EXHIBIT
10.2
AMERICAN TONERSERV CORP.
____________________
10% CONVERTIBLE PROMISSORY NOTE
____________________
THIS NOTE AND ANY SECURITIES INTO WHICH IT IS CONVERTIBLE HAVE NOT
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT FILED UNDER SUCH ACT AND
SUCH LAWS OR
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH
LAWS.
AMERICAN TONERSERV CORP.
10% CONVERTIBLE PROMISSORY NOTE
July___, 2006
American TonerServ Corp., a Delaware corporation (the "Company"),
the
principal office of which is located at 475 Aviation Blvd, Suite
100, Santa
Rosa, CA 95403, for value received, hereby promises to pay to
_________, or
its registered assigns ("Holder"), the sum of _______________ d
dollars
($_______), or such lesser amount as shall then equal the
outstanding
principal amount hereof on the terms and conditions set forth
hereinafter.
The principal hereof and any unpaid accrued interest hereon, as set
forth
below, shall be due and payable in cash, unless converted into
shares of
Common Stock (the "Stock") pursuant to Section 5 hereof, on the
earlier to
occur of: (i) the two (2) year anniversary of the date of this
Note; or (ii)
when declared due and payable by the Holder upon the occurrence of
an Event
of Default (as defined below).
Payment of all amounts due hereunder shall be made by mail to
the
registered address of the Holder. This Note is issued in connection
with the
transactions described in Subscription Agreement between the Company and the
Holder, dated as of July __, 2006 (the "Subscription Agreement").
The holder
of this Note is subject to certain restrictions set forth in the
Subscription
Agreement and shall be entitled to certain rights and privileges
set forth in
the Subscription Agreement. This Note is one of the Notes
referred to as the
"Notes" in the Subscription Agreement.
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.
As used in this Note,
the following terms, unless the
context otherwise requires, have the following meanings:
(i) "Company" includes
any person which shall succeed to or assume
the obligations of the Company under this Note.
(ii) "Holder," 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.
Interest. Simple
interest shall accrue on the outstanding principal
balance of this Note at the rate of ten percent (10%) per annum, or
the
maximum rate permitted by law, whichever is less, from the date of
issuance
of this Note through the date this Note is fully repaid or
converted into
Common Stock. Interest
shall be paid monthly by the 15th day following each
calendar month end.
1
3.
Events of
Default. If any of the
events specified in this Section
3 shall occur (herein individually referred to as an "Event of
Default"), the
Holder of the Note may, so long as such condition exists, declare
the entire
principal and unpaid accrued interest hereon immediately due and
payable, by
notice in writing to the Company:
(i) Default in the
payment of the principal and unpaid accrued
interest of this Note when due and payable if such default is not
cured by
the Company within ten (10) days after the Holder has given the
Company
written notice of such default; or
(ii) The institution
by the Company of proceedings to be
adjudicated as bankrupt or insolvent, or the consent by it to
institution of
bankruptcy or insolvency proceedings against it or the filing by it
of a
petition or answer or consent seeking reorganization or release
under the
federal Bankruptcy Act, or any other applicable federal or state
law, or the
consent by it to the filing of any such petition or the appointment
of a
receiver, liquidator, assignee, trustee or other similar official
of the
Company, or of any substantial part of its property, or the making
by it of
an assignment for the benefit of creditors, or the taking of
corporate action
by the Company in furtherance of any such action; or
(iii) If, within sixty
(60) days after the commencement of an
action against the Company (and service of process in connection
therewith on
the Company) seeking any bankruptcy, insolvency,
reorganization,
liquidation, dissolution or similar relief under any present or
future
statute, law or regulation, such action shall not have been
resolved in
favor of the Company or all orders or proceedings thereunder
affecting the
operations or the business of the Company stayed, or if the stay of
any such
order or proceeding shall thereafter be set aside, or if, within
sixty (60)
days after the appointment without the consent or acquiescence of
the Company
of any trustee, receiver or liquidator of the Company or of all or
any
substantial part of the properties of the Company, such appointment
shall not
have been vacated.
4.
Prepayment. The
Company may not prepay the principal of this Note
in whole or in part at any time prior to due date of this Note
without the
consent of the Holder. However, the Company may pay accrued
interest at
anytime, in whole or in part, without consent of Holder.
5.
Conversion.
5.1
Voluntary Conversion.
At the option of the
Holder, the entire
outstanding principal amount of this Note, together with accrued
interest
thereon (the "Note Amount"), may be converted into Common Stock
upon the
sale and issuance of Common Stock by the Company in a PIPE
("Private
Investment in a Public Entity") offering resulting in gross
proceeds of not
less than $3,000,000 (a "$3 Million Qualified Offering"). This
option expires
six months after a $3 Million Qualified Offering. The rights,
preferences and
privileges of the Common Stock issuable upon conversion of the Note
shall be
established in connection with the sale of the Common Stock in a $3
Million
Qualified Offering.
The price at which this Note is converted into Common
Stock (the "Conversion Price") shall be the average price at which
the first
2
$1.0 million of Common Stock is sold in a $3 Million Qualified
Offering. If
the $3 Million Qualified Offering is sold as units consisting of
shares of
Common Stock and warrants to purchase Common Stock, the unit
purchase price
shall be allocated to the shares of common stock and warrants as
described in
the offering documents for the $ 3 Million Qualified Offering, or
as
determined by the Board of Directors if the allocation of the unit
price is
not described in the offering documents. Upon conversion of the Note,
Holder
shall be entitled to receive the number of shares of Common Stock
that is
equal to the Note Amount for such Note at the time of conversion,
divided by
the Conversion Price
5.2
Automatic Conversion.
The Note Amount shall
be automatically
converted into Common
Stock at the Conversion Price at the time in effect
immediately prior to (i) any consolidation or merger of the Company
with or
into any other corporation or other entity or person, or any
other
reorganization in which the Company shall not be the continuing or
surviving
entity o
