SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _________ to__________
Commission File Number 333-50049
DTI Holdings, Inc.
(Exact name of registrant as specified in its charter)
Missouri 43-1674259
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11111 Dorsett Road
St. Louis, Missouri 63043
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (314) 253-6600
Check here whether the issuer (1) has filed all reports required to be filed by
Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes [_] No [X]
As of May 14, 1998, the following shares of the Registrant's common stock were
issued and outstanding:
Common Stock ($.01 par value) 30,000,000
<PAGE>
DTI HOLDINGS, INC.
FORM 10-Q
MARCH 31, 1998
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1998 (Unaudited) and June 30, 1997
1
Consolidated Statements of Operations for the Three and Nine Months Ended
March 31, 1998 and 1997 (Unaudited) 2
Consolidated Statement of Stockholders' Equity (Deficit) for the Nine
Months Ended March 31, 1998 (Unaudited) 3
Consolidated Statements of Cash Flows for the Nine Months Ended March 31,
1998 and 1997 (Unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8-12
Item 3: Quantitative and Qualitative Disclosures About Market Risk 12
PART II OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTSDTI HOLDINGS, INC.
DTI HOLDINGS, INC.
<TABLE>
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND JUNE 30, 1997
- ----------------------------------------------------------------------------------------------------
<CAPTION>
March 31, 1998 June 30,
ASSETS (Unaudited) 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $263,231,384 $ 4,366,906
Accounts receivable, less allowance for doubtful accounts
of $167,000 and $48,000 708,477 159,268
Prepaid and other current assets 34,767 23,764
------ ------
Total current assets 263,974,628 4,549,938
NETWORK AND EQUIPMENT - At cost less accumulated
depreciation of $2,620,640 and $1,235,640 60,824,950 34,000,634
DEFERRED FINANCING COSTS - Net of amortization of $106,110 10,390,287 -
DEFERRED TAX ASSET 3,234,331 1,214,331
OTHER ASSETS 43,665 84,233
------ ------
TOTAL $338,467,861 $ 39,849,136
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 4,555,642 $ 5,086,830
Deferred revenues - current portion 366,000 259,680
Taxes payable (other than income taxes) 2,115,358 923,104
--------- -------
Total current liabilities 7,037,000 6,269,614
DEFERRED REVENUES 14,037,528 9,420,224
SENIOR DISCOUNT NOTES - Net 268,856,985 -
----------- -----------
Total liabilities 289,931,513 15,689,838
----------- ----------
COMMITMENTS AND CONTINGENCIES - -
REDEEMABLE CONVERTIBLE SERIES A PREFERRED
STOCK - Preferred stock, $.01 par value, 30,000 shares
authorized, -0- and 18,500 shares issued and outstanding - 28,889,165
STOCKHOLDERS'EQUITY (DEFICIT):
Preferred stock, $.01 par value, 20,000 shares authorized,
no shares issued and outstanding - -
Convertible series A preferred stock, $.01 par value,
30,000 shares authorized, 30,000 and -0- issued and
outstanding 300 -
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Common stock, $.01 par value, 100,000,000 shares authorized,
30,000,000 shares issued and outstanding 300,000 300,000
Additional paid-in capital 44,013,063 -
Common stock warrants 10,421,336 450,000
Accumulated deficit (6,198,351) (5,479,867)
---------- ----------
Total stockholders'equity (deficit) 48,536,348 (4,729,867)
---------- ----------
TOTAL $338,467,861 $ 39,849,136
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
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DTI HOLDINGS, INC.
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
TELECOMMUNICATION
SERVICES REVENUES:
Carrier services $963,729 $236,397 $1,707,914 $488,931
End user services 140,314 130,184 414,660 380,914
------- ------- ------- -------
Total revenues 1,104,043 366,581 2,122,574 869,845
--------- ------- --------- -------
OPERATING EXPENSES:
Telecommunication services 460,206 268,513 1,024,578 563,791
Selling, general and
administrative 994,689 378,193 2,437,825 845,684
Depreciation and amortization 555,050 207,989 1,385,750 521,049
------- ------- --------- -------
Total operating expenses 2,009,945 854,695 4,848,153 1,930,524
--------- ------- --------- ---------
Loss from operations (905,902) (488,114) (2,725,579) (1,060,679)
OTHER INCOME (EXPENSES):
Interest income 1,438,751 25,226 1,558,898 58,403
Interest expense (3,547,605) (56,208) (3,697,605) (152,937)
Loan commitment fees (150,000) - - (784,500)
Equity in earnings of joint venture - 16,796 - 37,436
------- ------ ------ ------
Loss before provision for
income tax benefit (3,164,756) (502,300) (4,864,286) (1,902,277)
INCOME TAX BENEFIT 1,340,000 124,000 2,020,000 1,042,000
--------- ------- --------- ---------
NET LOSS ($1,824,756) ($378,300) ($2,844,286) ($860,277)
=========== ========= =========== =========
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
<TABLE>
DTI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
- ------------------------------------------------------------------------------------------------------------------------
DTI HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<CAPTION>
Convertible Additional Common Total
Preferred Common Paid-In Stock Accumulated Stockholders'
Stock Stock Capital Warrants Deficit Equity (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1997 $ - $300,000 $ - $450,000 ($5,479,867) ($4,729,867)
Accretion of redeemable
convertible preferred stock
to redemption price - - - - (4,985,442) (4,985,442)
Reclassification of redeemable
convertible series A preferred
stock to convertible series A
preferred stock and reversal of
related accretion 300 - 44,283,033 - 6,841,274 51,124,607
Reclassification to additional
paid-in capital of charge to
accumulated deficit to effect the
1,000 for 1 stock split - - (269,970) - 269,970 -
Allocation of proceeds from
senior discount notes offering
to the related warrants - - - 9,971,336 - 9,971,336
Net loss - - - - (2,844,286) (2,844,286)
------ -------- --------- --------- --------- ----------
BALANCE, MARCH 31, 1998 $ 300 $300,000 $44,013,063 $10,421,336 ($6,198,351) $48,536,348
==== ======== =========== =========== =========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
<TABLE>
DTI HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
- --------------------------------------------------------------------------------------
<CAPTION>
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss ($2,844,286) ($860,277)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortization 1,491,860 521,049
Accretion of discount on senior discount notes 3,604,801 -
Deferred income taxes (2,020,000) (1,042,000)
Loan commitment fees related to common stock warrants - 450,000
Changes in assets and liabilities:
Accounts receivable (549,209) (1,491,397)
Prepaid and other current assets (11,003) 543,300
Other assets 40,568 (36,945)
Accounts payable (531,188) 1,872,548
Other liabilities 606,178
Taxes payable (other than income taxes) 1,192,254 543,000
Deferred revenues 4,723,624 3,589,343
--------- ---------
Net cash flows provided by operating activities 5,097,421 4,694,799
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in network and equipment (28,210,066) (10,518,316)
Change in restricted cash - 459,522
------- -------
Net cash used in investing activities (28,210,066) (10,058,794)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of senior discount notes
and attached warrants 275,223,520 -
Proceeds from issuance of redeemable convertible
preferred stock including cash from
contributed joint venture of $-0- and $2,253,045 17,250,000 5,464,313
Repurchase of common stock warrants granted to a customer - (2,700,000)
Deferred financing costs (10,496,397) -
Proceeds from notes payable - 8,000,000
Payment of notes payable - (450,000)
Proceeds from credit facility 3,000,000 -
Principal payments on credit facility (3,000,000) -
---------- ----------
Net cash provided by financing activities 281,977,123 10,314,313
----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 258,864,478 4,950,318
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,366,906 817,391
--------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $263,231,384 $5,767,709
============ ==========
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<PAGE>
SUPPLEMENTAL DISCLOSURE OF SIGNIFICANT NON-CASH ACTIVITIES:
Consideration for issuance of redeemable
convertible preferred stock:
Outstanding principal of KLT Loan $ - $14,000,000
Accrued interest payable on KLT Loan - 794,062
Assets of contributed joint venture - 1,816,043
Liabilities assumed of contributed joint venture - 69,088
</TABLE>
See notes to unaudited consolidated financial statements.
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<PAGE>
DTI HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions of Article 10 of
Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements.
In the opinion of the management of DTI Holdings, Inc. and subsidiary (the
"Company" or "DTI") the accompanying unaudited consolidated financial
statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the Company's financial
information for the interim periods presented and have been prepared in
accordance with generally accepted accounting principles. The interim
results of operations are not necessarily indicative of results that may
be expected for any other interim period or for the full year.
The financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto for the year ended
June 30, 1997 included in the Company's Form S-4 Registration Statement,
as amended, originally filed with the Securities and Exchange Commission
on April 14, 1998 (see Note 6). Accordingly, footnote disclosures which
would substantially duplicate the disclosures in the audited financial
statements have been omitted.
2. CONTINGENCIES
Litigation - On June 20, 1995, the Company and its President were named as
defendants in a suit which the plaintiff alleges that (i) the plaintiff
entered into an oral contract with the defendants pursuant to which the
plaintiff was to receive a percentage of the Company's common stock, (ii)
the plaintiff provided services to the Company for which the plaintiff was
not and should be compensated, and (iii) the defendants misrepresented
certain facts to the plaintiff in order to induce him to loan money and
provide services to the defendants. Based on these allegations, the
plaintiff is suing for breach of contract and fraud and is seeking actual
monetary damages, punitive damages and a percentage of the common stock of
the Company. Management believes the plaintiff's claims are without merit
and intends to vigorously defend the claims. It is not possible to
determine what impact, if any, the outcome of this litigation might have
on the financial condition, results of operations or cash flows of the
Company at this time. The President has agreed personally to indemnify the
Company against any and all losses resulting from any judgments and awards
rendered against the Company in this litigation. However, no guarantee can
be made as to the ability to satisfy all such amounts. The President has
also agreed to indemnify the holder of redeemable convertible preferred
stock from such losses, and has pledged his stock ownership in the Company
to secure such obligations to the Company and such holder.
The Company is involved in a dispute with a customer related to delays in
providing telecommunication services to the customer. Management contends
that the delays resulted from the customer's inability to provide access
and does not believe that ultimate settlement of this dispute will have a
material effect on the Company's financial position, results of operations
or cash flows.
-7-
<PAGE>
Construction Agreements - DTI's construction agreements are with its major
network construction contractor and equipment supplier. DTI's remaining
aggregate commitment for construction and equipment under these agreements
at March 31, 1998 is approximately $20,085,000.
3. NETWORK AND EQUIPMENT
Network and equipment consists of the following:
March 31, June 30,
1998 1997
Fiber optic cable plant $ 49,141,905 $ 28,498,465
Fiber optic terminal equipment 11,646,390 5,757,270
Fiber optic network buildings 2,050,973 757,680
Leasehold improvements 292,951 131,611
Furniture, office equipment and other 313,371 91,248
-------- ------
63,445,590 35,236,274
Less - accumulated depreciation 2,620,640 1,235,640
---------------- ----------------
$ 60,824,950 $ 34,000,634
=============== =============
At March 31, 1998 and June 30, 1997, fiber optic cable plant, fiber optic
terminal equipment and fiber optic network buildings include $19,581,920
and $19,027,585 of construction in progress, respectively, that was not in
service and, accordingly, has not been depreciated. Also, during the nine
months ended March 31, 1998 and the year ended June 30, 1997, $182,000 and
$562,750, respectively, of interest costs were capitalized.
4. FINANCING ARRANGEMENTS
Credit Facility - In January 1998, DTI entered into a $30.0 million bank
credit facility (the "Credit Facility") with certain commercial lending
institutions and Toronto Dominion ("Texas'), Inc., as administrative agent
for the lenders ("TD ("Texas")"), to fund its working capital requirements
until completion of the Company's offering of senior discount notes
discussed below. In January 1998, Digital Teleport had drawn $3.0 million
principal amount under the Credit Facility which was repaid with the net
proceeds of the issuance and sale by the Company of its senior discount
notes and warrants discussed below. The credit facility was then
cancelled.
Senior Discount Notes - On February 23, 1998, the Company completed the
issuance and sale of 506,000 units consisting of $506 million aggregate
principal amount at maturity of 12 1/2% Senior Discount Notes due 2008
(the "Notes") and warrants to purchase 3,926,560 shares of common stock,
for which the Company received proceeds, net of underwriting discounts and
expenses, of approximately $264.8 million. No cash payments of interest
are required under the Notes prior to September 1, 2003. Commencing at
such time, the Company will be required to make semi-annual interest
payments on the Notes.
5. EQUITY TRANSACTIONS
Stock Split - On February 17, 1998, the Company approved a 1,000-for-1
stock split in the form of a stock dividend of 999 shares of common stock
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<PAGE>
for each one share of common stock outstanding. Effective February 18,
1998, the Company's Articles of Incorporation were amended to increase the
number of authorized shares of common stock to 100,000,000 and the stock
dividend was issued to the Company's stockholders. All common share
information included in the accompanying financial statements has been
retroactively adjusted to give effect to the stock split. In order to
effect the 1,000-for-1 stock split on February 17, 1998, $269,970 was
initially charged to accumulated deficit. The Company recorded an entry in
the third quarter of fiscal 1998 to reclassify this amount from
accumulated deficit to additional paid-in capital recorded in conjunction
with the reclassification of Series A Preferred Stock on February 13,
1998, as discussed below.
Preferred Stock - On February 13, 1998, the Company amended its Articles
of Incorporation amending the terms of the Series A Preferred Stock such
that the Series A Preferred Stock is no longer mandatorily redeemable.
Accordingly, the Series A Preferred Stock has been reclassified and
reported within stockholders' equity.
6. SUBSEQUENT EVENTS
The Company filed a Registration Statement on Form S-4 relating to an
offer to exchange the $506 million privately placed 12 1/2% Senior
Discount Notes due 2008. The Registration Statement was originally filed
on April 14, 1998 but has not yet been declared effective.
* * * * * *
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto.
OVERVIEW
DTI Holdings, Inc. ("DTI") is a facilities-based provider of long-haul and local
telecommunications services primarily to inter-exchange carriers ("IXCs") and
other communications entities on a wholesale basis, as well as directly to
business and governmental end users. DTI intends to expand its network (the "DTI
network") outward from Missouri into an additional 13 states in the Midwest
region. The Company is preparing to offer local switched services and data
transmission services to targeted end-user customers in Missouri in mid-1998.
DTI intends to provide local switched service capacity to its carrier's carrier
customers on a wholesale basis as it deploys its switches throughout its
network.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
REVENUE
Total revenue increased 201.2%, from $367,000 in 1997 to $1.1 million in 1998
due to increased revenue from carriers' carrier and end-user services. Revenue
from carrier's carrier services increased 307.7% from $236,000 in 1997 to
$964,000 in 1998. This increase resulted principally from the completion of
additional network segments, as well as from adding additional traffic on the
existing DTI network. End user revenues increased 7.8%, from $130,000 in 1997 to
$140,000 in 1998. This increase was attributable to the completion and
activation of additional sites under a deferred revenue contract, which caused
additional deferred revenues to be recognized.
OPERATING EXPENSES
Operating expenses increased 135.2%, from $855,000 in 1997 to $2.0 million in
1998 due primarily to increases in telecommunications services expenses,
selling, general and administrative expenses and depreciation and amortization.
Telecommunications services expenses increased 71.4% from $268,000 in 1997 to
$460,000 in 1998 due to increased personnel costs to support the expansion of
the DTI network, as well as increased costs related to property taxes and other
costs in connection with leasing capacity to support customers in areas not yet
reached by the DTI network. Selling, general and administrative expenses
increased 163.0% from $378,000 in 1997 to $995,000 in 1998, due principally to
an increase in administrative and sales personnel and the expenses of supporting
these personnel. Depreciation and amortization increased 166.9%, from $208,000
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<PAGE>
in 1997 to $555,000 in 1998 due to higher amounts of plant and equipment being
in service in 1998 versus 1997. The Company expects that significant additional
amounts of plant and equipment will be placed in service throughout the balance
of fiscal 1998 and fiscal 1999. As a result, depreciation and amortization is
expected to increase significantly in the future.
INTEREST AND OTHER INCOME (EXPENSE)
Net interest and other income (expense) increased from net expense of $14,000 in
1997 to net expense of $2.3 million in 1998. Interest income increased from
$25,000 in 1997 to $1.4 million in 1998 due to the investment of the proceeds
from the Senior Discount Notes. Similarly, as a result of the debt offering,
interest expense increased from $56,000 in 1997 to $3.7 million in 1998.
INCOME TAXES
An income tax benefit of $1.3 million and $124,000 was recorded in the three
month periods ended March 31, 1998 and 1997, respectively, as management
believes it is more likely than not that it will generate taxable income
sufficient to realize the tax benefit associated with future deductible
temporary differences and net operating loss carryforwards prior to their
expiration.
