EXHIBIT 10.2
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT
SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (C) IF REGISTERED UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS. IN ADDITION, A SECURITIES PURCHASE AGREEMENT, DATED AS OF THE
DATE HEREOF, A COPY OF WHICH MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL
EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL AGREEMENTS AMONG THE PARTIES,
INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH (A) LIMIT THE CONVERSION RIGHTS
OF THE HOLDER, (B) SPECIFY VOLUNTARY AND MANDATORY REPAYMENT, PREPAYMENT AND
REDEMPTION RIGHTS AND OBLIGATIONS AND (C) SPECIFY EVENTS OF DEFAULT FOLLOWING
WHICH THE REMAINING BALANCE DUE AND OWING HEREUNDER MAY BE ACCELERATED.
No. 1 $1,000,000
10% CONVERTIBLE NOTE
of
SmartServ Online, Inc., a Delaware corporation (together with its
successors, the "Company"), for value received hereby promises to pay to:
GLOBAL CAPITAL FUNDING GROUP, L.P.
(the "Holder") and registered assigns, the principal sum of One Million
($1,000,000) or, if less, the principal amount of this Note then outstanding, on
the Maturity Date by wire transfer of immediately available funds to the Holder
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts, and
to pay interest, which shall begin to accrue on the date of this Note, quarterly
in arrears, on (i) the last day of March, June, September and December of each
year until the Maturity Date, commencing March 31, 2003 (unless such day is not
a Business Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date"), (ii) the Maturity Date, (iii) each Conversion Date, as
hereafter defined, and (iv) the date the principal amount of the Convertible
Note shall be declared to be or shall automatically become due and payable, on
the principal sum hereof outstanding in like coin or currency, at the rates per
annum set forth below, from the most recent Interest Payment Date to which
interest has been paid on this Convertible Note, or if no interest has been paid
on this Convertible Note, from the date of this Convertible Note until payment
in full of the principal sum hereof has been made. The Maturity Date is February
14, 2004.
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The interest rate shall be ten percent (10%) per annum (the "Interest
Rate") or, if less, the maximum rate permitted by applicable law. Past due
amounts (including interest, to the extent permitted by law) will also accrue
interest at the Interest Rate plus 2% per annum or, if less, the maximum rate
permitted by applicable law, and will be payable on demand ("Default Interest").
Interest on this Convertible Note will be calculated on the basis of a 360-day
year of twelve 30 day months. All payments of principal and interest hereunder
shall be made for the benefit of the Holder pursuant to the terms of the
Agreement (hereafter defined). At the option of the Holder, interest may be paid
in cash or in shares of Common Stock. On each Conversion Date, interest shall be
paid in cash or shares of Common Stock on the portion of the principal balance
of the Convertible Note then being converted. The number of shares of Common
Stock issued as interest shall be determined by dividing the dollar amount of
interest due on the applicable Interest Payment Date by the Conversion Price
then in effect.
This Convertible Note (this "Convertible Note") is one of a duly authorized
issuance of $1,000,000 aggregate principal amount Convertible Note made by the
Company referred to in that certain Securities Purchase Agreement dated as of
the date hereof between the Company and the Purchaser named therein (the
"Agreement"). The Agreement contains certain additional agreements among the
parties with respect to the terms of this Convertible Note, including, without
limitation, provisions which (A) limit the conversion rights of the Holder, (B)
specify voluntary and mandatory redemption rights and obligations and (C)
specify Events of Default following which the remaining balance due and owing
hereunder may be accelerated. All such provisions are an integral part of this
Convertible Note and are incorporated herein by reference. This Convertible Note
is transferable and assignable to one or more Persons, in accordance with the
limitations set forth in the Agreement.
The Company shall keep a register (the "Register") in which shall be
entered the names and addresses of the registered holder of this Convertible
Note and particulars of this Convertible Note held by such holder and of all
transfers of this Convertible Note. References to the Holder or "Holders" shall
mean the Person listed in the Register as registered holder of such Convertible
Notes. The ownership of this Convertible Note shall be proven by the Register.
