PLACEMENT AGREEMENT
OF
APPLIED VOICE RECOGNITION, INC.
July 30, 1998
EQUITY SERVICES, LTD.
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Steps
P.O. Box N-4805
Nassau, Bahamas
Gentlemen:
The undersigned, APPLIED VOICE RECOGNITION, INC., a Delaware corporation
(the "Company"), confirms its agreement with Equity Services, Ltd., a Nevis
company ("ESL") as follows:
1. Description of Securities and Offering.
(a) ESL has agreed to privately place on a best efforts basis up to Three
Million Dollars ($3,000,000.00) of the Company's Series C 4% cumulative
convertible preferred stock (the "Series C Preferred Stock") (the "Shares")
(the "Private Placement") at a price of Ten and 00/100 Dollars ($10.00) per
Share (the "Private Placement Price"). The Shares shall have a cumulative
dividend of four percent (4%), payable on a fiscal quarterly basis, which
shall be paid in cash, or at the option of the Company, by the issuance of
shares of Common Stock based on the thirty (30) average closing bid price
of the Common Stock prior to the dividend date. Each Share shall be
immediately convertible into ten (10) shares of Common Stock (subject to
adjustment). The closing of the Private Placement shall occur on or before
July 15, 1998.
The Company shall grant the holders of the Shares, the holders of the
Common Stock issued as dividends on the Shares and the holders of the Common
Stock issued upon conversion of the Shares, one (1) demand registration right,
beginning immediately after the closing of the Private Placement contemplated
herein (the "Closing") and "piggyback" registration rights beginning on the date
of Closing. The terms of these registration rights shall be as set forth in a
Registration Rights Agreement (herein so called) substantially in the form
attached hereto as Exhibit "A".
(b) The commissions to which ESL shall be entitled for such placement shall be
as follows: (i) a sum equal to seven percent (7%) of the total proceeds
resulting from the placement of the Shares; and (ii) Shares with value
equal to five percent (5%) of the total proceeds resulting from the
placement of the Shares (the "Placement Agent's Shares"). ESL shall also
be paid (i) a sum equal to three percent (3%) of the total proceeds
resulting from the placement of the Shares as a non-accountable expense
allowance and (ii) an amount equal to the legal fees of ESL's counsel not
to exceed Ten Thousand and No/100 Dollars ($10,000.00). ESL will be paid
the commissions, the
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non-accountable expense allowance and the legal fees of ESL's counsel
simultaneously with the Closing.
(c) In addition, the Company agrees to sell to ESL, for an aggregate price of
$100.00, a three (3) year option ("ESL Purchase Option") to purchase shares
of Common Stock equal to up to Ten Percent (10%) of the Common Stock
underlying the Shares offered in the Private Placement ("ESL Option
Shares") at a price equal to One Hundred Fifty Percent (150%) of the
Private Placement Price divided by ten (10) per Option Share exercisable
for a period of three (3) years commencing immediately upon the Closing.
The holders of ESL Option Shares and the Placement Agent's Shares will have
registration rights as set forth in a Registration Rights Agreement (herein
so called) substantially in the form attached hereto as Exhibit "B".
2. Appointment of Placement Agent. ESL's appointment by the Company as
Placement Agent shall commence upon the date of the execution of this Agreement,
and shall continue until and through June 16, 1998, unless (i) the Shares shall
be completely sold prior to that date, (ii) the offering has been terminated by
written agreement between ESL and the Company, or (iii) this Agreement shall be
terminated at a prior date as provided herein.
3. Release of Placement Agent. ESL's commitment to serve as Placement Agent
on behalf of the Company is made subject to the release of ESL: (i) in the event
of war involving the United States of America, (ii) in the event of any material
adverse change in the business, property or financial condition of the Company
as reasonably determined by ESL, (iii) in the event of any action, suit or
proceeding at law or in equity against the Company, or by any Federal, State or
other commission, board or agency wherein any unfavorable decision would
materially affect the business, property, financial condition or income of the
Company (as reasonably determined by ESL), (iv) in the event of a breach by the
Company of any material covenant, representation or warranty contained in this
Agreement or (v) in the event of adverse market conditions (of which ESL shall
be the sole judge).
