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, 1999
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 43-1828147
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8112 Maryland Ave, 4th Floor
St. Louis, Missouri 63105
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (314) 880-1000
Indicate by check mark whether the registrant (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 [X] No [_]
As of May 13, 1999, 30,000,000 shares of the Registrant's common stock, $.01 par
value, were issued and outstanding.
<PAGE>
DTI HOLDINGS, INC.
FORM 10-Q
March 31, 1999
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at June 30, 1998 and
March 31, 1999 (Unaudited) 1
Condensed Consolidated Statements of Operations for the
Three and Nine Months Ended March 31, 1998 and 1999
(Unaudited) 2
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended March 31, 1998 and 1999 (Unaudited) 3
Notes to Condensed Consolidated Financial Statements
(Unaudited) 4 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signatures
Exhibit Index
<PAGE>
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
DTI HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, March 31,
1998 1999
--------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................... $251,057,274 $202,381,780
Trade accounts receivable, net............................... 501,612 141,669
Other receivables............................................ -- 77,057
Prepaid and other current assets............................. 69,635 400,506
------------ -------------
Total current assets.................................... 251,628,521 203,001,012
Property and equipment, net.................................... 77,771,527 152,095,955
Deferred financing costs, net of amortization of
$509,869 and $1,736,432...................................... 10,028,558 9,327,172
Deferred tax asset............................................. 3,234,331 3,234,331
Other assets................................................... 202,223 120,271
------------ ------------
Total................................................... $342,865,160 $367,778,741
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................................. $ 4,722,418 $ 10,322,680
Vendor financing............................................. -- 2,240,749
Taxes payable (other than income taxes)...................... 1,830,668 1,915,853
Other accrued liabilities.................................... 83,605 4,193,815
------------ -----------
Total current liabilities............................... 6,636,691 18,673,097
Deferred revenues.............................................. 16,814,488 19,723,830
Senior discount notes, net of unamortized discount of
$9,465,882 and $8,330,477 277,455,859 304,869,086
Vendor financing............................................... -- 2,240,749
Other long-term liabilities.................................... -- 275,003
------------ ------------
Total liabilities....................................... 300,907,038 345,781,765
------------ ------------
Commitments and contingencies -- --
Stockholders' equity:
Preferred stock, $.01 par value, 20,000 shares
authorized, no shares issued and outstanding.............. -- --
Convertible series A preferred stock, $.01 par value,
(aggregate liquidation preference of $45,000,000)
30,000 shares authorized, issued and outstanding........... 300 300
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 44,213,063
Common stock warrants........................................ 10,421,336 10,421,336
Unearned compensation........................................ -- (81,820)
Accumulated deficit.......................................... (12,776,577) ( 32,855,903)
------------ ------------
Total stockholders' equity.............................. 41,958,122 21,996,976
------------ ------------
Total.......................................................... $342,865,160 $367,778,741
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
DTI HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
March 31, March 31,
1998 1999 1998 1999
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Telecommunications services:
Carrier's carrier services............. $ 963,729 $ 1,706,647 $ 1,707,914 $ 4,958,125
End-user services...................... 50,314 104,111 324,660 322,714
---------- ----------- ----------- -----------
Total revenues...................... 1,014,043 1,810,758 2,032,574 5,280,839
---------- ----------- --------- -----------
OPERATING EXPENSES:
Telecommunications services............ 615,206 1,653,078 1,024,578 3,648,429
Selling, general and administrative.... 749,689 1,466,230 2,347,825 4,466,036
Depreciation and amortization.......... 555,050 1,393,000 1,385,750 2,894,000
---------- ----------- ---------- -----------
Total operating expenses............ 1,919,945 4,512,308 4,758,153 11,008,465
---------- ---------- ---------- -----------
LOSS FROM OPERATIONS..................... (905,902) (2,701,550) (2,725,579) (5,727,626)
OTHER INCOME (EXPENSES):
Interest income........................ 1,438,752 2,494,902 1,558,898 8,799,242
Interest expense....................... (3,697,605) (7,693,953) (3,697,605) (23,150,942)
----------- ----------- ------------ -----------
Loss before income tax benefit...... (3,164,755) (7,900,601) (4,864,286) (20,079,326)
INCOME TAX BENEFIT....................... 1,340,000 -- 2,020,000 --
---------- ----------- ----------- -----------
NET LOSS................................. $(1,824,755) $(7,900,601) $(2,844,286) $(20,079,326)
=========== =========== =========== ============
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
DTI HOLDINGS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
December 31,
1998 1999
------------- -------------
<S> <C> <C>
Cash flows provided by operating activities:
Net loss....................................................... $(2,844,286) $(20,079,326)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortization............................. 1,385,750 2,894,000
Accretion of senior discount notes........................ 3,528,911 21,808,730
Amortization of deferred financing costs.................. 106,110 1,226,563
Deferred income taxes..................................... (2,020,000) --
Amortization of unearned compensation..................... -- 118,180
Other noncash items....................................... -- 113,654
Changes in assets and liabilities:
Trade accounts receivable.............................. (549,209) 282,886
Other assets........................................... (11,003) (248,919)
Accounts payable....................................... 40,568 5,600,262
Other liabilities...................................... (531,188) 4,385,213
