Secured Convertible Promissory Note - Caldera Systems Inc. and The Canopy Group Inc.
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR UNDER ANY STATE SECURITIES LAWS. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THESE SECURITIES UNDER THE ACT
OR APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
SECURED CONVERTIBLE PROMISSORY NOTE
OF
CALDERA SYSTEMS, INC.
$2,000,000 September 1, 1998
Caldera Systems, Inc., a Utah corporation (the "COMPANY"), for value
received, hereby promises to pay to The Canopy Group, Inc., a Utah corporation
(the "NOTEHOLDER"), at 240 West Center Street, Orem, Utah 84057, or its assigns,
the sum of Two Million Dollars ($2,000,000), or such other or greater amount as
may be outstanding, plus interest accrued on unpaid principal, compounded
annually, at a rate per annum, calculated initially on the date of this secured
convertible promissory note (this "NOTE") and recalculated on the date of each
annual anniversary convertible of this Note (each such date, a "CALCULATION
DATE"), equal to the prime rate (as determined by the Federal Reserve on such
Calculation Date) less one-half percent (1/2%), from the date of this Note
until the principal amount hereof and all interest accrued thereon is paid (or
converted, as provided in Section 2 hereof). The initial interest rate of
provided this Note shall be 7.25%. The principal amount of this Note, and the
interest accrued thereon, shall be payable at the principal offices of the
Noteholder or by mail to the registered address of the holder of this Note on
the earliest to occur of (i) thirty (30) days after demand, (ii) a default under
this Note in accordance with Paragraph 8 below, (iii) a default as that term
defined in the Security Agreement executed herewith, and (iv) the date thirty
(30) days after the date of any breach by the Company of any agreement with the
Noteholder and/or any affiliate of the Noteholder, unless this Note shall have
been previously converted pursuant to Section 2 hereof or as provided otherwise
in this Note.
The following is a statement of the rights of the holder of this Note and
the conditions to which this Note is subject, and to which the holder hereof, by
the acceptance of this Note, agrees:
1. DEFINITIONS. The following definitions shall apply for all purposes of
this Note:
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1.1 "COMPANY" shall mean the Company as defined above and includes
any corporation which shall succeed to or assume the obligations of the Company
under this Note.
1.2 "CHANGE OF CONTROL TRANSACTION" shall mean a merger,
acquisition, or other business combination in which fifty percent (50%) or more
of the Company's outstanding voting stock is transferred to different holders in
a single transaction or a series of related transactions; provided, however,
that an acquisition by the Noteholder (including its affiliates) of all or
substantially all of the voting securities of the Company shall not constitute a
Change of Control Transaction for the purposes hereunder.
1.3 "CONVERSION DATE" shall mean the date on which, pursuant to
Sections 2 and 3 hereof, the Noteholder exercises its right to convert this Note
into the Conversion Stock at the Note Conversion Price.
1.4 "CONVERSION STOCK" shall mean the shares of common stock, no par
value, of the Company. The number and character of shares of Conversion Stock
are subject to adjustment as provided herein and the term "Conversion Stock"
shall include shares and other securities and property at any time receivable or
issuable upon conversion of this Note in accordance with its terms.
1.5 "NOTE CONVERSION PRICE" shall be $1.00 per share (after giving
effect to the 2-1 forward stock split effected by the Articles of Restatement of
the Company dated November 19, 1998).
1.6 "NOTEHOLDER," "HOLDER," or similar terms, when the context
refers to a holder of this Note, shall mean any person who shall at the time be
the registered holder of this Note.
2. CONVERSION.
2.1 (a) Conversion of Note. At any time, the Noteholder shall have
the right, at the holder's option, to convert the principal and accrued interest
on this Note, in whole or in part, into Conversion Stock at the Note Conversion
Price. Conversion under this Section 2 shall occur only upon surrender of this
Note for conversion at the principal offices of the Company, accompanied by
written notice of election to convert.
(b) Conversion in the Event of Prepayment or Payment of Note.
