CONVERTIBLE
SECURED U.S. $20,000,000 PROMISSORY NOTE
DATED: SEPTEMBER 28, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. Definitions...............................................................................1
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2. Loans; Payments; Prepayment; and Status of Obligations....................................4
------------------------------------------------------
3. Grant of Security Interest................................................................5
--------------------------
4. Events of Default.........................................................................6
-----------------
5. Rights and Remedies of HP upon Default....................................................7
--------------------------------------
6. Conversion................................................................................8
----------
7. Conversion Adjustments...................................................................10
----------------------
8. Representations and Warranties...........................................................13
------------------------------
9. Covenants Relating to Collateral.........................................................13
--------------------------------
10. Affirmative Covenants....................................................................14
---------------------
11. Negative Covenants.......................................................................15
------------------
12. Successors and Assigns...................................................................15
----------------------
13. Notices..................................................................................15
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14. Usury....................................................................................16
-----
15. Governing Law............................................................................16
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</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
16. Waiver of Jury Trial.....................................................................16
--------------------
17. Waivers..................................................................................16
-------
18. Waivers and Amendments...................................................................16
----------------------
19. Remedies Cumulative......................................................................16
-------------------
20. Expenses.................................................................................16
--------
21. No Offset................................................................................16
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</TABLE>
SCHEDULE A Transactions on Note
SCHEDULE B Conditions to Funding
SCHEDULE C Collateral
SCHEDULE D Drawdown Schedule
ATTACHMENT 1 Operating Plan and Projections as of August 16, 2000
ii
<PAGE>
THIS NOTE AND THE SECURITIES REPRESENTED HEREUNDER HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED WITHOUT A REGISTRATION STATEMENT OR AN OPINION OF
COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
CONVERTIBLE SECURED
U.S. $20,000,000 PROMISSORY NOTE
Dated: September 28, 2000
FOR VALUE RECEIVED, SmartServ Online, Inc., a Delaware corporation,
(the "Company"), promises to pay to Hewlett-Packard Company, a Delaware
corporation, and its successors and assigns ("HP"), in lawful money of the
United States of America and in immediately available funds, the aggregate
unpaid principal amount of all advances (each such advance being a "Loan") made
hereunder as set forth on Schedule A attached hereto and incorporated herein by
reference, as the same may from time to time be modified or amended, together
with accrued and unpaid interest thereon, each due and payable on the dates and
in the manner set forth in this Note. The Company hereby authorizes HP to list
on Schedule A all advances made by HP hereunder, which notations shall, in the
absence of manifest error, be conclusive; provided, however, that the failure to
make a notation or the inaccuracy of the notation shall not limit or otherwise
affect the obligations of the Company under this Note. Subject to the provisions
of Sections 2, 5 and 6 below, all outstanding principal and unpaid interest
shall be due and payable on the Maturity Date (as defined below). This Note has
been issued pursuant to the terms of a Note Purchase Agreement (as defined
below).
The following is a statement of the rights of HP and the conditions to
which this Note is subject, and to which HP agrees:
1. Definitions. As used in this Note, the following capitalized terms have the
following meanings:
"Capital Stock" shall mean the capital stock of the Company.
"Capital Stock Equivalents" shall have the meaning given to that term
in Section 7(a).
"Certificate" shall mean the Certificate of Incorporation of the
Company as the same may be amended or restated from time to time.
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<PAGE>
"Change of Control" shall mean, with respect to the Company on or after
the date hereof, (i) that any change in the composition of the shareholders of
the Company as of the date hereof shall occur which would result in any person
or entity (or group of persons or entities acting in concert), acquiring in
excess of fifty percent (50 %) of the votes attaching in the aggregate to all
classes of Capital Stock of the Company which carry voting rights in all
circumstances, or (ii) that any person or entity (or group of persons or
entities acting in concert) shall otherwise acquire the power to direct the
management or affairs of the Company by obtaining proxies, entering into voting
agreements or trusts, acquiring securities or otherwise.
"Collateral" shall have the meaning given to that term in Section 3.
"Common Stock" shall mean the Common Stock of the Company, $.01 par
value.
"Company" shall have the meaning set forth in the introductory
paragraph.
"Conversion Price" shall have the meaning given to that term in Section
6(a).
"Effective Date" shall mean September 28, 2000.
"Event of Default" shall have the meaning given to that term in Section
4.
"Exchange Event" shall have the meaning given to that term in Section
7(d).
"HP" shall have the meaning set forth in the introductory paragraph.
"Loan" shall have the meaning set forth in the introductory paragraph.
"Maturity Date" shall mean September 28, 2003.
"Note" shall mean this Convertible Secured U.S. $20,000,000 Promissory
Note.
"Note Purchase Agreement" shall mean that Note Purchase Agreement,
dated as of this date, between the Company and HP.