NET LOSS
Net loss for the three months ended March 31, 1998 was $1.8 million compared to
$378,000 for the three months ended March 31, 1997.
Nine Months Ended March 31, 1998 Compared to Nine Months Ended March 31, 1997
REVENUE
Total revenue increased 144.0% from $870,000 in 1997 to $2.1 million in 1998 due
to increased revenue from carrier's carrier and end-user services. Revenue from
carrier's carrier services increased 249.3%, from $489,000 in 1997 to $1.7
million in 1998. This increase resulted principally from the completion of
additional network segments, as well as from adding traffic on the existing DTI
network. End-user revenues increased 8.9% from $381,000 in 1997 to $415,000 in
1998. This increase was attributable to the completion and activation of
additional sites under a deferred revenue contract, which caused additional
deferred revenues to be recognized.
OPERATING EXPENSES
Operating expenses increased 151.1% from $1.9 million in 1997 to $4.8 million in
1998, due primarily to increases in telecommunications services, selling,
general and administrative expenses and depreciation and amortization.
Telecommunication services expenses increased 81.7% from $564,000 in 1997 to
$1.0 million in 1998 due to increased personnel to support the expansion of the
DTI network, as well as increased costs related to property taxes and other
costs in connection with leasing capacity to support customers in areas not yet
reached by the DTI network. Selling, general and administrative expenses
increased 188.3%, from $846,000 in 1997 to $2.4 million in 1998, in order to
support the expansion of the DTI network, which includes an increase in
administrative and sales personnel and the related expenses of supporting these
personnel, as well as increased legal fees. Depreciation and amortization
increased 166.0%, from $521,000 in 1997 to $1.4 million in 1998 due to higher
amounts of plant and equipment being in service in 1998 versus 1997. The Company
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<PAGE>
expects that significant additional amounts of plant and equipment will be
placed in service throughout fiscal 1998 and fiscal 1999. As a result,
depreciation and amortization is expected to increase significantly.
INTEREST AND OTHER INCOME (EXPENSE)
Net interest and other income (expense) increased from a net expense of $842,000
in 1997 to net expense of $2.1 million in 1998. Interest income increased from
$58,000 in 1997 to $1.6 million in 1998 due to the investment of the proceeds
from the Senior Discount Notes. Similarly, as a result of the debt offering,
interest expense increased from $153,000 in 1997 to $3.7 million in 1998. Loan
commitment fees decreased from $785,000 in 1997 to $-0- in 1998. These fees
represented a one-time charge for a loan commitment which was not used.
INCOME TAXES
An income tax benefit of $2,020,000 and $1,042,000 was recorded in the nine
month periods ended March 31, 1998 and 1997, respectively, as management
believes it is more likely than not that it will generate taxable income
sufficient to realize the tax benefit associated with future deductible
temporary differences and net operating loss carryforwards prior to their
expiration.
NET LOSS
Net loss for the nine months ended March 31, 1998 was $2.8 million compared to
$860,000 for the nine months ended March 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had $263.2 million of cash and cash
equivalents. This balance was provided primarily through the issuance and sale
of 506,000 units consisting of $506.0 million aggregate principal amount at
maturity of 12 1/2% Senior Discount Notes due 2008 (the "Notes") and warrants to
purchase 3,926,560 shares of common stock, for which the Company received
proceeds, net of underwriting discounts and expenses, of approximately $264.8
million.
The net cash provided by operating activities for the nine months ended March
31, 1997 and 1998 totaled $4.7 million and $5.1 million, respectively. During
the nine months ended March 31, 1997, cash provided by operating activities came
principally from increases in accounts payable of $1.2 million, deferred
revenues of $3.6 million and taxes payable (other than income taxes) of
$606,000. The increase in accounts payable in fiscal 1997 reflects the increase
in liabilities under DTI's supply contracts in connection with the buildout of
the DTI network. Deferred revenues in fiscal 1997 principally reflect advance
payments received from carrier customers under agreements for the lease of both
dark fiber and wholesale network capacity. During the nine months ended March
31, 1998, net cash provided by operating activities resulted principally from an
increase in taxes payable (other than income taxes) of $1.9 million and an
increase in deferred revenues of $4.7 million relating to an advance payment
received under wholesale network capacity agreements and end-user agreements. As
of March 31, 1998, advance payments of approximately $20.2 million will become
due over the next five years under existing agreements with certain major
customers upon DTI's meeting its obligations under certain agreements, which
require the Company to provide telecommunications services or dark fiber
capacity.
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<PAGE>
The Company's investing activities used cash of $10.1 million for the nine
months ended March 31, 1997 and $28.2 million for the nine months ended March
31, 1998. During the nine months ended March 31, 1997, the Company invested
$10.5 million in network and equipment and reduced restricted cash by $460,000
to repay borrowings under DTI's former credit facility. During the nine months
ended March 31, 1998, the Company invested $28.2 million in network and
equipment.
Cash provided by financing activities was $10.3 million for the nine months
ended March 31, 1997 and $282.0 million for the nine months ended March 31,
1998. During the nine months ended March 31, 1997, the Company borrowed $8.0
million under a loan agreement with the holder of its preferred stock, bringing
the total borrowings under that agreement to $14.0 million. These total
borrowings were converted into Series A Preferred Stock, and additional cash
proceeds in the amount of $5.0 million were received pursuant to a stock
subscription agreement. Cash was used to make principal payments on a bank loan
of $450,000 and to repurchase common stock warrants granted to a customer in the
amount of $2.7 million. During the nine months ended March 31, 1998, the Company
received $17.3 million in proceeds from the issuance of Series A Preferred Stock
and $275.2 million from the issuance of the Notes. Deferred financing costs
related to the debt offering totaled $10.5 million. Prior to the Notes offering
the Company executed a credit facility under which the Company borrowed $3.0
million. A portion of the proceeds of the Notes offering were used to repay the
principal balance on the credit facility.
The proceeds from the Notes offering are expected to provide sufficient
liquidity to meet the Company's operating and capital requirements through
approximately the next twelve months. Subsequent to such date, the Company's
operating and capital requirements are expected to be funded, in large part, out
of advance payments under dark fiber leases and wholesale network capacity
agreements, borrowings under bank credit facilities, additional debt or equity
financings, and available cash flow from operations. The Company is in various
stages of discussions with potential customers for leases of dark fiber and
wholesale network capacity agreements. There can be no assurance, however, that
the Company will continue to obtain advance payments from customers prior to
commencing construction, that it will be able to obtain financing under any
credit facility or that other sources of capital will be available on a timely
basis or on terms that are acceptable to the Company and within the restrictions
under the Company's existing financing arrangements, or at all. If the Company
fails to obtain the capital required to complete the DTI network build-out, the
Company could modify, defer or abandon building certain portions of the DTI
network. The failure of the Company, however, to raise substantial capital
required to complete the DTI network construction could have a material adverse
effect on the Company. The actual amount and timing of DTI's capital
requirements may differ materially from those estimates depending on demand for
the Company's services, and the Company's ability to implement its current
business strategy as a result of regulatory, technological and competitive
developments (including market developments and new opportunities) in the
telecommunications industry.
The Company estimates that total capital expenditures, including the total cost
to construct and activate the DTI network will be approximately $526.4 million.
Of this amount, the Company has already expended approximately $63.3 million as
of March 31, 1998. The Company anticipates total capital expenditures of
approximately $30.0 million in the fourth quarter of fiscal 1998 and $210.0
million in fiscal 1999.
The Notes contain financial and operating covenants and restrictions on the
ability of the Company to incur indebtedness, make investments and take certain
other corporate actions.
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INFLATION
The Company does not believe that inflation has had a significant impact on the
Company's consolidated results of operations.
YEAR 2000
While the Company believes that its existing software applications are year 2000
compliant, there can be no assurance until the year 2000 that all of the
Company's systems then in place will function adequately . Further, if the
software applications of others on whose services the Company depends are not
year 2000 compliant, any loss of such services could have a material adverse
effect on the Company's business, financial condition and results of operations.