1. CERTAIN TERMS DEFINED. All terms defined in the Agreement and not otherwise
defined herein shall have for purposes hereof the meanings provided for in the
Agreement.
2. COVENANTS. The Company covenants and agrees to observe and perform each of
its covenants, obligations and undertakings contained in the Agreement, which
obligations and undertakings are expressly assumed herein by the Company and
made for the benefit of the holder hereof.
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3. PAYMENT OF PRINCIPAL.
3.1 PREPAYMENT OF NOTE. The Company may at its option, prepay up to
$500,000 principal amount of this Convertible Note at any time
following the date of issuance of this Convertible Note through the
90th day following the date of issuance for a prepayment price equal
to the amount of principal being repaid plus all accrued and unpaid
interest with respect thereto, regardless of whether the Convertible
Note is in Default. At any time following (i) such 90-day period with
respect to the first $500,000 principal amount of Convertible Note and
(ii) the date of issuance o f this Convertible Note, with respect to
the second $500,000 principal amount of the Convertible Note, and for
so long as no Event of Default shall have occurred and is continuing
and the Company is not in receipt of a Notice of Conversion from the
Holder of the Note, the Company may, at its option, prepay, in whole
or in part, this Convertible Note for a pre-payment price (the
"Prepayment Price") equal to the outstanding principal amount of the
Note, plus all accrued and unpaid interest. The Company shall not be
entitled to send any notice of prepayment and begin the prepayment
procedure unless it has (i) the full amount of the Prepayment Price,
in cash, available in a demand or other immediately available account
in a bank or similar financial institution or (ii) immediately
available credit facilities, in the full amount of the Prepayment
Price, with a bank or similar financial institution on the date the
prepayment notice is sent to the Holders of this Convertible Note.
Provided, however, the Company will process any Notice of Conversion
received prior to the issuance of a notice of prepayment or within
seven days following the date of such notice; and further provided
that, the Holder may issue a Notice of Conversion following such seven
day period which notice will not be honored unless the Company fails
to make the prepayment payment when due. In the event of such failure,
the Notice of Conversion will be honored as of the date of the Notice
of Conversion
3.2 PAYMENT ON MATURITY DATE. The Company shall repay the remaining unpaid
balance of this Convertible Note on the Maturity Date.
4. CONVERSION.
4.1 CONVERSION OF CONVERTIBLE NOTE. Subject to Section 5 hereof, the
Holder shall have the right, at its option, at any time from and after
the date of issuance of this Convertible Note, to convert up to
$500,000 the principal amount of this Convertible Note, or any portion
of such principal amount, into that number of fully paid and
nonassessable shares of Common Stock (as such shares shall then be
constituted) determined pursuant to this Section 4.1. The Holder shall
have the right to convert the remaining $500,000 principal amount of
this Convertible Note at any time following the 90th day following the
date of issuance of this Convertible Note. The number of shares of
Common Stock to be issued upon each conversion of this Convertible
Note shall be determined by dividing the Conversion Amount (as defined
below) by the Conversion Price in effect on the date (the "Conversion
Date") a Notice of Conversion is delivered to the Company, as
applicable, by the Holder by facsimile or other reasonable means of
communication dispatched prior to 5:00 p.m., E.S.T. The term
"Conversion Amount" means, with respect to any conversion of this
Convertible Note, the sum of (1) the principal amount of this
Convertible Note to be converted in such conversion plus (2) accrued
and unpaid interest, if any, on such principal amount at the interest
rates provided in this Convertible Note to the Conversion Date plus
(3) Default Interest, if any, on the interest referred to in the
immediately preceding clause (2) plus (4) at the Holder's option, any
amounts owed to the Holder pursuant to Section 4.3 hereof, Section
10.1 of the Agreement or Section 10.4 of the Agreement.
4.2 CONVERSION PRICE. At the option of the Holder, any portion or all of
the outstanding principal amount of this Convertible Note shall be
converted into a number of shares of Common Stock at the conversion
price (the "Conversion Price") equal to $1.10.