4. Representations and Warranties of the Company.
The Company represents and warrants to ESL as follows:
(a) The Company has been duly incorporated and is validly existing and in good
standing under the laws of the State of Delaware, with full corporate power
and authority to own, lease and operate its properties and to conduct its
business as currently conducted, and is duly registered and qualified to
conduct its business and is in good standing in each jurisdiction or place
where the nature of its properties or the conduct of its business requires
such registration or qualification.
(b) The Company is in full compliance with all reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
Common Stock is quoted on the Nasdaq Over-the Counter Bulletin Board
(trading symbol: AVRI).
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(c) The Company has furnished ESL with copies of its Business Plan dated April,
1998, its most recent Annual Report on Form 10-KSB dated April 30, 1998
filed with the Securities and Exchange Commission (the "Commission") and
all Forms 8-K and 10-QSB filed thereafter, if any (collectively, the
"Disclosure Documents"). Except as disclosed in the Company's most recent
10-KSB filing with the Commission, immediately prior to Closing there will
be no other capital stock issued and outstanding, nor will there be
outstanding any rights to acquire, commitments to issue or securities
convertible into capital stock except as a result of the exercise of
outstanding options to acquire securities of the Company, conversion of
outstanding preferred stock, or the grant of options to purchase
securities of the Company in the ordinary course of business (including the
repricing or reissuance of existing options as determined to be in the best
interests of the Company by a majority of the disinterested members of the
Company's board of directors). The Disclosure Documents at the time of
their filing did not include any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements
contained therein, in light of the circumstances under which they were made
not misleading.
(d) Except as shown on the Company's most recent audited financial statements
dated December 31, 1997, prepared by Ernst & Young, L.L.P. , the Company's
independent certified public accountants, the Company will have no other
indebtedness outstanding immediately prior to the Closing except as
incurred in the ordinary course of business or disclosed in writing prior
to Closing to ESL.
(e) Upon issuance at the Closing in accordance with this Agreement, the Shares
will be duly and validly authorized and issued, fully paid and
nonassessable, free from all encumbrances and restrictions other than
restrictions on transfer imposed by applicable securities laws and/or this
Agreement, and will not subject the holders thereof to personal liability
by reason of being such holders. The shares of Common Stock, when issued
and delivered upon conversion of the Series C Preferred Stock, the ESL
Option Shares and the Placement Agent's Shares, will be duly and validly
authorized and issued, fully paid and nonassessable, free from all
encumbrances and restrictions other than restrictions on transfer imposed
by applicable securities laws and/or this Agreement, and will not subject
the holders thereof to personal liability by reason of being such holders.
(f) This Agreement has been duly authorized, validly executed and delivered on
behalf of the Company and is a valid and binding agreement of the Company
enforceable in accordance with its terms, subject to general principles of
equity and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally, and the Company has full power and authority
to execute and deliver this Agreement and the other agreements and
documents contemplated hereby and to perform its obligations hereunder and
thereunder.
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(g) The execution and delivery of this Agreement, the issuance of the Shares,
the shares of Common Stock issuable upon conversion of the Series C
Preferred Stock, the ESL Option Shares, and the Placement Agent's Shares
and the consummation of the transactions contemplated by the Investor
Subscription Agreements (herein so called) by the Company, will not
conflict with or result in a breach of or a default under any of the terms
or provisions of, the Company's certificate of incorporation or By-laws, or
of any material provision of any indenture, mortgage, deed of trust or
other material agreement or instrument to which the Company is a party or
by which it or any of its properties or assets is bound, any material
provision of any law, statute, rule, regulation, or any existing applicable
decree, judgment or order by any court, federal or state regulatory body,
administrative agency, or other governmental body having jurisdiction over
the Company, or any of its properties or assets and will not result in the
creation or imposition of any material lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant to
the terms of any agreement or instrument to which any of them is a party or
by which any of them may be bound or to which any of their property or any
of them is subject.
(h) No authorization, approval, filing with or consent of any governmental body
is required for the issuance and sale of the Shares, except for filings
pursuant to Regulation D promulgated under the Securities Act of 1933, as
amended (the "Act") or any state blue sky filings.
