SMARTSERV ONLINE, INC.
SECURITIES PURCHASE AGREEMENT
August 31, 2005
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August 31,
2005, between SmartServ Online, Inc., a Delaware corporation (the "Company"),
and CAMOFI Master LDC, a Cayman Islands limited duration company (the "
Purchaser").
WHEREAS, the Company has authorized the sale to the Purchaser of Senior
Secured Convertible Notes in the aggregate principal amount of Five Hundred
Thousand Dollars ($500,000) in the form set forth as Exhibit A (as amended,
modified or supplemented from time to time, the "Notes"), which Notes are
convertible into shares of the Company's common stock, $0.01 par value per share
(the "Common Stock") at an initial conversion price of $0.50 per share of Common
Stock.
WHEREAS, the Company wishes to issue warrants to the Purchaser in the form
set forth as Exhibit B to purchase up to 3,000,000 shares of the Company's
Common Stock (subject to adjustment as set forth therein) in connection with the
purchase of the Notes (as amended, modified or supplemented from time to time,
the "Warrants"); and
WHEREAS, the Purchaser desire to purchase the Notes and the Warrants on
the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties hereto agree as follows:
1. Sale and Purchase of the Notes. Pursuant to the terms and conditions
set forth in this Agreement, on the Closing Date (as defined in Section 2), the
Company shall sell the Notes to the Purchaser, and the Purchaser shall purchase
the Notes from the Company. The purchase price for the Notes shall be $500,000.
Collectively, the Notes and Warrants and Common Stock issuable upon conversion
of or in lieu of payment of the Notes in cash (the "Note Shares") and upon
exercise of the Warrants (the "Warrant Shares") are referred to as the
"Securities."
2. Warrants and Other Payments. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take place on a date and at
a place determined by the Company and the Purchaser (the "Closing Date") . On
the Closing Date:
(a) The Company will issue and deliver the Warrants to the
Purchaser;
(b) The Company shall pay to the Purchaser a structuring payment in
an amount equal to $112,500 ( the "Structuring Payment"); and
(c) The Company shall reimburse the Purchaser for its reasonable
expenses incurred in connection with the preparation and negotiation of
this Agreement and the Related Agreements (as hereinafter defined), and
expenses incurred in connection with the Purchaser' due diligence review
of the Company and the Subsidiary (as hereinafter defined and all related
matters. The fees and expense of counsel to the Purchaser in connection
with such preparation and negotiation shall be $30,000.
3. Representations and Warranties of the Company. Except as set forth in
Exhibit C hereto, the Company hereby represents and warrants to the Purchaser as
follows (which representations and warranties are supplemented by the Company's
filings under the Securities Exchange Act of 1934 (collectively, the "Exchange
Act Filings"), copies of which have been provided to the Purchaser):
3.1 Organization, Good Standing and Qualification. Each of the Company and
the Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of Delaware. Each of the Company and the Subsidiary has
the corporate power and authority to own and operate its properties and assets,
to execute and deliver, as the case may be, (i) this Agreement, (ii) the Notes
and the Warrants, (iii) the Master Security Agreement dated as of the date
hereof between the Company and the Purchaser (as amended, modified or
supplemented from time to time, the "Master Security Agreement"), (iv) the
Registration Rights Agreement dated as of the date hereof between the Company
and the Purchaser (as amended, modified or supplemented from time to time, the
"Registration Rights Agreement"), (v) the Subsidiary Guaranty dated as of the
date hereof made by the Subsidiary (as amended, modified or supplemented from
time to time, the "Subsidiary Guaranty"), (vi) the Loan Agreement dated as of
the date hereof between The Company and the Purchaser and (vii) all other
documents, instruments and agreements entered into in connection with the
transactions contemplated hereby and thereby (the preceding clauses (ii) through
(vii), collectively, the "Related Agreements"), to issue and sell the Notes and
the Note Shares , to issue and sell the Warrants and the Warrant Shares, and to
carry out the provisions of the Related Agreements and to carry on its business
as presently conducted. Each of the Company and the Subsidiary is duly qualified
and is authorized to do business and is in good standing as a foreign
corporation in all jurisdictions in which the nature of its activities and of
its properties (both owned and leased) makes such qualification necessary,
except for those jurisdictions in which failure to do so has not, or could not
reasonably be expected to have, individually or in the aggregate, a material
adverse effect on the business, assets, liabilities, condition (financial or
otherwise), properties, operations or prospects of the Company and the
Subsidiary, taken individually or as a whole (a "Material Adverse Effect").
3.2 Subsidiaries. The only Subsidiary of the Company is KPCCD, Inc., a New
York corporation (the "Subsidiary"). For the purpose of this Agreement, a
"Subsidiary" means (i) a corporation or other entity whose shares of stock or
other ownership interests having ordinary voting power to elect a majority of
the directors of such corporation, or other persons or entities performing
similar functions for such person or entity, are owned, directly or indirectly,
by the Company or (ii) a corporation or other entity in which the Company owns,
directly or indirectly, more than 50% of the equity interests at such time.
3.3 Capitalization; Voting Rights.
(a) The authorized capital stock of the Company, as of the date
hereof consists of (a) 1,000,000 shares of convertible preferred stock, of
which 851,448 are outstanding, and (b) 40,000,000 shares of Common Stock,
of which 5,457,732 shares are outstanding.
(b) Other than: (i) the shares reserved for issuance under the
Company's stock option plans; and (ii) shares which may be granted
pursuant to the Related
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Agreements, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
stockholder agreements, or arrangements or agreements of any kind for the
purchase or acquisition from the Company of any of its securities. Neither
the offer, issuance or sale of any of the Notes or the Warrants, or the
issuance of any of the Note Shares or Warrant Shares, nor the consummation
of any transaction contemplated hereby will result in a change in the
price or number of any securities of the Company outstanding under
anti-dilution or other similar provisions contained in or affecting any
such securities.
(c) All issued and outstanding shares of the Common Stock (i) have
been duly authorized and validly issued and are fully paid and
nonassessable; and (ii) were issued in compliance with all applicable
state and federal laws concerning the issuance of securities.
(d) The rights, preferences, privileges and restrictions of the
Common Stock are as stated in the Company's Certificate of Incorporation
(the "Charter"). The Note Shares and Warrant Shares have been duly and
validly reserved for issuance. When issued in compliance with the
provisions of this Agreement and the Charter, the Securities will be
validly issued, fully paid and nonassessable, and will be free of any
liens or encumbrances; provided, however, that the Securities may be
subject to restrictions on transfer under state and/or federal securities
laws as set forth herein or as otherwise required by such laws at the time
a transfer is proposed.