FORWARD LOOKING STATEMENTS
Certain statements throughout Management's Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere in this quarterly report are
"forward looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve known and unknown risks, uncertainties
and other factors that may cause actual events or results to differ materially
from those expressed or implied by the forward looking statements. Factors that
could cause such materially different events or results include, but are not
limited to, the Company's failure to obtain substantial amounts of additional
capital and financing at reasonable costs and on satisfactory terms and
conditions, the Company's inability to manage effectively and cost-efficiently
the construction and expansion of the DTI network or to achieve substantial
traffic volumes on the DTI network, a continued increase in competition and
changes in general economic conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings:
On June 20, 1995, the Company and its President were named as defendants
in a suit which the plaintiff alleges that (i) the plaintiff entered into
an oral contract with the defendants pursuant to which the plaintiff was
to receive a percentage of the Company's common stock, (ii) the plaintiff
provided services to the Company for which the plaintiff was not and
should be compensated, and (iii) the defendants misrepresented certain
facts to the plaintiff in order to induce him to loan money and provide
services to the defendants. Based on these allegations, the plaintiff is
suing for breach of contract and fraud and is seeking actual monetary
damages, punitive damages and a percentage of the common stock of the
Company. Management believes the plaintiff's claims are without merit and
intends to vigorously defend the claims. It is not possible to determine
what impact, if any, the outcome of this litigation might have on the
financial condition, results of operations or cash flows of the Company at
this time. The President has agreed personally to indemnify the Company
against any and all losses resulting from any judgments and awards
rendered against the Company in this litigation. However, no guarantee can
be made as to the ability to satisfy all such amounts. The President has
also agreed to indemnify the holder of redeemable convertible preferred
stock from such losses, and has pledged his stock ownership in the Company
to secure such obligations to the Company and such holder.
Item 2. Changes in Securities and Use of Proceeds:
On February 23, 1998, the Company issued and sold 506,000 units consisting
of $506 million aggregate principal amount at maturity of 12 1/2% Senior
Discount Notes due 2008 and warrants to purchase an aggregate of 3,926,560
shares of Common Stock to Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and TD Securities (USA) Inc. (together, the
"Initial Purchasers"). The units were sold by the Company in reliance upon
the exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"). The units were resold by
the Initial Purchasers to certain "qualified institutional buyers" (as
such term is defined under Rule 144A under the Securities Act) and to
certain purchasers under Regulation S. The Company received net proceeds,
after deducting the Initial Purchasers' discount and offering expenses, of
approximately $264.8 million. Each unit includes a warrant to purchase
1.552 shares of Common Stock at an exercise price of $0.01 per share of
Common Stock issuable upon exercise of the warrant. Each warrant may be
exercised on or after the first day after the "Separability Date" (as
defined below) that any of the following has occurred: (i) immediately
prior to a Change of Control (as such term is defined in the Indenture
pursuant to which the Notes were issued (the "Indenture")); (ii)(a) the
180th day (or such earlier date as determined by the Company in its sole
discretion) following the consummation of an Initial Public Equity
Offering (as such term is defined in the Indenture) or (b) upon the
consummation of an Initial Public Equity Offering, but only in respect of
warrants, if any, required to be exercised to permit the holders thereof
to sell the underlying warrant shares pursuant to their registration
rights pertaining to such shares; (iii) a class of equity securities of
the Company is listed on a national securities exchange or authorized for
quotation on the Nasdaq National Market or is otherwise subject to
registration under the Securities Exchange Act of 1934, as amended; or
(iv) September 1, 1999. As used herein, the term "Separability Date" means
the earliest of the following to occur: (1) September 1, 1998; (2) the
date on which a registration statement with respect to a registered
exchange offer for the Notes is declared effective under the Securities
Act; (3) the occurrence of any of the events described in clauses (i)
through (iv) above; (4) the occurrence of an Event of Default (as such
term is defined in the Indenture); or (5) such earlier date as determined
by Merrill Lynch in its sole discretion.
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Item 3. Defaults Upon Senior Securities: Not applicable
Item 4. Submission of Matters to a Vote of Security-Holders: Not applicable
Item 5. Other Information: Not applicable
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1 Second Restated Articles of Incorporation of the Registrant.
3.2 Second Restated Bylaws of the Registrant.
4.1 Indenture by and between the Registrant and The Bank of New York, as
Trustee, for the Registrant's 12 1/2% Senior Discount Note due 2008,
dated February 23, 1998 (the "Indenture") (including form of the
Company's 12 1/2% Senior Discount Note due 2008 and 12 1/2% Series B
Senior Discount Note due 2008) incorporated herein by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-4 (File
No. 333-50049) (the "Form S-4").
4.2 Note Registration Rights Agreement by and among the Registrant and the
Initial Purchasers named therein, dated as of February 23, 1998
incorporated herein by reference to Exhibit 4.2 to the Form S-4.
4.3 Warrant Agreement by and between the Registrant and The Bank of New
York, as Warrant Agent, dated February 23, 1998 incorporated herein by
reference to Exhibit 4.3 to the Form S-4.
4.4 Warrant Registration Rights Agreement by and among the Registrant and
the Initial Purchases named therein, dated February 23, 1998
incorporated herein by reference to Exhibit 4.4 to the Form S-4.
4.5 Digital Teleport, Inc. Shareholders' Agreement between Richard D.
Weinstein and KLT Telecom, Inc., dated March 12, 1997 incorporated
herein by reference to Exhibit 4.5 to the Form S-4.
4.6 Amendment No. 1 to the Digital Teleport, Inc. Shareholders' Agreement,
dated November 7, 1997 incorporated herein by reference to Exhibit 4.6
to the Form S-4.
4.7 Amendment No. 2 to the Digital Teleport, Inc. Shareholders' Agreement,
dated December 18, 1997 incorporated herein by reference to Exhibit
4.7 to the Form S-4.
4.8 Amendment No. 3 to the Digital Teleport, Inc. Shareholders' Agreement,
dated February 12, 1998 incorporated herein by reference to Exhibit
4.8 to the Form S-4.
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4.9 Stock Pledge Agreement between Richard D. Weinstein and KLT Telecom,
Inc., dated March 12, 1997, securing the performance of Digital
Teleport, Inc.'s obligations under that certain Stock Purchase
Agreement dated as of December 31, 1996, as amended incorporated
herein by reference to Exhibit 4.9 to the Form S-4.
4.10 Amendment No. 1 to Stock Pledge Agreement between Richard D. Weinstein
and KLT Telecom, Inc., dated December 18, 1997 incorporated herein by
reference to Exhibit 4.10 to the Form S-4.
4.11 Amendment No. 2 to Stock Pledge Agreement between Richard D. Weinstein
and KLT Telecom, Inc., dated February 12, 1998 incorporated herein by
reference to Exhibit 4.11 to the Form S-4.
4.12 Subordination Agreement, by and among the Registrant, Digital
Teleport, Inc., KLT Telecom, Inc. and Richard D. Weinstein, dated
February 12, 1998 incorporated herein by reference to Exhibit 4.12 to
the Form S-4.
10.1 Employment Agreement between Digital Teleport, Inc. and Richard D.
Weinstein, dated December 31, 1996 incorporated herein by reference to
Exhibit 10.1 to the Form S-4.
10.2 Director Indemnification Agreement between the Registrant and Richard
D. Weinstein, dated December 23, 1997 incorporated herein by reference
to Exhibit 10.2 to the Form S-4.
10.3 Director Indemnification Agreement between the Registrant and Jerome
W. Sheehy, dated December 23, 1997 incorporated herein by reference to
Exhibit 10.3 to the Form S-4.
10.4 Director Indemnification Agreement between the Registrant and Bernard
J. Beaudoin, dated December 23, 1997 incorporated herein by reference
to Exhibit 10.4 to the Form S-4.
10.5 Director Indemnification Agreement between the Registrant and Ronald
G. Wasson, dated December 23, 1997 incorporated herein by reference to
Exhibit 10.5 to the Form S-4.
10.6 Director Indemnification Agreement between the Registrant and James V.
O'Donnell, dated December 23, 1997 incorporated herein by reference to
Exhibit 10.6 to the Form S-4.
10.7 Director Indemnification Agreement between the Registrant and Kenneth
V. Hager, dated December 18, 1997 incorporated herein by reference to
Exhibit 10.7 to the Form S-4.
10.8 1997 Long-Term Incentive Award Plan of the Registrant incorporated
herein by reference to Exhibit 10.8 to the Form S-4.
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10.9 Employment Agreement between Digital Teleport, Inc. and Robert F.
McCormick, dated September 9, 1997 incorporated herein by reference to
Exhibit 10.9 to the Form S-4.
10.10Amendment No. 1 to the Employment Agreement between Digital Teleport,
Inc. and Robert F. McCormick, dated January 28, 1998 incorporated
herein by reference to Exhibit 10.10 to the Form S-4.
10.11Amendment No. 2 to the Employment Agreement between Digital Teleport,
Inc. and Robert F. McCormick, dated January 28, 1998 incorporated
herein by reference to Exhibit 10.11 to the Form S-4.
