Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
FORM S-3 REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
DATA TRANSMISSION NETWORK CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 47-0669375
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
(402) 390-2328
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(Address, including zip code and telephone number,
including area code of registrant's
principal executive offices)
Mr. Brian L. Larson
Chief Financial Officer, Secretary and Treasurer
Data Transmission Network Corporation
9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
(402) 390-2328
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies To:
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Mr. R. Craig Fry
Abrahams, Kaslow & Cassman
8712 West Dodge Road, Suite 300
Omaha, Nebraska 68114
(402) 392-1250
Approximate date of commencement of proposed sale to the public:
The securities to be registered hereby may be offered for sale as soon as
practicable after the effective date of this Registration Statement in
accordance with the provisions of Rule 415 and other laws applicable to
shelf registrations.
If the only securities being registered on this form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. [ ]
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ X ]
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If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
Proposed Proposed Maximum
Title of Securities Amount to Maximum Offering Aggregate Offering Amount of
to be Registered be Registered(2) Price Per Share(1) Price (1) Registration Fee
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<S> <C> <C> <C> <C>
Common Stock, $.001
par value.......... 316,000 Shares $64.25 $20,303,000 $7,001
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<FN>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(2) The Shares to be registered pursuant to this Registration Statement
shall include any additional shares into which these shares are split
as a result of a stock split effected by the registrant.
</FN>
</TABLE>
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DATA TRANSMISSION NETWORK CORPORATION
Cross Reference Sheet For Prospectus
Furnished Pursuant to Rule 501 of Regulation S-K
ITEM NUMBERS & FORM S-3 CAPTION CAPTION IN PROSPECTUS
1. Forepart of the Registration Facing Page; Front Cover Page
Statement and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Available Information;
Back Cover Pages of Incorporation of Certain Information
Prospectus by Reference; Table of Contents
3. Summary Information; Risk Prospectus Summary; Risk Factors
Factors and Ratio of
Earnings to Fixed Charges
4. Use of Proceeds Not Applicable
5. Determination of Offering Not Applicable
Price
6. Dilution Not Applicable
7. Selling Security Holders Selling Stockholders
8. Plan of Distribution Plan of Distribution
9. Description of Securities Front Cover Page; Prospectus
to be Registered Summary; Risk Factors; Description
of Common Stock
10. Interests of Named Experts None
and Counsel
11. Materials Changes Recent Developments; Pro Forma
Combined Financial Statements;
Index to Financial Statements
12. Incorporation of Certain Incorporation of Certain Information
Information by Reference by Reference
13. Disclosure of Commission Not Applicable
Position on Indemnification
for Securities Act Liabilities
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PROSPECTUS
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316,000 Shares
DATA TRANSMISSION NETWORK CORPORATION
Common Stock
All shares of common stock of Data Transmission Network Corporation (the
"Company"), $.001 par value per share (the "Shares"), offered hereby are being
sold by certain of the Company's stockholders (the "Selling Stockholders"). See
"Selling Stockholders". The Shares are traded on the Nasdaq Stock Market under
the symbol "DTLN." On June 4, 1996, the last reported sale price for the Shares
as reported on the Nasdaq Stock Market was $68.50 per share.
See "Risk Factors" beginning on Page 8 of this Prospectus for a discussion of
certain items that should be considered by prospective investors.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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This Prospectus is applicable to the public sale of Shares by the Selling
Stockholders. The Shares offered hereby are being registered and will be
distributed pursuant to Rule 415 of the Securities Act of 1933, as amended. The
Selling Stockholders may offer or sell such Shares from time to time upon terms
determined by the market or in privately negotiated transactions.
The Company is not engaging an underwriter in connection with the shelf
registration or offering of these securities. The Company will incur the
expenses of the registration of the Shares offered hereby, including filing,
printing, legal, accounting and miscellaneous expenses. The Selling Stockholders
shall not incur the expenses of filing, printing, legal, accounting, or other
expenses of issuance and distribution in connection with the registration of
these Shares. However, Selling Stockholders will pay any sales commissions to
the broker/dealer through whom they effect the sale of their securities.
This Prospectus is dated June 4, 1996.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements and
related notes thereto appearing elsewhere in this Prospectus. Prospective
investors are urged to read this Prospectus in its entirety. See "Risk Factors"
for a discussion of certain factors that should be considered carefully in
evaluating an investment in the Shares.
The Company
Data Transmission Network Corporation ("DTN" or the "Company") provides a
broad range of electronic news, information and communication services to
business and individual subscribers across the United States and Canada. The
Company is a leading provider of satellite delivered agricultural information
services as well as the leading information service through which petroleum
refiners in the United States of America communicate with their customers. The
Company targets its services towards niche markets in which its subscribers come
to rely on the timely and valuable information provided by the Company's
services to manage their businesses.
The Company's largest service offers agricultural market information and
quotes, and is the market leader and largest provider of satellite delivered
agricultural news and information services. The Company has recently acquired
the business of its largest direct competitor, Broadcast Partners, in providing
satellite delivered agricultural information. See "Recent Developments." The
Company offers a variety of other basic services which provide news and
information to markets including the energy industry, the financial community
and automobile dealerships.
DTN currently has over 140,000 subscriptions to its established primary
services, and is continuing to develop and add new services targeting additional
markets. DTN has consistently shown that it can serve relatively small niche
markets profitably. The Company's dedication to customer service and ability to
provide value-added services has led to a consistently high subscriber retention
rate (91% for the year ended December 31, 1995) and a 17.2% compound annual
growth rate in revenue per subscriber.
DTN provides all of the equipment necessary for subscribers to receive
their service. The equipment includes a receiver, color or monochrome video
monitor and small 30" Ku-band satellite dish or an FM antenna. DTN also provides
solutions for integrating and distributing its information over local area
networks, wide area networks and the Internet.
The Company's revenue is derived principally from: (1) subscription income
from each primary service, (2) premium services, (3) service initiation income
(up-front fees) received from new subscribers, (4) income from communications
services (i.e., one-way messaging, e-mail), and (5) advertising income from
various vendors.
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- The cost of receiving the Company's various services depends
on the format chosen (i.e., monochrome or color). Customers
pay for the service, which includes the use of a DTN terminal,
on a monthly, quarterly or annual basis.
- Premium services are offered to customers on an a la' carte
basis, at additional charges.
- Service initiation fees are one-time charges to new
subscribers or subscribers converting to another DTN service
and range from $0 to $295, depending upon the service,
broadcast delivery method and sales discount programs offered.
- The Company sells communications services, particularly in its
DTNergy(R) line, which allow subscribers to cost-effectively
communicate a large amount of time-sensitive information or
data to many of their customers or field offices. 93% of the
communication services revenue in 1995 was derived from
DTNergy(R) (versus 92% in 1994) and 7% was from DTN
AgDaily(R).
- The Company sells advertising space that is interspersed among
the pages of DTN's services. The Company's color graphics and
audio capabilities should enhance DTN's ability to generate
future advertising revenue.
DTN obtains information from various news wires and public information and
also purchases information from third party sources, some of which are
contracted by the Company on an exclusive basis. Certain information received by
DTN is edited by an in-house staff before transmission to subscribers. The
information is delivered to its addressable subscribers primarily via Ku-band
satellite (small dish). Other delivery methods, including FAX, Electronic Mail,
the Internet and FM radio side band channels are also employed in order to
access certain subscribers who cannot be reached directly by satellite. The
Company also has the technology available to deliver some of its services via
the Vertical Blanking Interval transmission within cable TV.
The Company's strategy is to continue to identify and create information
and communication services for industries demanding comprehensive time-sensitive
information. The Company is continually expanding its business within existing
industries it serves by developing additional services and exploring more
efficient distribution channels. For example, while initially only transmitting
price information from petroleum refiners to jobbers and wholesales, DTN
expanded the information content of its DTNergy(R) service to include invoicing,
electronic funds transfer notification and other communication services critical
to the energy business. Refineries have come to rely upon DTNergy as a highly
efficient, cost effective and customer service oriented product. Current
releases of new services, such as the trucking industry service, have taken the
DTNergy(R) concept one step further by providing two-way, interactive features.
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The Acquisition
On May 3, 1996, the Company acquired substantially all of the assets of
Broadcast Partners, a Delaware general partnership ("BP"), pursuant to an Asset
Purchase and Sale Agreement of the same date between BP and the Company (the
"Acquisition"). See "Recent Developments".
BP was an electronic information and communications services Company
headquartered in Des Moines, Iowa. Its principle business, operated under the
trade name "Farm Dayta", was an agricultural market information and quotes
service which competed directly with the Company's DTN AgDaily(R) service.
Pursuant to the Acquisition, the Company acquired approximately 39,000
subscription agreements with BP's former subscribers in the United States and
Canada who access the electronic delivery (primarily satellite) of time
sensitive information and communication services using equipment acquired by the
Company from BP pursuant to the Acquisition.
The acquisition consideration given to BP consisted of $44,468,000 in
cash, the Company's secured promissory note in the amount of $18,732,000 (which
is part of the term loans used by the Company to finance the Acquisition as
described below), and the Company's assumption of certain liabilities of BP
consisting generally of trade accounts payable, accrued payroll and other
accrued liabilities and certain deferred revenues incurred in the ordinary
course of the business of BP. These liabilities are estimated at $9,500,000. The
Company also assumed the obligations of BP under various customer contracts and
assignable operating agreements and leases which become due or are to be
performed after the closing of the Acquisition.
The funds used to finance the Acquisition were obtained from (i) the
Company's private placement of 316,000 shares of its common stock with the
Selling Stockholders for an aggregate sales price of $15,010,000 and (ii)
secured term loans in an aggregate principal amount of $48,190,000 (which
includes the principal amount of the promissory note of the Company payable to
BP as mentioned above) borrowed by the Company pursuant to a 1996 Term Credit
Agreement dated May 3, 1996 (the "Acquisition Loan").
The Offering
The Shares offered hereby will be distributed pursuant to Rule 415 of the
Securities Act of 1933 providing for a continuous offering and sale of the
Shares from time to time by the Selling Stockholders. The Shares which may be
offered by the Selling Stockholders were issued to the Selling Stockholders in a
private placement offering by the Company on May 3, 1996. The proceeds of such
private placement were used to finance, in part, the cash consideration for the
Acquisition. See "Plan of Distribution". The Shares to be offered hereby shall
include any additional shares into which the initial 316,000 Shares are split as
a result of a stock split effected by the Company.
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Certain Historical Financial Data
The Company
The following table sets forth certain historical financial data of the
Company as of and for each of the calendar years in the five-year period ended
December 31, 1995. This information shall be read in conjunction with the
Financial Statements and Notes thereto. See "Index to Financial Statements" and
"Incorporation of Certain Documents by Reference."
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<TABLE>
<CAPTION>
Summary Historical Financial Data
(in thousands, except per share and per subscriber data)
Years Ended December 31,
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1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Income Statement Data:
<S> <C> <C> <C> <C> <C>
Revenues .................... $ 21,465 $ 26,816 $ 35,993 $ 46,110 $ 62,288
Operating income ............ 2,658 2,995 2,409 695 4,343
Net income (loss) ........... 1,426 1,351 664 (1,603) (283)
Net income (loss) per
common share ............. .43 .41 .20 (.49) (.09)
Weighted average common
shares and equivalents ..... 3,335 3,335 3,287 3,253 3,303
Other Operating Data:
Operating cash flow (1) ..... 8,193 9,911 12,940 15,751 23,154
Operating cash flow
from core services (1)(2) .. 8,539 11,063 15,604 20,035 26,750
Total subscribers at year-end 63.3 67.6 74.1 82.0 95.9
Subscriber retention rate ... 90.0% 88.3% 88.8% 89.8% 91.0%
Net development costs (3) ... 346 1,152 2,711 4,335 3,734
Annual revenue per
subscriber (4) ............. 371 409 507 591 700
Annual operating cash flow
per subscriber (1)(4) ...... 141 151 183 202 260
Balance Sheet Data
(At Period End) :
Working capital (deficit) ... (1,253) (3,024) (6,702) (10,237) (10,472)
Total assets ................ 30,549 38,260 57,242 71,459 92,672
Long-term debt and
subordinated notes ......... 9,719 13,677 25,375 33,983 47,021
Stockholders' equity ........ 12,008 12,168 12,780 12,707 12,877
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<FN>
(1) Operating Cash Flow (EBITDA) is defined as earnings before interest,
taxes, depreciation and amortization. Operating Cash Flow should not be
considered an alternative to net income as an indication of the Company's
performance or to cash flows as a measure of liquidity. This data should
not be considered as an alternative to any measure of performance or
liquidity as promulgated under generally accepted accounting principles,
nor should it be considered as an indicator of the Company's overall
financial performance.
(2) Core services are services no longer in the initial development process
and are generating positive cash flow for the Company (prior to corporate
allocations less interest).
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(3) Net development costs are defined as the sum of 1) market research
activities, 2) hardware and software engineering, research and development
and 3) the negative operating cash flow (prior to corporate allocations
plus interest) of new services.
(4) This calculation is based upon average subscribers for the years included.
</FN>
</TABLE>
BROADCAST PARTNERS
BP, like DTN, was an information and communications services Company
generally engaged in the business of communicating information via satellite to
its more than 39,000 subscribers who were located throughout the United States
and Canada. The services of BP competed directly with the Company's DTN
AgDaily(R) agricultural market information and quotes service. DTN acquired
substantially all of the assets of BP on May 3, 1996.
<TABLE>
<CAPTION>
Broadcast Partners
Summary Historical Financial Data
(in thousands)
Years Ended August 31,
--------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues ................ $ 1,655 $ 5,303 $ 9,003 $ 14,830 $ 20,025
Operating income (loss) . (2,367) (3,026) (2,941) (1,254) 1,279
Net income (loss) ....... (2,611) (3,325) (3,326) (1,871) 228
Balance Sheet Data
At Period End:
Working Capital (deficit) $ (3,077) $ (6,827) $ (3,588) $ (2,280) $ (3,855)
Total Assets ............ 8,538 16,806 22,606 31,333 37,720
Long-term debt and
subordinated notes .... 777 -- 8,892 18,453 20,007
Partners' Equity ........ 3,014 6,064 5,738 3,867 4,095
</TABLE>
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RISK FACTORS
The Shares offered hereby involve certain risks and prospective
investors should carefully consider, among other factors, the following matters
before purchasing the securities registered in this offering.
1. INCREASED INDEBTEDNESS. As a result of the Acquisition and the
Acquisition Loan the Company significantly increased the amount of its long-term
debt. Accordingly, the Company's fixed charges will require a greater percentage
of available cash flow. The degree to which the Company is leveraged could have
important consequences to holders of the Shares, including the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to the payment of the principal of and interest on indebtedness; (ii) the
Company's ability to obtain additional financing in the future for working
capital, capital expenditures, product development costs or general corporate
purposes may be limited; (iii) the Company's ability to pay dividends is and
will be limited by the covenants and other terms of the financing agreements of
the Company, including the Acquisition Loan, the bank credit facility agreement
and the subordinated note agreement; (iv) the agreements governing the Company's
long-term indebtedness contain certain restrictive financial and operating
covenants; and (v) the Company could be more sensitive to a downturn in general
economic conditions or in the agricultural industries.
