EXHIBIT 10.4
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.
1.1 SALE AND ISSUANCE OF NOTE AND WARRANT. Subject to the terms and
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 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 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 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
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 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
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
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
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, 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 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 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 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 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
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 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 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" 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 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 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
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
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 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 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.
6.1 CONSTRUCTION. This Agreement shall be governed, construed and 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 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
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 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 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
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 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
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: _____________________________
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: _____________________________
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
NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR ANY OF THE SECURITIES ISSUABLE
HEREUNDER HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT
TO THE SECURITIES, OR DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE COMPANY THAT SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION IS IN COMPLIANCE WITH THE ACT OR UNLESS SOLD IN FULL
COMPLIANCE WITH RULE 144 UNDER THE ACT.
Houston, Texas
July 20, 1999
APPLIED VOICE RECOGNITION, INC.
d/b/a x-XXXX.xxx
CONVERTIBLE PROMISSORY NOTE
Applied Voice Recognition, Inc., a Delaware corporation, doing business as
x-XXXX.xxx (the "Company"), for value received, hereby promises to pay to
Investor (the "Holder"), the principal amount of Two Hundred Fifty Thousand and
No/100 Dollars ($250,000.00) (the "Issue Price"), together with interest on the
unpaid amount thereof in accordance with the terms hereof, from the date hereof
until paid or converted in accordance with the terms hereof.
1. TERMS OF THE CONVERTIBLE PROMISSORY NOTE (THE "NOTE").
1.1 INTEREST RATE. The rate of interest hereunder ("Interest Rate") shall
be nine percent (9%) per annum and shall be computed on the basis of a 365 day
year for the actual number of days elapsed.
1.2 PAYMENT. Subject to the provisions of Section 2 regarding conversion
of this Note, the Issue Price plus all accrued but previously unpaid interest
thereon (the "Conversion Amount") shall become due and payable on the earliest
of (i) November 24, 1999 (ii) immediately prior to the closing of the
acquisition of a majority of stock of the Company by another entity by means of
a transaction or a series of related transactions or (iii) the closing of the
sale of all or substantially all of the assets of the Company, unless the
Company stockholders of record prior to such acquisition or sale set forth in
(ii) and (iii) above shall hold at least fifty
percent (50%) of the voting power of the acquiring or surviving entity
immediately after such acquisition or sale ("Due Date"). Payment shall be made
at the offices or residence of the Holder, or at such other place as the Holder
shall have designated to the Company in writing, in lawful money of the United
States of America.
1.3 CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT. This Note is issued
by the Company in connection with that certain Convertible Promissory Note and
Warrant Purchase Agreement dated the date hereof (the "Agreement") among the
Company and the Holder, and is subject to, and Holder and the Company shall be
bound by, all the terms, conditions and provisions of the Agreement.
2. CONVERSION.
2.1 TIMING. Upon the completion of the Next Qualified Equity Financing (as
defined below), the Conversion Amount shall be automatically converted into that
number of fully paid and nonassessable shares of the Company's Next Stock
(defined below) issued in the Next Qualified Equity Financing as is equal to the
Conversion Amount divided by the lower of (i) per share purchase price of the
Next Stock or (ii) one dollar ($1.00) (the "Per Share Price"), with any fraction
of a share rounded up to the next whole share of the Next Stock. Provided,
however, that if there is no Next Qualified Equity Financing before November 24,
1999, then the Note shall become due and payable upon the demand of the Holder
at any time on or after November 24, 1999.
2.2 NEXT QUALIFIED EQUITY FINANCING. The term "Next Qualified Equity
Financing" is defined for purposes of this Note in Section 1.5 of the Agreement
of even date herewith.
2.3 NEXT STOCK. The term "Next Stock" is defined for purposes of this Note
in Section 1.6 of the Agreement.
2.4 CONVERSION PROCEDURE. Written notice of the Next Qualified Equity
Financing shall be delivered to the Holders of this Note before or promptly
after the closing date of the Next Qualified Equity Financing (the "Conversion
Date"), at the address last shown on the records of the Company for the Holder
or given by the Holder to the Company for the purpose of notice (or, if no such
address appears or is given, at the residence of the Holder), notifying the
Holder of the conversion to be effected, including specifying (i) the Conversion
Amount
(calculated as of the Conversion Date), (ii) the Per Share Price, (iii) a term
sheet setting forth the rights, preferences, privileges and terms and conditions
of issuance and sale of the Next Stock and the Conversion Date, and (iv) copies
of all relevant documentation evidencing the sale of the Next Stock in the Next
Qualified Entity Financing including any associated warrants, stock purchase
agreement, stock restriction agreement, and investor's rights agreement. The
Holder shall have no right to negotiate any of the terms or conditions upon
which the Next Stock shall be issued, which negotiation shall be conducted
solely among the Company and the purchasers of the Next Stock.
