SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 1, 1998
DATA TRANSMISSION NETWORK CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 0-15405 47-0669375
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
9110 West Dodge Road, Suite 200
Omaha, Nebraska 68114
(402) 390-2328
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On July 1, 1998, the registrant acquired all of the outstanding shares
of capital stock of Kavouras, Inc., a Minnesota corporation, pursuant to a Stock
Purchase Agreement dated March 30, 1998 among the registrant and the holders of
all of the common stock of Kavouras, Inc. and an Agreement Regarding Stock
Acquisition dated March 30, 1998 among Stephen P. Kavouras and two trusts of
which he is a beneficiary and which were the controlling shareholders of
Kavouras, Inc. (collectively the "Controlling Shareholders") and the registrant.
Copies of such agreements are filed as Exhibits to this Form 8-K Current Report.
Kavouras, Inc. is engaged in the development, design, manufacture,
marketing and service of meteorological equipment and in the business of
providing meteorological data services to government, aviation and commercial
broadcast users. The registrant intends to continue to use the physical assets
of Kavouras, Inc. (which includes a network of transmitters throughout the
United States of America through which it provides its customers with color
video displays and hard copies of weather radar, weather satellite and
alphanumeric weather information) for the same business purposes. Kavouras, Inc.
has been and will be a major supplier of meteorological data for the
registrant's weather information services.
The aggregate consideration given for the common stock of Kavouras,
Inc. consisted of $16,400,000 in cash, of which $13,717,961 was paid to the
Controlling Shareholders. The amount of the acquisition consideration was
determined by the registrant based upon its analysis of the financial
projections of Kavouras, Inc., the strategic position in the weather information
business to be gained with the combination of weather products and services
provided by Kavouras, Inc. and the registrant, and negotiations with Kavouras,
Inc. which had other bidders. The acquisition of Kavouras, Inc. gives the
registrant control of a major source of its timely weather information, entry
into high-end weather markets (television broadcasting), vertical integration
from the weather source (radar) to the final weather data display, and access to
international weather markets.
As part of the acquisition, the registrant entered into a
Confidentiality and Non-Competition Agreement with Stephen P. Kavouras pursuant
to which he agrees not to compete with the registrant in certain business in
exchange for consideration of $4,000,000. In addition, the registrant entered
into a five year employment agreement with Stephen P. Kavouras, which includes a
$450,000 signing bonus. The registrant also agreed with the Controlling
Shareholders to have Kavouras, Inc. distribute retention bonuses to certain of
its key employees.
The funds used to finance the acquisition were borrowed by the
registrant under its revolving credit facility with First National Bank of
Omaha, First National Bank, Wahoo, Nebraska, NBD Bank, N.A., Norwest Bank
Nebraska, N.A., Bank of Montreal, LaSalle National Bank, Mercantile Bank of St.
Louis, N.A., U.S. Bank, National Association, and Nationsbank, N.A.
Details of such acquisition also are contained in the news releases
issued by the registrant on March 31, 1998 and July 6, 1998, copies of which are
filed as Exhibits to this Form 8-K Current Report.
-2-
<PAGE>
Item 7. Financial Statements and Exhibits.
(a) Historical audited financial statements and notes of Kavouras,
Inc. for years ended December 31, 1996 and 1997 and interim
unaudited financial statements for six months ended June 30,
1998.
(b) Pro Forma unaudited combined financial statements and notes of
Data Transmission Network Corporation and Kavouras, Inc. for year
ended December 31, 1997 and for six months ended June 30, 1998.
(c) Exhibits
2.1 Stock Purchase Agreement dated March 30, 1998, among the
holders of all of the common stock of Kavouras, Inc. and
Data Transmission Network Corporation.
2.2 Agreement Regarding Stock Acquisition dated March 30, 1998,
among the Controlling Shareholders and Data Transmission
Network Corporation.
23.1 Consent of PricewaterhouseCoopers LLP
99.1 News release of Data Transmission Network Corporation dated
March 31, 1998.
99.2 News release of Data Transmission Network Corporation dated
July 6, 1998.
-3-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: September 11, 1998
DATA TRANSMISSION NETWORK CORPORATION
By:/s/ Brian L. Larson
Brian L. Larson, Vice President,
Chief Financial Officer, Secretary
And Treasurer
-4-
<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
Financial Statement Index
Item No. Page No.
7a. Historical audited financial statements and notes 6
of Kavouras, Inc. for years ended December 31,
1996 and 1997 and interim unaudited financial
statements for six months ended June 30, 1998.
7b. Pro Forma unaudited combined financial statements 19
and notes of Data Transmission Network Corporation
and Kavouras, Inc. for year ended December 31,
1997 and for six months ended June 30, 1998.
-5-
<PAGE>
ITEM 7a.
Historical audited financial statements and notes of Kavouras, Inc. for
years ended December 31, 1996 and 1997 and interim unaudited financial
statements for six months ended June 30, 1998.
-6-
<PAGE>
Report of Independent Accountants
To the Directors and Stockholders of
Kavouras, Inc.:
We have audited the accompanying consolidated balance sheets of Kavouras, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of operations and retained earnings and cash flows for the years then
ended. 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kavouras, Inc. and
subsidiaries as of December 31, 1997 and 1997, and the consolidated results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, on March 30,
1998, the Company entered into a stock purchase agreement to sell the Company.
Minneapolis, Minnesota PricewaterhouseCoopers LLP
April 6, 1998
-7-
<PAGE>
Kavouras, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1996
------------- ---- ----
ASSETS unaudited
Current assets:
<S> <C> <C> <C>
Cash $ 254,147 $ 119,512 $ 11,071
Receivables, net of allowance for doubtful
Accounts of $60,000 and $100,000 in
1997 and 1996, respectively 2,293,385 2,105,047 2,703,535
Inventories 5,294,939 4,091,387 4,028,031
Prepaid expenses and other 221,628 258,282 154,045
Deferred income taxes 226,000 226,000 164,000
----------- ----------- -----------
Total current assets 8,290,099 6,800,228 7,060,682
----------- ----------- -----------
Property and equipment, net 5,859,479 5,792,023 6,108,982
Deferred income taxes - - 38,000
Other assets 274,468 190,268 197,642
----------- ----------- -----------
Total assets $14,424,046 $12,782,519 $13,405,306
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under revolving credit agreement 1,980,936 - 1,899,170
Notes payable, current 80,501 72,599 62,668
Capital lease obligations, current 267,697 272,204 363,268
Cash overdraft - - 126,519
Accounts payable 2,080,343 943,652 1,732,459
Accrued expenses 550,234 1,598,635 907,851
Customer deposits 712,488 886,968 739,933
----------- ----------- -----------
Total current liabilities 5,672,199 3,774,058 5,831,868
----------- --------- ---------
Notes payable, noncurrent 2,371,445 2,416,322 2,492,139
Capital lease obligations, non current 527,721 661,118 710,652
Deferred income taxes 119,000 119,000 -
----------- ----------- -----------
Total liabilities 8,690,365 6,970,498 9,034,659
----------- ----------- -----------
Stockholders' equity:
Common stock, $100 par value, 250 shares
authorized, 155-5/12 shares issued and
outstanding 15,542 15,542 15,542
Additional paid-in capital 23,538 23,538 23,538
Retained earnings 5,694,601 5,924,991 4,487,997
Stockholder note receivable - (152,050) (156,430)
----------- ----------- -----------
Total stockholders' equity 5,733,681 5,812,021 4,370,647
----------- ----------- -----------
Total liabilities and stockholders' equity $14,424,046 $12,782,519 $13,405,306
=========== =========== ===========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
-8-
<PAGE>
Kavouras, Inc.
Consolidated Statements of Operations and Retained Earnings
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
---------------- ------------
1998 1997 1996
unaudited
Revenue:
<S> <C> <C> <C>
Net product sales $ 2,543,536 $ 8,241,208 $ 6,634,725
Meteorological services 6,172,064 11,438,954 10,926,986
----------- ----------- -----------
Total revenue 8,715,600 19,680,162 17,561,711
----------- ----------- -----------
Costs and expenses:
Cost of product sales 2,583,111 6,352,537 5,909,927
Cost of meteorological services 2,000,334 3,703,524 4,137,724
Selling 1,091,512 2,111,370 2,196,759
General and administrative 1,796,520 2,910,618 2,584,658
Research and development 1,404,290 2,203,549 2,151,775
----------- ----------- -----------
Total costs and expenses 8,875,767 17,281,598 16,980,843
----------- ----------- -----------
Operating (loss) income (160,167) 2,398,564 580,868
Interest expense (183,335) (432,136) (390,922)
Other, (expense) income (15,888) 23,566 155,387
------------ ----------- -----------
(Loss) income before income taxes (359,390) 1,989,994 345,333
(Benefit) provision for income taxes:
Current (107,000) 458,000 105,000
Deferred (22,000) 95,000 22,000
------------ ----------- -----------
(129,000) 553,000 127,000
------------ ----------- -----------
Net (loss) income (230,390) 1,436,994 218,333
Retained earnings, beginning of year 5,924,991 4,487,997 4,269,664
----------- ----------- -----------
Retained earnings, end of year $5,694,601 $5,924,991 $4,487,997
========== ========== ==========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
-9-
<PAGE>
Kavouras, Inc.