2. CERTAIN RISKS ASSOCIATED WITH THE ACQUISITION. There is no assurance
that following the Acquisition the Company can successfully integrate the
business of BP into its business or that economies of scale from the combination
of these businesses will be achieved to the extent anticipated or at all. The
approximately 39,000 subscriber contracts of BP assumed by the Company pursuant
to the Acquisition generally will be terminable by the subscribers within one
year or sooner. Although the Company has consistently maintained subscriber
annualized retention rates of 88% or above (91% for 1995; see
"Business-Retention"), there is no assurance that the acquired subscribers will
continue their contracts when they come up for renewal. The increased business
operations of the Company as a result of the Acquisition and its rapid expansion
in the past several years will place significant demands on its administrative,
operational and financial resources. The Company's future performance and
profitability will depend in part on its ability to successfully integrate the
business of BP into its own.
3. NEW TECHNOLOGY. The business of the Company is subject to the
continuous changes in technology which affect the methods by which information
is distributed to the public. Although the Company is unaware of any new
technology which is likely to replace its present electronic delivery systems
and equipment at a competitive price, new developments in electronic hardware
capabilities and in data distribution technologies could cause the Company's
electronic delivery systems and equipment to become obsolete or economically
inefficient or less attractive when compared to available alternatives. However,
the improvement and enhancement (and subsequent lower prices) of some delivery
technologies such as cable and fiber optics may provide the Company with
economic alternatives to it's current primary delivery method, satellite.
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4. NEED FOR FUTURE FINANCING. Along with projected internally generated
funds (including funds generated from the assets acquired in the Acquisition)
and its present bank credit facility, the Company's financing to date is
believed to be sufficient for the Company's operating requirements. However, the
Company could be required to seek additional financing if its rate of
subscription growth significantly exceeds that experienced during the past
twelve months (not including the subscription growth as a result of the
Acquisition). There is no assurance that such financing, if required, could be
obtained or that such additional financing will be available on favorable terms.
5. LIMITED SOURCE OF SUPPLY. The Company currently contracts for the
manufacture of its receiver equipment from MidWestern Electronics. While there
are other sources of manufacturing, an interruption in the delivery of the
equipment could be costly to the Company. The manufacturer, MidWestern
Electronics, has a disaster recovery plan in place so the supply of receiver
equipment should not be interrupted for any extended period of time. In case of
a disaster, the Company's revenue stream is protected by $1,000,000 of business
interruption insurance. The companies policy is to have a 30 day supply of
receivers in inventory which should minimize the effects of any interruptions in
supply.
6. COMPETITION. The Company operates in a highly competitive
environment, competing with information and communication services utilizing
various types of electronic media including satellite delivery, TV cable
delivery, the Internet, electronic bulletin boards, television, radio, cellular,
and telephone communications. In addition to the various electronic information
publishers, the Company competes with print media and "old information gathering
habits". Many of the Company's actual and potential competitors have
substantially greater resources than the Company.
7. CONTROL BY AFFILIATES. The current executive officers and directors
of the Company and stockholders who beneficially own 5% or more of the
outstanding Shares together with their respective affiliates, beneficially own
approximately 46% of the Shares outstanding (approximately 50% assuming the
exercise of all options exercisable by them on May 1, 1996).
8. DEPENDENCE ON KEY PERSONNEL. The Company is highly dependent on the
efforts of its senior management team, particularly Roger Brodersen, Chief
Executive Officer, Greg Sloma, President and Chief Operating Officer, Robert
Herman, Senior Vice President, and Roger Wallace, Senior Vice President. The
loss of the services of any of these individuals could have a material adverse
effect on the Company.
9. EFFECT OF AN ADVERSE AGRICULTURAL ECONOMY. As a result of the
Acquisition, approximately 114,000 of the Company's 140,000 total subscribers
will be subscribing to information services directed at agribusinesses.
Consequently, a significant downturn in the agricultural economy could have an
adverse effect upon the business of the Company.
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RECENT DEVELOPMENTS
On May 3, 1996, the Company acquired substantially all of the assets of
BP pursuant to an Asset Purchase and Sale Agreement of the same date between the
Company and BP. The primary business of BP was providing time-sensitive
information and communication services to agricultural producers via a satellite
delivery system.
The assets of BP acquired by the Company include all of the tangible
and intangible property necessary to serve the customers of BP (including all
satellite "dishes", satellite receivers, data boxes, phone modems, video
monitors, cables, and transmission system hardware and software), its current
assets, its service agreements with customers, its operating contracts
(including agreements with information suppliers and joint venture partners),
its operating leases, its trademarks and service marks and the goodwill of its
business. The Company intends to continue to use the physical assets acquired
from BP for the same purpose.
The acquisition consideration given to BP consisted of $44,468,000 in
cash, the Company's secured promissory note in the amount of $18,732,000 (which
is part of the Acquisition Loan), and the Company's assumption of certain
liabilities of BP consisting generally of trade accounts payable, accrued
payroll and other accrued liabilities incurred in the ordinary course of the
business of BP. These liabilities are estimated at $9,500,000. The Company also
assumed the obligations of BP under various customer contracts and assignable
operating agreements and leases which become due or are to be performed after
the closing of the Acquisition.
As part of the Acquisition, the Company entered into separate service
agreements with each of the parent companies of the three partners of BP,
pursuant to which the Company will sell to such companies communication services
over the Company's satellite broadcast systems (including the broadcast system
acquired from BP). In addition, for additional consideration of $300,000 in the
aggregate, the Company will receive non-competition agreements from BP and the
parent companies of its partners if the Company repays in full before December
31, 1997, the promissory note payable to BP as mentioned above.
The funds used to finance the Acquisition were obtained from (i) the
Company's private placement of shares of its common stock with the Selling
Stockholders for an aggregate sales price of $15,010,000 and (ii) the
Acquisition Loan in an aggregate principal amount of $48,190,000 (which includes
the principal amount of the promissory note of the Company
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payable to BP as mentioned above). The Acquisition Loan provides for the unpaid
principal amount to accrue interest through June 30, 1999, at the rate of 8.25%
per annum and thereafter, at the rate per annum which is two percent above the
3-year treasury note rate in effect on such date. The principal amount of the
Acquisition Loan is to be repaid in 72 equal monthly installments beginning
January 31, 1997. The total amount of all unpaid principal and accrued interest
thereunder shall be due and payable no later than December 31, 2002.
The Acquisition Loan requires the Company to maintain total
stockholders' equity of at least $23,500,000 during the term of the loan. In the
event of default, interest shall accrue on the entire outstanding principal and
interest at a fluctuating rate equal to the rate in effect from time to time
with respect to the Company's revolving credit plus four percent (4%).
Pursuant to the Acquisition Loan, the Company is to maintain a ratio of
total borrowings (excluding long-term subordinated debt) to stockholders' equity
(including existing long-term subordinated debt) (the "Ratio") of less than 3.0
to 1. In the event the Ratio exceeds 3.0 to 1, any term note under the
Acquisition Loan or the Company's senior loan agreement (described below)
accruing interest at less than seven and one-half percent (7.5%) is included in
a "Trigger Event". The Company is obligated to pay the holders of such term
notes a fee of three-eighths of one percent (.375%) of the outstanding balance
of the notes as of the preceding day, on the six month anniversary and the
twelve month anniversary of the "Trigger Event".
Pursuant to the Acquisition Loan, the Company shall not permit the sum
of the total borrowings under the Acquisition Loan and the senior loan agreement
to exceed forty-eight times its operating cash flow (operating income before
depreciation and amortization expense) or exceed 350% of its net worth (defined
to include long-term subordinated debt). Additionally, total debt outstanding
(including existing long-term subordinated debt) is limited to sixty times its
operating cash flow.
The Company also is required to maintain a ratio of quarterly operating
cash flow (as defined above) to interest expense also of at least 2.25 to 1.0.
Pursuant to the Acquisition Loan, the Company is permitted to pay cash dividends
in any one year, which are, in the aggregate, less than 25% of the Company's net
operating profit after taxes in the previous four quarters. However, the
Company's agreement with its subordinated debt holders currently precludes it
from paying cash dividends.
The Company currently has a senior loan agreement with a group of seven
regional banks (the "senior loan agreement"). The senior loan agreement, which
expires June 30, 1996, unless extended, provides for a total commitment of up to
$34,500,000 in borrowings. As of May 31, 1996, $33,000,000 of the total
commitment had been borrowed. The Company is currently in negotiations with its
current bank group and certain other banks to increase the senior loan agreement
commitment for the period of June 30, 1996 to June 30, 1997.
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PRO FORMA COMBINED FINANCIAL STATEMENTS
The pro forma combined financial statements of the Company have been
prepared to give effect to (1) the Acquisition, (2) the Acquisition Loan, and
(3) the sale of 316,000 Shares in a private placement at $47.50 per share (for
aggregate net proceeds of $15,010,000). These pro forma combined financial
statements have been derived from, and should be read in conjunction with, the
historical financial statements and related notes of the Company and BP
contained herein. See "Index to Financial Statements". The Pro Forma Combined
Balance Sheet assumes that the Acquisition, the Acquisition Loan and the sale of
Shares pursuant to the private placement occurred as of March 31, 1996. The Pro
Forma Combined Statements of Operations assume that all such transactions
occurred on January 1, 1995.
The pro forma adjustments are based on available financial information
and certain estimates and assumptions. Therefore, it is likely that actual
results will differ from the pro forma adjustments. Management of the Company
believes that any differences between the actual results and the pro forma
adjustments will not have a material effect on the pro forma combined financial
statements as presented herein.
THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL DATA ARE PRESENTED FOR
INFORMATIONAL PURPOSES ONLY AND ARE NOT NECESSARILY INDICATIVE OF THE RESULTS
THAT ACTUALLY WOULD HAVE OCCURRED HAD THE ACQUISITION, THE ACQUISITION LOAN AND
THE SALE OF SHARES BEEN CONSUMMATED ON THE DATES INDICATED OR THE RESULTS THAT
MAY OCCUR OR BE OBTAINED IN THE FUTURE.
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<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
BALANCE SHEET
March 31, 1996
Pro Forma
DTN BP Adjustments Pro Forma
------------ ------------ -------------- -------------
ASSETS
Current Assets:
<S> <C> <C> <C> <C>
Cash ........................................... $ 210,182 $ 111,287 $ (65,000) b $ 256,469
Accounts receivable ............................ 6,077,342 3,454,747 -- 9,532,089
Inventory ...................................... - 4,205,887 (4,205,887) c -
Prepaid expenses ............................... 744,878 148,152 -- 893,030
Deferred commission expense .................... 2,505,037 - 490,000 a 2,995,037
------------ ------------ ------------ -------------
Total Current Assets ........................ 9,537,439 7,920,073 (3,780,887) 13,676,625
Property and Equipment, net ...................... 82,822,359 28,095,122 10,139,185 d 121,056,666
Intangible Assets, net ........................... 4,555,840 371,747 34,920,580 a 39,848,167
Other Assets, net ................................ 2,037,518 - 65,000 b 2,102,518
------------ ------------ ------------ -------------
Total Assets ..................................... $ 98,953,156 $ 36,386,942 $ 41,343,878 $176,683,976
============ ============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ............................... $ 10,296,274 $ 1,749,817 $ - $ 12,046,091
Accrued expenses ............................... 2,120,870 1,740,393 4,037,000 e 7,898,263
Current portion of long-term debt .............. 8,010,416 27,300 1,993,117 a, f 10,030,833
Total Current Liabilities ................... 20,427,560 3,517,510 6,030,117 29,975,187
Revolving Debt ................................... 28,000,000 15,612,500 (15,612,500) a 28,000,000
Long-Term Debt ................................... 10,015,624 - 46,469,583 f 56,485,207
Subordinated L-T Notes, net ...................... 14,503,915 6,500,000 (6,500,000) a 14,503,915
Equipment Deposits ............................... 529,318 - - 529,318
Unearned Revenue ................................. 12,716,530 6,703,610 - 19,420,140
Stockholders' Equity:
Common stock ................................... 3,375 - 316 g 3,691
Paid-in-capital ................................ 14,422,689 15,000,000 9,684 g 29,432,373
Retained earnings/(deficit) .................... (814,229) (10,946,678) 10,946,678 g (814,229)
Treasury stock ................................. (851,626) - - (851,626)
------------- ---------- ----------- ------------
Total Stockholders' Equity .................. 12,760,209 4,053,322 10,956,678 27,770,209
Total Liabilities & Stockholders' Equity ......... $ 98,953,156 $ 36,386,942 $ 41,343,878 $176,683,976
============ ============ ============ ============
<FN>
See accompanying notes to Pro Forma Combined Balance Sheet.
</FN>
</TABLE>
- 13 -
16
<PAGE>
Notes to Pro Forma Combined Balance Sheet
March 31, 1996
(a) Adjustment to the net assets of BP to reflect fair values under
purchase accounting and assets and liabilities not acquired are as
follows:
<TABLE>
<S> <C> <C>
Purchase Price $63,200,00
Net assets of BP at March 31, 1996 4,053,322
BP assets and liabilities not acquired:
Intangible assets (371,747)
Revolving/term debt 15,639,800
Subordinated notes 6,500,000
-----------
BP net assets acquired at March 31, 1996 25,821,375
Purchase accounting adjustments:
Adjustment to deferred commissions to
conform to accounting policy of Company 490,000
Subscriber equipment to fair value 5,933,298
Non-competition agreement (300,000)
Accrual of acquisition related closing costs (3,887,000)
Accrual of direct acquisition costs (150,000)
-----------
27,907,673 27,907,673
------------ -----------
Excess of purchase price over net assets acquired $35,292,327
-----------
</TABLE>
(b) Adjustment to reflect the cash used to pay $65,000 for the debt finance
fees required in acquiring the debt used to pay part of the transaction
price.
(c) Adjustment to reflect the reclassification of $4,205,887 in BP
Subscriber inventory to property and equipment to conform with the
Company's presentation.
(d) Adjustments to reflect the fair value of property and equipment
acquired:
<TABLE>
<S> <C>
Subscriber equipment to fair value $ 5,933,298
BP subscriber equipment previously classified in inventory 4,205,887
-------------
$10,139,185
=============
</TABLE>
(e) Adjustment to reflect the following:
<TABLE>
<S> <C>
Accrual of acquisition related closing costs $ 3,887,000
Accrual of direct acquisition costs 150,000
-------------
$ 4,037,000
=============
</TABLE>
(f) Adjustment to reflect the acquisition loan of $48,490,000 that was used
to pay in part the purchase price.
(g) The pro forma adjustment reflects the elimination of the BP capital
accounts and the issuance of 316,000 Common Shares in a private
placement for aggregate net proceeds of $15,010,000, all of which was
used to pay in part the purchase price.
