-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, P/8jq67nqd+crHAD2eakPOSpQ7y2BwZW/ZmlPx3FY7Bkjq8dvymEddSijZtybYbm xl8w1K6u7S6bMKR4cgnpKg== 0000898432-04-000639.txt : 20040811 0000898432-04-000639.hdr.sgml : 20040811 20040810183456 ACCESSION NUMBER: 0000898432-04-000639 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20040811 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: KIMBERLIN KEVIN CENTRAL INDEX KEY: 0000904841 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: SPENCER TRASK SECURITIES INC STREET 2: 535 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2123555565 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: SMARTSERV ONLINE INC CENTRAL INDEX KEY: 0001005698 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 133750708 STATE OF INCORPORATION: DE FISCAL YEAR END: 0902 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-49961 FILM NUMBER: 04965491 BUSINESS ADDRESS: STREET 1: METRO CENTER STREET 2: ONE STATION PLACE CITY: STAMFORD STATE: CT ZIP: 06902 BUSINESS PHONE: 2033535950 MAIL ADDRESS: STREET 1: ONE STATION PLACE CITY: STAMFORD STATE: CT ZIP: 06902 SC 13D 1 schedule-13d.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 (Amendment No. __)* NAME OF ISSUER: SmartServ Online, Inc. TITLE OF CLASS OF SECURITIES: Common Stock CUSIP NUMBER: 83169M 40 1 NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS: Kevin B. Kimberlin c/o Spencer Trask & Co. 535 Madison Avenue, 18th Floor New York, New York 10022 Tel: (212) 355-5565 Fax: 212-751-3483 DATES OF EVENTS WHICH REQUIRE FILING: June 13, 2003, September 16, 2003, September 19, 2003, November 11, 2003, February 13, 2004, February 27, 2004, July 27, 2004 If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box: [ ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7(b) for other parties to whom copies are to be sent. *The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). CUSIP NO.: 83169M 40 1 1. NAME OF REPORTING PERSON: Kevin B. Kimberlin 2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP: (a) (b) x 3. SEC USE ONLY 4. SOURCE OF FUNDS: AF 5. CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e): Yes No X 6. CITIZENSHIP OR PLACE OF ORGANIZATION: UNITED STATES 7. SOLE VOTING POWER: 3,192,959 shares 8. SHARED VOTING POWER: 0 shares 9. SOLE DISPOSITIVE POWER: 3,192,959 shares 10. SHARED DISPOSITIVE POWER: 0 shares 11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON: 3,192,959 shares 12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES: Yes No x 13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11): 54.02% 14. TYPE OF REPORTING PERSON: IN The number of shares and price per share amounts set forth in this form have been calculated to take into account the effects of the 1 for 6 reverse stock split effected on or about November 25, 2003 by the Issuer. Item 1. Security and Issuer This statement relates to the common stock, $0.01 par value per share ("Common Stock") issued by SmartServ Online, Inc., a Delaware corporation (the "Company"), whose principal executive offices are located at 2250 Butler Pike, Suite 150, Plymouth Meeting, Pennsylvania 19462. Item 2. Identity and Background (a) This statement is filed by Kevin B. Kimberlin. (b) The business address of Mr. Kimberlin is c/o Spencer Trask & Co., 535 Madison Avenue, New York, New York 10022. (c) Mr. Kimberlin's present principal occupations are Chairman of Spencer Trask & Co. and private investor. (d) Mr. Kimberlin has not, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) Mr. Kimberlin has not, during the last five years, been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. (f) Mr. Kimberlin is an individual of United States citizenship. Item 3. Source and Amount of Funds or Other Consideration As of the date of this statement, Mr. Kimberlin may be deemed to be the beneficial owner, for purposes of Section 13(d) of the Act, of 3,192,959 shares of Common Stock. As set forth in detail below, shares of Common Stock and securities convertible into Common Stock are directly held by Spencer Trask Private Equity Fund I LP ("Fund I"), Spencer Trask Private Equity Fund II LP ("Fund II"), Spencer Trask Private Equity Fund III LLC ("Fund III" and, collectively with Fund I and Fund II, the "Funds"), Spencer Trask Illumination Fund LLC ("Illumination Fund"), Spencer Trask Investment Partners LLC ("STIP") and Spencer Trask Ventures, Inc. ("STVI"). Mr. Kimberlin is a 100% owner of the entity that is a 100% owner of the manager of each of the Funds and the Illumination Fund. Each of the Funds and the Illumination Fund is principally engaged in the business of investing in securities. The source of funds for the purchase of securities by the Funds and the Illumination Fund are the respective assets of each of the Funds and the Illumination Fund. Mr. Kimberlin is a non-member manager of STIP, a Delaware limited liability company principally engaged in the business of investing in securities. The source of funds for the purchase of securities by STIP is the working capital of STIP. Mr. Kimberlin is the 100% stockholder of Spencer Trask & Co., which is the parent and 100% owner of STVI, a Delaware corporation whose principal business is that of a broker-dealer. As described below, the securities acquired by STVI were acquired as compensation for certain investment advisory and consulting services provided to the Company by STVI. On May 19, 2003, the Company issued units consisting of convertible notes and warrants to purchase Common Stock (the "May Units") to certain accredited investors. Each Unit consisted of a $100,000 convertible note and a warrant to purchase 33,333 shares of Common Stock. The convertible notes bore interest at 8% per annum, were convertible into Common Stock at $4.464 per share and were to mature on the earlier of November 19, 2003 or the closing of an equity placement of at least $3 million (the "May Notes"). The warrants are exercisable at $4.464 per share and expire on May 19, 2006. (The conversion price of the May Notes and number of shares of Common Stock purchasable pursuant to the warrants were subsequently adjusted, as described below.) Among other accredited investors, each of the Funds purchased 0.2 May Units for $20,000 (totaling 0.6 May Units for $60,000), and STIP purchased 0.88 May Units for $88,000. On June 13, 2003, the Company issued 11.42 units in consideration of $1,142,000 (the "June Units"), each consisting of a $100,000 convertible note and a warrant to purchase 33,333 shares of Common Stock. The convertible notes bore interest at 8% per annum, were convertible into Common Stock at $4.764 per share and were to mature on the earlier of December 13, 2003, or the closing of an equity placement of at least $3 million (the "June Notes"). The warrants are exercisable at $4.764 per share and expire on June 13, 2006. (The conversion price of the June Notes and number of shares of Common Stock purchasable pursuant to the warrants were subsequently adjusted, as described below.) In the June transaction, each of the Funds purchased 0.2 June Units for $20,000 (totaling 0.6 June Units for $60,000) and STIP purchased 1.62 June Units for $162,000. Among others, STVI acted as a finder and provided consulting services for the May and June financings pursuant to a consulting agreement entered into by STVI and the Company in May 2003 (the "Consulting Agreement"). As partial consideration therefor, in May and June 2003, STVI received warrants to purchase 36,899 shares of Common Stock, exercisable through May 19, 2008; warrants to purchase 109,612 shares of Common Stock, exercisable through June 13, 2008; and 155,555 shares of unregistered Common Stock. On September 16 and 19, 2003, the Company issued an aggregate of 12 units (the "September Units") comprised of a $50,000 convertible note (the "September Note") and a warrant to purchase 2,778 shares of Common Stock. The September Units were sold to accredited investors for an aggregate of $600,000. Holders of the September Notes had the right to convert the Notes into shares of Common Stock at a price equal to $1.896 per share for the Notes issued on September 16, 2003 and $1.92 per share for the Notes issued on September 19, 2003. The maturity date of the September Notes was the earlier of November 19, 2003 or the completion of an equity placement of at least $3 million. Holders of the warrants have the right to exercise the warrants into shares of Common Stock at a price equal to $1.50 per share. All of the September Notes and the warrants have full ratchet anti-dilution protection. For its role as a finder for the September financing, STVI received finders' compensation that included warrants to purchase 102,988 shares of Common Stock, 39,030 of which are exercisable at $1.90 per share and expire on September 16, 2008; 24,667 of which are exercisable at $1.50 per share and expire on September 16, 2008; 23,958 of which are exercisable at $1.90 per share and expire on September 19, 2008; and 15,333 of which are exercisable at $1.50 per share and expire on September 19, 2008; and (iii) 2,778 shares of unregistered Common Stock per September Unit sold, totaling 33,334 shares. The September financing required the consent of 51% or more of the holders of the May Notes and June Notes. As an inducement to obtain their consent, such holders of May Notes and June Notes were to receive (i) a change in the conversion price of their Notes equal to the lowest conversion price of the notes issued in the September financing ($1.90 per share) and (ii) an increase in the number of shares purchasable pursuant to the warrants issued to them in the May and June financings to reflect a full ratchet dilution adjustment with a decrease in the exercise price of the warrants to the exercise price of the warrants issued in the September financing ($1.50). Because each of the Funds, STIP and STVI consented to the September financing, their relevant holdings of the May Units and June Units were adjusted as described in the preceding sentence, which adjustment became effective on November 25, 2003, coincident with the effective date of a one-for-six reverse stock split. On November 11, 2003, for aggregate consideration of $900,000, the Company issued 18 units, each consisting of a $50,000 convertible note (a "November Note") and a warrant to purchase 16,667 shares of Common Stock (collectively, the "November Units"). As a finder for the November transaction, STVI received compensation that included warrants to purchase 136,000 shares of Common Stock, which expire on November 11, 2008, and have full ratchet and anti-dilution protection, 80,000 of which are exercisable at $1.90 per share and 56,000 of which are exercisable at $1.50 per share; and its portion of 2,778 shares of unregistered Common Stock per November Unit sold, totaling 46,668 shares. In November 2003, the Company, as an inducement to extend the maturity date of the May Notes, June Notes, September Notes and November Notes to February 19, 2004, offered such Note holders a warrant to purchase additional shares of Common Stock in an amount equal to 25% of the number of shares into which the Notes are convertible. The Funds agreed to extend the maturity date of their holdings of May Notes and June Notes in this manner and, accordingly, received an additional 15,823 warrants, exercisable at $1.50 per share and expiring on November 19, 2006. STIP did not agree to extend the maturity date of its holding of May Notes and June Notes in this manner and, accordingly, the Notes it held went into default in November 2003 and December 2003, respectively. STIP subsequently verbally agreed to waive the default and have its May Notes and June Notes extended and converted into February Units (as defined below). On February 13, 2004, the Company completed a closing of approximately $4 million in gross proceeds in a private offering of investment units (the "February Units") for a purchase price of $15.00 per Unit (the "February Closing") for which STVI acted as placement agent. Each February Unit consisted of one share of Series A Convertible Preferred Stock ("Series A"), which is convertible into ten shares of Common Stock, and warrants to purchase ten shares of Common Stock (the "February Warrants"). Each share of the Series A is convertible into Common Stock at $1.50 per share and mandatorily convertible on February 13, 2007. The February Warrants are exercisable at $2.82 per share and expire on February 13, 2007. Each of the Funds and the Illumination Fund purchased February Units, as follows: Fund I purchased 7,000 shares of Series A Stock and 70,000 February Warrants; Fund II purchased 3,667 shares of Series A and 36,667 February Warrants; Fund III purchased 4,667 shares of Series A and 46,667 February Warrants; and the Illumination Fund purchased 4,667 shares of Series A and 46,667 February Warrants. Under its Placement Agency Agreement with the Company, dated January 29, 2004 (the "Placement Agency Agreement"), as partial compensation for its services for the February Closing, STVI received warrants to purchase 539,000 shares of Common Stock, exercisable at $1.50 per share, and expiring on February 13, 2009, and warrants to purchase 539,000 shares of Common Stock, exercisable at $2.82 per share and expiring on February 13, 2009. In addition to those Units sold in the February Closing, February Units were also issued to holders of the May Notes, June Notes, September Notes and November Notes, totaling $3 million plus accrued interest, in a conversion of such Notes into February Units. The May Notes and June Notes held by each of the Funds, inclusive of accrued