Consolidated Statements of Cash Flow
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
---------------- ------------
1998 1997 1996
unaudited
Cash flows from operating activities:
<S> <C> <C> <C>
Net (loss) income $ (230,390) $ 1,436,994 $ 218,333
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 592,558 1,131,454 1,020,577
Loss on disposal of equipment 54,338 1,016 6,827
Provision for doubtful accounts 11,811 20,369 62,533
Provision for inventory obsolescence 116,605 92,919 159,021
Deferred income taxes (22,000) 95,000 22,000
Changes in operating assets and liabilities:
Trade receivables (200,149) 578,119 396,017
Inventories (1,320,157) (156,275) (1,293,403)
Prepaid expenses and other 36,654 (104,237) (30,622)
Accounts payable, accrued expenses and
customer deposits 30,628 49,012 662,648
----------- ----------- ------------
Net cash provided (used) by operating activities (930,102) 3,144,371 1,223,931
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (762,959) (547,941) (713,007)
Principal payments received on stockholder
note receivable 2,350 4,380 3,984
Increase in other assets 19,289 (8,396) (69,990)
----------- ----------- -----------
Net cash used by investing activities (741,320) (551,957) (779,013)
----------- ----------- -----------
Cash flows from financing activities:
Net increase (decrease) in borrowings under
revolving credit agreement 1,980,936 (1,899,170) (1,819)
Principal payments on notes payable (36,975) (65,886) (47,215)
Principal payments on capital lease obligations (137,904) (392,398) (334,419)
Net decrease in cash overdraft - (126,519) (5,113)
Payment of debt issuance costs - - (47,650)
----------- ----------- -----------
Net cash provided (used) by financing activities 1,806,057 (2,483,973) (436,216)
Net increase in cash 134,635 108,441 8,702
Cash, beginning of year 119,512 11,071 2,369
----------- ----------- -----------
Cash, end of year $ 254,147 $ 119,512 $ 11,071
=========== =========== ===========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
</TABLE>
-10-
<PAGE>
Kavouras, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies:
Nature of Business:
Kavouras, Inc. (the Company) is engaged in the development, design,
manufacture, marketing and service of meteorological equipment and also
provides meteorological data services to government, aviation and
commercial broadcast users. The Company operates a network of
transmitters throughout the United States through which it provides its
customers with color video displays and hard copies of weather radar,
weather satellite and alphanumeric weather information.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Interim Statements
The information furnished herein relating to interim periods has not been
audited by independent Certified Public Accountants. The interim
financial information in this report reflects all adjustments which are,
in the opinion of management, necessary for a fair statement of results
for the interim periods presented in accordance with generally accepted
accounting principles. All such adjustments are of a normal recurring
nature. The results of operations for the six months ended June 30, 1998
are not necessarily indicative of the results to be expected for the full
year.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of cash and accounts
receivable. Substantially all of the Company's cash at December 31, 1997
and 1996, was held by one financial institution. Substantially all of the
Company's accounts receivable are due from customers located throughout
the United States, and several foreign countries.
Inventories:
Inventories are stated at the lower of cost or market with cost
determined on a first-in, first-out basis.
Property and Equipment:
Property and equipment are stated at cost. Expenditures for improvements
which extend useful lives are capitalized while expenditures for
maintenance and repairs are charged to expense as incurred. Depreciation
and amortization are calculated on the straight-line method over the
estimated useful asset lives of three to forty years. When property or
equipment is retired from service or otherwise disposed of, the cost and
related accumulated depreciation or amortization are removed from the
asset accounts with the resulting gain or loss included in operations.
Income Taxes:
Deferred income taxes are recognized for the tax consequences in future
years of differences between the tax basis of assets and liabilities and
their financial reporting amounts at each year end based on enacted tax
laws and statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense is the tax payable for
the period and the change during the period in deferred tax assets and
liabilities.
-11-
<PAGE>
Revenue Recognition:
Sales are recognized when the goods are shipped or services are rendered
to the customer except sales under long-term contracts. Sales under
long-term contracts are recorded under the percentage-of-completion
method, wherein revenue is recognized based on costs and estimated gross
margin during the period the work is performed. Revenue is recognized as
a percentage of estimated total revenue based on the relationship that
incurred costs to date bear to the most recent estimate of total costs.
The cumulative impact of revisions in total cost estimates during the
progress of work is reflected in the year in which these changes become
known.
Research and Development:
Expenditures for research and development are charged to expense as they
are incurred.
Use of 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 those
estimates. The most significant areas which require the use of
management's estimates relates to the collectibility of certain
receivables, the determination of net realizable value of certain
inventory items, the determination of its warranty accrual, and the
realizability of deferred tax benefits.
New Accounting Standards:
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and
display of comprehensive income and its components (revenue, expenses,
gains and losses) in a full set of general-purpose financial statements.
Management does not expect any differences between net income and
comprehensive income.
The FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS N0. 131 establishes standards
for reporting operating segment information in both annual reports and
interim financial reports issued to shareholders. The Company is
reviewing the requirements of SFAS No. 131, and has not determined if it
will be required to present segment information beyond the one segment
currently presented. SFAS No. 131 is required to be adopted effective
with the Company's year-end 1998 reporting.
In March 1997, the Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-1 as amended by SOP 98-4, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use."
This SOP provides guidance on accounting for the costs of computer
software development or obtained for internal use. The Company is
reviewing the requirements of the SOP and has not determined if it is
applicable to the Company. SOP 98-1 is required to be adopted by the
Company no later than the year ending December 31, 1999.
2. Pending Sale of the Company:
On March 30, 1998, the Company and Data Transmission Network Corporation
(DTN) executed a Stock Purchase Agreement whereby DTN will acquire all
outstanding shares of the Company at a predetermined price per share. The
agreement is subject to regulatory approval and is expected to close on
July 1, 1998.
-12-
<PAGE>
3. Other Financial Statement Data:
Balance Sheet:
<TABLE>
<CAPTION>
1997 1996
---- ----
Inventories:
Product materials, primarily electronic
<S> <C> <C>
Components $ 3,171,484 $ 3,030,365
Work-in-process 919,903 997,666
----------- -----------
$ 4,091,387 $ 4,028,031
Property and equipment:
Land 220,269 212,587
Building 2,535,246 2,450,404
Radar transmitters 3,418,594 4,028,035
Production and test equipment 1,670,232 1,601,959
Furniture, sales support and other
equipment 2,649,195 2,366,223
Data service computers and communi-
cations equipment under capital leases 3,535,500 3,325,794
----------- -----------
14,029,036 13,985,001
Less accumulated deprecation and
amortization (8,237,013) (7,876,019)
----------- -----------
$ 5,792,023 $ 6,108,982
=========== ===========
Accrued expenses:
Accrued salaries and benefits 774,908 518,649
Accrued warranty 285,000 139,315
Income taxes payable 428,881 78,941
Other 109,846 170,946
----------- -----------
$ 1,598,635 $ 907,851
=========== ===========
Statements of Cash Flows:
Cash paid during the year for:
Interest $ 454,008 $ 368,556
Income taxes 93,486 164,341
Noncash financing and investing transactions:
Capital lease obligations incurred for
new equipment 251,800 602,751
Draws from restricted cash for construction
cost and equipment purchases - 339,369
Note payable incurred for construction of
building - 1,109,700
</TABLE>
-13-
<PAGE>
4. Stockholder Note Receivable:
The Company has a note receivable bearing interest at 9.5% from its
majority stockholder, collateralized by a first mortgage interest in
residential property. An interest and principal payment of approximately
$1,600 is required monthly through December 1, 2012.
5. Financing Agreements:
Borrowings Under Revolving Credit Agreement:
The Company has a revolving credit agreement with Norwest Bank Minnesota,
N.A., as amended, which provides for maximum borrowings equal to the
lesser of certain eligible inventories and accounts receivable or
$2,750,000. Borrowings under the agreement are due on demand and bear
interest at .25% over the bank's base rate which was 8.5% at December 31,
1997. The credit agreement expires on September 30, 1998. Borrowings are
collaterialized by all inventories and accounts receivable. Borrowings
available under the revolving credit agreement were approximately
$1,600,000 and $1,200,000 at December 31, 1997 and 1996, respectively.
Notes Payable:
Notes payable at December 31, 1997 and 1996, consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Notes payable, Norwest Bank Minnesota, N.A., payable in variable monthly
installments including principal and accrued interest computed annually
at 3% over the monthly average yield on United States Government
Securities (5.75% rate at December 31, 1997), through July 31, 2006, with
balloon payments of $501,000 and $558,000 due in 2004 and 2007,
respectively (assuming an interest rate of 8.75%). These notes are
collateralized by a senior interest in the receivables, inventories,
equipment and real estate of the Company. $1,546,286 $1,589,180
Notes payable, Small Business Administration, payable in variable monthly
installments including principal and accrued interest at 8.7% and
administrative fees at .6%, through November 2014. These notes are
collateralized by a subordinated interest in the real estate and
equipment of the Company and are personally guaranteed by the Company's
majority stockholder. 942,635 965,627
---------- ----------
2,488,921 2,554,807
Less current portion (72,599) (62,668)
---------- ----------
$2,416,322 $2,492,139
========== ==========
</TABLE>
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<PAGE>
The future payments on the long-term notes payable and SBA note (assuming
an interest rate of 8.75% on the notes payable, bank) are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 $ 72,599
1999 73,625
2000 91,127
2001 99,303
2002 83,366
Thereafter 2,068,901
----------
$2,488,921
==========
</TABLE>
The bank notes payable and revolving credit agreement contains
restrictive covenants including, among others, maintaining tangible net
worth, as defined, of at least $4,672,000, minimum net income of $300,000
during the year ended December 31, 1997, and a minimum current ratio.
6. Leases:
Operating:
The Company leases warehouse space under noncancellable operating lease
agreements through July 1998. The Company also leases office space and
test equipment under various cancelable monthly leases.
Total rental expense under these agreements amounted to approximately
$121,546 and $122,326 for 1997 and 1996, respectively.
Capital:
The Company also leases certain computers and communications equipment,
used primarily by the Company to provide meteorological services to
customers under capital lease arrangements. These leases generally allow
the Company to purchase the related equipment at the end of the lease
term for $1. Equipment under capital leases, included in property and
equipment, consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Data service computers and communications
equipment $3,535,500 $3,325,794
Accumulated amortization (2,458,699) (2,104,889)
---------- ----------
$1,076,801 $1,220,905
========== ==========
</TABLE>
-15-
<PAGE>
Future minimum annual lease payments under capital and operating leases,
excluding office space and test equipment under cancelable monthly
leases, as of December 31, 1997, are as follows:
<TABLE>
<CAPTION>
Capital Operating
<S> <C> <C> <C>
1998 $ 346,125 $ 17,880
1999 321,862 6,080
2000 250,494 6,080
2001 142,253 6,080
2002 27,863 0
----------- ---------
Total minimum lease payments 1,088,597 $ 36,120
----------- =========
Less amounts representing imputed interest at
Various rates (8.6% - 15.9%) 155,275
-----------
Present value of minimum lease payments 933,322
Current portion of capital lease obligations 272,204
-----------
Capital lease obligation, less current portion $ 661,118
===========
</TABLE>
7. Income Taxes:
The provision for income taxes at December 31, 1997 and 1996 consisted of
the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Currently payable:
Federal $442,800 $ 92,800
State 10,400 8,000
Foreign 4,800 4,200
-------- --------
458,000 105,000
Deferred 95,000 22,000
-------- --------
Provision for income taxes $553,000 $127,000
======== ========
Reconciliation between the Company's effective income tax rate and the
U.S. Statutory rate at December 31, 1997 and 1996 are as follows:
</TABLE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Statutory U.S. federal income tax 34.0% 34.0%
State income taxes, net of U.S. federal income tax
Benefit 3.0 3.1
Utilization of research and development tax credits (12.9) (4.7)
Change in valuation allowance (5.0)
Other 8.7 (6.7)
---- -----
27.8% 36.8%
===== =====
</TABLE>
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<PAGE>
Temporary differences comprising the net deferred tax asset recognized in
the accompanying consolidated balance sheet at December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
Deferred tax assets:
<S> <C> <C>
Accounts receivable $ 22,000 $ 36,000
Inventory reserves 101,000 77,000
Warranty accrual 103,000 50,000
Research and development tax credit carryforwards 377,000 614,000
--------- ---------
603,000 777,000
Deferred tax liability
Accelerated depreciation (446,000) (425,000)
--------- ---------
157,000 352,000
Valuation allowance (50,000) (150,000)
--------- ---------
Net deferred tax assets $ 107,000 $ 202,000
========== ==========
</TABLE>
The valuation allowance for net deferred tax assets decreased in 1997 by
$100,000. The reduction was the result of higher profitability and the
utilization of research and development tax credit carryforwards.