3.4 Authorization; Binding Obligations. All corporate action on the part
of the Company and the Subsidiary (including their respective officers and
directors) necessary for the authorization of the Related Agreements, the
performance of all obligations of the Company and the Subsidiary under the
Related Agreements and the authorization, sale, issuance and delivery of the
Notes and the Warrants has been taken or will be taken prior to the Closing. The
Related Agreements, when executed and delivered and to the extent it is a party
thereto, will be valid and binding obligations of each of the Company and the
Subsidiary, enforceable against each such person in accordance with their terms,
except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) general principles of equity that restrict the availability of
equitable or legal remedies.
The sale of the Notes and the subsequent conversion of the Notes into Note
Shares are not and will not be subject to any preemptive rights or rights of
first refusal. The issuance of the Warrants and the subsequent exercise of the
Warrants for Warrant Shares are not and will not be subject to any preemptive
rights or rights of first refusal.
3.5 Liabilities. Neither the Company nor the Subsidiary has any contingent
liabilities, except current liabilities incurred in the ordinary course of
business and liabilities disclosed in any Exchange Act Filings.
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3.6 Agreements; Action. Except as disclosed in any Exchange Act Filings:
(a) there are no agreements, understandings, instruments, contracts,
proposed transactions, judgments, orders, writs or decrees to which the
Company or the Subsidiary is a party or by which it is bound which may
involve: (i) obligations (contingent or otherwise) of, or payments to, the
Company in excess of $20,000 (other than obligations of, or payments to,
the Company arising from purchase or sale agreements entered into in the
ordinary course of business); or (ii) the transfer or license of any
patent, copyright, trade secret or other proprietary right to or from the
Company (other than licenses arising from the purchase of "off the shelf"
or other standard products); or (iii) restricting the development,
manufacture or distribution of the Company's products or services; or (iv)
indemnification by the Company with respect to infringements of
proprietary rights.
(b) Since June 30, 2005, neither the Company nor the Subsidiary has:
(i) declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock; (ii)
incurred any indebtedness for money borrowed or any other liabilities
(other than ordinary course obligations) individually in excess of $25,000
or, in the case of indebtedness and/or liabilities individually less than
$25,000, in excess of $50,000 in the aggregate; (iii) made any loans or
advances to any person not in excess, individually or in the aggregate, of
$50,000, other than ordinary course advances for travel expenses; or (iv)
sold, exchanged or otherwise disposed of any of its assets or rights,
other than the sale of its inventory in the ordinary course of business.
(c) For the purposes of subsections (a) and (b) above, all
indebtedness, liabilities, agreements, understandings, instruments,
contracts and proposed transactions involving the same person or entity
(including persons or entities the Company has reason to believe are
affiliated therewith) shall be aggregated for the purpose of meeting the
individual minimum dollar amounts of such subsections.
3.7 Obligations to Related Parties. There are no obligations of the
Company or the Subsidiary to officers, directors, stockholders or employees of
the Company or the Subsidiary other than:
(a) payment of salary for services rendered and for bonus payments;
(b) reimbursement for reasonable expenses incurred on behalf of the
Company and the Subsidiary; and
(c) other standard employee benefits made generally available to all
employees (including stock option agreements outstanding under any stock
option plan approved by the Board of Directors of the Company).
None of the officers, directors or, to the best of the Company's knowledge, key
employees or stockholders of the Company or any members of their immediate
families, are indebted to the Company, individually or in the aggregate, in
excess of $10,000 or have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with the
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Company, other than passive investments in publicly traded companies
(representing less than one percent (1%) of such company). Except as described
above, no officer, director or stockholder, or any member of their immediate
families, is, directly or indirectly, interested in any material contract with
the Company and no agreements, understandings or proposed transactions are
contemplated between the Company and any such person. The Company is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
3.8 Changes. Since June 30, 2005, there has not been:
(a) any change in the business, assets, liabilities, condition
(financial or otherwise), properties, operations or prospects of the
Company or the Subsidiary, which individually or in the aggregate has had,
or could reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect;
(b) any resignation or termination of any officer, key employee or
group of employees of the Company or the Subsidiary;
(c) any material change, except in the ordinary course of business,
in the contingent obligations of the Company or the Subsidiary by way of
guaranty, endorsement, indemnity, warranty or otherwise;
(d) any damage, destruction or loss, whether or not covered by
insurance that has had, or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect;
(e) any waiver by the Company or the Subsidiary of a valuable right
or of a material debt owed to it;
(f) any direct or indirect loans made by the Company or the
Subsidiary to any stockholder, employee, officer or director of the
Company or the Subsidiary or members of the immediate family of such
persons, other than advances made in the ordinary course of business;
(g) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or the
Subsidiary;
(h) any declaration or payment of any dividend or other distribution
of the assets of the Company or the Subsidiary;
(i) any labor organization activity related to the Company or the
Subsidiary;
(j) any debt, obligation or liability incurred, assumed or
guaranteed by the Company or the Subsidiary, except those for immaterial
amounts and for current liabilities incurred in the ordinary course of
business;
(k) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets owned by the Company
or the Subsidiary;
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(l) any change in any material agreement to which the Company or the
Subsidiary is a party or by which either the Company or the Subsidiary is
bound which either individually or in the aggregate has had, or could
reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect;
(m) any other event or condition of any character that, either
individually or in the aggregate, has had, or could reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect; or
(n) any arrangement or commitment by the Company or the Subsidiary
to do any of the acts described in subsection (a) through (m) above.
3.9 Title to Properties and Assets; Liens, Etc. Each of the Company and
the Subsidiary has good and marketable title to its properties and assets, and
good title to its leasehold estates, in each case subject to no mortgage,
pledge, lien, lease, encumbrance or charge, other than:
(a) those resulting from taxes which have not yet become delinquent;
and
(b) minor liens and encumbrances which do not materially detract
from the value of the property subject thereto or materially impair the
operations of the Company or the Subsidiary.
All facilities, machinery, equipment, fixtures, vehicles and other properties
owned, leased or used by the Company and the Subsidiary are in good operating
condition and repair and are reasonably fit and usable for the purposes for
which they are being used. The Company and the Subsidiary are in compliance with
all material terms of each lease to which it is a party or is otherwise bound.