(i) There is no action, suit or proceeding before or by any court or
governmental agency or body, domestic or foreign, now pending or threatened
against or affecting the Company, or any of its properties, which would
reasonably be anticipated to result in any material adverse change in the
condition (financial or otherwise) or in the earnings, business affairs,
business prospects, properties or assets of the Company.
(j) Subsequent to the dates as of which information is given in the Disclosure
Documents, except as contemplated herein, the Company has not incurred any
material liabilities or material obligations, direct or contingent, or
entered into any material transactions not in the ordinary course of
business, and there has not been any change in its capitalization or any
material adverse change in its condition (financial or otherwise) net
worth, results of operations or prospects.
(k) The Company has conducted, is conducting and will conduct its business so
as to comply in all material respects with all applicable statutes and
regulations, and the Company is not charged with and, to the knowledge of
the Company, is not under investigation with respect to any violation of
any statutes or regulations nor is it the subject of any pending or
threatened adverse proceedings by any regulatory authority having
jurisdiction over its business or operations.
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(l) Except as set forth in the Disclosure Documents, the Company has good and
marketable title to all properties and assets described therein as owned by
it, free and clear of all liens, charges, encumbrances, or restrictions.
(m) The Company has filed all necessary federal and state income and franchise
tax returns and has paid all taxes shown as due thereon.
(n) The Company has no knowledge of any tax deficiency that might be asserted
against it that might materially and adversely affect its business or
properties.
(o) The Company maintains insurance of the types and in amounts generally
deemed adequate for its business and consistent with insurance coverage
maintained by similar companies and businesses, including, but not limited
to, insurance covering all real and personal property owned or leased by
the Company against theft, damage, destruction, acts of vandalism, products
liability and all other risks customarily insured against, all of which
insurance is in full force and effect.
(p) No labor disturbance by the employees of the Company exists or is imminent
that could reasonably be expected to have a material adverse effect on the
conduct of the business, operations, financial condition, or income of the
Company.
(q) Neither the Company nor any employee or agent of the Company has made any
payment of funds of the Company or received or retained any funds in
violation of law.
(r) Subject in part to the truth and accuracy of the subscribers'
representations set forth in the Investor Subscription Agreements, the
offer, sale and issuance of the Shares are exempt from registration
requirements of the 1933 Act, and neither the Company nor any authorized
agent acting on its behalf will take any action hereafter that will cause
the loss of such exemption.
(s) The Company has sufficient title and ownership of all trademarks, service
marks, trade names, copyrights, patents, trade secrets and other
proprietary rights necessary for its business as now conducted and as
proposed to be conducted as described in the Disclosure Documents without
any conflict with or infringement of the rights of others. Except as set
forth in the Disclosure Documents, there are no material outstanding
options, licenses or agreements of any kind relating to the foregoing, nor
is the Company bound by or party to any material options, licenses or
agreements of any kind with respect to the trademarks, service marks, trade
names, copyrights, patents, trade secrets, licenses and other proprietary
rights of any other
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person or entity. The Company is not aware that any of its executive
officers is obligated under any contract (including licenses, covenants or
commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency that would interfere
with the use of his or her best efforts to promote the interest of the
Company or that would conflict with the Company's business as proposed to
be conducted.
(t) Except for agreements explicitly contemplated hereby or set forth in the
Disclosure Documents, there are no agreements between the Company and any
of its officers, directors, affiliates or any affiliate thereof.
(u) As of the date of Closing, no representation or warranty of the Company
contained in this Section 4, and no statement contained in any exhibit,
schedule, certificate, list, summary or other disclosure document provided
or to be provided to ESL pursuant hereto or in connection with the
transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material
fact which is necessary in order to make statements contained therein not
misleading.
The representations, warranties and covenants of the Company contained in this
Agreement shall inure to the benefit of each subscriber to the Private Placement
and such subscribers shall constitute identified third-party beneficiaries under
this Agreement. No termination, modification, or waiver of the representations,
warranties and covenants of the Company contained in this Agreement shall be
permitted in any manner adversely affecting their interests without their prior
written consent. The representations and warranties of the Company contained in
this Agreement shall survive the Closing.
