THIS NOTE AND THE COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS.
THIS NOTE AND THE COMMON STOCK ISSUABLE
UPON CONVERSION OF THIS NOTE MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE
UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO SMARTSERV
ONLINE, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SENIOR SECURED CONVERTIBLE NOTE
FOR VALUE RECEIVED, SMARTSERV ONLINE, INC., a Delaware corporation
(the
"Borrower"), hereby promises to pay to
CAMOFI Master LDC (the "Holder") or its
registered assigns or successors in
interest, on order, the sum of Five Hundred
Thousand Dollars ($500,000.00), together
with any accrued and unpaid interest
hereon, on February 28, 2005 (the "Maturity
Date") if not sooner paid.
Capitalized terms used herein without
definition shall have the meanings
ascribed to such terms in that certain
Securities Purchase Agreement dated as of
the date hereof between the Borrower and
the Holder (the "Purchase Agreement")
or that certain Loan Agreement dated as of
the date hereof between the Borrower
and the Holder.
The following terms shall apply to this Note:
ARTICLE I
INTEREST & AMORTIZATION
1.1 Interest Rate. Subject to Section 5.6 hereof, interest payable
on
this Note shall accrue at a rate per annum
(the "Interest Rate") equal to the
WJS Prime Rate plus four percent (4%).
Interest shall be (i) calculated on the
basis of a 360 day year and the actual
number of days elapsed, compounded
monthly, and (ii) payable monthly, in
arrears, commencing on October 1, 2005 and
on the first business day of each
consecutive month thereafter until the
Maturity Date (and on the Maturity Date),
whether by acceleration or otherwise
(each, a "Repayment Date").
1.2
Minimum Monthly Principal Payments. Amortizing payments of
the aggregate principal amount outstanding under this Note at any
time
(the "Principal Amount") shall begin on March 1, 2006 and shall
recur
on the first business day of each succeeding calendar month
thereafter
until the Maturity Date (each, an "Amortization Date"). Subject
to
Article II below, beginning on the first Amortization Date, the
Borrower shall make monthly payments to the Holder on each
Repayment
Date, each in the amount of $20,833.33, together with any accrued
and
unpaid interest to date on such portion of the Principal Amount
plus
any and all other amounts which are then owing under this Note but
have
not been paid (collectively, the "Monthly Amount").
<PAGE>
ARTICLE II
CONVERSION REPAYMENT
2.1 Payment of Monthly Amount in Cash or Common Stock. Each
calendar
month by the tenth (10th) business day
prior to each Repayment Date (the "Notice
Date"), the Borrower, at its election, may
deliver to the Holder a written
notice in the form to be provided by the
Holder converting the Monthly Amount
payable on the next Repayment Date in
either cash or Common Stock, or a
combination of both (each, a "Repayment
Notice"): provided, however, that
payment in shares of Common Stock may only
occur if during the 10 Trading Days
immediately prior to the applicable
Repayment Date all of the Equity Conditions
have been met and the payment in shares of
Common Stock would not exceed 25% of
the volume for any of the previous 10
Trading Days. For the purposes of this
Section 2.1, "Equity Conditions" shall
mean, during the period in question, (i)
the Company shall have the duly honored all
conversions scheduled to occur or
occurring by virtue of one or more Notices
of Conversion, if any, (ii) all
liquidated damages and other amounts owing
in respect of the Notes shall have
been paid; (iii) there is an effective
Registration Statement pursuant to which
the Holder is permitted to utilize the
prospectus thereunder to resell all of
the shares issuable pursuant to the
Transaction Documents (and the Company
believes, in good faith, that such
effectiveness will continue uninterrupted for
the foreseeable future), (iv) the Common
Stock is trading on a Trading Market
(and the Company believes, in good faith,
that trading of the Common Stock on a
Trading Market will continue uninterrupted
for the foreseeable future), (v)
there is a sufficient number of authorized
but unissued and otherwise unreserved
shares of Common Stock for the issuance of
al of the shares issuable pursuant to
the Transaction Documents, (vi) there is
then existing no Default or Event of
Default, (vii) all of the shares issued or
issuable pursuant to the Transaction
Documents would not violate the limitations
set forth in Section 3.2 hereof,
(viii) no public announcement of a pending
or proposed transaction that in the
Lender's determination changes the nature
of the business of the Borrow or
effects a change of control of the Borrower
or an acquisition transaction has
occurred that has not been consummated and
(ix) the closing price for the Common
Stock is at least 115% of the Borrower
Conversion Price (as adjusted). If a
Repayment Notice is not delivered by the
Borrower on or before the applicable
Notice Date for such Repayment Date, then
the Borrower shall pay the Monthly
Amount due on such Repayment Date in cash.
