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
September ___, 2003
$_________.00
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
$__________.00, or such lesser principal amount as is then outstanding on the
earlier of (i) November 19, 2003 or (ii) the date that the Borrower consummates
closing(s) of an equity financing with aggregate gross proceeds of at least $3
million (inclusive of all Debentures and Existing Debentures being converted)
(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.
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 $0.32.
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.
The outstanding principal amount due hereunder, and any interest
accrued thereon may, shall automatically convert into equity securities of the
Borrower upon the terms and conditions of any private offering of securities
consummated at any time prior to November 19, 2003 resulting in gross proceeds
to the Borrower of not less than $3,000,000 (inclusive of all Debentures and
Existing Debentures being converted) as if the Lender were a purchaser of such
securities offered therein in an amount equal to the principal and interest
being converted (a "Qualified Private Offering"). The Borrower shall send the
Lender notice of any such conversion upon the consummation of a Qualified
Private Offering within five business days of the consummation thereof,
including Lender's securities issued in such Qualified Private Offering.
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 of shares of Common Stock
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(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.
If the Borrower at any time while this Debenture is outstanding shall
issue, or be deemed to have issued, Additional Shares of Common Stock (as
hereinafter defined) without consideration or for consideration per share of
Common Stock less than the then applicable Conversion Price (the "Dilutive
Price") (a "Triggering Issuance") in effect immediately prior to such issuance,
then forthwith upon the occurrence of any such event (the "Dilutive Event") the
Conversion Price shall be reduced so that the Conversion Price in effect
immediately following the Dilutive Event will equal the Dilutive Price. Upon
each adjustment of the Conversion Price pursuant to the provisions of this
paragraph, the number of shares issuable upon the conversion of this Debenture
shall be adjusted to the nearest full amount by multiplying a number equal to
the Conversion Price in effect immediately prior to such adjustment by the
number of shares issuable upon conversion of this Debenture immediately prior to
such adjustment and dividing the product so obtained by the adjusted Conversion
Price.
As used herein:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued or deemed to be issued by the Borrower after the date
hereof which represent a Triggering Issuance. If the Borrower issues
any Options or Convertible Securities (as hereinafter defined), the
maximum number of shares of Common Stock issuable thereunder, shall be
deemed to be Additional Shares of Common Stock issued as of the time of
such issue, if the consideration per share of such Additional Shares of
Common Stock (as hereinafter determined) is less than the
then-applicable Conversion Price, until such time as such Options or
Convertible Securities shall terminate or be exercised or converted
into Common Stock, upon which time the number of shares of Common Stock
actually thereupon issued shall be deemed to be Additional Shares of
Common Stock. The Borrower shall be deemed to have issued the maximum
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number of shares of Common Stock potentially underlying any Options or
Convertible Securities. Notwithstanding the foregoing, no issuance or
deemed issuance nor Common Stock or options or warrants to purchase
Common Stock issued to (i) officers, directors or employees of or
consultants to the Borrower pursuant to any compensation agreement,
plan or arrangement or the issuance of Common Stock upon the exercise
of any such options or warrants, provided such securities were issued
prior to the date hereof or pursuant to a stock option plan that was
approved by the board of directors and stockholders of the Borrower;
(ii) upon conversion of existing convertible securities outstanding as
of the date hereof or this Debenture; (iii) upon exercise of
outstanding warrants existing as of the date hereof; and (iv) in
connection with a business acquisition where the stockholders of the
Borrower prior to such acquisition own 50% or more of the Common Stock
of the Borrower following such acquisition, or to an institution or
bank lender in connection with a loan transaction or equipment lease,
shall be deemed the issuance of Additional Shares of Common Stock.
"Options" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible
Securities.
"Convertible Securities" shall mean any evidences of indebtedness,
shares (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
With respect to Options and Convertible Securities, "consideration" per
share of Additional Shares of Common Stock shall be determined by adding (x) the
aggregate consideration received upon issuance of the Options or Convertible
Securities divided by the number of shares receivable upon the exercise or
conversion thereof and (y) the minimum possible consideration per share received
or to be received per share upon the exercise, conversion or exchange of such
Options or Convertible Securities for shares of Common Stock.
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
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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
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.
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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.
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
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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;
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, (203) 353-5984, Attn: Chief Financial Officer, 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.
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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.
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IN WITNESS WHEREOF, the Borrower has caused this Debenture to be duly
executed by a duly authorized officer as of the date first above indicated.
SMARTSERV ONLINE, INC.
By: ____________________
Name: Thomas W. Haller
Title: Senior Vice President and
Chief Financial Officer
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