EXHIBIT 10.2
NEITHER THIS DEBENTURE NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
OF THIS DEBENTURE haVE been registered under the Securities Act of 1933, as
amended (the "Act") or under the securities laws of any state. NEITHER THIS
DEBENTURE NOR ANY SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
DEBENTURE may be sold, offered for sale, pledged or hypothecated in the absence
of a registration statement in effect with respect to the DEBENTUREs under such
act or an opinion of counsel reasonably satisfactory to the company that such
registration is not required pursuant to a valid exemption therefrom under the
Act.
SMARTSERV ONLINE, INC.
CONVERTIBLE DEBENTURE
May 19, 2003
$-----------
FOR VALUE RECEIVED, the undersigned SmartServ Online, Inc., a Delaware
corporation (referred to herein as "Borrower"), promises to pay to the order of
____________, with an address at ____________, __________________________,
__________, ___ _______ ("Lender"), the principal sum of _________ and 00/100
Dollars ($1____________), or such lesser principal amount as is then outstanding
on the earlier of (i) six months from the date of issuance or (ii) the date that
the Borrower consummates closing(s) of an equity financing with aggregate gross
proceeds of at least $3 million (the "Maturity Date"); and interest thereon at a
rate equal to eight percent (8%) per annum, payable at maturity. The principal
balance then outstanding under this convertible debenture ("Debenture") plus
accrued but unpaid interest shall be paid in full on the Maturity Date along
with payment of any other amounts due hereunder. Neither principal nor interest
may be prepaid in whole or in part without the prior written consent of the
Lender, except as provided in the immediately following paragraph.
From the date hereof until the date that all Debentures have been fully
paid or converted, the Borrower shall not effect an equity financing (a
"Subsequent Financing") at a price per share less than the then applicable
Conversion Price (as defined below), unless the Company receives the prior
written consent for such issuance from Lenders holding at least 51% of the
aggregate principal balance of the Debentures then outstanding, provided,
however, that if Lenders holding at least 51% of the aggregate principal balance
of the Debentures then outstanding do not consent to such Subsequent Financing,
the Borrower may prepay the Debentures on five business days advance written
notice by paying to each Lender the outstanding principal, accrued interest and
an amount equal to 10% of the principal amount of such Debenture.
Notwithstanding any other provision hereof, interest paid or becoming
due hereunder shall in no event exceed the maximum rate permitted by applicable
law. All amounts due hereunder are payable in lawful money of the United States
of America to the Lender at the address above indicated.
This is the Debenture referred to in the Securities Purchase Agreement
("Securities Purchase Agreement"), dated as of the date hereof, by and between
the Lender and the Borrower. The terms and conditions of the Securities Purchase
Agreement and all other documents and instruments delivered in connection
therewith (collectively, the "Loan Documents") are incorporated by reference
herein and made a part hereof. Notwithstanding anything contained herein or in
the Loan Documents, this Debenture shall be in default and Lender shall have all
rights and remedies available to it under the law, in the event that Borrower
shall not pay any amounts hereunder when due. All capitalized terms not
otherwise defined herein shall have their respective meanings as set forth in
the Securities Purchase Agreement.
At any time from the date hereof through the date that this Debenture
is paid in full, Lender shall have the right, in its sole discretion, to convert
the principal balance of this Debenture then outstanding plus accrued but unpaid
interest, in whole or in part, into shares of Common Stock, par value $.01 per
share ("Common Stock") of the Borrower at a conversion price equal to $0.744 per
share, subject to adjustment as provided herein (the "Conversion Price"). Should
the Common Stock be delisted from the Nasdaq SmallCap Market, the then
applicable Conversion Price shall be reduced to 75% of the average closing bid
price of the Common Stock during the last ten trading days within the first
twenty trading days following such delisting, provided that such price is less
than the then applicable Conversion Price.
