SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): SEPTEMBER 30, 1997
SMARTSERV ONLINE, INC.
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(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-28008 13-3750708
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(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File No.) Identification No.)
One Station Place, Stamford, Connecticut 06902
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (203) 353-5950
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(b) Pro forma balance sheet at August 31, 1997.*
(c) Exhibits:
Exhibit Number Description
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**4.1 Form of Prepaid Common Stock Purchase Warrant.
**4.2 Form of Registration Rights Agreement.
**4.3 Warrant issued to The Zanett Securities Corporation.
**4.4 Warrant issued to Bruno Guazzoni
**4.5 Consulting Agreement with Bruno Guazzoni
________________________
* Filed with original filing.
** Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this amended report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: October 13, 1997 SMARTSERV ONLINE, INC.
By: /s/ Sebastian E. Cassetta
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Name: Sebastian E. Cassetta
Title: Chairman of the Board,
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THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
PREPAID COMMON STOCK PURCHASE WARRANT
September 29, 1997 Right to Purchase $_________ of
Common Stock, par value $.01 per share
FOR VALUE RECEIVED, SMARTSERV ONLINE, INC., a corporation organized
under the laws of the State of Delaware (hereinafter called the "CORPORATION")
hereby promises to issue to _______________ or its registered assigns (the
"HOLDER"), at any time or from time to time upon its receipt of a Notice of
Exercise (as defined in Article I.B below) during the period specified in
Article II.C hereof, up to _________________________ Dollars ($________) (the
"PREPAID AMOUNT") of the Corporation's common stock, par value $.01 per share
(the "COMMON STOCK"), in the manner provided in Article II hereof. This Warrant
is being issued by the Corporation along with similar prepaid common stock
purchase warrants (the "OTHER WARRANTS" and, together with this Warrant, the
"WARRANTS") pursuant to that certain Securities Purchase Agreement, dated as of
the date hereof, by and among the Corporation, the Holder and the other parties
named therein (the "SECURITIES PURCHASE AGREEMENT").
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ARTICLE I
CERTAIN DEFINITIONS
The following terms shall have the following meanings:
A. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal United States securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg Financial Markets (or a comparable reporting service of national
reputation selected by the Corporation and reasonably acceptable to holders of a
majority of the aggregate Prepaid Amount represented by the then outstanding
Warrants ("MAJORITY HOLDERS") if Bloomberg Financial Markets is not then
reporting closing bid prices of such security) (collectively, "BLOOMBERG"), or
if the foregoing does not apply, the last reported sale price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no sale price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc., in each case for such date or, if such date was not a trading date for
such security, on the next preceding date which was a trading date. If the
Closing Bid Price cannot be calculated for such security as of either of such
dates on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Corporation and reasonably acceptable to
the Majority Holders, with the costs of such appraisal to be borne by the
Corporation.
B. "EXERCISE AMOUNT" means the portion of the Prepaid Amount of this
Warrant being exercised and any Exercise Default Payments payable with respect
thereto, each as specified in the notice of exercise in the form attached hereto
(the "NOTICE OF EXERCISE").
C. "EXERCISE DATE" means, for any Exercise (as defined below), the date
specified in the Notice of Exercise so long as the copy of the Notice of
Exercise is faxed (or delivered by other means resulting in notice) to the
Corporation at or before 11:59 p.m., New York City time, on the Exercise Date
indicated in the Notice of Exercise; provided, however, that if the Notice of
Exercise is not so faxed or otherwise delivered before such time, then the
Exercise Date shall be the date the holder faxes or otherwise delivers the
Notice of Exercise to the Corporation.
D. "EXERCISE PERCENTAGE" shall initially equal seventy percent (70%) and
shall be reduced by one percent (1%) for each sixty (60) day period which
elapses following the Closing Date (as defined in the Securities Purchase
Agreement) (e.g., on or after the 61st day following the Closing Date and prior
to the 121st day following the Closing Date, the Exercise Percentage shall equal
sixty-nine percent (69%)). The Exercise Percentage shall be subject to further
adjustment as provided herein.
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E. "EXERCISE PRICE" means the lower of the Variable Exercise Price and
the Fixed Exercise Price, each in effect as of such date and subject to
adjustment as provided herein.
F. "FIXED EXERCISE PRICE" means $1.40, and shall be subject to
adjustment as provided herein.
G. "VARIABLE EXERCISE PRICE" means, as of any date of determination, the
amount obtained by multiplying the Exercise Percentage then in effect by the
average of the Closing Bid Prices for the Corporation's Common Stock during the
ten (10) consecutive trading days ending on the trading day immediately
preceding such date of determination (subject to equitable adjustment for any
stock splits, stock dividends, reclassifications or similar events during such
ten (10) trading day period), and shall be subject to adjustment as provided
herein. For the avoidance of doubt, the trading day immediately preceding any
Exercise Date is the last calendar day that is a trading day and which is
immediately preceding the Exercise Date.
H. "BUSINESS DAY" and "TRADING DAY" means any day on which the New York
Stock Exchange is open for trading.
ARTICLE II
EXERCISE
A. EXERCISE BY THE HOLDER. (i) Subject to the limitations on exercise
contained in Paragraph D of this Article II, the Holder may, at any time and
from time to time during the period specified in Paragraph C of this Article II,
exercise all or any part of the outstanding Prepaid Amount of this Warrant in
accordance with the procedures set forth in Paragraph B of this Article II for a
number of fully paid and nonassessable shares of Common Stock determined in
accordance with the following formula:
EXERCISE AMOUNT
EXERCISE PRICE
B. MECHANICS OF EXERCISE. In order to effect an exercise, Holder shall:
(x) fax (or otherwise deliver) a copy of the fully executed Notice of Exercise
to the Corporation and (y) surrender or cause to be surrendered this Warrant
along with a copy of the Notice of Exercise as soon as practicable thereafter to
the Corporation. Upon receipt by the Corporation of a facsimile copy of a Notice
of Exercise from Holder, the Corporation shall immediately send, via facsimile,
a confirmation to Holder stating that the Notice of Exercise has been received,
the date upon which the Corporation expects to deliver the Common Stock issuable
upon such exercise and the name and telephone number of a contact person at the
Corporation regarding the exercise. The Corporation shall not be obligated to
issue shares of Common Stock upon an exercise unless either this Warrant
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is delivered to the Corporation as provided above, or Holder notifies the
Corporation that this Warrant has been lost, stolen or destroyed (subject to the
requirements of Article VII.G).
(i) DELIVERY OF COMMON STOCK UPON EXERCISE. The Corporation
shall, on or before the later of (a) the second business day following the
Exercise Date and (b) the business day following the date of the Corporation's
receipt of this Warrant (or, if this Warrant is lost, stolen or destroyed, the
date on which indemnity pursuant to Article VII.G is provided) (the "DELIVERY
PERIOD"), issue and deliver to the Holder or its nominee (x) that number of
shares of Common Stock issuable upon exercise of the portion of this Warrant
being exercised and (y) a new Warrant in the form hereof representing the
balance of the Prepaid Amount hereof not being exercised, if any. If the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer program, and so long as the
certificates therefor are not required to bear a legend, the Corporation shall
cause its transfer agent to electronically transmit the Common Stock issuable
upon exercise to the Holder by crediting the account of Holder or its nominee
with DTC through its Deposit Withdrawal Agent Commission system ("DTC
TRANSFER"). If the aforementioned conditions to a DTC Transfer are not
satisfied, the Corporation shall deliver to Holder physical certificates
representing the Common Stock issuable upon such exercise. Further, Holder may
instruct the Corporation to deliver to Holder physical certificates representing
the Common Stock issuable upon such exercise in lieu of delivering such shares
by way of DTC Transfer.
(ii) TAXES. The Corporation shall pay any and all taxes which
may be imposed upon it with respect to the issuance and delivery of the shares
of Common Stock upon the exercise of this Warrant.
(iii) NO FRACTIONAL SHARES. If any exercise of this Warrant
would result in the issuance of a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon exercise of this Warrant shall be the nearest whole number of
shares.
(iv) EXERCISE DISPUTES. In the case of any dispute with respect
to an exercise of this Warrant, the Corporation shall promptly issue such number
of shares of Common Stock as are not disputed in accordance with subparagraph
(i) above. The Corporation and the Holder shall seek to resolve any such dispute
in good faith. If any such dispute involving the calculation of the Exercise
Price has not been resolved by mutual agreement of the Corporation and the
Holder within three (3) business days after the Corporation's receipt of the
Notice of Exercise, the Corporation shall immediately submit the disputed
calculations to an independent outside accountant of national reputation via
facsimile. The accountant, at the Corporation's sole expense (unless the
Corporation's calculation is correct, in which case the Holder shall bear such
expense), shall audit the calculations and notify the Corporation and Holder of
the results no later than two (2) business days from the date it receives the
disputed calculations. The accountant's calculation shall be deemed conclusive,
absent manifest error. The Corporation shall then issue the appropriate number
of shares of Common Stock in accordance with subparagraph (i) above.
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C. PERIOD OF EXERCISE. This Warrant shall be exercisable at any time or
from time to time on or after the earlier of (i) the date on which the
registration statement required to be filed by the Corporation pursuant to
Section 2(a) of that certain Registration Rights Agreement, dated as of even
date herewith, by and among the Corporation, the Holder and the other
signatories thereto (the "REGISTRATION RIGHTS AGREEMENT") is declared effective
by the SEC (the "EFFECTIVE DATE"), and (ii) the ninetieth (90th) day following
the Closing Date, and before 5:00 p.m., New York City time, on September 29,
2000 (the "EXERCISE PERIOD").
D. LIMITATIONS ON EXERCISE. In no event shall Holder be entitled to
receive shares of Common Stock upon an exercise of this Warrant to the extent
that the sum of (x) the number of shares of Common Stock beneficially owned by
Holder and its affiliates (exclusive of shares issuable upon exercise of the
unexercised portion of any Warrants or the unexercised or unconverted portion of
any other securities of the Corporation subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (y) the number of
shares of Common Stock issuable upon the exercise of the portion of this Warrant
with respect to which the determination of this subparagraph is being made,
would result in beneficial ownership by Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (x) above. Except as
provided in the immediately succeeding sentence, the restrictions contained in
this Paragraph D shall not be altered, amended, deleted or changed in any manner
whatsoever unless the holders of a majority of the Common Stock and the Holder
shall approve such alteration, amendment, deletion or change. Notwithstanding
the foregoing, the Holder may waive the restrictions contained in this Paragraph
D by written notice to the Corporation upon not less than sixty-one (61) days
prior notice (with such notice taking effect only upon the expiration of such
sixty-one (61) day period).
E. LOCK-UP. Prior to the 61st day following the Effective Date, the
Holder may not sell or transfer (pursuant to an effective registration statement
or otherwise) any shares of Common Stock issued upon the exercise of Warrants
held by the Holder. Subject to compliance with Sections 2(f) and 2(g) of the
Securities Purchase Agreement, (i) after the 61st day following the Effective
Date, the Holder may sell or transfer that number of shares of Common Stock as
may be received by the Holder upon the exercise of one-third (1/3) of the
initial Prepaid Amount of all Warrants held by such Holder; (ii) after the 91st
day following the Effective Date, the Holder may sell or transfer that number of
shares of Common Stock as may be received by the Holder upon the exercise of
two-thirds (2/3) of the initial Prepaid Amount of all Warrants held by such
Holder; and (iii) after the 121st day following the Effective Date, the Holder
may sell or transfer any and all shares of Common Stock as may be received by
the Holder upon the full exercise of all Warrants held by such Holder.
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ARTICLE III
RESERVATION OF SHARES OF COMMON STOCK
A. RESERVED AMOUNT. On the Closing Date, the Corporation shall have
reserved _______________ (i.e., 150% times the quotient arrived at by dividing
(x) the Prepaid Amount, by (y) the Exercise Price as of the Closing Date)
authorized but unissued shares of Common Stock for issuance upon exercise of
this Warrant and thereafter the number of authorized but unissued shares of
Common Stock so reserved (the "RESERVED AMOUNT") shall not be decreased and
shall at all times be sufficient to provide for the exercise of the outstanding
Prepaid Amount of this Warrant at the then current Exercise Price.
B. INCREASES TO RESERVED AMOUNT. If the Reserved Amount for any three
(3) consecutive trading days (the last of such three (3) trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than 135% of the number of shares of
Common Stock issuable upon exercise of this Warrant on such trading days, the
Corporation shall immediately notify Holder of such occurrence and shall take
immediate action (including, if necessary, seeking shareholder approval to
authorize the issuance of additional shares of Common Stock) to increase the
Reserved Amount to 200% of the number of shares of Common Stock then issuable
upon exercise of this Warrant. In the event the Corporation fails to so increase
the Reserved Amount within ninety (90) days after an Authorization Trigger Date,
Holder shall thereafter have the option, exercisable in whole or in part at any
time and from time to time by delivery of a Default Notice (as defined in
Article V.C) to the Corporation, to require the Corporation to redeem for cash,
at the Default Amount (as defined in Article V.B), a portion of the Prepaid
Amount of this Warrant such that, after giving effect to such redemption, the
Reserved Amount exceeds 135% of the total number of shares of Common Stock
issuable to Holder upon exercise of this Warrant on the date of the Default
Notice. If the Corporation fails to pay such Default Amount within five (5)
business days after its receipt of a Default Notice, then Holder shall be
entitled to the remedies provided in Article V.C.
