EXHIBIT 10.8
AMENDMENT TO CONVERTIBLE PROMISSORY NOTE
This AMENDMENT TO CONVERTIBLE PROMISSORY NOTE (the "Amendment") is made
and executed this the 5th day of November, 1999 (the "Effective Date"), by and
between Applied Voice Recognition, Inc., a Delaware corporation doing business
as x-XXXX.xxx ("Borrower"), and L&H INVESTMENT COMPANY N.V., a company organized
under the laws of Belgium ("Lender").
W I T N E S S E T H:
WHEREAS, Lender is the owner and holder of that certain Convertible
Promissory Note dated May 24, 1999 (the "Note"), in the original principal
amount of One Million Five Hundred Thousand Dollars ($1,500,000), executed by
Borrower and payable to the order of Lender in accordance with the terms set
forth therein;
WHEREAS, the Note was executed pursuant to that certain Convertible
Promissory Note and Warrant Purchase Agreement dated May 24, 1999 (the "$1.5
Million Purchase Agreement"), executed by and between Borrower, as the Company,
and Lender, as Investor;
WHEREAS, on even date herewith, Borrower and Lender's affiliate, Lernout &
Hauspie Speech Products, N.V. ("L&H"), have executed that certain Convertible
Promissory Note Purchase Agreement (the "$2 Million Purchase Agreement"),
whereby L&H has loaned to Borrower the sum of Two Million Dollars ($2,000,000),
and Borrower has executed a convertible promissory note in the same amount
evidencing the repayment of such loan;
WHEREAS, Borrower, Lender and L&H executed that certain Security Agreement
dated of even date herewith, that certain Copyright Security Agreement of even
date herewith, that certain Trademark Security Agreement of even date herewith,
that certain Patent Security Agreement of even date herewith and that certain
Pledge Agreement of even date herewith (collectively, the "Security
Agreements"), granting to Lender and L&H a first lien security interest in
certain assets of Borrower and Borrower's subsidiaries (including future
subsidiaries), as specified therein (the "Collateral");
WHEREAS, Borrower and Lender desire to amend the Note to reflect Lender's
security interest in the Collateral granted under the Security Agreements, and
Lender has agreed to renew and extend the maturity date of the Note until
February 3, 2000, on the terms and conditions hereinafter set forth; and
NOW, THEREFORE, for and in consideration of Ten Dollars ($10.00) and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower and Lender hereby agree as follows:
1. RENEWAL AND EXTENSION OF MATURITY. The maturity date of the Note is hereby
extended from November 24, 1999 to February 3, 2000 (the "Revised Maturity
Date").
2. SECURITY AGREEMENTS. The following provision is added as Section 1.4
of the Note:
1.4 SECURITY AGREEMENTS. The repayment of this Note is secured by
the security interest in certain collateral of Borrower and Borrower's
subsidiaries (including future subsidiaries) granted to Holder in the
Security Agreements.
3. MODIFICATIONS IN CONVERSION PROVISIONS. Section 2.1 through Section 2.4 of
the Note are hereby deleted and replaced in their entirety as follows:
2.1 TIMING. At any time prior to the payment in full of this Note,
upon notice from the Holder to the Company and delivery of this Note, the
Conversion Amount shall be converted into that number of fully paid and
nonassessable shares of the Common Stock as is equal to the Conversion
Amount divided by $0.37 (the "per Share Price"), with any fraction of a
share rounded up to the next whole share of Common Stock.
2.2 ANTI-DILUTION ADJUSTMENTS.
(i) In case the Company shall at any time change as a whole,
by subdivision or combination in any manner or by the making of a stock
dividend, the number of outstanding shares of the Common Stock into a
different number of shares (i.e. forward or reverse stock split), (i) the
number of shares of common stock to which the holders of the Note or the
Series F Preferred Stock, as the case may be, may convert such Note or
Series F Preferred Stock shall be increased or decreased in direct
proportion to such increase or decrease of shares, as the case may be, and
(ii) the Conversion Price in effect immediately prior to such change shall
be increased or decreased in inverse proportion to such increase or
decrease of shares, as the case may be.
(ii) If, prior to the conversion of the Note or of all the
Series F Preferred Stock, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar
event, as a result of which shares of common stock of the Company shall be
changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another
entity or there is a sale of all or substantially all the Company's
assets, then the holders of the Note or the Series F Preferred Stock shall
thereafter receive, upon the basis and upon the terms and conditions
specified herein and in lieu of shares of common stock, immediately
theretofore issuable upon conversion, such stock, securities and/or other
assets which the holder would have been entitled to receive in such
transaction had the Note or the Series F Preferred Stock been converted
immediately prior to such transaction, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the
holders of the Note or the Series F Preferred Stock to the end that the
provisions hereof shall thereafter be applicable, as nearly as may be
practicable in relation to any securities thereafter deliverable upon the
conversion thereof.
