LOAN AGREEMENT, dated as of August 31, 2005, between SmartServ, Inc., a
Delaware corporation ("Borrower") CAMOFI Master, LDC, a Cayman Islands limited
duration company (together with its successors and assigns "Lender")
IN CONSIDERATION of the mutual covenants herein contained, Borrower and
Lender agree as follows:
I. DEFINITIONS
1.1 General Terms.
For purposes of this Agreement the following terms shall have the following
meanings:
"Accounts" shall mean all of Borrowers "accounts" whether now owned or
hereafter acquired (a) for property that has been or is to be sold or otherwise
disposed of or (b) for services rendered or to be rendered.
"Advances" shall have the meaning set forth in Section 2.1.
"Affiliate" of any Person shall mean (a) any Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with
such Person, or (b) any Person who is a director or officer (i) of such Person.
For purposes of this definition, control of a Person shall mean the power,
direct or indirect, (x) to vote 20% or more of the securities having ordinary
voting power for the election of directors or, in the case of a Person other
than a corporation, individuals who perform similar functions.
"Agreement" shall mean this Loan Agreement, as amended, restated,
modified and supplemented from time to time.
"Borrower's Account" shall have the meaning set forth in Section 2.6.
"Business Day" shall mean any day other than a day on which commercial
banks in New York are authorized or required by law to close.
"Closing Date" shall mean the date hereof.
"Collateral" shall mean the Accounts.
"Customer" shall mean and include the account debtor with respect to
any Receivable and/or the prospective purchaser of goods, services or both with
respect to any contract or contract right, and/or any party who enters into or
proposes to enter into any contract or other arrangement with Borrower, pursuant
to which Borrower is to deliver any personal property or perform any services.
"Default" shall mean an event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
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"Dollar" and the sign "$" shall mean lawful money of the United States
of America.
"Eligible Accounts" shall mean and include with respect to Borrower,
each Account of Borrower that represents a bona fide obligation arising in the
ordinary course of Borrower's business which, Lender, in its sole credit
judgment, shall deem to be an Eligible Account, based on such considerations as
Lender may from time to time deem appropriate. An Account shall not be deemed
eligible unless such Account is subject to Lender's first priority perfected
security interest and no other lien, and is evidenced by an invoice or other
documentary evidence satisfactory to Lender. No Account shall be an Eligible
Account if any of the conditions identified in clause (a) through (r) exist:
(a) it arises out of a sale made by Borrower to an Affiliate of Borrower
or to a Person controlled by an Affiliate of Borrower;
(b) it is due or unpaid more than sixty (60) days after the original
invoice date;
(c) Twenty percent (20%) or more of the Accounts from the Customer
obligated on such Account (the "Obligor") are not deemed Eligible Accounts
hereunder. Such percentage may, in Lender's sole discretion, be increased or
decreased from time to time;
(d) any covenant, representation or warranty contained in this Agreement
with respect to such Account has been breached;
(e) the Obligor shall (i) apply for, suffer, or consent to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or of all or a substantial part of its property or call a meeting of
its creditors, (ii) admit in writing its inability, or be generally unable, to
pay its debts as they become due or cease operations of its present business,
(iii) make a general assignment for the benefit of creditors, (iv) commence a
voluntary case under any state or federal bankruptcy laws (as now or hereafter
in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, any petition which is filed
against it in any involuntary case under such bankruptcy laws, or (viii) take
any action for the purpose of effecting any of the foregoing;
(f) the chief executive office or other principal office of the Obligor
with respect to such Account is not located in the United States of America;
(g) the sale to the Obligor is on consignment or any other repurchase or
return basis or is evidenced by chattel paper;
(h) Lender believes, in its sole judgment, that collection of such Account
is insecure or that such Account may not be paid by reason of the Obligor's
financial inability to pay;
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(i) the Obligor is the United States of America, any state or any
department, agency or instrumentality of any of them;
(j) the goods giving rise to such Account have not been shipped to and
accepted by the Obligor or the services giving rise to such Account have not
been performed by the Borrower and accepted by the Obligor or such Account
otherwise does not represent a final sale;
(k) such Account exceeds a percentage of the unpaid balance of all
Accounts determined by Lender, in its sole discretion, to the extent such
Account exceeds such limit (on the date hereof, such percentage is 25%);
(l) such Account is subject to any offset, deduction, defense, dispute, or
counterclaim, the Obligor is also a creditor or supplier of Borrower or such
Account is contingent in any respect or for any reason;
(m) the Borrower has made any agreement with any Obligor for any deduction
therefrom, except for discounts or allowances made in the ordinary course of
business for prompt payment, all of which discounts or allowances are reflected
in the calculation of the face value of each respective invoice related thereto;
(n) any return, rejection or repossession of the merchandise has occurred;
(o) such Account is not payable to Borrower;
(p) such Account is not denominated and payable in Dollars unless credit
insurance satisfactory to Lender has been obtained; or
(q) such Account is not otherwise satisfactory to Lender as determined in
good faith by Lender in the exercise of its discretion in a reasonable manner.
"Event of Default" shall mean the occurrence of any of the events set
forth in Article X.