5. Affirmative Covenants of the Company.
For such time as at least one-third (1/3) of the Shares subscribed for in
the Private Placement are outstanding and owned by subscribers to the Private
Placement, the Company agrees as follows:
(a) Upon completion of the Private Placement and upon meeting the initial
inclusion listing requirements, the Company will use good faith efforts to
list shares of its Common Stock on The Nasdaq SmallCap Market or a national
securities exchange (such as AMEX or NYSE) and, at a minimum, to maintain
such listing for a period of five (5) years from the time of such listing;
(b) The financial statements of the Company shall be audited by a "Big Six" or
such other independent public accounting firm as ESL may consent to.
Further, the Company shall not effect a change in its accounting firm to
other than a
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"Big Six" firm or such other independent public accounting firm as ESL may
consent to for a period of two (2) years following the Closing. ESL hereby
consents to the engagement of Ernst & Young, L.L.P., as the Company's
independent certified public accountants.
(c) The Company shall be responsible for and shall bear all expenses directly
and necessarily incurred in connection with the Private Placement,
including but not limited to, the cost of preparing, printing and
delivering all placement and selling documents, including but not limited
to the Placement Agreement, Investor Subscription Agreements, Registration
Rights Agreements, Placement Agent's Option Agreement and blue sky
memorandum and stock certificates; blue sky fees, filing fees, legal fees
and disbursements of counsel in connection with blue sky matters; fees and
disbursements of the transfer and warrant agent; the cost of two (2) sets
of bound closing volumes for ESL and its counsel; the cost of three (3)
tombstone advertisements, at least one (1) of which shall be in the Wall
Street Journal, one (1) of which shall be in the Houston Chronicle and one
(1) shall be in a publication chosen by ESL; an amount equal to the legal
fees of ESL's counsel, not to exceed Ten Thousand Dollars ($10,000.00) and
the cost of five (5) lucite tombstones for ESL and its counsel
(collectively, the "Company Expenses"). If the Private Placement is not
completed because the Company prevents it or because of a breach by the
Company of any covenants, representations or warranties contained herein,
the Company's liability for such expense allowance shall be limited to Ten
Thousand and No/100 Dollars ($10,000.00).
(d) The Company will, and will cause its subsidiaries, if any, to do the
following: (i) maintain and preserve its and their respective businesses;
(ii) conduct its and their respective business, taken together as a group,
in an orderly, efficient and customary manner; and (iii) keep and maintain
all of its and their respective properties in good working order and
condition.
(e) The Company will deliver to ESL for a period of three (3) years from the
Closing:
(i) within thirty (30) days after the close of each fiscal quarter, a copy of
its consolidated balance sheet as of the close of such quarter and its
profit and loss statement and surplus reconciliation for that quarter, all
prepared in accordance with generally accepted accounting principles
consistently applied, and certified as being fairly presented in all
material respects by the Company's President or its Chief Financial
Officer;
(ii) at any time within the period from thirty (30) days prior to and until
ninety (90) days after the start of any fiscal year, financial projections
of the Company and its subsidiaries, if any, for such fiscal year prepared
in reasonable detail, which financial projections shall be presented to the
Company's Board of Directors for their approval at their regular meeting
first following the preparation of such projections;
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(iii) promptly upon the filing thereof, all reports and statements filed with
the Commission (or any governmental authority succeeding to any of its
functions) or with any securities exchange; and
(iv) such other information and data with respect to the Company or any of its
subsidiaries, if any, as from time to time may be reasonably requested by
ESL (including, without limitation, such other information as the Company
shall have supplied to any of its security holders in their capacity as
such) to the extent the Company possesses such information or can acquire
it without unreasonable effort or expense.
(v) The Company will continue to pay the premiums and keep in force at least
One Million and No/100 Dollars ($1,000,000.00) of "key man" life
insurance on the life of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇. Such "key man" life
insurance will be kept in force for a minimum period of either three (3)
years from the closing of the Private Placement or the term of the
employment agreement(s) between the Company and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
whichever is longer.
(vi) The Company will authorize ESL, at ESL's expense, for a period of three
(3) years form the Closing, to obtain copies of the Company's daily
transfer sheets.