ARTICLE IV
FAILURE TO SATISFY EXERCISES
A. EXERCISE DEFAULT PAYMENTS. If, at any time, (x) Holder submits a
Notice of Exercise and the Corporation fails for any reason (other than because
such issuance would exceed Holder's Reserved Amount, for which failures Holder
shall have the remedies set forth in Article III) to deliver, on or prior to the
fourth business day following the expiration of the Delivery Period for such
exercise, such number of freely tradeable shares of Common Stock to which Holder
is entitled upon such exercise, or (y) the Corporation provides notice to any
holder of Warrants (together with all other holders of Warrants and the Holder
referred to herein, the "HOLDERS") at any time of its intention not to issue
freely tradeable shares of Common Stock upon the exercise by any Holder of a
Warrant in accordance with the terms of the Warrants (other than because such
issuance would
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exceed such Holder's Reserved Amount) (each of (x) and (y) being an "EXERCISE
DEFAULT"), then the Corporation shall pay to Holder, in the case of an Exercise
Default described in clause (x) above, and to all Holders, in the case of a
Exercise Default described in clause (y) above, an amount equal to:
(.24) x (D/365) x (Exercise Default Amount)
where:
"D" means the number of days after the expiration of the Delivery Period
through and including the Default Cure Date;
"EXERCISE DEFAULT AMOUNT" means the Prepaid Amount of all Warrants held
by Holder; and
"DEFAULT CURE DATE" means (i) with respect to an Exercise Default
described in clause (x) of its definition, the date the Corporation effects the
exercise of the portion of this Warrant submitted for exercise and (ii) with
respect to an Exercise Default described in clause (y) of its definition, the
date the Corporation begins to issue freely tradeable Common Stock in
satisfaction of all exercises of Warrants in accordance with their terms.
The payments to which Holder shall be entitled pursuant to this
Paragraph A are referred to herein as "EXERCISE DEFAULT PAYMENTS." Holder may
elect to receive accrued Exercise Default Payments in cash or to convert all or
any portion of such accrued Exercise Default Payments, at any time, into Common
Stock at the lowest Exercise Price in effect during the period beginning on the
date of the Exercise Default through the Exercise Date for such exercise. In the
event Holder elects to receive any Exercise Default Payments in cash, it shall
so notify the Corporation in writing. Such payment shall be made in accordance
with and be subject to the provisions of Article VII.I. In the event Holder
elects to convert all or any portion of the Exercise Default Payments into
Common Stock, Holder shall indicate on a Notice of Exercise such portion of the
Exercise Default Payments which Holder elects to so convert and such exercise
shall otherwise be effected in accordance with the provisions of Article II.
B. ADJUSTMENT TO EXERCISE PRICE. If Holder has not received certificates
for all shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to an exercise of any portion of
any of Holder's Warrants for any reason (other than because such issuance would
exceed Holder's Reserved Amount, for which failures Holder shall have the
remedies set forth in Article III), then the Fixed Exercise Price in respect of
all Warrants held by Holder (including any Warrants or portions thereof
submitted to the Corporation for exercise, but for which shares of Common Stock
have not been issued to Holder) shall thereafter be the lesser of (i) the Fixed
Exercise Price on the Exercise Date specified in the Notice of Exercise which
resulted in the Exercise Default and (ii) the lowest Exercise Price in effect
during the period beginning on, and including, such Exercise Date through and
including the day such shares of Common Stock are delivered to the Holder. If
there shall occur an Exercise Default of the type described in clause (y) of
Article IV.A, then the Fixed Exercise Price with respect to any exercise
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thereafter shall be the lowest Exercise Price in effect at any time during the
period beginning on, and including, the date of the occurrence of such Exercise
Default through and including the Default Cure Date. The Fixed Exercise Price
shall thereafter be subject to further adjustment for any events described in
Article VI.
C. BUY-IN CURE. Unless the Corporation has notified Holder in writing
prior to the delivery by Holder of a Notice of Exercise that the Corporation is
unable to honor exercises, if (i) (a) the Corporation fails for any reason to
deliver during the Delivery Period shares of Common Stock to Holder upon an
exercise of this Warrant or (b) there shall occur a Legend Removal Failure (as
defined in Article V.A(iii) below) and (ii) thereafter, Holder purchases (in an
open market transaction or otherwise) shares of Common Stock to make delivery in
satisfaction of a sale by Holder of the unlegended shares of Common Stock (the
"SOLD SHARES") which Holder anticipated receiving upon such exercise (a
"BUY-IN"), the Corporation shall pay Holder (in addition to any other remedies
available to Holder) the amount by which (x) Holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by Holder from the sale
of the Sold Shares. For example, if Holder purchases unlegended shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for $10,000, the Corporation will be required to
pay Holder $1,000. Holder shall provide the Corporation written notification
indicating any amounts payable to Holder pursuant to this Paragraph C, together
with evidence supporting such calculation. The Corporation shall make any
payments required pursuant to this Paragraph C in accordance with and subject to
the provisions of Article VII.I.
D. RIGHT TO REQUIRE REDEMPTION. If the Corporation fails, and such
failure continues uncured for five (5) business days after the Corporation has
been notified thereof in writing by Holder, for any reason (other than because
such issuance would exceed Holder's Reserved Amount, for which failures Holder
shall have the remedies set forth in Article III) to issue shares of Common
Stock within ten (10) business days after the expiration of the Delivery Period
with respect to any exercise of this Warrant, then Holder may elect at any time
and from time to time prior to the Default Cure Date for such Exercise Default,
by delivery of a Default Notice (as defined in Article V.C) to the Corporation,
to have all or any portion of Holder's outstanding Warrants redeemed by the
Corporation for cash at the Default Amount (as defined in Article V.B). If the
Corporation fails to pay such Default Amount within five (5) business days after
its receipt of a Default Notice, then Holder shall be entitled to the remedies
provided in Article V.C.
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ARTICLE V
EVENTS OF DEFAULT
A. EVENTS OF DEFAULT. If any of the following events of default (each,
an "EVENT OF DEFAULT") shall occur:
(i) the Common Stock (including any of the shares of Common
Stock issuable upon exercise of this Warrant) is suspended from trading on any
of, or is not listed (and authorized) for trading on at least one of, the New
York Stock Exchange, the American Stock Exchange, the Nasdaq National Market or
the Nasdaq SmallCap Market for an aggregate of ten (10) trading days in any nine
(9) month period;
(ii) the Registration Statement required to be filed by the
Corporation pursuant to Section 2(a) of the Registration Rights Agreement has
not been declared effective by the 120th day following the Closing Date or such
Registration Statement, after being declared effective, cannot be utilized by
Holder for the resale of all of its Registrable Securities (as defined in the
Registration Rights Agreement) for an aggregate of more than thirty (30) days;
(iii) the Corporation fails to remove any restrictive legend on
any certificate or any shares of Common Stock issued to the Holder upon exercise
of any Warrant as and when required by the Warrants, the Securities Purchase
Agreement or the Registration Rights Agreement (a "LEGEND REMOVAL FAILURE"), and
any such failure continues uncured for five (5) business days after the
Corporation has been notified thereof in writing by the Holder;
(iv) the Corporation provides notice to any of the Holders,
including by way of public announcement, at any time, of its intention not to
issue shares of Common Stock to any of the Holders upon exercise in accordance
with the terms of the Warrants (other than due to the circumstances contemplated
by Article III for which the Holders shall have the remedies set forth in such
Article);
(v) the Corporation shall:
(a) sell, convey or dispose of all or substantially
all of its assets; or
(b) merge, consolidate or engage in any other
business combination with any other entity (other than pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation); or
(c) have fifty percent (50%) or more of the voting
power of its capital stock owned beneficially by one person, entity or "group"
(as such term is used under Section 13(d) of the Securities Exchange Act of
1934, as amended);
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(vi) the Corporation breaches any material covenant or other
material term or condition of this Warrant (other than as specifically provided
in subparagraphs (i)-(v) of this Paragraph A), the Securities Purchase Agreement
or the Registration Rights Agreement;
(vii) any representation or warranty of the Corporation made
herein or in any agreement, statement or certificate given in writing pursuant
hereto or in connection herewith (including, without limitation, the Securities
Purchase Agreement and the Registration Rights Agreement), shall be false or
misleading in any material respect when made and the breach of which would have
a material adverse effect on the Corporation or the prospects of the Corporation
or a material adverse effect on the Corporation or the rights of the Corporation
with respect to any of the Warrants or the shares of Common Stock issuable upon
exercise of the Warrants;
(viii) the Corporation or any subsidiary of the Corporation
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business; or such a receiver or trustee shall otherwise be
appointed; or
(ix) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation;
then, upon the occurrence and during the continuation of any Event of Default
specified in subparagraphs (i)-(vii) of this Paragraph A, at the option of
Holder, and upon the occurrence of an Event of Default specified in
subparagraphs (viii) or (ix) of this Paragraph A, the Corporation shall pay
Holder, in satisfaction of its obligation to issue shares of Common Stock upon
exercise of this Warrant, an amount equal to the Default Amount and such Default
Amount, together with all other ancillary amounts payable hereunder, shall
immediately become due and payable, all without demand, presentment or notice,
all of which hereby are expressly waived, together with all costs, including,
without limitation, legal fees and expenses of collection, and Holder shall be
entitled to exercise all other rights and remedies available at law or in
equity. For the avoidance of doubt, the occurrence of any event described in
clauses (i), (ii), (iv), (v), (vi), (vii), (viii) or (ix) above shall
immediately constitute an Event of Default and there shall be no cure period.
B. DEFINITION OF DEFAULT AMOUNT. The "DEFAULT AMOUNT" with respect to
any portion of this Warrant means an amount equal to the greater of:
(i) A
------------------------ X M
EP
and
(ii) the sum of 143% of the outstanding Prepaid Amount of this
Warrant plus all Exercise Default Payments through the payment date.
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where:
"A" means the outstanding Prepaid Amount of this Warrant plus all
Exercise Default Payments through the payment date;
"EP" means the Exercise Price in effect on the date of the Default
Notice; and
"M" means the highest Closing Bid Price of the Corporation's Common
Stock during the period beginning on the date of the Default Notice and ending
on the date prior to the date of payment, as reported on the principal
securities exchange or trading market on which the Common Stock is traded.
C. FAILURE TO PAY DEFAULT AMOUNT. If the Corporation fails to pay the
Default Amount within five (5) business days of its receipt of a notice
requiring such payment (a "DEFAULT NOTICE"), then the Holder (i) shall be
entitled to interest on the Default Amount at a per annum rate equal to the
lower of twenty-four percent (24%) and the highest interest rate permitted by
applicable law from the date of the Default Notice until the date of payment
hereunder, and (ii) shall have the right, at any time and from time to time, to
require the Corporation, upon written notice, to immediately convert (in
accordance with the terms of Paragraph A of Article II) all or any portion of
the Default Amount, plus interest as aforesaid, into shares of Common Stock at
the lowest Exercise Price in effect during the period beginning on the date of
the Default Notice and ending on the Exercise Date with respect to the
conversion of such Default Amount. In the event the Corporation is not able to
pay all amounts due and payable with respect to all Warrants subject to Default
Notices, the Corporation shall pay the Holders of such Warrants which are the
subject of Default Notices such amounts pro rata, based on the total amounts
payable to each such Holder relative to the total amounts payable to all such
Holders.
ARTICLE VI
ADJUSTMENTS TO THE EXERCISE PRICE
The Exercise Price shall be subject to adjustment from time to time as
follows:
A. STOCK SPLITS, STOCK DIVIDENDS, ETC. If at any time on or after the
Closing Date, the number of outstanding shares of Common Stock is increased by a
stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Exercise Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Exercise Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent for the Common Stock
of such change on or before the effective date thereof.
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B. ADJUSTMENT DUE TO MAJOR ANNOUNCEMENT. In the event the Corporation at
any time on or after the Closing Date (i) makes a public announcement that it
intends to consolidate or merge with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock (the date
of the announcement referred to in clause (i) or (ii) of this Paragraph B is
hereinafter referred to as the "ANNOUNCEMENT DATE"), then the Exercise Price
shall, effective upon the Announcement Date and continuing through the earlier
of the consummation of the proposed transaction or tender offer, exchange offer
or other transaction or the Abandonment Date (as defined below), be equal to the
lower of (x) the Exercise Price which would have been applicable for an exercise
occurring on the Announcement Date and (y) the Exercise Price determined in
accordance with Article I.E on the Exercise Date set forth in the applicable
Notice of Exercise. From and after the consummation of the proposed transaction
or tender offer, exchange offer or other transaction or the Abandonment Date,
the Exercise Price shall be determined as set forth in Article I.E. "ABANDONMENT
DATE" means with respect to any proposed transaction or tender offer, exchange
offer or other transaction for which a public announcement as contemplated by
this Paragraph B has been made, the date upon which the Corporation (in the case
of clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer, exchange offer or other transaction which caused
this Paragraph B to become operative.
C. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If at any time on or
after the Closing Date there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i)-(iv) above being a "CORPORATE CHANGE"), then the Holder shall thereafter
have the right to receive upon exercise hereof, in lieu of the shares of Common
Stock immediately theretofore issuable, such shares of stock, securities, cash
and/or other property as may be issued or payable in such Corporate Change with
respect to or in exchange for the number of shares of Common Stock which would
have been issuable upon exercise hereof (without giving effect to the
limitations contained in Article II.D) had such Corporate Change not taken
place, and in any such case, appropriate provisions shall be made with respect
to the rights and interests of the Holder to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Exercise Price
and of the number of shares of Common Stock issuable upon exercise of this
Warrant) shall, if relevant, thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the exercise thereof. The Corporation shall not effect any
transaction described in this Paragraph C unless (i) the Holder has received
written notice of such transaction at least seventy-five (75) days prior to the
earlier of (x) the record date for the determination of stockholders
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entitled to vote with respect thereto and (y) the proposed date of consummation
of such transaction; and (ii) the resulting successor or acquiring entity (if
not the Corporation) assumes (or agrees to assume) by written instrument the
obligations of this Warrant. The above provisions shall apply regardless of
whether or not there would have been a sufficient number of shares of Common
Stock authorized and available for issuance upon exercise of the Warrants
outstanding as of the date of such transaction, and shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
D. ADJUSTMENT DUE TO DISTRIBUTION. If at any time on or after the
Closing Date the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"DISTRIBUTION"), then the Holder shall be entitled, upon any exercise of this
Warrant after the date of record for determining stockholders entitled to such
Distribution, to receive the amount of such assets which would have been payable
to the Holder with respect to the shares of Common Stock issuable upon such
exercise (without giving effect to the limitations contained in Article II.D)
had Holder been the holder of such shares of Common Stock on the record date for
the determination of stockholders entitled to such Distribution.