- 14 -
17
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Pro Forma
DTN BP Adjustments Pro Forma
-------------- -------------- ---------------- ---------------
REVENUES
<S> <C> <C> <C> <C>
Subscriptions............................ $ 42,126,332 $ 17,760,483 $ - $ 63,886,815
Additional services...................... 3,917,631 1,016,237 - 4,933,868
Communication services................... 6,864,275 - - 6,864,275
Advertising.............................. 2,022,440 1,377,343 - 3,399,783
Service initiation fees.................. 3,357,311 1,576,835 - 4,934,146
-------------- -------------- ---------------- ---------------
62,287,989 21,730,898 - 84,018,887
EXPENSES
Selling, general & administration........ 33,827,282 11,572,643 (3,712,000) a 41,687,925
Sales Commissions........................ 5,306,305 1,149,471 (232,000) b 6,223,776
Depreciation & Amortization.............. 18,811,150 7,631,395 4,427,000 c 30,869,545
-------------- -------------- ---------------- ---------------
57,944,737 20,353,509 483,000 78,781,246
-------------- -------------- ---------------- ---------------
OPERATING INCOME........................... 4,343,252 1,377,389 (483,000) 5,237,641
Interest expense......................... 4,798,112 1,270,737 3,941,000 d 10,009,849
Other income, net........................ 57,784 38,776 - 96,560
-------------- -------------- ---------------- ---------------
INCOME (LOSS) BEFORE INCOME
TAXES..................................... (397,076) 145,428 (4,424,000) (4,675,648)
Income tax benefit....................... (114,000) - (1,569,000) e (1,683,000)
-------------- -------------- ---------------- ---------------
NET INCOME (LOSS).......................... $ (283,076) $ 145,428 $ (2,855,000) $ (2,992,648)
============== =============== ================ ===============
EARNINGS (LOSS) PER SHARE.................. $ (0.09) $ (0.83)
============== ===============
Weighted Average Number of Shares
Outstanding............................... 3,302,864 316,000 f 3,618,864
============== ================ ===============
<FN>
See accompanying notes to Pro Forma Statement of Operations.
</FN>
</TABLE>
- 15 -
18
<PAGE>
Notes to Pro Forma Combined Statement of Operations
For the Year Ended December 31, 1995
(a) The pro forma combined statement of operations reflects efficiencies
anticipated due to the integration of similar operations and are based
on certain assumptions and estimates which management believes are
reasonable under the circumstances. Expense reductions include:
- Salaries, incentive compensation and related payroll tax and
benefits of $1,981,000 based on BP employees not hired as well
as the related travel costs of $350,000.
- Selling and marketing costs by $286,000 for expenses such as:
1) duplicate show attendance 2) ad agency services not
utilized by Company and 3) printed materials used for
attracting the same customer.
- Quotes, news and information costs by $42,000 incurred by
duplicated sources.
- General office telephone, supplies and professional fees by
$433,000 to reflect the elimination of duplicate costs.
- Adjustment to costs of $620,000 related to unfavorable BP
operating expenses as a result of the acquisition, such as: 1)
lease agreements and 2) other contractual obligations.
(b) Commission expense reduction of $232,000 to reflect the recognition of
commission expense under the same policy utilized by the Company.
(c) Increase depreciation and amortization due to goodwill and the fair
value increase to equipment as a result of the acquisition. Goodwill is
being amortized over eight years and equipment is being amortized over
five years.
(d) Increase in interest expense due to addition of $48,490,000 in
long-term debt and amortization of debt issue costs as a result of the
acquisition.
(e) Increase income tax benefit due to net loss created from pro forma
adjustments stated above, calculated at the current provision rate of
36%.
(f) Increase in weighted average number of shares outstanding due to new
shares issued in a private placement in connection with the
acquisition.
- 16 -
19
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
For The Three Months Ended March 31, 1996
Pro Forma
DTN BP Adjustments Pro Forma
----------- ------------ ------------- ------------
REVENUES
<S> <C> <C> <C> <C>
Subscriptions............................ $ 14,084,778 $ 4,896,343 $ - $ 18,981,121
Additional services...................... 1,140,724 287,818 - 1,428,542
Communication services................... 1,999,112 - - 1,999,112
Advertising.............................. 668,967 520,331 - 1,189,298
Service initiation fees.................. 1,219,436 446,515 - 1,665,951
----------- ------------ ------------- ------------
19,113,017 6,151,007 - 25,264,024
EXPENSES
Selling, general & administration........ 10,702,963 2,936,173 (948,000) a 12,691,136
Sales Commissions........................ 1,907,571 222,877 30,000 b 2,160,448
Depreciation & Amortization.............. 5,745,528 2,190,606 824,000 c 8,760,134
----------- ------------ ------------- ------------
18,356,062 5,349,656 (94,000) 23,611,718
----------- ------------ ------------- ------------
OPERATING INCOME 756,955 801,351 94,000 1,652,306
Interest expense......................... 1,345,245 448,498 905,000 d 2,698,743
Other income, net........................ 30,299 7,046 - 37,345
----------- ------------ ------------- ------------
INCOME (LOSS) BEFORE INCOME
TAXES..................................... (557,991) 359,899 (811,000) (1,009,092)
Income tax benefit....................... (201,000) - (162,000) e (363,000)
----------- ------------ ------------- ------------
NET INCOME (LOSS).......................... $ (356,991) $ 359,899 $ (649,000) $ (646,092)
=========== ============ ============= ============
EARNINGS (LOSS) PER SHARE.................. $ (0.11) $ (0.18)
=========== ============
Weighted Average Number of Shares
Outstanding............................... 3,323,615 316,000 f 3,639,615
=========== ============= ============
<FN>
See accompanying notes to Pro Forma Combined Statement of Operations.
</FN>
</TABLE>
- 17 -
20
<PAGE>
Notes to Pro Forma Combined Statement of Operations
For the Three Months Ended March 31, 1996
(a) The pro forma combined statement of operations reflects efficiencies
anticipated due to the integration of similar operations and are based
on certain assumptions and estimates which management believes are
reasonable under the circumstances. Expense reductions include:
- Salaries, incentive compensation and related payroll tax and
benefits of $469,000 based on BP employees not hired as well
as the related travel costs of $127,000.
- Selling and marketing costs by $71,000 for expenses such as:
1) duplicate show attendance 2) ad agency services not
utilized by Company and 3) printed materials used for
attracting the same customer.
- Quotes, news and information costs by $11,000 incurred by
duplicated sources.
- General office telephone, supplies and professional fees by
$115,000 to reflect the elimination of duplicate costs.
- Adjustment to costs of $155,000 related to unfavorable BP
operating expenses as a result of the acquisition, such as: 1)
lease agreements and 2) other contractual obligations.
(b) Commission expense addition of $30,000 to reflect the recognition of
commission expense under the same policy utilized by the Company.
(c) Increase depreciation and amortization due to goodwill and the fair
value increase to equipment as a result of the acquisition. Goodwill is
being amortized over eight years and equipment is being amortized over
five years.
(d) Increase in interest expense due to addition of $48,490,000 in
long-term debt and amortization of debt issue costs as a result of the
acquisition.
(e) Increase income tax benefit due to net loss created from pro forma
adjustments stated above, calculated at the current provision rate of
36%.
(f) Increase in weighted average number of shares outstanding due to new
shares issued in a private placement in connection with the
acquisition.
- 18 -
21
<PAGE>
BUSINESS
General
DTN delivers a broad range of news and information services targeted at
niche markets in the United States and Canada. The Company is a leader in the
electronic satellite delivery of their information and communication services to
those niche markets. The Company's subscribers are businesses and individuals
that rely upon timely information at an affordable cost to manage their business
operations. DTN's business strategy of emphasizing customer service to build
subscriber loyalty has led to a consistently high subscriber retention rate (91%
for the year ended December 31, 1995).
DTN's information comes from various news wires, public information and
information purchased from third party sources, some of which are under contract
with the Company on an exclusive basis. The Company maintains in-house news
staff to edit certain information before it is transmitted to subscribers. The
news and information is delivered to subscribers primarily via Ku-Band satellite
(small dish) transmission. Other delivery methods include FM radio side band
channels, TV cable, FAX, E-Mail and the Internet. DTN provides each subscriber
with a receiver specifically built for the Company, as well as a monitor and
antenna.
The Company's revenue is derived primarily from five categories: (1)
monthly, quarterly or annual subscriptions, (2) optional service subscriptions,
(3) communication services, (4) advertising and (5) service initiation fees.
The percentage of total revenue for each category over the last three
fiscal years was:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Subscriptions 72% 73% 74%
Optional Service 7% 8% 6%
Communication Service 9% 10% 11%
Advertising 5% 4% 3%
Service Initiation Fees 7% 5% 6%
</TABLE>
DTN subscribers are charged monthly subscription rates of between
$27.00 and $160.00, depending on the service and delivery technology utilized.
Optional services are offered to subscribers on an "a la carte basis",
similar to premium channels on cable TV. The information for these services is
primarily provided by a third party with DTN receiving a share of the
subscription revenue paid by the subscriber. Optional services revenue continues
to grow but has decreased as a percentage of total revenue primarily due to the
growth in subscription revenue.
- 19 -
22
<PAGE>
In addition to subscription fees described above, the Company sells
communication services to companies that allows them to cost-effectively
communicate a large amount of time-sensitive information to DTN subscribers.
This category includes revenue generated from FAX and E-Mail services.
The Company sells advertising space interspersed among the pages of
news and information, similar to a newspaper or magazine. The advantage of an
electronic advertisement over typical print media is the time-sensitive delivery
of the ad, as well as the ability to change the advertising message quickly and
as frequently as market conditions dictate. Advertising revenue continues to
grow but has decreased as a percentage of total revenue primarily due to the
growth in subscriptions revenue.
Service initiation fees are one-time charges to new subscribers which
vary in amount depending on the service and the information distribution
technology. DTN also charges an initiation fee for those subscribers who convert
to another service (ie: from a monochrome FM to a Ku color service).
DTN currently has over 140,000 subscribers to its services, and is
continuing to develop and add new services targeting additional markets. The
Company also continues to invest in the enhancement and development of its
delivery technology, in order to take advantage of the engineering and software
advancements in the electronic delivery of information and communications
services.
The table below sets forth a summary of the industries and niche
markets the Company currently serves and the number of subscribers and revenues
from each of such industries.
<TABLE>
<CAPTION>
Subscribers (Thousands) Revenues (Millions)
------------------------------ -------------------------------
Industry Niche Market Served 1993 1994 1995 1993 1994 1995
-------- ------------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Agribusiness - Production Agriculture 61.7 67.1 77.4 $27.0 $33.7 $45.0
- Ag Commodity
Wholesaler/Broker and
Trader
- Ag Equipment Dealers
- Weather Impacted Business
Financial o Financial Planners, 7.7 8.8 9.6 4.1 5.1 6.1
Services Brokers and Individual
Investors
Energy o Refiners and Wholesalers 5.8 6.7 7.1 4.9 7.2 9.9
Services of Petroleum Products
Other o Automobile Dealers
o Truck and Load Matchers
o Miscellaneous - .5 2.8 .1 .1 1.2
----- ---- ---- ---- --- ---
TOTAL 75.2(1) 83.1(1) 96.9(1) $36.1 $46.1 $62.2
==== ==== ==== ==== ==== ====
<FN>
- ------------------
(1) These figures count subscribers receiving multiple services for each
primary service received as reported consistently with prior filings
with the Securities and Exchange Commission.
</FN>
</TABLE>
- 20 -
23
<PAGE>
BUSINESS STRATEGY
The Company has demonstrated an ability to execute its strategy of
identifying and creating services for niche markets. The recent introduction of
DTN Weather Center is an example of identifying a new industry and creating an
information service to fill a need for time-sensitive information. Through
extensive research, the Company identified the need for "Real-time" weather at
an affordable cost. Initial marketing efforts have indicated promising results
from a number of weather-impacted businesses, including construction, aviation,
golf/turf managers, emergency management agencies, departments of transportation
and government agencies of all sizes.
In 1995 the Company acquired 2,900 real-time commodity customers from
Knight-Ridder Financial, Inc. and approximately doubled the number of customers
to their Real-Time Commodity product, now called DTNstant(R)/Knight-Ridder. The
companies' strong commitment to outstanding customer service and desire to
expand the real-time product were the catalyst to this acquisition.
The Company believes DTNergy(R) is the business model to emulate as it
executes its growth strategy. After identifying the opportunity to serve the
petroleum industry, the Company developed an affordable and efficient product to
satisfy the need for time-sensitive information. While initially only
transmitting price information from petroleum refiners to their jobbers and
wholesales, DTN's customer service expanded the information content to include
invoicing, electronic funds transfer notification and other information critical
to the energy business. Refineries have come to rely upon DTNergy(R) as a highly
efficient, cost-effective and customer service oriented product.
The Acquisition will increase DTN's agricultural-related subscribers to
over 114,000. DTN believes that this will create a subscriber base (much like
DTNergy(R)) which will attract business from companies which desire to market
their products and services to those subscribers. The Acquisition demonstrates
the Company's execution of its growth strategy of expanding and servicing
existing markets.
INDUSTRIES, SERVICES AND MARKETS
Agribusiness Industry
The DTN services targeted at the agribusiness industry accounted for
80% of the subscribers and 72% of the revenue of the Company for 1995. The table
below sets forth information regarding the DTN services targeted to agribusiness
markets.
- 21 -
24
<PAGE>
<TABLE>
<CAPTION>
1995 1995
Market Subscribers Revenue
Entry Service Description Market (thousands) (millions)
- ----- -------------- ----------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1984 DTN AgDaily(R) Agricultural Farmers, 67.6 $35.7
market information Livestock
delayed Commodity Producers, Grain
quotes, weather Elevators, other
and crop analysis Agribusinesses.
1994 DTN Pro-SeriesSM Advanced weather, Same as AgDaily (1) (1)
charts, Intraday
analysis, and
equity information
1993 DTNstant(R) Real-time version Large Ag 5.4 6.5
Knight-Ridder of DTN AgDaily Producers, Grain
with expanded news Elevators,
Commodity Brokers
1993 DTN IronSM Equipment locator Agricultural .8 .8
and inventory Equipment Dealers
management for farm
implement dealers
1994 DTN ProduceSM Weather, prices, Growers, shippers, 1.4 1.0
transportation and news packers, brokers,
for produce businesses retailers, institutions
1995 DTN Weather CenterSM Advanced weather Golf courses, 2.2 1.0
information service construction,
emergency manage-
ment, aviation,
public works, etc.
----- -----
TOTAL $77.0 $45.0
===== =====
<FN>
- ------------------------
(1) Included in DTN AgDaily.
</FN>
</TABLE>
DTN AG DAILY SERVICE
The Company's first service, DTN AgDaily, remains its largest service.
All Agribusiness Industry subscriptions are primarily sold by DTN's
employee sales force of district sales representatives as well as by
independent, commission-only sales representatives. The Company obtains leads
for the employee sales force through telemarketing, direct mail, print media
advertising, and customer referrals. The price of the monochrome FM service is
$27.00 per month, $33.00 per month for monochrome Ku service, and $50.00 per
month for color Ku service.
The biggest competitors to this service are considered by DTN to be the
combination of printed advisory services, radio, television, telephone, other
satellite information services, on-line services, and the changing of old
information gathering habits.
