SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1996.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-15405.
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 of Incorporation) (I.R.S. Employer ID Number)
9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (402) 390-2328
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
The aggregate market value of voting stock (based upon the "bid" price as quoted
on NASDAQ) of the registrant held by non-affiliates on March 1, 1997 was
approximately $203,000.000.
At March 1, 1997, the registrant had outstanding 11,063,020 shares of its common
stock.
- Continued to Page 2 -
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DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 1996 are incorporated by reference into Parts I,
II, and IV.
2. Portions of the Registrant's definitive Proxy Statement filed for the
Registrant's Annual Meeting of Stockholders to be held April 23, 1997, are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS.
(a) General Development of Business:
Data Transmission Network Corporation (the "company", "DTN") was
incorporated on September 17, 1987 to change the name and state of incorporation
of its predecessor company, Dataline, Inc. from Nebraska to Delaware pursuant to
an Agreement and Plan of Merger dated October 8, 1987. The company was
originally incorporated in Nebraska on April 9, 1984, as Scoular Information
Services, Inc., a subsidiary of a regional grain company, later changing its
name to Dataline, Inc.
On December 19, 1985 and January 31, 1986, in related transactions,
certain employees of the company purchased all of the outstanding stock of the
company from the regional grain company.
In January, 1987, the company completed an initial public offering of
common stock selling 698,085 shares at $5.40 per share (pre-stock split).
(b) Financial Information About Industry Segments:
Not Applicable
(c) Narrative Description of Business:
Data Transmission Network Corporation (DTN) began operations in April
1984. The Company is in the business of providing information and communication
services. During 1996, DTN added several new services in the agriculture,
weather and financial service lines. All of these services are discussed in this
report. DTN services reach 145,900 subscribers throughout the U.S. and Canada.
The Company's subscription services are targeted at niche business
markets and designed to be timely (NEWS...NOT HISTORY), simple to use, and
convenient. The Company's information distribution technology provides an
efficient means of sending data and information from point to multi-point.
The development of a cost-effective electronic satellite delivery
system, plus a total commitment to customer service and information quality, has
enabled the Company to become a major player in the communications industry. The
Company continues to make large investments to develop and enhance its
information distribution technology. These investments have allowed the Company
to take advantage of many engineering and software advancements in an exciting
and growing industry.
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INFORMATION DISTRIBUTION TECHNOLOGY
The Company is committed to research and develop information
distribution technologies that cost effectively deliver the timely (NEWS...NOT
HISTORY) information that the Company's subscribers demand. DTN supports several
information distribution technologies allowing the distribution (transmission)
and receiving (capture, manipulation and display) of information. These
technologies include FM radio side-band channels (FM), small dish Ku-band
satellite (Ku), Fax, Cable TV (by using the vertical blanking interval, or VBI),
E-Mail and the Internet.
The first technology used by the Company was FM radio side band. The Ku
technology was added in 1989, providing the ability to reach customers outside
the geographic territory of the signal of the FM stations. Fax, VBI, E-Mail and
the Internet have since been added to further expand our distribution network.
The Company provides all of the equipment necessary for subscribers to
receive their service based on FM, Ku and VBI. This equipment includes a
receiver, specifically built for the Company, a video monitor, a FM antenna or a
small 30 Ku-band satellite dish. 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 "page-based" receiver and
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 Engine (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 which are used when a
futures contract reaches a pre-set price. In addition, this processor may send
and retrieve information by using an internal modem connected to a phone line.
The ACE receiver also has the capability 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 displayed. The receivers built-in control panel, keyboard or
mouse allows the subscribers to conveniently view this information.
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 specific information to a specific subscriber or group of
subscribers.
The Company leases FM radio side-band channels, satellite channels and
VBI space to deliver the information to the Company's receivers used by its
subscribers. All information is up-linked from Omaha to satellite (except
Internet, Fax and other telephone delivery technology) and down-linked from the
satellite to the subscriber based on the distribution technology.
The FM monochrome subscribers receive their information using an FM
antenna that receives the information via the side-band signal transmitted from
radio stations.
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On December 31, 1996, 15,600 subscribers were receiving the Company's
services via FM distribution technology.
The Ku subscribers utilize a 30" satellite dish, a direct down-link, to
receive their information. On December 31, 1996, 128,000 subscribers were
receiving the Company's services via Ku distribution technology.
Early in 1994, the Company began using a new cable TV 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. On December 31, 1996, 2,300
subscribers were receiving the Company's services by VBI distribution
technology.
The Company has approximately 10,500 Fax 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 500 E-Mail sources delivering over 1,500 pages of information to
subscribers daily. The Company began to deliver services on the Internet in
1995. The Company is currently offering services in the agriculture, produce and
finance service lines and plans to continue researching this information
distribution technology.
SERVICES OFFERED
The Company's revenue is derived mainly from five categories: (1)
monthly, quarterly or annual subscriptions, (2) optional services, (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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Subscriptions 76% 74% 73%
Optional services 6% 6% 8%
Communication services 9% 11% 10%
Advertising 3% 3% 5%
Service Initiation Fees 6% 6% 4%
</TABLE>
The subscription revenue is generated from monthly, quarterly or annual
subscription fees for one of the Company's services. The Company offers a
discount to subscribers who pre-pay their subscriptions annually. A more
detailed review of each service is found later in this report.
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 in total dollars and has maintained the level achieved in 1996 as a
percentage of total revenue during this period of rapid subscriber and
subscription revenue growth.
The Company sells communication services that allow companies to cost-
effectively communicate a large amount of timely (NEWS...NOT HISTORY)
information to their customers or field offices. This category includes revenue
generated from FAX and E-Mail services. Communication revenue has continued to
grow in total dollars and management believes this area offers opportunities for
future growth.
The Company sells advertising space interspersed among the pages of
news and information, similar to a newspaper or magazine. The advantage of an
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electronic advertisement over typical print media is the timely (NEWS...NOT
HISTORY) 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 in total dollars and has maintained the level achieved
in 1996 as a percentage of total revenue during this period of rapid subscriber
and subscription revenue growth.
Service initiation fees are one-time charges for new subscriptions
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 Agricultural Services
The DTN Agricultural Services include DTN AgDaily, DTN ProSeries, DTN
FarmDayta, DTNstant, DTNiron and DTN PROduce.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $69,700,000 $45,000,000 $33,700,000
Subscribers at year end 116,200 77,400 67,100
</TABLE>
New subscription are primarily sold by the Company's national sales
force of employee district sales representatives, in-house sales staff, and
independent, commission-only sales representatives. The Company obtains leads
for the sales force through telemarketing, direct mail, print media advertising
and customer referrals. The Company's management continues to analyze the
markets in the U.S. and Canada to determine the optimum sales force necessary to
cost-effectively maximize sales.
The biggest competition to these services is the combination of printed
advisory services, radio, television, telephone, other satellite information
services, on-line services and the changing of old information gathering habits.
DTN's agricultural subscribers have more than 150 optional services
available to them. These services consist of advisory, informational and
educational products. Additional services include newswire, association and free
services. DTN subscribers are given the opportunity to tailor their DTN unit to
their specific needs by choosing from a broad mix of "a la carte" services. DTN
continues to develop new optional services to meet customer demands by listening
closely to the marketplace.
The Company markets these services through a combination of individual
free trials, system-wide trials, on-screen advertising, direct mail, invoice
stuffers, equipment stuffers and telemarketing. The total number of monthly
subscriptions increased over 27% primarily due to these marketing campaigns. The
increase in subscriptions fueled the impressive increase in optional services
revenue. Optional service subscription prices range from $6 to $1,200 per
quarter with the average subscription price of $60/quarter.
In 1996, the agricultural related services sold over three million
dollars in advertising space. The companies purchasing advertising are
considered major players in the agriculture, ag chemicals, seeds, equipment and
finance businesses. The color system capabilities, such as inter-activity and
animation, continue to entice new advertisers. Advertising research in 1996
confirmed that DTN is an important player in the agriculture media field.
DTN AGDAILY SERVICES
The DTN AgDaily Services are DTN AgDaily, DTN Pro Series and DTN
FarmDayta. Approximately 80% of the services' subscribers are farmers or
livestock producers with the balance consisting primarily of grain elevators,
agribusinesses, and financial institutions. DTN AgDaily, Pro Series and
FarmDayta subscribers farm nearly one third of the nation's total cropland and
market more than 50% of the nation's cattle and hogs. Subscribers can be found
throughout the U.S and Canada.
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DTN AgDaily management believes the trend toward consolidation into
larger farms is expanding the market for agricultural information services.
Also, the government's move toward fewer agricultural price supports and an open
market system will support expansion of agricultural information services. This
expansion should provide steady growth for DTN AgDaily, DTN Pro Series and DTN
FarmDayta.
DTN AgDaily
SERVICE REVIEW
The Company's first service, DTN AgDaily, is an agricultural market
information, quote and weather service. Monochrome (FM and Ku) DTN AgDaily
subscribers receive delayed commodity futures and options quotes; local cash
grain and livestock prices; selected regional and world weather updates; and a
variety of daily analysis, commentary and news that affect grain and livestock
prices.
The DTN AgDaily color graphics system includes an advanced weather
segment with national and regional radar maps (updated every 15 minutes),
infrared satellite cloud cover maps, precipitation, temperature, jet stream,
surface wind and snow cover maps, and much more. The subscriber can custom
design high resolution charts and/or select from a library that holds over 1,000
charts. Subscribers can custom program the futures quotes pages to display only
the quotes they desire. The service also includes information segments for
specific crop and livestock enterprises as well as general, business, sports and
entertainment news.
DTN AgDaily color service offers crop liability insurance and livestock
profitability calculators by using the inter-activity feature that allows a
subscriber to search a comprehensive database. This feature also allows
subscribers to search an extensive seed catalog.
The price of the monochrome FM service is currently $29 per month, $35
per month for monochrome Ku service and $52 per month for color Ku service.
DTN offers services with advanced features bundled with DTN AgDaily
called the DTN Pro Series. The DTN Pro Series services are also managed as a
service within DTN AgDaily.
DTN Pro Series
SERVICE REVIEW
The DTN Pro Series services are an advanced information source designed
for agricultural subscribers who require more extensive information that can be
customized for their specific needs and operations. The Pro Series includes five
services: Weather Pro, News Pro, Chart Pro, Intraday Pro and Stock Pro.
Weather Pro is the "meteorological connection" to the most complete
array of current weather, forecast and satellite radar information. This service
allows the subscriber to choose from over 70 new weather maps including detailed
regional, state and zone forecasts. The Weather Pro service gives the subscriber
32 programmable pages to create their own unique weather information chapter.
News Pro is the "broadcast connection" to the most timely (NEWS...NOT
HISTORY) business, sports, entertainment, financial, and general news of the
day. The service also provides an audio summary of the day's agricultural news.
News Pro subscribers receive AP Online, a service of the Associated Press, as a
news source.
Chart Pro is the "graphic connection" bringing a variety of information
to the screen in an organized format to allow the subscriber to analyze trends,
patterns and cycles. This service includes 40 pages for programmable charts
allowing the subscriber to create an extensive "chart book".
Intraday Pro is the "trading connection" to the first low-cost system
with the ability to chart market sessions minute-by-minute during the trading
day. This service allows the subscriber to choose the time intervals they desire
to chart and keep them abreast of the markets.
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Stock Pro is the "market connection" providing access to prices for
over 50,000 issues of stocks, bonds and funds. This service includes stock
quotes using either the quick quote feature or the programmable quotes pages.
Additional features are the personal library used to store news and information
and the high interest windows that allows the subscriber to constantly monitor
up to six futures, options, stock or bond quotes.
The Pro Series' enhanced functionality includes a high interest window
that allows a user to view future or options quotes on any page, key word search
that automatically searches the news story database for articles affecting the
user's operation, a user custom segment that creates a customized segment with
up to five of the user's favorite pages, and a personal library that serves as a
customized archive segment.
Each individual Pro Series service is currently priced at $62 per month
except the Stock Pro which is currently priced at $66 a month. DTN Premier is
the package of Weather Pro, News Pro, Chart Pro and Intraday Pro, currently
priced at $79 per month. DTN Premier Plus is the package of DTN Premier and
Stock Pro, currently priced at $82 a month. This service is available by color
Ku-band satellite transmission.
DTN FarmDayta
SERVICE REVIEW
DTN FarmDayta was the principle asset acquired from the Broadcast
Partners acquisition in May 1996. The content of this service is very similar to
DTN AgDaily. In fact, since its start in 1990, DTN FarmDayta was the primary
competition for DTN AgDaily services. DTN FarmDayta is an agricultural market
information, quote and weather service delivering delayed commodity futures and
options quotes; local cash grain and livestock prices; selected regional and
world weather updates; and a variety of daily analysis, commentary and news that
affect grain and livestock prices.
DTN FarmDayta Elite service is an advanced version of DTN FarmDayta and
is similar in content to the DTN AgDaily service. Additional features include
additional options quotes, charting, weather maps and a hard drive to store data
in the receiver which is critical to maintaining storage of information during a
power outage. DTN FarmDayta Elite Plus is an advanced service that includes the
DTN FarmDayta Elite features and is similar in content to the DTN Pro Series.
This service includes more advanced news (Reuters Headline News), quotes,
weather (including motion and zoom capabilities) and programmable charts.
DTN FarmDayta, and its enhanced versions DTN FarmDayta Elite and Elite
Plus, are currently priced at $44, $52, and $62 a month, respectively. All these
services are available by color Ku-band satellite transmission. The addition of
DTN FarmDayta gives the Company a fully integrated agricultural service line
with price entry points across a wide spectrum, expanding the marketing horizons
for all DTN agricultural services.
At the time of the acquisition, DTN FarmDayta had 39,000 agricultural
subscribers. The Company does not plan to convert DTN FarmDayta equipment to DTN
AgDaily equipment and currently maintains the DTN FarmDayta facilities, with
nearly 100 employees, in Des Moines, Iowa.
DTNstant
SERVICE REVIEW
DTNstant is a color service that provides a selection of real-time
futures and options quotes from the major commodity exchanges and headline
commodity news from multiple sources such as the Associated Press, Futures World
News and Knight Ridder. The service also provides market leading cash
information, in-depth charting capabilities, plus all the information available
on the DTN AgDaily color service. In addition, this service provides information
for the energy, metals, softs (ie: orange juice, coffee, cocoa), transportation
and lumber industries. There are no other services in the industry offering a
more comprehensive news and information service.
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The primary subscribers are commercial grain companies and elevators,
feedlots, commodity brokers and commodity speculators. Due to the character of
this industry, the Company provides on-site service and installation by
professional service technicians.
DTNstant operates in a very competitive market with numerous national
and regional providers of instant commodity quotes. This service is the leader
in the satellite delivery of instant futures and options quotes.
New subscriptions are primarily sold by the Company's national sales
force which is supported by telemarketing and direct mail campaigns. This
service is available by color Ku-band satellite transmission and is currently
priced at $170 a month.
DTNiron
SERVICE REVIEW
DTNiron is a color service providing a cost-effective communication
resource for the farm implement industry. DTNiron is an equipment locator and
inventory management service providing a communication tool for the farm
implement dealers throughout the U.S and Canada. The service allows dealers of
all makes of farm implements and equipment to work together to manage their
inventory resulting in increased sales and profitability. This service provides
valuable information on the national outlook for farm equipment sales.
DTNiron provides detailed listings of farm implements and equipment for
sale or needed by dealers. A listing stays on the system for a minimum of 30
days, renewable at the dealer's request. Subscribers receive industry news,
financial information, economic indicators and information from the DTN AgDaily
color service.
The DTNiron service also includes listings of construction equipment,
trucks, trailers and other equipment that is found in the agriculture industry.
The service provides listings for implement and equipment parts, especially hard
to find parts. In addition, the service sorts the listings by regions and
provides hourly updates to keep the information as timely (NEWS...NOT HISTORY)
as possible.
This service is available by color Ku-band satellite transmission and
is currently priced at $98 a month.
DTN PROduce
SERVICE REVIEW
DTN PROduce is the authority in providing the produce industry with the
most timely weather, produce prices, transportation data and news information
available. There are four major components to the DTN PROduce service. First is
weather information, providing the single most important piece of information
for anyone in the produce business. Second is pricing information, providing
immediate updates upon release formatted by commodity, growing area and terminal
market. Third is transportation information, providing freight rates and daily
truck availability by the major growing areas. Finally, the service provides
comprehensive news including AP Online.
DTN PROduce maintains a price discovery network, the DTNdex, that is
the industry standard. Competition in this industry continues to focus on older
technology, such as Fax machines.
The market for this service is the entire produce food chain of
growers, shippers, packers, brokers, retailers and institutions. This service is
available via color Ku-band satellite and currently is priced at $88 per month.
DTN Weather Services
The DTN Weather Center Services have expanded from DTN Weather Center
into specific industry-related services including DTN Weather Center - Turf
Manager, DTN Aviation Center and DTN Weather Center - Contractor Dayta.
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<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----
<S> <C> <C> <C>
Revenues $5,600,000 $1,000,000 --
Subscribers at year end 7,900 2,600 --
</TABLE>
DTN WEATHER CENTER
SERVICE REVIEW
DTN Weather Center is a comprehensive weather information system
designed to meet the weather information needs of many industries. Markets
specifically targeted by DTN Weather Center are golf courses, turf management,
emergency management, state transportation departments, construction and
aviation. DTN Weather Center has found a home in numerous other industries where
timely (NEWS...NOT HISTORY), accurate and easily accessible weather information
is a critical ingredient in operational planning and staffing decisions.
DTN Weather Center services provide over 100 weather maps, 20 regional
radar maps including NEXRAD radar and infrared satellite photos and six
satellite maps. The services provide short-range (12-48 hours) forecasts,
long-range (3-90 day) outlooks, and 10 day city forecasts for over 550 different
cities in the U.S. and Canada. The services include a personal programmable
segment, storing of maps in an "Archive Segment" and AP Online News is provided
as an optional service.
This DTN Weather Center service is available via color Ku-band
satellite transmission and is currently priced at $72 per month.
DTN WEATHER CENTER TURF MANAGER
SERVICE REVIEW
Turf Manager is available to those individuals and businesses involved
in turf-related operations such as golf course, lawn maintenance, landscaping
and sod farm. This service provides the news, weather and chemical information
designed for turf management.
Chemical and Pesticide Press Turf Index is a unique feature providing
an information database of over 275 turf pesticides. Lightning Indicator Maps
are updated hourly including the latest information on where lightning is
striking. Evapotranspiration Tables provide regional evaporation rates for
planning watering and chemical applications. ESPN Sports Ticker provides the
current golf related stories and results from ESPN. AP ONLINE provides over 300
current news stories in four chapters: General, Business, Sports and
Entertainment. The National Golf Course Directory is a database of the location,
phone number, course pro, and course superintendent of any member course. This
combination of features along with the weather information makes the Turf
Manager a complete package.
DTN Weather Center - Turf Manager is available via color Ku-band
satellite transmission and is currently priced at $72 a month.
DTN AVIATION CENTER
SERVICE REVIEW
DTN Aviation Center is a comprehensive aviation weather package
specially designed for pilots, airports and Fixed Base Operators (FBO's). DTN
Aviation Center supplies airports, pilots and FBO's with the comprehensive
flight-plan information found on many premier "on-line" systems. This package
includes U.S. and regional depiction maps, 24 hour low level significant weather
prognosis, and U.S. region winds and temperatures aloft. Subscribers of DTN
Aviation Center use it while speaking to flight services to help visualize the
current weather conditions while they are making their flight plan. This service
can also help determine alternate route destinations.
Subscribers can choose the Level I service, which is designed for the
local/regional flyers up to 18,000 feet, or the Level II service which is
designed for pilots and airports flying nationally up to 45,000 feet. The Level
II service also provides European flight information.
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DTN Aviation Center is available via color Ku-band satellite
transmission and is currently priced at $103/month for Level I and $152/month
for Level II.
DTN WEATHER CENTER Contractor Dayta
SERVICE REVIEW
The DTN Contractor Dayta service is designed to keep subscribers
informed of all construction related news and industry information to assist
them in maintaining a competitive advantage. This service provides all of the
valuable weather information that comes with the DTN Weather Center and is
necessary for making those important day-to-day business decisions.
Industry specific information includes general information, association
and industry information, construction news, bids and resources and the
contractors exchange. In addition, subscribers receive sports scores and
highlights and financial indicators.
The DTN Contractor Dayta service in available via color Ku-band
satellite transmission and is currently priced at $82 a month.
DTN Financial Services
DTN Financial Services offers five services, DTN Wall Street, DTN
SPECTRUM, DTN FirstRate, DTN GovRate and DTN Broker+. Subscribers to all DTN
Financial Services have a variety of optional services from which to choose
providing stock selection and timing advice, earnings estimates, fundamental
stock market data, U.S. Treasury quotes and other financial market related
services.
DTN Financial Services revenue grew 41% during 1996, adding to its
bullish 35% compounded revenue growth for the past 5 years. DTN Financial
Services' objective is to provide a comprehensive in-depth service at an
affordable cost to its subscribers. This objective will remain very important
due to the highly competitive nature of this business. The "a la carte" optional
services offered to subscribers give them an even larger variety of information.
Contents of all DTN Financial Services are broader in scope and cost less than
competitive services. This combination allows the services to continue
maintaining a competitive advantage in its market niches.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Revenues $ 8,600,000 $6,100,000 $5,100,000
Subscribers at year end 11,300 9,600 8,800
</TABLE>
DTN SPECTRUM
SERVICE REVIEW
DTN SPECTRUM was released in November, 1995, and is an enhanced version
of DTN Wall Street utilizing the ACE technology. The service provides many
additional features and functions that appeal to a wider market. This service
provides advanced quote selection and custom programming along with alarms, news
search and charting capabilities.
DTN SPECTRUM is being very well received by new subscribers and
existing subscribers who are electing to "switch-up" to gain use of the advanced
features of the service. DTN SPECTRUM subscription sales accounted for 54% of
DTN Financial Services new subscription sales during 1996.
An extension of DTN SPECTRUM is the DTN SPECTRUM R-T service. DTN
SPECTRUM R-T marked the entry by DTN Financial Services into the real-time
commodity quotes market during 1996. This service provides a mix of
exchange-delayed quotes along with the subscriber's choice of real-time futures
quotes. By year-end 1996, this higher revenue and higher margin service was
generating 21% of the total DTN SPECTRUM subscription sales.
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DTN SPECTRUM and DTN SPECTRUM R-T are available on the color platform
by Ku-band satellite transmission and are currently priced at $68 and $118 per
month, respectively.
DTN Wall Street
SERVICE REVIEW
DTN Wall Street provides exchange-delayed quotes on stocks, bonds,
mutual and money market funds, futures, interest rates, currencies and real-time
index quotes. This service also provides in-depth economic, financial and
business news and other time-sensitive (NEWS...NOT HISTORY) financial market
information such as company-specific news and earnings. This service allows
subscribers to custom program the system to track their selection of financial
quotes.
The majority of subscribers to DTN Wall Street are individual
investors, and the balance of subscribers are independent brokers, financial
advisors and financial institutions. The primary competition for DTN Wall Street
are satellite, TV cable (VBI), Internet and dial-up quote services.
DTN Wall Street is available on the monochrome platform by Ku-band
satellite and TV cable (VBI) transmission and is currently priced at $44 per
month.
DTN FirstRate
SERVICE REVIEW
DTN FirstRate is a service for the mortgage industry providing
wholesale mortgage rates in an easy-to-use standard format and intra day
interest rate information to indicate the direction of mortgage loan rates. This
service also provides subscribers with snapshots of real-time rates from Fannie
Mae and Freddie Mac plus other news, commentary and analysis for mortgage
lenders.
Sales for DTN FirstRate during 1996 remained slow. In October 1996,
DTN FirstRate+ was made available on the ACE platform. This service, named DTN
FirstRate+, provides many more useful features which are proving to be
appreciated by new subscribers. Marketing for DTN FirstRate is now all being
done by DTN Financial Services' institutional sales group which assists direct
sales of this service by DTN's national sales force. We believe the availability
of DTN FirstRate+ on the ACE platform and a more focused marketing effort will
lead to higher sales in 1997.
DTN FirstRate is available on the monochrome platform by Ku-band
satellite or TV cable (VBI) transmission and is currently priced at $98 per
month. DTN FirstRate+ is currently available on the ACE platform via Ku-band
satellite transmission for $129 per month.
DTN GovRate
SERVICE REVIEW
DTN GovRate provides executable U.S. government security quotes. These
real-time prices are provided from a primary dealer, the former Discount
Corporation of New York (DCNY), now operated as a division of Zions First
National Bank. The Company views this service as an important development for
financial institutions. DTN GovRate is providing opportunities for small to
mid-size banks, public and corporate treasurers, and independent brokerage firms
to participate in trading of U.S. government securities. Zions First National
Bank facilitates this by offering odd lot trading and repurchase agreements.
This service is currently available on the monochrome platform by
Ku-band satellite or TV cable (VBI) transmission for $34.95 per month and is
also currently available on the ACE platform by Ku-band satellite transmission
for $68 per month.
11
<PAGE>
DTN Broker+
SERVICE REVIEW
DTN Broker+ is a modified version of DTN SPECTRUM with enhancements
designed specifically to serve independent securities brokers and financial
advisors. Marketing for DTN Broker+ is all done by DTN Financial Services'
institutional sales group which assists direct sales of this service by DTN's
national sales force.
DTN Broker+ provides a comprehensive source of market data and
time-sensitive, market moving news. It is a low cost alternative source of news
and delayed market quotes in its targeted market niche.
DTN Broker+ is available on the ACE platform by Ku-band satellite
transmission and is currently priced at $73 per month. An extension of DTN
Broker+, which provides real-time futures quotes, is currently offered for $123
per month on the ACE platform by Ku satellite transmission.
DTN Energy Services
The energy related services include DTNergy for the refined fuels,
natural gas industries and electric industries.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ----------
<S> <C> <C> <C>
Revenues $12,200,000 $10,000,000 $7,200,000
Subscribers at year end 7,700 7,100 6,700
</TABLE>
DTNERGY
SERVICE REVIEW
DTNergy is a service providing pricing information and communication
services for the petroleum industry. This service consists of several pages of
delayed energy futures and options quotes plus selected news and financial
information. DTNergy is designed to connect refiners (producers of refined
fuels) to wholesalers (distributors of refined fuels). The refiner sends refined
fuel prices to wholesalers they have authorized to receive this information. The
refiner also has the capability to send terminal alerts, electronic funds
transfer notifications, invoices, and other communications to the wholesaler.
DTNergy subscribers can select from a variety of optional services to give them
even more prices or news related to the petroleum industry.
The strength of the DTNergy service is the ability to deliver, within
seconds, accurate refiner terminal prices and other vital communications to the
wholesalers. This service is more reliable, timely and less expensive than the
competition, which utilize telephone delivered printer-only systems and FAX
services.
DTNergy generates revenue from two primary sources, the wholesaler and
the refiner. Wholesalers currently pay a monthly subscription fee of $38.00 for
the monochrome Ku-band satellite service. Refiners pay fees based on the number
and length of communications sent to wholesalers.
DTNergy also has an information service for the natural gas and
electric industries. Subscribers receive instant or delayed NYMEX energy futures
and options quotes, a comprehensive weather package and industry specific news
and market information. This service is marketed to energy producers and
generators, transporters, marketers, utilities and larger energy consumers. The
service is available on color Ku-band satellite and is currently priced at $130
a month with 30-minute delayed quotes and $170 a month with real-time quotes.
12
<PAGE>
DTN Auto Services
DTN AUTO
SERVICE REVIEW
DTNauto is a communication and information service for the automobile
industry. This service offers automobile dealers precision information to value
trade-ins and locate used car inventory plus a host of other information and
convenient features. Automobile auction companies and manufacturers are able to
communicate directly with the dealers.
DTNauto provides information on pre-auction automobile listings,
results of past auctions, new and used car industry news, weather and other
news. The service allows subscribers to perform searches of the auction
listings, upcoming and past, for specific automobile information.
The service offers a variety of optional services providing information
on credit reporting (CREDCO), vehicle histories (CARFAX), warranty information
(The Warranty Guide) and residual value of leased vehicles (Lease Guide). The
CARFAX and CREDCO optional services extensively utilize the internal modem to
send and receive information. These services create a more comprehensive
information service that puts the subscriber in the drivers seat.
This service is being marketed by the DTNauto sales force to automobile
dealers across the United States. This service is available by color Ku-band
satellite transmission and is currently priced at $98 per month.
Joint Venture Services
DTN has joined forces with other companies to market their services
using the Company's technology. The services are TracElectric and DAT
Transportation Terminal.
TracElectric
SERVICE REVIEW
TracElectric is an equipment locator service for the electrical
equipment industry. This service provides over 100 pages of new, remanufactured,
surplus and used electrical equipment listings. The service connects buyers and
sellers throughout the U.S. and Canada. This service is available by monochrome
Ku-band satellite and DTN receives a percentage of the revenue.
DAT SERVICES
SERVICE REVIEW
The DAT (Dial-A-Truck) Transportation Terminal (DAT) service, located in
Beaverton, OR, is an information communication system for the trucking industry.
The service provides load and truck matching performed on a database of 30,000
listings updated daily.
DAT service allows subscribers to input their own listings into the ACE
receiver and send this information to the database using the internal modem.
This service provides the subscriber the ability to perform extensive searches
to locate loads and trucks and set alarms to alert the user that a match has
occurred. The service also provides regional radar maps of major highways and
interstates, transportation news, diesel fuel prices and other financial
information related to the trucking industry.
The target market includes all freight brokers and carriers throughout
U.S. and Canada. This service is available by color Ku-band satellite and DTN
receives a monthly fee per receiver.
13
<PAGE>
Employee Data
At December 31, 1996 the company had approximately 840 full and
part-time employees.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales:
Not applicable
ITEM 2. PROPERTIES.
The company leases its executive and administrative offices in Omaha,
Nebraska and has outside sales offices in Arizona, Florida, Illinois and Utah.
Approximately 79,000 square feet of office space is leased for these offices for
various periods up through May 2005. On May 3, 1996, the Company added
approximately 19,000 square feet of office space located in Urbandale, Iowa,
through the Broadcast Partners acquisition.
In addition, the company leases three distribution centers for the
purpose of storing and distributing the electronic equipment needed by
subscribers to receive the company's services. The main distribution center is
located in Omaha, Nebraska and occupies approximately 28,000 square feet. The
company also serves its Canadian subscribers with a 2,500 square foot
distribution center located in Winnipeg, Manitoba. Approximately 7,000 square
feet, located in Urbandale, Iowa, was added to the Company's distribution center
by way of the 1996 acquisition. The leases related to these distribution centers
are for various periods up through December, 2003.
The information set forth in Footnote 10 "Leases" on page 32 of the
company's 1996 Annual Report to Stockholders is incorporated herein by
reference.
ITEM 3. LEGAL PROCEEDINGS.
The company is not a party to nor is its property subject to any
material pending legal proceedings, other than ordinary routine litigation
incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of the security holders of the
company during the fourth quarter of the fiscal year ended December 31, 1996.
14
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Information on the current executive officers of the company is as
follows:
<TABLE>
<CAPTION>
Year Joined
Name Title Age the Company
- ------------------- ------------------------- --- -----------
<S> <C> <C> <C>
Roger R. Brodersen Chairman of the Board and 51 1984
Chief Executive Officer
Greg T. Sloma President and Chief 45 1993
Operating Officer
Robert S. Herman Senior Vice President 44 1984
Research and Technology
Roger W. Wallace Senior Vice President and 40 1984
Co-President, Ag Services
James J. Marquiss Senior Vice President and 52 1986
Co-President, Ag Services
Charles R. Wood Senior Vice President and 56 1989
President, Financial Services
Keith A. Cook Vice President and 58 1986
President, Auto Services
H. Wade German Vice President, 55 1992
Business Research
Brian L. Larson Vice President, Chief Financial 36 1993
Officer, Secretary and Treasurer
Gordon R. Lundy Vice President and 58 1990
President, Energy Services
Charles E. McQuinn Vice President and President, 56 1995
West Financial Services
James G. Payne Vice President, Services Support 41 1990
and Special Projects
</TABLE>
The executive officers serve annual terms, and are elected by the board
of directors at their annual board of directors meeting in April of each year.
15
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS.
Information concerning the market for the company's common stock, the
number of stockholders of record and the company's dividend history is on pages
33 and 34 of the company's 1996 Annual Report to Stockholders and is
incorporated herein by reference.
Over-the-counter market quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.
The company's most restrictive loan covenant restricts cash dividend
payments to 27% of net income after taxes.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for the company is on page 16 of the company's
1996 Annual Report to Stockholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Management's discussion and analysis of financial condition and results
of operations is on pages 17 through 21 of the company's 1996 Annual Report to
Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the company, together with the Independent
Auditors' Report, are on pages 23 through 32 of the company's 1996 Annual Report
to Stockholders and are incorporated herein by reference.
Supplementary quarterly financial information is on page 33 of the
company's 1996 Annual Report to Stockholders and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
None
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT.
Information concerning the present directors of the company and all
persons nominated to become directors at the Annual Meeting of Stockholders of
the company to be held April 23, 1997, is contained in the section captioned
"Election of Directors" of the Proxy Statement for such annual meeting. Such
section is on pages 2 through 3 of such Proxy Statement, and is incorporated
herein by reference. Information concerning the registrant's executive officers
is furnished in a separate item captioned "Executive Officers of the Company",
included in Part I of this Form 10-K.
16
<PAGE>
Compliance With Section 16(a) Of The Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
The Company believes that during the fiscal year ended December 31, 1996, its
executive officers, directors and holders of more than 10% of the Company's
common stock complied with all Section 16(a) filing requirements, with the
following exception. James J. Marquiss, an officer, filed one late Form 4 for
the month of November 1996 with respect to a single transaction involving shares
of the Company's Common Stock sold by him during such month. In making these
statements, the Company has relied solely upon a review of Forms 3 and 4
furnished to the Company during its most recent fiscal year, Forms 5 furnished
to the Company with respect to its most recent fiscal year, and written
representations from reporting persons that no Form 5 was required.
ITEM 11. EXECUTIVE COMPENSATION.
Information concerning executive compensation paid by the company is
contained in the sections captioned "Executive Compensation" and "Compensation
Committee Report on Executive Compensation" on pages 6 through 11 of the Proxy
Statement for the Annual Meeting of Stockholders of the company to be held April
23, 1997, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
Information concerning the ownership of equity securities of the company
by certain beneficial owners and management is contained in the sections
captioned "Ownership By Certain Beneficial Owners" and "Election of Directors"
on pages 2 through 6 of the Proxy Statement for the Annual Meeting of
Stockholders of the company to be held April 23, 1997, and is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information concerning transactions with management and others and
indebtedness of management is contained in the section captioned "Transactions
with Management" on page 14 of the Proxy Statement for the Annual Meeting of
Stockholders of the company to be held April 23, 1997 and is incorporated herein
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K.
(A) 1. Financial Statements:
The Registrant's financial statements, together with the Independent
Auditors' Report, are incorporated herein by reference to the 1996 Annual Report
to Stockholders, pages 23 through 32. With the exception of the aforementioned
information and the information incorporated by reference into Items 2,5,6,7 and
8 of this report, the Annual Report to Stockholders for the year ended December
31, 1996, is not to be deemed filed as a part of this report. The supplemental
financial information listed below should be read in conjunction with the
financial statements in the Annual Report to Stockholders for the year ended
December 31, 1996.
17
<PAGE>
(A) 2. Financial Statement Schedule: Page
Auditors' Report on Financial Statement Schedule 24
Schedule
Number Description of Schedule
II Valuation and Qualifying Accounts 27
All other schedules are omitted because they are not applicable or not required,
or because the required information is included in the financial statements or
notes thereto.
(B) Reports on Form 8-K:
1. The Registrant filed a report on 8-K dated May 16, 1996 related to
the Asset Acquisition of Broadcast partners on May 3, 1996. The Asset Purchase
and Sale Agreement was filed as Exhibit 2.1 of this filing.
2. The Registrant filed a report on 8-K/A dated June 20, 1996 which
amends Item 7 of the Form 8-K filed on May 16, 1996.
No reports on Form 8-K were filed by the Registrant during the fourth quarter of
the year ended December 31, 1996.
(C) Exhibits:
(3) (a) Certificate of Incorporation of Registrant.
(b) 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.)
(4) (a) Specimen certificate representing shares of
Common Stock, $.001 par value, of Registrant.
(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.
(This document is filed as an exhibit to the Registrant's Regis-
tration Statement on Form S-1 as filed December 4, 1987.)
(10) (a) Lease Agreement between the Registrant and
Embassy Plaza Limited Partnership.
(This document is filed as an exhibit to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990.)
(b) Registrant's Stock Option Plan of 1989.
(This document is included as an exhibit to the Registrant's
Proxy Statement for the Annual Meeting of Shareholders held on
April 26, 1989.)
(c) Registrant's Non-employee Directors Stock
Option Plan.
(This document is included as an exhibit to the Registrant's
Proxy Statement for the Annual Meeting of Shareholders held on
April 26, 1989.)
(d) Form of indemnification agreement between the
Registrant and the Officers and Directors of
the Registrant.
(This document is filed as an exhibit to the Registrant's
Registration Statement on Form S-1 as filed May 22, 1989.)
(e) First Amendment to Registrant's Employee Stock
Option Plan of 1989 (amends Exhibit 10(b)).
18
<PAGE>
(f) First Amendment to Registrant's Non-employee
Directors Stock Option Plan (amends Exhibit 10
(c)).
(These documents are included as exhibits to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on
April 27, 1990.)
(g) Second Amendment to Registrant's Employee
Stock Option Plan of 1989 (amends Exhibit 10
(b)).
(h) Second Amendment to Registrant's Non-employee
Directors Stock Option Plan (amends Exhibit 10
(c)).
(These documents are included as exhibits to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders held on
April 24, 1991.)
(i) Loan Agreement dated October 9, 1992 among the
Registrant, First National Bank of Omaha,
FirsTier Bank Lincoln and First National Bank
of Wahoo.
(j) First Amendment to Loan Agreement dated
October 9, 1992 among the Registrant, First
National Bank of Omaha, FirsTier Bank of
Lincoln and First National Bank of Wahoo.
(k) Independent Sales Representative Agreement
dated March 28, 1990 between the Registrant
and Phil Huston.
(l) First Amendment dated March 1, 1991 to Inde-
pendent Sales Representative Agreement dated
March 28, 1990 between Registrant and Phil
Huston.
(m) Amendment to Independent Sales Representative
Agreement dated March 28, 1990 between
Registrant and Phil Huston.
(These documents are included as exhibits to the Registrant's
Annual Report on Form 10-K as filed March 24, 1993).
(n) Third Amendment to Registrant's Stock Option
Plan of 1989 (amends Exhibit 10(b)).
(o) Third Amendment to Registrant's Non-Employee
Directors Stock Option Plan (amends Exhibit
10(c)).
(p) Fourth Amendment to Employee Stock Option Plan
of 1989 (amends Exhibit 10(b)).
(q) Fourth Amendment to Non-Employee Directors
Stock Option Plan (amends Exhibit 10(c)).
(These documents are included as exhibits to the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held
April 27, 1994).
(r) Restated Loan Agreement dated November 8, 1993
among the Registrant, First National Bank of
Omaha, FirsTier Bank Lincoln, First National
Bank of Wahoo, National Bank of Detroit,
Norwest Bank Nebraska, NA and The Boatmen's
Bank of St. Louis.
(s) Restated Security Agreement dated November 8,
1993 among the Registrant, First National Bank
of Omaha, FirsTier Bank Lincoln, First
National Bank of Wahoo, National Bank of
Detroit, Norwest Bank Nebraska, NA and The
Boatmen's Bank of St. Louis.
(These documents are included as exhibits to the Registrant's
Annual Report on Form 10-K as filed March 14, 1994).
19
<PAGE>
(t) Restated and amended Non-Employee Directors
Stock Option Plan.
(This document is included as an exhibit to the Registrant's
Proxy Statement for the annual meeting of stockholders to be held
April 26, 1995).
(u) First Amendment to the Restated Loan Agreement
dated November 8, 1993 among the Registrant,
First National Bank of Omaha, Firstier Bank
Lincoln, First National Bank of Wahoo,
National Bank of Detroit, Norwest Bank
Nebraska, NA and The Boatmen's Bank of St.
Louis.
(v) Second Amendment to the Restated Loan
Agreement dated November 8, 1993 among the
Registrant, First National Bank of Omaha,
Firstier Bank Lincoln, First National Bank of
Wahoo, National Bank of Detroit, Norwest Bank
Nebraska, NA and The Boatmen's Bank of St.
Louis.
(w) Third Amendment to the Restated Loan Agreement
dated November 8, 1993 among the Registrant,
First National Bank of Omaha, Firstier Bank
Lincoln, First National Bank of Wahoo,
National Bank of Detroit, Norwest Bank
Nebraska, NA and The Boatmen's Bank of St.
Louis.
(x) Fourth Amendment to the Restated Loan
Agreement dated November 8, 1993 among the
Registrant, First National Bank of Omaha,
Firstier Bank Lincoln, First National Bank of
Wahoo, National Bank of Detroit, Norwest Bank
Nebraska, NA and The Boatmen's Bank of St.
Louis.
(y) Lease agreement dated August 30, 1994 between
Registrant and The Prudential Insurance
Company of America.
(z) First Amendment to lease agreement dated
August 30, 1994 among the Registrant and The
Prudential Insurance Company of America.
(aa) Senior Subordinated Note dated June 30, 1994
between the Registrant and Equitable Capital
Private Income and Equity Partnership II, L.P.
(These documents are included as exhibits to the Registrant's
Annual Report on Form 10-K as filed March 28, 1995).
(ab) Fifth Amendment to the Restated Loan Agreement
dated November 8, 1993 among the Registrant
and six regional banks.
(ac) Sixth Amendment to the Restated Loan Agreement
dated November 8, 1993 among the Registrant
and six regional banks.
(ad) Lease agreement dated May 2, 1995 between the
Registrant and The Prudential Insurance
Company of America.
(ae) First Amendment to lease agreement dated May
2, 1995 between the Registrant and The
Prudential Insurance Company of America.
(af) Restated Loan Agreement dated June 29, 1995
among the Registrant and seven regional banks.
(ag) Purchase and service agreement dated July 13,
1995 between the Registrant and Knight-Ridder
Financial.
(ah) Adjustment to Independent Sales Representative
Agreement dated March 28, 1990 between
Registrant and Phil Houston.
20
<PAGE>
(ai) Senior Subordinated Notes and Warrant Purchase
Agreement dated June 30, 1994 between
Registrant and Equitable Capital Private
Income and Equity Partnership II, L.P.
(aj) First Amendment to Senior Subordinated Notes
and Warrant Purchase Agreement dated June 30,
1994 between Registrant and Equitable Capital
Private Income and Equity Partnership II, L.P.
(These documents are included as exhibits to the Registrant's
Annual Report on Form 10-K as filed March 22, 1996).
(ak) Independent Sales Representative Agreement
dated September 1, 1996, between Registrant,
Huston, Inc., and Phil Huston.
(al) Second Amendment to the lease agreement dated
May 2, 1995, between the Registrant and The
Prudential Insurance Company of America.
(am) Third Amendment to the lease agreement dated
May 2, 1995, between the Registrant and The
Prudential Insurance Company of America.
(an) Fourth Amendment to the lease agreement dated
May 2, 1995, between the Registrant and
LAFP-SF, Inc., successors in interest to The
Prudential Insurance Company of America.
(ao) Revolving Credit Agreement dated June 28,
1996, between the Registrant and a group of
banks.
(ap) First Amendment to the Revolving Credit
Agreement dated June 28, 1996, between the
Registrant and a group of banks.
(aq) Second Amendment to the Revolving Credit
Agreement dated June 28, 1996, between the
Registrant and a group of banks.
(ar) Term Credit Agreement dated May 3, 1996,
between the Registrant and a group of banks.
(as) First Amendment to the Term Credit Agreement
dated May 3, 1996, between the Registrant and
a group of banks.
(at) Second Amendment to the Term Credit Agreement
dated May 3, 1996, between the Registrant and
a group of banks.
(au) Third Amendment to the Term Credit Agreement
dated May 3, 1996, between the Registrant and
a group of banks.
(av) Restated Security Agreement dated May 3, 1996,
between the Registrant and a group of banks.
(aw) First Amendment to the Restated Security
Agreement dated May 3, 1996, between the
Registrant and a group of banks.
(ax) Second Amendment to the Restated Security
Agreement dated May 3, 1996, between the
Registrant and a group of banks.
(ay) Third Amendment to the Restated Security
Agreement dated May 3, 1996, between the
Registrant and a group of banks.
21
<PAGE>
(az) Second Amendment to the Senior Subordinated
Notes and Warrant Purchase Agreement dated
June 30, 1994, between the Registrant and
Equitable Capital Private Income and Equity
Partnership II, L.P.
(11) Statement re computation of income per share.
(12) Not applicable.
(13) Registrant's 1996 Annual Report to Stockholders.
(This document is hereby incorporated by reference.)
(16) None.
(18) None.
(21) None.
(22) None.
(23) Consent of Deloitte & Touche LLP.
(24) None.
(27) Financial Data Schedule.
(28) None.
(99) Proxy Statement for the Annual Meeting of Stockholders
of the Registrant to be held April 23, 1997.
(This document is hereby incorporated by reference.)
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Data Transmission Network Corporation,
a Delaware Corporation
By: /s/ Roger R. Brodersen
Roger R. Brodersen
Chief Executive Officer
Dated March 27, 1997.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
By: /s/ Roger R. Brodersen March 27, 1997
------------------------------
Roger R. Brodersen, Chairman of the
Board, Chief Executive Officer
and Director
By: /s/ Greg T. Sloma March 27, 1997
------------------------------
Greg T. Sloma, President and
Chief Operating Officer
and Director
By: /s/ Roger W. Wallace March 27, 1997
------------------------------
Roger W. Wallace, Senior Vice
President, Co-President-Ag
Services and Director
By: /s/ Robert S. Herman March 27, 1997
------------------------------
Robert S. Herman, Senior Vice
President and Director
By: /s/ Brian L. Larson March 27, 1997
------------------------------
Brian L. Larson, Vice President,
Chief Financial Officer,
Secretary and Treasurer
By: /s/ David K. Karnes March 27, 1997
------------------------------
David K. Karnes, Director
By: /s/ J. Michael Parks March 27, 1997
------------------------------
J. Michael Parks, Director
By: /s/ Jay E. Ricks March 27, 1997
------------------------------
Jay E. Ricks, Director
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Data Transmission Network Corporation
Omaha, Nebraska
We have audited the financial statements of Data Transmission Network
Corporation as of December 31, 1996 and 1995, and for each of the three years in
the period ended December 31, 1996 and have issued our report thereon dated
January 31, 1997; such financial statements and report are included in the 1996
Annual Report to Stockholders and are incorporated herein by reference. Our
audits also included the financial statement schedule of Data Transmission
Network Corporation, listed in Item 14(a)2. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 31, 1997
24
<PAGE>
Schedule II
DATA TRANSMISSION NETWORK CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Charged to Other End
Description of Period Expenses Accounts Deductions of Period
- ----------------------------- --------- ---------- ---------- ---------- ----------
Allowance for doubtful
accounts:
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996: $300,000 $672,000 - $452,000 $520,000
Year ended December 31, 1995: $220,000 $358,000 - $278,000 $300,000
Year ended December 31, 1994: $180,000 $283,000 - $243,000 $220,000
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
DATA TRANSMISSION NETWORK CORPORATION
COMPUTATION OF INCOME(LOSS) PER SHARE
Year Ended December 31,
---------------------------------------
1996 1995 1994
------------ ------------ -----------
Primary
Computation of income (loss) per
common and common equivalent share:
<S> <C> <C> <C>
Net income (loss) ($ 958,306) ($ 283,076) ($1,602,738)
============ ============ ============
Average shares outstanding 10,657,893 9,908,592 9,760,200
Add shares applicable to stock
options and warrants (1)
Add shares applicable to stock
options & warrants prior to
conversion, using average market
price prior to conversion(1)
------------ ------------ ------------
Total shares 10,657,893 9,908,592 9,760,200
============ ============ ===========
Per common share:
Net income (loss) ($0.09) ($0.03) $0.16)
============ ============ ===========
- -------------------------------------------------------------------------------
<FN>
(1) Shares applicable to warrants and stock options are antidilutive for the
period ended December 31, 1996, 1995 and 1994, and thus, are excluded from
the calculation of net loss per common share.
</FN>
</TABLE>
26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11 - Pg 2
DATA TRANSMISSION NETWORK CORPORATION
COMPUTATION OF INCOME(LOSS) PER SHARE
Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ -----------
Fully Dilutive
Computation of income (loss) per
common and common equivalent share:
<S> <C> <C> <C>
Net income (loss) ($ 958,306) ($ 283,076) ($1,602,738)
============ ============ ============
Average shares outstanding 10,657,893 9,908,592 9,760,200
Add shares applicable to stock
options and warrants (1)
Add shares applicable to stock
options & warrants prior to
conversion, using average market
price prior to conversion(1)
------------ ------------ ------------
Total shares 10,657,893 9,908,592 9,760,200
============ ============ ===========
Per common share:
Net income (loss) ($0.09) ($0.03) ($0.16)
============ ============ ===========
- ------------------------------------------------------------------------------
<FN>
(1) Shares applicable to warrants and stock options are antidilutive for the
period ended December 31, 1996, 1995 and 1994, and thus, are excluded from
the calculation of net loss per common share.
</FN>
</TABLE>
27
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 33-
50406 and No. 33-50412 of Data Transmission Network Corporation on Forms S-8 of
our reports dated January 31, 1997, appearing in this Annual Report on Form
10-K of Data Transmission Network Corporation for the year ended December
31, 1996.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 31, 1997
28
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Page
Number Item Number
- ------- ---- ------
<S> <C> <C>
3.(a) Certificate of Incorporation of Registrant *
3.(b) By-Laws of Registrant *
4.(a) Specimen certificate representing shares of common stock, *
$.001 par value, of Registrant
4.(b) Certificate of Incorporation of Registrant *
10.(a) Lease Agreement between the Registrant and Embassy Plaza *
Limited Partnership
10.(b) Registrant's Stock Option Plan of 1989 *
10.(c) Registrant's Non-Employee Directors Stock Option Plan *
10.(d) Form of indemnification agreement between the Registrant *
and the Officers and Directors of the Registrant
10.(e) First Amendment to Registrant's Stock Option Plan of 1989 *
10.(f) First Amendment to Registrant's Non-Employee Directors *
Stock Option Plan
10.(g) Second Amendment to Registrant's Stock Option Plan of 1989 *
10.(h) Second Amendment to Registrant's Non-Employee Directors *
Stock Option Plan
10.(i) Loan Agreement dated October 9, 1992 *
10.(j) First Amendment to Loan Agreement dated October 9, 1992 *
10.(k) Independent Sales Representative Agreement with Phil *
Huston dated March 28, 1990
10.(l) First Amendment dated March 1, 1991 to Independent Sales *
Representative Agreement with Phil Huston
10.(m) Amendment to Independent Sales Representative Agreement *
with Phil Huston
10.(n) Third Amendment to Registrant's Stock Option Plan of 1989 *
10.(o) Third Amendment to Registrant's Non-Employee Directors *
Stock Option Plan
10.(p) Fourth Amendment to Registrant's Stock Option Plan of 1989 *
10.(q) Fourth Amendment to Registrant's Non-Employee Directors *
Stock Option Plan
10.(r) Restated Loan Agreement dated November 8, 1993 *
10.(s) Restated Security Agreement dated November 8, 1993 *
10.(t) Restated and amended Non-Employee Directors Stock Option Plan *
10.(u) First Amendment to Restated Loan Agreement dated November 8, 1993 *
10.(v) Second Amendment to Restated Loan Agreement dated November 8, 1993 *
10.(w) Third Amendment to Restated Loan Agreement dated November 8, 1993 *
10.(x) Fourth Amendment to Restated Loan Agreement dated November 8, 1993 *
10.(y) Lease agreement with The Prudential Insurance Company of America *
dated August 30, 1994
10.(z) First amendment to Lease Agreement dated August 30, 1994 *
10.(aa) Senior Subordinated Note between Registrant and The Prudentiaal Insurance *
Company of America dated June 30, 1994
10.(ab) Fifth Amendment to the Restated Loan Agreement dated November 8, 1993 *
10.(ac) Sixth Amendment to the Restated Loan Agreement dated November 8, 1993 *
10.(ad) Lease agreement with The Prudential Insuance Company of America *
dated May 2, 1995
</TABLE>
29
<PAGE>
<TABLE>
<S> <C> <C>
10.(ae) First Amendment to Lease Agreeement dated May 2, 1995 *
10.(af) Restated Loan Agreement dated June 29, 1995 *
10.(ag) Purchase Agreement with Knight-Ridder Financial dated July 13, 1995 *
10.(ah) Adjustment to Indenpendent Sales Representative Agreement dated March 28, 1995 *
with Phil Huston
10.(ai) Senior Subordinated Notes and Warrant Purchase Agreement dated June 30, 1994 *
10.(aj) First Amendment to Senior Subordinated Notes and Warrant Purchase Agreement dated *
June 30, 1994
10.(ak) Independent Sales Representative Agreement dated September 1, 1996 1
10.(al) Second Amendment to Lease Agreement dated May 2, 1995 13
10.(am) Third Amendment to Lease Agreement dated May 2, 1995 19
10.(an) Fourth Amendment to Lease Agreement dated May 2, 1995 21
10.(ao) Revolving Credit Agreement dated June 28, 1996 25
10.(ap) First Amendment to the Revolving Credit Agreement dated June 28, 1996 76
10.(aq) Second Amendment to the Revolving Credit Agreement dated June 28, 1996 89
10.(ar) Term Credit Agreement dated May 3, 1996 105
10.(as) First Amendement to the Term Credit Agreement dated May 3, 1996 153
10.(at) Second Amendment to the Term Credit Agreement dated May 3, 1996 177
10.(au) Third Amendment to the Term Credit Agreement dated May 3, 1996 190
10.(av) Restated Security Agreement dated May 3, 1996 202
10.(aw) First Amendment to the Restated Security Agreement dated May 3, 1996 220
10.(ax) Second Amendment to the Restated Security Agreement dated May 3, 1996 224
10.(ay) Third Amendment to the Restated Security Agreement dated May 3, 1996 226
10.(az) Second Amendment to the Senior Subordinated Notes and Warranct Purchase Agreement dated 230
June 30, 1994
11. Statement re computation of income per share 233
13. Registrant's 1995 Annual Report to Stockholders 235
23. Consent of Deloitte & Touche LLP 279
27. Financial Data Schedule for year ended 12/31/96 280
99. Proxy Statement for the Annual Meeting of Stockholders 281
of the Registrant to be held April 23, 1997
<FN>
* - These documents have been incorporated by reference as indicated in Item
14(a) (3).
</FN>
</TABLE>
INDEPENDENT CONTRACTOR AGREEMENT
This Agreement ("Agreement") is entered into as of the 1st day of
September, 1996, by and among DATA TRANSMISSION NETWORK CORPORATION, a Delaware
corporation ("DTN"), HUSTON, INC., a South Dakota corporation (the
"Contractor"), and PHIL HUSTON ("Huston"), the Contractor's principal, on the
following terms and conditions:
ARTICLE 1
SUPERSEDES PRIOR AGREEMENT
This Agreement supersedes in its entirety that certain Independent
Sales Representative Agreement dated March 28, 1990, between DTN and Huston, as
previously assigned to Contractor, amended and supplemented. As of the date of
this Agreement, such prior agreement is void and of no further force or effect
and, regardless of any provisions in such prior agreement providing for
commissions to be paid after the expiration or termination of such agreement, no
further commissions are due thereunder except any due for the period prior to
the date of this Agreement.
ARTICLE 2
WORK TO BE PERFORMED BY CONTRACTOR
Section 2.01 Work to be Performed
Among other services offered by DTN, DTN provides pricing information
and communications services under the name of DTNergy(R) for the petroleum,
natural gas and electric power industries. For purposes of this Agreement, all
of such DTNergy(R) services and all future DTNergy(R) services offered by DTN
for the energy industries, if any, are hereinafter called the "Services". During
the term of this Agreement, Contractor agrees to use its best efforts to (i)
solicit and retain customers and potential customers of the Services and (ii)
undertake, for and on behalf of and to the extent requested by DTN, to develop,
implement, supervise and control all of the sales and marketing functions of
DTNergy(R), including but not limited to recruitment and supervision of the
sales force to market the Services and the development and implementation of the
forms of promotion and marketing of the Services.
Section 2.02 Solicitation of Proposals
Contractor, its agents and employees shall use their best efforts to
solicit proposals for DTN from customers and potential customers of the
Services. All proposals obtained by Contractor for Services to be performed by
DTN promptly shall be submitted by
RCF\97964.3
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Contractor to DTN in such format as DTN may reasonably specify and shall be
subject to acceptance by DTN at its office in Omaha, Nebraska, by an authorized
employee of DTN. The parties hereto contemplate that proposals will generally be
submitted orally to DTN in a manner generally consistent with past practice. DTN
will inform Contractor from time to time of those employees of DTN who are
authorized to accept proposals for Services submitted by Contractor. Contractor
shall have no authority to accept any proposal for Services on behalf of DTN,
and DTN reserves the right to reject any proposal for Services in whole or in
part for any reason. All correspondence, documents and other materials relating
to a proposal for Services submitted by Contractor to DTN and accepted by DTN
shall be the sole and exclusive property of DTN. From time to time DTN shall
advise Contractor in writing of its then current sales policies; and promptly
after any change in any of the sales policies, DTN shall notify Contractor in
writing of such changes. Contractor shall have no authority to alter any of the
policies relating to the terms and conditions of sales and shall not solicit
proposals for Services on a basis which is inconsistent with the sales policies.
DTN shall periodically consult with and seek the input of Contractor regarding
the sales policies of DTN.
Section 2.03 Control of Work
Contractor and DTN expressly agree that neither Contractor nor any of
Contractor's employees are to be considered employees of DTN, either directly or
indirectly. Subject to the terms and conditions set forth in this Agreement,
Contractor has the sole right to determine the methods, details and means of
performing the above-described work, subject to the control of DTN as to the
results of such work. Contractor has the sole right to hire and exclusively
exercise appropriate management control of its employees, including setting the
wages, hours and working conditions of its employees.
Section 2.04 Contractor's Commitment of Time
Contractor retains the right to perform work for other clients, persons
or companies as Contractor sees fit consistent with Contractor's obligations to
DTN under this Agreement.
Section 2.05 Time and Place of Performance
The Contractor shall be permitted to maintain its office and to perform
its duties and responsibilities pursuant to this Agreement in such reasonable
geographical location as the Contractor may select. Contractor shall have
exclusive control over the hours and other working conditions of its employees.
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Section 2.06 Materials and Equipment
Contractor agrees to provide all special materials and equipment that
are needed by it to perform the work under this Agreement.
Section 2.07 Licensing
Contractor agrees to obtain, and to keep valid and in force at all
times after the date of this Agreement, all licenses or permits required by law
to perform the work contemplated by this Agreement. Contractor agrees to notify
DTN immediately if any required license expires or is withdrawn for any reason
by the licensing authority. Upon request from DTN, Contractor agrees to promptly
provide proof that its licenses and/or permits remain valid.
Section 2.08 Legal Compliance
Contractor agrees to perform all work in compliance with all applicable
federal, state and local laws and regulations, including those governing the
health and safety of Contractor's employees.
Section 2.09 Insurance
Contractor shall purchase and maintain, at its sole cost and expense,
during the term of this Agreement, the following insurance:
A) Worker's Compensation Insurance in accordance with law. Such policy
must contain a waiver of the insurer's subrogation rights against DTN, where
permitted by law.
B) Commercial General Liability Insurance coverage with the following
minimums:
1) Per occurrence - minimum $1,000,000;
2) Personal injury limit - minimum $1,000,000;
3) Products and completed operations aggregate limit -
minimum $1,000,000; and
4) General aggregate limit - minimum $1,000,000.
This insurance shall name DTN, its officers, employees and agents, as additional
insureds and provide that such insurance is primary coverage as respects all
insureds.
C) Contractor shall, before commencing the work, provide DTN
with certificates or other documentary evidence of the above insurance,
satisfactory to DTN. Certificates must be signed by an authorized representative
of Contractor's insurance carrier and
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state that no cancellation of insurance will be effective without 10 days
advance written notice to DTN. Contractor shall immediately notify DTN of any
material change affecting coverages or limits afforded DTN under the insurance
requirements.
Section 2.10 Taxes
Contractor is responsible for payment and/or withholding of any taxes
(including all federal, state and local employment taxes applicable to
Contractor's employees), now or hereafter enacted, applicable to any services
provided under this Agreement, or to any transactions contemplated hereby. In no
event shall DTN be responsible for payment of any taxes relating to Contractor
or Contractor's employees.
Section 2.11 Activities Report
At the request of DTN from time to time, Contractor shall report to
DTN, in such form and reasonable detail as DTN shall request, on Contractor's
activities undertaken pursuant to this Agreement.
Section 2.12 Sales and Other Materials
DTN shall furnish to Contractor from time to time such promotional and
other sales material, reporting and other forms, price lists, and other
documents and materials as DTN may consider necessary or appropriate for
Contractor's use in performing its duties pursuant to this Agreement. All of
such items shall remain the sole and exclusive property of DTN and, except to
the extent consumed in the course of Contractor's proper performance of its
duties pursuant to this Agreement, promptly shall be returned to DTN by
Contractor upon the termination of this Agreement. Upon the termination of this
Agreement, DTN shall have the right to withhold any commission payments then or
thereafter due Contractor until Contractor has complied with the requirements of
the preceding sentence.
ARTICLE 3
FEE OR PAYMENT FOR WORK
Section 3.01 General
In consideration for the work performed and services provided by
Contractor pursuant to this Agreement, DTN agrees to pay Contractor forty
percent (40%) of the Adjusted Net Earnings (as hereinafter defined) for each
month during the term of this Agreement; provided, however, that each of the
first twenty-four (24) monthly payments shall be reduced by Fifty Thousand
Dollars ($50,000.00). For purposes of such computations, the "Adjusted Net
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Earnings" for each such month shall be determined as follows. The total revenues
for the Services for such month, determined on the accrual method, shall be
reduced by (i) all operating expenses of DTN resulting from or relating to the
business of providing the Services (the "DTNergy Business") for such month,
determined on the accrual method, but excluding the Sales Expenses (as
hereinafter defined), (ii) all depreciation, amortization and interest expenses
allocated by DTN to the DTNergy Business for such month, (iii) twelve and
one-half percent (12.5%) of the sum of the amounts computed under clauses (i)
and (ii) above for such month (provided that in the event the accounting rules
require an expense associated with the issuance of stock options to DTN
employees, such expense shall be deleted from the sum before being multiplied by
12.5%), and (iv) the sum of $40,000. For purposes of this Agreement, the "Sales
Expenses" shall be all expenses incurred by DTN in connection with or relating
to the sales, marketing or promotion of the DTNergy Business, including but not
limited to the compensation, office expenses, and travel expenses with respect
to those employees of DTN whose duties involve or relate to the sales, marketing
or promotion of the DTNergy Business, the commissions, sales costs and other
expenses relating to the sales force to the extent incurred by DTN with respect
to the DTNergy Business, and the expenses of DTN in connection with the
tradeshows and conventions relating to the marketing or promotion of the DTNergy
Business. Notwithstanding any provision to the contrary contained in this
Agreement, Contractor agrees to reimburse DTN from time to time for all Sales
Expenses incurred by DTN during the term of this Agreement upon presentation to
Contractor of a reasonably detailed itemization of such expenses with supporting
data. DTN may from time to time deduct the amount of the unreimbursed Sales
Expenses from the payments due Contractor from DTN pursuant to this Agreement.
DTN agrees not to implement a sales program that will incur significant expenses
for Contractor under the terms of this Section without the approval of
Contractor. For illustration purposes only, attached to this Agreement as
Exhibit A is an example of the Sales Expenses. It is understood that the
Adjusted Net Earnings shall be computed in accordance with accounting practices
regularly followed by DTN for the purposes of allocating indirect expenses
(including, but not limited to, corporate overhead and interest expense) and
capital expenditures to the various business segments or industries into which
DTN divides its services. For illustration purposes only, attached to this
Agreement as Exhibit B is an example of the computation of the payment which
would have applied using the Adjusted Net Earnings for the month of August of
1996. The payments by DTN referred to above shall cease upon the termination or
expiration of this Agreement for any reason whatsoever.
Section 3.02 Timing of Payments
The monthly payments referred to in Section 3.01 will be made in
arrears by DTN to Contractor on or before the last day of the
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month following the month for which the payment relates. Such payments shall be
accompanied by a written summary of DTN's computation of such payment.
Contractor may audit DTN's records for the sole purpose of verifying the
accuracy of DTN's payments. DTN will make such records available to Contractor
for inspection during normal working hours upon one week's prior written notice.
Contractor agrees that all of DTN's records will be treated as confidential and
will not be used for any purpose other than the audit.
Section 3.03. Expenses
Contractor agrees to bear full responsibility for all costs and
expenses incurred for performance of its work under this Agreement. In addition,
Contractor agrees to reimburse DTN for all Sales Expenses as provided in Section
3.01 above.
ARTICLE 4
INTELLECTUAL PROPERTY
Section 4.01 Proprietary Information
Contractor and Huston, recognizing that the work in which they will be
engaged under this Agreement may be of a proprietary nature, hereby agree as
follows:
A) That Contractor and Huston will not, during or after the
term of this Agreement, use, publish, disclose or utilize in any manner any
trade secrets information marked "proprietary", "confidential", "private",
"company private", or which may be proprietary to or a trade secret of DTN
obtained by Contractor or Huston while rendering services hereunder to DTN,
except such information that is otherwise properly published or in the public
domain; provided, however, that information which is published by or with the
aid of Contractor or Huston contrary to this paragraph is not considered to have
been properly published nor to be in the public domain for purposes hereof.
