EXHIBIT 10.4
THIS NOTE AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL SATISFACTORY TO MAKER THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE
144 UNDER SUCH ACT.
SECURED CONVERTIBLE CONTINGENT PROMISSORY NOTE
$1,850,000 October 31, 2008
THIS SECURED CONVERTIBLE CONTINGENT PROMISSORY NOTE ("Note") is issued
pursuant to the terms and conditions of that certain Asset Purchase
Agreement, dated as of October 31, 2008, by and among IPRINT TECHNOLOGIES,
LLC, a Delaware limited liability company ("Maker"), iPRINT TECHNOLOGIES,
INC., a California corporation ("Payee"), AMERICAN TONERSERV CORP., a
Delaware corporation ("ATS"), and certain other parties (the "Purchase
Agreement"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed thereto in the Purchase Agreement.
1. Obligation. For value received, and subject to the terms and
conditions set forth in this Note, Maker hereby promises to pay to the order
of Payee the principal sum of One Million Eight Hundred Fifty Thousand
Dollars ($1,850,000), together with interest (at the rate set forth below) on
the unpaid principal balance of this Note.
2. Maturity Date. The term of this Note shall be five (5) years,
beginning with the date of this Note and ending on October 31, 2013 (the
"Maturity Date").
3. Interest Rate.
(a) Standard Rate. The interest rate on the unpaid principal
during the term of this Note shall be five percent (5%).
(b) Default Rate. Notwithstanding Section 3(a) hereof, while
an Event of Default (as defined below) exists or after acceleration, Maker
shall pay interest on the principal amount of all outstanding obligations of
Maker under this Note, at the lower of (i) ten percent (10%) per annum, or
(ii) the highest rate permitted by law.
(c) Computations. All computations of interest shall be made
on the basis of a year of three hundred and sixty-five (365) days. Interest
shall accrue during each period during which interest is computed from the
first day thereof to the last day thereof and shall compound on a monthly
basis.
(d) Usury. If performance of or compliance with any provision
of this Note or in any instrument now or hereafter securing or guaranteeing
this Note results in Payee receiving interest in an amount which would exceed
the maximum rate allowed by law, the amount of such interest which exceeds
such lawful limits shall be applied to the reduction of the unpaid principal
balance and not to the payment of interest. In determining whether or not
the interest paid or payable, under any specific contingency, exceeds the
highest rate of interest permitted under applicable law, Payee and Maker
shall, to the maximum extent permitted under applicable law, (i) characterize
any nonprincipal payment as an expense, fee or premium rather than as
interest, (ii) exclude voluntary prepayments and the effects thereof, and
(iii) allocate and "spread" the total amount of interest throughout the
entire term of this Note so that the interest rate is uniform throughout the
entire term hereof.
4. Payment.
(a) Scheduled Payments. No payment shall be due during the
first twelve (12) months following the date of this Note, but interest shall
accrue during such period. Commencing on the thirteenth (13) month following
the date of this Note, this Note shall be payable in forty-eight (48) equal
monthly installments of principal and interest in the amount of Forty-four
Thousand Seven Hundred Eighty-three and Sixty-five One Hundreths Dollars
($44,783.65), with the unpaid principal balance due and payable in full on
the Maturity Date. Upon full payment of all amounts due under this Note,
Maker shall be forever released from all of its obligations and liabilities
under this Note.
(b) General. All payments due hereunder shall be made in
lawful money of the United States of America to Payee via electronic funds
transfer directly to the account specified by Payee, or such other person or
at such other place as Payee may from time to time designate in writing to
Maker. All payments shall be made no later than 5:00 p.m. (Pacific Time) on
the date specified herein. Any payment received by Payee later than 5:00
p.m. (Pacific Time) shall be deemed to have been received on the following
business day and any applicable interest or fee shall continue to accrue.
Whenever any payment is due on a day other than a business day, such payment
shall be made on either (i) the previous business day, or (ii) the following
business day, and such extension of time shall in such case be included in
the computation of interest.
(c) Prepayments. There shall be no penalty for prepayment;
provided, however, that any prepayment of less than all of the outstanding
principal and unpaid accrued interest shall shorten the term of this Note and
not reduce the amount of any installment payment otherwise becoming due after
the prepayment date. Any prepayment made shall be applied first to interest
and then to principal.