The Company shall have the right to prepay the entire principal balance, plus
accrued interest, due under the Note at any time prior to the maturity date if
the Note. The Noteholder shall have no obligation to accept any payment less
than the entire principal balance, plus accrued interest. At such time that the
Company has funds immediately available and elects to pay the entire principal
balance and accrued interest (whether as a prepayment or payment at or after
maturity of this Note), the Noteholder shall have fifteen (15) days from the
receipt of notice of the Company's election to pay off the Note to convert the
Note into Conversion Stock at the Note Conversion Price.
2.2 Certain Transactions. The Company shall give written notice to
the
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Noteholder of any Change of Control Transaction at least twenty (20) business
days prior to the date on which such Change of Control Transaction shall take
place. Prior to the closing of such Change of Control Transaction, the Company
shall, at Noteholder's election, either (i) repay all unpaid principal and
interest under this Note or (ii) convert this Note into Conversion Stock at the
Note Conversion Price.
3. ISSUANCE OF CONVERSION STOCK. As soon as practicable after conversion
of this Note, the Company, at its expense, will cause to be issued in the name
of and delivered to the holder of this Note, a certificate or certificates for
the number of shares of Conversion Stock to which the holder shall be entitled
upon such conversion (bearing such legends as may be required by applicable
state and federal securities laws in the opinion of legal counsel of the
Company), together with any other securities and property to which the holder is
entitled upon such conversion under the terms of this Note. Such conversion
shall be deemed to have been made (i) under Section 2 above and (ii) immediately
prior to the close of business on the date that the Note shall have been
surrendered for conversion, accompanied by written notice of election to
convert. No fractional shares will be issued upon conversion of this Note. If
upon any conversion of this Note a fraction of a share would otherwise result,
then, in lieu of such fractional share, the Company will pay the cash value of
that fractional share, calculated on the basis of the applicable Note Conversion
Price.
4. ADJUSTMENT OF NUMBER OF SHARES. The number and character of shares of
Conversion Stock issuable upon conversion of this Note (or any shares of stock
or other securities or property at the time receivable or issuable upon
conversion of this Note) are subject to adjustment upon the occurrence of any of
the following events:
4.1 Adjustment for Stock Splits, Stock Dividends, Recapitalizations,
etc. In the event that the Company shall fix a record date for the determination
of holders of securities affected by any stock split, stock dividend,
reclassification, recapitalization or other similar event that will, in the
future, affect the number of outstanding shares of the Company's capital stock,
then, and in each such case, the Noteholder, upon conversion of this Note at any
time after the Company shall fix the record date for such event, shall receive,
in addition to the shares of Conversion Stock issuable upon conversion on the
Conversion Date, the right to receive the securities of the Company to which
such holder would have been entitled if such holder had converted this Note
immediately prior to such record date (all subject to further adjustment as
provided in this Note).
4.2 Adjustment for Dividends and Distributions. In the event that
the Company shall make or issue, or shall fix a record date for the
determination of eligible holders of securities entitled to receive, a dividend
or other distribution payable with respect to the Conversion Stock (or any
shares of stock or other securities at the time issuable upon conversion of this
Note) that is payable in (a) securities of the Company other than capital stock
or (b) any other assets, then, and in each such case, the Noteholder, upon
conversion of this Note at any time after the consummation, effective date or
record date of such event, shall receive, in addition to the shares of
Conversion Stock (or such other stock or securities) issuable upon such
conversion prior to such date, the securities or such other assets of the
Company to which such holder would have been entitled upon such date if such
holder had converted this Note immediately prior thereto (all subject to further
adjustment as provided in this Note).