"Guaranty" shall mean the Guaranty, dated as of the date hereof, of
KPCCD, Inc. in favor of Lender.
"Governmental Body" shall mean any nation or government, any state or
other political subdivision thereof or any entity exercising the legislative,
judicial, regulatory or administrative functions of or pertaining to a
government.
"Lender" shall have the meaning ascribed to such term in the preamble
to this Agreement and shall include each Person which becomes a transferee,
successor or assign of Lender.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the condition, operations, assets, business or prospects of the Borrower or any
of its Subsidiaries, (b) the Borrower's ability to pay the Obligations in
accordance with the terms thereof, (c) the value of the
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Collateral, or Lender's liens on the Collateral or the priority of any such lien
or (d) the practical realization of the benefits of Lender's rights and remedies
under this Agreement and the Transaction Documents.
"Obligations" shall mean and include any and all of the Borrower's
indebtedness and/or liabilities to Lender of every kind, nature and description,
direct or indirect, secured or unsecured, joint, several, joint and several,
absolute or contingent, due or to become due, now existing or hereafter arising,
contractual or tortious, liquidated or unliquidated, regardless of how such
indebtedness or liabilities arise or by what agreement or instrument they may be
evidenced or whether evidenced by any agreement or instrument (including all
interest accruing after the commencement of any bankruptcy or similar proceeding
whether or not enforceable in such proceeding), and all obligations of Borrower
to Lender to perform acts or refrain from taking any action.
"Payment Office" shall mean initially ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇
▇▇▇▇, or such other office of Lender, which it may designate by notice to
Borrower to be the Payment Office.
"Person" shall mean any individual, sole proprietorship, partnership,
corporation, business trust, joint stock company, trust, unincorporated
organization, association, limited liability company, institution, public
benefit corporation, joint venture, entity or government (whether Federal,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof).
"Qualified Financing" means an equity financing for the account of
Borrower in which shares of common stock, or securities, directly or indirectly,
convertible into or exchangeable or exercisable for shares of common stock are
issued, which financing results in cumulative aggregate proceeds to the Borrower
of at least $7.5 million.
"Reserves" shall mean all Obligations then chargeable to any account of
Borrower, as well as Obligations which may, in Lender's sole discretion, be
chargeable to Borrower's account thereafter, by reason of or in connection with
any of the following: Accounts which are not Eligible Accounts; disputed items;
deductions; allowances; credits; ▇▇▇▇ and hold sales; consignment sales; letters
of credit; steamship guarantees; airway releases; offsets asserted by or granted
to account debtors; sales calling for payment in currencies other than United
States Dollars; to adjust for audit/examination of Borrower's accounts(s) or for
any documentation correction; and such additional reserves as Lender in its sole
discretion, reasonably exercised, deems appropriate, including, but not limited
to adjustments for (a) any condition or prospect of the Borrower or the
Borrower's industry or (b) Dilution. For the purpose of the definition of
Reserves, "Dilution" means any reduction in the balance of an Account or payment
(whether by credit, check, wire transfer or otherwise) issued by Borrower to a
Customer on account of discounts, incorrect ▇▇▇▇▇▇▇▇, credits, rebates,
allowances, charge-backs, returned or repossessed goods, allowances for early
payments or any other reduction in the balance of an Account for any other
reason unrelated to the inability of the Customer to pay the Account.
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"Revolving Credit Note" shall mean, collectively, the promissory note
referred to in Section 2.1(a).
"Revolving Interest Rate" shall mean an interest rate per annum equal
to the sum of the "Prime Rate" as reported in The Wall Street Journal, such rate
to be adjusted automatically on the effective date of any change in such rate.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement, dated as of the date hereof, between Borrower and Lender.
"Term" shall have the meaning set forth in Section 11.1.
"Termination Date" shall have the meaning set forth in Section 11.1.
"Transaction Documents" shall mean the Revolving Credit Note, the
Guaranty, the Master Security Agreement, dated as of date hereof, between
Borrower and Lender, the Securities Purchase Agreement, dated as of the date
hereof, between Borrower and Lender and any and all other agreements,
instruments and documents, including, without limitation, guaranties, pledges,
powers of attorney, consents, and all other writings heretofore, now or
hereafter executed by the Borrower and/or delivered to Lender in respect of the
transactions contemplated by this Agreement.
"UCC" shall mean the Uniform Commercial Code as in effect in the State
of New York from time to time.
"Week" shall mean the time period commencing with the opening of
business on a Monday and ending on the end of business the following Sunday.
1.2 Certain Matters of Construction.
The terms "herein", "hereof" and "hereunder" and other words of similar import
refer to this Agreement as a whole and not to any particular section, paragraph
or subdivision. Each reference to a Section, an Exhibit or a Schedule shall be
deemed to refer to a Section, an Exhibit or a Schedule, as applicable, of this
Agreement unless otherwise specified. Any pronoun used shall be deemed to cover
all genders. Wherever appropriate in the context, terms used herein in the
singular also include the plural and vice versa. All references to statutes and
related regulations shall include any amendments of same and any successor
statutes and regulations. Unless otherwise provided, all references to any
instruments or agreements to which Lender is a party, shall include any and all
modifications or amendments thereto and any and all extensions or renewals
thereof.