E. ISSUANCE OF OTHER SECURITIES WITH VARIABLE EXERCISE PRICE. If at any
time on or after the Closing Date the Corporation shall issue any securities
which are convertible into or exchangeable for Common Stock ("CONVERTIBLE
SECURITIES") at a conversion or exchange rate based on a discount to the market
price of the Common Stock at the time of conversion or exercise, then the
Exercise Percentage in respect of any exercise of any portion of this Warrant
after such issuance shall be calculated utilizing the higher of the greatest
discount applicable to any such Convertible Securities and the discount then in
effect in calculating the Variable Exercise Price.
F. PURCHASE RIGHTS. If at any time on or after the Closing Date the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "PURCHASE RIGHTS") pro rata to the
record holders of any class of Common Stock, then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if Holder had held the
number of shares of Common Stock acquirable upon complete exercise of this
Warrant (without giving effect to the limitations contained in Article II.D)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
G. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Exercise Price pursuant to this Article VI, the Corporation,
at its expense, shall promptly compute such adjustment or readjustment and
prepare and furnish to Holder a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
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readjustment is based. The Corporation shall, upon the written request at any
time of Holder, furnish to Holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Exercise Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon exercise of this
Warrant.
ARTICLE VII
MISCELLANEOUS
A. FAILURE OR INDULGENCY NOT WAIVER. No failure or delay on the part of
the Holder in the exercise of any power, right or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege.
B. NOTICES. Any notice herein required or permitted to be given shall be
in writing and may be personally served or delivered by courier and shall be
deemed to have been given upon receipt (which shall include telephone line
facsimile transmission). The addresses for such communications shall be:
If to the Company:
SmartServ Online, Inc.
One Station Place
Stamford, CT 06902
Telecopy: (203) 353-5962
Attention: Chairman of the Board
With a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Telecopy: (212) 704-6288
Attention: Michael J. Shef, Esquire
If to the Holder, at such address as such Holder shall have provided in
writing to the Corporation.
C. AMENDMENT PROVISION. This Warrant and any provision hereof may only
be amended by an instrument in writing signed by the Corporation and the
Majority Holders. The term "WARRANT" and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed,
or if later amended or supplemented, then as so amended or supplemented.
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D. ASSIGNABILITY. This Warrant shall be binding upon the Corporation and
its successors and assigns and shall inure to the benefit of the Holder and its
successors and assigns. In the event the Holder shall sell or otherwise transfer
any portion of this Warrant, each transferee shall be allocated a pro rata
portion of such transferor's Reserved Amount. Any portion of the Reserved Amount
which remains allocated to any person or entity which does not hold any Warrants
shall be allocated to the remaining Holders of Warrants, pro rata based on the
total Prepaid Amount of Warrants then held by such Holders.
E. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware. The Corporation irrevocably
consents to the jurisdiction of the United States federal courts and state
courts located in the City of New York in the State of New York in any suit or
proceeding based on or arising under this Warrant and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Corporation irrevocably waives the defense of an inconvenient forum
to the maintenance of such suit or proceeding. The Corporation further agrees
that service of process upon the Corporation mailed by first class mail shall be
deemed in every respect effective service of process upon the Corporation in any
such suit or proceeding. Nothing herein shall affect Holder's right to serve
process in any other manner permitted by law. The Corporation agrees that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
F. DENOMINATIONS. At the request of Holder, upon surrender of this
Warrant, the Corporation shall promptly issue new Warrants in the aggregate
outstanding Prepaid Amount hereof, in the form hereof, in such denominations as
Holder shall request.
G. LOST OR STOLEN WARRANTS. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of this Warrant and (ii)
(y) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Corporation, or (z) in the case of mutilation, upon
surrender and cancellation of this Warrant, the Corporation shall execute and
deliver new Warrants, in the form hereof, in such denominations as Holder may
request. However, the Corporation shall not be obligated to reissue such lost or
stolen Warrants if Holder contemporaneously requests the Corporation to exercise
this Warrant.
H. QUARTERLY STATEMENTS OF AVAILABLE SHARES. The Corporation shall
deliver (or cause its transfer agent to deliver) to Holder a written report
notifying Holder of any occurrence which prohibits the Corporation from issuing
Common Stock upon any exercise of Warrants. The Corporation (or its transfer
agent) shall also provide, within fifteen (15) days after delivery to the
Corporation of a written request by any Holder, any of the following information
as of the date of such request: (i) the total outstanding Prepaid Amount of all
Warrants, (ii) the total number of shares of Common Stock issued upon all
exercises of all Warrants prior to such date, (iii) the total number of shares
of Common Stock which are reserved for issuance upon exercise of the Warrants
which are then outstanding, and (iv) the total number of shares of Common Stock
which may thereafter be
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issued by the Corporation upon exercise of the Warrants before the Corporation
would exceed the Reserved Amount.
I. PAYMENT OF CASH; DEFAULTS. Whenever the Corporation is required to
make any cash payment to Holder under this Warrant (as an Exercise Default
Payment or otherwise), such cash payment shall be made to Holder within five (5)
business days after delivery by Holder of a notice specifying that Holder elects
to receive such payment in cash and the method (e.g., by check, wire transfer)
in which such payment should be made. If such payment is not delivered within
such five (5) business day period, Holder shall thereafter be entitled to
interest on the unpaid amount at a per annum rate equal to the lower of
twenty-four percent (24%) and the highest interest rate permitted by applicable
law until such amount is paid in full to Holder.
J. RESTRICTIONS ON SHARES. The shares of Common Stock issuable upon
exercise of this Warrant may not be sold or transferred unless (i) they first
shall have been registered under the Securities Act and applicable state
securities laws, (ii) the Corporation shall have been furnished with an opinion
of legal counsel (in form, substance and scope customary for opinions in such
circumstances) to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act or (iii) they are sold under
Rule 144 under the Act. Except as otherwise provided in the Securities Purchase
Agreement, each certificate for shares of Common Stock issuable upon exercise of
this Warrant that have not been so registered and that have not been sold under
an exemption that permits removal of the legend, shall bear a legend
substantially in the following form, as appropriate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT
BE OFFERED OR SOLD IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER
APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD OR
TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon exercise of this Warrant, the Corporation shall remove the
foregoing legend from the certificate and issue to such holder a new certificate
therefor free of any transfer legend, if (i) with such request, the Corporation
shall have received either (A) an opinion of counsel, in form, substance and
scope customary for opinions in such circumstances, to the effect that any such
legend may be removed from such certificate, or (B) satisfactory representations
from Holder that Holder is eligible to sell such security under Rule 144 or (ii)
a registration statement under the Securities Act covering the resale of such
securities is in effect. Nothing in this Warrant shall (i) limit the
Corporation's obligation under the
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Registration Rights Agreement, or (ii) affect in any way Holder's obligations to
comply with applicable securities laws upon the resale of the securities
referred to herein.
K. STATUS AS WARRANTHOLDER. Upon submission of a Notice of Exercise by
Holder, the Prepaid Amount of the Warrant (other than any portion of this
Warrant, if any, which cannot be exercised because the exercise thereof would
exceed Holder's Reserved Amount) shall be deemed exercised for shares of Common
Stock as of the Exercise Date and Holder's rights as a holder of this Warrant
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to Holder because of a failure by the Corporation
to comply with the terms of this Warrant. Notwithstanding the foregoing, if
Holder has not received certificates for all shares of Common Stock prior to the
tenth (10th) business day after the expiration of the Delivery Period with
respect to an exercise for any reason, then (unless Holder otherwise elects to
retain its status as a holder of Common Stock by so notifying the Corporation)
the portion of the Prepaid Amount subject to such exercise shall be deemed
outstanding under this Warrant and the Corporation shall, as soon as
practicable, return this Warrant to Holder. In all cases, Holder shall retain
all of its rights and remedies (including, without limitation, (i) the right to
receive Exercise Default Payments pursuant to Article IV.A to the extent
required thereby for such Exercise Default and any subsequent Exercise Default
and (ii) the right to have the Exercise Price with respect to subsequent
exercises determined in accordance with Article IV.B) for the Corporation's
failure to honor the exercise of this Warrant.
L. REMEDIES CUMULATIVE. The remedies provided in this Warrant shall be
cumulative and in addition to all other remedies available under this Warrant,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance giving rise to such remedy and nothing herein shall limit Holder's
right to pursue actual damages for any failure by the Corporation to comply with
the terms of this Warrant. The Corporation acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to the Holder and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, the Holder shall
be entitled, in addition to all other available remedies, to an injunction
restraining any breach, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Corporation has caused this Warrant to be signed
in its name by its duly authorized officer this 29th day of September, 1997.
SMARTSERV ONLINE, INC.
By:_______________________________
Name:
Title:
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Exhibit 1
---------
NOTICE OF EXERCISE
To: SmartServ Online, Inc.
One Station Place
Stamford, CT 06902
Telecopy: (203) 353-5962
Attention: Chairman of the Board
The undersigned hereby irrevocably elects to exercise $____________ of the
Prepaid Amount of this Warrant (the "EXERCISE") into shares of common stock
("COMMON STOCK") of SmartServ Online Inc. (the "CORPORATION") according to the
conditions of the Prepaid Common Stock Purchase Warrant dated September __, 1997
(the "WARRANT"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any Exercise, except for transfer taxes, if any. A copy of the
Warrant is attached hereto (or evidence of loss, theft or destruction thereof).
If the Corporation's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, the Corporation
shall electronically transmit the Common Stock issuable pursuant to this Notice
of Exercise to the account of the undersigned or its nominee (which is
________________) with DTC through its Deposit Withdrawal Agent Commission
System ("DTC TRANSFER"). If the Corporation's transfer agent does not
participate in the DTC program as aforementioned, or if Holder checks the box
set forth below, the Corporation shall deliver to Holder physical certificates
representing the Common Stock issuable upon exercise of the Warrant.
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon exercise of this
Warrant shall be made pursuant to registration of the Common Stock under the
Securities Act or pursuant to an exemption from registration under the Act.
In the event of partial exercise, please reissue an appropriate Warrant(s) for
the portion of the Prepaid Amount which shall not have been exercised.
Check Box if Applicable:
|_| In lieu of receiving the shares of Common Stock issuable pursuant
to this Notice of Exercise by way of DTC Transfer, the undersigned
hereby requests that the Corporation issue and deliver to the
undersigned physical certificates representing such shares of
Common Stock.
Date of Exercise:________________________________________
Applicable Exercise Price:_______________________________
Portion of Prepaid Amount to be exercised:_______________
Amount of Exercise Default
Payments to be exercised, if any:________________________
Number of Shares of
Common Stock to be Issued:_______________________________
Signature:_______________________________________________
Name:____________________________________________________
Address:_________________________________________________
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of September
29, 1997, by and among SMARTSERV ONLINE, INC., a corporation organized under the
laws of the State of Delaware, with headquarters located at One Station Place,
Stamford, Connecticut 06902 (the "COMPANY"), and the undersigned (together with
affiliates, the "INITIAL INVESTORS").
WHEREAS:
A. In connection with that certain Securities Purchase Agreement of even
date herewith by and between the Company and the Initial Investors (the
"SECURITIES PURCHASE AGREEMENT"), the Company has agreed, upon the terms and
subject to the conditions contained therein, to issue and sell to the Initial
Investors Prepaid Common Stock Purchase Warrants (the "WARRANTS") to purchase an
aggregate of $4,000,000 of the Company's common stock, par value $.01 per share
(the "COMMON STOCK");
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"SECURITIES ACT"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall
have the following meanings:
(i) "INVESTORS" means the Initial Investors and any
transferees or assignees who agree to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "REGISTER," "REGISTERED," and "REGISTRATION"
refer to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and pursuant to
Rule 415 under the Securities Act or any successor rule providing for offering
securities on a continuous basis ("RULE 415"), and the declaration or ordering
of effectiveness of such Registration Statement by the United States Securities
and Exchange Commission (the "SEC").
<PAGE>
(iii) "REGISTRABLE SECURITIES" means the shares (the
"WARRANT SHARES") of Common Stock issued or issuable upon exercise of or
otherwise with respect to the Warrants (including any Warrant Shares issuable
with respect to Exercise Default Payments under the Warrants or with respect to
any Default Amounts payable thereunder) and any shares of capital stock issued
or issuable, from time to time (with any adjustments), as a distribution on or
in exchange for or otherwise with respect to any of the foregoing.
(iv) "REGISTRATION STATEMENT" means a registration
statement of the Company under the Securities Act.
b. Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the Securities Purchase
Agreement and the Warrants.
