EXHIBIT 4.13
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT
BE SOLD, TRANSFERRED OR ASSIGNED UNLESS SO REGISTERED OR AN EXEMPTION FROM
REGISTRATION UNDER SAID ACT IS AVAILABLE.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$12,500,000 September 15, 2000
Broomfield, CO
FOR VALUE RECEIVED, eSoft, Inc. a Delaware corporation (the
"BORROWER"), hereby unconditionally promises to pay to the order of Gateway
Companies, Inc. (the "LENDER"), at its head office at 0000 Xxxxx Xxxxxx
Xxxxx, Xxx Xxxxx, XX 00000, the principal sum of TWELVE MILLION FIVE HUNDRED
THOUSAND DOLLARS ($12,500,000), or so much thereof as shall be outstanding,
in lawful money of the United States of America and in immediately available
funds, on September 15, 2004 (the "MATURITY DATE") in one lump-sum payment of
$12,500,000 (or so much thereof as shall be outstanding), and to pay interest
on the principal amount hereof outstanding from time to time, at Borrower's
election in cash or in eSoft Common Stock, par value $0.01 per share ("COMMON
STOCK"), at the Fair Market Value (as defined in the next paragraph) at such
office, at the rate per annum of seven percent (7.0%), in arrears on a
quarterly basis on the 15th day of each December, March, June and September.
Notwithstanding the foregoing, the Borrower will receive an interest credit
equal to $122,260 for the quarter commencing on September 15, 2000.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
This Convertible Subordinated Promissory Note is the Note referred to
in the Stock and Warrant Purchase and Investor Rights Agreement dated April 26,
2000 between the Borrower and the Lender, as amended on September 15, 2000 (the
"PURCHASE AGREEMENT"). Capitalized terms used in this Convertible Subordinated
Promissory Note have the respective meanings assigned to them in the Purchase
Agreement. For purposes of this Convertible Subordinated Promissory Note, "FAIR
MARKET VALUE" of the Common Stock shall be determined by the average of the
closing prices of the Common Stock on the principal securities exchange or
market on which it is then being listed for the ten (10) trading days preceding
the date of determination of the Fair Market Value.
Unless all or part of the principal amount of this Convertible
Subordinated Promissory Note is converted to the Borrower's Common Stock by the
Lender on or before the Maturity Date as provided for herein, all outstanding
principal and accrued interest hereunder shall be due and payable on the
Maturity Date. The Borrower may not prepay all or any part of the principal
amount of this Convertible Subordinated Promissory Note before maturity. The
loan represented by this Convertible Subordinated Promissory Note shall be
subordinated to all other debt of the Borrower outstanding at any time.
A. PAYMENTS: All payments of principal, interest and other
amounts to be made by the Borrower under this Convertible Subordinated
Promissory Note shall be made, (i) if in cash in immediately available funds to
the Lender no later than 1:00 p.m. local time in
Broomfield, Colorado, on the date on which such payment shall become due
(each such payment made after such time on such due date to be deemed to have
been made on the next succeeding business day), and (ii) if in stock to the
Lender no later than 1:00 p.m. local time in Broomfield, Colorado, five (5)
business days following the date on which such payment shall become due (each
such payment made after such time on such due date to be deemed to have been
made on the next succeeding business day). If an Event of Default (as defined
below) has occurred and is continuing, the Lender may apply any such payment
as it may elect in its discretion. If the due date of any payment under this
Agreement or the Note would otherwise fall on a day that is not a business
day, such date shall be extended to the next succeeding business day and
interest shall be payable for any principal so extended for the period of
such extension. Interest shall be computed on the basis of the actual days
elapsed (including the first day but excluding the last day) occurring in the
period for which payable, relative to a year of 365 or 366 days, as the case
may be.