3.10 Intellectual Property.
(a) Each of the Company and the Subsidiary owns or possesses
sufficient legal rights to all patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information and other
proprietary rights and processes necessary for its business as now
conducted and as presently proposed to be conducted (the "Intellectual
Property"), without any known infringement of the rights of others. There
are no outstanding options, licenses or agreements of any kind relating to
the foregoing proprietary rights, nor is the Company or the Subsidiary
bound by or a party to any options, licenses or agreements of any kind
with respect to the Intellectual Property other than licenses or
agreements arising from the purchase of "off the shelf" or standard
products.
(b) Neither the Company nor the Subsidiary has received any
communications alleging that it has violated any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or
other proprietary rights of any other person or entity, nor is the Company
or the Subsidiary aware of any basis therefor.
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(c) The Company does not believe it is or will be necessary to
utilize any inventions, trade secrets or proprietary information of any of
its employees made prior to their employment by the Company or the
Subsidiary, except for inventions, trade secrets or proprietary
information that have been rightfully assigned to the Company or the
Subsidiary.
3.11 Compliance with Other Instruments. Neither the Company nor the
Subsidiary is in violation or default of (x) any term of its certificate of
incorporation or bylaws, or (y) any provision of any indebtedness, mortgage,
indenture, contract, agreement or instrument to which it is party or by which it
is bound or of any judgment, decree, order or writ. The execution, delivery and
performance of and compliance with this Agreement and the Related Agreements to
which it is a party, and the issuance and sale of the Securities will not, with
or without the passage of time or giving of notice, be in conflict with or
constitute a default under any such term or provision, or result in the creation
of any mortgage, pledge, lien, encumbrance or charge upon any of the properties
or assets of the Company or the Subsidiary or the suspension, revocation,
impairment, forfeiture or nonrenewal of any permit, license, authorization or
approval applicable to the Company, its business or operations or any of its
assets or properties.
3.12 Litigation. There is no action, suit, proceeding or investigation
pending or, to the Company's knowledge, currently threatened against the Company
or the Subsidiary; nor is the Company aware that there is any basis to assert
any of the foregoing. Neither the Company nor the Subsidiary is a party or
subject to the provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality. There is no action, suit,
proceeding or investigation by the Company or the Subsidiary currently pending
or which the Company or the Subsidiary intends to initiate.
3.13 Tax Returns and Payments. Each of the Company and the Subsidiary has
timely filed all tax returns (federal, state and local) required to be filed by
it. All taxes shown to be due and payable on such returns, any assessments
imposed, and all other taxes due and payable by the Company or the Subsidiary on
or before the Closing, have been paid or will be paid prior to the time they
become delinquent. Neither the Company nor the Subsidiary has been advised:
(a) that any of its returns, federal, state or other, have been or
are being audited as of the date hereof; or
(b) of any deficiency in assessment or proposed judgment to its
federal, state or other taxes.
There is no tax to be imposed upon its properties or assets of the Company or
the Subsidiary as of the date of this Agreement that is not adequately provided
for.
3.14 Employees. Neither the Company nor the Subsidiary has any collective
bargaining agreements with any of its employees. There is no labor union
organizing activity pending or, to the Company's knowledge, threatened with
respect to the Company or the Subsidiary. Except as disclosed in the Exchange
Act Filings, neither the Company nor the
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Subsidiary is a party to or bound by any currently effective employment
contract, deferred compensation arrangement, bonus plan, incentive plan, profit
sharing plan, retirement agreement or other employee compensation plan or
agreement. No employee of the Company or the Subsidiary, nor any consultant with
whom the Company or the Subsidiary has contracted, is in violation of any term
of any employment contract, proprietary information agreement or any other
agreement relating to the right of any such individual to be employed by, or to
contract with, the Company or the Subsidiary because of the nature of the
business to be conducted by the Company or the Subsidiary; and the continued
employment by the Company or the Subsidiary of its present employees, and the
performance of the Company's and the Subsidiary's contracts with its independent
contractors, will not result in any such violation. Neither the Company nor the
Subsidiary is aware that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgment, decree or order of any court or administrative
agency, that would interfere with their duties to the Company or the Subsidiary.
Neither the Company nor the Subsidiary has received any notice alleging that any
such violation has occurred. Except for employees who have a current effective
employment agreement with the Company or the Subsidiary, no employee of the
Company or the Subsidiary has been granted the right to continued employment by
the Company or the Subsidiary or to any material compensation following
termination of employment with the Company or the Subsidiary. No officer, key
employee or group of employees intends to terminate his, her or their employment
with the Company or the Subsidiary, nor does the Company or the Subsidiary have
a present intention to terminate the employment of any officer, key employee or
group of employees.
3.15 Registration Rights and Voting Rights. Neither the Company nor the
Subsidiary is presently under any obligation, and neither the Company nor the
Subsidiary has granted any rights, to register any of the Company's or the
Subsidiary's presently outstanding securities or any of its securities that may
hereafter be issued. No stockholder of the Company or the Subsidiary has entered
into any agreement with respect to the voting of equity securities of the
Company or the Subsidiary.
3.16 Compliance with Laws; Permits. Neither the Company nor the Subsidiary
is in violation of any applicable statute, rule, regulation, order or
restriction of any domestic or foreign government or any instrumentality or
agency thereof in respect of the conduct of its business or the ownership of its
properties which has had, or could reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect. No governmental
orders, permissions, consents, approvals or authorizations are required to be
obtained and no registrations or declarations are required to be filed in
connection with the execution and delivery of this Agreement or any other
Related Agreement and the issuance of any of the Securities, except such as has
been duly and validly obtained or filed, or with respect to any filings that
must be made after the Closing, and will be filed in a timely manner. Each of
the Company and the Subsidiary has all material franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now being
conducted by it, the lack of which could, either individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
3.17 Environmental and Safety Laws. Neither the Company nor the Subsidiary
is in violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety, and to its knowledge, no material
expenditures are or will be
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required in order to comply with any such existing statute, law or regulation.
No Hazardous Materials (as defined below) are used or have been used, stored, or
disposed of by the Company or the Subsidiary or, to the Company's knowledge, by
any other person or entity on any property owned, leased or used by the Company
or the Subsidiary. For the purposes of the preceding sentence, "Hazardous
Materials" shall mean:
(a) materials which are listed or otherwise defined as "hazardous"
or "toxic" under any applicable local, state, federal and/or foreign laws
and regulations that govern the existence and/or remedy of contamination
on property, the protection of the environment from contamination, the
control of hazardous wastes, or other activities involving hazardous
substances, including building materials; or
(b) any petroleum products or nuclear materials.