2
<PAGE>
"Obligations" shall mean and include all loans, advances, debts,
liabilities and obligations, howsoever arising, owed by the Company to HP of
every kind and description (whether or not evidenced by any note or instrument
and whether or not for the payment of money), now existing or hereafter arising
under or pursuant to the Transaction Documents, including, all Loans, interest,
fees, charges, expenses, attorneys' fees and costs chargeable to and payable by
the Company hereunder and thereunder, in each case, whether direct or indirect,
absolute or contingent, due or to become due, and whether or not arising after
the commencement of a proceeding under Title 11 of the United States Code (11
U.S.C., Section 101 et seq.), as amended from time to time (including
post-petition interest) and whether or not allowed or allowable as a claim in
any such proceeding.
"Other Transaction Documents" shall mean all Transaction Documents
other than this Note.
"Permitted Liens" shall mean the following:
(1) any liens for taxes, fees, assessments, or other
governmental charges or levies, either not delinquent
or being contested in good faith by appropriate
proceedings;
(2) liens (A) upon or in any equipment acquired or held
by the Company to secure the purchase price of such
equipment or indebtedness incurred solely or the
purpose of financing the acquisition of such
equipment, or (B) existing on such equipment at the
time of its acquisition, provided that the lien is
confined solely to the property so acquired and
improvements thereon, accessions thereto and the
proceeds thereof;
(3) liens on equipment leased by the Company pursuant to
a capital lease in the ordinary course of business
(including proceeds thereof and accessions thereto)
incurred solely for the purpose of financing the
lease of such equipment;
(4) liens granted to secure any indebtedness senior to
that of HP;
(5) liens existing as of the date hereof disclosed in
writing to, and approved by, HP;
(6) liens on assets of the Company other than the
Collateral granted by the Company to secure
indebtedness of the Company in an amount not to
exceed $5,000,000 in the aggregate; and
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<PAGE>
(7) liens associated with licensing rights granted by the
Company to Data Transmission Network Corporation
pursuant to a Software License and Service Agreement
dated April 23, 1998, as the same has been and may be
amended.
"Registration Rights Agreement" shall mean that certain Registration
Rights Agreement dated September 28, 2000, by and between the Company and HP.
"Senior Lienholder" shall have the meaning set forth in Section 8(b).
"Transaction Documents" shall mean the Note Purchase Agreement, this
Note, the Registration Rights Agreement and the UCC-1 financing statements and
any other documents executed in connection with this Note.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of California, as amended from time to time. Unless otherwise defined herein,
all terms defined in the UCC shall have the respective meanings given to those
terms in the UCC.
2. Loans; Payments; Prepayment; and Status of Obligations.
------------------------------------------------------
(a) Loans. This Note shall evidence the Company's obligations to
repay the Loans outstanding hereunder. The Company may request
Loans hereunder from time to time until the first anniversary
of this Note, in an aggregate principal amount not to exceed
$20,000,000; provided, that the requirements set forth in
Schedule B are met, as determined by HP in its sole
discretion. The Company shall make such requests in amounts of
at least $500,000 each, and not more often than once each
thirty (30) calendar days, by submitting a written request to
the HP not less than five (5) business days prior to the
desired funding date.
(b) Principal and Interest Payments. All principal, unpaid
interest and other amounts due shall be payable on the
Maturity Date. Interest shall accrue on the Loans from the
date of this Note at a rate per annum equal to eleven percent
(11%). Upon the occurrence and during the continuance of an
Event of Default interest shall accrue on the unpaid balance
at a rate per annum equal to twelve and one half percent
(12.5%). Interest shall be payable quarterly in arrears on the
first business day after the end of any quarter, commencing on
October 2, 2000, and shall accrue on all outstanding interest
that has not yet been paid when due. Unpaid accrued interest
shall be added to the principal balance hereunder on a
quarterly basis. Interest shall be computed on
4
<PAGE>
the basis of the actual number of days elapsed and a year of
360 days.
(c) Payments. The Company will make all payments due under this
Note by check on the date such payments are due to the
following address:
Hewlett-Packard Company
3585 Atlanta Avenue
Hapeville, GA 30354
Attn: REI/Lockbox 101511
or in any other manner that HP may from time to time direct.
(d) Prepayment. The Company may prepay this Note upon the sale of
the Company or substantially all of its assets; provided, that
the Company gives HP at least thirty (30) days' prior written
notice of such prepayment. The Company's option to prepay is
subject to HP's right to convert as provided below,
immediately and at any time prior to the expiration of such
thirty-day notice period. Prepayments in part shall be applied
first to reimbursable fees and expenses, second to outstanding
interest, and third to principal.
(e) Right to Convert. HP shall have the right at any time to
convert the outstanding principal and unpaid accrued interest
under this Note into shares of the Company's Capital Stock
pursuant to Section 6(a) below.