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4.3 Adjustment for Reorganization, Consolidation, Merger. In the
event of any reorganization not considered a Change of Control Transaction of
the Company (or any other corporation the stock or other securities of which are
at the time receivable upon the conversion of this Note) after the date of this
Note, or in the event, after such date, the Company (or any such corporation)
shall consolidate with or merge into another corporation or convey all or
substantially all of its assets to another corporation where such transaction is
not considered a Change of Control Transaction, then, and in each such case, the
Noteholder, upon the conversion of this Note (as provided in Section 2) at any
time after the consummation of such reorganization, consolidation, merger or
conveyance, shall be entitled to receive, in lieu of the stock or other
securities and property receivable upon the conversion of this Note prior to
such consummation, the stock or other securities or property to which such
Noteholder would have been entitled upon the consummation of such
reorganization, consolidation, merger or if such holder had converted this Note
immediately prior thereto, all subject to further adjustment as provided in this
Section 4, and the successor or purchasing corporation in such reorganization,
consolidation, merger or conveyance (if other than the Company) shall duly
execute and deliver to the Noteholder a supplement hereto acknowledging such
corporation's obligations under this Note. In each such case, the terms of the
Note shall be applicable to the shares of stock or other securities or property
receivable upon the conversion of this Note after the consummation of such
reorganization, consolidation, merger or conveyance.
4.4 Conversion of Stock. In the event that all of the authorized
Conversion Stock of the Company is converted, pursuant to the Company's Articles
of Incorporation, into other capital stock or securities or property, or the
Conversion Stock otherwise ceases to exist, then the Noteholder, upon conversion
of this Note at any time after the date on which the Conversion Stock is so
converted or ceases to exist (the "TERMINATION DATE"), shall receive, in lieu of
the number of shares of Conversion Stock that would have been issuable upon such
conversion immediately prior to the Termination Date (the "FORMER NUMBER OF
SHARES OF CONVERSION STOCK"), the stock and other securities and property to
which such Noteholder would have been entitled to receive upon the Termination
Date if such holder had converted this Note with respect to the Former Number of
Shares of Conversion Stock immediately prior to the Termination Date (all
subject to further adjustment as provided in this Note).
4.5 Notice of Adjustments. The Company shall promptly give written
notice of each adjustment or readjustment of the number of shares of Conversion
Stock or other securities issuable upon conversion of this Note, by first class
mail, postage prepaid, to the registered holder of this Note at the holder's
address as shown on the Company's books. The notice shall describe the
adjustment or readjustment and show in reasonable detail the facts on which the
adjustment or readjustment is based.
4.6 No Change Necessary. The form of this Note need not be changed
because of any adjustment in the number of shares of Conversion) Stock issuable
upon its conversion.
4.7 Reservation of Stock. The Company has taken all necessary
corporate action and obtained all necessary Government consents and approvals to
authorize the issuance of this Note and, prior to the conversion hereof, the
shares of Conversion Stock issuable upon
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conversion of this Note. If at any time the number of authorized but unissued
Common Shares or other securities shall not be sufficient to effect the
conversion of this Note, then the Company will take such corporate action as
may, in the opinion of its legal counsel, be necessary to increase its
authorized but unissued Common Shares or other securities to such number of
shares of Common Shares or other securities as shall be sufficient for such
purpose.
5. FULLY PAID SHARES. All shares of Conversion Stock issued upon the
conversions this Note shall be validly issued, fully paid and non-assessable.
6. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. This Note does not by itself
entitle the Noteholder to any voting rights or other rights as a shareholder of
the Company. In the absence of conversion of this Note, no provisions of this
Note, and no enumeration herein of the rights or privileges of the holder, shall
cause such holder to be a shareholder of the Company for any purpose.
7. CORPORATE ACTION; NO IMPAIRMENT. The Company will not, by amendment of
its Articles of Incorporation or bylaws, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities, repurchase of
securities, sale of assets or any other action, avoid or seek to avoid the
observance or performance of any of the terms of this Note, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Noteholder under this Note against wrongful Impairment. The
Company shall not amend its Articles of Incorporation or issue any capital stock
or options to purchase any capital stock of the Company without the prior
written consent of the Noteholder.
8. DEFAULT. The Company will be in default if the Company fails to make
any payment when due hereunder. The Company will also be in default if any of
the following occurs and such default is not cured within a ten (10) day period
after the Noteholder has given the Company written notice of such default:
(a) The Company breaches any material obligation to the Noteholder
hereunder.
(b) A receiver is appointed for any part of the Company's property,
the Company makes an assignment for the benefit of creditors, or any proceeding
is commenced either by the Company or against the Company under any bankruptcy
or insolvency laws.