B) At the request of DTN, Contractor agrees to require its
employees to execute suitable non-disclosure agreements to support the foregoing
provisions.
C) Upon termination or expiration of this Agreement,
Contractor and Huston will return to DTN all material supplied by, or obtained
from DTN (including but not limited to financial and pricing information,
personnel records, customer information, customer lists, product and service
information, data processing and communications information, technical data,
drawings, specifications and descriptions) along with any copies made thereof.
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Section 4.02 Safeguarding DTN's Trade Secrets and Data
Contractor and Huston each agrees that it shall not use or divulge to
anyone either during the term of this Agreement or thereafter any of DTN's trade
secrets or other proprietary information of any kind whatsoever acquired by
Contractor or Huston in carrying out the terms of this Agreement.
Contractor and Huston each further agrees that upon completion or
termination of this Agreement, it will turn over to DTN or make such disposition
thereof as may be directed or approved by DTN, any notebook, data, information
or other material acquired or compiled by Contractor or Huston in carrying out
the terms of this Agreement and which contains trade secrets or other
proprietary information of DTN.
ARTICLE 5
RESTRICTIVE COVENANTS
Section 5.01 Solicitation of Employees
Contractor and Huston (being together considered as one party) and DTN
each agrees that, during the term of this Agreement and for a period of one (1)
year after the termination of this Agreement, it will not directly or indirectly
employ, solicit for employment, or advise or recommend to any other person or
entity that such other person or entity employ or solicit for employment any
person then employed by the other party to this Agreement.
Section 5.02 Diversion of Business
Contractor and Huston each agrees that, during the term of this
Agreement and for a period of one (1) year after the termination of this
Agreement, neither of them will cause, encourage, induce, or attempt to induce,
and neither of them will aid, assist, or abet any other party or person in
inducing or attempting to induce, directly or indirectly, any customer of DTN
with which they have actually done business and had personal contact during the
term of this Agreement to terminate or change in a manner adverse to DTN any
existing relationship with DTN.
Section 5.03 Injunctive and Other Relief
Contractor and Huston (being together considered as one party) and DTN
each acknowledges that its agreements contained in Articles 4 and 5 hereto are
reasonable and necessary to protect the business of the other party hereto and
that any breach thereof will result in an irreparable injury for which there is
no adequate remedy at law. Each party therefore agrees that, in the event of its
breach of any of its agreements contained in Articles 4 and 5 hereto, the other
party shall be authorized and entitled to seek from any court
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of competent jurisdiction (i) a temporary restraining order, (ii) preliminary
and permanent injunctive relief, (iii) an equitable accounting of all profits or
benefits arising out of such breach, and (iv) direct, incidental, and
consequential damages arising from such breach. Such rights and remedies shall
be cumulative and in addition to any other rights or remedies to which the
non-breaching party may be entitled.
ARTICLE 6
INDEPENDENT CONTRACTOR STATUS
It is the parties' express intention that Contractor is an independent
contractor and not an employee, agent, joint venturer or partner of DTN. Subject
to the provisions of this Agreement, Contractor shall have complete control over
the manner in which Contractor performs its responsibilities under this
Agreement; however, Contractor at all times shall represent DTN in an ethical
and professional manner consistent with the highest industry standards and shall
maintain adequate facilities and personnel to enable Contractor to carry out
such responsibilities competently and professionally. Contractor does not have,
and shall not hold himself out as having, any authority to enter into any
contract or create any obligation or liability on behalf of, in the name of, or
binding upon DTN; and Contractor shall hold DTN harmless from any claims
resulting from any action taken by Contractor which is inconsistent with the
provisions of this sentence. Nothing contained in this Agreement, including but
not limited to the method of compensating Contractor, shall be deemed or
construed by anyone to create the relationship of principal and agent,
partnership, or joint venture between DTN and Contractor.
ARTICLE 7
TERM AND TERMINATION
Section 7.01 General
The term of this Agreement shall commence on September 1, 1996,
regardless of when signed by the parties, and shall continue until the first to
occur of any of the following events:
(i) notice from DTN if Huston for any reason, including but not
limited to death, disability or retirement, fails to
personally provide and perform to the best of his abilities
the primary responsibilities and obligations of Contractor
under this Agreement; provided, however, if Huston is
incapable of doing so by reason of physical injury, disease,
or mental illness, then DTN may elect to terminate this
Agreement only if such condition continues for a period of 120
consecutive days or more;
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(ii) the mutual written agreement of the parties hereto to
terminate this Agreement; or
(iii) notice from the non-defaulting party upon the failure of a
party to cure a default as provided in Section 7.02.
Section 7.02 Termination for Default
If a party defaults in the performance of its obligations hereunder,
and such default is not cured within thirty (30) days after written notice of
such default is provided by the non-defaulting party to the defaulting party,
then the non-defaulting party may, at its option, declare this Agreement
terminated and the term of this Agreement ended forthwith. The failure of a
party to give notice of a default shall not be a waiver thereof nor consent to
the continuation thereof.
ARTICLE 8
COVENANTS OF DTN
Section 8.01 Exclusivity of Contractor
DTN acknowledges and agrees that Contractor shall be the exclusive
representative for DTN for purposes of marketing the Services during the term of
this Agreement, except to the extent otherwise consented or agreed to by
Contractor.
Section 8.02 Licensing and Legal Compliance
DTN currently has and agrees to use its best efforts to keep in force
at all times during the term of this Agreement, all licenses or permits required
by law to allow DTN to fulfill its obligations under this Agreement, including,
but not limited to, the delivery of the Services. DTN agrees to perform its
obligations hereunder, operate the DTNergy(R) system and deliver the Services to
customers in compliance with all applicable federal, state and local laws and
regulations.
Section 8.03 Taxes
Subject to the provisions of Section 3.01, DTN is responsible for
payment and/or withholding of any taxes (including all federal, state and local
employment taxes applicable to DTN's employees), now or hereafter enacted,
applicable to the delivery of the Services to customers or the performance of
DTN's obligations under this Agreement. In no event shall Contractor be
responsible for payment of any taxes relating to DTN or DTN's employees, except
as provided in Section 3.01.
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ARTICLE 9
MISCELLANEOUS
Section 9.01 Entire Agreement
This Agreement constitutes the entire agreement between the parties
hereto, superseding all prior understandings, arrangements, and agreements,
whether oral or written, with respect to the engagement of Contractor or Huston
as a sales representative for DTN. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter of this
Agreement have been made by either party that are not expressly set forth in
this document. Huston executes this Agreement individually for the purpose of
agreeing to be bound by the terms and provisions of Articles 4 and 5 of this
Agreement.
Section 9.02 Amendment
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification, or discharge is in writing and has been signed
by a duly authorized officer of DTN. No waiver by either party to this Agreement
at any time of any breach by the other party to this Agreement of, or of such
other party's compliance with, any condition or provision of this Agreement to
be performed by such other party shall be deemed to be a waiver of similar or
dissimilar provisions or conditions at the same or any prior or subsequent time.
The failure of DTN to exercise any right under this Agreement in the event of a
breach by Contractor of any provision of this Agreement shall not be construed
as a waiver of such breach or prevent DTN from thereafter enforcing strict
compliance by Contractor with any and all provisions of this Agreement.
Section 9.03 Headings
The headings of the several paragraphs of this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
Section 9.04 Number and Gender
Unless the context otherwise retires, for all purposes of this
Agreement words in the singular include their plural, words in the plural
include their singular, and words of one gender include the other genders.
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Section 9.05 Notices
Any notice required or permitted under this Agreement shall be in
writing and shall be deemed to have been given on the date of its deposit in the
United States mail, registered or certified and postage prepaid, addressed to
such party at the address set forth below opposite its name. A party may change
its address for purposes of this Agreement at any time by giving written notice
of such change in accordance with this paragraph. DTN agrees to send a written
notice to Contractor within ten (10) days after DTN receives a letter of intent
or proposed acquisition agreement providing for a merger, consolidation or other
business combination pursuant to which DTN is not the surviving entity or an
acquisition pursuant to which a third party is to acquire substantially all of
the assets of the DTNergy Business. Notwithstanding the preceding sentence, DTN
has no obligation to continue to operate the DTNergy Business.
Section 9.06 Governing Law
This Agreement shall be governed by and construed in accordance with
the internal substantive laws of Nebraska. Any action brought to interpret or
enforce any provision of this Agreement shall be brought in the federal or state
courts situated in Douglas County, Nebraska, and all parties hereby consent to
venue and jurisdiction before such courts.
Section 9.07 Assignment
This Agreement is personal to Contractor, and Contractor may neither
assign this Agreement or any of Contractor's commission or other rights under
this Agreement nor delegate to anyone else (other than persons for whom
Contractor is responsible in the ordinary course of its business) the
performance of Contractor's duties under this Agreement.
Section 9.08 Binding Agreement
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, personal representatives, successors
and assigns; however, nothing contained in this paragraph shall permit any
assignment which otherwise is prohibited by this Agreement. If any provision of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remaining provisions will nevertheless continue in full
force without being impaired or invalidated in any way.
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IN WITNESS WHEREOF, DTN and Contractor have signed this Agreement as of
the date first set forth above.
Address of DTN for DATA TRANSMISSION NETWORK
notices: CORPORATION, a Delaware corporation
Data Transmission Network By:________________________________
Corporation Title:_____________________________
9110 West Dodge Road
Suite 200
Omaha, NE 68114
Attention: President
Address for Contractor HUSTON, INC.
and Huston for notices:
Mr. Phil Huston By:________________________________
260 Courtyard Drive, #316 Phil Huston, President
Dakota Dunes, SD 57049
------------------------------------
Phil Huston, principal of Huston,Inc
RCF\97964.3
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SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE (the "Amendment") is made and entered
into this ______ day of , 1996, by and between THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA ("Landlord"), having an address at One Prudential Plaza, Suite 1200,
Chicago, Illinois, 60601, and DATA TRANSMISSION NETWORK CORPORATION ("Tenant"),
having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114.
RECITALS
A. The Prudential Insurance Company of America and Data Transmission
Network Corporation entered into that certain Lease dated as of May 2,
1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340,
#360, and #362 containing 75,931 rentable square feet in the Building
known as Embassy Plaza, located at 9110 West Dodge Road, Omaha,
Nebraska ("the Premises").
B. Subsequently, The Prudential Insurance Company Of America and Data
Transmission Network Corporation executed a First Amendment To Lease
dated September 29, 1995.
C. All capitalized terms not defined herein shall have the meanings
ascribed to them in the Lease.
NOW, THEREFORE, in consideration of the foregoing promises and other
good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
1. PREMISES. The Premises shall be expanded to include: Suite 350,
effective October 20, 1995, measuring 472 RSF; and Suite 101, effective
December 1, 1995, measuring 291 RSF (the "Additional Premises"). Both
Suite 350 and Suite 101 are shown on the floor plans attached hereto,
marked as Exhibit "A-1" and "A-2", and by this reference made a part
hereof. Paragraph 1 of the "First Amendment To Lease" shall be revised
to reflect the following: As of October 20, 1995, the Premises shall
consist of 69,947 RSF; as of December 1, 1995, the Premises shall
consist of 70,238 RSF; as of July 1, 1996, the Premises shall consist
of 73,140 RSF; and as of January 1, 1998, the Premises shall consist of
83,284 RSF (the "Revised Premises").
2. Term. The term of the Lease with respect to Suite 350 and Suite 101
shall be that period of time commencing October 20, 1995, for Suite
350, and December 1, 1995, for Suite 101 and ending on May 31, 2005,
(the "Expiration Date").
3. Base Rent. Tenant shall pay as Base Rent for the Additional Premises
covered under this Amendment during the Term, the sum of One Hundred
and Seven Thousand, Seven Hundred and Nineteen Dollars and Sixty-Five
Cents ($107,719.65) payable monthly as follows:
October 20, 1995 - October 31, 1995 $224.58
November 1, 1995 - November 30, 1995 $580.17
December 1, 1995 - May 31, 2005 $937.85 / Month
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4. Tenant Improvements. Landlord shall provide a tenant improvement
allowance of up to $4,729.44 for Suite 350, and up to $3,291.21 for
Suite 101, to be applied toward the cost of Tenant's required building
improvements. All improvements shall be performed in accordance with
the Tenant Improvement Work Schedule attached hereto, marked as Exhibit
"B", and by this reference made a part hereof.
5. Tenant's Proportionate Share. The schedule of Tenant's Proportionate
Share contained in Item D of the Basic Terms of the Lease shall be
replaced with the following schedule:
May 1, 1995 - May 31, 1995 46.37% (60,361 RSF / 130,173 RSF)
June 1, 1995 - September 30, 1995 50.44% (65,787 RSF / 130,436 RSF)
October 1, 1995 - October 19, 1995 53.05% (69,475 RSF / 130,950 RSF)
October 20, 1995 - November 30,1995 53.42% (69,947 RSF / 130,950 RSF)
December 1, 1996 - June 30, 1996 53.64% (70,238 RSF / 130,950 RSF)
July 1, 1996 - December 31, 1997 55.79% (73,140 RSF / 131,094 RSF)
January 1, 1998 - May 31, 2005 63.53% (83,284 RSF / 131,094 RSF)
6. Adjustment Rent. Effective with commencement of the Term for Suites 350
and 101, Tenant shall pay Adjustment Rent in accordance with the terms
and conditions contained in Paragraph 2 of the Lease.
7. Effect of Agreement. Except as herein specifically provided, the terms
and conditions of the Lease shall continue in full force and effect.
8. This Amendment shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns.
9. The parties hereto hereby reaffirm and ratify all covenants,
representations and warranties in the Lease as amended by this
Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the day and year first above written.
Tenant: Landlord:
Data Transmission Network Corporation, the Prudential Insurance Company
a Delaware corporation of America, a New Jersey corporation
By: Pacific Realty Group, Inc.,
By: its Managing Agent
Its: By:
Its:
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<PAGE>
EXHIBIT "B" to be made a part of a Second Amendment To Lease between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord), and DATA TRANSMISSION
NETWORK CORPORATION (Tenant), dated , 1995. (Page 1 of 2)
TENANT IMPROVEMENTS WORK SCHEDULE
ARTICLE I
Landlord's Construction Obligations
Landlord shall have no construction obligations under this Amendment.
Tenant accepts the Additional Premises in an "as is" condition, with all faults
and with the understanding that it shall be responsible for any and all
improvements required for its occupancy and use in accordance with Article II of
this Exhibit "B".
ARTICLE II
Construction of Tenant Improvements
Tenant shall have the right to place partitions and fixtures and make
improvements or other alterations in the Additional Premises in accordance with
the provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a
tenant finish allowance of up to Seven Thousand, Nine Hundred and Ninety-One
Dollars and Seventy-Eight Cents ($7,991.78) to be applied toward the cost of any
such tenant-provided improvements as follows:
1. The tenant finish allowance shall be paid in periodic installments, not
more frequently than once per month, equal to the total of the contractor's or
consultant's invoice amounts for improvements made to the Additional Premises,
excluding any furnishings or business equipment (such as computers,
satellite/microwave dish, office equipment, etc.), as submitted by Tenant and
verified to Landlord's reasonable satisfaction; provided, however, that such
payments will be made only if Tenant is not then in Default under the terms of
this Lease and invoices are accompanied by lien waivers in the amount equal to
that of the invoices. The tenant finish allowance shall be allocated and
distributed subject to the provisions of this Exhibit "B" as follows:
October 20, 1995 - February 28, 1996 Up To $7,991.78
2. Upon the earlier of the end dates identified in the allocation schedule
specified in Paragraph 1 above, or the satisfaction of all obligations
associated with the tenant improvements covered under this Article II and
receipt of the associated lien waivers for the work, the Tenant shall forfeit
any unused portion of the allowance. Any requests for payment received by the
Landlord after the above specified end dates, will be returned to the Tenant and
will be the obligation and sole responsibility of the Tenant.
3. In addition to the provisions set forth in Paragraph 9 of the
Lease, Tenant's contractor shall (and its contract shall so
provide):
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<PAGE>
(a) conduct its work in such a manner so as not to unreasonably
interfere with other tenants in the Building, Building operations,
or any other construction occurring on or in the Building or the
Premises;
(b) execute a set of and comply with all rules and regulations
relating to the construction activities in or on the Building as
may be reasonably promulgated from time to time by Landlord or its
agents;
(c) maintain such insurance (such as general liability and workman's
compensation) and bonds (such as performance and completion) in
force and effect as may be reasonably requested by Landlord or as
required by applicable law (but in any event said bonds shall be
in amounts equal to the full value or cost of the work being done
by the Tenant contractor);
EXHIBIT "B" to be made a part of a Second Amendment To Lease between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA (Landlord), and DATA TRANSMISSION
NETWORK CORPORATION (Tenant), dated , 1995. (Page 2 of 2)
(d) be responsible for reaching an agreement with Landlord and its
agents as to the terms and conditions for all contractor items
relating to the conducting of its work, including but not limited
to, those matters relating to hoisting, systems interfacing, use
of temporary utilities, storage of materials, placement of
dumpsters, access to the Premises and the Building, and the
purchase and return of Building standard materials.
(e) Upon completion of any tenant improvements, Tenant shall promptly
furnish Landlord with sworn owner's and contractors' statements
and full and final waivers of lien covering all labor and
materials included in such improvements. Tenant shall not permit
any mechanic's lien to be filed against the Building, or any part
thereof, arising out of any improvement performed, or alleged to
have been performed, by or on behalf of Tenant. If any such lien
is filed, Tenant shall within ten (10) days thereafter have such
lien released of record or deliver to Landlord a bond in form,
amount, and issued by a surety satisfactory to Landlord,
indemnifying Landlord against all costs and liabilities resulting
from such lien and the foreclosure or attempted foreclosure
thereof. If Tenant fails to have such lien so released or to
deliver such bond to Landlord, Landlord, without investigating the
validity of such lien, may pay or discharge the same; and Tenant
shall reimburse Landlord upon demand for the amount so paid by
Landlord, including Landlord's expenses and attorney's fees.
4. Landlord shall have the right to approve all subcontractors to be used
by the Tenant's contractor, which approval shall not be unreasonably withheld as
long as such subcontractors satisfy the requirements of this Article II.
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<PAGE>
5. Tenant shall indemnify and hold harmless Landlord, its agents,
contractors (including Building Contractor), and any mortgagee of Landlord, from
and against any and all losses, damages, costs (including costs of suit and
attorneys' fees), liabilities, or causes of action for injury to or death of any
person, for damage to any property, and for mechanic's materialmen's or other
liens or claims arising out of or in connection with the work done by the
Tenant's contractor (and Tenant's contractor's subcontractors and
sub-subcontractors) under its contract with Tenant.
6. The failure by Tenant, after receiving written notice, to materially
comply with any of the provisions of Article II of this Exhibit shall constitute
a Default by Tenant under the terms of the Lease and Landlord shall have the
benefit of all remedies provided for in the Lease, except Tenant shall have a
thirty (30) day right to cure Default upon receipt of written notice .
7. Upon completion of the Tenant Improvements, Tenant shall deliver to
Landlord two (2) copies of the "as built" plans and specifications for the
Tenant Improvements completed under Article II of this Exhibit within thirty
(30) days of completing the same.
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<PAGE>
THIRD AMENDMENT TO LEASE
THIS THIRD AMENDMENT TO LEASE (the "Amendment") is made and entered
into this ______ day of , 1996, by and between THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA ("Landlord"), having an address at One Prudential Plaza, Suite 1200,
Chicago, Illinois, 60601, and DATA TRANSMISSION NETWORK CORPORATION ("Tenant"),
having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114.
RECITALS
A. The Prudential Insurance Company of America and Data Transmission
Network Corporation entered into that certain Lease dated as of May 2,
1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340,
#360, and #362 containing 75,931 rentable square feet in the Building
known as Embassy Plaza, located at 9110 West Dodge Road, Omaha,
Nebraska ("the Premises").
B. Subsequently, The Prudential Insurance Company Of America and Data
Transmission Network Corporation executed a First Amendment To Lease
dated September 29, 1995, and a Second Amendment To Lease dated
November 30, 1995. The combined terms of the Lease and subsequent
Amendments shall herein be referred to as the "Lease".
C. All capitalized terms not defined herein shall have the meanings
ascribed to them in the Lease.
NOW, THEREFORE, in consideration of the foregoing promises and other
good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
1. Term. The Commencement Date of the Lease, with respect to Space "B",
shall be revised to be that period of time commencing February 5, 1996
and ending on May 31, 2005, (the "Expiration Date").
2. Base Rent. Paragraph 3 of the First Amendment To Lease shall be revised
to read: Tenant shall pay as Base Rent with respect to Space "A" and
Space "B", the sum of Nine Hundred Twenty-Six Thousand, Forty Dollars
and Four Cents ($926,040.04) payable monthly as follows:
October 1, 1995 - January 31, 1996 $4,533.17 / Month Feburary
1, 1996 - February 29, 1996 $7,816.69 / Month March 1, 1996 -
June 30, 1996 $8,342.05 / Month July 1, 1996 - May 31, 2005
$8,100.21 / Month
3. Adjustment Rent. With respect to the Space "B", Effective July 1, 1996,
Tenant shall pay Adjustment Rent in accordance with the terms and
conditions contained in Paragraph 2 of the Lease.
4. Effect of Agreement. Except as herein specifically provided, the terms
and conditions of the Lease shall continue in full force and effect.
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<PAGE>
5. This Amendment shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns.
6. The parties hereto hereby reaffirm and ratify all covenants,
representations and warranties in the Lease as amended by this
Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the day and year first above written.
Tenant: Landlord:
Data Transmission Network Corporation, The Prudential Insurance Company of
a Delaware corporation America, a New Jersey corporation
By: Pacific Realty Group, Inc.,
By: its Managing Agent
Its: By:
Its:
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<PAGE>
FOURTH AMENDMENT TO LEASE
THIS FOURTH AMENDMENT TO LEASE (the "Amendment") is made and entered
into this ______ day of , 1996, by and between LAFP-SF, Inc., successor in
interest to The Prudential Insurance Company Of America ("Landlord"), having an
office c/o Lowe Enterprises Colorado, Inc., 1475 Lawrence Street, Suite 210,
Denver, Colorado 80202, and Data Transmission Network Corporation ("Tenant"),
having an office at 9110 West Dodge Road, Suite 200, Omaha, Nebraska 68114.
RECITALS
A. The Prudential Insurance Company of America and Data Transmission
Network Corporation entered into that certain Lease dated as of May 2,
1995, for Suites #175A, #110, #200, #300, #301, #310, #320, #325, #340,
#360, and #362 containing 75,931 rentable square feet in the Building
known as Embassy Plaza, located at 9110 West Dodge Road, Omaha,
Nebraska ("the Premises").
B. Subsequently, The Prudential Insurance Company Of America and Data
Transmission Network Corporation executed a First Amendment To Lease
dated September 29, 1995, a Second Amendment To Lease dated November
30, 1995, and a Third Amendment To Lease dated January 5, 1996. The
combined terms of the Lease and subsequent Amendments shall herein be
referred to as the "Lease". Under the Lease the Premises consists of a
total of 83,284 RSF.
C. All capitalized terms not defined herein shall have the meanings
ascribed to them in the Lease.
NOW, THEREFORE, in consideration of the foregoing promises and other
good and valuable considerations, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto covenant and agree as follows:
1. Premises. Effective January 1, 1997, the Premises shall be expanded to
include Suite 350A, measuring 3,348 RSF; Suite 350B, measuring 710 RSF;
and the contiguous corridor area, measuring 794 RSF; for a total of
4,852 RSF as shown on the floor plan attached hereto, marked Exhibit
"A" (the "Additional Space") and by this reference made a part hereof.
Notwithstanding the above, both Tenant and Landlord understand that
Travelers Insurance Company currently leases Suite 350A and Suite 350B,
with such lease expiring December 31, 1996. Should Travelers holdover
and not vacate Suites 350A and/or 350B by January 1, 1997, Landlord
will make reasonable efforts to pursue its legal remedies to have
Travelers removed from the space. If the Additional Space is delivered
to Tenant after January 1, 1997, Landlord and Tenant shall execute a
Commencement Date Certificate in the form attached hereto as Exhibit
"C", confirming Landlord's delivery of the Additional Space and
commencement of the Lease with respect to the Additional Space.
2. Term. The term of the Lease with respect to the Additional Space
identified in Paragraph 1 above shall commence January 1, 1997, and
terminate upon termination of the Lease.
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<PAGE>
3. Base Rent. Tenant shall pay as Base Rent for the Additional Space
during the Term the sum of Six Hundred and Two Thousand, Three Hundred
Fifty-five Dollars and Ninety-Two Cents ($602,355.92) payable monthly
as follows:
January 1, 1997 - May 31, 2005 $5,963.92 / Month
4. Adjustment Rent. Effective upon commencement of the Term for the
Additional Space, Tenant shall pay Adjustment Rent with respect to the
Additional Space in accordance with the terms and conditions contained
in Paragraph 2 of the Lease.
5. Tenant Improvements. Landlord shall provide a tenant improvement
allowance of up to $48,600.19 to be applied toward the cost of Tenant's
required building improvements. All improvements shall be performed in
accordance with the Tenant Improvement Work Schedule attached hereto,
marked as Exhibit "B", and by this reference made a part hereof.
6. Tenant's Proportionate Share. The schedule of Tenant's Proportionate
Share contained in Item D of the Basic Terms of the Lease shall be
replaced with the following schedule:
January 1, 1997 - December 31, 1997 59.13% (77,990 RSF / 131,888 RSF)
January 1, 1998 - May 31, 2005 66.83% (88,136 RSF / 131,888 RSF)
7. Effect of Agreement. Except as herein specifically provided, the terms
and conditions of the Lease shall continue in full force and effect
6. This Amendment shall be binding upon and inure to the benefit of the
parties hereto, their successors and assigns.
7. The parties hereto hereby reaffirm and ratify all covenants,
representations and warranties in the Lease as amended by this
Amendment.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment as
of the day and year first above written.
Tenant: Landlord:
Data Transmission Network Corporation, LAFP-SF, Inc.
a Delaware corporation
By: Lowe Enterprises Investment
Management, Inc.
By: Its: Authorized Agent
Its: By:
Its:
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EXHIBIT "B" to be made a part of a Fourth Amendment To Lease between LAFP-SF,
INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated ,
1996. (Page 1 of 2)
TENANT IMPROVEMENTS WORK SCHEDULE
ARTICLE I
Landlord's Construction Obligations
Landlord shall have no construction obligations under this Amendment.
Tenant accepts the Additional Premises in an "as is" condition, with all faults
and with the understanding that it shall be responsible for any and all
improvements required for its occupancy and use in accordance with Article II of
this Exhibit "B".
ARTICLE II
Construction of Tenant Improvements
Tenant shall have the right to place partitions and fixtures and make
improvements or other alterations in the Additional Space in accordance with the
provisions of Paragraph 9 of the Lease. Landlord shall provide Tenant a tenant
finish allowance of up to Forty Eight Thousand, Six Hundred Dollars and Nineteen
Cents ($48,600.19) to be applied toward the cost of any such tenant-provided
improvements as follows:
1. The tenant finish allowance shall be paid in periodic installments, not
more frequently than once per month, equal to the total of the contractor's or
consultant's invoice amounts for improvements made to the Additional Space,
excluding any furnishings or business equipment (such as computers,
satellite/microwave dish, office equipment, etc.), as submitted by Tenant and
verified to Landlord's reasonable satisfaction; provided, however, that such
payments will be made only if Tenant is not then in Default under the terms of
this Lease and invoices are accompanied by lien waivers in the amount equal to
that of the invoices. The tenant finish allowance shall be allocated and
distributed subject to the provisions of this Exhibit "B" as follows:
January 1, 1997 - December 31, 1997 Up To $48,600.19
2. Upon the earlier of the end date identified in the allocation schedule
specified in Paragraph 1 above, or the satisfaction of all obligations
associated with the tenant improvements covered under this Article II and
receipt of the associated lien waivers for the work, the Tenant shall forfeit
any unused portion of the allowance. Any requests for payment received by the
Landlord after the above specified end dates, will be returned to the Tenant and
will be the obligation and sole responsibility of the Tenant.
3. In addition to the provisions set forth in Paragraph 9 of the
Lease, Tenant's contractor shall (and its contract shall so
provide):
(a) conduct its work in such a manner so as not to unreasonably
interfere with other tenants in the Building, Building operations,
or any other construction occurring on or in the Building or the
Premises;
(b) execute a set of and comply with all rules and regulations
relating to the construction activities in or on the Building as
may be reasonably promulgated from time to time by Landlord or its
agents;
(c) maintain such insurance (such as general liability and workman's
compensation) and bonds (such as performance and completion) in
force and effect as may be reasonably requested by Landlord or as
required by applicable law (but in any event said bonds shall be
in amounts equal to the full value or cost of the work being done
by the Tenant contractor);
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EXHIBIT "B" to be made a part of a Fourth Amendment To Lease between LAFP-SF,
INC. (Landlord), and DATA TRANSMISSION NETWORK CORPORATION (Tenant), dated ,
1996. (Page 2 of 2)
(d) be responsible for reaching an agreement with Landlord and its
agents as to the terms and conditions for all contractor items
relating to the conducting of its work, including but not limited
to, those matters relating to hoisting, systems interfacing, use
of temporary utilities, storage of materials, placement of
dumpsters, access to the Premises and the Building, and the
purchase and return of Building standard materials.
(e) Upon completion of any tenant improvements, Tenant shall promptly
furnish Landlord with sworn owner's and contractors' statements
and full and final waivers of lien covering all labor and
materials included in such improvements. Tenant shall not permit
any mechanic's lien to be filed against the Building, or any part
thereof, arising out of any improvement performed, or alleged to
have been performed, by or on behalf of Tenant. If any such lien
is filed, Tenant shall within ten (10) days thereafter have such
lien released of record or deliver to Landlord a bond in form,
amount, and issued by a surety satisfactory to Landlord,
indemnifying Landlord against all costs and liabilities resulting
from such lien and the foreclosure or attempted foreclosure
thereof. If Tenant fails to have such lien so released or to
deliver such bond to Landlord, Landlord, without investigating the
validity of such lien, may pay or discharge the same; and Tenant
shall reimburse Landlord upon demand for the amount so paid by
Landlord, including Landlord's expenses and attorney's fees.
4. Landlord shall have the right to approve all subcontractors to be used
by the Tenant's contractor, which approval shall not be unreasonably withheld as
long as such subcontractors satisfy the requirements of this Article II.
5. Tenant shall indemnify and hold harmless Landlord, its agents,
contractors (including Building Contractor), and any mortgagee of Landlord, from
and against any and all losses, damages, costs (including costs of suit and
attorneys' fees), liabilities, or causes of action for injury to or death of any
person, for damage to any property, and for mechanic's materialmen's or other
liens or claims arising out of or in connection with the work done by the
Tenant's contractor (and Tenant's contractor's subcontractors and
sub-subcontractors) under its contract with Tenant.
6. The failure by Tenant, after receiving written notice, to materially
comply with any of the provisions of Article II of this Exhibit shall constitute
a Default by Tenant under the terms of the Lease and Landlord shall have the
benefit of all remedies provided for in the Lease, except Tenant shall have a
thirty (30) day right to cure Default upon receipt of written notice .
7. Upon completion of the Tenant Improvements, Tenant shall deliver to
Landlord two (2) copies of the "as built" plans and specifications for the
Tenant Improvements completed under Article II of this Exhibit within thirty
(30) days of completing the same.
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1996 REVOLVING CREDIT AGREEMENT
This 1996 Revolving Credit Agreement (the "Agreement") is entered into
as of the 28th day of June, 1996, among DATA TRANSMISSION NETWORK CORPORATION, a
Delaware corporation having its principal place of business at Suite 200, 9110
West Dodge Road, Omaha, Nebraska 68114 (the "Borrower"), FIRST NATIONAL BANK OF
OMAHA, a national banking association having its principal place of business at
One First National Center, Omaha, Nebraska 68102 ("FNB-O"), FIRST NATIONAL BANK,
WAHOO, NEBRASKA, a national banking association having its principal place of
business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under
the laws of the State of Michigan and having its principal place of business at
611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA,
N.A., a national banking association having its principal place of business at
20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FARM CREDIT SERVICES
OF THE MIDLANDS, PCA, a production credit association ("Farm Credit") in care of
AGAMERICA, FCB, a farm credit bank doing business at 206 South 19th Street,
Omaha, Nebraska 68102-1745, THE SUMITOMO BANK, LIMITED, a Japanese bank being
represented by its office at 200 North Broadway, Suite 1625, St. Louis, Missouri
63102 and acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST.
LOUIS, N.A., a national banking association having its principal place of
business at One Mercantile Center, 7th and Washington Streets, St. Louis,
Missouri 63101 ("Mercantile"), FIRST BANK, NATIONAL ASSOCIATION (successor in
interest to FirsTier Bank, National Association), a national banking association
having its principal place of business at 13th and M Streets, Lincoln, Nebraska
68508 ("First Bank") and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national
banking association having its principal place of business at One Boatmen's
Plaza, 800 Market Street, P.O. Box 236, St. Louis, Missouri 63166-0236
("Boatmen's").
WITNESSETH:
WHEREAS, the Borrower and certain of the Lenders (as such term is
hereinafter defined) are parties to a 1996 Term Credit Agreement dated as of May
3, 1996 (the "1996 Term Credit Agreement"), the proceeds of which were used to
acquire substantially all of the assets of Broadcast Partners, a general
partnership having its principal place of business in Des Moines, Iowa;
WHEREAS, the Borrower and certain of the Lenders are parties to a 1995
Restated Loan Agreement dated as of June 29, 1995, which 1995 Restated Loan
Agreement provided a revolving credit facility for general corporate purposes;
WHEREAS, the Borrower desires to increase and renew the revolving
credit facility which was the subject of the 1995 Restated Loan Agreement, and
to add certain additional Lenders as Lenders thereunder; and
1
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<PAGE>
WHEREAS, the parties do not intend for this 1996 Revolving Credit
Agreement to be deemed to extinguish any existing indebtedness of the Borrower
or to release, terminate or affect the priority of any security therefor, but
the parties do intend that this 1996 Revolving Credit Agreement shall supersede
and replace the terms of the above-referenced 1995 Restated Loan Agreement;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
I. DEFINITIONS
For purposes of this Agreement, the following definitions shall apply:
Acquisition
Notes: The Notes issued by the Borrower to the Term Lenders under the
Term Agreement, and all extensions, renewals and
substitutions, if any, of or for the same.
Advance: Any advance of funds to the Borrower by the Revolving Lenders
or any of them under the revolving credit facility provided in
this Agreement.
Agreement: This 1996 Revolving Credit Agreement dated as of June 28,
1996, between the Borrower and certain Lenders.
Base Rate: The floating interest rate announced from time to time by
FNB-O as its "National Base Rate," minus .75%. The National
Base Rate is set by FNB-O, solely in its discretion, to
reflect generally the rates charged by national money center
banks as their reference rates. (Previously, the rate was
announced by FNB-O as its "New York Base Rate.") Rates charged
by FNB-O may be at, above or below the National Base Rate, as
determined by FNB-O as to each respective customer.
Boatmen's: The Boatmen's National Bank of St. Louis, a national banking
association having its principal place of business at One
Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63166-
0236, and its successors and assigns.
Borrower: Data Transmission Network Corporation, a Delaware corporation
having its principal place of business at Suite 200, 9110 West
Dodge Road, Omaha, Nebraska 68114.
Broadcast
Partners: Broadcast Partners, a general partnership having its current
principal place of business at 11275 Aurora Avenue, Des
Moines, Iowa 50322.
2
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Business
Day: Any day other than a Saturday, Sunday or a legal holiday on
which banks in the State of Nebraska are not open for
business.
Change of
Control: (a) At any time when any of the equity securities of the
Borrower shall be registered under Section 12 of the
Securities Exchange Act of 1934 as amended from time to
time (the "Exchange Act"), (i) any person, entity or
"group" (within the meaning of Section 13(d)(3) of the
Exchange Act) (other than any person which is a management
employee, or any such "group" which consists entirely of
management employees, of the Borrower) being or becoming
the beneficial owner, directly or indirectly, of more than
50% of the voting stock of the Borrower, or (ii) a majority
of the members of the Borrower's board of directors (the
"Board") consisting of persons other than Continuing
Directors (as hereinafter defined); and (b) at any other
time, less than 50% of the voting stock of the Borrower
being owned beneficially, directly or indirectly, by
employees of the Borrower or its subsidiaries. As used
herein, the term "Continuing Director" means any member of
the Board on June 29, 1995 and any other member of the
Board who shall be recommended or elected to succeed a
Continuing Director by a majority of Continuing Directors
who are the members of the Board.
Collateral: All personal property of the Borrower described in the
Security Agreement, whether now owned or hereafter acquired,
including, without limitation:
(a) all of the Borrower's accounts, accounts receivable,
Subscriber contract rights, chattel paper, documents,
instruments, goods, inventory, equipment, general
intangibles; and
(b) all proceeds and products of the foregoing.
Conversion: This term shall have the meaning set forth in Section 2.4.
Converted
Notes: Any note evidencing Conversion under or of all or a portion of
the Revolving Credit Notes (or any such similar notes issued
to any additional Revolving Lenders hereinafter added to this
Agreement), and all extensions, renewals and substitutions of
or for the foregoing.
Default Rate: The floating interest rate announced from time to time by
FNB-O as its "National Base Rate" plus 4.0%. The National Base
Rate is set by FNB-O, solely in its discretion, to reflect
generally the rates charged by national money center banks as
their reference rates. (Previously, the rate was announced by
FNB-O as its "New York Base Rate.") Rates charged by FNB-O may
be at, above or below the National Base Rate, as determined by
FNB-O as to each respective customer.
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Existing
Term Notes: Those certain promissory notes from the Borrower to FNB-0,
FirsTier, FNB-W, NBD, Norwest and Boatmen's dated as of July
7, 1992, October 1, 1992, October 12, 1992, October 19, 1992,
November 3, 1992, January 4, 1993, February 9, 1993, April 16,
1993, July 8, 1993, August 30, 1994, November 29, 1994, and
February 27, 1995, and all extensions, renewals, and
substitutions of or for the foregoing.
Farm Credit: Farm Credit Services of the Midlands, PCA, a production
credit association organized under the laws of United States,
and having its principal place of business at 206 South 19th
Street, Omaha, Nebraska 68102.
First Bank: First Bank, National Association, a national banking
association having its principal place of business at 13th and
M Streets, Lincoln, Nebraska 68508, and its successors and
assigns (it being acknowledged that First Bank is the
successor in interest to FirsTier).
FNB-O: First National Bank of Omaha, a national banking association
having its principal place of business at One First National
Center, Omaha, Nebraska 68102, and its successors and assigns.
FNB-W: First National Bank, Wahoo, Nebraska, a national banking
association having its principal place of business at Wahoo,
Nebraska 68066, and its successors and assigns.
Fixed Rate
Notice: This term shall have the meaning set forth in Section 2.5.
Lenders: FNB-O, FNB-W, NBD, Norwest, Farm Credit, Sumitomo, Mercantile
and First Bank, in their capacity as Revolving Lenders under
this Agreement, the Term Lenders, lenders of the Related Bank
Debt, Boatmen's (as to Articles VI and VII and as to Section
8.6 only), and such additional lenders as may be added hereto
or thereto from time to time.
Make-Whole
Premium: An amount which shall be sufficient as determined by the
relevant Lender in good faith and on a reasonable basis and
certified to the Borrower in writing, to compensate the Lender
for any loss (including any lost yield), cost or expense
incurred by the Lender (i) in liquidating or redeploying
deposits or other funds acquired by the Lender to fund or
maintain the loan prepaid and (ii) in unwinding, amending,
cancelling or otherwise modifying or terminating any match
funding, swap or other arrangement entered into by the Lender
in connection with acquiring or maintaining the funding for
the loan prepaid.
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Mercantile: Mercantile Bank of St. Louis, N.A., a national banking
association having its principal place of business at One
Mercantile Center, 7th and Washington Streets, St. Louis,
Missouri 63101, and its successors and assigns.
NBD: NBD Bank, a bank organized under the laws of the State of
Michigan and having its principal place of business at 611
Woodward Avenue, Detroit, Michigan 48226, and its successors
and assigns.
Net Worth: The Borrower's consolidated net worth as determined in
accordance with generally accepted accounting principles plus
subordinated debt. For purposes of this definition,
"subordinated debt" means indebtedness of the Borrower which
is subordinate, in a manner satisfactory to the Lenders, to
the indebtedness due to the Lenders, and the repayment of
which is forbidden during the existence of any Event of
Default hereunder; provided however, that any such
indebtedness shall not be deemed subordinated debt to the
extent of the amount of principal payments that are due
thereon within one (1) year from the date of determination.
Norwest: Norwest Bank Nebraska, N.A., a national banking association
having its principal place of business at 20th and Farnam
Streets, Omaha, Nebraska 68102, and its successors and
assigns.
Notes: The Revolving Credit Notes, the Converted Notes, the Existing
Term Notes, the Acquisition Notes, and such additional similar
notes as may be issued to certain additional Lenders, and all
extensions, renewals, and substitutions of or for the
foregoing.
Operating
Cash Flow: The Borrower's consolidated average monthly earnings or loss
before interest, depreciation, amortization and taxes, less
current tax expense and plus or minus any non-ordinary
non-cash charges or credits to earnings, which average shall
be based on the Borrower's actual financial results in the two
(2) full calendar months preceding the date of determination.
For purposes of calculating Operating Cash Flow for this
Agreement, the Borrower shall not permit deferred commission
expenses to be capitalized for any period in excess of twelve
(12) months.
Operative
Documents: This Agreement, the Notes, the Security Agreement, the
financing statements regarding the Collateral and the
documents and certificates delivered pursuant to Section 5.1.
Principal
Loan Amount: As to the Revolving Credit Notes, the aggregate principal
amount of all unpaid Advances outstanding at any time (not
including the unpaid balance under the Existing Term Notes or
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any Acquisition Notes, or any amounts converted to a term loan
hereunder), and as to Converted Notes hereunder, the unpaid
principal amount thereof.
Purchase
Agreement: The Asset Purchase and Sale Agreement dated as of May 3, 1996,
between the Borrower and Broadcast Partners, as amended from
time to time.
Quarterly
Compliance
Certificate: The certificate delivered to the Lenders by the Borrower
pursuant to Section 4.1(d).
Related
Bank Debt: The aggregate unpaid balance of all indebtedness, now or here-
after existing (including future advances) under the Related
Loan Agreement, including, without limitation, the amounts
outstanding under those certain promissory notes from the
Borrower to FNB-O, FirsTier and FNB-W dated as of October 13,
1992 and December 7, 1992, and all extensions, renewals, and
substitutions of or for the foregoing.
Related
Loan
Agreement: The Loan Agreement dated as of October 9, 1992, between the
Borrower and FNB-O, FirsTier and FNB-W and any loan agreements
issued in extension, renewal, replacement, or restatement of
the foregoing.
Release: The Federal Reserve Statistical Release.
Restricted
Quarter: Has the meaning set forth in Section 2.5 hereof.
Revolving
Credit Notes: The Notes issued to the Revolving Lenders pursuant to Section
2.1, and such additional similar notes as may be issued to
Revolving Lenders hereinafter added to this Agreement by
mutual written agreement of the parties, and all extensions,
renewals, and substitutions of or for the same. Such notes
shall be in the form of Exhibit A hereto.
Revolving
Credit Rate: The Base Rate plus the applicable margin as determined
pursuant to Section 2.3.
Revolving
Lenders: FNB-O, FNB-W, NBD, Norwest, Farm Credit, Sumitomo, Mercantile
and First Bank and such additional Revolving Lenders as may be
added as Revolving Lenders under Section 2.1 hereto from time
to time by mutual written agreement of the parties.
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Security
Agreement: The 1996 Restated Security Agreement dated as of May 3, 1996
between the Borrower and FNB-O, as agent for the Lenders, as
amended from time to time.
Subscribers: Those customers of the Borrower which have subscribed for the
Borrower's "Basic DTN Subscription Service" and/or "Farm Dayta
Service" and/or other similar services and who are not in
default of their payment or other obligations with respect
thereto.
Subsidiary: Any corporation business association, partnership, joint
venture, limited liability company or other business entity in
which the Borrower, or one or more of its Subsidiaries, or the
Borrower and one or more of its Subsidiaries has either (i)
more than 50% of the equity ownership thereof, or (ii) the
power to elect a majority of the directors or to control the
identification of the managing or general partners or similar
governing persons thereof.
Sumitomo: The Sumitomo Bank, Limited, a Japanese bank being represented
by its office at 200 North Broadway, Suite 1625, St. Louis,
Missouri 63102, and acting through its Chicago branch, and its
successors and assigns.
Term
Agreement: The 1996 Term Credit Agreement dated May 3, 1996, among the
Borrower and certain Lenders specified therein, as amended
from time to time.
Term
Lenders: "Lenders" to the Borrower as such term is defined in the Term
Agreement.
Total
Indebtedness: All loans and other obligations of the Borrower and its
Subsidiaries, without duplication, for borrowed money
(including, without limitation, the indebtedness due to the
Lenders) regardless of the maturity thereof but such term
shall not include subordinated debt of the Borrower, as such
term is defined in the definition of Net Worth up to
$15,000,000 if such subordinated debt is existing on May 3,
1996.
Triggering
Event: Has the meaning set forth in Section 2.5 hereof.
All accounting terms not otherwise defined herein shall have the meaning
ordinarily applied under generally accepted accounting principles.
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II. REVOLVING FACILITY
2.1 Revolving Credit. Until the earlier of June 28, 1997, or the date
on which the loan hereunder is converted to a term loan in accordance with
Section 2.4, the Revolving Lenders severally agree to advance funds for general
corporate purposes not to exceed $43,895,500 to the Borrower on a revolving
credit basis (amounts outstanding under the Acquisition Notes, Existing Term
Notes and Related Bank Debt shall not be counted against such $43,895,500
limit). Such Advances shall be made on a pro rata basis by the Revolving
Lenders, based on the following maximum advance limits for each Revolving
Lender: (i) as to FNB-O, $9,966,000; (ii) as to FNB-W, $226,500; (iii) as to
NBD, $5,753,100; (iv) as to Norwest, $3,533,400; (v) as to Farm Credit,
$9,603,600; (vi) as to Sumitomo, $4,829,900; (vii) as to Mercantile, $4,983,000
and (viii) as to First Bank, $5,000,000. The Borrower shall not be entitled to
any Advance hereunder if, after the making of such Advance, the Total
Indebtedness would exceed thirty-six (36) times the Borrower's Operating Cash
Flow, determined at the time of the Advance. Nor shall the Borrower be entitled
to any further Advances hereunder after the occurrence of a material adverse
change in its management personnel, as described in Section 4.14(b), or after
the occurrence of any Event of Default with respect to the Borrower. Advances
shall be made, on the terms and conditions of this Agreement, upon the
Borrower's request. Requests shall be made by 12:00 noon Omaha time on the
Business Day prior to the requested date of the Advance. Requests shall be made
by presentation to FNB-O of a drawing certificate in the form of Exhibit B. The
Borrower's obligation to make payments of principal and interest on the
foregoing revolving credit indebtedness shall be further evidenced by the
Revolving Credit Notes.
2.2 Revolving Credit Fees. The Borrower shall pay to the Revolving
Lenders a commitment fee of one quarter of one percent (.25%) per annum of the
unadvanced portion of the $43,895,500 credit line described above. Such fee
shall be paid to FNB-O quarterly (calendar quarters) in arrears and based on the
average unused portion of the revolving credit commitment during the preceding
quarter. FNB-O shall distribute to each Revolving Lender its pro rata share of
such fee based on the maximum advance limits set forth above. In addition, if
the Borrower's most recent Quarterly Compliance Certificate shows that, as of
the end of the prior quarter (the "Applicable Quarter"), Total Indebtedness was
equal to or in excess of 300% of Net Worth, then each Revolving Lender may
deduct from the amount of any subsequent Advance requested during the quarter
following the Applicable Quarter a closing fee equal to one-half of one percent
(.50%) of the amount of the Advance (if an Advance is requested and made during
the first twenty (20) days of a quarter, and the Borrower has not yet made the
foregoing calculation as to the Applicable Quarter, the Revolving Lenders
reserve the right to invoice the Borrower for, or deduct from any subsequent
Advance, any such fee which would have been deducted but for the fact that the
Quarterly Compliance Certificate for the Applicable Quarter had not been
completed). Furthermore, the Borrower will pay to FNB-O an agenting fee equal to
$18,000 annually, payable quarterly in arrears.
2.3 Interest on Revolving Credit. Until the earlier of June 28, 1997,
or the date on which the revolving credit loan hereunder is converted to a term
loan, interest shall accrue on the Principal Loan Amount outstanding from time
to time at a variable rate, which shall fluctuate on a monthly basis, equal to
the Base Rate plus a margin as determined below. The margin shall be adjusted
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quarterly after receipt of the Borrower's Quarterly Compliance Certificate.
Adjustments shall be retroactive to the beginning of the current quarter.
(i) If the Quarterly Compliance Certificate shows that, as of
the end of the prior quarter, Total Indebtedness was less than 250% of
Net Worth, the margin for the current quarter (meaning the quarter in
which the certificate is required to be delivered) shall be zero.
(ii) If the Quarterly Compliance Certificate shows that, as of
the end of the prior quarter, Total Indebtedness was equal to or
greater than 250% of Net Worth but less than 300% of Net Worth, the
margin for the current quarter shall be one quarter of one percent
(.25%).
(iii) If the Quarterly Compliance Certificate shows that, as
of the end of the prior quarter, Total Indebtedness was equal to or
greater than 300% of Net Worth but not more than 350% of Net Worth, the
margin for the current quarter shall be three quarters of one percent
(.75%).
The Base Rate plus the applicable margin as determined above is hereinafter
referred to as the "Revolving Credit Rate." Changes in the Base Rate shall be
effective on the first day of each month, based on the Base Rate in effect on
such day. Interest shall be due upon the rendering of each monthly invoice
therefor by FNB-O. Notwithstanding anything to the contrary elsewhere herein,
after an Event of Default has occurred interest shall accrue on the entire
outstanding balance of principal and interest on all indebtedness hereunder at a
fluctuating rate equal to the Default Rate.
2.4 Conversion. Upon the earlier of: (i) June 28, 1997; or (ii) the
Borrower's giving notice of its election to convert the revolving credit loan
hereunder, or any portion thereof, to a term loan, the revolving credit loan
described above (or applicable portion thereof) shall be deemed converted to a
term loan (hereinafter referred to as "Conversion"). Any such term loans shall
be evidenced by notes (the "Converted Notes") separate from the initial
Revolving Credit Notes. Upon Conversion, no further Advances shall be made by
the Revolving Lenders on the converted amount and the then outstanding Principal
Loan Amount of the respective Converted Note shall become due and payable in
forty-eight (48) equal installments of principal, with the first such
installment due on the last day of the month following Conversion, or, if such
day is not a Business Day, on the next succeeding Business Day, and subsequent
installments due on the last day of each consecutive month thereafter. In any
event, the total amount of all unpaid principal and accrued interest hereunder
shall be due and payable no later than June 28, 2001.
2.5 Interest on Converted Notes. After Conversion, interest shall
accrue on the Principal Loan Amount outstanding on the respective Converted Note
from time to time at a variable rate, which shall fluctuate on a monthly basis,
which is equal to the Revolving Credit Rate plus one quarter of one percent
(.25%). For purposes of computing such variable rate, changes in the Base Rate
shall be effective on the first day of each month based on the Base Rate in
effect on such day.
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Notwithstanding anything in the foregoing to the contrary, after Conversion, the
Borrower may elect one of the following alternatives in order to have a fixed
interest rate apply to the outstanding Principal Loan Amount converted and
outstanding after the date of giving notice of such fixed rate election (the
"Fixed Rate Notice"):
(a) if the Fixed Rate Notice is given within twelve (12)
months of Conversion, the Borrower may elect a fixed
rate equal to the greater of
(i) the Revolving Credit Rate in effect on the
date of the notice, plus three quarters of one percent (.75%),
or
(ii) two percent (2.00%) above the average of the
yields on constant maturity Treasury Bonds with maturities of
three (3) years and five (5) years, as quoted in the
immediately preceding monthly Release for the month preceding
such Release;
(b) if the Fixed Rate Notice is given after twelve (12) months
but within twenty-four (24) months of Conversion, the Borrower may
elect a fixed rate equal to the greater of
(i) the Revolving Credit Rate in effect on the date
of the notice, plus three-quarters of one percent (.75%), or
(ii) two percent (2.00%) above the yield on constant
maturity Treasury Bonds with a maturity of three (3) years as
quoted in the immediately preceding monthly Release for the
month preceding such Release;
(c) if the Fixed Rate Notice is given after twenty-four (24)
months of Conversion but within thirty-six (36) months of Conversion,
the Borrower may elect a fixed rate equal to the greater of
(i) the Revolving Credit Rate in effect on the date
of the notice, plus one-half of one percent (.50%), or
(ii) two percent (2.00%) above the yield on constant
maturity Treasury Bonds with a maturity of two (2) years, as
quoted in the immediately preceding monthly Release for the
month preceding such Release; and
(d) if the Fixed Rate Notice is given after thirty-six (36)
months of Conversion but prior to the maturity of the Converted Note,
the Borrower may elect a fixed rate equal to the Revolving Credit Rate
in effect on the date of the notice, plus one-half of one percent
(.50%).
Any election of a fixed rate by the Borrower shall be final and irrevocable.
Interest shall be due each month concurrently with the Borrower's principal
payment. Notwithstanding anything to the contrary elsewhere herein, after an
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Event of Default has occurred interest shall accrue on the entire outstanding
balance of principal and interest on all indebtedness hereunder at a fluctuating
rate equal to the Default Rate. All interest due under this Agreement shall be
calculated on the basis of the actual number of days outstanding and a 360-day
year. Interest shall continue to accrue on the full unpaid balance of all
indebtedness hereunder notwithstanding any permitted or unpermitted failure of
the Borrower to make a scheduled payment or the fact that a scheduled payment
day falls on a day other than a Business Day. If the Borrower's most recent
Quarterly Compliance Certificate shows that, as of the end of the prior quarter,
Total Indebtedness was in excess of 300% of Net Worth, the current quarter shall
be deemed a "Restricted Quarter." If, any time during a Restricted Quarter
(including, without limitation, during any period in such quarter prior to
delivery of the Quarterly Compliance Certificate), the interest rate accruing on
any Existing Term Note or Converted Note is less than seven and one-half percent
(7.50%) per annum, a "Trigger Event" shall be deemed to have occurred. Upon the
occurrence of a Trigger Event, the Borrower shall be obligated to pay the
following fees: (i) three-eighths of one percent (.375%) of the outstanding
principal balance as of the date preceding the Trigger Event of each Existing
Term Note or Converted Note which accrues interest at less than seven and
one-half percent (7.50%) per annum, which amount shall be payable promptly upon
invoicing by FNB-O; (ii) the same amount as computed in clause (i), payable on
the six (6) month anniversary of the Trigger Event; and (iii) the same amount as
computed in clause (i), payable on the twelve (12) month anniversary of the
Trigger Event.
2.6 Payments. All obligations of the Borrower under the Related Bank
Debt, Revolving Credit Notes and Converted Notes and under the other Operative
Documents shall be payable in immediately available funds in lawful money of the
United States of America at the principal office of FNB-O in Omaha, Nebraska or
at such other address as may be designated by FNB-O in writing. In the event
that a payment day is not a Business Day, the payment shall be due on the next
succeeding Business Day.
2.7 Prepayments. The Borrower may at any time prepay the Principal Loan
Amount outstanding under the Revolving Credit Notes or any of the Converted
Notes if the Borrower has given the Revolving Lenders at least two (2) Business
Days prior written notice of its intention to make such prepayment. Any such
prepayment may be made without penalty except for Converted Notes as to which
interest is accruing at a fixed rate in accordance with Section 2.5(a), 2.5(b)
or 2.5(c), in which event a prepayment penalty shall be due to each Revolving
Lender, at each Revolving Lender's option, either: (1) the Make-Whole Premium
due to such Revolving Lender in respect of such prepayment; or (2) such
Revolving Lender's applicable prepayment fee as set forth below. The applicable
prepayment fee for any Converted Note shall be: (i) if interest is accruing at
the rate set forth in Section 2.5(a), the fee shall be one and one-half percent
(1.50%) of the amount of such prepayment; (ii) if interest is accruing at the
rate set forth in Section 2.5(b), the fee shall be three-fourths of one percent
(.75%) of the amount of such prepayment; (iii) if interest is accruing at the
rate set forth in Section 2.5(c), the fee shall be three-tenths of one percent
(.30%) of the amount of such prepayment. The applicable prepayment fee for any
Existing Term Note shall be as specified in such Existing Term Note.
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2.8 Security. All obligations of the Borrower hereunder and under the
Operative Documents, including, without limitation, the Borrower's obligations
to make payments of principal and interest on the Notes shall be secured by a
first security interest in the Collateral, as more specifically described in the
Security Agreement.
2.9 Existing Term Notes. The Borrower's obligations under the Existing
Term Notes shall continue in full force and effect in accordance with the terms
thereof. Such notes shall be deemed amended to include this 1996 Revolving
Credit Agreement within the definition of Obligations in such notes, it being
understood that this 1996 Revolving Credit Agreement, rather than the 1995
Restated Loan Agreement dated as of June 29, 1995, or the 1993 Restated Loan
Agreement dated as of November 8, 1993, shall be controlling with respect to
defaults, covenants and all other relevant matters arising under the Existing
Term Notes and the Notes executed and delivered in connection with this 1996
Revolving Credit Agreement. The Existing Term Notes shall continue to be secured
by the security interest provided in the Security Agreement.
2.10 Related Loan Agreement. Nothing herein shall be deemed to alter or
amend the Borrower's obligations under the Related Loan Agreement, the Related
Bank Debt or any collateral security therefor, all of which shall continue in
full force and effect in accordance with the terms thereof.
III. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that as of the date hereof and as
of the date of each and every request for an Advance hereunder, the following
are and shall be true and correct:
3.1 Corporate Existence. It and each of its Subsidiaries, if any, is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and duly qualified and in good standing in all states
where it is doing business except where the failure to be so qualified would not
have a material adverse effect on it and it has full power and authority to own
and operate its properties and to carry on its business. As of June 28, 1996,
the Borrower has no Subsidiaries.
3.2 Corporate Authority. It has full corporate power, authority and
legal right to execute, deliver and perform the Operative Documents to which it
is a party, and all other instruments and agreements contemplated hereby and
thereby, and to perform its obligations hereunder and thereunder; and such
actions have been duly authorized by all necessary corporate action, and are not
in conflict with any applicable law or regulation, or any order, judgment or
decree of any court or other governmental agency or instrumentality or its
articles of incorporation or bylaws, or with any provisions of any indenture,
contract or agreement to which it or any of its Subsidiaries is a party or by
which it or any of its Subsidiaries or any of its or their property may be
bound.
3.3 Validity of Agreements. The Borrower's Operative Documents have
been duly authorized, executed and delivered and constitute its legal, valid and
binding agreements, enforceable against the Borrower in accordance with their
respective terms (except to the extent
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that enforcement thereof may be limited by any applicable bankruptcy,
reorganization, moratorium or similar laws now or hereafter in effect, or by
principles of equity).
3.4 Litigation. Neither the Borrower nor any Subsidiary is a party to
any pending lawsuit or proceeding before or by any court or governmental body or
agency, which is likely to have a materially adverse effect on the Borrower's
ability to perform its obligations under its Operative Documents; nor is the
Borrower aware of any threatened lawsuit or proceeding, to which it or any
Subsidiary may become a party or of any investigation of any Court or
governmental body or agency into its affairs, which if instituted would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents.
3.5 Governmental Approvals. The execution, delivery and performance by
the Borrower of the Operative Documents or the Purchase Agreement do not require
the consent or approval of, the giving of notice to, the registration with, or
the taking of any other action in respect of, any federal, state or other
governmental authority or agency other than as contemplated herein and therein.
3.6 Defaults Under Other Documents. Neither the Borrower nor any
Subsidiary is in default or in violation (nor has any event occurred which, with
notice or lapse of time or both, would constitute a default or violation) under
any document or any agreement or instrument to which it may be a party or under
which it or any of its properties may be bound and the result of which would
have a material adverse effect upon the Borrower's ability to perform its
obligations under its Operative Documents.
3.7 Judgments. There are no outstanding or unpaid judgments (which are
not adequately bonded) of the Borrower or any Subsidiary which would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents.
3.8 Compliance with Laws. Neither the Borrower nor any Subsidiary is in
violation of any laws, regulations or judicial or governmental decrees in any
respect which could have any material adverse effect upon the validity or
enforceability of any of the terms of the Borrower's Operative Documents or
which could have a material adverse effect upon the Borrower's ability to
perform its obligations under its Operative Documents.
3.9 Taxes. All tax returns of the Borrower and its Subsidiaries for
material taxes required to be filed have been filed or extensions permitted by
law have been obtained; all taxes of the Borrower and its Subsidiaries of a
material nature and which are due and payable as reflected on such returns have
been paid, other than taxes which are due but for which only a nominal late
payment penalty is payable and for which the taxing authority is not yet
entitled to enforce its remedies for payment thereof and other than taxes being
contested in good faith and with respect to which adequate reserves have been
established; and no material amounts of taxes of the Borrower and its
Subsidiaries not reflected on such returns are payable.
3.10 Collateral. The Borrower has good and marketable title to the
Collateral and the Collateral is free from all liens, encumbrances or security
interests, except as disclosed on Schedule A attached hereto. The Borrower's
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principal place of business, chief executive office, and the place where it
keeps its records concerning the Collateral is Suite 200, 9110 West Dodge Road,
Omaha, Nebraska 68114.
3.11 Pension Benefits. Neither the Borrower nor any Subsidiary
maintains a "Plan" as defined in Section 3 of the Employees Retirement Income
Security Act of 1974 ("ERISA"), or each such entity is in compliance with the
minimum funding requirements with respect to any such "Plan" maintained by it
and it has not incurred any material liability to the Pension Benefit Guaranty
Corporation ("PBGC") or otherwise under ERISA in connection with any such Plan.
3.12 Margin Regulations. No part of the proceeds of any Advance
hereunder shall be used to purchase or carry any "margin stock" (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States) or any "margin security" (within the meaning of Regulation
G of said Board of Governors), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or margin security. No part of the
proceeds of any Advance hereunder shall be used for any purpose that violates,
or which is inconsistent with, the provisions of Regulation G, T, U or X of said
Board of Governors.
3.13 Financial Condition. The financial condition of the Borrower and
its Subsidiaries is truly and accurately set forth in the most recent financial
statement which has been provided to the Lenders and no material adverse change
has occurred which would make such financial statement inaccurate or misleading.
IV. COVENANTS
The Borrower hereby covenants that:
4.1 Financial Reports.
(a) Within forty-five (45) days after the end of each month,
the Borrower, at its sole expense, shall furnish the Lenders a
consolidated balance sheet and statement of earnings of the Borrower
and its consolidated Subsidiaries, and such financial statements on a
consolidating basis as to the Borrower, all such financial statements
to be prepared in accordance with generally accepted accounting
principles consistently applied and certified as completed and correct,
subject to normal changes resulting from year-end audit adjustments, by
the chief financial officer of the Borrower.
(b) Within ninety (90) days after the close of the Borrower's
fiscal year, the Borrower, at its sole expense, shall furnish the
Lenders: (i) a consolidated balance sheet and statement of earnings of
the Borrower and its consolidated Subsidiaries, certified by Deloitte &
Touche, or other independent certified public accountants acceptable to
the Lenders, that such financial reports fairly present the financial
condition of the Borrower and its consolidated Subsidiaries and have
been prepared in accordance with generally accepted accounting
principles consistently applied; and (ii) a certificate from such
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accountants certifying that in making the requisite audit for
certification of the Borrower's financial statements, the auditors
either (1) have obtained no knowledge, and are not otherwise aware of,
any condition or event which constitutes an Event of Default or which
with the passage of time or the giving of notice would constitute an
Event of Default under Sections 4.3, 4.4, 4.7, 4.9(b), 4.9(d) or 4.11;
or (2) have discovered such condition or event, as specifically set
forth in such certificate, which constitutes an Event of Default or
which with the passage of time or the giving of notice would constitute
an Event of Default under such Sections. The auditors shall not be
liable to the Lenders by reason of the auditors' failure to obtain
knowledge of such event or condition in the ordinary course of their
audit unless such failure is the result of negligence or willful
misconduct in the performance of the audit.
(c) Within thirty (30) days after submission to the Securities
and Exchange Commission, the Borrower shall provide to the Lenders
copies of its Forms 10K and 10Q, as submitted to the Securities and
Exchange Commission during the term of this Agreement.
(d) Within twenty (20) days after the end of each quarter, the
Borrower, at its expense, shall furnish the Lenders a certificate of
the chief financial officer of the Borrower in the form of Exhibit C,
setting forth such information (including detailed calculations)
sufficient to verify the conclusions of such officer after due inquiry
and review, that:
(i) The Borrower and each Subsidiary, either (y) is
in compliance with the requirements set forth in this
Agreement or (z) is NOT in compliance with the foregoing for
reasons specifically set forth therein; and
(ii) The chief financial officer of the Borrower has
reviewed or caused to be reviewed all of the terms of the
Operative Documents of the Borrower and that such review
either (1) has NOT disclosed the existence of any condition or
event which constitutes an event of default or any condition
or event which with the passage of time or the giving of
notice would constitute an event of default under the
Operative Documents or (2) has disclosed the existence of a
condition or event which constitutes an event of default, or a
condition or event which with the passage of time or the
giving of notice would constitute an event of default, under
the aforesaid instrument or instruments and the specific
condition or event is specifically set forth.
(e) The Borrower shall provide the Lenders with such other
financial reports and statements as the Lenders may reasonably request.
