Exhibit 10.4


 


Execution Copy


 


THE SECURITIES REPRESENTED HEREBY
HAVE NOT BEEN REGISTERED UNDER  THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. THE TERMS AND CONDITIONS OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, INCLUDING THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE, ARE SUBJECT TO THE PROVISIONS OF
THAT CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF JANUARY 17, 2002, BY
AND BETWEEN THE COMPANY (AS DEFINED THEREIN) AND THE PURCHASER (AS DEFINED
THEREIN), AS AMENDED AND MODIFIED FROM TIME TO TIME. A COPY OF SUCH CONDITIONS
SHALL BE FURNISHED BY THE COMPANY UPON WRITTEN REQUEST AND WITHOUT CHARGE.


 


SECURED
CONVERTIBLE PROMISSORY NOTE


 


	
  US $6,000,000

  	
  Longmont,
  Colorado

  
	
   

  	
  January
  17, 2002

  



 


FOR
VALUE RECEIVED, the undersigned, CHAPARRAL NETWORK STORAGE, INC., a Delaware corporation (the “Company”), hereby promises to pay
to the order of XYRATEX TECHNOLOGY LIMITED,
a corporation organized under the laws of England and Wales (the “Purchaser”), at the offices of the
Purchaser, the principal sum of up to Six Million Dollars (US$6,000,000) (the “Principal Amount”) or such lesser
Principal Amount thereof as may remain outstanding (“Principal”) in lawful money of the United States of
America in immediately available funds, and to pay interest from the date
hereof on the Principal Amount hereof from time to time outstanding (“Interest”), in like funds, at said
office, at a rate of 8% simple per annum, calculated on the basis of the number
of days elapsed in a 365-day year and payable on such dates as determined
pursuant to the terms of the Securities Purchase Agreement dated as of the
Effective Date, by and between the Company and Purchaser, as the same may be
amended, modified, restated or supplemented from time to time (the “Securities Purchase Agreement”)
Purchaser has agreed, subject to the terms of, and satisfaction of the
conditions set forth in the Securities Purchase Agreement, to advance the
Principal Amount to the Company as follows: Two Million United States Dollars
(US $2,000,000) to be advanced at Closing and the remaining Four Million United
States Dollars (US $4,000,000) to be advanced in four tranches of One Million
United States Dollars (US$1,000,000), on the 15th of each month commencing in
February 2002, until the total Principal has been paid to the Company. The
Company promises to pay Interest and Principal in accordance with the terms of
the Securities Purchase Agreement. This Note is issued to and is subject to and
the Purchaser or any subsequent holder or assignee is entitled to the benefits
of the Securities


 

















 


Purchase
Agreement and the Security Agreement by and between the Company and the
Purchaser dated the Effective Date (the “Security Agreement”). The terms
and conditions contained in the Securities Purchase Agreement and the Security
Agreement that relate to the Note are incorporated herein by reference.


 


Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to them in the Securities Purchase
Agreement or the Security Agreement.


 


The “Maturity
Date”  of the Note
shall be the date that is exactly six years after the disbursement of the last
Advance of the Financing Amount (as such amount is adjusted pursuant to Section
3 of the Securities Purchase Agreement). The Principal shall be due and payable
as follows: one half, together with accrued and unpaid Interest on the entire
Principal (not just one half thereof) shall be due and payable on the date that
is exactly three years after the disbursement of the last Advance of the
Financing Amount (as such amount is adjusted pursuant to Section 3 of the
Securities Purchase Agreement); and the remaining Principal, together with
accrued and unpaid Interest on such amount, shall be due and payable on the
Maturity Date.


 


The Company hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever, other than as expressly required by the
Securities Purchase Agreement. The non-exercise by the Purchaser of any of its
rights hereunder or under the Securities Purchase Agreement in any particular
instance shall not constitute a waiver thereof in that or any subsequent
instance.


 


This Note is
referred to in the Securities Purchase Agreement. The Securities Purchase
Agreement provides that (1) the occurrence of certain events (as specified
therein) shall constitute Events of Default by the Company hereunder and  thereunder and (2) upon the occurrence of
any such Event of Default and at any time thereafter during the continuation of
such Event of Default, the Purchaser may take the actions set forth in Section
9.2 of the Securities Purchase Agreement.