4.3 AUTHORIZED SHARES.
(a) Consistent with Section 7.11 of the Agreement, the Company (i) shall
promptly irrevocably instruct the Company's transfer agent to issue
certificates for the Common Stock issuable upon conversion of this
Convertible Note and (ii) agrees that its issuance of this Convertible Note
shall constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock in accordance with the
terms and conditions of this Convertible Note.
(b) If at any time a Holder of this Convertible Note submits a Notice of
Conversion (x) the Company does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in full in
accordance with the provisions of this Article 4 or (y) the Company is
prohibited by the applicable rules of the Nasdaq Small Cap Market or the
National Market on which the Common Shares are listed and traded at that
time to effect such conversion in full as provided in subsection (d) below,
without stockholder approval (each, a "Conversion Default"), the Company
shall issue to the Holder all of the shares of Common Stock which are then
available to effect such conversion. The portion of this Convertible Note
which the Holder included in its Conversion Notice and which exceeds the
amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms
hereof until (and at the Holder's option at any time after) the date
additional shares of Common Stock are authorized by the Company, or its
stockholders, as applicable. The Company shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of
(N/365) x .24 x the Excess Amount on the Conversion Date in respect of the
Conversion Default (the "Conversion Default Date"), where N = the number of
days from the Conversion Default Date to the date (the "Authorization
Date") that the Company, or its stockholders, as applicable, authorizes a
sufficient number of shares of Common Stock to effect conversion of the
full outstanding principal balance of this Convertible Note. The Company
shall use its best efforts to authorize, or cause its stockholders to
authorize within 60 days of the occurrence of a Conversion Default, a
sufficient number of shares of Common Stock as soon as practicable
following the earlier of (i) such time that the Holder notifies the Company
or that the Company otherwise becomes aware that there are
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or likely will be insufficient shares to allow full conversion thereof and
(ii) a Conversion Default. The Company shall send notice to the Holder of
the authorization of additional shares of Common Stock, the Authorization
Date and the amount of Holder's accrued Conversion Default Payments. The
accrued Conversion Default Payments for each calendar month shall be paid
in cash or shall be convertible into Common Stock (at such time as there
are sufficient authorized shares of Common Stock) at the Market Price, at
the Holder's option, as follows:
(1) In the event the Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth Business Day of the month
following the month in which it has accrued; and
(2) In the event the Holder elects to take such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the
Market Price (as in effect at the time of conversion) at any time
after the fifth Business Day of the month following the month in which
it has accrued (at such time as there are sufficient authorized shares
of Common Stock) in accordance with the terms of this Article 4.
(c) The Holder's election pursuant to this Section 4.3 shall be made in
writing to the Company at any time prior to 5:00 p.m., E.S.T., on the third
Business Day of the month following the month in which Conversion Default
payments have accrued. If no election is made, the Holder shall be deemed
to have elected to receive cash. Nothing herein shall limit the Holder's
right to pursue actual damages (to the extent in excess of the Conversion
Default Payments) due to the Company's failure to maintain a sufficient
number of authorized shares of Common Stock.
(d) In no event shall the Company issue more than the Maximum Number of
Shares upon conversion of this Convertible Note, unless the Company shall
have obtained approval by the stockholders of the Company ("Stockholder
Approval") or a waiver of such requirement by the Nasdaq Small Cap Market
or the National Market on which the Common Shares are listed and traded at
that time. Once the Maximum Number of Shares has been issued (the date of
which is hereinafter referred to as the "Maximum Conversion Date"), unless
the Company shall have obtained Stockholder Approval or a waiver of such
requirement by the Nasdaq Small Cap Market or the National Market on which
the Common Shares are listed and traded at that time within 60 days of the
Maximum Conversion Date, the Company shall pay to the Holder within five
(5) Business Days of the expiration of such 60 day period, the Redemption
Price plus accrued and unpaid Default Interest, if any. The Maximum Number
of Shares shall be subject to adjustment from time to time for stock
splits, stock dividends, combinations, capital reorganizations and similar
events relating to the Common Stock occurring after the date hereof as
contemplated by Article XI of the Agreement. In the event that the Company
obtains Stockholder Approval, approval of the Nasdaq Small Cap Market or
the National Market on which the Common Shares are listed and traded at
that time, or otherwise is able to increase the number of shares to be
issued above the Maximum Number of Shares (such increased number being the
"New Maximum Number of Shares"), the references to Maximum Number of Shares
above shall be deemed to be, instead, references to the New Maximum Number
of Shares.