interest, were automatically converted into February Units, resulting in the acquisition by each of the Funds of 2,819 shares of Series A and 28,192 February Warrants (totaling 8,457 shares of Series A and 84,576 February Warrants). In addition, pursuant to STIP's verbal agreement, the May Notes and June Notes held by STIP were converted, resulting in the acquisition by STIP of 17,607 shares of Series A and 176,067 February Warrants. On February 27, 2004, the Company completed a second closing of the February Units in the amount of approximately $6 million. As partial compensation for its services under the Placement Agency Agreement in connection with the second closing of the February Units, STVI received warrants to purchase 794,333 shares of Common Stock, exercisable at $1.50 per share and expiring on February 27, 2009, and warrants to purchase 794,333 shares of Common Stock, exercisable at $2.82 per share and expiring on February 27, 2009. On March 22, 2004, the Company completed its third and final closing of the February Units in the amount of approximately $25,000. As partial compensation for its services under the Placement Agency Agreement in connection with this closing, STVI received warrants to purchase 3,333 shares of Common Stock, exercisable at $1.50 per share and expiring on March 22, 2009, and warrants to purchase 3,333 shares of Common Stock, exercisable at $2.82 per share and expiring on March 22, 2009. In May 2004, STVI asked the Company to transfer 1,831,758 of its warrants for the Company Common Stock to various of its brokers and employees as compensation and to an employee equity plan for the benefit of its employees. STVI also asked the Company to transfer 1,590,722 warrants to Spencer Trask & Co. STVI was not notified whether such transfer had taken place until July 27, 2004, when the Company's Amendment No. 1 to Form SB-2, filed that date, reflected the effect of these transfers on Mr. Kimberlin's holdings. Item 4. Purpose of Transaction All of the shares of Common Stock and securities convertible into Common Stock reported herein were acquired primarily for investment purposes. In addition, Mr. Kimberlin acquired a portion of the warrants with the intention to distribute them as compensation to brokers and employees of STVI and Spencer Trask & Co. Mr. Kimberlin retains the right, on behalf of each of the Funds, the Illumination Fund, STIP and STVI, to change his investment intent from time to time to acquire additional shares of Common Stock, acquire other securities of the Company or to sell or otherwise dispose of all or part of the Common Stock or other securities of the Company, if any, beneficially owned by him in any manner permitted by law. Mr. Kimberlin does not presently have any plans or proposals that relate to or would result in any of the following: (b) An extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any of its subsidiaries; (c) A sale or transfer of a material amount of assets of the Company or of any of its subsidiaries; (d) Any change in the present Board of Directors or management of the Company; (e) Any material change in the present capitalization or dividend policy of the Company; (f) Any other material change in the Company's business or corporate structure; (g) Changes in the Company's charter, By-laws or instruments corresponding thereto or other actions which may impede the acquisition of control of the Company by any person; (h) A class of securities of the Company being delisted from a national securities exchange or ceasing to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) A class of equity securities of the Company becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Act; or (j) Any action similar to any of those enumerated above. As part of the ongoing evaluation of these investments and investment alternatives, however, Mr. Kimberlin may consider the foregoing matters and, subject to applicable law, may formulate a plan with respect to such matters and, from time to time, may hold discussions with or make formal proposals to management or the Board of Directors of the Company, other stockholders of the Company or other third parties regarding such matters. Item 5. Interest in Securities of the Issuer (a) The aggregate percentage of shares of Common Stock reported beneficially owned by Mr. Kimberlin is based upon 2,953,618 shares outstanding, which is the total number of shares of Common Stock outstanding as of June 30, 2004, as represented by the Company in its Amendment No. 1 to Form SB-2, filed July 27, 2004. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, based on voting and investment power with respect to shares. Shares of Common Stock subject to options, notes, warrants or Series A currently exercisable or convertible, or exercisable or convertible within 60 days after June 30, 2004, are deemed outstanding for computing the percentage ownership of Mr. Kimberlin, but are not deemed outstanding for computing the percentage ownership of any other person. As of the date of this statement, Mr. Kimberlin may be deemed to be the beneficial owner, for purposes of Section 13(d) of the Act, of 3,192,959 shares of Common Stock, representing 54.02% of the class, based on the 2,953,618 shares of Common Stock outstanding as of June 30, 2004. Specifically, Mr. Kimberlin can be deemed to be the beneficial owner of 235,556 shares of Common Stock and, upon the exercise of warrants and the conversion of the Series A, 2,957,403 shares of Common Stock may be acquired by Mr. Kimberlin currently or within 60 days after June 30, 2004. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission, based on voting and investment power with respect to shares. Shares of Common Stock subject to options, notes, warrants or Series A currently exercisable or convertible, or exercisable or convertible within 60 days after June 30, 2004, are deemed outstanding for computing the percentage ownership of Mr. Kimberlin, but are not deemed outstanding for computing the percentage ownership of any other person. (b) Mr. Kimberlin has the sole power to vote and dispose of all shares of Common Stock beneficially owned by him. (c) Other than as set forth in Item 3 above, in the 60 days prior to the date of this Schedule 13D, Mr. Kimberlin has not engaged in any transactions in shares of Common Stock. (d) No person other than each respective owner of shares of Common Stock referred to herein is known to have the right to receive or the power to direct the receipt of dividends from or the proceeds from the sale of such shares of Common Stock. (e) Not applicable. Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer The information set forth in Items 3, 4 and 5 of this statement is hereby incorporated by reference herein. Except as set forth in this statement, Mr. Kimberlin does not have any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any such securities, joint venture, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Item 7. Material to be Filed as Exhibits 99.1 Consulting Agreement 99.2 Placement Agency Agreement Signature After reasonable inquiry and to the best of his knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. August 6, 2004 /s/ Kevin B. Kimberlin ------------------------- Kevin B. Kimberlin EXHIBIT INDEX 99.1 Consulting Agreement 99.2 Placement Agency Agreement EX-99.1 2 consulting.txt (CONSULTING AGREEMENT) Exhibit 99.1 Spencer Trask Ventures, Inc. 535 Madison Avenue, 18th Floor New York, NY 10022 Tel. 212-355-5565 May 8, 2003 SmartServ Online, Inc. One Station Place Stamford, CT. 06902 Attention: Sebastian E. Cassetta, CEO Gentlemen: This is to acknowledge and confirm the terms of our corporate finance consulting agreement (the "Consulting Agreement") as follows: (1) SmartServ Online, Inc., a Delaware corporation (the "Company"), hereby engages Spencer Trask Ventures, Inc. (the "Advisor") and the Advisor hereby agrees to render services to the Company as its corporate finance consultant, financial advisor and investment banker. (2) During the term of this Consulting Agreement, the Advisor shall provide advice to, and consult with, the Company concerning financial planning, corporate organization and structure, financial matters in connection with the operation of the business of the Company, private and public equity and debt financing, acquisitions, mergers and other similar business combinations and shall review and advise the Company regarding its overall progress, needs and financial condition. The Advisor is not obligated to devote any specific amount of time to providing advice and consultation to the Company. This Consulting Agreement does not obligate the Company to proceed with any potential Transaction (as hereinafter defined) or to accept the advice of Advisor in any way. The Company shall evaluate potential Transactions on a good faith basis and any decisions to proceed will be made at the sole discretion of the Company, upon approval by the Board of Directors, and if required, by its shareholders. (3) The Company shall compensate the Advisor as follows: (a) cash fee equal to 10% of the gross proceeds received by the Company from investors introduced by the Advisor upon the closing of the financing described in the term sheet annexed hereto as EXHIBIT B (the "Term Sheet"); (b) five-year cashless exercise warrants (each a "Warrant"), issuable at closing of the financing described in the Term Sheet, to purchase shares of the Company's common stock, at an exercise price per share equal to the lower of a) the average closing bid price during the five days prior to closing or b) the closing bid price the day prior to the closing of the offering described in the Term Sheet, and in the form attached hereto as EXHIBIT A, which warrants will have an aggregate exercise price equal to 20% of the gross proceeds received by the Company from investors in the financing described in the Term Sheet that are introduced by the Advisor; (c) 500,000 shares of restricted common stock of the Company, to be issued upon signing of this Consulting Agreement; (d) consulting fee payments in the amount $7,500 on the 30th day of each month of the term of this Consulting Agreement commencing with the month of July, 2003; and (e) compensation for any Transaction (as hereinafter defined) as described in Section 4 below. The shares underlying the Warrants will be registered for resale with the SEC at the same time as the shares included in the units sold in the offering described in the Term Sheet are registered. The monthly fees may be deferred, at the Company's option, until such date as, and will only be earned and payable if, the Company has received an aggregate of $1,500,000 or more of new equity financing subsequent to the closing of the financing described in the Term Sheet, on which date the deferred amounts will be paid to the Advisor and the Company's fee deferral option shall end. The Company shall also reimburse the Advisor, promptly upon receipt of invoices therefor, for (a) up to $20,000 of legal fees relating to the Advisor's involvement with the financing described in the Term Sheet, and (b) other out-of-pocket expenses incurred in connection with its services hereunder up to an aggregate amount of $5,000; any expenses in excess of said amount must be approved in advance by the Company. In the event the Company fails to pay the fees as set forth herein, the Company will pay all costs and expenses incurred by the Advisor in connection with recovering such fees, plus interest at ten percent per annum from the date the fees were due to the date actually paid. (4) If any Transaction (as hereinafter defined) (other than the transaction described in the Term Sheet) is consummated during the Term or within eighteen months after the end of the Term with a party, other than a party listed in EXHIBIT C hereto, introduced to the Company or contacted by Spencer Trask or the Company during the Term (a "Target"), the Company shall pay Spencer Trask or cause Spencer Trask to be paid, at the closing of each such Transaction, a cash fee equal to the sum of: (a) five percent (5%) of the first two million dollars of the aggregate consideration of a Transaction (the "Aggregate Consideration"), (b) four percent (4%) of the second two million dollars or portion thereof, (c) three percent (3%) of the third two million dollars or portion thereof, and (d) two and one and one-half percent (2 1/2%) of the balance of the Aggregate Consideration; provided, however, that if a Transaction involves an investment in the Company other than by means of a financing for which the Advisor acts as Agent, the cash fee shall be seven percent (7%) of the amount of such investment and the Advisor will be issued at closing five-year warrants to purchase shares of the Company's common stock at a price per share equal to the price per unit paid to the Company in connection with the investment (on an as-converted basis if the investment is evidenced by convertible securities). A form of such warrants is attached hereto as EXHIBIT A. Such warrants will entitle the Advisor to purchase up to a number of shares of the Company's common stock as is equal to 15% of the number of shares of the Company's common stock sold by the Company or purchasable thereafter by investors in such Transaction. Aggregate Consideration is defined and computed as follows: A. The total sale proceeds and other consideration received (which shall be deemed to include amounts paid into escrow) by the Company and/or its shareholders or by a Target and/or its shareholders upon the consummation of the Transaction (including payments made in installments), inclusive of cash, securities, notes, and the total value of liabilities assumed. B. If a portion of such consideration includes contingency or other deferred, escrowed or installment payments (whether or not related to future earnings or operations), the applicable fees shall be paid to Spencer Trask when such contingency or other deferred, escrowed or installment payments are made. C. If the Aggregate Consideration for the Transaction consists in whole or in part of securities, for the purposes of calculating the amount of Aggregate Consideration, the value of such securities will be the value thereof as reasonably agreed to on an arm's length basis by the parties to the Transaction; provided, however, that if the parties have not established a value: (i) in the case of securities for which there is a public trading market, the value will be determined by the average last sales price for such securities for the last twenty trading days prior to such consummation; or (ii) if there is no public trading market for such securities or other property received or receivable as a part of the Aggregate Consideration and the parties are unable to agree, then each of Spencer Trask and the Company will select an investment banking firm respected in the merger and acquisition field to determine a value and the midpoint between the two values established by the two independent experts will be the fair market value for the purpose hereof. 