II. ADVANCES.
2.1 Advances. Subject to the terms and conditions set forth in this
Agreement (Lender will make advances (the "Advances") to Borrower in an
aggregate amount outstanding
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at any time equal to the lesser of (A) an amount equal to (i) $2,500,000 minus
(ii) Reserves, minus (iii) the sum of (x) the outstanding amount of Advances (y)
all amounts due and owing to Borrower's trade creditors which are outstanding
beyond normal trade terms, and (z) fees and expenses for which Borrower is
liable but which have not been paid or charged to Borrower's Account, or (B) an
amount equal to the sum of eighty five percent (85%) of Eligible Accounts (such
aggregate amount outstanding, the "Formula Amount"). The Advances shall be
evidenced by a secured convertible promissory note ("Revolving Credit Note")
delivered by Borrower to Lender at the Closing. As set forth therein, the
Revolving Credit Note provides for (a) at Borrower's option, conversion of the
interest payments due on the Revolving Credit Note into common stock of Borrower
and (b) mandatory prepayment in an amount equal to the product of (a) 1.15, (b)
0.5 and (c) the amount of the Obligations, upon the closing of a Qualified
Financing. Borrower may notify Lender prior to 11:00 a.m. (New York time) on the
Business Day next preceding the Business Day that Borrower desires to incur an
Advance. Any amount required to be paid as interest, fees or other charges under
this Agreement which shall become due, shall be deemed a request for an Advance
as of the date such payment is due, in the amount required to pay in full such
interest, fees or charges and such request shall be irrevocable.
2.2 Disbursement of Advance Proceeds.
All Advances shall be disbursed from whichever office or other place Lender may
designate from time to time and, together with any and all other Obligations,
shall be charged to Borrower's Account on Lender's books. During the Term,
Borrower may use the Advances by borrowing, prepaying and reborrowing, all in
accordance with the terms and conditions hereof. The proceeds of each Advance
requested by Borrower or deemed to have been requested by Borrower under Section
2.2 shall, with respect to requested Advances to the extent Lender makes such
Advances, be made available to Borrower on the day so requested by way of credit
to Borrower's operating account at Commerce Bank, N.A. or such other bank as
Borrower may designate following notification to Lender, in immediately
available federal funds or other immediately available funds or, with respect to
Advances deemed to have been requested by Borrower, be disbursed to Lender to be
applied to the outstanding Obligations giving rise to such deemed request.
2.3 Repayment of Advances.
(a) The Advances shall be due and payable in full on the
Termination Date subject to earlier prepayment as herein provided.
(b) All payments of principal, interest and other amounts
payable hereunder, shall be made to Lender at the Payment Office not later than
11:00 a.m. (New York time) on the due date therefor in lawful money of the
United States of America in federal funds or other funds immediately available
to Lender. Lender shall have the right to effect payment on any and all
Obligations due and owing hereunder by charging Borrower's Account or by making
Advances as provided in Section 2.2.
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(c) Borrower shall pay principal, interest, and all other
amounts payable hereunder, or under any Transaction Document, without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
2.4 Repayment of Excess Advances.
The aggregate balance of Advances outstanding at any time in excess of the
maximum amount of Advances permitted hereunder shall be immediately due and
payable without the necessity of any demand, at the Payment Office, whether or
not a Default or Event of Default has occurred.
2.5 Statement of Account.
Lender shall maintain a loan account (the "Borrower's Account") in Borrower's
name in which shall be recorded the date and amount of each Advance made by
Lender and the date and amount of each payment in respect thereof; provided,
however, that the failure by Lender to record such date and amount shall not
adversely affect Lender. Each month, Lender shall send to Borrower a statement
showing the accounting for the Advances made and payments made or credited in
respect thereof. The monthly statements shall be deemed correct and binding upon
Borrower in the absence of manifest error and shall constitute an account stated
between Lender and Borrower unless Lender receives a written statement of
Borrower's specific exception thereto within sixty (60) days after such
statement is received by Borrower.
2.6 Additional Payments.
Any sums expended by Lender due to Borrower's failure to perform or comply with
its obligations under this or any Transaction Document, may be charged to the
Borrower's Account as an Advance.
2.7 Mandatory Prepayments.
(a) When Borrower sells or otherwise disposes of any
Collateral other than in the ordinary course of business, Borrower shall repay
the Advances in an amount equal to the net proceeds of such sale (i.e., gross
proceeds less the reasonable costs of such sale or other disposition), one (1)
Business Day following receipt of such net proceeds, and until the date of
payment, such proceeds shall be held in trust for Lender. The foregoing shall
not be deemed to be implied consent to any such sale otherwise prohibited by the
terms and conditions hereof. Such repayments shall be applied to the Advances in
such order as Lender may determine, subject to Borrower's ability to reborrow
Advances in accordance with the terms hereof.
(b) The Lender shall apply the proceeds of any insurance
settlements from casualty losses which are received by the Lender to the
outstanding Advances in such order as Lender may determine, subject to
Borrower's ability to reborrow Advances in accordance with the terms hereof.