B. CONVERSION: The aggregate amount of outstanding principal of
this Convertible Subordinated Promissory Note plus accrued and unpaid interest
is convertible, in whole or in part, at the option of the Lender, at any time
commencing on the date of issuance of this Convertible Subordinated Promissory
Note and ending on the Maturity Date, as follows:
1. MECHANICS OF CONVERSION. The Lender shall notify the Borrower
in writing (the "CONVERSION NOTICE"), in the manner prescribed in Section 11(e)
of the Purchase Agreement, of its desire to convert all or part of the aggregate
amount of principal of this Convertible Subordinated Promissory Note plus
interest, if any, that has accrued but remains unpaid thereon. The Conversion
Notice shall be accompanied by the original of this Convertible Subordinated
Promissory Note (or reasonable written assurance of the loss or destruction of
the original of this Convertible Subordinated Promissory Note). The Conversion
Notice shall specify (i) the aggregate amount of principal of this Convertible
Subordinated Promissory Note plus interest, if any, that has accrued but remains
unpaid thereon to be converted (the "CONVERSION AMOUNT"), (ii) the date of the
desired conversion (the "CONVERSION DATE") and (iii) the name(s) which should
appear on the stock certificate(s) to be issued by the Borrower which represent
the Common Stock acquired by the Lender upon conversion. If reasonably required
by the Borrower, certificates surrendered for conversion shall be accompanied by
a written instrument or instruments of transfer in form reasonably satisfactory
to the Borrower. The Borrower shall not be required to pay any tax that may be
payable in respect of any transfer involving the issuance and delivery of such
certificates upon conversion in a name other than that of the Lender, and the
Borrower shall not be required to issue or deliver such certificates unless or
until the persons requesting the issuance thereof shall have established to the
Borrower's reasonable satisfaction that any such taxes have been paid or will be
paid by parties other than the Borrower.
2. COMMON STOCK ISSUABLE UPON CONVERSION. Within three (3)
business days of receipt of a Conversion Notice, the Borrower shall issue to the
Lender that number of shares of Common Stock determined by dividing the
Conversion Amount by the Fair Market Value of the Common Stock as of the
Conversion Date (the "CONVERSION PRICE"). If the calculation of the Conversion
Price set forth in the preceding sentence would result in a Conversion Price of
less than $11.00 (as adjusted for stock splits, stock dividends,
recapitalizations and the like), then the
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Conversion Price shall instead be $11.00 (as adjusted for stock splits, stock
dividends, recapitalizations and the like). If the calculation of the
Conversion Price set forth in the second preceding sentence would result in a
Conversion Price of greater than $19.507 (as adjusted for stock splits, stock
dividends, recapitalizations and the like), then the Conversion Price shall
instead be $19.507 (as adjusted for stock splits, stock dividends,
recapitalizations and the like). The Conversion Price shall be subject to
adjustment as set forth below. If less than the entire outstanding principal
amount of this Convertible Subordinated Promissory Note is being converted, a
new Convertible Subordinated Promissory Note shall promptly be delivered to
the Lender for the unconverted principal balance and shall be of like tenor
as to all terms as the Convertible Subordinated Promissory Note surrendered.
a. ADJUSTMENT FOR DIVIDENDS AND DISTRIBUTIONS. If the
Borrower at any time or from time to time after the issuance of this Convertible
Subordinated Promissory Note makes, or fixes a record date for the determination
of holders of Common Stock entitled to receive, a dividend or other distribution
payable in securities of the Borrower other than shares of Common Stock, in each
such event provision shall be made so that the holder of this Convertible
Subordinated Promissory Note shall receive upon conversion thereof, in addition
to the number of shares of Common Stock receivable thereupon, the amount of
other securities of the Borrower which they would have received had this
Convertible Subordinated Promissory Note been converted into Common Stock on the
date of such event and had the holder thereafter, during the period from the
date of such event to and including the conversion date, retained such
securities receivable by it as aforesaid during such period, subject to all
other adjustments called for during such period under this Section 2 with
respect to the rights of the holder of this Convertible Subordinated Promissory
Note or with respect to such other securities by their terms.
b. ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If at any time or from time to time after the issuance of this
Convertible Subordinated Promissory Note, the Common Stock issuable upon the
conversion of this Convertible Subordinated Promissory Note is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this Section
2), in any such event the holder of this Convertible Subordinated Promissory
Note shall have the right thereafter to convert this Convertible Subordinated
Promissory Note into the kind and amount of stock and other securities and
property receivable upon such recapitalization, reclassification or other change
by holders of the maximum number of shares of Common Stock into which this
Convertible Subordinated Promissory Note could have been converted immediately
prior to such recapitalization, reclassification or change, all subject to
further adjustment as provided herein or with respect to such other securities
or property by the terms thereof.