Taxes payable (other than income taxes)................ 1,192,254 85,185
Deferred revenues...................................... 4,617,514 2,909,342
------------ ----------
Net cash flows provided by operating activities.................. 4,915,421 19,095,770
------------ ---------
Cash flows from investing activities:
Increase in network and equipment.............................. (28,028,066) (67,246,087)
----------- ---------
Net cash used in investing activities............................ (28,028,066) (67,246,087)
----------- ---------
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.............................................. 17,250,000 --
Deferred financing costs....................................... (10,496,397) (525,177)
Proceeds from credit facility.................................. 3,000,000 --
Principal payments on credit facility.......................... (3,000,000) --
------------ ------------
Cash flows provided by (used in) financing activities............ 281,977,123 (525,177)
------------ ------------
Net increase (decrease) in cash and cash equivalents........ 258,864,478 (48,675,494)
Cash and cash equivalents, beginning of period 4,366,906 251,057,274
------------ ------------
Cash and cash equivalents, end of period......................... $263,231,384 $202,381,780
============ ============
Noncash investing and financing activities:
Interest capitalized to fixed assets........................... $ 182,000 $ 5,604,497
============ ============
Fixed assets acquired through vendor financing................. $ -- $ 4,367,844
============ ============
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE>
DTI Holdings, inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
1. PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10-01
of Regulation S-X. Accordingly, they do not include all of the information and
notes 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 condensed consolidated financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered 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,
1998 included in the Company's Form 10-K for the same period filed with the
Securities and Exchange Commission. Accordingly, note disclosures which would
substantially duplicate the disclosures in the audited financial statements have
been omitted. Additionally, certain prior year balances have been reclassified
to conform with fiscal 1999 presentation.
2. COMMITMENTS AND CONTINGENCIES
On June 20, 1995, the Company and its President were named as defendants in a
suit in 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 and damages 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 the convertible preferred stock from such losses and
damages, and has pledged his stock ownership in the Company to secure such
obligation.
From time to time the Company is named as a defendant in routine lawsuits
incidental to its business. The Company believes that none of such current
proceedings, individually or in the aggregate, will have a material adverse
effect on the Company's financial position, results of operations or cash flows.
4
<PAGE>
During fiscal 1999, the Company has made and will continue to make material
commitments related to the expansion of its network.
2. VENDOR FINANCING AGREEMENT
On December 15, 1998, the Company entered into a vendor financing agreement with
its fiber optic cable vendor allowing for deferred payment terms for one and
two-year periods on qualifying cable purchases up to $15 million. Interest under
the agreement will accrue at a rate of LIBOR plus 2%. As of March 31, 1999,
total borrowings and accrued interest under this agreement were $4,481,498.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three and Nine Months Ended March 31, 1998 Compared to the Three and Nine Months
Ended March 31, 1999
REVENUE
Total revenue for the third quarter grew $797,000, or 79%, from $1.0 million in
fiscal 1998 to $1.8 million in fiscal 1999, primarily attributable to increased
revenue from carrier's carrier services. Revenue from carrier's carrier services
was up 77% principally from increased sales of point-to-point transport business
on the Company's completed routes. Total revenue for the first nine months of
the year increased 160% over the first nine months of fiscal 1998 primarily due
to increased carrier's carrier services. Subsequent to March 31, 1999, the
Company entered into a one-year agreement with an existing Tier 1 carrier
customer to provide that customer with SONET ring-protected services at an OC-12
level on one of its regional rings. This new agreement, valued at $2.8 million,
replaces expired and expiring DS-3 point-to-point transport business, provides
the customer with additional capacity and will provide additional annual revenue
of approximately $700,000 to DTI.
OPERATING EXPENSES
Telecommunications services expenses were up $1.0 million in the third quarter
of fiscal 1999 over the same period in fiscal 1998. For the first nine months of
fiscal 1999 compared to 1998, telecommunication services expenses increased $2.6
million. These increases reflect the growth of personnel costs related to the
building of the management infrastructure, as well as increased costs related to
leased capacity to support existing customers in areas not yet reached by the
Company's network, and costs related to recently accepted dark fiber segments on
previously acquired routes.
Selling, general and administrative expenses for the three months ended March
31, 1999 increased $717,000 over the same period in fiscal 1998 and were up $2.1
million for the respective nine-month periods. The increase is mainly due to
additional administrative and sales personnel and the expenses of supporting
these personnel.
Depreciation and amortization grew 151% from last year's third quarter and 109%
for the nine month period due to increasing amounts of the Company's fiber optic
network being placed into service in fiscal 1999. Depreciation and amortization
will continue to grow as the Company continues to invest in capital assets to
increase network capacity and as additional network routes are placed into
service.
OTHER INCOME (EXPENSES)
Net other income (expenses) for the third quarter and the fiscal year to date
increased from net expense of $2.3 million and $2.1 million, respectively, in
fiscal 1998, to a net expense of $5.2 million and $14.4 million, respectively,
in fiscal 1999. This change is due to the issuance of the Company's Senior
6
<PAGE>
Discount Notes in February 1998, which resulted in increased noncash interest
expense, offset in part by interest income earned on the portion of the proceeds
from the Senior Discount Notes invested in short-term investment-grade
securities.