(vii) The Company and its President shall call a meeting of the Board of
Directors at such times as may be necessary but at least once every
fiscal quarter. The Board of Directors shall include at least two (2)
non-affiliated directors, which directors shall not be officers or
employees of the Company ("Outside Directors"). In addition, the Company
will allow one (1) designated representative of ESL to receive timely
notice of, attend and make comments at all meetings of its Board of
Directors. (Such designated representative shall also be sent all
standard communications and notifications from the Company to the members
of its Board of Directors concerning annual and special meetings in the
same fashion and on the same basis, including with respect to timing, as
he would if he were a member of the Board of Directors.) Further, so long
as at least one-third (1/3) of the Shares are outstanding and owned by
the subscribers to the Private Placement, the Company will use its best
efforts to have one (1) member of the Company's Board of Directors be
chosen by ESL.
(f) The Company will cause the Board of Directors to maintain a Compensation
Committee, which shall be comprised of three (3) members, of which one
(1) member shall be a designated representative of ESL. ESL agrees that
the individual mentioned in the preceding sentence shall be the same
individual as the director designated by the holders of the Company's
Series A Preferred Stock. The Compensation Committee shall have authority
with respect to the matters set forth in clauses (i) and (ii) of
paragraph (m) of this Section 5.
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(g) The Company will cause the Board of Directors to maintain an Audit
Committee, which shall be comprised of three (3) members, of which one (1)
member shall be the designated representative of ESL.
(h) The management of the Company shall prepare and deliver to each member of
the Board (including ESL's designee) monthly reports highlighting business
developments and activities, with those persons having assigned
responsibilities reporting on operations and activities in their areas of
responsibility.
(i) The Company will promptly send to each member of the Board (including ESL's
designee), in no event later than ninety (90) days following each meeting,
copies of the complete minutes of each meeting of its Board of Directors,
executive and similar committees thereof.
(j) Without in any way limiting the generality of matters which may be
appropriate for consideration or action by the Board of Directors, prior to
taking action with respect to any of the following items, the Board of
Directors or, in the case of clauses (i) and (ii), the Compensation
Committee thereof, must approve the following actions:
(i) Changes in officers and their compensation, including, without
limitation, all significant employee benefits other than health care and
similar insurance plans;
(ii) All incentive programs (and revisions thereto) for employees such as
stock option plans, equity plans, bonus plans, etc.;
(iii) Company budgets, which shall be submitted within the period from thirty
(30) days prior to and until thirty (30) days after the commencement of
each fiscal year covering sales, direct costs, indirect costs, profit
targets, capital expenditures, and cash flow;
(iv) Major appropriations in excess of Fifty Thousand Dollars ($50,000.00) for
any capital items not in the Company budget for the fiscal year;
(v) Major new facilities and their location, excluding any small leased
facilities in the local area so long as their annual rental obligation
does not exceed Fifty Thousand Dollars ($50,000.00) per year;
(vi) All matters pertaining to mergers and acquisitions, without exception;
(vii) Purchase contracts of a major nature;
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(viii) Sales contracts of an unusual size or complexity;
(ix) Sale or purchase of patents, rights, or any royalty or license
agreements;
(x) Warranty and distribution policies of an unusual nature which are not
representative of industry patterns;
(xi) Financing programs and policies applicable to public offerings, private
placements, and long-term debt;
(xii) Treasury policies;
(xiii) Selection of auditors and corporate counsel;
(xiv) Banking resolutions;
(xv) Cash policies such as pension funds, investments, etc., other than
normal bank deposits;
(xvi) All matters of litigation in which the Company is to be the plaintiff or
other initiating party; and
(xvii) Conflict of interest matters.
(k) The management of the Company shall notify and consult with the Board of
Directors (by written, telegraphic or telephonic notice) prior to taking
any initial action with respect to any of the following matters (it
being understood that the Board of Directors will determine the
propriety of further or alternative action with respect to such matters
at their next meeting):
(i) All matters of personnel policies as they apply to any labor agreements
or organization of unions;
(ii) All matters of litigation that involve or may involve the Company as a
defendant;
(iii) Audit programs and policies; and
(iv) Any operating decisions which in the judgment of the President and Chief
Executive Officer should be presented to the Board.
