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EXHIBIT 10.18
THIS CONVERTIBLE NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE
SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
SECURED CONVERTIBLE PROMISSORY NOTE
September 22, 2000 $3,000,000.00
FOR VALUE RECEIVED, LANGUAGEWARE.NET (Company) LTD., an Israeli
corporation (hereinafter called the "Borrower" or "Company") hereby promises to
pay to the order Technology Fund II Pte Ltd., a company organized under the laws
of Singapore (the "Lender") the sum of THREE MILLION and no/100 dollars
($3,000,000.00) or so much thereof as may be advanced pursuant to paragraph 1 of
this Promissory Note ("Note"), on March 22, 2001 (the "Maturity Date"), and to
pay interest on the unpaid principal balance hereof at the prime rate of
interest as determined by the Wall Street Journal on the date hereof (the "Issue
Date") plus two hundred (200) basis points until the same becomes due and
payable whether at maturity or upon acceleration or otherwise. Interest on any
outstanding principal balance shall commence accruing on the Issue Date and, to
the extent not converted in accordance with the provisions of paragraph 3 below,
shall be payable on the Maturity Date. All payments of interest (to the extent
not converted in accordance with the terms hereof) shall be made in lawful money
of the United States of America. All payments shall be made at such address as
the Lender shall hereafter give to the Borrower by written notice made in
accordance with the provisions of this Note.
1. Disbursements. Disbursements of principal shall be made from time to
time as requested by the Borrower. Borrower shall give Lender written notice of
any requested disbursements under this Note ("Disbursement Request"). Such
Disbursement Request shall include the amount of the requested disbursement, the
required date of receipt of the disbursement (which shall not be less than three
(3) business days from the date of the Disbursement Request) and wire transfer
instructions for receipt of such disbursement. Lender shall not be required to
disburse more than $500,000 per month unless otherwise agreed to by Lender.
Borrower shall have no obligation to request disbursement of any principal
hereunder.
Upon determination by Lender that Borrower has met all requirements
under this Agreement, Lender shall disburse to the Borrower the amount set forth
in the Disbursement Request via wire transfer of immediately available funds
within the time set forth in the applicable Disbursement Request.
2. Prepayment Borrower shall have no right to prepay the outstanding
principal on this Note unless such prepayment is approved by Lender in its
absolute and sole discretion.
3. Conversion. At any time after the Issue Date, if the principal
amount of this Note has not been paid in full, Lender shall have the right to
convert all or any portion of the outstanding principal amount of this Note and
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any accrued but unpaid interest on this Note into ordinary shares of the
Borrower, par value NIS 0.01 ("Common Stock"). Lender may exercise its
conversion right by delivering to the Borrower a written notice stating that
Lender elects to convert into Common Stock all or a portion of the principal of
and interest on the Note as provided herein. Conversion shall be effective as of
the close of business on the date of delivery of such notice. As promptly as
practicable thereafter, the Borrower shall issue and deliver to Lender a
certificate for the shares of Common Stock issuable upon such conversion. Any
person in whose name the certificate for Common Stock is to be issued shall be
considered to have become a Lender of record of such Common Stock as of the
close of business on the date of the conversion ("Conversion Date"). The
Borrower shall not be required to issue fractional shares of Common Stock on the
conversion of the Note. If any fraction of a share would be issuable on the
conversion of the Note, such fractional share shall be disregarded and the
number of shares of Common Stock issuable upon conversion shall be the next
higher whole number of shares.
4. Conversion Price. The number of shares of Common Stock issuable upon
conversion of the Note pursuant to paragraph 3 hereof shall be the number of
shares equal in value to the amount of the principal and interest to be
converted. The per share value of the Common Stock ("Conversion Price") shall be
the lesser of (a) $0.20; or (b) the lowest price per share received by the
Borrower between the Issue Date and the Maturity Date from the sale of its
Common Stock in an aggregate amount of not less than $6,000,000 to third parties
not related to the Lender ("Next Financing").
5. Warrants. Borrower will issue to Lender warrants to purchase a
number of shares of Common Stock equal to one hundred percent (100%) of the
number of shares issuable to Lender upon conversion of any outstanding principal
drawn by Borrower pursuant to paragraph 1 and any accrued but unpaid interest on
such principal converted by Lender hereunder. The exercise price of the warrants
shall be the lesser of (a) $0.20; or (b) the price per share received by the
Borrower in the Next Financing. Such warrants shall be issued upon request by
Lender, will be exercisable upon issuance and will expire December 31, 2001. The
warrants issuable hereunder for amounts of principal drawn by Borrower shall be
granted irrespective of whether such outstanding principal is converted, repaid
or prepaid. Warrants issuable hereunder for accrued but unpaid interest on any
principal drawn by Borrower shall only be issued upon conversion of such
interest by Lender.