INCOME TAXES
An income tax benefit of $1.3 million and $2.0 million was recorded for the
three and nine-month periods, respectively, ended March 31, 1998, compared to no
benefit or provision in the comparable periods in fiscal 1999. Management
believes it is more likely than not that the deferred income tax assets, net of
the valuation allowance, will be realized based on current income tax laws and
expectations of future taxable income stemming from the reversal of existing
deferred tax liabilities or ordinary operations. A valuation allowance is being
provided to reserve for significant deferred tax assets generated from net
operating loss carryforwards and the nondeductible interest expense related to
the Company's Senior Discount Notes, issued in February 1998, that may not be
realizable due to uncertainties surrounding income tax law changes and future
operating income levels.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had $202.4 million of cash and cash
equivalents. The decrease of $48.7 million for the nine months ended March 31,
1999 was primarily due to expenditures on the Company's property and equipment
as the Company continues to expand its fiber optic network.
The net cash provided by operating activities was $19.1 million for the nine
month period ended March 31, 1999, compared to $4.9 million in the comparable
period in fiscal 1998, primarily as a result of cash derived from interest
income and an increase in accounts payable and accrued liabilities associated
with the continued development of the Company's network.
Cash used in investing activities for the nine month period ended March 31, 1999
was $67.2 million compared to $28.0 million for the comparable period of fiscal
1998. The growth in investing activities reflects the purchase of network and
equipment to be used in the Company's operations.
Cash provided by (used in) financing activities was $(525,000) in the first nine
months of fiscal 1999, compared to $282.0 million, from a combination of the
issuance of $275.2 million of Senior Discount Notes and attached warrants in
February 1998 and the issuance of $17.2 million of redeemable convertible
preferred stock, in the first nine months of fiscal 1998. The Company did not
enter into any new cash financing transactions in the first three-quarters of
fiscal 1999. However, the Company has entered into a vendor financing agreement
with its fiber optic cable vendor allowing for deferred payment terms for one
and two-year periods on qualifying cable purchases up to $15 million.
To achieve its business plan, DTI will need significant financing to fund its
capital expenditure, working capital and debt service requirements and its
anticipated future operating losses. The Company's estimated capital
requirements primarily include the estimated cost of (i) constructing a portion
of the planned DTI network routes, (ii) purchasing, for cash, fiber optic
7
<PAGE>
facilities pursuant to long-term IRUs for planned routes that the Company will
neither construct nor acquire through swaps with other telecommunication
carriers, and (iii) additional network expansion activities, including the
construction of additional local loops in secondary and tertiary cities as
network traffic volume increases. The Company estimates that total capital
expenditures necessary to complete the DTI network will approximate $800
million, of which the Company had expended $156 million, as of March 31, 1999.
During the balance of calendar 1999, the Company anticipates its capital
expenditure priorities will be focused principally on expanding from its
existing Missouri/Arkansas base by building additional regional rings that
adjoin existing rings and those that initiate new rings in areas in which strong
carrier interest has been expressed. The Company anticipates that its existing
financial resources will be adequate to fund the above mentioned priorities and
its existing capital commitments, principally payments required under existing
IRU and short-term lease agreements, totaling $111 million, which are payable in
varying installments over the period through December 31, 1999. In addition, the
Company has a commitment at March 31, 1999 for eight telecommunications switches
totaling $15 million which is cancelable upon the payment of a cancellation fee
of $42,000 for each of the remaining unpurchased switches. The Company also may
require additional capital in the future to fund operating deficits and net
losses and for potential strategic alliances, joint ventures and acquisitions.
These activities could require significant additional capital not included in
the foregoing estimated capital requirements.
As of March 31, 1999, DTI had $202.4 million of cash and cash equivalents. Such
amount is expected to provide sufficient liquidity to meet the Company's
operating and capital requirements into early 2000. Subsequent to such date,
DTI's operating and capital requirements are expected to be funded, in large
part, out of additional debt or equity financing, advance payments under IRUs,
wholesale network capacity agreements and regional ring service agreements, and
available cash flow from operations, if any. The Company is exploring the
possibility of an additional high yield debt offering, a commercial credit
facility and equity sales, but has no specific plans at this time. The Company
is in various stages of discussions with potential customers for IRUs, wholesale
network capacity agreements and regional ring service agreements. There can be
no assurance, however, that the Company will continue to obtain advance payments
from customers prior to commencing construction of, or obtaining IRUs for,
planned routes, 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, the Company could
modify, defer or abandon plans to build or acquire certain portions of the DTI
network. The failure of the Company, however, to raise the substantial capital
required to complete the DTI network 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.
Subject to the Indenture provisions that limit restrictions on the ability of
any of the Company's Restricted Subsidiaries to pay dividends and make other
payments to the Company, future debt instruments of Digital Teleport, Inc.