2. REGISTRATION.
a. MANDATORY REGISTRATION. The Company shall prepare, and, on or
before the twentieth (20th) day after the date hereof (the "FILING DATE"), file
with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not then
available, on such form of Registration Statement as is then available to effect
a registration of all of the Registrable Securities, subject to the consent of
the Initial Investors (as determined pursuant to Section 11(j) hereof)) covering
the resale of at least 8,165,000 Registrable Securities, which Registration
Statement, to the extent allowable under the Securities Act and the Rules
promulgated thereunder (including Rule 416), shall state that such Registration
Statement also covers such indeterminate number of additional shares of Common
Stock as may become issuable upon exercise of the Warrants (i) to prevent
dilution resulting from stock splits, stock dividends or similar transactions or
(ii) by reason of reductions in the Exercise Price of the Warrants in accordance
with the terms thereof, including, but not limited to, the terms which cause the
Variable Exercise Price to decrease to the extent the average sale price of the
Common Stock decreases. The Registrable Securities initially set forth in the
Registration Statement shall be allocated to the Investors as set forth in
Section 11(k) hereof. The Registration Statement (and each amendment or
supplement thereto, and each request for acceleration of effectiveness thereof)
shall be provided to (and subject to the approval of) the Initial Investors and
their counsel prior to its filing or other submission.
b. UNDERWRITTEN OFFERING. If any offering pursuant to a
Registration Statement pursuant to Section 2(a) hereof involves an underwritten
offering, the Investors who hold a majority in interest of the Registrable
Securities subject to such underwritten offering, with the consent of the
Initial Investors, shall have the right to select one legal counsel to represent
the Investors and an investment banker or bankers and manager or managers to
administer the offering, which investment banker or bankers or manager or
managers shall be reasonably satisfactory to the Company. In the event that any
Investors elect not to participate in such underwritten offering, the
Registration Statement covering all of the Registrable Securities shall contain
appropriate plans of distribution reasonably satisfactory to the Investors
participating in such underwritten offering and the Investors electing not to
participate in such underwritten offering (including, without limitation, the
ability of
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<PAGE>
nonparticipating Investors to sell from time to time and at any time during the
effectiveness of such Registration Statement).
c. PAYMENTS BY THE COMPANY. The Company shall cause the
Registration Statement required to be filed pursuant to Section 2(a) hereof to
become effective as soon as practicable, but in no event later than November 28,
1997. If (i) the Registration Statement(s) covering the Registrable Securities
required to be filed by the Company pursuant to Section 2(a) hereof is not filed
with the SEC by the Filing Date or is not declared effective by the SEC on or
before December 28, 1997 (the "REGISTRATION DEADLINE") or if, after the
Registration Statement has been declared effective by the SEC, sales of all of
the Registrable Securities (including any Registrable Securities required to be
registered pursuant to Section 3(b) hereof) cannot be made pursuant to the
Registration Statement (by reason of a stop order or the Company's failure to
update the Registration Statement or any other reason outside the control of the
Investors) or (ii) the Common Stock is not listed or included for quotation on
the Nasdaq SmallCap Market (the "SMALLCAP"), the Nasdaq National Market (the
"NNM"), the New York Stock Exchange (the "NYSE") or the American Stock Exchange
(the "AMEX") at any time after the Registration Deadline, then the Company will
make payments to the Investors in such amounts and at such times as shall be
determined pursuant to this Section 2(c) as partial relief for the damages to
the Investors by reason of any such delay in or reduction of their ability to
sell the Registrable Securities (which remedy shall not be exclusive of any
other remedies available at law or in equity). The Company shall pay to each
Investor an amount equal to the product of (i) the aggregate Prepaid Amount of
all Warrants held by such Investor (including, without limitation, Warrants that
have been exercised for Warrant Shares then held by such Investor) (the
"AGGREGATE PREPAID AMOUNT"), multiplied by (ii) one hundredth (.01), for the
first thirty (30) day period (or portion thereof) (A) after the Filing Date and
prior to the date on which the Registration Statement required to be filed
pursuant to Section 2(a) hereof is filed with the SEC, (B) after the
Registration Deadline and prior to the date on which the Registration Statement
required to be filed pursuant to Section 2(a) hereof is declared effective by
the SEC, and (C) during which sales of any Registrable Securities cannot be made
pursuant to the Registration Statement after the Registration Statement has been
declared effective or the Common Stock is not listed or included for quotation
on the SmallCap, NNM, NYSE or AMEX. In addition, the Company shall pay to each
Investor an amount equal to the product of (i) the Aggregate Prepaid Amount,
multiplied by (ii) two hundredths (.02), for each additional thirty (30) day
period (or portion thereof) following the initial thirty (30) day period
referred to in the preceding sentence (A) after the Filing Date and prior to the
date the Registration Statement required to be filed pursuant to Section 2(a)
hereof is filed with the SEC, (B) after the Registration Deadline and prior to
the date the Registration Statement filed pursuant to Section 2(a) hereof is
declared effective by the SEC and (C) during which sales of any Registrable
Securities cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective or the Common Stock is not
listed or included for quotation on the SmallCap, NNM, NYSE or AMEX; PROVIDED,
HOWEVER, that there shall be excluded from each such period any delays which are
solely attributable to changes (other than corrections of Company mistakes with
respect to information previously provided by the Investors) required by the
Investors in the Registration Statement with respect to information relating to
the Investors, including, without limitation, changes to the plan of
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<PAGE>
distribution. (For example, if the Registration Statement is not effective by
the Registration Deadline, the Company would pay $10,000 for the first thirty
(30) days and $20,000 for each thirty (30) day period thereafter for each
$1,000,000 of Aggregate Prepaid Amount until the Registration Statement becomes
effective). Such amounts shall be paid in cash or, at each Investor's option,
may be convertible into Common Stock at the Exercise Price then in effect under
the Warrants. Any shares of Common Stock issued upon conversion of such amounts
shall be Registrable Securities. If the Investor desires to convert the amounts
due hereunder into Registrable Securities it shall so notify the Company in
writing within two (2) business days after the date on which such amounts are
first payable in cash and such amounts shall be so convertible (pursuant to the
mechanics set forth in Article II of the Warrants) beginning on the last day
upon which the cash amount would otherwise be due in accordance with the
following sentence. Payments of cash pursuant hereto shall be made within five
(5) days after the end of each period that gives rise to such obligation,
provided that, if any such period extends for more than thirty (30) days,
interim payments shall be made for each such thirty (30) day period.
d. PIGGY-BACK REGISTRATIONS. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company shall
file with the SEC a Registration Statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities (other than on Form S-4 or Form S-8 or their then equivalents
relating to equity securities to be issued solely in connection with any
acquisition of any entity or business or equity securities issuable in
connection with stock option or other employee benefit plans), the Company shall
send to each Investor who is entitled to registration rights under this Section
2(d) written notice of such determination and, if within fifteen (15) days after
the date of such notice, such Investor shall so request in writing, the Company
shall include in such Registration Statement all or any part of the Registrable
Securities such Investor requests to be registered, except that if, in
connection with any underwritten public offering for the account of the Company,
the managing underwriter(s) thereof shall impose a limitation on the number of
shares of Common Stock which may be included in the Registration Statement
because, in such underwriter(s)' judgment, marketing or other factors dictate
such limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities, in proportion to the number of Registrable
Securities sought to be included by such Investors; PROVIDED, HOWEVER, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and PROVIDED,
FURTHER, HOWEVER, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an
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Investor is entitled to registration under this Section 2(d) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering.
e. ELIGIBILITY FOR FORM S-3. The Company represents and warrants
that it meets the requirements for the use of Form S-3 for registration of the
sale by the Initial Investors and any other Investor of the Registrable
Securities and the Company shall file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
f. RULE 416. The Company and the Investors each acknowledge that
an indeterminate number of Registrable Securities shall be registered pursuant
to Rule 416 under the Securities Act so as to include in such Registration
Statement any and all Registrable Securities which may become issuable (i) to
prevent dilution resulting from stock splits, stock dividends or similar
transactions and (ii) by reason of reductions in the Exercise Price of the
Warrants in accordance with the terms thereof, including, but not limited to,
the terms which cause the Variable Exercise Price to decrease to the extent the
average sale price of the Common Stock decreases (collectively, the "RULE 416
SECURITIES"). In this regard, the Company agrees to take all steps necessary to
ensure that the maximum number of Registrable Securities which may be registered
pursuant to Rule 416 under the Securities Act are covered by the Registration
Statement and, absent guidance from the SEC or other definitive authority to the
contrary, the Company shall affirmatively support and not take any action
adverse to the position that the Registration Statements filed hereunder cover
all of the Rule 416 Securities. If the Company determines that the Registration
Statements filed hereunder do not cover all of the Rule 416 Securities, the
Company shall immediately provide to each Investor written notice (a "RULE 416
NOTICE") setting forth the basis for the Company's position and the authority
therefor.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly and file with the SEC the
Registration Statement required by Section 2(a) as soon as practicable after the
date hereof (but in no event later than the Filing Date), and cause such
Registration Statement relating to Registrable Securities to become effective as
soon as practicable after such filing (but in no event later than November 28,
1997), and keep the Registration Statement effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which all of the
Registrable Securities (in the reasonable opinion of counsel to the Initial
Investors) may be immediately sold to the public without registration or
restriction pursuant to Rule
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144(k) under the Securities Act or any successor provision (the "REGISTRATION
PERIOD"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein and all documents incorporated by
reference therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the Registration Statement
effective at all times during the Registration Period, and, during such period,
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the Registration
Statement until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statement. In the event (i)
the Company delivers a Rule 416 Notice to the Investors or the Investors who
hold a majority in interest of the Registrable Securities shall reasonably
determine, or the SEC shall state formally or informally, that Rule 416 under
the Securities Act does not permit a registration statement to cover securities
which may become issuable upon exercise of exercisable securities by reason of
reductions in the exercise price of such securities and (ii) the number of
shares available under a Registration Statement filed pursuant to this Agreement
is, for any three (3) consecutive trading days (the last of such three (3)
trading days being the "REGISTRATION TRIGGER DATE"), insufficient to cover one
hundred thirty-five percent (135%) of the Registrable Securities issued or
issuable upon exercise (without giving effect to any limitations on exercise
contained in Article II.D of the Warrants) of the Warrants, the Company shall
amend the Registration Statement, or file a new Registration Statement (on the
short form available therefor, if applicable), or both, so as to cover two
hundred percent (200%) of the Registrable Securities issued or issuable (without
giving effect to any limitations on exercise contained in Article II.D of the
Warrants) as of the Registration Trigger Date, in each case, as soon as
practicable, but in any event within fifteen (15) days after the Registration
Trigger Date (based on the market price then in effect of the Common Stock and
other relevant factors on which the Company reasonably elects to rely). The
Company shall cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof. In the event the
Company fails to obtain the effectiveness of any such Registration Statement
within sixty (60) days after a Registration Trigger Date, each Investor shall
thereafter have the option, exercisable in whole or in part at any time and from
time to time by delivery of a written notice to the Company (a "REDEMPTION
NOTICE"), to require the Company to purchase for cash, at an amount per Warrant
equal to the Default Amount (as defined in Article V.B of the Warrants), a
portion of the Investor's Warrants such that the total number of Registrable
Securities included on the Registration Statement for resale by such Investor
exceeds 135% of the Registrable Securities issued or issuable upon exercise
(without giving effect to any limitations on exercise contained in Article II.D
of the Warrants) of such Investor's Warrants. If the Corporation fails to redeem
any of such Warrants within five (5) business days after its receipt of a
Redemption Notice, then such Investor shall be entitled to the remedies provided
in Article V.C of the Warrants.
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c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and their legal counsel
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC (including, without limitation, any request to
accelerate the effectiveness of any Registration Statement or amendment
thereto), and each item of correspondence from the SEC or the staff of the SEC,
in each case relating to such Registration Statement (other than any portion, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of effectiveness of the Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest of
the Registrable Securities being offered in an offering select underwriters for
the offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor of the happening of any event, of
which the Company has knowledge, as a result of which the prospectus included in
the Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
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<PAGE>
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, and, if such an order is issued, to obtain the
withdrawal of such order at the earliest practicable moment (including in each
case by amending or supplementing such Registration Statement) and to notify
each Investor who holds Registrable Securities being sold (or, in the event of
an underwritten offering, the managing underwriters) of the issuance of such
order and the resolution thereof (and if such Registration Statement is
supplemented or amended, deliver such number of copies of such supplement or
amendment to each Investor as such Investor may reasonably request).
h. The Company shall permit a single firm of counsel designated
by the Initial Investors to review the Registration Statement and all amendments
and supplements thereto a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the Securities Act) covering a
twelve-month period beginning not later than the first day of the Company's
fiscal quarter next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on
the date of effectiveness of the Registration Statement (i) an opinion, dated as
of such date, from counsel representing the Company addressed to the Investors
and in form, scope and substance as is customarily given in an underwritten
public offering and (ii) in the case of an underwriting, a letter, dated such
date, from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; PROVIDED, HOWEVER, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines
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<PAGE>
in good faith to be confidential, and of which determination the Inspectors are
so notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (b) the
release of such Records is ordered pursuant to a subpoena or other order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts to promptly either (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on the NYSE or the AMEX or another national securities exchange and on
each additional national securities exchange on which securities of the same
class or series issued by the Company are then listed, if any, if the listing of
such Registrable Securities is then permitted under the rules of such exchange,
or (ii) secure the designation and quotation of all of the Registrable
Securities covered by the Registration Statement on the NNM or the SmallCap and,
without limiting the generality of the foregoing, to arrange for or maintain at
least two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
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o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an opinion of such
counsel in the form attached hereto as EXHIBIT 1.
p. At the request of any Investor, the Company shall prepare and
file with the SEC such amendments (including post-effective amendments) and
supplements to a Registration Statement and the prospectus used in connection
with the Registration Statement as may be necessary in order to change the plan
of distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to
a Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC.)
r. The Company shall take all such other actions as any Investor
or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of the Registrable Securities.
s. From and after the date of this Agreement, the Company shall
not, and shall not agree to, allow the holders of any securities of the Company
to include any of their securities in any Registration Statement under Section
2(a) hereof or any amendment or supplement thereto under Section 3(b) hereof
without the consent of the holders of a majority in interest of the Registrable
Securities; PROVIDED, HOWEVER, that the Investors hereby acknowledge and agree
that the Company may include in any Registration Statement under Section 2(a)
hereof (including any amendment or supplement thereto) (i) any and all
securities required to be registered by the Company pursuant to the terms of
that certain Registration Rights Agreement of even date herewith by and among
the Company, The Zanett Securities Corporation and the other signatories
thereto; and (ii) the securities owned by, or issuable to, those persons or
entities identified as having piggyback registration rights with respect to such
securities on SCHEDULE 1 hereto.