- 22 -
25
<PAGE>
The addition of approximately 39,000 subscribers from the Acquisition
(in addition to DTN's existing subscription base of 67,200) enhances the
marketability of communication services and advertising, and provides an
attractive communication path for companies marketing products and information
to "America's best" agricultural producers.
The combined subscribers of DTN and BP produce a significant percentage
of total U.S. agricultural production. The table below sets forth approximations
of the total acres of certain crops farmed in the United States by the combined
subscribers, the total head of certain livestock fed in the United States by the
combined subscribers, and the corresponding percentages of total United States
production.
Total Acres % of Total
Farmed by United States
Crop Subscribers (1) Acres(2)
------------------------------ --------------- -------------
Corn.......................... 34,721,000 50%
Soybeans...................... 27,488,000 45%
Sorghum....................... 4,180.000 38%
Wheat......................... 20,767,000 32%
Total Head Fed % of Total
Livestock by Subscriber(1) U.S. Livestock Fed(2)
------------------------------ ---------------- ---------------------
Hogs.......................... 47,326,000 68%
Cattle........................ 25,902,000 57%
(1) With respect to DTN subscribers, these figures were derived from
questionnaires completed by the subscribers upon becoming initial
subscribers of DTN or upon updated questionnaires should the
subscribers convert to other DTN services. With respect to BP
subscribers, these figures were derived from surveys conducted by a
group of agricultural businesses consisting of Pioneer Hi-Breds
International, Case International, Farm
Progress, Purina and American Cyanamid.
(2) These percentages are determined based upon comparisons of the DTN and
BP subscriber data with data published by the U.S. Department of
Agriculture in 1995.
DTN PRO SERIES SERVICES
The DTN Pro Series services are an advanced information sources
designed for agricultural subscribers who require more extensive information
that can be customized for their specific needs and operations. The DTN Pro
Series services consist of five separate services:
Weather Pro, News Pro, Chart Pro, Intraday Pro, and Stock Pro.
- 23 -
26
<PAGE>
Each individual DTN Pro Series service is bundled together with DTN
AgDaily. Each individual DTN Pro Series service is $62.00 per month except Stock
Pro which is $66.00 a month. The Company also offers DTN Premier which is a
package of Weather Pro, News Pro, Chart Pro and Intraday Pro, priced at $79.00
per month. DTN Premier Plus is a package of DTN Premier and Stock Pro, priced at
$82.00 a month. The DTN Pro Service services are only available by color Ku-band
satellite transmission.
DTNSTANT/KNIGHT-RIDDER SERVICE
The July 1995 acquisition by DTN of 2,900 subscribers from
Knight-Ridder Commodity Center made the DTNstant/Knight-Ridder service a leader
in the satellite delivery of instant commodity information to agribusinesses.
This acquisition more than doubled DTN's instant commodity subscriber base with
revenue from such subscribers increasing 84% in 1995 compared to 1994.
DTNstant/Knight-Ridder operates in a very competitive market with numerous
national and regional providers of instant commodity quotes. This service is
available only by color Ku-band satellite transmission and is priced at $160.00
a month.
DTNIRON SERVICE
The DTNiron service provides detailed listing of farm implement
equipment for sale by dealers as well as equipment needed by the dealers.
Subscribers receive industry news, financial information, economic indicators,
and information from the DTN AgDaily color service. This service is only
available by color Ku-band satellite transmission and is priced at $98.00 a
month.
DTN PRODUCE SERVICE
The DTNPROduce service provides the produce industry with timely
weather, prices, transportation and news information.
The market for the service is the entire produce food chain of growers,
shippers, packers, brokers, retailers and institutional buyers. This service is
available only by color Ku-band satellite transmission and is priced at $88.00
per month.
DTN WEATHER CENTER SERVICE
The DTN Weather Center service was unveiled at the corporation's annual
meeting held in April 1995. This service can be sold to virtually any industry
where timely, accurate, accessible weather information would cause a decision to
be made concerning the deployment of resources. This service is available only
via color Ku-band satellite transmission and is priced at $68.00 per month.
DTN's 1995 marketing efforts have demonstrated promising acceptance of this
service by a variety of weather impacted businesses.
- 24 -
27
<PAGE>
Financial Services Industry
DTN's services targeted to the financial services industry accounted
for 10% of the subscribers and 10% of the revenues of the Company for 1995. The
table below sets forth a summary of the DTN services targeting the financial
services industry and the number of subscribers and revenues for such services.
<TABLE>
<CAPTION>
1995 1995
Subscribers Revenues
Entry Market Service Description Market (thousands) (millions)
- ----- --------------- ---------------- --------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1989 DTN Wall St.(R) Delated stock Financial Advisors, 9.3 $5.9
quotes, financial Independent Brokers,
and market news Individual Investors,
Financial Inst.
Other Services Mortgage Quotes Mortgage Industry .3 .2
U.S. Gov't Small Public and
Security Quotes Private Treasurers
--- ----
TOTAL 9.6 $6.1
=== ====
</TABLE>
The strength of the Company's Wall Street service is that the service
provides a comprehensive in-depth array of information at an affordable cost.
The service is designed for the subscriber who desires a continuous feed of
delayed quotes and information. The primary competitors of the DTN Wall Street
service are satellite, TV cable and dial-up quote services. New subscribers to
this service are obtained through direct response marketing, primarily print
media, television, advertising and telemarketing. This service is available by
Ku- band satellite and TV cable and is price at $41.95 per month.
Energy Industry
DTN's service targeted to the petroleum industry accounted for 7% of
the subscribers and 16% of the revenues of the Company for 1995. The table below
sets forth a summary of the DTNergy service and the number of subscribers and
revenues for such service.
<TABLE>
<CAPTION>
1995 1995
Market Subscribers Revenues
Entry Service Description Market (thousands) (millions)
- ----- --------------- ---------------- --------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1991 DTNergy(R) Delayed energy Petroleum, Whole- 7.1 $9.9
futures & options Salers, Refiners === ===
quotes, news and
weather.
</TABLE>
- 25 -
28
<PAGE>
DTNERGY SERVICE
DTNergy(R) is designed to connect refiners (producers of refined fuels)
to wholesalers (distributor of refined fuels). This service has become the
communications tool most widely used by the petroleum industry. The strength of
the DTNergy(R) service is the ability to deliver, within seconds, accurate
refiner terminal prices and other vital communications to the wholesalers.
DTNergy(R) generates revenue from two primary sources, the wholesaler
and the refiner. The wholesaler pays a monthly subscription fee of $36.00 for
the monochrome Ku-band satellite service. The refiner pays fees based upon the
number and length of communications sent to wholesalers. The service is only
available by color Ku-band satellite.
OTHER INDUSTRIES AND SERVICES
The Company is always looking for new services and ventures to provide
growth for the future. DTN's additional services include a service for the
automobile industry and two joint ventures. The joint ventures serve the
electrical equipment and freight and load matching markets. This group of
services account for 3% of the subscribers and 2% of the revenue of the Company
for 1995.
SUBSCRIBER RETENTION
The Company's subscriber retention rate is one of the key elements of
its success. The Company's overall subscriber retention rate was 91% for the
year ended December 31, 1995. This rate is significantly higher than cable TV,
magazines and other comparable industries. This retention rate is the result of
the Company's commitment to customer service and its ability to continually
"tweak" the product information content to fulfill subscriber demands. Listening
to subscribers is a full-time vocation at DTN.
INFORMATION DISTRIBUTION TECHNOLOGY
The Company currently utilizes predominantly Ku satellite delivery
technology for its services. Ku satellite is one of the most efficient and
economical ways to deliver information from a point to multiple points. It is a
major factor in achieving the Company's daily communication cost per subscriber
of approximately 6(cent). The Company continues to explore new and different
technologies and will utilize those technologies which meet the customers
demands at an affordable cost.
The first delivery technology used by the Company was FM radio
side-band channels. The Ku satellite technology was added in 1989, providing the
ability to reach customers outside the geographic territories of the signals of
the FM stations. FAX, TV cable (VBI), E-Mail and the Internet have since been
added to further expand our distribution network.
- 26 -
29
<PAGE>
The Company provides all of the equipment necessary for subscribers to
receive their service. This equipment includes a receiver, specifically built
for the Company, a video monitor, a small 30" Ku-band satellite dish (or an FM
antenna). A keyboard, mouse and printer may be provided depending on the
service. DTN is responsible for the normal maintenance and repair of the
subscriber equipment.
Prior to 1992, the Company utilized a monochrome system. The monochrome
system translates the Company's data stream into text and has the capability,
depending on capacity, to receive and display from 126 to 246 different pages of
information. The monochrome receiver has the capability to download information
to a printer or computer.
In 1992, the Company introduced the Advanced Communications EngineSM
(ACE) receiver, a color graphics receiver system, that expanded the ability to
provide information and communication services. This receiver has multiple
processors that capture, manipulate and display high resolution color pictures,
graphics, and text. A separate processor provides the ability to play audio
clips such as weather forecasts, voice advertisements or audio alarms used when
a futures contract reaches a pre-set price. In addition, this processor may send
and retrieve information by using an internal modem. The receiver has the
ability to download information to a printer or computer. This receiver is
equipped with an internal hard drive that allows processed information to be
stored, archived (versus frequent rebroadcasting) and then displayed using the
receivers built-in control panel, a keyboard or a mouse at the subscribers
convenience.
One of the unique aspects of the Company's information distribution
technology is the computer software developed by the Company specifically for
use with the DTN receivers. This software manages information from a wide array
of input sources, runs routines, sets priorities and then initiates
transmissions to the satellite. The software provides the capability to
individually address each receiver unit placed with a subscriber, permitting the
Company to transmit specified information to a specific subscriber or
subscribers.
The Company leases satellite channels, FM radio side-band channels and
TV cable (VBI) to deliver the information to the Company's receivers used by its
subscribers. All information is up-linked from Omaha to satellite (except FAX
and other telephone delivery technology) and down-linked from the satellite to
the subscriber based on the distribution technology. The Ku subscribers utilize
a 30" satellite dish, a direct down-link, to receive their information. The FM
monochrome subscribers receive their information using an FM antenna that
receives the information via the side-band transmitted from the radio stations.
Early in 1994, the Company began using a new TV cable distribution
technology involving vertical blanking intervals (VBI). The Company has
contracted with a major cable TV superstation to transmit information along with
the station's TV signal. This technology eliminates the need for an FM antenna
or satellite dish and is available to businesses or residences that are wired
for cable TV and receive the superstation's service.
- 27 -
30
<PAGE>
The Company has approximately 8,000 DTNergy customers receiving
information using FAX technology. The E-Mail business is primarily a subscriber
(an E-Mail source) communicating specific messages to a group of subscribers.
Currently, there are over 200 E-Mail sources delivering over 1,000 pages of
information per day to subscribers. The Company began to deliver services on the
Internet in 1995 and plans to continue researching this information distribution
technology.
- 28 -
31
<PAGE>
MANAGEMENT
Set forth below is a summary of information regarding the Company's senior
management. Roger R. Brodersen, Robert S. Herman and Roger S. Wallace have been
with the Company since its inception.
ROGER R. BRODERSEN, 50, has served as Chairman of the Board and Chief Executive
Officer of the Company since 1984. Mr. Brodersen served as President of the
Company from 1984 to 1995.
GREG T. SLOMA, 44, was elected President of the Company in January 1996. He has
served as Chief Operating Officer of the Company since January 1994. Mr. Sloma
served as Executive Vice President of the Company from January 1994 to December
1995 and as Chief Financial Officer from April 1993 to December 1993. From 1983
to 1993, Mr. Sloma was a Tax Partner at Deloitte & Touche.
ROBERT S. HERMAN, 43, has served as Senior Vice President of the Company since
1989. He served as Vice President of the Company from 1984 to 1989.
ROGER S. WALLACE, 39, has served as Senior Vice President of the Company since
1989. He served as Vice President of the Company from 1984 to 1989.
JAMES J. MARQUISS, 51, was elected Senior Vice President of the Company in
January 1996. He served as Vice President in Charge of the DTN Agribusinesses
from 1989 to 1995.
CHARLES R. WOOD, 55, was elected Senior Vice President of the Company in January
1996. He served as Vice President in charge of the DTN Financial Services from
1989 to 1995.
BRIAN L. LARSON, 35, was elected Vice President of the Company in January 1996.
He has served as Chief Financial Officer, Secretary and Treasurer since January
1995. From December 1993 to December 1994, Mr. Larson served as
Controller-Accounting Operations for the Company.
- 29 -
32
<PAGE>
SELLING STOCKHOLDERS
The Selling Stockholders listed in the table below are the registered
holders of the Shares offered by this Prospectus who may sell the number of
Shares set forth opposite their respective names. The table sets forth
information as of June 4, 1996 and as adjusted to reflect the sale of Shares
offered by this Prospectus with respect to record ownership of the Shares by the
Selling Stockholders:
<TABLE>
<CAPTION>
Owned After Offering
Percent of Shares -----------------------------------
Shares Owned 3,658,867 Percent of Shares
Name of Record Outstanding Shares to be Sold No. of Shares Outstanding
------ ----------- ------------ ----------------- ------------- -----------------
<S> <C> <C> <C>
Acorn Investment Trust 250,000 6.8% 250,000 - -
on behalf of its
Series Acorn Fund
Wanger Advisors Trust 25,000 .7% 25,000 - -
on behalf of its
Series Wanger U.S.
Small Cap Advisor
State of Oregon 35,000 1.0% 35,000 - -
Yost Partnership 32,000 .9% 6,000 26,000 *
<FN>
- --------------------
* Less than one percent.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The Shares offered pursuant to this Prospectus will generally be sold
by the Selling Stockholders through securities broker-dealers in ordinary broker
transactions. The brokers will receive commission not in excess of the usual and
customary broker's commissions. The Company is not engaging an underwriter in
connection with the shelf registration or offering of these Shares.
DESCRIPTION OF COMMON STOCK
General
The Shares are registered pursuant to Section 12 of the Exchange Act.
The Company is currently authorized to issue 20,000,000 of the Shares. Holders
of the Shares do not have preemptive rights to purchase additional shares or
other subscription rights. The Shares carry no conversion rights and are not
subject to redemption or any sinking fund provisions. The Shares are entitled to
share equally in all dividends from sources legally available therefore, when,
as and if declared by the Board of Directors and upon liquidation or dissolution
of the Company, whether voluntary or involuntary, to share equally in the assets
of the Company available for distribution to shareholders. All of the Shares
outstanding are, and all of the Shares to be sold and issued as contemplated
hereby will be fully paid and non-assessable. Each holder of the Shares is
entitled to one vote per share on all matters on which such shareholder is
entitled to vote.