(f) Prepayment at the Option of HP. In the event that the Company
enters into an agreement approved by its Board of Directors,
for:
(i) the sale of all or substantially all of its assets or
intellectual property; or
(ii) the acquisition of it by another entity or entities
which after such acquisition controls more than fifty
percent (50%) or more of the Company's voting shares;
then the Company shall give HP at least forty-five (45) days
prior written notice of such event, and at HP's option, HP may
either (A) exercise its conversion rights pursuant to Section
6(a) below, or (B) immediately declare all amounts due and
owing under this Note due and payable upon written notice of
demand for prepayment given by HP to the Company within ninety
(90) days after the date of notice but in no event prior to
the consummation of the transaction; provided, however, that
if such agreement is not consummated, HP may not take any such
action.
5
<PAGE>
3. Grant of Security Interest. To secure the Obligations, the Company hereby
pledges and assigns to HP and grants to HP a security interest in all right,
title, and interests of the Company in and to the property described in Schedule
C hereto (collectively and severally, the "Collateral"), which Schedule C is
incorporated herein by this reference.
4. Events of Default. The occurrence of any of the following shall constitute an
"Event of Default" under this Note:
(a) Failure to Pay. The Company fails to pay any principal,
interest or any fees or expenses when due under this Note or
the Other Transaction Documents, and such failure shall
continue for a period of five (5) business days after written
notice to the Company by HP; or
(b) Covenant Default. The Company shall default in the performance
of any of its obligations hereunder or under any of the Other
Transactions Documents and such default shall continue
unremedied for a period of fifteen (15) business days after
written notice to the Company by HP; or
(c) Representations and Warranties. Any representation, warranty
or certification made herein or in the Other Transaction
Documents shall prove to have been false or misleading in any
material respect when made; or
(d) Voluntary Bankruptcy or Insolvency Proceedings. The Company
shall (i) apply for or consent to the appointment of a
receiver, trustee, liquidator or custodian of itself or of a
substantial part of its property, (ii) be unable, or admit in
writing its inability, to pay its debts generally as they
mature, (iii) make a general assignment for the benefit of its
or any of its creditors, (iv) be dissolved or liquidated in
full or in part, (v) commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or
consent to any relief or to the appointment of or taking
possession of its property by any official in an involuntary
case or other proceeding commenced against it, or (vi) take
any action for the purpose of effecting any of the foregoing;
or
(e) Involuntary Bankruptcy or Insolvency Proceedings. Proceedings
for the appointment of a receiver, trustee, liquidator or
custodian of the Company or of all or a substantial part of
its property, or an involuntary
6
<PAGE>
case or other proceedings seeking liquidation, reorganization
or other relief with respect to the Company or its debts under
any bankruptcy, insolvency or other similar law now or
hereafter in effect shall be commenced and an order for relief
entered or such proceeding shall not be dismissed or
discharged within sixty (60) days of commencement; or
(f) Cross-Default. The Company shall default under any other
material agreement, note, indenture, instrument or other
contract pursuant to which the Company has borrowed money and
such default shall result in the holder having accelerated the
maturity of the outstanding indebtedness under such other
agreements and, if the holder or other party to such an
agreement, note, indenture, instrument or other contract shall
be an entity other than HP or an affiliate of HP, such
indebtedness shall exceed $500,000; or the Company shall
default under any material equipment lease agreement, which
shall result in the lessor having terminated the lease
arrangement; or
(g) Collateral. A material portion of the Collateral is lost,
stolen, substantially damaged or destroyed and such material
portion of the Collateral is not covered in full by a policy
or policies of insurance as required by Section 10(d), or sold
or encumbered, or any levy, seizure, or attachment is made
upon the Collateral; or
5. Rights and Remedies of HP upon Default. Upon the occurrence and during the
continuance of any Event of Default under Sections 4 (a), (b), (c), (f), (g) or
(h) above, HP, by written notice to the Company, may cease making Loans
hereunder, and may declare all principal, accrued and unpaid interest, and any
other amounts payable under the Transaction Documents, to be immediately due and
payable without presentment, demand, protest or any other notice of any kind,
all of which are waived by the Company. Upon the occurrence and during the
continuance of any Event of Default described in Sections 4(d) or (e), HP may
immediately and without notice, cease making Loans hereunder, and all
outstanding amounts payable by the Company under the Transaction Documents shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are waived by the Company.