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4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
c. In the event Investors holding a majority in interest of the
Registrable Securities being offered determine to engage the services of an
underwriter, each Investor agrees to enter into and perform such Investor's
obligations under an underwriting agreement, in usual and customary form,
including, without limitation, customary indemnification and contribution
obligations, with the managing underwriter of such offering and take such other
actions as are reasonably required in order to expedite or facilitate the
disposition of the Registrable Securities, unless such Investor has notified the
Company in writing of such Investor's election not to participate in such
underwritten distribution.
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other
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documents reasonably required under the terms of such underwriting arrangements,
and (iii) agrees to pay its pro rata share of all underwriting discounts and
commissions and any expenses in excess of those payable by the Company pursuant
to Section 5 below.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, the fees and disbursements
contemplated by Section 3(j) hereof, and the reasonable fees and disbursements
of one counsel selected by the Investors pursuant to Section 2(b) hereof shall
be borne by the Company. In addition, the Company shall pay all of the
Investors' costs and expenses (including legal fees) incurred in connection with
the enforcement of the rights of the Investors hereunder.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify,
hold harmless and defend (i) each Investor who holds such Registrable
Securities, and (ii) the directors, officers, partners, members, employees,
agents and each person who controls any Investor within the meaning of Section
15 of the Securities Act or Section 20 of the Securities Exchange Act of 1934,
as amended (the "EXCHANGE ACT"), if any, (each, an "INDEMNIFIED PERSON"),
against any joint or several losses, claims, damages, liabilities or expenses
(collectively, together with actions, proceedings or inquiries by any regulatory
or self-regulatory organization, whether commenced or threatened, in respect
thereof, "CLAIMS") to which any of them may become subject insofar as such
Claims arise out of or are based upon: (i) any untrue statement or alleged
untrue statement of a material fact in a Registration Statement or the omission
or alleged omission to state therein a material fact required to be stated or
necessary to make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus if used prior to the effective date of such Registration
Statement, or contained in the final prospectus (as amended or supplemented, if
the Company files any amendment thereof or supplement thereto with the SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities (the matters in the foregoing clauses (i) through (iii) being,
collectively, "VIOLATIONS"). Subject to the restrictions set forth in Section
6(c) with respect to the number of legal counsel, the Company shall reimburse
the Investors and each other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in
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connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of or
based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by such Indemnified Person
expressly for use in the Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any prospectus, shall not inure to the benefit of any Indemnified
Person if the untrue statement or omission of material fact contained in the
prospectus was corrected on a timely basis in the prospectus, as then amended or
supplemented, if such corrected prospectus was timely made available by the
Company pursuant to Section 3(c) hereof, and the Indemnified Person was promptly
advised in writing not to use the incorrect prospectus prior to the use giving
rise to a Violation and such Indemnified Person, notwithstanding such advice,
used it. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Indemnified Person and shall survive
the transfer of the Registrable Securities by the Investors pursuant to Section
9 hereof.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, and any other
stockholder selling securities pursuant to the Registration Statement or any of
its directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "INDEMNIFIED PARTY"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; PROVIDED, FURTHER, HOWEVER, that the
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds actually
received by such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9 hereof. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified
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Party if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, and the Indemnified Party failed to utilize such
corrected prospectus.
c. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; PROVIDED, HOWEVER, that such indemnifying party shall not be
entitled to assume such defense and an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding or the actual or potential defendants in, or targets
of, any such action include both the Indemnified Person or the Indemnified Party
and the indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. The indemnifying party shall pay
for only one separate legal counsel for the Indemnified Persons or the
Indemnified Parties, as applicable, and such legal counsel shall be selected by
Investors holding a majority-in-interest of the Registrable Securities included
in the Registration Statement to which the Claim relates (with the approval of
the Initial Investors if they hold Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by the Company, if the Company is entitled to indemnification
hereunder, as applicable. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; PROVIDED, HOWEVER, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no person guilty
14
<PAGE>
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation, and (iii)
contribution (together with any indemnification or other obligations under this
Agreement) by any seller of Registrable Securities shall be limited in amount to
the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the Securities Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. File with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Securities Act and the Exchange Act so long as the Company remains subject to
such requirements (it being understood that nothing herein shall limit the
Company's obligations under Section 4(c) of the Securities Purchase Agreement)
and the filing and availability of such reports and other documents is required
for the applicable provisions of Rule 144; and
b. Furnish to each Investor so long as such Investor owns
Warrants or Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most
recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested to permit the Investors to sell such securities under Rule
144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the Warrants or the Registrable Securities if: (i) the Investor
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to the Company after such assignment, (ii)
the Company is furnished with written notice of (a) the name and address of such
transferee or assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment, the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act and applicable
state securities laws, (iv) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the provisions contained herein,
and (v) such transfer shall have been made in accordance with the applicable
requirements of the Securities Purchase Agreement.
15
<PAGE>
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Investors who hold a majority in interest of the Registrable Securities;
provided, however, that no amendment hereto which restricts the ability of an
Investor to elect not to participate in an underwritten offering shall be
effective against any Investor which does not consent in writing to such
amendment. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five (5) days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
SmartServ Online, Inc.
One Station Place
Stamford, CT 06902
Telecopy: (203) 353-5962
Attention: Chairman of the Board
With a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Telecopy: (212) 704-6288
Attention: Michael J. Shef, Esquire
16
<PAGE>
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and to be performed in the State of Delaware. The Company irrevocably consents
to the jurisdiction of the United States federal courts and the state courts
located in the City of New York in the State of New York in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company further agrees that
service of process upon the Company, mailed by first class mail shall be deemed
in every respect effective service of process upon the Company in any such suit
or proceeding. Nothing herein shall affect the Investors' right to serve process
in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
e. This Agreement, the Securities Purchase Agreement and the
Warrants (including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. This Agreement, the Securities Purchase Agreement and the Warrants
supersede all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which shall constitute one
and the same agreement. This Agreement, once executed by a party, may be
delivered to the other party hereto by facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent
17
<PAGE>
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
j. All consents, approvals and other determinations to be made
by the Investors or the Initial Investors pursuant to this Agreement shall be
made by the Investors or the Initial Investors holding a majority in interest of
the Registrable Securities (determined as if all Warrants then outstanding had
been exercised for Registrable Securities) held by all Investors or Initial
Investors, as the case may be.
k. The initial number of Registrable Securities included on any
Registration Statement and each increase (if any) to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of doubt, the number of Registrable Securities held by any Investor shall be
determined as if all Warrants then outstanding were exercised for Registrable
Securities.
l. For purposes of this Agreement, the term "business day" means
any day other than a Saturday or Sunday or a day on which banking institutions
in the State of New York are authorized or obligated by law, regulation or
executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
SMARTSERV ONLINE, INC.
By: ______________________________
Name: ____________________________
Title: ___________________________
INITIAL INVESTORS:
[NAME]
By: ______________________________
Name: ____________________________
Title: ___________________________
[NAME]
By: ______________________________
Name: ____________________________
Title: ___________________________
[NAME]
By: ______________________________
Name: ____________________________
Title: ___________________________
[NAME]
By: ______________________________
Name: ____________________________
Title: ___________________________
19
<PAGE>
EXHIBIT 1
TO
REGISTRATION
RIGHTS
AGREEMENT
[Date]
[Name and address
of transfer agent]
RE: SMARTSERV ONLINE, INC.
Ladies and Gentlemen:
We are counsel to SmartServ Online, Inc., a corporation organized under
the laws of the State of Delaware (the "COMPANY"), and we understand that [Name
of Investor] (the "HOLDER") has acquired from the Company warrants (the
"WARRANTS") to acquire shares of the Company's common stock, par value $.01 per
share. Pursuant to a Registration Rights Agreement, dated as of September __,
1997, by and among the Company, the Holder and the other signatories thereto
(the "REGISTRATION RIGHTS AGREEMENT"), the Company agreed with the Holder, among
other things, to register the Registrable Securities (as that term is defined in
the Registration Rights Agreement) under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), upon the terms provided in the Registration Rights
Agreement. In connection with the Company's obligations under the Registration
Rights Agreement, on _____ __, 1997, the Company filed a Registration Statement
on Form S-___ (File No. 333- _____________) (the "REGISTRATION STATEMENT") with
the Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities, which names the Holder as a selling stockholder thereunder. The
Registration Statement was declared effective by the SEC on _________________,
1997.
[Other customary introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other customary language to be included.]
Very truly yours,
cc: [Name of Investor]
20
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON SEPTEMBER 29, 2002
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS
OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Date: September 29, 1997 Right to Purchase 600,000
Shares of Common Stock
SMARTSERV ONLINE, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, The Zanett Securities
Corporation or its registered assigns, is entitled to purchase from SmartServ
Online, Inc., a Delaware corporation (the "COMPANY"), at any time or from time
to time during the period specified in Section 2 hereof, Six Hundred Thousand
(600,000) fully paid and nonassessable shares of the Company's common stock, par
value $.01 per share ("COMMON STOCK"), at an exercise price per share equal to
$1.125 (the "EXERCISE PRICE"). The number of shares of Common Stock purchasable
hereunder (the "WARRANT SHARES") and the Exercise Price are subject to
adjustment as provided in Section 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, including, without limitation, the
limitations contained in Section 7 hereof, this Warrant may be exercised by the
holder hereof, in whole or in part, by the surrender of this Warrant, together
with a completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the holder is effectuating
a Cashless Exercise
<PAGE>
(as defined in Section 11(c) below) pursuant to Section 11(c) hereof, delivery
to the Company of a written notice of an election to effect a Cashless Exercise
for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares
so purchased shall be deemed to be issued to the holder hereof or such holder's
designee, as the record owner of such shares, as of the close of business on the
date on which this Warrant shall have been surrendered, the completed Exercise
Agreement shall have been delivered, and payment shall have been made for such
shares as set forth above. Certifi cates for the Warrant Shares so purchased,
representing the aggregate number of shares specified in the Exercise Agreement,
shall be delivered to the holder hereof within a reasonable time, not exceeding
two (2) business days, after this Warrant shall have been so exercised (the
"DELIVERY PERIOD"). The certificates so delivered shall be in such denominations
as may be requested by the holder hereof and shall be registered in the name of
such holder or such other name as shall be designated by such holder. If this
Warrant shall have been exercised only in part, then, unless this Warrant has
expired, the Company shall, at its expense, at the time of delivery of such
certificates, deliver to the holder a new Warrant representing the number of
shares with respect to which this Warrant shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement (including pursuant to a
Cashless Exercise), and the Company fails for any reason to deliver, on or prior
to the fourth business day following the expiration of the Delivery Period for
such exercise, the number of shares of Common Stock to which the holder is
entitled upon such exercise (an "EXERCISE DEFAULT"), then the Company shall pay
to the holder payments ("EXERCISE DEFAULT PAYMENTS") for an Exercise Default in
the amount of (a) (N/365), multiplied by (b) the difference between the Market
Price (as defined in Section 4(l)(ii) hereof) on the date the Exercise Agreement
giving rise to the Exercise Default is transmitted in accordance with Section 1
(the "EXERCISE DEFAULT DATE") less the Exercise Price, multiplied by (c) the
number of shares of Common Stock the Company failed to so deliver in such
Exercise Default, multiplied by (d) .24, where N = the number of days from the
Exercise Default Date to the date that the Company effects the full exercise of
this Warrant which gave rise to the Exercise Default. The accrued Exercise
Default Payment for each calendar month shall be paid in cash or shall be
convertible into Common Stock at the Exercise Price, at the holder's option, as
follows:
(a) In the event holder elects to take such payment in cash,
cash payment shall be made to holder by the fifth (5th) day of the month
following the month in which it has accrued; and
(b) In the event holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Exercise Price (as in effect at the time of conversion) at any time after
the fifth (5th) day of the month following the month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock as required pursuant to the terms of Section 3(b) hereof,
or to otherwise issue shares of Common Stock
2
<PAGE>
upon exercise of this Warrant in accordance with the terms hereof, and each
holder shall have the right to pursue all remedies available at law or in equity
(including a decree of specific performance and/or injunctive relief).
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or
from time to time on or after the date hereof and before 5:00 p.m., New York
City time, on the fifth (5th) anniversary of the date hereof (the "EXERCISE
PERIOD"). The Exercise Period shall automatically be extended by one (1) day for
each day on which the Company does not have a number of shares of Common Stock
reserved for issuance upon exercise hereof at least equal to the number of
shares of Common Stock issuable upon exercise hereof.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a sufficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing
of the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as
3
<PAGE>
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of Common Stock upon the
exercise of this Warrant.
(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all of the Company's assets.
(f) BLUE SKY LAWS. The Company shall, on or before the date
of issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Sections 4(c) and 4(e)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price on the date of issuance (a
"DILUTIVE ISSUANCE"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = E x O + P/M
--------------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in
Section 4(l)(ii));
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set
forth in Section 4(b) hereof, received by the
Company upon such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as defined in Section 4(l)(i))
immediately after the Dilutive Issuance.