6. Merger or Acquisition. In the event of a merger or acquisition of
the Company or a sale of all or substantially all of the Company's assets on or
before the Maturity Date, Lender shall have the option of (i) converting the
outstanding principal and accrued but unpaid interest into Common Stock of the
Company at the lesser of (x) $0.20 per share or (y) or the per-share merger,
acquisition or sales price or (ii) having the outstanding principal and all
accrued but unpaid interest fully repaid upon the closing of the merger,
acquisition or sale.
In the event of a merger or acquisition of the Company or a sale of all
or substantially all of the Company's assets on or before the Maturity Date, the
exercise price of any unexercised warrants shall be the lesser of (i) $0.20 per
share or (ii) or the per-share merger, acquisition or sales price.
7. Reservation of Shares. On the Issue Date, the Borrower shall have
authorized and reserved and shall thereafter keep available for issuance from
its authorized but unissued shares of Common Stock not less than 30,000,000
shares of Common Stock solely for the purpose of issuance upon conversion of
this Note and any warrants to be issued hereunder. Such number of authorized but
unissued shares of Common Stock so reserved shall not be decreased, except in
the case of reverse stock splits and similar transactions.
8. REGISTRATION RIGHTS. WHENEVER THE BORROWER PROPOSES TO FILE A
REGISTRATION STATEMENT WITH THE UNITED STATES SECURITIES EXCHANGE COMMISSION
INVOLVING AN OFFERING OF BORROWER'S COMMON STOCK
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BY BORROWER OR ANY SHAREHOLDERS OF BORROWER, BORROWER WILL, PRIOR TO SUCH
FILING, GIVE WRITTEN NOTICE TO ALL HOLDERS OF THE SHARES OF COMMON STOCK ISSUED
OR ISSUABLE UPON CONVERSION OF THIS NOTE AND THE SHARES UNDERLYING THE WARRANTS
GRANTED HEREIN (COLLECTIVELY, THE "CONVERSION SHARES") OF ITS INTENTION TO DO
SO. UPON THE WRITTEN REQUEST OF THE HOLDER OF THIS NOTE OR THE CONVERSION
SHARES, GIVEN WITHIN 20 DAYS AFTER THE BORROWER PROVIDES SUCH NOTICE, THE
BORROWER SHALL USE ITS BEST EFFORTS TO CAUSE ALL CONVERSION SHARES TO BE
INCLUDED IN SUCH REGISTRATION STATEMENT. SO LONG AS LENDER IS AN "AFFILIATE" OF
THE COMPANY, LENDER SHALL AT ANY TIME AFTER SIX (6) MONTHS AFTER THE DATE OF
THIS NOTE HAVE THE RIGHT TO DEMAND THE COMPANY TO REGISTER ALL OF THE SHARES
ISSUED UPON CONVERSION OF THE NOTE AND SHARES UNDERLYING THE WARRANTS ON A SEC
FORM S-3 REGISTRATION STATEMENT, AND IF THE COMPANY IS NOT ELIGIBLE TO USE FORM
S-3, SUCH OTHER FORM AS MAY BE ACCEPTABLE TO THE LENDER.
9. Stock Splits, Stock Dividends, Etc. If at any time on or after the
Issue, the number of outstanding shares of Common Stock is increased by a stock
split, stock dividend, combination, reclassification or other similar event, the
Conversion Price shall be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, the Borrower
shall notify the Borrower's transfer agent of such change on or before the
effective date thereof.
10. Restrictions on Shares. The shares of Common Stock issuable upon
conversion of this Note and any warrants issued hereunder may not be sold or
transferred unless (i) they first shall have been registered under the
Securities Act and applicable state securities laws, (ii) the Borrower shall
have been furnished with an opinion of legal counsel (in form, substance and
scope reasonably satisfactory to the Borrower) to the effect that such sale or
transfer is exempt from the registration requirements of the Securities Act or
(iii) they are sold pursuant to Rule 144 under the Securities Act. Each
certificate for shares of Common Stock issuable upon conversion of this Note or
any warrants issued hereunder that have not been so registered and that have not
been sold pursuant to an exemption that permits removal of the legend, shall
bear a legend substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
IN FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE BORROWER
THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT. ANY SUCH SALE, ASSIGNMENT OR
TRANSFER MUST ALSO COMPLY WITH APPLICABLE STATE SECURITIES LAWS.
11. Events of Default. If any of the following events of default (each,
an "Event of Default") shall occur:
a. the Borrower fails (i) to pay the principal hereof when due,
whether at maturity, upon acceleration or otherwise or (ii) to pay any
installment of interest hereon when due and such failure continues for a period
of five (5) business days after the due date thereof,
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b. the Borrower provides notice to the Lender, including by way of
public announcement, at any time, of its intention not to issue shares of Common
Stock to the Lender upon conversion in accordance with the terms of the Notes,
c. the Borrower shall:
(i) sell, convey or dispose of all or substantially all of its
assets; or
(ii) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Borrower); or
d. the Borrower or any subsidiary of the Borrower shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed; or
e. bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Borrower or any
subsidiary of the Borrower;
then, upon the occurrence and during the continuation of any Event of Default,
all outstanding principal amount of this Note and accrued and unpaid interest
thereon, together with all other ancillary amounts payable hereunder shall
immediately become due and payable, all without demand, presentment or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses of collection, and the Lender shall
be entitled to exercise all other rights and remedies available at law or in
equity.