c. REORGANIZATIONS, MERGERS, CONSOLIDATIONS OR SALES OF
ASSETS. If at any time or from time to time after the issuance of this
Convertible Subordinated Promissory Note, there is a capital reorganization of
the Common Stock (other than a recapitalization, subdivision, combination,
reclassification, exchange or substitution of shares provided for elsewhere in
this Section 2), as a part of such capital reorganization, provision shall be
made so that the holder of this Convertible Subordinated Promissory Note shall
thereafter be entitled to receive upon conversion of this Convertible
Subordinated Promissory Note the number of shares of stock or other securities
or property of the Borrower to which a holder of the number of shares of Common
Stock deliverable upon conversion would have been entitled on such capital
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reorganization, subject to adjustment in respect of such stock or securities by
the terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 2 with respect to the rights of
the holder of this Convertible Subordinated Promissory Note after the capital
reorganization to the end that the provisions of this Section 2 (including
adjustment of the Conversion Price then in effect and the number of shares
issuable upon conversion of this Convertible Subordinated Promissory Note) shall
be applicable after that event and be as nearly equivalent as practicable.
d. CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Conversion Price for the number of shares of
Common Stock or other securities issuable upon conversion of this Convertible
Subordinated Promissory Note, the Borrower, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate pursuant to the notice provisions of Section 11(e) of the Purchase
Agreement. The certificate shall set forth such adjustment or readjustment,
showing in detail the facts upon which such adjustment or readjustment is based,
including the type and amount, if any, of other property which at the time would
be received upon conversion of this Convertible Subordinated Promissory Note.
e. NOTICES OF RECORD DATE. Upon (i) any taking by the
Borrower of a record of the holders of any class of securities for the purpose
of determining the holders thereof who are entitled to receive any dividend or
other distribution, or (ii) any consolidation or merger of the Borrower with or
into any other corporation or other entity or other capital reorganization of
the Borrower, any reclassification or recapitalization of the capital stock of
the Borrower, any merger or consolidation of the Borrower with or into any other
corporation, or any sale, lease or other disposition of all or substantially all
of the assets of the Borrower or any voluntary or involuntary dissolution,
liquidation or winding up of the Borrower, the Borrower shall deliver notice to
the holder of this Convertible Subordinated Promissory Note (pursuant to the
provisions of Section 11(e) of the Purchase Agreement) at least twenty (20) days
prior to the record date specified therein a notice specifying (A) the date on
which any such record is to be taken for the purpose of such dividend or
distribution and a description of such dividend or distribution, (B) the date on
which any such reorganization, reclassification, transfer, consolidation,
merger, sale, lease, dissolution, liquidation, winding up or other disposition
is expected to become effective, and (C) the date, if any, that is to be fixed
as to when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger, sale, lease, dissolution,
liquidation, winding up or other disposition.
f. FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of this Convertible Subordinated
Promissory Note. If, in the aggregate, any conversion would result in the
issuance of any fractional share, the Borrower shall, in lieu of issuing the
fractional share, pay cash equal to the product of such fraction multiplied by
the Common Stock's Fair Market Value.
g. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Borrower shall at all times reserve and keep available out of its authorized but
unissued shares of Common
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Stock, solely for the purpose of effecting the conversion of the shares of
this Convertible Subordinated Promissory Note, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding principal and accrued but unpaid interest on
this Convertible Subordinated Promissory Note. If at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all outstanding principal and accrued but unpaid
interest on this Convertible Subordinated Promissory Note, the Borrower will
take such corporate action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
h. NO DILUTION OR IMPAIRMENT. Without the consent of the
holder of this Convertible Subordinated Promissory Note, the Borrower shall not
amend its certificate of incorporation or participate in any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or take any other voluntary action, for the purpose of avoiding or
seeking to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Borrower, but shall at all times in good
faith assist in carrying out all such action as may be reasonably necessary or
appropriate in order to protect the conversion rights of the holder of this
Convertible Subordinated Promissory Note against dilution or other impairment.