In addition to any rights set forth in this Note, upon the occurrence
and continuance of any Event of Default, HP shall have the rights of a secured
creditor under the UCC and applicable federal law. Without limiting the
generality of the foregoing, HP may sell, resell, lease, assign, license,
sublicense, transfer or otherwise dispose of any or all of the Collateral in its
then condition or following any commercially reasonable preparation or
processing at public or private sale, by one or more contracts, in one or more
parcels, at the same or different times, or for cash or
7
<PAGE>
credit, all as HP deems reasonably advisable. HP shall have the right upon any
such public sale, and, to the extent permitted by law, upon any such private
sale, to purchase the whole or any part of the Collateral so sold. The Company
hereby agrees that the sending of notice by ordinary mail, postage prepaid, to
the address of the Company set forth herein, of the place and time of any public
sale or of the time after which any private sale or other intended disposition
is to be made, shall be deemed reasonable notice thereof if such notice is sent
ten days prior to the date of such sale or other disposition or the date on or
after which such sale or other disposition may occur.
6. Conversion
(a) Optional Conversion by HP. HP shall have the right, prior to
the Maturity Date, by providing written notice to the Company,
to convert all, or some, of the outstanding principal and
unpaid accrued interest under this Note into shares of the
Common Stock at a price equal to the lower of $49.50 per share
or the average of the closing sale price of the Company's
Common Stock over the twenty (20) trading days prior to the
Effective Date, subject to adjustment as provided in Section 7
below (the "Conversion Price").
(b) Mandatory Conversion by HP. Subject to the terms hereof, so
long as no Event of Default shall have occurred and be
continuing, the Company shall have the right, at any time
after six (6) months after the initial draw-down of funds by
Company under the Note, by providing written notice to HP, to
require HP to convert some or all of the outstanding principal
and unpaid accrued interest under this Note into shares of
Common Stock at the Conversion Price, subject to adjustment as
provided in Section 7 below, as follows:
(i) If the closing sale price of the Company's Common Stock
exceeds 150% of the Conversion Price for at least twenty (20)
trading days during the thirty (30) consecutive trading days
immediately prior to such notice of conversion, the Company
may require HP to convert fifty percent (50%) of the
outstanding principal and unpaid interest under this Note; and
(ii) If the closing sale price of the Company's Common Stock
exceeds 200% of the Conversion Price for at least twenty (20)
trading days during the thirty (30) consecutive trading days
immediately prior to such notice of conversion, then the
Company may require HP to convert all the outstanding
principal and unpaid interest under this Note.
(iii) Notwithstanding the foregoing, the Company may require
8
<PAGE>
conversion pursuant to this Section 6(b) only to the extent
that the number of shares of Common Stock issuable to HP upon
such conversion does not exceed fifteen percent (15%) of the
average daily number of shares of Common Stock traded during
the thirty (30) -day period immediately preceding the date of
such conversion.
(c) Mechanics and Effect of Conversion. Promptly after the
conversion of this Note, HP shall surrender this Note,
endorsed, at the principal office of the Company. As soon as
possible (or as otherwise noted in the provisions above) and
after HP has executed documentation necessary to satisfy all
applicable federal and state securities laws exemptions, the
Company shall issue and deliver to HP at its principal office
a certificate or, if HP so requests, certificates for the
number of shares of Capital Stock into which this Note is
convertible to which HP shall be entitled upon conversion
(bearing such legends as are required by applicable federal
and state securities laws in the opinion of counsel to the
Company). All such shares shall be issued and fully paid and
non-assessable, and free and clear of all liens. If HP
converts less than all of the amounts payable under this Note,
the Company shall issue a replacement note or notes for the
remaining balance containing terms substantially identical to
this Note.
(d) Registration. Common Stock received by HP need not be
registered under federal and state securities laws until
thirty (30) days after issuance of such Common Stock to HP, by
which time the Company covenants to have registered such
Common Stock or have otherwise provided HP with Common Stock
registered under federal securities laws and registered,
qualified or exempt under applicable state or blue sky laws.
The Company shall also do any and all other acts and things
which may be reasonable or advisable to enable HP to
consummate the disposition in such states and the District of
Columbia. Upon the effective date of any registration, the
Company shall, upon written request from HP, deliver to HP an
opinion of counsel , in form and substance satisfactory to HP,
stating, among other things, that the Common Stock so
registered is subject to an effective registration statement
and is freely tradable subject to compliance by HP or its
broker with any prospectus delivery requirements. HP's
registration rights in connection with the shares of Common
Stock into which this Note may be converted are further
described in the Registration Rights Agreement.
(e) Right to Convert. HP's right to convert shall terminate upon
the sale by the Company of substantially all of its assets or
the merger or
9
<PAGE>
consolidation of the Company with another person or entity in
which the Company is not the surviving entity (except for any
transaction done solely for the purpose of changing the
Company's state of incorporation), provided in either case
that HP is given at least 30 business days' prior written
notice of such event so that HP may exercise its conversion
rights as provided .