For income tax reporting purposes, the Company has federal and state
research and development tax credit carryforwards of $378,000 and
$236,000, respectively, which expire at various dates from 2004 through
2011. In addition, the Company has available federal alternative minimum
tax credit carryforwards of approximately $17,000 with no expiration
date. The utilization of these carryforwards is dependent upon the
Company's ability to generate sufficient taxable income during the
carryforward periods and is subject to annual usage limitations under
provisions of the Internal Revenue Code.
-17-
<PAGE>
8. Employee Benefit Plans:
The Company maintains a contributory defined contribution savings plan,
which qualifies under Section 401(k) of the Internal Revenue Code and
covers employees who meet certain age and service requirements. Employee
contributions are limited to the maximum amount allowed by the Internal
Revenue Code. The Company may make discretionary contributions, which are
allocable to participants based on employee contributions. During the
1997 and 1996, approximately $90,554 and $89,189, respectively, was
charged to operations for contributions to the plan and administrative
fees.
In 1997, the Company established a defined contribution profit sharing
plan, which covers employees who have completed one year of service.
Contributions to the plan are determined annually by the Company.
Contributions to the plan totaled $194,800 for the year ended December
31, 1997.
9. Significant Customers:
A portion of the Company's sales have been derived from one significant
customer, an agency of the United States Government, representing
approximately 10% and 13% of total sales in 1997 and 1996, respectively,
and 13% and 16% of accounts receivable at December 31, 1997 and 1996,
respectively. In addition, foreign sales represent 8% and 11% of total
sales in 1997 and 1996, respectively.
10. Subsequent Event:
On January 30, 1998, the Company entered into a consulting agreement with
Earth Watch Communications, Inc., a provider of integrated weather
systems. This agreement requires the Company to make cash payments in
consideration for consulting services through May 1997 totaling $240,000.
On April 6, 1998, the Company entered into an exclusive royalty free
license agreement with Earth Watch Communications, Inc., through the year
2018 which provides the Company with certain software rights throughout
the world with the exception of the United States and Canada, in exchange
for a cash payment of $1,500,000. Upon execution of this agreement,
payment was remitted by DTN (see Note 2) and all rights of the agreement
were assigned by the Company to DTN. In addition, the Company has the
option to acquire royalty free license rights for the United States and
Canada for $1,500,000. This option must be exercised on or before June
20, 1998.
-18-
<PAGE>
ITEM 7b.
Pro Forma unaudited combined financial statements and notes of Data
Transmission Network Corporation and Kavouras, Inc. for year ended December 31,
1997 and for six months ended June 30, 1998.
-19-
<PAGE>
PRO FORMA UNAUDITED COMBINED FINANCIAL STATEMENTS
The pro forma unaudited combined financial statements of the Company
have been prepared to give effect to (1) the Acquisition of all the outstanding
shares of capital stock of Kavouras, Inc., and (2) the Acquisition financing.
The acquisition purchase price of $22,650,000 is made up of: (1) $16,400,000 for
100% of the capital stock outstanding, (2) $4,000,000 for a Confidentiality and
Non-Competition Agreement with Stephen P. Kavouras, (3) $450,000 in a signing
bonus to Stephen P. Kavouras for a five year employment agreement and (4)
$1,800,000 for non-contingent retention bonuses to certain key employees. At
closing, $20,650,000 was paid with the remaining $2,000,000 relating to the
Confidentiality and Non-Competition Agreement to be paid in equal $500,000
payments over the next four anniversary dates of closing. The Company used its
existing operating line of credit to fund this acquisition. In addition, the
proforma unaudited combined financial statements reflect purchase accounting
adjustments to the carrying value of certain Kavouras, Inc. assets and
liabilities to fair value.
These pro forma combined financial statements have been derived from,
and should be read in conjunction with, the historical financial statements and
related notes of the Company and Kavouras contained herein. The Pro Forma
Combined Balance Sheet assumes that the Acquisition and the Acquisition Loan
occurred as of June, 30, 1998. The Pro Forma Combined Statements of Operations
assume that all such transactions occurred on January 1, 1997.
The pro forma adjustments are based on available financial information
and certain estimates and assumptions. Therefore, it is likely that actual
results will differ from the pro forma adjustments. Management of the Company
believes that any differences between the actual results and the pro forma
adjustments will not have a material effect on the pro forma combined financial
statements as presented herein.
THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL DATA ARE PRESENTED FOR
INFORMATIONAL PURPOSES ONLY AND ARE NOT NECESSARILY INDICATIVE OF THE RESULTS
THAT ACTUALLY WOULD HAVE OCCURRED HAD THE ACQUISITION AND THE ACQUISITION LOAN
BEEN CONSUMMATED ON THE DATES INDICATED OR THE RESULTS THAT MAY OCCUR OR BE
OBTAINED IN THE FUTURE.
-20-
<PAGE>
PRO FORMA COMBINED
BALANCE SHEET
June 30, 1998
<TABLE>
<CAPTION>
Pro Forma
Unaudited DTN Kavouras Adjustments Pro Forma
- ---------------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C> <C> <C>
Cash $ - $ 254,147 $ - $ 254,147
Accounts receivable 9,481,724 2,293,385 (319,584) a 11,455,525
Inventory - 5,294,939 (155,257) a 5,139,682
Prepaid expenses 694,804 221,628 - 916,432
Deferred commission expense 2,889,884 - 7,005 a 2,896,889
-------------------------------------------------------------------------
Total Current Assets 13,066,412 8,064,099 (467,836) 20,662,675
Net Property & Equipment 109,041,471 5,859,479 56,890 a 114,957,840
Net Intangible Assets 42,288,355 - 17,688,749 a 59,977,104
Other Assets 4,351,950 500,468 434,000 b 5,286,418
-------------------------------------------------------------------------
Total Assets $168,748,188 $ 14,424,046 $ 17,711,803 $200,884,037
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 8,953,870 $ 2,080,343 $ - $ 11,034,213
Accrued Expenses 10,008,257 550,234 2,795,484 c 13,353,975
Current Portion of Debt 22,701,458 2,329,134 - 25,030,592
-------------------------------------------------------------------------
Total Current Liabilities 41,663,585 4,959,711 2,795,484 49,418,780
Deferred Income Tax - 119,000 - 119,000
Long-Term Debt 69,410,830 2,899,166 20,650,000 d 92,959,996
Equipment Deposits 462,024 - - 462,024
Unearned Revenue 26,279,076 712,488 - 26,991,564
Stockholders' Equity
Common Stock 11,389 15,542 (15,542) e 11,389
Paid-in-Capital 33,128,958 23,538 (23,538) e 33,128,958
Retained Earnings (Deficit) (2,207,674) 5,694,601 (5,694,601) e (2,207,674)
-------------------------------------------------------------------------
Total Stockholders' Equity 30,932,673 5,733,681 (5,733,681) 30,932,673
-------------------------------------------------------------------------
Total Liabilities & Stockholders' Equity $168,748,188 $ 14,424,046 $ 17,711,803 $200,884,037
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to pro forma combined balance sheet.
</FN>
</TABLE>
-21-
<PAGE>
NOTES TO PRO FORMA COMBINED BALANCE SHEET
As of June 30, 1998
<TABLE>
<CAPTION>
(a) Adjustment to the net assets of Kavouras to reflect fair values under
purchase accounting:
<S> <C> <C>
Purchase Price $22,650,000
Net assets of Kavouras at June 30, 1998 5,733,681
Purchase accounting adjustments:
Reduce accounts receivable to fair value (319,584)
Reduce inventory to fair value (155,257)
Adjustment to deferred commissions to
conform to accounting policy of Company 7,005
Increase building to fair value 56,890
Increase accrued expenses to fair value (95,484)
Accrual of acquisition related costs (700,000)
Deferred taxes on purchase accounting adjustments 434,000
---------
4,961,251 4,961,251
--------- -----------
Excess of purchase price over net assets acquired $17,688,749
===========
(b) Adjustment to the deferred tax asset to reflect the 36% effective tax
rate on the purchase accounting adjustments listed above in (a).
(c) Adjustment to reflect the following:
Accrued expenses to fair value $95,484
Accrual of acquisition related costs 700,000
Purchase price to be paid over four years 2,000,000
-----------
$ 2,795,484
===========
(d) Adjustment to reflect the acquisition debt of $20,650,000 that was used
to pay the amount of the purchase price due at time of closing. An
additional $2,000,000 is due to be paid over the next four years.
(e) Adjustment to reflect the elimination of the Kavouras capital accounts.
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
Year Ended December 31, 1997
Pro Forma
Unaudited DTN Kavouras Adjustments Pro Forma
- ------------------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Subscriptions $101,194,290 $11,438,954 ($1,433,000) a $110,350,313
(849,931) e
Equipment Sales - 8,241,208 829,562 e 9,070,770
Additional services 6,694,754 - - 6,694,754
Communication services 10,050,073 - - 10,050,073
Advertising 3,809,748 - - 3,809,748
Service initiation fees 4,625,487 - - 4,625,487
--------------------------------------------------------------------------
Total Revenues 126,374,352 19,680,162 (1,453,369) 144,601,145
Expenses
Cost of Sales - 10,056,061 (3,849,358) e 6,206,703
Selling, general & administration 61,790,861 6,293,458 (1,433,000) a 69,350,614
2,699,295 e
Sales Commissions 9,884,783 932,079 - 10,816,862
Depreciation & Amortization 42,315,305 - 2,214,000 b 45,658,561
1,129,256 e
--------------------------------------------------------------------------
Total Expenses 113,990,949 17,281,598 760,193 132,032,740
--------------------------------------------------------------------------
Operating Income (Loss) 12,383,403 2,398,564 (2,213,562) 12,568,405
Interest expense 9,098,231 432,136 1,549,000 c 11,079,367
Other income, net 121,909 23,566 (438) e 145,037
--------------------------------------------------------------------------
Income (Loss) Before Income
Taxes 3,407,081 1,989,994 (3,763,000) 1,634,075
Income tax (benefit) provision 1,171,000 553,000 (1,355,000) d 369,000
--------------------------------------------------------------------------
Net Income (Loss) $2,236,081 $1,436,994 ($2,408,000) $ 1,265,075
- -------------------------------------------------------------------------------------------------------------------------
Basic Income Per Share $ 0.20 - - $ 0.11
- -------------------------------------------------------------------------------------------------------------------------
Diluted Income Per Share $ 0.19 - - $ 0.10
- -------------------------------------------------------------------------------------------------------------------------
Basic Shares Outstanding 11,100,684 - - 11,100,684
- -------------------------------------------------------------------------------------------------------------------------
Diluted Shares Outstanding 12,082,556 - - 12,082,556
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to Pro Forma Combined Statement of Operations.
