other
7
<PAGE>
action is necessary with respect to Dagan to make this Agreement a valid and
binding obligation of Dagan, enforceable in accordance with its terms. Neither
the execution, delivery nor performance of this Agreement by Dagan will result
in a violation or constitute a default or breach of, or accelerate the
performance required under, or require the consent of any person or entity under
any indenture, mortgage, deed of trust or other contract or agreement to which
Dagan is a party or by which he or any of his respective assets are bound, or
violate any order, writ, injunction or decree of any court, administrative
agency or governmental body.
(c) Each of the persons executing this Agreement hereby certify to each of
the other parties hereto that they are duly authorized representatives of the
respective parties to this Agreement and that they are fully authorized to
execute this Agreement for the purposes stated herein and to effectuate the
mutual agreements set forth herein. They further acknowledge that they have read
and fully understand or have had explained to their satisfaction all of the
terms of this Agreement and are executing this Agreement knowingly and
voluntarily
9) Defaults. E-Docs and HCIS shall be deemed to be in default of the terms
and conditions of this Agreement upon any of the following (an "Event of
Default"):
(a) E-Docs shall fail to (i) complete its obligations under Section 1(i)
(A) and (B) of this Agreement by the end of the Forbearance Period, and (ii)
cause to be delivered to Dagan within ten (10) days after the Effective Date (A)
the Dagan Remaining Shares as defined in Paragraph 5(b) herein; and (B) the
Warrant.
(b) E-Docs shall fail to perform any of E-Docs' obligations under this
Agreement other than those described in Section 9(a) and such failure shall
continue for ten (10) days after E-Docs' receipt of written notice thereof from
Dagan.
(c) Any of the representations or warranties made by E-Docs or HCIS
herein is determined to be materially false.
(d) (i) E-Docs shall commence any case, proceeding or other action under
any existing or future law of any jurisdiction, domestic or foreign, relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with respect
to it or its debts; or (ii) there shall be commenced against E-Docs any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment, or (B) remains undismissed, undischarged or unbonded for a period
of forty-five (45) days; or (iii) there shall be commenced against E-Docs any
case, proceeding or other action seeking issuance of a warrant of attachment,
execution, distraint or similar process against all or any substantial part of
its assets which results in the entry of an order for any such relief which
shall not have been vacated, discharged, or stayed or bonded pending appeal
within forty-five (45) days from the entry thereof; or (iv) E-Docs shall take
any action indicating its consent to, approval of, or acquiescence in any acts
set forth in clause (i), (ii), or (iii) above; or (v) E-Docs shall admit in
writing its inability to pay its debts as they become due.
8
<PAGE>
10) Penalties. In addition to Dagan's other remedies hereunder or otherwise
available in law or equity, in the event that E-Docs fails to register the Dagan
Remaining Shares, the Dagan Warrant Shares and the Dagan Interest Shares, if
any, pursuant to a registration statement filed with the SEC for public offering
and sale of stock pursuant to the 1933 Act by the expiration of the Forbearance
Period, then E-Docs and HCIS hereby agree that commencing on August 16, 2000,
and continuing on each day thereafter until the Dagan Remaining Shares, the
Dagan Warrant Shares and the Dagan Interest Shares, if any, have been registered
pursuant to a registration statement filed with the SEC, the following shall
apply:
(a) E-Docs shall issue to Dagan a warrant per day, for each day in
default, to purchase 166 additional shares of E-Docs common stock at a purchase
price per share equal to the lower of (i) $1.75, or (ii) the 30-Day Average
Closing Price. The shares of E-Docs common stock subject to such warrants shall
be registered pursuant to a registration statement filed with the SEC for public
offering of sale of stock pursuant to the 1933 Act at the same time as, and
contemporaneously with, the Dagan Remaining Shares, the Dagan Warrant Shares and
the Dagan Interest Shares, if any.
(b) The interest rate payable by E-Docs on the Cash Value pursuant to
Section 5 shall automatically increase to 1.5% per month (18% per annum) (which
change in rate shall not be applied retroactively).
11) Contingent Release and Waiver of Claims.
(a) In the event that (A) E-Docs and HCIS fully perform their obligations
under Section 1(i)(A) and (B) of this Agreement, (B) E-Docs and HCIS have
performed all of their other material obligations under this Agreement, and (C)
E-Docs and HCIS are not then in default of any of its obligations hereunder,
then:
(i) Dagan shall automatically be deemed to have released and discharged
E-Docs and HCIS and their respective subsidiaries, affiliates, shareholders,
officers, directors, employees, agents, representatives, successors,
predecessors and assigns (the "E-Docs Released Parties"), from all actions,
causes of action, suits, debts, dues, sums of money, accounts, reckonings,
attorneys' fees, costs, disbursements, bonds, bills, specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses, damages
(including direct, special, consequential, remote, foreseeable, unforeseeable,
and punitive damages), judgments, extents, executions, claims, demands,
obligations and liabilities whatsoever, at law, in equity or otherwise,
liquidated, unliquidated, known or unknown, sounding in tort, in contract or
under any other legal theory, or arising by statute or under any other law or
regulation, and whether contingent or matured, against the E-Docs Released
Parties that Dagan has had, then has or thereinafter can, shall or may have for,
upon, or by reason of any matter, including, without limitation, with respect to
the Purchase Agreement, this Agreement, the Potential Offset Claims and the
prior failure of E-Docs to register the E-Docs Common Stock, from the beginning
of the world through the date of such registration of the E-Docs Common Stock;
except that the parties agree that neither Bronstein or Szpicek is an E-Docs
Released Party and that Dagan does not release either Bronstein or Szpicek from
any claim that Dagan may now or in the future have
9
<PAGE>
against either Bronstein or Szpicek, whether or not such claim arises out of the
subject matter of this Agreement and/or the Purchase Agreement.