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2.8 Use of Proceeds. Borrower shall apply the proceeds of Advances made
on and after the Closing Date to pay fees and expenses relating to the
transactions contemplated by this Agreement and to provide for its working
capital needs.
III. INTEREST, FEES AND OTHER MATTERS.
3.1 Interest. Interest on Advances shall be payable in arrears on the
first Business Day of each month. Interest charges shall be computed on the
actual principal amount of Advances outstanding on the last Business Day of the
preceding month at a rate per annum equal to the Revolving Interest Rate. Upon
and after the occurrence of an Event of Default, the Obligations shall bear
interest at the Revolving Interest Rate, plus fifteen percent (15%) per annum
the ("Default Rate"); provided, however, that the Defaults shall not exceed
twenty percent (20%).
3.2 Fee for Overadvance. If the principal amount outstanding of the
Revolving Credit Note exceeds the Formula Amount, such excess shall bear
interest at the rate of 1% per month (prorated for any partial month).
3.3 Computation of Interest and Fees. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the Revolving
Interest Rate.
3.4 Commitment Fee. Borrower shall pay to Lender commitment fees of (a)
$25,000 on each anniversary of the Closing Date and prorated if the Termination
Date is not on such anniversary, and (b) on the first Business Day of each
month, the product of (i) 0.50% per annum and (ii) the difference between
$2,500,000 and the principal amount of the Revolving Credit Note on the last
Business Day of the preceding month.
3.5 Maximum Charges. In no event whatsoever shall interest and other
charges hereunder exceed the highest rate permissible under law. If interest and
other charges as computed hereunder would otherwise exceed such rate, such
excess amount shall be first applied to any unpaid principal balance owed by
Borrower, and if the then remaining excess amount is greater than the previously
unpaid principal balance, Lender shall promptly refund such excess amount to
Borrower and the provisions hereof shall be deemed amended to provide for such
permissible rate.
3.6 Establishment of a Controlled Account. All proceeds of Collateral
shall be deposited by Borrower into an account (the "Controlled Account") as
Lender may require pursuant to an arrangement with such bank as may be selected
by Borrower and be acceptable to Lender. All funds deposited in the Controlled
Account shall immediately become the property of Lender and Borrower shall
obtain the agreement by such bank to waive any offset rights against the funds
so deposited. Lender does not assume any responsibility for any Controlled
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Account arrangement, including without limitation, any claim of accord and
satisfaction or release with respect to deposits accepted by any bank
thereunder.
3.7 Adjustments. Borrower will not, without Lender's consent,
compromise or adjust any Accounts (or extend the time for payment thereof) or
accept any returns of merchandise or grant any additional discounts, allowances
or credits thereon.
3.8 Exculpation of Liability. Nothing herein contained shall be
construed to constitute Lender as Borrower's agent for any purpose whatsoever,
nor shall Lender be responsible or liable for any shortage, discrepancy, damage,
loss or destruction of any part of the Collateral wherever the same may be
located and regardless of the cause thereof, except if any such shortage,
discrepancy, damage, loss or destruction is actually caused by Lender's gross
negligence or willful misconduct, as determined by a final order of a court of
competent jurisdiction. Lender shall not assume any of Borrower's obligations
under any agreement assigned to Lender, and Lender shall not be responsible in
any way for the performance by Borrower of any of the terms and conditions
thereof.
IV. REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Borrower set forth in Section 3 of the Securities Purchase Agreement are
incorporated herein by reference, mutatis mutandis. In addition, Borrower
represents and warrants to Lender that ▇▇▇▇▇▇ ▇▇▇▇▇ is an employee of Borrower
and has provided Lender with a true and complete copy of his Employment
Agreement.
V. COVENANTS. The covenants of Borrower set forth in Section 5 of the Securities
Purchase Agreement are incorporated herein by reference mutatis mutandis.
VI. CONDITIONS TO EACH ADVANCE.
The agreement of Lender to make any Advance is subject to the satisfaction of
the following conditions precedent as of the date such Advance is made:
(a) Representations and Warranties.
Each of the representations and warranties made by Borrower in or pursuant to
this Agreement and the Transaction Documents, and each of the representations
and warranties contained in any certificate, document or financial or other
statement furnished at any time under or in connection with this Agreement or
the Transaction Documents shall be true and correct in all material respects on
and as of such date as if made on and as of such date;
(b) No Default.
No Event of Default or Default shall have occurred and be continuing on such
date, or would exist after giving effect to the Advances requested to be made on
such date; provided, however, that Lender, in its sole discretion, may continue
to make Advances notwithstanding the existence
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of an Event of Default or Default and that any Advances so made shall not be
deemed a waiver of any such Event of Default or Default; and
(c) Maximum Advances.
The aggregate Advances outstanding shall not exceed the maximum amount of
Advances permitted under Section 2.1.
Each request for an Advance by Borrower hereunder shall constitute a
representation and warranty by Borrower as of the date of such Advance that the
conditions contained in this Section shall have been satisfied.
VII. INFORMATION AS TO BORROWER.
Borrower shall, until satisfaction in full of the Obligations and the
termination of this Agreement:
7.1 Schedules.
7.2 The Borrower shall:
(a) Deliver to Lender on Wednesday of each Week a Borrowing Base
Certificate in a form provided by Lender (which shall be calculated as of the
last day of the immediately preceding Week and which shall not be binding upon
Lender or restrictive of Lender's rights under this Agreement).