C. EVENTS OF DEFAULT: Upon the occurrence of an Event of Default
(as set forth below), the principal hereof and accrued interest hereon shall
become, or may be declared to be, forthwith due and payable in the manner, upon
the conditions and with the effect provided below. An "EVENT OF DEFAULT" shall
exist if one or more of the following events or conditions shall occur and be
continuing:
1. The Borrower shall default in the payment when due of any
principal of or interest on the Loan, any other amount payable by it under this
Convertible Subordinated Promissory Note, or any amount of securities and/or
cash payable upon conversion of this Convertible Subordinated Promissory Note;
2. There shall have occurred with respect to any issue or issues
of debt of the Borrower having an outstanding principal amount of $1,000,000 or
more in the aggregate for all such issues, whether such debt now exists or shall
hereafter be created, an event of default which has caused the holder thereof to
declare such debt to be due and payable prior to its stated maturity;
3. a judgment or order (not covered by insurance) for the payment
of money shall be rendered against the Borrower in excess of $1,000,000 in the
aggregate for all such judgments or orders (treating any deductibles, self
insurance or retention as not so covered) that shall not be discharged, and all
such judgments and orders remain outstanding and there shall be any period of
sixty (60) consecutive days following entry of the judgment or order in excess
of $1,000,000 or the judgment or order which causes the aggregate amount
described above to exceed $1,000,000 during which a stay of enforcement of such
judgment or order, by reason of a pending appeal or otherwise, shall not be in
effect;
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4. The Borrower shall (i) apply for or consent to the appointment
of a receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property; (ii) make a general assignment for the benefit
of its creditors; (iii) commence a voluntary case under 11 U.S.C. Section 101 ET
SEQ., as now or hereafter in effect) (the "BANKRUPTCY CODE"); (iv) file a
petition seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or readjustment of debts;
(v) fail to controvert in a timely manner, or acquiesce in writing to, any
petition filed against it in any involuntary case under the Bankruptcy Code; or
(vi) take any action for the purpose of effecting any of the foregoing;
5. A proceeding or case shall be commenced, without the
application or consent of the Borrower in any court of competent jurisdiction,
seeking (i) liquidation, reorganization, dissolution or winding-up, or the
composition or readjustment of debts of the Borrower; (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of the Borrower or of all
or any substantial part of any of the Borrower's assets; or (iii) similar relief
in respect of the Borrower under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and such
proceeding or case shall continue undismissed or unstayed for a period of 60
days, or an order, judgment or decree approving or ordering any of the foregoing
shall be entered or an order for relief against the Borrower shall be entered in
an involuntary case under the Bankruptcy Code, which order, judgment or decree
shall remain undismissed or unstayed for a period of 60 days;
THEREUPON (i) in the case of an Event of Default, other than one referred to in
clause (4) or (5) above, the Lender may, by notice to the Borrower, declare the
principal amount then outstanding of, and the accrued interest on all amounts
payable by the Borrower under this Convertible Subordinated Promissory Note and
all other amounts payable by the Borrower hereunder to be forthwith due and
payable, whereupon such amounts shall be immediately due and payable without
presentment, demand, protest or other formalities of any kind, all of which are
hereby waived by the Borrower, and (ii) in the case of the occurrence of an
Event of Default referred to in clause (4) or (5) above, the principal amount
then outstanding of, and the accrued interest on all amounts payable by the
Borrower under this Convertible Subordinated Promissory Note and all other
amounts payable by the Borrower hereunder shall be immediately due and payable
without presentment, demand, protest or other formalities of any kind, all of
which are hereby waived by the Borrower.
D. SUBORDINATION: The Borrower covenants and agrees, and each
holder of this Convertible Subordinated Promissory Note, by his or its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Section D:
1. The payment of the principal of (and premium, if any) and
interest on this Convertible Subordinated Promissory Notes are hereby expressly
made subordinate and subject in right of payment to the prior payment in full of
all existing or future indebtedness of the Borrower, including principal and
interest and premium (if any) and all other amounts outstanding on such debt
(and any extensions or refinancings thereof) ("Senior Indebtedness").
2. No payment or distribution of cash, property or securities
(other than Common Stock of the Borrower or other securities of the Borrower
that are subordinated to
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Senior Indebtedness to at least the same extent as this Convertible
Subordinated Promissory Note) of the Borrower shall be made by the Borrower
with respect to the principal of or interest on this Convertible Subordinated
Promissory Note, or to defease or acquire any of this Convertible
Subordinated Promissory Note, and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution (a) upon the maturity
of any Senior Indebtedness by lapse of time, acceleration or otherwise,
unless and until all Senior Indebtedness shall first be paid in full in cash,
or such payment duly made in a manner satisfactory to the holders of such
Senior Indebtedness or the holders of such Senior Indebtedness do not take
any affirmative action for a period of at least 45 days to receive payment in
full or (b) in the event that the Borrower defaults in the payment of any
principal of, premium, if any, or interest on or any other amounts payable on
or due in connection with any Senior Indebtedness when it becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise, unless and until such default has been waived in
writing by the holders of the Senior Indebtedness or until the holders of
such Senior Indebtedness do not take any affirmative action for a period of
at least 45 days to receive payment in full or to have such default cured.