</FN>
</TABLE>
-23-
<PAGE>
NOTES TO PRO FORMA COMBINED
STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
(a) Reflects elimination of business activities occurring between the two
companies prior to the acquisition. These items include:
Subscription revenue reduction of $1,433,000 related to business
revenue incurred between the two companies prior to the acquisition.
Quotes, news and information costs reduction of $1,433,000 related
to business expenses incurred between the two companies prior to the
acquisition.
(b) Increase in depreciation and amortization due to intangible assets
(goodwill) capitalized as a result of the acquisition. The intangible
assets consist of $13,238,749 of goodwill, $4,000,000 of a
non-competition agreement and $450,000 of an employment agreement which
are being amortized using the straight-line method over ten and five
years respectively.
(c) Increase in interest expense due to the addition of $20,650,000 in
long-term debt as a result of the acquisition. This debt is from the
Company's revolving line of credit and is accruing interest at the rate
of 7.50%.
(d) Increase in income tax benefit due to net loss created from pro forma
adjustments stated above, calculated at the current provision rate of
36%.
(e) Adjustments to reflect reclassifications of revenue and expenses to
conform with the Company's presentation are shown below:
<TABLE>
<CAPTION>
<S> <C>
Subscriptions ($ 849,931)
Equipment Sales $ 829,562
Cost of Sales ($3,849,358)
Selling, general & administrative $2,699,295
Depreciation & amortization $1,129,256
Other income, net ($ 438)
------------
$ 0
============
</TABLE>
-24-
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
Six Months Ended June 30, 1998
Pro Forma
Unaudited DTN Kavouras Adjustments Pro Forma
- ------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Subscriptions $56,436,574 $6,172,064 ($907,000) a $61,227,823
(473,815) e
Equipment Sales - 2,543,536 462,004 e 3,005,540
Additional services 3,581,516 - - 3,581,516
Communication services 5,370,814 - - 5,370,814
Advertising 1,871,560 - - 1,871,560
Service initiation fees 1,962,165 - - 1,962,165
------------------------------------------------------------------
Total Revenues 69,222,629 8,715,600 (918,811) 77,019,418
Expenses
Cost of Equipment Sales - 4,583,445 (1,929,438) e 2,654,007
Selling, general & administration 34,583,210 3,923,747 (907,000) a 38,925,026
1,325,069 e
Sales Commissions 5,473,354 368,575 - 5,841,929
Depreciation & Amortization 22,695,598 - 1,107,000 b 24,395,156
592,558 e
Non-recurring satellite costs 5,800,000 - - 5,800,000
------------------------------------------------------------------
Total Expense 68,552,162 8,875,767 188,189 77,616,118
------------------------------------------------------------------
Operating Income (Loss) 670,467 (160,167) (1,107,000) (596,700)
Interest expense 3,832,074 183,335 774,000 c 4,789,409
Other income, net 58,209 (15,888) - 42,321
------------------------------------------------------------------
Loss Before Income
Taxes and Extraordinary Item (3,103,398) (359,390) (1,881,000) (5,343,788)
Income tax benefit (1,114,262) (129,000) (677,000) d (1,920,262)
-------------------------------------------------------------------
Loss Before Extraordinary Item (1,989,136) (230,390) (1,204,000) (3,423,526)
Extraordinary Item, net of tax (1,076,880) - - (1,076,880)
------------------------------------------------------------------
Net Loss $(3,066,016) $(230,390) ($1,204,000) ($4,500,406)
- -------------------------------------------------------------------------------------------------------------
Basic Loss Per Share
Loss before extraordinary item ($0.18) - - ($0.31)
Extraordinary item (0.09) - - (0.09)
- ------------------------------------------------------------------------------------------------------------
Net loss ($0.27) - - $(0.40)
- ------------------------------------------------------------------------------------------------------------
Diluted Loss Per Share
Loss before extraordinary item ($0.18) - - ($0.31)
Extraordinary item (0.09) - - (0.09)
- ------------------------------------------------------------------------------------------------------------
Net loss ($0.27) - - $(0.40)
- ------------------------------------------------------------------------------------------------------------
Basic Shares Outstanding 11,259,969 - - 11,259,969
- ------------------------------------------------------------------------------------------------------------
Diluted Shares Outstanding 11,259,969 - - 11,259,969
- ------------------------------------------------------------------------------------------------------------
<FN>
See accompanying notes to Pro Forma Combined Statement of Operations.
</FN>
</TABLE>
-25-
<PAGE>
NOTES TO PRO FORMA COMBINED
STATEMENT OF OPERATIONS
For the six Months Ended June 30, 1998
(a) Reflects elimination of business activities occurring between the two
companies prior to the acquisition. These items include:
Subscription revenue reduction of $907,000 related to business
revenue incurred between the two companies prior to the
acquisition.
Quotes, news and information costs reduction of $907,000
related to business expenses incurred between the two companies
prior to the acquisition.
(b) Increase in depreciation and amortization due to intangible assets
(goodwill) capitalized as a result of the acquisition. The intangible
assets consist of $13,238,749 of goodwill, $4,000,000 of a
non-competition agreement and $450,000 of an employment agreement which
are being amortized using the straight-line method over ten and five
years respectively.
(c) Increase in interest expense due to the addition of $20,650,000 in
long-term debt as a result of the acquisition. This debt is from the
Company's revolving line of credit and is accuring interest at the rate
of 7.50%.
(d) Increase in income tax benefit due to net loss created from pro forma
adjustments stated above, calculated at the current provision rate of
36%.
(e) Adjustments to reflect reclassifications of revenue and expenses to
conform with the Company's presentation are shown below:
<TABLE>
<CAPTION>
<S> <C>
Subscriptions ($ 473,815)
Equipment Sales $ 462,004
Cost of Sales ($1,929,438)
Selling, general & administrative $1,325,069
Depreciation & amortization $ 592,558
----------
$ 0
==========
</TABLE>
-26-
<PAGE>
DATA TRANSMISSION NETWORK CORPORATION
Exhibit Index
Exhibit No. Page Number
<TABLE>
<CAPTION>
<S> <C> <C>
2.1 Stock Purchase Agreement dated 29
March 30, 1998, among the holders
of all of the common stock of
Kavouras, Inc. and Data Transmission
Network Corporation
2.2 Agreement Regarding Stock Acquisition 46
dated March 30, 1998, among the
Controlling Shareholders and
Data Transmission Network Corporation
23.1 Consent of PricewaterhouseCoopers LLP 77
99.1 News release of Data Transmission 79
Network Corporation dated
March 31, 1998.
99.2 News release of Data Transmission 81
Network Corporation dated
July 6, 1998.
</TABLE>
-27-
<PAGE>
EXHIBIT 2.1
Stock Purchase Agreement Dated March 30, 1998, among the holders of all of the
common stock of Kavouras, Inc. and Data Transmission Network Corporation
-28-
<PAGE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (the "Agreement") dated as of March 30, 1998,
by and among DATA TRANSMISSION NETWORK CORPORATION, a Delaware corporation
("Buyer"), and the persons listed in Schedule 1 attached hereto (collectively,
the "Sellers" and individually, a "Seller").
WHEREAS, each Seller is the owner, beneficially and of record, of the
number of shares of the Common Stock of Kavouras, Inc., a Minnesota corporation
(the "Company"), set forth opposite his, her or its name on Schedule 1 attached
hereto, and Sellers are the owners, in the aggregate, of all of the issued and
outstanding capital stock of the Company; and
WHEREAS, Buyer wishes to purchase from Sellers and Sellers wish to sell
to Buyer all of the issued and outstanding capital stock of the Company upon and
subject to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, Buyer and Sellers
agree as follows:
ARTICLE I
SALE OF SHARES
1.01 Sale of Shares. Subject to the terms and conditions herein stated,
each Seller agrees to sell, assign, transfer and deliver to Buyer on the Closing
Date (as defined herein), the respective shares of Common Stock of the Company
set forth opposite his, her or its name on Schedule 1 attached hereto (the
"Shares"), and Buyer agrees to purchase the Shares from Sellers on the Closing
Date. The certificates representing the Shares shall be duly endorsed in blank,
or accompanied by stock powers duly executed in blank, by Sellers, with all
signatures guaranteed by a state or national bank.
1.02 Price. In full consideration for the purchase by Buyer of the
Shares, Buyer shall pay to each Seller on the Closing Date, and each Seller
agrees to accept from Buyer as the entire purchase price for such Seller's
Shares, the amount set forth opposite such Seller's name in Schedule 1 attached
hereto, being an aggregate amount of Sixteen Million Four Hundred Thousand
Dollars ($16,400,000).
1.03 Closing. Subject to Section 7.01 hereof, the sale referred to in
Section 1.01 (the "Closing") shall take place at the offices of Faegre & Benson,
LLP, Minneapolis, Minnesota, on such date as the parties hereto shall by written
instrument designate, but no later than ten (10) days after the later to occur
of (i) the expiration or termination of all applicable waiting periods with
respect to each of the antitrust filings referred to in Section 5.01(b) hereof
(including any extensions thereof) or (ii) the receipt of all FCC approvals
referred to in Section 5.01(c). Such time and date are herein referred to as the
"Closing Date".