(b) Deliver to Lender on Wednesday of each Week as and for the prior Week
(i) accounts receivable agings and (ii) accounts payable agings. In addition,
Borrower shall deliver to Lender at such intervals as Lender may require such
further schedules, documents and/or information regarding the Collateral as
Lender may require including, without limitation, trial balances and test
verifications. Lender shall have the right to audit, confirm and verify all
Accounts by any manner and through any medium it considers advisable and do
whatever it may deem reasonably necessary to protect its interests hereunder.
(c) The items to be provided under Sections 7.1(a) and 7.1(b) are to be in
form satisfactory to Lender and executed by Borrower and delivered to Lender
from time to time solely for Lender's convenience in maintaining records of the
Collateral, and Borrower's failure to deliver any of such items to Lender shall
not affect, terminate, modify or otherwise limit Lender's lien with respect to
the Collateral.
7.3 Litigation.
Promptly notify Lender in writing of any litigation, suit or administrative
proceeding affecting Borrower, whether or not the claim is covered by insurance.
7.4 Material Occurrences.
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Promptly notify Lender in writing upon the occurrence of (a) any Event of
Default or Default; (b) any event, development or circumstance whereby any
financial statements or other reports furnished to Lender fail in any material
respect to present fairly, in accordance with GAAP consistently applied, the
financial condition or operating results of Borrower as of the date of such
statements; (c) each and every default by Borrower which might result in the
acceleration of the maturity of any indebtedness, including the names and
addresses of the holders of such indebtedness with respect to which there is a
default existing or with respect to which the maturity has been or could be
accelerated, and the amount of such indebtedness; and (d) any other development
in the business or affairs of Borrower which could reasonably be expected to
have a Material Adverse Effect; in each case describing the nature thereof and
the action Borrower proposes to take with respect thereto.
7.5 Other Reports.
Furnish Lender as soon as available, but in any event within ten (10) days after
the issuance thereof, with copies of such financial statements, reports and
returns as Borrower shall send to its stockholders.
7.6 Additional Information.
Furnish Lender with such additional information as Lender shall reasonably
request in order to enable Lender to determine whether the covenants and
conditions of this Agreement and the Revolving Credit Note have been complied
with by Borrower, including, without limitation and without the necessity of any
request by Lender, (a) at least thirty (30) days prior thereto, notice of
Borrower opening of any new office or place of business or Borrower closing of
any existing office or place of business, and (b) promptly upon Borrower
learning thereof, notice of any labor dispute to which Borrower may become a
party, any strikes or walkouts relating to any of its facilities, and the
expiration of any labor contract to which Borrower is a party or by which
Borrower is bound.
7.7 Notice of Suits, Adverse Events.
Furnish Lender with prompt notice of (a) any lapse or other termination of any
Consent issued to Borrower by any Governmental Body or any other Person that is
material to the operation of Borrower's business, (b) any refusal by any
Governmental Body or any other Person to renew or extend any such Consent; and
(c) copies of any periodic or special reports filed by Borrower with any
Governmental Body or Person, if such reports indicate any material change in the
business, operations, affairs or condition of Borrower, or if copies thereof are
requested by Lender or any Lender, and (d) copies of any material notices and
other communications from any Governmental Body or Person which specifically
relate to Borrower.
7.8 Additional Documents.
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Execute and deliver to Lender, upon request, such documents and agreements as
Lender may, from time to time, reasonably request to carry out the purposes,
terms or conditions of this Agreement.