3.18 Valid Offering. Assuming the accuracy of the representations and
warranties of the Purchaser contained in this Agreement, the offer, sale and
issuance of the Securities will be exempt from the registration requirements of
the Securities Act of 1933 (the "Securities Act"), and will have been registered
or qualified (or are exempt from registration and qualification) under the
registration, permit or qualification requirements of all applicable state
securities laws.
3.19 Full Disclosure. Each of the Company and the Subsidiary has provided
the Purchaser with all information requested by the Purchaser in connection with
its decision to purchase the Notes and the Warrants, including all information
the Company and the Subsidiary believe is reasonably necessary to make such
investment decision. Neither this Agreement, the Related Agreements, the
exhibits and schedules hereto and thereto nor any other document delivered by
the Company or the Subsidiary to the Purchaser or its attorneys or agents in
connection herewith or therewith or with the transactions contemplated hereby or
thereby, contain any untrue statement of a material fact nor omit to state a
material fact necessary in order to make the statements contained herein or
therein, in light of the circumstances in which they are made, not misleading.
Any financial projections and other estimates provided to the Purchaser by the
Company or the Subsidiary were based on the Company's and the Subsidiary's
experience in the industry and on assumptions of fact and opinion as to future
events which the Company or the Subsidiary, at the date of the issuance of such
projections or estimates, believed to be reasonable.
3.20 Insurance. Each of the Company and the Subsidiary has general
commercial, product liability, fire and casualty insurance policies with
coverages which the Company believes are customary for companies similarly
situated to the Company and the Subsidiary in the same or similar business.
3.21 SEC Reports. The Company has filed all reports and other documents
required to be filed by it under the Securities Exchange Act 1934 (the "Exchange
Act"). The Company has furnished the Purchaser with copies of: (i) its Annual
Reports on Form 10-KSB for its fiscal year ended December 31, 2004; and (ii) its
Quarterly Reports on Form 10-QSB for its fiscal quarters ended March 30, 2005
and June 30, 2005 and the Form 8-K filings which it has made during 2005 to date
(collectively, the "SEC Reports"). Each SEC Report was, at the time
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of its filing, in substantial compliance with the requirements of its respective
form and none of the SEC Reports, nor the financial statements (and the notes
thereto) included in the SEC Reports, as of their respective filing dates,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading.
3.22 Listing. The Company's Common Stock is for trading on the OTC
Bulletin Board and satisfies all requirements for the continuation of such
trading. The Company has not received any notice that the Common Stock does not
meet all requirements for such trading.
3.23 No Integrated Offering. Neither the Company, nor the Subsidiary or
affiliates thereof, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales of any security or solicited any offers
to buy any security under circumstances that would cause the offering of the
Securities pursuant to this Agreement to be integrated with prior offerings by
the Company for purposes of the Securities Act which would prevent the Company
from selling the Securities pursuant to Rule 506 under the Securities Act, nor
will the Company nor the Subsidiary or affiliates thereof take any action that
would cause the offering of the Securities to be integrated with other
offerings.
3.24 Stop Transfer. The Securities are restricted securities as of the
date of this Agreement. Neither the Company nor the Subsidiary will issue any
stop transfer order or other order impeding the sale and delivery of any of the
Securities at such time as the Securities are registered for public sale or an
exemption from registration is available, except as required by state and
federal securities laws.
3.25 Dilution. The Company specifically acknowledges that its obligation
to issue the Note Shares and the Warrant Shares is binding upon the Company and
enforceable regardless of the dilution such issuance may have on the ownership
interests of other shareholders of the Company.
3.26 Patriot Act. The Company certifies that, to the best of Company's
knowledge, neither the Company nor the Subsidiary has been designated, and is
not owned or controlled, by a "suspected terrorist" as defined in Executive
Order 13224. The Company hereby acknowledges that the Purchaser seek to comply
with all applicable laws concerning money laundering and related activities. In
furtherance of those efforts, the Company hereby represents, warrants and agrees
that: (i) none of the cash or property that the Company or the Subsidiary will
pay or will contribute to the Purchaser has been or shall be derived from, or
related to, any activity that is deemed criminal under United States law; and
(ii) no contribution or payment by the Company or the Subsidiary to the
Purchaser, to the extent that they are within the Company's and/or the
Subsidiary' control shall cause the Purchaser to be in violation of the United
States Bank Secrecy Act, the United States International Money Laundering
Control Act of 1986 or the United States International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001. The Company shall promptly
notify the Purchaser if any of these representations ceases to be true and
accurate regarding the Company or the Subsidiary. The Company shall provide the
Purchaser any additional information regarding the Company or the Subsidiary
that the Purchaser deem necessary or convenient to ensure compliance with all
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applicable laws concerning money laundering and similar activities. The Company
understands and agrees that if at any time it is discovered that any of the
foregoing representations are incorrect, or if otherwise required by applicable
law or regulation related to money laundering similar activities, the Purchaser
may undertake appropriate actions to ensure compliance with applicable law or
regulation, including but not limited to segregation and/or redemption of the
Purchaser' investment in the Company. The Company further understands that the
Purchaser may release confidential information about the Company and the
Subsidiary and, if applicable, any underlying beneficial owners, to proper
authorities if the Purchaser, in its sole discretion, determines that it is in
the best interests of the Purchaser in light of relevant rules and regulations
under the laws set forth in subsection (ii) above.
4. Representations and Warranties of the Purchaser. The Purchaser hereby
represents and warrants to the Company as follows:
4.1 Requisite Power and Authority. The Purchaser has all necessary power
and authority under all applicable provisions of law to execute and deliver this
Agreement and the Related Agreements and to carry out their provisions. All
corporate action on the Purchaser's part required for the lawful execution and
delivery of this Agreement and the Related Agreements have been or will be
effectively taken prior to the Closing. Upon their execution and delivery, this
Agreement and the Related Agreements will be valid and binding obligations of
the Purchaser, enforceable in accordance with their terms, except:
(a) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights; and
(b) as limited by general principles of equity that restrict the
availability of equitable and legal remedies.