2 For the purposes of this Consulting Agreement, any of the following transactions shall constitute a "Transaction": (a) the sale, outside of the ordinary course of business, of the Company or any of its assets, securities, or business by means of a merger, consolidation, joint venture, or exchange offer, or any transaction resulting in any change of control of the Company or its assets or business; (b) the purchase by the Company, outside of the ordinary course of business, of another company or any of its assets, securities or business by means of a merger, consolidation, joint venture, or exchange offer; and (c) an investment in the Company other than an investment pursuant to an Agented Offering, which will be subject to compensation as per engagement terms separate from this Consulting Agreement. (5) The term of this Consulting Agreement shall be until May 31, 2004, or earlier if terminated by the Company pursuant to this Section (the "Term"). The Company can terminate this Consulting Agreement prior thereto upon thirty days prior written notice to Advisor; provided, however, that in the event of such termination (a) all compensation earned but unpaid through the date the termination is effective, inclusive of cash and warrants, shall be paid on the date the termination is effective; and (b) the provisions of paragraphs 4, 6, 7, 9 and 10 of this Consulting Agreement shall remain in full force and effect. (6) The Advisor will not disclose to any other person, firm, or corporation, nor use for its own benefit, during or after the term of this Consulting Agreement, any trade secret or other information designated as confidential by the Company which is acquired by the Advisor in the course of performing services hereunder. (A trade secret is information not generally known to the trade which gives the Company an advantage over its competitors. Trade secrets can include, by way of example, products or services under development, production methods and processes, sources of supply, customer lists and marketing plans). Any financial advice rendered by the Advisor pursuant to this Consulting Agreement may not be disclosed publicly in any manner, nor will any announcements or press releases be made concerning this Consulting Agreement, without the prior written approval of the Advisor, unless required by the Securities and Exchange Commission or Nasdaq rules and regulations. (7) The Company agrees to indemnify and hold the Advisor, its affiliates, control persons, officers, employees and agents (collectively, the "Indemnified Persons") harmless from and against all losses, claims, damages, liabilities, costs or expenses (including reasonable attorneys' and accountants' fees) joint and several, arising out of the performance of this Consulting Agreement, whether or not the Advisor is a party to such dispute. This indemnity shall not apply, however, where a court of competent jurisdiction has made a final determination that the Advisor engaged in gross negligence or willful misconduct in the performance of its services hereunder which gave rise to the loss, claim, damage, liability, cost or expense sought to be recovered hereunder (but pending any such final determination, the indemnification and reimbursement provision of this Consulting Agreement shall apply and the Company shall perform its obligations hereunder to reimburse the Advisor for its expenses). If for any reason the foregoing indemnification is unavailable to the Advisor or such other Indemnified Person or insufficient to hold it harmless, then the Company shall contribute to the amount paid or payable by the Advisor or such other Indemnified Person as a result of such loss, claim, damage, or liability in such proportion as is appropriate to reflect not only the relative benefits received by the Company and its shareholders on the one hand and the Advisor or such other Indemnified Person on the other hand, as well as any relevant equitable considerations; provided that in no event will the aggregate contribution by the Advisor and any other Indemnified Person hereunder exceed the amount of fees actually received by the Advisor pursuant to this Consulting Agreement. The reimbursement, indemnity and contribution obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the 3 Advisor and any other Indemnified Person. The provisions of this paragraph (7) shall survive the termination and expiration of this Consulting Agreement. (8) This Consulting Agreement is not assignable and cannot be modified or changed, nor can any of its provisions be waived, except by written agreement signed by all parties. This Consulting Agreement constitutes the entire agreement of the parties pertaining to the subject matter hereof and replaces a prior Consulting Agreement dated April 25, 2003, and the parties have made no agreements, representations or warranties relating to the subject matter of this Consulting Agreement that are not set forth herein. The waiver by either party of compliance with any provision of this Consulting Agreement by the other party shall not operate or be construed as a waiver of any other provision of this Consulting Agreement, or of any other breach by such party of a provision of this Consulting Agreement. This Consulting Agreement may be executed simultaneously in any number of counterparts, each of which when so executed and delivered shall be taken to be an original; but such counterparts shall together constitute but one and the same document. The provisions of this Consulting Agreement shall be deemed severable, so that if any provision hereof shall be declared unlawful or unenforceable, the remaining provisions hereof shall not be affected thereby and shall remain in full force and effect. A facsimile signature on this Consulting Agreement shall be considered the same as an original. (9) This Consulting Agreement shall be governed by the laws of the State of New York, without regard to conflicts of law principles. (10) The Advisor shall at all times act as and be an independent contractor, and in no event shall either the Advisor or any of its employees, agents or representatives be deemed to be an employee, agent or representative of the Company. The Advisor shall have no authority to bind the Company to any obligation, express or implied. Nothing herein shall be construed to appoint the Advisor as placement agent or underwriter in connection with any of the Company's activities, including, without limitation, the transaction contemplated by the Term Sheet. Please confirm that the foregoing correctly sets forth our understanding by signing the enclosed copy of this letter where provided and returning it to us by April 29, 2003. Very truly yours, Accepted and Agreed: SPENCER TRASK VENTURES, INC. SMARTSERV ONLINE, INC. By:____________________________ By:__________________________ Sebastian E. Cassetta Chief Executive Officer 4 EX-99.2 3 placement.txt (PLACEMENT AGENCY AGMT) Exhibit 99.2 PLACEMENT AGENCY AGREEMENT -------------------------- January 29, 2004 Spencer Trask Ventures, Inc. 535 Madison Avenue 18th Floor New York, New York 10022 Ladies and Gentlemen: SmartServ Online, Inc., a Delaware corporation (the "Company"), hereby confirms its agreement (the "Agreement") with Spencer Trask Ventures, Inc., a Delaware corporation (the "Placement Agent"), as follows (unless the context otherwise requires, as used herein, the "Company" refers to SmartServ Online, Inc. and each of its subsidiaries, if any): 1. OFFERING. -------- (a) The Company will offer (the "Offering") for sale through the Placement Agent as exclusive agent for the Company, investment units ("Units"), each Unit comprised of (i) one (1) share of the Company's Series A convertible preferred stock (the "Shares") having the designations, rights, privileges set forth in the certificate of designations annexed to the Memorandum (as defined in 1(d) below) and (ii) one warrant ("Warrant") for the purchase of 10 shares of common stock of the Company ("Common Stock") The Warrants and the Shares shall collectively be referred to herein as the Securities. The offering price per Unit (the "Purchase Price per Unit") shall be calculated at each closing to be equal to the lesser of (A) 10 times the lesser of (i) 80% of the average of the closing bid prices of the Common Stock over the ten trading days immediately preceding the date of each closing of the Offering (a "Closing Date") or (ii) 80% of the closing bid price of the Common Stock on the day immediately prior to the applicable Closing Date or (B) with respect to closings after the first closing, the Purchase Price per Unit at the first closing. The exercise price per share of the shares underlying the Warrants will be 150% of the Market Price (as defined below) of the Common Stock on the day immediately prior to each closing. Market Price ("Market Price") shall be equal to the lesser of (i) the average of the closing bid prices of the Common Stock over the ten trading days immediately preceding the applicable Closing Date, or (ii) the closing bid price of the Common Stock on the day immediately prior to the applicable Closing Date. The purchase price may be paid in cash or cancellation of indebtedness to an investor. The total amount of gross cash proceeds from the sale of Units in the Offering (excluding for such purpose any converted indebtedness) shall be a minimum of $3.0 million (the "Minimum Amount") and a maximum of $6.0 million (the "Maximum Amount"). In addition, for the purposes of covering overallotments in the sale of the Units, the Company agrees to grant the Placement Agent an option to sell additional Units with an aggregate purchase price of up to $1.8 million. All share prices, exercise prices and conversion prices should be assumed to be proportionally adjusted to reflect stock splits, stock dividends, recapitalizations and the like. (b) The Units will be offered on a reasonable efforts basis for a period of 60 days from the date of the Memorandum (as defined below) (the "Commencement Date"), which period may be extended by mutual agreement of the Placement Agent and the Company for up to an additional 30 days (the "Offering Period"). The date on which the Offering shall terminate shall be referred to as the "Termination Date." (c) The minimum subscription for Units shall be $25,000, however, the Placement Agent may, in its discretion, offer less than the minimum subscription amount; PROVIDED, HOWEVER, that the Placement Agent shall not tender to the Company and the Company shall not accept subscriptions from, or sell Units to, any persons or entities that do not qualify as (or are not reasonably believed to be) "accredited investors," as such term is defined in Rule 501 of Regulation D promulgated under Section 4(2) of the Securities Act of 1933, as amended (the "Act"). (d) The offering of the Units will be made by the Placement Agent on behalf of the Company solely pursuant to the Memorandum, as defined below, which at all times will be in form and substance acceptable to the Placement Agent and its counsel and contain such legends and other information as the Placement Agent and its counsel may, from time to time, deem necessary and desirable to be set forth therein. "Memorandum" as used in this Agreement means the Company's Confidential Private Placement Memorandum, inclusive of all exhibits, and any and all amendments, supplements and appendices thereto and other Company-approved documents that the Placement Agent may use on the Company's behalf to sell the Units. Unless otherwise defined, each term used in this Agreement will have the same meaning as shall be set forth in the Memorandum. 