(c) The Company materially defaults under the Security Agreement
referred to in Section 9 below.
(d) The Company suspends its normal business operations or otherwise
fails to continue to operate its business in the ordinary course.
In the event of a default under this Section 8, Noteholder shall, in addition to
any other remedies allowed by law, be entitled to accelerate all unpaid
principal and interest under this Note.
9. SECURITY AGREEMENT. This Note is secured by a security interest in
certain
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collateral, which security interest was granted by the Company to the original
holder of the Note pursuant to the terms of a certain security agreement (the
"SECURITY AGREEMENT"), dated on or about the date of this Note, are among the
original holder of the Note and the Company, and are incorporated herein by this
reference.
10. REVOLVING LINE OF CREDIT. This Note evidences a revolving line of
credit. Advances under this Note may be requested orally by any Company officer
or other authorized person. The Noteholder may, but need not, require that all
oral requests be confirmed in writing. The Company agrees to be liable for all
sums advanced in accordance with the instructions of its officers or authorized
persons. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note, by a Schedule attached to this Note, or
by The Noteholder's internal records, including computer printouts. The
Noteholder will have no obligation to advance funds under this Note and may
decline to make future advances for any reason or no reason.
11. WAIVER AND AMENDMENT. ANY PROVISION OF THIS NOTE MAY BE AMENDED,
WAIVED, MODIFIED, DISCHARGED OR TERMINATED SOLELY UPON THE WRITTEN CONSENT OF
BOTH THE COMPANY AND THE NOTEHOLDER.
12. ASSIGNMENT; BINDING, UPON SUCCESSORS AND ASSIGNS. The Company may not
assign any of its obligations hereunder without the prior written consent of
Noteholder. The terms and conditions of this Note shall inure to the benefit of
and be binding upon the successors and permitted assigns of the parties.
13. WAIVER OF NOTICE; ATTORNEYS' FEES. The Company and all endorsers of
this Note hereby waive notice, demand, notice of nonpayment, presentment,
protest and notice of dishonor. If any action at law or in equity is necessary
to enforce this Note or to collect payment under this Note, the Noteholder shall
be entitled to recover, as an element of the costs of suit and not as damages,
reasonable attorneys' fees, costs and necessary disbursements in addition to any
other relief to which it may be entitled. Noteholder will be entitled to recover
its costs of suit, regardless of whether such suit proceeds to final judgment.
14. CONSTRUCTION OF NOTE. The terms of this Note have been negotiated by
the Company, the original holder of this Note and their respective attorneys and
the language hereof will not be construed for or against either Company or
Noteholder. Unless otherwise explicitly set forth, a reference to a Section will
mean a Section in this Note. The titles and headings herein are for reference
purposes only and will not in any manner limit the construction of this Note
which will be considered as a whole.
15. NOTICES. Any notice or other communication required or permitted to be
given under this Note shall be in writing, shall be delivered by hand or
overnight courier service, by certified mail, postage prepaid, or by facsimile,
and will be deemed given upon delivery, delivered personally, one business day
after deposit with a national courier service for overnight delivery, or one
business day after transmission by facsimile with confirmation of receipt, and
three days after deposit in the mails, if mailed, to the following addresses:
(i) If to the Noteholder:
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The Canopy Group
240 West Center Street
Orem, Utah 84057
(ii) If to Company:
Systems, Inc.
240 West Center Street
Orem, Utah 84057
or to such other address as may have been furnished to the other party in
Section 15, except that notices of change of address shall only be effective
upon receipt.
16. GOVERNING LAW. This Note shall be governed by and construed under the
internal laws of the United States and the State of Utah as applied to
agreements among Utah residents entered into and to be performed entirely within
Utah, without reference to principles of conflict of laws or choice of laws.
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IN WITNESS WHEREOF, the Company has caused this Note to be signed in its
name as of the date first above written.
CALDERA SYSTEMS, INC.
By: /s/ RANSOM H. LOVE
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Name: Ransom H. Love
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Title: President & CEO
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