(l) The Company shall file a Certificate of Designation with the Secretary
of State of Delaware setting forth the rights and preferences of the
Series C Preferred Stock substantially in the form attached hereto as
Exhibit "C".
(m) Within ninety (90) days of the Closing, the Company will prepare and
file with the Securities and Exchange Commission ("SEC") a registration
statement on Form S-3, covering the resale of the common stock
underlying the Shares. The Company will use its best efforts to cause
such registration
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statement to be declared effective by the SEC as soon as practicable after
the filing. In the event such registration statement is not filed within
ninety (90) days of the Closing, the Company will immediately pay to each
holder of the Shares, Twenty Cents ($0.20) per Share held by each such
holder.
6. Negative Covenants of the Company.
(a) For a period of twelve (12) months following the Closing, the Company will
not, without the prior written consent of ESL, grant any options to
purchase securities of the Company to employees that are exercisable at a
price below the greater of the Private Placement Price divided by ten (10)
or the fair market value of the securities on the date of grant.
(b) For a period of three (3) years following the Closing, the Company will
not, without the prior written consent of ESL, offer or sell any of its
securities in reliance on Regulation S of the Securities Act of 1933, as
amended.
(c) The Company will cause all of the current directors and executive officers
of the Company who individually own more than five percent (5%) of the
Company's outstanding Common Stock to agree that their shares will be
subject to the provisions of a Lock-Up Agreement (herein so called)
substantially in the form attached hereto as Exhibit "E". The shares
subject to the Lock-Up Agreement shall not be assignable or transferrable
except in accordance with the terms and provisions of the Lock-Up
Agreement. The Company will take all steps necessary to enforce the
provisions of the Lock-Up Agreements, including, but not limited to,
notifying the Company's transfer agent of the existence of the Lock-Up
Agreements. The shares subject to the Lock-Up Agreements shall be released
therefrom in accordance with the terms of the Lock-Up Agreement.
(d) The Company will not use any proceeds from the Private Placement to repay
any indebtedness of the Company, including but not limited to any
indebtedness to current executive officers or principal shareholders of the
Company.
(e) For as long as any of the Shares remain outstanding and unconverted, the
Company shall not, without the prior written consent of ESL and all holders
of the Series C Preferred Stock, create any new class or series of stock
having a dividend and/or liquidation preference senior to or parri passu
with the Series C Preferred Stock or increase the size of the authorized
number of shares of Series C Preferred Stock.
(f) The compensation of the executive officers of the Company as set forth in
the Company's 10-KSB filing dated April 30, 1998 shall not increase until
thirteen (13) months after the Closing.
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(g) The Company will not issue press releases, without first providing a
written copy to ESL before release, prior to the completion of the Private
Placement and for a period of eighteen (18) months from the Closing.
In the event any of the covenants contained in Section 5 and Section 6
hereof are breached by the Company and such breach shall continue uncured for
thirty (30) business days from receipt of written notice of such breach, then
ESL shall be entitled to receive from the Company the sum of Five Hundred
Dollars ($500.00) per day for each day thereafter the breach remains uncured
(except for breaches of clauses (i) and (ii) of Section 5(d) above).
7. Representations and Warranties of ESL.
ESL represents, warrants and covenants to the Company as follows:
(a) ESL has been duly incorporated and is validly existing and in good standing
under the laws of Nevis, with full corporate power and authority to own,
lease and operate its properties and to conduct its business as currently
conducted.
(b) This Agreement has been duly authorized, validly executed and delivered on
behalf of ESL and is a valid and binding agreement of ESL enforceable in
accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally, and ESL has full power and authority to execute and deliver this
Agreement and the other agreements and documents contemplated hereby and to
perform its obligations hereunder and thereunder.
(c) ESL agrees not to sell any shares of Common Stock that it does not own as
of the date of Closing (i.e. "short selling") for a period of two (2) years
from Closing, and, for so long as any Shares are outstanding, in the event
that ESL engages in short sale transactions of the Common Stock during the
ten (10) consecutive trading days immediately preceding any conversion
date, ESL will conduct such activities so as not to complete or effect any
such sale on any trading day during such period at a price which is lower
than the lowest sale effected on such day by persons other than ESL.