4.2 Corporate Structure and Assets. The Borrower shall not merge or consolidate
with any other corporation or entity unless the Borrower shall be the surviving
entity, nor sell any assets except items that are obsolete or no longer
necessary for operation of the business, other than in the ordinary course of
business without the prior written consent of the Lenders. The Lenders shall be
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entitled to receive as a prepayment on the Notes the proceeds of any sale of
assets of the Borrower which are prohibited by the preceding sentence.
Notwithstanding the foregoing prepayment requirements, any such prohibited sale
shall remain a violation of this Agreement. In addition, the Borrower shall not
engage in any business materially different from that in which it is presently
engaged without the prior written consent of the Lenders, which consent shall
not be unreasonably withheld. The foregoing restrictions on mergers and
consolidations shall not apply if: (i) in the case of a merger, the Borrower is
the surviving entity and expressly reaffirms its obligations hereunder; (ii) in
the case of a consolidation, the resulting corporation expressly assumes the
obligations of the Borrower hereunder; (iii) the surviving or resulting
corporation is organized under the laws of the United States or a jurisdiction
thereof; (iv) after giving effect to such merger or consolidation, the surviving
or resulting corporation will be engaged in substantially the same lines of
business as are now engaged in by the Borrower; and (v) immediately after giving
effect to such merger or consolidation, no Event of Default will exist
hereunder.
4.3 Net Worth. The Borrower shall maintain a minimum Net Worth during
the term of this Agreement of at least $23,500,000; provided, however, solely
for purposes of determining compliance with the provisions of this Section 5.3,
"Net Worth" shall not include any subordinated debt.
4.4 Indebtedness.
(a) The Borrower shall not at any time permit the sum of the
Total Indebtedness to the Lenders to exceed forty-eight (48) times
Operating Cash Flow.
(b) The Borrower shall not at any time permit consolidated
Total Indebtedness to exceed 350% of Net Worth.
(c) On the day the Borrower or a Subsidiary becomes liable
with respect to any debt and immediately after giving effect thereto
and to the concurrent retirement of any other debt, the sum of Total
Indebtedness, plus the amount of any outstanding subordinated debt of
the Borrower and its Subsidiaries, plus the contingent obligations of
the Borrower and its Subsidiaries under any guaranty of the debt of any
other person or entity (other than unsecured debt of a Subsidiary
incurred in the ordinary course of business for other than borrowed
money or to finance the purchase price of any property or business)
shall not exceed an amount equal to sixty (60) times Operating Cash
Flow at such date.
4.5 Use of Proceeds. The Borrower shall not use the proceeds of the
Advances hereunder to purchase or carry any "margin stock" (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System of the
United States) or any "margin security" (within the meaning of Regulation G of
said Board of Governors), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or margin security. No part of such
proceeds shall be used for any purpose that violates, or which is inconsistent
with, the provisions of Regulation G, T, U or X of said Board of Governors. This
section shall not
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preclude the Borrower from repurchasing any of its own issued and outstanding
common stock; provided, however, that such repurchase does not result in the
occurrence of any other Event of Default hereunder.
4.6 Notice of Default. The Borrower shall give to the Lenders prompt
written notification of the existence or occurrence of:
(a) any fact or event which results, or which with notice or
the passage of time, or both, would result in an Event of Default
hereunder;
(b) any proceedings instituted by or against the Borrower in
any federal, state or local court or before any governmental body or
agency, or before any arbitration board, or any such proceedings
threatened against the Borrower by any governmental agency, which is
likely to have a material adverse effect upon the Borrower's ability to
perform its obligations under its Operative Documents;
(c) any default or event of default involving the payment of
money under any agreement or instrument which is material to the
Borrower or any Subsidiary to which such entity is a party or by which
it or any of its property may be bound, and which default or event of
default would have a material adverse effect upon the Borrower's
ability to perform its obligations under its Operative Documents; and
(d) the Borrower shall give immediate notice of the
commencement of any proceeding under the Federal Bankruptcy Code by or
against the Borrower or any Subsidiary.
4.7 Distributions.
(a) Neither Borrower nor any Subsidiary shall declare any
dividends or make any cash distribution in respect of any shares of its
capital stock or warrants of its capital stock, without the prior
written consent of the Lenders; provided, however, that the Borrower
may declare stock dividends; provided, further, that the Borrower need
not obtain the Lenders' consent with respect to (i) dividends in any
one (1) year which are, in aggregate, less than 25% of the Borrower's
net operating profit after taxes in the previous four (4) quarters, as
reported to the Lenders pursuant to Section 4.1; or (ii) dividends or
distributions from any consolidated Subsidiary.
(b) Neither the Borrower nor any Subsidiary other than a
Subsidiary which is wholly-owned by the Borrower shall purchase,
redeem, or otherwise retire any shares of its capital stock or warrants
of its capital stock if, immediately after the making of such purchase
or redemption, the Borrower or any Subsidiary will be in default of any
other covenant or provision of this Agreement (including, without
limitation, the covenants and provisions pertaining to minimum net
worth and limitations on indebtedness).
4.8 Compliance with Law and Regulations. The Borrower and each
Subsidiary shall comply in all material respects with all applicable federal and
state laws and regulations.
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4.9 Maintenance of Property; Accounting; Corporate Form; Taxes;
Insurance.
(a) The Borrower and each Subsidiary shall maintain its
property in good condition in all material respects, ordinary wear and
tear excepted, and make all renewals, replacements, additions,
betterments and improvements thereto necessary for the efficient
operation of its business.
(b) The Borrower and each Subsidiary shall keep true books of
record and accounts in which full and correct entries shall be made of
all its business transactions, all in accordance with generally
accepted accounting principles consistently applied.
(c) The Borrower and each Subsidiary shall do or cause to be
done all things necessary to preserve and keep in full force and effect
its corporate form of existence as is necessary for the continuation of
its business in substantially the same form, except where such failure
to do so with respect to any Subsidiary would not have a material
adverse effect on the ability of the Borrower to perform its
obligations under the Operative Documents.
(d) The Borrower and each Subsidiary shall pay all taxes,
assessments and governmental charges or levies imposed upon it or its
property; provided, however, that the Borrower or any Subsidiary shall
not be required to pay any of the foregoing taxes which are being
diligently contested in good faith by appropriate legal proceedings and
with respect to which adequate reserves have been established.
(e) The Borrower shall maintain or cause to be maintained
liability insurance and casualty insurance upon the Collateral
(excluding equipment or inventory provided to Subscribers in the
ordinary course of business) and other tangible assets owned by it and
its Subsidiaries. The Borrower shall name FNB-O as agent for the
Lenders as the loss payee on all such casualty insurance, and as an
additional insured on all such liability insurance and shall provide
the Lenders with evidence of such insurance upon request.
4.10 Inspection of Properties and Books. The Borrower shall recognize
and honor the right of the Lenders, upon request to an officer of the Borrower,
to visit and inspect any of the properties of, to examine the books, accounts,
and other records of, and to take extracts therefrom and to discuss the affairs,
finances, loans and accounts of, and to be advised as to the same by the
officers of, the Borrower at all such times, in such detail and through such
agents and representatives as the Lenders may reasonably desire.
4.11 Guaranties. Neither the Borrower nor any Subsidiary shall guaranty
or become responsible for the indebtedness of any other person or entity;
provided, however, that a Subsidiary may guaranty the obligation of the
Borrower; provided further, that the Borrower may guaranty the obligations of a
Subsidiary so long as no Event of Default (or no event or occurrence which with
the passage of time or notice, or both, would become an Event of Default) has
occurred or will occur hereunder, taking into account such guaranty and
indebtedness.
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4.12 Collateral. Neither the Borrower nor any Subsidiary shall incur or
permit to exist any mortgage, pledge, lien, security interest or other
encumbrance on the Collateral, except as permitted in the Security Agreement.
Subject to Section 4.4(b), the foregoing shall not be construed to prohibit the
Borrower or any Subsidiary from acquiring leased equipment in the ordinary
course of business. Without limiting the generality of the foregoing, the
Borrower covenants and agrees that it shall on request enforce for the benefit
of the Lenders, but at the sole expense of the Borrower, any and all rights and
remedies (including, without limitation, rights to indemnity), that it may have
with respect to the existence of any liens, security interests or other
encumbrances that may exist on the property of the Borrower acquired from
Broadcast Partners under the Purchase Agreement. Notwithstanding anything else
to the contrary herein or in the Operative Documents, Broadcast Partners shall
have no right to share in the proceeds of any such recovery which constitutes
the proceeds of any indemnity claim by the Borrower under the Purchase
Agreement.
4.13 Name; Location. The Borrower shall give the Lenders ninety (90)
days notice prior to changing its name, identity or corporate structure, moving
its principal place of business, chief executive office or place where it keeps
its records concerning the Collateral.
4.14 Notice of Change in Ownership or Management. During the term of
this Agreement, the Borrower shall give the Lenders notice of the occurrence of
any of the following described events, which notice shall be given as soon as
the Borrower obtains notice or knowledge thereof:
(a) any change, directly or indirectly, in the existing
controlling interest in the Borrower; or
(b) any material adverse change in its management personnel. A
material adverse change in the Borrower's management personnel shall be
deemed to have occurred if any one (1) of the following has occurred
with respect to two of the four (4) individuals who are both officers
and members of the Board of Directors of the Borrower: (i) the
resignation, retirement, or voluntary or involuntary termination of
employment and/or status of such persons as officers and directors of
the Borrower; (ii) any announcement, notice of intent, resolution or
similar advance notice with respect to the matters referenced in the
foregoing clause; or (iii) the death, disability or legal incompetence
of such persons.
4.15 Interest Coverage. The ratio of Operating Cash Flow to interest
expense (as determined in accordance with generally accepted accounting
principles but excluding amortization of deferred offering costs and any fees
related to the Trigger Event in Section 2.5 of this Agreement) at the end of
each quarter during the term of this Agreement, as shown on the Quarterly
Compliance Report, shall not be less than 2.25 to 1.0.
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4.16 Subordinated Debt. Neither the Borrower nor any Subsidiary shall
incur any subordinated debt or issue any preferred stock or warrants for
preferred stock except upon the prior written consent of the Lenders. Neither
the Borrower nor any Subsidiary shall make any voluntary or optional prepayment
on any subordinated debt without the prior written consent of the Lenders.
Similarly, the Borrower shall not amend its articles of incorporation or any
other documents or agreements relating to the issuance of subordinated debt,
preferred stock or warrants for preferred stock without the prior written
consent of the Lenders. The indebtedness to Broadcast Partners under the Notes
shall not be considered subordinated debt.
4.17 Subsidiaries. The Borrower shall give prompt written notice to the
Lenders of the Borrower's intent to acquire, or the Borrower's acquisition of,
any Subsidiary. Prior to the creation or acquisition of such Subsidiary, the
Borrower (i) shall cause a first security interest in the assets of such
Subsidiary to be perfected in favor of FNBO, as agent for the Lenders, and (ii)
shall cause the Subsidiary to enter into a security agreement, to execute and
file such financing statements and to provide opinions all in form satisfactory
to the Lenders as to compliance with this section.
4.18 Amendments to Purchase Agreement. The Borrower shall not amend the
Purchase Agreement without the prior written consent of the Lenders.
V. CONDITIONS PRECEDENT
5.1 Closing Conditions. Any and all obligations of the Lenders
hereunder are subject to satisfaction of the following conditions precedent:
(a) FNB-O, as agent, shall have received an opinion of counsel
to the Borrower covering such matters as the Lenders may request
(including, without limitation, corporate existence and good standing,
corporate authority, due authorization, execution and delivery of the
Operative Documents, the legal, valid, binding and enforceable nature
of the Operative Documents, the perfection and priority of the security
interest in the Collateral granted to the Lenders, and the Borrower's
compliance with applicable state and federal laws in connection with
the equity offering made in connection with the Purchase Agreement),
such opinion to be satisfactory in form and substance to counsel to
FNB-O;
(b) FNB-O, as agent, shall have received such certificates and
documents as the Lenders may reasonably request from the Borrower,
including articles of incorporation and bylaws, certificates regarding
good standing, incumbency, copies of other corporate documents, and
appropriate authorizing resolutions; and
(c) the Operative Documents shall have been duly authorized
and executed and shall be in full force and effect, and such UCC
financing statements shall have been executed and filed in such offices
as may be appropriate to perfect the security interest of FNB-O, as
agent for the Lenders, in the Collateral.
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VI. DEFAULTS AND REMEDIES
6.1 Events of Default. Any of the following shall be deemed an event of
default under this Agreement (an "Event of Default"):
(a) Any payment of principal required by any of the Operative
Documents shall not be paid when due.
(b) Any payment of interest or other fees due hereunder or
under any of the Operative Documents shall not be paid within fifteen
(15) calendar days after the date on which such payment was invoiced or
due.
(c) Any representation or warranty of the Borrower under any
of the Operative Documents, or any financial reports or statements or
certificates submitted pursuant to this Agreement, shall prove to have
been false in any material respect when made.
(d) A failure of the Borrower or any Subsidiary to comply with
any requirement or restriction applicable to such entity and contained
in Sections 4.1, 4.2, 4.3, 4.4, 4.7, 4.11, 4.12, 4.13, 4.14, 4.15 or
4.16 of this Agreement.
(e) A failure of the Borrower or any Subsidiary to comply with
any requirement or restriction contained in any provision of the
Operative Documents not otherwise specified in this Article VI, which
failure remains unremedied for ten (10) days following receipt of
notice from FNB-O on behalf of the Lenders.
(f) The occurrence of a default or a breach of any of the
obligations of the Borrower or any Subsidiary (other than obligations
of such Subsidiary to the Borrower) under any note, loan agreement,
preferred stock, subordinated debt instrument or agreement, or any
other agreement evidencing an obligation to repay borrowed money.
(g) The entry of a final judgment against the Borrower or any
Subsidiary for the payment of money, which is not covered by insurance,
and the expiration of thirty (30) days from the date of such entry
during which the judgment is not discharged in full or stayed.
(h) The occurrence of any one or more of the following:
(1) The Borrower or any Subsidiary shall file a
voluntary petition in bankruptcy or an order for relief shall
be entered in a bankruptcy case as to such entity or shall
file any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under
any present or future federal, state or other statute, law or
regulation relating to bankruptcy, insolvency or other relief
for debtors; or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of such
entity or of all or any part of its property, or of any or all
of the
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royalties, revenues, rents, issues or profits thereof, or
shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its
debts or shall generally not pay its debts as they become due;
or
(2) A court of competent jurisdiction shall enter an
order, judgment or decree approving a petition filed against
the Borrower or any Subsidiary seeking any reorganization,
dissolution or similar relief under any present or future
federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such
order, judgment or decree shall remain unvacated and unstayed
for an aggregate of thirty (30) days (whether or not
consecutive) from the first date of entry thereof; or any
trustee, receiver or liquidator of the Borrower or any
Subsidiary or of all or any part of its property, or of any or
all of the royalties, revenues, rents, issues or profits
thereof, shall be appointed without the consent or
acquiescence of such entity and such appointments shall remain
unvacated and unstayed for an aggregate of thirty (30) days
(whether or not consecutive); or
(3) A writ of execution or attachment or any similar
process shall be issued or levied against all or any part of
or interest in the Collateral, or any judgment involving
monetary damages shall be entered against the Borrower or any
Subsidiary which shall become a lien on the Collateral or any
portion thereof or interest therein and such execution,
attachment or similar process or judgment is not released,
bonded, satisfied, vacated or stayed within thirty (30) days
after its entry or levy.
(i) Any event of default shall occur under any Operative
Document.
(j) A change shall occur after November 8, 1993, directly or
indirectly, in the ownership or control of the Borrower; provided,
however, that changes in the ownership or control of, or new issuances
of, voting common stock which do not exceed, cumulatively, 50% of the
total issued and outstanding shares of the Borrower as of September 30,
1993 shall not be deemed an Event of Default under this Section 6.1(j);
provided further, that acquisitions of additional shares by members of
the existing executive management group of the Borrower shall not be
counted as changes in the ownership or control of the Borrower under
this Section 6.1(j). For purposes of computing the total issued and
outstanding shares as of September 30, 1993, warrants and options for
such shares shall be included.
(k) An Event of Default shall occur under any Existing Term
Note or the Related Loan Agreement and the expiration of any applicable
cure period thereunder.
(l) The Borrower shall be obligated to prepay all or any
portion of its subordinated debt as a result of a Change of Control.
(m) The Borrower pays, or is determined to be obligated to
pay, any indemnity to Broadcast Partners under the Purchase Agreement
in excess of $1,000,000 in the aggregate.
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6.2 Remedies. If an Event of Default occurs and is continuing, upon the
election of the Lenders holding two-thirds of the then outstanding aggregate
Total Indebtedness of the Borrower to the Lenders (including under the Revolving
Credit Notes, the Existing Term Notes, the Related Bank Debt, the Acquisition
Notes, and any similar indebtedness), the entire unpaid principal amount under
the Notes, together with interest accrued thereon, shall become immediately due
and payable without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, and the Lenders may exercise their rights
under the other Operative Documents, the Notes, the Term Agreement, and the
Related Loan Agreement (and the operative documents with respect thereto),
including, without limitation, under the Security Agreement. For purposes of
this Article VI, the term Lenders includes Boatmen's. In addition, the Lenders
shall have such other remedies as are available at law and in equity. Remedies
under this Agreement, the Operative Documents, the Notes, the Term Agreement,
the Related Loan Agreements (and the operative documents with respect thereto)
are cumulative. Any waiver must be in writing by the Lenders and no waiver shall
constitute a waiver as to any other occurrence which constitutes an Event of
Default or as to any party not specifically included in such written waiver.
VII. INTER-CREDITOR AGREEMENTS
7.1 FNB-O as Servicer. FNB-O will act as sole servicer of the loans
evidenced by the Notes. For purposes of this Article VII, the term Lenders
includes Boatmen's and the term Event of Default means any Event of Default
hereunder, under any Note, or under the Term Agreement or the Related Loan
Agreement. FNB-O will enforce, administer and otherwise deal with the loans made
by the Lenders in accordance with safe and prudent banking standards employed by
FNB-O in the case of the loan made by FNB-O. Without limiting the generality of
the foregoing, FNB-O will, on its own behalf and on behalf of the Lenders: (i)
maintain originals of the Operative Documents (excluding the Notes) and the
operative documents in connection with the Term Agreement and the Related Loan
Agreement; (ii) receive requests for Advances from the Borrower, promptly
transmit the same to the Revolving Lenders and make such Advances on behalf of
the Revolving Lenders (provided that FNB-O is assured of reimbursement therefor
by the other Revolving Lenders for their pro rata shares); (iii) receive
payments and prepayments from the Borrower and apply such payments as provided
in Section 7.2; (iv) receive notices from the Borrower and send copies thereof
to the Lenders if FNB-O has reasonable cause to believe that such Lenders have
not received such notice from another source; and (v) advise the Lenders of the
occurrence of any material Event of Default which FNB-O obtains actual knowledge
of. The Lenders agree not to attempt to take any action against the Borrower
under the Operative Documents, the Notes, the Term Agreement or the Related Bank
Debt or with respect to the indebtedness evidenced thereby without FNB-O's
consent unless holders of two-thirds of the then outstanding aggregate Total
Indebtedness of the Borrower to the Lenders (including under the Notes and any
similar indebtedness) shall have requested FNB-O to take specific action against
the Borrower and FNB-O shall have failed to do so within a reasonable period
after
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receipt of such request. All actions, consents, waivers and approvals by the
Lenders shall be deemed taken or given and amendments hereto deemed agreed to if
the holders of more than two-thirds of the outstanding aggregate Total
Indebtedness of the Borrower to the Lenders shall have indicated their consent
thereto. Notwithstanding the foregoing, unanimous approval shall be required
for: (i) any reduction or compromise of the principal loan amount of the Notes,
the amount or rate of interest accrued or accruing thereon or the fees due
hereunder; (ii) extension of the date of any scheduled payment; (iii) permitting
the sale of or releasing the security interest of the Lenders in Collateral
which comprises more than ten percent (10%) of net book value of fixed assets of
the Borrower; and (iv) any amendment of Sections 7.1 or 7.2 hereof. A Revolving
Lender's commitment hereunder may not be increased without the consent of such
Revolving Lender, it being understood, however, that increases in the total
revolving credit facility hereunder may be made with the consent of the holders
of more than two-thirds of the outstanding aggregate total outstanding
obligation of the Borrower to the Revolving Lenders, so long as such increase
does not result in the increase of any non-consenting Revolving Lender's
commitment hereunder.
7.2 Application of Payments. Until the earlier of the occurrence of an
Event of Default or any Lender's giving of notice to the others that it deems
itself insecure, payments or prepayments made by the Borrower may be applied to
the indebtedness designated by the Borrower or otherwise applied as follows:
(a) first, to pay interest to date on the Revolving Credit
Notes and fees due to the Lenders;
(b) second, to make payments due but unpaid under any of the
other Notes; and
(c) third, pro rata to the Lenders, such pro rata share to be
determined as set forth below in subsection (bb) of this Section 7.2.
After the occurrence of an Event of Default or any Lender's giving of notice
that it deems itself insecure, payments or prepayments on the Notes received by
FNB-O or any of the Lenders and funds realized upon the disposition of any of
the Collateral shall be applied as follows:
(aa) first, to reimburse FNB-O for any costs, expenses, and
disbursements (including attorneys' fees) which may be incurred or made
by FNB-0: (i) in connection with its servicing obligations; (ii) in the
process of collecting such payments or funds; or (iii) as advances made
by FNB-O to protect the Collateral (provided, however, that FNB-O shall
have no obligation to make such protective advances); and
(bb) second, pari passu among the Lenders, based on their
respective pro rata shares of the funds to be applied. Each Lender's
pro rata share shall be equal to a fraction, (x) the numerator of which
shall be total principal loan amount then outstanding which is owing to
each such Lender under its Notes, and (y) the denominator of which
shall be the total principal loan amount then outstanding which is
owing to the Lenders under all Notes.
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Prepayments made pursuant to Section 2.6A of the Term Agreement and payments
under the Purchase Agreement shall not be subject to this Section 7.2, it being
understood, however, that prepayments under Section 2.6A of the Term Agreement
shall not be permitted after the occurrence of an Event of Default without the
prior written consent of the Lenders. Except as specifically provided in this
Section 7.2, FNB-O shall have no obligation to repay or prepay any amount due
from the Borrower to any of the other Lenders nor shall FNB-O have any
obligation to purchase all or a part of any Note hereunder or any Advance made
by any Lenders, nor shall the Lenders have any recourse whatsoever against FNB-O
with respect to any failure of the Borrower to repay the indebtedness referenced
herein.
7.3 Liability of FNB-O. FNB-O shall not be liable to the Lenders for
any error of judgment or for any action taken or omitted to be taken by it
hereunder, except for gross negligence or willful misconduct. Without limiting
the generality of the foregoing, FNB-O, except as expressly set forth herein,
(a) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (b) makes no representation or warranty with respect to,
and shall not be responsible for, the accuracy, completeness, execution,
legality, validity, legal effect or enforceability of this 1996 Revolving Credit
Agreement, the Notes, or the other Operative Documents or the operative
documents under the Term Agreement or the Related Bank Debt, or the value or
sufficiency of any Collateral given by the Borrower or the priority of the
Lenders' security interest therein or the financial condition of the Borrower;
and (c) shall not be responsible for the performance or observance of any of the
terms, covenants or conditions of the Operative Documents, the Existing Term
Notes, or the operative documents under any Related Bank Debt on the part of the
Borrower and shall not have any duty to inspect the property (including, without
limitation, the books and records) of the Borrower.
7.4 Transfers. No Lender shall subdivide, transfer or grant a
participation in its respective Notes or in any Advance hereunder without the
prior written consent of FNB-O which consent shall not be unreasonably withheld.
7.5 Reliance. The Lenders acknowledge that they have been advised that
none of the Notes nor any interest therein or related thereto has been (i)
registered under the Securities Act of 1933, as amended, nor (ii) insured by the
Federal Deposit Insurance Corporation. The Lenders acknowledge that they have
received from the Borrower all financial information and other data relevant to
their decision to extend credit to the Borrower and that they have independently
approved the credit quality of the Borrower.
7.6 Relationship of Lenders. The Lenders intend for the relationships
created by this Agreement to be construed as concurrent direct loans from each
Lender respectively to the Borrower. Nothing herein shall be construed as a loan
from any Lender to FNB-O or as creating a partnership or joint venture
relationship among them.
25
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<PAGE>
7.7 New Lenders. In the event that new Lenders are added to this
Agreement, the Term Agreement or the Related Loan Agreement, such Lenders shall
be required to agree to the inter-creditor provisions of this Article VII.
VIII. MISCELLANEOUS
8.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may not
be effectively amended, changed, modified or altered, except in writing executed
by all parties.
8.2 Governing Law. The Operative Documents shall be governed by and
construed pursuant to the laws of the State of Nebraska.
8.3 Notices. Until changed by written notice from one party hereto to
the other, all communications under the Operative Documents shall be in writing
and shall be hand delivered or mailed by registered mail to the parties as
follows:
If to the Borrower:
DATA TRANSMISSION NETWORK CORPORATION
Suite 200
9110 West Dodge Road
Omaha, Nebraska 68114
Attention: Chief Financial Officer
If to the Lenders:
FIRST NATIONAL BANK OF OMAHA
One First National Center
Omaha, Nebraska 68102
Attention: Mr. James P. Bonham
Notices shall be deemed given when mailed, except that any notice by the
Borrower under Sections 2.4 and 2.5 shall not be deemed given until received by
FNB-O.
8.4 Headings. The captions and headings herein are for convenience only
and in no way define, limit or describe the scope or intent of any provisions or
sections of this Agreement.
8.5 Counterparts. This Agreement may be executed in several
counterparts and such counterparts together shall constitute one and the same
instrument.
8.6 Survival; Successors and Assigns. The covenants, agreements,
representations and warranties made herein, and in the certificates delivered
pursuant hereto, shall survive the execution and delivery to the Lenders of this
Agreement and shall continue in full force and effect so long as any Note or
26
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<PAGE>
any obligation to the Lenders under any of the Operative Documents is
outstanding and unpaid. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party, and all covenants, promises and agreements by or on
behalf of the Borrower which are contained in this Agreement shall bind the
successors and assigns of the Borrower and shall inure to the benefit of the
successors and assigns of the Lenders.
8.7 Severability. If any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
8.8 Assignment. The Borrower may not assign its rights or obligations
hereunder and any assignment in contravention of the terms hereof shall be void.
8.9 Amendments. Any amendment, modification or supplement to this
Agreement must be in writing and must be signed by the requisite parties hereto.
8.10 Consent to Amendments of Existing Documents. The parties hereto
expressly consent and agree to the First Amendment to the 1996 Restated Security
Agreement, dated as of June 28, 1996, between the Borrower and FNB-O as agent
for the Lenders.
IN WITNESS WHEREOF, the Borrower, Boatmen's and the Revolving Lenders
have caused this 1996 Revolving Credit Agreement to be executed by their duly
authorized corporate officers as of the day and year first above written.
27
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<PAGE>
DATA TRANSMISSION NETWORK
CORPORATION
By /s/ Brian Larson
------------------------
Title: CFO, Secretary,Treasurer
------------------------
28
- 51 -
<PAGE>
FIRST NATIONAL BANK OF OMAHA
By /s/ James P. Bonham
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
29
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<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Jayleen R.P. Hague
------------------------
Title: Vice President
------------------------
By /s/ Teresa A. Lekich
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
30
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<PAGE>
FIRST NATIONAL BANK,
WAHOO,NEBRASKA
By /s/ Elizabeth E. Rezac
------------------------
Title: 2nd Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
31
- 54 -
<PAGE>
NBD BANK
By /s/ D.J. Pienta
------------------------
Title: 2nd Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
32
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<PAGE>
NORWEST BANK NEBRASKA, N.A.
By Leslie J. Volk
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
33
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<PAGE>
FARM CREDIT SERVICES OF
THE MIDLANDS, PCA
By /s/
------------------------
Title: Division President-Credit
& Chief Credit Officer
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
34
- 57 -
<PAGE>
MERCANTILE BANK OF ST. LOUIS, N.A.
By /s/ Joseph L. Scooter
------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
35
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<PAGE>
FIRST BANK, NATIONAL ASSOCIATION
By /s/ Joe Crimmins
------------------------
Title: Senior Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
36
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<PAGE>
THE BOATMEN'S NATIONAL
BANK OF ST. LOUIS
By /s/ Robert D. Homes, Jr.
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
37
- 60 -
<PAGE>
EXHIBIT A
TO 1996 REVOLVING CREDIT AGREEMENT
BETWEEN
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
FARM CREDIT SERVICES OF THE MIDLANDS, PCA,
THE SUMITOMO BANK, LIMITED,
MERCANTILE BANK OF ST. LOUIS, N.A.,
FIRST BANK, NATIONAL ASSOCIATION,
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
AND
DATA TRANSMISSION NETWORK CORPORATION
FORM OF NOTES
1
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<PAGE>
SECURED BUSINESS PROMISSORY NOTE
Omaha, Nebraska $
, 19
- ----------------------
(Note Date) (Maturity Date)
REVOLVING NOTE TERMS
On or before June 28, 1997, DATA TRANSMISSION NETWORK CORPORATION
("Maker") promises to pay to the order of [REVOLVING LENDER] ("Lender") the
principal sum hereof, which shall be the lesser of Dollars, or so much thereof
as may have been advanced by Lender, either directly under this Note or as an
advance pursuant to the 1996 Revolving Credit Agreement dated as of June 28,
1996, as amended from time to time (the "Agreement") among Maker and Lender,
First National Bank of Omaha, First National Bank, Wahoo, Nebraska, NBD Bank,
Norwest Bank Nebraska, N.A., Farm Credit Services of the Midlands, PCA, The
Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A. and First Bank,
National Association (collectively, the "Lenders"). All capitalized terms not
defined herein shall have their respective meanings as set forth in the
Agreement.
Interest shall accrue on the principal sum hereof from and including
the Note Date above to the earlier of the Maturity Date or the date of
Conversion (as such term is defined hereafter) at a variable rate, which shall
fluctuate on a monthly basis, equal to the rate announced from time to time by
FNB-O as its "National Base Rate" minus .75% (the "Base Rate") plus a margin as
determined below. The margin shall be adjusted quarterly after receipt of
Maker's Quarterly Compliance Certificate (as defined in the Agreement).
Adjustments shall be retroactive to the beginning of the current quarter.
(a) If the Quarterly Compliance Certificate shows that, as of
the end of the prior quarter, Total Indebtedness was less than 250% of
Net Worth, the margin for the current quarter (meaning the quarter in
which the certificate is required to be delivered) shall be zero.
(b) If the Quarterly Compliance Certificate shows that, as of
the end of the prior quarter, Total Indebtedness was equal to or
greater than 250% of Net Worth but less than 300% of Net Worth, the
margin for the current quarter shall be .25%.
(c) If the Quarterly Compliance Certificate shows that, as of
the end of the prior quarter, Total Indebtedness was equal to or
greater than 300% of Net Worth but less than 350% of Net Worth, the
margin for the current quarter shall be .75%.
The Base Rate plus the applicable margin as determined above is hereinafter
referred to as the "Revolving Credit Rate." Changes in the Base Rate shall be
effective on the first day of each month, based on the Base Rate in effect on
such day. Interest shall be due upon the rendering of each monthly invoice
therefore by FNB-O.
2
- 62 -
<PAGE>
TERM NOTE TERMS
Upon the earlier of: (i) June 28, 1997; or (ii) Maker's giving notice
of its election to convert the revolving credit loan evidenced by this Note, or
any portion thereof, to a term loan, the revolving loan referenced above (or
applicable portion thereof) shall be deemed converted to a term loan (the
"Conversion"). At the option of the parties, any such term loan may be evidenced
by a separate note. Upon Conversion, the availability of principal under the
revolving loan shall decrease by the amount of the Converted Debt and the then
outstanding principal hereunder shall become due and payable in forty-eight
equal installments of principal, with the first such installment due on the last
day of the month following Conversion, or, if such day is not a Business Day, on
the next succeeding Business Day, subsequent installments due on the last day of
each consecutive month thereafter. In any event, the total amount of all unpaid
principal and accrued interest hereunder shall be due and payable no later than
June 28, 2001.
After Conversion, interest shall accrue on the principal outstanding
from time to time at a variable rate, which shall fluctuate on a monthly basis,
which is equal to the Revolving Credit Rate plus .25%. For purposes of computing
such variable rate, changes in the Base Rate shall be effective on the first day
of each month based on the Base Rate in effect on such day. Notwithstanding
anything in the foregoing to the contrary, after Conversion, Maker may elect one
of the following alternatives in order to have a fixed interest rate apply to
the principal converted and outstanding hereunder after the date of giving
notice of such fixed rate election (the "Fixed Rate Notice"):
(a) if the Fixed Rate Notice is given within twelve months of
Conversion, Maker may elect a fixed rate equal to the greater of (i)the
Revolving Credit Rate in effect on the date of the notice, plus .75%,
or
(ii) 2.00% above the average of the yields on
constant maturity Treasury Bonds with maturities of three
years and five years, as quoted in the immediately preceding
monthly Federal Reserve Statistical Release (the "Release");
(b) if the Fixed Rate Notice is given after twelve months but
within twenty-four months of Conversion, Maker may elect a fixed rate
equal to the greater of
(i) the Revolving Credit Rate in effect on the date
of the notice, plus .75%, or
(ii) 2.00% above the yield on constant maturity
Treasury Bonds with a maturity of three years as quoted in the
immediately preceding monthly Release;
3
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<PAGE>
(c) if the Fixed Rate Notice is given after twenty-four months
of Conversion but within thirty-six months of Conversion, Maker may
elect a fixed rate equal to the greater of
(i) the Revolving Credit Rate in effect on the date
of the notice, plus .50%, or
(ii) 2.00% above the yield on constant maturity
Treasury Bonds with a maturity of two years, as quoted in the
immediately preceding monthly Release; and
(d) if the Fixed Rate Notice is given after thirty-six months
of Conversion but prior to the maturity of the term loan, Maker may
elect a fixed rate equal to the Revolving Credit Rate in effect on the
date of the notice, plus .50%.
Any election of a fixed rate by Maker shall be final and irrevocable. Interest
shall be due each month concurrently with the Maker's principal payment.
Notwithstanding anything to the contrary elsewhere herein, after an Event of
Default has occurred interest shall accrue on the entire outstanding balance of
principal and interest at a fluctuating rate equal to the Default Rate. Interest
shall be calculated on the basis of the actual number of days outstanding and a
360-day year. Interest shall continue to accrue on the full unpaid balance
hereunder notwithstanding any permitted or unpermitted failure of Maker to make
a scheduled payment or the fact that a scheduled payment day falls on a day
other than a Business Day. If Maker's most recent Quarterly Compliance
Certificate shows that, as of the end of the prior quarter, Total Indebtedness
was in excess of 300% of Net Worth, the current quarter shall be deemed a
"Restricted Quarter." If, any time during a Restricted Quarter (including,
without limitation, during any period in such quarter prior to delivery of the
Quarterly Compliance Certificate), the interest rate accruing on any Existing
Term Note (as defined in the Agreement) or Converted Note is less than 7.50% per
annum, a "Trigger Event" shall be deemed to have occurred. Upon the occurrence
of a Trigger Event, Maker shall be obligated to pay the following fees: (i)
.375% of the outstanding principal balance as of the date preceding the Trigger
Event of each Existing Term Note or Converted Note which accrues interest at
less than seven and one-half percent (7.50%) per annum which amount shall be
payable promptly upon invoicing by FNB-O; (ii) the same amount as computed in
clause (i), payable on the six-month anniversary of the Trigger Event; and (iii)
the same amount as computed in clause (i), payable on the twelve-month
anniversary of the Trigger Event.
Maker may at any time prepay in whole or in part any principal amount
outstanding under the Revolving Credit Note or the Converted Note if the Maker
has given the Lenders at least two (2) business days prior written notice of its
intention to make such prepayment. Any such prepayment may be made without
penalty except for a Converted Note as to which interest is accrued at a fixed
rate in accordance with clause (a), (b) or (c), in which event a prepayment
penalty shall be due to the Lender, at Lender's option, either: (1) the
Make-Whole Premium due in respect of such prepayment; or (2) the applicable
prepayment fee as set forth below. The applicable prepayment fee for any
Converted Note shall be: (i) if interest is accruing at the rate set forth in
4
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<PAGE>
clause (a) above, the fee shall be 1.50% of the amount of such prepayment; (ii)
if interest is accruing at the rate set forth in clause (b) above, the fee shall
be .75% of the amount of such prepayment; and (iii) if interest is accruing at
the rate set forth in clause (c), the fee shall be .30% of the amount of such
prepayment.
GENERAL TERMS
Payment of this Note and the performance of Maker's obligations under
the Agreement ("Obligations") are secured by a security interest granted to
First National Bank of Omaha, as agent for the Lenders and others ("Agent"),
under a 1996 Restated Security Agreement dated as of May 3, 1996, as amended by
the First Amendment to the 1996 Restated Security Agreement dated as of June 28,
1996 (the "Restated Security Agreement") in:
All of Maker's accounts, accounts receivable, chattel paper, documents,
instruments, goods, inventory, equipment, general intangibles, contract rights,
all rights of Maker in deposits and advance payments made to Maker by its
customers and Subscribers, accounts due from advertisers and all ownership,
proprietary, copyright, trade secret and other intellectual property rights in
and to computer software (and specifically including, without limitation, all
such rights in DTN transmission computer software used in the provision of the
Basic DTN Subscription Service and Farm Dayta Service to Maker's Subscribers)
and all documentation, source code, information and works of authorship
pertaining thereto, all now owned or hereafter acquired and all proceeds and
products thereof; and such additional collateral as is more specifically
described in the Restated Security Agreement.
Maker's liability under its Obligations shall not be affected by any of
the following:
Acceptance or retention by Lender or Agent of other property
or interests as security for the Obligations, or for the liability of
any person other than a Maker with respect to the Obligations;
The release of all or any of the Collateral or other security
for any of the Obligations to any Maker;
Any release, extension, renewal, modification or compromise of
any of the Obligations or the liability of any obligor thereon; or
Failure by Lender or Agent to resort to other security or any
person liable for any of the Obligations before resorting to the
Collateral.
5
- 65 -
<PAGE>
Neither Lender nor Agent is required to take any action whatsoever in
respect of the Collateral. Impairment or destruction of the Collateral shall not
release Maker of its liability hereunder.
Maker represents, warrants and covenants as follows:
Maker is authorized to grant to Agent a security interest in
the Collateral;
This Note, the Agreement and the Restated Security Agreement
have been duly authorized, executed and delivered by the Maker and
constitute legal, valid and binding obligations of Maker;
This Note evidences a loan for business or agricultural
purposes; and
Maker agrees to pay all costs of collection in connection with
this Note, the Agreement and the Restated Security Agreement, including
reasonable attorneys' fees and legal expenses.
Upon the failure of Maker to make any payment of principal or interest
when due hereunder or the occurrence of any Event of Default, all of the
Obligations shall, at the option of Agent and without notice or demand, mature
and become immediately due and payable; and Agent shall have all rights and
remedies for default provided by the Uniform Commercial Code, any other
applicable law and/or the Obligations.
All costs and expenses incurred by Lender or Agent in enforcing its
rights under this Note or any mortgage, endorsement, surety agreement, guaranty
relating thereto are the obligation of Maker and are immediately due and
payable. Interest shall accrue on such costs and expenses from the date of
incurrence at the rate specified herein for delinquent Note payments. Each
Maker, endorser, surety and guarantor hereby waives presentment, protest,
demand, notice of dishonor, and the defense of any statute of limitations.
Without affecting the liability of any Maker, endorser, surety or
guarantor, the holder or Agent may, without notice, renew or extend the time for
payment, accept partial payments, release or impair any Collateral or other
security for the payment of this Note or agree to sue any party liable on it.
Neither Lender nor Agent shall be deemed to have waived any of its
rights upon or under this Note, or under any mortgage, endorsement, surety
agreement or guaranty, unless such waivers be in writing and signed by Lender or
Agent, as the case may be. No delay or omission on the part of Lender or Agent
in exercising any right shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right on any future occasion. All rights and remedies of Lender or Agent
on liabilities or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be exercised singularly or
concurrently.
6
- 66 -
<PAGE>
Maker, if more than one, shall be jointly and severally liable
hereunder and all provisions hereof regarding the liabilities or security of
Maker shall apply to any liability or any security of any or all of them. This
Note shall be binding upon the heirs, executors, administrators, assigns or
successors of Maker; shall constitute a continuing agreement, applying to all
future as well as existing transactions, whether or not of the character
contemplated at the date of this Note, and if all transactions between Lender
and Maker shall be at any time closed, shall be equally applicable to any new
transactions thereafter, provided that Lender's interest in the Collateral shall
be limited to the extent provided in the Restated Security Agreement; shall
benefit Lender, its successors and assigns; and shall so continue in force
notwithstanding any change in any partnership party hereto, whether such change
occurs through death, retirement or otherwise.
All obligations of Maker hereunder shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of First National Bank of Omaha in Omaha, Nebraska or at such other
address as may be designated by Bank in writing.
This Note shall be construed according to the laws of the State of
Nebraska.
Unless the content otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code shall have the meanings therein stated.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
This Note is given in substitution of that certain Secured Business
Promissory Note dated , 1995 in the original principal amount of $ . This Note
shall not affect, and there remains outstanding from the Maker to the Lender the
Related Bank Debt (as such term is defined in the Agreement) and those certain
Secured Business Promissory Notes dated as of July 7, 1992, October 1, 1992,
October 12, 1992, October 19, 1992, November 3, 1992, January 4, 1993, February
9, 1993, April 16, 1993, July 8, 1993, August 30, 1994, November 29, 1994 and
February 27, 1995, and all extensions, renewals, and substitutions of or for the
foregoing.
Executed as of this day of , l9 .
DATA TRANSMISSION NETWORK
CORPORATION
By:
Title:
4508J/44-50
7
- 67 -
<PAGE>
PROMISSORY NOTE SCHEDULE
Loan Advances and Payments of Principal
DATA TRANSMISSION NETWORK CORPORATION
REVOLVING NOTE ADVANCES AND PAYMENTS:
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
8
- 68 -
<PAGE>
TERM NOTE:
Date of Conversion:
Amount Due at Date of Conversion:
Fixed Rate Notice Date: Fixed Rate: %
Amount of Unpaid
Amount Principal Paid Amount of Principal Notation
Date of Advance or Prepaid Interest Paid Balance Made By
9
- 69 -
<PAGE>
EXHIBIT B
TO 1996 REVOLVING CREDIT AGREEMENT
BETWEEN
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
FARM CREDIT SERVICES OF THE MIDLANDS, PCA,
THE SUMITOMO BANK, LIMITED,
MERCANTILE BANK OF ST. LOUIS, N.A.,
FIRST BANK, NATIONAL ASSOCIATION,
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
AND
DATA TRANSMISSION NETWORK CORPORATION
DRAWING CERTIFICATE
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DRAWING CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
To induce the First National Bank of Omaha, First National Bank, Wahoo,
Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., Farm Credit Services of the
Midlands, PCA, The Sumitomo Bank, Limited, Mercantile Bank of St. Louis, N.A.
and First Bank, National Association (the "Revolving Lenders") to make an
advance under the 1996 Revolving Credit Agreement (the "Agreement") dated as of
June 28, 1996, between the undersigned (the "Borrower"), The Boatmen's National
Bank of St. Louis ("Boatmen's"), and the Revolving Lenders (as to Boatmen's and
the Revolving Lenders together, (the "Banks"), the Borrower hereby certifies to
the Banks that its Operating Cash Flow (as defined in the Agreement) as
represented below is true and correct and that there is no default under the
aforementioned Agreement, or on any other liability of the Borrower to the
Banks.
All information as of: Date
------------------------------
a) Principal on Converted Notes,
Acquisition Notes, Existing Term Notes,
and Related Bank Debt Outstanding $
----------------------
b) Principal on Revolving Credit $
----------------------
c) ADVANCE REQUEST $
----------------------
d) Total Proposed Bank Debt
(line a + line b + line c) $
----------------------
e) Most recent month's operating cash flow $
----------------------
f) Prior month's operating cash flow $
----------------------
g) Operating Cash Flow
(average of line e and line f) $
----------------------
h) 36 x Operating Cash Flow $
----------------------
i) Excess (line h - line d) $
----------------------
Name of Borrower: Data Transmission Network Corporation
Signature:
---------------------------------------
Title:
---------------------------------------
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EXHIBIT C
TO 1996 REVOLVING CREDIT AGREEMENT
BETWEEN
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
FARM CREDIT SERVICES OF THE MIDLANDS, PCA,
THE SUMITOMO BANK, LIMITED,
MERCANTILE BANK OF ST. LOUIS, N.A.,
FIRST BANK, NATIONAL ASSOCIATION,
THE BOATMEN'S NATIONAL BANK OF ST. LOUIS,
AND
DATA TRANSMISSION NETWORK CORPORATION
OFFICER'S CERTIFICATE
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COMPLIANCE CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
First National Bank of Omaha Date
Attn: James Bonham
16th & Dodge Streets
Omaha, Nebraska 68102
I certify that Data Transmission Network Corporation is in compliance with the
requirements set forth in the 1996 Revolving Credit Agreement (the "Agreement")
dated as of June 28, 1996, between First National Bank of Omaha, First National
Bank, Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., Farm Credit
Services of the Midlands, PCA in care of AgAmerica, FCB, The Sumitomo Bank,
Limited, Mercantile Bank of St. Louis, N.A., First Bank, National Association,
The Boatmen's National Bank of St. Louis and Data Transmission Network
Corporation.
The following calculations are as of (statement date) as required by
Section 4.1(d) of said
Agreement:
Evaluations:
Total Indebtedness/Net Worth = / = %
------- ------- -------
(for the purposes of this document this calculation will be abbreviated by
TI/NW)
Operating Cash Flow: most recent month previous month
ending ending
Net Income (loss)
Interest Expense
Depreciation
Amortization
Deferred Income Taxes
Non-Ordinary Non-Cash
Charges (Credits)
Total a) b)
Operating Cash Flow = OCF = (a+b)/2 =
Section 2.3
o Pricing: If TI/NW is less than 250% then the margin is zero.
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<PAGE>
If TI/NW is equal or greater than 250% but less
than 300% then the margin is 1/4%. If TI/NW is
equal or greater than 300% but less than 350% then
the margin is 3/4%.
Position: The Revolving Credit Rate is the Base Rate plus
zero or 1/4% or 3/4%.
Section 2.5
o Trigger Fee: If TI/NW exceeds 300%, then a one time fee,
paid in three installments of 3/8% of the then outstanding
principal balances, on any of the Existing Term Notes,
Acquisition Notes or Converted Notes which have an
interest rate less than 7.5% per annum is due.
Position: A Trigger Event has/has not occurred.
Section 4.3
o Net Worth: A minimum Net Worth (exclusive of subordinated debt) of
$23,500,000 is required.
Position: Net Worth (exclusive of subordinated debt)= $
-----------
Section 4.4
o Indebtedness: At no time will Total Indebtedness exceed 48 x OCF.
Position: (48 x OCF) - Total Indebtedness =
- =
---------- ------------------- -----------
o Indebtedness: At no time will TI/NW exceed 350%.
Position: TI/NW = %
-----
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o Total At no time will Adjusted Total Indebtedness
Indebtedness exceed 60 x OCF
plus
subordinated
debt plus
guaranty
contingencies
(Adjusted
Total
Indebtedness or
ATI):
Position: Adjusted Total Indebtedness = $
(60 x OCF) - (ATI) = $
Section 4.15
o Interest The ratio of OCF to Interest Expense ("IE") at
Coverage: the end of each quarter will not be less than
2.25 to 1.0 (225%).
Position: OCF = $_________________
IE = $ _________________
OCF/IE = ______________ %
Additional Representations:
There have/have not been any sale(s) of assets which would require
prepayment of the Notes under Section 4.2.
There has/has not been:
(i) a Change of Control or a material adverse change in
management personnel as defined in Section 4.14 of the
Agreement; or
(ii) a default under Section 6.1(j) or 6.1(l) regarding a
change in ownership or control of the Company.
(iii) an indemnity claim by Broadcast Partners under Section
6.1(m).
Name of Borrower: Data Transmission Network Corporation
Signature: ______________________________________
Title: ______________________________________
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<PAGE>
FIRST AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT (the "First
Amendment"), dated as of July 31, 1996, is intended to amend the terms of the
1996 Revolving Credit Agreement (the "Agreement") dated as of May 3, 1996, among
DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST
NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM
CREDIT SERVICES OF THE MIDLANDS, PCA, THE SUMITOMO BANK, LIMITED, MERCANTILE
BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL ASSOCIATION, and BOATMEN'S
NATIONAL BANK OF ST. LOUIS. The parties to this First Amendment shall include
the original parties to the Agreement and BANK OF MONTREAL, a Canadian bank
represented by its office at 430 Park Avenue, New York, New York, 10022
("Montreal"). All terms and conditions of the Agreement shall remain in full
force and effect except as expressly amended herein. All capitalized terms
herein shall have their respective meanings set forth in the Agreement. The
Agreement shall be amended as set forth below.
Section 1. "Article I: Definitions" of the Agreement shall be
amended by adding the following definition:
Montreal: Bank of Montreal/Harris Bank, a Canadian bank being
represented by its office at 430 Park Avenue, New
York, New York, 10022.
The following definitions shall be amended to read as follows:
Lenders: FNB-O, FNB-W, NBD, Norwest, Farm Credit, Sumitomo,
Mercantile, First Bank, and Montreal, in their
capacity as Revolving Lenders under this Agreement,
the Term Lenders, lenders of the Related Bank Debt,
Boatmen's (as to Articles VI and VII and as to
Section 8.6 only), and such additional lenders as may
be added hereto or thereto from time to time.
Revolving
Lenders: FNB-O, FNB-W, NBD, Norwest, Farm Credit, Sumitomo,
Mercantile, First Bank, and Montreal and such
additional Revolving Lenders as may be added as
Revolving Lenders under Section 2.1 hereto from time
to time by mutual written agreement of the parties.
Section 2. Section 2.1 of the Agreement shall be amended to
read as follows:
2.1 Revolving Credit. Until the earlier of June 21, 1997,
or the date on which the loan hereunder is converted
to a term loan in accordance with Section 2.4, the
Revolving Lenders severally agree to advance funds
for general corporate purposes not to exceed
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<PAGE>
$49,500,000 to the Borrower on a revolving credit
basis (amounts outstanding under the Acquisition
Notes, Existing Term Notes and Related Bank Debt
shall not be counted against such $49,500,000 limit).
Such Advances shall be made on a pro rata basis by
the Revolving Lenders, based on the following maximum
advance limits for each Revolving Lender: (i) as to
FNB-O, $9,966,000; (ii) as to FNB-W, $226,500; (iii)
as to NBD, $5,753,100; (iv) as to Norwest,
$3,533,400; (v) as to Farm Credit, $9,603,600; (vi)
as to Sumitomo, $4,829,900; (vii) as to Mercantile,
$4,983,000, (viii) as to First Bank, $5,000,000, and
(ix) as to Montreal, $5,604,500. The Borrower shall
not be entitled to any Advance hereunder if, after
making of such Advance, the Total Indebtedness would
exceed thirty-six (36) times the Borrower's Operating
Cash Flow, determined at the time of the Advance. Nor
shall the Borrower be entitled to any further
Advances hereunder after the occurrence of a material
adverse change in its management personnel, as
described in Section 4.14(b), or after the occurrence
of any Event of Default with respect to the Borrower.
Advances shall be made, on the terms and conditions
of this Agreement, upon the Borrower's request.
Requests shall be made by 12:00 noon Omaha time on
the Business Day prior to the requested date of the
Advance. Requests shall be made by presentation to
FNB-O of a drawing certificate in the form of Exhibit
B. The Borrower's obligation to make payments of
principal and interest on the foregoing revolving
credit indebtedness shall be further evidenced by the
Revolving Credit Notes.
Section 4. The Borrower hereby restates for the benefit of
the Lenders the representations and warranties
contained in Article III of the Agreement and affirms
that such representations and warranties are true and
correct as of the date of this First Amendment.
Section 5. The Lenders hereby acknowledge the Second
Amendment to the 1996 Term Credit Agreement dated as
of July 31, 1996 among the parties herein (not
including Boatmen's) and Broadcast Partners, and
hereby consent to the increase of $300,000 in the
total term credit facility to $48,490,000.
Section 6. This First Amendment may be executed in several
counterparts and such counterparts together shall
constitute one and the same instrument.
Section 7. This First Amendment shall be effective upon the
execution and delivery thereof by the parties hereto.
References in the Notes to the Loan Agreement shall
be deemed amended to refer to the Loan Agreement as
amended by this First Amendment.
IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT
TO 1996 REVOLVING CREDIT AGREEMENT dated as of July 31, 1996.
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<PAGE>
DATA TRANSMISSION NETWORK
CORPORATION
By /s/ Brian Larson
------------------------
Title: CFO, Secretary,Treasurer
------------------------
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<PAGE>
FIRST NATIONAL BANK OF OMAHA
By James P. Bonham
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Jayleen R.P. Hague
------------------------
Title: Vice President
------------------------
By /s/ Teresa A. Lekich
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
FIRST NATIONAL BANK, WAHOO, NEBRASKA
By /s/ Elizabeth E. Rezac
------------------------
Title: 2nd Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
NBD BANK
By /s/ D.J. Pienta
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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NORWEST BANK NEBRASKA, N.A.
By /s/ Leslie J. Volk
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
FARM CREDIT SERVICES OF THE MIDLANDS, PCA
By /s/ Joseph K. Herman
------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
MERCANTILE BANK OF ST. LOUIS, N.A.
By /s/ Joseph L. Scooter
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
FIRST BANK, NATIONAL ASSOCIATION
By /s/ J.M. Crimmins
------------------------
Title: Senior Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
BOATMEN'S NATIONAL BANK OF ST. LOUIS
By /s/ Robert S. Holmes, Jr
------------------------
Title: Vice President
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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BANK OF MONTREAL
By /s/ Rene Encarnacion
------------------------
Title: Director
------------------------
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
SECOND AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT
THIS SECOND AMENDMENT TO 1996 REVOLVING CREDIT AGREEMENT (the "Second
Amendment"), dated as of December 27, 1996, is intended to amend the terms of
the 1996 Revolving Credit Agreement (the "Agreement") dated as of June 28, 1996,
among DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST
NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A.,
AGAMERICA, FCB (assignee of FARM CREDIT SERVICES OF THE MIDLANDS, PCA), THE
SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK, NATIONAL
ASSOCIATION, and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, as amended by the
First Amendment to 1996 Revolving Credit Agreement (the "First Amendment") dated
as of July 31, 1996. The parties to this Second Amendment shall include the
original parties to the Agreement, BANK OF MONTREAL, a Canadian bank represented
by its office at 430 Park Avenue, New York, New York, 10022 ("Montreal"), and
LASALLE NATIONAL BANK, a national banking association being represented by its
office at One Metropolitan Square, 211 North Broadway, St. Louis, Missouri
63102. All terms and conditions of the Agreement shall remain in full force and
effect except as expressly amended herein. All capitalized terms herein shall
have their respective meanings set forth in the Agreement. The Agreement shall
be amended as set forth below.
Section 1. The following definitions of "Article I: Definitions"
of the Agreement shall be amended to read as follows:
Farm Credit: AgAmerica, FCB, a farm credit bank doingb
business at 206 South 19th Street, Omaha,
Nebraska 68102-1745, as assignee of Farm
Credit Services of the Midlands, P.C.A.
Notes: (i) The Revolving Credit Notes, the Convert-
ed Notes and Existing Term Notes, the
Acquisition Notes, and such additional
similar notes as may be issued to certain
additional Lenders, and all extensions,
renewals, and substitutions of or for the
foregoing; and (ii) notes and, in the case
of interest rate protection contracts, such
contracts evidencing the obligations of the
Borrower to any Lender under the Related
Bank Debt.
Related Bank Debt: The aggregate unpaid balance of all indebt-
edness, now or hereafter existing (including
future advances) under (i) the Related Loan
Agreement, including, without limitation,
the amounts outstanding under those certain
promissory notes from the Borrower to FNB-O,
FirsTier and FNB-W dated as of October 13,
1992, and December 7, 1992, and all
extensions, renewals, and substitutions of
or for the foregoing; and (ii) certain
interest rate protection contracts entered
into from time to time by the Borrower with
one or more of the Lenders.
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Total Indebtedness: All loans and other obligations of the
Borrower and its Subsidiaries, without
duplication, for borrowed money (including,
without limitation, the indebtedness due to
the Lenders) regardless of the maturity
thereof but such term shall not include
subordinated debt of the Borrower, as such
term is defined in the definition of Net
Worth up to $15,000,000 if such subordinated
debt is existing on May 3, 1996. For
purposes of this definition of "Total
Indebtedness, "indebtedness under an
interest rate protection agreement shall
mean the amount if any, at the time of
determination, of the unpaid Interest Rate
Protection Contract Amounts; provided,
however, that solely for purposes of voting
under this Agreement by the Lenders, "Total
Indebtedness" will not include such Interest
Rate Protection Contract Amounts.
Section 2. The following definitions shall be added to Article I
of the Agreement:
Interest Rate
Protection Contract
Amounts: "Interest Rate Protection Contract Amounts"
shall mean amounts due from the Borrower
under interest rate protection contracts
between the Borrower and one or more Lenders
as to (i) the interest differential amounts
due in respect of periodic netting payments
under any such contract, and (ii) any amount
due as a result of marking to market the
Borrower's obligations under any such
contract upon the occurrence of an event of
default under, or other early termination
of, such contract; in either case without
inclusion of fees and other expenses related
to such contract. Such Interest Rate
Protection Contract Amounts shall be
reported in writing to FNB-O and the
Borrower by the applicable Lender at such
times as shall be appropriate to carry out
the intent of this Agreement.
LaSalle: LaSalle National Bank, a national banking
association having its principal place of
business at 135 South LaSalle Street,
Chicago, Illinois 60603.
Section 3. On the date of this Second Amendment, the Borrower
shall prepay in full the principal amount of, and
accrued interest through such date on, the Revolving
Credit Note in the principal amount of $9,603,600
payable to Farm Credit, which Revolving Credit Note
has been assigned to AgAmerica. Simultaneously, upon
(a) receipt by the Borrower of the $9,603,600
Revolving Credit Note payable to Farm Credit, marked
"canceled and paid in full" by AgAmerica, and (b) the
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<PAGE>
payment of $7,469,462 in immediately available funds
from LaSalle to FNB-O for the account of the
Borrower, the Borrower shall issue to LaSalle a
Revolving Credit Note in the principal amount of
$9,603,600, such Revolving Credit Note to be
substantially in the form attached to this Second
Amendment as Attachment A. Thereafter, (i) LaSalle
shall be deemed to be a "Lender" and a "Revolving
Lender" under the Agreement and AgAmerica shall cease
to be a "Lender" and a "Revolving Lender" thereunder;
and (ii) the reference to Farm Credit in clause (v)
of Section 2.1 of the Agreement shall be deemed to be
a reference to LaSalle.
Section 4. Section 2.6 of the Agreement shall be amended to read
as follows:
2.6 Payments. All obligations of the Borrower
under the Related Bank Debt (other than obligations
under any interest rate protection contract),
Revolving Credit Notes and Converted Notes and under
the other Operative Documents shall be payable in
immediately available funds in lawful money of the
United States of America at the principal office of
FNB-O in Omaha, Nebraska or at such other address as
may be designated by FNB-O in writing. In the event
that a payment day is not a Business Day, the payment
shall be due on the next succeeding Business Day.
Section 5. (a) The first sentence of Section 7.1 of the
Agreement shall be amended to read as
follows:
FNB-O will act as sole servicer of the loans
evidenced by the Notes (other than in connection with
interest rate protection contracts).
(b) The penultimate sentence of Section 7.1
shall be amended to read as follows:
Notwithstanding the foregoing, unanimous approval of
the applicable Lenders under the respective Notes
shall be required for: (i) any reduction or
compromise of the principal loan amount of such
Notes, the amount or rate of interest accrued or
accruing thereon or the fees due hereunder; and (ii)
extension of the date of any scheduled payment; and
unanimous consent of all the Lenders shall be
required for (iii) permitting the sale of or
releasing the security interest of the Lenders in
Collateral which comprises more than ten percent
(10%) of net book value of fixed assets of the
Borrower; and (iv) any amendment of Sections 7.1 or
7.2 hereof.
Section 6. Subsection 7.2(bb) of the Agreement shall be amended
to read as follows:
(bb) second, pari passu among the Lenders,
based on their respective pro rata shares of the
funds to be applied. Each Lender's pro rata share
shall be equal to a fraction, (x) the numerator of
which shall be the total
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<PAGE>
principal loan amount then outstanding which is owing
to each such Lender under its Notes, and (y) the
denominator of which shall be the total principal
loan amount then outstanding which is owing to the
Lenders under all Notes. As to any Note which
represents an obligation of the Borrower to one or
more Lenders under an interest rate protection
contract, "principal loan amount then outstanding"
shall mean, as of the date of determination by FNB-O
of the Lenders' respective pro rata shares, the
amount, if any, of the unpaid Interest Rate
Protection Contract Amounts.
Section 7. The following sentence shall be added to the end of
Section 7.4 of the Agreement:
For purposes of this Section 7.4, "Notes" shall not
include interest rate protection contracts.
Section 8. The Borrower hereby restates for the benefit of the
Lenders the representations and warranties contained
in Article III of the Agreement and affirms that such
representations and warranties are true and correct
as of the date of this Second Amendment.
Notwithstanding the foregoing, representations of the
Borrower as to UCC filings in respect of the
Collateral are hereby amended to reflect such
additional filings as shall have been made in favor
of the Lenders.
Section 9. The Lenders hereby acknowledge and consent to
the Third Amendment to the 1996 Term Credit Agreement
dated as of the date hereof among the parties herein
(not including Boatmen's).
Section 10. This Second Amendment may be executed in several
counterparts and such counterparts together shall
constitute one and the same instrument.
Section 11. This Second Amendment shall be effective upon the
execution and delivery thereof by the parties hereto.
References in the Notes to the Loan Agreement shall
be deemed amended to refer to the Loan Agreement as
amended by the First Amendment and this Second
Amendment.
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IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT
TO 1996 REVOLVING CREDIT AGREEMENT dated as of December 27, 1996.
DATA TRANSMISSION NETWORK
CORPORATION
By /s/ Brian Larson
------------------------
Title: Vice President, CFO,
Secretary and Treasurer
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FIRST NATIONAL BANK OF OMAHA
By /s/ JP Bonham
------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
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<PAGE>
THE SUMITOMO BANK, LIMITED
By /s/ Teresa A. Lekich
------------------------
Title: Vice President
By /s/ H.W. Redding
------------------------
Title: Vice President & Manager
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
7
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<PAGE>
FIRST NATIONAL BANK,
WAHOO, NEBRASKA
By Elizabet Rezac
------------------------
Title: 2nd Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED: /s/ BL
------------------------
Borrower
8
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<PAGE>
NBD BANK
By /s/ D.J. Pienta
------------------------
Title: Vice President
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
9
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<PAGE>
NORWEST BANK NEBRASKA, N.A.
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
AGAMERICA, FCB
(assignee of FARM CREDIT
SERVICES OF THE MIDLANDS, PCA)
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
11
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<PAGE>
MERCANTILE BANK OF ST. LOUIS, N.A.
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
12
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<PAGE>
FIRST BANK, NATIONAL ASSOCIATION
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
13
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<PAGE>
BOATMEN'S NATIONAL BANK OF ST. LOUIS
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
BANK OF MONTREAL
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
3796v2
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<PAGE>
LASALLE NATIONAL BANK
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
3796
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<PAGE>
1996 TERM CREDIT AGREEMENT
This 1996 Term Credit Agreement (the "Agreement") is entered into as of
the 3rd day of May, 1996, among DATA TRANSMISSION NETWORK CORPORATION, a
Delaware corporation having its principal place of business at Suite 200, 9110
West Dodge Road, Omaha, Nebraska 68114 (the "Borrower"), FIRST NATIONAL BANK OF
OMAHA, a national banking association having its principal place of business at
One First National Center, Omaha, Nebraska 68102 ("FNB-O"), FIRST NATIONAL BANK,
WAHOO, NEBRASKA, a national banking association having its principal place of
business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under
the laws of the State of Michigan and having its principal place of business at
611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA,
N.A., a national banking association having its principal place of business at
20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FARM CREDIT SERVICES
OF THE MIDLANDS, PCA, a production credit association ("Farm Credit") in care of
AGAMERICA, FCB, a farm credit bank doing business at 206 South 19th Street,
Omaha, Nebraska 68102-1745 ("AgAmerica") and BROADCAST PARTNERS, a general
partnership having its principal place of business at 11275 Aurora Avenue, Des
Moines, Iowa 50322 ("Broadcast Partners").
WITNESSETH:
WHEREAS, the Borrower desires to obtain a term credit facility for the
purpose of acquiring substantially all of the assets of Broadcast Partners; and
WHEREAS, the parties do not intend for this 1996 Term Credit Agreement
to be deemed to extinguish any existing indebtedness of the Borrower or to
release, terminate or affect the priority of any security therefor;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
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<PAGE>
I. DEFINITIONS
For purposes of this Agreement, the following definitions shall apply:
AgAmerica: AgAmerica, FCB, a farm credit bank doing business at 206 South
19th Street, Omaha, Nebraska 68102-1745, and its successors
and assigns.
Agreement: This 1996 Term Credit Agreement Agreement dated as of May 3,
1996, between the Borrower and the Lenders.
Banks: FNB-O, FNB-W, NBD Norwest, Farm Credit, AgAmerica
and such additional banks as may be added hereto from
time to time by mutual written agreement of the
parties.
Boatmen's: The Boatmen's National Bank of St. Louis, a national banking
association having its principal place of business at One
Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63166-
0236, and its successors and assigns.
Borrower: Data Transmission Network Corporation, a Delaware
corporation having its principal place of business at
Suite 200, 9110 West Dodge Road, Omaha, Nebraska
68114.
