January 26, 1999
Xx. Xxxxxxxxx X. Xxxxxxx, Chief Executive Officer
SmartServ Online, Inc.
Metro Center, Xxx Xxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Re: Possible Merger with Data Transmission Network Corporation ("DTN")
Dear Xx. Xxxxxxx:
This letter sets forth our agreement in principle whereby a wholly
owned subsidiary of DTN ("Merger Sub") would merge with SmartServ Online, Inc.
("SSOL") (the "Merger") upon the terms, and subject to the conditions, generally
described below.
ECONOMIC TERMS
1. Merger. The Merger would be accomplished in a manner which would
qualify it as a tax-free reorganization under Section 368 of the Internal
Revenue Code of 1986, as amended, and, if possible, permit it to be accounted
for as a "pooling-of-interests". Either Merger Sub or SSOL would be the
surviving corporation following the Merger, but the articles of incorporation,
bylaws, directors and officers of the surviving corporation immediately
following the Merger would be as specified by DTN.
2. Merger Agreement. It is understood that SSOL and DTN will attempt in
good faith to negotiate and sign a definitive merger agreement (the "Definitive
Agreement") upon the terms and subject to the conditions set forth in this
letter of intent. The parties to this letter of intent other than SSOL and DTN
(the "Principal Stockholders") will be the holders of 46% or more of the SSOL
Common Stock on an as if converted and fully diluted basis. On or before the
execution of the Definitive Agreement, the Principal Stockholders will agree to
exercise their warrants, options and other rights to acquire SSOL Common Stock
and vote their SSOL Common Stock in favor of approval of the Merger; provided,
however, Xxxxxxxxx Xxxxxxx and Xxxxx Xxxxx will not be obligated to do so if it
would cause a short-swing profit recapture pursuant to Section 16(b) of the
Securities Exchange Act of 1934. If such recapture would result, then the
parties shall agree to cooperate in any reasonable arrangement designed to
assure the vote of such SSOL Common Stock in favor of approval of the Merger and
yet avoid such recapture. If no such reasonable arrangement is available, DTN
could elect to either proceed without the exercise of the options and warrants
of Messrs. Casseta and Rossi or terminate the Definitive Agreement.
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3. Merger Consideration. In the Merger, the holders of outstanding
stock of SSOL on an as if converted and fully diluted basis (the "SSOL
Stockholders") would receive shares of Data Transmission Network Corporation
Common Stock ("DTN Common Shares") having an aggregate market value equal to the
lesser of $14,800,000 or the amount determined by multiplying $3.50 by the
number of shares of SSOL Common Stock held by SSOL Stockholders on an as if
converted and fully diluted basis (the "Merger Consideration"). The market value
of a DTN Common Share for purposes of the Merger would be based upon the average
of its closing prices on the Nasdaq Stock Market on each of the 10 trading days
ending on the third trading day prior to the date of the closing ("Closing") of
the Merger, but would not be lower than $28.35 or higher than $34.65.
RELATED MATTERS
4. Registration of Securities. DTN would agree to file a federal
registration statement prior to the Closing covering all of the DTN Common
Shares issued to the SSOL Stockholders in the Merger. The registration would be
on Form S-4 or such other form as DTN elects. The registration, if effective,
would permit the SSOL Stockholders to sell the DTN Common Shares into the public
market. DTN would pay the cost of such registration. DTN would agree to use its
best efforts to cause the registration statement (and required state
registrations, if any) to become effective upon the consummation of the Merger
and as soon as reasonably practicable following the execution of the Definitive
Agreement. DTN also would use its best efforts to list the DTN Common Shares to
be issued to the SSOL Stockholders on the Nasdaq Stock Market promptly after the
Closing.
5. Confidentiality and Non-Competition Agreements. Each of Xxxxxxxxx
Xxxxxxx and Xxxxx Xxxxx would enter into a Confidentiality and Non-Competition
Agreement (the "Non-Competition Agreements") in form mutually satisfactory to
DTN and such employees. The Non-Competition Agreements would be for a duration
which is the longer of three years following the Closing or two years following
the employee's termination of employment with the surviving corporation, would
be for the maximum geographic territory permitted by applicable law, and would
have the maximum scope of precluded conduct permitted by applicable law (or such
lesser period, territory and/or scope as DTN may elect).
6. Employment Agreements. Each of Xxxxxxxxx Xxxxxxx and Xxxxx Xxxxx
would enter into an Employment Agreement (the "Employment Agreements") in form
mutually satisfactory to DTN and such employees, which would be equivalent to
the compensatory terms of their existing employment agreements with SSOL. The
Employment Agreements would be for a duration of three years following the
Closing, would be subject to termination by the surviving corporation with or
without cause, except upon termination by the surviving corporation other than
for cause or death or disability of such employee, such employee shall receive
upon termination the present value of the compensation such employee would have
received during the remaining term of the Employment Agreement.