VIII. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall constitute
an "Event of Default":
8.1 failure by Borrower to pay any principal or interest on the
Obligations when due, whether at maturity or by reason of acceleration pursuant
to the terms of this Agreement or by notice of intention to prepay, or by
required prepayment or failure to pay any other liabilities or make any other
payment, fee or charge provided for herein when due or in any Transaction
Document;
8.2 issuance of a notice of lien, levy assessment, injunction attachment
or service against any portion of Borrower's property which is not stayed or
lifted within fifteen (15) day or bonded pending appeal;
8.3 failure or neglect of Borrower to perform, keep or observe any term,
provision, condition, covenant herein contained herein or in any Transaction
Document (to the extent such breach is not otherwise embodied in any other
provision of this Article VIII for which a different grace or cure period is
specified or which constitute an immediate Event of Default, which is not cured
within fifteen (15) Business Days after the occurrence of such Event of Default;
8.4 any judgment or judgments are rendered or judgment liens filed against
Borrower or any of its subsidiaries for an aggregate amount in excess of $25,000
which within thirty (30) days of such rendering or filing is not either
satisfied, stayed or discharged of record;
8.5 Borrower or any Affiliate of Borrower shall (a) apply for, consent to
or suffer the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar fiduciary of itself or of all or a
substantial part of its property, (b) make a general assignment for the benefit
of creditors, (c) commence a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (d) be adjudicated a bankrupt
or insolvent, (e) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (f) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (g) take any action for the
purpose of effecting any of the foregoing;
8.6 Borrower shall admit in writing its inability, or be generally unable,
to pay its debts as they become due or cease operations of its present business;
8.7 any change in the condition or affairs of Borrower or any of its
subsidiaries (financial or otherwise) which could reasonably have a Material
Adverse Effect;
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8.8 any lien or any Collateral having value, as determined by Lender in
its good faith judgment of $10,000 or more created hereunder or provided for
hereby for any reason ceases to be or is not a valid and perfected lien having a
first priority interest;
8.9 termination or breach of the Guaranty or if the guarantor thereunder
attempts to terminate or challenge its liability under the Guaranty;
8.10 any material provision of this Agreement shall, for any reason, cease
to be valid and binding on Borrower, or Borrower shall so claim in writing to
Lender;
8.11 (a) any Governmental Body shall (i) revoke, terminate, suspend or
adversely modify any license, permit, patent, trademark or tradename of
Borrower, or (ii) commence proceedings to suspend, revoke, terminate or
adversely modify any such license, permit, trademark or tradename and such
proceedings shall not be dismissed or discharged within sixty (60) days, or
(iii) schedule or conduct a hearing on the renewal of any license, permit,
patent, trademark or tradename necessary for the continuation of Borrower's
business and the staff of such Governmental Body issues a report recommending
the termination, revocation, suspension or material, adverse modification of
such license, permit, patent, trademark or tradename; or (b) any agreement which
is necessary or material to the operation of Borrower's business shall be
revoked or terminated and not replaced by a substitute acceptable to Lender
within thirty (30) days after the date of such revocation or termination, and
such revocation or termination and non-replacement would reasonably be expected
to have a Material Adverse Effect;
8.12 any portion of the Collateral shall be seized or taken by a
Governmental Body, or Borrower or the title and rights of Borrower shall have
become the subject matter of litigation which might, in the opinion of Lender,
upon final determination, could cause a Material Adverse Effect;
8.13 if the Service Agreement, dated August 8, 2003, between CDC System,
Inc. and Borrower is terminated for any reason whatsoever;
8.14 upon the occurrence of a breach or an event of breach under the
Private Label PCS Services Agreement dated as of November 5, 2004 (the "PCS
Agreement") by and between Sprint Spectrum L.P. ("Sprint") and the Borrower;
8.15 if the Master Vendor Agreement made December 7, 2005 by and among
KPCCD, Inc., ▇▇▇▇▇▇ ▇▇▇▇▇, et al. is not terminated by December 31, 2005;
8.16 the occurrence of an "Event of Default" under the Securities Purchase
Agreement;
8.17 if the aggregate amount of the outstanding Obligations exceeds the
Formula Amount for any thirty day period;
8.18 if the Irrevocable Standby Letter of Credit provided for in the PCS
Agreement is not issued to and accepted by Sprint by September 21, 2005; and
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8.19 if Sprint draws down under such Letter of Credit.
IX. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
9.1 Rights and Remedies.
Upon the occurrence of (a) an Event of Default pursuant to Section 8.6 all
Obligations shall be immediately due and payable and this Agreement and the
obligation of Lender to make Advances shall be deemed terminated; and (b) any of
the other Events of Default and at any time thereafter at the option of Lender
all Obligations shall be immediately due and payable and Lender shall have the
right to terminate this Agreement and to terminate the obligation of Lender to
make Advances. Upon the occurrence of any Event of Default, Lender shall have
the right to exercise any and all other rights and remedies provided for herein,
under the Master Security Agreement, dated as of the date hereof, between
Borrower and Lender, the UCC and at law or equity generally.
9.2 Application of Proceeds.
The proceeds realized from the sale of any Collateral shall be applied as
follows: first, to the reasonable costs, expenses and attorneys' fees and
expenses incurred by Lender for collection and for acquisition, completion,
protection, removal, storage, sale and delivery of the Collateral; second, to
interest due upon any of the Advances; third, to fees payable in connection with
this Agreement; fifth, to the principal of the Advances and all other fees,
costs, expenses and indemnities due under this Agreement and, sixth, to all
other Obligations. If any deficiency shall arise, Borrower shall remain liable
to Lender therefor. If it is determined by an authority of competent
jurisdiction that a disposition by Lender did not occur in a commercially
reasonably manner, Lender may obtain a deficiency judgment for the difference
between the amount of the Obligation and the amount that a commercially
reasonable sale would have yielded. Lender will not be considered to have
offered to retain the Collateral in satisfaction of the Obligations unless
Lender has entered into a written agreement with Borrower to that effect.
9.3 Lender's Discretion.
Except as otherwise provided herein, Lender shall have the right in its sole
discretion to determine which rights, liens, security interests or remedies
Lender may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Lender's or Lender's rights hereunder.
9.4 Setoff.
In addition to any other rights which Lender may have under applicable law, upon
the occurrence of an Event of Default, Lender shall have a right to apply the
Borrower property held by such Lender to reduce the Obligations.
9.5 Rights and Remedies not Exclusive.
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The enumeration of the foregoing rights and remedies is not intended to be
exhaustive and the exercise of any right or remedy shall not preclude the
exercise of any other right or remedy provided for herein or otherwise provided
by law, all of which shall be cumulative and not alternative.
