EXHIBIT 10.32
CONVERTIBLE PROMISSORY NOTE AND
WARRANT PURCHASE AGREEMENT
This Convertible Promissory Note and Warrant Purchase Agreement (the
"Agreement") is made as of July 20, 1999 by and among Applied Voice Recognition,
Inc., a Delaware corporation doing business as x-XXXX.xxx (the "Company"), and
the G-51 Capital LLC, a Texas limited liability company, (the "Investor").
RECITALS
WHEREAS, the Investor desires to purchase from the Company, and the Company
desires to issue to the Investor, a Convertible Promissory Note in the form of
Exhibit A attached hereto (the "Note") in the aggregate principal amount of Two
Hundred Fifty Thousand and No/100 Dollars ($250,000.00); and
WHEREAS, the Investor desires to purchase from the Company, and the Company
desires to issue to the Investor, a Warrant in the form of Exhibit B attached
hereto on the terms and conditions set forth herein (the "Warrant"), such
Warrant to purchase that number of shares of "Next Stock" (defined below) of the
Company as determined pursuant to the terms and conditions of this Agreement and
the Warrant.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the parties hereby agree as follows:
1. Purchase and Sale of Note and Warrant.
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1.1 Sale and Issuance of Note and Warrant. Subject to the terms and
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conditions of this Agreement, the Investor agrees to purchase at the Closing (as
defined below) and the Company agrees to sell and issue to the Investor at the
Closing (a) a Note in the form attached hereto as Exhibit A, in the principal
amount of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), at a
price equal to 100% of the principal amount thereof, and (b) a Warrant to
purchase such variable number of shares of the Company's Next Stock in the form
attached hereto as Exhibit B.
1.2 Closing. The purchase and sale of the Note and the Warrant
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shall take place at the offices of Xxxxx, Xxxxx & Xxxxxx, P.C., 0000 Xxx Xxxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxx 00000 at 10:00 a.m. on July 20, 1999, or at such
other time and place as the Company and the Investor shall mutually agree in
writing (which time and place are designated as the "Closing").
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1.3 Deliveries. At the Closing, the Company shall deliver to the
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Investor the Note and the Warrant that the Investor is purchasing against
payment of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) by wire
transfer of same day funds.
1.4 Conversion of the Note. Upon the Next Qualified Equity
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Financing (as defined below), the principal amount of the Note plus any accrued
but unpaid interest will be automatically converted into that number of shares
of the Company's Next Stock issued in the Next Qualified Equity Financing as is
equal to the then principal balance of the Note plus any accrued but unpaid
interest divided by the price per share of the Company's Next Stock.
1.5 Next Qualified Equity Financing. The term Next Qualified Equity
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Financing shall mean the next equity financing involving the receipt by the
Company of at least Four Million Seven Hundred Fifty Thousand Dollars
($4,750,000) (excluding amounts received on conversion of the Note, but
including amounts received on conversion of notes from other investors) which is
completed on or before November 24, 1999. If no such Next Qualified Equity
Financing shall have occurred by November 24, 1999, then the Note shall become
due and payable upon the election of the Holder.
1.6 Next Stock. The term "Next Stock" shall mean the stock into
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which the attached Note is convertible, and for which the attached Warrant is
exercisable. Next Stock shall be the same class and series and have the same
rights and limitations including, but not limited to, anti-dilution protection
and registration rights as the Company's stock, which is the subject of the Next
Qualified Equity Financing. The Investor shall not have any right to modify or
negotiate the terms upon which such stock is issued.
1.7 Allocation of Purchase Price to the Warrant. The Company hereby
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allocates to the Warrant a purchase price of $0.01 for each share of Next Stock
that the Warrant is exercisable into and such purchase price shall be retained
by the Company from the principal of the Investor's Note by the Company and this
amount will not accrue interest or convert into any other security. Receipt of
such consideration is hereby acknowledged by the Company.
2. Representations and Warranties of the Company. The Company hereby
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represents and warrants to and for the benefit of the Investor, with knowledge
that the Investor is relying thereon in entering into this Agreement and
purchasing the Note and the Warrant from the Company, that the following are
true and correct:
2.1 Organization, Good Standing and Qualification. The Company is a
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corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority to
carry on its business as now conducted and as proposed to be conducted. The
Company is duly qualified to transact business and is in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the operation of its business or properties.