- 30 -
33
<PAGE>
Anti-takeover Effects of Provisions of Certificate of Incorporation and Delaware
Law
The Certificate of Incorporation of the Company requires the
affirmative vote of two-thirds of the voting stock of the Company to engage in
certain "business combinations", unless the transaction has been approved by
certain directors of the Company or other conditions have been satisfied. The
phase "business combination" is defined generally to include (i) mergers or
consolidations of the Company with an "interested stockholder", (ii) the sale,
lease, exchange, mortgage, pledge, transfer or other disposition to or with an
"interested stockholder" of assets of the Company having a fair market value of
Ten Million Dollars or more, (iii) the issuance or transfer by the Company of
its securities to an "interested stockholder" in exchange for consideration of
Ten Million Dollars or more, (iv) the adoption of any plan for the liquidation
or dissolution of the Company proposed by an "interested stockholder", and (v)
transactions which have the effect of increasing the proportionate share of any
equity securities of the Company beneficially owned by an "interested
stockholder". The phase "interested stockholder" is defined generally to mean a
stockholder who, together with affiliates and associates, is the beneficial
owner of (or, within two years prior to the transaction, was the beneficial
owner of), 10% or more of the Company's outstanding voting stock. These
provisions of the Certificate of Incorporation could discourage potential
acquisition proposals and could hinder or prevent a change in control of the
Company.
The Company is governed by the provisions of Section 203 of the General
Corporation Law of Delaware ("Section 203"). In general, Section 203 prohibits a
Delaware corporation whose stock is publicly traded or held of record by more
than 2,000 stockholders from engaging in certain "business combinations" with an
"interested stockholder" for a period of three years following the time that
such stockholder became an interested stockholder, unless either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder is approved in a prescribed manner. The phrase "business
combination" is defined in Section 203 generally to include mergers or
consolidations involving a Delaware corporation and an "interested stockholder",
transaction with an "interested stockholder" including the sale of assets or
stock of the corporation or its majority-owned subsidiaries and transactions
which increase an "interested stockholder's" percentage ownership of stock. The
phrase "interested stockholder" is defined in Section 203 generally to mean a
stockholder who, together with affiliates and associates, becomes the beneficial
owner of (or, within three years prior to the transaction, was the beneficial
owner of) 15% or more of the corporation's outstanding voting stock. Section 203
contains certain exceptions to its application. The anti-takeover provisions of
Section 203 may operate to deny stockholders the receipt of a premium for the
Shares.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Copies of reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
- 31 -
34
<PAGE>
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661; and Seven World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material also can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
The Shares are currently listed with the National Association of
Securities Dealers Automated Quotations National Market System (NASDAQ/NMS)
under the symbol DTLN. Reports, proxy statements and other information filed by
the Company with NASDAQ can be inspected and copied at the public reference
facilities maintained by NASDAQ at NASDAQ Reports Section, 1735 K Street, N.W.,
Washington, D.C. 20006-1506.
The Company has filed a registration statement on Form S-3 (together
with all amendments and exhibits filed or to be filed in connection therewith,
the "Registration Statement") under the Securities Act of 1933 (the "Securities
Act") with respect to the Shares offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Statements contained or incorporated by reference herein concerning
the provisions of documents are necessarily summaries of such documents, and
each statement is qualified in its entirety by reference to the copy of the
applicable document filed with the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents of the Company which have been filed with the
Commission are hereby incorporated by reference in this Prospectus:
(a) the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1995.
(b) the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1996.
(c) the description of the Company's Common Stock contained in the
Company's Registration Statement on Form 8-A, as amended, filed
with the Commission pursuant to Section 12 of the Exchange Act.
(d) the Company's Current Report on Form 8-K dated May 16, 1996.
All documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of the offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the respective dates
of filing such documents. Any statement contained herein or in a document all or
part of which is incorporated or deemed to be incorporated by reference
- 32 -
35
<PAGE>
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modified or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company will provide without charge to any person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any or all of the documents incorporated by reference (other than exhibits to
such documents which are not specifically incorporated by reference in such
documents). Requests for such copies should be directed to Secretary, Data
Transmission Network Corporation, 9110 West Dodge Road, Suite 200, Omaha,
Nebraska 68114, telephone number (402) 390-2328.
- 33 -
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Data Transmission Network Corporation
<S> <C>
Independent Auditors' Report................................................................................. F- 2
Balance Sheets -December 31, 1995 and 1994 (audited)
and March 31, 1996 (unaudited) .............................................................................. F- 3
Statements of Operations - Years Ended December 31, 1995, 1994 and 1993 (audited)
and for the Three Months Ended March 31, 1996 and 1995 (unaudited)........................................... F- 4
Statements of Stockholders' Equity - Years Ended December 31, 1995, 1994 and 1993
(audited) and for the Three Months Ended March 31, 1996 (unaudited).......................................... F- 5
Statements of Cash Flows - Years Ended December 31, 1995, 1994 and 1993
(audited)
and for the Three Months Ended March 31, 1996 and 1995 (unaudited)........................................... F- 6
Notes to Financial Statements................................................................................ F- 7
Broadcast Partners
Independent Auditors' Report................................................................................. F-16
Balance Sheets - August 31, 1995 and 1994 (audited) and March 31,1996 (unaudited) ........................... F-17
Statements of Operations -Fiscal Years ended August 31, 1995, 1994 and 1993 (audited)
and for the Seven Months Ended March 31, 1996 and 1995 (unaudited) .......................................... F-18
Statements of Partners' Equity -Fiscal Years ended August 31, 1995, 1994 and 1993
(audited) and for the Seven Months Ended March 31, 1996 (unaudited) ......................................... F-18
Statements of Cash Flows - Fiscal Years ended August 31, 1995, 1994 and 1993
(audited) and for the Seven Months Ended March 31, 1996 and 1995 (unaudited)................................. F-19
Notes to Financial Statements................................................................................ F-20
</TABLE>
F-1
37
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Data Transmission Network Corporation
We have audited the accompanying balance sheets of Data Transmission
Network Corporation as of December 31, 1995 and 1994, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of Data Transmission Network
Corporation as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
DELOITTE AND TOUCHE LLP
January 30, 1996
Omaha, Nebraska
F-2
38
<PAGE>
<TABLE>
<CAPTION>
DATA TRANSMISSION NETWORK CORPORATION
BALANCE SHEETS
ASSETS
December 31, March 31,
----------------------------------- -----------------
1995 1994 1996
--------------- --------------- -----------------
(Unaudited)
Current Assets:
<S> <C> <C> <C>
Cash................................................. $ 780,018 $ 720,343 $ 210,182
Accounts receivable, net of allowance for
doubtful accounts of $300,000, $220,000
and $300,000........................................ 6,476,576 3,297,773 6,077,342
Prepaid expenses..................................... 474,135 189,332 744,878
Deferred commission expense.......................... 2,076,262 629,925 2,505,037
-------------- -------------- ----------------
Total Current Assets............................. 9,806,991 4,837,373 9,537,439
Property and Equipment
Equipment Used By Subscribers........................ 130,266,792 105,160,010 140,622,425
Equipment and Leasehold Improvements................. 13,952,173 9,396,573 15,867,535
-------------- -------------- -----------------
144,218,965 114,556,583 156,489,960
Less: Accumulated Depreciation....................... 67,909,419 48,439,910 73,667,601
-------------- -------------- -----------------
76,309,546 66,116,673 82,822,359
Intangible Asset, net of accumulated
amortization of $258,850, $0 and $414,160........... 4,711,150 - 4,555,840
Other Assets......................................... 1,844,363 505,310 2,037,518
-------------- -------------- -----------------
$ 92,672,050 $ 71,459,356 $ 98,953,156
============= ============= ================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
<S> <C> <C> <C>
Accounts payable..................................... $ 9,385,812 $ 4,493,796 $ 10,296,274
Accrued expenses..................................... 1,856,659 1,117,206 2,120,870
Current portion of long-term debt.................... 9,036,458 9,463,541 8,010,416
----------- ------------ --------------
Total Current Liabilities........................ 20,278,929 15,074,543 20,427,560
Long-Term Debt........................................ 32,536,457 19,578,124 38,015,624
Subordinated Long-Term Notes, net
of unamortized discount of
$515,930, $595,310 and $496,085...................... 14,484,070 14,404,690 14,503,915
Equipment Deposits.................................... 541,720 542,102 529,318
Unearned Revenue...................................... 11,953,909 9,152,919 12,716,530
Stockholders' Equity:
Common stock, par value $.001, authorized
20,000,000 shares, issued 3,375,408................. 3,375 3,375 3,375
Paid-in capital...................................... 14,422,689 14,302,689 14,422,689
Retained earnings (deficit).......................... (497,687) (217,501) (814,229)
Treasury stock, at cost, 60,315,
83,723 and 46,092 shares........................... (1,051,412) (1,381,585) (851,626)
------------ ------------- --------------
Total Stockholders' Equity....................... 12,876,965 12,706,978 12,760,209
------------ ------------- --------------
$ 92,672,050 $ 71,459,356 $ 98,953,156
=========== ============ ==============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-3
39
<PAGE>
<TABLE>
<CAPTION>
DATA TRANSMISSION NETWORK CORPORATION
STATEMENTS OF OPERATIONS
Three Months Ended
Years Ended December 31, March 31,
--------------------------------------------- ---------------------------
1995 1994 1993 1996 1995
-------------- ------------- ------------- ------------- --------
(Unaudited)
REVENUES:
<S> <C> <C> <C> <C> <C>
Subscriptions................. $46,126,332 $33,936,160 $25,924,520 $14,084,778 $9,958,463
Additional services........... 3,917,631 3,526,295 2,484,675 1,140,724 916,040
Communication services........ 6,864,275 4,680,987 3,227,881 1,999,112 1,457,257
Advertising................... 2,022,440 1,738,830 1,673,075 668,967 611,992
Service initiation fees....... 3,357,311 2,227,517 2,682,603 1,219,436 673,458
------------ ------------ ----------- ------------ ----------
62,287,989 46,109,789 35,992,754 19,113,017 13,617,210
EXPENSES:
Selling, general and
administrative............... 33,827,282 26,715,251 20,602,329 10,702,963 7,562,538
Sales commissions............. 5,306,305 3,643,811 2,450,718 1,907,571 1,086,783
Depreciation and
amortization................. 18,811,150 15,056,167 10,530,839 5,745,528 4,365,465
------------ ----------- ---------- ------------ ----------
57,944,737 45,415,229 33,583,886 18,356,062 13,014,786
------------ ----------- ---------- ------------ ----------
OPERATING INCOME............... 4,343,252 694,560 2,408,868 756,955 602,424
Interest expense............. 4,798,112 3,158,106 1,421,299 1,345,245 1,044,781
Other income, net............ 57,784 40,808 33,262 30,299 15,385
------------ ----------- ---------- ------------ ----------
INCOME (LOSS) BEFORE
INCOME TAXES................... (397,076) (2,422,738) 1,020,831 (557,991) (426,972)
Income tax (benefit)
provision..................... (114,000) (820,000) 357,000 (201,000) (154,000)
------------- ------------- ----------- ------------ -----------
NET INCOME (LOSS).............. $ (283,076) $(1,602,738) $ 663,831 $ (356,991) $(272,972)
============ ============ =========== ============ ==========
EARNINGS (LOSS)
PER SHARE..................... $ (0.09) $ (0.49) $ 0.20 $ (0.11) $ (0.08)
============ ============== =========== ============ ==========
Weighted Average Number
of Shares Outstanding......... 3,302,864 3,253,400 3,286,850 3,323,615 3,292,440
============= ============= =========== ============ ==========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-4
40
<PAGE>
<TABLE>
<CAPTION>
DATA TRANSMISSION NETWORK CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
Retained Total
Common Paid-in Earnings Treasury Stockholders'
Stock Capital (Deficit) Stock Equity
--------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993...................... $ 3,375 $ 13,493,689 $ 855,635 $ (2,185,115) $ 12,167,584
Treasury stock issued on exercise of
employee stock options and warrants.......... - 12,195 - 147,621 159,816
Tax benefit related to exercise of
employee stock options and warrants.......... - 20,000 - - 20,000
Purchase of treasury stock.................... - - - (230,754) (230,754)
Net income.................................... - - 663,831 - 663,831
---------- ------------- ------------ ------------ ------------
Balance, December 31, 1993.................... 3,375 13,525,884 1,519,466 (2,268,248) 12,780,477
Treasury stock issued on exercise of
employee stock options and warrants.......... - (12,195) (134,229) 1,420,663 1,274,239
Tax benefit related to exercise of
employee stock options and warrants.......... - 154,000 - - 154,000
Purchase of treasury stock.................... - - - (534,000) (534,000)
Issuance of warrants in connection
with subordinated debt....................... - 635,000 - - 635,000
Net loss...................................... - - (1,602,738) - (1,602,738)
---------- ------------- ------------ ------------ ------------
Balance, December 31, 1994.................... 3,375 14,302,689 (217,501) (1,381,585) 12,706,978
Treasury stock issued on exercise of
employee stock options and warrants.......... - - 2,890 330,173 333,063
Tax benefit related to exercise of
employee stock options and warrants.......... - 120,000 - - 120,000
Net loss...................................... - - (283,076) - (283,076)
---------- ------------- ------------ ------------ ------------
Balance, December 31, 1995.................... 3,375 14,422,689 (497,687) (1,051,412) 12,876,965
Treasury stock issued on exercise of
employee stock options and warrants
(unaudited).................................. - - 40,449 199,786 240,235
Net loss (unaudited).......................... - - (356,991) - (356,991)
---------- ------------- ------------ ------------ ------------
Balance, March 31, 1996 (unaudited)........... $ 3,375 $ 14,422,689 $ (814,229) $ (851,626) $ 12,760,209
=========== ============= ============== ============ ============
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
F-5
41
<PAGE>
<TABLE>
<CAPTION>
DATA TRANSMISSION NETWORK CORPORATION
STATEMENTS OF CASH FLOWS
Three Months Ended
Years Ended December 31, March 31,
------------------------------------------------- ------------------------------
1995 1994 1993 1996 1995
------------ ------------ ------------ ----------- ----------
(Unaudited)
Cash Flows From Operating
Activities:
<S> <C> <C> <C> <C> <C>
Net income (loss)......................... $ (283,076) $(1,602,738) $ 663,831 $ (356,991) $ (272,972)
Adjustments to reconcile net
income (loss) to net cash provided by
operating activities:
Depreciation and amortization............ 18,811,150 15,056,167 10,530,839 5,745,528 4,365,465
Amortization of debt issue costs and
discount................................ 128,760 64,380 - 32,190 32,190
Deferred income taxes.................... (239,000) (802,000) 332,000 (205,500) (154,000)
Change in assets and liabilities:
Accounts receivable..................... (3,178,803) (1,003,263) (731,281) 399,234 (197,820)
Prepaid expenses........................ (284,803) (58,262) (311,418) (270,743) (72,440)
Deferred commission expense............. (1,446,337) (22,215) (119,593) (428,775) (101,481)
Deferred debt issuance costs............ - (395,000) - - -
Other assets............................ (1,029,433) - - - -
Accounts payable........................ 604,791 1,183,434 668,794 (167,473) (692,431)
Accrued expenses........................ 739,453 143,249 247,994 264,211 275,670
Equipment deposits...................... (382) (37,269) (60,618) (12,402) (9,684)
Unearned revenue ....................... 2,800,990 1,849,771 2,047,982 762,621 967,143
---------- ---------- ------------ ------------ ----------
Net Cash Provided By Operating
Activities.............................. 16,623,310 14,376,254 13,268,530 5,761,900 4,139,640
Cash Flows From Investing Activities:
Capital expenditures:
Equipment used by subscribers............. (23,746,086) (27,354,107) (24,175,363) (9,217,459) (2,837,756)
Equipment & leasehold improvements........ (3,914,442) (2,607,100) (2,040,607) (1,808,088) (660,682)
Acquisition of Subscribers................. (1,767,420) - - - -
------------ ------------ ------------ ----------- ----------
Net Cash Used By Investing
Activities............................... (29,427,948) (29,961,207) (26,215,970) (11,025,547) (3,498,438)
Cash Flow From Financing Activities:
Proceeds from long-term debt............... 21,250,000 20,250,000 16,000,000 6,750,000 1,500,000
Principal payments on long-term debt....... (8,718,750) (20,333,334) (3,052,083) (2,296,875) (2,375,000)
Proceeds from subordinated long-
term notes................................ - 15,000,000 - - -
Proceeds from the exercise of stock
options and warrants...................... 333,063 1,274,239 159,816 240,686 32,111
Purchase of treasury stock................. - (534,000) (230,754) - -
------------ ------------ ------------ ----------- ----------
Net Cash Provided By Financing
Activities............................. 12,864,313 15,656,905 12,876,979 4,693,811 (842,889)
------------ ------------ ------------ ----------- ----------
Net Increase (Decrease) in Cash............. 59,675 71,952 (70,461) (569,836) (201,687)
Cash at Beginning of Period................. 720,343 648,391 718,852 780,018 720,343
------------ ------------ ------------ ----------- ----------
Cash at End of Period....................... $ 780,018 $ 720,343 648,391 $ 210,182 $ 518,656
------------ ------------ ------------ ----------- ----------
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
42
<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION - The Company provides its subscribers with equipment to
receive information and communications services. DTN charges a recurring
subscription fee and in most instances a one-time service initiation fee. The
subscriptions are contracted for an initial period of one year and are generally
billed quarterly in advance. Accounts receivable consists primarily of these
advance billings. Payments received in advance for subscriptions, additional
services and advertising are deferred and recognized as the services are
provided to the subscribers. Service initiation fees in excess of the related
marketing and set-up costs, excluding sales commissions, are deferred and
recognized into income over the initial twelve-month subscription period. These
revenues no longer exceed the costs and therefore beginning in 1995 are not
being deferred. Communication services are generally billed monthly in arrears
based on the number and length of communications to subscribers.
