CONFIDENTIAL TREATMENT HAS BEEN SOUGHT FOR PORTIONS OF THIS EXHIBIT OMITTED
PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED AND
FILED SEPARATELY WITH THE COMMISSION.
AGREEMENT
THIS AGREEMENT is made and entered into and is effective as of May 1,
1999, by and between DATA TRANSMISSION NETWORK CORPORATION, a Delaware
corporation (hereinafter "DTN"), and SMARTSERV ONLINE, INC., a Delaware
corporation (hereinafter "SmartServ").
W I T N E S S E T H:
WHEREAS, SmartServ and DTN previously entered into a Software License
and Service Agreement (the "License Agreement") dated as of May 1, 1998,
pursuant to which SmartServ (i) licensed to DTN certain proprietary software
programs known as the Internet Software (as such term is defined in the License
Agreement) utilized to provide Internet Services (as such term is defined in the
License Agreement) to DTN's customers and (ii) agreed to provide other services
to DTN;
WHEREAS, SmartServ and DTN previously entered into a Source Code Escrow
Agreement (the "Escrow Agreement") dated as of May 1, 1998, pursuant to which
SmartServ agreed to place the source code for the Internet Software in escrow to
be released to DTN upon breach of SmartServ's obligations set forth in the
Escrow Agreement or the License Agreement;
WHEREAS, SmartServ and DTN previously entered into a letter of intent
(the "Letter of Intent") dated January 26, 1999, setting forth the terms and
conditions upon which a wholly owned subsidiary of DTN would merge with
SmartServ;
WHEREAS, the parties hereto desire to (i) amend certain terms and
provisions of the License Agreement as specifically set forth in this Agreement
and terminate the Letter of Intent, (ii) provide for repayment of indebtedness
previously advanced by DTN to SmartServ, (iii) provide for additional
consideration to be given by DTN to SmartServ, (iv) provide for SmartServ's
issuance to DTN of warrants to purchase 300,000 shares of the Common Stock of
SmartServ at an exercise price of $8.60 per share, and (v) agree upon other
matters specifically set forth in this Agreement;
NOW, THEREFORE, in consideration of the above recitals which are made a
contractual part of this Agreement, and in consideration of the mutual
agreements, provisions and covenants set forth in this Agreement, the parties do
hereby agree as follows:
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
SECTION 1
CONSIDERATION
1.1 In consideration of the parties entering into this Agreement and
performing the obligations to be performed by them pursuant to the terms and
provisions of this Agreement, (i) SmartServ agrees to repay to DTN in cash
concurrently with the execution of this Agreement the cash advances previously
made to SmartServ in the aggregate amount of $1,958,300 and (ii) DTN agrees to
pay to SmartServ in cash concurrently with the execution of this Agreement the
sum of $5,458,300.
SECTION 2
AMENDMENTS TO LICENSE AGREEMENT
2.1 Defined Terms. The following definitions shall be inserted in
alphabetical order in Section 1.1 of the License Agreement:
"Internet Services means those continuous market quotations
and other financial and news information services offered from time to
time on the internet by DTN, which use the Internet Software to allow
its customers direct internet access (non-wireless) to such services.
Internet Services Revenue means (i) the revenue received by
DTN from the Subscribers for the Internet Services which consist of
initiation fees, installation fees and periodic subscription fees plus
(ii) the transaction revenue received by DTN from Subscribers and third
parties for equities, futures and/or options trading orders executed by
Subscribers using an Order Entry System not owned or licensed by
SmartServ.
Object Code means the form of Internet Software resulting from
the translation or processing of the Source Code by a computer into
machine language or intermediate code in a form that is not convenient
to human understanding but which is appropriate for execution or
interpretation by a computer, together with related user documentation.
Order Entry System means an equities, futures and/or options
trading order entry or routing software application and electronic
network directly connected (non-wireless) to the internet that provides
Subscribers the ability to effect equities, futures and/or options
trades.
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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SmartServ Trading Revenue means the transaction revenue
received by DTN from Subscribers and third parties for equities,
futures and/or options trading orders executed by Subscribers using an
Order Entry System owned or licensed by SmartServ.