2.2 Authorization. All corporate action on the part of the Company,
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its officers, directors and stockholders necessary for the authorization,
execution and delivery of
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this Agreement, the Note and the Warrant, and the performance of all obligations
of the Company thereunder has been taken or will be taken prior to the Closing,
and this Agreement, the Note and the Warrant constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except (a) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally, (b) as limited
by laws relating to the availability of specific performance, injunctive relief
or other equitable remedies, and (c) to the extent the indemnification
provisions, if any, contained in any of such documents may be limited by
applicable federal or state securities laws.
2.3 Valid Issuance of Next Stock. The shares of Next Stock of the
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Company issuable upon the exercise of the Warrant which may be purchased by the
Investor pursuant to this Agreement have been or will be duly and validly
reserved for issuance and, upon issuance in accordance with the terms of the
Warrant shall be duly and validly issued, fully paid and nonassessable, and
issued in compliance with all applicable securities laws, as presently in
effect, of the United States and each of the states whose securities laws govern
the issuance of any of the Warrant pursuant to this Agreement.
2.4 Governmental Consents. No consent, approval, order or
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authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state, local or provincial governmental authority on
the part of the Company is required in connection with the consummation of the
transactions contemplated by this Agreement and such other filings as may be
required by applicable state securities laws.
2.5 Compliance with Other Instruments. The Company is not in
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material violation or default of any provisions of its Certificate of
Incorporation or Bylaws or of any instrument, judgment, order, writ, decree or
contract to which it is a party or by which it is bound or, to its knowledge, of
any provision of federal or state statute, rule or regulation applicable to the
Company or otherwise in breach of any of the terms or conditions of any contract
or agreement which breach, either individually or in the aggregate, could
reasonably be expected to have a materially adverse effect on the business,
properties, financial condition or results of operations of the Company. To the
Company's knowledge, no other party to any of its material contracts or
agreements is in material default under any such contract or agreement. The
execution, delivery and performance of this Agreement, the Note and the Warrant,
and the consummation of the transactions contemplated hereby and thereby shall
not result in any such material violation or be in conflict with or constitute,
with or without the passage of time and giving of notice, either a default under
any such provision, instrument, judgment, order, writ, decree or contract or an
event that results in the creation of any lien, charge or encumbrance upon any
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any material permit, license, authorization or approval applicable
to the Company, its business or operations or any of its assets or properties.
2.6 Disclosure. The Company has fully provided the Investor with
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all the material information which the Investor has requested for deciding
whether to purchase the Note and the Warrant and all material information which
the Company believes is reasonably
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necessary to enable the Investor to make such decision. Neither this Agreement
nor any other written statements or certificates made or delivered in connection
herewith or therewith contains any untrue statement of material fact or omits to
state a material fact necessary to make the statements in this Agreement or
therein not misleading.
3. Representations and Warranties of the Investor. The Investor hereby
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represents and warrants to and for the benefit of the Company, with knowledge
that the Company is relying thereon in entering into this Agreement and issuing
the Note and the Warrant to the Investor, as follows:
3.1 Purchase Entirely for Own Account. By the Investor's execution
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of this Agreement, the Investor hereby confirms that the Note and Warrant to be
received by the Investor, the Next Stock issuable upon conversion of the Note,
and the Next Stock issuable upon exercise of the Warrant (collectively, the
"Securities") shall be acquired for investment for the Investor's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part thereof, and that the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, the Investor further represents that the Investor does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Securities. The Investor represents that it has full power
and authority to enter into this Agreement.
3.2 Investment Experience. The Investor is an investor in
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securities of companies in the development stage and acknowledges that it is
able to fend for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment in the Securities.
3.3 Accredited Investor. The Investor is an "accredited investor"
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within the meaning of Securities and Exchange Commission Rule 501 of Regulation
D, as now in effect.
3.4 Restricted Securities. The Investor understands that the
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Securities it is and shall be purchasing are characterized as "restricted
securities" under the federal securities laws inasmuch as they are being
acquired from the Company in a transaction not involving a public offering and
that under such laws and applicable regulations such securities may be resold
without registration under the Securities Act of 1933, as amended (the "Act"),
only in certain limited circumstances. In this connection, the Investor
represents that it is familiar with Rule 144 promulgated under the Act, as now
in effect, and understands the resale limitations imposed thereby and by the
Act.
3.5 Legends. The Investor understands that the certificates
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evidencing the Securities may bear one or all of the following legends:
(a) The securities evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended (the "Act") or the
securities laws of any state of the United States. The securities evidenced by
this certificate may not be offered,
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sold or transferred for value directly or indirectly, in the absence of such
registration under the Act and qualification under applicable state laws, or
pursuant to an exemption from registration under the Act and qualification under
applicable state laws, the availability of which is to be established to the
reasonable satisfaction of the Company.
(b) Any legend required by the laws of the states of Delaware.