DEFERRED COMMISSION EXPENSE - Commissions and bonuses which are paid at the
time of the initial subscription to sales representatives or to subscribers for
successful customer referrals, are deferred and expended over the initial
twelve-month subscription period.
EQUIPMENT USED BY SUBSCRIBERS - Equipment used by subscribers to receive the
Company's electronically transmitted information service is stated at cost less
accumulated depreciation. Depreciation is calculated using the straight-line
method over a useful life of three to eight years for assets placed in service
prior to July 1, 1992, and three to six years for assets placed in service
subsequent to July 1, 1992.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold improvements
are stated at cost less accumulated depreciation. Depreciation is calculated
using the straight-line method over the estimated useful lives of the assets,
which range from two to seven years, or the related lease, which range from five
to ten years.
INTANGIBLE ASSETS - Intangible assets for acquisition of subscribers are
stated at cost less accumulated amortization. These costs are amortized using
the straight-line method over eight years.
INCOME TAXES - Income taxes are computed in accordance with the provisions
of Statement of Financial Accounting Standard 109, "Accounting for Income Taxes"
(SFAS 109). The objective of the statement is to recognize the amount of taxes
payable or refundable in the current year and to recognize deferred tax
liabilities and assets for the future tax consequences of events that have been
recognized in the financial statements or tax returns.
F-7
43
<PAGE>
EARNINGS PER SHARE - Earnings per share is calculated on the basis of the
weighted average outstanding common shares and, when applicable, those
outstanding options and warrants that are dilutive.
STATEMENT OF CASH FLOWS - For purposes of the statement of cash flows, the
Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents. During the periods ended December
31, 1995, 1994 and 1993, the Company made interest payments of $4,386,000,
$3,165,000 and $1,493,000, respectively. During the periods ended March 31, 1996
and 1995, the Company made interest payments of $889,300 and $585,820,
respectively. Capital expenditures for subscriber equipment included in accounts
payable at year end totalled $2,191,000, $1,106,000 and $3,455,000 at December
31, 1995, 1994 and 1993, respectively. Capital expenditures for subscriber
equipment included in accounts payable at quarter end totalled $3,268,550 and
$1,353,504 at March 31, 1996 and 1995, respectively. The Company paid $1,146,000
of federal income taxes in 1995 relating to recoverable Alternative Minimum
Taxes (AMT) for prior periods which is included in other assets. The Company
paid no federal income taxes during 1994 or 1993. The Company paid no federal
income taxes during the first quarter ended March 31, 1996 and 1995,
respectively. At December 31, 1995, $3,202,580 of the purchase price for the
subscribers acquired was not yet paid and is included in accounts payable.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to
earnings as incurred and approximated $1,596,000, $1,493,000 and $899,000 for
the years ended December 31, 1995, 1994, and 1993.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
ACCOUNTING PRONOUNCEMENTS - In March 1995, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS)
121, "Accounting for the Impairment of Long Lived Assets." SFAS 121 required
that long lived assets and certain identifiable intangibles held and used by an
entity be reviewed for impairment. The Company will adopt SFAS 121 as required
in 1996 but does not expect any adjustments to the value of long lived assets.
In October 1995, FASB issued SFAS 123, "Accounting for Stock Based
Compensation." Beginning in 1996, SFAS 123 requires expanded disclosures of
stock-based compensation arrangements with employees and encourages, but does
not require, the recognition of employee compensation expense related to stock
compensation based on the fair value of the equity instrument granted. Companies
that do not adopt the fair value recognition provisions of SFAS 123 and continue
to follow the existing APB Opinion 25 rules to recognize and measure
compensation, will be required to disclose the pro forma amounts of net income
and earnings
F-8
44
<PAGE>
per share that would have been reported had the Company elected to follow the
fair value recognition of SFAS 123. Management has determined that the Company
will not adopt the fair value recognition provisions of SFAS 123 so the impact
of adopting this statement beginning in 1996 will only be the expanded
disclosure requirements.
INTERIM FINANCIAL INFORMATION - The unaudited interim financial statements
reflect all adjustments which are, in the opinion of management, necessary to
summarize fairly the financial position and results of operations for the
interim periods presented. All such adjustments are of a normal recurring
nature.
2. ACQUISITIONS
Effective July 26, 1995, the Company entered into an agreement with
Knight-Ridder Financial (KRF) to acquire 2,900 Knight-Ridder Commodity News
Service Subscribers. The Company will pay KRF approximately $4,970,000 over two
years, made up of $3,000,000 for the subscribers and $1,970,000 for future
revenue sharing. The $3,000,000 for the subscribers is to be paid one-half at
closing and the remaining one-half due one year from closing. The $1,970,000 for
future revenue sharing is based upon a Company estimate and is to be paid
quarterly.
Effective May 3, 1996, (the following figures are unaudited) the Company
closed on an "Asset Acquisition" of Broadcast Partners, an information provider
primarily in the agricultural industry. The Company will acquire substantially
all the assets of Broadcast Partners for $63.5 million and the assumption of
certain current liabilities estimated to be $9.5 million. Included in the
acquisition, the Company will receive 39,000 agricultural subscribers. The
acquisition was financed with a combination of approximately $15 million of
privately placed common stock equity and with six year term debt making up the
balance.
3. LONG-TERM DEBT AND LOAN AGREEMENTS
<TABLE>
<CAPTION>
December 31, March 31,
---------------------------------- -------------
1995 1994 1996
------------ ------------- ------------
(unaudited)
<S> <C> <C> <C>
Bank operating line agreement.................. $21,250,000 $ 2,250,000 $28,000,000
Term notes, due in monthly installments
through January 1999 at 6.75% to 9.25%......... 19,322,915 25,291,665 17,151,040
Stock repurchase term notes, due in quarterly
installments from January 1994 through
December 1997, 7.69% to 8.0%................... 1,000,000 1,500,000 875,000
------------ ------------ ----------------
41,572,915 29,041,665 46,026,040
Less current portion........................... 9,036,458 9,463,541 8,010,416
------------ ------------ ---------------
Total Long-Term Debt........................... $32,536,457 $19,578,124 $38,015,624
=========== =========== ===============
</TABLE>
F-9
45
<PAGE>
The Company has a senior loan agreement with a group of seven regional
banks (the "senior loan agreement"). The senior loan agreement, which expires
June 30, 1996 unless extended, provides for a total commitment of up to
$34,500,000 in new borrowings. As of December 31, 1995, $21,250,000 of the total
commitment had been borrowed, with the remaining $13,250,000 available to the
Company subject to certain restrictions as discussed below. As of March 31,
1996, $28,000,000 of the total commitment had been borrowed, with the remaining
$6,500,000 available to the Company subject to certain restrictions as discussed
below.
Additional borrowings under the senior loan agreement are available to
the Company, as long as at the time of the advance, no default exists under the
senior loan agreement or under the subordinated notes agreement (see Note 4),
and total debt outstanding (including term notes outstanding but excluding
long-term subordinated debt) does not exceed thirty-six times monthly operating
cash flow as defined. As of December 31, 1995 and March 31, 1996 based on
current operating cash flow, the Company would be able to borrow all of the
$13,250,000 and $6,500,000 remaining commitment available, respectively.
Substantially all of the Company's assets are pledged as collateral under
the senior loan agreement. In addition to the restrictions mentioned above with
respect to advances, total debt outstanding (excluding long-term subordinated
debt) is limited to forty-eight times monthly operating cash flow or three and
one-half times stockholders' equity (defined to include long-term subordinated
debt), whichever is less. Additionally, total debt outstanding (including
subordinated debt) is limited to sixty times monthly operating cash flow. The
Company is also required to maintain total stockholders' equity of at least
$11,000,000 through June 30, 1996 and, a ratio of quarterly operating cash flow
to interest expense (as defined) of at least 2.25 to 1. The Company is currently
restricted to paying no cash dividends.
Interest on the outstanding borrowings (prior to when the borrowings
might be converted to term loans, as discussed below) is at a variable rate,
depending on the ratio of the Company's total borrowings (excluding long-term
subordinated debt) to stockholders equity (including long-term subordinated
debt) (the "Ratio"). So long as the Ratio is below 2.0 to 1, interest is at
prime. When the Ratio is between 2.0 to 1 and 2.49 to 1, the interest rate is at
prime plus 1/4%. When the Ratio is between 2.50 to 1 and 2.99 to 1, the interest
rate is at prime plus 3/4%. When the Ratio is at or above 3.0 to 1, the interest
rate is at prime plus 1 1/4%. The prime rate is adjusted monthly, with the
interest rate adjustment (as defined above) changed quarterly. As of December
31, 1995 and March 31, 1996 the variable rate borrowings outstanding are
accruing interest at the prime rate of 8.75%.
The Company has the option to convert the outstanding borrowings to term
loans at any time, payable in forty-eight equal principal installments, plus
interest. Interest on the converted term loans is at a variable interest rate of
1/4% over the base rate (as determined in the preceding paragraph) or, at the
Company's option, may be at a fixed rate of 3/4% over the base rate, or, 2.50%
over the average of the 3 and 5 year U. S. treasury securities, whichever is
greater. As of December 31, 1995 and March 31, 1996, $21,250,000 and $28,000,000
of the
F-10
46
<PAGE>
total borrowings outstanding had not been converted to term loans. The remainder
of the borrowings were term loans with interest rates ranging from 6.75% to
9.25%.
The Company pays a commitment fee of 1/4% on the unused portion of the
total commitment. Additionally, once the Ratio (as described previously) reaches
2.50 to 1, the Company will be required to pay a closing fee of 1/2% on all new
borrowings made after that point in time.
During 1992, the Company entered into a loan agreement to be used solely
for the repurchase of the Company's outstanding common stock (the "Stock
Repurchase" line). The Company borrowed $2,000,000 of this Stock Repurchase
commitment during 1992.
For the first year after each Stock Repurchase advance, the Company pays
interest only. After the first year, each advance will be repaid in sixteen
equal quarterly principal payments plus interest. Interest will accrue for the
first three years of each advance at a fixed rate equal to the quoted Five-Year
Treasury Note Rate on the date of the advance, plus 2%. For the last two years
interest will accrue at either a floating rate of national prime plus 3/4% or a
fixed rate of the then current Five-Year Treasury Note Rate plus 2%. The Company
has the option of determining which rate will apply. The $2,000,000 borrowed
under this Stock Repurchase line, is accruing interest at 7.69% and 8.00%.
The minimum principal maturities of long-term debt, excluding bank
operating line agreement, are as follows: 1996 - $9,036,000; 1997 - $7,010,000;
1998 - $4,229,000; 1999 - $47,000.
4. SUBORDINATED LONG-TERM NOTES
On June 30, 1994, the Company sold to one investor $15,000,000 of its
11.25% subordinated long-term notes in a private placement transaction (the
"subordinated debt"). The subordinated debt is subordinated in right of payment
to all current and future senior debt. Interest on the subordinated debt is to
be paid quarterly, with principal due in five equal annual installments
beginning on June 30, 2000.
The Company has the option to prepay the subordinated debt on any date
after June 30, 1997 at a premium beginning at 7.5% of the principal prepaid, and
decreasing by 1.5% per year until June 30, 2002 when no premium is required.
There are provisions for mandatory prepayment upon a change in ownership control
(as defined), at a premium beginning at 12.0% of the principal prepaid during
the period ended June 30, 1995 and decreasing by 1.5% per year until June 30,
2002 when no premium is required.
The subordinated debt agreement contains a cross-acceleration clause,
whereby the subordinated debt will become immediately due and payable upon a
payment default on the senior debt outstanding Other subordinated debt financial
covenants and restrictions are generally less restrictive than those of the
senior loan agreement.
F-11
47
<PAGE>
The Company also issued a warrant to the investor to purchase 25,000
shares of the Company's $.001 par value common stock at $22.17 per share on or
before June 30, 2004. In connection with the issuance of the warrant to purchase
common stock, the Company recorded a $635,000 credit to additional paid in
capital and a related debt discount, which represents an estimate of the fair
value of the warrant issued. Expenses of the subordinated debt offering of
$395,000 have been capitalized as deferred debt issuance costs, and will be
amortized, along with the debt discount, over the life of the subordinated debt
using a level-yield method. The unamortized portion of the debt issue costs were
$321,000 and $370,000 for 1995 and 1994, respectively.