Source Code means, with respect to the Internet Software, the
program instructions and codes written by humans with the intention
that the instructions and codes be compiled and interpreted by a
computer, including all existing commentary, explanations, control
procedures, record layouts for all files and program listings-source
codes, design documentation, user manuals, programmers' guides, system
guides, current compilation instructions, and all other user
documentation and programmer documentation, including data flows, data
structures, control logic, flow diagrams, and principles of operation,
useful for design, modification and maintenance of the Source Code by a
programmer.
Subscribers means those customers of DTN who subscribe to
Internet Services.
Y2K Compliant means: (i) the occurrence in or use by the
Internet Software of dates on or after January 1, 2000 ("millennial
dates") will not adversely affect the performance of the Internet
Software with respect to date-dependent data, computations, output or
other functions (including but not limited to calculating, comparing
and sequencing) and that the Internet Software will create, store,
process and output information related to or including millennial dates
without errors or omissions and at no additional cost to DTN."
2.2 Perpetual License. Section 2.1 of the License Agreement is deleted
in its entirety and the following is inserted in its place:
"2.1 The Licensed Software. SmartServ hereby grants to DTN and
its subsidiaries an exclusive, perpetual, worldwide license (the
"License") to use the object code of the Internet Software as part of
DTN's and its subsidiaries' business operations and to allow the
subscribers of DTN and its subsidiaries to use the Internet Software to
access the Internet Services. SmartServ agrees not to license, sell,
convey or otherwise transfer to anyone other than DTN any rights in the
Internet Software except SmartServ may license the "Order Entry FIX
Protocol" software to the **** as provided in this paragraph. In
addition, SmartServ shall not use or allow anyone other than DTN to use
the Internet Software to compete with the Internet Services. If during
any calendar year ending after year 2000 (the "Base Year"), the
aggregate SmartServ Trading Revenue for such calendar year does not
equal or exceed the aggregate SmartServ Trading Revenue for the Base
Year plus **** thereof for each calendar year following the Base Year,
to and including such calendar year, then the exclusivity with respect
to the License shall cease and the License shall become nonexclusive
unless DTN pays to SmartServ the
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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difference within thirty (30) days after the end of such calendar year.
If during any calendar quarter ending after the first twelve months of
the License Term, DTN does not obtain at least **** subscribers to the
Internet Services (exclusive of renewing subscribers, but not net of
terminating subscribers) at an average of at least **** per subscriber
per month, which dollar amount shall be reduced **** each year
thereafter but not below an average of **** per subscriber per month,
then the exclusivity with respect to the License shall cease and the
License shall become nonexclusive; provided, however, in the event of a
sale to any entity listed in Schedule C to this Agreement or to an
affiliate of such entity of (i) all or substantially all of the assets
of DTN or (ii) sufficient stock of DTN to effect a change in control of
DTN, by whatever manner including, without limitation, any merger,
consolidation, sale of assets, sale of capital stock or similar
transaction, the **** subscribers requirement shall temporarily be
raised to **** subscribers for the eighteen (18) month period
immediately following the occurrence of such event. SmartServ is
negotiating an agreement for the license by SmartServ of its "Order
Entry FIX Protocol" software to the **** or its affiliate which is a
permitted exception to the exclusivity of the License as provided
above. If the **** or its affiliate acquires a perpetual right or
license to use the "Order Entry FIX Protocol" software, DTN shall be
entitled to **** of the revenues derived by SmartServ therefrom.
2.3 Object Code. The first sentence of Section 2.2 of the License
Agreement is deleted in its entirety and the following is inserted in its place:
"SmartServ shall deliver the Internet Software to DTN in object code
form for loading and operating by DTN on a back up server at a mutually
agreeable location. SmartServ agrees not to unreasonably object to any
location proposed by DTN."
In addition, the following is added to the end of Section 2.2 of the License
Agreement:
"From and after the occurrence of an Escrow Release Event, DTN shall be
entitled to modify the Internet Software and to develop software
derivatives of or interfacing with the Internet Software. All such
modifications of and software derivatives of the Internet Software
developed by DTN shall be and remain the property of DTN, and SmartServ
shall have no rights or interests therein."