3. If any default other than a default contemplated by Section
2(b) above shall have occurred and be continuing that would permit the holders
of the Senior Indebtedness to accelerate the maturity of Senior Indebtedness,
upon written notice (a "Payment Blockage Notice") of the default given to the
Borrower and the holders of this Convertible Subordinated Promissory Note (the
"Holders") by the holders of, or an agent, trustee or other representative for,
such Senior Indebtedness, then, unless and until such default has been waived in
writing or unless and until the holders of such Senior Indebtedness do not take
any affirmative action for a period of at least 45 days to receive payment in
full or to have such default cured, no payment or distribution of cash or
property (other than Common Stock of the Borrower or other securities of the
Borrower that are subordinated to Senior Indebtedness to at least the same
extent as this Convertible Subordinated Promissory Note) of the Borrower shall
be made by the Borrower with respect to the principal of or interest on this
Convertible Subordinated Promissory Note, or to acquire or repurchase any of
this Convertible Subordinated Promissory Note for cash or property other than
Common Stock of the Borrower, and no action shall be taken (judicial or
otherwise) to collect any such payment or distribution. If such Senior
Indebtedness is not declared due and payable within one hundred eighty (180)
days after written notice of the event of default is given, promptly after the
end of the 180-day period, the Borrower shall pay all sums due in respect of
this Convertible Subordinated Promissory Note and not paid during the 180-day
period. Payments on this Convertible Subordinated Promissory Note may and shall
be resumed in the case of a payment default only upon the date on which such
default is waived in writing by the holders of the Senior Indebtedness or their
agent.
4. If any payment or distribution of assets of the Borrower is
received by any Holder in respect of this Convertible Subordinated Promissory
Note at a time when that payment or distribution should not have been made
because of Sections 2 or 3, and provided that prior to the Borrower's
disbursement of such payment or distribution, the Holders shall have received a
written notice from the Borrower or from an agent or representative for one or
more holders of Senior Indebtedness, such payment or distribution shall be
received and held and shall be paid over to the holders of Senior Indebtedness
(pro rata as to each of such holders on the basis of the respective amounts of
Senior Indebtedness held by them) until all such Senior Indebtedness has
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been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior Indebtedness.
5. Upon any distribution of assets of the Borrower upon any
dissolution, winding up, liquidation or reorganization of the Borrower (whether
in bankruptcy, insolvency, receivership or similar proceedings relating to the
Borrower or its property or upon an assignment for the benefit of creditors or
any marshalling of the Borrower's assets or liabilities or otherwise):
a. the holders of all Senior Indebtedness will first be
entitled to receive payment in full of the principal of and interest due on
Senior Indebtedness (including interest accruing after the commencement of a
bankruptcy or insolvency at the rate specified in the applicable Senior
Indebtedness documents and including, without limitation, in respect of
premiums, indemnities or otherwise, before the Holders are entitled to receive
any payment or distribution on account of the principal of or interest on this
Convertible Subordinated Promissory Note;
b. any payment or distribution of assets of the Borrower
of any kind or character, whether in cash, property or securities (except that
the Holders may receive securities that are subordinated at least to the same
extent as this Convertible Subordinated Promissory Note to Senior Indebtedness
and any securities issued in exchange for Senior Indebtedness), to which the
Holders would be entitled except for the provisions of this Section 5 will be
paid by the liquidating trustee or agent or other persons make such a payment or
distribution directly to the holders of Senior Indebtedness (pro rata as to each
of such holders on the basis of the respective amounts of Senior Indebtedness
held by such holders) or their representatives to the extent necessary to make
or provide for payment in full in cash of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness or provision for that payment or
distribution; and
c. if, notwithstanding the foregoing, any payment or
distribution of assets of the Borrower of any kind or character, whether in
cash, property or securities (except that the Holders may receive securities
that are subordinated at least to the same extent as this Convertible
Subordinated Promissory Note to Senior Indebtedness and any securities issued in
exchange for Senior Indebtedness) is received by the Holders on account of the
principal of or interest on this Convertible Subordinated Promissory Note before
all Senior Indebtedness is paid in full, such payment or distribution will be
received and held in trust for and will be forthwith paid over to the holders of
the Senior Indebtedness remaining unpaid or unprovided for or their
representatives for application (in the case of cash) to, or as collateral (in
the case of non-cash property or securities) for, the payment of such Senior
Indebtedness until all such Senior Indebtedness has been paid in full, after
giving effect to any concurrent payment or distribution or provision therefor to
the holders of such Senior Indebtedness.