10.12(++) Product Attachment - Carrier Networks Products Agreement between
Digital Teleport, Inc. and Northern Telecom, Inc., effective October
23, 1997 incorporated herein by reference to Exhibit 10.12 to the Form
S-4.
10.13Agreement re: Fiber Optic Cable on Freeways in Missouri, between the
Missouri Highway and Transportation Commission and Digital Teleport,
Inc., effective July 29, 1994 incorporated herein by reference to
Exhibit 10.13 to the Form S-4.
10.14First Amendment to agreement re: Fiber Optic Cable on Freeways in
Missouri, between the Missouri Highway and Transportation Commission
and Digital Teleport, Inc., effective September 24, 1994 incorporated
herein by reference to Exhibit 10.14 to the Form S-4.
10.15Second Amendment to Agreement re: Fiber Optic Cable on Freeways in
Missouri, between the Missouri Highway and Transportation Commission
and Digital Teleport, Inc., effective November 7, 1994 incorporate
herein by reference to Exhibit 10.15 to Form S-4.
10.16Third Amendment to Agreement re: Fiber Optic Cable on Freeways in
Missouri, between the Missouri Highway and Transportation Commission
and Digital Teleport, Inc., effective October 9, 1996 incorporated
herein by reference to Exhibit 10.16 to the Form S-4.
10.17Contract Extension to Agreement re: Fiber Optic Cable on Freeways in
Missouri, between the Missouri Department of Transportation (as
successor to the Missouri Highway and Transportation Commission) and
Digital Teleport, Inc., dated February 7, 1997 incorporated herein by
reference to Exhibit 10.17 to the Form S-4.
10.18Fiber Optic Cable Agreement, between the Arkansas State Highway and
Transportation Department and Digital Teleport, Inc. dated May 12,
1997 incorporated herein by reference to Exhibit 10.18 to the Form
S-4.
10.19Commercial Lease between Richard D. Weinstein and Digital Teleport,
Inc., dated December 31, 1996 incorporated herein by reference to
Exhibit 10.27 to the Form S-4.
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10.20Commercial Lease Extension Agreement between Richard D. Weinstein and
Digital Teleport, Inc., dated December 31, 1997 incorporated herein by
reference to Exhibit 10.28 to the Form S-4.
10.21Purchasing Agreement by and between the Registrant and the Initial
Purchasers named therein, dated as of February 13, 1998 incorporated
herein by reference to Exhibit 10.29 to the Form S-4.
27.1 * Financial Data Schedule.
(++) Confidential treatment has been requested with respect to certain
portions of this Exhibit.
* To be filed by amendment
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DTI HOLDINGS, INC.
Date: May 14 , 1998 /S/Richard D. Weinstein
----------------------------- -----------------------
Richard D. Weinstein
President and Chief
Executive Officer and Secretary
Date: May 14 , 1998 /S/Robert F. McCormick
----------------------------- ----------------------
Robert F. McCormick
Chief Financial Officer
RESTATED ARTICLES OF INCORPORATION
OF
DTI HOLDINGS, INC.
DTI HOLDINGS, INC., a Missouri corporation (the "Corporation"), hereby
certifies to the Secretary of State of Missouri that the Corporation desires to
restate its Articles of Incorporation as currently in effect and the following
Restated Articles of Incorporation are all of the provisions of the Articles of
Incorporation of the Corporation as theretofore amended and that these Restated
Articles of Incorporation correctly set forth without change the corresponding
provisions of such Articles of Incorporation as theretofore amended. These
Restated Articles of Incorporation supersede the original Articles of
Incorporation and all amendments thereto.
These Restated Articles of Incorporation were duly approved by the
directors of the Corporation and adopted on behalf of the Corporation by written
consent in lieu of a meeting, dated April 8, 1998.
ARTICLE ONE
The name of the corporation (hereinafter referred to as the "Corporation")
is: DTI HOLDINGS, INC.
ARTICLE TWO
The address, including street and number, if any, or the corporation's
initial registered office in this state is 11111 Dorsett Road, St. Louis,
Missouri 63043 and the name of its initial agent at such address is Richard D.
Weinstein.
ARTICLE THREE
I. Authorization of Shares
The aggregate number of shares of capital stock which the Corporation has
authority to issue is 100,050,000 shares, consisting of:
A. 100,000,000 shares of common stock, par value $.01 per share (the
"Common Stock");
B. 50,000 shares of preferred stock, par value $.01 per share (the
"Preferred Stock").
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<PAGE>
II. Preferred Stock
A. General. The Board of Directors of the Corporation is hereby authorized
to determine all rights, preferences and privileges and qualifications,
limitations and restrictions of the Preferred Stock (including, without
limitation, voting rights and the limitation and exclusion thereof) granted to
or imposed upon any unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, and to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any series subsequent to the issue of shares of that
series then outstanding. Unless otherwise provided in a particular certificate
of designation relating to a series of Preferred Stock, in case the number of
shares of any series is so decreased, the shares constituting such reduction
shall resume the status which such shares had prior to the adoption of the
resolution originally fixing the number of shares of such series.
B. Series A Preferred Stock
1. Designation. Thirty Thousand (30,000) shares of the authorized and
unissued Preferred Stock of the Corporation shall be designated as "Series A
Preferred Stock" and shall have the following rights and limitations.
2. Dividends. Upon declaration of any dividend by the Board of Directors of
the Corporation on the Common Stock, the holder of each share of Series A
Preferred Stock shall be entitled to receive, out of any funds legally available
therefor, as adjusted appropriately for stock splits, stock dividends,
combinations or similar recapitalizations affecting the Series A Preferred
Stock, such dividends paid in cash or other assets as would be paid on each
share of Common Stock, or any other equity security, into which each share of
Series A Preferred Stock could be converted on the applicable record date. The
dividends shall be payable quarterly in arrears from the date on which a share
of the Series A Preferred Stock is first issued hereunder. The original dates of
issuance of the Series A preferred stock, par value $.01 per share, of Digital
Teleport, Inc. (the "DTI Series A Preferred Stock") to KLT Telecom Inc. ("KLT")
are herein referred to as the "Original Issue Dates".
3. Liquidation, Dissolution or Winding Up and Voting.
(a) Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation (a "Liquidating
Event"), the holders of the then outstanding shares of Series A Preferred
Stock shall be entitled to be paid, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to
the holders of the Common Stock of the Corporation by reason of their
ownership thereof, out of the assets of the Corporation available for
distribution to its shareholders, $1,500 per share of Series A Preferred
Stock, subject to appropriate adjustment in the event of any stock
dividend, stock split, combination or other similar recapitalization
affecting the Series A Preferred Stock. If upon the occurrence of any
Liquidating Event the remaining assets of the Corporation available for
distribution to its shareholders shall be insufficient to pay the holders
of shares of Series A Preferred Stock the full amount to which they shall
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be entitled, the holders of shares of Series A Preferred Stock shall share
ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise
be payable in respect of the shares held by them upon such distribution if
all amounts payable on or with respect to such shares were paid in full.
(b) Common Stock. If, after the payment of all preferential amounts
required by subsection 3(a) above to be paid to the holders of Series A
Preferred Stock upon the occurrence of any Liquidating Event, any assets
and funds of the Corporation are legally available for distribution, a
dividend shall be payable on each share of Common Stock then outstanding,
prior and in preference to any further distribution of any of the assets or
surplus funds of the Corporation to the holders of the Series A Preferred
Stock by reason of their ownership thereof in an amount equal to the per
share cash consideration received by the Corporation upon its issuance of
Common Stock to the initial holder of such shares (as adjusted for any
stock dividends, combinations or splits with respect to such shares).
Subject to the payment in full of the liquidation preferences with respect
to the Series A Preferred Stock as provided in subsection 3(a) above, if
upon the occurrence of such Liquidating Event, the assets and funds thus
distributed among the holders of the Common Stock shall be insufficient to
permit the payment to such holders of the full aforesaid preferential
amount, then the entire remaining assets and funds of the Corporation
legally available for distribution shall be distributed among the holders
of the Common Stock in proportion to the weighted value of shares of Common
Stock (as determined by the per share cash consideration received by the
Corporation upon issuance of the Common Stock to the original holder
thereof) then held by them.