4.2 Investment Representations. The Purchaser understands that the
Securities are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon the Purchaser's
representations contained in this Agreement, including, without limitation, that
the Purchaser is an "accredited investor" within the meaning of Regulation D
under the Securities Act. The Purchaser confirms that it has received or has had
full access to all the information it considers necessary or appropriate to make
an informed investment decision with respect to the Notes and the Warrants to be
purchased by it under this Agreement and the Note Shares and the Warrant Shares
acquired by it upon the conversion of the Notes and the exercise of the Warrant,
respectively. The Purchaser further confirms that it has had an opportunity to
ask questions and receive answers from the Company regarding the Company's and
the Subsidiary's business, management and financial affairs and the terms and
conditions of the offering of the Securities and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to the Purchaser or to which the Purchaser had access.
4.3 Purchaser Bears Economic Risk. The Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in
11
companies similar to the Company so that it is capable of evaluating the merits
and risks of its investment in the Company and has the capacity to protect its
own interests. The Purchaser must bear the economic risk of this investment
until the Securities are sold pursuant to: (i) an effective registration
statement under the Securities Act; or (ii) an exemption from registration is
available with respect to such sale.
4.4 Acquisition for Own Account. The Purchaser is acquiring the Securities
for its own account for investment only, and not as a nominee or agent and not
with a view towards or for resale in connection with their distribution.
4.5 Purchaser Can Protect Its Interest. The Purchaser represents that by
reason of its, or of its management's, business and financial experience, the
Purchaser has the capacity to evaluate the merits and risks of its investment in
the Securities and to protect its own interests in connection with the
transactions contemplated in this Agreement. Further, the Purchaser is aware of
no publication of any advertisement in connection with the transactions
contemplated in this Agreement..
4.6 Accredited Investor. The Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
4.7 Legends.
(a) The Notes shall bear substantially the following legend:
"THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY APPLICABLE, STATE SECURITIES LAWS. THIS NOTE AND THE COMMON
STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE OR SUCH COMMON STOCK UNDER
SAID ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO SMARTSERV ONLINE, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED."
(b) The Note Shares and the Warrant Shares, if not issued by DWAC
system (as hereinafter defined), shall bear a legend which shall be in
substantially the following form until such shares are covered by an
effective registration statement filed with the SEC:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES
LAWS. THESE SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE
12
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES
ACT AND APPLICABLE STATE LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SMARTSERV ONLINE, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
(c) The Warrants shall bear substantially the following legend:
"THIS WARRANT AND THE COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT
AND SUCH COMMON STOCK MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THIS WARRANT OR SUCH COMMON STOCK UNDER SAID ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SMARTSERV ONLINE, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED."
5. Covenants of the Company. The Company covenants with the Purchaser as
follows:
5.1 Stop-Orders. The Company will advise the Purchaser, promptly after it
receives notice of issuance by the Securities and Exchange Commission (the
"SEC"), any state securities commission or any other regulatory authority of any
stop order or of any order preventing or suspending any offering of any
securities of the Company, or of the suspension of the qualification of the
Common Stock for offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
5.2 Listing. The Company will maintain the listing of its Common Stock on
the OTC Bulleting Board, and will comply in all material respects with the
Company's reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers ("NASD") , as applicable.
5.3 Market Regulations. The Company shall notify the SEC, NASD and
applicable state authorities, in accordance with their requirements, of the
transactions contemplated by this Agreement, and shall take all other necessary
action and proceedings as may be required and permitted by applicable law, rule
and regulation, for the legal and valid issuance of the Securities to the
Purchaser and promptly provide copies thereof to the Purchaser.
5.4 Reporting Requirements. The Company will timely file with the SEC all
reports required to be filed pursuant to the Exchange Act and refrain from
terminating its status as an issuer required by the Exchange Act to file reports
thereunder even if the Exchange Act or the rules or regulations thereunder would
permit such termination.
13
5.5 Use of Funds. The Company agrees that it will use the proceeds of the
sale of the Notes and the Warrants to secure a letter of credit for the benefit
of Sprint ($1,000,000) and for its and the Subsidiary's general working capital
purposes. Such amount shall be disbursed directly to the bank issuing such
letter of credit pursuant to procedures determined by the Purchaser.
5.6 Access to Facilities. Each of the Company and the Subsidiary will
permit any representatives designated by the Purchaser (or any successor of the
Purchaser), upon reasonable notice and during normal business hours, at such
person's expense and accompanied by a representative of the Company, to:
(a) visit and inspect any of the properties of the Company or the
Subsidiary;
(b) examine the corporate and financial records of the Company or
the Subsidiary and make copies thereof or extracts therefrom; and
(c) discuss the affairs, finances and accounts of the Company or the
Subsidiary with the directors, officers and independent accountants of the
Company or the Subsidiary.
5.7 Taxes. Each of the Company and the Subsidiary will promptly pay and
discharge, or cause to be paid and discharged, when due and payable, all lawful
taxes, assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company and the Subsidiary; provided,
however, that any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by appropriate
proceedings and if the Company and/or the Subsidiary shall have set aside on its
books adequate reserves with respect thereto, and provided, further, that the
Company and the Subsidiary will pay all such taxes, assessments, charges or
levies forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefor.