Lender may convert this Debenture at the then applicable Conversion
Price by the surrender of this Debenture (properly endorsed) at the principal
office of the Borrower, or at such other agency or office of the Borrower in the
United States of America as the Borrower may designate by notice in writing to
the Lender at the address of Lender appearing herein. Upon any partial exercise
of this Debenture, there shall be executed and issued to the Lender a new
Debenture in respect of such outstanding amounts of principal and accrued but
unpaid interest hereunder as to which Lender shall not have converted. In the
event of the conversion of all or a portion of this Debenture, a certificate or
certificates for the securities so converted, as applicable, registered in the
name of the Lender, shall be delivered to the Lender as soon as practicable
after the receipt by Borrower of this Debenture and Lender's written request for
conversion.
If the Borrower, at any time while this Debenture is outstanding, (A)
shall pay a stock dividend or otherwise make a distribution or distributions on
shares of its Common Stock or any other equity or equity equivalent securities
payable in shares of Common Stock, (B) subdivide outstanding shares of Common
Stock into a larger number of shares, (C) combine (including by way of reverse
stock split) outstanding shares of Common Stock into a smaller number of shares,
or (D) issue by reclassification of shares of the Common Stock any shares of
capital stock of the Borrower, then the Conversion Price shall be multiplied by
a fraction of which the numerator shall be the number
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of shares of Common Stock (excluding treasury shares, if any) outstanding before
such event and of which the denominator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding after such event. Any
adjustment made pursuant to this paragraph shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or re-classification.
In case of any consolidation or merger of the Borrower with or into
another corporation or the conveyance of all or substantially all of the assets
of the Borrower to another corporation, this Debenture shall thereafter be
convertible (to the extent such conversion is permitted hereunder) into the
number of shares of stock or other securities or property to which a holder of
the number of shares of Common Stock of the Borrower deliverable upon conversion
of this Debenture would have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment shall be made in the
application of the provisions herein set forth with respect to the rights and
interest thereafter of the holders of this Debenture, to the end that the
provisions set forth herein shall be thereafter applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Debenture.
Upon the occurrence of each adjustment or readjustment of the
Conversion Price hereunder, the Borrower at its expense promptly shall compute
such adjustment or readjustment and furnish to the holder of this Debenture a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.
This Debenture and any of the rights granted hereunder are freely
transferable by the Lender, in its sole discretion, subject to federal and state
securities law restrictions, if any.
The Borrower covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of this Debenture, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Lender, not less than such number of shares of
the Common Stock as shall be issuable upon the conversion of the outstanding
principal amount of this Debenture. The Borrower covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable.
Upon a conversion hereunder the Borrower shall not be required to issue
stock certificates representing fractions of shares of the Common Stock, and in
lieu of any fractional shares which would otherwise be issuable, the Borrower
shall issue the next highest whole number of shares of Common Stock.
If (i) the Borrower shall declare a dividend (or any other
distribution) on the Common Stock; (ii) the Borrower shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (iii) the
Borrower shall authorize the granting to all holders of the Common Stock rights
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or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (iv) the approval of any stockholders of the Borrower
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Borrower is a party, any sale or
transfer of all or substantially all of the assets of the Borrower, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (v) the Borrower shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Borrower; then, in each case, the Borrower shall cause to be filed at each
office or agency maintained for the purpose of conversion of the Debentures, and
shall cause to be mailed to the Lender at its last address as shall appear upon
the debenture records of the Borrower, at least 20 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distribution, redemption, rights or warrants are to be
determined, or (ii) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Lender is entitled to convert this Debenture during the
20-day period commencing the date of such notice to the effective date of the
event triggering such notice.
The issuance of certificates for shares of the Common Stock or other
securities on conversion of this Debenture shall be made without charge to the
Lender for any documentary stamp or similar taxes that may be payable in respect
of the issue or delivery of such certificate, provided that the Borrower shall
not be required to pay any tax that may be payable in respect of any transfer
involved in the issuance and delivery of any such certificate upon conversion in
a name other than that of the Lender and the Borrower shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Borrower or its designee
the amount of such tax or shall have established to the satisfaction of the
Borrower that such tax has been paid.
Any payment of principal or interest which remains unpaid for more than
five (5) days after such payment is due shall be subject to a penalty equal to
three percent (3%) per month of the amount of such payment then outstanding.