7. Conversion Adjustments.
(a) Adjustments for Stock Splits and Subdivisions. In the event
the Company, at any time from time to time after the date of
issuance hereof, while this Note is outstanding, (i) fixes a
record date to effect a split or subdivision of the Capital
Stock into which this Note is convertible, or (ii) determines
that the holders of such class or series of shares is entitled
to receive a dividend or other distribution payable in
additional shares of such class or series or other securities
or rights convertible into, or entitling the holder to receive
directly or indirectly, additional shares of such class or
series other than options to purchase the Capital Stock
("Capital Stock Equivalents") without payment of any
consideration by such holder for the additional shares of such
class or series or the Capital Stock Equivalents (including,
if convertible preferred stock or other convertible securities
have been issued, the additional shares of the Capital Stock
issuable upon conversion thereof), then, as of such record
date (or the date of such dividend distribution, split or
subdivision if no record date is fixed), the Conversion Price
shall be appropriately decreased and the number of shares of
the Capital Stock issuable upon conversion of this Note shall
be increased in proportion to such increase of outstanding
shares.
(b) Adjustments for Reverse Stock Splits. If, at any time after
the effective date, the number of outstanding shares of the
Capital Stock into which this Note is convertible is decreased
by a combination of the outstanding shares of such class or
series, then, following the record date of such combination,
the Conversion Price shall be appropriately increased and the
number of shares of the Capital Stock issuable on conversion
shall be appropriately decreased in proportion to such
decrease in outstanding shares.
(c) Merger, Sale of Assets. If at any time while the Loans are
outstanding there shall be (i) a reorganization (other than a
combination, reclassification, exchange or subdivision of
shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another entity in
which the Company is not the surviving entity, or a
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reverse triangular merger in which the Company is the
surviving entity but the shares of the Capital Stock
outstanding immediately prior to the merger are converted by
virtue of the merger into other property, whether in the form
of securities, cash or otherwise, or (iii) a sale or transfer
of the Company's properties and assets as, or substantially
as, an entirety to any other person or persons (which person
or persons shall, for purposes of this Note, be considered a
successor to the Company even if for other purposes such
person or persons would not be deemed a successor) (each, an
"Exchange Event"), then, as a part of such Exchange Event,
lawful provision shall be made so that the successor company
assumes the terms and obligations of this Note in a manner
that provides that HP shall thereafter be entitled to receive
upon proper conversion of this Note, during the period
specified herein and upon payment at the Conversion Price then
in effect, (A) to the extent the consideration received by the
Company or its shareholders consists of stock or other
securities, the number of shares of stock or other securities
of the successor company resulting from such reorganization,
merger, consolidation, sale or transfer which a holder of the
shares deliverable upon conversion of this Note would have
been entitled to receive in such Exchange Event if this Note
had been converted immediately prior to such Exchange Event,
and (B) to the extent that the consideration received by the
Company or its shareholders in connection with such Exchange
Event consists of cash or property other than securities, the
cash or property other than securities to which the holder
would have been entitled if this Note had been converted
immediately prior to the record date taken in connection with
such Exchange Event, in both cases (A) and (B) subject to
further adjustment as provided in this Section 7. The
foregoing provisions of this Section 7 shall similarly apply
to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other
corporation which are at the time receivable upon the
conversion of this Note. If the shares of stock or other
securities or property of the successor corporation resulting
from such reorganization, merger, consolidation, sale or
transfer, to which HP would be entitled upon conversion hereof
in lieu of Capital Stock, are in a form other than cash or
marketable securities, then the value of such consideration
shall be determined in good faith by the Company's Board of
Directors. In all events, appropriate adjustment (as
determined in good faith by the Company's Board of Directors)
shall be made in the application of the provisions of this
Note with respect to the rights and interests of HP after the
transaction, to the end that the provisions of this Note shall
be applicable after such event, as nearly as reasonably may be
feasible, in relation to any shares or other property
deliverable after such event
11
<PAGE>
upon conversion of this Note. The Company represents and
warrants that it will take whatever action is necessary to
ensure that any successors are bound by the terms of this
Section 7(d).
(d) Reclassification, etc. If the Company at any time while the
Loans are outstanding shall, by reclassification of securities
or otherwise, change any of the securities as to which
conversion rights under this Note exist into the same or a
different number of securities of any other class or classes,
this Note shall thereafter represent the right to acquire such
number and kind of securities as would have been issuable as
the result of such change with respect to the securities which
were subject to the purchase rights under this Note
immediately prior to such reclassification or other change,
and the Conversion Price therefor shall be appropriately
adjusted, all subject to further adjustment as provided in
this Section 7.