2.5 TERMINATION OF RIGHTS UPON CONVERSION. Provided notice is given by the
Company in accordance with Section 2.4, conversion shall be deemed effective on
the Conversion Date, and the Holders of this Note shall have no further rights
under this Note, whether or not this Note is surrendered. Conversion shall be
deemed effective upon issuance of Next Stock.
2.6 DELIVERY OF STOCK CERTIFICATES. As promptly as practicable after any
conversion of this Note and the Holders' surrender of this Note, the Company, at
its expense, shall issue and deliver to the Holders of this Note a certificate
or certificates evidencing the number of shares of Next Stock issuable to the
Holders upon any such conversion and any associated warrant.
3. MISCELLANEOUS.
3.1 TRANSFER OF NOTE. This Note shall not be transferable or assignable in
any manner, except to affiliates of Investor, and no interest shall be pledged
or otherwise encumbered by the Holders without the express written consent of
the Company, and any such attempted disposition of this Note or any portion
hereof shall be of no force or effect.
3.2 TITLES AND SUBTITLES. The titles and subtitles used in this Note are
for convenience only and are not to be considered in construing or interpreting
this Note.
3.3 NOTICES. Any notice required or permitted under this Note shall be
given in writing and in accordance with Section 6.3 of the Agreement (for
purposes of which the term "Investor" shall mean the Holder hereunder), except
as otherwise expressly provided in this Note.
3.4 ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Note, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and disbursements in addition to
any other relief to which such party may be entitled.
3.5 AMENDMENTS AND WAIVERS. This Note is issued by the Company pursuant to
that certain Convertible Promissory Note and Warrant Purchase Agreement dated
July 20, 1999. Other than the right to the payment of the Issue Price and all
accrued but unpaid interest thereon, which may only be amended or waived with
the written consent of the Holder, any other term of this Note may be amended
and the observance of any other term of this Note may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the Holder, and in
accordance with the Agreement. Any amendment or waiver effected in accordance
with this Section 3.5 shall be binding upon the Holder of this Note (and of any
securities into which this Note is convertible), each future holder of all such
securities and the Company.
3.6 SEVERABILITY. If one or more provisions of this Note are held to be
unenforceable under applicable law, such provision shall be excluded from this
Note and the balance of the Note shall be interpreted as if such provision were
so excluded and shall be enforceable in accordance with its terms.
3.7 GOVERNING LAW. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of Texas, without giving
effect to its conflicts of laws principles.
Date: July 20, 1999 APPLIED VOICE RECOGNITION, INC.,
d/b/a x-XXXX.xxx, a Delaware
corporation
By: _______________________________
Xxxxxxx X. Xxxxxxx,
Chief Financial Officer
[SIGNATURE PAGE TO
CONVERTIBLE PROMISSORY NOTE]
EXHIBIT B
FORM OF WARRANT
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NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT") OR THE
SECURITIES LAWS OF ANY STATE; THEREFORE, THIS WARRANT AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF MAY NOT BE SOLD OR TRANSFERRED EXCEPT UPON SUCH
REGISTRATION OR UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED FOR SUCH SALE
OR TRANSFER.
WARRANT TO PURCHASE COMMON STOCK
OF
APPLIED VOICE RECOGNITION, INC.
VOID AFTER JULY 31, 2002
This certifies that G-51 CAPITAL LLC, a Texas limited liability
company ("G-51"), is entitled to purchase such number of shares of fully paid
and nonassessable shares of Common Stock, $0.001 par value (the "Common Stock")
as is described below, of Applied Voice Recognition, Inc., a Delaware
corporation doing business as x-XXXX.xxx (the "Company"), at a price equal to
$1.25 per share. This Warrant is issued pursuant to that certain Convertible
Promissory Note and Warrant Purchase Agreement dated of even date herewith (the
"Purchase Agreement"). Pursuant to the Purchase Agreement, the Company also
issued G-51 that certain Convertible Promissory Note dated July 20, 1999 (the
"Note"). Shares may be purchased at any time, in whole or in part, after the
earlier of (i) the date of the closing of the Company's Next Qualified Equity
Financing (as defined in the Purchase Agreement), (ii) the date of the Company's
repayment of all principal and interest due under the Note, or (iii) November
24, 1999; provided, however, in no event may this Warrant be exercised later
than 5:00 p.m. (Houston Time) on July 31, 2002 (the period during which Shares
may be purchased being referred to herein as the "Exercise Period").