2.4 Source Code Escrow. Subsection (e) of Section 2.3 of the License
Agreement is deleted in its entirety and the following is inserted in its place:
"e. The Source Code Escrow Package shall, upon request of DTN,
be released from escrow to DTN for use by DTN in accordance with this
Agreement upon the occurrence of one or more of the following events
(collectively the "Escrow Release Events" and individually an "Escrow
Release Event"):
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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i. SmartServ is in breach of its obligations under
the Source Code Escrow Agreement with DTN and Escrow Agent;
ii. if SmartServ files a petition for liquidation and
dissolution under Chapter 7 of the Bankruptcy Code of the
United States, or an involuntary petition in bankruptcy is
filed against SmartServ and is not dismissed or converted for
reorganization under Chapter 11 of the Bankruptcy Code of the
United States within sixty (60) days thereafter, or this
Agreement is rejected in a proceeding under Chapter 11 of the
Bankruptcy Code of the United States;
iii. if SmartServ has a negative net worth for any
two consecutive fiscal quarters ending after May 31, 2000;
iv. if DTN elects to provide its own maintenance of
the Internet Software and the Hardware pursuant to the last
sentence of Paragraph 4.3;
v. in the event of a sale to a DTN competitor listed
in Schedule C to this Agreement or to an affiliate of such
competitor of (i) all or substantially all of the assets of
SmartServ or (ii) sufficient stock of SmartServ to effect a
change in control of SmartServ by whatever manner including,
without limitation, any merger, consolidation, sale of assets,
sale of capital stock or similar transaction; or
vi. if SmartServ proves unable or otherwise fails to
cure a breach of this Agreement within the applicable cure
period set forth in this Agreement."
2.5 License Fee. Section 3.1 of the License Agreement is deleted in its
entirety and the following is inserted in its place:
"3.1 License and Maintenance Fee. Except as otherwise provided
in this Agreement, during the License Term, DTN shall pay to SmartServ
a monthly license and maintenance fee (the "License Fee") equal to the
sum of **** of the SmartServ Trading Revenue for such month plus an
amount equal to **** of the first **** of Internet Services Revenue for
such month plus **** of the Internet Services Revenue above **** for
such month. The License Fees shall be paid to SmartServ within twenty
(20) days after the end of the month to which it relates.
Notwithstanding the foregoing, upon the occurrence of one or more of
the Escrow Release Events, DTN may at its sole cost elect to provide
its own maintenance of the Internet Software and the Hardware, in which
case DTN shall have no further obligation to pay the License Fees and
SmartServ shall have no further obligations under Article 4 of this
Agreement. If DTN elects to provide its own maintenance of the Internet
Software pursuant to this paragraph, SmartServ agrees not to compete
with any of the Internet Services for a period of five (5) years
thereafter. The
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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foregoing will not prevent SmartServ from fulfilling its obligations to
the **** as permitted under Section 2.1 of this Agreement."
2.6 Warranties and Indemnification. Sections 6.2 and 6.3 of the License
Agreement are deleted in their entirety and the following are inserted in their
place:
"6.2 Internet Software. SmartServ warrants that the
Documentation faithfully and accurately reflects the functionality
provided by the Internet Software. SmartServ warrants that the Internet
Software (i) is free from known material defects; (ii) materially
performs in accordance with the Documentation and (iii) is or will be
Y2K Compliant by September 30, 1999.
6.3 Services. In the event that the Internet Software does not
perform as warranted in paragraph 6.2 hereof, SmartServ agrees to use
its best efforts to promptly make the Internet Software perform as so
warranted. If SmartServ is unable to make the Internet Software perform
as so warranted upon thirty (30) days' notice, DTN (i) may elect to
provide at its sole cost its own maintenance of the Internet Software
and the Hardware, in which case DTN shall have no further obligation to
pay the License Fees during the remainder of the License Term and
SmartServ shall have no further obligations under Article 4 of this
Agreement or (ii) may elect to terminate this Agreement."
2.7 License Term. Paragraphs 7.1 and 7.2 of the License Agreement are
deleted in their entirety and the following is inserted in their place:
"7.1 Term. The term of this Agreement shall commence upon the
Effective Date and, unless terminated earlier pursuant to Article 7,
shall continue until either party terminates this Agreement by written
notice to the other party given at least ninety (90) days in advance of
such termination, provided such termination may not occur until such
time as there are fewer than **** Subscribers at an average of at least
**** per subscriber per month, which dollar amount shall be reduced
**** each year thereafter but not below an average of **** per
subscriber per month. Such term is referred to in this Agreement as the
"License Term".