8
<PAGE>
("Digital Teleport" - subsidiary of DTI Holdings) may impose significant
restrictions that may affect, among other things, the ability of Digital
Teleport to pay dividends or make loans, advances or other distributions to the
Company. The ability of Digital Teleport to pay dividends and make other
distributions also will be subject to, among other things, applicable state laws
and regulations. Although the Senior Discount Notes do not require cash interest
payments until September 1, 2003, at such time the Senior Discount Notes will
require annual cash interest payments of $63.25 million. In addition, the Senior
Discount Notes mature on March 1, 2008. The Company currently expects that the
earnings and cash flow, if any, of Digital Teleport will be retained and used by
such subsidiary in its operations, including servicing its own debt obligations.
The Company does not anticipate that it will receive any material distributions
from Digital Teleport prior to September 1, 2003. Even if the Company determined
to pay a dividend on or make a distribution in respect of the capital stock of
Digital Teleport, there can be no assurance that Digital Teleport will generate
sufficient cash flow to pay such a dividend or distribute such funds to the
Company or that applicable state law and contractual restrictions, including
negative covenants contained in any future debt instruments of Digital Teleport,
will permit such dividends or distributions. The failure of Digital Teleport to
pay or to generate sufficient earnings or cash flow to distribute any cash
dividends or make any loans, advances or other payments of funds to the Company
would have a material adverse effect on the Company's ability to meet its
obligations on the Senior Discount Notes. Further, there can be no assurance
that the Company will have available, or will be able to acquire from
alternative sources of financing, funds sufficient to repurchase the Senior
Discount Notes in the event of a Change of Control.
YEAR 2000
While the Company believes that its existing systems and software applications
are Year 2000 compliant, there can be no assurance until the year 2000 that all
of the Company's systems and software applications then in place will function
adequately. The failure of the Company's systems or software applications to
accommodate the year 2000 could have a material adverse effect on its business,
financial condition and results of operations. Further, if the systems or
software applications of telecommunications equipment suppliers, ILECs, IXCs or
others on whose services or products the Company depends or with whom the
Company's systems must interface are not Year 2000 compliant, it could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company intends to continue to monitor the
performance of its accounting, information and processing systems and software
applications and those of its third-party constituents to identify and resolve
any Year 2000 issues. To the extent necessary, the Company may need to replace,
upgrade or reprogram certain systems to ensure that all interfacing applications
will be Year 2000 compliant when operating jointly. Based on current
information, the Company does not expect that the costs of such replacements,
upgrades and reprogramming will be material to its business, financial condition
or results of operations. Most major domestic carriers have announced that they
expect to achieve Year 2000 compliance for their networks and support systems by
mid-1999; however, other domestic and international carriers and other
third-party constituents may not be Year 2000 compliant, and failures on their
networks and systems could adversely affect the operation of the Company's
networks and support systems and have a material adverse effect on the Company's
business, financial condition and results of operations. The Company has not
9
<PAGE>
developed a contingency plan with respect to the failure of its systems or the
systems of its suppliers or other carriers to achieve year 2000 compliance.
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. The most
important factors that could prevent the Company from achieving its stated goals
include, but are not limited to, (a) failure to obtain substantial amounts of
additional financing at reasonable costs and on acceptable terms, (b) failure to
effectively and efficiently manage the expansion and construction of the
Company's network, (c) failure to enter into additional indefeasible rights to
use and/or wholesale network capacity agreements, (d) failure to obtain and
maintain sufficient rights-of-way, (e) intense competition and pricing
decreases, (f) potential for rapid and significant changes in telecommunications
technology and their effect on the Company's business, and (g) adverse changes
in the regulatory environment.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits
3.1 Restated Articles of Incorporation of the Registrant (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4 (File No. 333-50049)(the "S-4")).
3.2 Restated Bylaws of the Registrant (incorporated herein by reference to
Exhibit 3.2 to the S-4).
10.1 Consulting Agreement dated as of April 21, 1999 between the
Registrant and H.P. Scott
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<PAGE>
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 13, 1999 /S/Gary W. Douglass
---------------------------------------
Gary W. Douglass, Senior Vice President
Finance and Administration and
Chief Financial Officer (Principal
Financial and Accounting Officer)
<PAGE>
Exhibits Index:
3.1 Restated Articles of Incorporation of the Registrant (incorporated
herein by reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-4 (File No. 333-50049) (the "S-4")).
3.2 Restated Bylaws of the Registrant (incorporated herein by reference to
Exhibit 3.2 to the S-4).
10.1 Consulting Agreement dated as of April 21, 1999 between the
Registrant and H.P. Scott
27 Financial Data Schedule
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT ("Consulting Agreement") is made and
entered into as of the 21st day of April, 1999, by and Digital Teleport, Inc., a
Missouri corporation (the "Company"), and H.P. Scott ("Consultant").