The purchase price per share of Common Stock from time to time in
effect under this Warrant, and the number and character of shares covered
hereby, shall be subject to adjustments from time to time in certain instances
as follows, and the term "Exercise Price" shall mean the price
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per share originally set forth in this Warrant or any price resulting from
adjustments pursuant to the terms hereof. The shares of Common Stock deliverable
upon such exercise, and as adjusted from time to time, are hereinafter sometimes
referred to as "Warrant Stock". The term "Holder" shall refer to G-51 or any
person holding this Warrant in accordance with the terms hereof.
(a) EXERCISE OF WARRANT.
(1) Subject to and in accordance with the provisions hereof, this
Warrant may be exercised in whole or in part during the Exercise Period,
by presentation and surrender hereof to the Company or at the office of
its stock transfer agent, if any, with the Purchase Form annexed hereto
duly executed and accompanied by payment of the Exercise Price for the
number of shares specified in such form, together with all applicable
federal and state taxes. If this Warrant should be exercised in part only,
the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to
purchase the balance of the shares purchasable hereunder. Upon receipt by
the Company of this Warrant at the office or agency of the Company, in
proper form for exercise and pursuant to compliance herewith, together
with payment of the Exercise Price, the Holder shall be deemed to be the
holder of record, for all purposes, of the shares of Common Stock issuable
upon such exercise, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder. Upon
receipt of the required deliveries, the Company shall, as promptly as
practicable, and in any event within ten days thereafter, cause to be
issued and delivered to the Holder hereof or the transferee designated in
the Purchase Form a certificate or certificates representing the aggregate
number of full shares of Common Stock issuable upon such exercise
registered in the name of the Holder hereof, or the name of the transferee
so designated, as the case may be.
(2) In addition to the method of payment set forth in paragraph (1)
above and in lieu of any cash payment required thereunder, the Holder
shall have the right at any time and from time to time to exercise this
Warrant in full or in part by surrendering this Warrant in the manner
specified in paragraph (1) above in exchange for the number of shares of
Common Stock equal to the product of (x) the number of shares to which
this Warrant is being exercised multiplied by (y) a fraction, the
numerator of which is the Market Price (as herein defined) of the Common
Stock less the Exercise Price (as herein defined) and the denominator of
which is such Market Price. Solely for the purposes of this paragraph (2),
Market Price shall be calculated either (i) on the date on which the
Purchase Form attached hereto is deemed to have been sent to the Company
pursuant to paragraph (1) hereof ("Notice Date") or (ii) as the average of
the Market Price for each of the fifteen trading days preceding the Notice
Date, whichever of (i) or (ii) is greater.
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(b) NO IMPAIRMENT. The Company hereby agrees that (i) at all times there
shall be reserved for issuance and delivery upon exercise of this Warrant such
number of shares of its Common Stock as shall be required for issuance and
delivery upon exercise of this Warrant, and (ii) it will take all action as may
be necessary in order that all shares of stock as may be issued pursuant to this
Warrant shall, upon issuance, be duly and validly issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issuance thereof.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, after
payment of the Exercise Price for such fractional share by the Holder, the
Company shall round the number of shares issued upon the exercise of this
Warrant to the next highest full share.
(d) ASSIGNMENT OF WARRANT OR WARRANT STOCK OR LOSS OF WARRANT.
(1) This Warrant may not be sold, transferred, assigned or
hypothecated at any time after its execution and delivery, except upon
compliance with the requirements of this Warrant and any applicable state
or federal securities laws. Shares of Common Stock issued pursuant to this
Warrant shall be subject to the same holding period as shares of Common
Stock issued upon conversion of the Note, which holding period is
described in the Purchase Agreement.
(2) Any sale, assignment, transfer or hypothecation of this Warrant
shall be made by surrender of this Warrant to the Company or at the office
of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and accompanied with funds sufficient to pay any
transfer tax; whereupon, the Company shall, after first receiving such
evidence as the Company may reasonably require as to compliance with this
Warrant, without charge, execute and deliver a new Warrant in the name of
the assignee named in such instrument of assignment and this Warrant shall
promptly be canceled.