5.8 Insurance. Each of the Company and the Subsidiary will keep its assets
which are of an insurable character insured by financially sound and reputable
insurers against loss or damage by fire, explosion and other risks customarily
insured against by companies in similar business similarly situated as the
Company and the Subsidiary; and the Company and the Subsidiary will maintain,
with financially sound and reputable insurers, insurance against other hazards
and risks and liability to persons and property to the extent and in the manner
which the Company reasonably believes is customary for companies in similar
business similarly situated as the Company and the Subsidiary and to the extent
available on commercially reasonable terms. The Company, and the Subsidiary will
jointly and severally bear the full risk of loss from any loss of any nature
whatsoever with respect to the assets pledged to the Purchaser as security for
its obligations hereunder and under the Related Agreements. At the Company's and
the Subsidiary's cost and expense in amounts and with carriers reasonably
acceptable to the Purchaser, the Company and the Subsidiary shall (i) keep all
its insurable properties and properties in which it has an interest insured
against the hazards of fire, flood, sprinkler leakage, those hazards covered by
extended coverage insurance and such other hazards, and for such amounts, as is
customary in the case of companies engaged in businesses similar to the
14
Company's or the Subsidiary's including business interruption insurance; (ii)
maintain a bond in such amounts as is customary in the case of companies engaged
in businesses similar to the Company's or the Subsidiary's insuring against
larceny, embezzlement or other criminal misappropriation of officers and
employees who may either singly or jointly with others at any time have access
to the assets or funds of the Company or the Subsidiary either directly or
through governmental authority to draw upon such funds or to direct generally
the disposition of such assets or funds; (iii) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (iv) maintain all such worker's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which the Company or the Subsidiary is engaged in business; and (v) furnish the
Purchaser with (x) copies of all policies and evidence of the maintenance of
such policies at least thirty (30) days before any expiration date, (y)
endorsements to such policies evidencing such insurance naming the Purchaser as
"co-insured" or "additional insured" and appropriate loss payable endorsements
in form and substance satisfactory to the Purchaser, naming the Purchaser as
loss payee, and (z) evidence that as to the Purchaser the insurance coverage
shall not be impaired or invalidated by any act or neglect of the Company or the
Subsidiary and the insurer will provide the Purchaser with at least thirty (30)
days notice prior to cancellation. The Company and the Subsidiary shall instruct
the insurance carriers that in the event of any loss thereunder, the carriers
shall make payment for such loss to the Company and/or the Subsidiary and the
Purchaser jointly. If as of the date of receipt of each loss recovery upon any
such insurance, the Purchaser has not declared an event of default with respect
to this Agreement or any of the Related Agreements, then the Company and/or the
Subsidiary shall be permitted to direct the application of such loss recovery
proceeds toward investment in property, plant and equipment that would comprise
"Collateral" secured by the Purchaser' security interest pursuant to the Master
Security Agreement, with any surplus funds to be applied toward payment of the
obligations of the Company to the Purchaser. If the Purchaser has properly
declared an event of default with respect to this Agreement or any of the
Related Agreements, then all loss recoveries received by the Purchaser upon any
such insurance thereafter may be applied to the obligations of the Company
hereunder and under the Related Agreements, in such order as the Purchaser may
determine. Any surplus (following satisfaction of all Company obligations to the
Purchaser) shall be paid by the Purchaser to the Company or applied as may be
otherwise required by law. Any deficiency thereon shall be paid by the Company
or the Subsidiary, as applicable, to the Purchaser, on demand.
5.9 Intellectual Property. Each of the Company and the Subsidiary shall
maintain in full force and effect its existence, rights and franchises and all
licenses and other rights to use Intellectual Property possessed by it and
reasonably deemed to be necessary to the conduct of its business.
5.10 Properties. Each of the Company and the Subsidiary will keep its
properties in good repair, working order and condition, reasonable wear and tear
excepted, and from time to time make all proper repairs, renewals, replacements,
additions and improvements thereto; and each of the Company and the Subsidiary
will at all times comply with each provision of all leases to which it is a
party or under which it occupies property.
5.11 Confidentiality. The Company will not disclose, and will not include
in any public announcement, the name of the Purchaser, unless expressly agreed
to by the
15
Purchaser or unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement.
5.12 Required Approvals. For so long as the Notes are outstanding, the
Company, without the prior written consent of the Purchaser, shall not, and
shall not permit the Subsidiary to:
(a) (i) directly or indirectly declare or pay any dividends, other
than dividends paid to the Parent or any of its wholly-owned Subsidiaries,
(ii) issue any preferred stock that is manditorily redeemable prior to one
year after the Maturity Date, or (iii) redeem any of its preferred stock
or other equity interests;
(b) liquidate, dissolve or effect a material reorganization (it
being understood that in no event shall the Company dissolve, liquidate or
merge with any other person or entity (unless the Company is the surviving
entity);
(c) become subject to (including, without limitation, by way of
amendment to or modification of) any agreement or instrument which by its
terms would (under any circumstances) restrict the Company's or the
Subsidiary's right to perform the provisions of this Agreement or any
Related Agreement ;
(d) materially alter or change the scope of the business of the
Company and the Subsidiary taken as a whole;
(e) (i) create, incur, assume or suffer to exist any indebtedness
whether secured or unsecured other than (x) the Company's indebtedness to
the Purchaser and (ys any debt incurred in connection with the purchase of
assets in the ordinary course of business; (ii) cancel any debt owing to
it in excess of $10,000 in the aggregate during any 12 month period; (iii)
assume, guarantee, endorse or otherwise become directly or contingently
liable in connection with any obligations of any other person, except the
endorsement of negotiable instruments by the Company for deposit or
collection or similar transactions in the ordinary course of business or
guarantees of indebtedness otherwise permitted to be outstanding pursuant
to this clause (e); and
(f) create or acquire any Subsidiary after the date hereof unless
(i) it is wholly-owned by the Company and (ii) such Subsidiary becomes
party to the Master Security Agreement, the Stock Pledge Agreement and the
Subsidiary Guaranty (either by executing a counterpart thereof or an
assumption or joinder agreement in respect thereof) and, to the extent
required by the Purchaser, satisfies each condition of this Agreement and
the Related Agreements as if such Subsidiary were a Subsidiary on the
Closing Date.
5.13 Reissuance of Securities. The Company shall reissue certificates
representing the Securities without the legends set forth in Section 4.7 above
at such time as:
(a) the holder thereof is permitted to dispose of the Securities
pursuant to Rule 144(k) under the Securities Act; or
16
(b) upon resale subject to an effective registration statement after
the Securities are registered under the Securities Act.
The Company shall cooperate with the Purchaser in connection with all resales
pursuant to Rule 144(d) and Rule 144(k) and provide legal opinions necessary to
allow such resales to be effected.
5.14 Opinion. On the Closing Date, the Company will deliver to the
Purchaser an opinion acceptable to the Purchaser from the Company's external
legal counsel. The Company will provide, at the Company's expense, such other
legal opinions in the future as are deemed reasonably necessary by the Purchaser
(and acceptable to the Purchaser) in connection with the conversion of the Note
and exercise of the Warrant.
5.15 Margin Stock. The Company will not permit any of the proceeds of the
Notes or the Warrant to be used directly or indirectly to "purchase" or "carry"
"margin stock" or to repay indebtedness incurred to "purchase" or "carry"
"margin stock" within the respective meanings of each of the quoted terms under
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereafter in effect.
