EXHIBIT 4.1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of the 31st day of July, 1997 by and between APPLIED VOICE
RECOGNITION, INC., a Utah corporation (the "Company") and EQUITY SERVICES, LTD.,
a Nevis company (the "Shareholder").
R E C I T A L S:
---------------
WHEREAS, the Shareholder is acquiring Thirty Three Thousand Seven Hundred
Fifty (33,750) shares (the "Shares") of the common stock, par value $0.001 per
share (the "Common Stock") of the Company pursuant to that certain Placement
Agreement by and between the Company and the Shareholder dated July 23, 1997
(the "Placement Agreement"); and
WHEREAS, the Company desires to grant to the Shareholder certain
registration rights relating to the Shares and the Shareholder 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 the Shares, any Common Stock issued to Holders on account of the Shares
by way of a stock split, reorganization, merger or consolidation, and any
Common Stock issued as a dividend on the Shares. For purposes of this
Agreement, any Registrable 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
Page 1
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 Shareholder or any transferee or
assignee thereof to whom the rights under this Agreement are assigned in
accordance with Section 8 hereof, provided that the Shareholder 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. 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 twenty (20) 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 no later than
twenty (20) days after the date of the Company's notice, the Company shall use
its commercially reasonable 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
Page 2
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.
3. Holdback Agreement - Restrictions on Public Sale by Holder.
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.
4. Expenses of Registration. The Company shall bear all expenses
incurred in connection with each registration pursuant to Section 2 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, 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 and the selling Holders shall pay the legal fees of
their counsel in connection with such registrations.
5. 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 0000
Xxx) against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue 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 0000 Xxx) 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 reasonably requests for use in connection with any such registration
statement or prospectus and agrees to indemnify, to
Page 3
the extent permitted by law, the Company, its directors and officers and each
Person who controls the Company (within the meaning of the 0000 Xxx) 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 5 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
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 5 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
Page 4
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 5, 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 5 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 0000 Xxx) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 5, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
Sections 5 and 5 without regard to the relative fault of said indemnifying party
or indemnified party or any other equitable consideration provided for in this
Section 5.
6. 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.
7. 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.
8. 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 there
shall be no more than twenty (20) transferees; 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
Page 5
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 8, no transfer of Registrable Stock shall cause such
Registrable Stock to lose such status.
9. 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 9 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.
10. 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 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 Texas applicable to contracts
made and to be performed wholly within that state, without regard to the
conflict of law rules thereof.
Page 6
(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 Administrator 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 (followed up by overnight courier) 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.
(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 Placement
Agreement.
(l) Recitals. The recitals are hereby incorporated in the Agreement as
if fully set forth herein.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
Page 7
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written hereinabove.
APPLIED VOICE RECOGNITION, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------------
Name: XXXXXXX X. XXXXXXXX
Title: Chairman and CEO
0000 Xxxx Xxx Xxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
EQUITY SERVICES, LTD.
By: /s/ Xxxx Xxxxxxxxx
--------------------------------------
Name: XXXX XXXXXXXXX
Title: Director
Xxxxxxxx Xxxxxxxx, 0xx Xxxxx
Xxxx Xxxx Xxxxx
X.X. Xxx X-00000
Freeport, Bahamas
Telephone: (000) 000-0000
Telecopier: (000) 000-0000
Page 8