(c) Participation. After payment to the holders of the Common Stock
and the Series A Preferred Stock of the amounts set forth in subsections
3(a) and (b) above, the entire remaining assets and funds of the
Corporation legally available for distribution, if any, shall be
distributed among the holders of the Common Stock and the Series A
Preferred Stock in proportion to the shares of Common Stock then held by
them and the shares of Common Stock which they then have the right to
acquire upon conversion of the shares of Series A Preferred Stock then held
by them.
(d) Voting. Each holder of outstanding shares of Series A Preferred
Stock shall be entitled to the number of votes equal to the number of whole
shares of Common Stock into which the shares of Series A Preferred Stock
held by such holder are convertible (as adjusted from time to time pursuant
to Section 4 of this Article Three.II.B), at each meeting of shareholders
of the Corporation (and written actions of shareholders in lieu of
meetings) with respect to any and all matters presented to the shareholders
of the Corporation for their action or consideration. Except for any
amendment affecting the rights and obligations of holders of Series A
Preferred Stock or as otherwise provided by law, holders of Series A
Preferred Stock shall vote together with the holders of Common Stock as a
single class. The holders of the Series A Preferred Stock shall vote
separately as a class with respect to any amendment affecting the rights
and obligations of holders of Series A Preferred Stock and as otherwise
required by law.
4. Optional Conversion. The holders of the Series A Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
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(a) Right to Convert. Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time
to time, into one share of Common Stock (the number and type of shares into
which the Series A Preferred Stock shall be converted shall be adjusted as
described below) ("Conversion Shares"), without any payment of monies by
the holder of Series A Preferred Stock for such conversion. Upon a
Liquidating Event, the Conversion Rights shall terminate at the close of
business on the first (1st) full day preceding the date fixed for the
payment of any amounts distributable on liquidation to the holders of
Series A Preferred Stock.
(b) Automatic Conversion. Upon the sale of shares of Common Stock or
debt securities of the Corporation in a public offering (a "Qualified
Public Offering") pursuant to an effective registration statement under the
Securities Act of 1933, as amended, (i) resulting in at least $100,000,000
of net proceeds to the Corporation or (ii) (A) resulting in more than
$50,000,000 but less than $100,000,000 in net proceeds to the Corporation
and (B) the offering price for Common Stock in such offering multiplied by
the number of shares of Common Stock represented by all the shares of the
Series A Preferred Stock issued in exchange for the DTI Series A Preferred
Stock, is greater than the amount that would provide an IRR (as hereinafter
defined) of at least twenty-five percent (25%) per annum on a cumulative
basis, pre-tax ("Benchmark Amount") from the date of the first Original
Issue Date ("First Issue Date"), then all duly issued and outstanding
shares of the Series A Preferred Stock shall, as of the date of
consummation of such Public Offering, be converted into the Conversion
Shares (as in effect immediately prior to the date of consummation of such
Public Offering). "IRR" means the discount rate that equates (i) the
present value (to the First Issue Date) of the Benchmark Amount with (ii)
the present value (to the First Issue Date) of the total investments made
by KLT on the Original Issue Dates. For purposes of calculating IRR, any
antecedent debt and all property (including without limitation any
antecedent debts or limited liability company interests) shall be deemed to
be contributed on the First Issue Date in cash at its face value. The
Corporation shall give the holders of the Series A Preferred Stock notice
of the filing with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Securities Act"), of any
registration statement relating to any proposed Public Offering not less
than 30 days prior to such filing. The holders of shares of Series A
Preferred Stock shall present such shares for surrender to the Corporation
in accordance with the provisions of subsection 4(d)(i) below on or before
the closing date of such Public Offering and the Corporation shall issue to
such holders a certificate or certificates for shares of Common Stock in
accordance with the provisions of subsection 4(d)(i) below on such closing
date. The term "Qualified Public Offering" shall be deemed to exclude any
offering (i) pursuant to a registered exchange offer for debt securities
initially sold in a private placement pursuant to Rule 144A and Regulation
S under the Securities Act and (ii) to the extent such offering registers
securities for any party other than the Corporation, including pursuant to
demand registration rights or piggy-back registration rights, on a shelf
registration or otherwise.
(c) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the Series A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
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Corporation shall pay cash equal to such fraction multiplied by the fair
market value of such fractional shares of Common Stock as determined in
good faith by the Corporation's Board of Directors, whose determination
shall be conclusive.
(d) Mechanics of Conversion.
(i) Surrender of Certificates. In order for a holder of Series A
Preferred Stock to convert shares of Series A Preferred Stock into
shares of Common Stock, such holder shall surrender the certificate or
certificates for such shares of Series A Preferred Stock, at the
office of the transfer agent for the Series A Preferred Stock (or at
the principal office of the Corporation if the Corporation serves as
its own transfer agent), together with written notice that such holder
elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates
without any payment to the Corporation by the holder for such
conversion. Such notice shall state such holder's name or the names of
the nominees in which such holder wishes the certificate or
certificates for shares of Common Stock to be issued. If required by
the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Corporation, duly executed by
the registered holder or his, her or its attorney duly authorized in
writing. The date of receipt of such certificates and notice by the
transfer agent (or by the Corporation if the Corporation serves as its
own transfer agent) shall be the conversion date ("Conversion Date").
The Corporation shall, as soon as practicable after the Conversion
Date, issue and deliver at such office to such holder of Series A
Preferred Stock, or to his, her or its nominees, a certificate or
certificates for the number of shares of Common Stock to which such
holder shall be entitled, together with cash in lieu of any fraction
of a share.
(ii) Reservation of Common Stock. The Corporation shall at all
times when the Series A Preferred Stock shall be outstanding, reserve
and keep available out of its authorized but unissued stock, for the
purpose of effecting the conversion of the Series A Preferred Stock,
such number of its duly authorized shares of Common Stock or other
securities into which the Series A Preferred Stock may then be
convertible, as shall from time to time be sufficient to effect the
conversion of all outstanding Series A Preferred Stock.
(iii) Unpaid Dividends. Upon any conversion, no adjustment to the
Conversion Shares shall be made for any accrued and unpaid dividends
on the Series A Preferred Stock surrendered for conversion or on the
Common Stock delivered upon conversion.
(iv) No Rights. All shares of Series A Preferred Stock that have
been surrendered for conversion as herein provided or are subject to
automatic conversion under subsection 4(b), whether or not
surrendered, shall no longer be deemed to be outstanding and all
rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to
receive shares of Common Stock in exchange therefor and payment of any
accrued and unpaid dividends thereon.
(e) Adjustments of Conversion Shares. In case the Corporation shall
hereafter (i) declare a dividend or a distribution on its Common Stock payable
in shares of its Common Stock, (ii) subdivide its outstanding shares of Common
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Stock, (iii) combine its outstanding Common Stock into a smaller number of
shares, or (iv) issue other securities of the Corporation by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing corporation),
the number and kind of Conversion Shares at the time of the record date for such
dividend or distribution or the effective date of such subdivision, combination
or reclassification shall be proportionately adjusted so that the owner of any
Series A Preferred Stock converted after such date shall be entitled to receive
the number and kind of Conversion Shares which, if such Series A Preferred Stock
had been converted immediately prior to such time, he would have owned upon such
conversion and been entitled to receive upon such dividend, distribution,
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur; appropriate adjustment
(as determined in good faith by the Board of Directors of the Corporation) shall
be made to apply the provisions in this Section 4 to any Conversion Shares which
are not Common Stock in a manner as similar as possible to that for the Common
Stock.
(f) Adjustment for Merger or Reorganization, Etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
corporation, each share of Series A Preferred Stock shall automatically convert
into the kind and amount of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Series A Preferred Stock would have been
entitled upon such consolidation, merger or sale; appropriate adjustment (as
determined in good faith by the Board of Directors of the Corporation) shall be
made to apply the provisions in this Section 4 to any Conversion Shares which
are not Common Stock in a manner as similar as possible to that for the Common
Stock.
(g) No Impairment. The Corporation will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(h) Notice of Record Date. In the event:
(i) that the Corporation declares a dividend (or any other
distribution) on its Common Stock payable in Common Stock or other
securities of the Corporation;
(ii) that the Corporation subdivides or combines its outstanding
shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its
outstanding shares of Common Stock or a stock dividend or stock
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distribution thereon), or of any consolidation or merger of the
Corporation into or with another corporation, or of the sale of all or
substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation or
winding up of the Corporation,
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series A Preferred Stock, and shall cause to
be mailed to the holders of the Series A Preferred Stock at their last addresses
as shown on the records of the Corporation or such transfer agent, at least 20
days prior to the record date specified below in subparagraph (A) or 20 days
before the date specified below in subparagraph (B), a notice stating:
(A) the record date of such dividend, distribution, subdivision
or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such
dividend, distribution, subdivision or combination are to be
determined; or
(B) the date on which such reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to
become effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their shares
of Common Stock for securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or winding
up.