Any portion of the Principal Amount
paid in cash on a Repayment Date shall be
paid to the Holder in an amount equal
to 102% of the Principal Amount due and
owing to the Holder on the Repayment
Date. If the Borrower converts all or a
portion of the Monthly Amount into
shares of Common Stock as provided herein,
the number of such shares to be
issued by the Borrower to the Holder on the
applicable Repayment Date shall be
the number determined by dividing (x) the
portion of the Monthly Amount to be
paid in shares of Common Stock by (y) the
then applicable Borrower Conversion
Price. For the purposes hereof, "Trading
Market" means any of the NASD OTC
Bulletin Board, the NASDAQ SmallCap Market,
the NASDAQ National Market, the
American Stock Exchange or the New York
Stock Exchange For the purposes hereof,
the "Borrower Conversion Price" means the
product of (a) 85% and (b). for the
purposes of this Section 2.1, "VWAP" means,
for any date, the price determined
by the first of the following clauses that
applies: (a) if the Common Stock is
then listed or quoted on a Trading Market,
the daily volume weighted average
price of the Common Stock for such date (or
the nearest preceding date) on the
primary Trading Market on which the Common
Stock is then listed or quoted as
reported by Bloomberg Financial L.P. (based
on a Trading Day from 9:30 a.m. EST
to 4:02 p.m. EST) using the VAP function;
(b) if the Common Stock is not then
listed
2
<PAGE>
or quoted on the Trading Market and if
prices for the Common Stock are then
reported in the "Pink Sheets" published by
the Pink Sheets, LLC (or a similar
organization or agency succeeding to its
functions of reporting prices), the
most recent bid price per share of the
Common Stock so reported; or (c) in all
other cases, the fair market value of a
share of Common Stock as determined by a
nationally recognized-independent appraiser
selected in good faith by the
Holder.
2.2 No Effective Registration. Notwithstanding anything to the
contrary
herein, none of the Borrower's obligations
to the Holder may be converted into
Common Stock unless (i) an effective
current Registration Statement (as defined
in the Registration Rights Agreement)
covering the shares of Common Stock to be
issued in connection with satisfaction of
such obligations exists, (ii) no Event
of Default hereunder exists and is
continuing, unless such Event of Default is
cured within any applicable cure period or
is otherwise waived in writing by the
Holder in whole or in part at the Holder's
option and (iii) an exemption from
registration of the Common Stock is
available to pursuant to Rule 144 of the
Securities Act.
Any amounts converted by the Holder pursuant to this Section 2.2
shall
be deemed to constitute payments of
outstanding fees, interest and principal
arising in connection with Monthly Amounts
for the remaining Repayment Dates, in
chronological order.
2.3 Redemption in Cash. (a) The Borrower will have the option
of
prepaying this Note ("Optional Redemption")
by paying to the Holder a sum of
money equal to one hundred fifteen percent
(115%) of the principal amount of
this Note together with accrued but unpaid
interest thereon and any and all
other sums due, accrued or payable to the
Holder arising under this Note, the
Security Agreement, or any Related
Agreement (the "Redemption Amount")
outstanding on the day written notice of
redemption (the "Notice of Redemption")
is given to the Holder. The Notice of
Redemption shall specify the date for the
Optional Redemption (the "Redemption
Payment Date") which date shall be seven
(7) business days after the date of the
Notice of Redemption (the "Redemption
Period"). A Notice of Redemption shall not
be effective with respect to any
portion of this Note for which the Holder
has a pending election to convert
pursuant to Section 3.1, or for conversions
initiated or made by the Holder
pursuant to Section 3.1 during the
Redemption Period. The Redemption Amount
shall be determined as if the Holder's
conversion elections had been completed
immediately prior to the date of the Notice
of Redemption. On the Redemption
Payment Date, the Redemption Amount must be
paid in good funds to the Holder. If
the Borrower fails to pay the Redemption
Amount on the Redemption Payment Date
as set forth herein, then such Redemption
Notice will be null and void.
(b) Simultaneously with the closing of a Qualified Financing,
the
Borrower shall prepay in cash the product
of (a) fifty percent (50%) and (b) one
hundred 115 percent (115%) of the principal
amount of this Note together with
accrued but unpaid interest thereon.
ARTICLE III
CONVERSION RIGHTS
3.1 Holder's Conversion Rights. The Holder shall have the right,
but
not the obligation, to convert all or any
portion of the then outstanding
principal amount of this Note,
3
<PAGE>
together with interest and fees due hereon,
into shares of Common Stock subject
to the terms and conditions set forth in
this Article III. The Holder may
exercise such right by delivery to the
Borrower of a written notice of
conversion not less than one (1) day prior
to the date upon which such
conversion shall occur. The date upon which
such conversion shall occur is (the
"Conversion Date").
3.2 Conversion Limitation. Notwithstanding anything contained
herein to
the contrary, the Holder shall not be
entitled to convert pursuant to the terms
of this Note an amount that would be
convertible into that number of Conversion
Shares which would exceed the difference
between the number of shares of Common
Stock beneficially owned by the Holder or
issuable upon exercise of warrants
held by the Holder and 9.99% of the
outstanding shares of Common Stock of the
Borrower. For the purposes of the
immediately preceding sentence, beneficial
ownership shall be determined in accordance
with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The
Holder may void the