(d) Attorneys Fees. In the event suit is instituted by Payee
to collect this Note or any portion thereof, Maker promises to pay such
additional sums as the court may adjudge reasonable as attorney's fees in
such suit.
5. Late Charge. If any payment of principal or interest under this
Note shall not be made within ten (10) business days (the "Grace Period")
after the issuance of written notice that such payment is due, a late charge
of five percent (5%) of the overdue amount will be charged by Payee. Such
late charge is in addition to the interest that shall continue to accrue
during the Grace Period which additional interest shall be paid with the late
charge. The late charge represents a reasonable sum considering all of the
circumstances existing on the date of this Note and represents a fair and
reasonable estimate of the costs sustained and the frustration suffered by
Payee due to the failure of Maker to make timely payments. Maker further
agrees that proof of actual damages would be costly or inconvenient. Such
late charge shall be immediately due and payable and shall be paid without
prejudice to the right of Payee to collect any other amounts to be paid or to
declare a default under this Note, or from exercising any of the other rights
and remedies of Payee.
6. Conversion.
(a) Optional Conversion. During the term of this Note, at the
option of Payee, the outstanding principal and unpaid accrued interest of
this Note may be converted into that number of shares of common stock of ATS
(the "Common Stock") that is equal to the quotient obtained by dividing the
outstanding principal and unpaid accrued interest under this Note, by a
conversion price (the "Conversion Price") that is equal to (i) $0.50 per
share if the conversion occurs on or before the date that is thirteen (13)
months following the date of this Note; or (ii) $1.00 per share if the
conversion occurs after the date that is thirteen (13) months following the
date of this Note. Payee may only exercise its option to convert with
respect to a principal amount of at least $200,000 per conversion. The
amount of the monthly installment payments shall be recalculated following
any such conversion.
(b) Mechanics and Effect of Conversion. Upon surrender of
this Note to Maker, Maker shall cause ATS to issue and deliver to Payee a
certificate or certificates for the number of shares of Common Stock to which
Payee shall be entitled. No fractional shares of Common Stock shall be
issued upon conversion of this Note. In lieu of Maker issuing any fractional
shares to Payee upon conversion of this Note, Maker shall pay to Payee the
amount of outstanding principal that is not so converted, provided the
conversion is for the full amount due under this Note, otherwise, such amount
shall be treated as principal that was not converted. Upon conversion of
this Note, with the proper issuance of the number of shares of Common Stock
to which Payee shall be entitled and full payment of any principal not
converted in lieu of issuing fractional shares, Maker shall be forever
released from all of its obligations and liabilities under this Note.
Notwithstanding anything contained herein to the contrary, in the event such
conversion occurs during the first fourteen (14) months immediately following
the date of this Note, the Common Stock to be issued shall be held in escrow
pursuant to the Escrow Agreement (as defined in the Purchase Agreement)
pending the final determination of the contingent adjustment, if any,
contemplated by Section 7.3(b) of the Purchase Agreement.
(c) Adjustments to Conversion Price. The Conversion Price and
the number of shares of Common Stock issuable upon conversion of this Note
shall be subject to adjustment from time to time as follows:
(1) Stock Splits and Combinations. In the event ATS
should at any time or from time to time after the date of issuance hereof and
prior to the Maturity Date fix a record date for the effectuation of a split
or subdivision of the outstanding shares of Common Stock or the determination
of holders of Common Stock entitled to receive a dividend or other
distribution payable in additional shares of Common Stock or other securities
or rights convertible into, or entitling the holder thereof to receive,
directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any
consideration by such holder for the additional shares of Common Stock or the
Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date
(or the date of such dividend distribution, split or subdivision if no record
date is fixed), the Conversion Price of this Note shall be appropriately
decreased so that the number of shares of Common Stock issuable upon
conversion of this Note shall be increased in proportion to such increase of
outstanding shares.
(2) Stock Combinations. In the event ATS should at any
time or from time to time after the date of issuance hereof and prior to the
Maturity Date if the number of shares of Common Stock outstanding at any time
after the date hereof is decreased by a combination of the outstanding shares
of Common Stock, then, following the effective date of such combination, the
Conversion Price for this Note shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion hereof shall be
decreased in proportion to such decrease in outstanding shares.