(i) Special Anti-Dilution. In the event that the number of shares of Common
Stock issuable upon exercise of the warrant issued by Digital Teleport, Inc.
("DTI") to Banque IndoSuez would cause a dilution of the ownership of
outstanding Series A Preferred Stock to less than 49.74874% of the total
outstanding stock of the Corporation, assuming such warrant had been exercised
on the First Issue Date and all shares of DTI Series A Preferred Stock had been
issued at the First Issue Date, the Conversion Shares shall be increased to a
number which would equal the number of shares of capital stock of the
Corporation that would have constituted 49.74874% of the total outstanding stock
of DTI at the First Issue Date assuming such warrant had been exercised at such
time.
ARTICLE FOUR
The extent, if any, of the preemptive right of a shareholder to acquire
additional shares is hereby denied.
ARTICLE FIVE
The name and place of residence of the incorporator is as follows:
Richard D. Weinstein
14222 Kinderhook Drive
Chesterfield, MO 63017
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ARTICLE SIX
The number of directors to constitute the Board of Directors is six.
Thereafter, the number of directors shall be fixed by, or in the manner provided
in, the Bylaws of the Corporation. Any changes in the number will be reported to
the Secretary of State within thirty calendar days of such change.
ARTICLE SEVEN
The duration of the corporation is Perpetual.
ARTICLE EIGHT
The corporation is formed for the following purposes:
1. To operate a communications business, providing all other related
communications services as well as a general business.
2. To buy, sell, and deal generally at retail and wholesale of
merchandise and services.
3. To borrow money, lend money, invest money, and for such purpose to
execute notes, bonds, debentures, or any other form of evidence of
indebtedness, and to secure the payment of same by mortgage, deed of
trust, or other form of encumbrance, pledge, or other form of
hypothecation.
4. To take, purchase, or otherwise acquire, and to own and hold such
personal property, chattels real, rights, easements, privileges, chose
in action, notes, bonds, mortgages, and securities as may be lawfully
be acquired, held, or disposed of by the Corporation under the laws of
the State of Missouri.
5. To sell, assign, convey, exchange, release, and otherwise deal in, and
dispose of such real and personal property, lands, buildings,
chattels, chattels real, rights, easements, privileges, chose in
action, notes, bonds, mortgages, and securities as may lawfully be
acquired, held, or disposed of by the Corporation under the laws of
the State of Missouri.
6. To enter into and perform all manner and kinds of contracts,
agreements, and obligations of any lawful purposes, by or with any
person, firm, association, corporation, or governmental division or
subdivision.
7. To lend and advance money or to give credit to such persons and on
such terms as may seem expedient, and, in particular, to customers and
others dealing with it;
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8. To guarantee or give security for the loans of its customers and other
dealing with it;
9. In general, to have and exercise any and all powers that corporations
have and may exercise under the laws of the State of Missouri and as
the same may be amended, except such powers as are inconsistent with
the express provisions of these articles;
10. To do all and everything necessary, suitable, or proper for the
accomplishment of any of the purposes, the attainment of any of the
objects, or the exercise of any of the powers herein set forth, either
alone, or in conjunction with other corporations, firms, individuals,
and either as principals or agents, and to do every other act or acts,
thing or things, incidental or appurtenant to, or growing out of, or
connected with the above mentioned objects, purposes or powers;
11. To have and to exercise all of the powers now or hereafter conferred
by the laws of the State of Missouri upon corporations organized
pursuant the laws under which the Corporation is organized, and any
and all acts amendatory thereof and supplemental thereto;
12. The above enumerated powers shall not be construed as limiting or
restricting in any manner the powers of this Corporation which shall
always have such incidental powers as may be connected with or related
to any specific power herein enumerated.
ARTICLE NINE
The Corporation shall not be subject to the provisions of Section 351.459
of The General and Business Corporation Law of Missouri.
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IN WITNESS WHEREOF, the undersigned, Richard D. Weinstein, President, has
executed this instrument and Richard D. Weinstein, its Secretary has attested
thereto on the 14th day of April, 1998.
DTI HOLDINGS, INC.
By:/s/ Richard D. Weinstein
-------------------------
Richard D. Weinstein, President
Attested:
/s/ Richard D. Weinstein
- -------------------------
Richard D. Weinstein, Secretary
STATE OF MISSOURI )
) SS
CITY OF ST. LOUIS )
I, Connie B. Walsh, a Notary Public, do hereby certify that on
the 14th day of April, 1998, personally appeared before me Richard D. Weinstein,
and, being first duly sworn by me, acknowledged that he signed as his free act
and deed the foregoing document in the capacity(ies) therein set forth and
declared that the statements therein contained are true, to his knowledge and
belief.
/s/ Connie B. Walsh
--------------------
Notary Public
My Commission expires:
January 9, 2000
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BY-LAWS
OF
DTI HOLDINGS, INC.
(adopted December 18, 1997)
(restated, with all amendments, as of April 8, 1998)
ARTICLE I
Shareholders
Section 1.1. Annual Meetings. An annual meeting of shareholders shall be
held for the election of directors at such date, time and place either within or
without the State of Missouri as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. Special Meetings. Special meetings of shareholders may be
called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
date, time and place either within or without the State of Missouri as may be
stated in the notice of the meeting.
Section 1.3. Notice of Meetings. Whenever shareholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each shareholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the shareholder at his address as it appears on the
records of the Corporation.
Section 1.4. Adjournments. Any meeting of shareholders, annual or special,
may adjourn from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
shareholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of shareholders, except where
otherwise provided by law or the articles of incorporation or these by-laws, the
holders of a majority of the outstanding shares of each class of stock entitled
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to vote at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, two or more classes or
series of stock shall be considered a single class if the holders thereof are
entitled to vote together as a single class at the meeting. In the absence of a
quorum, the shareholders so present may, by majority vote, adjourn the meeting
from time to time in the manner provided by Section 1.4 of these by-laws until a
quorum shall attend. Shares of its own capital stock belonging on the record
date for the meeting to the Corporation or to another corporation, if a majority
of the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; provided, however, that
the foregoing shall not limit the right of the Corporation to vote stock,
including but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. Organization. Meetings of shareholders shall be presided over
by the Chairman of the Board, if any, or in his absence by the Vice Chairman of
the Board, if any, or in his absence by the President, or in his absence by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary shall act as secretary of the
meeting, but in his absence the chairman of the meeting may appoint any person
to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Except as otherwise provided by the General
and Business Corporation Law of Missouri or by the articles of incorporation of
the corporation or any amendments thereto, every shareholder shall at every
meeting of the shareholders be entitled to one vote in person or by proxy for
each share of the capital stock of the corporation held by such shareholder
entitled to vote thereon, except that no proxy shall be voted after eleven
months from its date unless otherwise provided in the proxy. All cumulative
voting rights of shareholders are hereby denied so that each holder of the
capital stock shall only be entitled to one vote per share of capital stock in
all elections of directors. Voting securities in any other corporation held by
the corporation shall be voted by the president, unless the Board of directors
specifically confers authority to vote with respect thereto, which may be
general or confined to specific instances, upon some other person or officer.
Any person authorized to vote securities shall have the power to appoint
proxies, with general power of substitution.
Section 1.8. Fixing Date for Determination of Shareholders of Record. In
order that the Corporation may determine the shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty days
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prior to any other action. If no record date is fixed: (1) the record date for
determining shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held; (2) the record date
for determining shareholders entitled to express consent to corporate action in
writing without a meeting, when no prior action by the Board is necessary, shall
be the day on which the first written consent is expressed; and (3) the record
date for determining shareholders for any other purpose shall be at the close of
business on the day on which the Board adopts the resolution relating thereto. A
determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
Section 1.9. List of Shareholders Entitled to Vote. The Secretary shall
prepare and make, at least ten days before every meeting of shareholders, a
complete list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder. Such list shall be open to
the examination of any shareholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any shareholder who is present.
Section 1.10. Consent of Shareholders in Lieu of Meeting. Unless otherwise
provided in the articles of incorporation, any action required by law to be
taken at any annual or special meeting of shareholders of the Corporation, or
any action which may be taken at any annual or special meeting of such
shareholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of all outstanding stock.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. The business and affairs of
the Corporation shall be managed by the Board of Directors, except as may be
otherwise provided by law or in the articles of incorporation. The number of
directors which shall constitute the Board of directors shall not be less than
three and shall be established from time to time by resolution of the
shareholders, provided, however, that any change in the number of directors
shall be reported to the Secretary of State of Missouri within thirty calendar
days of such change. A director shall not be required to be a resident of the
State of Missouri nor a shareholder of the corporation.