6. Subject to the payment in full of all Senior Indebtedness, the
Holders shall be subrogated to the rights of the holders of Senior Indebtedness
to receive payments or distributions of cash, property or securities of the
Borrower applicable to the Senior Indebtedness
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until all amounts owing on this Convertible Subordinated Promissory Note
shall be paid in full; and, for the purposes of such subrogation:
a. no payments or distributions to the holders of the
Senior Indebtedness of any cash, property or securities to which the Holders
would be entitled except for the provisions of this Section D and no payment
pursuant to the provisions of this Section D to the holders of Senior
Indebtedness by the Holders shall, as between the Borrower, its creditors (other
than holders of Senior Indebtedness) and the Holders, be deemed to be a payment
by the Borrower to or on account of the Holders; and
b. no payment or distributions of cash, property or
securities to or for the benefit of the Holders pursuant to the subrogation
provision of this Section D, which would otherwise have been paid to the holders
of Senior Indebtedness, shall be deemed to be a payment by the Borrower to or
for the account of the Holders of this Convertible Subordinated Promissory Note.
7. The provisions of this Section D are and are intended solely
for the purpose of defining the relative rights of the Holders on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Section D or elsewhere in this Convertible Subordinated Promissory Note is
intended to or shall (a) impair, as among the Borrower, its creditors other than
holders of Senior Indebtedness and the Holders of this Convertible Subordinated
Promissory Note, the obligation of the Borrower, which is absolute and
unconditional to pay to the Holders of this Convertible Subordinated Promissory
Note the principal of (any premium, if any) and interest on this Convertible
Subordinated Promissory Note as and when the same shall become due and payable
in accordance with their terms, (b) affect the relative rights against the
Borrower of the Holders of this Convertible Subordinated Promissory Note and
creditors of the Borrower other than the holders of Senior Indebtedness or (c)
prevent the holder of this Convertible Subordinated Promissory Note from
exercising all remedies otherwise permitted by applicable law upon default under
this Convertible Promissory Note, subject to the rights, if any, under this
Section D of the holders of Senior Indebtedness to receive cash, property or
securities otherwise payable or deliverable to the Holder upon the exercise of
any such remedy.
8. In the event of any dissolution, winding up, liquidation or
reorganization of the Borrower (whether in bankruptcy, insolvency, receivership
or similar proceedings relating to the Borrower or its property or upon any
assignment for the benefit of creditors or any marshalling of the Borrower's
assets or liabilities or otherwise) tending towards liquidation of the business
and assets of the Borrower, with respect to the filing of a claim for the unpaid
balance of any portion of this Convertible Subordinated Promissory Note in the
form required in those proceedings, if the Holder does not file a proper claim
or proof of debt in the form required in such proceeding at least thirty (30)
days before the expiration of the time to file such claim or claims, then the
holders of Senior Indebtedness and their agents, trustees, or other
representatives are hereby authorized to have the right to file, and are hereby
authorized to file, an appropriate claim for and on behalf of each such Holder.
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9. No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Borrower or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Borrower with the terms, provisions and covenants
of this Convertible Subordinated Promissory Note, regardless of any knowledge
thereof any such holder may have or be otherwise charged with. Without in any
way limiting the generality of the foregoing paragraph, the holders of Senior
Indebtedness may, at any time and from time to time, without the consent of or
notice to the Holders of this Convertible Subordinated Promissory Note, without
incurring responsibility to the Holders of this Convertible Subordinated
Promissory Note and without impairing or releasing the subordination provided in
this Section D or the obligations hereunder of the Holders of this Convertible
Subordinated Promissory Note to the holders of Senior Indebtedness, do any one
or more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Indebtedness, or
otherwise amend or supplement in any manner Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding; (ii) sell, exchange, release or otherwise deal with any property
pledged, mortgaged or otherwise securing Senior Indebtedness; (iii)release any
Person liable in any manner for the collection of Senior Indebtedness; and (iv)
exercise or refrain from exercising any rights against the Borrower and any
other Person.
