**EXHIBIT10.01**

 

**SECURED PROMISSORY NOTE**

 
| $750,000 |   | May  14, 2004 |
|----------|--------|---------------|

 

**FOR VALUE RECEIVED**, the undersigned, **ZAMBA CORPORATION**, a Delawarecorporation (the “Maker”), hereby promises to pay to the order of PandoraSelect Partners L.P., a British Virgin Islands limited partnership, or itsassigns (the “Payee”), at such place as the Payee may designate in writing, theprincipal sum of Seven Hundred Fifty Thousand Dollars ($750,000), under theterms set forth herein.

 

1.             **Interest**.  Theunpaid principal balance hereof from time to time outstanding shall bearinterest from the date hereof at the rate of twelve percent (12%) per annum.

 

2.             **Payment**.  Theprincipal and interest hereof is payable as follows:

 

(a)           Payments in cash of interest only are payable in arrears on June 14,July 14 and August 14, 2004; and

 

(b)           Commencing on September 14, 2004, and on the 14th day of each of thefollowing 14 months, Maker shall pay amortized principal and interest on thisNote of $54,092.84 (the “Monthly Scheduled Payment”).

 

3.             **Optional Payment in Stock**.

 

(a)           In lieu of making a cash payment under subsection 2(b) above, Maker maypay the Monthly Scheduled Payment, or any portion thereof, but only to theextent permitted by this subsection (a), by the issuance of shares of its $0.01par value common stock (the “Common Stock”), the per share value of which iscomputed as provided in Subsection (b) below. Despite the foregoing, the number of shares of Common Stock which may beissued to pay all or any portion of a particular Monthly Scheduled Payment maynot exceed the lesser of (i) 10% of the aggregate number of traded shares ofCommon Stock reported on the NASDAQ System (or if not then traded on the NASDAQSystem, on the OTC Bulletin Board as reported by bigcharts.com, or if thisservice is discontinued, such other reporting service acceptable to Payee) forthe 30 trading days immediately preceding such Monthly Scheduled Payment due or(ii) a number of shares of Common Stock which, when added to the number ofshares of Common Stock “Beneficially Owned” (within the meaning set forth insubsection (d) below) by Payee, would not cause Payee to Beneficially Own morethan 4.99% of the Maker’s outstanding Common Stock.  In addition, in making the Monthly Scheduled Payments, the Makershall not be permitted to issue more than 10,000,000 shares of CommonStock.   In computing under thissubsection (a) the aggregate number of traded shares during any time period,the Maker shall exclude (i) shares sold by or for the account or at thedirection of the Maker, officers or directors

 

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of Maker or any members of their immediatefamilies or any affiliates of Maker and (ii) shares determined solely by Payee(for which Payee shall so inform the Maker in writing) to represent unlawful orpotentially unlawful sales.  Maker maypay the Monthly Scheduled Payment, or any portion thereof, by the issuance ofCommon Stock only if, at the time of such payment, Maker has in effect aregistration statement on Form S-2 or S-3 with the SEC and applicable statesecurities laws covering the original issuance of such shares by the Maker orthe resale of such shares by the Payee (the “Registration Statement”).

 

(b)           The per share value of the Common Stock as of a specified ScheduledMonthly Payment date for the purposes of this Section 3 is 88% (rounded to thenearest $.01) of the average (rounded to the nearest $.01) of the high closingbid prices of Maker’s Common Stock on the NASDAQ System (or if not then tradedon the NASDAQ System, then on the OTC Bulletin Board as reported bybigcharts.com, or if this service is discontinued, such other reporting serviceacceptable to Payee) for the 30 trading days immediately preceding theparticular Scheduled Monthly Payment date.

 

(c)           Payment by Common Stock shall be deemed to be made by Maker by givingwritten notice to the Payee of the number of shares being issued in suchpayment, and the Maker’s calculation of the per share market value undersubsection (b) above; provided that certificates representing those shares aredelivered to Payee within 20 days of the due date of the Scheduled MonthlyPayment.

 

(d)           The limitations on the right to exercisea warrant for 1,339,286 shares of Common Stock being issued to Payee inconnection with this Note, as provided by such warrant (the “Warrant”), shallfirst reduce Payee’s Beneficial Ownership of Maker’s Common Stock beforelimiting the number of shares that Maker may issue to Payee as paymenthereunder pursuant to Section 3(a) above. The Payee will, at the request of Maker, from time to time, notify Makerof Payee’s computation of Payee’s Beneficial Ownership.  The parties shall compute Payee’s“Beneficial Ownership” of Maker’s Common Stock in accordance with U.S.Securities and Exchange Commission (“SEC”) Rule 13d-3.