7.2 Termination for Cause. DTN shall have the right to
terminate this Agreement upon the violation, breach or default of
SmartServ, its officers or employees, of any material provision of this
Agreement, including but not limited to proprietary rights and
confidentiality obligations. In addition, DTN shall have the right to
terminate this Agreement (i) upon the occurrence of any Escrow Release
Event; or (ii) in accordance with Sections 6.3, 6.6 or 7.1 hereof.
SmartServ shall have the right to terminate this Agreement (i) upon DTN
becoming insolvent, commencing or becoming subject to any proceedings
under any bankruptcy or insolvency law or making any
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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assignment for the benefit of creditors, suffering or permitting the
appointment of a receiver for its business or assets or commencing the
winding up or liquidating its business or affairs, voluntarily or
otherwise; (ii) upon the failure of DTN to pay the License Fees in
accordance with this Agreement for any two (2) month period, subject to
the notice and cure period provided in Section 7.3; or (iii) in
accordance with Section 7.1."
2.8 Termination of Service Agreement. Each and every reference to "this
Agreement and/or the License" contained in Section 7.3 of the License Agreement
shall be changed to "this Agreement". In addition, Section 7.4 of the License
Agreement shall be deleted in its entirety and the following inserted in its
place:
"7.4 Survival of the License. Notwithstanding any provision to
the contrary contained in this Agreement, upon termination of this
Agreement, the License shall continue in perpetuity and the provisions
of Paragraph 2.1 shall survive the termination of this Agreement."
2.9 Schedules. Schedules A and C attached to the License Agreement are
deleted in their entirety and Schedules A and C attached to this Agreement are
inserted in their place.
SECTION 3
OTHER AGREEMENTS
3.1 Termination of The Letter of Intent. The parties agree that,
effective immediately, the Letter of Intent is terminated and is of no further
force or effect.
3.2 Release. SmartServ does hereby fully and absolutely release and
forever discharge DTN and its affiliates, officers, directors, employees and
agents (the "Released Parties") from any and all claims, demands and causes of
action of any kind whatsoever, whether known or unknown at the present time,
which SmartServ may have against any of the Released Parties with respect to or
arising out of the Letter of Intent or the transactions contemplated by the
Letter of Intent. The foregoing release is intended and shall be construed as a
full and complete release of all claims, demands, and causes of action referred
to above. This release shall inure to the benefit of the Released Parties and
their respective heirs, representatives, successors and assigns.
3.3 Escrow Agreement. The parties shall enter into a new Escrow
Agreement pursuant to which SmartServ will place the Source Code for the
Internet Software in escrow to be released to DTN upon the occurrence of one or
more Escrow Release Events. The parties shall complete the new Escrow Agreement
on or before July 23, 1999 with an Escrow Agent
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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mutually agreeable to both parties and upon terms and conditions substantially
the same as the existing Escrow Agreement, with such changes as may be required
by the Escrow Agent or agreed to by both parties. The costs of the escrow shall
be shared by DTN and SmartServ equally.
SECTION 4
SMARTSERV WARRANTS
4.1 Issuance of Warrant. SmartServ agrees to issue to DTN a warrant
(the "Warrant") to purchase from SmartServ 300,000 duly authorized, validly
issued, fully paid and nonassessable shares of Common Stock, par value $.01 per
share, of SmartServ (the "Common Stock") at the purchase price per share of
$8.60, at any time or from time to time prior to April 30, 2003 or the date one
year after the Current Market Price (as hereinafter defined) of the Common Stock
reaches $8.60 per share, whichever is earlier. SmartServ and DTN shall promptly
negotiate in good faith and execute an agreement evidencing the Warrant, which
shall contain such terms, conditions and adjustments as may reasonably be
requested by the parties, including, but not limited to, antidilution
adjustments to the number and kind of securities to be issued upon exercise of
the Warrant and the exercise price. In addition, the Warrant shall contain
registration rights substantially similar to those attached to this Agreement as
Exhibit A. For purposes of this paragraph, "Current Market Price" shall mean, as
of any date, the average daily Market Price (as hereinafter defined) during the
period of the most recent 20 consecutive business days ending on such date. For
purposes of this paragraph, "Market Price" shall mean, as of any date, the
amount per share equal to (x) the last sale price of shares of the Common Stock
on such date or, if no such sale takes place on such date, the average of the
closing bid and asked prices thereof on such date, in each case as officially
reported on the principal national securities exchange on which the Common Stock
is then listed or admitted to trading, or (y) if no shares of Common Stock are
then listed or admitted to trading on any national securities exchange but the
Common Stock is designated as a national market system security by the NASD, the
last trading price of the Common Stock on such date, or if the Common Stock is
not so designated, the average of the reported closing bid and asked prices
thereof on such date as shown by the NASDAQ system or, if no shares thereof are
then quoted in such system, as published by the National Quotation Bureau,
Incorporated or any successor organization, and in either case as reported by
any member firm of the New York Stock Exchange selected by SmartServ.