(3) Notice of Adjustment. Upon the occurrence of each
adjustment of the Conversion Price pursuant to this Section 6(c), Maker shall
cause ATS to promptly compute such adjustment in accordance with the terms
hereof and prepare and furnish to Payee a certificate setting forth the facts
upon which such adjustment is based.
(d) No Stockholder Rights. Nothing contained in this Note
shall be construed as conferring upon Payee or any other person any rights
whatsoever as a stockholder of ATS; and no dividends or interest shall be
payable or accrued in respect of this Note or the interest represented hereby
or the Common Stock obtainable hereunder until, and only to the extent that,
this Note shall have been converted.
7. Security. Maker's obligations hereunder are secured by that
certain Security Agreement of even date herewith by and between Maker and
Payee (the "Security Agreement"), pursuant to which Maker grants Payee a
security interest in the Secured Assets (as defined in the Purchase
Agreement).
8. Adjustment. The principal amount of this Note may be adjusted in
accordance with the terms and conditions of Section 7.3 of the Purchase
Agreement. In the event of such adjustment, the amount of any payments due
hereunder shall be recalculated accordingly but the term of this Note shall
not be shortened or lengthened.
9. Right of Offset. Maker expressly reserves against Payee the
right of offset against sums payable (including principal and any interest
accrued thereon) under this Note an amount equal to (i) any downward
adjustment contemplated by Section 7.3 of the Purchase Agreement; and (ii)
any Damages (as defined in Section 13.2 of the Purchase Agreement) for which
Maker or ATS is entitled to be indemnified in accordance with Section 13.2 of
the Purchase Agreement. In the event of such offset, the principal amount of
this Note shall be adjusted downward and the amount of any payments due
hereunder shall be recalculated accordingly but the term of this Note shall
not be shortened. Notwithstanding anything contained herein to the contrary,
Maker shall exercise its right of offset in accordance with the priority more
fully described in Section 7.2(b)(4)(ii) of the Purchase Agreement.
10. Event of Default. Any of the following shall constitute an
"Event of Default":
(a) Nonpayment. Maker fails to make a payment due under this
Note, and such nonpayment is not cured within the Grace Period.
(b) Cross-Default. An Event of Default has occurred under the
Security Agreement.
11. Remedies; Nonrecourse. Upon the occurrence and during the
continuance of an Event of Default, Payee may exercise on behalf of itself
all rights and remedies available to it under the Security Agreement,
including, without limitation, declaring all outstanding principal and unpaid
accrued interest under this Note to be immediately due and payable.
Notwithstanding any other provision of this Note to the contrary, this Note
is nonrecourse as to Maker and its Affiliates. In the event Payee or any
holder of this Note is entitled to proceed against Maker or its Affiliates,
their sole recourse shall be to enforce their rights under the Security
Agreement, and they shall have no other recourse against Maker or its
Affiliates or any assets of Maker or its Affiliates. This provision is not
intended to constitute a discharge or release of any obligation contained in
this Note, but is a covenant by Payee and any holder of this Note not to ▇▇▇
Maker or its Affiliates for a deficiency.
12. Miscellaneous.
(a) Notice. Any notice required or permitted under this Note
shall be given in writing and delivered as described herein. A notice shall
be deemed effectively given as follows: (i) upon personal delivery; (ii) one
(1) business day after transmission by electronic means, provided such
transmission is electronically confirmed as having been successfully
transmitted and a copy of such notice is deposited within 24 hours for either
overnight delivery or for registered or certified mail, in accordance with
clause (iii) or (iv) below, respectively; (iii) one (1) business day after
deposit with a reputable overnight courier service, prepaid for overnight
delivery; or (iv) three (3) business days after deposit with the United
States Postal Service, postage prepaid, registered or certified with return
receipt requested. Addresses for notice shall be as follows, or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties:
If to Maker:
iPrint Technologies, LLC
c/o American TonerServ Corp.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, President and CEO
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy, which shall not constitute notice but shall be delivered at the
same time and by the same means, to:
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇. (DJ) ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to Payee:
iPrint Technologies, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy, which shall not constitute notice but shall be delivered at the
same time and by the same means, to:
▇▇▇▇ & ▇▇▇▇▇▇▇▇, LLP
▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) Time of Essence. Time is of the essence with respect to
the terms, covenants, and conditions contained herein.