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CONDITIONS TO OBLIGATIONS
7. Subject to Definitive Merger Agreement. This letter of intent
expresses the parties' intent to move forward with the Merger and the terms upon
which they would move forward. This letter of intent is based upon certain
assumptions which need to be verified through a due diligence review process by
DTN. Except for the provisions of Sections 9 through 13 which shall be binding
upon the parties in accordance with their terms through June 30, 1999, the
provisions of this letter of intent shall not obligate the parties to consummate
the Merger or provide the basis for liability of one party to another if such
Merger is not consummated for any reason. A party's obligations to consummate
the Merger shall arise only if and when a Definitive Agreement, if any, is
entered into by the parties. The parties agree to negotiate in good faith to try
to reach a Definitive Agreement by March 31, 1999. The Definitive Agreement
would contain representations, warranties, indemnities, covenants, conditions,
provisions for opinions, etc. as are customary in transactions of this nature.
8. Special Conditions. In addition to the conditions to Closing which
customarily would be contained in the Definitive Agreement, the parties'
obligations to consummate the Merger would be subject to the following
conditions being satisfied as of Closing:
a. Final Due Diligence. DTN shall be satisfied in good faith with
the results of its continued due diligence with respect to matters arising,
matters changing, or matters coming to its attention during the period between
the date of the Definitive Agreement and the Closing.
b. Entering into Other Agreements. The parties, as applicable,
shall have negotiated and entered into the Confidentiality and Non-Competition
Agreements and Employment Agreements. In addition, DTN shall have negotiated and
entered into an agreement with Xxxxxxx Xxxxx Securities, Inc. regarding the
payment of expenses and fees by SSOL pursuant to that certain Letter of Intent
dated August 11, 1998 concerning a proposed private placement of securities of
SSOL, which agreement shall be satisfactory to DTN in its sole and absolute
discretion.
c. Board and Stockholder Approval. The parties' respective Boards
of Directors, the SSOL Stockholders and the sole stockholder of Merger Sub shall
have approved the Merger and authorized the execution and delivery of the
Definitive Agreement and other closing documents. Principal Stockholders would
agree to vote their SSOL Common Stock in favor of approval of the Merger.
d. Options, Warrants, and Conversion Rights. All outstanding
options, warrants and conversion rights with respect to SSOL capital stock shall
have been exercised or the rights thereunder shall have been relinquished by
such holders prior to Closing or shall have been replaced at Closing with DTN
Common Shares or options and warrants for DTN Common Shares.
e. No Material Change. DTN's and Merger Sub's obligations shall
be subject to there not having been a material adverse change in SSOL's
business, operations, prospects, assets, liabilities, financial position or
results of operations, as determined by DTN in its reasonable judgment. SSOL's
and the SSOL Stockholders' obligations shall be subject to there not having been
a material adverse change in DTN's business, operations, prospects, assets,
liabilities, financial position or results of operations, as determined by SSOL
in its reasonable judgment.
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f. Litigation. DTN's and Xxxxxx Sub's obligations shall be
subject to SSOL not having any claims, litigation, proceedings or regulatory
changes pending which, in DTN's reasonable judgment, materially adversely affect
the Merger. SSOL's and the SSOL Stockholders' obligations shall be subject to
DTN not having any claims, litigation, proceedings or regulatory changes pending
which, in SSOL's reasonable judgment, materially adversely affect the Merger.
g. Dissenting Stockholders. DTN's and Xxxxxx Sub's obligations
shall be subject to the condition that no SSOL Stockholders holding in the
aggregate more than five percent (5%) of the SSOL Common Stock on an as if
converted and fully diluted basis shall have perfected their dissenters' rights
or demanded payment for their SSOL Common Shares under Delaware statutory
dissenters' rights provisions.
h. Effective Registration Statement. The federal registration of
the DTN Common Shares as contemplated in Section 4 shall be effective at the
Closing.
i. Pooling-of-Interests and Tax-Free Reorganization Treatment.