 

4.             **Contingent Additional Interest**. In the event that Maker fails by November 15, 2004 (the “RegistrationDeadline”) to obtain effectiveness under the Securities Act of 1933, asamended, and applicable state securities laws of the Registration Statement (asrequired by the terms of a Registration Rights Agreement between Maker andPayee of this date) covering all of the shares of Common Stock issuable aspayment under this Note or upon exercise of the Warrant, then for each fullmonth thereafter (prorated for partial months) that this failure continues (the“Failure Term”), Maker shall pay in arrears in cash, with the next otherwiseScheduled Monthly Payment under Sections 2 or 3(a) above (or if the lastScheduled Monthly Payment has been made, then on the same day of each succeedingmonth), additional interest (the “Contingent Additional Interest”) equal to thegreater of $1,000 or 1% of the outstanding principal balance on this Note as ofthe last day of the prior month. However, if the Failure Term runs for more than three months, theadditional monthly cash interest payable thereafter

 

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shall increase to the greater of $2,000or 2% of the outstanding principal balance on this Note as of the last day ofthe prior month.  Despite the foregoing,if the Payee consents (as provided under the Registration Rights Agreement) toan extension of the effective date of the Registration Statement beyondNovember 15, 2004, then the Registration Deadline hereunder shall be extendedby a like period.

 

5.             **Security**.  Thefull and timely payment of this Note (together with the Maker’s obligationsunder a Purchase Agreement of this date between Maker and Payee) shall besecured by a Security Agreement of this date (the “Security Agreement”) coveringall of Maker’s assets.  The securityinterest granted under the Security Agreement shall be subordinate only to thesecured rights of Silicon Valley Bank, as the senior lender to Maker (the“Senior Debt”).

 

6.             **Optional Prepayments**.  TheMaker may prepay this Note, in whole or in part, and in cash, without penaltyby Maker upon fifteen days written notice to Payee.  Prepayments shall be applied first to accrued but unpaid interestand then to principal.

 

7.             **Default**.  Theoccurrence of any one or more of the following events shall constitute an eventof default, upon which Payee may declare the entire principal amount of thisNote, together with all accrued but unpaid interest, to be immediately due andpayable in cash (despite provisions otherwise for payment with Common Stock):

 

(a)           The Maker shall fail to make any required payment of principal orinterest (including Contingent Additional Interest) when due, and in its properform (i.e., in cash, in stock or by a combination thereof), and such failure shallcontinue for 10 days after the due date thereof.

 

(b)           The Maker shall be in default of any term or provision of the SecurityAgreement.

 

(c)           The Maker shall become insolvent or any bankruptcy, reorganization,debt arrangement or other proceeding under any bankruptcy or insolvency lawshall be instituted by or against the Maker.

 

(d)           The Maker shall be in default of any term or provision relating to theSenior Debt.

 

Without limiting the above,the Maker acknowledges that payments on the various scheduled due dates inSections 2 and 3(c) are of essence and that any failure to timely pay anyinstallment of principal or interest (whether as permitted by cash, with stockor by a combination thereof and within any permitted grace period above)permits Payee to declare this Note immediately due in cash in its entiretywithout any prior notice of any kind to Maker.

 

8.             **Applicable Law**.  THEVALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THE NOTE SHALL BE GOVERNED BY THEINTERNAL LAWS OF THE STATE OF 

 

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MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICTOF LAWS PRINCIPLES THEREOF.

 

9.             **Waivers**.  The Maker hereby waives presentment forpayment, notice of dishonor, protest and notice of payment and all othernotices of any kind in connection with the enforcement of this Note.

 

10.           **No Setoffs**.  TheMaker shall pay principal and interest under the Note without any deduction forany setoff or counterclaim.

 

10.           **Costs of Collection**.  Ifthis Note is not paid when due, the Maker shall pay Payee’s reasonable costs ofcollection, including reasonable attorney’s fees.

 
|   | **ZAMBA CORPORATION** |
|--------|-----------------------|
|   |                  |   |
|   |                  |   |
|   | By                    |      /s/  Michael H. Carrel |   |
|   |                  | Michael H. Carrel,  Treasurer |

 

 

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