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(iii) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, share exchange, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all time in good faith assist in the
carrying out of all the provisions of this paragraph and in the taking of
all such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of the Series F Preferred Stock against
impairment.
(iv) In the event the Company shall issue additional shares of
Common Stock (including additional shares of Common Stock deemed to be
issued pursuant to paragraph (v) hereof but excluding any issued as a
stock split or combination or upon a dividend or distribution) without
consideration or for a consideration per share less than the Conversion
Price in effect on the date of and immediately prior to such issue, then
and in such event, such Conversion Price shall be reduced, concurrently
with such issue, to a price (calculated to the nearest cent) equal to the
consideration per share paid in connection with the issuance of such
additional shares of Common Stock.
(v) In the event the Company shall issue any options or
convertible securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such options or
convertible securities, then the maximum number of shares (as set forth in
the instrument relating thereto without regard to any provisions contained
therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of such options in accordance with (b) below
or, in the case of convertible securities, the maximum number of shares of
Common Stock into which they are convertible in accordance with (b) below,
shall be deemed to be additional shares of Common Stock issued as of the
time of such issue or, in case such a record date shall have been fixed,
as of the close of business on such record date, provided that additional
shares of Common Stock shall not be deemed to have been issued unless the
consideration per share (determined pursuant to paragraph (vi) hereof) of
such additional shares of Common Stock would be less than the Conversion
Price in effect on the date of and immediately prior to such issue, or
such record date, as the case may be, and provided further that in any
such case in which additional shares of Common Stock are deemed to be
issued:
(a) except as provided in (b) below, no further
adjustment in the Conversion Price shall be made upon the subsequent issue
of convertible securities or shares of Common Stock upon the exercise of
such options or conversion or exchange of such convertible securities;
(b) if such options or convertible securities by their
terms provide, with the passage of time or otherwise, for any increase in
the consideration payable to the corporation, or for any decrease in the
number of shares of Common Stock issuable upon the exercise, conversion or
exchange thereof, or for the termination of the right to exercise or
convert such options or convertible securities, then the Conversion
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Price computed upon the original issue thereof (or upon the occurrence of
a record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase, decrease or termination becoming
effective, be recomputed to reflect such increase, decrease or termination
insofar as it affects such options or the rights of conversion or exchange
under such convertible securities and upon termination such options or
convertible securities shall no longer be deemed to be outstanding; and
(c) no readjustment pursuant to sub-clause (b) above
shall have the effect of increasing the Conversion Price to an amount
which exceeds the lower of (1) the Conversion Price on the original
adjustment date, or (2) the Conversion Price that would have resulted from
any issuance of additional shares of Common Stock between the original
adjustment date and such readjustment date.
(vi) DETERMINATION OF CONSIDERATION. For purposes of this
Section 2.2, the consideration received by the corporation for the issue
of any additional shares of Common Stock shall be computed as follows:
(a) CASH AND PROPERTY. Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the corporation,
excluding amounts paid or payable for accrued interest or accrued
dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board of Directors; and
(C) in the event additional shares of Common
Stock are issued together with other shares of securities or other assets
of the corporation for consideration which covers both, be the proportion
of such consideration so received, computed as provided in clauses (A) and
(B) above, as determined in good faith by the Board of Directors.
(b) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the corporation for additional shares
of Common Stock deemed to have been issued pursuant to paragraph (v),
relating to options and convertible securities, shall be determined by
dividing
(A) the total amount, if any, received or
receivable by the corporation as consideration for the issue of such
options or convertible securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the corporation
upon the exercise of such options or the conversion or exchange of such
convertible securities, or in the case of options for convertible
securities, the exercise of such options for convertible securities and
the conversion or exchange of such convertible securities, by
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(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to
any provision contained therein for a subsequent adjustment of such
number) issuable upon the exercise of such options or the conversion or
exchange of such convertible securities.
(vii) Upon the occurrence of each adjustment or
readjustment of the conversion rate pursuant to this Section 2.2, the
Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish
to the holder of the Note or the holders of the Series F Preferred Stock,
as the case may be, a certificate signed by the Chief Financial Officer of
the Company setting forth (a) such adjustment or readjustment, (b) the
conversion rate at the time in effect, and (c) the number of shares of
common stock and the amount, if any of other property which at the time
would be received upon the conversion of its shares.