(f) Notices of Record Date, etc. In the event of:
(i) Any taking by the Company of a record of the holders
of any class of securities of the Company for the
purpose of determining the holders who are entitled
to receive any dividend (other than a cash dividend
payable out of earned surplus at the same rate as
that of the last such cash dividend paid) or other
distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive
any other right; or
(ii) Any capital reorganization of the Company, any
reclassification or recapitalization of the Capital
Stock of the Company or any transfer of all or
substantially all of the assets of the Company to any
other person or entity, or any consolidation or
merger in which the Company is not the surviving
entity (except for any transaction done solely for
the purpose of changing the Company's state of
incorporation); or
(iii) Any voluntary or involuntary dissolution, liquidation
or winding-up of the Company,
then the Company shall mail to HP at the same time notice is
provided to shareholders but in no event less than ten (10)
business days prior to said event, a notice with (A) the date
on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and (B) the
12
<PAGE>
date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is expected to become
effective and the record date for determining shareholders
entitled to vote thereon.
(g) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available, out of its
authorized shares of Common Stock, for the purpose of
effectuating the conversion the this Note, the full number of
shares of Common Stock then issuable upon the conversion of
this Note and shall take all action necessary so that the
shares of Common Stock so issued will be validly issued fully
paid and nonassessable
8. Representations and Warranties. The Company represents and warrants to HP
that:
(a) Title. The Company is, or in the case of after-acquired
Collateral will be, the owner of the Collateral and no other
person has, or will have, any right, title claim or interest
(by way of lien or otherwise) in, against or to the Collateral
other than Permitted Liens.
(b) Senior Lienholder. There are no entities with a security
interest senior to that of HP (a "Senior Lienholder") with
respect to the Collateral.
(c) Perfection. HP has (or in the case of after-acquired
Collateral, at the time the Company acquires rights therein,
will have) a perfected security interest in the Collateral,
provided that HP performs all acts necessary to perfect such
security interest.
(d) Location of Collateral and Chief Executive Office. As of the
date hereof, the Company's principal place of business and
chief executive office is located at: One Station Place,
Stamford, CT. The Collateral is maintained at the following
locations in addition to the chief executive office: 811 10th
Avenue, New York, N.Y. 10019.
9. Covenants Relating to Collateral.
(a) Maintenance of Collateral. The Company hereby agrees to
perform all acts that may be reasonably necessary to maintain,
preserve, protect and perfect the Collateral, and the lien
granted to HP therein, including:
(i) not to change the Company's name or place of business
or chief executive office or the location of any of
its other Collateral
13
<PAGE>
without giving HP twenty (20) days prior written
notice;
(ii) to appear in and defend any action or proceeding
which may affect its title to or HP's interest in the
Collateral other than with respect to Permitted
Liens; provided however, that the Company shall have
no obligation to appear in or defend any such action
against HP wherein it is alleged that HP has assigned
its title to or interest in the Collateral; and
(iii) to comply with all material requirements of law
relating to the production, possession, operation,
maintenance and control of the Collateral, except to
the extent that the failure to do so could not
reasonably be expected to have a material adverse
effect upon the financial or business condition of
the Company.
(b) Records; Sale or Other Disposition of Collateral. The Company
shall at all times keep at least one complete set of records
concerning the Collateral at its chief executive office and
shall make such records available for inspection by HP at such
times as HP may reasonably request. The Company shall not be
authorized to sell, transfer, grant nonexclusive licenses of
or otherwise dispose of any item of Collateral other than in
the ordinary course of business.
10. Affirmative Covenants. For so long as any amounts are outstanding under this
Note and until payment or conversion of all amounts outstanding under this Note:
(a) Use of Proceeds. All of the Note proceeds shall be used for
the purchase of (i) Hewlett-Packard Company products, support
or services, or (ii) complementary non-HP products purchased
from HP; provided, that not more than fifty percent (50%) of
such proceeds shall be used to purchase such non-HP products.
(b) Taxes. The Company shall file all tax returns when due and pay
or cause to be paid before the same shall become delinquent
and before penalties have accrued thereon, all taxes,
assessments and governmental charges or levies imposed on the
income, profits, franchises, property or business of the
Company except to the extent and so long as (i) the same are
being contested in good faith by appropriate proceedings, and
(ii) as to which adequate reserves in conformity with
generally accepted accounting principles with respect thereto
have been provided on the books of the Company.
(c) Notice of Events of Default. The Company shall notify HP
within five (5)
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business day of the occurrence of any Event of Default.
(d) Insurance. The Company will at all times while any Obligations
remain outstanding maintain or cause to be maintained a policy
or policies of insurance covering all of the Collateral in an
aggregate amount of not less than the purchase price of the
Collateral, insuring against such risks as are customarily
carried by businesses similarly situated, including, without
limitation, insurance against loss or damage by fire, theft,
sprinkler leakage, tornado, explosion or other similar risk.
HP shall be named as an additional insured on all such
policies and each such policy shall provide that it may not be
cancelled without providing HP with at least 30 days' prior
written notice
11. Negative Covenants. For so long as any amounts are outstanding under this
Note and until payment or conversion of all amounts outstanding under this Note,
without the prior written consent of HP:
(a) Dividends. The Company shall not declare or pay any dividends
on any class or classes of Capital Stock (other than dividends
or other distributions in the stock of the Company ).