Nothing shall have occurred which would disqualify the Merger as a
"reorganization" within the meaning of Section 368 of the Code. In addition, if
the Merger can be accounted for as a "pooling-of-interests", nothing shall have
occurred after the execution of this letter of intent which would disqualify the
Merger as a "pooling-on-interests" for accounting purposes.
j. Pooling Letters. If the Merger can be accounted for as a
"pooling-of-interests", each of DTN and SSOL shall have received from their own
independent accountants a letter, dated the date of the Closing, to the effect
that, for financial reporting purposes, the Merger qualifies for
"pooling-of-interests" accounting treatment under generally accepted accounting
principles if consummated in accordance with the Definitive Agreement.
k. Fairness Opinion. The Board of Directors of SSOL shall have
received an opinion of its financial advisor to the effect that the
consideration to be received by the SSOL Stockholders in the Merger is fair to
the SSOL Stockholders from a financial point of view.
COVENANTS
9. Covenants. In addition to the covenants pending Closing which
customarily would be contained in a Definitive Agreement, SSOL and, solely with
respect to paragraph g below, the Principal Stockholders agree to:
a. Conduct of Business. Conduct SSOL's business only in the
ordinary course, and not engage in any extraordinary transactions without DTN's
prior consent.
b. Disposition of Assets. Not dispose of any assets of SSOL,
except in the ordinary course of business.
c. Employee Matters. Except with the approval of DTN, not
materially increase the annual level of compensation or benefits of any employee
or grant any unusual or extraordinary bonuses, benefits or other forms of direct
or indirect compensation to any employee, officer, director or consultant.
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d. Issuance of Securities. Not issue any equity securities or
rights to acquire equity securities except with the prior approval of DTN.
e. Dividends or Distributions. Not pay any dividends, redeem any
securities, or otherwise cause assets of SSOL to be distributed to any SSOL
Stockholder or affiliate.
f. Borrowings. Not borrow any funds, under existing lines of
credit or otherwise, except as reasonably necessary for the ordinary operation
of SSOL's business in a manner, and in amounts, in keeping with historical
practices.
g. No Other Negotiations. Between the date hereof and May 31,
1999, not initiate, solicit, encourage, or participate in any discussions with,
or provide any information to, any corporation, partnership, person, entity or
group, other than DTN and its employees and agents, concerning any merger,
consolidation, sale of assets or similar transaction involving SSOL, or any sale
of capital stock of SSOL, including securities convertible into or exchangeable
for such securities. If a Definitive Agreement is entered into by the parties,
this standstill shall extend until Closing or termination of the Definitive
Agreement in accordance with its terms. SSOL and the Principal Stockholders
acknowledge that DTN is relying upon the provisions of this paragraph in
incurring the time and expense of due diligence and preparation of documents.
MISCELLANEOUS
10. Access and Due Diligence Updates. SSOL shall make available to DTN
and its representatives full access to SSOL's books, records, files, contracts,
documents, facilities, attorneys, accountants and employees for purposes of
DTN's due diligence review.
11. Confidential Information. The parties by signing this letter of
intent agree that DTN, Merger Sub, SSOL and the Principal Stockholders will each
keep confidential and will not disclose, except as required by law (including
SEC and Nasdaq requirements), to anyone except employees and agents on a "need
to know" basis for purposes of evaluating, negotiating, preparing documents for
and consummating the anticipated Merger, all information provided by the other
parties about its business which could reasonably be expected to be proprietary
or confidential information. Prior to any disclosure of this letter of intent,
or the proposed Merger or other confidential information which may be required
by law, the party seeking to make such disclosure shall advise the other parties
so that appropriate protective action may be taken as needed. The parties shall
consult with each other regarding the content of the press release to announce
this letter of intent. If negotiations between the parties terminate for any
reason, each party will promptly return all proprietary and confidential
information received from the other parties and shall not use any such
information, directly or indirectly, for their personal benefit. The obligations
of this paragraph shall survive the termination of negotiations.
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12. Expenses. Each party to this letter of intent shall bear its own
expenses associated with the due diligence process and the negotiation and
preparation of a Definitive Agreement and related documents and the consummation
of the Merger; provided, however, all of SSOL's investment banking, appraisal,
brokerage, legal, accounting and other related fees in connection with the
Merger must be approved by DTN in advance.
13. Broker. Except for the Letter of Intent between SSOL and Xxxxxxx
Xxxxx Securities, Inc. referred to in Section 8(b), each party represents that
it has not retained a broker in connection with this transaction.
If you agree that this reflects our agreement in principle, please sign
the enclosed copy of this letter and return it to us.
Very truly yours,
Data Transmission Network Corporation
/s/ Xxxxxxx X. Xxxx
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Xxxxxxx X. Xxxx, Xx. Vice President
AGREED:
SmartServ Online, Inc.
/s/ Xxxxxxxxx X. Xxxxxxxx
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Xxxxxxxxx X. Xxxxxxxx, Chairman and CEO
Principal Stockholders:
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