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4.4 METHOD OF CONVERSION.
(a) Notwithstanding anything to the contrary set forth herein, upon
conversion of this Convertible Note in accordance with the terms hereof,
the Holder shall not be required to physically surrender this Convertible
Note to the Company unless the entire unpaid principal amount of this
Convertible Note is so converted. Rather, records showing the principal
amount converted (or otherwise repaid) and the date of such conversion or
repayment shall be maintained on a ledger substantially in the form of
Annex A attached hereto (a copy of which shall be delivered to the Company
or transfer agent with each Notice of Conversion). It is specifically
contemplated that the Holder hereof shall act as the calculation agent for
conversions and repayments. In the event of any dispute or discrepancies,
such records maintained by the Holder shall be controlling and
determinative in the absence of manifest error or failure of Holder to
record the principal amount converted (or otherwise repaid) from time to
time, in which events the record of the Company shall be controlling and
determinative. The Holder and any assignee, by acceptance of this
Convertible Note, acknowledge and agree that, by reason of the provisions
of this paragraph, following a conversion of a portion of this Convertible
Note, the principal amount represented by this Convertible Note will be the
amount indicated on Annex A attached hereto (which may be less than the
amount stated on the face hereof).
(b) The Company shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of shares
of Common Stock or other securities or property on conversion of this
Convertible Note in a name other than that of the Holder (or in street
name), and the Company shall not be required to issue or deliver any such
shares or other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street name such
shares are to be held for the Holder's account) requesting the issuance
thereof shall have paid to the Company the amount of any such tax or shall
have established to the satisfaction of the Company that such tax has been
paid.
(c) Subject to Section 5 hereof, upon receipt by the Company of a Notice of
Conversion, the Holder shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, the outstanding principal
amount and the amount of accrued and unpaid interest on this Convertible
Note shall be deemed reduced to reflect such conversion, and, unless the
Company defaults on its obligations under this Article 4, all rights with
respect to the portion of this Convertible Note being so converted shall
forthwith terminate except the right to receive the Common Stock or other
securities, cash or other assets, as herein provided, on such conversion.
Subject to Section 5 hereof,
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if the Holder shall have given a Notice of Conversion as provided herein, the
Company's obligation to issue and deliver the certificates for shares of Common
Stock shall be absolute and unconditional, irrespective of the absence of any
action by the Holder to enforce the same, any waiver or consent with respect to
any provisions thereof, the recovery of any judgment against any person or any
action by the Holder to enforce the same, any failure or delay in the
enforcement of any other obligation of the Company to the Holder of record, or
any setoff, counterclaim, recoupment, limitation or termination, or any breach
or alleged breach by the Holder of any obligation to the Company, and subject to
Section 4.4(a) irrespective of any other circumstance which might otherwise
limit such obligation of the Company to the Holder in connection with such
conversion. The date of receipt (including receipt via telecopy) of such Notice
of Conversion shall be the Conversion Date so long as it is received before 5:00
p.m., E.S.T., on such date.
(d) Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the expiration of the
Deadline with respect to a conversion of any portion of this Convertible
Note for any reason, then (unless the Holder otherwise elects to retain its
status as a holder of Common Stock by so notifying the Company), the Holder
shall regain the rights of a Holder of this Convertible Note with respect
to such unconverted portions of this Convertible Note and the Company
shall, as soon as practicable, return such unconverted Convertible Note to
the holder or, if the Convertible Note has not been surrendered, adjust its
records to reflect that such portion of this Convertible Note not been
converted. In all cases, the Holder shall retain all of its rights and
remedies including, without limitation, the right to receive Conversion
Default Payments to the extent required thereby for such Conversion Default
and any subsequent Conversion Default.
(e) In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Company's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program, upon request of the Holder and its compliance with the
provisions contained in Section 4.1 and in this Section 4.4, the Company shall
use its best efforts to cause its transfer agent to electronically transmit the
Common Stock issuable upon conversion to the Holder by crediting the account of
Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission
System.
