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)
Adju