Broadcast
Partners: Broadcast Partners, a general partnership having its
current principal place of business at 11275 Aurora
Avenue, Des Moines, Iowa 50322. For purposes of
future notices or communications under this Agreement
Broadcast Partners address shall be: Broadcast
Partners, care of Thomas M. Hanigan, Pioneer Hi-Bred
International, Inc., 7200 N.W. 62nd Ave., P.O. Box
184, Johnston, Iowa 50131-0184.
Business
Day: Any day other than a Saturday, Sunday or a legal holiday on
which banks in the State of Nebraska are not open for
business.
Change of
Control: (a) At any time when any of the equity securities of
the Borrower shall be registered under Section 12 of
the Securities Exchange Act of 1934 as amended from
time to time (the "Exchange Act"), (i) any person,
entity or "group" (within the meaning of Section
2
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<PAGE>
13(d)(3) of the Exchange Act) (other than any person
which is a management employee, or any such "group"
which consists entirely of management employees, of
the Borrower) being or becoming the beneficial owner,
directly or indirectly, of more than 50% of the
voting stock of the Borrower, or (ii) a majority of
the members of the Borrower's board of directors (the
"Board") consisting of persons other than Continuing
Directors (as hereinafter defined); and (b) at any
other time, less than 50% of the voting stock of the
Borrower being owned beneficially, directly or
indirectly, by employees of the Borrower or its
subsidiaries. As used herein, the term "Continuing
Director" means any member of the Board on June 29,
1995 and any other member of the Board who shall be
recommended or elected to succeed a Continuing
Director by a majority of Continuing Directors who
are the members of the Board.
Collateral: All personal property of the Borrower described in the
Security Agreement, whether now owned or hereafter acquired,
including, without limitation:
(a) all of the Borrower's accounts, accounts
receivable, subscriber contract rights, chattel
paper, documents, instruments, goods, inventory,
equipment, general intangibles; and
(b) all proceeds and products of the
foregoing.
Existing
Term Notes: Those certain promissory notes from the Borrower to FNB-0,
FirsTier, FNB-W, NBD, Norwest and Boatmen's dated as of May 6,
1992, July 7, 1992, October 1, 1992, October 12, 1992, October
19, 1992, November 3, 1992, January 4, 1993, February 9, 1993,
April 16, 1993, July 8, 1993, August 30, 1994, November 29,
1994, and February 27, 1995.
Farm Credit Farm Credit Services of the Midlands, PCA, a production
credit association organized under the laws of United States,
and having its principal place of business at 206 South 19th
Street, Omaha, Nebraska 68102.
3
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<PAGE>
FirsTier: FirsTier Bank, National Association, Lincoln, Nebraska,
a national banking association having its principal place of
business at 13th and M Streets, Lincoln, Nebraska 68508, and
its successors and assigns (it being acknowledged that First
Bank is the successor in interest to FirsTier).
First Bank: First Bank, National Association, a national banking
association having its principal place of business at 13th and
M Streets, Lincoln, Nebraska 68508, and its successors and
assigns (it being acknowledged that First Bank is the
successor in interest to FirsTier).
FNB-O: First National Bank of Omaha, a national banking
association having its principal place of business at One
First National Center, Omaha, Nebraska 68102, and its
successors and assigns.
FNB-W: First National Bank, Wahoo, Nebraska, a national banking
association having its principal place of business at Wahoo,
Nebraska 68066, and its successors and assigns.
Lenders: The Banks and Broadcast Partners.
Make-Whole
Premium: An amount which shall be sufficient as determined by the rele-
vant Bank in good faith and on a reasonable basis and
certified to the Borrower in writing, to compensate the Bank
for any loss (including any lost yield), cost or expense
incurred by the Bank (i) in liquidating or redeploying
deposits or other funds acquired by the Bank to fund or
maintain the loan prepaid and (ii) in unwinding, amending,
cancelling or otherwise modifying or terminating any match
funding, swap or other arrangement entered into by the Bank in
connection with acquiring or maintaining the funding for the
loan prepaid.
NBD: NBD Bank, a bank organized under the laws of the State of
Michigan and having its principal place of business at 611
Woodward Avenue, Detroit, Michigan 48226.
Net Worth: The Borrower's net worth as determined in accordance with
generally accepted accounting principles plus subordinated
debt. For purposes of this definition, "subordinated debt"
means indebtedness of the Borrower which is subordinate, in a
4
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<PAGE>
manner satisfactory to the Lenders, to the indebtedness due to
the Lenders, and the repayment of which is forbidden during
the existence of any Event of Default hereunder; provided
however, that any such indebtedness shall not be deemed
subordinated debt to the extent of the amount of principal
payments that are due thereon within one year from the date of
determination.
Norwest: Norwest Bank Nebraska, N.A., a national banking association
having its principal place of business at 20th and Farnam
Streets, Omaha, Nebraska 68102, and its successors and
assigns.
Notes: Those certain promissory notes from the Borrower to the
Lenders dated as of May 3, 1996 including, without limitation,
the Notes to the Banks and to Broadcast Partners as referenced
in Section 2.1 hereof, and such additional term notes as the
parties may hereafter agree to add hereto as Notes.
Operating
Cash Flow: The Borrower's average monthly earnings or loss before
interest, depreciation, amortization of goodwill and taxes,
less current tax expense and plus or minus any non-ordinary
non-cash charges or credits to earnings, which average shall
be based on the Borrower's actual financial results in the two
full calendar months preceding the date of determination. For
purposes of calculating Operating Cash Flow for this
Agreement, the Borrower shall not permit deferred commission
expenses to be capitalized for any period in excess of twelve
months.
Operative
Documents: This 1996 Loan Agreement, the Notes, the Security Agreement,
the financing statements regarding the Collateral and the
documents and certificates, other than the Purchase Agreement,
delivered pursuant to Article VI.
Purchase
Agreement: The Asset Purchase and Sale Agreement dated as of May 3, 1996
between the Borrower and Broadcast Partners.
5
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<PAGE>
Quarterly
Compliance
Certificate: The certificate delivered to the Lenders by the Borrower
pursuant to Section 5.1(d).
Related
Bank Debt: The aggregate unpaid balance of all indebtedness, now or here-
after existing (including future advances) under the Related
Loan Agreements, including without limitation, the amounts
outstanding under those certain promissory notes from the
Borrower to FNB-O, FirsTier and FNB-W dated as of October 13,
1992 and December 7, 1992, the amounts outstanding under the
Existing Term Notes, and the amounts outstanding under the
revolving credit notes issued under the 1995 Restated Loan
Agreement referenced below and dated as of June 29, 1995 and
under any term notes issued to convert such revolving credit
notes or any portion thereof to a term obligation, and all
extensions, renewals, and substitutions of or for the
foregoing.
Related
Loan
Agreements: The Loan Agreement dated as of October 9, 1992, between the
Borrower and FNB-O, FirsTier and FNB-W and the 1995 Restated
Loan Agreement dated as of June 29, 1995 between the Borrower
and FNB-O, FirsTier, FNB-W, NBD, Norwest, AgAmerica and
Boatmen's and any loan agreements issued in extension,
renewal, replacement, or restatement of the foregoing (the
"1995 Restated Loan Agreement").
Restricted
Quarter: Has the meaning set forth in Section 2.2 hereof.
Revolving
Credit Rate: Has the same meaning as is defined for such term in the 1995
Restated Loan Agreement.
Security
Agreement: The 1996 Restated Security Agreement dated as of May 3, 1996
between the Borrower and FNB-O, as agent for the Lenders and
others, as amended from time to time.
Total
Indebtedness: All loans and other obligations of the Borrower for borrowed
money (including, without limitation, the indebtedness due to
the Lenders)
6
<PAGE>
regardless of the maturity thereof but such term shall
not include subordinated debt, as such term is defined in the
definition of Net Worth up to $15,000,000 if such subordinated
debt is existing on the date of this Agreement. It is
understood and agreed by the parties that, for purposes
hereof, Borrower has no obligations for borrowed money to
Broadcast Partners other than as is evidenced by the Notes
payable to Broadcast Partners. It is understood that the
Borrower does have other obligations to Broadcast Partners
under the Purchase Agreement.
Triggering
Event: Has the meaning set forth in Section 2.2 hereof.
All accounting terms not otherwise defined herein shall have the meaning
ordinarily applied under generally accepted accounting principles.
II. TERM FACILITY
2.1. Term Credit. Upon the date of this Agreement, the Banks agree to
advance $29,458,000 to the Borrower for the purchase of substantially all of the
assets of Broadcast Partners. Such advances shall be made on a pro rata basis by
the Banks, based on the following maximum advance limits for each Bank: (1) as
to FNB-O, $10,780,000; (ii) as to FNB-W, $245,000; (iii) as to NBD, $6,223,000;
(iv) as to Norwest, $1,822,000; and (v) as to Farm Credit, $10,388,000. In
addition, Broadcast Partners will receive a note for $18,732,000, representing a
portion of the purchase price consideration due to Broadcast Partners under the
Purchase Agreement.
2.2 Notes. The Notes shall bear interest on the principal loan amount
thereof outstanding through June 30, 1999, at the rate of 8.25% per annum;
thereafter the interest rate for the balance of the term shall be set on June
30, 1999, at two percent (2.00%) above the yield on constant maturity Treasury
Bonds with maturities of three years, as quoted for the Business Day immediately
preceding June 30, 1999 in the applicable Release; provided, however, that after
an Event of Default has occurred, interest shall accrue on the entire
outstanding balance of principal and interest at a fluctuating rate equal to the
Revolving Credit Rate plus four percent (4.00%). Interest shall be calculated on
actual days elapsed and a year of 360 days. If the Borrower's most recent
Quarterly Compliance Certificate shows that, as of the end of the prior quarter,
Total Indebtedness was in excess of 300% of Net Worth, the current quarter shall
be deemed a "Restricted
7
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<PAGE>
Quarter." If, any time during a Restricted Quarter (including, without
limitation, during any period in such quarter prior to delivery of the Quarterly
Compliance Certificate), the interest rate accruing on any Note is less than
seven and one-half percent (7.50%), a "Trigger Event" shall be deemed to have
occurred. Upon the occurrence of a Trigger Event, the Borrower shall be
obligated to pay the Lenders the following fees: (i) three-eighths of one
percent (.375%) of the outstanding principal balance of such Note as of the date
preceding the Trigger Event, which amount shall be payable promptly upon
invoicing by FNB-O; (ii) the same amount as computed in clause (i), payable on
the six-month anniversary of the Trigger Event; and (iii) the same amount as
computed in clause (i), payable on the twelve-month anniversary of the Trigger
Event.
2.3. Payments. Interest on the unpaid balance of the Notes shall be due
on the last day of each month beginning May 31, 1996. The principal amount of
each respective Note shall become due and payable in seventy-two equal monthly
installments, with the first such installment due on January 31, 1997, and
subsequent installments due on the last day of each consecutive month
thereafter. The total amount of all unpaid principal and accrued interest
hereunder shall be due and payable no later than December 31, 2002. In the event
that a payment day is not a Business Day, the payment shall be due on the next
succeeding Business Day. Interest shall continue to accrue on the full unpaid
balance hereunder notwithstanding any permitted or unpermitted failure of the
Borrower to make a scheduled payment or the fact that a scheduled payment day
falls on a day other than a Business Day.
2.4. Fees. The Borrower will pay to FNB-O an initial fee equal to
$14,729, payable at closing. Such fee will be paid to FNB-O and allocated by
FNB-O pro rata among the Banks based on their respective commitments as shown in
Section 2.1 above. Furthermore, the Borrower will pay to FNB-O at closing an
agenting fee equal to $25,500.
2.5 Payment. The Borrower's obligation to make payments of principal
and interest hereunder shall be further evidenced by the Notes, the form of
which is attached hereto as Exhibit A. All obligations of the Borrower under the
Notes and the other Operative Documents shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of FNB-O in Omaha, Nebraska or at such other address as may be designated
by FNB-O in writing.
2.6 Prepayment. The Borrower may prepay without penalty the principal
loan amount outstanding under all Notes in full, but only if such prepayment
occurs on June 30, 1999 and the Borrower has given the Banks at least 30 days
prior written notice of its intention to make such prepayment. Prepayments of
8
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<PAGE>
less than all the Notes in full will not be permitted without the prior written
consent of FNB-O. If a prepayment occurs on any date other than June 30, 1999,
the Borrower shall pay to each Bank, at each Bank's option, either: (1) the
Make-Whole Premium due in respect of such prepayment; or (2) a prepayment fee
equal to one and one-half percent (1.50%) of the amount of such prepayment. The
Borrower shall not be obligated to pay a Make-Whole Premium or prepayment fee to
Broadcast Partners.
2.6A Permitted Prepayments to Broadcast Partners. Notwithstanding the
provisions of Section 2.6, so long as no Event of Default exists hereunder and
so long as no Event of Default will exist after the prepayment, the Borrower
shall be permitted to prepay Broadcast Partners in the event that: (i) the Banks
or any of them agree, in their sole and absolute discretion, to increase their
commitment under Section 2.1 for the purposes of funding such prepayment; (ii)
the revolving credit facility provided for in the 1995 Restated Loan Agreement
is increased above $46,500,000 (excluding notes converted to term obligations
thereunder); (iii) another lender agrees to become a Lender hereunder, with a
commitment sufficient to fund such prepayment, and such Lender is acceptable to
the other Lenders in their sole and absolute discretion, it being agreed that
such other approved Lenders will be entitled to same terms and conditions and
pari passu status as the other Lenders hereunder; or (iv) the Borrower raises
additional equity capital in a manner reasonably acceptable to the Banks and
that results in corresponding increase (less offering costs) in the Borrower's
Net Worth as of the date thereof.
2.7 Security. All obligations of the Borrower hereunder and under the
Operative Documents, including, without limitation, the Borrower's obligations
to make payments of principal and interest shall be secured by a first security
interest in the Collateral, as more specifically described in the Security
Agreement.
2.8 Related Loan Agreements. Nothing herein shall be deemed to alter or
amend the Borrower's obligations under the Related Loan Agreements, the Related
Bank Debt or any collateral security therefor, all of which shall continue in
full force and effect in accordance with the terms thereof.
III. [INTENTIONALLY OMITTED]
9
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<PAGE>
IV. REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants that as of the date hereof the
following are and shall be true and correct:
4.1 Corporate Existence. It is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and duly
qualified and in good standing in all states except Alaska, Hawaii and Rhode
Island, and it has full power and authority to own and operate its properties
and to carry on its business.
4.2 Corporate Authority. It has full corporate power, authority and
legal right to execute, deliver and perform the Operative Documents to which it
is a party, and all other instruments and agreements contemplated hereby and
thereby, and to perform its obligations hereunder and thereunder; and such
actions have been duly authorized by all necessary corporate action, and are not
in conflict with any applicable law or regulation, or any order, judgment or
decree of any court or other governmental agency or instrumentality or its
articles of incorporation or bylaws, or with any provisions of any indenture,
contract or agreement to which it is a party or by which it or any of its
property may be bound.
4.3 Validity of Agreements. Its Operative Documents have been duly
authorized, executed and delivered and constitute its legal, valid and binding
agreements, enforceable against the Borrower in accordance with their respective
terms (except to the extent that enforcement thereof may be limited by any
applicable bankruptcy, reorganization, moratorium or similar laws now or
hereafter in effect, or by principles of equity).
4.4 Litigation. It is not a party to any pending lawsuit or proceeding
before or by any court or governmental body or agency, which is likely to have a
materially adverse effect on the Borrower's ability to perform its obligations
under its Operative Documents; nor is the Borrower aware of any threatened
lawsuit or proceeding, to which it may become a party or of any investigation of
any Court or governmental body or agency into its affairs, which if instituted
would have a material adverse effect upon the Borrower's ability to perform its
obligations under its Operative Documents.
4.5 Governmental Approvals. The execution, delivery and performance by
the Borrower of the Operative Documents or the Purchase Agreement do not require
the consent or approval of, the giving of notice to, the registration with, or
the taking of any other action in respect of, any federal, state or other
governmental authority or agency other than as contemplated herein and therein.
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<PAGE>
4.6 Defaults Under Other Documents. The Borrower is not in default or
in violation (nor has any event occurred which, with notice or lapse of time or
both, would constitute a default or violation) under any document or any
agreement or instrument to which it may be a party or under which it or any of
its properties may be bound and the result of which would have a material
adverse effect upon the Borrower's ability to perform its obligations under its
Operative Documents.
4.7 Judgments. There are no outstanding or unpaid judgments (which are
not adequately bonded) of the Borrower which would have a material adverse
effect upon the Borrower's ability to perform its obligations under its
Operative Documents.
4.8 Compliance with Laws. It is not in violation of any laws,
regulations or judicial or governmental decrees in any respect which could have
any material adverse effect upon the validity or enforceability of any of the
terms of its Operative Documents or which could have a material adverse effect
upon its ability to perform its obligations under its Operative Documents.
4.9 Taxes. All its tax returns for material taxes required to be filed
have been filed or extensions permitted by law have been obtained; all taxes of
a material nature and which are due and payable as reflected on such returns
have been paid, other than taxes which are due but for which only a nominal late
payment penalty is payable and for which the taxing authority is not yet
entitled to enforce its remedies for payment thereof and other than taxes being
contested in good faith and with respect to which adequate reserves have been
established; and no material amounts of taxes not reflected on such returns are
payable.
4.10 Collateral. The Borrower has good and marketable title to the
Collateral and the Collateral is free from all liens, encumbrances or security
interests, except as disclosed on Schedule A attached hereto. The Borrower's
principal place of business, chief executive office, and the place where it
keeps its records concerning the Collateral is Suite 200, 9110 West Dodge Road,
Omaha, Nebraska 68114.
4.11 Pension Benefits. The Borrower does not maintain a "Plan" as
defined in Section 3 of the Employees Retirement Income Security Act of 1974
("ERISA") or is in compliance with the minimum funding requirements with respect
to any such "Plan" maintained by the Borrower and the Borrower has not incurred
any material liability to the Pension Benefit Guaranty Corporation ("PBGC") or
otherwise under ERISA in connection with any such Plan.
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4.12 Margin Regulations. No part of the proceeds of any advance
hereunder shall be used to purchase or carry any "margin stock" (within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System
of the United States) or any "margin security" (within the meaning of Regulation
G of said Board of Governors), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or margin security. No part of the
proceeds of any advance hereunder shall be used for any purpose that violates,
or which is inconsistent with, the provisions of Regulation G, T, U or X of said
Board of Governors.
4.13 Financial Condition. The financial condition of the Borrower is
truly and accurately set forth in the most recent financial statement which has
been provided to the Lenders and no material adverse change has occurred which
would make such financial statement inaccurate or misleading.
V. COVENANTS
The Borrower hereby covenants that:
5.1 Financial Reports.
(a) Within forty-five (45) days after the end of each month,
the Borrower, at its sole expense, shall furnish the Lenders a balance
sheet and statement of earnings of the Borrower, prepared in accordance
with generally accepted accounting principles consistently applied and
certified as completed and correct, subject to normal changes resulting
from year-end audit adjustments, by the chief financial officer of the
Borrower.
(b) Within ninety (90) days after the close of the Borrower's
fiscal year, the Borrower, at its sole expense, shall furnish the
Lenders: (i) a balance sheet and statement of earnings of the Borrower,
certified by Deloitte & Touche, or other independent certified public
accountants acceptable to the Lenders, that such financial reports
fairly present the financial condition of the Borrower and have been
prepared in accordance with generally accepted accounting principles
consistently applied; and (ii) a certificate from such accountants
certifying that in making the requisite audit for certification of the
Borrower's financial statements, the auditors either (1) have obtained
no knowledge, and are not otherwise aware of, any condition or event
which constitutes an Event of Default or which with the passage of time
or the giving of notice would constitute an Event of Default under
Sections 5.3, 5.4, 5.7, 5.9(b), 5.9(d) or 5.11; or (2) have discovered
such condition or event, as
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specifically set forth in such certificate, which constitutes an Event
of Default or which with the passage of time or the giving of notice
would constitute an Event of Default under such Sections. The auditors
shall not be liable to the Lenders by reason of the auditors' failure
to obtain knowledge of such event or condition in the ordinary course
of their audit unless such failure is the result of negligence or
willful misconduct in the performance of the audit.
(c) Within 30 days after submission to the Securities and
Exchange Commission, the Borrower shall provide to the Lenders copies
of its Forms 10K and 10Q, as submitted to the Securities and Exchange
Commission during the term of this Agreement.
(d) Within twenty (20) days after the end of each quarter, the
Borrower, at its expense, shall furnish the Lenders a certificate of
the chief financial officer of the Borrower in the form of Exhibit B,
setting forth such information (including detailed calculations)
sufficient to verify the conclusions of such officer after due inquiry
and review, that:
(i) The Borrower, either (y) is in compliance with
the requirements set forth in this Agreement or (z) is NOT in
compliance with the foregoing for reasons specifically set
forth therein; and
(ii) The chief financial officer of the Borrower has
reviewed or caused to be reviewed all of the terms of the
Operative Documents of the Borrower and that such review
either (1) has NOT disclosed the existence of any condition or
event which constitutes an event of default or any condition
or event which with the passage of time or the giving of
notice would constitute an event of default under the
Operative Documents or (2) has disclosed the existence of a
condition or event which constitutes an event of default, or a
condition or event which with the passage of time or the
giving of notice would constitute an event of default, under
the aforesaid instrument or instruments and the specific
condition or event is specifically set forth.
(e) The Borrower shall provide the Lenders with such other
financial reports and statements as the Lenders may reasonably request.
5.2 Corporate Structure and Assets. The Borrower shall not merge or
consolidate with any other corporation or entity unless the Borrower shall be
the surviving entity, nor sell any assets except items that are obsolete or no
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longer necessary for operation of the business, other than in the ordinary
course of business without the prior written consent of the Lenders. The Lenders
shall be entitled to receive as a prepayment on the Notes the proceeds of any
sale of assets of the Borrower which are prohibited by the preceding sentence.
Notwithstanding the foregoing prepayment requirements, any such prohibited sale
shall remain a violation of this Agreement. In addition, the Borrower shall not
engage in any business materially different from that in which it is presently
engaged without the prior written consent of the Lenders, which consent shall
not be unreasonably withheld. The foregoing restrictions on mergers and
consolidations shall not apply if: (i) in the case of a merger, the Borrower is
the surviving entity and expressly reaffirms its obligations hereunder; (ii) in
the case of a consolidation, the resulting corporation expressly assumes the
obligations of the Borrower hereunder; (iii) the surviving or resulting
corporation is organized under the laws of the United States or a jurisdiction
thereof; (iv) after giving effect to such merger or consolidation, the surviving
or resulting corporation will be engaged in substantially the same lines of
business as are now engaged in by the Borrower; and (v) immediately after giving
effect to such merger or consolidation, no Event of Default will exist
hereunder.
5.3 Net Worth. The Borrower shall maintain a minimum Net Worth during
the term of this Agreement of at least $23,500,000; provided, however, solely
for purposes of determining compliance with the provisions of this Section 5.3,
"Net Worth" shall not include any subordinated debt.
5.4 Indebtedness.
(a) The Borrower shall not at any time permit the sum of the
Total Indebtedness to the Lenders to exceed forty-eight times Operating
Cash Flow.
(b) The Borrower shall not at any time permit Total
Indebtedness to exceed 350% of Net Worth.
(c) On the day the Borrower becomes liable with respect to any
debt and immediately after giving effect thereto and to the concurrent
retirement of any other debt, the sum of Total Indebtedness, plus the
amount of any outstanding subordinated debt, plus the Borrower's
contingent obligations under any guaranty of the debt of any other
person or entity (other than unsecured debt of a subsidiary incurred in
the ordinary course of business for other than borrowed money or to
finance the purchase price of any property or business) shall not
exceed an amount equal to sixty times Operating Cash Flow at such date.
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5.5 Use of Proceeds. The Borrower shall not use the proceeds of the
advances hereunder to purchase or carry any "margin stock" (within the meaning
of Regulation U of the Board of Governors of the Federal Reserve System of the
United States) or any "margin security" (within the meaning of Regulation G of
said Board of Governors), or to extend credit to others for the purpose of
purchasing or carrying any such margin stock or margin security. No part of such
proceeds shall be used for any purpose that violates, or which is inconsistent
with, the provisions of Regulation G, T, U or X of said Board of Governors. This
section shall not preclude the Borrower from repurchasing any of its own issued
and outstanding common stock; provided, however, that such repurchase does not
result in the occurrence of any other Event of Default hereunder.
5.6 Notice of Default. The Borrower shall give to the Lenders prompt
written notification of the existence or occurrence of:
(a) any fact or event which results, or which with notice or
the passage of time, or both, would result in an Event of Default
hereunder;
(b) any proceedings instituted by or against the Borrower in
any federal, state or local court or before any governmental body or
agency, or before any arbitration board, or any such proceedings
threatened against the Borrower by any governmental agency, which is
likely to have a material adverse effect upon the Borrower's ability to
perform its obligations under its Operative Documents;
(c) any default or event of default involving the payment of
money under any agreement or instrument which is material to the
Borrower to which the Borrower is a party or by which it or any of its
property may be bound, and which default or event of default would have
a material adverse effect upon the Borrower's ability to perform its
obligations under its Operative Documents; and
(d) the Borrower shall give immediate notice of the
commencement of any proceeding under the Federal Bankruptcy Code by or
against the Borrower.
5.7 Distributions.
(a) The Borrower shall not declare any dividends or make any
cash distribution in respect of any shares of its capital stock or
warrants of its capital stock, without the prior written consent of the
Lenders; provided, however, that the Borrower may declare stock
dividends; provided, further, that the Borrower need not obtain the
Lenders'
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consent with respect to dividends in any one year which are, in
aggregate, less than 25% of the Borrower's net operating profit after
taxes in the previous four quarters, as reported to the Lenders
pursuant to Section 5.1.
(b) The Borrower shall not purchase, redeem, or otherwise
retire any shares of its capital stock or warrants of its capital stock
if, immediately after the making of such purchase or redemption, the
Borrower will be in default of any other covenant or provision of this
Agreement (including, without limitation, the covenants and provisions
pertaining to minimum net worth and limitations on indebtedness).
5.8 Compliance with Law and Regulations. The Borrower shall comply in
all material respects with all applicable federal and state laws and
regulations.
5.9 Maintenance of Property; Accounting; Corporate Form; Taxes;
Insurance.
(a) The Borrower shall maintain its property in good condition
in all material respects, ordinary wear and tear excepted, and make all
renewals, replacements, additions, betterments and improvements thereto
necessary for the efficient operation of its business.
(b) The Borrower shall keep true books of record and accounts
in which full and correct entries shall be made of all its business
transactions, all in accordance with generally accepted accounting
principles consistently applied.
(c) The Borrower shall do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
form of existence as is necessary for the continuation of its business
in substantially the same form.
(d) The Borrower shall pay all taxes, assessments and
governmental charges or levies imposed upon it or its property;
provided, however, that the Borrower shall not be required to pay any
of the foregoing taxes which are being diligently contested in good
faith by appropriate legal proceedings and with respect to which
adequate reserves have been established.
(e) The Borrower shall maintain liability insurance and
casualty insurance upon the Collateral (excluding equipment or
inventory provided to subscribers in the ordinary course of business)
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and other tangible assets. The Borrower shall name the Lenders as the
loss payee on all such casualty insurance, and as an additional insured
on all such liability insurance and shall provide the Lenders with
evidence of such insurance upon request.
5.10 Inspection of Properties and Books. The Borrower shall recognize
and honor the right of the Lenders, upon request to an officer of the Borrower,
to visit and inspect any of the properties of, to examine the books, accounts,
and other records of, and to take extracts therefrom and to discuss the affairs,
finances, loans and accounts of, and to be advised as to the same by the
officers of, the Borrower at all such times, in such detail and through such
agents and representatives as the Lenders may reasonably desire.
5.11 Guaranties.cThe Borrower shall not guaranty or become responsible
for the indebtedness of any other person or entity.
5.12 Collateral. The Borrower shall not incur or permit to exist any
mortgage, pledge, lien, security interest or other encumbrance on the
Collateral, except as permitted in the Security Agreement. Subject to Section
5.4(b), the foregoing shall not be construed to prohibit the Borrower from
acquiring leased equipment in the ordinary course of business. Without limiting
the generality of the foregoing, the Borrower covenants and agrees that it shall
on request enforce for the benefit of the Banks, but at the sole expense of the
Borrower, any and all rights and remedies (including, without limitation, rights
to indemnity), that it may have with respect to the existence of any liens,
security interests or other encumbrances that may exist on the property of the
Borrower acquired from Broadcast Partners under the Purchase Agreement.
Notwithstanding anything else to the contrary herein or in the Operative
Documents, Broadcast Partners shall have no right to share in the proceeds of
any such recovery which constitutes the proceeds of any indemnity claim by the
Borrower under the Purchase Agreement.
5.13 Name; Location. The Borrower shall give the Lenders ninety (90)
days notice prior to changing its name, identity or corporate structure, moving
its principal place of business, chief executive office or place where it keeps
its records concerning the Collateral.
5.14 Notice of Change in Ownership or Management. During the term of
this Agreement, the Borrower shall give the Lenders notice of the occurrence of
any of the following described events, which notice shall be given as soon as
the Borrower obtains notice or knowledge thereof:
(a) any change, directly or indirectly, in the existing
controlling interest in the Borrower; or
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(b) any material adverse change in its management personnel. A
material adverse change in the Borrower's management personnel shall be
deemed to have occurred if any one of the following has occurred with
respect to three individuals who are both officers and members of the
Board of Directors of the Borrower: (i) the resignation, retirement, or
voluntary or involuntary termination of employment and/or status of
such person as an officer and director of the Borrower; (ii) any
announcement, notice of intent, resolution or similar advance notice
with respect to the matters referenced in the foregoing clause; or
(iii) the death, disability or legal incompetence of such person.
5.15. Interest Coverage. The ratio of Operating Cash Flow to interest
expense (as determined in accordance with generally accepted accounting
principles but excluding amortization of deferred offering costs and any fees
related to the Trigger Event in Section 2.2 of this Agreement) at the end of
each quarter during the term of this Agreement, as shown on the Quarterly
Compliance Report, shall not be less than 2.25 to 1.0.
5.16 Subordinated Debt. The Borrower shall not incur any subordinated
debt or issue any preferred stock or warrants for preferred stock except upon
the prior written consent of the Lenders. The Borrower shall not make any
voluntary or optional prepayment on any subordinated debt without the prior
written consent of the Lenders. Similarly, the Borrower shall not amend its
articles of incorporation or any other documents or agreements relating to the
issuance of subordinated debt, preferred stock or warrants for preferred stock
without the prior written consent of the Lenders. The indebtedness to Broadcast
Partners under the Notes shall not be considered subordinated debt.
VI. CONDITIONS PRECEDENT
6.1 Closing Conditions. Any and all obligations of the Lenders
hereunder are subject to satisfaction of the following conditions precedent:
(a) FNB-O, as agent, shall have received an opinion of counsel
to the Borrower covering such matters as the Lenders may request
(including, without limitation, corporate existence and good standing,
corporate authority, due authorization, execution and delivery of the
Operative Documents, the legal, valid, binding and enforceable nature
of the Operative Documents, the perfection and priority of the security
interest in the Collateral granted to the Lenders, and the Borrower's
compliance with applicable state and federal laws in connection with
the equity offering specified in Section 6.1(f) below), such opinion
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to be satisfactory in form and substance to counsel to FNB-O. To the
extent that FNB-O agrees to accept a post closing opinion from the
Borrowers' counsel as to security interest issues, the same shall be
delivered no later than ten days after completion of the necessary UCC
searches, which shall be ordered promptly after recording any UCC
terminations received by the Borrower upon closing of the Purchase
Agreement and in any event, such opinion shall be delivered no later
than 30 days after closing;
(b) FNB-O, as agent, shall have received such certificates and
documents as the Lenders may reasonably request from the Borrower,
including articles of incorporation and bylaws, certificates regarding
good standing, incumbency, copies of other corporate documents, and
appropriate authorizing resolutions;
(c) the Operative Documents shall have been duly authorized
and executed and shall be in full force and effect, and such UCC
financing statements shall have been executed and filed in such offices
as may be appropriate to perfect the security interest of FNB-O, as
agent for the Lenders, in the Collateral, it being understood, however,
that certain UCC amendments and terminations will be filed after
closing as directed by FNB-O;
(d) FNB-O, as agent, shall have received copies of the
Purchase Agreement, satisfactory in form and substance to FNB-O;
(e) the closing of the Purchase Agreement shall occur prior
to or simultaneously with the closing of this Agreement; and
(f) the Borrower shall have completed an offering of its
common stock and received proceeds therefrom in the approximate amount
of $15,010,000, satisfactory in form and substance to the Banks.
VII. DEFAULTS AND REMEDIES
7.1 Events of Default. Any of the following shall be deemed an event of
default under this Agreement (an "Event of Default"):
(a) Any payment of principal required by any of the Operative
Documents shall not be paid when due.
(b) Any payment of interest or other fees due hereunder or
under any of the Operative Documents shall not be paid within 15
calendar days after the date on which such payment was invoiced or due.
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(c) Any representation or warranty of the Borrower under any
of the Operative Documents, or any financial reports or statements or
certificates submitted pursuant to this Agreement, shall prove to have
been false in any material respect when made.
(d) A failure of the Borrower to comply with any requirement
or restriction contained in Sections 5.1, 5.2, 5.3, 5.4, 5.7, 5.11,
5.12, 5.13, 5.14, 5.15 or 5.16 of this Agreement.
(e) A failure of the Borrower to comply with any requirement
or restriction contained in any provision of the Operative Documents
not otherwise specified in this Article VII, which failure remains
unremedied for ten days following receipt of notice from the Lenders.
(f) The occurrence of a default or a breach of any of the
Borrower's obligations under any note, loan agreement, preferred stock,
subordinated debt instrument or agreement, or any other agreement
evidencing an obligation to repay borrowed money.
(g) The entry of a final judgment against the Borrower for the
payment of money, which is not covered by insurance, and the expiration
of 30 days from the date of such entry during which the judgment is not
discharged in full or stayed.
(h) The occurrence of any one or more of the following:
(1) The Borrower shall file a voluntary petition in
bankruptcy or an order for relief shall be entered in a
bankruptcy case as to such entity or shall file any petition
or answer seeking or acquiescing in any reorganization,
arrangement, composition, readjustment, liquidation,
dissolution or similar relief for itself under any present or
future federal, state or other statute, law or regulation
relating to bankruptcy, insolvency or other relief for
debtors; or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of the
Borrower or of all or any part of its property, or of any or
all of the royalties, revenues, rents, issues or profits
thereof, or shall make any general assignment for the benefit
of creditors, or shall admit in writing its inability to pay
its debts or shall generally not pay its debts as they become
due; or
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(2) A court of competent jurisdiction shall enter an
order, judgment or decree approving a petition filed against
the Borrower seeking any reorganization, dissolution or
similar relief under any present or future federal, state or
other statute, law or regulation relating to bankruptcy,
insolvency or other relief for debtors, and such order,
judgment or decree shall remain unvacated and unstayed for an
aggregate of thirty (30) days (whether or not consecutive)
from the first date of entry thereof; or any trustee, receiver
or liquidator of the Borrower or of all or any part of its
property, or of any or all of the royalties, revenues, rents,
issues or profits thereof, shall be appointed without the
consent or acquiescence of the Borrower and such appointments
shall remain unvacated and unstayed for an aggregate of thirty
(30) days (whether or not consecutive); or
(3) A writ of execution or attachment or any similar
process shall be issued or levied against all or any part of
or interest in the Collateral, or any judgment involving
monetary damages shall be entered against the Borrower which
shall become a lien on the Collateral or any portion thereof
or interest therein and such execution, attachment or similar
process or judgment is not released, bonded, satisfied,
vacated or stayed within thirty (30) days after its entry or
levy.
(i) Any event of default shall occur under any Operative
Document.
(j) A change shall occur after November 8, 1993, directly or
indirectly, in the ownership or control of the Borrower; provided,
however, that changes in the ownership or control of, or new issuances
of, voting common stock which do not exceed, cumulatively, 50% of the
total issued and outstanding shares of the Borrower as of September 30,
1993 shall not be deemed an Event of Default under this Section 7.1(j);
provided further, that acquisitions of additional shares by members of
the existing executive management group of the Borrower shall not be
counted as changes in the ownership or control of the Borrower under
this Section 7.1(j). For purposes of computing the total issued and
outstanding shares as of September 30, 1993, warrants and options for
such shares shall be included.
(k) An Event of Default shall occur under any Related Loan
Agreement and the expiration of any applicable cure period thereunder.
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(l) The Borrower shall be obligated to prepay all or any
portion of its subordinated debt as a result of a Change of Control.
(m) The Borrower pays, or is determined to be obligated to
pay, any indemnity to Broadcast Partners under the Purchase Agreement
in excess of $1,000,000 in the aggregate.
7.2 Remedies. If an Event of Default occurs and is continuing, upon the
election of the Lenders holding two-thirds of the then outstanding aggregate
Total Indebtedness of the Borrower to the Lenders (including under the Notes,
the Related Bank Debt and any similar indebtedness but excluding amounts due
under the Purchase Agreement), the entire unpaid principal amount under the
Notes and all Related Bank Debt, together with interest accrued thereon, shall
become immediately due and payable without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, and the Lenders
may exercise their rights under the other Operative Documents and the Related
Loan Agreements (and the operative documents with respect thereto), including,
without limitation, under the Security Agreement. For purposes of this Article
VII, the term Lenders includes First Bank, Boatmen's and AgAmerica. In addition,
the Lenders shall have such other remedies as are available at law and in
equity. Remedies under this Agreement, the Operative Documents, the Related Loan
Agreements (and the operative documents with respect thereto) are cumulative.
Any waiver must be in writing by the Lenders and no waiver shall constitute a
waiver as to any other occurrence which constitutes an Event of Default or as to
any party not specifically included in such written waiver.
ARTICLE VIII. INTER-CREDITOR AGREEMENTS
8.1 FNB-O as Servicer. FNB-O will act as sole servicer of the loans
evidenced by the Notes issued hereunder and the Related Bank Debt. For purposes
of this Article VIII, the term Lenders includes First Bank, Boatmen's and
AgAmerica and the term Event of Default means any Event of Default hereunder or
under any Related Bank Debt. FNB-O will enforce, administer and otherwise deal
with the loans made by the Lenders in accordance with safe and prudent banking
standards employed by FNB-O in the case of the loan made by FNB-O. Without
limiting the generality of the foregoing, FNB-O will, on its own behalf and on
behalf of the Lenders: (i) maintain originals of the Operative Documents and the
operative documents in connection with the Related Loan Agreements; (ii) receive
requests for advances from the Borrower under the Related Loan Agreements and
make such advances on behalf of the revolving lenders in such agreements
(provided that FNB-O is assured of reimbursement therefor by the other revolving
lenders for their
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pro rata shares); (iii) receive payments and prepayments from the Borrower and
apply such payments as provided in Section 8.2; (iv) receive notices from the
Borrower and send copies thereof to the Lenders if FNB-O has reasonable cause to
believe that such Lenders have not received such notice from another source; and
(v) advise the Lenders of the occurrence of any material Event of Default which
FNB-O obtains actual knowledge of. The Lenders agree not to attempt to take any
action against the Borrower under the Operative Documents, Related Bank Debt or
with respect to the indebtedness evidenced thereby without FNB-O's consent
unless holders of two-thirds of the then outstanding aggregate Total
Indebtedness of the Borrower to the Lenders (including under the Notes, the
Related Bank Debt and any similar indebtedness but excluding amounts due under
the Purchase Agreement) shall have requested FNB-O to take specific action
against the Borrower and FNB-O shall have failed to do so within a reasonable
period after receipt of such request. All actions, consents, waivers and
approvals by the Lenders shall be deemed taken or given and amendments hereto
deemed agreed to if the holders of more than two-thirds of the outstanding
aggregate Total Indebtedness of the Borrower to the Lenders shall have indicated
their consent thereto. Notwithstanding the foregoing, any reduction or
compromise of the principal loan amount of the Notes or any Related Bank Debt or
the amount or rate of interest accrued or accruing thereon or extension of the
date of any scheduled payment shall require the unanimous approval of the
Lenders.
8.2 Application of Payments. Until the earlier of the occurrence of an
Event of Default or any Lender's giving of notice to the others that it deems
itself insecure, payments or prepayments made by the Borrower may be applied to
the indebtedness designated by the Borrower or otherwise applied as follows:
(a) first, to pay interest to date on the revolving
credit due under the 1995 Restated Loan Agreement between the Borrower
and certain of the Banks;
(b) second, to make payments due but unpaid under any of
the Notes and Related Bank Debt; and
(c) third, pro rata to the Lenders, such pro rata share to be
determined as set forth below in subsection (bb) of this Section 8.2.
After the occurrence of an Event of Default or any Lender's giving of notice
that it deems itself insecure, payments or prepayments on the Notes and Related
Bank Debt received by FNB-O or any of the Lenders and funds realized upon the
disposition of any of the Collateral shall be applied as follows:
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(aa) first, to reimburse FNB-O for any costs, expenses, and
disbursements (including attorneys' fees) which may be incurred or made
by FNB-0: (i) in connection with its servicing obligations; (ii) in the
process of collecting such payments or funds; or (iii) as advances made
by FNB-O to protect the Collateral (provided, however, that FNB-O shall
have no obligation to make such protective advances); and
(bb) second, pari passu among the Lenders, based on their
respective pro rata shares of the funds to be applied. Each Lender's
pro rata share shall be equal to a fraction, (x) the numerator of which
shall be total principal loan amount then outstanding which is owing to
each such Lender under its Notes and under its share, if any, of the
Related Bank Debt, and (y) the denominator of which shall be the total
principal loan amount then outstanding which is owing to the Lenders
under all Notes and Related Bank Debt.
Prepayments made pursuant to Section 2.6A and payments under the Purchase
Agreement shall not be subject to this Section 8.2, it being understood,
however, that prepayments under Section 2.6A shall not be permitted after the
occurrence of an Event of Default without the prior written consent of the
Banks. Except as specifically provided in this Section 8.2, FNB-O shall have no
obligation to repay or prepay any amount due from the Borrower to any of the
other Lenders nor shall FNB-O have any obligation to purchase all or a part of
any Note hereunder or any Note evidencing any Related Bank Debt or any advance
made by any Lenders, nor shall the Lenders have any recourse whatsoever against
FNB-O with respect to any failure of the Borrower to repay the indebtedness
referenced herein.
8.3 Liability of FNB-O. FNB-O shall not be liable to the Lenders for
any error of judgment or for any action taken or omitted to be taken by it
hereunder, except for gross negligence or willful misconduct. Without limiting
the generality of the foregoing, FNB-O, except as expressly set forth herein,
(a) may consult with legal counsel, independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; (b) makes no representation or warranty with respect to,
and shall not be responsible for, the accuracy, completeness, execution,
legality, validity, legal effect or enforceability of this 1996 Term Credit
Agreement, the Notes, the Related Loan Agreements or the Related Bank Debt or
the other Operative Documents or the operative documents under any Related Bank
Debt or the value or sufficiency of any Collateral given by the Borrower or the
priority of the Lenders' security interest therein or the financial condition
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of the Borrower; and (c) shall not be responsible for the performance or
observance of any of the terms, covenants or conditions of the Operative
Documents or the operative documents under any Related Bank Debt on the part of
the Borrower and shall not have any duty to inspect the property (including,
without limitation, the books and records) of the Borrower.
8.4 Transfers. No Lender shall subdivide, transfer or grant a
participation in its respective Notes or notes evidencing any Related Bank Debt,
or in any advance hereunder or under any Related Bank Debt, without the prior
written consent of FNB-O which consent shall not be unreasonably withheld.
Notwithstanding the foregoing, Broadcast Partners shall be permitted to
subdivide, transfer or grant a participation in its respective Notes to any of:
Pioneer Hi-Bred International, Inc., Farmland Industries, Inc., Illinois
Agricultural Service Company, or the majority-owned or controlled subsidiaries
or affiliates of any of them.
8.5 Reliance. The Lenders acknowledge that they have been advised that
none of the Notes, the notes evidencing any Related Bank Debt nor any interest
therein or related thereto has been (i) registered under the Securities Act of
1933, as amended, nor (ii) insured by the Federal Deposit Insurance Corporation.
The Lenders acknowledge that they have received from the Borrower all financial
information and other data relevant to their decision to extend credit to the
Borrower and that they have independently approved the credit quality of the
Borrower.
8.6 Relationship of Lenders. The Lenders intend for the relationships
created by this Agreement to be construed as concurrent direct loans from each
Lender respectively to the Borrower. Nothing herein shall be construed as a loan
from any Lender to FNB-O or as creating a partnership or joint venture
relationship among them.
8.7 New Lenders. In the event that new Lenders are added to this
Agreement or to the Related Loan Agreements, such Lenders shall be required to
agree to the inter-creditor provisions of this Article VIII.
8.8 Broadcast Partners. Broadcast Partners is added to this Agreement
and: (i) except as otherwise expressly provided in this Agreement or the 1996
Restated Security Agreement, shall have the same rights as Lender hereunder and
under the 1996 Restated Security Agreement as the other Lenders; and (ii) the
Financing Statements filed in Nebraska and Iowa naming FNB-O as secured party
and the Borrower as debtor shall be in favor of FNB-O as agent for itself and
the other Lenders, including Broadcast Partners.
25
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<PAGE>
ARTICLE IX. MISCELLANEOUS
9.1 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and may not
be effectively amended, changed, modified or altered, except in writing executed
by all parties. Notwithstanding the foregoing, it is understood that the
purchase and sale transaction between the Borrower and Broadcast Partners is
governed by the Purchase Agreement.
9.2 Governing Law. The Operative Documents shall be governed by and
construed pursuant to the laws of the State of Nebraska.
9.3 Notices. Until changed by written notice from one party hereto to
the other, all communications under the Operative Documents shall be in writing
and shall be hand delivered or mailed by registered mail to the parties as
follows:
If to the Borrower:
DATA TRANSMISSION NETWORK CORPORATION
Suite 200
9110 West Dodge Road
Omaha, Nebraska 68114
Attention: Chief Financial Officer
If to the Lenders:
FIRST NATIONAL BANK OF OMAHA
One First National Center
Omaha, Nebraska 68102
Attention: Mr. James P. Bonham
Notices shall be deemed given when mailed, except that any notice by the
Borrower under Section 2.6 shall not be deemed given until received by FNB-O.
9.4 Headings. The captions and headings herein are for convenience only
and in no way define, limit or describe the scope or intent of any provisions or
sections of this Agreement.
9.5 Counterparts. This Agreement may be executed in several
counterparts and such counterparts together shall constitute one and the same
instrument.
9.6 Survival; Successors and Assigns. The covenants, agreements,
representations and warranties made herein, and in the certificates delivered
pursuant hereto, shall survive the execution and delivery to the Lenders of this
Agreement and shall continue in full force and effect so long as any Note or
26
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<PAGE>
any obligation to the Lenders under any of the Operative Documents is
outstanding and unpaid. Whenever in this Agreement any of the parties hereto is
referred to, such reference shall be deemed to include the successors and
assigns of such party, and all covenants, promises and agreements by or on
behalf of the Borrower which are contained in this Agreement shall bind the
successors and assigns of the Borrower and shall inure to the benefit of the
successors and assigns of the Lenders.
9.7 Severability. If any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
9.8 Assignment. The Borrower may not assign its rights or obligations
hereunder and any assignment in contravention of the terms hereof shall be void.
9.9 Amendments. Any amendment, modification or supplement to this
Agreement must be in writing and must be signed by the parties hereto.
IN WITNESS WHEREOF, the Borrower and the Lenders have caused this 1996
Term Credit Agreement to be executed by their duly authorized corporate officers
as of the day and year first above written.
27
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<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
By
Title:
28
- 130 -
<PAGE>
FIRST NATIONAL BANK OF OMAHA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4866E
29
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<PAGE>
BROADCAST PARTNERS
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4866E
30
- 132 -
<PAGE>
FIRST NATIONAL BANK, WAHOO, NEBRASKA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4866E
31
- 133 -
<PAGE>
NBD BANK
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4866E
32
- 134 -
<PAGE>
NORWEST BANK NEBRASKA, N.A.
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4866E
33
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<PAGE>
FARM CREDIT SERVICES OF THE MIDLANDS,
PCA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4866E
34
- 136 -
<PAGE>
EXHIBIT A
TO 1996 TERM CREDIT AGREEMENT
BETWEEN
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
FARM CREDIT SERVICES OF THE MIDLANDS, PCA,
BROADCAST PARTNERS AND
DATA TRANSMISSION NETWORK CORPORATION
FORM OF NOTES
1
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<PAGE>
SECURED BUSINESS PROMISSORY NOTE
Omaha, Nebraska $
May 3, 1996 December 31, 2002
(Note Date) (Maturity Date)
DATA TRANSMISSION NETWORK CORPORATION ("Maker") promises to pay to the
order of ("Lender") at the offices of First National Bank of Omaha in Omaha,
Nebraska, the principal sum of . Interest on the unpaid principal balance shall
be due on the last day of each month, beginning May 31, 1996. The principal sum
shall become due and payable in seventy-two equal monthly installments, with the
first such installment due on January 31, 1997, or if such day is not a Business
Day, on the next succeeding Business Day, and subsequent installments due on the
last day of each consecutive month thereafter, or, if such day is not a Business
Day, on the next succeeding Business Day. In any event, the total amount of all
unpaid principal and accrued interest hereunder shall be due and payable no
later than December 31, 2002. All capitalized terms not defined herein shall
have the meanings set forth in that certain 1996 Term Credit Agreement dated as
of May 3, 1996 among Maker, Lender and others (the "Agreement".)
Interest shall accrue on the principal outstanding through June 30,
1999, from time to time at the rate of % per annum; thereafter the interest rate
for the balance of the term shall be set on June 30, 1999, at two percent
(2.00%) above the yield on constant maturity Treasury Bonds with maturities of
three years, as quoted for the immediately preceding Business Day in the
applicable Release. Notwithstanding the foregoing, after an Event of Default has
occurred interest shall accrue on the entire outstanding balance of principal
and interest at a fluctuating rate equal to the Revolving Credit Rate, plus
4.00%. Interest shall be calculated on the basis of the actual number of days
outstanding and a 360-day year. Interest shall continue to accrue on the full
unpaid balance hereunder notwithstanding any permitted or unpermitted failure of
the Borrower to make a scheduled payment or the fact that a scheduled payment
day falls on a day other than a Business Day. If, any time during a Restricted
Quarter (including, without limitation, during any period in such quarter prior
to delivery of the Quarterly Compliance Certificate), the interest rate accruing
on this Note is less than seven and one-half percent (7.50%), a "Trigger Event"
shall be deemed to have occurred. Upon the occurrence of a Trigger Event, the
Maker shall be obligated to pay the following fees: (i) three-eighths of one
percent (.375%) of the outstanding principal balance of the Note as of the date
preceding the Trigger Event, which amount shall be payable promptly upon
invoicing; (ii) the same amount as computed in clause (i), payable on the
six-month anniversary of the Trigger Event; and (iii) the same amount as
computed in clause (i), payable on the twelve-month anniversary of the Trigger
Event.
Maker may prepay in full without penalty the unpaid balance hereunder,
provided that the Borrower contemporaneously prepays in full all other Notes (as
such term is defined in the Agreement), but only if such prepayment occurs on
June 30, 1999 and the Borrower has given
2
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<PAGE>
Lender at least 30 days prior written notice of its intention to make such
prepayment. In the event of any other prepayment (regardless of whether such
prepayment occurs before or after June 30, 1999), the Borrower shall pay to
Lender, at Lender's option, either: (1) the Make-Whole Premium (as such term is
defined in the Agreement) due in respect of such prepayment; or (2) a prepayment
fee equal to one and one-half percent (1.50%) of the amount of such prepayment.
Payment of this Note and the performance of Maker's obligations under
the Agreement ("Obligations") are secured by a security interest granted to
First National Bank of Omaha, as agent for the Lenders and others ("Agent"),
under a 1996 Restated Security Agreement dated as of May 3, 1996 (the "Restated
Security Agreement") in:
All of Debtor's accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general
intangibles, contract rights, all rights of Debtor in deposits and
advance payments made to Debtor by its customers and subscribers,
accounts due from advertisers and all ownership, proprietary,
copyright, trade secret and other intellectual property rights in and
to computer software (and specifically including, without limitation,
all such rights in DTN transmission computer software used in the
provision of the Basic DTN Subscription Service and Farm Dayta Service
to Debtor's subscribers) and all documentation, source code,
information and works of authorship pertaining thereto, all now owned
or hereafter acquired and all proceeds and products thereof; and such
additional collateral as is more specifically described in the Restated
Security Agreement.
Maker's liability under its Obligations shall not be affected by any of
the following:
Acceptance or retention by Lender or Agent of other property
or interests as security for the Obligations, or for the liability of
any person other than a Maker with respect to the Obligations;
The release of all or any of the Collateral or other security
for any of the Obligations to any Maker;
Any release, extension, renewal, modification or compromise of
any of the Obligations or the liability of any obligor thereon; or
Failure by Lender or Agent to resort to other security or any
person liable for any of the Obligations before resorting to the
Collateral.
Neither Lender nor Agent is required to take any action whatsoever in
respect of the Collateral. Impairment or destruction of the Collateral shall not
release Maker of its liability hereunder.
Maker represents, warrants and covenants as follows:
3
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<PAGE>
Maker is authorized to grant to Agent a security interest in
the Collateral;
This Note, the Agreement and the Security Agreement have been
duly authorized, executed and delivered by the Maker and constitute
legal, valid and binding obligations of Maker;
This Note evidences a loan to acquire substantially all of the
assets of Broadcast Partners, a general partnership, with its principal
place of business at 11274 Aurora Avenue, Des Moines, Iowa 50322; and
Maker agrees to pay all costs of collection in connection with
this Note, the Agreement and the Security Agreement, including
reasonable attorneys' fees and legal expenses.
Upon the failure of Maker to make any payment of principal or interest
when due hereunder or the occurrence of any Event of Default, all of the
Obligations shall, at the option of Agent and without notice or demand, mature
and become immediately due and payable; and Agent shall have all rights and
remedies for default provided by the Uniform Commercial Code, any other
applicable law and/or the Obligations.
All costs and expenses incurred by Lender or Agent in enforcing its
rights under this Note or any mortgage, endorsement, surety agreement, guaranty
relating thereto are the obligation of Maker and are immediately due and
payable. Interest shall accrue on such costs and expenses from the date of
incurrence at the rate specified herein for delinquent Note payments. Each
Maker, endorser, surety and guarantor hereby waives presentment, protest,
demand, notice of dishonor, and the defense of any statute of limitations.
Without affecting the liability of any Maker, endorser, surety or
guarantor, the holder or Agent may, without notice, renew or extend the time for
payment, accept partial payments, release or impair any Collateral or other
security for the payment of this Note or agree to sue any party liable on it.
Neither Lender nor Agent shall be deemed to have waived any of its
rights upon or under this Note, or under any mortgage, endorsement, surety
agreement or guaranty, unless such waivers be in writing and signed by Lender or
Agent, as the case may be. No delay or omission on the part of Lender or Agent
in exercising any right shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right on any future occasion. All rights and remedies of Lender or Agent
on liabilities or the Collateral, whether evidenced hereby or by any other
instrument or papers, shall be cumulative and may be exercised singularly or
concurrently.
Maker, if more than one, shall be jointly and severally liable
hereunder and all provisions hereof regarding the liabilities or security of
Maker shall apply to any liability or any security of any or all of them. This
Note shall be binding upon the heirs, executors, administrators, assigns or
successors of Maker; shall constitute a continuing agreement, applying to all
future as well as
4
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<PAGE>
existing transactions, whether or not of the character contemplated at the date
of this Note, and if all transactions between Lender and Maker shall be at any
time closed, shall be equally applicable to any new transactions thereafter,
provided that Lender's interest in the Collateral shall be limited to the extent
provided in the Security Agreement; shall benefit Lender, its successors and
assigns; and shall so continue in force notwithstanding any change in any
partnership party hereto, whether such change occurs through death, retirement
or otherwise.
All obligations of Maker hereunder shall be payable in immediately
available funds in lawful money of the United States of America at the principal
office of First National Bank of Omaha in Omaha, Nebraska or at such other
address as may be designated by Bank in writing.
This Note shall be construed according to the laws of the State of
Nebraska.
Unless the content otherwise requires, all terms used herein which are
defined in the Uniform Commercial Code shall have the meanings therein stated.
Any provision of this Note which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof or affecting the validity or enforceability of such provision
in any other jurisdiction.
Executed as of this 3rd day of May, 1996.
DATA TRANSMISSION NETWORK CORPORATION
By:
Title:
4866E/34-38
5
- 141 -
<PAGE>
EXHIBIT B
TO 1996 TERM CREDIT AGREEMENT
BETWEEN
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
FARM CREDIT SERVICES OF THE MIDLANDS, PCA,
BROADCAST PARTNERS AND
DATA TRANSMISSION NETWORK CORPORATION
OFFICER'S CERTIFICATE
- 142 -
<PAGE>
COMPLIANCE CERTIFICATE
DATA TRANSMISSION NETWORK CORPORATION
First National Bank of Omaha Date
Attn: James Bonham
16th & Dodge Streets
Omaha, Nebraska 68102
I certify that Data Transmission Network Corporation is in compliance with the
requirements set forth in the 1996 Term Credit Agreement (the "Agreement") dated
as of May 3, 1996, between First National Bank of Omaha, First National Bank,
Wahoo, Nebraska, NBD Bank, Norwest Bank Nebraska, N.A., Farm Credit Services of
the Midlands, PCA in care of AgAmerica, FCB, Broadcast Partners and Data
Transmission Network Corporation.
The following calculations are as of (statement date) as required by
section 5.1(d) of said
Agreement:
Evaluations:
Total Indebtedness/Net Worth = / = %
(for the purposes of this document this calculation will be abbreviated by
TI/NW).
Operating Cash Flow: most recent month previous month
ending ending
Net Income (loss)
Interest Expense
Depreciation
Goodwill Amortization
Deferred Income Taxes
Non-Ordinary Non-Cash
Charges (Credits)
Total a) b)
Operating Cash Flow = OCF = (a+b)/2 =
Section 2.2
o Trigger Fee: If TI/NW exceeds 300%, then a one time fee is
due, paid in three installments of 3/8% of the then
outstanding principal balances, on any of Notes which have
an interest rate less than 7.5%.
Position: A Trigger Event has/has not occurred.
1
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<PAGE>
Section 5.3
o Net Worth: A minimum Net Worth (exclusive of subordinated debt) of
$23,500,000 is required.
Position: Net Worth (exclusive of subordinated debt)= $ .
-----------
Section 5.4
o Indebtedness: At no time will Total Indebtedness exceed 48 x OCF.
Position: (48 x OCF) - Total Indebtedness =
- =
o Indebtedness: At no time will TI/NW exceed 350%.
Position: TI/NW = %
o Total At no time will Adjusted Total Indebtedness
Indebtedness exceed 60 x OCF
plus
subordinated
debt plus
guaranty
contingencies
(Adjusted
Total
Indebtedness or
ATI):
Position: Adjusted Total Indebtedness = $
(60 x OCF) - (ATI) = $
Section 5.15
o Interest The ratio of OCF to Interest Expense ("IE")
Coverage: at the end of each quarter will not be less than
2.25 to 1.0 (225%).
Position: OCF = $
IE = $
OCF/IE = %
Additional Representations:
2
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<PAGE>
There have/have not been any sale(s) of assets which would require
prepayment of the Notes under Section 5.2.
There has/has not been:
(i) a Change of Control or a material adverse change in
management personnel as defined in Section 5.14 of the
Agreement; or
(ii) a default under Section 7.1(j) or 7.1(l) regarding a
change in ownership or control of the Company.
(iii) an indemnity claim by Broadcast Partners under Section
7.1(m).
Name of Borrower: Data Transmission Network Corporation
Signature:
Title:
3
1
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<PAGE>
SCHEDULE A
TO 1996 TERM CREDIT AGREEMENT
BETWEEN
FIRST NATIONAL BANK OF OMAHA,
FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK,
NORWEST BANK NEBRASKA, N.A.,
FARM CREDIT SERVICES OF THE MIDLANDS, PCA,
BROADCAST PARTNERS AND
DATA TRANSMISSION NETWORK CORPORATION
PERMITTED ENCUMBRANCES
<TABLE>
<CAPTION>
Secured Party Financing Statements
Nebraska Secretary of State
<S> <C> <C> <C>
First National Bank of Omaha 12/28/87 #401690
10/13/92 #564918 Amendment
11/13/92 #568176 Continued
5/ /96 Amendment
FirsTier, Lincoln 6/24/87 #384782
First National Bank of Omaha 2/03/88 #405477 Amendment
First National Bank, Wahoo 5/28/92 #553205 Continued
NBD, Detroit 10/13/92 #564919 Amendment
2/05/93 #576038 Amendment
11/10/93 #603168 Amendment
FirsTier, Lincoln 2/10/88 #406144
First National Bank of Omaha 10/13/92 #564917 Amendment
First National Bank, Wahoo 1/07/93 #572981 Continued
NBD, Detroit 2/05/93 #576039 Amendment
11/10/93 #603169 Amendment
First Bank of Minneapolis 11/25/91 #534665
(Norstan) 8/24/92 #561090 Assignment
Douglas County Clerk, Nebraska
1
</TABLE>
- 146 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FirsTier, Lincoln 2/11/88 #000534
First National Bank of Omaha 10/15/92 #000534 Amendment
First National Bank, Wahoo 1/08/93 #0000054 Continued
NBD, Detroit 2/05/93 #000253 Amendment
11/17/93 #54 Amendment
</TABLE>
2
- 147 -
<PAGE>
<TABLE>
<CAPTION>
Iowa Secretary of State
<S> <C> <C> <C>
FirsTier, Lincoln 2/10/88 H842023
First National Bank of Omaha 10/15/92 K395184 Amendment
First National Bank, Wahoo 1/08/93 K424887 Continued
NBD, Detroit 2/08/93 K434908 Amendment
11/15/93 K503145 Amendment
Kansas Secretary of State
FirsTier, Lincoln 2/10/88 #1286572
First National Bank of Omaha 10/15/92 #1842986 Amendment
First National Bank, Wahoo 1/08/93 #1868482 Continued
NBD, Detroit 2/11/93 #1879069 Amendment
11/12/93 #1964342 Amendment
Illinois Secretary of State
FirsTier, Lincoln 3/18/88 #2402370
First National Bank of Omaha 10/21/92 #3043202 Amendment
First National Bank, Wahoo 2/11/93 #3084199 Amendment
NBD, Detroit 2/25/93 #3089132 Continued
12/09/93 #3197498 Amendment
Michigan Secretary of State
FirsTier, Lincoln 2/12/88 #C034473
First National Bank of Omaha 10/16/92 #C646856 Amendment
First National Bank, Wahoo 1/08/93 #C672590 Continued
NBD, Detroit 3/01/93 #C689434 Amendment
11/15/93 #C778208 Amendment
Wisconsin Secretary of State
FirsTier, Lincoln 2/18/88 #968701
First National Bank of Omaha 10/21/92 #1309942 Amendment
First National Bank, Wahoo 01/15/93 #1326550 Continued
NBD, Detroit 2/08/93 #1331412 Amendment
11/23/93 #1393268 Amendment
3
</TABLE>
- 148 -
<PAGE>
<TABLE>
<CAPTION>
Indiana Secretary of State
<S> <C> <C> <C>
FirsTier, Lincoln 2/11/88 #1454192
First National Bank of Omaha 10/21/92 #1808780 Amendment
First National Bank, Wahoo 1/11/93 #1822115 Continued
NBD, Detroit 2/08/93 #187451 Amendment
11/12/93 #1878806 Amendment
</TABLE>
4
- 149 -
<PAGE>
<TABLE>
<CAPTION>
Minnesota Secretary of State
<S> <C> <C> <C> <C>
FirsTier, Lincoln 2/17/88 1#121648#00
First National Bank of Omaha 10/16/92 #1537269 Amendment
First National Bank, Wahoo 01/19/93 #1557397 Continued
NBD, Detroit 2/08/93 #1562125 Amendment
11/23/93 #1632156 Amendment
South Dakota Secretary of State
FirsTier, Lincoln 2/10/88 880410802864
First National Bank of Omaha 10/16/92 #22901003596 Amendment
First National Bank, Wahoo 1/08/93 #30081001734 Continued
NBD, Detroit 2/09/93 #30391203308 Amendment
11/22/93 #33261003899 Amendment
Missouri Secretary of State
FirsTier, Lincoln 2/11/88 #1555991
First National Bank of Omaha 10/16/92 #2184193 Amendment
First National Bank, Wahoo 1/08/93 #2212473 Continued
NBD, Detroit 2/08/93 #2224113 Amendment
11/15/93 #2331876 Amendment
Ohio Secretary of State
FirsTier, Lincoln 2/12/88 #Y00095612
First National Bank of Omaha 10/19/92 #01097336 Amendment
First National Bank, Wahoo 1/11/93 #01119343901 Continued
NBD, Detroit 2/09/93 #02099338901 Amendment
11/12/93 #1129331801 Amendment
</TABLE>
<TABLE>
<CAPTION>
Kentucky Secretary of State
<S> <C> <C>
First National Bank of Omaha 11/12/93 134318
Pennsylvania Department of State
First National Bank of Omaha 11/12/93 22571277
</TABLE>
5
- 150 -
<PAGE>
<TABLE>
<CAPTION>
Oklahoma Secretary of State
<S> <C> <C>
First National Bank of Omaha 11/12/93 059782
</TABLE>
6
- 151 -
<PAGE>
<TABLE>
<CAPTION>
Mississippi Secretary of State
<S> <C> <C>
First National Bank of Omaha 11/12/93 0756092--
Colorado Secretary of State
First National Bank of Omaha 11/12/93 932082461
California Secretary of State
First National Bank of Omaha 11/12/93 93229491
Washington Secretary of State
First National Bank of Omaha 11/15/93 933190075
Montana Secretary of State
First National Bank of Omaha 11/15/93 419540
Arizona Secretary of State
First National Bank of Omaha 11/15/93 765359
North Carolina Secretary of State
First National Bank of Omaha 11/15/93 050742
North Dakota Secretary of State
First National Bank of Omaha 11/16/93 93-380331
Florida Secretary of State
First National Bank of Omaha 11/17/93 930000236992
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Texas Secretary of State
<S> <C> <C>
First National Bank of Omaha 11/29/93 227591--
8
</TABLE>
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FIRST AMENDMENT TO 1996 TERM CREDIT AGREEMENT
THIS FIRST AMENDMENT TO 1996 TERM CREDIT AGREEMENT (the "First
Amendment"), dated as of July, 17, 1996, is intended to amend the terms of the
1996 Term Credit Agreement (the "Agreement") dated as of May, 3, 1996, among
DATA TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST
NATIONAL BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM
CREDIT SERVICES OF THE MIDLANDS, PCA, and BROADCAST PARTNERS. The parties to
this Amendment shall include the original parties to the Agreement, THE SUMITOMO
BANK, LIMITED, a Japanese bank being represented by its office at 200 North
Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its Chicago
branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national banking
association having its principal place of business at One Mercantile Center, 7th
and Washington Streets, St. Louis, Missouri, 63101 and FIRST BANK, NATIONAL
ASSOCIATION (successor in interest to FirsTier Bank, National Association), a
national banking association having its principal place of business at 13th and
M Streets, Lincoln, Nebraska 68508. All terms and conditions of the Agreement
shall remain in full force and effect except as expressly amended herein. All
capitalized terms herein shall have their respective meanings set forth in the
Agreement. The Agreement shall be amended as set forth below.