2. REPRESENTATIONS AND WARRANTIES. Except as set forth under the corresponding section of the Schedule of Exceptions delivered concurrently herewith (the "Schedule of Exceptions"), the Company hereby represents and warrants to the Placement Agent that each of the following shall be true in all respects as of the date hereof and, as applicable, on and as of the date of the Memorandum as if made on and as of the date hereof: (a) The Memorandum will be, and as of the date of the Memorandum has been, diligently prepared by the Company, at its sole cost, in conformity with all applicable laws, and will be in compliance with Regulation D as promulgated under Section 4(2) of the Act ("Regulation D"), the Act and the requirements of all other rules and regulations (the "Regulations") of the Securities and Exchange Commission (the "SEC") relating to offerings of the type contemplated by the Offering, and the applicable securities laws and the rules and regulations of those jurisdictions wherein the Units are to be offered and sold, excluding foreign jurisdictions. The Units will be offered and sold pursuant to the registration exemption provided by Regulation D and Section 4(2) and/or Section 4(6) of the Act as a transaction not involving a public offering and the requirements of any other applicable state securities laws and the respective rules and regulations thereunder in those United States jurisdictions in which the Placement Agent notifies the Company that the Units are being offered for sale. The Memorandum will describe all material aspects, including attendant risks, of an investment in the Company. The Company has not taken nor will it take any action that conflicts with the conditions and requirements of, or that 2 would make unavailable with respect to the Offering, the exemption(s) from registration available pursuant to Regulation D or Section 4(2) and/or Section 4(6) of the Act and knows of no reason why any such exemption would be otherwise unavailable to it. Neither the Company nor its affiliates has been subject to any order, judgment or decree of any court or governmental authority of competent jurisdiction temporarily, preliminarily or permanently enjoining such person for failing to comply with Section 503 of Regulation D. (b) The Memorandum will not, and as of the date of the Memorandum does not, include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements, documents, certificates or other items prepared or supplied by the Company with respect to the transactions contemplated hereby contains or will contain an untrue statement of a material fact or omits a material fact necessary to make the statements contained therein not misleading. There is no fact that the Company has not disclosed to the Placement Agent and its counsel and of which the Company is aware that materially and adversely affects or is likely to materially and adversely affect the business, prospects, financial condition, operations, assets or affairs of the Company. (c) The Company is a corporation duly organized, validly existing and in good standing under the laws of Delaware. The Company has no active subsidiaries and except for its wholly owned subsidiaries which are inactive, does not have an equity interest in any other firm, partnership, association or other entity. The Company is duly qualified to transact business as a foreign corporation and is in good standing under the laws of each jurisdiction where the location of its properties or the conduct of its business makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the Company or its business. (d) The Company has all requisite power and authority (corporate and other) to conduct its business as presently conducted and as proposed to be conducted (described in the Memorandum), to enter into and perform its obligations under this Agreement and the other agreements contemplated hereby, the Securities and by the Memorandum (collectively, the "Transaction Documents") and to issue, sell and deliver the Units and the shares of Common Stock issuable upon conversion and exercise, as applicable, of the Securities (the "Conversion Shares"). The execution and delivery of each of the Transaction Documents has been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered and constitutes, and each of the other Transaction Documents, upon due execution and delivery, will constitute, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms. (e) None of the execution and delivery of, or performance by the Company under, any of the Transaction Documents or the consummation of the transactions herein or therein contemplated conflicts with or violates, or will result in the creation or imposition of, any lien, charge or other encumbrance upon any of the assets of the Company under any agreement or other instrument to which the Company is a party or by which the Company or its assets may be bound, any term of the charter or by-laws of the Company, or any license, permit, judgment, decree, order, statute, rule or regulation applicable to the Company or any of its assets. 3 (f) The Company will have the authorized and outstanding capital stock set forth in the Memorandum. Except as set forth in the Memorandum, all outstanding shares of capital stock of the Company are duly authorized, validly issued and outstanding, fully paid and nonassessable. Except as set forth in the Memorandum and the Schedule of Exceptions: (i) there are no outstanding options, stock subscription agreements, warrants or other rights permitting or requiring the Company or others to purchase or acquire any shares of capital stock, or other equity securities of the Company, or to pay any dividend or make any other distribution in respect thereof; (ii) there are no securities issued or outstanding that are convertible into or exchangeable for any of the foregoing and there are no contracts, commitments or understandings, whether or not in writing, to issue or grant any such option, warrant, right or convertible or exchangeable security; (iii) no shares of stock or other securities of the Company are reserved for issuance for any purpose; (iv) there are no voting trusts or other contracts, commitments, understandings, arrangements, or restrictions of any kind with respect to the ownership, voting or transfer of shares of stock or other securities of the Company, including without limitation, any preemptive rights, rights of first refusal, proxies or similar rights; and (v) no person holds a right to require the Company to register any securities of the Company under the Act or to participate in any such registration. The issued and outstanding shares of capital stock of the Company conform to all statements in relation thereto contained in the Memorandum and the Memorandum describes all material terms and conditions thereof. All issuances by the Company of its securities were at the time of their issuance either (x) exempt from registration under the Act and any applicable state securities laws or (y) appropriately registered. (g) The Shares, the Warrants, the Conversion Shares and the Agent's Warrants (as defined in Section 3(e) hereof) have been duly authorized and, when issued and delivered against payment therefore as provided in the Transaction Documents, will be validly issued, fully paid and nonassessable and will be free and clear of all liens, charges, restrictions, claims and encumbrances imposed by or through the Company other than as provided in the Transaction Documents. No holder of any of the Securities, the Conversion Shares or the Agent's Warrants or Agent's Shares (as defined in Section 3(e) hereof) will be subject to personal liability solely by reason of being such a holder and, except as set forth in the Memorandum and the Schedule of Exceptions, none of the Securities, the Conversion Shares or the Agent's Warrants or Agent's Shares is subject to preemptive or similar rights of any securityholder of the Company or an adjustment under the antidilution or exercise rights of any holders of any outstanding shares of capital stock, options, warrants or other rights to acquire any securities of the Company. A sufficient number of authorized but unissued shares of Common Stock have been reserved for issuance upon the conversion of the Shares, exercise of the Warrants and the Agent's Warrants (as defined in Section 3(e) defined hereof). (h) No consent, authorization or filing of or with any court or governmental authority is required in connection with the issuance of the Securities, the Conversion Shares or the Agent's Warrants or Agent's Shares or the consummation of the transactions contemplated herein or in the other Transaction Documents, except for required filings with the SEC, if any, and applicable "blue sky" or state securities commissions relating specifically to the Offering (all of which will be duly made on a timely basis). 4 (i) Except as set forth in the Memorandum, the financial statements, together with the related notes thereto, of the Company included or incorporated by reference in the Memorandum are true and complete and present fairly, in all material respects, the financial position of the Company as of the respective dates specified and the results of its operations and changes in financial position for the respective periods covered thereby. Such financial statements and related notes were prepared in accordance with U.S. generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods indicated and except that the unaudited financial statements omit full notes, and except for normal year-end adjustments. Except as set forth in such financial statements or in the Memorandum, the Company has no material liabilities of any kind, whether accrued, absolute, contingent or otherwise or entered into any material transactions or commitments. The other financial and statistical information with respect to the Company included in the Memorandum present fairly the information shown therein on a basis consistent with the financial statements of the Company included in the Memorandum. The Company does not know of any facts, circumstances or conditions (or any state of facts, circumstances or conditions which management of the Company has concluded could give rise thereto) that could materially adversely affect its business, operations, earnings or prospects that have not been fully disclosed in the Memorandum or the Schedule of Exceptions. (j) The conduct of business by the Company as presently and proposed to be conducted is not subject to continuing oversight, supervision, regulation or examination by any governmental official or body of the United States or any other jurisdiction wherein the Company conducts or proposes to conduct such business, except as described in the Memorandum or except such regulation as is applicable to commercial enterprises generally. Except as set forth in the Memorandum, all material licenses, permits, approvals, government authorizations, leases, contracts and agreements referred to in the Memorandum, along with all other material licenses, permits, approvals, leases, governmental authorizations or contracts to which the Company is a party, have been obtained and are valid and in full force and effect and neither the Company nor, to the knowledge of the Company, any other party is in default thereunder, and to the knowledge of the Company, no event has occurred which with the passage of time or the giving of notice, or both, would constitute a default thereunder except for a default which would not have a material adverse effect on the Company. Except as described in the Memorandum, all material licenses, permits, approvals or governmental authorizations necessary to permit the Company to conduct its business have been obtained and are outstanding and will be outstanding on each Closing Date, and the Company is in all material respects complying therewith. There are no proceedings pending, or to the knowledge of the Company threatened, seeking to cancel, terminate or limit such licenses, approvals or permits. (k) Except as disclosed in the Memorandum or the Schedule of Exceptions, no default by the Company or, to the best knowledge of the Company, any other party exists in the due performance under any material agreement to which the Company is a party or to which any of its assets is subject, that could have a material adverse effect on its business, operations, earnings or prospects (collectively, the "Company Agreements"). The Company Agreements are in full force and effect in accordance with their respective terms. (l) Except as set forth in the Memorandum or in the Schedule of Exceptions, there are no actions, proceedings, claims or investigations, before or by any court or governmental authority (or any state of facts which management of the 5 Company has concluded could give rise thereto) pending or, to the best knowledge of the Company, threatened, against the Company, or involving its assets or, to the knowledge of the Company, involving any of its officers or directors which, if determined adversely to the Company or such officer or director, could result in any material adverse change in the condition (financial or otherwise) or prospects of the Company or adversely affect the transactions contemplated by this Agreement or the other Transaction Documents or the enforceability thereof. (m) Except as set forth in the Memorandum or the Schedule of Exceptions, the Company is not in violation of: (i) its charter or by-laws; (ii) any indenture, mortgage, deed of trust, note or other agreement or instrument to which the Company is a party or by which it is or may be bound or to which any of its assets may be subject; (iii) any statute, rule or regulation currently applicable to the Company; or (iv) any judgment, decree or order applicable to the Company, which violation or violations individually, or in the aggregate, would result in any material adverse change in the condition (financial or otherwise) or prospects of the Company. (n) Except as set forth in the Memorandum, the Company does not own any real property in fee simple, and the Company has good