(b) Liens. The Company shall not grant a lien, encumbrance or
security interest in assets of the Company, other than
Permitted Liens.
12. Successors and Assigns. The obligations of the Company and the rights of HP
under this Note shall be binding upon and benefit the successors, assigns,
heirs, administrators and transferees of the parties. The Company shall not be
entitled to assign, transfer or delegate any of its rights, obligations or
liabilities hereunder without the prior written consent of HP.
13. Notices. Any notice, request, or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given on the
date of delivery if personally delivered, on the date of being faxed if sent by
confirmed fax, on the first business day after being sent if sent by recognized
overnight courier, and on the third business day after being mailed if sent by
registered or certified mail, postage prepaid, addressed (i) if to HP to:
Hewlett-Packard Company, 333 Logue Avenue, MS32, Mountain View, CA 94043,
Attention: General Manager, fax number, (650)919-8013; with a copy to
Hewlett-Packard Company, 3000 Hanover Street, MS20BQ, Palo Alto, CA 94304,
Attention General Counsel, fax number (650)857-4392, or (ii) if to the Company
to: SmartServ Online, Inc., One Station Place, Stamford, CT 06902, Attention:
Chief financial Officer and General Counsel, facsimile (203)353-5962.
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<PAGE>
14. Usury. In the event any interest is paid on this Note which is deemed to be
in excess of the then legal maximum rate, then that portion of the interest
payment representing an amount in excess of the then legal maximum rate shall be
deemed a payment of principal and applied against the principal of this Note.
15. Governing Law. This Note and all actions arising out of or in connection
with this Note shall be governed by and construed in accordance with the laws of
the State of Delaware, without regard to the conflicts of law provisions of the
State of Delaware or of any other state.
16. Waiver of Jury Trial. The Company hereby irrevocably waives any and all
right to trial by jury in any legal proceeding arising out of or relating to
this Note.
17. Waivers. The Company hereby waives presentment, demand, protest, notice of
dishonor, diligence and all other notices, any release or discharge arising from
any extension of time, discharge of a prior party, release of any or all of any
security given from time to time for this Note, or other cause of release or
discharge other than actual payment in full hereof.
18. Waivers and Amendments. No provision of this Note may be amended or modified
without the written consent of the Company and HP. HP shall not be deemed, by
any act or omission, to have waived any of its rights or remedies unless such
waiver is in writing and signed by HP and then only to the extent specifically
set forth in such writing. A waiver with reference to one event shall not be
construed as continuing or as a bar to or waiver of any right or remedy as to a
subsequent event. No delay or omission of HP to exercise any right, whether
before or after a default, shall impair any such right or shall be construed to
be a waiver of any right or default, and the acceptance at any time by HP of any
past-due amount shall not be deemed to be a waiver of the right to require
prompt payment of any other amounts due and payable.
19. Remedies Cumulative. The remedies of HP as provided herein, or any one or
more of the, or in law or equity, shall be cumulative and concurrent, and may be
pursued singularly, successively or together in HP's sole discretion, and may be
exercised as often as occasion therefor shall occur.
20. Expenses. The Company shall pay on demand all fees and expenses, including
reasonable attorneys' fees and expenses, incurred by HP in connection with
custody, preservation or sale of, or other realization on, any of the Collateral
or the enforcement or attempt to enforce any of the Obligations which are not
performed as and when required by the Transaction Documents.
21. No Offset. Notwithstanding any rights of offset, recoupment or other similar
rights that the Company may have in connection with any Transaction Document or
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<PAGE>
under applicable law, the Company agrees and hereby waives any right to offset,
deduct, recoup, credit or otherwise reduce any amounts owing by the Company to
HP under the terms of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed and delivered by its duly authorized representative as of the date
first written above.
SMARTSERV ONLINE, INC.