WITNESSETH:
WHEREAS, the Company and Consultant had previously entered into
that certain Consulting Agreement dated May 4, 1998, which this Consulting
Agreement supersedes in its entirety without termination of the Consulting Term
therein for purposes of Section 6;
WHEREAS, the Company wishes to retain Consultant and Consultant
wishes to be retained by Company on the terms set forth herein;
NOW, THEREFORE, in consideration of the mutual promises
hereinafter set forth, it is hereby agreed as follows:
1. Engagement. Consultant is hereby engaged as a consultant to
the Company. The term of Consultant's services to the Company shall commence on
the date first set forth above and shall end on the first anniversary of such
date, provided, however, that this Consulting Agreement may be terminated by the
Company or Consultant at any time upon thirty (30) days prior written notice
(the "Consulting Term").
2. Consulting Services. Consultant shall perform such
consulting services as Company requests in the area of carrier's carrier sales
and swaps by the Company and any other services as Company and Consultant
mutually agree ("Consulting Services"). During the Consulting Term, Consultant
shall devote such time, attention, skill, energy and efforts as may be necessary
for the faithful performance of the Consulting Services. The Company and
Consultant currently expect that Consultant shall spend approximately five (5)
calendar days each month performing the Consulting Services, provided that this
expectation imposes no independent legal obligation on Consultant or Company.
Consultant shall have the title "Senior Vice President".
3. Compensation.
(a) The Company shall pay Consultant $5,000 per month,
provided, however, that Consultant shall be paid $1,000 for each day or $500 for
each half-day spent performing Consulting Services in excess of five (5) days
per month. Such amounts shall be paid within one (1) week of submission of
invoices.
1
<PAGE>
(b) The Company shall pay to Consultant a commission equal to:
(i) One percent of any cash payments received for
sales of unlit fiber optic cable strands or fiber optic cable conduit ("Dark
Fiber/Conduit") to telecommunications companies, which sales are substantially
negotiated or closed during the Consulting Term, and for which Consultant
provided substantive Consulting Services with respect thereto. A sale shall be
deemed to have been substantially negotiated if all material business terms have
been agreed to definitively or in principle during the Consulting Term, or such
sale closes within one month following the Consulting Term. Substantive
Consulting Services shall be deemed to have been rendered if Consultant
negotiates directly in person or by phone with representatives of the buyer of
such Dark Fiber/Conduit. Such commission shall be paid when cash is actually
received by the Company and shall be payable even if received following the term
hereof, provided that no amount shall be payable with respect to any cash
received with respect to such sales following five years following the end of
the Consulting Term.
(ii) $200 for each route mile of Dark Fiber/Conduit
(regardless of the number of
strands of fiber optic cable, but with a contract term of at least 20 years)
received by the Company in a swap for Dark Fiber/Conduit or owned by the
Company, which swap is substantially negotiated or closed during the Consulting
Term, and for which Consultant provided substantive Consulting Services with
respect thereto. A swap shall be deemed to have been substantially negotiated if
all material business terms have been agreed to definitively or in principle
during the Consulting Term, or such swap closes within one month following the
Consulting Term. A swap shall be deemed to be closed when a definitive
indefeasible right to use ("IRU") such Dark Fiber/Conduit in favor of the
Company is executed. Substantive Consulting Services shall be deemed to have
been rendered if Consultant negotiates directly in person or by phone with
representatives of the other party to such swap. Such commission shall be paid
within one month following the later of (i) the time the Company becomes
eligible to use the Dark Fiber/Conduit being received or (ii) the time at which
there are no significant conditions to the Company's continued use of such Dark
Fiber/Conduit, including without limitation the completion of construction by
the Company of the Dark Fiber/Conduit being swapped. If a swap involves the
payment by the Company of cash, then the Consultant shall nonetheless be
eligible for the commission provided in this Section 3(b)(ii) for the route
miles of Dark Fiber/Conduit received by the Company, up to the number of routes
miles of Dark Fiber/Conduit given by the Company in such transaction. If a swap
involves the receipt by the Company of both cash and Dark Fiber/Conduit, then
the Consultant would be entitled to the commissions payable under both Section
3(b)(i) and Section 3(b)(ii).
2
<PAGE>
(iii) One percent of any cash payments received from
sales of lighted bandwidth capacity at a rate of a DS-3 or above ("Bandwidth")
to telecommunications companies, which sales are substantially negotiated or
closed during the Consulting Term, and for which Consultant provided substantive
Consulting Services with respect thereto. A sale shall be deemed to have been
substantially negotiated if all material business terms have been agreed to
definitively or in principle during the Consulting Term, or such sale closes
within one month following the Consulting Term. Substantive Consulting Services
shall be deemed to have been rendered if Consultant negotiates directly in
person or by phone with representatives of the buyer of such Bandwidth. Such
commission shall be paid when cash is actually received by the Company, and
shall be payable even if received following the term hereof, provided that no
amount shall be payable with respect to any cash received with respect to such
sales following five years following the end of the Consulting Term.