and marketable title to all property (personal, tangible and intangible) owned by it, free and clear of all security interests, liens and encumbrances. (o) The Company owns all right, title and interest in, or possesses adequate and enforceable rights to use, all patents, patent applications, trademarks, trade names, service marks, copyrights, rights, licenses, franchises, trade secrets, confidential information, processes, formulations, software and source and object codes reasonably necessary for the conduct of its business, except as otherwise described in the Memorandum (collectively, the "Intangibles"). The Company has not, after due inquiry, knowingly infringed upon the rights of others with respect to the Intangibles; the Company has not received notice that it has or may have infringed or is infringing upon the rights of others with respect to the Intangibles, or any notice of conflict with the asserted rights of others with respect to the Intangibles that could, individually or in the aggregate, materially and adversely affect the business, condition (financial or otherwise) or prospects of the Company. Except as set forth in the Memorandum, to the best knowledge of the Company, no other parties have infringed or are infringing upon the Intangibles. (p) Except as set forth in the Memorandum or the Schedule of Exceptions and as may otherwise be contemplated therein, the Company has operated its business diligently and only in the ordinary course as theretofore conducted and there has been no: (i) material adverse change in the business condition (financial or otherwise) or prospects of the Company; (ii) transaction otherwise than in the ordinary course of business; (iii) issuance of any securities (debt or equity) or any rights to acquire any such securities; (iv) damage, loss or destruction, whether or not covered by insurance, with respect to any asset or property of the Company; or (v) agreement to permit any of the foregoing. (q) Except as set forth in the Memorandum or the Schedule of Exceptions, the Company has filed each Federal, state, local and foreign tax return which is required to be filed by it, or has requested an extension therefor and has paid all taxes and all related assessments, penalties and interest to the extent that the same have become due. 6 (r) The Company is not obligated to pay, and has not obligated the Placement Agent to pay, a finder's or origination fee in connection with the Offering and agrees to indemnify the Placement Agent from any such claim made by any other person. The Company has not offered for sale or solicited offers to purchase the Units except for negotiations with the Placement Agent. Except as set forth in the Memorandum, as of the commencement of the Offering, no other person has any right to participate in any offer, sale or distribution of the Company's securities to which the Placement Agent's rights, described herein, shall apply. (s) The Company has and will maintain appropriate casualty and liability insurance coverage, in scope and amounts reasonable and customary for similar businesses. (t) All of the Company's filings with the SEC are true and correct in all material respects. 3. PLACEMENT AGENT APPOINTMENT AND COMPENSATION. -------------------------------------------- (a) In accordance with the terms hereof, the Company hereby appoints the Placement Agent and its selected dealers, as its exclusive agent in connection with the Offering. The Company acknowledges that the Placement Agent may use selected dealers and sub agents to fulfill its agency hereunder provided that such dealers and sub agents are compensated solely by the Placement Agent. Except as expressly stated herein, the Company has not and will not make, or permit to be made, any offers or sales of the Units other than through the Placement Agent without the Placement Agent's prior written consent. The Placement Agent has no obligation to purchase any of the Units. The agency of the Placement Agent hereunder shall continue until the earlier of the Termination Date or the Final Closing (as defined in Section 3(f) hereof). (b) The Company will cause to be delivered to the Placement Agent copies of the Memorandum and has consented, and hereby consents, to the use of such copies for the purposes permitted by the Act and applicable securities laws, and hereby authorizes the Placement Agent and its agents, employees and selected dealers to use the Memorandum in connection with the sale of the Units until the Termination Date, and no other person or entity is or will be authorized to give any information or make any representations other than those contained in the Memorandum or to use any offering materials other than those contained in the Memorandum in connection with the sale of the Units. The Company will provide at its own expense such quantities of the Memorandum and other documents and instruments relating to the Offering as the Placement Agent may reasonably request. (c) The Company will cooperate with the Placement Agent by making available to its representatives such information as may be requested in making a reasonable investigation of the Company and its affairs and shall provide access to such employees as shall be reasonably requested. (d) At each Closing, the Company shall pay to the Placement Agent a placement fee equal to ten percent (10%) of the aggregate cash Purchase Price per Unit paid by each Investor and for which subscriptions are accepted by the Placement Agent and the Company (the "Placement Agent's Fee"). In addition, the Company shall pay all expenses set forth in Section 5(j) hereof. The Placement Agent's Fee and the expenses set forth in Section 5(j) hereof will be deducted from the 7 gross proceeds of the Units sold at each Closing, as set forth in Section 4 hereof. The Placement Agent shall direct all such amounts to be paid directly from the escrow account established pursuant to Section 4(b) hereof. (e) As additional compensation hereunder, at each Closing, the Company shall sell to the Placement Agent or its designees, for $1, five-year warrants (the "Agent's Warrants") to purchase the number of Units equal to twenty percent (20%) of the Units purchased for cash at each Closing, at an exercise price per Unit equal to the Purchase Price per Unit at the applicable Closing (such shares of Common Stock underlying the components of the Agent's Warrants, the "Agent's Shares"). The holders of the Agent's Warrants shall have registration rights equivalent to those granted to the holders of Units. The Agent's Warrants will contain cashless exercise and weighted-average antidilution provisions. (f) In the event any investor in the Offering or party contacted by the Placement Agent in connection with the Offering (except for parties that have previously invested in the Company not as a result of an introduction by the Placement Agent, and third parties that have a pre-existing business relationship with the Company that did not arise from an introduction by the Placement Agent), subsequently invests (except through an underwritten public offering) in the Company at any time within eighteen (18) months from the later of the termination date or the final closing of the Offering ("Final Closing"), the Company shall pay to the Placement Agent the Placement Agent's Fee and a nonaccountable expense allowance equal to 3%, and sell to the Placement Agent the Agent's Warrants (exercisable at the subsequent offering share price) with respect to, and based on the gross proceeds from investments in the Company made within eighteen months after the Final Closing by such investors or parties. 4. SUBSCRIPTION AND CLOSING PROCEDURES. ----------------------------------- (a) Each prospective purchaser will be required to complete and execute one original signature page for the Subscription Agreement in the form annexed to the Memorandum, which will be forwarded or delivered to the Placement Agent at the Placement Agent's offices at the address set forth in Section 11 hereof, together with the subscriber's check or good funds in the full amount of the Purchase Price Per Unit for the number of Units desired to be purchased. (b) All funds for subscriptions received from the Offering will be promptly forwarded by the Placement Agent or the Company, if received by it, to and deposited in an escrow account (the "Escrow Account") with American Stock Transfer & Trust Co., acting as escrow agent. established for the purpose of holding subscription funds prior to a Closing (the "Escrow Agent"). All such funds for subscriptions will be held in the Escrow Account pursuant to the terms of the escrow agreement with respect thereto among the Company, the Placement Agent and the Escrow Agent. The Company will pay all fees related to the establishment and maintenance of the Escrow Account. The Placement Agent can reject any subscriptions for any reason. Subject to the receipt of such subscriptions for the Minimum Amount, the Company will either accept or reject the Subscription Agreements in a timely fashion and at the Closing will countersign the Subscription Agreements and provide copies of such agreements to the Placement Agent. The Company will give written notice to the Placement Agent of its acceptance or rejection of each subscription. The Company, or the Placement Agent on the Company's behalf, will promptly return to subscribers 8 incomplete, improperly completed, improperly executed and rejected subscriptions and give written notice thereof to the Placement Agent upon such return. (c) If subscriptions for at least the Minimum Amount have been accepted prior to the Termination Date, the funds therefor have been collected by the Escrow Agent and all of the conditions set forth elsewhere in this Agreement are fulfilled, a closing shall be held promptly with respect to that portion of the Units sold (the "First Closing"). Thereafter, the remaining Units will continue to be offered and sold until the Termination Date. Additional closings ("Closings") may from time to time be conducted at times mutually agreeable with respect to the additional Units sold, with the Final Closing to occur within ten (10) days from the earlier of the Termination Date or the sale of all Units offered. Delivery of payment for the accepted subscriptions from the funds held in the Escrow Account will be made at each Closing at the Placement Agent's offices against delivery of the Securities comprising the Units by the Company at the address set forth in Section 11 hereof (or at such other place as may be mutually agreed upon between the Company and the Placement Agent), net of amounts due to the Placement Agent and Blue Sky counsel pursuant to Section 5(j) hereof as of such Closing. Executed Securities and the Agent's Warrants will be in such authorized denominations and issued in such names as the Placement Agent may request on or before the second full business day prior to each Closing Date, and will be made available to the Placement Agent for review and packaging at the Placement Agent's office at least one full business day prior thereto. (d) If Subscription Agreements for the Minimum Amount have not been received and accepted by the Company on or before the Termination Date for any reason, the Offering will be terminated, no Units will be sold, and the Escrow Agent will, at the request of the Placement Agent, cause all monies received from subscribers for the Units to be promptly returned to such subscribers without interest, penalty, expense or deduction. 5. FURTHER COVENANTS. The Company hereby covenants and agrees that: ----------------- (a) Except with the prior written consent of the Placement Agent, the Company shall not, at any time prior to the Final Closing, take any action that would cause any of the representations and warranties made by it in this Agreement not to be complete and correct on and as of each Closing Date with the same force and effect as if such representations and warranties had been made on and as of each such date. (b) If, at any time prior to the Final Closing, any event shall occur that does or may materially affect the Company or as a result of which it might become necessary to amend or supplement the Memorandum so that the representations and warranties herein remain true, or in case it shall, in the reasonable opinion of counsel to the Placement Agent, be necessary to amend or supplement the Memorandum to comply with Regulation D or any other applicable securities laws or regulations, the Company will promptly notify the Placement Agent and shall, at its sole cost, prepare and furnish to the Placement Agent copies of appropriate amendments and/or supplements in such quantities as the Placement Agent may request. The Company will not at any time, whether before or after the Final Closing, prepare or use any amendment or supplement to the Memorandum of which the Placement Agent will not previously have been advised and furnished with a copy, or to which the Placement Agent or its counsel will have objected in writing or orally (confirmed in writing within 24 hours), or which is not in 9 compliance with the Act, the Regulations and other applicable securities laws. As soon as the Company is advised thereof, the Company will advise the Placement Agent and its counsel, and confirm the advice in writing, of any order preventing or suspending the use of the Memorandum, or the suspension of the qualification or registration of the Units for offering or the suspension of any exemption for such qualification or registration of the Units for offering in any jurisdiction, or of the institution or