5. INCOME TAXES
Components of the income tax (benefit) provision are as follows:
1995 1994 1993
------ ------ -----
Current tax expense (benefit)..... $ 125,000 $ (18,000) $ 25,000
Deferred tax expense (benefit).... (239,000) (802,000) 332,000
----------- ------------- ------------
$ (114,000) $ (820,000) $ 357,000
=========== ============= ============
The income tax (benefit) provision differs from the (benefit) provision at
federal statutory rates for the following reasons:
1995 1994 1993
------ ------ -----
Tax expense (benefit) at
federal statutory rate........... $ (139,000) $ (824,000) $ 347,000
State taxes....................... 1,000 (24,000) 10,000
Other............................. 24,000 28,000 -
----------- ------------- ------------
$ (114,000) $ (820,000) $ 357,000
=========== ============= ============
The components of deferred tax liability (asset) are as follows:
1995 1994
------------- -------------
Depreciation.......................... $ 4,880,000 $ 2,958,000
Net operating loss carry forwards (5,383,000) (3,093,000)
Other................................. 9,000 -
------------- -------------
Net Deferred Asset.................... $ (494,000) $ (135,000)
============= =============
The Company had approximately $15,000,000 of unused net operating loss
(NOL) carry forwards at December 31, 1995. The NOL's will expire in the years
2002 to 2010. In addition, the Company is reflecting in the Other Assets
approximately $1,029,000 relating to pending IRS refund claims.
F-12
48
<PAGE>
6. CAPITAL STOCK
The Company's articles of incorporation provide for the authorization of
1,000,000 shares of $.50 par value per share preferred stock. The preferred
stock, none of which has been issued, presently has no voting rights or other
features, although the articles of incorporation contain provisions to adopt
various features or privileges at the discretion of the Board of Directors.
In September 1992, the Company's Board of Directors authorized the
repurchase of up to 350,000 shares of the Company's outstanding common stock.
The purchases are to be made from time to time in the open market or in arranged
transactions at such price or prices as Company officers may deem advisable. The
common stock repurchased may be used to provide shares for the Company's
existing stock options and warrants outstanding. During 1994, the Company
repurchased 24,000 shares of its common stock.
7. COMMON STOCK WARRANTS
In conjunction with a private placement offering of Subordinated
Long-Term Notes in 1988, the Company granted warrants to purchase 80,325 shares
of common stock at a price of $10.00 per share. These warrants were exercisable
through September 30, 1994. During 1992, 7,500 of these warrants were exercised.
During 1994, all of the remaining warrants granted were either exercised or
expired.
In conjunction with a private placement offering of subordinated
Long-Term Notes in June 1994, the Company granted warrants, to the single
investor, to purchase 25,000 shares of common stock at a price of $22.17 per
share. These warrants are exercisable through June 30, 2004.
8. STOCK OPTION PLANS
The Company has employee and director stock option plans with aggregate
limits of 700,000 shares for the employee plan and 70,000 shares for the
non-employee director plan. The exercise price of the stock options is equal to
the market value of the Company's common stock on the date of grant. The options
are exercisable for a period of up to ten years from the date of grant and vest
equally over a period of up to four years.
F-13
49
<PAGE>
The following table summarizes the stock options as of December 31, 1995,
1994 and 1993 and March 31, 1996:
Option Price
Shares Per Share
----------- ------------
Balance at Jan. 1, 1993 .................... 213,506 11.75-18.00
Granted .................................... 114,950 13.50-15.50
Exercised .................................. (11,818) 11.75-14.50
Cancelled .................................. (24,561) 11.75-18.00
-----------
Balance at Dec. 31, 1993 ................... 292,077 11.75-18.00
Granted .................................... 91,250 22.00-29.15
Exercised .................................. (43,142) 11.75-18.00
Cancelled .................................. (10,790) 12.00-26.50
-----------
Balance at Dec. 31, 1994 ................... 329,395 11.75-29.15
Granted .................................... 133,750 16.50-35.75
Exercised .................................. (23,408) 11.75-26.50
Cancelled .................................. (14,084) 12.00-26.50
-----------
Balance at Dec. 31, 1995 ................... 425,653 11.75-35.75
===========
Exercisable at Dec. 31, 1995 ............... 209,937 11.75-29.15
===========
At December 31, 1995, shares of the Company's authorized but unissued common
stock were reserved for issuance as follows:
Shares
-------
Employee stock option plan .................................... 217,936
Non-employee director stock option plan ....................... 47,001
-------
Total ......................................................... 264,937
=======
9. LEASES
The Company leases the right to subsidiary channel authorizations from FM
radio stations and satellite network transmission capacity to broadcast the
Company's information service to its subscribers. These leases are accounted for
as operating leases and are for varying periods of one to ten years and contain
annual renewal options for periods of up to five years.
The Company also has various operating leases for office space, warehouse
facilities and equipment. These leases expire on various dates through 2005 and
generally provide for renewal options at the end of the lease. The Company is
generally obligated to pay the cost of property taxes, insurance, utilities and
maintenance on the leases.
F-14
50
<PAGE>
Future minimum lease payments under all non-cancelable operating leases
at December 31, 1995 are as follows:
Year Ending December 31, Amount
----------
1996 ................................................. $2,664,000
1997 ................................................. 2,319,000
1998 ................................................. 2,026,000
1999 ................................................. 1,703,000
2000 ................................................. 1,507,000
2001 and after ....................................... 5,328,000
----------
Total future minimum lease payments $15,547,000
Total rent expense on all operating leases was $2,712,000, $2,369,000 and
$1,856,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
10. BENEFIT PLAN
The Company has a defined contribution plan under provisions of Internal
Revenue Code Section 401(k). All employees with at least one year of service may
participate in the plan. The Company matches the employee's contribution up to
4% of the employee's compensation, and may make additional discretionary
contributions. During 1995, 1994 and 1993, the Company contributed $482,000,
$344,000 and $236,000, respectively, to the plan as matching contributions.
F-15
51
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Broadcast Partners:
We have audited the accompanying balance sheets of Broadcast Partners
(a general partnership) as of August 31, 1995 and 1994 and the related
statements of operations, partners' equity, and cash flows for each of the years
in the three-year period ended August 31, 1995. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Broadcast Partners
(a general partnership) as of August 31, 1995 and 1994 and the results of its
operations and its cash flows for each of the years in the three-year period
ended August 31, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
October 6, 1995
Des Moines, Iowa
F-16
52
<PAGE>
<TABLE>
<CAPTION>
BROADCAST PARTNERS
BALANCE SHEETS
ASSETS (Note 4)
August 31, March 31,
---------------------------- ----------
1995 1994 1996
------ ------ ----------
(Unaudited)
Current assets:
<S> <C> <C> <C>
Cash...................................................... $ 99,163 $ 22,553 $ 111,287
Accounts receivable, less allowances for returns and
doubtful accounts of $220,000 in 1995 and
$205,000 in 1994 (note 3)............................... 3,836,325 3,099,781 3,454,747
Inventory................................................. 2,655,809 3,447,961 4,205,887
Prepaid expenses and other assets......................... 171,844 164,314 148,152
------------- -------------- ----------------
Total current assets.............................. 6,763,141 6,734,609 7,920,073
-------------- -------------- ----------------
Property and equipment:
Equipment in service...................................... 45,839,412 35,939,174 50,777,841
Furniture and equipment................................... 3,032,059 2,496,664 3,473,639
Leasehold improvements.................................... 115,720 111,042 271,434
-------------- -------------- ----------------
48,987,191 38,546,880 54,522,914
Less accumulated depreciation............................. 21,465,401 14,490,382 26,427,792
------------- ------------- ---------------
27,521,790 24,056,498 28,095,122
------------- ------------- ---------------
Intangible assets:
Subscriber lists.......................................... 616,221 635,421 586,108
Goodwill.................................................. 82,258 82,258 82,258
Other..................................................... 89,415 89,415 93,715
--------------- --------------- -----------------
787,894 807,094 762,081
Less accumulated amortization........................... 352,831 264,877 390,334
-------------- -------------- ----------------
435,063 542,217 371,747
-------------- -------------- ----------------
Total assets...................................... $ 34,719,994 $ 31,333,324 $ 36,386,942
============= ============= ===============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' EQUITY
Current liabilities:
<S> <C> <C> <C>
Current installments of long-term debt (note 4)........... $ 34,250 $ 45,500 $ 27,300
Trade accounts payable.................................... 2,417,612 2,085,334 1,749,817
Accrued bonus payable..................................... 500,000 300,000 200,865
Commissions payable....................................... 226,769 47,277 147,660
Other accrued expenses.................................... 821,921 682,322 1,391,868
Deferred revenue.......................................... 6,617,187 5,853,770 6,703,610
-------------- -------------- --------------
Total current liabilities......................... 10,617,739 9,014,203 10,221,120
Notes payable, including current installments (note 4) 13,507,400 11,952,600 15,612,500
Subordinated debt (note 5).................................. 6,500,000 6,500,000 6,500,000
Partners' equity............................................ 4,094,855 3,866,521 4,053,322
Commitments (note 7)........................................
-------------- -------------- --------------
Total liabilities and partners' equity............ $ 34,719,994 $ 31,333,324 $ 36,386,942
============= ============= ===============
</TABLE>
See accompanying notes to financial statements.
F-17
53
<PAGE>
<TABLE>
<CAPTION>
BROADCAST PARTNERS
STATEMENTS OF OPERATIONS
Seven months ended
Year ended August 31, March 31,
-------------------------------------- ----------------------
1995 1994 1993 1996 1995
------ ------ ------ ------ -----
(Unaudited)
Revenues (note 3):
<S> <C> <C> <C> <C> <C>
Subscription .......... $ 15,910,911 $ 11,043,778 $ 6,326,053 $ 11,098,204 $ 8,649,706
Transmission .......... 2,212,176 1,229,331 520,356 1,539,855 1,223,646
Initiation fees ....... 1,227,194 1,784,930 1,636,446 547,113 713,865
Other ................. 675,018 771,631 520,162 382,980 386,446
------------ ------------ ------------ ------------ ------------
Total revenues ..... 20,025,299 14,829,670 9,003,017 13,568,152 10,973,663
------------ ------------ ------------ ------------ ------------
Operating costs and
expenses (note 3):
Personnel and related
benefits ............. 4,791,166 4,146,385 2,974,062 3,114,728 2,537,194
Transmission and other
operating costs ...... 2,879,979 2,159,275 1,429,219 1,804,505 1,572,545
Depreciation and
amortization ......... 7,081,992 5,683,495 4,796,871 4,966,873 4,035,725
Selling, general, and
administrative ....... 3,993,332 4,094,228 2,743,517 2,690,952 2,376,686
------------ ------------ ------------ ------------ ------------
Total operating costs
and expenses ...... 18,746,469 16,083,383 11,943,669 12,577,058 10,522,150
------------ ------------ ------------ ------------ ------------
Operating income (loss) . 1,278,830 (1,253,713) (2,940,652) 991,094 451,513
Interest expenses ..... 1,050,496 617,524 385,376 1,032,627 594,486
------------ ------------ ------------ ------------ ------------
Net income (loss) ....... $ 228,334 $ (1,871,237) $ (3,326,028) $ (41,533) $ (142,973)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
BROADCAST PARTNERS
STATEMENT OF PARTNERS' EQUITY
Year ended August 31, March 31,
--------------------------------------------------- ------------
1995 1994 1993 1996
------------- -------------- ------------ ------------
(unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of
period.................... $ 3,866,521 $ 5,737,758 $ 6,063,786 $ 4,094,855
Issuance of partnership
equity, for cash.......... - - 3,000,000 -
Net income (loss)(note 2) 228,334 (1,871,237) (3,326,028) (41,533)
------------- -------------- ------------ ------------
Balance at end of period $ 4,094,855 $ 3,866,521 $ 5,737,758 $ 4,053,322
============= ============== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-18
54
<PAGE>
<TABLE>
<CAPTION>
BROADCAST PARTNERS
STATEMENT OF CASH FLOWS
Seven months ended
Year ended August 31, March 31,
--------------------------------------- ------------------------
1995 1994 1993 1996 1995
------ ------ ------ ------ -----
(Unaudited)
Cash from operating activities:
<S> <C> <C> <C> <C> <C>
Net income (loss)......................... $ 228,334 $ (1,871,237) $(3,326,028) $ (41,533) $ (142,973)
------------ ------------ ---------- ----------- ------------
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization........... 7,081,992 5,683,495 4,796,871 4,966,873 4,035,725
Gain on sale of assets.................. (3,112) - - - -
(Increase) decrease in accounts
receivable............................. (736,544) (160,773) (689,922) 381,578 (558,172)
Decrease (increase) in inventory........ 792,152 (2,525,113) 529,410 (1,550,078) 78,833
(Increase) decrease in prepaid
expenses and other assets.............. (7,530) 229,868 (284,647) 58,488 80,739
Increase (decrease) in trade
accounts payable....................... 332,278 (863,650) 1,879,457 (667,795) (579,378)
Increase (decrease) in bonuses
payable................................ 200,000 150,000 95,000 (299,135) (300,000)
Increase (decrease) in
commissions payable.................... 179,492 (32,928) 40,205 (79,109) (16,118)
Increase in bank overdraft.............. - - - - 132,292
Increase in other amortized
expenses............................... 139,599 345,157 147,024 569,947 726,934
Increase in deferred revenue............ 763,417 1,493,278 1,758,445 86,423 1,242,266
------------ ------------- ---------- ----------- ------------
Total adjustments..................... 8,741,744 4,319,334 8,271,843 3,467,192 4,843,121
------------ ------------- ---------- ----------- ------------
Net cash provided by operating
activities........................... 8,970,078 2,448,097 4,945,815 3,425,659 4,700,148
------------ ------------- ---------- ----------- ------------
Cash flows from investing activities:
Purchase of equipment..................... (10,452,406) (12,073,253) (9,832,505) (5,511,685) (5,721,101)
Proceeds from sale of assets.............. 11,095 - - - -
Purchase of intangible assets............. - - (55,300) - -
------------ ------------- ---------- ----------- ------------
Net cash used in investing activities..... (10,441,311) (12,073,253) (9,887,805) (5,511,685) (5,721,101)
------------ ------------- ---------- ----------- ------------
Cash flows from financing activities:
Capital contributions from partners....... - - 3,000,000 - -
Issuance of subordinated debt............. - 4,000,000 2,500,000 - -
Borrowings under line of credit........... 4,950,000 9,595,000 5,205,000 4,000,000 3,150,000
Payments on line of credit................ (3,350,000) (3,975,000) (5,300,000) (1,900,000) (2,100,000)
Payments on other notes payable........... (52,157) (104,399) (435,960) (1,850) (51,600)
------------ ------------- ---------- ----------- ------------
Net cash provided by financing
activities.............................. 1,547,843 9,515,601 4,969,004 2,098,150 998,400
------------ ------------- ---------- ----------- ------------
Net increase (decrease) in cash........... 76,610 (109,555) 27,014 12,124 (22,553)
Cash at beginning of year/period........... 22,553 132,108 105,094 99,163 22,553
------------ ------------- ---------- ----------- ------------
Cash at end of year/period................. $ 99,163 $ 22,553 $ 132,108 $ 111,287 $ -
============ ============== ========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for
interest................................ $ 1,050,456 $ 616,952 $ 396,219 $ 802,208 $ 594,486
============ ============= ========== =========== =============
</TABLE>
See accompanying notes to financial statements
F-19
55
<PAGE>
BROADCAST PARTNERS
NOTES TO FINANCIAL STATEMENTS
August 31, 1995, 1994, and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED
MATTERS
PARTNERSHIP OPERATIONS - Broadcast Partners (the Partnership) is a
general partnership and was formed on September 14, 1990 by Farmland Industries,
Inc.; Pioneer Hi-Bred International Communications Company, Inc.; and IAA
Communications Company (IAACC), pursuant to the provisions of the Delaware
Uniform Partnership Act. The Partnership was formed for the purpose of
developing and operating a broadcast information network system to deliver
various information services, including information services to persons
interested in agricultural production and marketing, and to market the services
and products of such network system.