(ii) E-Docs and HCIS shall automatically be deemed to have released and
discharged Dagan and his agents, representatives, successors, heirs, executors,
administrators and assigns from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, attorneys' fees, costs,
disbursements, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages (including direct, special,
consequential, remote, foreseeable, unforeseeable, and punitive damages),
judgments, extents, executions, claims, demands, obligations and liabilities
whatsoever, at law, in equity or otherwise, liquidated, unliquidated, known or
unknown, sounding in tort, in contract or under any other legal theory, or
arising by statute or under any other law or regulation, and whether contingent
or matured against Dagan that E-Docs or HCIS have had, then have or thereinafter
can, shall or may have for, upon, or by reason of any matter, including, without
limitation, with respect to the Purchase Agreement, this Agreement and the
Potential Offset Claims, from the beginning of the world to the date of such
registration of the E-Docs Common Stock.
(iii) Notwithstanding the conditional nature of Sections (i) and (ii)
the parties hereby acknowledge and agree that upon Dagan's receipt of the
certificate representing the Dagan Remaining Shares, the parties shall
automatically be deemed to have released and discharged, and subject to receipt
of such certificate do hereby release and discharge each other and their
respective subsidiaries, affiliates, shareholders, officers, directors,
employees, agents, representatives, successors, predecessors, heirs, executors,
administrators and assigns, from all actions, causes of action, suits, debts,
dues, sums of money, accounts, reckonings, attorneys' fees, costs,
disbursements, bonds, bills, specialties, covenants, contracts, controversies,
agreements, promises, variances, trespasses, damages (including direct, special,
consequential, remote, foreseeable, unforeseeable, and punitive damages),
judgments, extents, executions, claims, demands, obligations and liabilities
whatsoever, at law, in equity or otherwise, liquidated, unliquidated, known or
unknown, sounding in tort, in contract or under any other legal theory, or
arising by statute or under any other law or regulation, and whether contingent
or matured, against each other that the parties have had, now have or
hereinafter can, shall or may have for, upon, or by reason of E-Docs' prior
issuance of 1,468,539 shares of E-Docs Common Stock to Bronstein individually
(the "Initial Issuance"); except that the parties agree that neither Bronstein
or Szpicek is included in such release and that Dagan does not release either
Bronstein or Szpicek from any claim that Dagan may now or in the future have
against either Bronstein or Szpicek, whether or not such claim arises out of the
subject matter of this Agreement and/or the Purchase Agreement. This is
intended as a limited release that concerns only the distribution of the shares
in the Initial Issuance, and does not release E-Docs or HCIS from all other
claims with respect to the Initial Issuance, including, but not limited to, the
fact that the shares distributed in the Initial Issuance were not registered,
and does not affect the parties' rights and remedies in any other way except in
accordance with the terms of this Agreement.
(iv) Notwithstanding anything to the contrary in Sections 2 and 12 of
this Agreement, no reservation of rights of the parties hereto shall survive the
conditional releases of Sections 11 (a)(i) and (ii), provided all of the
conditions necessary for those releases to be triggered have been met.
10
<PAGE>
(b) The parties agree that the releases set forth in this Section 11
(a)(i) and (ii) are expressly contingent upon E-Docs and HCIS performing all of
the obligations referenced in Section 1(i) (A) and (B) and 11(a) of this
Agreement by August 15, 2000, and that if they fail to do so, then (i) Dagan's
agreement to forbear from pursuing his rights, claims and remedies against E-
Docs or HCIS (which agreement to forbear is described in Section 1 hereof), and
the contingent releases set forth in Section 11(a)(i) and (ii), shall
immediately and automatically become null and void and of no further force or
effect, and (ii) Dagan shall be entitled to pursue his remedies against E-Docs
or HCIS with respect to this Agreement and nothing contained in this Agreement
or otherwise shall be deemed to have waived or modified any of Dagan's, E-Docs'
or HCIS' respective rights or remedies under or in connection with the Purchase
Agreement or this Agreement or otherwise in law or equity.