threatened institution of any proceedings for any of such purposes, and the Company will use its best efforts to prevent the issuance of any such order, judgment or decree, and, if issued, to obtain as soon as reasonably possible the lifting thereof. (c) The Company shall comply with the Act, the Regulations, the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and regulations thereunder, all applicable state securities laws and the rules and regulations thereunder in the states in which the Placement Agent's Blue Sky counsel has advised the Placement Agent that the Units are qualified or registered for sale or exempt from such qualification or registration, so as to permit the continuance of the sales of the Units, and will file with the SEC, and shall promptly thereafter forward to the Placement Agent, any and all reports on Form D as are required. (d) The Company shall use its reasonable best efforts to qualify the Units for sale (or seek exemption therefrom) under the securities laws of such jurisdictions in the United States as the Placement Agent shall designate, and the Company will (through Blue Sky counsel) make such applications and furnish information as may be required for such purposes. The Company will, from time to time, prepare and file such statements and reports as are or may be required to continue such qualifications in effect for so long a period as the Placement Agent may reasonably request. (e) The Company shall file on or before the later of April 30, 2004 or 30 days following the date of the Final Closing, a resale registration statement under the Securities Act for the resale of the shares of Common Stock (i) underlying the Series A Preferred, (ii) underlying the Warrants, (iii) issuable upon dividend distributions in respect of the Series A Preferred and (iv) underlying the Agent's Warrants. The Company will (x) use reasonable best efforts to cause the registration statement to become effective within 120 days after the date of filing and (y) maintain the effectiveness of such registration statement for 24 months after the Final Closing of the Offering. If the Company fails to file such registration statement on or before 45 days following the date of the Final Closing or such registration statement does not become effective within 120 days after such date of filing (or if earlier, the expiration of such 45-day period), the Company will pay a cash penalty to the holders of the Shares equal to two percent of their aggregate Purchase Price per Unit for each 30 days (or portion thereof) such registration obligations are not met by the Company. The cash payments shall be paid promptly on the first business day of each calendar month during such period of noncompliance. Notwithstanding anything in this Section 5(e) to the contrary, if the Company shall furnish to the holders of the Securities ("Holders") a certificate signed by the President or Chief Executive Officer of the Company stating that the Board of Directors of the Company has made the good faith determination that it is therefore essential to suspend the use by the Holders of such registration statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Common Stock pursuant 10 thereto, then the right of such Holders to use such registration statement (and the prospectus relating thereto) for purposes of effecting offers or sales of Common Stock pursuant thereto, shall be suspended for a period (the "SUSPENSION PERIOD") of not more than 30 days after delivery by the Company of the certificate referred to above in this Section 5(e), PROVIDED, that the Company shall provide the Holders of the Securities with no less than twenty-four (24) hours prior written notice of any Suspension Period. During the Suspension Period, such Holders shall not offer or sell any Common Stock pursuant to or in reliance upon such registration statement (or the prospectus relating thereto). The Company agrees that, as promptly as practicable, the Company will provide such Holders with revised prospectuses, if required, and will notify the Holders of their ability to effect offers or sales of Common Stock pursuant to or in reliance upon such registration statement. Notwithstanding for foregoing, the Company shall not be entitled to Suspension Periods totaling more than 30 days in the aggregate in any twelve (12) month period. (f) The Company shall place a legend on the certificates representing the Securities issued to subscribers stating that the securities evidenced thereby have not been registered under the Act or applicable state securities laws, setting forth or referring to the applicable restrictions on transferability and sale of such securities under the Act and applicable state laws. (g) The Company shall apply the net proceeds from the sale of the Units to fund its working capital requirements and/or for such other purposes as shall be specifically described under "Use of Proceeds" in the Memorandum. Except as set forth in the Memorandum, the SEC Reports or as approved by the Board of Directors of the Company, the net proceeds shall not be used to repay indebtedness to current executive officers or principal shareholders of the Company, or to repurchase or redeem any securities, other than pursuant to Section 1(a) hereof, and except as otherwise authorized by the Placement Agent in writing (h) During the Offering Period, the Company shall make available for review by prospective purchasers of the Units during normal business hours at the Company's offices, upon their request, copies of the Company Agreements to the extent that such disclosure shall not violate any obligation on the part of the Company to maintain the confidentiality thereof and shall afford each prospective purchaser of Units the opportunity to ask questions of and receive answers from an officer of the Company concerning the terms and conditions of the Offering and the opportunity to obtain such other additional information necessary to verify the accuracy of the Memorandum to the extent it possesses such information or can acquire it without unreasonable expense. (i) Except with the prior written consent of the Placement Agent or as set forth in the Memorandum, the Company shall not, at any time prior to the earlier of the Final Closing or the Termination Date, engage in or commit to engage in any transaction outside the ordinary course of business, including, without limitation, the incurrence of material indebtedness, materially change its business or operations as shall be described in the Memorandum, dispose of any material assets or make any material acquisition, or issue, agree to issue or set aside for issuance any securities (debt or equity) or any right to acquire such securities except as shall be contemplated by the Memorandum. (j) Whether or not the transactions contemplated hereby are consummated, or this Agreement is terminated, the Company hereby agrees to pay all fees, costs and expenses incident hereto and to the Offering, including, without limitation, those in connection with (i) preparing, distributing and binding the Memorandum 11 and any and all amendments and/or supplements thereto, fees for bound volumes and any and all agreements, contracts and other documents related hereto and thereto; (ii) the authorization, issuance, transfer and delivery of the Securities, the Conversion Shares, the Agent's Warrants and the Agent's Shares, including, without limitation, fees and expenses of any transfer agent or registrar; (iii) the fees and expenses of the Escrow Agent (subject to Section 4(b) hereof); (iv) all fees and expenses of legal, accounting and other advisers to the Company; (v) all reasonable filing fees, costs and legal fees and expenses for Blue Sky services and related filings with respect to Blue Sky exemptions and qualifications, including legal fees of $3,000 for the first ten states and $450 per state thereafter, $3,000 of which shall be paid to the Placement Agent's counsel at the First Closing for legal fees in connection with obtaining Blue Sky exemptions (the "Blue Sky Fees"); and (vi) subject to Section 9 hereof, a nonaccountable expense allowance ("Placement Agent Expenses") relating to expenses incurred by the Placement Agent in connection with the Offering (including, without limitation, travel and related expenses and fees and expenses of legal, accounting and other advisers to the Placement Agent) equal to three (3%) percent of the aggregate Purchase Price per Unit sold, deducted from the gross proceeds of the Units sold in the Offering. (k) Until the Termination Date, neither the Company nor any person or entity acting on its behalf will negotiate or enter into any agreement with any other placement agent or underwriter with respect to a private or public offering of the Company's or any subsidiary's debt or equity securities. Neither the Company nor anyone acting on its behalf will, until the Termination Date, without the prior written consent of the Placement Agent, offer for sale to, or solicit offers to subscribe for Units or other securities of the Company from, or otherwise approach or negotiate in respect thereof with, any other person. (l) Prior to the First Closing, the chief executive officer and chief financial officer of the Company shall have provided representations and warranties in form and substance acceptable to the Placement Agent relating to the Company's most recent quarterly unaudited and year to date financial statements, internal financial controls, similar to those included in the Company's 2002 annual report on Form 10-K under the Securities Exchange Act of 1934, as amended, and as required by the Sarbanes-Oxley Act of 2002, the absence of undisclosed liabilities and such other matters relating to the financial condition and prospects of the Company as the Placement Agent may reasonably request. 6. CONDITIONS OF PLACEMENT AGENT'S OBLIGATIONS. The obligations of the Placement Agent hereunder are subject to the fulfillment, at or before each Closing, of the following additional conditions: (a) Each of the representations and warranties of the Company shall be true and correct when made on the date hereof and on and as of each Closing Date as though made on and as of each Closing Date. (b) The Company shall have performed and complied with all agreements, covenants and conditions required to be performed and complied with by it under the Transaction Documents at or before each Closing. 12 (c) No order suspending the use of the Memorandum or enjoining the offering or sale of the Units shall have been issued, and no proceedings for that purpose or a similar purpose shall have been initiated or pending, or, to the best of the Company's knowledge, are contemplated or threatened. (d) As of the First Closing, the Company will have an authorized and outstanding capitalization as set forth in the Memorandum (including the Company's SEC filing attached thereto). Prior to the Final Closing, no additional securities will be issued by the Company, including but not limited to shares, options, stock subscription agreements or warrants to purchase shares of the Company or any other obligation to issue shares or other securities of the Company, without the prior written consent of the Placement Agent. Notwithstanding the preceding sentence, the Company may issue (i) compensatory option grants to employees pursuant to option plans approved by the stockholders of the Company that are in effect as of the date hereof, (ii) shares of its Common Stock upon exercise of outstanding options or warrants or conversion of outstanding convertible securities, (iii) securities included in the Units sold in the Offering and the Agent's Warrants and (iv) securities issued to former and current management and consultants and in settlement of various claims not to exceed 275,000 shares of underlying Common Stock in the aggregate, and in each such case as approved by the Board of Directors of the Company. (e) The Placement Agent shall have received certificates of the chief executive officer of the Company, dated as of each Closing Date, certifying on behalf of the Company, in such detail as Placement Agent may reasonably request, as to the fulfillment of the conditions set forth in subparagraphs (a), (b), (c) and (d) above. (f) The Company shall have delivered to the Placement Agent (i) a currently dated good standing certificate from the Secretary of State of Delaware and each jurisdiction in which the Company is qualified to do business as a foreign corporation, and (ii) certified resolutions of the Company's Board of Directors approving this Agreement and the other Transaction Documents, and the transactions and agreements contemplated by this agreement and the other Transaction Documents. (g) On or prior to the date hereof and at each Closing, the chief executive officer and chief financial officer of the Company shall have provided a certificate to the Placement Agent confirming on behalf of the Company that there have been no undisclosed material and adverse changes in the business condition (financial or otherwise) or prospects of the Company from the date of the latest financial statements included in the Memorandum, the absence of undisclosed liabilities and such other matters relating to the financial condition and prospects of the Company that the Placement Agent may reasonably request. (h) At each Closing, the Company shall have (i) paid to the Placement Agent the Placement Agent's Fee in respect of all Units sold at such Closing, (ii) paid all fees, costs and expenses set forth in Section 5(j) hereof, and (iii) executed and delivered to the Placement Agent the Agent's Warrants in an amount proportional to the Units sold at such Closing. (i) There shall have been delivered to the Placement Agent a signed opinion of counsel to the Company, dated as of each Closing Date, in the form attached hereto as Schedule A. 13 (j) All proceedings taken at or prior to each Closing in connection with the authorization, issuance and sale of the Units and the Agent's Warrants will be reasonably satisfactory in form and substance to the Placement Agent and its counsel, and such counsel shall have been furnished with all such documents, certificates and opinions as they may reasonably request upon reasonable prior notice in connection with the transactions contemplated hereby. (k) The Placement Agent shall be satisfied with the results of its due diligence investigation of the Company. 