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLERS
As of the date hereof (except as otherwise specified herein and except
as set forth in the disclosure schedule accompanying this Agreement) (the
"Disclosure Schedule") each Seller severally represents and warrants to Buyer as
follows (provided, however, that each Seller so represents and warrants only
with respect to that Seller and not with respect to any other Seller):
2.01 Title to Stock.
-29-
<PAGE>
Each Seller (i) has good and valid title, beneficially and of record,
to the respective Shares set forth opposite his, her or its name on Schedule 1
attached hereto, free and clear of all liens, encumbrances and rights of others,
(ii) is in rightful possession of duly and validly authorized and issued
certificates evidencing his, her or its ownership of record of the Shares, (iii)
has full right, power and authority to sell, transfer, convey and deliver to
Buyer, in accordance with the terms of this Agreement, good and valid title,
beneficially and of record, to all of such Shares being sold by such Seller to
Buyer hereunder, free and clear of all liens, encumbrances and rights of others
and (iv) does not own any other shares of capital stock of the Company other
than the shares set forth opposite his, her or its name on Schedule 1 attached
hereto and does not have the right to purchase or receive any additional shares
of capital stock of the Company. Except for the sale to Buyer as contemplated by
this Agreement, there are no outstanding options, warrants, calls or other
rights to subscribe for or purchase or acquire any capital stock of the Company
from the Sellers.
2.02 Authority Relative to the Transactions Contemplated by this
Agreement. Each Seller has all necessary power, capacity and authority
(corporate or otherwise) to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized on behalf of all Sellers and no other proceedings on
behalf of Sellers are necessary to approve and authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Sellers, and (assuming the valid execution and delivery of this Agreement by
Buyer) constitutes a valid and binding agreement of Sellers, enforceable against
Sellers in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general applicability relating to
or affecting creditors' rights and to general principles of equity.
2.03 Consents and Approval; No Violation. Neither the execution and
delivery of this Agreement by Sellers, nor the consummation by Sellers of the
transactions contemplated hereby, nor compliance by any Seller with the
provisions hereof, will (i) conflict with or breach any trust agreement (or
other similar governing documents) of any Seller; (ii) violate or breach a
provision of, or constitute a default (or an event which, with notice or lapse
of time or both would constitute a default) under, any of the terms, covenants,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which any Seller is a party, or by which any Seller
or any of their respective properties or assets may be bound, except for such
breaches or defaults which when considered together do not have a material
adverse effect on the transactions contemplated by this Agreement or on the
assets, liabilities, business or financial condition of the Company; or (iii)
assuming compliance with all antitrust laws, violate any order, writ,
injunction, decree, judgment, statute, law or ruling of any court or
governmental authority applicable to any Seller or any of their material assets,
except for violations which, when considered together, do not have a material
adverse effect on the transactions contemplated by this Agreement or on the
assets, liabilities, business or financial condition of the Company, taken as a
whole.
2.04 Brokers and Finders. No Seller has employed any broker or finder
and no broker or finder is entitled to any brokerage fees, commissions or
finder's fees arising from any act, representation or promise of any of them in
connection with the transactions contemplated hereby.
-30-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date hereof, Buyer represents and warrants to Principal and
Sellers as follows:
3.01 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
3.02 Authority Relative to this Agreement. Buyer has all necessary
power, capacity and authority (corporate or otherwise) to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Buyer and no other proceedings on the part of Buyer or its
stockholders are necessary to approve and authorize the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Buyer and
(assuming the valid execution and delivery of the Agreement by Sellers and
Principal) constitutes a valid and binding agreement of Buyer, enforceable
against Buyer in accordance with its terms, subject to bankruptcy, insolvency,
reorganization, moratorium and other laws of general applicability relating to
or affecting creditors' rights and to general principles of equity.
3.03 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement by Buyer nor the consummation by Buyer of the
transactions contemplated hereby, nor compliance by Buyer with any of the
provisions hereof, will (i) require Buyer to file or register with, notify, or
obtain any permit, authorization, consent, or approval of, any governmental or
regulatory authority except (A) for filings with the Federal Trade Commission
("FTC") and with the Antitrust Division of the United States Department of
Justice (the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 as amended (the "HSR Act") and the rules and
regulations thereunder or (B) for those requirements which become applicable to
Buyer as a result of the specific regulatory status of the Company or as a
result of any other facts that specifically relate to the business activities in
which the Company is or proposes to be engaged; (ii) conflict with or breach any
provision of the Certificate of Incorporation or by-laws of Buyer; (iii) violate
or breach any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, any of the
terms, covenants conditions or provisions of any note, bond mortgage, indenture
deed of trust, license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which Buyer is a party, or by which
Buyer or any of its properties or assets may be bound, except for such breach or
default which would not have a material adverse effect on the transactions
contemplated by this Agreement taken as a whole; or (iv) assuming compliance
with all antitrust laws (including the HSR Act) violate any order, writ,
injunction, decree, judgment, statute, law or ruling of any court or
governmental authority applicable to Buyer or any of its material assets, which
violation would have a material adverse effect on the transactions contemplated
by this Agreement taken as a whole.
3.04 Litigation; Compliance with Law. Buyer is not a party to any
action or proceeding which seeks, or is subject to, any outstanding order, writ,
injunction or decree, which restrains or enjoins consummation of the
transactions contemplated hereby or which otherwise challenges the transactions
contemplated hereby and (ii) there is no litigation, administrative, arbitral or
other proceeding, or petition or complaint or, to the knowledge of Buyer,
investigation before any court or governmental or regulating authority or body
pending or, to the knowledge of Buyer, threatened against or relating to Buyer
that would materially adversely affect Buyer's ability to perform its
obligations pursuant to this Agreement.
-31-
<PAGE>
3.05 Brokers and Finders. Buyer has not employed any broker or finder
and no broker or finder is entitled to any brokerage fees, commissions or
finder's fees arising from any act, representations or promise of Buyer, in
connection with the transactions contemplated hereby.
3.06 Purchase for Investment. Buyer will acquire all of the outstanding
stock of the Company to be purchased by it hereunder for its own account for
investment and not with a view toward any resale or distribution thereof. Buyer
understands that the Shares have not been registered under the Securities Act of
1933, as amended, or the securities laws of any states and, accordingly, the
Shares may not be resold by Buyer unless registered under the 1933 Act and
applicable state securities laws, or sold in transactions which are exempt from
registration thereunder.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01 Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby will be paid by the respective party
that incurred such cost or expense.
4.02 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement and except as otherwise provided herein, all of the parties
hereto will use their reasonable best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement. In case at any time after the
Closing any further action is necessary or desirable to carry out the purposes
of this Agreement or to put Buyer in possession of all of the Shares of the
Company or the Company in possession of all of its assets, each party to this
Agreement will, or will cause its affiliates as the case may be, to take all
such necessary action including, without limitation, the execution and delivery
of such further instruments and documents as may reasonably be requested by the
parties hereto for such purposes or otherwise to complete or perfect the
transactions contemplated hereby.
4.03 Consents. Each of the parties hereto will use its reasonable best
efforts to obtain the written consents of all persons and governmental
authorities required to be obtained by each such party and necessary to the
consummation of the transactions contemplated by this Agreement.
4.04 Disclosure Supplements. From time to time prior to the Closing,
Sellers will promptly supplement or amend ("Disclosure Supplements") any
Schedule referred to in this Agreement with respect to any matter hereafter
arising which, if existing or occurring at or prior to the date of this
Agreement, such party determines would have been required to be set forth or
described in a Schedule or which is necessary to correct any information in a
Schedule or in any representation or warranty of any Seller which has been
rendered inaccurate thereby. The representations and warranties of Sellers shall
be amended by the Disclosure Supplements in all respects and for all purposes
other than for the purposes of determining satisfaction of the conditions to
Closing set forth in Article V.
4.05 Public Announcements. Between the date of this Agreement and the
earlier of the Closing Date or the termination of this Agreement pursuant to
Section 7.01 hereof, Trusts and Buyer will consult with each other before any of
them issues any press releases or otherwise makes any public statements
(including statements made to employees of the Company) with respect to this
Agreement and the transactions contemplated hereby.
4.06 Transfer Taxes. All transfer taxes (including all stock transfer
taxes, if any) incurred in connection with this Agreement and the transactions
contemplated hereby will be borne by the respective Sellers, and such Sellers
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will, at their own expense, file all necessary tax returns and other
documentation with respect to all such transfer taxes, and, if required by
applicable law, the other parties hereto will (and will cause the Company to)
join in the execution of any such tax returns or other documentation.
4.07 No Solicitation. Between the date of this Agreement and the
earlier of the Closing Date or the termination of this Agreement pursuant to
Section 7.01 hereof, Sellers shall not initiate, solicit, encourage, or
participate in, any discussions with, or provide any information to, any
corporation, partnership, person, entity or group, other than Buyer and its
employees and agents, concerning any merger, consolidation, sale of assets or
similar transaction involving the Company, or any sale of Shares or capital
stock of the Company, including securities convertible into or exchangeable for
such securities, by the issuer (any such transaction being referred to herein as
an "Acquisition Proposal"). Sellers will suspend any pre-existing discussions
involving any Acquisition Proposal and will immediately advise Buyer if any
Seller receives any Acquisition Proposal from any corporation, partnership,
person, entity or group.
ARTICLE V
CONDITIONS
5.01 Conditions to Each Party's Obligations to Effect the Transactions
Contemplated Hereby. The respective obligations of each party hereto to effect
the transactions contemplated hereby shall be subject to the fulfillment at or
prior to the Closing of each of the following conditions:
(a) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, entered, promulgated or enforced
by any court of competent jurisdiction or governmental authority, nor shall any
action or proceeding brought by any governmental authority or agency be pending,
which (i) prevents, restricts or delays or seeks to prevent, restrict or delay
the consummation of the transactions contemplated by this Agreement or (ii)
seeks a material amount of monetary damages in connection with the consummation
of the transactions contemplated by this Agreement.
(b) Sellers and Buyer and any other person (as defined in the HSR Act)
required in connection with the transactions contemplated hereby to file a
Notification and Report Form for Certain Mergers and Acquisitions with the
Antitrust Division and the FTC pursuant to the HSR Act shall have made such
filings and all applicable waiting periods with respect to each such filing
(including any extensions thereof) shall have expired or been terminated.
(c) Buyer and the Company shall have filed with the FCC all requisite
applications in connection with the transfer of control of all FCC-licensed
satellite earth station facilities, experimental FCC authorizations, and
equipment authorizations currently held by the Company pursuant to the FCC
Rules, and each such application shall have been approved by the FCC.
(d) Each condition to closing set forth in that certain Agreement
Regarding Stock Acquisition (the "Agreement Regarding Stock Acquisition") among
Stephen P. Kavouras, Buyer and the trusts listed on Schedule 1 as Sellers, dated
of even date herewith, shall have been fulfilled at or prior to Closing, or such
condition shall have been waived by the party whose obligations under the
Agreement Regarding Stock Acquisition were contingent upon such condition.