X. WAIVERS AND JUDICIAL PROCEEDINGS.
10.1 Waiver of Notice.
Borrower hereby waives notice of non-payment of any of the Accounts, demand,
presentment, protest and notice thereof with respect to any and all instruments,
notice of acceptance hereof, notice of loans or advances made, credit extended,
Collateral received or delivered, or any other action taken in reliance hereon,
and all other demands and notices of any description, except such as are
expressly provided for herein.
10.2 Delay. No delay or omission on Lender's part in exercising any right,
remedy or option shall operate as a waiver of such or any other right, remedy or
option or of any default.
10.3 Jury Waiver. EACH PARTY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION (A) ARISING UNDER THIS
AGREEMENT OR ANY TRANSACTION, DOCUMENT OR (B) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO OR ANY OF THEM WITH
RESPECT TO THIS AGREEMENT OR ANY TRANSACTION DOCUMENT OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND EACH PARTY TO
THIS AGREEMENT HEREBY CONSENTS THAT ANY SUCH CLAIM, OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
XI. EFFECTIVE DATE AND TERMINATION.
11.1 Term. This Agreement, which shall inure to the benefit of and shall
be binding upon the respective successors and permitted assigns of Borrower and
Lender, shall become effective on the date hereof and shall continue in full
force and effect until the earliest of (a) February 28, 2008
11.2 , (b) the acceleration of all Obligations pursuant to the terms of
this Agreement or (c) the date on which this Agreement shall be terminated in
accordance with the provisions hereof (the "Termination Date"; such period
referred to herein as the "Term").
11.3 Termination. The termination of this Agreement shall not affect the
Lender's rights, or any of the Obligations having their inception prior to the
effective date of such
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termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or Obligations
have been fully disposed of, concluded or liquidated. The rights granted to
Lender hereunder shall continue in full force and effect, notwithstanding the
termination of this Agreement or the fact that Borrower's Account may from time
to time be temporarily in a zero or credit position, until all of the
Obligations of Borrower have been paid or performed in full after the
termination of this Agreement. Accordingly, Borrower waives any rights which it
may have under Section 9-513 of the UCC to demand the filing of termination
statements with respect to the Collateral, and Lender shall not be required to
send such termination statements to Borrower, or to file them with any filing
office, unless and until this Agreement shall have been terminated in accordance
with its terms and all Obligations paid in full in immediately available funds.
All representations, warranties, waivers and agreements contained herein shall
survive termination hereof until all Obligations are paid or performed in full.
XII. WAIVER OF SUBROGATION.
12.1 Waiver of Subrogation. Borrower expressly waives any and all rights
of subrogation, reimbursement, indemnity, exoneration, contribution of any other
claim which Borrower may now or hereafter have against any Person directly or
contingently liable for the Obligations hereunder, or against or with respect to
Borrower's property (including, without limitation, any property which is
Collateral for the Obligations), arising from the existence or performance of
this Agreement, until termination of this Agreement and repayment in full of the
Obligations.
XIII. MISCELLANEOUS.
13.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York applied to contracts to be
performed wholly within the State of New York. Any judicial proceeding brought
by or against Borrower with respect to any of the Obligations, this Agreement or
any Transaction Document may be brought in any court of competent jurisdiction
in the State of New York, United States of America, and, by execution and
delivery of this Agreement, Borrower accepts for itself and in connection with
its properties, generally and unconditionally, the non-exclusive jurisdiction of
such court, and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement. Borrower hereby waives personal service of
any and all process upon it and consents that all such service of process may be
made by registered mail (return receipt requested) directed to Borrower at its
address set forth in Section 13.4 and service so made shall be deemed completed
five (5) days after the same shall have been so deposited in the mails of the
United States of America, or, at the Lender's option, by service upon Borrower.
Nothing herein shall affect the right to serve process in any manner permitted
by law or shall limit the right of Lender to bring proceedings against Borrower
in the courts of any other jurisdiction. Borrower waives any objection to
jurisdiction and venue of any action instituted hereunder and shall not assert
any defense based on lack of jurisdiction or venue or based upon forum non
conveniens. Any judicial proceeding by Borrower against Lender involving,
directly or indirectly, any matter
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or claim in any way arising out of, related to or connected with this Agreement
or any Transaction Document, shall be brought only in a federal or state court
located in the City of New York, State of New York.
13.2 Entire Understanding. This Agreement and the Transaction Documents
contain the entire understanding between Borrower and Lender and supersedes all
prior agreements and understandings, if any, relating to the subject matter
hereof. Any promises, representations, warranties or guarantees not herein
contained and hereinafter made shall have no force and effect unless in writing,
signed by Borrower. Neither this Agreement nor any portion or provisions hereof
may be changed, modified, amended, waived, supplemented, discharged, cancelled
or terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged. Borrower
acknowledges that it has been advised by counsel in connection with the
execution of this Agreement and the Transaction Documents and is not relying
upon oral representations or statements inconsistent with the terms and
provisions of this Agreement.
13.3 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Borrower and Lender, all future holders of the
Obligations and their respective successors and assigns, except that Borrower
may not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of Lender.