 


With
reference to the Technology Cross-License Agreement described in the Assignment
Agreement (Appendix XI to the Master Alliance Agreement), if (i) the Company
tenders repayment of the final amount(s) due under this Note, or (ii) an Event
of Default by the Company under the Securities Purchase Agreement occurs, and
Purchaser does not make the election referred to in Section 9.2.2 of the Securities
Purchase Agreement within the time available for making such election, or (iii)
an Event of Default by the Purchaser under Section 9.3.1 of the Securities
Purchase Agreement occurs and the Company elects to terminate the related
agreements referenced in and pursuant to Section 13.4(a)(iv) of the Master
Alliance Agreement (other than the Appendix VII Agreements), then the Purchaser
shall thereupon tender to the Company an executed assignment of the Technology
Cross-License Agreement in the form of Exhibit D to the Securities Purchase
Agreement. Purchaser hereby acknowledges that money damages would not be an
adequate remedy at law if it fails to perform its obligation to re-assign the
Technology Cross-License Agreement as provided in this paragraph of the Note
and accordingly agrees that the Company, in addition to any other remedy to
which it may be entitled at law or in equity, shall be entitled to seek to
compel specific performance of such obligation, without the posting of any
bond, in the court having jurisdiction under the terms hereof, and if any
action should be brought in equity to enforce such


 


2

















 


obligation
Purchaser shall not raise the defense that there is an adequate remedy at law.
The provisions of this paragraph shall not limit any other rights and remedies
of Purchaser provided under the Securities Purchase Agreement upon the
occurrence of an Event of Default under this Note.


 


Pursuant to, and in accordance with, the terms of
the Securities Purchase Agreement, the Principal and Interest are convertible
into shares of Common Stock of the Company. Pursuant to the terms the
Securities Purchase Agreement, any payment, redemption, conversion or other
adjustment of the Principal and Interest shall be reflected in an amendment to
Schedule I hereto and shall become effective upon the earlier of (a) notation
in Schedule I attached to the Note or (B) confirmation by the Company to the
Purchaser of such payment (through satisfactory evidence of wire transfers),
redemption, conversion or other adjustment. Following the payment, redemption,
conversion or other adjustment of the entire Principal, together with accrued
and unpaid Interest thereon, this Note shall be canceled and shall no longer
evidence an indebtedness for borrowed money.


 


The Company shall have the right to prepay this Note at any time prior
to the Maturity Date without penalty, in whole or in part, upon 20 Business
Days’ prior written notice to Purchaser.


 


This Note and Purchaser’s rights hereunder may not be transferred or
assigned except in accordance with the requirements of the Securities Purchase
Agreement and subject to applicable securities laws or regulations. In any
dispute, contest, suit, action, or proceeding by a party to this Note to
enforce its rights under this Note (whether arising in contract, tort, or
both), or seeking a declaration of any rights or obligations under this Note,
against any other party to this Note, including any litigation, arbitration,
mediation, contested matter, dispute, suit, action, or adversary proceeding,
and any appeal or review thereof, in connection with a case, action, or
proceeding commenced in any state or federal court or agency, or before an
arbitration panel or mediator, or under the United States Bankruptcy Code, or
any other applicable federal, state, or foreign bankruptcy or other similar
law, the prevailing party shall be awarded its reasonable attorneys’ fees,
together with any costs and expenses (including the cost of employing expert
witnesses). The Company and the Purchaser intend that the preceding sentence be
severable from the other provisions of this Note, survive any judgment and, to
the maximum extent permitted by law, not be deemed merged into such judgment.


 


This Note shall be governed by and construed under the laws of the
State of California, without giving effect to the conflicts of laws provisions
thereof.


 


In
any dispute, contest, suit, action, or proceeding by a party to this Note to
enforce its rights under this Note (whether arising in contract, tort, or
both), or seeking a declaration of any rights or obligations under this Note,
against any other party to this Note, including any litigation, arbitration,
mediation, contested matter, dispute, suit, action, or adversary proceeding,
and any appeal or review thereof, in connection with a case, action, or
proceeding commenced in any state or federal court or agency, or before an
arbitration panel or mediator, or under the Bankruptcy Code, or any other
applicable federal, state, or foreign bankruptcy or other similar law, the
prevailing party shall be


 


3

















 


awarded
its reasonable attorneys’ fees, together with any costs and expenses (including
the cost of employing expert witnesses).


 


THE
PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITH THIS
AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA. 
EACH OF THE COMPANY AND PURCHASER WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT EACH MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON
CONVENIENS OR TO OBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN
ACCORDANCE WITH THIS SECTION. THE COMPANY AND PURCHASER HEREBY WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF THE TRANSACTION DOCUMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED
THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW OR STATUTORY CLAIMS. THE COMPANY AND PURCHASER REPRESENT THAT
EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A
TRIAL BY THE COURT.


 


	
   

  	
  CHAPARRAL NETWORK STORAGE, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Victor M. Perez

  
	
   

  	
  Name:

  	
  Victor M. Perez

  
	
   

  	
  Title:

  	
  Chief Executive Officer and

  President

  
				



 


4

















 


SCHEDULE I


 


to Secured Convertible Note dated January 17, 2002


 


	
  Date

  	
   

  	
  Principal

  Amount

  Advanced

  	
   

  	
  Repayment,

  Redemption,

  Conversion or

  Adjustment of

  Principal Amount

  	
   

  	
  Aggregate

  Outstanding

  Principal

  Amount

  	
   

  	
  Company

  Initials

  	
   

  
	
   

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
  $

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jan. 17-2002

  	
   

  	
  $

  	
  2,000,000.00