5.02 Conditions to the Obligations of Sellers to Effect the
Transactions Contemplated Hereby. The obligations of Sellers to effect the
transactions contemplated hereby shall be further subject to the fulfillment at
or prior to the Closing of each of the following conditions, any one or more of
which may be waived in whole or in part by a majority of Sellers in writing:
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(a) Buyer shall have performed and complied in all material respects
with all agreements, obligations, conditions and covenants contained in this
Agreement required to be performed and complied with by it at or prior to the
Closing and all representations and warranties of Buyer contained in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as of the Closing Date (as if the Closing Date was the date
of this Agreement), and Sellers shall have received certificates to that effect
signed by the President or any Vice President of Buyer together with such other
documents, instruments and writings required to be delivered by Buyer at or
prior to the Closing pursuant to this Agreement or otherwise reasonably required
by Buyer in connection herewith.
(b) Buyer shall have delivered to Sellers (i) a copy of the Certificate
of Incorporation of Buyer, including all amendments thereto, certified by the
Secretary of State of the State of Delaware and (ii) a certificate from the
Secretary of the State of Delaware to the effect that Buyer is in good standing
in such State.
(c) No actions or proceedings which have a material likelihood of
success shall have been instituted or, to the knowledge of Buyer, threatened by
any governmental body or authority to restrain or prohibit any of the
transactions contemplated hereby.
(d) All material consents, waivers, authorizations, licenses and
approvals, if any, necessary to permit Sellers to consummate the transactions
contemplated by this Agreement shall have been received.
(e) All documents and instruments to be delivered at Closing or
otherwise in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in form and substance to Sellers and their
counsel.
5.03 Conditions to the Obligations of Buyer to Effect the Transactions
Contemplated Hereby. The obligations of Buyer to effect the transactions
contemplated hereby shall be further subject to the fulfillment at or prior to
the Closing of each of the following conditions, any one or more of which may be
waived in whole or in part by Buyer in writing:
(a) Sellers shall have performed and complied in all material respects
with all agreements, obligations, conditions and covenants contained in this
Agreement required to be performed and complied with by them at or prior to the
Closing and all representations and warranties of Sellers set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and as amended by any Disclosure Supplements as of the Closing
Date (as if the Closing Date was the date of this Agreement), and Buyer shall
have received certificates to that effect signed by Sellers, in the form
attached hereto as Exhibit A, together with such other documents, instruments
and writings required to be delivered by Sellers or by the Company at or prior
to the Closing pursuant to this Agreement or otherwise required in connection
herewith, provided, however, that if the Disclosure Supplements reveal a
material change from the Schedules attached hereto at the date hereof that is
unacceptable to Buyer, Buyer shall not be obligated to effect the transactions
contemplated hereby.
(b) No action or proceedings which have a reasonable likelihood of
success shall have been instituted or, to the knowledge of Sellers, threatened
by any governmental body or authority to restrain or prohibit any of the
transactions contemplated hereby.
(c) Each party hereto shall have received all material consents,
waivers, approvals, licenses or other authorizations required from any
governmental or non-governmental entity for the execution, delivery and
performance of this Agreement by the parties hereto.
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(d) No injunction or other court order requiring that any part of the
business or assets of the Company be held separate or divested or that any
business or assets of Buyer or any affiliate of Buyer be divested, or imposing
or involving any conditions on Buyer or its affiliates or the Company, which
could be reasonably expected to have a material adverse effect on the assets,
liabilities, business, financial condition, prospects or results of operations
of either Buyer or any affiliate of Buyer on the one hand, or the Company on the
other hand, shall be in effect and no proceedings shall be pending by or before,
or threatened in writing by or before, any governmental body or court of
competent jurisdiction with respect thereto.
(e) Other than as disclosed in the Disclosure Schedule, there shall not
be in effect at the Closing Date any contractual provisions restricting the
ability of the Company or any affiliate thereof to conduct any business or
compete with any person or restricting the area in which it may conduct any
business.
(f) Buyer and its counsel shall have approved (which approval shall not
be unreasonably withheld) (i) the form of stock power or other instruments of
transfer to be delivered to Buyer at the Closing and (ii) all other documents
and instruments to be delivered at the Closing or otherwise in connection with
the transactions contemplated by this Agreement.
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.01 Survival of Representations, Warranties and Covenants. All
covenants and agreements of any party hereto set forth herein shall survive the
Closing for the period provided for in such covenant or, if not so provided, for
a period of one year. The representations and warranties set forth herein shall
survive the Closing and shall remain in effect for a period of one year from the
Closing Date.
6.02 Post-Closing Indemnification. (a) From and after the Closing Date,
Buyer shall defend, indemnify and hold harmless Sellers and their heirs,
trustees, successors and assigns against and in respect of any and all losses,
actions, suits, proceedings, claims, liabilities, damages, causes of action,
demands, assessments, judgments, and investigations and any and all costs and
expenses paid to third parties, including without limitation, reasonable
attorneys' fees and expenses, suffered by any of them as a result of, or arising
from, any inaccuracy in or breach of or omission from any of the representations
or warranties made by Buyer in Article III of this Agreement or pursuant hereto,
or any non-fulfillment, partial or total, of any of the covenants or agreements
made by Buyer in this Agreement to the extent not waived by Sellers in writing.
(b) From and after the Closing Date, each Seller shall defend,
indemnify and hold harmless the Buyer and its subsidiaries (including the
Company) and each of their successors, assigns, officers, directors and
employees (the "Buyer Indemnitee Group") against and in respect of any and all
losses, actions, suits, proceedings, claims, liabilities, damages, causes of
action, demands, assessments, judgments, and investigations and any and all
costs and expenses paid to third parties, including without limitation,
reasonable attorneys' fees and expenses suffered by any of them as a result of,
or arising from, any inaccuracy in or breach of or omission from any of the
representations or warranties made by such Seller in Article II of this
Agreement or pursuant hereto, or any non-fulfillment, partial or total, of any
of the covenants or agreements made by such Seller in this Agreement.
(c) If a claim by a third party is made against an indemnified party,
and if such party intends to seek indemnity with respect thereto under this
Article VI, the indemnified party shall promptly (and in any case within ten
days of such claim being made) notify the indemnifying party of such claim,
provided, however, that the failure to so notify the indemnifying party shall
not discharge the indemnifying party of its obligations hereunder except that
the indemnifying party shall not be liable for default judgments or any amounts
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related thereto if the indemnified party shall not have so notified the
indemnifying party. Subject to the following sentence, the indemnifying party
shall have thirty days after receipt of such notice to undertake, conduct and
control, through counsel of its own choosing (which is satisfactory to the
indemnified party) the settlement or defense thereof, and the indemnified party
shall cooperate with it in connection therewith (provided that the indemnifying
party shall permit the indemnified party to participate in such settlement or
defense through counsel chosen by the indemnified party, provided that the fees
and expenses of such counsel shall be borne by the indemnified party) and the
indemnifying party shall promptly reimburse the indemnified party for the full
amount of any loss resulting from such claim and all related expenses as
incurred by the indemnified party within limits of this Article VI.
Notwithstanding anything herein to the contrary, the indemnified party shall
have the right to conduct and control the defense of any such claim in the event
that such claim (including a claim for equitable relief) or the continuation of
such claim could reasonably be expected to materially adversely affect the
business, results of operations, prospects or financial condition of the
indemnified party or any of its affiliates, provided, however, that (i) in such
event the indemnified party's selection of counsel shall be subject to the
approval of the indemnifying party, which approval shall not be unreasonably
withheld, and (ii) the indemnified party may not settle any claim for an amount
in excess of $25,000 or consent to any settlement which imposes equitable
remedies on the indemnifying party or its affiliates without the prior consent
of the indemnifying party, which consent shall not be unreasonably withheld,
unless the indemnified party agrees to waive any right to indemnity therefor by
the indemnifying party. If the indemnifying party does not notify the
indemnified party within thirty days after the receipt of the indemnified
party's notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof or if the indemnifying party is not reasonably contesting the
claim in good faith, the indemnified party shall have the right to contest,
settle or compromise the claim in the exercise of its reasonable judgment, and
all losses incurred by the indemnified party, including all fees and expenses of
counsel for the indemnified party, shall be paid by the indemnifying party.
(d) Claims for indemnification made under this Section 6.02 shall be
made within a period of one year from the Closing Date.
6.03 Limitation on Indemnification. (a) Notwithstanding the provisions
of Section 6.02(a) hereof, Buyer shall not be obligated to indemnify and hold
harmless Sellers until the aggregate of all claims for which indemnification is
sought against Buyer under Section 6.02(a) of this Agreement and Section 6.02(b)
of the Agreement Regarding Stock Acquisition exceeds, in the aggregate, Eighty
Thousand Dollars ($80,000), and then only as to the amount by which aggregate
claims thereunder exceed $80,000. Buyer's aggregate liability with respect to
the indemnification contained in Section 6.02(a) of this Agreement and Section
6.02(b) of the Agreement Regarding Stock Acquisition shall not exceed
$2,000,000, and each party hereto waives (on its own behalf, and on behalf of
all indemnified persons named hereunder benefiting from such party's
indemnification) any and all rights, claims and causes of action that it or such
persons may have against the indemnifying party under such indemnification
provisions to the extent such rights, claims and causes of action would or could
result in aggregate liability of the indemnifying party in excess of $2,000,000.
(b) Notwithstanding the provisions of Section 6.02(b) hereof, the
aggregate liability under this Agreement of each Seller shall not exceed the
amount set forth opposite such Seller's name in Schedule 1 attached hereto,
being the purchase price for such Seller's Shares.
(c) Except for liability provided for in Section 7.02(b) hereof and the
remedy of specific performance provided for in Section 8.12 hereof, each party
hereto acknowledges and agrees that his, her or its sole and exclusive remedy
with respect to any and all claims relating to the subject matter of this
Agreement shall be pursuant to the indemnification provisions set forth in this
Article VI. In furtherance of the foregoing, each party waives, to the fullest
extent permitted under applicable law, any and all rights, claims and causes of
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action that it may have against the other party arising under or based upon any
federal, state or local statute, law, ordinance, rule or regulation, or arising
under or based upon common law or otherwise, except to the extent provided in
this Article VI.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.01 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual consent of Buyer and a majority of Sellers; or
(b) by either Buyer or a majority of Sellers if the Closing shall not
have occurred on or before December 31, 1998 or such later date as may be agreed
upon by Buyer, and a majority of Sellers; or
(c) upon the termination of the Agreement Regarding Stock Acquisition.