13.4 Notice. Any notice or request hereunder may be given to Borrower or
to any Lender at their respective addresses set forth below or at such other
address as may hereafter be specified in a notice designated as a notice of
change of address under this Section. Any notice or request hereunder shall be
given by (a) hand delivery, (b) overnight courier, (c) registered or certified
mail, return receipt requested, or (d) telecopy to the number set out below (or
such other number as may hereafter be specified in a notice designated as a
notice of change of address) with electronic confirmation of its receipt. Any
notice or other communication required or permitted pursuant to this Agreement
shall be deemed given (a) when personally delivered to any officer of the party
to whom it is addressed, (b) on the earlier of actual receipt thereof or three
(3) days following posting thereof by certified or registered mail, postage
prepaid, or (c) upon actual receipt thereof when sent by a recognized overnight
delivery service or (d) upon actual receipt thereof when sent by telecopier to
the number set forth below with electronic confirmation of its receipt, in each
case addressed to each party at its address set forth below or at such other
address as has been furnished in writing by a party to the other by like notice:
(A) If to Lender: c/o Centrecourt Asset Management ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(B) If to Borrower at : SmartServ Online, Inc. ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇ Attention: ▇▇▇▇▇▇
▇▇▇▇ Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
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13.5 Severability. If any part of this Agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
13.6 Expenses. All costs and expenses including, without limitation, (i)
reasonable attorneys' fees and disbursements incurred by Lender (a) in all
efforts made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and the Transaction Documents, or (c) in instituting,
maintaining, preserving, enforcing and foreclosing on Lender's security interest
in any of the Collateral, whether through judicial proceedings or otherwise, or
(d) in defending or prosecuting any actions or proceedings arising out of or
relating to Lender's transactions with Borrower, and (ii) reasonable fees and
disbursements incurred by Lender or Lender on behalf of Lender in connection
with any appraisals of Collateral, field examinations, collateral analysis or
monitoring or other business analysis conducted by outside Persons in connection
with this Agreement and the Transaction Documents, may be charged to Borrower's
Account and shall be part of the Obligations.
13.7 Injunctive Relief. Borrower recognizes that, if Borrower fails to
perform, observe or discharge any of its obligations or liabilities under this
Agreement, any remedy at law may prove to be inadequate relief to Lender;
therefore, Lender, if Lender so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
that actual damages are not an adequate remedy.
13.8 Consequential Damages. Lender shall not be liable to Borrower for
consequential damages arising from any breach of contract, tort or other wrong
relating to the establishment, administration or collection of the Obligations.
13.9 Captions. The captions at various places in this Agreement are
intended for convenience only and do not constitute and shall not be interpreted
as part of this Agreement.
13.10 Counterparts; Telecopied Signatures. This Agreement may be executed
in any number of and by different parties hereto on separate counterparts, all
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
13.11 Construction. The parties acknowledge that each party and its
counsel have reviewed this Agreement and that the normal rule of construction to
the effect that any
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ambiguities are to be resolved against the drafting party shall not be employed
in the interpretation of this Agreement or any amendments, schedules or exhibits
thereto.
13.12 Confidentiality; Sharing Information. (a) Lender shall hold all
non-public information obtained by Lender pursuant to the requirements of this
Agreement in accordance with Lender's customary procedures for handling
confidential information of this nature; provided, however, Lender may disclose
such confidential information (a) to its examiners, affiliates, outside
auditors, counsel and other professional advisors, (b) to any purchaser of the
Revolving Credit Note and Lender's rights under this Agreement, and (c) as
required or requested by any Governmental Body or representative thereof or
pursuant to legal process; and (ii) in no event shall Lender be obligated to
return any materials furnished by Borrower other than those documents and
instruments in possession of Lender in order to perfect its lien on the
Collateral once the Obligations have been paid in full and this Agreement has
been terminated.
13.13 Publicity. Borrower hereby authorizes Lender to make appropriate
announcements of the financial arrangement entered into between Borrower and
Lender, including, without limitation, announcements which are commonly known as
tombstones, in such publications and to such selected parties as Lender shall in
its sole and absolute discretion deem appropriate.
Each of the parties has signed this Agreement as of the day and year first
above written.
ATTEST: SMARTSERV, INC.
as Borrower
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇▇. ▇. ▇▇▇▇▇▇▇ -----------------------------------
_______________________ Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇
Title: Chief Executive Officer
CAMOFI MASTER LDC
as Lender
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------
_______________________ Name:
Title:
▇▇
▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇ )
) ss.
COUNTY OF NEW YORK )
On this ____ day of August, 2005, before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the President of SmartServ, Inc., the corporation
described in and which executed the foregoing instrument; and that he signed his
name thereto by order of the Board of Directors of such corporation.
------------------------------
NOTARY PUBLIC
▇▇
▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇ )
) ss.
COUNTY OF NEW YORK )
On this _____ day of August, 2005 before me personally came
______________________________, to me known, who, being by me duly sworn, did
depose and say that he is the __________________ of CAMOFI Master, LDC, a Cayman
Islands limited duration company and that he signed his name thereto by on
behalf of such limited duration company.
---------------------------
NOTARY PUBLIC
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