12. Representations and Warranties of Borrower. The Borrower hereby
represents and warrants to the Lender as follows, subject to its disclosures in
its most recent Forms 10-K and 10-Q.
a. Legal Status. The Borrower is a corporation, duly incorporated
and validly existing under Israeli Law, and has the power and authority to own
its property, to conduct its business as currently conducted and to consummate
the transactions contemplated in this Note.
b. Power and Authority The Borrower has taken all necessary action
to authorize the execution of this Note to which it is a party, the performance
of its obligations hereunder and thereunder and the consummation. of the
transactions contemplated herein and therein. All governmental and regulatory
authorizations and consents of any kind necessary to authorize the Loans or
required for the validity or enforceability of this Note have been obtained or
performed and are valid and in full force and effect.
c. Validity. This Note has been duly executed by the Borrower and
constitute legal, valid and binding obligations of the Borrower enforceable
against it in accordance with its terms.
d. No Defaults. No event has occurred and is continuing that
constitutes or would constitute an Event of Default hereunder.
e. Business and Management. The Company shall in good faith
implement the new business plan approved by the Board of Directors on September
11, 2000. A failure to do so or any change or adjustment by the Company of any
senior management personnel without
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the prior written consent of the Lender shall each constitute an event of
default under the Note, if not cured within ten (10) business days of notice of
such default by Lender. The Company shall use its best commercial efforts to cap
its operating expenses to no more than $600K per month for the first two months
and no more than $500K per month thereafter.
f. Additional Debt. Unless agreed upon by Lender, Borrower shall
not incur any indebtedness in addition to the amounts available under this Note
unless such additional indebtedness is expressly subordinated to this Note in
all respects.
g. Repetition of Representations and Warranties. Each of the
representations and warranties set forth in this paragraph 11 shall be deemed to
be repeated at all times during the term of this Note.
13. Application of Payments. All payments received by the Lender from
the Borrower shall, regardless of any appropriation of all or part of that
amount by the Borrower be applied, first, in or towards payment of any interest
(including late payment interest) then due and payable hereunder, second, to
payment of any principal then due and payable hereunder and third, in or towards
payment of arty other sum then due and payable hereunder.
14. Costs of Collection. If this Note is placed in the hands of an
attorney for collection through the institution of a judicial proceeding, and
Lender is successful in such proceeding, then Maker agrees to pay, in addition
to all other amounts owing hereunder, the reasonable attorneys' fees and
collection costs of Lender arising specifically out of the collection of this
Note.
15. Grant of Security Interest. To secure the due payment of this Note
and performance of Borrower's obligations, Borrower hereby assigns as collateral
security, pledges, hypothecates, transfers and sets over to Lender and grants to
Lender a lien on and security interest in all assets in which Borrower has a
present or future interest, now or hereafter existing or acquired, and wherever
located, tangible or intangible, including but not limited to all intellectual
property of the Borrower. Borrower agrees to execute all such documents as may
reasonably be requested by Lender in order to perfect the security interests
granted herein.
16. Notices. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by courier and shall be
deemed to have been given upon receipt (which shall include telephone line
facsimile transmission). The addresses for such communications shall be:
If to the Borrower:
LanguageWare.net (Company) Ltd.
102 South Tejon, Suite 320
Colorado Springs, CO 80903
Attn: Tom Foster, CFO
If to the Lender:
Technology Fund II Pte Ltd.
9 Scotts Road, #06-01 Pacific Plaza
Singapore 228210
Attn: Thomas Ng
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17. Remedies and Waivers. No failure or delay on the part of the Lender
in exercising any right hereunder shall operate as a waiver of, or impair, any
such tight. No single or partial exercise of any such right shall preclude any
other or further exercise thereof or the exercise of arty other right. No waiver
of any such right shall be effective unless given in writing. No waiver of any
such right shall be deemed a waiver of any other right hereunder.
18. Assignability. This Note shall be binding upon and inure to the
benefit of the Borrower and the Lender and their respective successors and
assigns; provided, however, that the neither the Borrower nor Lender shall
assign any of its rights or obligations under this Note without the prior
written consent of the other party, such consent not to be unreasonably
withheld.
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its duly authorized officer this 27th day of September, 2000.
LANGUAGEWARE.NET (COMPANY) LTD.
By: /s/ Thomas B. Foster
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Name: Thomas B. Foster
Title: Chief Financial Officer
TECHNOLOGY FUND II PTE LTD.
By: /s/ Glenn Chin-Yuen Chao
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Name: Glenn Chin-Yuen Chao
Title: Director