Section 1. "Article I: Definitions" of the Agreement shall be
amended by adding the following definitions:
Mercantile: Mercantile Bank of St. Louis, N.A., a national
banking association having its principal place of
business at One Mercantile Center, 7th and Washington
Streets, St. Louis, Missouri 63101.
New York
Prime: The floating interest rate published
as the"Prime Rate" (the base rate on
corporate loans posted by at least 75% of
the nation's 30 largest banks) in the Wall
Street Journal on the first day of each
month, or if no rate is published on the
first day of any month, on the first day
thereafter when such rate is published. For
purposes of this Agreement, New York Prime
shall fluctuate on a monthly basis. Changes
to New York Prime shall be effective on the
first day of each month based on the "Prime
Rate" in effect on such day.
Release: The Federal Reserve Statistical Release.
Subsidiaries: Any corporation, business association,
partnership, joint venture, limited
liability company or other business entity
in which the Borrower, or one or
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more of its Subsidiaries, or the Borrower
and one or more of its Subsidiaries has
either (i) more than 50% of the equity
ownership thereof, or (ii) the power to
elect a majority of the directors or to
control the identification of the managing
or general partners or similar governing
persons thereof.
Sumitomo: The Sumitomo Bank, Limited, a Japanese bank
being represented by its office at 200 North
Broadway, Suite 1625, St. Louis, Missouri
63102 and acting through its Chicago branch.
The following definitions shall be amended to read as follows:
Banks: FNB-O, FNB-W, First Bank, Mercantile, NBD,
Norwest, Farm Credit, AgAmerica and Sumitomo
and such additional banks as may be added
hereto from time to time by mutual written
agreement of the parties.
Net Worth: The Borrower's consolidated net worth as
determined in accordance with generally
accepted accounting principles plus
subordinated debt. For purposes of this
definition, "subordinated debt" means
indebtedness of the Borrower which is
subordinate, in a manner satisfactory to the
Lenders, to the indebtedness due to the
Lenders, and the repayment of which is
forbidden during the existence of any Event
of Default hereunder; provided however, that
any such indebtedness shall not be deemed
subordinated debt to the extent of the
amount of principal payments that are due
thereon within one (1) year from the date of
determination.
Notes: Those certain promissory notes from the Bor-
rower to the Lenders dated as of May 3, 1996
and July 17, 1996, including, without
limitation, the Notes to the Banks and to
Broadcast Partners as referenced in Section
2.1 hereof, and such additional term notes
as the parties may hereafter agree to add
hereto as Notes.
Operating
Cash Flow: The Borrower's consolidated average monthly
earnings or loss before interest,
depreciation, amortization and taxes, less
current tax expense and plus or minus any
non-ordinary non-cash charges or credits to
earnings, which average shall be based on
the Borrower's actual financial results in
the two (2) full calendar months preceding
the date of determination. For purposes of
calculating Operating Cash Flow for this
Agreement, the Borrower shall not permit
deferred commission expenses to be
capitalized for any period in excess of
twelve (12) months.
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<PAGE>
Related Loan
Agreements: The Loan Agreement dated as of October 9,
1992, between the Borrower and FNB-O,
FirsTier and FNB-W and the 1995 Restated
Loan Agreement dated as of June 29, 1995
between the Borrower and FNB-O, FirsTier,
FNB-W, NBD, Norwest, AgAmerica and Boatmen's
and any loan agreements issued in extension,
renewal, replacement, or reinstatement of
the foregoing, including the 1996 Revolving
Credit Agreement dated as of June 28, 1996
among the Borrower, FNB-O and certain other
banks named therein (the "1995 Restated Loan
Agreement").
Revolving
Credit Rate: The floating interest rate announced from
time to time by FNB-O as its "National Base
Rate." The National Base Rate is set by
FNB-O, solely in its discretion, to reflect
generally the rates charged by national
money center banks as their reference rates.
(Previously, the rate was announced by FNB-O
as its "New York Base Rate.") Rates charged
by FNB-O may be at, above or below the
National Base Rate, as determined by FNB-O
as to each respective customer.
Total
Indebtedness: All loans and other obligations of the Bor-
rower and its Subsidiaries, without
duplication, for borrowed money (including,
without limitation, the indebtedness due to
the Lenders and the holders of the Related
Bank Debt) regardless of the maturity
thereof but such term shall not include
subordinated debt of the Borrower, as such
term is defined in the definition of Net
Worth, up to $15,000,000 if such
subordinated debt is existing on May 3,
1996.
Section 2. Section 2.1 of the Agreement shall be amended to read
as follows:
2.1. Term Credit. The Banks agree to advance $44,119,900
to the Borrower for the purchase of substantially all of the
assets of Broadcast Partners. Such advances shall be made, in
one or more closings, on a pro rata basis by the Banks, based
on the following maximum advance limits for each Bank: (1) as
to FNB-O, $10,780,000; (ii) as to FNB-W, $245,000; (iii) as to
NBD, $6,223,000; (iv) as to Norwest, $4,047,000; (v) as to
Farm Credit, $10,388,000; (vi) as to Mercantile, $5,333,900;
(vii) as to Sumitomo, $5,170,000, (viii) as to First Bank,
$1,933,000. In addition, Broadcast Partners will receive a
replacement note for $4,070,100, representing a portion of the
purchase price consideration due to Broadcast Partners under
the Purchase Agreement.
It is understood and agreed by the parties that the
foregoing advances by FNB-O, FNB-W, NBD, and Farm Credit were
made at the initial closing under the Agreement on May 3,
1996. The foregoing advance by Norwest represents a new
advance of $2,225,000, which is in addition to the advance of
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<PAGE>
$1,822,000 made at the initial closing under the Agreement on
May 3, 1996. The foregoing advances by Mercantile, Sumitomo
and First Bank represent new advances, the proceeds of which,
along with the new advance by Norwest, shall be used to
partially prepay the existing Note held by Broadcast Partners
in the original principal amount of $18,732,000. principal
amount of $18,732,000.
Section 3. The Borrower shall, upon the effective date hereof,
pay a fee of $7,330.95 to FNB-O, for distribution to the Banks making new
advances as follows: (i) $1,112.50 to Norwest; (ii) $2,666.95 to Mercantile;
(iii) $2,585.00 to Sumitomo; and (iv) $966.50 to First Bank.
Section 4. Notwithstanding Section 2.2 of the Agreement,
interest on the Notes issued to First Bank and Broadcast Partners hereunder
shall bear interest on the principal loan amount thereof at the following rates
until June 30, 1999 (whereupon the interest rate reset described in Section 2.2
of the Agreement shall be applicable):
(a) as to Broadcast Partners, the interest rate shall continue to
be 8.25% per annum; and
(b) as to First Bank, the rate shall be 8.36% per annum.
Notwithstanding Section 2.2 of the Agreement, the Notes issued to Mercantile,
NBD, Sumitomo, Norwest and FNB-W hereunder shall bear interest on the principal
loan amount thereof at a variable rate per annum equal to New York Prime minus
one-half of one percent (0.5%). After an Event of Default, such floating rate
Notes will bear interest at a rate per annum equal to three and one-half percent
(3.5%) above New York Prime.
Section 5. The following provisions of the Agreement shall be
amended as follows:
(a) Section 2.6 of the Agreement shall be amended to read as
follows:
Prepayment. Prepayments of the Notes may be made in
full or in part at any time upon 10 days prior
written notice to the Lenders; provided, however,
that unanimous consent of the Lenders shall be
required for any prepayment (other than a prepayment
to Broadcast Partners in accordance with Section 2.6A
below) which is not applied pro rata to the Lenders
in accordance with Section 8.2. Prepayment penalties
will be required as indicated below:
(a) The Borrower may prepay in full without penalty the
principal loan amounts outstanding under all Notes
which bear interest at a fixed rate in accordance
with Section 2.2 hereof, if such prepayment occurs on
June 30, 1999 and the Borrower has given the Banks at
least 30 days prior written notice of its intention
to make such prepayment.
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<PAGE>
(b) If a prepayment of a Note which bears interest at a
fixed rate in accordance with Section 2.2 hereof
occurs other than in accordance with (a) above, the
Borrower shall pay to the respective Bank payee
thereof, at such payee's option, either: (1) the
Make-Whole Premium due in respect of such prepayment;
or (2) a prepayment fee equal to one and one-half
percent (1.50%) of the amount of such prepayment.
(c) The Borrower shall not be obligated to pay a Make-
Whole Premium or prepayment fee to Broadcast Partners
or to any Bank payee of a Note which bears interest
at a floating rate indexed to New York Prime.
(b) The sections of Articles IV, V, and VII of the Agree-
ment set forth on Attachment A hereto shall be
amended to read as set forth on Attachment A. All
other sections of such articles of the Agreement
shall remain in full force and effect.
(c) The last sentence of Section 8.1 of the Agreement
shall be deleted in its entirety and the following
shall be inserted in its place:
Notwithstanding the foregoing, unanimous approval
shall be required for: (i) any reduction or
compromise of the principal loan amount of the Notes,
the amount or rate of interest accrued or accruing
thereon or the fees due hereunder; (ii) extension of
the date of any scheduled payment; (iii) permitting
the sale of or releasing the security interest of the
Lenders in Collateral which comprises more than ten
percent (10%) of net book value of fixed assets of
the Borrower; (iv) any amendment of Sections 8.1 or
8.2 hereof. A Lender's commitment hereunder may not
be increased without the consent of such Lender, it
being understood, however, that increases in the
total facility hereunder may be made with the consent
of the holders of more than two-thirds of the
aggregate total outstanding obligations of the
Borrower to the Lenders under the Agreement, so long
as such increase does not result in the increase of
any non-consenting Lender's commitment hereunder.
(d) Add the following to the end of clause (a) of Section
8.2:
"and fees due to the Lenders and holders of the
Related Bank Debt"
Section 6. The Borrower hereby restates for the benefit of the
Lenders the representations and warranties contained in Article IV of the
Agreement, as amended by this First Amendment, and affirms that such
representations and warranties are true and correct as of the date of this First
Amendment.
Section 7. This First Amendment may be executed in several
counterparts and such counterparts together shall constitute one and the same
instrument.
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<PAGE>
Section 8. This First Amendment shall be effective upon the
execution and delivery thereof by the parties hereto and the delivery of the
applicable Notes, dated July 17, 1996, to Sumitomo, Mercantile, First Bank,
Norwest, NBD, FNB-W and Broadcast Partners. Upon receipt of its replacement note
and accrued and unpaid interest thereof through July 17, 1996, each of FNB-O,
Farm Credit, FNB-W, NBD and Norwest agrees to surrender to the Borrower the Note
dated May 3, 1996 which the Borrower had previously delivered to such Bank. Upon
receipt of its replacement note and $14,661,900 plus accrued and unpaid
interest, Broadcast Partners agrees to surrender to the Borrower the Note dated
May 3, 1996 which the Borrower had previously delivered to Broadcast Partners.
References in the Notes to the Loan Agreement shall be deemed amended to refer
to the Loan Agreement as amended by this First Amendment. References in the
Notes to the Security Agreement shall be deemed amended to refer to the Security
Agreement as amended by the First Amendment to 1996 Restated Security Agreement
dated as of June 28, 1996.
IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT
TO 1996 TERM CREDIT AGREEMENT dated as of July 17, 1996.
DATA TRANSMISSION NETWORK
CORPORATION
By
Title:
4511J
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<PAGE>
FIRST NATIONAL BANK OF OMAHA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
7
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<PAGE>
THE SUMITOMO BANK, LIMITED
By
Title:
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
8
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<PAGE>
FIRST NATIONAL BANK, WAHOO,
NEBRASKA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
9
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<PAGE>
NBD BANK
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
NORWEST BANK NEBRASKA, N.A.
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
FARM CREDIT SERVICES OF THE
MIDLANDS, PCA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
MERCANTILE BANK OF
ST. LOUIS, N.A.
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
FIRST BANK, NATIONAL
ASSOCIATION
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
BROADCAST PARTNERS
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4511J
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<PAGE>
ATTACHMENT A
TO
FIRST AMENDMENT TO 1996 TERM CREDIT AGREEMENT
4.1 Corporate Existence. It and each of its Subsidiaries, if any, is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and duly qualified and in good standing in all
states where it is doing business except where the failure to be so qualified
would not have a material adverse effect on it and it has full power and
authority to own and operate its properties and to carry on its business. As of
July 12, 1996, the Borrower has no Subsidiaries.
4.2 Corporate Authority. It has full corporate power, authority and
legal right to execute, deliver and perform the Operative Documents to which it
is a party, and all other instruments and agreements contemplated hereby and
thereby, and to perform its obligations hereunder and thereunder; and such
actions have been duly authorized by all necessary corporate action, and are not
in conflict with any applicable law or regulation, or any order, judgment or
decree of any court or other governmental agency or instrumentality or its
articles of incorporation or bylaws, or with any provisions of any indenture,
contract or agreement to which it or any of its Subsidiaries is a party or by
which it or any of its Subsidiaries or any of its or their property may be
bound.
4.3 Validity of Agreements. The Borrower's Operative Documents have
been duly authorized, executed and delivered and constitute its legal, valid and
binding agreements, enforceable against the Borrower in accordance with their
respective terms (except to the extent that enforcement thereof may be limited
by any applicable bankruptcy, reorganization, moratorium or similar laws now or
hereafter in effect, or by principles of equity).
4.4 Litigation. Neither the Borrower nor any Subsidiary is a party
to any pending lawsuit or proceeding before or by any court or governmental body
or agency, which is likely to have a materially adverse effect on the Borrower's
ability to perform its obligations under its Operative Documents; nor is the
Borrower aware of any threatened lawsuit or proceeding, to which it or any
Subsidiary may become a party or of any investigation of any Court or
governmental body or agency into its affairs, which if instituted would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents.
4.6 Defaults Under Other Documents. Neither the Borrower nor any Sub-
sidiary is in default or in violation (nor has any event occurred which, with
notice or lapse of time or both, would constitute a default or violation) under
any document or any agreement or instrument to which it may be a party or under
which it or any of its properties may be bound and the result of which would
have a material adverse effect upon the Borrower's ability to perform its
obligations under its Operative Documents.
4.7 Judgments. There are no outstanding or unpaid judgments (which
are not adequately bonded) of the Borrower or any Subsidiary which would have a
material adverse effect upon the Borrower's ability to perform its obligations
under its Operative Documents.
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<PAGE>
4.8 Compliance with Laws. Neither the Borrower nor any Subsidiary is
in violation of any laws, regulations or judicial or governmental decrees in any
respect which could have any material adverse effect upon the validity or
enforceability of any of the terms of the Borrower's Operative Documents or
which could have a material adverse effect upon the Borrower's ability to
perform its obligations under its Operative Documents.
4.9 Taxes. All tax returns of the Borrower and its Subsidiaries for material
taxes required to be filed have been filed or extensions permitted by law have
been obtained; all taxes of the Borrower and its Subsidiaries of a material
nature and which are due and payable as reflected on such returns have been
paid, other than taxes which are due but for which only a nominal late payment
penalty is payable and for which the taxing authority is not yet entitled to
enforce its remedies for payment thereof and other than taxes being contested in
good faith and with respect to which adequate reserves have been established;
and no material amounts of taxes of the Borrower and its Subsidiaries not
reflected on such returns are payable. 4.11 Pension Benefits. Neither the
Borrower nor any Subsidiary maintains a "Plan" as defined in Section 3 of the
Employees Retirement Income Security Act of 1974 ("ERISA"), or each such entity
is in compliance with the minimum funding requirements with respect to any such
"Plan" maintained by it and it has not incurred any material liability to the
Pension Benefit Guaranty Corporation ("PBGC") or otherwise under ERISA in
connection with any such Plan.
4.13 Financial Condition. The financial condition of the Borrower an
its Subsidiaries is truly and accurately set forth in the most recent financial
statement which has been provided to the Lenders and no material adverse change
has occurred which would make such financial statement inaccurate or misleading.
5.1 Financial Reports.
(a) Within forty-five (45) days after the end of each month,
the Borrower, at its sole expense, shall furnish the Lenders a
consolidated balance sheet and statement of earnings of the Borrower
and its consolidated Subsidiaries, and such financial statements on a
consolidating basis as to the Borrower, all such financial statements
to be prepared in accordance with generally accepted accounting
principles consistently applied and certified as completed and correct,
subject to normal changes resulting from year-end audit adjustments, by
the chief financial officer of the Borrower.
(b) Within ninety (90) days after the close of the Borrower's
fiscal year, the Borrower, at its sole expense, shall furnish the
Lenders: (i) a consolidated balance sheet and statement of earnings of
the Borrower and its consolidated Subsidiaries, certified by Deloitte &
Touche, or other independent certified public accountants acceptable to
the Lenders, that such financial reports fairly present the financial
condition of the Borrower and its consolidated Subsidiaries and have
been prepared in accordance with generally accepted accounting
principles consistently applied; and (ii) a certificate from such
accountants certifying that in making the requisite audit for
certification of the Borrower's financial statements, the auditors
either (1) have obtained no knowledge, and are not
17
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<PAGE>
otherwise aware of, any condition or event which constitutes an Event
of Default or which with the passage of time or the giving of notice
would constitute an Event of Default under Sections 5.3, 5.4, 5.7,
5.9(b), 5.9(d) or 5.11; or (2) have discovered such condition or event,
as specifically set forth in such certificate, which constitutes an
Event of Default or which with the passage of time or the giving of
notice would constitute an Event of Default under such Sections. The
auditors shall not be liable to the Lenders by reason of the auditors'
failure to obtain knowledge of such event or condition in the ordinary
course of their audit unless such failure is the result of negligence
or willful misconduct in the performance of the audit.
(c) Within thirty (30) days after submission to the Securities
and Exchange Commission, the Borrower shall provide to the Lenders
copies of its Forms 10K and 10Q, as submitted to the Securities and
Exchange Commission during the term of this Agreement.
(d) Within twenty (20) days after the end of each quarter,
the Borrower, at its expense, shall furnish the Lenders a certificate
of the chief financial officer of the Borrower in the form of Exhibit
C, setting forth such information (including detailed calculations)
sufficient to verify the conclusions of such officer after due inquiry
and review, that:
(i) The Borrower and each Subsidiary, either (y) is
in compliance with the requirements set forth in this Agreement or (z)
is NOT in compliance with the foregoing for reasons specifically set
forth therein; and
(ii) The chief financial officer of the Borrower has
reviewed or caused to be reviewed all of the terms of the Operative
Documents of the Borrower and that such review either (1) has NOT
disclosed the existence of any condition or event which constitutes an
event of default or any condition or event which with the passage of
time or the giving of notice would constitute an event of default under
the Operative Documents or (2) has disclosed the existence of a
condition or event which constitutes an event of default, or a
condition or event which with the passage of time or the giving of
notice would constitute an event of default, under the aforesaid
instrument or instruments and the specific condition or event is
specifically set forth.
(e) The Borrower shall provide the Lenders with such other
financial reports and statements as the Lenders may reasonably request.
5.4 Indebtedness.
(a) The Borrower shall not at any time permit the sum of the
Total Indebtedness to the Lenders and the holders of the Related Bank
Debt to exceed forty-eight (48) times Operating Cash Flow.
18
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<PAGE>
(b) The Borrower shall not at any time permit consolidated
Total Indebtedness to exceed 350% of Net Worth.
(c) On the day the Borrower or a Subsidiary becomes liable
with respect to any debt and immediately after giving effect thereto
and to the concurrent retirement of any other debt, the sum of Total
Indebtedness, plus the amount of any outstanding subordinated debt of
the Borrower and its Subsidiaries, plus the contingent obligations of
the Borrower and its Subsidiaries under any guaranty of the debt of any
other person or entity (other than unsecured debt of a Subsidiary
incurred in the ordinary course of business for other than borrowed
money or to finance the purchase price of any property or business)
shall not exceed an amount equal to sixty (60) times Operating Cash
Flow at such date.
5.6 Notice of Default. The Borrower shall give to the Lenders prompt
written notification of the existence or occurrence of:
(a) any fact or event which results, or which with notice or
the passage of time, or both, would result in an Event of Default
hereunder;
(b) any proceedings instituted by or against the Borrower in
any federal, state or local court or before any governmental body or
agency, or before any arbitration board, or any such proceedings
threatened against the Borrower by any governmental agency, which is
likely to have a material adverse effect upon the Borrower's ability to
perform its obligations under its Operative Documents;
(c) any default or event of default involving the payment of
money under any agreement or instrument which is material to the
Borrower or any Subsidiary to which such entity is a party or by which
it or any of its property may be bound, and which default or event of
default would have a material adverse effect upon the Borrower's
ability to perform its obligations under its Operative Documents; and
(d) the Borrower shall give immediate notice of the commence-
ment of any proceeding under the Federal Bankruptcy Code by or against
the Borrower or any Subsidiary.
5.7 Distributions.
(a) Neither Borrower nor any Subsidiary shall declare any
dividends or make any cash distribution in respect of any shares of its
capital stock or warrants of its capital stock, without the prior
written consent of the Lenders; provided, however, that the Borrower
may declare stock dividends; provided, further, that the Borrower need
not obtain the Lenders' consent with respect to (i) dividends in any
one (1) year which are, in aggregate, less than 25% of the Borrower's
net operating profit after taxes in the previous four (4) quarters, as
reported to the Lenders pursuant to Section 5.1; or (ii) dividends or
distributions from any consolidated Subsidiary.
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(b) Neither the Borrower nor any Subsidiary other than a Sub-
sidiary which is wholly-owned by the Borrower shall purchase, redeem,
or otherwise retire any shares of its capital stock or warrants of its
capital stock if, immediately after the making of such purchase or
redemption, the Borrower or any Subsidiary will be in default of any
other covenant or provision of this Agreement (including, without
limitation, the covenants and provisions pertaining to minimum net
worth and limitations on indebtedness).
5.8 Compliance with Law and Regulations. The Borrower and each Sub-
sidiary shall comply in all material respects with all applicable
federal and state laws and regulations.
5.9 Maintenance of Property; Accounting; Corporate Form;
Taxes; Insurance.
(a) The Borrower and each Subsidiary shall maintain its pro-
perty in good condition in all material respects, ordinary wear and
tear excepted, and make all renewals, replacements, additions,
betterments and improvements thereto necessary for the efficient
operation of its business.
(b) The Borrower and each Subsidiary shall keep true books of
record and accounts in which full and correct entries shall be made of
all its business transactions, all in accordance with generally
accepted accounting principles consistently applied.
(c) The Borrower and each Subsidiary shall do or cause to be
done all things necessary to preserve and keep in full force and effect
its corporate form of existence as is necessary for the continuation of
its business in substantially the same form, except where such failure
to do so with respect to any Subsidiary would not have a material
adverse effect on the ability of the Borrower to perform its
obligations under the Operative Documents.
(d) The Borrower and each Subsidiary shall pay all taxes, as-
sessments and governmental charges or levies imposed upon it or its
property; provided, however, that the Borrower or any Subsidiary shall
not be required to pay any of the foregoing taxes which are being
diligently contested in good faith by appropriate legal proceedings and
with respect to which adequate reserves have been established.
(e) The Borrower shall maintain or cause to be maintained
liability insurance and casualty insurance upon the Collateral
(excluding equipment or inventory provided to Subscribers in the
ordinary course of business) and other tangible assets owned by it and
its Subsidiaries. The Borrower shall name FNB-O as agent for the
Lenders and the holders of the Related Bank Debt as the loss payee on
all such casualty insurance, and as an additional insured on all such
liability insurance and shall provide the Lenders with evidence of such
insurance upon request.
5.11 Guaranties. Neither the Borrower nor any Subsidiary shall guar-
anty or become responsible for the indebtedness of any other person or
entity; provided, however, that a
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Subsidiary may guaranty the obligation of the Borrower; provided further, that
the Borrower may guaranty the obligations of a Subsidiary so long as no Event of
Default (or not event or occurrence which with the passage of time or notice, or
both, would become an Event of Default) has occurred or will occur hereunder,
taking into account such guaranty and indebtedness.
5.12 Collateral. Neither the Borrower nor any Subsidiary shall incur
or permit to exist any mortgage, pledge, lien, security interest or other
encumbrance on the Collateral, except as permitted in the Security Agreement.
Subject to Section 5.4(b), the foregoing shall not be construed to prohibit the
Borrower or any Subsidiary from acquiring leased equipment in the ordinary
course of business. Without limiting the generality of the foregoing, the
Borrower covenants and agrees that it shall on request enforce for the benefit
of the Lenders and the holders of the Related Bank Debt, but at the sole expense
of the Borrower, any and all rights and remedies (including, without limitation,
rights to indemnity), that it may have with respect to the existence of any
liens, security interests or other encumbrances that may exist on the property
of the Borrower acquired from Broadcast Partners under the Purchase Agreement.
Notwithstanding anything else to the contrary herein or in the Operative
Documents, Broadcast Partners shall have no right to share in the proceeds of
any such recovery which constitutes the proceeds of any indemnity claim by the
Borrower under the Purchase Agreement.
5.14 Notice of Change in Ownership or Management. During the term of
this Agreement, the Borrower shall give the Lenders notice of the occurrence of
any of the following described events, which notice shall be given as soon as
the Borrower obtains notice or knowledge thereof:
(a) any change, directly or indirectly, in the existing con-
trolling interest in the Borrower; or
(b) any material adverse change in its management personnel.
A material adverse change in the Borrower's management personnel shall
be deemed to have occurred if any one (1) of the following has occurred
with respect to two of the four (4) individuals who are both officers
and members of the Board of Directors of the Borrower: (i) the
resignation, retirement, or voluntary or involuntary termination of
employment and/or status of such persons as officers and directors of
the Borrower; (ii) any announcement, notice of intent, resolution or
similar advance notice with respect to the matters referenced in the
foregoing clause; or (iii) the death, disability or legal incompetence
of such persons.
5.16 Subordinated Debt. Neither the Borrower nor any Subsidiary shall
incur any subordinated debt or issue any preferred stock or warrants for
preferred stock except upon the prior written consent of the Lenders. Neither
the Borrower nor any Subsidiary shall make any voluntary or optional prepayment
on any subordinated debt without the prior written consent of the Lenders.
Similarly, the Borrower shall not amend its articles of incorporation or any
other documents or agreements relating to the issuance of subordinated debt,
preferred stock or warrants for preferred stock without the prior written
consent of the Lenders. The indebtedness to Broadcast Partners under the Notes
shall not be considered subordinated debt.
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<PAGE>
5.17 Subsidiaries. The Borrower shall give prompt written notice to
the Lenders of the Borrower's intent to acquire, or the Borrower's acquisition
of, any Subsidiary. Prior to the creation or acquisition of such Subsidiary, the
Borrower (i) shall cause a first security interest in the assets of such
Subsidiary to be perfected in favor of FNB-O, as agent for the Lenders and the
holders of the Related Bank Debt, and (ii) shall cause the Subsidiary to enter
into a security agreement, to execute and file such financing statements and to
provide opinions all in form satisfactory to the Lenders and the holders of the
Related Bank Debt, as to compliance with this section.
5.18 Amendments to Purchase Agreement. The Borrower shall not amend
the Purchase Agreement without the prior written consent of the Lenders.
7.1 Events of Default. Any of the following shall be deemed an event
of default under this Agreement (an "Event of Default"):
(a) Any payment of principal required by any of the Operative
Documents shall not be paid when due.
(b) Any payment of interest or other fees due hereunder or
under any of the Operative Documents shall not be paid within fifteen
(15) calendar days after the date on which such payment was invoiced or
due.
(c) Any representation or warranty of the Borrower under any
of the Operative Documents, or any financial reports or statements or
certificates submitted pursuant to this Agreement, shall prove to have
been false in any material respect when made.
(d) A failure of the Borrower or any Subsidiary to comply
with any requirement or restriction applicable to such entity and
contained in Sections 5.1, 5.2, 5.3, 5.4, 5.7, 5.11, 5.12, 5.13, 5.14,
5.15 or 5.16 of this Agreement.
(e) A failure of the Borrower or any Subsidiary to comply
with any requirement or restriction contained in any provision of the
Operative Documents not otherwise specified in this Article VI, which
failure remains unremedied for ten (10) days following receipt of
notice from FNB-O on behalf of the Lenders.
(f) The occurrence of a default or a breach of any of the ob-
ligations of the Borrower or any Subsidiary (other than obligations of
such Subsidiary to the Borrower) under any note, loan agreement,
preferred stock, subordinated debt instrument or agreement, or any
other agreement evidencing an obligation to repay borrowed money.
(g) The entry of a final judgment against the Borrower or any
Subsidiary for the payment of money, which is not covered by insurance,
and the expiration of thirty (30) days from the date of such entry
during which the judgment is not discharged in full or stayed.
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<PAGE>
(h) The occurrence of any one or more of the following:
(1) The Borrower or any Subsidiary shall file a vol-
untary petition in bankruptcy or an order for relief shall be
entered in a bankruptcy case as to such entity or shall file
any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief for itself under
any present or future federal, state or other statute, law or
regulation relating to bankruptcy, insolvency or other relief
for debtors; or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of such
entity or of all or any part of its property, or of any or all
of the royalties, revenues, rents, issues or profits thereof,
or shall make any general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its
debts or shall generally not pay its debts as they become due;
or
(2) A court of competent jurisdiction shall enter an
order, judgment or decree approving a petition filed against
the Borrower or any Subsidiary seeking any reorganization,
dissolution or similar relief under any present or future
federal, state or other statute, law or regulation relating to
bankruptcy, insolvency or other relief for debtors, and such
order, judgment or decree shall remain unvacated and unstayed
for an aggregate of thirty (30) days (whether or not
consecutive) from the first date of entry thereof; or any
trustee, receiver or liquidator of the Borrower or any
Subsidiary or of all or any part of its property, or of any or
all of the royalties, revenues, rents, issues or profits
thereof, shall be appointed without the consent or
acquiescence of such entity and such appointments shall remain
unvacated and unstayed for an aggregate of thirty (30) days
(whether or not consecutive); or
(3) A writ of execution or attachment or any similar
process shall be issued or levied against all or any part of
or interest in the Collateral, or any judgment involving
monetary damages shall be entered against the Borrower or any
Subsidiary which shall become a lien on the Collateral or any
portion thereof or interest therein and such execution,
attachment or similar process or judgment is not released,
bonded, satisfied, vacated or stayed within thirty (30) days
after its entry or levy.
(i) Any event of default shall occur under any Operative
Document.
(j) A change shall occur after November 8, 1993, directly or
indirectly, in the ownership or control of the Borrower;
provided, however, that changes in the ownership or control
of, or new issuances of, voting common stock which do not
exceed, cumulatively, 50% of the total issued and outstanding
shares of the Borrower as of September 30, 1993 shall not be
deemed an Event of Default under this Section 7.1(j); provided
further, that acquisitions of additional shares by members of
the existing executive management group of the Borrower shall
not be counted as changes in the ownership or control of the
Borrower under this Section 7.1(j). For purposes of computing
the total issued and outstanding shares as of September 30,
1993, warrants and options for such shares shall be included.
23
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<PAGE>
(k) An Event of Default shall occur under any Related Bank
Debt or the Related Loan Agreement and the expiration of any
applicable cure period thereunder.
(l) The Borrower shall be obligated to prepay all or any por-
tion of its subordinated debt as a result of a Change of
Control.
(m) The Borrower pays, or is determined to be obligated to
pay, any indemnity to Broadcast Partners under the Purchase
Agreement in excess of $1,000,000 in the aggregate.
4511J/27
24
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<PAGE>
SECOND AMENDMENT TO 1996 TERM CREDIT AGREEMENT
THIS SECOND AMENDMENT TO 1996 TERM CREDIT AGREEMENT (the "Second
Amendment"), dated as of July 31, 1996, is intended to amend the terms of the
1996 Term Credit Agreement dated as of May 3, 1996, as previously amended (the
"Agreement") by the First Amendment to 1996 Term Credit Agreement ("First
Amendment") dated as of July 17, 1996, among DATA TRANSMISSION NETWORK
CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL BANK, WAHOO, NEBRASKA,
NBD BANK, NORWEST BANK NEBRASKA, N.A., FARM CREDIT SERVICES OF THE MIDLANDS,
PCA, THE SUMITOMO BANK, LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., FIRST BANK,
NATIONAL ASSOCIATION, and BROADCAST PARTNERS. The parties to this Second
Amendment shall include each of the parties to the First Amendment and shall
also include BANK OF MONTREAL, a Canadian bank being represented by its office
at 430 Park Avenue, New York, New York, 10022 ("Montreal"). All terms and
conditions of the Agreement shall remain in full force and effect except as
expressly amended herein. All capitalized terms herein shall have their
respective meanings set forth in the Agreement. The Agreement shall be amended
as set forth below.
Section 1. "Article I: Definitions" of the Agreement shall be
amended by adding the following definition:
Montreal: Bank of Montreal, a Canadian bank being
represented by its office at 430 Park
Avenue, New York, New York, 10022.
The following definitions shall be amended to read as follows:
Notes: Those certain promissory notes from the Borrower to
the Lenders dated as of May 3, 1996, July 17, 1996,
and July 31, 1996, including, without limitation, the
Notes to the Banks as referenced in Section 2.1
hereof, and such additional term notes as the parties
may hereafter agree to add hereto as Notes.
Section 2. Section 2.1 of the Agreement shall be amended to read
as follows:
2.1. Term Credit. The Banks agree to advance
$48,490,000 to the Borrower for the purchase of
substantially all of the assets of Broadcast
Partners. Such advances shall be made, in one or more
closings, on a pro rata basis by the Banks, based on
the following maximum advance limits for each Bank:
(1) as to FNB-O, $10,780,000; (ii) as to FNB-W,
$245,000; (iii) as to NBD, $6,223,000; (iv) as to
Norwest, $4,047,000; (v) as to Farm Credit,
$10,388,000; (vi) as to Mercantile, $5,333,900;
(vii)as to Sumitomo, $5,170,000, (viii) as to First
Bank, $1,933,000, (ix) as to Montreal, $4,370,100.
1
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<PAGE>
It is understood and agreed by the parties that the
foregoing advances by FNB-O, FNB-W, NBD, and Farm
Credit were made at the initial closing under the
Agreement on May 3, 1996. The foregoing advance by
Norwest represents an advance of $1,822,000 which was
made at the initial closing under the Agreement on
May 3, 1996, and an additional advance of $2,225,000,
which was made at the closing under the First
Amendment on July 17, 1996. The foregoing advances by
Mercantile, Sumitomo and First Bank were made at the
closing under the First Amendment on July 17, 1996.
The advance made by Montreal represents a new
advance, the proceeds of which shall be used to
prepay the existing Note held by Broadcast Partners
in the remaining principal amount of $4,070,100, and
to provide an additional $300,000 to the Borrower.
Section 3. The Borrower shall, upon the effective date hereof, pay a
fee of $2,185.05 to FNB-O, for distribution to Montreal.
Section 4. Notwithstanding Section 2.2 of the Agreement, the Note
issued to Montreal shall bear interest on the principal loan amount thereof at a
variable rate per annum equal to New York Prime minus one-half of one percent
(0.5%). After an Event of Default, such floating rate Notes will bear interest
at a rate per annum equal to three and one-half percent (3.5%) above New York
Prime.
Section 5. The Borrower hereby restates for the benefit of the Lenders
the representations and warranties contained in Article IV of the Agreement, as
amended by the First Amendment, and affirms that such representations and
warranties are true and correct as of the date of this Second Amendment.
Section 6. The Lenders hereby acknowledge the First Amendment to the
1996 Revolving Credit Agreement among the parties herein and Boatmen's, and
hereby consent to the increase of $5,604,500 in the total revolving credit
facility to $49,500,000.
Section 7. This Second Amendment may be executed in several
counterparts and such counterparts together shall constitute one and the same
instrument.
Section 8. This Second Amendment shall be effective upon the execution
and delivery thereof by the parties hereto and the delivery of the applicable
Note, dated July 31, 1996, to Montreal. Upon receipt of $4,070,100 plus accrued
and unpaid interest, Broadcast Partners agrees to surrender to the Borrower the
Note dated July 17, 1996 which the Borrower had previously delivered to
Broadcast Partners. Upon receipt of such payment Broadcast Partners shall cease
to be a party to the Agreement, or a "Lender" under the Agreement or the
Revolving Credit Agreement. Notwithstanding any of the foregoing, the
representations, warranties, indemnities and other covenants made by the
Borrower in favor of Broadcast Partners under the Agreement, as amended hereby
and by the First Amendment, and under the Restated Security Agreement dated as
of May 3, 1996, as amended by the First Amendment to 1996 Restated Security
Agreement dated as of June 28, 1996 and by the Second Amendment to 1996 Restated
Security Agreement dated as of July 31,
2
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<PAGE>
1996, shall survive (a) the payment to Broadcast Partners of the Borrower's Note
dated July 17, 1996 delivered to Broadcast Partners and (b) the cessation of
Broadcast Partners as a party to the Agreement; provided, however, they survive
solely for the benefit of Broadcast Partners as a former Lender under the
Agreement, and not as the seller under the Purchase Agreement (as defined in the
Agreement) or in any other capacity. Broadcast Partners does not waive any
rights inuring to its benefit at any time while it was a Lender under the
Agreement. References in the Notes to the Loan Agreement shall be deemed amended
to refer to the Loan Agreement as amended by this Second Amendment.
IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT
TO 1996 TERM CREDIT AGREEMENT dated as of July 31, 1996.
DATA TRANSMISSION NETWORK
CORPORATION
By
Title:
3
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<PAGE>
FIRST NATIONAL BANK OF OMAHA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
4
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<PAGE>
THE SUMITOMO BANK, LIMITED
By
Title:
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
5
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<PAGE>
FIRST NATIONAL BANK,
WAHOO, NEBRASKA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
6
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<PAGE>
NBD BANK
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
7
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<PAGE>
NORWEST BANK NEBRASKA, N.A.
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
8
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<PAGE>
FARM CREDIT SERVICES OF
THE MIDLANDS, PCA
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
9
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<PAGE>
MERCANTILE BANK OF
ST. LOUIS, N.A.
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
10
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<PAGE>
FIRST BANK, NATIONAL ASSOCIATION
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
11
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<PAGE>
BROADCAST PARTNERS
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
12
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<PAGE>
BANK OF MONTREAL
By
Title:
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
THIRD AMENDMENT TO 1996 TERM CREDIT AGREEMENT
THIS THIRD AMENDMENT TO 1996 TERM CREDIT AGREEMENT (the "Third
Amendment"), dated as of November , 1996, is intended to amend the terms of the
1996 Term Credit Agreement (the "Agreement") dated as of May 3, 1996, and
amended by the First Amendment to 1996 Term Credit Agreement ("First Amendment")
dated as of July 17, 1996, and the Second Amendment to 1996 Term Credit
Agreement (the "Second Amendment") dated as of July 31, 1996, among DATA
TRANSMISSION NETWORK CORPORATION, FIRST NATIONAL BANK OF OMAHA, FIRST NATIONAL
BANK, WAHOO, NEBRASKA, NBD BANK, NORWEST BANK NEBRASKA, N.A., AGAMERICA, FCB
(assignee of FARM CREDIT SERVICES OF THE MIDLANDS, PCA), THE SUMITOMO BANK,
LIMITED, MERCANTILE BANK OF ST. LOUIS, N.A., and FIRST BANK, NATIONAL
ASSOCIATION. (Pursuant to the Second Amendment, Broadcast Partners is no longer
a party to the Agreement.) The parties to this Third Amendment shall include
each of the parties to the First Amendment and the Second Amendment and shall
also include BANK OF MONTREAL, a Canadian bank being represented by its office
at 430 Park Avenue, New York, New York, 10022 ("Montreal"). All terms and
conditions of the Agreement shall remain in full force and effect except as
expressly amended herein. All capitalized terms herein shall have their
respective meanings set forth in the Agreement. The Agreement shall be amended
as set forth below.
Section 1. The following definitions of Article I shall be amended to
read as follows:
Related
Bank Debt:
Section 2. Section 2.1 of the Agreement shall be amended to read
as follows:
2.1. Term Credit. The Banks agree to advance $48,490,000
to the Borrower for the purchase of substantially all
of the assets of Broadcast Partners. Such advances
shall be made, in one or more closings, on a pro rata
basis by the Banks, based on the following maximum
advance limits for each Bank: (1) as to FNB-O,
$10,780,000; (ii) as to FNB-W, $245,000; (iii) as to
NBD, $6,223,000; (iv) as to Norwest, $4,047,000; (v)
as to Farm Credit, $10,388,000; (vi) as to
Mercantile, $5,333,900; (vii) as to Sumitomo,
$5,170,000, (viii) as to First Bank, $1,933,000, (ix)
as to Montreal, $4,370,100.
It is understood and agreed by the parties that the
foregoing advances by FNB-O, FNB-W, NBD, and Farm
Credit were made at the initial closing under the
Agreement on May 3, 1996. The foregoing advance by
Norwest represents an advance of $1,822,000 which was
made at the initial closing under the Agreement on
May 3, 1996, and an additional advance of $2,225,000,
which was made at the closing under the First
Amendment on July 17, 1996. The foregoing advances by
Mercantile, Sumitomo and First
1
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<PAGE>
Bank were made at the closing under the First
Amendment on July 17, 1996. The advance made by
Montreal represents a new advance, the proceeds of
which shall be used to prepay the existing Note held
by Broadcast Partners in the remaining principal
amount of $4,070,100, and to provide an additional
$300,000 to the Borrower.
Section 3. The Borrower shall, upon the effective date hereof, pay a
fee of $2,185.05 to FNB-O, for distribution to Montreal.
Section 4. Notwithstanding Section 2.2 of the Agreement, the Notes
issued to Montreal shall bear interest on the principal loan amount thereof at a
variable rate per annum equal to New York Prime minus one-half of one percent
(0.5%). After an Event of Default, such floating rate Notes will bear interest
at a rate per annum equal to three and one-half percent (3.5%) above New York
Prime.
Section 5. The Borrower hereby restates for the benefit of the Lenders
the representations and warranties contained in Article IV of the Agreement, as
amended by the First Amendment, and affirms that such representations and
warranties are true and correct as of the date of this Second Amendment.
Section 6. The Lenders hereby acknowledge the First Amendment to the
1996 Revolving Credit Agreement among the parties herein and Boatmen's, and
hereby consent to the increase of $5,604,500 in the total revolving credit
facility to $49,500,000.
Section 7. This Second Amendment may be executed in several
counterparts and such counterparts together shall constitute one and the same
instrument.
Section 8. This Second Amendment shall be effective upon the execution
and delivery thereof by the parties hereto and the delivery of the applicable
Note, dated July 31, 1996, to Montreal. Upon receipt of $4,070,100 plus accrued
and unpaid interest, Broadcast Partners agrees to surrender to the Borrower the
Note dated July 17, 1996 which the Borrower had previously delivered to
Broadcast Partners. Upon receipt of such payment Broadcast Partners shall cease
to be a party to the Agreement, or a "Lender" under the Agreement or the
Revolving Credit Agreement. References in the Notes to the Loan Agreement shall
be deemed amended to refer to the Loan Agreement as amended by this Second
Amendment.
IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT
TO 1996 TERM CREDIT AGREEMENT dated as of July 31, 1996.
DATA TRANSMISSION NETWORK CORPORATION
By________________________________________
Title:____________________________________
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FIRST NATIONAL BANK OF OMAHA
By________________________________________
Title:____________________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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THE SUMITOMO BANK, LIMITED
By
Title:_________________________
By
Title:_________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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FIRST NATIONAL BANK, WAHOO, NEBRASKA
By
Title:_________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
NBD BANK
By
Title:_________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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NORWEST BANK NEBRASKA, N.A.
By
Title:_________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
FARM CREDIT SERVICES OF THE MIDLANDS, PCA
By
Title:_________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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MERCANTILE BANK OF ST. LOUIS, N.A.
By
Title:_________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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FIRST BANK, NATIONAL ASSOCIATION
By
Title:_________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
BROADCAST PARTNERS
By
Title:_________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
BANK OF MONTREAL
By
Title:________________________
NOTICE: A credit agreement must be in writing to be enforceable under Nebraska
law. To protect you and us from any misunderstandings or disappointments, any
contract, promise, undertaking, or offer to forebear repayment of money or to
make any other financial accommodation in connection with this loan of money or
grant or extension of credit, or any amendment of, cancellation of, waiver of,
or substitution for any or all of the terms or provisions of any instrument or
document executed in connection with this loan of money or grant or extension of
credit, must be in writing to be effective.
INITIALED:
Borrower
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<PAGE>
1996 RESTATED SECURITY AGREEMENT
THIS 1996 RESTATED SECURITY AGREEMENT (this "Security Agreement") is
between DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its
principal place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska
68114 (the "Debtor"), FIRST NATIONAL BANK OF OMAHA, a national banking
association having its principal place of business at One First National Center,
Omaha, Nebraska 68102 as agent ("Secured Party") for itself and FIRST NATIONAL
BANK, WAHOO, NEBRASKA, a national banking association having its principal place
of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under
the laws of the State of Michigan having its principal place of business at 611
Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a
national banking association having its principal place of business at 20th and
Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST BANK, NATIONAL
ASSOCIATION, a national banking association having its principal place of
business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank") (it being
acknowledged that First Bank is the successor in interest to FirsTier Bank,
National Association, Lincoln, Nebraska ("FirsTier")), and THE BOATMEN'S
NATIONAL BANK OF ST. LOUIS, a national banking association having its principal
place of business at One Boatmen's Plaza, 800 Market Street, P.O. Box 236, St.
Louis, Missouri 63166-0236 ("Boatmen's"), FARM CREDIT SERVICES OF THE MIDLANDS,
PCA, a production credit association ("Farm Credit") in care of AGAMERICA, FCB,
a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska
68102-1745 ("AgAmerica") and BROADCAST PARTNERS, a general partnership having
its principal place of business at 11275 Aurora Avenue, Des Moines, Iowa 50322
("Broadcast Partners") (collectively the "Lenders").
WITNESSETH:
WHEREAS, Debtor and Secured Party are parties to a Security Agreement
dated as of February 8, 1988, as amended by a First Amendment to Security
Agreement dated as of March 31, 1989, a Second Amendment to Security Agreement
dated as of March 22, 1990, a Third Amendment to Security Agreement dated as of
November 30 1991, a Fourth Amendment to Security Agreement dated as of October
9, 1992, a Fifth Amendment to Security Agreement dated as of December 31, 1992;
a Restated Security Agreement dated as of November 8, 1993 and a First Amendment
to Restated Security Agreement dated as of June 29, 1995.
WHEREAS, Debtor and Secured Party wish to further amend such prior
Security Agreement, as amended and restated;
WHEREAS, Debtor and Secured Party wish to have this 1996 Restated
Security Agreement be the controlling agreement with respect to the matters set
forth herein, which shall supersede the prior Security Agreement, as amended and
restated; and
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WHEREAS, the Debtor and Secured Party do not intend for this Restated
Security Agreement to be deemed to extinguish any existing indebtedness of the
Debtor or to release, terminate or affect the priority of any security therefor;
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed as follows:
1. Grant of Security Interest. Debtor hereby grants to
Secured Party and reaffirms its prior grant of a security interest in the
Collateral.
2. Collateral. The Collateral to which this Security
Agreement refers is described on Exhibit A.
3. Obligations Secured. The security interest granted herein
is given to secure all present and future obligations of Debtor: (i) under the
1996 Term Credit Agreement dated as of May 3, 1996, as amended from time to time
between the Debtor and First National Bank of Omaha, First National Bank, Wahoo,
Nebraska, Norwest Bank Nebraska, N.A., NBD Bank, Farm Credit Services of the
Midlands, P.C.A. and Broadcast Partners; (ii) under the 1995 Restated Loan
Agreement dated as of June 29, 1995, as amended from time to time between the
Borrower and First National Bank of Omaha, First National Bank, Wahoo, Nebraska,
FirsTier Bank, National Association, NBD Bank, Norwest Bank Nebraska, N.A.,
AgAmerica FCB, and The Boatmen's National Bank of St. Louis; (iii) under the
1993 Restated Loan Agreement dated as of November 8, 1993, as amended from time
to time, between Debtor and First National Bank of Omaha, FirsTier Bank,
National Association, Lincoln, Nebraska, First National Bank, Wahoo, Nebraska,
NBD Bank, N.A., Norwest Bank Nebraska, N.A. and The Boatmen's National Bank of
St. Louis; (iv) under the Loan Agreement dated as of October 9, 1992, as amended
from time to time, between Debtor and First National Bank of Omaha, FirsTier
Bank, National Association, Lincoln, Nebraska and First National Bank, Wahoo,
Nebraska; (v) under any and all promissory notes previously, now or hereafter
made by Debtor to the Lenders pursuant to any of the foregoing Loan Agreements
(all of which are referred to herein as the "Loan Agreements") or any
predecessor loan agreements, including, without limitation, those various
promissory notes made by the Debtor to the Lenders (or certain of them or their
predecessors in interest) and dated as of May 6, 1992, July 7, 1992, October 1,
1992, October 12, 1992, October 19, 1992, November 3, 1992, January 4, 1993,
February 9, 1993, April 16, 1993, July 8, 1993, August 30, 1994, November 29,
1994, February 27, 1995, June 29, 1995 and May 3, 1996, all as set forth in part
on Schedule A hereto, and under any notes given in extension, renewal or
substitution of the foregoing (collectively, the "Notes"); (vi) to reimburse the
Secured Party for all sums, if any, advanced to protect the Collateral; and
(vii) to reimburse Secured Party for all costs and expenses incurred in
collection of the foregoing, including, without limitation, costs of
repossession and sale and reasonable attorneys' fees.
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4. Representations and Warranties. Debtor represents
and warrants:
(a) Debt. Debtor is justly indebted to the
Lenders for the obligations secured and has no set off or counterclaim with
respect thereto;
(b) Possession and Ownership. The Collateral is
or will be in Debtor's possession (except for equipment or inventory provided to
Debtor's Customers in the ordinary course of business) and Debtor has or will
acquire absolute title thereto and will defend the Collateral against the claims
and demands of all persons other than Secured Party. Debtor has full right and
power to grant the security interest herein to Secured Party.
(c) Liens and Encumbrances. No financing state-
ment covering the Collateral or other filing evidencing any lien or encumbrance
on the Collateral is on file in any public office and there is no lien, security
interest or encumbrance on the Collateral except for the security interest held
by Secured Party pursuant to this Security Agreement and for those security
interests described on Schedule B.
(d) Truth of Representations. All information,
statements, representations, and warranties made by Debtor herein and in any
financial or credit statement, application for credit, or any other writing
executed prior to or substantially contemporaneously herewith are true, accurate
and complete in all material respects.
(e) Location. Debtor has its chief executive
office, principal place of business and place where it keeps it records
concerning the Collateral at Suite 200, 9110 West Dodge Road, Omaha, Nebraska
68114.
(f) Authority. Debtor has full authority to
enter into this Security Agreement and in so doing is not violating any law,
regulation, or agreement with third parties. This Security Agreement has been
duly and validly authorized by all necessary corporate action.
5. Covenants. Debtor covenants and agrees:
(a) Liens and Encumbrances. Except as otherwise
expressly allowed by the Loan Agreements, Debtor shall keep the Collateral free
and clear of liens, encumbrances, security interests, and other claims of third
parties and will, at Debtor's expense, defend the Collateral against the claims
and demands of all third parties. Debtor shall promptly pay and discharge any
indebtedness owing to any third party who, by reason of said indebtedness, could
obtain or become entitled to a lien or encumbrance on the Collateral, other than
such indebtedness being contested in good faith and with respect to which
adequate reserves have been established.
(b) Proceeds; Sale. Debtor shall not sell or
otherwise dispose of any Collateral without first obtaining the written consent
of Secured Party; provided, however, that Debtor may provide equipment or
inventory to customers and others in the ordinary course of business so long as:
(i) such equipment or inventory is not sold to customers; and (ii) the value of
equipment or inventory disposed of to others (e.g., for salvage purposes) does
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not exceed, in aggregate, $25,000. Debtor shall at all times keep the Collateral
and the proceeds from any authorized or unauthorized disposition thereof
identifiable and separate from the other property of Debtor or any third party.
(c) Protection of Value. Debtor shall use the
utmost care and diligence to protect and preserve the Collateral, and shall not
commit nor suffer any waste to occur with respect to the Collateral. In
pursuance of the foregoing, Debtor shall maintain the Collateral in good
condition and repair and shall take such steps as are necessary or as are
requested by Secured Party to prevent any impairment of the value of the
Collateral.
(d) Taxes. Debtor shall promptly pay and dis-
charge any and all taxes, levies and other impositions made upon the Collateral
which may give rise to liens upon the Collateral if unpaid or which are imposed
upon the creation, perfection, or continuance of the security interest provided
for herein, other than taxes being contested in good faith and with respect to
which adequate reserves have been established.
(e) Insurance. All risk of loss of, damage to,
or destruction of the Collateral shall at all times be on Debtor. Debtor shall
procure and maintain, at its own expense, insurance covering the Collateral
against all risks under policies and with companies acceptable to Secured Party,
for the duration of this Security Agreement (except for equipment provided to
Debtor's Customers in the ordinary course of business). Such policies shall be
written for and shall name Debtor and Secured Party as their interests may
appear, shall contain a standard loss payable clause in favor of Secured Party.
Proof of insurance shall be provided to Secured Party upon request. For purposes
of security, Debtor hereby assigns to Secured Party any and all monies
(including, without limitation, proceeds of insurance and refunds of unearned
premiums) due or to become due under any such policy. Debtor hereby directs the
issuer of any such policy to pay any such monies directly to Secured Party.
Secured Party may act as attorney for Debtor in obtaining, settling and
adjusting such insurance and in endorsing any checks or drafts paid thereunder.
(f) Secured Party as Payee. Debtor shall take
such steps as are necessary or as are requested by Secured Party to have Secured
Party named as a payee on any check, draft or other document or instrument which
Debtor may obtain or anticipate obtaining with respect to the Collateral.
Without limiting the generality of the foregoing, Secured Party shall be named
as a payee on all instruments from insurers of the Collateral. Notwithstanding
anything in the foregoing or in Subsection (e) above to the contrary, Secured
Party agrees that: (i) insurance proceeds may be paid to Debtor so long as no
event of default exists hereunder and such proceeds are, in aggregate, less than
$25,000; and (ii) Secured Party's rights hereunder are subject to the interests
of the parties identified on Schedule B.
(g) Records. Debtor shall keep accurate and
complete records pertaining to the Collateral and pertaining to Debtor's
business and financial condition, and shall allow Secured Party to inspect the
same from time to time upon reasonable request and shall submit such periodic
reports relating to the same to Secured Party from time to time as Secured
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Party may reasonably request. Debtor shall provide that the Secured Party's
interest is noted on all chattel paper and that there is only one single
original of any chattel paper held by Debtor and created after the date hereof.
(h) Notice to Secured Party. Debtor shall
promptly notify Secured Party of any loss or damage to the Collateral, any
impairment of the value thereof, any claim made thereto by any third party, or
any adverse change in Debtor's financial condition which may affect its prospect
to pay or perform its obligations to Secured Party.
(i) Location. Except for equipment or inventory
provided to Debtor's customers in the ordinary course of business, Debtor will
not move the Collateral, its chief executive office, principal place of business
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or place where it keeps its records concerning the Collateral from the location
specified above without first obtaining the written consent of Secured Party and
shall not permit any Collateral to be located in any state in which a financing
statement covering the Collateral is required to be, but has not in fact been,
filed in order to perfect the security interest granted herein. Debtor shall not
change its name without giving Secured Party at least ninety (90) days' prior
notice thereof.
(j) Other Documents. Debtor shall execute such
further documents as may be requested by Secured Party to obtain and perfect a
security interest in the Collateral, including without limitation, Uniform
Commercial Code Financing Statements and amendments thereto. A carbon,
photographic or other reproduction of this Security Agreement or of any
financing statement signed by Debtor shall have the same force and effect as the
original for all purposes of a financing statement.
6. Default. Debtor shall be in default hereunder if any of
the following occurs:
(a) Event of Default. An Event of Default
occurs under any of the Notes or the Loan Agreements.
(b) Failure to Pay. Debtor fails to pay when
due or within the applicable cure period any of the obligations secured hereby.
(c) Misrepresentation. Any of the representa-
tions or warranties made by Debtor herein or in any of the documents referred to
herein or executed prior hereto or substantially contemporaneously herewith are
or become false or misleading in any material respect.
(d) Breach of Covenants. Debtor fails to
perform any of its covenants, agreements or obligations hereunder or under any
document referred to herein or executed prior hereto or substantially
contemporaneously herewith.
(e) Other Indebtedness. Any event occurs which
results in acceleration of the maturity of the indebtedness of Debtor under any
material agreement with any third party.
(f) Loss of Security. Collateral with an
aggregate value in excess of $25,000 is lost, damaged or destroyed.
(g) Business Failure. The death, dissolution,
termination of existence, business failure, appointment of a receiver of any
part of the property of, assignment for the benefit of creditors by, or
commencement of any proceeding in bankruptcy or insolvency by or against Debtor
or any principals of Debtor or any guarantor or surety for Debtor.
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7. Rights and Remedies of Secured Party. Secured Party shall
have all of the rights and remedies provided at law and in equity and in the
Uniform Commercial Code and in addition thereto and without limitation thereon
shall have the following rights which may be exercised singularly or
concurrently:
(a) Inspection. Secured Party may at any time,
with or without notice, enter upon Debtor's premises or any other place where
the Collateral is located to inspect and examine the same and, if Debtor is in
default, to take possession thereof.
(b) Performance by Secured Party. If Debtor
fails to perform any of its obligations hereunder, Secured Party may, at its
sole discretion, pay or perform such obligations for Debtor's account and may
add any cost or expense thereof to the obligations secured hereby.
(c) Acceleration. Upon default, Secured Party
may, without demand or notice to Debtor, accelerate all of the obligations
secured hereby and proceed to enforce payment of the same with or without first
resorting against the Collateral.
(d) Proceed Against Collateral. Subject to
applicable cure periods, if any, upon default, Secured Party may: require Debtor
to make the Collateral available to Secured Party at a place to be designated by
Secured Party; take possession of the Collateral, proceeding without judicial
process or by judicial process (without a prior hearing or notice thereof which
Debtor hereby expressly waives) and sell, retain or otherwise dispose of the
Collateral in full or partial satisfaction of the obligations secured hereby.
(e) Power of Attorney. Debtor hereby
irrevocably appoints (which appointment is coupled with an interest) Secured
Party as Debtor's true and lawful attorney, with full power of substitution,
without notice to Debtor and at such time or times as Secured Party in its sole
discretion may determine to: (i) create, prepare, complete, execute, deliver and
file such documents, instruments, financing statements, and other agreements and
writings as may be deemed appropriate by Secured Party to facilitate the intent
of this Security Agreement; (ii) notify account debtors and others with
obligations to Debtor to make payment of their obligations to Secured Party;
(iii) demand, enforce and receive payment of any accounts or obligations owing
to Debtor, by legal proceedings or otherwise; (iv) settle, adjust, compromise,
release, renew or extend any account or obligation owing to Debtor; (v) notify
postal authorities to change the address for delivery of mail to Debtor to such
address as Secured Party may designate; (vi) receive, open and dispose of all
mail addressed to Debtor; (vii) endorse Debtor's name on any check, note, draft,
instrument or other form of payment that may come into Secured Party's
possession; and (viii) send requests to Debtor's customers and account debtors
for verification of amounts due to Debtor. Secured Party covenants not to
exercise the foregoing rights prior to the occurrence of an event of default
hereunder.
(f) Deficiency. Upon default, and after any
disposition of the Collateral, Secured Party may sue Debtor for any deficiency
remaining.
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8. Obligations of Secured Party. Secured Party has no
obligations to Debtor hereunder except those expressly required herein. Except
as expressly provided in the Loan Agreements, Secured Party has not agreed to
make any further advance or loan of any kind to Debtor. Secured Party's duty of
care with respect to the Collateral in its possession shall be deemed fulfilled
if Secured Party exercises reasonable care in physically safekeeping the
Collateral or, in the case of Collateral in the possession of a bailee or third
party, exercises reasonable care in the selection of the bailee or third party.
Secured Party need not otherwise preserve, protect, insure or care for the
Collateral. Secured Party need not preserve rights the Debtor may have against
prior parties, realize on the Collateral in any particular manner or order, or
apply proceeds of the Collateral in any particular order of application.
9. Miscellaneous.
(a) No Waiver. No delay or failure on the part
of Secured Party in the exercise of any right or remedy hereunder shall operate
as a waiver thereof and no single or partial exercise by Secured Party of any
right or remedy shall preclude other or further exercise thereof or the exercise
of any other right or remedy.
(b) Amendment and Termination. This Security
Agreement may be amended or terminated and the security interest granted herein
can be released only by an explicit written agreement signed by Debtor and
Secured Party.
(c) Choice of Law. This Security Agreement and
the rights and obligations of the parties hereto shall be governed by and
construed in accordance with the laws of the State of Nebraska.
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(d) Binding Agreement. This Security Agreement
shall be binding upon the parties hereto and their heirs, successors, personal
representatives and permitted assigns.
(e) Assignment. This Security Agreement may be
assigned by Secured Party only.
(f) Captions. Captions and headings herein are
for convenience only and in no way define, limit or describe the scope or intent
of any provision or section of the Security Agreement.
(g) Severability. If any provision of this
Security Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or the remaining provisions
of this Security Agreement.
(h) Notices. All notices to be given shall be
deemed sufficiently given if delivered or mailed by registered or certified mail
postage prepaid if to Debtor at Suite 200, 9110 West Dodge Road, Omaha, Nebraska
68114; if to Secured Party at One First National Center, Omaha, Nebraska 68102;
or such other address as the parties may designate in writing from time to time.
Debtor shall promptly notify Secured Party of any changes in Debtor's address.
(i) Priorities. The security interest of a
Lender in any property of the Debtor (i) arising under and in connection with
the Agreement, this Security Agreement or any of the Related Loan Agreements and
(ii) granted to secure any obligation of the Debtor to such Lender, including,
without limitation, all Collateral, shall rank equally in priority with the
security interests of each of the other Lenders, if any, in such property of the
Borrower, irrespective of the time or order of attachment or perfection of such
security interest, or the time or order of filing, or the failure to file, and
regardless of the date any obligation of the Debtor to a Lender was incurred.
Any amounts or payments obtained upon disposition of any property securing an
obligation of the Debtor to a Lender shall be applied as provided in Article 8
of the 1996 Term Credit Agreement, dated as of May 3, 1996.
IN WITNESS WHEREOF, the undersigned have executed this 1996 Restated
Security Agreement as of this 3rd day of May, 1996.
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DATA TRANSMISSION NETWORK
CORPORATION
By
Title
FIRST NATIONAL BANK OF OMAHA,
as agent for itself, First Bank,
National Association, First National
Bank, Wahoo, Nebraska, NBD Bank,
Norwest Bank Nebraska, N.A., The
Boatmen's National Bank of St.
Louis, Farm Credit Services of the
Midlands, P.C.A., AgAmerica FCB and
Broadcast Partners.
By
Title
5470A
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EXHIBIT A
TO SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
DATA TRANSMISSION NETWORK CORPORATION ("Debtor")
COLLATERAL
All of Debtor's accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general intangibles,
contract rights, all rights of Debtor in deposits and advance payments made to
Debtor by its customers and subscribers, accounts due from advertisers and all
ownership, proprietary, copyright, trade secret and other intellectual property
rights in and to computer software (and specifically including, without
limitation, all such rights in DTN transmission computer software used in the
provision of the Basic DTN Subscription Service and/or Farm Dayta Service to
Debtor's subscribers) and all documentation, source code, information and works
of authorship pertaining thereto, all now owned or hereafter acquired by Debtor
and all proceeds and products thereof (including, without limitation, all such
assets acquired by Debtor from Broadcast Partners); and
Further including, without limiting the generality of the foregoing,
the following all now owned or hereafter acquired by the Debtor:
(a) all accounts, accounts receivable, chattel paper,
documents, instruments, goods, inventory, equipment, general
intangibles and contract rights that constitute, are due under or by
reason of, or are described in, subscription agreements or arrangements
between Debtor and its subscribers, and similar agreements or
arrangements purchased by Debtor from Broadcast Partners and including,
without limitation, all:
(i) equipment and inventory of Debtor, whether in its
possession or in the possession of its customers and subscribers (but
subject to such customers' and subscribers' rights therein), which
equipment and inventory may include, but not be limited to, computer
monitor screens, D-127, D-128, D-120, D-110 and 6001 or comparable
receivers, outdoor antennas, and satellite interfaces (collectively,
the "Equipment");
(ii) parts, accessories, attachments, additions,
substitutions, rents, profits, proceeds, products, and customer
deposits and advance payments related to or arising from the Equipment;
1
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<PAGE>
(iii) chattel paper, instruments, general intangibles,
accounts, accounts receivable and contract rights in, arising from or
corresponding to the Equipment, which may include but not be limited
to, all rights of Debtor under Subscription Agreements between Debtor
and its customers and subscribers (collectively, the "Subscriptions");
and
(iv) accounts, accounts receivable, rents, profits,
modifications, renewals, extensions, substitutions, proceeds, and
products related to or arising from the Subscriptions; and
(b) all rights, remedies, privileges, claims and other
contract rights and general intangibles of Debtor arising under or
related to the Asset Purchase and Sale Agreement (including, without
limitation, rights to indemnity) between Debtor and Broadcast Partners
or the transactions contemplated thereby.