(3) The term "Warrant" as used herein includes any Warrant issued in
substitution for or replacement of this Warrant. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of this
Warrant, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will at its expense execute and deliver a new
Warrant of like tenor and date. When authorizing the execution and
delivery
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of a new Warrant to replace a Warrant lost, stolen or destroyed,
the Board of Directors of the Company may, in its sole discretion and as a
condition precedent thereto, require the Holder to deliver an affidavit in
a form satisfactory to the Board of Directors of the Company and to
indemnify the Company against any claim that may be made against the
Company with respect to such lost, stolen or destroyed Warrant.
(e) ANTI-DILUTION AND ADJUSTMENT PROVISIONS. The purchase price per share
of Common Stock from time to time in effect under this Warrant, and the number
and character of shares covered hereby, shall be subject to adjustments from
time to time in certain instances as follows, and the term "Exercise Price"
shall mean the price per share originally set forth in this Warrant or any price
resulting from adjustments pursuant to the terms hereof.
(1) In case the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares or shall issue in exchange
for its outstanding shares of Common Stock a greater number of shares of
Common Stock, then in each such case from and after the record date for
such subdivision or exchange, the number of shares of Common Stock covered
by this Warrant shall be increased in proportion to such increase in the
number of outstanding shares of Common Stock and the Exercise Price then
in effect shall be correspondingly decreased; and in the case the Company
shall reduce the number of shares of its Common Stock by a combination of
shares or shall issue in exchange for its outstanding shares of Common
Stock a lesser number of shares of Common Stock, then in each such case
from and after the record date for such combination or exchange, the
number of shares of Common Stock covered by this Warrant shall be
decreased in proportion to such reduction in the number of outstanding
shares of Common Stock, and the then prevailing Exercise Price shall be
correspondingly increased.
(2) In case the Company shall declare and pay a dividend upon its
Common Stock payable in Common Stock, then in each such case from and
after the record date for determining the stockholders entitled to receive
such dividend, the number of shares of Common Stock covered by this
Warrant shall be increased in proportion to the increase in the number of
outstanding shares of Common Stock through such stock dividend, and the
then prevailing Exercise Price shall be correspondingly decreased.
(3) In case of any reclassification or change of
outstanding shares of Common Stock (other than as a result of a
subdivision, combination or stock dividend) or in case of the
consolidation or merger of the Company with or into any other corporation
(other than a merger in which the Company is the continuing corporation
and which does not result in any reclassification or change in its
outstanding shares of
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Common Stock), or in case of any sale by the Company of all or
substantially all of its assets to another corporation, the Holder shall
have the right thereafter to receive upon exercise of this Warrant the
amount and kind of shares of capital stock and other securities and
property entitled to be received upon such reclassification, change,
consolidation, merger or sale by a holder of the number of shares of Common
Stock of the Company covered by this Warrant at the then prevailing
Exercise Price, subject to subsequent adjustments as provided herein.
(f) NUMBER OF SHARES. This Warrant may be exercised for the number of
shares of Common stock equal to:
X = A X B
C
A = 15% if the Next Qualified Equity Financing has occurred on
or before August 20, 1999; 20% if the Next Qualified Equity Financing has
occurred after August 20, 1999, but on or before September 20, 1999; 30% if the
Next Qualified Equity Financing has occurred after September 20, 1999, but on or
before October 20, 1999; 40% if the Next Qualified Equity Financing has occurred
after October 20, 1999, but on or before November 24, 1999; and 50% if the Next
Qualified Equity Financing has not occurred on or before November 24, 1999.
B = Original principal amount of Note.
C = The per share value of each share of the Company's Common
Stock sold at the Next Qualified Equity
Financing.
X = The number of shares of the Company's Common Stock for which
this Warrant (together with payment of the exercise price) is exercisable.
(g) NOTICES TO HOLDER. So long as this Warrant shall be outstanding and
unexercised (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company,
-6-
consolidation or merger of the Company with or into another corporation, sale,
lease or transfer of all or substantially all of the property and assets of the
Company to another corporation, or voluntary or involuntary dissolution,
liquidation or winding up of the Company shall be effected, then, in any such
case, the Company shall cause to be delivered to the Holder, at least ten days
prior to the date specified in (x) and at least thirty days prior to the date
specified in (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date on which (x) a record is
to be taken for the purpose of such dividend, distribution or rights, or (y)
such reclassification reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and at least twenty (20)
days prior notice as to the date, if any is to be fixed, as of which the holders
of Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation, or
winding up.