(d) ESL will not solicit subscriptions for the Shares by means of any form of
general solicitation or general advertising in the manner prohibited by the
requirements of Regulation D and the laws of any state in which ESL may
solicit subscriptions for the Shares, or to the residents of any state not
previously authorized by the Company.
(i) ESL will not publish, circulate or otherwise use any solicitation material
other than the Disclosure Documents, as amended or
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supplemented, unless (A) the Company shall have agreed thereto in writing,
and (B) the delivery of such material is accompanied or preceded by the
delivery of a copy of the Disclosure Documents, as amended or supplemented,
or such material is for internal use only and is not distributed to
prospective subscribers; and ESL will not give any information or make any
representation in connection with soliciting and obtaining purchases of the
Shares other than those contained in the Disclosure Documents, as amended
or supplemented, or such other solicitation material described in (i) of
this paragraph.
(e) ESL will deliver to the Company promptly upon request copies of all
Subscription Documents theretofore received by it, and will promptly inform
the Company if it shall have knowledge of any material misstatement
contained in the Subscription Documents.
(f) Before soliciting a subscription from any prospective subscriber, ESL will
have reasonable grounds to believe and will believe that such prospective
subscriber is an "accredited investor" as defined in Rule 501(a) under the
1933 Act.
8. Indemnification. The Company hereby agrees to indemnify and hold harmless
ESL and its officers, directors, shareholders, employees, agents and attorneys
against any and all losses, claims, damages, liabilities and expenses incurred
by each such person in connection with defending or investigating any such
claims or liabilities, including any costs or expenses incurred, to which any
such indemnified party may become subject under the Securities' Act, or under
any other statute, at common law or otherwise, insofar as such losses, claims,
demands, liabilities and expenses arise out of or are based upon, in whole or in
part, (i) any untrue statement or alleged untrue statement of a material fact
made by the Company in this Agreement or any exhibit, schedule, certificate,
list, summary or Disclosure Document provided to ESL, (ii) any omission or
alleged omission of a material fact with respect to the Company in this
Agreement or any exhibit, schedule, certificate, list, summary or Disclosure
Document provided to ESL, or (iii) any breach of any representation, warranty or
agreement made by the Company in this Agreement or any exhibit, schedule,
certificate, list, summary or Disclosure Document provided to ESL.
Notwithstanding the foregoing, the Company further agrees to indemnify ESL
as set forth in the Letter of Intent between the Company and ESL dated May 20,
1998.
9. Mergers and Acquisitions.
(a) The Company agrees that ESL will be paid a finder's fee of seven percent
(7%) of the first $1,000,000.00, six percent (6%) of the second
$1,000,000.00 and five percent (5%) of the next $5,000,000.00, ranging in
$1,000,000.00 increments down to two and one-half percent (2-1/2%) of the
excess (with a reduction by one-half percent (0.5%) for each $1,000,000.00
thereafter up to $9,000,000.00), if any, over
13
$9,000,000.00 of the consideration involved in any transaction( including
mergers, acquisitions, joint ventures and any other business for the
Company introduced by ESL) consummated by the Company, in which ESL
introduced the other party to the Company during a period ending three (3)
years from the Closing (an "Introduced Transaction") and with whom the
Company did not have a prior relationship; and
(b) Any such finder's fee due to ESL will be paid in cash at the closing of the
particular Introduced Transaction for which the finder's fee is due.
10. Conditions Precedent to Closing.
(a) Prior to Closing, ESL shall have received legal opinions addressed to
Equity Services, Ltd. and each subscriber to the Private Placement, from
counsel for the Company, confirming the representations and warranties of
the Company contained in Sections 4(a), 4(b), 4(e), 4(f), 4(g), 4(h), 4(i),
4(k), 4(r) and 4(s) above, substantially in the form attached hereto as
Exhibit "D".
(b) ESL shall have received a fully executed Placement Agent's Option
Certificate from the Company for the options earned upon the Closing.
(c) ESL shall have received a fully-executed Lock-Up Agreement from each
executive officer and director of the Company as set forth in Paragraph
6(c) above.
(d) ESL shall have received a fully executed Registration Rights Agreement with
respect to the Placement Agent's Shares and the ESL Option Shares from the
Company for the Placement Agent's Shares earned upon the Closing and the
ESL Option Shares.