5.16 Financing Right of First Refusal. (a) The Company hereby grants to
the Purchaser a right of first refusal to provide any Additional Financing (as
defined below) to be issued by the Company and/or the Subsidiary, subject to the
following terms and conditions. From and after the date hereof, prior to the
incurrence of any additional indebtedness and/or the sale or issuance of any
equity interests of the Company or any Subsidiary (an "Additional Financing"),
the Company and/or such Subsidiary, as the case may be, shall notify the
Purchaser of its intention to enter into such Additional Financing. In
connection therewith, the Company and/or such Subsidiary shall submit a fully
executed term sheet (a "Proposed Term Sheet") to the Purchaser setting forth the
terms, conditions and pricing of any such Additional Financing (such financing
to be negotiated on "arm's length" terms and the terms thereof to be negotiated
in good faith) proposed to be entered into by the Company and/or such
Subsidiary. The Purchaser shall have the right, but not the obligation, to
deliver its own proposed term sheet (the "Purchaser Term Sheet") setting forth
the terms and conditions upon which the Purchaser would be willing to provide
one half of such Additional Financing to the Company and/or such Subsidiary. The
Purchaser Term Sheet shall contain terms no less favorable to the Company and
/or the Subsidiary than those outlined in Proposed Term Sheet. The Purchaser
shall deliver the Purchaser Term Sheet within ten business days of receipt of
each such Proposed Term Sheet. If the provisions of the Purchaser Term Sheet are
at least as favorable to the Company and/or such Subsidiary, as the case may be,
as the provisions of the Proposed Term Sheet, the Company and/or such Subsidiary
shall enter into and consummate the Additional Financing transaction outlined in
the Purchaser Term Sheet.
(b) The Company will not, and will not permit the Subsidiary to, agree,
directly or indirectly, to any restriction with any person or entity which
limits the ability of the Purchaser to consummate an Additional Financing with
the Company or the Subsidiary.
5.17 Related Party Transactions. So long as the Notes are outstanding,
neither the Company nor the Subsidiary will enter into any transaction with its
officers, directors or any person or entity which may be deemed to be an
"affiliate" (as such term is defined under Rule
17
144 promulgated under the Securities Act) of the Company, (any such transaction
being referred to herein as an "Affiliate Transaction") valued at more than
$25,000 without the prior written consent of the Purchaser. So long as the Notes
are outstanding, neither the Company nor the Subsidiary shall not enter into any
Affiliate Transaction, regardless of amount, unless the terms of such Affiliate
Transaction are at least as favorable as those that would be available to
unrelated third parties.
6. Indemnification.
6.1 Company Indemnification. The Company shall indemnify, hold harmless,
reimburse and defend the Purchaser, and each of the Purchaser's officers,
directors, agents, affiliates, control persons, and shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature (collectively, "Losses") incurred by or
imposed on the Purchaser that results, arises out of or is based upon: (i) any
misrepresentation by the Company or the Subsidiary or breach of any warranty by
the Company or the Subsidiary in this Agreement, any other Related Agreement or
in any exhibits or schedules attached hereto or thereto; or (ii) any breach or
default in performance by Company or the Subsidiary of any covenant by the
Company or the Subsidiary hereunder, under any other Related Agreement or any
other agreement entered into by the Company and/or the Subsidiary and Purchaser
relating hereto or thereto.
6.2 Purchaser's Indemnification. The Purchaser shall indemnify, hold
harmless, reimburse and defend the Company and each of the Company's officers,
directors, agents, affiliates, and shareholders, at all times against any Losses
incurred by or imposed on the Company that results, arises out of or is based
upon: (i) any misrepresentation by the Purchaser or breach of any warranty by
the Purchaser in this Agreement or in any exhibits or schedules attached hereto
or any Related Agreement; or (ii) any breach or default in performance by the
Purchaser of any covenant to be performed by the Purchaser hereunder.
18
7. Conversion of the Notes.
7.1 Mechanics of Conversion.
(a) Provided that the Purchaser has notified the Company of its
intention to sell the Note Shares and the Note Shares are included in an
effective registration statement or are otherwise exempt from registration
when sold: (i) upon the conversion of the Notes or part thereof, the
Company shall, at its own cost and expense, take all necessary action
(including the issuance of an opinion of counsel reasonably acceptable to
the Purchaser following a request by the Purchaser) to assure that the
Company's transfer agent shall issue shares of the Common Stock in the
name of the Purchaser (or its nominee) or such other persons as designated
by the Purchaser and in such denominations to be specified representing
the number of Note Shares issuable upon such conversion; and (ii) the
Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Common Stock and that
after the Effectiveness Date (as defined in the Registration Rights
Agreement) the Note Shares issued will be freely transferable subject to
the prospectus delivery requirements of the Securities Act and the
provisions of this Agreement, and will not contain a legend restricting
the resale or transferability of the Note Shares.
(b) The Purchaser will give notice of its decision to exercise its
right to convert the Notes or part thereof by telecopying or otherwise
delivering an executed and completed notice of the number of shares to be
converted to the Company (the "Notice of Conversion"). The Purchaser will
not be required to surrender the Notes until the Purchaser receives a
credit to the account of the Purchaser's prime broker through the DWAC
system (as defined below), representing the Note Shares or until its Note
has been fully satisfied. Each date on which a Notice of Conversion is
telecopied or delivered to the Company in accordance with the provisions
hereof shall be deemed a "Conversion Date." Pursuant to the terms of the
Notice of Conversion, the Company will issue instructions to the transfer
agent accompanied by an opinion of counsel within one (1) business day of
the date of the delivery to the Company of the Notice of Conversion and
shall cause the transfer agent to transmit the certificates representing
the Conversion Shares to the Holder by crediting the account of the
Purchaser's prime broker with the Depository Trust Company ("DTC") through
its Deposit Withdrawal Agent Commission system (the "DWAC system") within
three (3) business days after receipt by the Company of the Notice of
Conversion (the "Delivery Date").
(c) The Company understands that a delay in the delivery of the Note
Shares in the form required pursuant to Section 9 hereof beyond the
Delivery Date could result in economic loss to the Purchaser. If the
Company fails to direct its transfer agent to deliver the Note Shares to
the Purchaser via the DWAC system within the time frame set forth above
and the Note Shares are not delivered to the Purchaser by the Delivery
Date, as compensation to the Purchaser for such loss, the Company shall
pay late payments to the Purchaser for late issuance of the Note Shares
upon conversion of the Note in the amount equal to the greater of: (i)
$500 per business day after the Delivery Date; or (ii) the Purchaser's
actual damages from such delayed delivery. Notwithstanding the foregoing,
the Company will not owe the Purchaser any late payments if the delay in
the
19
delivery of the Note Shares beyond the Delivery Date is solely out of the
control of the Company and the Company is actively trying to cure the
cause of the delay. The Company shall pay any payments incurred under this
Section in immediately available funds upon demand and, in the case of
actual damages, accompanied by reasonable documentation of the amount of
such damages. Such documentation shall show the number of shares of Common
Stock the Purchaser is forced to purchase (in an open market transaction)
which the Purchaser anticipated receiving upon such conversion, and shall
be calculated as the amount by which (A) the Purchaser's total purchase
price (including customary brokerage commissions, if any) for the shares
of Common Stock so purchased exceeds (B) the aggregate amount of payments
due under the Notes, for which such Conversion Notice was not timely
honored.