(h) TRANSFER TO COMPLY WITH THE SECURITIES ACT.
(1) This Warrant or the Warrant Stock or any other security issued or
issuable upon exercise of this Warrant may not be offered or sold except
in conformity with the Securities Act, and then only against receipt of an
agreement of such person to whom such offer of sale is made to comply with
the provisions of this Section (h) with respect to any resale or other
disposition of such securities.
(2) The Company may cause the legends set forth at the top of the
first page hereof to be set forth on each Warrant and the following
legends to be set forth on each certificate representing Warrant Stock,
unless counsel for the Company is of the opinion as to any such
certificate that such legend is unnecessary:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE OR THE SECURITIES
LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED
EXCEPT UPON SUCH REGISTRATION OR UPON DELIVERY TO THE CORPORATION OF
AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT
REGISTRATION IS NOT REQUIRED FOR SUCH SALE OR TRANSFER.
-7-
(i) APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
(j) NOTICE. Any notices or certificates by the Company to the Holder and
by the Holder to the Company shall be deemed delivered if in writing and
delivered personally or five (5) days after being sent by certified mail or
registered mail, return receipt requested, to the Holder. For purposes hereof,
the address of the Holder shall be 000 X. 00xx Xxxxxx, Xxxxxx, Xxxxx 00000,
Attention: President, and the address of the Company shall be 0000 Xxxx Xxx
Xxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000, Attention: Chief Executive Officer;
provided, however, either address may be changed by notice given in accordance
herewith.
(k) NONWAIVER. No course of dealing or any delay or failure to exercise
any right, power or remedy hereunder on the part of the Holder hereof shall
operate as a waiver of or otherwise prejudice such Holder's rights, powers or
remedies.
(l) HOLDER NOT A STOCKHOLDER. Prior to the exercise of this Warrant as
hereinbefore provided, the Holder hereof shall not, by virtue of its ownership
of this Warrant, except as specifically provided herein, be entitled to any of
the rights of a stockholder of the Company including, without limitation, the
right as a stockholder to (a) vote on or consent to any proposed action of the
Company or (b) receive notice of or attend any meetings of stockholders of the
Company or notice of any other proceedings of the Company.
(m) SUCCESSORS AND ASSIGNS. This Warrant and the rights evidenced hereby
shall inure to the benefit of and be binding upon the successors and assigns of
the Company, the Holder hereof and the Holder of the shares of Common Stock
issued upon the exercise hereof, and shall be enforceable by any such Holder.
IN WITNESS WHEREOF, THE COMPANY HAS CAUSED THIS WARRANT TO BE
EXECUTED EFFECTIVE AS OF JULY 20, 1999.
APPLIED VOICE RECOGNITION, INC.,
a Delaware corporation d/b/a x-XXXX.xxx
By: ______________________________________
Xxxxxxx X. Xxxxxxx,
Chief Financial Officer
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PURCHASE FORM
The undersigned, the Holder of the within Warrant, hereby irrevocably
elects to exercise the purchase rights represented by said Warrant for, and to
purchase thereunder, ________ shares of Common Stock, $0.001 par value per
share, of Applied Voice Recognition, Inc., doing business as x-XXXX.xxx, and
herewith makes payment of $___________ in cash therefor and requests that the
certificates for such shares be issued in the name of
_________________________________________ and delivered to
____________________________________, whose address is
_____________________________________________________ and, if such shares shall
not be all of the shares purchasable hereunder, that a new Warrant of like tenor
for the balance of the shares purchasable hereunder be delivered to the
undersigned.
Dated: _________________ ___________________________________
Title:_____________________________
Address: __________________________
__________________________
__________________________
Social Security
or Tax I.D. No. ___________________
ASSIGNMENT IN FULL
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto _______________________________ the within Warrant
and all rights evidenced thereby and does irrevocably constitute and appoint
______________________________, attorney, to transfer the said Warrant on the
books of the within named Company.
Dated: _________________ ___________________________________
___________________________________
Address: __________________________
__________________________
__________________________
Social Security
or Tax I.D. No. ___________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________________ a portion of the
within Warrant and the rights evidenced thereby, TO WIT: the right to purchase
______ shares of Common Stock of __________________________ and does irrevocably
constitute and appoint _________________________, attorney, to transfer to such
extent the said Warrant on the books of the within named Company.
Dated: _________________ ___________________________________
___________________________________
Address: __________________________
__________________________
__________________________
Social Security
or Tax I.D. No. ___________________