(e) ESL shall have received a certified copy of the resolution of the Board of
Directors of the Company authorizing the transactions contemplated herein.
(f) The Company shall have filed with the Office of the Secretary of State of
Delaware a Certificate of Designation acceptable to ESL, substantially in
the form attached hereto as Exhibit "C".
(g) The Company shall have amended its Bylaws in such a manner as to make its
Bylaws consistent with the terms and conditions of this Agreement and the
transactions contemplated herein, a copy of which will have been provided
to ESL prior to Closing.
(h) Prior to the Closing, MASCO, LTD. (the "Escrow Agent") shall have received
a certificate representing the Placement Agent's Shares.
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(i) Prior to Closing, the Escrow Agent shall have received a fully executed
subscription agreement from each subscriber to the Private Placement.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective upon its execution by ESL.
(b) This Agreement shall terminate on the earlier of July 31, 1998, or the
consummation of the Private Placement.
12. Parties. This Agreement shall inure to the benefit of and be binding upon
ESL, the Company and ESL's and its respective successors and assigns. Except as
provided for in Section 4 hereinabove, nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto and their respective successors and assigns and
the controlling persons, officers, directors, employees, agents and attorneys of
the parties, any legal or equitable right, remedy or claim under or in respect
of this Agreement or any provision herein contained. This Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective successors and
assigns and said controlling persons, officers, directors, employees, agents and
attorneys, and for the benefit of no other person or corporation.
13. Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, express overnight courier,
registered first class mail, overnight courier, or telecopied (followed by
registered mail or overnight courier), initially to the address set forth below,
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 13.
if to the Company:
Applied Voice Recognition, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Chairman & CEO
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
15
if to ESL:
Equity Services, Ltd
▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Steps
P.O. Box N-4805
Nassau, Bahamas
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Director
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy (which shall not constitute notice) to:
Gardere & ▇▇▇▇▇, L.L.P.
3000 Thanksgiving Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: I. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have been duly given:
when delivered by hand, if personally delivered; three (3) business days after
being deposited in the mail, registered mail, return receipt requested, postage
prepaid, if mailed; when received after being deposited in the regular mail; the
next business day after being deposited with an overnight courier, if deposited
with a nationally recognized, overnight courier service; when receipt is
acknowledged, if telecopied (subject to follow up as discussed above).
14. 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.
15. Remedies. Each party hereto, 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 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.
16. Time of Essence. Time shall be of the essence of this Agreement.
17. Construction. This Agreement shall be construed in accordance with the
internal laws of the State of Texas.
16
18. Execution. This Agreement may be executed in any number of counterparts
each of which taken together shall constitute one and the same instrument.
19. Joint Drafting of Agreement. This Agreement has been prepared by the
joint efforts of the respective counsel for each of the parties hereto and shall
not be construed against a particular party simply by reason of such party being
the drafting party.
20. Entire Agreement. This Agreement, together with those certain Investor
Subscription Agreements by and between the Company and each subscriber to the
Private Placement, constitute the entire understanding by and between the
parties with respect to the subject matter hereof. This Agreement can only be
modified, including any extension of the offering period, by a written agreement
duly signed by persons authorized to sign agreements on behalf of the respective
parties.
21. Facsimile Signature. This Agreement may be executed by facsimile copy and
any such facsimile copy bearing the facsimile signature of any party hereto
shall have full legal force and effect and shall be binding against the party
having executed this Agreement by facsimile.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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If the foregoing is in accordance with your understanding, please sign
below and return to us a counterpart hereof, and upon your acceptance hereof,
this letter and the acceptance hereof shall constitute a binding agreement
between ESL and the Company.
Very truly yours,
APPLIED VOICE RECOGNITION, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
Chairman & CEO
Accepted and agreed to as of the
date first above written by:
EQUITY SERVICES, LTD.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Director
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EXHIBIT "A"
Registration Rights Agreement - Subscribers to Private Placement
EXHIBIT "B"
Registration Rights Agreement - ESL
EXHIBIT "C"
Form of Certificate of Designation
EXHIBIT "D"
Form of Opinion
EXHIBIT "E"
Form of Lock-Up Agreement