(c) all proceeds and products of the foregoing.
2
- 213 -
<PAGE>
SCHEDULE A
TO SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
DATA TRANSMISSION NETWORK CORPORATION ("Debtor")
EXISTING NOTES
(See Attached)
- 214 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE B
TO SECURITY AGREEMENT
BY AND BETWEEN
FIRST NATIONAL BANK OF OMAHA, as Agent ("Secured Party")
AND
DATA TRANSMISSION NETWORK CORPORATION ("Debtor")
PERMITTED ENCUMBRANCES
Secured Party Financing Statements
Nebraska Secretary of State
<S> <C> <C> <C>
First National Bank of Omaha 12/28/87 #401690
10/13/92 #564918 Amendment
11/13/92 #568176 Continued
5/ /96 Amendment
FirsTier, Lincoln 6/24/87 #384782
First National Bank of Omaha 2/03/88 #405477 Amendment
First National Bank, Wahoo 5/28/92 #553205 Continued
NBD, Detroit 10/13/92 #564919 Amendment
2/05/93 #576038 Amendment
11/10/93 #603168 Amendment
FirsTier, Lincoln 2/10/88 #406144
First National Bank of Omaha 10/13/92 #564917 Amendment
First National Bank, Wahoo 1/07/93 #572981 Continued
NBD, Detroit 2/05/93 #576039 Amendment
11/10/93 #603169 Amendment
First Bank of Minneapolis 11/25/91 #534665
(Norstan) 8/24/92 #561090 Assignment
Douglas County Clerk, Nebraska
FirsTier, Lincoln 2/11/88 #000534
First National Bank of Omaha 10/15/92 #000534 Amendment
First National Bank, Wahoo 1/08/93 #0000054 Continued
NBD, Detroit 2/05/93 #000253 Amendment
11/17/93 #54 Amendment
</TABLE>
1
- 215 -
<PAGE>
<TABLE>
<CAPTION>
Iowa Secretary of State
<S> <C> <C> <C>
FirsTier, Lincoln 2/10/88 H842023
First National Bank of Omaha 10/15/92 K395184 Amendment
First National Bank, Wahoo 1/08/93 K424887 Continued
NBD, Detroit 2/08/93 K434908 Amendment
11/15/93 K503145 Amendment
Kansas Secretary of State
FirsTier, Lincoln 2/10/88 #1286572
First National Bank of Omaha 10/15/92 #1842986 Amendment
First National Bank, Wahoo 1/08/93 #1868482 Continued
NBD, Detroit 2/11/93 #1879069 Amendment
11/12/93 #1964342 Amendment
Illinois Secretary of State
FirsTier, Lincoln 3/18/88 #2402370
First National Bank of Omaha 10/21/92 #3043202 Amendment
First National Bank, Wahoo 2/11/93 #3084199 Amendment
NBD, Detroit 2/25/93 #3089132 Continued
12/09/93 #3197498 Amendment
Michigan Secretary of State
FirsTier, Lincoln 2/12/88 #C034473
First National Bank of Omaha 10/16/92 #C646856 Amendment
First National Bank, Wahoo 1/08/93 #C672590 Continued
NBD, Detroit 3/01/93 #C689434 Amendment
11/15/93 #C778208 Amendment
Wisconsin Secretary of State
FirsTier, Lincoln 2/18/88 #968701
First National Bank of Omaha 10/21/92 #1309942 Amendment
First National Bank, Wahoo 01/15/93 #1326550 Continued
NBD, Detroit 2/08/93 #1331412 Amendment
11/23/93 #1393268 Amendment
</TABLE>
2
- 216 -
<PAGE>
<TABLE>
<CAPTION>
Indiana Secretary of State
<S> <C> <C> <C>
FirsTier, Lincoln 2/11/88 #1454192
First National Bank of Omaha 10/21/92 #1808780 Amendment
First National Bank, Wahoo 1/11/93 #1822115 Continued
NBD, Detroit 2/08/93 #187451 Amendment
11/12/93 #1878806 Amendment
Minnesota Secretary of State
FirsTier, Lincoln 2/17/88 1#121648#00
First National Bank of Omaha 10/16/92 #1537269 Amendment
First National Bank, Wahoo 01/19/93 #1557397 Continued
NBD, Detroit 2/08/93 #1562125 Amendment
11/23/93 #1632156 Amendment
South Dakota Secretary of State
FirsTier, Lincoln 2/10/88 880410802864
First National Bank of Omaha 10/16/92 #22901003596 Amendment
First National Bank, Wahoo 1/08/93 #30081001734 Continued
NBD, Detroit 2/09/93 #30391203308 Amendment
11/22/93 #33261003899 Amendment
Missouri Secretary of State
FirsTier, Lincoln 2/11/88 #1555991
First National Bank of Omaha 10/16/92 #2184193 Amendment
First National Bank, Wahoo 1/08/93 #2212473 Continued
NBD, Detroit 2/08/93 #2224113 Amendment
11/15/93 #2331876 Amendment
Ohio Secretary of State
FirsTier, Lincoln 2/12/88 #Y00095612
First National Bank of Omaha 10/19/92 #01097336 Amendment
First National Bank, Wahoo 1/11/93 #01119343901 Continued
NBD, Detroit 2/09/93 #02099338901 Amendment
11/12/93 #1129331801 Amendment
</TABLE>
3
- 217 -
<PAGE>
<TABLE>
<CAPTION>
Kentucky Secretary of State
<S> <C> <C>
First National Bank of Omaha 11/12/93 134318
Pennsylvania Department of State
First National Bank of Omaha 11/12/93 22571277
Oklahoma Secretary of State
First National Bank of Omaha 11/12/93 059782
Mississippi Secretary of State
First National Bank of Omaha 11/12/93 0756092--
Colorado Secretary of State
First National Bank of Omaha 11/12/93 932082461
California Secretary of State
First National Bank of Omaha 11/12/93 93229491
Washington Secretary of State
First National Bank of Omaha 11/15/93 933190075
Montana Secretary of State
First National Bank of Omaha 11/15/93 419540
Arizona Secretary of State
First National Bank of Omaha 11/15/93 765359
</TABLE>
4
- 218 -
<PAGE>
<TABLE>
<CAPTION>
North Carolina Secretary of State
<S> <C> <C>
First National Bank of Omaha 11/15/93 050742
North Dakota Secretary of State
First National Bank of Omaha 11/16/93 93-380331
Florida Secretary of State
First National Bank of Omaha 11/17/93 930000236992
Texas Secretary of State
First National Bank of Omaha 11/29/93 227591--
</TABLE>
5
- 219 -
<PAGE>
FIRST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT
THIS FIRST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT is intended to
amend the 1996 RESTATED SECURITY AGREEMENT (the "Agreement") dated as of May 3,
1996 by and among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation
having its principal place of business at Suite 200, 9110 West Dodge Road,
Omaha, Nebraska 68114 (the "Debtor"), FIRST NATIONAL BANK OF OMAHA, a national
banking association having its principal place of business at One First National
Center, Omaha, Nebraska 68102 as agent ("Secured Party") for itself and FIRST
NATIONAL BANK, WAHOO, NEBRASKA, a national banking association having its
principal place of business at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank
organized under the laws of the State of Michigan having its principal place of
business at 611 Woodward Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK
NEBRASKA, N.A., a national banking association having its principal place of
business at 20th and Farnam Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST
BANK, NATIONAL ASSOCIATION, a national banking association having its principal
place of business at 13th and M Streets, Lincoln, Nebraska 68508 ("First Bank")
(it being acknowledged that First Bank is the successor in interest to FirsTier
Bank, National Association, Lincoln, Nebraska ("FirsTier")), and THE BOATMEN'S
NATIONAL BANK OF ST. LOUIS, a national banking association having its principal
place of business at One Boatmen's Plaza, 800 market Street, P.O. Box 236, St.
louis, Missouri 63166-0236 ("Boatmen's"), FARM CREDIT SERVICES OF THE MIDLANDS,
PCA, a production credit association ("Farm Credit") in care of AGAMERICA, FCB,
a farm credit bank doing business at 206 South 19th Street, Omaha, Nebraska
68102- 1745 ("AgAmerica") and BROADCAST PARTNERS, a general partnership having
its principal place of business at 11275 Aurora Avenue, Des Moines, Iowa 59322
("Broadcast Partners") (collectively, and together with any other Lender that
hereinafter becomes a party to any "Loan Agreement" as hereinafter defined, the
"Lenders").
1. THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by its
office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting
through its Chicago branch ("Sumitomo") and MERCANTILE BANK OF ST. LOUIS, N.A.,
a national banking association having its principal place of business at One
Mercantile Center, 7th and Washington Streets, St. Louis, Missouri, 63101
("Mercantile") are hereby added to the definition of "Lenders" referenced in the
Agreement.
2. Replace clause (ii) of Section 3 with the following:
"under the 1996 Revolving Credit Agreement dated as of June 28,
1996, as amended from time to time between the Debtor and First
National Bank of Omaha, First National Bank, Wahoo, Nebraska,
Norwest Bank Nebraska, N.A., NBD Bank, Farm Credit Services of
the Midlands, PCA, The Sumitomo Bank, Limited, Mercantile Bank of
St. Louis, N.A. First Bank, National Association and The
Boatmen's National Bank of St. Louis."
- 220 -
<PAGE>
3. In the last sentence of Section 9 (i), change "Article 8 of the 1996
Term Credit Agreement dated as of May 3, 1996" to "Article VII of the 1996
Revolving Credit Agreement as in effect on June 28, 1996."
4. Unanimous approval of the Lenders shall be required for
changes to Section 9(i) of the Agreement.
- 221 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this FIRST AMENDMENT
TO 1996 RESTATED SECURITY AGREEMENT as of June 28, 1996.
DATA TRANSMISSION NETWORK
CORPORATION
By: /s/ Brian Larson
------------------
Title: CFO, Secretary & Treasurer
FIRST NATIONAL BANK OF OMAHA
By: /s/ James P. Bonham
--------------------
Title: Vice President
- 222 -
<PAGE>
- 223 -
<PAGE>
SECOND AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT
THIS SECOND AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT is intended
to amend the 1996 RESTATED SECURITY AGREEMENT (the "Agreement") dated as of May
3, 1996, and amended by the FIRST AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT
(the "First Amendment") dated as of June 28, 1996 by and among DATA TRANSMISSION
NETWORK CORPORATION, a Delaware corporation having its principal place of
business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the
"Debtor"), FIRST NATIONAL BANK OF OMAHA, a national banking association having
its principal place of business at One First National Center, Omaha, Nebraska
68102 as agent ("Secured Party") for itself and FIRST NATIONAL BANK, WAHOO,
NEBRASKA, a national banking association having its principal place of business
at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of
the State of Michigan having its principal place of business at 611 Woodward
Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national
banking association having its principal place of business at 20th and Farnam
Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST BANK, NATIONAL ASSOCIATION, a
national banking association having its principal place of business at 13th and
M Streets, Lincoln, Nebraska 68508 ("First Bank") (it being acknowledged that
First Bank is the successor in interest to FirsTier Bank, National Association,
Lincoln, Nebraska ("FirsTier")), THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a
national banking association having its principal place of business at One
Boatmen's Plaza, 800 Market Street, P.O. Box 236, St. Louis, Missouri 63166-0236
("Boatmen's"), FARM CREDIT SERVICES OF THE MIDLANDS, PCA, a production credit
association ("Farm Credit") in care of AGAMERICA, FCB, a farm credit bank doing
business at 206 South 19th Street, Omaha, Nebraska 68102-1745 ("AgAmerica"), THE
SUMITOMO BANK, LIMITED, a Japanese bank being represented by its office at 200
North Broadway, Suite 1625, St. Louis, Missouri 63102 and acting through its
Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS, N.A., a national
banking association having its principal place of business at One Mercantile
Center, 7th and Washington Streets, St. Louis, Missouri 63101 ("Mercantile"),
and BROADCAST PARTNERS, a general partnership having its principal place of
business at 11275 Aurora Avenue, Des Moines, Iowa 50322 ("Broadcast Partners")
(collectively, and together with any other Lender that hereinafter becomes a
party to any "Loan Agreement" as hereinafter defined, the "Lenders").
1. BANK OF MONTREAL, a Canadian bank being represented by its office at
430 Park Avenue, New York, New York 10022 is hereby added to the definition of
"Lenders" referenced in the Agreement.
2. Replace clause (ii) of Section 3 with the following: "under
the 1996 Revolving Credit Agreement dated as of July 31, 1996, as amended from
time to time between the Debtor and First National Bank of Omaha, First National
Bank, Wahoo, Nebraska, Norwest Bank Nebraska, N.A., NBD Bank, Farm Credit
Services of the Midlands, PCA, The Sumitomo Bank, Limited, Mercantile Bank of
St. Louis, N.A., First Bank, National Association, Bank of Montreal and The
Boatmen's National Bank of St. Louis."
1
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this SECOND AMENDMENT
TO 1996 RESTATED SECURITY AGREEMENT as of July 31, 1996.
DATA TRANSMISSION NETWORK CORPORATION
By
Title
FIRST NATIONAL BANK OF OMAHA
By
Title
2
- 225 -
<PAGE>
THIRD AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT
THIS THIRD AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT (the "Third
Amendment") is intended to amend the 1996 RESTATED SECURITY AGREEMENT dated as
of May 3, 1996, as previously amended (the "Security Agreement") by the FIRST
AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT (the "First Amendment") dated as
of June 28, 1996 and the SECOND AMENDMENT TO 1996 RESTATED SECURITY AGREEMENT
(the "Second Amendment") dated as of July 31, 1996, by and among DATA
TRANSMISSION NETWORK CORPORATION, a Delaware corporation having its principal
place of business at Suite 200, 9110 West Dodge Road, Omaha, Nebraska 68114 (the
"Debtor"), FIRST NATIONAL BANK OF OMAHA, a national banking association having
its principal place of business at One First National Center, Omaha, Nebraska
68102 as agent ("Secured Party") for itself and FIRST NATIONAL BANK, WAHOO,
NEBRASKA, a national banking association having its principal place of business
at Wahoo, Nebraska 68066 ("FNB-W"), NBD BANK, a bank organized under the laws of
the State of Michigan having its principal place of business at 611 Woodward
Avenue, Detroit, Michigan 48226 ("NBD"), NORWEST BANK NEBRASKA, N.A., a national
banking association having its principal place of business at 20th and Farnam
Streets, Omaha, Nebraska 68102 ("Norwest"), FIRST BANK, NATIONAL ASSOCIATION, a
national banking association having its principal place of business at 13th and
M Streets, Lincoln, Nebraska 68508 ("First Bank") (it being acknowledged that
First Bank is the successor in interest to FirsTier Bank, National Association,
Lincoln, Nebraska ("FirsTier")), THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a
national banking association having its principal place of business at One
Boatmen's Plaza, 800 Market Street, P.O. Box 236, St. Louis, Missouri 63166-0236
("Boatmen's"), THE SUMITOMO BANK, LIMITED, a Japanese bank being represented by
its office at 200 North Broadway, Suite 1625, St. Louis, Missouri 63102 and
acting through its Chicago branch ("Sumitomo"), MERCANTILE BANK OF ST. LOUIS,
N.A., a national banking association having its principal place of business at
One Mercantile Center, 7th and Washington Streets, St. Louis, Missouri 63101
("Mercantile"), and LASALLE NATIONAL BANK, a national banking association being
represented by its office at One Metropolitan Square, 211 North Broadway, St.
Louis, Missouri 63102 ("LaSalle") (collectively, and together with any other
Lender that hereinafter becomes a party to any "Loan Agreement" as hereinafter
defined, the "Lenders"). (In accordance with the Third Amendment to the 1996
Revolving Credit Agreement, as described in Section 3(ii) of the Security
Agreement, Ag America is no longer a Lender.)
1
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<PAGE>
1. The following sentence shall be added to the end of Section 1
of the Security Agreement:
All capitalized terms not defined in this Security
Agreement shall have their respective meanings as set
forth in the Revolving Credit Agreement, as described
in Section 3(ii) below.
2. The following shall be added to the end of clause (iv) of
Section 3 of the Security Agreement:
or under any interest rate protection agreement
entered into by Debtor with one or more Lenders;
3. Clause (v) of Section 3 of the Security Agreement shall be
amended to read as follows:
(v) under any and all Notes previously, now or
hereafter made by Debtor to the Lenders pursuant to
any of the foregoing Loan Agreements and interest
rate protection agreements (all of which are referred
to herein as the "Related Loan Agreements") or any
predecessor loan agreements, including, without
limitations, the Existing Term Notes and any notes
given in extension, renewal or substitution of the
Notes;
4. The last sentence of Section 9(i) of the Security Agreement
shall be amended to read as follows:
Any amounts or payments obtained upon disposition of
any property securing an obligation of Debtor to a
Lender shall be applied as provided in Article VII of
the 1996 Revolving Credit Agreement as in effect on
December 27, 1996.
5. Debtor hereby restates, as of the date hereof, for the benefit of
the Lenders the representations and warranties set forth in Section 4 of the
Agreement. Notwithstanding the foregoing, representations of Debtor as to
filings in respect of the Collateral are hereby amended to reflect such
additional filings as shall have been made in favor of the Lenders.
6. This Third Amendment shall be effective as of December 27, 1996.
References in the Notes, the Related Loan Agreements and similar documents to
the "Security Agreement" or the "1996 Restated Security Agreement" shall mean
the Security Agreement, as amended by the First Amendment, the Second Amendment
and this Third Amendment.
2
- 227 -
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this THIRD AMENDMENT
TO 1996 RESTATED SECURITY AGREEMENT as of December 27, 1996.
DATA TRANSMISSION NETWORK
CORPORATION
By
Title
3
- 228 -
<PAGE>
FIRST NATIONAL BANK OF OMAHA
By
Title
3797
4
- 229 -
<PAGE>
SECOND AMENDMENT TO
NOTE AND WARRANT PURCHASE AGREEMENT
This Second Amendment to Note and Warrant Purchase Agreement (this
"Second Amendment") is dated as of ____________, 1996, and entered into by and
among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation ("Company"),
THE NOTEHOLDERS LISTED ON THE SIGNATURE PAGES HEREOF (collectively the
"Noteholders").
RECITALS:
WHEREAS, Company and the initial purchaser of the Notes are parties to
that certain Note and Warrant Purchase Agreement dated as of June 30, 1994, as
amended by that certain First Amendment to Note and Warrant Purchase Agreement
dated as of April 13, 1995 (as amended, the "Purchase Agreement"), the terms
defined therein being used herein as therein defined; and
WHEREAS, Company and Noteholders desire to further amend the Purchase
Agreement as hereinafter set forth;
NOW, THEREFORE, subject to the terms and conditions herein contained,
the parties hereto hereby agree as follows:
Section 1. AMENDMENT TO THE PURCHASE AGREEMENT.
The definition of "Consolidated Operating Cash Flow" set forth in
Section 14 of the Purchase Agreement hereby is amended by adding ",
amortization" immediately after the word "depreciation" in such definition.
Section 2. COMPANY'S REPRESENTATIONS AND WARRANTIES.
In order to induce the Noteholders to enter into this Second Amendment
and to amend the Purchase Agreement in the manner provided herein, Company
represents and warrants to the Noteholders that the following statements are
true, correct and complete:
2.1 Organization and Powers. Company has all requisite corporate power
and authority to enter into this Second Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Purchase
Agreement as amended by this Second Amendment (the "Amended Agreement").
2.2 Authorization of Agreements. The execution and delivery of this
Second Amendment have been duly authorized by all necessary corporate action by
Company.
1
- 230 -
<PAGE>
2.3 Binding Obligation. This Second Amendment and the Amended Agreement
are the legally valid and binding obligations of Company enforceable against
Company in accordance with their respective terms, except as enforcement may be
limited to bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally or by equitable principles
relating to enforceability.
Section 3. NOTEHOLDERS' REPRESENTATIONS AND WARRANTIES.
In order to induce Company to enter into this Second Amendment and to
amend the Purchase Agreement in the manner provided herein, the Noteholders
represent and warrant to Company that collectively the Noteholders are the
holders of more than 50% in principal amount of the Notes outstanding on the
date of this Second Amendment.
Section 4. MISCELLANEOUS.
4.1 Reference to and Effect on the Purchase Agreement. From and after
the date of this Second Amendment, each reference in the Purchase Agreement to
"this Agreement", "hereunder", "hereof", "herein" or words of like import, and
each reference in any other documents relating to the Purchase Agreement, shall
mean and be a reference to the Purchase Agreement as amended by this Second
Amendment. Except as specifically amended by this Second Amendment, the Purchase
Agreement and other documents relating to the Purchase Agreement shall remain in
full force and effect and are hereby ratified and confirmed.
4.2 Execution in Counterparts; Effectiveness. This Second Amendment may
be executed in any number of counterparts and by the different parties herein in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. This Second Amendment shall become effective upon
the execution of a counterpart hereof by each of the parties hereto.
4.3 Governing Law. This Second Amendment shall be governed by, and
shall be construed and enforced in accordance with, the laws of the State of New
York.
4.4 Headings. Section and subsections headings in this Second Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Second Amendment for any other purpose or be given any substantive
effect.
2
- 231 -
<PAGE>
WITNESS the due execution hereof by the respective duly authorized
officers of the undersigned as of the date first above written.
COMPANY:
DATA TRANSMISSION NETWORK
CORPORATION, a Delaware corporation
By: _______________________________
Title : ___________________________
NOTEHOLDERS:
EQUITABLE CAPITAL PRIVATE INCOME
AND EQUITY PARTNERSHIP II, L.P.
By: EQUITABLE CAPITAL MANAGEMENT
CORPORATION, its General Partner
By: _______________________________
Title: Investment Officer
3
- 232 -
<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
COMPUTATION OF INCOME(LOSS) PER SHARE
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1996 1995 1994
------------ ------------ -----------
Primary
Computation of income (loss) per
common and common equivalent share:
<S> <C> <C> <C>
Net income (loss) ($ 958,306) ($ 283,076) ($1,602,738)
============ ============ ============
Average shares outstanding 10,657,893 9,908,592 9,760,200
Add shares applicable to stock
options and warrants (1)
Add shares applicable to stock
options & warrants prior to
conversion, using average market
price prior to conversion(1)
------------ ------------ ------------
Total shares 10,657,893 9,908,592 9,760,200
============ ============ ===========
Per common share:
Net income (loss) ($0.09) ($0.03) $0.16)
============ ============ ===========
- -------------------------------------------------------------------------------
<FN>
(1) Shares applicable to warrants and stock options are antidilutive for the
period ended December 31, 1996, 1995 and 1994, and thus, are excluded from
the calculation of net loss per common share.
</FN>
</TABLE>
26
- 233 -
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11 - Pg 2
DATA TRANSMISSION NETWORK CORPORATION
COMPUTATION OF INCOME(LOSS) PER SHARE
Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ -----------
Fully Dilutive
Computation of income (loss) per
common and common equivalent share:
<S> <C> <C> <C>
Net income (loss) ($ 958,306) ($ 283,076) ($1,602,738)
============ ============ ============
Average shares outstanding 10,657,893 9,908,592 9,760,200
Add shares applicable to stock
options and warrants (1)
Add shares applicable to stock
options & warrants prior to
conversion, using average market
price prior to conversion(1)
------------ ------------ ------------
Total shares 10,657,893 9,908,592 9,760,200
============ ============ ===========
Per common share:
Net income (loss) ($0.09) ($0.03) ($0.16)
============ ============ ===========
- ------------------------------------------------------------------------------
<FN>
(1) Shares applicable to warrants and stock options are antidilutive for the
period ended December 31, 1996, 1995 and 1994, and thus, are excluded from
the calculation of net loss per common share.
</FN>
</TABLE>
27
- 234 -
<PAGE>
- --------------------------------------------------------------------------------
CORPORATE PROFILE
- --------------------------------------------------------------------------------
Data Transmission Network Corporation (DTN), an electronic information
and communication services company headquartered in Omaha, NE, is a leader in
the electronic satellite delivery of time-sensitive information (NEWS...NOT
HISTORY). DTN is committed to providing our customers with the best information
and analysis available, as quickly as possible, at an affordable cost. DTN's
services are tailored to meet our subscriber's needs and are valuable tools in
managing business and personal affairs.
The Company began operations in 1984, went public in January 1987, and
has continued to evolve into a full-service information provider and
communication network. DTN distributes information via FM radio side-band
channels, small dish Ku-band satellite, TV cable (VBI-vertical blanking
interval), FAX, E-Mail and the Internet. Most subscribers utilize a DTN receiver
that captures information around the clock and converts it into text, graphics
and audio available at the subscriber's convenience.
Prior to 1992, DTN supported only a monochrome receiver system with the
capability to receive and display information. In 1992, the Company introduced
the Advanced Communications EngineSM (ACE) receiver that expanded the
information and communications services provided by the Company. This receiver
has multiple processors that capture, manipulate and display high resolution
color video pictures, graphics and text. In addition, these processors provide
the ability to play audio clips and to utilize a phone modem. The ACE receiver
is equipped with an internal hard drive that allows processed information to be
stored, archived and then displayed by using the built-in control panel, a
keyboard or a mouse at the subscriber's convenience.
DTN's services reach 145,900 subscribers in the U.S. and Canada. The
Company has services for the agriculture, automotive, energy, farm implement,
financial, mortgage, produce, golf, turf management, aviation, construction,
emergency management and other weather related industries. The services include
DTN AgDaily and DTN FarmDayta, targeted for agribusinesses; DTN Pro SeriesSM and
DTN FarmDayta Elite, advanced information services for agribusinesses; DTNstant,
for customers needing a real-time agriculture ticker service; DTNironSM for the
farm implement dealer; DTN PROduce for the produce industry; DTN Weather Center,
for the golf, turf management, aviation and construction industries; DTN Wall
Street and DTN SpectrumSM, an enhanced version of DTN Wall Street on the ACE
technology, for the financial industry; DTN FirstRate for the mortgage industry;
DTN GovRate for U.S. government securities; DTN Broker +SM for the brokerage
industry; DTNergy for the petroleum and natural gas industries; DTNautoSM for
the auto auctions and auto dealers; and joint ventures for the electrical
equipment and trucking industries.
- --------------------------------------------------------------------------------
MISSION STATEMENT
- --------------------------------------------------------------------------------
Led by customer suggestions and demands, Data Transmission Network
Corporation has engineered growth and evolution from what we were the first
low-cost, electronically delivered agricultural commodities information
service to what we are today a multi-faceted information provider utilizing a
full-service communication technology system to deliver that most valuable of
all commodities, timely information (NEWS...NOT HISTORY).
We are committed to providing the best information and analysis
available, as quickly as possible, at an affordable cost to our customers. Among
the many things that are critical to successfully meeting those commitments, the
three most important are customer service, customer service, and customer
service!
As fellow shareholders of the Company, DTN employees have as their
number one goal the long-term enhancement of the value of our Company.
- 235 -
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<S> <C>
Financial Highlights ...................................................... 2
Five Years In Review ...................................................... 2
Letter to Stockholders .................................................... 4
Business Review ........................................................... 6
Selected Financial Data ................................................... 16
Management's Discussion and Analysis ...................................... 17
Management's Responsibilities ............................................. 23
Independent Auditor's Report .............................................. 23
Financial Statements ...................................................... 24
Notes to Financial Statements ............................................. 28
Quarterly Data ............................................................ 33
Trading Information ....................................................... 33
Investor Information ...................................................... 34
Directors and Officers .................................................... 34
Appendix - A Letter To Our Shareholders - Technology Update ............... 35
</TABLE>
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<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year: 1996 1995 % Change
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 98,383,713 $ 62,287,989 58%
Operating cash flow(1) 40,377,428 23,154,402 74%
Loss before income taxes (1,404,306) (397,076) -
Net loss (958,306) (283,076) -
Net loss per share (4) $ (.09) $ (.03) -
- ------------------------------------------------------------------------------------------------------------------------------------
At Year End:
Total assets $ 177,729,762 $ 92,672,050 92 %
Long-term debt and subordinated notes 97,747,823 47,020,527 108 %
Stockholders equity 28,290,289 12,876,965 120 %
Book value per share (4) $ 2.56 $ 1.29 98 %
- ------------------------------------------------------------------------------------------------------------------------------------
Key Indicators:
Total subscribers at year-end 145,900 95,900 52 %
Subscriber retention rate 89.3% 91.0% (2)%
Net development costs(2) $ 5,344,261 $ 3,733,530 43 %
Operating cash flow from core services(3) $ 45,512,581 $ 26,749,974 70 %
As a percent of revenue:
Operating cash flow(1) 41.0 % 37.2 %
Operating cash flow from core services(3) 47.4 % 44.4 %
Depreciation and amortization 34.0 % 30.2 %
Interest 8.6 % 7.7 %
Net loss before income taxes (1.4)% (.6)%
- --------------------------------------------------------------------------------
<FN>
(1) Operating income before depreciation and amortization expense.
(2) 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.
(3) Core services are services no longer in the initial development process.
Operating cash flow from core services as a percent of revenue is calculated
on core services revenue.
(4) Per share data is shown after 3-for-1 stock split.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
FIVE YEARS IN REVIEW
- --------------------------------------------------------------------------------
GRAPHS IN TABULAR FORM:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Revenues
($ millions) 26.8 36.0 46.1 62.3 98.4
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Operating Cash Flow
($ millions) 9.9 12.9 15.8 23.2 40.4
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<PAGE>
- --------------------------------------------------------------------------------
FIVE YEARS IN REVIEW
- --------------------------------------------------------------------------------
GRAPHS IN TABULAR FORM:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Operating Cash Flow
(percent of revenue) 37% 36% 34% 37% 41%
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Net Development Costs
($ millions) 1.1 2.7 4.3 3.7 5.3
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Subscribers At Year End
(thousands) 67.6 74.1 82.0 95.9 145.9
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Subscriber Retention Rate
(percent) 88.2 88.8 89.8 91.0 89.3
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Annual Revenue
Per Subscriber
($ based on average
subscribers) 409 507 591 700 775
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Annual Operating Cash
Flow Per Subscriber
($ based on average
subscribers) 151 183 202 260 318
3
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<PAGE>
- --------------------------------------------------------------------------------
LETTER TO STOCKHOLDERS
- --------------------------------------------------------------------------------
The two most significant highlights for DTN during 1996 were the
measurable improvements in the efficiency of administration and customer service
and our acquisition of Broadcast Partners. These factors are primarily
responsible for improved operating cash flow (operating income before
depreciation and amortization) as a percentage of revenue.
Operating cash flow improved from 34 percent of revenue for the first
quarter of 1996 to 40 percent of revenue for the fourth quarter of 1996. This
comparison is apples to apples - it excludes any effects associated with the
second most significant highlight of 1996: our May acquisition of Broadcast
Partners.
Broadcast Partners was our biggest competitor in the agricultural
delayed quotes field. We paid $73,300,000 for this asset acquisition and gained
39,000 customers and approximately $10,000,000 in annual operating cash flow.
With the merger of the two businesses, its associated synergies and elimination
of some redundancies, the acquired cash flow appears to be more in the magnitude
of $13,000,000 to $14,000,000 per year.
The above two highlights are responsible for total company cash flow in
the fourth quarter of 1996 to be 44.8 percent of fourth quarter revenues.
We improved 1996 operating efficiency because all employees pitched in
to help manage our fast-growing company in a frugal fashion. Each and every one
of us took ownership of the task in a way that makes me proud. Additionally, I
salute Greg Sloma, our President, and his supporting cast, whose abilities and
tenacity brought to us the acquisition of Broadcast Partners.
DTN recorded an outstanding, unprecedented performance in 1996. Here are
the highlights.
o Revenues grew 58 percent from $62,288,000 for 1995 to $98,384,000 for
1996.
o Operating cash flow (operating income before depreciation and
amortization expense) grew 74 percent from $23,154,000 for 1995 to
$40,377,000 for 1996.
o Operating cash flow as a percentage of revenue improved from 37 percent
for 1995 to 41 percent for 1996.
o Total subscribers increased 52 percent from 95,900 for 1995 to 145,900
for 1996.
o Operating revenue per subscriber - consisting of subscriptions, "a la
carte" additional services, communications and advertising revenue -
increased 9.4 percent from $55.70 per month for 1995 to $60.92 for 1996.
To assist in your own analysis of DTN, I have included the following
1995 vs. 1996 comparisons, which exclude growth associated with our acquisition
of Broadcast Partners.
o Revenues grew 33 percent from $62,288,000 to $82,937,000.
o Operating cash flow grew 32 percent, from $23,154,000 to $30,539,000.
o Total subscribers increased 11.5 percent, from 95,900 to 106,900.
DTN's growth in services leaves us with many more doors to knock on than
our existing sales force can possibly handle, so a major focus at our shop
continues to be enlarging our distribution capability, primarily our field sales
force. During 1996, our field sales force grew approximately 40 percent, from
120 to 170 people. For 1997, we have planned an additional 40 percent increase.
For the second and third quarter reports of 1996, I asked Robert Herman,
our Senior Vice President for Research and Technology, to give us an abbreviated
technology update. I have put him in the hot seat one more time. So for this
annual report, Robert has included a more comprehensive appendix entitled, "A
Letter to Our Shareholders - Technology Update". I think you will enjoy it.
Additionally, as can be seen in the graphic on the following page, DTN
has put together an array of services for the Agricultural, Weather, Financial,
Energy, Auto, Electrical Equipment and Trucking Industries.
The business review section located in the following pages offers a
comprehensive description of each service. By necessity our business review
section is a little voluminous. However, I suggest that each shareholder read it
as carefully as if you are to be subjected to an exam on its contents. Careful
reading of this section will allow you to conjure up a picture of your company,
its accomplishments, our momentum, and more importantly assess the potential of
our future. Know what you own.
4
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<PAGE>
My thanks to our customers, suppliers, financiers and stockholders for
their support. And a special thanks to all of our employees and their families
for a very successful 1996.
Very sincerely yours,
Roger Brodersen
Chairman and CEO
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<PAGE>
- --------------------------------------------------------------------------------
BUSINESS REVIEW
- --------------------------------------------------------------------------------
Data Transmission Network Corporation (DTN) began operations in April
1984. The Company is in the business of providing information and communication
services. During 1996, DTN added several new services in the agriculture,
weather and financial service lines. All of these services are discussed in this
report. DTN services reach 145,900 subscribers throughout the U.S. and Canada.
The Company's subscription services are targeted at niche business markets
and designed to be timely (NEWS...NOT HISTORY), simple to use, and convenient.
The Company's information distribution technology provides an efficient means of
sending data and information from point to multi-point.
The development of a cost-effective electronic satellite delivery system,
plus a total commitment to customer service and information quality, has enabled
the Company to become a major player in the communications industry. The Company
continues to make large investments to develop and enhance its information
distribution technology. These investments have allowed the Company to take
advantage of many engineering and software advancements in an exciting and
growing industry.
Information Distribution Technology
The Company is committed to research and develop information
distribution technologies that cost effectively deliver the timely (NEWS...NOT
HISTORY) information that the Company's subscribers demand. DTN supports several
information distribution technologies allowing the distribution (transmission)
and receiving (capture, manipulation and display) of information. These
technologies include FM radio side-band channels (FM), small dish Ku-band
satellite (Ku), Fax, Cable TV (by using the vertical blanking interval, or VBI),
E-Mail and the Internet.
The first technology used by the Company was FM radio side band. The Ku
technology was added in 1989, providing the ability to reach customers outside
the geographic territory of the signal of the FM stations. Fax, VBI, E-Mail and
the Internet have since been added to further expand our distribution network.
The Company provides all of the equipment necessary for subscribers to
receive their service based on FM, Ku and VBI. This equipment includes a
receiver, specifically built for the Company, a video monitor, a FM antenna or a
small 30" Ku-band satellite dish. 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 "page-based" receiver and 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 Engine (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,
6
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<PAGE>
graphics and text. A separate processor provides the ability to play audio clips
such as weather forecasts, voice advertisements or audio alarms which are used
when a futures contract reaches a pre-set price. In addition, this processor may
send and retrieve information by using an internal modem connected to a phone
line.
The ACE receiver also has the capability 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 displayed. The receivers built-in control panel, keyboard or
mouse allows the subscribers to conveniently view this information.
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 specific information to a specific subscriber or group of
subscribers.
The Company leases FM radio side-band channels, satellite channels and
VBI space to deliver the information to the Company's receivers used by its
subscribers. All information is up-linked from Omaha to satellite (except
Internet, Fax and other telephone delivery technology) and down-linked from the
satellite to the subscriber based on the distribution technology.
The FM monochrome subscribers receive their information using an FM
antenna that receives the information via the side-band signal transmitted from
radio stations.
On December 31, 1996, 15,600 subscribers were receiving the Company's
services via FM distribution technology.
The Ku subscribers utilize a 30" satellite dish, a direct down-link, to
receive their information. On December 31, 1996, 128,000 subscribers were
receiving the Company's services via Ku distribution technology.
Early in 1994, the Company began using a new cable TV 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. On December 31, 1996, 2,300
subscribers were receiving the Company's services by VBI distribution
technology.
The Company has approximately 10,500 Fax 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 500 E-Mail sources delivering over 1,500 pages of information to
subscribers daily. The Company began to deliver services on the Internet in
1995. The Company is currently offering services in the agriculture, produce and
finance service lines and plans to continue researching this information
distribution technology.
- --------------------------------------------------------------------------------
SERVICES OFFERED
- --------------------------------------------------------------------------------
The Company's revenue is derived mainly from five categories: (1)
monthly, quarterly or annual subscriptions, (2) optional services, (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>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Subscriptions 76% 74% 73%
Optional services 6% 6% 8%
Communication services 9% 11% 10%
Advertising 3% 3% 5%
Service Initiation Fees 6% 6% 4%
</TABLE>
The subscription revenue is generated from monthly, quarterly or annual
subscription fees for one of the Company's services. The Company offers a
discount to subscribers who pre-pay their subscriptions annually. A more
detailed review of each service is found later in this report.
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 in total dollars and has maintained the level achieved in 1996 as a
percentage of total revenue during this period of rapid subscriber and
subscription revenue growth.
The Company sells communication services that allow companies to
cost-effectively communicate a large amount of timely (NEWS...NOT HISTORY)
information to their customers or field offices. This category includes revenue
generated from FAX and E-Mail services. Communication revenue has continued to
grow in total dollars and management believes this area offers opportunities for
future growth.
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 timely (NEWS...NOT
HISTORY) 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 in total dollars and has maintained the level achieved
in 1996 as a percentage of total revenue during this period of rapid subscriber
and subscription revenue growth.
Service initiation fees are one-time charges for new subscriptions
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 AGRICULTURAL
SERVICES
- --------------------------------------------------------------------------------
The DTN Agricultural Services include DTN AgDaily, DTN ProSeries, DTN
FarmDayta, DTNstant, DTNiron and DTN PROduce.
New subscriptions are primarily sold by the Company's national sales
force of employee district sales representatives, in-house sales staff, and
inde-
7
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<PAGE>
GRAPH IN TABULAR FORM:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
DTN Ag Services Revenue
($ millions) 20.6 27.0 33.7 44.0 69.7
pendent, commission-only sales representatives. The Company obtains leads for
the sales force through telemarketing, direct mail, print media advertising and
customer referrals. The Company's management continues to analyze the markets in
the U.S. and Canada to determine the optimum sales force necessary to
cost-effectively maximize sales.
The biggest competition to these services is the combination of printed
advisory services, radio, television, telephone, other satellite information
services, on-line services and the changing of old information gathering habits
DTN's agricultural subscribers have more than 150 optional services
available to them. These services consist of advisory, informational and
educational products. Additional services include newswire, association and free
services. DTN subscribers are given the opportunity to tailor their DTN unit to
their specific needs by choosing from a broad mix of "a la carte" services. DTN
continues to develop new optional services to meet customer demands by listening
closely to the marketplace.
The Company markets these services through a combination of individual
free trials, system-wide trials, on-screen advertising, direct mail, invoice
stuffers, equipment stuffers and telemarketing. The total number of monthly
subscriptions increased over 25% primarily due to these marketing campaigns. The
increase in subscriptions fueled the impressive increase in optional services
revenue. Optional service subscription prices range from $6 to $1,200 per
quarter with the average subscription price of $60/quarter.
In 1996, the agricultural related services sold over three million
dollars in advertising space. The companies purchasing advertising are
considered major players in the agriculture, ag chemicals, seeds, equipment and
finance businesses. The color system capabilities, such as inter-activity and
animation, continue to entice new advertisers. Advertising research in 1996
confirmed that DTN is an important player in the agriculture media field.
- --------------------------------------------------------------------------------
DTN AGDAILY SERVICES
- --------------------------------------------------------------------------------
The DTN AgDaily Services are DTN AgDaily, DTN Pro Series and DTN
FarmDayta. Approximately 80% of the services' subscribers are farmers or
livestock producers with the balance consisting primarily of grain elevators,
agribusinesses, and financial institutions. DTN AgDaily, Pro Series and
FarmDayta subscribers farm nearly one third of the nations total cropland and
market more than 50% of the nations' cattle and hogs. Subscribers can be found
throughout the U.S and Canada.
DTN AgDaily management believes the trend toward consolidation into
larger farms is expanding the market for agricultural information services.
Also, the governments move toward fewer agricultural price supports and an open
market system will support expansion of agricultural information services. This
expansion should provide steady growth for DTN AgDaily, DTN Pro Series and DTN
FarmDayta.
DTN AgDaily
SERVICE REVIEW
The Company's first service, DTN AgDaily, is an agricultural market
information, quote and weather service. Monochrome (FM and Ku) DTN AgDaily
subscribers receive delayed commodity futures and options quotes; local cash
grain and livestock prices; selected regional and world weather updates; and a
variety of daily analysis, commentary and news that affect grain and livestock
prices.
The DTN AgDaily color graphics system includes an advanced weather
segment with national and regional radar maps (updated every 15 minutes),
infrared satellite cloud cover maps, precipitation, temperature, jet stream,
surface wind and snow cover maps, and much more. The subscriber can custom
design high resolution charts and/or select from a library that holds over 1,000
charts. Subscribers can custom program the futures quotes pages to display only
the quotes they desire. The service also includes information segments for
specific crop and livestock enterprises as well as general, business, sports and
entertainment news.
DTN AgDaily color service offers crop liability insurance and livestock
profitability calculators by using the inter-activity feature that allows a
subscriber to search a comprehensive database. This feature also allows
subscribers to search an extensive seed catalog.
The price of the monochrome FM service is currently $29 per month, $35
per month for monochrome Ku service and $52 per month for color Ku service.
DTN offers services with advanced features bundled with DTN AgDaily
called the DTN Pro Series. The DTN Pro Series services are also managed as a
service within DTN AgDaily.
DTN Pro Series
SERVICE REVIEW
The DTN Pro Series services are an advanced information source designed
for agricultural subscribers who require more extensive information that can be
customized for their specific needs and operations. The Pro Series includes five
services: Weather Pro, News Pro, Chart Pro, Intraday Pro and Stock Pro.
Weather Pro is the "meteorological connection" to the most complete
array of current weather, fore-
8
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<PAGE>
cast and satellite radar information. This service allows the subscriber to
choose from over 70 new weather maps including detailed regional, state and zone
forecasts. The Weather Pro service gives the subscriber 32 programmable pages to
create their own unique weather information chapter.
News Pro is the "broadcast connection" to the most timely (NEWS...NOT
HISTORY) business, sports, entertainment, financial, and general news of the
day. The service also provides an audio summary of the day's agricultural news.
News Pro subscribers receive AP Online, a service of the Associated Press, as a
news source.
Chart Pro is the "graphic connection" bringing a variety of information
to the screen in an organized format to allow the subscriber to analyze trends,
patterns and cycles. This service includes 40 pages for programmable charts
allowing the subscriber to create an extensive "chart book".
Intraday Pro is the "trading connection" to the first low-cost system
with the ability to chart market sessions minute-by-minute during the trading
day. This service allows the subscriber to choose the time intervals they desire
to chart and keep them abreast of the markets.
Stock Pro is the "market connection" providing access to prices for over
50,000 issues of stocks, bonds and funds. This service includes stock quotes
using either the quick quote feature or the programmable quotes pages.
Additional features are the personal library used to store news and information
and the high interest windows that allows the subscriber to constantly monitor
up to six futures, options, stock or bond quotes.
The Pro Series' enhanced functionality includes a high interest window
that allows a user to view future or options quotes on any page, key
word search that automatically searches the news story database for articles
affecting the user's operation, a user custom segment that creates a customized
segment with up to five of the users favorite pages, and a personal library that
serves as a customized archive segment.
Each individual Pro Series service is currently priced at $62 per month
except the Stock Pro which is currently priced at $66 a month. DTN Premier is
the package of Weather Pro, News Pro, Chart Pro and Intraday Pro, currently
priced at $79 per month. DTN Premier Plus is the package of DTN Premier and
Stock Pro, currently priced at $82 a month. This service is available by color
Ku-band satellite transmission.
DTN FarmDayta
SERVICE REVIEW
DTN FarmDayta was the principle asset acquired from the Broadcast
Partners acquisition in May 1996. The content of this service is very similar to
DTN AgDaily. In fact, since its start in 1990, DTN FarmDayta was the primary
competition for DTN AgDaily services. DTN FarmDayta is an agricultural market
information, quote and weather service delivering delayed commodity futures and
options quotes; local cash grain and livestock prices; selected regional and
world weather updates; and a variety of daily analysis, commentary and news that
affect grain and livestock prices.
DTN FarmDayta Elite service is an advanced version of DTN FarmDayta and
is similar in content to the DTN AgDaily service. Additional features include
additional options quotes, charting, weather maps and a hard drive to store data
in the receiver which is critical to maintaining storage of information during a
power outage. DTN FarmDayta Elite Plus is an advanced service that includes the
DTN FarmDayta Elite features and is similar in content to the DTN Pro Series.
This service includes more advanced news (Reuters Headline News), quotes,
weather (including motion and zoom capabilities) and programmable charts.
DTN FarmDayta, and its enhanced versions DTN FarmDayta Elite and Elite
Plus, are currently priced at $44, $52, and $62 a month, respectively. All these
services are available by color Ku-band satellite transmission. The addition of
DTN FarmDayta gives the Company a fully integrated agricultural service line
with price entry points across a wide spectrum, expanding the marketing horizons
for all DTN agricultural services.
At the time of the acquisition, DTN FarmDayta had 39,000 agricultural
subscribers. The Company does not plan to convert DTN FarmDayta equipment to DTN
AgDaily equipment and currently maintains the DTN FarmDayta facilities, with
nearly 100 employees, in Des Moines, Iowa.
1996 AGDAILY SERVICES HIGHLIGHTS
DTN AgDaily remains the Company's largest service and its 1996
performance exceeded managements expectations. A 17% subscription growth rate
demonstrated acceptance of higher-priced services. The number of subscribers in
Canada increased 64% in 1996 compared to 1995.
DTN AgDaily introduced a number of enhancements to the service during
1996, including 48-color regional radar maps, northern grains segment and a
peanut segment. Weather information advancements increased the sensitivity of
radar maps, increased the number of weather reporting stations and added new
maps for 30- and 90-day forecasts.
The DTN Pro Series had an extremely successful 1996. The number of Pro
Series subscribers grew more than 60%, accounting for 47% of all the DTN AgDaily
service sales.
Our ongoing research shows that customer satisfaction for the Pro Series
is very favorable. This research is confirmed by the fact that our subscriber
retention rate for these services has remained very high and is well above the
Company's combined subscriber retention rate. In September, the Company
introduced its agricultural Internet service, DTN FarmDayta Online. DTN
FarmDayta Online is similar in content to DTN FarmDayta Elite Plus, and is
designed for the producer who either prefers to use his or her own personal
computer to receive information or is not able to utilize the traditional
satellite-based system that DTN supplies to its subscribers. DTN FarmDayta
Online is currently available for $25 a month. The market for subscription-based
Internet services in agriculture is relatively new so it is difficult to reach
any conclusions on market acceptance.
9
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<PAGE>
DTNstant
SERVICE REVIEW
DTNstant is a color service that provides a selection of real-time
futures and options quotes from the major commodity exchanges and headline
commodity news from multiple sources such as the Associated Press, Futures World
News and Knight Ridder. The service also provides market leading cash
information, in-depth charting capabilities, plus all the information available
on the DTN AgDaily color service. In addition, this service provides information
for the energy, metals, softs (ie: orange juice, coffee, cocoa), transportation
and lumber industries. There are no other services in the industry offering a
more comprehensive news and information service.
The primary subscribers are commercial grain companies and elevators,
feedlots, commodity brokers and commodity speculators. Due to the character of
this industry, the Company provides on-site service and installation by
professional service technicians.
DTNstant operates in a very competitive market with numerous national
and regional providers of instant commodity quotes. This service is the leader
in the satellite delivery of instant futures and options quotes.
New subscriptions are primarily sold by the Company's national sales
force which is supported by telemarketing and direct mail campaigns. This
service is available by color Ku-band satellite transmission and is currently
priced at $170 a month.
1996 HIGHLIGHTS
DTNstant experienced a year of good growth from the momentum gained
from the 1995 acquisition of Knight-Ridder Commodity Center subscribers.
Subscribers grew by 8%, and management believes this growth is impressive due to
a significant amount of resources committed to converting the acquired
subscribers to the DTN ACE receiver system.
New features added during the year include user-programmable formulas
for data analysis, the enhancement of the high interest windows to include news
stories, and increased keyboard functionality. The service is planned to receive
additional enhancements in 1997. The DTNstant service became compatible with
software that allows the "pass thru" of data and graphics into a computer local
area network (LAN). One DTN ACE receiver then feeds information to multiple
users/traders on the LAN. This pass thru software opens new markets, by
utilizing information distribution within a customer's LAN enhancing analytical
capabilities.
DTNiron
SERVICE REVIEW
DTNiron is a color service providing a cost-effective communication
resource for the farm implement industry. DTNiron is an equipment locator and
inventory management service providing a communication tool for the farm
implement dealers throughout the U.S and Canada. The service allows dealers of
all makes of farm implements and equipment to work together to manage their
inventory resulting in increased sales and profitability. This service provides
valuable information on the national outlook for farm equipment sales.
DTNiron provides detailed listings of farm implements and equipment for
sale or needed by dealers. A listing stays on the system for a minimum of 30
days, renewable at the dealers request. Subscribers receive industry news,
financial information, economic indicators and information from the DTN AgDaily
color service.
The DTNiron service also includes listings of construction equipment,
trucks, trailers and other equipment that is found in the agriculture industry.
The service provides listings for implement and equipment parts, especially hard
to find parts. In addition, the service sorts the listings by regions and
provides hourly updates to keep the information as timely (NEWS...NOT HISTORY)
as possible.
This service is available by color Ku-band satellite transmission and is
currently priced at $98 a month.
1996 HIGHLIGHTS
DTNiron introduced the Combine and Tractor Demand Monitor, the first
widely distributed annual sales outlook to cut across the entire spectrum of
tractor and combine manufacturers. This monthly economic study released to all
DTNiron subscribers helps track the money-making trends in the industry. The
monitor has been quickly adopted by the industry as the standard for sales
outlooks. The Combine and Tractor Demand Monitor is released to the trade and
agricultural press one or two days after release to DTNiron subscribers.
DTN PROduce
SERVICE REVIEW
DTN PROduce is the authority in providing the produce industry with the
most timely weather, produce prices, transportation data and news information
available. There are four major components to the DTN PROduce service. First is
weather information, providing the single most important piece of information
for anyone in the produce business. Second is pricing information, providing
immediate updates upon release formatted by commodity, growing area and terminal
market. Third is transportation information, providing freight rates and daily
truck availability by the major growing areas. Finally, the service provides
comprehensive news including AP Online.
DTN PROduce maintains a price discovery network, the DTNdex, that is the
industry standard. Competition in this industry continues to focus on older
technology, such as Fax machines.
The market for this service is the entire produce food chain of growers,
shippers, packers, brokers, retailers and institutions. This service is
available via color Ku-band satellite and currently is priced at $88 per month.
1996 HIGHLIGHTS
DTN PROduce began working with the key industry sources of news
including "The Packer" and "The Produce News" and credit information from the
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"Produce Reporter Company" and the "Red Book Credit Service" to offer the most
complete information service available.
DTN PROduce developed a service targeted specifically to the produce
growers to capitalize on this segment of the market. This service includes all
the features of the DTN PROduce service with the exception of transportation
information and AP Online news. This service is currently available via color
Ku-band satellite and currently is priced at $62 per month.
DTN PROduce expanded its service to the Internet to accommodate seasonal
and international customers who are unable to utilize a satellite dish. The
price of this service is currently $50 a month.
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DTN WEATHER SERVICES
- --------------------------------------------------------------------------------
The DTN Weather Center Services have expanded from DTN Weather Center
into specific industry-related services including DTN Weather Center - Turf
Manager, DTN Aviation Center and DTN Weather Center - Contractor Dayta.
GRAPH IN TABULAR FORM:
1994 1995 1996
---- ---- ----
DTN Weather Services Revenue
($ millions) 0.0 1.0 5.6
DTN WEATHER CENTER
SERVICE REVIEW
DTN Weather Center is a comprehensive weather information system
designed to meet the weather information needs of many industries. Markets
specifically targeted by DTN Weather Center are golf courses, turf management,
emergency management, state transportation departments, construction and
aviation. DTN Weather Center has found a home in numerous other industries where
timely (NEWS...NOT HISTORY), accurate and easily accessible weather information
is a critical ingredient in operational planning and staffing decisions.
DTN Weather Center services provide over 100 weather maps, 20 regional
radar maps including NEXRAD radar and infrared satellite photos and six
satellite maps. The services provide short-range (12-48 hours) forecasts,
long-range (3-90 day) outlooks, and 10 day city forecasts for over 550 different
cities in the U.S. and Canada. The services include a personal programmable
segment, storing of maps in an "Archive Segment" and AP Online News is provided
as an optional service.
This DTN Weather Center service is available via color Ku-band satellite
transmission and is currently priced at $72 per month.
DTN WEATHER CENTER TURF MANAGER
SERVICE REVIEW
Turf Manager is available to those individuals and businesses involved
in turf-related operations such as golf course, lawn maintenance, landscaping
and sod farm. This service provides the news, weather and chemical information
designed for turf management.
Chemical and Pesticide Press Turf Index is a unique feature providing an
information database of over 275 turf pesticides. Lightning Indicator Maps are
updated hourly including the latest information on where lightning is striking.
Evapotranspiration Tables provide regional evaporation rates for planning
watering and chemical applications. ESPN Sports Ticker provides the current golf
related stories and results from ESPN. AP ONLINE provides over 300 current news
stories in four chapters: General, Business, Sports and Entertainment. The
National Golf Course Directory is a database of the location, phone number,
course pro, and course superintendent of any member course. This combination of
features along with the weather information makes the Turf Manager a complete
package.
DTN Weather Center - Turf Manager is available via color Ku-band
satellite transmission and is currently priced at $72 a month.
DTN AVIATION CENTER
SERVICE REVIEW
DTN Aviation Center is a comprehensive aviation weather package
specially designed for pilots, airports and Fixed Base Operators (FBO's). DTN
Aviation Center supplies airports, pilots and FBO's with the comprehensive
flight-plan information found on many premier "on-line" systems. This package
includes U.S. and regional depiction maps, 24 hour low level significant weather
prognosis, and U.S. region winds and temperatures aloft. Subscribers of DTN
Aviation Center use it while speaking to flight services to help visualize the
current weather conditions while they are making their flight plan. This service
can also help determine alternate route destinations.
Subscribers can choose the Level I service, which is designed for the
local/regional flyers up to 18,000 feet, or the Level II service which is
designed for pilots and airports flying nationally up to 45,000 feet. The Level
II service also provides European flight information.
DTN Aviation Center is available via color Ku-band satellite
transmission and is currently priced at $103/month for Level I and $152/month
for Level II.
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DTN WEATHER CENTER Contractor Dayta
SERVICE REVIEW
The DTN Contractor Dayta service is designed to keep subscribers
informed of all construction related news and industry information to assist
them in maintaining a competitive advantage. This service provides all of the
valuable weather information that comes with the DTN Weather Center and is
necessary for making those important day-to-day business decisions.
Industry specific information includes general information, association
and industry information, construction news, bids and resources and the
contractors exchange. In addition, subscribers receive sports scores and
highlights and financial indicators.
The DTN Contractor Dayta service in available via color Ku-band
satellite transmission and is currently priced at $82 a month.
1996 WEATHER CENTER SERVICES HIGHLIGHTS
DTN Weather Center services exceeded company sales goals for the second
straight year and now has over 8,000 subscribers. The industries leading with
the highest concentration of sales continue to be golf courses, aviation,
governmental agencies (emergency management and state transportation
departments) and construction-related businesses.
The growth of DTN Weather Center in 1996 has again led to the decision
to expand the sales and marketing staff for 1997 and will include the addition
of sales directors for the aviation and government markets. The success of the
governmental agencies included sixteen state Departments of Transportation (DOT)
adding DTN Weather Center systems to their maintenance garages following the
lead of the Iowa DOT which added over 100 systems in 1995. DTN Weather Center is
quickly becoming the industry standard for weather information provided to state
DOTs.
DTN Weather Center made significant progress in the golf industry and
added two of the industry's leading organizations as information providers; the
United States Golf Association and the Golf Course Superintendents Association
of America. DTN Weather Center also branched out to other sports providing on
site weather information at 11 NCAA championship events and the 1996 Summer
Olympic Games in Atlanta.
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DTN FINANCIAL SERVICES
- --------------------------------------------------------------------------------
DTN Financial Services offers five services, DTN Wall Street, DTN
SPECTRUM, DTN FirstRate, DTN GovRate and DTN Broker+. Subscribers to all DTN
Financial Services have a variety of optional services from which to choose
providing stock selection and timing advice, earnings estimates, fundamental
stock market data, U.S. Treasury quotes and other financial market related
services.
GRAPH IN TABULAR FORM:
1992 1993 1994 1995 1996
DTN Financial Services Revenue
($ millions) 3.3 4.1 5.1 6.1 8.6
DTN Financial Services revenue grew 41% during 1996, adding to its
bullish 35% compounded revenue growth for the past 5 years. DTN Financial
Services' objective is to provide a comprehensive in-depth service at an
affordable cost to its subscribers. This objective will remain very important
due to the highly competitive nature of this business. The "a la carte" optional
services offered to subscribers give them an even larger variety of information.
Contents of all DTN Financial Services are broader in scope and cost less than
competitive services. This combination allows the services to continue
maintaining a competitive advantage in its market niches.
DTN SPECTRUM
SERVICE REVIEW
DTN SPECTRUM was released in November, 1995, and is an enhanced version
of DTN Wall Street utilizing the ACE technology. The service provides many
additional features and functions that appeal to a wider market. This service
provides advanced quote selection and custom programming along with alarms, news
search and charting capabilities.
DTN SPECTRUM is being very well received by new subscribers and existing
subscribers who are electing to "switch-up" to gain use of the advanced features
of the service. DTN SPECTRUM subscription sales accounted for 54% of DTN
Financial Services new subscription sales during 1996.
An extension of DTN SPECTRUM is the DTN SPECTRUM R-T service. DTN
SPECTRUM R-T marked the entry by DTN Financial Services into the real-time
commodity quotes market during 1996. This service provides a mix of
exchange-delayed quotes along with the subscriber's choice of real-time futures
quotes. By year-end 1996, this higher revenue and higher margin service was
generating 21% of the total DTN SPECTRUM subscription sales.
DTN SPECTRUM and DTN SPECTRUM R-T are available on the color platform by
Ku-band satellite transmission and are currently priced at $68 and $118 per
month, respectively.
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DTN Wall Street
SERVICE REVIEW
DTN Wall Street provides exchange-delayed quotes on stocks, bonds,
mutual and money market funds, futures, interest rates, currencies and real-time
index quotes. This service also provides in-depth economic, financial and
business news and other time-sensitive (NEWS... NOT HISTORY) financial market
information such as company-specific news and earnings. This service allows
subscribers to custom program the system to track their selection of financial
quotes.
The majority of subscribers to DTN Wall Street are individual
investors, and the balance of subscribers are independent brokers, financial
advisors and financial institutions. The primary competition for DTN Wall Street
are satellite, TV cable (VBI), Internet and dial-up quote services.
DTN Wall Street is available on the monochrome platform by Ku-band
satellite and TV cable (VBI) transmission and is currently priced at $44 per
month.
DTN FirstRate
SERVICE REVIEW
DTN FirstRate is a service for the mortgage industry providing wholesale
mortgage rates in an easy-to-use standard format and intra day interest rate
information to indicate the direction of mortgage loan rates. This service also
provides subscribers with snapshots of real-time rates from Fannie Mae and
Freddie Mac plus other news, commentary and analysis for mortgage lenders.
Sales for DTN FirstRate during 1996 remained slow. In October 1996, DTN
FirstRate+ was made available on the ACE platform. This service, named DTN
FirstRate+, provides many more useful features which are proving to be
appreciated by new subscribers. Marketing for DTN FirstRate is now all being
done by DTN Financial Services' institutional sales group which assists direct
sales of this service by DTN's national sales force. We believe the availability
of DTN FirstRate+ on the ACE platform and a more focused marketing effort will
lead to higher sales in 1997.
DTN FirstRate is available on the monochrome platform by Ku-band
satellite or TV cable (VBI) transmission and is currently priced at $98 per
month. DTN FirstRate+ is currently available on the ACE platform via Ku-band
satellite transmission for $129 per month.
DTN GovRAte
SERVICE REVIEW
DTN GovRate provides executable U.S. government security quotes. These
real-time prices are provided from a primary dealer, the former Discount
Corporation of New York (DCNY), now operated as a division of Zions First
National Bank. The Company views this service as an important development for
financial institutions. DTN GovRate is providing opportunities for small to
mid-size banks, public and corporate treasurers, and independent brokerage firms
to participate in trading of U.S. government securities. Zions First National
Bank facilitates this by offering odd lot trading and repurchase agreements.
This service is currently available on the monochrome platform by
Ku-band satellite or TV cable (VBI) transmission for $34.95 per month and is
also currently available on the ACE platform by Ku-band satellite transmission
for $68 per month.
DTN Broker+
SERVICE REVIEW
DTN Broker+ is a modified version of DTN SPECTRUM with enhancements
designed specifically to serve independent securities brokers and financial
advisors. Marketing for DTN Broker+ is all done by DTN Financial Services
institutional sales group which assists direct sales of this service by DTN's
national sales force.
DTN Broker+ provides a comprehensive source of market data and
time-sensitive, market moving news. It is a low cost alternative source of news
and delayed market quotes in its targeted market niche.
DTN Broker+ is available on the ACE platform by Ku-band satellite
transmission and is currently priced at $73 per month. An extension of DTN
Broker+, which provides real-time futures quotes, is currently offered for $123
per month on the ACE platform by Ku satellite transmission.
1996 FINANCIAL SERVICES HIGHLIGHTS
The enhanced version of DTN Wall Street utilizing ACE technology, DTN
SPECTRUM, was well received during 1996, the first full year of marketing and
delivering this service. A majority of the 41% revenue growth for DTN Financial
Services during 1996 is attributable to DTN SPECTRUM. DTN Financial Services
reorganized its sales and marketing operations into two groups during 1996. One
group is responsible for sales to individual investors and the second group is
responsible for sales to institutional subscribers. The investor sales and
marketing efforts continue to be directed from our Omaha headquarters. The
institutional sales and marketing efforts are being directed from the DTN
Financial Services office in Salt Lake City.
The DTN Financial Services' investor sales and marketing group continues
to do direct response marketing utilizing mostly television, print media and
direct mail supported by inbound telemarketing. The institutional sales and
marketing group utilizes DTN's national sales force to make direct sales to its
institutional subscribers such as banks, public and corporate treasurers,
independent brokers and financial planners.
A mid-year development that has enhanced the DTN Financial Services is
the development and release of a software program, DTN Chameleon, which enables
subscribers to automatically download from the DTN receiver into their PC and
thereby customize the use of the quotes and news to their personal needs. DTN
Chameleon also provides a universal and seamless interface to most other
proprietary software
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programs used for technical analysis and portfolio management. This almost
universal compatibility makes DTN Financial Services an appealing, comprehensive
and low cost source of market data for thousands of users of these software
programs.
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DTN ENERGY SERVICES
- --------------------------------------------------------------------------------
The energy related services include DTNergy for the refined fuels, natural gas
industries and electric industries.
DTNERGY
1992 1993 1994 1995 1996
DTN Energy Services Revenue
($ millions) 2.9 4.9 7.2 10.0 12.2
SERVICE REVIEW
DTNergy is a service providing pricing information and communication
services for the petroleum industry. This service consists of several pages of
delayed energy futures and options quotes plus selected news and financial
information. DTNergy is designed to connect refiners (producers of refined
fuels) to wholesalers (distributors of refined fuels). The refiner sends refined
fuel prices to wholesalers they have authorized to receive this information. The
refiner also has the capability to send terminal alerts, electronic funds
transfer notifications, invoices, and other communications to the wholesaler.