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Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies.
Each director shall hold office until the annual meeting of shareholders next
succeeding his election and until his successor is elected and qualified or
until his earlier resignation or removal. Any director may resign at any time
upon written notice to the Board of Directors or to the President or the
Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective.
Section 2.3. Regular Meetings. Regular meetings of the Board of Directors
will be held monthly on a regular fixed date at such places within or without
the State of Missouri as determined by the Board of Directors, and if so
determined, notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place within or without the State of Missouri
whenever called by the Chairman of the Board, if any, by the Vice Chairman of
the Board, if any, by the President or by any two directors. Reasonable notice
thereof shall be given by the person or persons calling the meeting.
Section 2.5. Telephonic Meetings Permitted. Unless otherwise restricted by
the articles of incorporation or these by-laws, members of the Board of
Directors, or any committee designated by the Board, may participate in a
meeting of the Board or of such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this by-law shall constitute presence in person at such
meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board
of Directors all members of the entire Board present in person shall constitute
a quorum for the transaction of business. The vote of a majority of the
directors present at a meeting in person at which a quorum is present shall be
the act of the Board unless the articles of incorporation or these by-laws shall
require a vote of a greater number. In case at any meeting of the Board a quorum
shall not be present, the members of the Board present may adjourn the meeting
from time to time until a quorum shall attend.
Section 2.7. Organization. Meetings of the Board of Directors shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
their absence by a chairman chosen at the meeting. The Secretary shall act as
secretary of the meeting, but in his absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
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Section 2.8. Informal Action by Directors. Any action required or permitted
to be taken at any meeting of the Board of directors, or of any committee
thereof, may be taken without a meeting if all members of the board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed by the secretary with the minutes or proceedings of the board
of committee.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the Directors of the Corporation. The
Board may designate one or more Directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board to act at the meeting in place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Corporation, and may authorize the seal of the Corporation to be affixed to all
papers which may require it; but no such committee shall have power or authority
in reference to amending the articles of incorporation, adopting an agreement of
merger or consolidation, recommending to the shareholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation or a
revocation of dissolution, removing or indemnifying Directors or amending these
by-laws; and, unless the resolution expressly so provided, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
Section 3.2. Compensation Committee. The compensation committee shall
consist of not fewer than two members of the board of Directors, one selected by
Richard D. Weinstein and one selected by KLT Telecom Inc., with the board member
selected by KLT Telecom Inc. to serve as the chairperson of such committee. The
compensation committee shall review and, as it deems appropriate, recommend to
the president and the board of Directors policies, practices and procedures
relating to the compensation of managerial employees and the establishment and
administration of employee benefit plans. The compensation committee shall have
and exercise all authority under any employee stock option plans of the
corporation as the committee therein (unless the board of Directors by
resolution appoints any other committee to exercise such authority), and shall
otherwise advise and consult with the officers of the corporation as may be
requested regarding managerial personnel policies. The members of the
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compensation committee shall not be eligible to participate in any discretionary
employee benefit plan of the corporation including any stock option plan which
are administered by the compensation committee.
Section 3.3. Committee Rules. Unless the Board of Directors otherwise
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these by-laws.
ARTICLE IV
Officers
Section 4.1. Officers; Election; Qualification; Term of Office;
Resignation; Removal; Vacancies. As soon as practicable after the annual meeting
of shareholders in each year, the Board of Directors shall elect a President and
a Secretary, and it may, if it so determines, elect from among its members a
Chairman of the Board and a Vice Chairman of the Board. The Board may also elect
one or more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, a Treasurer and one or more Assistant Treasurers and may
give any of them such further designations or alternate titles as it considers
desirable. Each such officer shall hold office until the first meeting of the
Board after the annual meeting of shareholders next succeeding his election, and
until his successor is elected and qualified or until his earlier resignation or
removal. Any officer may resign at any time upon written notice to the Board or
to the President or the Secretary of the Corporation. Such resignation shall
take effect at the time specified therein, and unless otherwise specified
therein no acceptance of such resignation shall be necessary to make it
effective. The Board may remove any officer with or without cause at any time.
Any such removal shall be without prejudice to the contractual rights of such
officer, if any, with the Corporation, but the election or appointment of an
officer shall not of itself create contractual rights. Any number of offices may
be held by the same person. Any vacancy occurring in any office of the
Corporation by death, resignation, removal or otherwise may be filled for the
unexpired portion of the term by the Board at any regular or special meeting.
Section 4.2. Powers and Duties of Executive Officers. The officers of the
Corporation shall have such powers and duties in the management of the
Corporation as may be prescribed by the Board of Directors and, to the extent
not so provided, as generally pertain to their respective offices, subject to
the control of the Board. The Board may require any officer, agent or employee
to give security for the faithful performance of his duties.
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ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed by or in the name of the Corporation by
the Chairman or Vice Chairman of the Board of Directors, if any or the President
or a Vice President, and by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary, of the Corporation, certifying the number
of shares owned by him in the Corporation. If such certificate is manually
signed by one officer or manually countersigned by a transfer agent or by a
registrar, any other signature on the certificate may be a facsimile. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
Section 5.2. Lost, Stolen or Destroyed Stock Certificates; Issuance of New
Certificates. The Corporation may issue a new certificate of stock in the place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VI
Miscellaneous
Section 6.1. By-Laws Subject to Shareholders' Agreement. At any time that
the Corporation is bound by the Shareholders' Agreement, dated as of March 12,
1997, by and among the Corporation (as successor-in-interest to Digital
Teleport, Inc.) and certain shareholders named therein, as the same may be
modified or amended from time to time (the "Shareholders' Agreement"), then,
whether or not expressly so stated in these by-laws or such Shareholders'
Agreement, any term or provision of these by-laws that is modified or superseded
by any term or provision of such Shareholders' Agreement shall not be deemed
contained in these by-laws except as so modified or superseded, and any term or
provision of such Shareholders' Agreement that is contrary to or inconsistent
with any term or provision of these by-laws shall, notwithstanding these
by-laws, govern and control the matter subject thereto.
Section 6.2. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors.
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Section 6.3. Seal. The Corporation may have a corporate seal which shall
have the name of the Corporation inscribed thereon and shall be in such form as
may be approved from time to time by the Board of Directors. The corporate seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
in any other manner reproduced.
Section 6.4. Waiver of Notice of Meetings of Shareholders, Directors and
Committees. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the shareholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice unless so required by the articles of incorporation or
these by-laws.
Section 6.5. Indemnification of Directors, Officers and Employees. The
Corporation shall indemnify to the full extent authorized by law any person made
or threatened to be made a party to any action, suit or proceeding, whether
criminal, civil, administrative or investigative, by reason of the fact that he,
his testator or intestate is or was a director or officer of the Corporation or
any predecessor of the Corporation or serves or served any other enterprise as a
director, officer or employee at the request of the Corporation or any
predecessor of the Corporation. The Corporation may, in the sole discretion of
the Board of Directors, indemnify to the full extent authorized by law any
person made or threatened to be made a party to any action, suit or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was an employee of the Corporation or
any predecessor of the Corporation.
Section 6.6. Interested Directors; Quorum. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose, if: (1) the material facts as to his relationship or
interest and as to the contract or transaction are disclosed or are known to the
Board or the committee, and the Board or committee in good faith authorizes the
contract or transaction by the affirmative votes of a majority of the
disinterested directors, even though the disinterested directors be less than a
quorum; or (2) the material facts as to his relationship or interest and as to
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the contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by majority vote of the shareholders; or (3) the contract
or transaction is fair as to the Corporation as of the time it is authorized,
approved or ratified, by the Board, a committee thereof or the shareholders.
Common or interested directors may be counted in determining the presence of a
quorum at a meeting of the Board or of a committee which authorizes the contract
or transaction.
Section 6.7. Form of Records. Any records maintained by the Corporation in
the regular course of its business, including its stock ledger, books of account
and minute books, may be kept on, or be in the form of, punch cards, magnetic
tape, photographs, microphotographs or any other information storage device,
provided that the records so kept can be converted into clearly legible form
within a reasonable time. The Corporation shall so convert any records so kept
upon the request of any person entitled to inspect the same.
Section 6.8. [Reserved]
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