(c) Entire Agreement. This Note, including any other
agreements, exhibits, and schedules to be entered into in connection with the
transactions contemplated hereby and specifically referenced in this Note,
constitutes and embodies the entire understanding and agreement of the
parties hereto relating to the subject matter hereof and supersedes all prior
agreements or understandings of the parties hereto, whether written or oral.
(d) Construction. Every covenant, term, and provision of this
Note shall be construed simply according to its fair meaning and not strictly
for or against any party. Every exhibit, schedule, attachment, or other
appendix attached to this Note and referred to herein shall constitute a part
of this Note and is hereby incorporated herein by reference. Any reference
to any federal, state, local, or foreign statue or law shall be deemed also
to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. Unless the context clearly requires otherwise,
(i) plural and singular numbers will each be construed to include the other;
(ii) the masculine, feminine, and neuter genders will each be construed to
include the others; (iii) "shall," "will," "must," "agree," and "covenants"
are each mandatory; (iv) "may" is permissive; (v) "or" is not exclusive; (vi)
"includes" and "including" are not limiting; and (vii) "knowledge" will mean
knowledge after due inquiry.
(e) Amendments and Waivers. Any term of this Note may be
amended and the observance of any term of this Note may be waived (either
generally or in a particular instance and either retroactively or
prospectively), but only with the written consent of the party or parties to
be bound thereby. No delay in the exercise of any right or remedy under this
Note shall constitute a waiver thereof and the waiver by any party of any
right or remedy under this Note on any one occasion shall not be deemed a
waiver of such right or remedy on any subsequent occasion.
(f) Assignment. This Note shall not be transferred or
assigned, whether by operation of law or otherwise, without the prior written
consent of Maker, which consent shall not be unreasonably withheld if the
transferee or assignee thereof is an Affiliate (as defined in the Purchase
Agreement) of Payee and agrees in writing to be bound by the terms and
conditions of this Note.
(g) No Third Party Beneficiaries. Except as expressly
provided herein, nothing in this Note, express or implied, is intended to
confer upon any party other than the parties hereto, or their respective
successors and assigns, any rights, remedies, obligations, or liabilities
under or by reason of this Note.
(h) Headings. The titles and subtitles used in this Note are
used for convenience only and shall not be considered in construing or
interpreting this Note.
(i) Governing Law. This Note shall be governed by and
construed under the laws of the State of California without regard to the
conflict of laws rules of such state.
(j) Jurisdiction. Any suit, action or proceeding seeking to
enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby may
be brought in any court of competent jurisdiction in Sonoma County,
California, and each of the parties hereby consents to the jurisdiction of
such courts (and of the appropriate appellate courts therefrom) in any such
suit, action or proceeding and irrevocably waives, to the full extent
permitted by law, any objection that it may now or hereafter have to the
laying of the venue of any such suit, action or proceeding in any such court
or that any such suit, action or proceeding that is brought in any such court
has been brought in an inconvenient form. Process in any such suit, action
or proceeding may be served on any party anywhere in the world, whether
within or without the jurisdiction of any such court.
(k) Severability. Whenever possible, each provision of this
Note shall be interpreted in such a manner as to be effective and valid under
applicable law, but if any provision of this Note shall be or become
prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Note.
(l) Specific Performance. Each party's obligation under this
Note is unique. If any party should default in such party's obligations
under this Note, each party acknowledges that it would be extremely
impracticable to measure the resulting damages; accordingly, the
nondefaulting party or parties, in addition to damages and any other
available rights or remedies, may ▇▇▇ in equity for specific performance, and
the parties hereby expressly waive the defense that a remedy in damages shall
be adequate. The parties also hereby expressly waive any requirement that
the nondefaulting party or parties post a bond or similar security prior to
obtaining and enforcing any specific performance.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Maker has executed this Secured Convertible Contingent
Promissory Note as of the date first set forth above.
MAKER:
iPRINT TECHNOLOGIES, LLC,
a Delaware limited liability company
By:AMERICAN TONERSERV CORP.,
a Delaware corporation
Its: Managing Member
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its: President and CEO
FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, ATS
hereby guarantees the payment and performance of the indebtedness evidenced
by the foregoing Secured Convertible Contingent Promissory Note in accordance
with its terms, including any and all extensions, renewals, or modifications
of said note and the indebtedness evidenced thereby.
Acknowledged and Agreed:
AMERICAN TONERSERV CORP.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its: President and CEO