7. INDEMNIFICATION. --------------- (a) The Company will (i) indemnify and hold harmless the Placement Agent, its selected dealers and their respective officers, directors, employees and each person, if any, who controls the Placement Agent within the meaning of the Act and such selected dealers (each an "Indemnitee") against, and pay or reimburse each Indemnitee for, any and all losses, claims, damages, liabilities or expenses whatsoever (or actions or proceedings or investigations in respect thereof), joint or several (which will, for all purposes of this Agreement, include, but not be limited to, all reasonable costs of defense and investigation and all reasonable attorneys' fees, including appeals), to which any Indemnitee may become subject, under the Act or otherwise, in connection with the offer and sale of the Units, whether such losses, claims, damages, liabilities or expenses shall result from any claim of any Indemnitee or any third party; and (ii) reimburse each Indemnitee for any legal or other expenses reasonably incurred in connection with investigating or defending against any such loss, claim, action, proceeding or investigation; PROVIDED, HOWEVER, that the Company will not be liable in any such case to the extent that any such claim, damage or liability results directly and primarily from (A) an untrue statement or alleged untrue statement of a material fact made in the Memorandum, or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in reliance upon and in conformity with written information furnished to the Company by the Placement Agent or any such controlling persons specifically for use in the preparation thereof, or (B) any violations by the Placement Agent or its selected dealers (if any) of the Act or state securities laws which does not result from a violation thereof or a breach hereafter by the Company or any of its affiliates. In addition to the foregoing agreement to indemnify and reimburse, the Company will indemnify and hold harmless each Indemnitee against any and all losses, claims, damages, liabilities or expenses whatsoever (or actions or proceedings or investigations in respect thereof), joint or several (which shall for all purposes of this Agreement, include, but not be limited to, all costs of defense and investigation and all reasonable attorneys' fees, including appeals) to which any Indemnitee may become subject insofar as such costs, expenses, losses, claims, damages or liabilities arise out of or are based upon the claim of any person or entity that he or it is entitled to broker's or finder's fees from any Indemnitee in connection with the Offering. (b) The Placement Agent will indemnify and hold harmless the Company, its officers, directors, employees and each person, if any, who controls the Company within the meaning of the Act against, and pay or reimburse any such person for, any and all losses, claims, damages or liabilities or expenses whatsoever (or actions, proceedings or investigations in respect thereof) to which the Company or any such person may become subject under the Act or otherwise, whether such 14 losses, claims, damages, liabilities or expenses (or actions, proceedings or investigations in respect thereof) shall result from any claim of the Company, any of its officers, directors, employees, agents, any person who controls the Company within the meaning of the Act or any third party, insofar as such losses, claims, damages or liabilities are based upon any untrue statement or alleged untrue statement of any material fact contained in the Memorandum but only with reference to information contained in the Memorandum relating to the Placement Agent, or an omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if made or omitted in reliance upon and in conformity with written information furnished to the Company by the Placement Agent or any such controlling persons, specifically for use in the preparation thereof, or any violations by the Placement Agent or its selected dealers (if any) of the Act or state securities laws which does not result from a violation thereof or a breach hereafter by the Company or any of its affiliates, officers, directors, employees or agents. The Placement Agent will reimburse the Company or any such person for any legal or other expenses reasonably incurred in connection with investigating or defending against any such loss, claim, damage, liability or action, proceeding or investigation to which such indemnity obligation applies. Notwithstanding the foregoing, in no event shall the Placement Agent's indemnification obligation hereunder exceed the amount of the Placement Agent's Fees actually received by it. (c) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, claim, proceeding or investigation ("Action"), such indemnified party, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, will notify the indemnifying party of the commencement thereof, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 7 unless the indemnifying party has been substantially prejudiced by such omission. The indemnifying party will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party, to assume the defense thereof subject to the provisions herein stated, with counsel reasonably satisfactory to such indemnified party. The indemnified party will have the right to employ separate counsel in any such Action and to participate in the defense thereof, but the fees and expenses of such counsel will not be at the expense of the indemnifying party if the indemnifying party has assumed the defense of the Action with counsel reasonably satisfactory to the indemnified party; PROVIDED, HOWEVER, that if the indemnified party shall be requested by the indemnifying party to participate in the defense thereof or shall have concluded in good faith and specifically notified the indemnifying party either that there may be specific defenses available to it which are different from or additional to those available to the indemnifying party or that such Action involves or could have a material adverse effect upon it with respect to matters beyond the scope of the indemnity agreements contained in this Agreement, then the counsel representing it, to the extent made necessary by such defenses, shall have the right to direct such defenses of such Action on its behalf and in such case the reasonable fees and expenses of such counsel in connection with any such participation or defenses shall be paid by the indemnifying party. No settlement of any Action against an indemnified party will be made without the consent of the indemnifying party and the indemnified party, which consent shall not be unreasonably withheld or delayed in light of all factors of importance to such party and no indemnifying party shall be liable to indemnify any person for any settlement of any such claim effected without such indemnifying party's consent. 15 8. CONTRIBUTION. To provide for just and equitable contribution, if (i) an indemnified party makes a claim for indemnification pursuant to Section 7 hereof and it is finally determined, by a judgment, order or decree not subject to further appeal that such claims for indemnification may not be enforced, even though this Agreement expressly provides for indemnification in such case; or (ii) any indemnified or indemnifying party seeks contribution under the Act, the 1934 Act, or otherwise, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Placement Agent on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or expenses (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Placement Agent on the other shall be deemed to be in the same proportion as the total net proceeds from the Offering (before deducting expenses) received by the Company bear to the total commissions and fees received by the Placement Agent. The relative fault, in the case of an untrue statement, alleged untrue statement, omission or alleged omission will be determined by, among other things, whether such statement, alleged statement, omission or alleged omission relates to information supplied by the Company or by the Placement Agent, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement, alleged statement, omission or alleged omission. The Company and the Placement Agent agree that it would be unjust and inequitable if the respective obligations of the Company and the Placement Agent for contribution were determined by PRO RATA allocation of the aggregate losses, liabilities, claims, damages and expenses or by any other method or allocation that does not reflect the equitable considerations referred to in this Section 8. No person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 8, each person, if any, who controls the Placement Agent within the meaning of the Act will have the same rights to contribution as the Placement Agent, and each person, if any, who controls the Company within the meaning of the Act will have the same rights to contribution as the Company, subject in each case to the provisions of this Section 8. Anything in this Section 8 to the contrary notwithstanding, no party will be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 8 is intended to supersede, to the extent permitted by law, any right to contribution under the Act, the 1934 Act or otherwise available. 9. TERMINATION. ----------- (a) (I) The Offering may be terminated by the Placement Agent at any time prior to the expiration of the Offering Period in the event that (i) any of the representations or warranties of the Company contained herein shall prove to have been false or misleading in any material respect when made or deemed made, (ii) the Company shall have failed to perform any of its obligations hereunder, (iii) the Company shall have determined for any reason not to continue with the Offering or (iv) the Placement Agent shall determine in its sole discretion, reasonably exercised, that it is reasonably likely that any of the conditions to Closing set forth herein will not, or cannot, be satisfied. In the event of any such termination occasioned by or arising out of or in connection with the matters set forth in clauses (i)-(iii) above, or occasioned by or arising out of or in connection with a matter set forth in clause (iv) above due to any breach or failure hereunder on the part of the Company, the Placement Agent shall be entitled to receive, an amount equal to the sum of: (A) any Placement Agent's 16 Fees to which the Placement Agent is entitled pursuant to Section 3(d) hereof earned through the Termination Date, (B) an amount equal to three percent (3%) of the Purchase Price Per Unit of all Units sold in the Offering (deeming, for this purpose, all Units offered as having been sold), less any amounts theretofore paid in respect of Placement Agent Expenses, and all unpaid Blue Sky Fees and other expenses set forth in Section 5(j) hereof. If the Company, for any reason, including, without limitation, breach by it of any representation, covenant or warranty made by it, prevents completion of the Offering (including, without limitation, failure to obtain necessary stockholder approval), the Company's liability for the Placement Agent's expenses shall be equal to 3% of the Maximum Amount to cover the Placement Agent's expenses and efforts. Notwithstanding the foregoing, in the event the Company completes one or more public or private offerings of its securities within one (1) year after the Company prevents the completion of the Offering the Company shall also pay the Placement Agent an investment banking fee equal to five percent (5%) of the total consideration received by the Company in connection with such sales of securities. (II) This Offering may be terminated by the Placement Agent by notice to the Company at any time if, in the sole judgment of the Placement Agent, the Offering or the sale or the payment for or the delivery of the Units is rendered impracticable or inadvisable because (i) additional material governmental restrictions not in force and effect on the date hereof shall have been imposed upon trading in securities generally, or minimum or maximum prices shall have been generally established on the New York Stock Exchange, or trading in securities generally on such exchange shall have been suspended or a general banking moratorium shall have been established by federal or New York State authorities, (ii) a war, major hostilities, terrorist or similar activity, act of God or other calamity shall have occurred, (iii) of a material adverse change in the condition (financial or otherwise) of the Company, its business or business prospects or (iv) the Placement Agent, in its sole discretion, shall be dissatisfied with the results of its due diligence investigation. (b) This Offering may be terminated by the Company at any time prior to the Termination Date in the event that the Placement Agent shall have failed to perform any of its material obligations hereunder. In the event of any termination by the Company, the Placement Agent shall be entitled to receive all amounts as may be due under any indemnity or contribution obligation provided herein or any other Transaction Document, at law or otherwise. On such Termination Date, the Company shall pay all unpaid Blue Sky Fees and other expenses set forth in Section 5(j) hereof. (c) Upon any such termination, the Escrow Agent will, at the request of the Placement Agent, cause all money received in respect of subscriptions for Units not sold to be promptly returned to such subscribers without interest, penalty, expense or deduction. Any interest earned thereon shall be applied first to the payment of amounts, if any, due to the Escrow Agent and next to the payment of any amounts payable to the Placement Agent hereunder which remain unpaid. 