7.02 Procedure and Effect of Termination. In the event of termination
of this Agreement and abandonment of the transactions contemplated hereby by any
or all of the parties pursuant to Section 7.01, written notice thereof shall
forthwith be given to the other parties to this Agreement and this Agreement
shall terminate and the transactions contemplated hereby shall be abandoned,
without further action by any of the parties hereto. If this Agreement is
terminated as provided herein:
(a) the parties hereto will promptly redeliver to the Sellers or Buyer,
as the case may be, all documents, work papers and other materials of any other
party relating to the transactions contemplated hereby, whether obtained before
or after the execution hereof; and
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement pursuant to this Agreement except (i) with
respect to Section 4.01, and (ii) solely with respect to terminations pursuant
to Section 7.01(b), any party whose material breach of any covenant or agreement
hereunder shall have resulted in the failure of the transactions contemplated by
this Agreement to close, shall be liable for breach of contract or otherwise, to
the extent provided by law (it being understood, however, that any matter set
forth on a Disclosure Supplement hereunder shall not be construed as a breach or
default of this Agreement); provided, however, that this subsection (b) (ii)
shall not be construed to limit the remedies otherwise available with respect to
such defaulting party.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of Buyer and Sellers.
8.02 Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party or parties
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
8.02.
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8.03 No Third Party Beneficiaries. Except as provided in this
Agreement, nothing in this Agreement shall confer any rights upon any person or
entity which is not a party or a permitted assignee of a party to this
Agreement.
8.04 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telegram or telex, telecopy,
courier, express mail delivery service, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
(a) if to Sellers, to their respective addresses
set forth on Schedule 1 of this Agreement;
(b) if to Buyer, to:
Data Transmission Network Corporation
9110 West Dodge Road
Suite 200
Omaha, Nebraska 68114
Attn: Greg T. Sloma, President
Facsimile: (402) 390-7188
with a copy to:
Abrahams Kaslow & Cassman
8712 West Dodge Road
Suite 300
Omaha, Nebraska 68114
Attn: R. Craig Fry
Facsimile: (402) 392-0816
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
8.05 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties, except as
provided in Section 8.13.
8.06 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by the law of the State of Nebraska as to all matters, including, but
not limited to, matters of validity, construction, effect, performance and
remedies without giving effect to the principles of choice of law thereof.
8.07 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
8.08 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
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8.09 Entire Agreement. This Agreement, including the Exhibits hereto
and the agreements (including the Agreement Regarding Stock Acquisition),
documents, schedules, certificates and instruments referred to herein embodies
the entire agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such transactions.
8.10 Certain Definitions.
(a) An "affiliate" of a person shall mean any person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
person.
(b) The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such person, whether
through the ownership of voting securities or by contract or otherwise.
(c) The term "person" shall mean and include an individual, a
partnership, a limited liability company, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.
(d) The term "day" shall mean a calendar day unless otherwise stated.
(e) The term "subsidiary" when used in reference to any other person
shall mean any corporation of which outstanding securities having ordinary
voting power to elect a majority of the Board of Directors of such corporation
are owned directly or indirectly by such other person.
(f) Whenever any representation or warranty contained in this Agreement
is qualified by reference to the knowledge, information or belief of a party,
such party confirms that it has made due and diligent inquiry as to the matters
that are the subject of such representation and warranty.
8.11 Severability. The parties hereto acknowledge that the provisions
of this Agreement are reasonable under the circumstances. Any provision of this
Agreement that 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 provisions in any other
jurisdiction.
8.12 Specific Performance. Each of the parties hereto acknowledges and
agrees that the other parties hereto would be irreparably damaged in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached. Accordingly, each of the parties
hereto agrees that they each shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
personal and subject matter jurisdiction, in addition to any other remedy to
which such party may be entitled at law or in equity. In the event of any action
or proceeding to enforce the terms and conditions of this Agreement, the
prevailing party shall be entitled to an award of reasonable attorneys' and
expert's fees and costs in addition to such other relief as may be granted.
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8.13 Effectiveness. This Agreement shall not become effective unless
all Sellers named herein (other than Paul Post and his spouse) have executed and
delivered this Agreement prior to the Closing. If Paul Post does not become a
party prior to Closing, then the aggregate purchase price for the Shares shall
be reduced by the amount set forth opposite his name on Schedule 1 attached
hereto and, at the option of Buyer in its sole discretion, Buyer may assign this
Agreement to a wholly-owned subsidiary of Buyer immediately prior to Closing;
provided, however, that such assignment shall not release Buyer from any of its
obligations and liabilities under this Agreement.
IN WITNESS WHEREOF, Sellers and Buyer have signed, or caused this
Agreement to be signed by their respective representatives, as the case may be,
as of the date first above written.
DATA TRANSMISSION NETWORK
CORPORATION
By: /s/ Greg T. Sloma
Greg T. Sloma, President
STEPHEN P. KAVOURAS REVOCABLE
TRUST UNDER AGREEMENT DATED
SEPTEMBER 13, 1995
By /s/ Stephen P. Kavouras
Stephen P. Kavouras, Trustee
IRREVOCABLE GST TRUST FOR STEPHEN
P. KAVOURAS UNDER AGREEMENT
DATED JULY 29, 1997
By /s/ Stephen P. Kavouras
Stephen P. Kavouras, Trustee
And /s/ Laura Burrow
Laura Burrow, Trustee
/s/ Walter A. Lyons
Walter A. Lyons
/s/ Darold L. Holden
Darold L. Holden
/s/ Mavis Holden
Mavis Holden
/s/ Mrs. Michael Govatos
Mrs. Michael Govatos
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/s/ Daniel Andrew Kavouras
Daniel Andrew Kavouras
/s/ Larry Barnet Kavouras
Larry Barnet Kavouras
/s/ Patricia K. Kavouras
Patricia K. Kavouras
/s/ Myron Hjermstad, Jr.
Myron Hjermstad, Jr.
/s/ Darlene Hjermstad
Darlene Hjermstad
/s/ Paul Post
Paul Post
/s/ Linda Post
Linda Post
/s/ Dennis K. Sanford
Dennis K. Sanford
/s/ Lynn M. Sanford
Lynn M. Sanford
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SCHEDULE 1
<TABLE>
<CAPTION>
Name and Number of Portion of
Address Of Seller Shares Owned Purchase Price
- ----------------- ------------ --------------
<S> <C> <C>
Stephen P. Kavouras, 100 $10,552,278
Trustee of the Stephen
P. Kavouras Revocable
Trust under Agreement
dated September 13, 1995
11400 Rupp Drive
Burnsville, MN 55337
Stephen P. Kavouras and 30 $ 3,165,683
Laura Burrow, as Trustees
of the Irrevocable GST
Trust for Stephen P.
Kavouras under Agreement
dated July 29, 1997
11400 Rupp Drive
Burnsville, MN 55337
Walter A. Lyons, Ph.D., CCM 7 $ 738,660
46050 Weld County Road 13
Ft. Collins, CO 80524
Darold L. Holden 5 $ 527,614
4232 Black Hawk Road
Eagan, MN 55122
Darold and Mavis Holden 1/3 $ 35,174
4232 Black Hawk Road
Eagan, MN 55122
Mrs. Michael Govatos 4 $ 422,091
620 Lynwood Drive
Benton Harbor, MT 49022
Daniel Andrew Kavouras 2 $ 211,046
6035 Forest Circle Drive
Brooksville, FL 34601
Larry Barnet Kavouras 2 $ 211,046
1906 N. 159th East
Wichita, KS 67230
Patricia K. Kavouras 2 $ 211,046
67 South Peak Road
Boulder, CO 80302
Myron and Darlene 1 1/12 $ 114,316
Hjermstad, Jr.
8340 Eastwood Drive, N.E.
Mounds View, MN 55112
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Paul Post 1 $ 105,523
2646 Richardson Street
Madison, WI 53711
Dennis K. and Lynn M. Sanford 1 $ 105,523
--- -----------
13945 Thunderbird Road N
Prescott, AZ 86301
TOTALS 155 5/12 $16,400,000
</TABLE>
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EXHIBIT A
CLOSING CERTIFICATE
The undersigned, being a Seller under that certain Stock Purchase
Agreement (the "Stock Purchase Agreement") dated March ___, 1998, among the
shareholders of Kavouras, Inc. (the "Company"), and Data Transmission Network
Corporation (the "Buyer"), do hereby certify to the Buyer as follows:
1. The undersigned has performed and complied in all material respects
with all agreements, obligations, conditions and covenants contained in the
Stock Purchase Agreement required to be performed and complied with by the
undersigned at or prior to the date hereof and all representations and
warranties of the undersigned set forth in the Stock Purchase Agreement are true
and correct in all material respects as if made on and as of this date, as
amended by any Disclosure Supplements.
2. This certificate is given pursuant to Section 5.03(a) of the Stock
Purchase Agreement.
DATED as of ______________, 1998
SELLER:
----------------------------------
Printed Name:_____________________
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EXHIBIT 2.2
Agreement Regarding Stock Acquisition Dated March 30, 1998, among the
Controlling Shareholders and Data Transmission Network Corporation
This exhibit does not contain the schedules and exhibits identified therein. The
registrant agrees to furnish supplementally to the Commission, upon request, a
copy of any of the omitted exhibits or schedules.
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AGREEMENT REGARDING STOCK ACQUISITION
AGREEMENT REGARDING STOCK ACQUISITION (the "Agreement") dated as of
March 30, 1998, by and among DATA TRANSMISSION NETWORK CORPORATION, a Delaware
corporation ("Buyer"), STEPHEN P. KAVOURAS, an individual, and the STEPHEN P.
KAVOURAS REVOCABLE TRUST UNDER AGREEMENT DATED SEPTEMBER 13, 1995 and the
IRREVOCABLE GST TRUST FOR STEPHEN P. KAVOURAS UNDER AGREEMENT DATED JULY 29,
1997 (the "Trusts") (the Trusts and Stephen P. Kavouras being sometimes referred
to herein collectively as the "Principals" and individually as a "Principal").
WHEREAS, the Trusts are the owners, in the aggregate, of 130 of the 155
5/12 issued and outstanding shares of Common Stock of Kavouras, Inc., a
Minnesota corporation (the "Company);
WHEREAS, Stephen P. Kavouras is a current beneficiary of each of the
Trusts and, accordingly, is the beneficial owner of a majority of the
outstanding shares of Common Stock of the Company;
WHEREAS, contemporaneously with the execution of this Agreement, Buyer
and certain of the shareholders of the Company named therein have executed that
certain Stock Purchase Agreement dated as of even date herewith (the "Stock
Purchase Agreement") and submitted such Stock Purchase Agreement to the other
shareholders of the Company for execution (all such shareholders being referred
to herein collectively as "Sellers"); and
WHEREAS, Principals have agreed to execute this Agreement for the
purpose of making certain representations, warranties, covenants, agreements,
and indemnifications for the benefit of Buyer to induce Buyer to enter into the
Stock Purchase Agreement, which Buyer would not do absent such actions by
Principals.