5. REDEMPTION BY COMPANY.
5.1 MANDATORY REDEMPTION. Subject to the first sentence of Section 3.1 of
this Convertible Debenture and in accordance with the provisions of
the Purchase Agreement, the Company may be required under certain
circumstances, to redeem in whole or in part, the remaining unpaid
principal amount of this Convertible Note, for cash at a redemption
price (the "Redemption Price") equal to the greater of (A) the
applicable Prepayment Price and (B) (x) the number of shares of Common
Stock into which this Convertible Note is then convertible, times (y)
the average Closing Bid Price of Common Stock for the five (5) Trading
Days as reported by Bloomberg L.P. immediately preceding the date that
this Convertible Note is called for redemption, plus accrued and
unpaid interest.
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5.2 MECHANICS OF REDEMPTION. The Company shall effect each such redemption
within 10 business days of receiving a notice to redeem by facsimile
with a copy by either overnight or 2-day courier from the Holder of
this Convertible Note. Such redemption notice shall indicate whether
the Company is required to redeem all or part of such portion of the
Convertible Note and the applicable Redemption Price.
5.3 PAYMENT OF REDEMPTION PRICE. The Redemption Price shall be paid to the
Holder of this Convertible Note within 10 business days of the
delivery of the notice of such redemption to such Holder.
6. SECURITY INTEREST. This Convertible Note is secured by certain assets of the
Company pursuant to a Security Agreement dated the date hereof between the
Company and Holder.
7. MISCELLANEOUS. This Convertible Note shall be deemed to be a contract made
under the laws of the State of Delaware, and for all purposes shall be governed
by and construed in accordance with the laws of said State. The parties hereto,
including all guarantors or endorsers, hereby waive presentment, demand, notice,
protest and all other demands and notices in connection with the delivery,
acceptance, performance and enforcement of this Convertible Note, except as
specifically provided herein, and asset to extensions of the time of payment, or
forbearance or other indulgence without notice. The Company hereby submits to
the exclusive jurisdiction of the United States District Court for the State of
Delaware and any state court sitting in Delaware for purposes of all legal
proceedings arising out of or relating to this Convertible Note. The Company
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such proceeding
brought in such a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum. The Company hereby irrevocably
waives any and all right to trial by jury in any legal proceeding arising out of
or relating to this Convertible Note.
The Holder of this Convertible Note by acceptance of this Convertible Note
agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: February 14, 2003
SMARTSERV ONLINE, INC.
By:
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Name:
----------------------------
Title:
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Convertible Debenture 3.doc
ANNEX A
CONVERSION AND REPAYMENT LEDGER
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INTEREST CONVERTED OR PRINCIPAL CONVERTED NEW PRINCIPAL HOLDER
DATE PRINCIPAL BALANCE PAID OR PAID BALANCE ISSUER INITIALS INITIALS
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FULL NAME AND ADDRESS OF SUBSCRIBER FOR REGISTRATION PURPOSES:
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
DELIVERY INSTRUCTIONS (IF DIFFERENT FROM REGISTRATION NAME):
NAME:
ADDRESS:
TEL NO:
FAX NO:
CONTACT
NAME:
SPECIAL INSTRUCTIONS:
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Convertible Note)
The undersigned hereby irrevocably elects to convert $________ of the
principal balance of the Convertible Note into shares of Common Stock, ____ par
value per share (the "Common Stock"), of SmartServ Online, Inc. (the "Company")
according to the conditions hereof, as of the date written below. No fee will be
charged to the Holder for any conversion, except for transfer taxes, if any. The
undersigned, as contemplated by Section 5.1 of the Securities Purchase Agreement
pursuant to which the Convertible Note was issued, hereby states that the
representations and warranties of the undersigned set forth therein are true and
correct in all material respects as of the date hereof (provided, the
undersigned makes no representations concerning its investment intent with
respect to the Common Stock received upon this conversion).
Conversion calculations:
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Date of Conversion
----------------------------------------
Applicable Conversion Price
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Number of Shares
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Name/Signature
Address:
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