12) Amendments, Waivers. This Agreement constitutes the entire agreement
between the parties hereto with respect to the matters herein contained and any
agreement hereafter made shall be ineffective unless made in writing and signed
by all of the parties hereto. No provision of this Agreement shall be modified,
waived or terminated except by an instrument in writing signed by the party
against whom such modification, waiver or termination is to be enforced. The
failure by Dagan, E-Docs or HCIS to insist upon the strict performance of any
one of the terms or conditions of this Agreement or to exercise any right,
remedy or election herein contained or permitted by law shall not constitute or
be construed as waiver or relinquishment for the future of that term, condition,
right, remedy or election, which shall continue and remain in full force and
effect.
13) Binding Effect. This Agreement shall be binding upon, and shall inure
to the benefit of, E-Docs, HCIS and Dagan and their respective heirs,
representatives, administrators, successors and assigns, except that none of the
parties hereto may assign, delegate or transfer their rights or obligations
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be unenforceable or void, this
Agreement shall continue in full force and effect without such provision to the
maximum extent permitted by law.
14) Notices and Communications. All notices, demands, consents, approvals
and other communications under this Agreement shall be in writing and mailed or
delivered or sent by registered or certified mail (postage prepaid, return
receipt requested), by hand, by a nationally-recognized overnight courier or by
telecopier (provided that if sent by telecopier, confirmed by one of the other
methods for notice authorized herein):
11
<PAGE>
If to Dagan to:
Yaniv Dagan
473 Golden Isle Drive #201
Hollendale, Florida 33009
_______________________________
Telecopy Number: (___) ___-____
with a copy to:
Blank Rome Tenzer Greenblatt LLP
The Chrysler Building
405 Lexington Avenue
New York, New York 10174
Attn: Michael Z. Brownstein, Esq.
Telecopy Number: (212) 885-5002
If to E-Docs or HCIS to:
Applied Voice Recognition, Inc.
1717 Saint James Place, Suite 242
Houston, Texas 77056
Attn: Mr. Timothy J. Connolly
Telecopy Number: (713) 621-7059
with a copy to:
Boyar & Miller
4265 San Felipe, Suite 1200
Houston, Texas 77027
Attn: Brian D. Baird, Esq.
Telecopy Number: (713) 552-1758
or at such other address of which Dagan, E-Docs or HCIS shall have notified the
other parties in writing as aforesaid. All such notices and communications
shall be effective when received at the address specified as aforesaid.
15) Governing Law; Conflicts.
(a) This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
(b) In the event of any conflicts between the provisions of the Purchase
Agreement and the provisions of this Agreement, the provisions of this Agreement
shall control.
12
<PAGE>
16) Counterparts. This Agreement may be executed by the parties hereto
individually or in any combination, in one or more counterparts, each of which
shall be an original and all of which shall constitute one and the same
Agreement.
17) No Third Party Beneficiaries. No individual or entity shall be a third
party beneficiary of the representations, warranties, covenants and agreements
made by any party hereto.
18) Effective Date. The date on which the parties exchange, by Facsimile,
duly executed original counterparts of this Agreement shall be the effective
date of this Agreement (the "Effective Date").
[REST OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
to be effective as of the Effective Date.
DAGAN:
-----
Date: ___________________, 2000 ________________________________
Yaniv Dagan
HCIS:
----
e-DOCS HEALTH CARE INFORMATION
SERVICES, INC., a Delaware corporation
formerly known as AVRI Health Care
Information Services, Inc.
Date: ___________________, 2000 By: _____________________________
Timothy J. Connolly, President
E-DOCS:
------
APPLIED VOICE RECOGNITION, INC., a
Delaware corporation
Date: ___________________, 2000 By: _____________________________
(the ""Effective Date") Timothy J. Connolly, President
and Chairman
Signature Page to
Forbearance Agreement
(Yaniv Dagan)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 1,093,467 53,529
<SECURITIES> 0 0
<RECEIVABLES> 378,421 333,568
<ALLOWANCES> (74,900) (74,900)
<INVENTORY> 4,434 20
<CURRENT-ASSETS> 1,586,858 1,065,408
<PP&E> 1,105,977 1,213,482
<DEPRECIATION> (413,715) (354,990)
<TOTAL-ASSETS> 4,181,749 3,847,009
<CURRENT-LIABILITIES> 1,959,499 2,634,160
<BONDS> 0 0
0 0
64 118
<COMMON> 38,808 35,269
<OTHER-SE> 1,213,440 73,241
<TOTAL-LIABILITY-AND-EQUITY> 4,181,749 3,847,009
<SALES> 607,375 607,375
<TOTAL-REVENUES> 607,375 1,219,118
<CGS> 472,285 553,312
<TOTAL-COSTS> 526,443 1,957,860
<OTHER-EXPENSES> 1,330 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 67,000 46,833
<INCOME-PRETAX> (452,683) (1,319,323)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (452,683) (1,319,323)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (452,683) (1,319,323)
<EPS-BASIC> (0.01) (0.09)
<EPS-DILUTED> (0.01) (0.09)
</TABLE>