10. SURVIVAL. -------- (a) The obligations of the parties to pay any costs and expenses hereunder and to provide indemnification and contribution as provided herein shall survive any termination hereunder. 17 (b) The respective indemnities, agreements, representations, warranties and other statements of the Company set forth in or made pursuant to this Agreement will remain in full force and effect, regardless of any investigation made by or on behalf of, and regardless of any access to information by, the Company or the Placement Agent, or any of their officers or directors or any controlling person thereof, and will survive the sale of the Units. 11. NOTICES. All communications hereunder will be in writing and, except as otherwise expressly provided herein or after notice by one party to the other of a change of address, if sent to the Placement Agent, will be mailed, delivered or telefaxed and confirmed to Spencer Trask Ventures, Incorporated, 535 Madison Avenue, 18th Floor, New York, New York 10022, Attention: William P. Dioguardi, President, Telefax number 212-829-4406, with a copy to Feldman Weinstein LLP, 420 Lexington Avenue, New York, New York 10170, Attention: David N. Feldman, Esq., Telefax number (212) 997-4242, and if sent to the Company, will be mailed, delivered or telefaxed and confirmed to SmartServ Online, Inc., 2250 Butler Pike, Suite 150 Plymouth Meeting, Pennsylvania 19462, Attention: Robert Pons, Telefax number (610) 397-0846, with a copy to Stradley Ronon Stevens & Young, LLP, 2600 One Commerce Square, Philadelphia, PA 19103, Attention: Dean Schwartz, Telefax number (215) 564-8120. 12. APPLICABLE LAW, COSTS, ETC. THIS AGREEMENT WILL BE GOVERNED BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE. ALL CONTROVERSIES, WHICH MAY ARISE BETWEEN THE PARTIES CONCERNING THIS AGREEMENT, SHALL BE EXCLUSIVELY DETERMINED BY ARBITRATION PURSUANT TO THE RULES THEN PERTAINING TO THE AMERICAN ARBITRATION ASSOCIATION (THE "AAA") IN NEW YORK COUNTY, NEW YORK. HEARINGS WITH REGARD TO SUCH DISPUTE SHALL BE HELD EXCLUSIVELY AT THE OFFICES OF THE AAA IN THE CITY OF NEW YORK AND JUDGMENT UPON ANY AWARD RENDERED PURSUANT THERETO MAY BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION. ANY DECISION RENDERED BY THE AAA SHALL BE FINAL AND BINDING. SERVICE OF PROCESS MAY BE MADE UPON THE COMPANY BY MAILING A COPY THEREOF TO IT, BY CERTIFIED OR REGISTERED MAIL, AT ITS ADDRESS TO BE USED FOR THE GIVING OF NOTICES UNDER THIS AGREEMENT. THE COMPANY AND THE PLACEMENT AGENT EACH HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DOCUMENT OR AGREEMENT CONTEMPLATED HEREBY. 13. CONFIDENTIALITY. The Company hereby agrees to hold confidential the identities of the purchasers in the Offering and shall not disclose their names and addresses without the prior written consent of the Placement Agent, unless required by law. The Company hereby consents to the granting of an injunction against it by any court of competent jurisdiction to enjoin it from violating the foregoing confidentiality provisions. The Company hereby agrees that the Placement Agent will not have an adequate remedy at law in the event that the Company breaches these confidentiality provisions contained herein, and that the Placement Agent will suffer irreparable damage and injury as a result of any such breach. Resort to such equitable relief shall not, however, be construed to be a waiver of any other rights or remedies which the Placement Agent may have. 18 14. MISCELLANEOUS. No provision of this Agreement may be changed or terminated except by a writing signed by the party or parties to be charged therewith. Unless expressly so provided, no party to this Agreement will be liable for the performance of any other party's obligations hereunder. Any party hereto may waive compliance by the other with any of the terms, provisions and conditions set forth herein; PROVIDED, HOWEVER, that any such waiver shall be in writing specifically setting forth those provisions waived thereby. No such waiver shall be deemed to constitute or imply waiver of any other term, provision or condition of this Agreement. This Agreement contains the entire agreement between the parties hereto and is intended to supersede any and all prior agreements between the parties relating to the same subject matter. This Agreement may be executed in counterparts, each of which shall be deemed an original and all of which shall constitute a single agreement. The parties acknowledge that the Schedule of Exceptions to this Agreement have not been prepared or are incomplete as of the date hereof. SmartServ shall deliver to Placement Agent and its counsel for their review a complete and accurate version of the Schedule of Exceptions (or written confirmation from SmartServ that no such Schedule of Exceptions will be required) not later than 5 business days after the date of this Agreement. Notwithstanding anything herein to the contrary, Spencer Trask shall have the right to terminate this Agreement and the Offering by written notice to SmartServ in the event that Spencer Trask has not received such schedules (or written confirmation from SmartServ that no such Schedule of Exceptions will be required) within 5 business days following the date hereof or if Spencer Trask, in its sole discretion, is not satisfied with such Schedule of Exceptions. 15. ENTIRE AGREEMENT. This Agreement together with any other agreement referred to herein is intended to supersede all prior agreements between the parties with respect to the Units purchased hereunder and the subject matter hereof. [SIGNATURE PAGE FOLLOWS] 19 If the foregoing is in accordance with your understanding of our agreement, kindly sign and return this Agreement, whereupon it will become a binding agreement between the Company and the Placement Agent in accordance with its terms. Very truly yours, SMARTSERV ONLINE, INC. By: ___________________________ Name: Title: Accepted and agreed to this ___ day of January ___, 2004. SPENCER TRASK VENTURES, INC. By: ___________________________ Name: Title: 20 SCHEDULE A FORM OF LEGAL OPINION The phrase "Transaction Documents," whenever it is used in this letter, means (a) the Placement Agency Agreement dated as of January [____], 2004 by and among SmartServ Online, Inc. (the "Company") and Spencer Trask Ventures, Inc. (the "Placement Agent") (such agreement, the "Placement Agency Agreement"), (b) the Subscription Agreements, dated as of January [____], 2004, by and among the Company and each investor signatory thereto (such investors, the "Investors" and such agreement, the "Subscription Agreement"), (c) the Registration Rights Agreement and (d) the Warrants and Placement Agent Warrants. All capitalized terms used in this letter have the respective meanings set forth in the Placement Agency Agreement unless otherwise defined herein. (i) The Company has been organized as a corporation and is validly existing and in good standing under the laws of the State of Delaware, has full corporate power and authority to own, lease and operate its properties and conduct its business as described in the Memorandum and is qualified as a foreign corporation for the transaction of business and is in good standing in each jurisdiction where the conduct of its business makes such qualification necessary, except where the failure to so qualify would not have a material adverse effect upon the business (as currently conducted), financial condition or results of operation of the Company (a "Material Adverse Effect"). (ii) The Company has the full corporate power and authority to execute and deliver the Transaction Documents and to perform its obligations thereunder. The execution, delivery and performance thereof and thereunder has been duly authorized by all necessary corporate action. Each of the Transaction Documents has been duly executed and delivered on behalf of the Company, and constitutes legal, valid and binding obligations of the Company, enforceable against it in accordance with its terms except as such enforceability may be limited by applicable bankruptcy, insolvency or laws affecting creditor's rights or remedies and general principles of equity. (iii) The Company has an authorized capital stock as set forth in the Memorandum. The Units, the components thereof, Conversion Shares and the Agent's Shares have been duly authorized, and when duly and validly delivered and paid for pursuant to the terms of the Transaction Documents and the Certificate of Designations, Voting Powers, Preferences, Limitations, Restrictions, and Relative Rights of Series A Convertible Preferred Stock of the Company (the "Certificate of Designations") will be validly issued, fully paid and nonassessable. Except as set forth in the Confidential Private Placement Memorandum (the "Memorandum"), the issuance of the Units, the components thereof, Conversion Shares or the Agent's Shares are not subject to statutory, or to our knowledge, based solely on a certificate from an officer of the Company, contractual or other preemptive rights of any stockholder of the Company. The Units, the components thereof, Conversion Shares and the Agent's Warrants and Agent's Shares conform in all material respects to all statements in relation thereto contained in the Memorandum. 21 (iv) None of the execution and delivery of, or performance by the Company under, any of the Transaction Documents or the consummation of the transactions therein contemplated, will conflict with or violate (a) any term of the charter (including the Certificate of Designations) or by-laws of the Company, (b) any statute, rule, regulation or ordinance or (c) any judgment, decree, or order known to such counsel which is applicable to the Company or any of its assets, properties or businesses. (v) None of the execution and delivery of, or performance by the Company under, any of the Transaction Documents or the consummation of the transactions therein contemplated, will conflict with or result in the creation or imposition of, any lien, charge or other encumbrance upon any of the properties or assets of the Company pursuant to the terms of any material indenture, mortgage, deed of trust, note, material license, agreement or other instrument described on Attachment A annexed hereto (such attachment including all material agreements filed as exhibits to the Company's SEC filings for the past two years) to which the Company is a party or by which the Company may be bound or to which any of its assets, properties or businesses is or may be subject. (vi) No consent, approval, authorization, order, registration or qualification of or with any court or regulatory, administrative or governmental agency, body or authority of the United States of America or any political subdivision thereof is required in connection with the issuance or sale of the Units or the Agent's Warrants except for required filings with the United States Securities and Exchange Commission and applicable "Blue Sky" or state securities commissions relating specifically to the Offering. (vii) To such counsel's actual knowledge, except as set forth in the Memorandum, there are no legal or regulatory, administrative or governmental, actions, suits, proceedings, hearings or investigations, before or by any court, governmental authority, or instrumentality pending against the Company, which, if determined adversely to the Company, could adversely affect the validity or enforceability of the Transaction Documents. (viii) To such counsel's actual knowledge, based solely on a certificate from an officer of the Company, the Company is not in violation or breach of: (i) its charter (including the Certificate of Designations) or by-laws, (ii) any material indenture, mortgage, deed of trust, note or other agreement or instrument to which the Company is a party or by which it is or may be bound or to which any of its assets, properties or businesses may be subject and listed on Attachment A hereto; (iii) any statute, rule, regulation or ordinance; or (iv) any judgment, decree or order applicable to the Company which violation or violations individually, or in the aggregate, could result in any Material Adverse Effect. (ix) Assuming that the Units were sold only to "accredited investors" (as defined in Rule 501 of Regulation D) and the Placement Agent complied in all material respects with Regulation D, such sales were made in conformity in all material respects with the requirements of Sections 4(2) of the Act and Regulation D. The issuance of the Units in accordance with the Memorandum is exempt from registration under the Securities Act of 1933, as amended. -----END PRIVACY-ENHANCED MESSAGE-----