Borrower agrees, that in the event any amounts due and payable
hereunder are collected by law or through an attorney at law, to pay all costs
of collection, including, without limitation, reasonable attorney's fees.
Nothing herein shall limit any right granted to Lender by any other
instrument or document or by law or equity.
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The undersigned for itself, and its respective successors and assigns,
hereby waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance or endorsement
of this Debenture.
Each of the following events, if occurring while any of the principal
or interest of this Debenture remains unpaid, shall constitute an "Event of
Default" hereunder:
(a) The Borrower shall fail to pay the principal or interest of this
Debenture or any other amounts payable to the Lender hereunder when due
whether at scheduled maturity, upon acceleration or otherwise.
(b) Any representation or warranty made or deemed to be made by the
Borrower (or any of its officers, directors, employees or agents) under
or in connection with this Debenture or in any Loan Document shall
prove to have been false or incorrect in any material respect when
made.
(c) The Borrower shall fail to observe or perform any other covenant,
agreement or warranty contained in, or otherwise commit any material
breach of any of the Loan Documents.
(d) The Borrower or any of its active subsidiaries shall commence, or there
shall be commenced against the Borrower or any such active subsidiary a
case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Borrower commences
any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or
similar law of any jurisdiction whether now or hereafter in effect
relating to the Borrower or any active subsidiary thereof or there is
commenced against the Borrower or any active subsidiary thereof any
such bankruptcy, insolvency or other proceeding which remains
undismissed for a period of 60 days; or the Borrower or any active
subsidiary thereof is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is
entered; or the Borrower or any active subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part
of its property which continues undischarged or unstayed for a period
of 60 days; or the Borrower or any active subsidiary thereof makes a
general assignment for the benefit of creditors; or the Borrower shall
fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the Borrower
or any active subsidiary thereof shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of
its debts; or the Borrower or any active subsidiary thereof shall by
any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or any corporate or other
action is taken by the Borrower or any active subsidiary thereof for
the purpose of effecting any of the foregoing.
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Immediately upon the occurrence of an Event of Default, at Lender's
option, (i) the Maturity Date shall be deemed to have occurred automatically and
(ii) the entire principal amount of this Debenture then outstanding, all other
amounts payable by the Borrower hereunder shall automatically become and be due
and payable, without presentment, demand, protest or any notice of any kind, all
of which are hereby expressly waived by the Borrower, anything herein to the
contrary notwithstanding.
Any and all notices or other communications or deliveries to be
provided by the Lender hereunder, including, without limitation, any conversion
notice, shall be in writing and delivered personally, by facsimile, sent by a
nationally recognized overnight courier service or sent by certified or
registered mail, postage prepaid, addressed to the Borrower, at the address set
forth above, facsimile number, Attn: (203) 353-5984 or such other address or
facsimile number as the Borrower may specify for such purposes by notice to the
Lender delivered in accordance with this paragraph. Any and all notices or other
communications or deliveries to be provided by the Borrower hereunder shall be
in writing and delivered personally, by facsimile, sent by a nationally
recognized overnight courier service or sent by certified or registered mail,
postage prepaid, addressed to each Lender at the address of such Lender
appearing on the books of the Borrower, or if no such address appears, at the
principal place of business of the Lender. Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission if delivered by hand or by telecopy that has been
confirmed as received by 5:00 P.M. on a business day, (ii) one business day
after being sent by nationally recognized overnight courier or received by
telecopy after 5:00 P.M. on any day, or (iii) five business days after being
sent by certified or registered mail, postage and charges prepaid, return
receipt requested.
Upon the occurrence and during the continuation of an Event of Default
and the declaration of the Maturity Date, the Lender shall have, in addition to
all other rights and remedies under this Agreement, this Debenture and related
documents, all other rights and remedies provided under each applicable
jurisdiction and other applicable laws, which rights shall be cumulative.
This Debenture and the provisions hereof are to be construed according
to and are governed by the laws of the State of New York, without regard to
principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the undersigned has duly executed this document,
enforceable against the Borrower in accordance with its terms, on the nineteenth
day of May, 2003.
SMARTSERV ONLINE, INC.
By:
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Name:
Title:
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