By: /s/ Thomas W. Haller
---------------------------
Name: Thomas W. Haller
Title: Vice President, and Chief
Accounting Officer
Accepted:
HEWLETT-PACKARD COMPANY
By: /s/ Craig A. White
---------------------------
Name: Craig A. White
---------------------------
Title: Vice President & GM
---------------------------
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULE A
TRANSACTIONS ON NOTE
<S> <C> <C> <C> <C>
--------------------- -------------------- ------------------- ------------------- -------------------
DATE LOANS PAYMENTS INTEREST PAID BALANCE
--------------------- -------------------- ------------------- ------------------- -------------------
--------------------- -------------------- ------------------- ------------------- -------------------
--------------------- -------------------- ------------------- ------------------- -------------------
--------------------- -------------------- ------------------- ------------------- -------------------
--------------------- -------------------- ------------------- ------------------- -------------------
</TABLE>
18
<PAGE>
SCHEDULE B
CONDITIONS TO FUNDING
------------------------------ -------------------------------------------------
LOANS CONDITIONS TO FUNDING
------------------------------ -------------------------------------------------
Initial Funding 1. Conditions to the Closing under the Note
Purchase Agreement are met;
2. As of the date of the proposed funding, no
Event of Default has occurred and is
continuing under the Transaction Documents;
3. The initial Loan request does not exceed the
maximum Loan permitted, if any, pursuant to
the limitations contained in the Drawdown
Schedule attached hereto as Schedule D; and
4. As the date of the subsequent Loan Request,
the Company represents and warrants that all
of the representations and warranties made
by the Company in the Transaction Documents
were true and correct when made, and, except
to the extent that a particular
representation or warranty by its terms
expressly applies only to an earlier date,
are true and correct as of the date of such
subsequent Loan Request.
------------------------------ -------------------------------------------------
Additional Funding 1. As of the date of the proposed funding, no
event of default has occurred and is
continuing under the Transaction Documents.
2. Each subsequent Loan Request does not exceed
the maximum Loan permitted, if any, pursuant
to the limitations contained in the Drawdown
Schedule attached hereto as Schedule D;.
3. The Company has met the following
milestones:
(i) The consolidated revenues of the
Company and its subsidiaries for
the calendar quarter immediately
preceding the calendar quarter in
which the proposed funding would
take place are no less than 80% of
the
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------------------------------ -------------------------------------------------
Projections previously delivered by
Company to HP pursuant to the Note
Purchase Agreement;
(ii) The consolidated quarterly EBITDA
deficit of the Company and its
subsidiaries for the calendar
quarter immediately preceding the
quarter in which such proposed
funding would take place does not
exceed 1.2 times the projected
EBITDA deficit for such quarter or
set forth in the Projection; and
(iii) The ratio of Total Shareholders
equity to Total Assets as of the
date of such proposed funding is
not less than the projected ratio
set forth or implied in the
Projection; and
4. As the date of the subsequent Loan Request,
the Company represents and warrants that all
of the representations and warranties made
by the Company in the Transaction Documents
were true and correct when made, and, except
to the extent that a particular
representation or warranty by its terms
expressly applies only to an earlier date,
are true and correct as of the date of such
subsequent Loan Request.
------------------------------ -------------------------------------------------
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<PAGE>
SCHEDULE C
COLLATERAL
All right, title and interest of the Company now owned or
hereafter acquired in and to the following:
(1) All Hewlett-Packard equipment and other equipment, including but not
limited to all computer data communications and network control
equipment, storage devices, software (excluding software which is
created, developed, modified or customized by the Company for sale or
lease by the Company to others), and firmware, and all additions,
accessions, substitutions, attachments, improvements, repairs thereto,
and all fixtures;
(2) All accounts, contracts rights, inventory, general intangibles
(excluding software which is created, developed, modified or customized
by the Company for sale or lease by the Company to others), chattel
paper, documents, letter of credit rights, investment property, tax
refund and insurance proceeds of the Company; and
(3) All products and proceeds of the foregoing, and, in any event, (a) any
and all proceeds of any insurance, indemnity or warranty payable to the
Company from time to time with respect to any of the Collateral, (b)
any and all payments made or due and payable to the Company from time
to time in connection with any requisition, confiscation, condemnation,
seizure or forfeiture of all or any part of the Collateral by any
governmental authority, (c) any and all recoveries by the Company
against third parties with respect to any litigation or dispute
concerning any of the Collateral, and (d) any and all other amounts
from time to time paid or payable under or in connection with any of
the Collateral, upon disposition or otherwise.
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<PAGE>
SCHEDULE D
DRAWDOWN SCHEDULE
CALENDAR QUARTER IN WHICH MAXIMUM LOAN AMOUNT AVAILABLE
------------------------- -----------------------------
LOAN REQUESTS CAN BE MADE IN EACH QUARTER*
-------------------------- ----------------
2000
----
Initial Loan $300,000
Third Quarter $2,500,000
Fourth Quarter $4,250,000
2001
----
First Quarter $4,250,000
Second Quarter $4,250,000
Third Quarter (prior to
Termination Date) $4,450,000
* If the Company does not borrow the full Loan amount specified above to which
the Company is otherwise entitled after satisfaction of all milestones specified
in Schedule B and all other requirements hereunder, the unborrowed amount may be
carried over to and borrowed by the Company during the immediately following two
calendar quarters, provided that the Company has otherwise satisfied all
milestones and other requirements for the quarter in which the Company requests
such Loan, and provided further that in any case such sums may not be carried
over beyond the two quarters immediately following the quarter in which they
first became available to the Company pursuant to this drawdown schedule.
22