(iv) One percent of the value of any Bandwidth
received in exchange for Bandwidth with telecommunications companies, which
exchange is substantially negotiated or closed during the Consulting Term, and
for which Consultant provided substantive Consulting Services with respect
thereto. An exchange shall be deemed to have been substantially negotiated if
all material business terms have been agreed to definitively or in principle
during the Consulting Term, or such exchange closes within one month following
the Consulting Term. Substantive Consulting Services shall be deemed to have
been rendered if Consultant negotiates directly in person or by phone with
representatives of the other party to such exchange. Such commission shall be
paid quarterly as Bandwidth is available for use by the Company, and shall be
payable even following the term hereof, provided that no amount shall be payable
with respect to any Bandwidth available for use by the Company following five
years following the end of the Consulting Term. If an exchange involves the
payment by the Company of cash, then the Consultant shall nonetheless be
eligible for the commission provided in this Section 3(b)(iv) for the Bandwidth
received by the Company, reduced by the amount of cash paid on a pro rata basis.
If an exchange involves the receipt by the Company of both cash and Bandwidth,
then the Consultant would be potentially eligible for the commissions payable
under both Section 3(b)(iii) and Section 3(b)(iv).
(c) One percent of any rebates or credits to a customer
arising from a sale for which commissions are payable under Section 3(b) shall
be deducted from the commissions from such sale, or the commissions for any
other sale, payable under Section 3(b).
(d) Consultant shall be reimbursed by the Company for his
reasonable expenses for travel from his home in Dallas, Texas on Company
business, including without limitation travel to the Company's headquarters in
St. Louis, Missouri and his reasonable living expenses while in St. Louis on
3
<PAGE>
Company business, in accordance with the Company's general reimbursement
policies.
(e) Any Company transaction with respect to Dark
Fiber/Conduit or Bandwidth, and the terms thereof, must be approved by the chief
executive officer of the Company, in his sole and absolute discretion. This
Consulting Agreement, and the retention by Company of the Consultant, imposes no
obligation on the Company or Chief Executive Officer to approve any terms or any
sale.
(f) Consultant at his sole discretion may elect to take up to
50% of any commissions payable under Section 3(b) in the form of common stock of
the Company, such stock to be valued at the fair market value thereof. Prior to
the listing of such common stock on a stock exchange of Nasdaq National Market,
the fair market value of the stock shall be determined by the Board of Directors
of the Company or the Compensation Committee, whose determination shall be final
and binding on the parties hereto. Following such listing of the common stock,
the fair market value shall be the closing price on the date the Company
receives the cash payment giving rise to the obligation to pay Consultant a
commission hereunder (regardless of when Consultant makes an election to receive
such commission in the form of common stock). Consultant may make the election
provided herein with respect to any amount to be paid to him as a commission
upon written notice received by the Company prior to the Company paying to
Consultant any such commission. Such election shall apply only to the
commissions specifically identified in such notice, and shall not apply to any
other commissions.
4. Third-Party Confidentiality. Consultant shall not disclose
to the Company or induce the Company to use any secret or confidential
information belonging to persons not affiliated with the Company. Consultant
acknowledges that the Company has disclosed that the Company is now, and may be
in the future, subject to duties to third parties to maintain information in
confidence and secrecy. By executing this Consulting Agreement, Consultant
consents to be bound by any such duty owed by the Company to any third party.
5. Inventions, Etc.; Confidentiality
(a) Any and all ideas, inventions, discoveries, patents,
patent applications, continuation-in-part patent applications, divisional patent
applications, technology, copyrights, derivative works, trademarks, service
marks, improvements, trade secrets and the like ("Invention"), which are
developed, conceived, created, discovered, learned, produced and/or otherwise
generated by Consultant, whether individually or otherwise, during the
Consulting Term, whether or not during working hours, that relate to (i) the
business and/or activities of the Company, (ii) the Company's anticipated
4
<PAGE>
research or development, or (iii) any work performed by Consultant for the
Company, shall be the sole and exclusive property of the Company, and the
Company shall own any and all right, title and interest to such property.
Consultant assigns and agrees to assign to the Company any and all right, title
and interest in and to any such Inventions, whenever requested to do so by the
Company, at the Company's expense, and Consultant agrees to execute any and all
applications, assignments or other instruments which the Company deems desirable
or necessary to protect such interests.
(b) Section 5(a) shall not apply to any Invention for which no
equipment, supplies, facilities, or confidential and trade secret information of
the Company was used and which was developed entirely on the Consultant's own
time, unless (i) the Invention relates (A) to the Company's business or (B) to
the Company's actual or demonstrably anticipated research or development or (ii)
the Invention results from any work performed by the Consultant for the Company.