2.3 ISSUANCE OF SERIES F PREFERRED STOCK. In the event the
Company fails to cause the amount of its authorized capital stock to be
sufficient to allow the issuance of the Common Stock to the Holder upon
the Holder's election to convert the Note, the Holder shall be entitled to
convert all or a portion of the Conversion Amount into such number of
shares of the Company's Series F Preferred Stock as would entitle the
Holder upon conversion of the Series F Preferred Stock in accordance with
its terms to convert into the same number of shares of the Common Stock
into which it is entitled to convert pursuant to Section 2.1 hereof.
4. EVENTS OF DEFAULT. New Sections 1.3 and 1.4 are added to the Note as
follows:
1.3 Defaults. An "Event of Default" occurs if:
(i) the Company defaults in the payment of interest hereunder
or under the L&H Speech Note when the same becomes due and payable and the
default continues for a period of ten (10) days;
(ii) the Company defaults in the payment of the principal
hereunder or under the L&H Speech Note when the same becomes due and payable
hereunder; or
(iii) the Company fails to comply with any of its other
covenants and agreements in the Note, the Agreement, or under the L&H Speech
Note or the L&H Speech Agreement and the failure continues for the period and
after the notice specified below; or
(iv) the Company pursuant to or within the meaning of any
Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
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(C) consents to the appointment of a custodian of
it or for all or substantially all of its property,
(D) makes a general assignment for the benefit of
its creditors, or
(E) is the debtor in an involuntary case which is
not dismissed within sixty (60) days of the commencement thereof; or
(v) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) provides for relief against the Company in an
involuntary case,
(B) appoints a custodian of the Company for all or
substantially all of its property, or
(C) orders the liquidation of the Company; or
(vi) any representation or warranty made by the Company in the
Agreement or in the L&H Speech Agreement shall prove to be materially false or
incorrect on the date as of which made; or
(vii) there shall occur a Change in Control of the Company; or
(viii) there shall occur any event or change in circumstances
that has caused or could reasonably be expected in the judgment of Holder to
cause a material adverse effect on the condition, financial or otherwise, of the
assets, operators or prospects of the Company or on the Company's ability to pay
or perform its obligations hereunder or under the Agreement, or under the L&H
Speech Agreement or the L&H Speech Note;
(A) The term "Bankruptcy Law" means Title 11, U.S.
Code or any similar federal or state law for the relief of debtors. The term
"custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
(B) A failure of the Company as described in
subsection (iii) of this Section 1.3 shall not be an Event of Default until the
Holder notifies the Company in writing of the failure to comply and the Company
does not cure the failure to comply within twenty (20) days after receipt of the
notice (the "Cure Period"). The notice must specify the failure to comply,
demand that it be remedied and state that the notice is a "Notice of Default."
When a failure to comply under clause (iv) of this Section 1.3 is cured, it
ceases.
1.4 ACCELERATION.
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(i) If an Event of Default occurs and is continuing, the
Holder may declare the principal of and accrued interest on the Note to be due
and payable and, upon any such declaration, the same shall become and be
immediately due and payable.
(ii) If an Event of Default specified in Section 1.3 (iv) or
(v) occurs, all unpaid principal and accrued interest on the Note then
outstanding shall IPSO FACTO become and be immediately due and payable without
any declaration or other act on the part of the Holder.
(iii) The Holder may rescind an acceleration and its
consequences if all existing Events of Default have been cured or waived, except
nonpayment due to acceleration, and if the rescission would not conflict with
any judgement or decree of a court of competent jurisdiction.
5. GOVERNING LAW. This agreement shall be governed by the laws of the
State of Texas.
6. SUCCESSOR AND ASSIGNS. The terms and provisions of this Amendment shall inure
to the benefit of, and shall be binding upon, the heirs, successors, assigns and
legal representatives of the parties hereto to the same extent as if such heirs,
successors, assigns and legal representatives had joined in the execution
hereof.
EXECUTED as of the Effective Date.
BORROWER:
APPLIED VOICE RECOGNITION, INC., a
Delaware corporation d/b/a x-XXXX.xxx
By: /s/ XXXXXXX X. XXXXXXX
Xxxxxxx X. Xxxxxxx
Chief Financial Officer
(Signatures Continued on Following Page)
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LENDER:
L & H INVESTMENT COMPANY, N.V.,
By: /s/ XXXXXXX XXXXXXXX
Name: Xxxxxxx Xxxxxxxx
Title: Director
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