The Partnership's records are maintained on the accrual basis of
accounting. In accordance with the generally accepted method of presenting
partnership financial statements, the financial statements do not include the
assets and liabilities of the partners. No provision for income taxes has been
made, as the liability for any such taxes is that of the partners rather than
the Partnership.
ACCOUNTS RECEIVABLE - An allowance for doubtful receivables is provided
based upon current economic circumstances which reflect the ability of customers
to meet their obligations. An allowance is also provided for sales returns based
upon management's estimate of the number of future returns. Such estimate is
based upon historical data and projections of future returns. Receivables are
reflected in the balance sheets, net of such allowances. The Partnership's
customers are billed annually or quarterly, are primarily located in the
Midwest, and are generally in agriculture or related businesses.
INVENTORY - Inventory is stated at the lower of cost (first in, first
out) or market and is composed of receivers, satellite dishes, monitors, and
other miscellaneous parts.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using straight-line methods
over the estimated useful lives of the assets, as follows: equipment in service,
5-6 years; furniture and equipment, 5-7 years; and leasehold improvements, 5
years (the term of the lease).
Repairs and maintenance are charged to expense as incurred, while major
renewals and betterments are capitalized. When assets are retired or otherwise
disposed of, the assets and related accumulated depreciation are eliminated from
the accounts, and any resulting gain or loss is reflected in income.
F-20
56
<PAGE>
INTANGIBLE ASSETS - The amortization periods for intangible assets are as
follows:
Years
Subscriber lists............................................. 5 to 10
Goodwill..................................................... 10 to 20
Other........................................................ 5 to 7
DEFERRED REVENUES - Deferred revenues represent subscription fees
received or billed in advance on subscription contracts. This revenue is being
amortized on a straight-line basis over the life of the subscription agreement,
which is generally a period of 12 months.
UNAUDITED INTERIM FINANCIAL INFORMATION - The unaudited interim financial
information as of March 31, 1996 and for the seven months ended March 31, 1996
and 1995, has been prepared on the same basis as the audited financial
statements. In the opinion of management, such unaudited information includes
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of this interim information. Operating results for the seven
months ended March 31, 1996 are not necessarily indicative of the results that
may be expected for the entire year ending August 31, 1996.
2. PARTNERSHIP AGREEMENT
The Partnership was formed on September 14, 1990. Each partner has made
capital contributions of $5,000,000 or a total of $15,000,000 as of August 31,
1995. In addition, each partner has invested $2,166,666 in the form of
subordinated debt (see note 5).
The Partnership agreement establishes a Partnership steering committee,
which is responsible for all matters relating to the management of the
Partnership, and contains provisions governing additional capital contributions,
capital distributions and limitations on the admittance of new partners or
withdrawal of present partners, and various other matters.
Pursuant to the terms of the Partnership agreement, profits and losses of
the Partnership from operations are to be shared among the partners in
proportion to their respective Partnership interest.
3. RELATED PARTY TRANSACTIONS
Accounts receivable include approximately $68,082 and $36,500 due from
the general partners for sales orders made through the general partner's sales
agents at August 31, 1995 and 1994, respectively.
During the years ended August 31, 1995, 1994, and 1993, the Partnership
made payments of approximately $376,000, $315,000, and $103,000, respectively,
to the general partners for various expenses. During 1995, 1994, and 1993, the
Company received net revenues of
F-21
57
<PAGE>
approximately $1,925,0000, $1,255,000 and $424,000 respectively, from the
general partners and their affiliates in the form of subscription fees,
initiation fees and other revenues.
4. NOTES PAYABLE
Long-term debt at August 31, 1995 and 1994 consists of notes payable as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Norwest Bank Iowa, N.A................................(A) $13,475,000 $11,875,000
Other ................................................... 66,650 123,100
----------- -----------
13,541,650 11,998,100
Less current installments ............................... 34,250 45,500
----------- -----------
Notes payable, excluding current installments ...... $13,507,400 $11,952,600
=========== ===========
</TABLE>
- ---------------------------
(A) At August 31, 1995, the Partnership had an available line of credit with
Norwest Bank Iowa, N.A. (the Bank) for a maximum of $20,000,000. The line
of credit is composed of a Fixed Rate Loan in the initial principal
amount of $10,000,000 and a Variable Rate Loan. The aggregate principal
of the Fixed Rate Loan and the Variable Rate Loan is limited to the
$20,000,000 maximum. The Variable Rate Loan bears interest at a rate
equal to the Bank's base interest rate and the Fixed Rate Loan bears
interest at a rate per annum equal to the Bank's base interest rate minus
one-half percent, adjusted annually in October. Both the Variable Rate
Loan and the Fixed Rate Loan mature in full on December 31, 1997.
Borrowings are secured by a first security interest in all personal
property of the Partnership.
5. SUBORDINATED DEBT
Promissory notes were issued to the general partners in equal amounts
totaling $6,500,000, or $2,166,666 to each general partner at August 31, 1995
and 1994. The notes are non-interest bearing until the first year after the
Partnership earns at least one dollar in net income. At that time, the notes
will bear interest at Libor Rate plus 1.75 percent (not to exceed 7 percent)
determined October 1 of each fiscal year. The Partnership did not record any
discount related to this note, due to the uncertainty as to the date that
interest payments would be required. Interest begins accruing on these notes
September 1, 1995 and is payable annual on October 1. The principal balance owed
to each general partner is due in annual installments of $166,667 commencing
October 1, 1998 until December 31, 2002, provided the Partnership meets certain
financial covenants. If covenants are not met, no payment shall be made that
year and the maturity date automatically extends until December 31, 2007, at
which time the note and all interest is due. During the extension period, annual
interest, as well as principal payments of $166,667 on each note must be paid.
The Partnership must make simultaneous payments to each of the three note
holders. The general partners may, under unanimous consent, agree that the
indebtedness under the notes shall be converted to equity.
F-22
58
<PAGE>
6. 401(K) PLAN
On February 1, 1991, the partnership established the Broadcast Partners
401(k) Plan. Under the terms of the plan, employees can contribute up to 15
percent of their salary to the plan, and contributions up to 6 percent are
matched 100 percent by the Partnership. Eligible employees are fully vested in
their contributions at all times and vest in the Partnership contributions at a
rate of 25 percent a year beginning after one year of service. Partnership
contributions to the plan amounted to $140,848, $127,845, and $94,286 for the
years ended August 31, 1995, 1994, and 1993, respectively.
7. COMMITMENTS
LEASE COMMITMENTs - The Partnership has entered into certain
noncancelable operating leases, with terms generally from two to six years, for
the use of office facilities, office equipment, and automobiles. At August 31,
1995, the Partnership is also obligated for a capital lease for computer
equipment. The computer equipment is included in furniture and equipment and the
associated liability of $118,689, is included in accounts payable on the
accompanying balance sheet. The following is a schedule of future minimum lease
payments under these leases:
Years ending August 31: Operating leases Capital lease
- -------------------------------------- ---------------- -------------
1996 ................................. $446,872 $ 63,237
1997 ................................. 394,300 63,237
1998 ................................. 346,782 5,270
1999 ................................. 31,540 -
2000 ................................. - -
Thereafter ........................... - -
Rental expense under operating leases was approximately $359,500, $387,000,
and $228,000 for the years ended August 31, 1995, 1994, and 1993, respectively.
OTHER COMMITMENTS - The Partnership has entered into contracts for services
related to its satellite transmissions. These commitments require monthly
payments of approximately $17,500 until October 1, 1994. After that date, the
payment is approximately $26,000 per month, increasing 3 percent each year until
termination on March 1, 2001.
8. SUBSEQUENT EVENTS (UNAUDITED)
On May 3, 1996, the Partnership sold all its assets subject to all
liabilities except notes payable and subordinated debt liabilities to Data
Transmission Network Corporation for cash of approximately $44.5 million, a
secured promissory note receivable of approximately $18.7 million and an
agreement not to compete of $.3 million.
F-23
59
<PAGE>
No person has been authorized to give any information or to make any
representation not contained in this Prospectus in connection with the offer
made by this Prospectus and, if given or made, such information or
representation should not be relied upon as having been authorized by the
Company. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy the securities offered hereby in any jurisdiction in which
such offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create an
implication that information contained herein is correct as of any time
subsequent to the date hereof.
--------------------
TABLE OF CONTENTS
Page
Prospectus Summary..................... 1
Risk Factors ........................8
Recent Developments.................... 10
Pro Forma Combined Financial Statements. 12
Business............................... 19
Management............................. 29
Selling Stockholders................... 30
Plan of Distribution................... 30
Description of Common Stock............ 30
Available Information.................. 31
Incorporation of Certain
Information by Reference............. 32
Index to Financial Statements.......... F-1
316,000 Shares
DATA TRANSMISSION
WORK
CORPORATION
Common Stock
---------------
PROSPECTUS
June 4, 1996
60
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Shares being registered. All amounts are estimates except the
SEC registration fee and Nasdaq listing fee.
Registration Fee -- Securities and Exchange Commission $ 7,001
Nasdaq Stock Market Listing Fee $ 6,320
Blue Sky Fees and Expenses $ 1,000
Printing Expenses $ -
Legal Fees and Expenses $ 5,000
Accounting Fees and Expenses $10,000
Transfer Agent Fees and Expenses $ 1,000
Miscellaneous $ 3,000
----------
Total $ 33,321
==========
ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Certificate of Incorporation of the Company, as permitted by the
laws of the State of Delaware, provides for the limitation of liability of
directors with respect to monetary damages for breach of fiduciary duty.
However, such certificate does not limit the liability of a director for
breaching his duty of loyalty to the Company or its shareholders, for acts or
omissions not in good faith, for engaging in intentional misconduct, under
Section 174 of the General Corporation Law of the State of Delaware pertaining
to unlawful payment of dividends or unlawful stock purchase or redemption, or
for any transaction from which the director derived an improper benefit.
Section 145 of the General Corporation Law of the State of Delaware permits
indemnification of directors, officers, employees and agents of corporations
under certain conditions and subject to certain limitations. The bylaws of the
Company provide that the officers and directors of the Company shall be
indemnified by the Company to the fullest extent permitted by the laws of
Delaware, as amended from time to time.
The Company presently maintains insurance to protect itself and its directors
and officers against certain liabilities, costs and expenses arising out of
claims or suits against such directors and officers resulting from their service
in such capacity.
II-1
61
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Page
Number Description Number
- ------ -------------------------------------------------------------- ------
<S> <C> <C>
2. Plan of acquisition
(This document is filed as an exhibit to the Registrant's
Current Report on Form 8-K dated May 16, 1996.)
4.(a) Specimen copy of stock certificate
(This document is filed as an exhibit to the Registrant's
Registration Statement on Form S-1 as filed November 4, 1988.)
(b) Certificate of Incorporation of Registrant
(c) By-Laws of Registrant
(These documents are filed as exhibits to the Registrant's
Registration Statement on Form S-1 as filed December 4, 1987.)
5. Opinion of counsel II-5
23.(a) Consent of Deloitte & Touche LLP II-6
(b) Consent of KPMG Peat Marwick LLP II-7
(c) Consent of Counsel (included in Exhibit 5.)
</TABLE>
ITEM 17. UNDERTAKINGS
The Company has entered into indemnification agreements with each of
its officers and directors which indemnity them from claims relating to events
and occurrences involving officers and directors of the Company.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any such action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-2
62
<PAGE>
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized in the City of Omaha and the State of Nebraska on June 4, 1996.
DATA TRANSMISSION NETWORK CORPORATION
By: /s/ Roger R. Brodersen
------------------------------
Roger R. Brodersen
Chief Executive Officer
63
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Roger R. Brodersen and Greg T. Sloma, and
each of them individually, his true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution, for him and in his name,
place, and stead, in any and all capacities (including, if applicable, his
capacity as a director and/or officer of Data Transmission Network Corporation),
to sign any and all amendments (including post-effective amendments) to this
Registration Statement and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them individually,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
II-3
64
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and Power of Attorney have been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------ ------------------------ ------------
/s/ Roger R. Brodersen Chairman of the Board, June 4, 1996
- ------------------------------ Chief Executive Officer
ROGER R. BRODERSEN and a Director
/s/ Greg T. Sloma Chief Operating Officer, June 4, 1996
- ------------------------------- President and a Director
GREG T. SLOMA
/s/ Roger W. Wallace Senior Vice President and June 4, 1996
- ------------------------------- a Director
ROGER W. WALLACE
/s/ Robert S. Herman Senior Vice President and June 4, 1996
- ------------------------------- a Director
ROBERT S. HERMAN
/s/ Brian L. Larson Vice President, Chief June 4, 1996
- ------------------------------- Financial Officer,
BRIAN L. LARSON Secretary and Treasurer
Director , 1996
- -------------------------------- ------
JAY E. RICKS
Director , 1996
- -------------------------------- ------
DAVID K. KARNES
Director , 1996
- -------------------------------- ------
J. MICHAEL PARKS
II-4
65
<PAGE>
Exhibit 5.
June 4, 1996
Data Transmission Network Corporation
9110 West Dodge Road, Suite 200
Omaha, NE 68114
Gentlemen:
We have examined the Registration Statement on Form S-3 (the
"Registration Statement") to be filed by Data Transmission Network Corporation
(the "Company") with the Securities and Exchange Commission in connection with
the shelf registration of 316,000 shares of the $.001 par value Common Stock of
the Company proposed to be sold by certain Selling Stockholders (the
"Outstanding Shares").
Based upon the foregoing, in our opinion the Outstanding Shares have
been legally issued and are fully paid and are non-assessable.
We hereby consent to the filing of this opinion with the Securities and
Exchange Commission as an exhibit to the Registration Statement.
Very truly yours,
ABRAHAMS, KASLOW & CASSMAN
By: /s/ R. Craig Fry
---------------------
II-5
66
<PAGE>
Exhibit 23.(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Data
Transmission Network Corporation on Form S-3 of our reports dated January 30,
1996, included and incorporated by reference in the Annual Report on Form 10-K
of Data Transmission Network Corporation for the year ended December 31, 1995
and to the use of our report dated January 30, 1996 appearing in the Prospectus,
which is part of this Registration Statement.
DELOITTE & TOUCHE LLP
June 4, 1996
Omaha, NE
67
<PAGE>
Exhibit 23.(b)
INDEPENDENT AUDITORS' CONSENT
The Partners
Broadcast Partners:
We consent to the use of our report included herein.
KPMG Peat Marwick LLP
June 4, 1996
Des Moines, Iowa
II-7
68
<PAGE>