4
<PAGE>
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "OPTIONS") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Market Price on the date of issuance ("BELOW MARKET
OPTIONS"), then the maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Market Options (assuming full exercise,
conversion or exchange of Convertible Securities, if applicable) will, as of the
date of the issuance or grant of such Below Market Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Below Market Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Below
Market Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Below Market
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Below Market Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange thereof at the
time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Market Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Below Market Options or upon the exercise, conversion
or exchange of Convertible Securities issuable upon exercise of such Below
Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues or sells
any Convertible Securities, whether or not immediately convertible (other than
where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange (as determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon such
exercise, conversion or exchange" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common
5
<PAGE>
Stock issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells
any Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price on the date
of issuance of such Convertible Security was 75% of the Market Price on such
date (the "ASSUMED VARIABLE MARKET PRICE"). Further, if the Market Price at any
time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 4 with respect to
any Variable Rate Convertible Security, the Exercise Price in effect at such
time shall be readjusted to equal the Exercise Price which would have resulted
if the Assumed Variable Market Price at the time of issuance of the Variable
Rate Convertible Security had been 75% of the Market Price existing at the time
of the adjustment required by this sentence.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If
there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
(in each such case, other than under or by reason of provisions designed to
protect against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable
6
<PAGE>
expenses paid or incurred by the Company in connection with such issuance, grant
or sale. In case any Common Stock, Options or Convertible Securities are issued
or sold for a consideration part or all of which shall be other than cash, the
amount of the consideration other than cash received by the Company will be the
fair market value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the Market Price thereof as of the date of receipt. In case
any Common Stock, Options or Convertible Securities are issued in connection
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
market value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair market value of any consideration other
than cash or securities will be determined in good faith by an investment banker
or other appropriate expert of national reputation selected by the Company and
reasonably acceptable to the holder hereof, with the costs of such appraisal to
be borne by the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee benefit plan of the Company now existing
or to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; or (iii) upon the issuance
of any securities in connection with that certain offering of Prepaid Common
Stock Purchase Warrants in the aggregate amount of up to $4,000,000.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial issuance
of this Warrant, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
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(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time after the initial issuance of this
Warrant, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Section 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor corporation (if other than the Company) assumes by
written instrument the obligations under this Section 4 and the obligations to
deliver to the holder of this Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the holder may be entitled to
acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Company's shareholders
of cash or shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "DISTRIBUTION"), at any time after the initial issuance of this
Warrant, then the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets (or rights) which would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled to such
Distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
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<PAGE>
(i) NO FRACTIONAL SHARES. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect of any fractional share which would otherwise
be issuable in an amount equal to the same fraction of the Market Price of a
share of Common Stock on the date of such exercise.
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least seventy-five
(75) days prior to the record date or the date on which the Company's books are
closed in respect thereto. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii), (iii) and (iv) above.
(k) CERTAIN EVENTS. If, at any time after the initial
issuance of this Warrant, any event occurs of the type contemplated by the
adjustment provisions of this Section 4 but not expressly provided for by such
provisions, the Company will give notice of such event as provided in Section
4(g) hereof, and the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant so that the rights of the holder shall
be neither enhanced nor diminished by such event.
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<PAGE>
(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in the case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means the
average of the closing bid prices for the shares of Common Stock as reported on
the Nasdaq SmallCap Market by Bloomberg Financial Markets ("BLOOMBERG") for the
five (5) consecutive trading days immediately preceding such date, or (ii) if
the Nasdaq SmallCap Market is not the principal trading market for the shares of
Common Stock, the average of the last bid prices reported by Bloomberg on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last sales price reported by
Bloomberg for such period, or (iii) if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on the pink
sheets or bulletin board for such security as reported by Bloomberg, or if no
closing bid price is so reported for such security, the last closing trade price
of such security as reported by Bloomberg, or (iv) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the average fair market value as reasonably determined by an investment
banking firm selected by the Company and reasonably acceptable to the holder,
with the costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock, par value $.01 per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Section 4(e)
hereof, the stock or other securities or property provided for in such Section.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that 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 any
certificate in a name other than the holder of this Warrant.
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<PAGE>
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Sections 7(f) and (g) hereof. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 7. The Company
shall indemnify and reimburse the holder of this Warrant for all costs and
expenses (including legal fees) incurred by such holder in connection with the
enforcement of its rights hereunder.
(e) WARRANT REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the
11
<PAGE>
person in whose name this Warrant has been issued, as well as the name and
address of each transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the
time of the surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws (the cost of which shall be borne by the Company if
the Company's counsel renders such opinion and up to $250 of such cost shall be
borne by the Company if the holder's counsel renders such opinion), (ii) that
the holder or transferee execute and deliver to the Company an investment letter
in form and substance acceptable to the Company and (iii) that the transferee be
an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the
Securities Act. With respect to any opinion to be provided pursuant to clause
(i) above, the holder shall be entitled to request that the Company's counsel
render such opinion and the Company shall cause its counsel to render such
opinion if requested by the holder.
(g) ADDITIONAL RESTRICTIONS ON EXERCISE OR TRANSFER.
Notwithstanding anything contained herein to the contrary, unless the holder
hereof delivers a waiver in accordance with the last sentence of this Section
7(g), this Warrant shall not be exercisable by a holder hereof to the extent
(but only to the extent) that, if exercisable by such holder, such holder would
beneficially own in excess of 4.99% of the outstanding shares of Common Stock.
To the extent the above limitation applies, the determination of whether and to
what extent this Warrant shall be exercisable vis-a-vis other securities owned
by such holder shall be in the sole discretion of the holder and submission of
this Warrant for full or partial exercise shall be deemed to be the holder's
determination of whether and the extent to which this Warrant is exercisable, in
each case subject to such aggregate percentage limitation. No prior inability to
exercise the Warrant pursuant to this Section shall have any effect on the
applicability of the provisions of this Section with respect to any subsequent
determination of exerciseability. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder. Except as provided in the immediately succeeding sentence, the
restrictions contained in this Section 7(g) may not be amended without the
consent of the holder of this Warrant and the holders of a majority of the
Company's then outstanding Common Stock. Notwithstanding the foregoing, the
holder hereof may waive the restrictions set forth in this Section 7(g) by
written notice to the Company upon not less than sixty-one (61) days prior
notice (with such waiver taking effect only upon the expiration of such
sixty-one (61) day notice period).
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement, dated as of the date hereof, by and between the
12
<PAGE>
Company, the initial holder hereof and the other signatories thereto, including
the right to assign such rights to certain assignees, as set forth therein.
9. NOTICES. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
SMARTSERV ONLINE, INC.
One Station Place
Stamford, CT 06902
Telecopy: (203) 353-5962
Attention: Chairman of the Board
With a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Telecopy: (212) 704-6288
Attention: Michael J. Shef, Esquire
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the City of New York in the State of New York in any
suit or proceeding based on or arising under this Warrant and irrevocably agrees
that all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that service of
process upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the holder's right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
13
<PAGE>
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised at any time after the
first anniversary of the date hereof until the end of the Exercise Period by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
SMARTSERV ONLINE, INC.
By: ________________________
Name:___________________
Title:____________________
15
<PAGE>
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
The undersigned hereby irrevocably exercises the right to purchase
_____________ of the shares of common stock of SmartServ Online, Inc., a
Delaware corporation (the "COMPANY"), evidenced by the attached Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
i. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable for the immediate resale of such shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN
AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
ii. The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:_________________ ___________________________________
Signature of Holder
___________________________________
Name of Holder (Print)
Address:
___________________________________
___________________________________
___________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: _____________________, ____,
In the presence of
__________________________
Name: ____________________________
Signature: ______________________________
Title of Signing Officer or Agent (if any):
Address: _______________________________
_______________________________
_______________________________
Note: The above signature should
correspond exactly with the name
on the face of the within Warrant.
VOID AFTER 5:00 P.M. NEW YORK CITY
TIME ON SEPTEMBER 29, 2002
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS
OF ANY STATE. THE SECURITIES REPRESENTED HEREBY MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED UNLESS THE SECURITIES ARE
REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
Date: September 29, 1997 Right to Purchase 3,555,555
Shares of Common Stock
SMARTSERV ONLINE, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Bruno Guazzoni or his
registered assigns, is entitled to purchase from SmartServ Online, Inc., a
Delaware corporation (the "COMPANY"), at any time or from time to time during
the period specified in Section 2 hereof, Three Million Five Hundred Fifty-Five
Thousand Five Hundred Fifty-Five (3,555,555) fully paid and nonassessable shares
of the Company's common stock, par value $.01 per share ("COMMON STOCK"), at an
exercise price per share equal to $1.125 (the "EXERCISE PRICE"). The number of
shares of Common Stock purchasable hereunder (the "WARRANT SHARES") and the
Exercise Price are subject to adjustment as provided in Section 4 hereof.
This Warrant is subject to the following terms, provisions, and
conditions:
1. MANNER OF EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR
SHARES. Subject to the provisions hereof, including, without limitation, the
limitations contained in Section 7 hereof, this Warrant may be exercised by the
holder hereof, in whole or in part, by the surrender of this Warrant, together
with a completed exercise agreement in the form attached hereto (the "EXERCISE
AGREEMENT"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company, of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the holder is effectuating
a Cashless Exercise (as defined in Section 11(c) below) pursuant to Section
11(c) hereof, delivery to the Company of a written notice of an election to
effect a Cashless Exercise for the Warrant Shares specified in the
<PAGE>
Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued
to the holder hereof or such holder's designee, as the record owner of such
shares, as of the close of business on the date on which this Warrant shall have
been surrendered, the completed Exercise Agreement shall have been delivered,
and payment shall have been made for such shares as set forth above. Certifi
cates for the Warrant Shares so purchased, representing the aggregate number of
shares specified in the Exercise Agreement, shall be delivered to the holder
hereof within a reasonable time, not exceeding two (2) business days, after this
Warrant shall have been so exercised (the "DELIVERY PERIOD"). The certificates
so delivered shall be in such denominations as may be requested by the holder
hereof and shall be registered in the name of such holder or such other name as
shall be designated by such holder. If this Warrant shall have been exercised
only in part, then, unless this Warrant has expired, the Company shall, at its
expense, at the time of delivery of such certificates, deliver to the holder a
new Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement (including pursuant to a
Cashless Exercise), and the Company fails for any reason to deliver, on or prior
to the fourth business day following the expiration of the Delivery Period for
such exercise, the number of shares of Common Stock to which the holder is
entitled upon such exercise (an "EXERCISE DEFAULT"), then the Company shall pay
to the holder payments ("EXERCISE DEFAULT PAYMENTS") for an Exercise Default in
the amount of (a) (N/365), multiplied by (b) the difference between the Market
Price (as defined in Section 4(l)(ii) hereof) on the date the Exercise Agreement
giving rise to the Exercise Default is transmitted in accordance with Section 1
(the "EXERCISE DEFAULT DATE") less the Exercise Price, multiplied by (c) the
number of shares of Common Stock the Company failed to so deliver in such
Exercise Default, multiplied by (d) .24, where N = the number of days from the
Exercise Default Date to the date that the Company effects the full exercise of
this Warrant which gave rise to the Exercise Default. The accrued Exercise
Default Payment for each calendar month shall be paid in cash or shall be
convertible into Common Stock at the Exercise Price, at the holder's option, as
follows:
(a) In the event holder elects to take such payment in cash,
cash payment shall be made to holder by the fifth (5th) day of the month
following the month in which it has accrued; and
(b) In the event holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Exercise Price (as in effect at the time of conversion) at any time after
the fifth (5th) day of the month following the month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock as required pursuant to the terms of Section 3(b) hereof,
or to otherwise issue shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof, and each holder shall have the
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right to pursue all remedies available at law or in equity (including a decree
of specific performance and/or injunctive relief).
2. PERIOD OF EXERCISE. This Warrant is exercisable at any time or
from time to time on or after the date hereof and before 5:00 p.m., New York
City time, on the fifth (5th) anniversary of the date hereof (the "EXERCISE
PERIOD"). The Exercise Period shall automatically be extended by one (1) day for
each day on which the Company does not have a number of shares of Common Stock
reserved for issuance upon exercise hereof at least equal to the number of
shares of Common Stock issuable upon exercise hereof.
3. CERTAIN AGREEMENTS OF THE COMPANY. The Company hereby covenants
and agrees as follows:
(a) SHARES TO BE FULLY PAID. All Warrant Shares will, upon
issuance in accordance with the terms of this Warrant, be validly issued, fully
paid, and nonassessable and free from all taxes, liens, claims and encumbrances.
(b) RESERVATION OF SHARES. During the Exercise Period, the
Company shall at all times have authorized, and reserved for the purpose of
issuance upon exercise of this Warrant, a suf ficient number of shares of Common
Stock to provide for the exercise of this Warrant.
(c) LISTING. The Company shall promptly secure the listing
of the shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed or become listed (subject to official
notice of issuance upon exercise of this Warrant) and shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all shares
of Common Stock from time to time issuable upon the exercise of this Warrant;
and the Company shall so list on each national securities exchange or automated
quotation system, as the case may be, and shall maintain such listing of, any
other shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(d) CERTAIN ACTIONS PROHIBITED. The Company will not, by
amendment of its charter or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder of
this Warrant in order to protect the exercise privilege of the holder of this
Warrant against dilution or other impairment, consistent with the tenor and
purpose of this Warrant. Without limiting the generality of the foregoing, the
Company (i) will not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the Exercise Price then in
effect, and (ii) will take all such actions as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the exercise of this Warrant.
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(e) SUCCESSORS AND ASSIGNS. This Warrant will be binding
upon any entity succeeding to the Company by merger, consolidation, or
acquisition of all or substantially all of the Company's assets.
(f) BLUE SKY LAWS. The Company shall, on or before the date
of issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction.
4. ANTIDILUTION PROVISIONS. During the Exercise Period, the
Exercise Price and the number of Warrant Shares shall be subject to adjustment
from time to time as provided in this Section 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
or down to the nearest cent.
(a) ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES UPON
ISSUANCE OF COMMON STOCK. Except as otherwise provided in Sections 4(c) and 4(e)
hereof, if and whenever after the initial issuance of this Warrant, the Company
issues or sells, or in accordance with Section 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price on the date of issuance (a
"DILUTIVE ISSUANCE"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
E' = E x O + P/M
----------------
CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in Section
4(l)(ii));
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth
in Section 4(b) hereof, received by the Company upon
such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as defined in Section 4(l)(i))
immediately after the Dilutive Issuance.