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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SECTION 5
ADDITIONAL OBLIGATIONS
5.1 Right of First Refusal. SmartServ hereby agrees that, during the
License Term (as defined in the License Agreement), DTN shall have a right of
first refusal to supply content to SmartServ's products and services which is
not provided directly by SmartServ or its subsidiaries or affiliates. If, during
the License Term, SmartServ desires to acquire from third parties content for
its products or services which generally is of a type provided by DTN or its
subsidiaries and affiliates, then SmartServ agrees to purchase such content from
DTN upon the same terms and conditions that SmartServ would purchase such
content from a bona fide and unrelated content provider or vendor; provided,
however, such right of first refusal is subject to SmartServ's reasonable
determination that DTN can provide such content in a manner and of a quality
equal to that of other third party content providers or vendors and on a timely
basis.
5.2 Pending Developments. SmartServ agrees to continue with due
diligence the development of the **** trading software application which has
been discussed with DTN. The compensation arrangements with respect to such ****
trading software application and any other DTN originated trading applications
will be agreed upon by the parties on a case by case basis.
5.3 Administrative Software. SmartServ agrees that the Administrative
Software used to administratively control user accounts is to be included in the
Internet Software; provided, however, that the License as it relates solely to
such Administrative Software is provided on a non-exclusive basis to DTN for its
internal use only.
5.4 Additional Products and Services. The parties agree that SmartServ
is engaged in the business of providing software products and services on the
Internet referred to as "DTN IQ", "Order Entry Review & Release", "Order Entry
FIX Protocol" and "BrokerNet" which are covered by this Agreement. SmartServ's
other business operations (hereinafter the "Excluded Business Operations")
including but not limited to (i) its telephone screen services, (ii) any other
internet products and services not identified above, or (iii) its wireless or
PCS services are not covered by the License granted herein. From time to time,
parts of SmartServ's Excluded Business Operations may be available for licensing
to DTN's customers. Should any of DTN's customers execute a license to utilize
any portion of SmartServ's Excluded Business Operations through DTN, DTN shall
be entitled to **** of the revenues derived therefrom.
5.5 Membership on Board of Directors. During the License Term (as
defined in the License Agreement), SmartServ agrees to nominate a person
designated from time to time by DTN and acceptable to the SmartServ Board of
Directors as a member of the Board of Directors of SmartServ at the appropriate
annual meeting of the shareholders of SmartServ held for the purpose of electing
directors of SmartServ.
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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SECTION 6
MISCELLANEOUS
6.1 Governing Law. This Agreement shall be governed by and interpreted
in accordance with the internal laws of the State of Nebraska, without regard to
principles of conflicts of laws.
6.2 Entire Agreement. This Agreement, including the Schedules hereto,
and the License Agreement constitute the entire agreement between the parties
with respect to the subject matter hereof and supersedes all previous proposals,
both oral and written, negotiations, representations, commitments, writings and
all other communications between the parties. This Agreement may not be
released, discharged, modified or amended except by an instrument in writing
signed by a duly authorized representative of each of the parties.
6.3 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart.
6.4 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
6.5 Superseding. From and after the date hereof, all references to the
License Agreement (including, but not limited to, such references in the Escrow
Agreement and the Asset Purchase Agreement dated April 23, 1998, between
SmartServ and DTN) shall mean the License Agreement as amended by this
Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement to become
effective as of the day and year first above written.
DATA TRANSMISSION NETWORK SMARTSERV ONLINE, INC.,
CORPORATION, a Delaware a Delaware corporation
corporation
By: /s/ Xxxxxxx X. Xxxx By: /s/ Xxxxx Xxxxx
--------------------------------- ---------------------------------------
Title: Senior Vice President Title: Vice President - Operations
****REPRESENTS MATERIAL REDACTED PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT PURSUANT TO RULE 24B-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.
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