DTNergy subscribers can select from a variety of optional services to give them
even more prices or news related to the petroleum industry.
The strength of the DTNergy service is the ability to deliver, within
seconds, accurate refiner terminal prices and other vital communications to the
wholesalers. This service is more reliable, timely and less expensive than the
competition, which utilize telephone delivered printer-only systems and FAX
services.
DTNergy generates revenue from two primary sources, the wholesaler and
the refiner. Wholesalers currently pay a monthly subscription fee of $38.00 for
the monochrome Ku-band satellite service. Refiners pay fees based on the number
and length of communications sent to wholesalers.
DTNergy also has an information service for the natural gas and electric
industries. Subscribers receive instant or delayed NYMEX energy futures and
options quotes, a comprehensive weather package and industry specific news and
market information. This service is marketed to energy producers and generators,
transporters, marketers, utilities and larger energy consumers. The service is
available on color Ku-band satellite and is currently priced at $130 a month
with 30-minute delayed quotes and $170 a month with real-time quotes.
1996 DTN ENERGY SERVICES HIGHLIGHTS
The DTN Energy Services had another very good year in 1996, with total
revenue growth of more than 22% between the two product groups that make up
DTNergy. The market information and messaging services provided to refiners and
their distributors continues to be the first choice of the industry for the
distribution of terminal prices, funds transfer notifications and electronic
invoices. The DTNergy system now carries more than two million messages a month
for this industry. Total revenue growth for the Refined Fuels service was 19%
for the year. Although the subscriber base receiving market information via
DTN's satellite receiver system is nearing maturity, growth potential still
exists in niche areas such as refiner communications to commercial and
industrial customers and fax communications to smaller fuel distributors.
The deregulation of the natural gas and electric markets along with the
growth of trading in these commodities will continue to increase the need and
value of market quotes and information to these industries and their customers.
DTN's strategy is to become a key player in these industries and the Company
began providing market quotes and weather information to customers via their
local area networks (LAN's) in 1996. The future services and market positioning
are being addressed related to providing Internet services and strategic
industry alliances which could have a positive impact on the future of the DTN
Energy Services.
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DTN Auto Services
- --------------------------------------------------------------------------------
SERVICE REVIEW
GRAPH IN TABULAR FORM:
1994 1995 1996
---- ---- ----
DTN Auto Services Revenue
($ Millions) 0.0 0.7 1.4
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DTNauto
DTNauto is a communication and information service for the automobile
industry. This service offers automobile dealers precision information to value
trade-ins and locate used car inventory plus a host of other information and
convenient features. Automobile auction companies and manufacturers are able to
communicate directly with the dealers.
DTNauto provides information on pre-auction automobile listings, results
of past auctions, new and used car industry news, weather and other news. The
service allows subscribers to perform searches of the auction listings, upcoming
and past, for specific automobile information.
The service offers a variety of optional services providing information
on credit reporting (CREDCO), vehicle histories (CARFAX), warranty information
(The Warranty Guide) and residual value of leased vehicles (Lease Guide). The
CARFAX and CREDCO optional services extensively utilize the internal modem to
send and receive information. These services create a more comprehensive
information service that puts the subscriber in the drivers seat.
This service is being marketed by the DTNauto sales force to automobile
dealers across the United States. This service is available by color Ku-band
satellite transmission and is currently priced at $98 per month.
1996 DTNAUTO HIGHLIGHTS
The driving force that fuels the DTNauto service remains the pre-auction
listings of used cars at more than 125 auctions across the country and
AuctionNet, a wholesale pricing service. DTNauto established remarketing and
communication networks giving the manufacturers the ability to communicate with
the dealers. These included Lexus, Mazda, Chrysler, American Honda, Subaru and
Kia. A remarketing segment was also established for the following rental car
companies: Avis, Dollar, Enterprise and Thrifty.
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JOINT VENTURE SERVICES
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GRAPH IN TABULAR FORM:
1994 1995 1996
---- ---- ----
DTN Joint Ventures Services Revenue
($ Millions) 0.0 0.7 1.4
DTN has joined forces with other companies to market their services
using the Company's technology. The services are TracElectric and DAT
Transportation Terminal.
TRACELECTRIC
SERVICE REVIEW
TracElectric is an equipment locator service for the electrical
equipment industry. This service provides over 100 pages of new, remanufactured,
surplus and used electrical equipment listings. The service connects buyers and
sellers throughout the U.S. and Canada. This service is available by monochrome
Ku-band satellite and DTN receives a percentage of the revenue.
DAT Services
SERVICE REVIEW
The DAT (Dial-A-Truck) Transportation Terminal (DAT) service, located in
Beaverton, OR, is an information communication system for the trucking industry.
The service provides load and truck matching performed on a database of 30,000
listings updated daily.
DAT service allows subscribers to input their own listings into the ACE
receiver and send this information to the database using the internal modem.
This service provides the subscriber the ability to perform extensive searches
to locate loads and trucks and set alarms to alert the user that a match has
occurred. The service also provides regional radar maps of major highways and
interstates, transportation news, diesel fuel prices and other financial
information related to the trucking industry.
The target market includes all freight brokers and carriers throughout
U.S. and Canada. This service is available by color Ku-band satellite and DTN
receives a monthly fee per receiver.
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SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
GRAPHS IN TABULAR FORMS:
% of Total Revenues:
1996 1995 1994
---- ---- ----
DTN Ag Services 71% 71% 73%
DTN Financial Services 9% 10% 11%
DTN Energy Services 12% 16% 16%
DTN Weather Services 6% 2% -
Other Services 2% 1% -
% of Subscribers At Year End:
1996 1995 1994
---- ---- ----
DTN Ag Services 80% 78% 81%
DTN Financial Services 8% 10% 10%
DTN Energy Services 5% 8% 8%
DTN Weather Services 5% 3% -
Other Services 2% 1% 1%
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
For the Year:
<S> <C> <C> <C> <C> <C>
Revenues $ 98,383,713 $ 62,287,989 $ 46,109,789 $ 35,992,754 $ 26,816,254
Operating income 6,920,791 4,343,252 694,560 2,408,868 2,995,319
Income (loss) before income taxes (1,404,306) (397,076) (2,422,738) 1,020,831 2,051,352
Net income (loss) (985,306) (283,076) (1,602,738) 663,831 1,351,352
Net income (loss) per share (.09) (.03) (.16) .07 .14
Dividends per share -- - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
At Year End:
Total assets $ 177,729,762 $ 92,672,050 $ 71,459,356 $ 57,242,313 $ 38,260,351
Long-term debt and
subordinated notes 97,747,823 47,020,527 33,982,814 25,375,000 13,677,083
Stockholders equity 28,290,289 12,876,965 12,706,978 12,780,477 12,167,584
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
FINANCIAL CONDITION
GENERAL OVERVIEW
The equipment used by subscribers is a large capital investment for the
Company. This equipment accounts for 65% of the Company's total assets. The
Company has also made significant investments during 1995 and 1996 to acquire
subscribers. The net intangible asset (goodwill) resulting from the acquisition
of subscribers is 21% of the Company's total assets. The acquisition of
subscribers is expected to enhance the operating performance and financial
condition of the Company. The investments in subscriber equipment will require
the Company to increase long-term debt until cash generated from operating
activities is sufficient to support future investments. The Company's strategy
is to utilize long-term debt financing versus equity whenever possible to
prevent the dilution of shareholders value.
NET CASH PROVIDED BY OPERATING ACTIVITIES
Net cash provided by operating activities in 1996 was $33,777,467
compared to $16,623,310 in 1995. This increase of $17,154,157 was primarily the
result of the $17,223,026 increase in operating cash flow plus $3,438,972 of
additional cash generated from the change in assets and liabilities, including
taxes, offset by the $3,634,158 increase in interest expense related to the
Company's investing activities.
NET CASH USED BY INVESTING ACTIVITIES
Net cash used by investing activities in 1996 was $106,290,603 compared
to $29,427,948 in 1995. This increase is primarily due to the purchase of
equipment used by subscribers and the purchase of Broadcast Partners. The
expenditures on equipment used by subscribers are primarily for color receivers
and related equipment.
The investment in color receivers and related equipment is a direct
result of the growth in the Company's subscriber base and equipment needed to
support trial and complimentary subscriptions related to marketing. In addition,
approximately 3,500 monochrome system (FM and Ku) subscribers upgraded to the
color Ku-band system with over 60% of these conversions involving DTN AgDaily
subscribers and the remaining 40% were DTN Wall Street subscribers converting to
DTN SPECTRUM. The conversion of approximately 2,200 subscribers from DTN AgDaily
on the color Ku-band system to other more advanced Ku-band services such as DTN
Pro Series, DTNstant/Knight Ridder, DTNiron, DTN PROduce and DTN Weather Center
resulted in upgraded equipment. The acquisition of Knight Ridder customers
resulted in approximately 1,400 systems being installed during 1996 for
customers added in 1995.
DTN increased its inventory of color receivers and components to build
color receivers during 1996. At December 31, 1996 the Company had approximately
$10,000,000 of inventory compared to $5,000,000 in 1995. This build up of
inventory occurred due to advance commitments on inventory purchases. The
Company adjusted production schedules during the fourth quarter and will reduce
this inventory to a level adequate to supply forecasted sales activity. The
reduced production of color systems should reduce borrowing requirements in the
first quarter of 1997.
The Company had approximately 39,000 monochrome customers at December
31, 1996. The Company utilizes monochrome receiver equipment coming in from
conversions for new DTN AgDaily, DTN Wall Street and DTNergy subscribers. DTN
will continue to research new markets for monochrome system services but at this
time the Company's management believes the prospects are higher for more color
system based services.
As it relates to the Company's investing activities, the Company had
negative working capital of $14,748,094 at December 31, 1996, compared to
$10,471,938 in 1995. The increase in the working capital deficiency was
primarily due to the Broadcast Partners acquisition which contributed to the
growth in accrued expenses of $3,061,044 for acquisition start-up costs and the
growth in the current portion of long-term debt of $6,055,625 from additional
term debt borrowing needed to finance the acquisition.
The working capital deficiency created by the increases in accrued
expenses and current portion of long-term debt was offset by an increase in
accounts receivable of $3,177,190 from December 31, 1995 to 1996. Accounts
receivable increased due to the 52% increase in total subscribers and $3,129,400
was a direct result of the Broadcast Partners acquisition.
On July 26, 1995, the Company entered into an agreement with KRF to
acquire 2,900 Knight Ridder Commodity News Service subscribers. The Company
agreed to pay KRF approximately $4,970,000 for these subscriber over two years.
The Company agreed to pay $1,500,000 at closing and $1,500,000 one year from the
closing. The remaining $1,970,000 was based on future revenue sharing from
company estimates and is scheduled to be paid quarterly during the first two
years of this agreement. The purchase price is being capitalized as an
intangible asset (goodwill) and is being amortized using the straight line
method over eight years.
On May 3, 1996, the Company acquired substantially all of the assets of
Broadcast Partners, an electronic information and communications services
company providing similar services as DTN in the agricultural industry for $63.5
million cash and the assumption of certain "non-interest" bearing current
liabilities of approximately $9.8 million. The Company received 39,000
agricultural subscribers in this acquisition to bring the Company's total
subscribers to 145,900 at December 31, 1996.
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The Broadcast Partners acquisition was financed with a combination of
$15 million of privately placed common stock equity and $48.5 million of six
year term debt (see note 3). Included in the acquisition was approximately $38.2
million of equipment used by subscribers and other equipment, which is being
capitalized and amortized using the straight line method over five years.
Approximately $35.2 million was capitalized as an intangible asset (goodwill)
and is being amortized using the straight line method over eight years.
NET CASH PROVIDED BY FINANCING ACTIVITIES
Net cash provided by financing activities of $72,441,171 was the result
of an increase in total debt outstanding (current and long-term) of $56,703,541
and the private placement of 948,000 shares (split adjusted, see note 6) for
$15,010,000. The increase in debt outstanding included $48,490,000 of six year
term borrowings used to fund the acquisition of Broadcast Partners with the
remaining debt used for subscriber growth, conversions and subscriber equipment
inventory. The private placement of $15,010,000 of equity was used to fund the
balance of the acquisition of Broadcast Partners. The Company made principal
payments of $9,036,459 on bank term debt during 1996.
DTN anticipates that internally generated cash flow and bank credit
lines will be sufficient to fund operating activities, capital expenditures and
principal payments on long-term debt.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company believes that inflationary trends have a limited effect on
the business. However, since a large percentage of the Company's subscribers and
revenues are related to agricultural industries, the general state of the
agricultural economy may impact the Company's business operations and financial
condition.
RESULTS OF OPERATIONS
GRAPH IN TABULAR FORM:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Operating Cash Flow
($ millions) 9.9 12.9 15.8 23.2 40.4
GENERAL OVERVIEW
The financial dynamics of DTN's business operations are similar to
businesses that sell monthly subscriptions such as electronic publications and
communications and cable TV companies. The financial dynamics are such that DTN
makes an initial investment of variable marketing costs to obtain new
subscribers (generally a one year subscription agreement) and the Company makes
a capital expenditure to provide the subscriber with the necessary equipment to
receive the Company's services.
In addition, DTN has a level of fixed costs, such as FM and Ku satellite
leases, certain news and quote providers, and administrative expenses, not
directly affected by the number of subscribers receiving the Company's services.
DTN's operating cash flow (operating income before depreciation and
amortization expense), a key indicator monitored by DTN management, has
increased at a compounded growth rate of 42% from 1992 to 1996. This trend is
primarily the result of a growing base of subscribers covering the Company's
fixed expenses. The following graph details the trend in operating cash flow as
a percentage of revenue to illustrate operating leverage.
GRAPH IN TABULAR FORM:
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Operating Cash Flow
(percent of revenue) 37% 36% 34% 37% 41%
The Company has operating leverage due to low variable cost per
subscriber. This leverage is present when a growth in subscribers and related
revenues has a direct impact on operating cash flow. This leverage, as seen in
the 1992 to 1994 periods, can be negatively impacted by the Company increasing
the amount committed to research and development activities.
DTN accumulates research and development activities as "Net Development
Costs". The Company defines "Net Development Costs" as 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. The Company includes new services in the "Net
Development Costs" classification until the service shows positive cash flow
prior to corporate administrative allocations plus interest for a full quarter.
The service becomes a core ser-
18
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<PAGE>
vice after reaching this level in the development process.
During the 1992 through 1994 period, the Company was expanding
development activities (see chart on page 3) quite rapidly therefore negatively
impacting operating cash flow on a total and percentage basis.
During 1995, the success of subscription sales of the new developmental
services decreased net development costs. While the overall developmental
expenses increased, the growth rate of developmental related expenses declined
in 1995 compared to 1994. The result, operating cash flow as a percentage of
revenue increased to 37% in 1995 compared to 34% in 1994. Core services
operating cash flow as percentage of core services revenue improved to 44.4% in
1995 compared to 43.8% in 1994.
Finally, during 1996, DTN expanded it developmental activities with net
development costs growing from $3.7 million in 1995 to $5.3 million in 1996. The
Company's increased efficiencies on a per subscriber per month basis and the
acquisition of subscribers from Broadcast Partners contributed to an increase in
operating cash flow as a percentage of revenue from 37% in 1995 to 41% in 1996.
Operating cash flow as a percentage of revenue, excluding the acquisition of
Broadcast Partners, was 37% in 1996. The expansion of developmental activities
was offset by increased efficiencies on a per subscriber per month basis. Core
services operating cash flow as a percentage of core services revenue improved
to 47.4% in 1996 compared to 44.4% in 1995. Core services operating cash flow as
percentage of core services revenue, excluding the acquisition of Broadcast
Partners, was 44.3% in 1996 compared to 44.4% in 1995.
1996 COMPARED TO 1995
DTN's management team remained focused on growing subscribers, revenues
and operating cash flow during 1996. The acquisition of Broadcast Partners and a
focus on improving subscriber efficiencies led to outstanding operating results
as compared to the prior year. Operating income improved but higher interest
expense linked to the expansion of the business and the acquisition of Broadcast
Partners resulted in a loss for the year.
<TABLE>
<CAPTION>
(In thousands) 1996 1995 % Change
<S> <C> <C> <C>
Subscribers 145.9 95.9 52%
Revenues $98,384 $62,288 58%
Operating cash flow 40,377 23,154 74%
Operating income 6,921 4,343 59%
Net Loss (958) (283) (239%)
</TABLE>
Total revenue increased 58% in 1996 compared to 1995 and all operating
revenue categories made significant contributions to this increase. Operating
revenues consisting of subscriptions, additional services, communications and
advertising increased to $60.92 per subscriber per month in 1996 compared to
$55.70 in 1995.
A 52% growth in total subscribers and subscribers upgrading to higher
priced services led to a 63% growth in subscription revenue. On May 3, 1996, the
Company acquired approximately 39,000 subscribers from Broadcast Partners
receiving agricultural information and communications services. The subscriber
growth for DTN without the acquisition of Broadcast Partners was 11,000
subscribers, a growth of 11.5%, and subscription revenue related to this
subscriber growth was up 34% in 1996 compared with 1995. At December 31, 1996,
88% of total subscribers were receiving service via Ku-band satellite
transmission compared to 77% in 1995. All acquired subscribers were receiving
service via Ku-band satellite transmission. Subscription revenue on a per
subscriber per month basis increased to $49.24, compared to $43.60 in 1995.
The price of Ku-band satellite delivered services ranged from $35 for
monochrome DTN AgDaily to $160 for the color DTNstant service during 1996. The
price of Ku-band satellite delivered services ranged from $33 for monochrome DTN
AgDaily to $160 for the color DTNstant service during 1995. The price of the
monochrome FM delivered DTN AgDaily (the only FM service) was $27 in 1996 and
$26 in 1995.
The subscribers converting to higher priced services includes those that
switched from the monochrome FM or Ku-band satellite DTN AgDaily service to the
color Ku-band satellite DTN AgDaily, priced at $50 in 1996 ($46 prior to June 1,
1996) and $46 in 1995. Subscribers continued to convert from the color Ku-band
satellite DTN AgDaily service to the color Ku-band satellite DTN Pro Series
which ranged in price from $63 ($59 prior to June 1,1996), for one Pro Series
service, to $79 ($74 prior to June 1,1996), for all four Pro Series services
(DTN Premier), in both 1996 and 1995. The DTN Premier and Stock Pro, DTN Premier
Plus, was priced at $82 a month in 1996 ($78 prior to June 1, 1996) and $78 a
month in 1995.
The Company increased the number of information services through "a la
carte" optional services (180 in 1996 versus 100 in 1995). The growth in
services combined with the growth of total subscribers and the acquisition of
Broadcast Partners resulted in a 48% increase in additional services revenue.
The additional services revenue growth, excluding the acquisition of Broadcast
Partners, was 30% in 1996. The revenue increased on a per subscriber per month
basis to $3.80 in 1996 compared to $3.70 in 1995.
The growth in communications revenue was primarily in the DTNergy
service. The DTNergy service transmits refiner prices and communications to
wholesaler/subscribers. The number of refiner communications continued to rise
and produced a revenue growth of 28% over 1995 levels. The revenue decreased on
a company wide per subscriber per month basis to $5.78, down from $6.49 in 1995.
This decrease is due to spreading communications revenue over a larger base of
subscribers, with the largest increase coming from the acquisition of Broadcast
Partners.
Advertising revenue grew 58% to $3,198,300 in 1996 compared to
$2,022,500 in 1995. This growth was due to an increase in the acceptance of the
color system as an electronic medium, the acquisition of Broadcast Partners and
less discounting due to the increased subscriber base
19
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<PAGE>
associated with the acquisition. Advertising revenue growth, excluding the
acquisition of Broadcast Partners, was 30% in 1996. Advertising revenue
increased on a company wide per subscriber per month basis to $2.10 in 1996, up
from $1.89 in 1995.
Service initiation fees, the Company's up-front one-time charges to new
subscribers ranged from $150 to $495 in 1996 and from $150 to $295 in 1995
depending on the service and information distribution technology. Initiation
fees for subscribers that convert to another service or change delivery
technology (such as FM to Ku) ranged from $50 to $100 depending on the service
in 1995 and 1996. The total fees collected increased 66% in 1996 to $5,560,100
compared to $3,357,300 in 1995. The increase was due to increased sales activity
related to the expansion of the national sales force, reduced discounting in the
agricultural related services and an increase in conversions from DTN Wall
Street to DTN SPECTRUM. Service initiation fee revenue, excluding the
acquisition of Broadcast Partners, was 53% in 1996.
Total operating expenses increased 58% in 1996 over 1995. This increase
was due to a 45% increase in selling, general and administrative costs, a 71%
increase in sales commissions and a 78% increase in depreciation and
amortization. These expenses (excluding the sales commission costs) increased on
a per subscriber per month basis to $54.07 in 1996 compared to $49.75 in 1995.
Selling, general and administrative expenses on a per subscriber per
month basis increased to $32.12, up slightly from 31.97 in 1995. These costs
were flat due to efficiency gains from spreading costs over a larger base of
subscribers obtained from an expanded sales force and from acquisitions.
Selling, general, and administrative expenses as a percentage of revenue
decreased from 54% in 1995 to 50% in 1996. Selling, general and administrative
expenses as a percentage of revenue, excluding the acquisition of Broadcast
Partners, decreased to 53%.
Sales commissions are generated from new subscription sales and revenues
related to the DTNergy service. Sales commissions increased 71% during 1996
compared to 1995. This increase is due to higher subscription sales, incentive
programs to the national sales force and sales management related to the rapid
expansion and 22% higher revenues in DTNergy. Sales commissions growth,
excluding the acquisition of Broadcast Partners, was 60% in 1996.
Depreciation and amortization expense primarily increased due to the
purchase of $37,400,000 of new equipment used by subscribers and the acquisition
of Broadcast Partners. The Company acquired and capitalized approximately $38.2
million of equipment and $35.2 million of intangible assets related to the
acquisition. The Company began using a six year life for depreciating subscriber
equipment in July of 1992 compared to an eight year life prior to the change.
The Company is depreciating the equipment acquired in the acquisition of
Broadcast Partners over a five year life and is amortizing the intangible assets
from this acquisition over an eight year life beginning in May of 1996.
Operating income increased 59% to $6,920,800, up from $4,343,200 in 1995
as a result of the growth in revenues and expenses discussed above. Operating
cash flow grew 74% to $40,377,400, up from $23,154,400 in 1995.
Interest expense increased 76% in 1996 compared to 1995. The increase is
related to borrowings to finance new subscriber equipment and the acquisition of
Broadcast Partners. The Company increased the revolving credit line borrowings
from $21,250,000 at December 31, 1995 to $38,500,000 at December 31, 1996. The
Company borrowed $48,490,000 to acquire Broadcast Partners.
The Company's federal and state effective tax rate was 32% and 29% for
1996 and 1995, respectively.
1995 COMPARED TO 1994
The growth in subscribers, revenues and operating cash flow, three major
indicators used by DTN management to monitor company performance, highlighted an
outstanding year. Operating income improved dramatically but higher interest
expense led to a net loss for the year.
<TABLE>
<CAPTION>
(In thousands) 1995 1994 % Change
<S> <C> <C> <C>
Subscribers 95.9 82.0 17%
Revenues $62,288 $46,110 35%
Operating cash flow 23,154 15,751 47%
Operating income 4,334 695 524%
Net loss (283) (1,603) 82%
</TABLE>
Total revenue increased 35% in 1995 compared to 1994 due to growth in
all operating revenue categories. Operating revenues consisting of
subscriptions, additional services, communications and advertising increased to
$55.70 per subscriber per month in 1995 compared to $46.74 in 1994.
A 17% growth in total subscribers combined with subscribers upgrading to
higher priced services led to a 36% growth in subscription revenue. In July
1995, the Company acquired approximately 2,900 subscribers receiving real-time
futures and option quotes from Knight Ridder Financial Commodity Center. At
December 31, 1995, 77% of total subscribers were receiving service via Ku-band
satellite transmission compared to 72% in 1994. Subscription revenue on a per
subscriber per month basis increased to $43.60, compared to $36.14 in 1994.
The price of Ku-band satellite delivered services ranged from $32.99 for
monochrome DTN AgDaily to $159.99 for the color DTNstant service during 1995.
The price of Ku-band satellite delivered services ranged from $30.99 for
monochrome DTN AgDaily to $159.99 for the color DTNstant service during 1994.
The price of the monochrome FM delivered DTN AgDaily (the only FM service) was
$25.99 in 1995 and $23.99 in 1994.
The subscribers converting to higher priced services primarily switched
from the monochrome FM or Ku-band satellite DTN AgDaily service to the color
Ku-band satellite DTN AgDaily, priced at $45.99 in 1995 and 1994 ($43.99 prior
to August 15, 1994). Subscribers continued
20
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<PAGE>
to convert from the color Ku-band satellite DTN AgDaily service to the color
Ku-band satellite DTN Pro Series which ranged in price from $58.99, for one Pro
Series services, to $73.99, for all four Pro Series services (DTN Premier), in
1995 and 1994. The DTN Premier and Stock Pro, DTN Premier Plus, was priced at
$78.00 a month in 1995.
The Company continued to increase the offering of information services
through "a la carte" optional services (100 in 1995 versus 80 in 1994). The
growth in services combined with the growth of total subscribers resulted in an
11% growth in additional services revenue to $3,917,600 in 1995 compared to
$3,526,300 in 1994. The Ag, Wall Street and Energy services all contributed to
this growth. The revenue decreased on a per subscriber per month basis to $3.70
in 1995 compared to $3.76 in 1994.
The growth in communications revenue was primarily in the DTNergy
service. The DTNergy service transmits refiner prices and communications to
wholesalers/subscribers. The number of refiner communications continued to
increase in 1995. The revenue increased on a company wide per subscriber per
month basis to $6.49 in 1995, up from $4.99 in 1994.
Advertising revenue grew 16% to $2,022,500 in 1995 compared to
$1,738,800 in 1994. The growth was due to increased acceptance of the DTN color
receiver system as a medium for advertising agricultural products and services.
Other contributing factors were a positive agriculture economy and modest price
increases for advertising on the color system.
Service initiation fees, the Company's up-front one-time charges to new
subscribers ranged from $150 to $295 depending on the service and information
distribution technology in 1994 and 1995. Initiation fees for subscribers that
convert to another service or change delivery technology (FM to Ku) ranged from
$50 to $100 depending on the service in 1994 and 1995. The total fees collected
increased 51% in 1995 to $3,357,300 compared to $2,227,500 in 1994. The increase
was primarily due to an increase in new subscription sales. The Company's
discounting of initiation fees to respond to competition or slower sales in the
ag market during the seasonally slower summer months was consistent with 1994.
Total operating expenses increased 28% in 1995 over 1994. This increase
was due to a 27% increase in selling, general and administrative costs, a 46%
increase in sales commissions and a 25% increase in depreciation. These expenses
(excluding the sales commission costs) increased on a per subscriber per month
basis to $49.75 in 1995 compared to $44.49 in 1994.
Selling, general and administrative expenses on a per subscriber per
month basis increased to $31.97, up from $28.45 in 1994. This increase was
primarily the result of the increase in variable costs to support a 17% increase
in subscribers, sales force expansion and teleservices support (telesales and
customer service), internal administrative enhancements and net development
costs related to new service development. All of these expenditures were
important for the Company to accomplish the aggressive sales growth planned in
1995 and beyond.
Sales commissions are generated from increased subscribers and revenues
in the DTNergy service. Sales commissions increased 46% during 1995 compared to
1994. This increase is due to higher subscription sales, continued incentive
programs to the sales force and 39% higher revenues in DTNergy. DTNergy sales
commissions are based on a combination of total subscribers and revenues.
Depreciation and amortization expense primarily increased due to the
purchase of over $23,700,000 of new equipment used by subscribers. The Company
began using a six year life for depreciation purposes in July of 1992 compared
to an eight year life prior to the change.
Operating income increased significantly due to the Company's growth in
total revenues and a declining growth rate in the operating expenses discussed
above. Operating cash flow grew 47% to $23,154,400, up from $15,750,700 in 1994.
Interest expense increased 52% in 1995 over 1994. The rise was primarily
due to borrowings necessary to finance the purchase of new subscriber equipment,
an increase in the prime rate during 1994 and 1995 along with the addition of
$15,000,000 of 11.25% subordinated debt in July of 1994.
The Company's federal and state effective tax rate was 29% for 1995 and
35% for 1994.
21
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<PAGE>
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
22
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<PAGE>
- --------------------------------------------------------------------------------
RESPONSIBILITIES
- --------------------------------------------------------------------------------
Managements Responsibility for Financial Statements
To Our Stockholders:
The management of Data Transmission Network Corporation is responsible
for the preparation, integrity and objectivity of the accompanying financial
statements and related notes. To meet these responsibilities, we maintain a
system of internal controls to provide reasonable assurance that assets are
safeguarded and transactions are properly authorized and recorded.
The financial statements have been prepared in conformity with generally
accepted accounting principles and include amounts based upon our estimates and
judgments, as required. The financial statements have been audited by Deloitte &
Touche LLP who have expressed their opinion, presented below, with respect to
the fairness of the statements. Their audit included a review of the system of
internal control and tests of transactions to the extent they considered
necessary to render their opinion.
The Audit Committee of the Board of Directors is composed solely of
outside directors. The Audit Committee meets periodically with our independent
auditors and management to review accounting, auditing, internal control and
financial reporting matters.
Roger R. Brodersen Brian L. Larson
Chairman of the Board Vice President
Chief Executive Officer Chief Financial Officer
Secretary and Treasurer
- --------------------------------------------------------------------------------
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, 1996 and 1995, and the related statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1996. 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, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
January 31, 1997
Omaha, Nebraska
23
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<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------
As of December 31, 1996 1995
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
<S> <C> <C>
Cash $ 708,053 $ 780,018
Accounts receivable, net of allowance for
doubtful accounts of $520,000 and $300,000 9,653,766 6,476,576
Prepaid expenses 583,985 474,135
Deferred commission expense 2,807,330 2,076,262
Total Current Assets 13,753,134 9,806,991
Property and Equipment
Equipment Used By Subscribers 203,310,661 130,266,792
Equipment and Leasehold Improvements 19,702,330 13,952,173
223,012,991 144,218,965
Less: Accumulated Depreciation 98,564,288 67,909,419
Net Property and Equipment 124,448,703 76,309,546
Intangible Assets From Acquisitions, net of accumulated
amortization of $3,871,956 and $258,850 36,517,799 4,711,150
Other Assets 3,010,126 1,844,363
177,729,762 $ 92,672,050
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities:
Accounts payable $ 7,485,517 $ 9,385,812
Accrued expenses 5,923,628 1,856,659
Current portion of long-term debt 15,092,083 9,036,458
Total Current Liabilities 28,501,228 20,278,929
Long-Term Debt 83,184,373 32,536,457
Subordinated Long-Term Notes, net of unamortized
discount of $436,550 and $595,310 14,563,450 14,484,070
Equipment Deposits 515,142 541,720
Unearned Revenue 22,675,280 11,953,909
Stockholders Equity:
Common stock, par value $.001, authorized
20,000,000 shares, issued 11,074,224 and 10,126,224 11,074 3,375
Paid-in capital 30,025,990 14,422,689
Retained earnings (deficit) (1,404,602) (497,687)
Treasury stock, at cost, 45,919 and 180,945 shares (342,173) (1,051,412)
Total Stockholders Equity 28,290,289 12,876,965
$ 177,729,762 $ 92,672,050
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
- 259 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUES:
<S> <C> <C> <C>
Subscriptions $ 75,019,826 $ 46,126,332 $ 33,936,160
Additional services 5,792,799 3,917,631 3,526,295
Communication services 8,812,718 6,864,275 4,680,987
Advertising 3,198,321 2,022,440 1,738,830
Service initiation fees 5,560,049 3,357,311 2,227,517
98,383,713 62,287,989 46,109,789
EXPENSES:
Selling, general and administrative 48,944,027 33,827,282 26,715,251
Sales commissions 9,062,258 5,306,305 3,643,811
Depreciation and amortization 33,456,637 18,811,150 15,056,167
91,462,922 57,944,737 45,415,229
OPERATING INCOME 6,920,791 4,343,252 694,560
Interest expense 8,432,270 4,798,112 3,158,106
Other income, net 107,173 57,784 40,808
LOSS BEFORE INCOME TAXES (1,404,306) (397,076) (2,422,738)
Income tax benefit (446,000) (114,000) (820,000)
NET LOSS $ (958,306) $ (283,076) $ (1,602,738)
- ------------------------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE $ (0.09) $ (0.03) $ (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares
Outstanding 10,657,893 9,908,592 9,760,200
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
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<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF STOCKHOLDERS EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996, 1995 and 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Retained Total
Common Paid-in Earnings Treasury Stockholders
Stock Capital (Deficit) Stock Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 3,375 $ 13,525,884 $ 1,516,466 $ (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 -- -- 51,391 709,239 760,630
Tax benefit related to exercise of
employee stock options and warrants -- 634,000 -- -- 634,000
Issuance of common stock 316 14,976,052 -- -- 14,977,000
Three-for-one stock split 7,383 (7,383) -- -- --
Net loss -- -- (958,306) -- (958,306)
Balance, December 31, 1996 $ 11,704 $ 30,025,990 $ (1,404,602) $ (342,173) $ 28,290,289
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
- 261 -
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (958,306) $ (283,076) $ (1,602,738)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 33,456,637 18,811,150 15,056,167
Amortization of debt issue costs and discount 139,694 128,760 64,380
Deferred income taxes (480,000) (239,000) (802,000)
Change in assets and liabilities:
Accounts receivable (63,634) (3,178,803) (1,003,263)
Prepaid expenses (21,839) (284,803) (58,262)
Deferred commission expense (310,792) (1,446,337) (22,215)
Deferred debt issuance costs (112,078) -- (395,000)
Other assets -- (1,029,433) --
Accounts payable (1,947,116) 604,791 1,183,434
Accrued expenses (149,687) 739,453 143,249
Equipment deposits (26,578) (382) (37,269)
Unearned revenue 4,251,166 2,800,990 1,849,771
Net Cash Provided By Operating Activities 33,777,467 16,623,310 14,376,254
Cash Flows From Investing Activities:
Capital expenditures:
Equipment used by subscribers (37,424,684) (23,746,086) (27,354,107)
Equipment and leasehold improvements (3,120,125) (3,914,442) (2,607,100)
Acquisition of Subscribers (65,745,794) (1,767,420) --
Net Cash Used By Investing Activities (106,290,603) (29,427,948) (29,961,207)
Cash Flows From Financing Activities:
Proceeds from term debt agreement 48,490,000 -- --
Principal payments on long-term debt (9,036,459) (8,718,750) (20,333,334)
Proceeds from revolving credit agreement 17,250,000 21,250,000 20,250,000
Proceeds from subordinated long-term notes -- -- 15,000,000
Proceeds from the exercise of stock options and warrants 760,630 333,063 1,274,239
Proceeds from the issuance of common stock 14,977,000 -- --
Purchase of treasury stock -- -- (534,000)
Net Cash Provided By Financing Activities 72,441,171 12,864,313 15,656,905
Net Increase (Decrease) in Cash (71,965) 59,675 71,952
Cash at Beginning of Period 780,018 720,343 648,391
Cash at End of Period $ 708,053 $ 780,018 $ 720,343
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
- 262 -
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Years Ended December 31, 1996, 1995 and 1994
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - The Company provides its subscribers with equipment to
receive information and communications service. 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. 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 the messages delivered to subscribers.
Deferred Commission Expense - Commissions and bonuses which are paid at the time
of the initial subscription to sales representatives, to company
representatives, or to subscribers for successful customer referrals, are
deferred and expensed over the initial twelve-month subscription period.
Equipment Used By Subscribers - Equipment used by subscribers to receive the
Company's electronically transmitted information and communication services 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. The carrying value of intangible assets
is periodically assessed by the Company by reviewing the recoverability of the
assets over the amortization period based on the projected undiscounted future
cash flows of the related business unit. Cash flow projections are based on
trends of historical performance and managements estimate of future performance,
giving consideration to existing and anticipated competition and economic
conditions.
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.
Earnings (Loss) Per Share - Earnings (loss) 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. For the periods ending
December 31, 1996 and 1995, the Company's outstanding options and warrants were
antidilutive and therefore not used in determining weighted average shares
outstanding. All share and per share data, for all periods presented, have been
adjusted to reflect a three-for-one stock split effectuated on June 28, 1996,
for shares of record on June 14, 1996.
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, 1996, 1995 and 1994, the Company made interest payments of $8,555,000,
$4,386,000 and $3,165,000, respectively. Capital expenditures for subscriber
equipment included in accounts payable at year end totalled $1,394,000,
$2,191,000 and $1,106,000 at December 31, 1996, 1995 and 1994, 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 1996 or 1994. At
December 31, 1996 and 1995, $931,700 and $3,202,600 of the purchase price for
acquired subscribers is due in future periods and is included in accounts
payable.
Research and Development - Research and development costs are charged to
earnings as incurred and approximated $2,263,000, $1,596,000 and $1,493,000 for
the periods ended December 31, 1996, 1995, and 1994.
Stock-Based Compensation - The Company accounts for its stock-based compensation
under the provisions of Accounting Principles Board Opinion 25, Accounting for
Stock Issued to Employees (APB 25).
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.
28
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<PAGE>
Fair Value of Financial Instruments - Because of their maturities and/or
interest rates, the Company's financial instruments have a fair value
approximating their carrying value. These instruments include accounts
receivable, revolving credit and term borrowings, subordinated debt, commercial
paper, and trade payables.
2. ACQUISITIONS
KNIGHT-RIDDER
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 agreed to pay KRF approximately $4,970,000 for
these subscribers over two years. The Company agreed to pay $1,500,000 at
closing and $1,500,000 one year from the closing. The remaining $1,970,000 was
based on future revenue sharing from Company estimates and is scheduled to be
paid quarterly during the first two years of this agreement. The purchase price
is being capitalized as an intangible asset and amortized using the
straight-line method over eight years.
BROADCAST PARTNERS
Effective May 3, 1996, the Company closed on an "Asset Acquisition" of Broadcast
Partners, an information provider primarily in the agricultural industry. The
Company acquired substantially all the assets of Broadcast Partners for $63.5
million cash and the assumption of certain current liabilities of approximately
$9.8 million. In the acquisition, the Company received 39,000 agricultural
subscribers. Also included, was approximately $38.2 million of equipment which
is being depreciated using the straight-line method over five years. In
addition, an intangible asset of approximately $35 million was capitalized and
is being amortized using the straight-line method over eight years. The
acquisition was financed with a combination of $15,010,000 of privately placed
common stock equity representing, 948,000 split adjusted shares and with six
year term debt of $48,490,000.
The following unaudited pro forma information sets forth the results of
operations as though the acquisition of Broadcast Partners had occurred at
January 1, 1995:
<TABLE>
<CAPTION>
Pro Forma
December 31,
1996 1995
<S> <C> <C>
Revenues $ 106,646,073 $ 84,018,887
Net Loss $ (1,303,509) $ (2,903,648)
Loss Per Share $ (0.12) $ (0.27)
</TABLE>
This unaudited pro forma information is based on historical results of
operations as if the acquisition took place on January 1, 1995 adjusted for
acquisition costs, realized efficiencies and in the opinion of Management, is
not necessarily indicative of what the results would have been had the Company
operated with the acquisition since the beginning of 1995.
3. LONG-TERM DEBT AND LOAN AGREEMENTS
<TABLE>
<CAPTION>
December 31,
1996 1995
Revolving Credit Agreement
<S> <C> <C>
Revolving credit line $38,500,000 $21,250,000
Term notes 10,786,456 19,322,915
Term Credit Agreement
Term notes 48,490,000 --
Stock Repurchase Agreement
Term notes 500,000 1,000,000
Total Loan Agreements 98,276,456 41,572,915
Less current portion 15,092,083 9,036,458
Total Long-Term Debt $83,184,373 $32,536,457
</TABLE>
The Company has a revolving credit agreement, as amended, with a group of banks
(the "Revolving Credit Agreement"). The Revolving Credit Agreement, which
expires June 28, 1997 unless extended, provides for a total commitment of up to
$49,500,000 in new borrowings. As of December 31, 1996, $38,500,000 of the total
commitment had been borrowed, with the remaining $11,000,000 available to the
Company subject to certain restrictions as discussed below.
Additional borrowings under the Revolving Credit Agreement are available to the
Company, as long as at the time of the advance, no default exists with any of
the Company loan agreements or 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, 1996 based on current operating cash
flow, the Company would be able to borrow all of the $11,000,000 remaining
commitment available.
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 $23,500,000 through June 28,
1997 and, a ratio of quarterly operating cash flow to interest expense (as
defined) of at least 2.25 to 1. 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.
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 subordi-
29
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<PAGE>
nated debt) to stockholders equity (including long-term subordinated debt) (the
"Ratio"). The base rate is the First National Bank of Omaha's "National Base
Rate", minus 3/4%. So long as the Ratio is below 2.5 to 1, interest is at the
base rate. When the Ratio is between 2.5 to 1 and 2.99 to 1, the interest rate
is at base rate plus a 1/4% margin. When the Ratio is between 3.00 to 1 and 3.49
to 1, the interest rate is the base rate plus a 3/4% margin. The Company is not
to exceed a Ratio of 3.5 to 1. The base rate is adjusted monthly, with the
interest rate margin (as defined above) changed quarterly. Through June 27,
1996, the variable rate borrowings outstanding were accruing interest at the
rate of 8.25%. Effective June 28, 1996 through December 31, 1996, the variable
rate borrowings outstanding were accruing at the base rate of 7.50%.
The Company has the option to convert the outstanding revolving credit
borrowings to term loans at any time, payable in forty-eight equal principal
installments, plus interest. Interest on the converted term loans is at the
Company's option, a variable interest rate of 1/4% over the base rate (as
determined in the preceding paragraph) or, at a fixed rate of 3/4% over the base
rate, or, 2% over the average of the 3 and 5 year U. S. treasury securities, as
quoted in the prior month "Federal Reserve Statistical Release", whichever is
greater. As of December 31, 1996, $38,500,000 of the total borrowings
outstanding had not been converted to term loans. As of December 31, 1996,
$10,786,456 of term loans were outstanding with monthly installments due through
October 1998, with interest rates ranging from 6.75% to 9.25%.
The Company has a Term Credit Agreement dated May 3, 1996, as amended, with a
group of banks providing for an aggregate principal amount of $48,490,000 to be
repaid in 72 equal principal installments beginning January 31, 1997. Through
July 16, 1996, the outstanding principal was accruing interest at the rate of
8.25%. Effective July 17, 1996 through July 30, 1996, interest on $21,300,000 of
the principal balance was variable, accruing at the NY Prime rate less one-half
of one percent (7.75%). Effective July 31, 1996 through December 31, 1996,
interest on $25,400,000 of the principal balance is variable, accruing at the NY
Prime rate less one-half of one percent. Interest on the remainder is fixed,
accruing at interest rates ranging from 8.25% to 8.36%. Interest payments are
due on the last day of each month beginning May 31, 1996.
The Company pays a commitment fee of 1/4% on the unused portion of the total
revolving credit commitment. Additionally, once the Ratio (as described
previously) reaches 3.00 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. In the event the
Ratio exceeds 3.0 to 1, any term note accruing interest at less than 7.5% is
included in a "Trigger Event". The Company is obligated to pay the holders of
such term notes a fee of 0.375% of the outstanding balance of the notes upon the
occurrence of the Trigger Event and like amounts on the six month anniversary
and the twelve month anniversary of the Trigger Event.
During 1992, the Company entered into a loan agreement and borrowed $2,000,000
solely for the repurchase of the Company's outstanding common stock (the "Stock
Repurchase Agreement"). Currently, this commitment is being repaid in equal
quarterly principal payments, plus interest, due through December, 1997. As of
December 31, 1996, the amounts borrowed under the Stock Repurchase Agreement,
are accruing interest at 7.69% and 8.00%.
Substantially all of the Company's assets are pledged as collateral under the
Company's long-term debt and loan agreements.
The minimum principal maturities of long-term debt, excluding the revolving
credit line, are as follows.
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1997 $15,092,100
1998 12,310,800
1999 8,128,500
2000 8,081,700
2001 8,081,700
2002 and after 8,081,700
TOTAL $59,776,500
</TABLE>
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
scheduled to be paid quarterly, with principle 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 also 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 revolving and term credit agreements. Other subordinated debt
financial covenants and restrictions are generally less restrictive than those
of the other loan agreements.
The Company also issued a warrant to the investor to purchase 75,000 shares of
the Company's $.001 par value common stock at $7.39 per share (as adjusted after
the three-for-one stock split) on or before June 30, 2004. In
30
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<PAGE>
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.
5. INCOME TAXES
Components of the income tax (benefit) provision are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current $ 34,000 $ 125,000 $ (18,000)
Deferred (480,000) (239,000) (802,000)
$(446,000) $(114,000) $(820,000)
</TABLE>
The income tax (benefit) provision differs from the (benefit) provision at
federal statutory rates for the following reasons:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal $ (477,000) $(139,000) $(824,000)
State taxes (28,000) 1,000 (24,000)
Other 59,000 24,000 28,000
$(446,000) $(114,000) $(820,000)
</TABLE>
The components of deferred tax liability (asset) are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Depreciation $ 6,411,000 $ 4,880,000
Net operating loss
carryforwards (8,301,000) (5,383,000)
Other 282,000 9,000
Net Deferred Asset $(1,608,000) $ (494,000)
</TABLE>
The Company had approximately $24,000,000 of unused net operating loss (NOL)
carryforwards at December 31, 1996. The NOL carryforwards will expire in the
years 2002 to 2011. In addition, the Company is reflecting in the Other Assets
approximately $1,029,000 relating to pending IRS refund claims.
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 Company has
purchased 150,000 shares of outstanding common stock since September 1992. The
common stock repurchased may be used to provide shares for the Company's
existing stock options and warrants outstanding.
As part of the May 3, 1996 acquisition of Broadcast Partners, the Company sold
948,000 (split adjusted) shares through a private placement transaction.
During the second quarter of 1996, the Company effectuated a three-for-one
common stock split, payable June 28, 1996 to stockholders of record June 14,
1996. The stated par value of each share was not changed from $.001. A total of
$7,383 was reclassified from the Company's additional paid in capital account to
the Company's common stock account.
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
75,000 shares of common stock at a price of $7.39 per share (as adjusted after
the three-for-one stock split). These warrants are exercisable through June 30,
2004.
8. 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 1996, 1995 and 1994, the Company contributed $671,000,
$482,000 and $344,000, respectively, to the plan as matching contributions.
9. STOCK-BASED COMPENSATION
The Company has employee and director stock option plans with aggregate limits
of 2,100,000 shares for the employee plan and 210,000 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
generally vest equally over a period of three years.
31
- 266 -
<PAGE>
The following table summarizes the stock options as of December 31, 1996, 1995
and 1994:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,276,959 $ 5.79 988,185 $ 5.57 876,231 $ 4.40
Granted 538,800 $ 15.64 401,250 $ 6.23 273,750 $ 8.91
Exercised (134,878) $ 5.64 (70,224) $ 4.74 (129,426) $ 4.41
Cancelled (160,071) $ 7.93 (42,252) $ 6.32 (32,370) $ 7.23
Outstanding at end of year 1,520,810 $ 9.04 1,276,959 $ 5.79 988,185 $ 5.57
Exercisable at end of year 741,409 $ 5.67 629,811 $ 5.08 475,152 $ 4.50
</TABLE>
The following table summarizes information about stock options outstanding as of
December 31, 1996:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Averaged Average Average
Range of Shares Remaining Exercise Shares Exercise
Exercise Prices Outstanding Life Price Exercisable Price
<S> <C> <C> <C> <C> <C>
$ 0.00 - $ 4.67 450,661 5.0 years $ 4.30 423,601 $ 4.34
$ 4.75 - $ 8.83 519,899 7.1 years $ 6.64 293,658 $ 6.79
$ 9.67 - $14.42 42,220 8.6 years $ 9.81 6,150 $ 9.95
$15.50 - $20.83 508,050 9.0 years $ 15.64 18,000 $ 17.33
$ 0.00 - $20.83 1,520,810 7.2 years $ 9.04 741,409 $ 5.67
</TABLE>
At December 31, 1996, shares of the Company's authorized but
unissued common stock were reserved for issuance as follows:
<TABLE>
<CAPTION>
Shares
-------
<S> <C>
Employee stock option plan 312,929
Non-employee director plan 114,003
Total 426,932
</TABLE>
The Company accounts for its stock-based compensation plans under the provisions
of APB 25. Accordingly, no compensation cost has been recognized for its fixed
stock option plans.
The effect on 1996 and 1995 net loss and loss per share of accounting for
stock-based compensation based on the fair value method at the grant dates
consistent with the method of FASB Statement 123, Accounting for Stock-Based
Compensation, are shown in the pro forma information below:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Loss As reported $ (958,306) $ (283,076)
Proforma $ (2,452,206) $ (675,125)
Loss per share As reported $ (0.09) $ (0.03)
Proforma $ (0.23) $ (0.07)
Fair Value $ 8.22 $ 3.21
</TABLE>
The fair value for options granted under the above mentioned plans was estimated
at the date of grant using the Black-Scholes option-pricing model with the
following assumptions:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 5.4% 7.8%
Dividend yield 0.0% 0.0%
Expected volatility 56.0% 54.0%
Expected life (years) 4.75 4.25
</TABLE>
10. 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.
Future minimum lease payments under all non-cancellable operating leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Year Ending December 31,
<S> <C>
1997 $ 3,438,000
1998 3,059,000
1999 2,467,000
2000 2,236,000
2001 1,588,000
2002 and after 4,379,000
Total future minimum
lease payments $17,167,000
</TABLE>
Total rent expense on all operating leases was $3,459,000, $2,712,000 and
$2,369,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
2
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<PAGE>
- --------------------------------------------------------------------------------
QUARTERLY DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Operating Pre-Tax Net Income (loss)
Revenues Cash Flow(1) Income(loss) Amount Per Share Subscribers
- ------------------------------------------------------------------------------------------------------------------------------------
Fiscal 1996
<S> <C> <C> <C> <C> <C> <C>
First $19,113,017 $ 6,502,483 $ (557,991) $ (356,991) $ (.04) 99,600
Second 24,194,864 9,592,827 (701,346) (447,346) (.03) 142,000
Third 27,141,339 11,759,893 (328,503) (260,003) (.02) 144,100
Fourth 27,934,493 12,522,225 183,534 106,034 .01 145,900
Year $98,383,713 $40,377,428 $(1,404,306) $ (958,306) $ (.09) 145,900
Fiscal 1995
First $13,617,210 $ 4,967,889 $ (426,972) $ (272,972) $ (.03) 84,600
Second 14,739,450 5,591,904 51,802 32,802 -- 86,700
Third 16,168,251 6,173,867 150,556 96,556 .01 92,400
Fourth 17,763,078 6,420,742 (172,462) (139,462) (.01) 95,900
Year $62,287,989 $23,154,402 $ (397,076) $ (283,076) $ (.03) 95,900
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Operating income before depreciation and amortization expense.
(2) Net income per share for each of the four quarters may not agree to net
income per share for the year due to rounding.
</FN>
</TABLE>
- --------------------------------------------------------------------------------
TRADING INFORMATION
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Price 1996 Market Price 1995
Quarter Ended High Low Last High Low Last
<S> <C> <C> <C> <C> <C> <C>
March 31 16 58 13 58 15 38 8 38 5 12 8 14
June 30 23 00 15 58 21 38 8 58 7 78 8 12
September 30 26 12 17 00 21 00 12 14 8 12 11 78
December 31 23 00 19 34 22 14 16 34 11 18 16 38
- --------------------------------------------------------------------------------
</TABLE>
The Company's common stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol: DTLN. On December 31, 1996, there were
approximately 500 stockholders of record, not including beneficial holders whose
shares are held in names other than their own.
33
- 268 -
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR INFORMATION
- --------------------------------------------------------------------------------
Corporate Headquarters:
9110 West Dodge Road, Suite 200
Omaha, NE 68114
(402) 390-2328
Independent Auditors:
Deloitte & Touche LLP
Stock Transfer Agent:
First National Bank of Omaha
Attn: Corporate Trust Services
One First National Center
Omaha, Nebraska 68102
Annual Stockholders Meeting:
The annual stockholders meeting will be held on Wednesday, April 23, 1997 at
10:00 A.M., at the Holiday Inn-Old Mill, 655 N. 108th Avenue, Omaha, Nebraska.
Form 10-K: A COPY OF THE COMPANY'S FORM 10-K FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST TO:
Secretary
Data Transmission Network Corporation
9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
Dividends:
The Company has never paid any dividends and has no present intention of so
doing. Payment of cash dividends in the future, if any, will be determined by
the Board of Directors in light of the Company's earnings, financial condition
and other relevant considerations.
- --------------------------------------------------------------------------------
DIRECTORS AND OFFICERS
- --------------------------------------------------------------------------------
Board of Directors:
- -------------------------------
Roger R. Brodersen
Chairman of the Board
Chief Executive Officer
Data Transmission Network Corp.
Robert S. Herman
Senior Vice President
Data Transmission Network Corp.
David K. Karnes
President
Chief Executive Officer
The Fairmont Group Inc.
Of Counsel, Kutak Rock law firm
J. Michael Parks
Former President
Former Chief Operating Officer
First Data Resources, Inc.
Jay E. Ricks
Chairman of the Board
Douglas Communications Corp.
Greg T. Sloma
President
Chief Operating Officer
Data Transmission Network Corp.
Roger W. Wallace
Senior Vice President
Data Transmission Network Corp.
Corporate Officers:
- -------------------------------
Roger R. Brodersen
Chairman of the Board
Chief Executive Officer
Greg T. Sloma
President
Chief Operating Officer
Robert S. Herman
Senior Vice President
Research and Technology
Roger W. Wallace
Senior Vice President
Co-President, Ag Services
James J. Marquiss
Senior Vice President
Co-President, Ag Services
Charles R. Wood
Senior Vice President
President, Financial Services
Keith A. Cook
Vice President
President, Auto Services
H. Wade German
Vice President
Business Research
Brian L. Larson
Vice President
Chief Financial Officer
Secretary and Treasurer
Gordon R. Lundy
Vice President
President, Energy Services
Charles E. McQuinn
Vice President
President, West Financial Services
James G. Payne
Vice President
Services Support and Special Projects
34
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<PAGE>
- --------------------------------------------------------------------------------
A LETTER TO OUR SHAREHOLDERS - TECHNOLOGY UPDATE
- --------------------------------------------------------------------------------
Shareholders ask, Is DTN keeping ahead of the "technology curve"? We at
DTN strive to keep abreast of the fast pace of technological change, especially
as it relates to the evolution of our marketplace and customer. Media hype leads
one to believe that the world is changing overnight, yet in the marketplace most
changes occur incrementally over time. DTN is, for the most part, a low-cost
niche-market information provider and so we have the luxury of avoiding the,
often unproven, "bleeding edge" technology. To put things in some perspective,
Interactive TV was the hype of the moment two years ago, but has now nearly
dropped off the screen. The landscape is littered with companies that made large
bets too early in the game. At DTN, we prefer making studied incremental
changes, allowing us to take advantage of proven, cost-effective technologies.
Our overriding intent at DTN is to deliver comprehensive, high-quality,
business-related information to our subscribers in a manner that is
time-sensitive, convenient, reliable, secure, and economical. These are the
qualities most meaningful to our subscriber. How the information travels,
arrives, and how it is accessed is relevant only as it contributes to the
suitability and convenience of the content to the user. At DTN, we take
advantage of new alternatives when and if they become suitable for our use and
for the needs of our subscribers.
This technology update will concentrate on the Internet and some related
items.
I. THE INTERNET - AN OVERVIEW AND SOME CAUTIONARY COMMENTS
Simply described, the Internet is an international network of computers
and data communications circuits of varying capacity. It is somewhat akin to a
telephone, a magazine or newspaper, an on-line service (AOL, Prodigy,
CompuServe, etc.), the Library of Congress, and sometimes it is likened to the
talk around the water cooler. The Internet is both more and less than any of
these. Functionally, it is owned by no one, controlled by no one, planned by no
one, and maintained by no one (or by everyone, depending on how you look at it).
In many respects, it brings to mind the joke that defines a helicopter as a
conglomeration of 100,000 rapidly moving parts all flying in loose formation.
What keeps the Internet working is a common set of standards and protocols for
data file development, manipulation, and communications. This is no small feat
and represents a good example of your tax dollars at work. Internet standards
allow diverse hardware and software platforms to communicate efficiently across
the street or around the world, be it text, databases, graphics, audio, computer
software, video, data packets, or any combination of the above.
You will also often hear about another phenomena called the World Wide
Web, often shortened to "the Web". The Web is the sexy part of the Internet
where the real action in graphics, audio, video, browsers, Java applets, and the
like take place. The Web has made the Internet a household word and is spurring
most of the growth, as well as most of the hype. Although the Internet and the
Web are not one and the same, for purposes of this discussion these terms will
sometimes be used interchangeably.
The Internet/Web is almost always acknowledged as having changed the
technological landscape. It has been compared to man's discovery and use of
fire. At the other extreme, it has also been described as the CB radio of the
1990s (i.e., of huge use to some, but to most a passing fad). As with all
technology, merit is found in its application.
What many people seem to forget is that the Internet is, first and
foremost, a tool. By analogy, a hammer is a useful tool found in nearly every
home. It can be used productively in building a home; harmlessly as
entertainment by a child randomly pounding nails; or dangerously as a weapon of
lethal threat. The hammer, much like the tool called the Internet, is neither
good nor bad in and of itself, but as defined by the use to which it is put. Ill
try not to hammer this analogy to death, but there is an old saying that often
seems to apply to the Internet, When the only tool you have is a hammer, every
problem begins to look like a nail. At DTN, we believe that tools are to be
mastered and then utilized as suits the task.
It is interesting to us at DTN that, having talked to a great many
people in the information business, the following stands out. The predominant
rationale that most companies use for positioning themselves as an information
provider on the Internet is fear-fear of being left behind and missing out on
this seemingly historical change. Getting on the Internet is rarely based on the
positive opportunity of making an immediate or near-term return on ones
investment.
BROAD BRUSH PLUSES ABOUT THE INTERNET:
o It benefits from being the newest "IN" thing. A significant part of the
growth is based on children. I have to have it or my child will fall
behind.
o Low-cost access. Approximately $20/month for unlimited access & mostly
free usage of content (excluding subscription or pay-per-use sites) -for
now.
o The magnitude of available information is huge and growing rapidly. As
a means of random access to massive amounts of unfiltered and
unorganized data, it cant be beat. The number of "pages" on the Web
alone is estimated to exceed 50,000,000 today-but no one really knows,
or can know. For the most part, information is broad but shallow,
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skims the surface, thus the expression, "surfing the WEB".
o International in scope. While mostly a positive, this is a
double-edged sword. Widely varying business environments with regard to
taxes, rules on competitive promotion, trademarks, etc., all mean that
rarely is doing business as simple as it looks.
o Two-way point-to-point communications allows direct business
transactions.
o Near-universal accessibility in the U.S. Approximately 13% of the
population has already tried either the Internet, On-Line, or other type
of computer-based communications at some time.
o A rapid adoption curve, faster than that of TVs, VCRs, or CDs.
BROAD BRUSH MINUSES ABOUT THE INTERNET:
Problem of "the Commons". Communal property will be overused to
destruction. Paying no incremental cost, no one is particularly concerned about
efficiency, prioritization of best use (as defined by whom), or the general
conservation of resources. The relationship between supply and demand is
effectively being short-circuited.
Capacity (read timeliness and reliability) is being strained due to
growth in both subscribers and high-bandwidth (capacity hog) applications. It
has reached the point that a University of Michigan Internet monitoring group
says that" every day at peak periods, the Internet backbones lose more than 10%
of the data packets they transmit". "Brownouts" are becoming common. Larry
Landweber, Chairman of the Internet Society, opines that these problems will
probably worsen before they improve. Several dynamics within the world of the
Internet appear to be working together to ensure that bandwidth demand exceeds
supply.
It has not yet experienced its first significant failure. Many
knowledgeable insiders would emphasize the word YET. Murphy's Law has not been
repealed.
Significant security and privacy issues remain regarding dollar
transactions, ability to control access to data by subscriptions, covert
information gathering, and general data integrity.
For typical users, the Internet is mostly inconvenient and slow.
Navigation is tedious and it takes significant time to retrieve data. The World
Wide Web is sometimes frustratedly referred to as the World Wide Wait.
"The Internet is a ripe medium for fraud"", according to Pennsylvania's
attorney general's office. Plagiarism, theft of data content, copyright abuse,
and outright fraud are fairly common. For instance, a theme drawing much recent
attention has involved stock or investment-related information. You often cant
know who you are dealing with or whose interests are being served. Two private
consumer protection groups noted recently that the Internet is providing new
opportunities for scams.
The Internet has not yet had to face up to its natural enemies-the
governmental bureaucracies driven to control such things, the Luddites who don't
want to allow serious change to the status quo, and the tax man who wants to cut
a deep wedge of revenue from it. Since the Internet seemed to spring up nearly
overnight, "opposing forces" have lagged in their response to it-but they are
gathering.
THE INTERNET AS IT RELATES TO DTN:
DTN has launched its first product on the Net. It is available by
subscription (www.dayta.com). We will soon be following this Ag service with DTN
PROduce, Weather Center, Aviation Center, Wall Street Spectrum, and others. Our
intent is to gain experience in niches that present a viable opportunity and
establish a position in the Internet marketplace.
Impact of competition from the Internet on DTN:
o The Internet allows competitors easier access to a small, but growing,
portion of our customer base.
o The availability of some free sources of information may raise the
hurdle for attracting the marginal-use subscriber who might be satisfied
with an incomplete or less convenient package.
o Possibility of diminishing some of the advantage that having our own
delivery system has given us.
BENEFITS TO DTN OF GETTING ON THE INTERNET:
o Becoming positioned to take advantage of additional or alternative
market opportunities, such as international and corporate markets.
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o Being a player on the new field in order to gain experiences.
o Enhancement of DTN's market positioning. Customers want to be reassured
that DTN is up-to-date and on the cutting edge. We are often asked, "Are
you on the Net"? even though these customers are rarely interested in
getting us via the Net.
o May allow DTN to capture revenue from the sale of information to the
more casual user.
So how is DTN positioned face-to-face with the Internet and attendant
would-be competitors? Consider first that potential competitors must create
content from scratch, along with a fully functional, secure, and redundant data
center, regardless of the distribution system used. The Internet merely allows
them to avoid investments in such things as satellite delivery. However, since
the Internet is point-to-point in nature, it will have at least some incremental
cost per subscriber (bandwidth & hardware costs...). The bigger barrier to
market entry that would-be competitors must face is represented by the market
position and the economies of scale that DTN has already achieved. Take our
ag-oriented products, Ag Daily, FarmDayta, and DTNstant, as an example. Our cost
of acquiring and aggregating information is already spread out across 145,000+
subscribers. A start-up service on the Internet faces a formidable task to
overcome that advantage.
Another piece of the competitive equation is that DTN has both
considerable brand-name awareness, a strong position in existing markets, and
the trust of our subscribers. This is particularly true of our agricultural and
energy services. DTN's ag-related services combine to represent a significant
share of the producer, agribusiness, and grain elevator markets in the U.S. The
information provided by DTN to its subscribers is the most widespread
information on which the markets trade. Because of this, even when other
information is available, the people in the marketplace still need to know what
their competitors are reading on DTN. And since delivery of quality information
is our only business, our customers have grown to trust that we do not shade the
information to our own advantage. This trust is a valuable resource that we
strive to build on every day.
DTN's energy service, DTNergy, is used nearly exclusively by virtually
all refined fuel suppliers (over 110) in the United States to send wholesale
daily fuel prices to virtually all jobbers (over 15,000) in the United States.
We further strengthen our market position by using our proprietary technology to
add value by receiving information from suppliers in a wide variety of formats,
processing and managing that information, and delivering it to each jobber in
the format and by the delivery method of his choice. By being a one-stop-shop
for a wide variety of information management and delivery needs, we ensure that
we maximize the value of our dominant position in this niche market.
According to our research, DTN's stand-alone systems are seen as
significantly easier to use, much faster, more convenient, and more capable
(charting etc.) than Internet-based information. Access to DTN information is
more reliable and, since information transfer is continuous, the user can set
alarms on his selected key interests to notify him when an event has occurred.
He has constant connections to information 24 hours a day, 7 days a week. He is
not dependent on having to continually re-establish access. Generally speaking,
on the Internet access is more cumbersome, communications are slower, and
support is poorer, making the Internet a less than optimum alternative to DTN's
satellite system.
SPECIFIC DTN PRODUCTS AND THE INTERNET:
FarmDayta, Ag Daily, Pro-Series, & Premier Series via the Internet.
DTN launched (4th Qtr. 1996) a subscription-based service into the
agricultural market (www.dayta.com) based on our FarmDayta content. We currently
have paying subscribers active on the FarmDayta site. We see this DTN Internet
site as superior in content to other Internet agriculture information providers;
however, there has been no landslide of interest. This site may well prove to be
a good sales tool for bringing customers to our satellite-based system. By
comparison, our satellite service is superior in content and ease of use. Our
research suggests that only 4% of our Ag customers have ever had any on-line
experience (AOL, CompuServe, Prodigy, Internet, etc.). Additionally, much of
rural America incurs long-distance phone charges for Internet Access.
Of tangential interest, DTN's FarmDayta Web site, only a few months old,
is one of the larger Web sites anywhere based on pages of information available
on a regularly-updated basis. The vast majority of sites are filled with
generally static information such as brochures, product sheets, annual reports,
and press releases.
DTN PROduce via the Internet
DTN recently launched (1st Qtr 1997) an Internet product that mirrors
DTN PROduce. The produce industry provides an example of how an Internet
delivery vehicle can be used to expand our market with virtually zero downside
risk. In this industry, there is little "free" information available on the
Internet. In addition, U.S. data on the marketplace drives much of the world
produce market. Hence, DTN has the opportunity to open up international markets
as well as corporate opportunities here in North America. The Internet may also
prove to be a better platform for the smaller growers with short-term seasonal
needs for information.