Nothing contained herein or in any document referred to herein or delivered in
connection herewith shall be deemed to establish or require the payment of a
rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest or dividends required to
be paid or other charges hereunder exceed the maximum amount permitted by such
law, any payments in excess of such maximum shall be credited against amounts
owed by the Company to the Purchaser and thus refunded to the Company.
The provisions of this Section 7 shall apply to the shares of Common Stock
issued by the Company in lieu of the payment of principal and interest due on
the Notes as set forth in the Notes, mutatis mutandis.
8. Miscellaneous.
8.1 Governing Law. THIS AGREEMENT AND EACH RELATED AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS OTHER THAN SECTION 5-1401 OF
THE NEW YORK GENERAL OBLIGATIONS LAW. ANY ACTION BROUGHT BY EITHER PARTY AGAINST
THE OTHER CONCERNING THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND EACH
RELATED AGREEMENT SHALL BE BROUGHT ONLY IN THE STATE COURTS OF NEW YORK OR IN
THE FEDERAL COURTS LOCATED IN THE STATE OF NEW YORK. EACH OF THE COMPANY AND THE
PURCHASER AND THE INDIVIDUALS EXECUTING THIS AGREEMENT AND THE RELATED
AGREEMENTS ON BEHALF OF THE COMPANY AGREE TO SUBMIT TO THE JURISDICTION OF SUCH
COURTS AND WAIVE TRIAL BY JURY. IF ANY PROVISION OF THIS AGREEMENT OR ANY
RELATED AGREEMENT IS INVALID OR UNENFORCEABLE UNDER ANY APPLICABLE LAW, THEN
SUCH PROVISION SHALL BE DEEMED INOPERATIVE TO THE EXTENT THAT IT MAY CONFLICT
THEREWITH AND SHALL BE DEEMED MODIFIED TO CONFORM WITH SUCH LAW. ANY SUCH
PROVISION WHICH MAY PROVE INVALID OR UNENFORCEABLE UNDER ANY LAW SHALL NOT
AFFECT THE VALIDITY OR ENFORCEABILITY OF ANY OTHER PROVISION OF THIS AGREEMENT
OR ANY RELATED AGREEMENT.
8.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Purchaser and the
closing of the
20
transactions contemplated hereby to the extent provided therein. All statements
as to factual matters contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate or
instrument.
8.3 Successors. The provisions hereof shall inure to the benefit of, and
be binding upon, the successors and assigns of the parties hereto and shall
inure to the benefit of, and be enforceable by, each person who shall be a
holder of the Securities from time to time, other than the holders of Common
Stock which has been sold by the Purchaser pursuant to Rule 144 or an effective
registration statement. The Company may not assign this Agreement without the
prior consent of the Purchaser.
8.4 Entire Agreement. This Agreement, the Related Agreements, the exhibits
and schedules hereto and thereto and the other documents delivered pursuant
hereto constitute the full and entire understanding and agreement between the
parties with regard to the subjects hereof and no party shall be liable or bound
to any other in any manner by any representations, warranties, or covenants
except as specifically set forth herein and therein.
8.5 Amendment and Waiver.
(a) This Agreement may be amended or modified only upon the written
consent of the Company and the Purchaser.
(b) The obligations of the Company and the rights of the Purchaser
under this Agreement may be waived only with the written consent of the
Purchaser.
(c) The obligations of the Purchaser and the rights of the Company
under this Agreement may be waived only with the written consent of the
Company.
8.6 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any party, upon any breach, default or noncompliance by
another party under this Agreement or the Related Agreements, shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of or in
any similar breach, default or noncompliance thereafter occurring. All remedies,
either under this Agreement or the Related Agreements, by law or otherwise
afforded to any party, shall be cumulative and not alternative.
8.7 Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given:
(a) upon personal delivery to the party to be notified;
(b) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day;
(c) three (3) business days after having been sent by registered or
certified mail, return receipt requested, postage prepaid; or
21
(d) one (1) day after deposit with a nationally recognized overnight
courier, specifying next day delivery, with written verification of
receipt.
All communications shall be sent as follows:
If to the Company, to: SmartServ Online, Inc.
0000 Xxxxxx Xxxx
Xxxxxxxx Xxxxxxxx, XX
Attention: Xxxxxx Xxxx
Facsimile: (000) 000-0000
If to the Purchaser, to: c/o Centrecourt Asset Management
000 Xxxxx Xxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx Xxxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx Xxxxxx Rosenman LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
or at such other address as the Company or the Purchaser may designate by
written notice to the other parties hereto given in accordance herewith. 8.8
Attorneys' Fees. If any suit or other action is instituted to enforce any
provision in this Agreement, the prevailing party in such dispute shall be
entitled to recover from the losing party all fees, costs and expenses of
enforcing any right of such prevailing party under or with respect to this
Agreement, including, without limitation, such reasonable fees and expenses of
attorneys and accountants, which shall include, without limitation, all fees,
costs and expenses of appeals.
8.9 Titles and Subtitles. The titles of the sections and subsections of
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.10 Facsimile Signatures; Counterparts. This Agreement may be executed by
facsimile signatures and in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
8.11 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or
22
indirectly in connection with the transactions contemplated herein. Each party
shall indemnify each other party for any claims, losses or expenses incurred by
such other party as a result of the representation in this Section being untrue.
8.12 Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Agreement and the Related Agreements
and, therefore, stipulates that the rule of construction that ambiguities are to
be resolved against the drafting party shall not be applied in the
interpretation of this Agreement to favor any party against the other.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, the parties hereto have executed the SECURITIES
PURCHASE AGREEMENT as of the date set forth in the first paragraph hereof.
SMARTSERV ONLINE, INC. CAMOFI MASTER LDC
By: /s/ Xxxxxx X. Xxxx By: /s/ Xxxxxxx Xxxxxxxxx
--------------------- ----------------------
Name: Xxxxxx X. Xxxx Name:
Title: Chief Executive Officer Title:
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EXHIBIT A
FORM OF THE NOTE
A-1
EXHIBIT B
FORM OF WARRANT
B-1
