EXHIBIT 10.3
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.
CONVERTIBLE CONTINGENT PROMISSORY NOTE
$500,000 December 28, 2007
THIS CONVERTIBLE CONTINGENT PROMISSORY NOTE ("Note") is issued pursuant
to the terms and conditions of that certain Asset Purchase Agreement, dated
as of December 19, 2007, by and among TT ACQUISITION, LLC, a Delaware limited
liability company ("Maker"), TONERTYPE OF FLORIDA, LLC., a Florida limited
liability company ("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 and ATS hereby promise to pay to the
order of Payee the principal sum of Five Hundred Thousand Dollars ($500,000),
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 twenty-four (24)
months, beginning with the date of this Note and ending on December 28, 2009
(the "Maturity Date").
3. Interest Rate. No interest shall accrue on the principal of this
Note during the term of this Note.
4. Conversion.
(a) Automatic Conversion. On the Maturity Date, the principal
balance of this Note shall automatically convert into shares of common stock
of ATS (the "Common Stock") at a conversion price (the "Conversion Price")
that is equal to the quotient obtained by dividing (i) the aggregate
outstanding principal balance due on the Note, by (ii) the average of the
closing bid and asked prices of the Common Stock quoted in the over-the-
counter market in which the Common Stock is traded for the five (5) trading
days prior to the date of this Note (the "Conversion Price"); provided,
however, that the Conversion Price shall not be less than $0.20 per share nor
more than $0.70 per share.
(b) Mechanics and Effect of Conversion. Upon surrender of this
Note to Maker, ATS shall 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 the conversion of this Note, Maker shall pay to Payee the amount
of outstanding principal that is not so 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.
(c) Adjustments to Conversion Price.
(1) 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) 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) Upon the occurrence of each adjustment of the Conversion
Price pursuant to this Section 4, the Company shall promptly compute such
adjustment in accordance with the terms hereof and prepare and furnish to the
Holder 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.
(e) Registration Rights. Upon conversion of the principal
balance of this Note into shares of the Common Stock in accordance with this
Section 4, ATS and Payee shall execute and deliver a Registration Rights
Agreement, substantially in the form attached hereto as Exhibit A (the
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"Registration Rights Agreement"), pursuant to which Payee shall have the
right to cause ATS to include the shares of Common Stock issuable hereunder
in a registration of any stock or other securities of ATS under the
Securities Act of 1933, as amended, that is initiated by ATS.
5. Net Working Capital Adjustment. Subject to Section 7 hereof, in
the event that there is a downward net working capital adjustment pursuant to
Section 7.3 of the Purchase Agreement in an amount that exceeds the Holdback
Amount (the "Excess Amount"), the principal amount of this Note shall be
adjusted downward by an amount equal to the Excess Amount.
6. Contingent Adjustment. Subject to Section 7 hereof, the principal
amount of this Note shall be adjusted pursuant to Section 7.4 of the Purchase
Agreement. Following the determination of EBITDA for the Contingent Period,
the principal amount of this Note shall be adjusted upward or downward, as
the case may be.
7. Right of Offset. Maker expressly reserves against Payee the right
to offset against any amount due and payable under this Note an amount equal
to (i) any downward adjustment contemplated by Section 5 or Section 6 hereof;
and (ii) the Damages (as defined in Section 13.2 of the Purchase Agreement)
sustained by Maker or ATS for which Maker or ATS is entitled to be
indemnified in accordance with Section 13.2 of the Purchase Agreement.
8. Event of Default. As used herein, "Event of Default" shall mean a
Buyer Default as defined in Section 7.2(c)(4) of the Purchase Agreement.
9. Remedies.
(a) Generally. Upon the occurrence of an Event of Default,
subject to applicable notice and cure periods, if any, Payee and Selling
Members shall be entitled to the following remedies (the "Seller's
Remedies"): (i) Selling Members shall be entitled to terminate their
respective Selling Member Employment Agreements with Maker or ATS for Good
Reason (as defined in such agreements); (ii) the Noncompetition Agreement
shall terminate; (iii) the license granted to Maker under the License
Agreement shall terminate; and (iv) Maker and ATS shall assign to Payee and
Selling Members all of Maker's and ATS's rights in and to the following, each
of which was assigned to Maker under the Purchase Agreement: (A) the domain
name "xxx.xxxxxxxxx.xxx" and the associated website; (B) the telephone and
facsimile numbers of Payee; (C) all email addresses with the "tonertype"
domain; and (D) the license to the e-Automate by Digital Gateway software
package.
(b) Nonrecourse. Notwithstanding any other provision of this
Agreement to the contrary, this Note is nonrecourse as to Maker and ATS. In
the event Payee and/or Selling Members are entitled to proceed against Maker
and/or ATS, Payee's and/or Selling Members' sole recourse shall be to enforce
the Seller's Remedies. Payee and/or Selling Members shall have no other
recourse against Maker and/or ATS or any assets of Maker and/or ATS. This
provision is not intended to constitute a discharge or release of any
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obligation contained in this Note, but is a covenant by Payee and Selling
Members not to xxx Maker and/or ATS for a deficiency. Nothing herein is
intended to limit the rights of Seller and the Selling Members to enforce the
Seller's Remedies.
10. 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:
TT Acquisition, LLC
c/o American TonerServ Corp.
000 Xxxxxxxx Xxxx., Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, President and CEO
With a copy, which shall not constitute notice but shall be delivered at the
same time and by the same means, to:
Xxxxxxxxx XxXxxxxxxx & Xxxxxx LLP
00 Xxxxx X Xxxxxx, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxx X. XxXxxxxxxx or Xxxxxxx X. (DJ) Xxxxxxx
If to Payee:
Tonertype of Florida, LLC.
0000 Xxxxx Xxxx, Xxxxx 000
Xxxxx, XX 00000
Attn: Xxxxx X. Xxxxxx or Xxxxx X. Xxxxxx XX
With a copy, which shall not constitute notice but shall be delivered at the
same time and by the same means, to:
Akerman Senterfitt
000 X. Xxxxxxx Xxxxxx, Xxxxx 0000
Xxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx or Xxxxxxx X. Xxxxxx
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(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; and
(vi) "includes" and "including" are not limiting.
(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 the other party.
(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 Delaware without regard to the conflict of
laws rules of such state.
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(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 Hillsborough County,
Florida, 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 forum. 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 xxx 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]
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IN WITNESS WHEREOF, Maker and ATS have executed this Convertible
Contingent Promissory Note as of the date first set forth above.
MAKER:
TT ACQUISITION, LLC,
a Delaware limited liability company
By: AMERICAN TONERSERV CORP.,
a Delaware corporation
Its: Managing Member
By: /s/ Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxx
Its: President & CEO
ATS:
AMERICAN TONERSERV CORP.,
a Delaware corporation
By: /s/ Xxxxxx X. Xxxxxxx
Xxxxxx X. Xxxxxxx
Its: President & CEO
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