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DTN Weather Center, Aviation, Marine, & Forestry Centers
via the Internet
DTN recently launched (1st Qtr 1997) an Internet product that mirrors
DTN Weather Center products. We believe that DTN's Weather Center site is one of
the best weather-oriented sites on the Internet. DTN Weather Center subscribers
are not casual users of weather information. For these high-power users, the
superior reliability, convenience, completeness, image quality, and timeliness
of DTN's satellite-based system are all elevated in importance.
While there is, relatively speaking, a considerable amount of free
weather data on the Internet, this information is not very time-sensitive, nor
is it complete. Because it is graphics intensive, weather information is slow to
download. Almost by definition, anyone who is satisfied with the information
provided via the Internet is not a serious candidate for DTN's Weather Center
product. Therefore, while meeting some niche applications, we feel that the
satellite-based system will dominate the weather market.
Financial Information Services via the Internet
DTN Wall Street currently provides several "segments" of news and market
information on an Internet web site operated by PAWWS, a division of Security
APL/Checkfree Corporation. These segments are provided for monthly subscription
fees. While this service is producing modest revenues for DTN, were gaining
useful experience which is helping us plan and develop new applications for
delivery of financial services via the Internet on DTN's own Internet site.
DTN Wall Street and DTN SPECTRUM retain key advantages in convenience,
timeliness, reliability, customer service, and especially in the ability to
provide a complete equities feed for purposes of charting or technical analysis
on all instruments. These are things that the Internet is less able to provide.
Other DTN services via the Internet
Those remaining DTN services not discussed above are either being
researched for Internet applications or have been dismissed as not applicable.
QUESTIONS AND ANSWERS
Volumes have been written about the Internet. Any search of newspapers,
periodicals, technical journals, and the like will turn up more analysis,
opinion, and (in many cases) hype than can be absorbed in a lifetime. The
following discussion is not exhaustive or complete concerning all facets of the
Internet. Instead, it provides some broad-brush observations in a Q & A format
concerning how this all effects DTN. Please let us know if you have questions
that may have gone unanswered herein. Well respond as well as we are able.
Q.Why is the Internet attracting so much attention? Why the hype?
A.First of all, because the Internet truly is big; it will be a major force in
our future in one form or another. This extremely useful tool has grown
explosively (as you might expect for something that is seen as essentially
free). It touches all the bases-entertainment, business, leading-edge
communications, wild get-rich-quick success stories, gruesome roadkill,
buzzwords galore, and the high-adrenaline excitement due a proper revolution. A
"new high" of hype. Forrester Research, one of the dominant research and
analysis companies covering this field of business, states they have never seen
an industry built on such hype. However, the overload of hype does not preclude
the underlying substance and value. What is there just may not be as much, as
fast, or as good as you may otherwise be led to believe.
Q.Describe the nature of information on the Internet and some of the
ramifications for the future.
A.There is an unknowable volume of information on the Internet, most of which is
interesting or useful to only a few. The term BROCHURE-WARE has been coined to
slander the practice of putting up company marketing or P/R material that hardly
ever changes. The smaller category of information that changes regularly is not
often vetted. Anybody can put out information, with any spin, be it legitimate
or fraudulent. Information is very often used as a lure to hook you for an
advertiser. (This is the chief means of obtaining revenue over the Internet to
date.) As a lure, it need only be good enough to bring you into the advertiser's
net. Information, as a lure, also tends to be scattered about at different
sites. It is unusual to find a one-stop-shop on the Internet. As such,
convenience and completeness suffers (especially at the free sites). The content
is often purposefully delayed or abbreviated to protect its value to the
provider. By way of example, Reuters news is provided as part of several WEB
sites. What the user is not told, is that Reuters is not crazy enough to give
away their core franchise value. The wire provided is of "selected" stories from
the full newswire and is often provided on a delayed basis. The good stuff isn't
free!
Q.The number of Internet users is growing rapidly. Can any generalizations be
made about them?
A.There are many projections/guesses about age, gender, education, income, and
other assorted demographics. However, the biggest generalizations about the
Internet users are that they are young, that their use is sporadic (only 10%-15%
of the approximately 15,000,000 WEB surfers use the medium frequently), and that
the primary use is for entertain-
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ment. The hype of Internet numbers should be regarded cautiously. Sources that
produce these numbers have great incentive to keep the bandwagon rolling and may
be less than critical.
Q.Who, if anyone, is making money on the Internet?
A.The generally accepted, if somewhat glib, answer is made in comparison to the
gold rush. While prospectors may have made a strike here and there, the ones who
reliably and consistently made money sold the picks, shovels, and mules. So far
at least, this analogy generally applies to those who sell the PCs, network and
database servers, and modems.
A commonly-heard warning is often made to small companies that are first
getting involved in the Internet-"Invariably, it will cost more than you plan
for". As one wag has said,"The Internet is a marvel of efficiency. It allows you
to make your mistakes at an accelerated rate and they can be of far greater
magnitudes". For some, a quote by Don Logan, CEO of Time, Inc. is instructive.
He comments that Pathfinder, Time Warner's glitzy Web site,"gives new definition
to the term black hole".
Q.Access costs (the on-ramp to this Information Highway) have gotten fairly
cheap. Will Internet access continue to get less expensive?
A.With common offerings of $20/month for Internet access (the on-ramp), costs
have likely bottomed out for awhile. Given hardware and phone line costs,
margins are now probably tight enough to drive out all but the major players
(AT&T, Sprint, MCI, etc.) over time. According to one source (Robert Lucky - OEM
Magazine Dec 96), Bell Atlantic, in a regulatory filing, is claiming that
providing Internet access to their users costs them $75/month once all customer
service, marketing, and technology-related costs are fully accounted for. While
this may be an exaggeration, it does support the general conclusion that today's
Internet model may not be economically sound over the long haul. What is apt to
happen is that prices will remain fairly level, despite higher connection speeds
or other bells and whistles being added to upgrade the level of service
provided. Providers appear to be targeting market share rather than profits
notwithstanding that this is generally a commodity business with extremely low
consumer brand loyalty. There are also a number of events, such as those
relating to tax policy, that could send Internet access costs significantly
higher. (For some good amplifying material see "Why the $19.95 Internet Fees May
Not Last" in the December 24, 1996 Wall Street Journal.)
Q.Will basic usage (excluding subscription-based services) on the Internet
remain "free"?
A.This is one of the great questions that will likely drive the future of the
Internet. A little history is in order. The Internet, while now worldwide and
generally uncontrolled, was created by the U.S. Government for the purpose of
building a communications network that could survive and operate under a
scenario of nuclear war. The vision certainly did not include the
commercialization/privatization that has since developed. Initially, the
Internet was supported with government funds and was built on a socialistic
model with no cost associated with amount of usage or priorities. Hence, the
"Tragedy of the Commons" scenario has come to apply.
The culture of the Internet is that "information wants to be free".
Setting fees on the Internet, either for specific information or for general
"usage" of the resource, will generate shock waves impacting content
availability, content quality, usage/demand, and service quality. The effect of
setting fees will ripple through every other corner of the communications world.
Implementing this change will be no small task even for the giants of the
communications industry. (Can you name any other industry that is expected to
thrive and continue to expand geometrically while being given away?)
Without a pricing mechanism to allocate resources, the Internet is
headed for trouble. Already, it is less dependable and often slower than only
months ago. Robert Metcalfe, one of the primary founders of networking
technology and founder of 3COM Corp., widely predicts a "catastrophic collapse,
probably within the next year" of the Internet. Such an event, should it occur,
may provide the opportunity for changing the model-and the culture.
In addition, look at the relative economics. Free Internet telephones,
free Internet Fax services and free Internet links are slowly replacing
traditional dedicated telco circuits and the revenues that they here-to-fore
represented. It seems unlikely that the phone giants will quietly go out of
business, nor will the tax receipts that they represent to the government be
quietly foregone. One need only look at the acquisition prices of
Internet-related businesses such as UUNET and MFS Communications to see that the
companies providing the backbone, heart, and soul of the Internet system are
placing big bets on a pay-for-usage/priority model. Otherwise, the prices being
paid for these acquisitions would seem to make little economic sense.
A "parallel Internet" based on paying for usage and priority of
delivery, is already being put into place by some large users. They have been
effectively chased off the Internet because of speed, reliability, quality, and
security considerations that can't be "fixed" on the current "free" model. As
this "shadow Internet" becomes fine-tuned, the technical issues of converting
the Internet to a price/usage model may become less daunting.
Q.What factors lead you to believe that demand for communications capacity
(bandwidth) may outpace supply?
A.1) The newest and cleverest uses of the Internet are generally based on
high-capacity applications such as audio, video, and complex graphics.
Meanwhile, higher-speed modems and communications lines reduce the "waiting
penalty" experienced by the user at the current choke
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point-the access ramp to the information highway. The result is a geometric
increase on bandwidth demanded as providers foster expectations of a near-TV
experience. While improvement in data compression schemes and other
technological advancements may mitigate this exploding drain on system
resources, it also demands a customer base that will regularly "keep up" with
the system by purchasing expensive hardware and software updates. Access to the
free stuff can often be quite costly!
2) The current analogy for the Internet is a pipeline to which users are
connected with drinking straws. The capacity of the drinking straw itself acts
as a governor on each users demand for bandwidth. High-speed modems and
communications links (cable, ADSL, ISDN, etc.) boost the drinking straw to a
large diameter fire hose, connected to the same pipeline. Demand is likely to
outstrip supply in the near term.
3) Relative to other communications, the providers of the backbone
circuits (Sprint, AT&T, MCI, etc.) are not very well paid for providing more and
more Internet backbone capacity. (Despite the lack of some usage-based charge,
they are pressed to continually upgrade their infrastructure with no clear
expectation of a return on their investment.) How long will they continue to
subsidize a venture that is attacking their own cash cow?
4) Absent a money-making model that provides for a pay-per-usage on the
Internet, the backbone providers' core business (long-distance telephony) is put
at considerable risk. Internet telephone software and Internet FAX service
compete directly with the more lucrative long-distance business, while Internet
E-Mail and other information transfers of data compete indirectly. These
backbone providers are now established as integral "players" in the game.
Letting core business erode while providing nearly free services on the Internet
is becoming a losing game, one that they are unlikely to play for very long. The
Information Highway is destined to have many toll booths, both commercial and
governmental.
Q.Industry experts casually suggest that capacity can be easily added to meet
demand. Can it reasonably be done?
A.Telephone companies are currently in the process of making a complete change
in their physical plants, from POTS (Plain Old Telephone Service) networks to
digital networks. The switched model contained an implicit assumption that
approximately 1% of potential users would be on the line at any one time, with
the average call being under 5 minutes. The digital model, which includes the
Internet, infers a continuous connection. Taken to the logical next step, this
infers a massive upgrade just to "stay even". Hence, the technological answer to
the question is probably yes, but to do this will cost LOTS OF MONEY. Many
industry experts who say that capacity can be easily added are being very
generous with other companies' money and future revenue streams.
In my experience, technology is rarely the problem. If the economics are
in line, the engineers and programmers will solve the technological hurdles. The
economics of the current Internet model are not rational. Therefore, most of the
commentary and reporting on Internet issues are barking up the wrong tree. The
hype and glitz of the technology are simply distractions from concentrating on
old fashion business modeling, analysis, planning, and execution.
Q.Can the Internet compare with DTN's satellite-based services concerning the
issue of reliability?
A.Somewhat simplified, the Internet is just a series of network connections. It
consists of the user, the users' access provider, the Internet backbone
provider(s), the information providers' access provider, the information
provider, and then back again through the chain to the original user. The system
can (and often does) break down at any of the points along this path-in either
direction. Therefore, in each transaction on the Internet, there are ten
potential parties that may be responsible for any given failure. The real
problem is not so much that the electronic chain of connections occasionally
breaks, but rather that no one entity is responsible to the customer for knowing
about or responding to the breakdown in communications. The opportunity for even
the most responsible access provider or information provider to support the
subscriber with end-to-end customer service is nil.
Even when all systems work from end to end, the Internet often suffers
time delays. This is inherent to the network for there is no predicting what all
of the other millions of users are going to do at any given moment. With no
priorities to Internet activities, your critical information can be backed up
behind someone downloading pornography off the net. In the Internet, your
priority, or lack thereof, is the same. Worse yet, peak demand is managed by
general rationing. Some communications simply don't get through. News articles
about last springs market correction and the resultant overwhelmed
financial-oriented sites provide a cautionary tale to anyone thinking to rely on
the Internet when real money is involved. The USA TODAY article concerning
strained phone lines in California provides another twist to consider before
depending on the Internet for important information. DTN's closed
point-to-multipoint network is managed so that this problem does not exist.
Q.Discuss security issues on the Internet. What are the main issues and their
primary ramifications?
A.Data Security: Can I send data without it being intercepted? Can I prevent
someone from getting into my system and corrupting my data? If the proper
precautions are used, the general answer is yes. Software and related firewall
procedures have joined to eliminate this problem at the levels of information
security needed by DTN.
Payment Security: Are subscribers safe making payments over the
Internet? This issue is generally overblown and is mostly a perception problem.
[Note: According to someone who worked on the protocols, SET (Secure Electronic
Transactions protocol developed by Visa and
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MasterCard) was developed as a marketing tool to spur the use of credit card
sales over the Internet by relieving the public's fears. SET does not provide
complete end-to-end security.] Keep in mind that providing your credit card over
the Internet is no more dangerous than handing it to a waiter who then takes it
out of your sight for processing. In either case, you generally have a limit to
liability of $50. The primary risk lies in to whom you give this information and
what levels of care they give to your private information. From DTN's viewpoint,
this is a non-issue, as we are readily able to take credit card information over
the phone, should a customer desire, rather than directly via the Internet. We
already have customer support and administrative system safeguards in place to
handle this challenge.
Subscription Security: Historically, the greatest hurdle to
subscription-based services on the Internet has been the inability to limit
access to paying subscribers. Most security efforts use a LOGIN and PASSWORD
method to control access. This works well for pay-per-use or transactional
services, but not for subscription services where such codes can too easily be
shared around to bypass payment requirements. This is one reason why so few
subscription-based services currently exist on the Internet.
Q.What are the predominant business models for actually making money on the
Internet?
A.There are fundamentally three scenarios: 1) Advertising-supported sites. By
volume, these sites have enjoyed the most significant initial (financial)
success. However, advertisers are growing wary of the relative value of Internet
advertising. 2) Transaction-based models. With few exceptions (porno sites, for
example), these sites tend to deal in tangible goods. Various catalog companies
or mail-order firms are good examples. As security/payment questions are
answered, this model is likely to come into greater acceptance.
Highly-specialized sites should do better than general merchandise. 3)
Subscription-based models. This model attempts to bridge the gap between
pay-per-take pricing and free information on the Internet. They allow
all-you-can-eat access at a set price. Few have been successful to date, as the
technology to limit services to only paying subscribers has been lacking.
Q. How does DTN plan to make money on the Internet?
A.DTN is primarily targeting the subscription-based model. We have developed a
reliable means of ensuring that only a single subscriber per subscription can
access our service. It ensures that we are properly paid for our services. The
convenience and completeness of our information aggregation, coupled with our
proprietary information and trusted name in our primary industries and our low
marginal costs for providing such services should allow for some success on the
Internet.
Q.Given that DTN is aimed in that direction, is there any major impediment to
the success of a subscription-based model?
A. Yes. The basic culture of the net is somewhat chaotic with countless gurus
making statements such as "Information wants to be free". This is fine as long
as I am the user and someone else is the provider. (No one says that cars or ice
cream cones want to be free.) There is a significant cadre who feel that, once
they get access to the Internet, it is somehow un-American to be charged for
anything.
Q.Why doesn't DTN follow the advertising-supported model? What are the
weaknesses inherent in them?
A.In fact, we will be using aspects of this model as well. DTN has had
significant advertiser revenue for some time now on our existing products.
Success with our Web sites should reflect enhanced revenue as well. We have an
added leg up on competing sites, because we have already-established
relationships and accounts with advertisers. This is no small advantage.
Advertising-supported Internet models are most successful when the site
is inexpensive and of adequate quality to bring bodies through the gate. This
often means the emphasis is on new bodies, since they are more likely to explore
around and run into the advertising. Successful sites are often better known for
their novelty or cleverness (entertainment value?) than their true
business-oriented utility. Because advertising can make the site slower and more
complex, the ease of use to the subscriber and the advertising value are often
inversely related.
An ever-growing number of sites are dividing up a limited revenue pie
estimated as being less than $100 million in 1996. Considering the size of the
Web and the grandiose predictions, this is not a large pie to be divided. Bigger
estimates are often bandied about but they include the inferred value of
advertising done as a cashless swap or valued and then discounted to free to
lure in potential future revenue streams. As advertisers become more
knowledgeable about the Internet, the payment models are changing and it will
become more difficult to retain a meaningful piece of the pie. The successful
sites will be relatively few in number and will be the main WEB search engines
(YAHOO! et. al.) and the more successful entertainment-oriented sites (ESPN,
etc.). Serious information services do not yet appear to be successful using
this model.
Q.Death and Taxes are inevitable. When does the taxman come to the Web?
A.Soon. Some states, such as West Virginia, Tennessee, Texas, New York, and Ohio
are already imposing taxes on Internet access providers. Most other taxing
authorities are studying the issue. Their greatest difficulty lies in tracking
down the "from whom and by what method". To actually collect funds, they all
appear to be looking at a transactional model like taxes on long-distance
services. This model would provide big money and, for the Internet in general,
41
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<PAGE>
this is potentially a major time bomb looking for the spot marked X.
Since the Internet is international, cross-border taxes should be
expected. The UK has already introduced a VAT tax on Internet Access providers
via "a new interpretation" of the rules. Some use-based tax is thought to be not
far behind. If the German and Chinese governments can successfully censor
content that originates outside of their borders, taxing it wont be too
difficult. Governments will eventually go after this pot of gold notwithstanding
the political heat of a vocal base of users. This is where the money is.
Q.Is there any reason to believe that Internet pricing models are indeed
changing?
A.The first rumbles of recognition of the already-mentioned problems have
already occurred. The faults and defects of the Internet are slowly becoming
apparent to the mainstream media as well as to the techno-crowd. USA TODAY's Oct
30, 1996 headline proclaimed that "Net use strains phone lines". It went on to
state that, in one area of California, 16% of all calls did not connect, due
mainly to high Internet usage. This is not just Internet calls, but ALL calls!
The article went on to cite statistics about call volumes, call duration
comparisons, etc., which clearly indicate that the problems and risks to the
Internet that I describe are more than theoretical. Another good article, "Web
Snarl", appeared in the April 8, 1996 issue of Forbes magazine. The picture of
the Internet being painted in the media is slowly becoming more balanced in
nature. That is an important first step in laying the groundwork for needed
changes to be accepted in the future. Further evidence of change in the current
model is starting to appear. According to recent wire stories, the FCC is
considering allowing phone companies (the backbone providers) to raise their
monthly fees to access providers from an average of $30/month to approximately
$600/month. This is approximately what a long-distance carrier would pay for the
equivalent service. Pacific Bell found that the access providers and Internet
users are subsidized to the extent that they pay only 12% of what a
long-distance carrier would have to pay for the same line. Bell Atlantic's
access customers paid just 4.5% of the equivalent long-distance rates, even
though Internet users made longer calls, tying up more of the phone system
resources than did voice traffic. When the government supported the Internet and
was paying for these lines, it was in its best interest to keep the cost of
these lines low and to not tax them (as they would have been effectively taxing
themselves). Now that they do not pay the freight AND they can tax the gross,
the push to allow dramatic increases in pricing and to add taxes is obvious.
Q.What happens if/when the Internet has a serious failure?
A.In the short-term, a failure would be painful because it would strain the
perceptions of reliability and credibility that now exist. Over the long run,
this would probably result in needed changes.
As an example, consider Interactive Television (ITV). Two years ago, ITV
was the wave of the future. It was to obsolete every competing technology in its
path. ITV would fill nearly every need or want that could be thought of and be
in every room of every home within twelve to eighteen months. Licenses for ITV
spectrum were sold for megabucks! All this took place without working
production-level equipment or tested and proven business models. Today, ITV is
still suffering from its collision with reality. Incredible amounts of money are
being lost in the shake-out process that will leave ITV as a humbled, yet
entirely viable industry.
Interestingly enough, a shake-out of the Internet (resulting in some
form of pay-per-usage model) will probably be positive for DTN. Since DTN
targets the serious subscriber oriented towards business, a sifting out of the
chaff should eliminate the distractions that now proliferate. It would also tend
to make the users experience more positive from a reliability standpoint. By
analogy, its better to pay admittance to Disney World than to have it free to
everybody but too crowded to even enter. Most serious business users would
prefer less chaos on the Internet and more reliability-even at a price.
II. INTRANETS
DTN sees significant opportunity in the interesting variations of the
Internet known as Intranets. They are closed systems, normally within a business
organization, that use Internet standards and technology. While they are
compatible with Internet providers, they do not allow contact with the Internet
except through a barrier often called a firewall. This barrier protects the
corporate resources from being pirated from the outside, while restricting
outbound connections to the Internet by internal users. Hence, the organization
can use the same navigational and display tools, that are cheaply available for
Internet browsing, for use of internal distribution and control of information.
Common items found on Intranets are those that require wide-spread distribution
such as personnel policies, general announcements, training material, and
business-oriented news or information.
As to the opportunity for DTN? DTN is a great source for a broad range
of business-related information across many marketplaces. We can bypass the
less-than-reliable parts of the Internet with our satellite systems and feed the
corporate Intranet directly. We then use the network resources of the
organizations Intranet as an internal delivery and display system thus avoiding
the need to provide hardware for each node on the network. This is a natural
next step-a step that we are now taking.
As an aside, the proliferation of Intranets will contribute to the
degradation of performance problems on the Internet. The Internet model is
based, in part, on each new site taking resources from the Internet, but also
contributing resources in the form of computing power or communications
pathways.
42
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<PAGE>
Intranets, by virtue of their firewalls, take resources from the Internet, but
do not contribute much back to the common system. The law of unintended
consequences strikes again.
III. ADSL & CABLE MODEMS
These are two competing technologies that would, if widely available,
provide much faster access to the Internet by the user. Think of them as a
dramatically souped up engine that turns the Internet from a Model A into a
Jaguar. Both technologies are technically feasible, but require large
investments by the telephone and cable companies respectively. They are part of
the competing strategies that the respective industries have for taking away
each other's business. (Telephone companies want to be your cable providers.
Cable companies want to be your telephony providers.) These technologies may
also be slower in reaching widespread availability than first expected, due
partly to the magnitude of the investment required by the cable or telco
companies and to the financial squeeze that they are already in. These
technologies do address a significant problem-speed of download and access by
the user. What this will mean for the Internet is a toss-up. Will people pay the
price? (Currently, ADSL modems cost between $1,500 and $2,500 each, with monthly
connection costs of between $75 and $250 per month.) If the mass market won't
pay the price, will the providers build it? Stay tuned...
On the downside, these technologies will contribute significantly to the
demand side of the resource equation, placing incredible strains on the
infrastructure of the Internet. An earlier analogy likened the Internet to
drinking straws connected to a water main. The faster modems would shift the
description to fire hoses connected to the water main. While it means that any
one hose can get a lot more water, it also speeds the eventual failure of the
system. (The Internet has not been exempted from the general rule that, while
each problem may have its solution, each solution creates its own problems.) It
is unlikely that, in any near term, these technologies will be in widespread
usage beyond the early-adapters.
As an interesting side note, the cable and ADSL forces are not fighting
just each other. They also are faced with significant infighting, the fratricide
centering around conflicting standards and interoperability. This fight is
expected to go on for the next two to three years.
To close, I would reiterate that DTN is not a technology company. We are
an information and communications company that uses technology. We do not sell
technology-we sell value to our subscriber. This creates value for you, our
shareholders. We are working to maintain and enhance that value for the benefit
of all.
I hope that discussions such as this are helpful and interesting to you,
our shareholders. I continue to welcome your comments or questions, and will try
to use them to direct the subject matter for my comments in the coming quarterly
shareholder reports. You can reach me by E-Mail at [email protected], by phone at
(402)390-2328, or by FAX at (402)390-7188.
Very truly yours,
Robert S. Herman
Senior Vice President
Research and Technology
- 278 -
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Data Transmission Network Corporation
Omaha, Nebraska
We have audited the financial statements of Data Transmission Network
Corporation as of December 31, 1996 and 1995, and for each of the three years in
the period ended December 31, 1996 and have issued our report thereon dated
January 31, 1997; such financial statements and report are included in the 1996
Annual Report to Stockholders and are incorporated herein by reference. Our
audits also included the financial statement schedule of Data Transmission
Network Corporation, listed in Item 14(a)2. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
January 31, 1997
- 279 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 708,503
<SECURITIES> 0
<RECEIVABLES> 10,173,766
<ALLOWANCES> 520,000
<INVENTORY> 0
<CURRENT-ASSETS> 13,753,134
<PP&E> 223,012,991
<DEPRECIATION> 98,564,288
<TOTAL-ASSETS> 177,729,762
<CURRENT-LIABILITIES> 28,501,228
<BONDS> 97,747,823
0
0
<COMMON> 11,074
<OTHER-SE> 28,279,215
<TOTAL-LIABILITY-AND-EQUITY> 177,729,762
<SALES> 98,373,713
<TOTAL-REVENUES> 98,373,713
<CGS> 0
<TOTAL-COSTS> 91,462,922
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,432,270
<INCOME-PRETAX> (1,404,306)
<INCOME-TAX> (446,000)
<INCOME-CONTINUING> (958,306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (958,306)
<EPS-PRIMARY> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant [ x ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ x ] Definitive Proxy Statement
[ ] Definitive Addditional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e) (2))
DATA TRANSMISSION NETWORK CORPORATION
(Name of Registrant as Specified in its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ x ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------
3) Per unit price or other underlying value of transaction computer
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
----------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------
5) Total fee paid:
----------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
----------------------------------
2) Form, Schedule or Registration Statement No.:
-------------
3) Filing Party:
----------------------------------------------
4) Date Filed:
------------------------------------------------
2
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<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
(402) 390-2328
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 1997
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Data
Transmission Network Corporation, a Delaware corporation (the "Company"), will
be held at the Holiday Inn - Old Mill, 655 North 108th Avenue, Omaha, Nebraska
on Wednesday, April 23, 1997 at 10:00 A.M. Omaha time for the following
purposes, as more fully described in the accompanying Proxy Statement:
1. To elect seven directors to the Board of Directors.
2. To consider and vote upon a proposal to approve an amendment
to the Company's Stock Option Plan of 1989.
3. To consider and vote upon a proposal to ratify the appointment
of Deloitte & Touche LLP independent auditors for the Company
for the 1997 fiscal year.
4. To transact such other business as may properly come before the
meeting or any adjournments thereof.
Any action may be taken on any one of the foregoing proposals at the
meeting on the date specified above, or on any date or dates to which the
meeting may be adjourned. The Board of Directors of the Company has fixed the
close of business on March 5, 1997, as the record date for determination of the
stockholders of the Company entitled to notice of and to vote at the meeting.
All stockholders are cordially invited to attend the meeting in person.
However, to assure your representation at the meeting, please complete, date and
sign the enclosed proxy card and mail it promptly in the self-addressed envelope
provided. The giving of such proxy does not affect your right to vote in person
in the event you attend the meeting.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Brian L. Larson
------------------------------
Omaha, Nebraska Brian L. Larson
March 10, 1997 Secretary
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. AN ADDRESSED ENVELOPE
IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED
STATES.
3
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<PAGE>
<TABLE>
<CAPTION>
DATA TRANSMISSION NETWORK CORPORATION
Proxy Statement
Index Page
- -------------------------------------------------------------------------------
<S> <C>
Proxy Statement ........................................................... 1
Proxies ................................................................... 1
Voting Securities ......................................................... 1
Election of Directors ..................................................... 2
Ownership By Certain Beneficial Owners and Management ..................... 4
Executive Compensation .................................................... 6
Compensation Committee Report of Executive Compensation ................... 10
Amendment to Employee Stock Option Plan ................................... 12
Approval of Appointment of Auditors ....................................... 14
Transactions with Management .............................................. 14
Compensation Committee Interlocks and Insider Participation ............... 14
Stockholder Proposals for 1998 Annual Meeting ............................. 14
Section 16(a) Beneficial Ownership Reporting Compliance ................... 14
Other Matters ............................................................. 15
Miscellaneous ............................................................. 15
Exhibit A - Fifth Amendment to Stock Option Plan of 1989 .................. 16
</TABLE>
4
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<PAGE>
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 23, 1997
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Data Transmission Network Corporation, a
Delaware corporation (the Company"), to be used at the Annual Meeting of
Stockholders (the "Meeting") to be held at the Holiday Inn - Old Mill, 655 North
108th Avenue, Omaha, Nebraska on Wednesday, April 23, 1997, at 10:00 A.M. Omaha
time. Stockholders of record at the close of business on March 5, 1997 are
entitled to notice of and to vote at the Meeting. The Company's principal
executive offices are located at 9110 West Dodge Road, Suite 200, Omaha,
Nebraska 68114.
PROXIES
Proxies are being solicited by the Board of Directors of the Company with
all costs of the solicitation to be paid by the Company. If the accompanying
proxy is executed and returned, the shares represented by the proxy will be
voted as specified therein. A stockholder may revoke any proxy given pursuant to
this solicitation by delivering to the Company prior to the Annual Meeting a
written notice of revocation or by attending the Meeting and voting in person.
This notice of Annual Meeting of Stockholders, proxy statement and accompanying
proxy card are first being mailed to stockholders on or about March 14, 1997.
VOTING SECURITIES
At March 5, 1997, the Company had issued and outstanding 11,063,020 shares
of the Company's $.001 par value common stock. The Company effected a three for
one stock split on June 28, 1996, for shareholders of record on June 14, 1996.
The Company has no other class of voting securities outstanding. Each
stockholder voting in the election of directors may cumulate such stockholder's
votes and give one candidate a number of votes equal to the number of directors
to be elected multiplied by the number of votes to which such stockholder's
shares are entitled, or may distribute such votes on the same principle among as
many candidates as the stockholder chooses, provided that votes cannot be cast
for more than the total number of directors to be elected at the Meeting. The
seven nominees receiving the most votes at the Meeting will be elected as
directors. Each share has one vote on all other matters. An affirmative vote of
a majority of the shares present in person or by proxy and entitled to vote at
the meeting is required for approval of all items being submitted to the
stockholders for their consideration.
In accordance with Delaware law, a shareholder entitled to vote for the
election of directors can withhold authority to vote for all nominees or for
certain nominees for directors. Abstentions from either or both of the proposals
to amend the Company's Employee Stock Option Plan or to ratify the appointment
of auditors are treated as votes against the particular proposal. Broker
non-votes on either or both of the proposals to amend the Company's Employee
Stock Option Plan or to ratify the appointment of auditors are treated as shares
as to which voting power has been withheld by the beneficial holders of those
shares and, therefore, as shares not entitled to vote on the proposal as to
which there is the broker non-vote.
1
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<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
At the Meeting, the stockholders will elect a board of seven directors for
a term extending until the 1998 annual meeting of stockholders of the Company
and until their respective successors have been elected and qualify. The Board
of Directors has nominated for election or re-election as directors: Roger R.
Brodersen, Robert S. Herman, David K. Karnes, J. Michael Parks, Jay E. Ricks,
Greg T. Sloma and Roger W. Wallace. All of the nominees presently are serving as
directors of the Company. Proxies may be voted for seven directors.
If any nominee is unable to serve, the shares represented by all valid
proxies will be voted for the election of such substitute as the Board of
Directors may recommend or the Board of Directors may amend the By-Laws and
reduce the size of the Board. At this time, the Board knows of no reason why any
nominee might be unavailable to serve.
Set forth below is certain information as of March 5, 1997, with respect to
the nominees for election as directors of the Company. The information relating
to their respective business experience was furnished to the Company by such
persons.
<TABLE>
<CAPTION>
Nominee Age Positions and Offices with the Company Director Since
- ------- --- -------------------------------------- --------------
<S> <C> <C> <C>
Roger R. Brodersen 51 Chairman of the Board, 1984
Chief Executive Officer and Director
Robert S. Herman 44 Senior Vice President and Director 1984
David K. Karnes 48 Director 1989
J. Michael Parks 46 Director 1990
Jay E. Ricks 64 Director 1995
Greg T. Sloma 45 President, Chief Operating Officer 1993
and Director
Roger W. Wallace 40 Senior Vice President and Director 1984
</TABLE>
Mr. Brodersen 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.
Mr. Herman has served as Senior Vice President of the Company since 1989.
He served as Vice President of the Company from 1984 to 1989.
Mr. Karnes has served as President and Chief Executive Officer of The
Fairmont Group, Inc., a financial services and consulting firm, since 1989. He
is currently a Director of the Federal Home Loan Bank of Topeka and served as
its Chairman from 1989 to 1996. Mr. Karnes also served as a United States
Senator from 1987 to 1989.
2
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<PAGE>
Mr. Parks served as President and Chief Operating Officer of First Data
Resources Inc. from November 1993 to December 1994 and President of the Merchant
Services Group of First Data Resources Inc. from December 1991 to November 1993.
He also served as President and Chief Executive Officer of Call Interactive, an
affiliate of First Data Resources Inc., from 1989 to 1991. From 1976 to 1989,
Mr. Parks served as President or Senior Vice President of various American
Express Information Services Companies or their subsidiaries.
Mr. Ricks has served as Chairman of Douglas Communications Corporation, an
operator of cable television systems, since 1990. He was a partner in the law
firm of Hogan & Hartson in Washington, D.C., from 1970 to 1990. Mr. Ricks is a
director of Intelcom Group, Inc., a competitive access provider and operator of
several satellite teleports, since 1992.
Mr. Sloma has served as President of the Company since 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.
Mr. Wallace has served as Senior Vice President of the Company since 1989.
He served as Vice President of the Company from 1984 to 1989.
Board Meetings and Committees
- -----------------------------
The Board of Directors met four times during the fiscal year ended December
31, 1996. During fiscal 1996, with the exception of Mr. Karnes who was not
present at one meeting of the Board of Directors, all directors attended all of
the meetings of the Board of Directors, and related committees on which they
served. The Company does not have a Standing Nominating Committee.
The Audit Committee recommends the selection of the independent auditors,
reviews the scope of the audits performed by them and reviews their audit report
and any recommendations made by them relating to internal financial controls and
procedures. Members of the Audit Committee, which met twice during fiscal 1996,
are David K. Karnes, J. Michael Parks and Jay E. Ricks.
The Compensation Committee reviews and makes recommendations to the Board
of Directors regarding officers' compensation and the Company's employee benefit
plans; provided, however, the Compensation Committee administers the Company's
Stock Option Plan of 1989 through its Stock Option Plan Subcommittee, consisting
of all members of the Compensation Committee other than Greg T. Sloma. Members
of the Compensation Committee, which met once during fiscal 1996, are David K.
Karnes, J. Michael Parks, Jay E. Ricks and Greg T. Sloma.
Directors Compensation
- ----------------------
During fiscal 1996, each member of the Board of Directors who was not an
employee of the Company received $1,000 for each Board of Directors meeting
attended, $400 for each Audit Committee meeting attended and $1,000 for the
Compensation Committee meeting attended. Non-employee members of the Board of
Directors also receive awards under the Company's Non-Employee Directors Stock
Option Plan (the "Non-Employee Directors Plan"). Stock option grants under the
Non-Employee Directors Plan are automatic and occur each time a non-employee
director is elected, re-elected or appointed a director of the Company. In 1996,
David K. Karnes, J. Michael Parks and Jay E. Ricks each received an option to
purchase 6,000 shares of the Company's common stock at an exercise price of
$17.33 per share. The Non-Employee Directors Plan has been amended for fiscal
year 1997 to reduce from 6,000 to 4,500 the number of shares for which options
are to be awarded to each non-employee director. The exercise price of options
granted under the Non-Employee Directors Plan is the fair market value of the
common stock on the date of the option grant.
3
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<PAGE>
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as to the beneficial ownership
of the Company's common stock by each person or group who, as of March 5, 1997,
to the knowledge of the Company, beneficially owned more than 5% of the
Company's common stock:
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percent of
Beneficial Owner Of Ownership Class
- ------------------- ----------------- ----------
<S> <C> <C>
Roger R. Brodersen 1,648,355(1) 14.9%
16705 Ontario Plaza
Omaha, NE 68130
Furman Selz Incorporated 1,090,110(2) 9.9%
230 Park Avenue
New York, NY 10169
Wanger Asset Management, L.P., 1,053,800(3) 9.5%
Wanger Asset Management Ltd.,
and Ralph Wanger
227 West Monroe, Suite 3000
Chicago, IL 60606
Acorn Investment Trust, 750,000(4) 6.8%
Series Designated Acorn Fund
227 West Monroe Street, Suite 3000
Chicago, IL 60606
Peter H. Kamin and Peak Investment 620,400(5) 5.6%
Limited Partnership as a group
One Financial Center, Suite 1600
Boston, MA 02111
- ----------------------------------
<FN>
(1) This includes 80,000 shares subject to options exercisable within 60
days of March 5, 1997, 39,150 shares held in a trust for the benefit of Mr.
Brodersen's children, 36,999 shares beneficially owned by Mr. Brodersen's
spouse, and 19,137 shares allocated to Mr. Brodersen through his
participation in the Company's 401(k) Savings Plan.
(2) According to a Schedule 13G dated February 14, 1997, Furman Selz
Incorporated has sole voting and sole dispositive power over such shares.
(3) According to a Schedule 13G dated February 14, 1997, Wanger Asset
Management, L.P., Wanger Asset Management Ltd., and Ralph Wanger have
shared voting and shared dispositive power over such shares. Such shares
include 750,000 shares also shown in this table as beneficially owned by
Acorn Investment Trust, Series Designated Acorn Fund. Wanger Asset
Management, L.P. serves as investment adviser to such trust. Wanger Asset
Management Ltd. is the general partner of Wanger Asset Management, L.P.
Ralph Wanger is the principal stockholder of Wanger Asset Management Ltd.
(4) According to a Schedule 13G dated February 14, 1997, Acorn Investment
Trust has shared voting and shared dispositive power over such shares. Such
shares also are shown in this table as beneficially owned by Wanger Asset
Management, L.P. which is the investment advisor of Acorn Fund.
4
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<PAGE>
(5) According to a Schedule 13D, amended through December 30, 1994, and a
telephone conversation by the Secretary of the Company with Peter H. Kamin
on January 31, 1997, Peak Investment Limited Partnership ("Peak") is the
beneficial owner of 585,400 of these shares for which it has sole voting
and sole dispositive power. Peter H. Kamin is the sole general partner of
Peak with sole voting and sole dispositive power over the shares owned by
Peak and therefore also may be deemed to be the beneficial owner of such
585,400 shares. According to the Schedule 13D, as modified by such
telephone conversation, Mr. Kamin also is the beneficial owner of an
additional 35,000 shares for which he has sole voting and sole dispositive
power.
</FN>
</TABLE>
The following table sets forth information as to the shares of common stock of
the Company beneficially owned as of March 5, 1997, by each director of the
Company, by each nominee for election as a director of the Company, by each of
the executive officers named in the Summary Compensation Table beginning on page
6, and by all directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
Amount and Nature Percent of
Beneficial Owner of Ownership ( 1) Class (2)
- ------------------------------------ ------------------ ---------
<S> <C> <C>
Roger R. Brodersen 1,648,355 ( 3) 14.9%
Robert S. Herman 432,154 ( 4) 3.9%
David K. Karnes 61,935 ( 5) *
James J. Marquiss 138,586 ( 6) 1.3%
J. Michael Parks 44,999 ( 7) *
Jay E. Ricks 16,500 ( 8) *
Greg T. Sloma 152,349 ( 9) 1.4%
Roger W. Wallace 277,230 (10) 2.5%
All directors and executive officers
as a group (15 persons) 2,911,304 (11) 26.3%
* Less than 1.0%
- ------------------------------------
<FN>
( 1) The number of shares in the table include interests of the named
persons, or of members of the directors and executive officers as a group,
in shares held by the trustee of the Company's 401(k) Savings Plan. The
beneficial owners have sole investment power over these shares but do not
have sole voting power.
( 2) Shares subject to options exercisable within 60 days of March 5, 1997
are deemed to be outstanding for the purpose of computing the percentage
ownership of persons beneficially owning such options but have not been
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
( 3) Includes 80,000 shares subject to options exercisable within 60 days of
March 5, 1997, 39,150 shares which are held in trust for Mr. Brodersen's
children, 36,999 shares beneficially owned by Mr. Brodersen's spouse, and
19,137 shares allocated to Mr. Brodersen through his participation in the
Company's 401(k) Savings Plan.
5
- 289 -
<PAGE>
( 4) Includes 92,048 shares subject to options exercisable within 60 days
of March 5, 1997, 6,645 shares beneficially owned by Mr. Herman's spouse,
and 15,779 shares allocated to Mr. Herman through his participation in
the Company's 401(k) Savings Plan.
( 5) Includes 32,499 shares subject to options exercisable within 60 days of
March 5, 1997.
( 6) Includes 63,874 shares subject to options exercisable within 60 days of
March 5, 1997 and 14,712 shares allocated to Mr. Marquiss through his
participation in the Company's 401(k) Savings Plan.
( 7) Includes 30,999 shares subject to options exercisable within 60 days of
March 5, 1997.
( 8) Includes 13,500 shares subject to options exercisable within 60 days of
March 5, 1997.
( 9) Includes 123,000 shares subject to options exercisable within 60 days
of March 5, 1997, 4,212 shares beneficially owned by Mr. Sloma's children
and 22,687 shares allocated to Mr. Sloma through his participation in the
Company's 401(k) Savings Plan.
(10) Includes 92,048 shares subject to options exercisable within 60 days
of March 5, 1997, 4,500 shares beneficially owned by Mr. Wallace's spouse,
and 15,832 shares allocated to Mr. Wallace through his participation in the
Company's 401(k) Savings Plan.
(11) Includes 654,370 shares subject to options exercisable within 60 days
of March 5, 1997, 39,150 shares held in trust for the children of executive
officers and directors, 52,356 shares owned beneficially by spouses or
children of executive officers and directors, and 96,666 shares allocated
to executive officers through their participation in the Company's 401(k)
Savings Plan.
</FN>
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the Chief
Executive Officer and the four remaining most highly compensated executive
officers of the Company for the fiscal year ended December 31, 1996.
<TABLE>
Summary Compensation Table
- ------------------------------------------------------------------------------------------
Long Term
Annual Compensation Compensation
--------------------------- ------------
(a) (b) (c) (d) (e) (f) (g)
- -------------------------- ----- ------- --------- -------- ---------- ---------------
Other Securities
Annual Underlying
Name and Principal Compen- Options All Other
Position Year Salary Bonus sation(1) (shares) Compensation(2)
- -------------------------- ---- ------- -------- --------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Roger R. Brodersen 1996 $179,172 $112,178 $0 240,000(3) $9,500
Chairman, & 1995 172,000 147,897 0 30,000 9,240
Chief Executive Officer 1994 165,000 80,217 0 30,000 9,240
Greg T. Sloma 1996 145,996 147,707(4) 0 16,500(5) 9,500
President & 1995 140,000 131,466 0 18,000 9,240
Chief Operating Officer 1994 135,000 65,712 0 18,000 2,464
Robert S. Herman 1996 120,865 97,707 0 7,500 9,500
Senior Vice President 1995 115,000 131,466 0 15,000 9,240
1994 110,000 71,304 0 15,000 6,160
Roger W. Wallace 1996 120,858 108,390 0 7,500 9,170
Senior Vice President 1995 115,000 126,227 0 15,000 9,240
1994 110,000 70,108 0 15,000 7,204
James J. Marquiss 1996 120,858 108,390 0 6,000 9,170
Senior Vice President 1995 115,000 125,843 0 12,000 9,240
1994 110,000 62,540 0 9,000 6,902
6
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<PAGE>
<FN>
(1) Excludes perquisites and other benefits because the aggregate of such
compensation was less than either $50,000 or 10% of the total of annual
salary and bonus reported for the named executive officer.
(2) The amounts included in the All Other Compensation column represent
401(k) matching contributions made by the Company.
(3) This amount includes 225,000 shares underlying a replacement option
issued to Mr. Brodersen in exchange for the surrender of outstanding,
unexpired and unexercised options to acquire an aggregate of 117,999 shares
previously awarded to Mr. Brodersen under the Company's Stock Option Plan
of 1989. See Footnote 2 to the table captioned Option Grants In Last Fiscal
Year for additional information concerning such replacement option.
(4) This amount includes a $50,000 bonus awarded to Mr. Sloma for his
performance related to the acquisition of Broadcast Partners by the
Company.
(5) This amount includes 7,500 shares subject to an option awarded to Mr.
Sloma for his performance related to the acquisition of Broadcast Partners
by the Company.
</FN>
</TABLE>
The following table shows, as to the Chief Executive Officer and the four
remaining most highly compensated executive officers of the Company, information
about stock option grants in fiscal 1995. The Company does not grant any Stock
Appreciation Rights.
<TABLE>
<CAPTION>
Option Grants In Last Fiscal Year
- -------------------------------------------------------------------------------
Individual Grants
- -------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f)
- ------------------ ----------- ------------ ----------- --------- ---------
Number of
Securities Percent of
Underlying Total Options
Options Granted to Exercise Grant Date
Granted Employees In Price Expiration Present
Name (shares)(1) Fiscal 1995 (Per share) Date Value (4)
- ------------------ ----------- ------------ ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Roger R. Brodersen 240,000(2) 46.1% $15.50 1-05-06 $1,974,900
Greg T. Sloma 9,000 1.7% 15.50 1-05-06 74,100
7,500(3) 1.4% 20.83 5-13-06 82,900
Robert S. Herman 7,500 1.4% 15.50 1-05-06 61,700
Roger W. Wallace 7,500 1.4% 15.50 1-05-06 34,100
James J. Marquiss 6,000 1.2% 15.50 1-05-06 27,300
<FN>
(1) Except as indicated in the footnotes to this table, the options
referred to in this table were granted by the Stock Option Plan Committee
on January 5, 1996 under the Company's Stock Option Plan of 1989.
7
- 291 -
<PAGE>
(2) This amount includes 225,000 shares underlying a replacement option
issued to Mr. Brodersen in exchange for the surrender of outstanding,
unexpired and unexercised options to acquire an aggregate of 117,999 shares
of common stock of this corporation previously awarded to Mr. Brodersen
under the Company's Stock Option Plan of 1989. The surrendered options
exercisable for 117,999 shares were considered for tax purposes as
Incentive Stock Options (ISO's), whereas, the replacement option for
225,000 shares is considered for tax purposes as a Non-Qualified Stock
Option. The weighted average exercise price per share of the surrendered
options was $6.28, while the exercise price of the replacement option was
the fair market value of the common stock on January 5, 1996 or $15.50 per
share.
(3) This amount represents shares underlying an option awarded to Mr. Sloma
on May 13, 1996 for his performance related to the acquisition of Broadcast
Partners by the Company.
(4) As suggested by the Securities & Exchange Commission's rules on executive
compensation, the Company used the Black-Scholes model of option valuation
to determine grant date present value. The Company does not necessarily
agree that the Black-Scholes model can properly determine the value of an
option. The actual value, if any, an executive may realize will depend on
the excess of the stock price over the exercise price on the date the
option is exercised, so that there is no assurance that the value realized
will be at or near the value estimated by the Black-Scholes model.
</FN>
</TABLE>
<TABLE>
<CAPTION>
The following table provides information on option exercises in fiscal 1996
and the value of unexercised options at December 31, 1996 for the Chief
Executive Officer and the four remaining most highly compensated executive
officers.
Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year End Option Values
- ----------------------------------------------------------------------------------------------
Number of Securities
Shares Underlying Unexercised Value of Unexercised
Acquired Options at Fiscal In-the-Money Options
On Value Year End (shares) At Fiscal Year End(1)
----------- ------------- ----------- -------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ------------------ -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger R. Brodersen - $ 0 0 240,000 $0 $1,440,000
Greg T. Sloma. - 0 85,500 57,000 1,395,500 709,500
Robert S. Herman - 0 79,548 22,500 1,314,500 268,400
Roger W. Wallace - 0 79,548 22,500 1,314,500 268,400
James J. Marquiss - 0 54,874 17,000 908,900 202,000
<FN>
(1) The closing "bid" price of the Company's common stock as quoted by NASDAQ
on December 31, 1996 was $21.50. The values shown are computed based upon
the difference between this price and the exercise price of the underlying
options.
</FN>
</TABLE>
8
- 292 -
<PAGE>
Performance Graph
The following performance graph compares the performance of the Company's
common stock to the Center for Research in Securities Prices (CRSP) Total Return
Index for the NASDAQ Stock Market (U.S. Companies) and to the CRSP Total Return
Industry Index for NASDAQ Telecommunications Stocks. The graph assumes that the
value of the investment in the Company's Common Stock and each index was $100 at
December 31, 1991.
<TABLE>
<CAPTION>
Nasdaq
Nasdaq Total Telecommunications
Year DTN Return Index Industry Index
- ---- --- ------------ ------------------
<C> <C> <C> <C>
1991 100 100 100
1992 118 116 123
1993 219 134 189
1994 142 131 158
1995 410 185 207
1996 556 227 212
</TABLE>
9
- 293 -
<PAGE>
COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Compensation Philosophy
- -----------------------
The Company strives to apply a consistent philosophy on compensation for
all employees, including senior management. The goals of the compensation
program are to directly link compensation with corporate profitability and the
enhancement of the underlying value of the Company's business. The following
objectives are used by the Company and the Compensation Committee as guidelines
for compensation decisions:
o Provide a competitive total compensation package that allows the
Company to attract and retain the best people possible.
o The Company pays for performance. Employees are rewarded based upon
corporate performance, business unit performance and individual
performance.
o Provide variable compensation programs that are linked with the
performance of the Company and that align executive compensation with
the interests of shareholders.
Compensation Program Components
- -------------------------------
The Committee annually reviews the Company's compensation program to ensure
that pay levels and incentive opportunities are competitive and reflect the
performance of the Company. The components of the compensation program for
executive officers, which are comparable to those used for all employees, are
outlined below.
Base Salary - Base pay levels are determined by reviewing competitive
positions in the market, including comparisons with companies of similar size,
complexity and growth rates. Modest increases in base salary were recommended by
senior management for fiscal 1996 for the Chief Executive Officer and the other
executive officers named in the Summary Compensation Table, and the Committee
acted in accordance with this recommendation.
Annual Incentive Compensation - The large majority of the Company's
employees, including the executive officers, participate in an annual bonus
plan. For fiscal 1996, the bonus pool was eight percent of the Company's income
before income taxes and depreciation and amortization expenses of which
approximately 75% was earned and will be paid. The five executive officers named
in the Summary Compensation Table received approximately thirty-three percent of
this bonus pool.
Stock Option Program - The purpose of this program, which is available to
the large majority of employees, is to provide additional incentives to
employees to work to maximize long-term shareholder value. It also uses vesting
periods to encourage key employees to continue in the employ of the Company. The
number of stock options granted to executive officers is based on competitive
practices.
10
- 294 -
<PAGE>
CEO Compensation
- ----------------
The factors and criteria upon which Mr. Brodersen's compensation was based
for fiscal year 1996 are the same as those considered by the Committee in
establishing the compensation program for all of the executive officers of the
Company as outlined above. The annual base salary of Mr. Brodersen was
established by the Committee on February 29, 1996 for the calendar year 1996.
The Committee's decision was based on Mr. Brodersen's personal performance of
his duties and on salary levels to chief executive officers of companies of
similar size, complexity and growth rates.
Mr. Brodersen's 1996 fiscal year incentive cash compensation was based on
the actual financial performance of the Company. His annual cash bonus award was
based on the bonus pool described above and represented approximately seven
percent of the bonus pool awarded for 1996.
An option grant for 15,000 shares was awarded to Mr. Brodersen under the
Company's Employee Stock Option Plan based upon his performance and leadership
with the Company. The grant placed a significant portion of his total
compensation at risk, since the value of the option depends on the appreciation
of the Company's common stock over the option term. On January 5, 1996, Mr.
Brodersen also surrendered unexpired and unexercised options previously awarded
to him under the plan in exchange for a replacement option. Such replacement
option was not considered as part of the Company's 1996 compensation program. It
was an isolated occurrence where the Company obtained cancellation of options
with exercise prices substantially below fair market value by exchanging a
replacement option with additional shares and an extended option term, but with
an exercise price equal to the fair market value of the common stock on the date
the replacement option was granted. See Footnote 2 to the table captioned Option
Grants In Last Fiscal Year for additional information concerning such
replacement option.
Compensation Committee
of the Board of Directors
-------------------------
David K. Karnes
J. Michael Parks
Jay E. Ricks
Greg T. Sloma
11
- 295 -
<PAGE>
PROPOSAL NO. 2
AMENDMENT TO EMPLOYEE STOCK OPTION PLAN
Description of Employee Stock Option Plan
- -----------------------------------------
The Company's Stock Option Plan of 1989 (the "Plan") provides for the grant
of options to purchase shares of the Company's common stock to full-time
employees of the Company. The Plan is administered by a subcommittee of the
Compensation Committee of the Board of Directors consisting of the non-employee
directors (the "Committee").
Options granted under the Plan are exercisable pursuant to a three-year
vesting schedule and they terminate no later than ten years from the date of
their grant. If employment ends sooner than the end of an options specified
exercise period, the options terminate six months after the termination of the
participant's employment for any reason other than disability or death. In the
event of disability or death, they terminate twelve months after such disability
or death.
The Plan currently reserves for issuance 2,100,000 shares of the Company's
common stock. The maximum number of shares for which options may be granted
under the Plan was adjusted from 700,000 to 2,100,000 as a result of a three for
one stock split effective June 28, 1997 for stockholders of record June 14,
1996. The Board of Directors proposes the adoption of the Fifth Amendment to the
Plan which accompanies this Proxy Statement as Exhibit "A" (the "Fifth
Amendment"). The Fifth Amendment will amend the Plan by increasing from
2,100,000 shares to 2,800,000 shares the total number of shares for which
options may be granted under the Plan.
Subject to the express provisions of the Plan, the Committee has complete
authority, in its discretion, to interpret the Plan and select those eligible
participants to whom and the terms upon which options shall be granted. No
options shall be granted at an exercise price less than 100% of the fair market
value of the shares at the date of the grant. As of March 5, 1997, the market
value of the shares of common stock of the Company, determined by the closing
"bid" price of such shares as reported by the NASDAQ system for such day, was
$23.38 per share. No cash consideration is to be received by the Company for the
granting of options pursuant to the Plan.
In the event of any changes in the number of issued shares through stock
splits, dividends, or other change in capitalization, the total number of shares
under the Plan is to be adjusted so that the aggregate consideration due the
Company and the value of each benefit shall not change.
Plan Activity
- -------------
As of March 5, 1997, options to purchase an aggregate of 388,344 shares of
common stock issued under the Plan had been exercised, and options to purchase
1,587,576 shares were outstanding. Without taking into account the proposed
amendment to the Plan, 124,080 shares remained available for future grants as of
March 5, 1997.
The table under the caption "Option Grants in Last Fiscal Year" provides
information with respect to the grant of options under the Plan to the Chief
Executive Officer and the next four most highly compensated executive officers
during fiscal year 1996. The following table sets forth additional information
with respect to options granted under the Plan during the fiscal year 1996 to
certain groups:
12
- 296 -
<PAGE>
<TABLE>
<CAPTION>
Option
Weighted Average Shares
Identity of Group Exercise Price Granted
- --------------------------- ---------------- --------
<S> <C> <C>
All executive officers as a
group (12 persons) $15.63 298,500
Non-executive officer
employees as a group
(approximately 610 persons) $15.53 222,300
</TABLE>
Certain United States Federal Income Tax Information
- ----------------------------------------------------
The Plan provides for the issuance of both incentive stock options and
non-qualified options. The two types of options are subject to differing federal
income tax treatment. There generally are no federal income tax consequences
either to the participant or the Company upon the grant of an option under the
Plan. Upon the exercise of an incentive stock option, the participant will not
recognize any income for income tax purposes, and the Company will not be
entitled to a deduction for income tax purposes, although such exercise may give
rise to a liability on the part of the participant under the alternative minimum
tax provisions of the Internal Revenue Code. Generally, if the participant
disposes of shares acquired upon the exercise of an incentive stock options
within two years after the date of grant or one year after the date of exercise,
the participant will recognize compensation income, and the Company will be
entitled to a deduction for income tax purposes, in the amount of the excess of
the fair market value of the shares of common stock of the Company on the date
of exercise over the option exercise price (or the gain upon such sale, if
less). Otherwise, the Company will not be entitled to any deduction for income
tax purposes upon the disposition of such shares, and the participant's entire
gain will be treated as a capital gain. Upon the exercise of a non-qualified
stock option, the amount by which the fair market value of the common stock of
the Company on the date of exercise exceeds the option exercise price generally
will be taxable to the participant as compensation income and generally will be
deductible for income tax purposes by the Company. The disposition of shares of
common stock of the Company acquired upon the exercise of a non-qualified stock
option generally will result in a capital gain or loss for the participant but
will have no tax consequences for the Company.
Amendment To Employee Stock Option Plan
- ---------------------------------------
The Board of Directors has unanimously approved, and recommends to the
stockholders for their approval and adoption, the Fifth Amendment to the Plan
which will increase from 2,100,000 to 2,800,000 the total number of shares for
which options may be granted under the Plan. The Board of Directors has
determined that the ability of the Company to continue to attract and retain
highly qualified employees will be enhanced by the continued grant of options
under the Plan and, accordingly, recommends a vote FOR adoption of the Fifth
Amendment. The affirmative vote of a majority of the shares of the Company's
common stock present in person or by proxy at the meeting is required for the
adoption of the Fifth Amendment.
The full text of the amended Plan is available to any shareholder without
charge by oral or written request to the Company Secretary, Data Transmission
Network Corporation, 9110 West Dodge Road, Suite 200, Omaha, NE 68114, telephone
(402) 390-2328. A copy of the Plan document will be sent by first class mail to
the requesting party promptly upon receipt of the request by the Company
Secretary.
13
- 297 -
<PAGE>
PROPOSAL NO. 3
APPROVAL OF APPOINTMENT OF AUDITORS
The Board of Directors has, upon the recommendation of the Audit Committee,
appointed the firm of Deloitte & Touche LLP to audit the Company's financial
statements for the fiscal year ending December 31, 1997, subject to ratification
by the stockholders of the Company. Deloitte & Touche LLP served as the
Company's auditors for the 1996 fiscal year.
Ratification of the appointment of the independent auditors requires the
affirmative vote of a majority of the shares of Common Stock present, in person
or by proxy, and voting at the Meeting. If the stockholders should not ratify
the appointment of Deloitte & Touche LLP, the Board of Directors will reconsider
the appointment.
A representative of Deloitte & Touche LLP is expected to be present at the
Meeting, will have an opportunity to make a statement if desired, and will be
available to respond to appropriate stockholder questions.
The Board of Directors recommends a vote FOR the approval of the
appointment of Deloitte & Touche LLP as independent auditors for the Company.
TRANSACTIONS WITH MANAGEMENT
No reportable transactions occurred during fiscal 1996 between the Company
and its officers and directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following directors served on the Compensation Committee of the
Company's Board of Directors: David K. Karnes, J. Michael Parks, Jay E. Ricks
and Greg T. Sloma. Mr. Sloma, because he is an officer and employee of the
Company, abstains from all votes dealing with officer compensation. Also, only
Mr. Karnes, Mr. Parks and Mr. Ricks are members of the Stock Option Plan
Subcommittee of the Compensation Committee which administers the Company's Stock
Option Plan of 1989.
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals of stockholders for which consideration is desired at the 1998
Annual Meeting of Stockholders must be received by the Company no later than
December 31, 1997, in order to be considered for inclusion in the Company's
proxy statement and form of proxy relating to such meeting. Any such proposals
shall be subject to the requirements of the proxy rules adopted under the
Securities Exchange Act of 1934, as amended.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
holders of more than 10% of the Company's common stock to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes in ownership of common stock and other equity securities of the Company.
The Company believes that during the fiscal year ended December 31, 1996, its
executive officers, directors and holders of more than 10% of the Company's
common stock complied with all Section 16(a) filing requirements, with the
following exception. James J. Marquiss, an officer, filed one late Form 4 for
the month of November 1996 with respect to a single transaction involving shares
of the Company's Common Stock sold by him during such month. In making these
statements, the Company has relied solely upon a review of Forms 3 and 4
furnished to the Company during its most recent fiscal year, Forms 5 furnished
to the Company with respect to its most recent fiscal year, and written
representations from reporting persons that no Form 5 was required
14
- 298 -
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in the Proxy Statement.
However, if any other matters should properly come before the meeting, the
persons named in the accompanying form of proxy will have discretionary
authority to vote all proxies with respect thereto in accordance with their
judgement.
MISCELLANEOUS
The cost of solicitation of proxies will be borne by the Company. The
Company will, upon request, reimburse brokerage firms and other custodians,
nominees and fiduciaries for reasonable expenses incurred by them in sending
proxy material to the beneficial owners of Common Stock. In addition to
solicitations by mail, directors, officers, and regular employees of the Company
may solicit proxies personally or by telegram or telephone without additional
compensation. The Company has retained First National Bank of Omaha, the
Company's stock transfer agent, to assist in the distribution and solicitation
of proxies at a cost of approximately $3,000, including the reimbursement of
certain expenses.
The Company's Annual Report to Stockholders, including financial
statements, has been mailed to all stockholders of record as of the close of
business on March 5, 1997. Any stockholder who has not received a copy of such
Annual Report may obtain a copy by writing the Company. Such Annual Report is
not to be treated as a part of this proxy solicitation material nor as having
been incorporated herein by reference.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, the Compensation Committee Report on page 10 and the
Performance Graph on page 9 shall not be incorporated by reference into any such
filings.
THE BOARD OF DIRECTORS
Omaha, Nebraska
March 10, 1997
A COPY OF THE FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, EXCLUDING EXHIBITS, WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS
AS OF THE RECORD DATE UPON WRITTEN REQUEST TO THE SECRETARY, DATA TRANSMISSION
NETWORK CORPORATION, 9110 WEST DODGE ROAD, SUITE 200, 0MAHA, NEBRASKA 68114.
15
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<PAGE>
Exhibit A
FIFTH AMENDMENT TO
DATA TRANSMISSION NETWORK CORPORATION
STOCK OPTION PLAN OF 1989
PREAMBLE
Data Transmission Network Corporation, a Delaware corporation (the
"Company"), adopted the Data Transmission Network Corporation Stock Option Plan
of 1989 (the "Plan") effective as of February 15, 1989. The Plan was previously
amended by a First Amendment effective as of January 15, 1990, a Second
Amendment effective as of January 2, 1991, a Third Amendment effective as of May
1, 1991 and a Fourth Amendment effective as of January 3, 1994. In addition, in
accordance with Section 4 of Article I of the Plan, the terms of the Plan were
adjusted to reflect the effect of a three for one stock split implemented by the
Company on June 28, 1997. Section 1 of Article III of the Plan provides that the
Board of Directors of the Company or any authorized committee of the Board of
Directors may from time to time amend the Plan with shareholder approval
required under certain circumstances. Except as modified by or specifically
defined in this Fifth Amendment, capitalized terms used in this Fifth Amendment
shall have the meanings given to such terms in the Plan.
AMENDMENT
Subject to ratification and approval by the shareholders of the Company at
their annual meeting to be held on the 23rd day of April, 1997, the Plan is
hereby amended, effective as of May 1, 1997, as follows:
1. Subsections (a) and (b) of Section 1 of Article II of the Plan shall be
amended by increasing from 2,100,000 to 2,800,000 Shares the total number of
Shares for which Options may be granted under the Plan.
2. Except as specifically amended by this Fifth Amendment, the Plan, as
previously amended, shall remain in full force and effect and is hereby ratified
and confirmed.
16
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<PAGE>
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17
- 301 -
<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
9110 West Dodge Road, Suite 200
Omaha, NE 68114
18
- 302 -
<PAGE>
DATA TRANSMISSION NETWORK CORPORATION PROXY
Annual Meeting of Stockholders To Be Held April 23, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Roger R. Brodersen and Brian L. Larson, or
either of them, as proxies of the undersigned, with full power of substitution
to either of them, and hereby authorizes them to vote as designated below all
shares of common stock of Data Transmission Network Corporation held of record
by the undersigned on March 5, 1997 at the Annual Meeting of Stockholders to be
held on April 23, 1997 and at any adjournments thereof (a) on the following
matters and (b) on any other matters that properly may come before the meeting
or any adjournments thereof:
1. ELECTION OF DIRECTORS
FOR all nominees listed below (except as marked)
-----
WITHHOLD AUTHORITY to vote for all nominees listed below
-----
(INSTRUCTIONS: To withhold authority to vote for any individual nominee(s), draw
a line through the nominee's name below.)
Roger R. Brodersen Robert S. Herman David K. Karnes J. Michael Parks
Jay E. Ricks Greg T. Sloma Roger W. Wallace
2. PROPOSAL TO AMEND STOCK OPTION PLAN OF 1989.
FOR
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AGAINST
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ABSTAIN
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3. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP as independent
auditors of the Corporation for fiscal year ending December 31, 1997
AGAINST ABSTAIN
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This proxy will be voted as specified. IF NO SPECIFICATION IS GIVEN, THIS PROXY
WILL BE VOTED FOR THE PROPOSALS SET FORTH ABOVE. The undersigned hereby
acknowledges receipt of the Notice of Annual Meeting of Stockholders of Data
Transmission Network Corporation to be held on April 23, 1997 and the Proxy
Statement for such meeting.
Dated , 1997
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(Signature of Stockholder)
Note: Please sign exactly as name appears on stock certificate (as Indicated on
reverse side). All joint owners should sign. When signing as personal
representative, executor, administrator, attorney, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporation name
by president or other authorized person. If a partnership, please sign in
partnership name by a partner.
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