(c) Consultant acknowledges that Consultant's work for the
Company is expected to bring him or her into close contact with various
confidential business data of the Company and its clients not readily available
to the public. Accordingly, Consultant:
(i) covenants and agrees that (A) during the Consulting
Term, except pursuant to appropriate safeguards on confidentiality and only in
connection with the business of the Company, and (B) after the Consulting Term,
on any basis for any reason, Consultant shall not use or disclose to anyone
except authorized personnel of the Company, whether or not for his or her
benefit or otherwise, any confidential matters (collectively, "Confidential
Matters"), concerning the Company or its suppliers, consultants, agents or
clients, whether former, current or potential (collectively, the "Clients"),
including without limitation, all confidential technical information of the
Company, secrets, trade secrets, formulas, proprietary software, copyrights,
Client lists, lists of Consultants, confidential evaluations, mailing lists,
details of consultant contracts, pricing policies, sales data and reports,
margins, operational methods and processes, marketing plans or strategies,
business acquisition plans, new personnel acquisition plans, financial
information and other confidential business affairs, learned by Consultant
concerning the Company, its Clients, or a third party, including without
limitation, any subsidiaries, partners, affiliates, shareholders, consultants,
lenders, suppliers, employees, agents or joint venture partners of the Company
(collectively, "Affiliates"); and
(ii) covenants and agrees that (A) all confidential
memoranda, notes, sketches, lists (including, without limitation, mailing and
customer lists), records, other confidential documents and computer diskettes
(and all copies thereof) made or compiled by Consultant or made available to him
5
<PAGE>
or her concerning the Company, its Clients and any Affiliates are the sole
property of the Company, and (B) if such documents are in the possession or
control of Consultant, Consultant shall deliver them, without retaining any
copies thereof, to the Company promptly at the time of termination or expiration
of the Consulting Term or at any other time upon request by the Company.
6. Non-Competition Agreement.
(a) Consultant covenants and agrees that Consultant shall not,
directly or indirectly, as a principal, employee, partner, consultant, agent or
otherwise, compete or assist in competitive activity with the Company, within
the areas in which the Company currently provides telecommunications services at
the time of commencement of the Restricted Period (as defined below), during the
Consulting Term and for a period of twelve (12) consecutive months immediately
following termination of this Consulting Agreement (the period of time during
which Consultant is restricted from such competition pursuant to the foregoing
provisions is hereinafter referred to as the "Restricted Period") without the
express prior written consent of the Company only if any payment is being made;
provided, however, that the running of the Restricted Period shall be tolled
during any period of time in which Consultant violates the provisions herein.
Without limiting the generality of what might constitute competitive activity,
Consultant acknowledges and agrees that any fiber-optic competitive access
provider, competitive or incumbent local exchange carrier or inter-exchange
carrier shall constitute competitive activity.
(b) During the Restricted Period, Consultant shall not
directly or indirectly, alone or in concert with others, solicit or accept the
business of any customer (or any person or entity whom the Company or any of its
Consultants or agents has solicited as a prospective customer) ("Customer") (nor
provide any services to any Customer) which was a Customer of the Company at any
time during the Consulting Term.
(c) During the Restricted Period, Consultant shall not,
directly or indirectly, alone or in concert with others, solicit or encourage
any employee of the Company, or an employee of any person or entity with which
the Company has an agreement through which the Company and the person or entity
are to act in concert with respect to the business of the Company (a "Company
Employee"), to leave their respective employment or hire any Consultant of the
Company or any person who was a Company Employee at any time within the one (1)
year period prior to the date first above written.
6
<PAGE>
(d) During the Restricted Period, Consultant shall not,
directly or indirectly, alone or in concert with others, encourage any
consultant which is then under contract with the Company to cease to work for
the Company or any Company Employee.
7. Non-Waiver of Rights. The Company's failure to enforce at
any time any of the provisions of this Consulting Agreement or to require at any
time performance by the Consultant of any of the provisions hereof shall in no
way be construed to be a waiver of such provisions or to affect either the
validity of this Consulting Agreement, or any part of it, or the right of the
Company thereafter to enforce each and every provision in accordance with the
terms of this Consulting Agreement. The Consultant's failure to enforce at any
time any of the provisions of this Consulting Agreement or to require at any
time performance by the Company of any of the provisions hereof shall in no way
be construed to be a waiver of such provisions or to affect either the validity
of this Consulting Agreement, or any part of it, or the right of the Consultant
thereafter to enforce each and every provision in accordance with the terms of
this Consulting Agreement.
8. Other noncompetition obligations. Consultant represents and
warrants to the Company that Consultant is not a party to any agreement
containing a noncompetition provision or other restriction with respect to the
nature of any services or business that Consultant is entitled to perform or
conduct for the Company.
9. Limited Liability. With regard to the services to be
performed by Consultant pursuant to the terms of this Consulting Agreement,
neither Consultant nor any Consultants or agents of Consultant shall be liable
to DTI, or to anyone who may claim any right due to this relationship with DTI,
for any action or omission in the performance of said services on the part of
Consultant or on the part of the agents or Consultants of Consultant, except
when said acts or omissions of Consultant or such agents or Consultants are due
to willful misconduct or gross negligence. DTI shall hold Consultant free and
harmless from any obligations, costs, claims judgments attorneys fees and
attachments arising from or growing out of the services rendered to DTI pursuant
to the terms of this Consulting Agreement, except when the same shall arise due
to the intentional misconduct or gross negligence of Consultant, and Consultant
is determined to have committed intentional misconduct or gross negligence by
the arbitration proceedings provided herein.
10. Assignments. This Consulting Agreement shall be freely
assignable by the Company and shall inure to the benefit of, and be binding
upon, the Company, its successors and assigns and/or any other corporate entity
which shall succeed to the business presently being operated by the Company,
7
<PAGE>
but, being a contract for personal services, neither this Consulting Agreement
nor any rights hereunder are assignable by Consultant.