10. The Borrower shall give prompt written notice to the Holders
of any fact known to the Borrower which would prohibit the making of any payment
to or by the Holders in respect of this Convertible Subordinated Promissory
Note. Notwithstanding the provisions of this Section D or any other provision of
this Convertible Subordinated Promissory Note, the Holders shall not be charged
with knowledge of the existence of any facts which would prohibit the making of
any payment to the Holders in respect of this Convertible Subordinated
Promissory Note, unless and until the Holders shall have received written notice
thereof from the Borrower or a holder of Senior Indebtedness; and, prior to the
receipt of any such written notice, the Holders shall be entitled in all
respects to assume that no such facts exist; provided, however, that if the
Holders shall not have received the notice provided for in this Section 10 at
least two (2) business days prior to the date upon which by the terms hereof any
money may become payable for any purpose (including, without limitation, the
payment of the principal of, and premium, if any, or interest on this
Convertible Subordinated Promissory Note), then, anything herein contained to
the contrary notwithstanding, the Holders shall have full power and authority to
receive such money and to apply the same to the purpose for which such money was
received and shall not be affected by any notice to the contrary which may be
received by it within two (2) business days prior to such date.
The Holders shall be entitled to rely on the delivery to them of a
written notice by a person representing himself to be a holder of Senior
Indebtedness (or a representative thereof) to establish that such notice has
been given by a holder of Senior Indebtedness (or representative thereof). In
the event that the Holders determine in good faith that further evidence is
required with respect to the right of any person as a holder of Senior
Indebtedness (or a representative thereof) to participate in any payment or
distribution pursuant to this Section D, the Holders may request such person to
furnish evidence to the reasonable satisfaction of the Holders as to the amount
of Senior Indebtedness held by such person, the extent to which such person is
entitled to
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participate in such payment or distribution and any other facts pertinent to
the rights of such person under this Section D, and if such evidence is not
furnished, the Holders may defer any payment or distribution to such person
pending judicial determination as to the right of such person to receive such
payment or distribution.
11. Upon the payment or distribution of assets of the Borrower
referred to in this Section D, the Holders of this Convertible Subordinated
Promissory Note shall be entitled to rely upon any order or decree entered by
any court of competent jurisdiction in which such proceeding is pending, or a
certificate of the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of the creditors, agent or other person
making such payment or distribution, delivered to the holders of this
Convertible Subordinated Promissory Note, for the purpose of ascertaining the
persons entitled to participate in such payment or distribution, the holders of
the Senior Indebtedness and other indebtedness of the Borrower, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Section D.
The transfer of this Convertible Subordinated Promissory Note in
accordance with applicable federal and state blue sky laws may be registered on
the books maintained for that purpose by or on behalf of the Borrower. The
Borrower may request an opinion of counsel reasonably acceptable to the Borrower
as a condition of registering such transfer.
None of the terms or provisions of this Convertible Subordinated
Promissory Note may be amended, modified or waived except by a written agreement
duly executed on behalf of the Lender and the Borrower and specifically setting
forth the provision so amended, modified or waived. No failure on the part of
the Lender to exercise and no delay in exercising, and no course of dealing with
respect to any right, power or privilege under this Convertible Subordinated
Promissory Note shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under this Convertible
Subordinated Promissory Note preclude any other or further exercise thereof or
the exercise of any other right, power or privilege.
Except as set forth in the Purchase Agreement, this Convertible
Subordinated Promissory Note shall not entitle the Holder to any rights as a
stockholder of the Borrower, including without limitation, the right to vote, to
receive dividends and other distributions, or to receive notice of, or to
attend, meetings of stockholders or any other proceedings of the Borrower,
unless and to the extent converted into shares of Common Stock in accordance
with terms hereof.
The Borrower hereby waives presentment and demand for payment, notice
of dishonor, protest and notice of protest of this Convertible Subordinated
Promissory Note, and shall pay all reasonable costs of collection within five
(5) business days following demand by the Lender, including, without limitation,
reasonable attorneys' fees, costs and other expenses.
If any terms or provisions of this Convertible Subordinated Promissory
Note or application thereof to any person or circumstance shall to any extent be
invalid or unenforceable, the remainder of this Convertible Subordinated
Promissory Note, or the application of such terms
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or provisions to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Convertible Subordinated Promissory Note shall be valid and
enforceable to the fullest extent permitted by law.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW
OF THE STATE OF DELAWARE.
eSoft, Inc.
By: /s/ Xxxxxxx Xxxx
------------------------
Xxxxxxx Xxxx
President and Chief Executive Officer
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