(c) Any legend required to be placed on the Securities purchased
by Investor in any future sale or offering of any Securities.
(d) A legend memorializing Section 5 below.
4. Restrictions on Disposition. Without in any way limiting the
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representations set forth in Section 3 above, the Investor further agrees not to
make any disposition of all or any portion of the Securities unless and until
the transferee has agreed in writing for the benefit of the Company to be bound
by this Section 4, and in addition thereto, one of the following conditions is
satisfied:
4.1 Securities Registered. There is then in effect a registration
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statement under the Act covering such proposed disposition and such disposition
is made in accordance with such registration statement.
4.2 Registration Not Required. The Investor shall have (i) notified
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the Company of the proposed disposition and shall have furnished the Company
with a detailed statement of the circumstances surrounding the proposed
disposition and (ii) if reasonably requested by the Company, furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such securities under the Act;
provided, however, that the Company will not require opinions of counsel for
transactions made pursuant to Rule 144, except in unusual circumstances.
5. Market Stand-Off Agreement. During the period of duration (not to
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exceed 180 days) specified by the Company and an underwriter of Common Stock or
other securities of the Company, following the effective date of a registration
statement of the Company filed under the Act, the Investor shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to transferees or donees who agree to be similarly bound) any securities of
the Company constituting Next Stock; provided, however, that this Section 5
shall be applicable (a) only to the first two such registration statements of
the Company pursuant to which Common Stock (or other securities) of the Company
are to be sold on its behalf to the public in an underwritten offering, and (b)
only if all officers and directors of the Company and all persons with
registration rights enter into similar agreements. In order to enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to the Common Stock of the Investor (and the shares or securities of
every other person subject to the foregoing restriction) until the end of such
period.
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6. General Provisions.
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6.1 Construction. This Agreement shall be governed, construed and
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enforced in accordance with the internal laws of the State of Texas, without
giving effect to its conflicts of laws or principles.
6.2 Entire Agreement. This Agreement, together with the agreements
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and documents referred to herein, constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and supersede all prior
and contemporaneous negotiations, agreements and understandings.
6.3 Notices. All payments, notices, requests, demands and other
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communications hereunder shall be in writing and shall be deemed to have been
duly given at the earlier of (i) the time of actual delivery or (ii) on the
third business day following the date deposited with the United States Postal
Service, postage prepaid, certified with return receipt requested, to the
parties at the following addresses or at such other address as shall be given in
writing by a party to the other parties as set forth on the signature page.
6.4 Successors and Assigns. This Agreement, and the rights and
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obligations of each of the parties hereunder, may not be assigned by the
Investor without the prior written consent of the Company. Subject to the
foregoing sentence, this Agreement shall inure to the benefit of, and shall be
binding upon, the parties and their successors and assigns.
6.5 Severability. If any term, covenant or condition of this
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Agreement is held to be invalid, void or otherwise unenforceable by any court of
competent jurisdiction, the remainder of this Agreement shall not be affected
thereby and the term, covenant and condition of this Agreement shall be valid
and enforceable to the fullest extent permitted by law.
6.6 Modification. Any term of this Agreement may be amended and the
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observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the Investor. Any amendment or waiver effected in
accordance with this Section shall be binding upon all parties to this
Agreement, including, without limitation, any holder who may not have executed
such amendment or waiver, and each future holder of any equity security into
which the Note is convertible and/or any holder of Next Stock that is received
upon the exercise of the Warrant.
6.7 Attorney's Fees. If any action of law or in equity is necessary
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to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to an award of its reasonable attorneys' fees, costs and
disbursements in addition to any other relief to which such party may be
entitled.
6.8 Counterparts. This Agreement may be executed in one or more
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counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement to be
effective as of the date first written above.
COMPANY:
APPLIED VOICE RECOGNITION, INC.,
a Delaware corporation, d/b/a x-XXXX.xxx
By:/s/ Xxxxxxx X. Xxxxxxx
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Xxxxxxx X. Xxxxxxx,
Chief Financial Officer
Address:
0000 Xxxx Xxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
INVESTOR:
G-51 Capital LLC,
a Texas limited liability company
By:/s/ N. Xxxx Xxxxx
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N. Xxxx Xxxxx, President
Address:
000 X. 00xx Xxxxxx
Xxxxxx, Xxxxx 00000
[SIGNATURE PAGE TO
CONVERTIBLE PROMISSORY NOTE
AND WARRANT PURCHASE AGREEMENT]
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EXHIBIT A
FORM OF PROMISSORY NOTE
EXHIBIT B
FORM OF WARRANT