11. Governing Law/Arbitration. This Consulting Agreement shall
be interpreted in accordance with and governed by the laws of the State of
Missouri without regard to its conflict of law rules. Any dispute arising out of
or relating to this Consulting Agreement or the breach, termination or validity
hereof, other than Section 5 and Section 6, shall be settled by arbitration in
St. Louis County, Missouri in accordance with the commercial arbitration rules
then in effect of the American Arbitration Association. The parties consent to
the jurisdiction of the Supreme Court of the State of Missouri, and of the
United States District Court for the Eastern District of the State of Missouri
for injunctive, specific enforcement or other relief in aid of the arbitration
proceedings or to enforce judgment of the award in such arbitration proceeding.
The award entered by the arbitrator(s) shall be final and binding on all parties
to arbitration. Each party shall bear its respective arbitration expenses and
shall each pay its pro rata portion of the arbitrator's charges and expenses.
The arbitrator(s) shall not award punitive, exemplary or consequential damages.
With respect to disputes arising out of Section 5 and Section
6 of this Consulting Agreement, the parties agree that exclusive venue and
jurisdiction for any action brought under this Consulting Agreement shall lie in
the County of St. Louis, Missouri.
12. Amendments. No modification, amendment or waiver of any of
the provisions of this Consulting Agreement shall be effective unless in writing
and signed by the parties hereto.
13. Notices. Any notices to be given by either party hereunder
shall be in writing and shall be deemed to have been duly given if delivered or
mailed, certified or registered mail, postage prepaid, as follows: to the
Company at Digital Teleport, Inc., 8112 Maryland Avenue, 4th Floor, St. Louis,
Missouri 63105, Attn.: Richard D. Weinstein, President; and to Consultant at 3
Wood Acre Drive #78, Whitney, Texas 76692; or to such other address as may have
been furnished to the other party in writing.
14. Reflection and Advice of Counsel Encouraged. This
Consulting Agreement places restrictions on Consultant's right to seek
employment or consult with certain employers or to engage in businesses
competitive with the Company's business. By signing this Consulting Agreement,
Consultant acknowledges that he or she has had ample time to reflect on these
restrictions and has sought the advice of counsel with respect to this
Consulting Agreement.
8
<PAGE>
15. Entire Agreement. This Consulting Agreement is the entire
agreement between the parties and supersedes any previous oral or written
agreement or understanding between the Company and Consultant with respect to
the subject matter hereof, including without limitation those certain consulting
agreements dated April 20, 1998 and May 4, 1998. There are no representations,
warranties, promises or undertakings other than those expressly contained in
this Consulting Agreement.
16. Severability. Subject to severability provisions integral
to any paragraph of this Consulting Agreement, the unenforceability, invalidity
or illegality of any provision of this Consulting Agreement shall not affect or
impair the continuing enforceability or validity of any other part of this
Consulting Agreement, all of which shall survive and be valid and enforceable.
17. Counterparts. This Consulting Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
18. Headings. The headings in this Consulting Agreement are
for reference purposes only and shall not in any way affect the meaning or
interpretation of this Consulting Agreement.
19. Relationship. Consultant and the Company agree that the
relationship contemplated by this Consulting Agreement is that of a consultant
and not an employee. Consultant agrees to pay all applicable taxes with respect
to the compensation provided hereunder and hold Company harmless with respect to
same or with respect to any determination that Consultant should be considered
an employee of the Company. Consultant agrees that he is not entitled to any
benefits or remuneration from the Company other than as expressly set forth
herein, including without limitation any medical or vacation benefits, or any
options of the Company. The Company will issue the Consultant a Form 1099 with
respect to the compensation paid to him hereunder unless otherwise required by
law.
9
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE WHICH MAY BE ENFORCED BY
THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Consulting
Agreement as of the date first above written.
DIGITAL TELEPORT, INC.
By: /S/ RICHARD D. WEINSTEIN
--------------------------------
Name: Richard D. Weinstein
Title: President
CONSULTANT
/S/ H.P. SCOTT
------------------------------------
H.P. Scott
10
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated balance sheet and the condensed consolidated statement of
operations of DTI Holdings, Inc. filed as part of the quarterly report on Form
10-Q and is qualified in its entirety by reference to such quarterly report on
Form 10-Q.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-START> Jul-01-1998
<PERIOD-END> Mar-31-1999
<CASH> 202,381,780
<SECURITIES> 0
<RECEIVABLES> 300,001
<ALLOWANCES> 81,275
<INVENTORY> 0
<CURRENT-ASSETS> 203,001,012
<PP&E> 158,255,385
<DEPRECIATION> 6,159,430
<TOTAL-ASSETS> 367,778,741
<CURRENT-LIABILITIES> 18,673,097
<BONDS> 304,869,086
300
0
<COMMON> 300,000
<OTHER-SE> 21,696,676
<TOTAL-LIABILITY-AND-EQUITY> 367,778,741
<SALES> 0
<TOTAL-REVENUES> 5,280,839
<CGS> 0
<TOTAL-COSTS> 11,008,465
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (23,150,942)
[INTEREST-INCOME] 8,799,242
<INCOME-PRETAX> (20,079,326)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,079,326)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,079,326)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