(b) EFFECT ON EXERCISE PRICE OF CERTAIN EVENTS. For purposes
of determining the adjusted Exercise Price under Section 4(a) hereof, the
following will be applicable:
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(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("CONVERTIBLE SECURITIES") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "OPTIONS") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Market Price on the date of issuance ("BELOW MARKET
OPTIONS"), then the maximum total number of shares of Common Stock issuable upon
the exercise of all such Below Market Options (assuming full exercise,
conversion or exchange of Convertible Securities, if applicable) will, as of the
date of the issuance or grant of such Below Market Options, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of the preceding sentence, the "price per share for which
Common Stock is issuable upon the exercise of such Below Market Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or granting of all such Below
Market Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Below Market
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Below Market Options, the minimum aggregate amount of additional
consideration payable upon the exercise, conversion or exchange thereof at the
time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Below Market Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Below Market Options or upon the exercise, conversion
or exchange of Convertible Securities issuable upon exercise of such Below
Market Options.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES.
(A) If the Company in any manner issues or sells
any Convertible Securities, whether or not immediately convertible (other than
where the same are issuable upon the exercise of Options) and the price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange (as determined pursuant to Section 4(b)(ii)(B) if applicable) is less
than the Market Price on the date of issuance, then the maximum total number of
shares of Common Stock issuable upon the exercise, conversion or exchange of all
such Convertible Securities will, as of the date of the issuance of such
Convertible Securities, be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. For the purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon such
exercise, conversion or exchange" is determined by dividing (i) the total
amount, if any, received or receivable by the Company as consideration for the
issuance or sale of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
exercise, conversion or exchange thereof at the time such Convertible Securities
first become exercisable, convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
exercise, conversion or exchange of such Convertible Securities.
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(B) If the Company in any manner issues or sells
any Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "VARIABLE RATE CONVERTIBLE SECURITY"), then the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price on the date
of issuance of such Convertible Security was 75% of the Market Price on such
date (the "ASSUMED VARIABLE MARKET PRICE"). Further, if the Market Price at any
time or times thereafter is less than or equal to the Assumed Variable Market
Price last used for making any adjustment under this Section 4 with respect to
any Variable Rate Convertible Security, the Exercise Price in effect at such
time shall be readjusted to equal the Exercise Price which would have resulted
if the Assumed Variable Market Price at the time of issuance of the Variable
Rate Convertible Security had been 75% of the Market Price existing at the time
of the adjustment required by this sentence.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE. If
there is a change at any time in (i) the amount of additional consideration
payable to the Company upon the exercise of any Options; (ii) the amount of
additional consideration, if any, payable to the Company upon the exercise,
conversion or exchange of any Convertible Securities; or (iii) the rate at which
any Convertible Securities are convertible into or exchangeable for Common Stock
(in each such case, other than under or by reason of provisions designed to
protect against dilution), the Exercise Price in effect at the time of such
change will be readjusted to the Exercise Price which would have been in effect
at such time had such Options or Convertible Securities still outstanding
provided for such changed additional consideration or changed conversion rate,
as the case may be, at the time initially granted, issued or sold.
(iv) TREATMENT OF EXPIRED OPTIONS AND UNEXERCISED
CONVERTIBLE SECURITIES. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon exercise, conversion or
exchange of any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to exercise, convert or exchange such Convertible
Securities shall have expired or terminated, the Exercise Price then in effect
will be readjusted to the Exercise Price which would have been in effect at the
time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration or
termination (other than in respect of the actual number of shares of Common
Stock issued upon exercise or conversion thereof), never been issued.
(v) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration, except where such consideration
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<PAGE>
consists of securities, in which case the amount of consideration received by
the Company will be the Market Price thereof as of the date of receipt. In case
any Common Stock, Options or Convertible Securities are issued in connection
with any merger or consolidation in which the Company is the surviving
corporation, the amount of consideration therefor will be deemed to be the fair
market value of such portion of the net assets and business of the non-surviving
corporation as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair market value of any consideration other
than cash or securities will be determined in good faith by an investment banker
or other appropriate expert of national reputation selected by the Company and
reasonably acceptable to the holder hereof, with the costs of such appraisal to
be borne by the Company.
(vi) EXCEPTIONS TO ADJUSTMENT OF EXERCISE PRICE. No
adjustment to the Exercise Price will be made (i) upon the exercise of any
warrants, options or convertible securities issued and outstanding on the date
hereof in accordance with the terms of such securities as of such date; (ii)
upon the grant or exercise of any stock or options which may hereafter be
granted or exercised under any employee benefit plan of the Company now existing
or to be implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the non-employee members of the Board of
Directors of the Company or a majority of the members of a committee of
non-employee directors established for such purpose; or (iii) upon the issuance
of any securities in connection with that certain offering of Prepaid Common
Stock Purchase Warrants in the aggregate amount of up to $4,000,000.
(c) SUBDIVISION OR COMBINATION OF COMMON STOCK. If the
Company, at any time after the initial issuance of this Warrant, subdivides (by
any stock split, stock dividend, recapitalization, reorganization,
reclassification or otherwise) its shares of Common Stock into a greater number
of shares, then, after the date of record for effecting such subdivision, the
Exercise Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company, at any time after the initial issuance
of this Warrant, combines (by reverse stock split, recapitalization,
reorganization, reclassification or otherwise) its shares of Common Stock into a
smaller number of shares, then, after the date of record for effecting such
combination, the Exercise Price in effect immediately prior to such combination
will be proportionately increased.
(d) ADJUSTMENT IN NUMBER OF SHARES. Upon each adjustment of
the Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
(e) CONSOLIDATION, MERGER OR SALE. In case of any
consolidation of the Company with, or merger of the Company into any other
corporation, or in case of any sale or conveyance of all or substantially all of
the assets of the Company other than in connection with a plan of complete
liquidation of the Company at any time after the initial issuance of this
Warrant, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the
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<PAGE>
holder of this Warrant will have the right to acquire and receive upon exercise
of this Warrant in lieu of the shares of Common Stock immediately theretofore
acquirable upon the exercise of this Warrant, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of this Warrant had such consolidation, merger or sale
or conveyance not taken place. In any such case, the Company will make
appropriate provision to insure that the provisions of this Section 4 hereof
will thereafter be applicable as nearly as may be in relation to any shares of
stock or securities thereafter deliverable upon the exercise of this Warrant.
The Company will not effect any consolidation, merger or sale or conveyance
unless prior to the consummation thereof, the successor corporation (if other
than the Company) assumes by written instrument the obligations under this
Section 4 and the obligations to deliver to the holder of this Warrant such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, the holder may be entitled to acquire.
(f) DISTRIBUTION OF ASSETS. In case the Company shall
declare or make any distribution of its assets (or rights to acquire its assets)
to holders of Common Stock as a dividend, by way of return of capital or
otherwise (including any dividend or distribution to the Company's shareholders
of cash or shares (or rights to acquire shares) of capital stock of a
subsidiary) (a "DISTRIBUTION"), at any time after the initial issuance of this
Warrant, then the holder of this Warrant shall be entitled upon exercise of this
Warrant for the purchase of any or all of the shares of Common Stock subject
hereto, to receive the amount of such assets (or rights) which would have been
payable to the holder had such holder been the holder of such shares of Common
Stock on the record date for the determination of shareholders entitled to such
Distribution.
(g) NOTICE OF ADJUSTMENT. Upon the occurrence of any event
which requires any adjustment of the Exercise Price, then, and in each such
case, the Company shall give notice thereof to the holder of this Warrant, which
notice shall state the Exercise Price resulting from such adjustment and the
increase or decrease in the number of Warrant Shares purchasable at such price
upon exercise, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based. Such calculation shall be
certified by the chief financial officer of the Company.
(h) MINIMUM ADJUSTMENT OF EXERCISE PRICE. No adjustment of
the Exercise Price shall be made in an amount of less than 1% of the Exercise
Price in effect at the time such adjustment is otherwise required to be made,
but any such lesser adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) NO FRACTIONAL SHARES. No fractional shares of Common
Stock are to be issued upon the exercise of this Warrant, but the Company shall
pay a cash adjustment in respect of any fractional share which would otherwise
be issuable in an amount equal to the same fraction of the Market Price of a
share of Common Stock on the date of such exercise.
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<PAGE>
(j) OTHER NOTICES. In case at any time:
(i) the Company shall declare any dividend upon the
Common Stock payable in shares of stock of any class or make any other
distribution (other than dividends or distributions payable in cash out of
retained earnings consistent with the Company's past practices with respect to
declaring dividends and making distributions) to the holders of the Common
Stock;
(ii) the Company shall offer for subscription pro rata
to the holders of the Common Stock any additional shares of stock of any class
or other rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least seventy-five
(75) days prior to the record date or the date on which the Company's books are
closed in respect thereto. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii), (iii) and (iv) above.
(k) CERTAIN EVENTS. If, at any time after the initial
issuance of this Warrant, any event occurs of the type contemplated by the
adjustment provisions of this Section 4 but not expressly provided for by such
provisions, the Company will give notice of such event as provided in Section
4(g) hereof, and the Company's Board of Directors will make an appropriate
adjustment in the Exercise Price and the number of shares of Common Stock
acquirable upon exercise of this Warrant so that the rights of the holder shall
be neither enhanced nor diminished by such event.
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(l) CERTAIN DEFINITIONS.
(i) "COMMON STOCK DEEMED OUTSTANDING" shall mean the
number of shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) in the case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
(ii) "MARKET PRICE," as of any date, (i) means the
average of the closing bid prices for the shares of Common Stock
as reported on the Nasdaq SmallCap Market by Bloomberg Financial Markets
("BLOOMBERG") for the five (5) consecutive trading days immediately preceding
such date, or (ii) if the Nasdaq SmallCap Market is not the principal trading
market for the shares of Common Stock, the average of the last bid prices
reported by Bloomberg on the principal trading market for the Common Stock
during the same period, or, if there is no bid price for such period, the last
sales price reported by Bloomberg for such period, or (iii) if the foregoing do
not apply, the last closing bid price of such security in the over-the-counter
market on the pink sheets or bulletin board for such security as reported by
Bloomberg, or if no closing bid price is so reported for such security, the last
closing trade price of such security as reported by Bloomberg, or (iv) if market
value cannot be calculated as of such date on any of the foregoing bases, the
Market Price shall be the average fair market value as reasonably determined by
an investment banking firm selected by the Company and reasonably acceptable to
the holder, with the costs of the appraisal to be borne by the Company. The
manner of determining the Market Price of the Common Stock set forth in the
foregoing definition shall apply with respect to any other security in respect
of which a determination as to market value must be made hereunder.
(iii) "COMMON STOCK," for purposes of this Section 4,
includes the Common Stock and any additional class of stock of the Company
having no preference as to dividends or distributions on liquidation, provided
that the shares purchasable pursuant to this Warrant shall include only Common
Stock, par value $.01 per share, in respect of which this Warrant is
exercisable, or shares resulting from any subdivision or combination of such
Common Stock, or in the case of any reorganization, reclassification,
consolidation, merger, or sale of the character referred to in Section 4(e)
hereof, the stock or other securities or property provided for in such Section.
5. ISSUE TAX. The issuance of certificates for Warrant Shares upon
the exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that 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 any
certificate in a name other than the holder of this Warrant.
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<PAGE>
6. NO RIGHTS OR LIABILITIES AS A SHAREHOLDER. This Warrant shall
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company. No provision of this Warrant, in the absence of
affirmative action by the holder hereof to purchase Warrant Shares, and no mere
enumeration herein of the rights or privileges of the holder hereof, shall give
rise to any liability of such holder for the Exercise Price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFER, EXCHANGE, REDEMPTION AND REPLACEMENT OF WARRANT.
(a) RESTRICTION ON TRANSFER. This Warrant and the rights
granted to the holder hereof are transferable, in whole or in part, upon
surrender of this Warrant, together with a properly executed assignment in the
form attached hereto, at the office or agency of the Company referred to in
Section 7(e) below, provided, however, that any transfer or assignment shall be
subject to the conditions set forth in Sections 7(f) and (g) hereof. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary.
(b) WARRANT EXCHANGEABLE FOR DIFFERENT DENOMINATIONS. This
Warrant is exchangeable, upon the surrender hereof by the holder hereof at the
office or agency of the Company referred to in Section 7(e) below, for new
Warrants of like tenor of different denominations representing in the aggregate
the right to purchase the number of shares of Common Stock which may be
purchased hereunder, each of such new Warrants to represent the right to
purchase such number of shares as shall be designated by the holder hereof at
the time of such surrender.
(c) REPLACEMENT OF WARRANT. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant and, in the case of any such loss, theft, or
destruction, upon delivery of an indemnity agreement reasonably satisfactory in
form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) CANCELLATION; PAYMENT OF EXPENSES. Upon the surrender of
this Warrant in connection with any transfer, exchange, or replacement as
provided in this Section 7, this Warrant shall be promptly canceled by the
Company. The Company shall pay all taxes (other than securities transfer taxes)
and all other expenses (other than legal expenses, if any, incurred by the
Holder or transferees) and charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 7. The Company
shall indemnify and reimburse the holder of this Warrant for all costs and
expenses (including legal fees) incurred by such holder in connection with the
enforcement of its rights hereunder.
(e) WARRANT REGISTER. The Company shall maintain, at its
principal executive offices (or such other office or agency of the Company as it
may designate by notice to the holder hereof), a register for this Warrant, in
which the Company shall record the name and address of the
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person in whose name this Warrant has been issued, as well as the name and
address of each transferee and each prior owner of this Warrant.
(f) EXERCISE OR TRANSFER WITHOUT REGISTRATION. If, at the
time of the surrender of this Warrant in connection with any exercise, transfer,
or exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws (the cost of which shall be borne by the Company if
the Company's counsel renders such opinion and up to $250 of such cost shall be
borne by the Company if the holder's counsel renders such opinion), (ii) that
the holder or transferee execute and deliver to the Company an investment letter
in form and substance acceptable to the Company and (iii) that the transferee be
an "ACCREDITED INVESTOR" as defined in Rule 501(a) promulgated under the
Securities Act. With respect to any opinion to be provided pursuant to clause
(i) above, the holder shall be entitled to request that the Company's counsel
render such opinion and the Company shall cause its counsel to render such
opinion if requested by the holder.
(g) ADDITIONAL RESTRICTIONS ON EXERCISE OR TRANSFER.
Notwithstanding anything contained herein to the contrary, unless the holder
hereof delivers a waiver in accordance with the last sentence of this Section
7(g), this Warrant shall not be exercisable by a holder hereof to the extent
(but only to the extent) that, if exercisable by such holder, such holder would
beneficially own in excess of 4.99% of the outstanding shares of Common Stock.
To the extent the above limitation applies, the determination of whether and to
what extent this Warrant shall be exercisable vis-a-vis other securities owned
by such holder shall be in the sole discretion of the holder and submission of
this Warrant for full or partial exercise shall be deemed to be the holder's
determination of whether and the extent to which this Warrant is exercisable, in
each case subject to such aggregate percentage limitation. No prior inability to
exercise the Warrant pursuant to this Section shall have any effect on the
applicability of the provisions of this Section with respect to any subsequent
determination of exerciseability. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder. Except as provided in the immediately succeeding sentence, the
restrictions contained in this Section 7(g) may not be amended without the
consent of the holder of this Warrant and the holders of a majority of the
Company's then outstanding Common Stock. Notwithstanding the foregoing, the
holder hereof may waive the restrictions set forth in this Section 7(g) by
written notice to the Company upon not less than sixty-one (61) days prior
notice (with such waiver taking effect only upon the expiration of such
sixty-one (61) day notice period).
8. REGISTRATION RIGHTS. The initial holder of this Warrant (and
certain assignees thereof) is entitled to the benefit of such registration
rights in respect of the Warrant Shares as are set forth in the Registration
Rights Agreement, dated as of the date hereof, by and between the
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Company, the initial holder hereof and the other signatories thereto, including
the right to assign such rights to certain assignees, as set forth therein.
9. NOTICES. Any notices required or permitted to be given under the
terms of this Warrant shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
SMARTSERV ONLINE, INC.
One Station Place
Stamford, CT 06902
Telecopy: (203) 353-5962
Attention: Chairman of the Board
With a copy to:
Parker Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Telecopy: (212) 704-6288
Attention: Michael J. Shef, Esquire
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. GOVERNING LAW; JURISDICTION. This Warrant shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in the State of Delaware. The Company
irrevocably consents to the jurisdiction of the United States federal courts and
the state courts located in the City of New York in the State of New York in any
suit or proceeding based on or arising under this Warrant and irrevocably agrees
that all claims in respect of such suit or proceeding may be determined in such
courts. The Company irrevocably waives the defense of an inconvenient forum to
the maintenance of such suit or proceeding. The Company agrees that service of
process upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the holder's right to serve process in
any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
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<PAGE>
11. MISCELLANEOUS.
(a) AMENDMENTS. This Warrant and any provision hereof may
only be amended by an instrument in writing signed by the Company and the holder
hereof.
(b) DESCRIPTIVE HEADINGS. The descriptive headings of the
several Sections of this Warrant are inserted for purposes of reference only,
and shall not affect the meaning or construction of any of the provisions
hereof.
(c) CASHLESS EXERCISE. Notwithstanding anything to the
contrary contained in this Warrant, if the resale of the Warrant Shares by the
holder is not then registered pursuant to an effective registration statement
under the Securities Act, this Warrant may be exercised at any time after the
first anniversary of the date hereof until the end of the Exercise Period by
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"CASHLESS EXERCISE"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
SMARTSERV ONLINE, INC.
By: ________________________
Name:___________________
Title:____________________
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<PAGE>
FORM OF EXERCISE AGREEMENT
(TO BE EXECUTED BY THE HOLDER IN ORDER TO EXERCISE THE WARRANT)
The undersigned hereby irrevocably exercises the right to purchase
_____________ of the shares of common stock of SmartServ Online, Inc., a
Delaware corporation (the "COMPANY"), evidenced by the attached Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
i. The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable for the immediate resale of such shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS
UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN
AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
ii. The undersigned requests that stock certificates for such shares
be issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:_________________ ___________________________________
Signature of Holder
___________________________________
Name of Holder (Print)
Address:
___________________________________
___________________________________
___________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers all the rights of the undersigned under the within Warrant, with
respect to the number of shares of Common Stock covered thereby set forth
hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _____________________, ____,
In the presence of
_____________________
Name: ____________________________
Signature: ________________________________
Title of Signing Officer or Agent (if any):
__________________________________
Address: __________________________________
__________________________________
Note: The above signature should
correspond exactly with the name
on the face of the within Warrant.
CONSULTING AGREEMENT
This Consulting Agreement (the "AGREEMENT") is entered into as of this
29th day of September, 1997 by and between SMARTSERV ONLINE, INC., a corporation
organized under the laws of the State of Delaware with headquarters located at
One Station Place, Stamford, Connecticut 06902 (the "COMPANY"), and Mr. Bruno
Guazzoni (the "CONSULTANT").
W I T N E S S E T H:
WHEREAS, the Consultant has provided certain financial and investment
banking advisory services (the "SERVICES") to the Company in connection with the
sale by the Company, on even date herewith, of $4,000,000 of Prepaid Common
Stock Purchase Warrants (the "OFFERING") and desires to continue to provide such
Services to the Company, subject to the terms and conditions hereinafter set
forth; and
WHEREAS, the Company has determined that the Services of the Consultant
have been and will continue to be of value to the Company and desires to engage
the Consultant in accordance with the terms hereof.
NOW, THEREFORE, with the foregoing deemed incorporated herein, in
consideration of the foregoing premises and the mutual promises, covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Consultant, intending to be legally bound hereby, agree as follows:
1. ENGAGEMENT. During the Term of this Agreement (as hereinafter
defined), the Company agrees to engage the Consultant to perform the Services
and the Consultant agrees to perform the Services for the Company, subject to
the terms and conditions hereinafter set forth. In connection with the
performance of the Consultant's duties hereunder, the Consultant agrees to
devote all necessary time, energy and skill to the provision of the Services and
to generally make available to the Company his expertise and knowledge at such
times as may be mutually agreed upon by the parties; PROVIDED, HOWEVER, that in
no event shall the Consultant be required to devote a specific number of hours
or days during the Term hereof to the provision of the Services hereunder and,
PROVIDED, FURTHER, that nothing contained herein shall prohibit the Consultant
from engaging in any other activities or from providing advisory services of a
nature similar to the Services hereunder to any other person or entity.
2. TERM. The term of this Agreement shall commence on the date
hereof and shall continue for a period of five (5) years (the "TERM").
<PAGE>
3. COMPENSATION. For Services previously rendered in connection
with the Offering and for Services to be rendered hereunder, the Company agrees
to issue and deliver to the Consultant as of the date hereof a warrant (the
"WARRANT"), in the form attached hereto as EXHIBIT A, to acquire 3,555,555
shares of the Company's common stock, par value $.01 per share (the "COMMON
STOCK"), on the terms and subject to the conditions set forth therein. The
Warrant shall be immediately exercisable and shall not be subject to vesting or
forfeiture. The Company agrees to provide the Consultant with certain
registration rights with respect to the shares of Common Stock issuable upon
exercise of or otherwise pursuant to the Warrant in accordance with the
provisions of that certain Registration Rights Agreement in the form attached
hereto as EXHIBIT B.
4. REIMBURSEMENT OF EXPENSES. The Consultant shall be reimbursed
for all reasonable and necessary expenses incurred by him in the performance of
his duties under this Agreement upon presentation to the Company of appropriate
vouchers or other documentation.
5. TERMINATION. This Agreement shall terminate automatically upon
the expiration of its Term. No termination of this Agreement shall affect
Consultant's rights with respect to the Warrant and the shares of Common Stock
issuable upon exercise thereof.
6. INDEPENDENT CONTRACTOR STATUS. The relationship of the
Consultant to the Company shall be that of an independent contractor, and not
that of an agent or employee of the Company. The Consultant agrees that he shall
be solely responsible for paying any and all federal, state and local income
taxes, as well as any Social Security tax, which may become due and payable as a
result of the compensation to be received by the Consultant from the Company for
performing the Services hereunder. No federal, state or local income taxes, or
any other payroll tax of any kind, shall be withheld or paid by the Company on
behalf of the Consultant. The Consultant agrees to indemnify and hold harmless
the Company and its affiliates from any loss, liability, damage or expense which
it or they may suffer or incur by reason of the Consultant's failure to pay any
taxes which may become payable as a result of the compensation to be received by
the Consultant from the Company for performing the Services hereunder.
7. INDEMNIFICATION. The Company shall indemnify the Consultant and
shall save and hold the Consultant harmless from and against any and all
damages, losses, obligations, deficiencies, costs and expenses, including,
without limitation, reasonable attorneys' fees and other costs and expenses,
incurred by the Consultant in connection with any proceeding to which the
Consultant is a party by reason of his engagement with the Company pursuant
hereto and/or the performance of his duties hereunder to the extent and in a
manner consistent with the Company's policies for the indemnification of its
officers and directors.
8. COMPANY PROPERTY. During the Term of this Agreement and
thereafter, all materials, know-how, inventions, trade secrets, data and other
proprietary information of any kind furnished by the Company to the Consultant
are and shall remain the sole and confidential property of the Company. In the
event that the Company requests the return of such materials at any time during
the Term of this Agreement or following its termination, the Consultant shall
immediately deliver
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<PAGE>
such material to the Company.
9. CONFIDENTIALITY. All disclosures of trade secrets, inventions,
know-how, financial information or other confidential or proprietary information
made by the Company to the Consultant shall be received and maintained in
confidence by the Consultant during the Term of this Agreement and thereafter
and the Consultant shall treat all such trade secrets, inventions, know-how,
financial information or other confidential or proprietary information as
confidential except (a) as to the persons directly responsible for the effective
operation of the Company; (b) as to the professional advisers of the Company;
(c) as to such disclosures to customers of the Company as are necessary for the
effective carrying on of business by the Company; (d) as to such information as
is required by law to be disclosed by the Consultant or by the Company; and (e)
as to such information as is or may fall within the public domain.
10. EQUITABLE RELIEF. The Consultant recognizes that the remedy at
law for any breach or threatened breach by him of his covenants and agreements
set forth in Sections 8 and 9 hereof would be inadequate and that any such
breach or threatened breach would cause such immediate and permanent damage as
would be irreparable and the exact amount of which would be impossible to
ascertain. Accordingly, the Consultant agrees that in the event of any breach or
threatened breach of any such covenant or agreement, in addition to any other
legal and equitable remedies which may be available to the Company, the Company
may specifically enforce the covenants and restrictions pertaining to his
obligations set forth in Sections 8 and 9 hereof and may obtain temporary and/or
permanent injunctive relief without the necessity of proving actual damage by
reason of such breach or threatened breach thereof and, to the extent
permissible under the applicable statutes and rules of procedure, a temporary
injunction may be granted immediately upon the commencement of any such suit and
without notice. The covenants and restrictions pertaining to the Consultant's
obligations set forth in Sections 8 and 9 hereof shall survive the expiration or
sooner termination of this Agreement in accordance with the terms hereof and
shall remain in full force and effect.
11. ENTIRE AGREEMENT. This Agreement, the Warrant and the
Registration Rights Agreement constitute the entire understanding between the
parties with respect to the subject matter contained herein and supersede any
prior understandings and agreements between them respecting such subject matter.
12. HEADINGS. The headings describing the provisions of this
Agreement are for convenience of reference only and shall not affect its
interpretation.
13. SEVERABILITY. If any provision of this Agreement is held
illegal, invalid or unenforceable, such illegality, invalidity, or
unenforceability shall not affect any other provision hereof. Such provision and
the remainder of this Agreement shall, in such circumstances, be modified to the
extent necessary to render enforceable the remaining provisions hereof.
14. NOTICES. All notices shall be in writing and shall be deemed to
have been given if presented personally, sent by recognized national overnight
courier, or sent by certified or registered
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<PAGE>
mail, postage prepaid, return receipt requested, to the following addressees:
If to the Company:
SmartServ Online, Inc.
One Station Place
Stamford, CT 06902
Telecopy: (203) 353-5962
Attention: Chairman
With a copy to:
Parkin Chapin Flattau & Klimpl, LLP
1211 Avenue of the Americas
New York, NY 10036
Telecopy: (212) 704-6288
Attention: Michael J. Shef, Esquire
If to the Consultant, to such
address as the Consultant shall
provide to the Company pursuant to
the provisions hereof.
Notice of any change in such addresses shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
15. COUNTERPARTS. This Agreement may be executed in counterparts,
all of which taken together shall constitute one and the same instrument.
16. WAIVER. The failure of either party to insist upon strict
performance of any of the terms or conditions of this Agreement shall not
constitute a waiver of any of its rights hereunder.
17. SUCCESSORS AND ASSIGNS. This Agreement binds, inures to the
benefit of, and is enforceable by the Consultant and his heirs and personal
representatives, and the Company and its successors and permitted assigns, and
does not confer any rights on any other persons or entities.
18. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of Delaware.
19. AMENDMENTS. This Agreement may be amended and supplemented only
by a written instrument duly executed by both parties.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SMARTSERV ONLINE, INC.
By:_________________________
Name:
Title:
____________________________
Bruno Guazzoni
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