NOW, THEREFORE, in consideration of the premises and the mutual
representations, warranties and agreements herein contained, and the benefits to
be received by the Trusts pursuant to the Stock Purchase Agreement, Buyer and
Principals agree as follows:
ARTICLE I
SALE OF SHARES AND CLOSING
1.01 Sale of Shares. Subject to the terms and conditions therein
stated, pursuant to the Stock Purchase Agreement, Sellers have agreed to sell,
assign, transfer and deliver to Buyer all of the issued and outstanding shares
of Common Stock of the Company (the "Shares"), and Buyer has agreed to purchase
the Shares from Sellers.
1.02 Closing. Subject to the terms and conditions of the Stock Purchase
Agreement, the sale referred to in Section 1.01 (the "Closing") shall take place
at the offices of Faegre & Benson, LLP, Minneapolis, Minnesota, on such date as
the parties thereto shall by written instrument designate, but no later than ten
(10) days after the later to occur of (i) the expiration or termination of all
applicable waiting periods with respect to each of the antitrust filings
referred to in Section 5.01(b) hereof (including any extensions thereof) or (ii)
the receipt of all FCC approvals referred to in Section 5.01(c). Such time and
date are herein referred to as the "Closing Date".
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PRINCIPALS
As of the date hereof (except as otherwise specified herein and except
as set forth in the disclosure schedule accompanying this Agreement) (the
"Disclosure Schedule"), each Principal jointly and severally represents and
warrants to Buyer as follows:
2.01 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing (except in jurisdictions where
the concept of good standing does not exist) under the laws of the jurisdiction
of its incorporation, has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted and
is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of its business, as now being conducted, makes such qualification necessary and
where the failure to so qualify, be licensed or be in good standing would, when
taken together with all other such failures, affect materially and adversely the
financial condition or business of the Company. Schedule 2.01 of the Disclosure
Schedule sets forth a complete list of the jurisdictions in which the Company is
qualified or licensed to do business. Buyer has heretofore received true and
complete copies of the Articles of Incorporation and By-laws (or other similar
charter documents), as currently in effect, of the Company.
2.02 Capitalization; Title to Stock.
(a) The authorized capital stock of the Company consists of 250 shares
of common stock, no par value (the "Common Stock"), of which 155 5/12 shares are
issued and outstanding as of the date hereof and no shares are held in the
Company's treasury. Sellers are the beneficial and record owners of all the
Company's outstanding shares of Common Stock. All of the outstanding shares of
Common Stock of the Company are duly authorized, validly issued, fully paid and
nonassessable. Except for the sale to Buyer as contemplated by the Stock
Purchase Agreement, there are no outstanding options, warrants, calls or other
rights to subscribe for or purchase or acquire from the Company or Principals or
any affiliate of the Company, or any plans, contracts or commitments providing
for the issuance of, or the granting of rights to acquire (i) any capital stock
of the Company or (ii) any securities convertible into or exchangeable for any
capital stock of the Company. The Company is not contractually obligated to
repurchase, redeem or otherwise acquire any of its outstanding shares of capital
stock.
(b) Each Trust (i) has good and valid title, beneficially and of
record, to the respective Shares set forth opposite its name on Schedule 1
attached to the Stock Purchase Agreement, free and clear of all liens,
encumbrances and rights of others, (ii) is in rightful possession of duly and
validly authorized and issued certificates evidencing its ownership of record of
the Shares, and (iii) has full right, power and authority to sell, transfer,
convey and deliver to Buyer, in accordance with the terms of the Stock Purchase
Agreement, good and valid title, beneficially and of record, to all of such
Shares being sold by such Trust to Buyer thereunder, free and clear of all
liens, encumbrances and rights of others.
2.03 Subsidiaries. Except as set forth on Schedule 2.03 of the
Disclosure Schedule, (a) the Company has no subsidiaries, and (b) there is no
corporation, partnership, joint venture or other person or entity in which the
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Company, directly or indirectly, has, or pursuant to any agreement or agreements
has or will have, a right or obligation to acquire or make by any means, an
interest or investment (including, without limitation, equity ownership,
proprietary interest, loans, guarantees of indebtedness and other similar
obligations).
2.04 Authority Relative to the Transactions Contemplated by this
Agreement. Each Principal has all necessary power, capacity and authority
(corporate or otherwise) to execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly and validly authorized on behalf of each Principal and no other proceedings
on behalf of Principals are necessary to approve and authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by
Principals, and (assuming the valid execution and delivery of this Agreement by
Buyer) constitutes a valid and binding agreement of Principals, enforceable
against Principals in accordance with its terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other laws of general applicability
relating to or affecting creditors' rights and to general principles of equity.
2.05 Consents and Approval; No Violation. Except as set forth on
Schedule 2.05 of the Disclosure Schedule, neither the execution and delivery of
this Agreement or the Stock Purchase Agreement by Principals and Sellers, as the
case may be, nor the consummation by Principals or Sellers of the transactions
contemplated hereby or thereby, nor compliance by any Principal or Seller with
the provisions hereof or thereof, will (i) require any Principal, the Company or
any Seller to file or register with, notify, or obtain any permit,
authorization, consent or approval of, any governmental or regulatory authority
except (A) for filings with the Federal Trade Commission ("FTC") and with the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division") pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976
as amended (the "HSR Act") and the rules and regulations thereunder or (B) for
those requirements which become applicable to the Company as a result of the
specific regulatory status of Buyer or as a result of any other facts that
specifically relate to the business activities in which Buyer is engaged or (C)
for filings with the Federal Communications Commission ("FCC") pursuant to
Section 25.119 of the FCC Rules, 47 C.F.R. Sec. 25.119, with regard to the
Company's FCC licenses for satellite earth station facilities and Section 5.5 of
the FCC Rules, 47 C.F.R. Sec. 5.5, with regard to the Company's experimental FCC
authorizations, as listed on Schedule 2.05 of the Disclosure Schedule or (D) for
any requirements of federal or state securities laws; (ii) conflict with or
breach any provision of the Articles of Incorporation, By-laws or trust
agreement (or other similar governing documents) of the Company or any
Principal; (iii) violate or breach a provision of, or constitute a default (or
an event which, with notice or lapse of time or both would constitute a default)
under, any of the terms, covenants, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, lease, contract,
agreement or other instrument, commitment or obligation to which any Principal
or the Company is a party, or by which any Principal or the Company or any of
their respective properties or assets may be bound, except for such breaches or
defaults which when considered together do not have a material adverse effect on
the transactions contemplated by this Agreement or the Stock Purchase Agreement,
or on the assets, liabilities, business or financial condition of the Company,
taken as a whole; or (iv) assuming compliance with all antitrust laws (including
the HSR Act), violate any order, writ, injunction, decree, judgment, statute,
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law or ruling of any court or governmental authority applicable to any Principal
or the Company or any of their material assets, except for violations which,
when considered together, do not have a material adverse effect on the
transactions contemplated by this Agreement or the Stock Purchase Agreement, or
on the assets, liabilities, business or financial condition of the Company,
taken has a whole.
2.06 Financial Statements. Principals have delivered to Buyer the
audited consolidated balance sheets of the Company as of December 31, 1996 and
1995, and the related consolidated statements of operations and retained
earnings and cash flows for the years then ended, including the notes thereto,
together with the reports thereon of Coopers & Lybrand, L.L.P. (the "Audited
Financial Statements"). The Audited Financial Statements (i) have been prepared
in accordance with the books and records of the Company, and (ii) present fairly
the financial position of the Company as of December 31, 1996 and 1995,
respectively, and the results of operations for the years then ended, all in
conformity with generally accepted accounting principles. Principals have also
delivered to Buyer the unaudited balance sheets of the Company as of December
31, 1997 and February 28, 1998, and the related statements of income, changes in
capital accounts and changes in financial position for the periods then ended
(the "Unaudited Financial Statements"). The Unaudited Financial Statements (x)
have been prepared in accordance with the books and records of the Company, and
(y) present fairly the financial position of the Company as of December 31, 1997
and February 28, 1998, respectively, and the results of operations for the
periods then ended, provided that Buyer acknowledges that the Unaudited
Financial Statements were prepared internally and have not been audited or
prepared in accordance with generally accepted accounting principles. (The
Audited Financial Statements and Unaudited Financial Statements are sometimes
referred to collectively herein as the "Financial Statements"). The Unaudited
Financial Statements do not contain any items of special or nonrecurring income
or any other income not earned in the ordinary course of business except as
expressly disclosed therein or as set forth in Schedule 2.06 of the Disclosure
Schedule.
2.07 [Intentionally left blank.]
2.08 Absence of Certain Changes or Events. Except (i) as set forth in
Schedule 2.08 of the Disclosure Schedule, (ii) as disclosed in the other
Schedules hereto, or (iii) as reflected in the Financial Statements, since
February 28, 1998, the Company has not (a) taken any action specified in
Sections 4.01 (a)-(o) herein (other than actions taken after the date hereof
with the consent of Buyer), (b) suffered any material adverse change in its
assets, liabilities, business, results of operations or financial condition, (c)
suffered any damage, destruction or casualty loss adversely affecting any
material assets of the Company, or (d) entered into any transaction, or
conducted its business or operations, other than in the ordinary and usual
course of business, consistent with past practices.
2.09 Title and Related Matters. (a) Except as set forth on Schedule
2.09 of the Disclosure Schedule, the Company does not own any real property. All
of the material properties, rights and assets, tangible and intangible, now used
in or sufficient for the conduct by the Company of its business as presently
conducted are either owned, leased or licensed by the Company. The interests of
the Company in its properties, rights and assets (whether owned or as a lessee)
are free and clear of all Liens other than (i) Liens for taxes and installments
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of any special assessments not yet due and payable, (ii) Liens which do not
materially affect the use by, or value to, the Company of its rights and assets,
(iii) other covenants, conditions, Liens, restrictions, easements, charges or
encumbrances that are of record against the real property owned or leased by the
Company, (iv) mechanics, carriers workers, repairers and similar statutory Liens
arising or incurred in the ordinary course of business for amounts which are not
delinquent and which are not, individually or in the aggregate, material to the
Company, (v) zoning, entitlement, building and other land use regulations
imposed by governmental agencies and (vi) Liens set forth on Schedule 2.09 of
the Disclosure Schedule. The term "Liens" shall mean any pledge, lien, security
interest, conditional sale agreement, or other similar encumbrance.
(b) Except as set forth on Schedule 2.09 of the Disclosure Schedule,
the real properties owned or leased by the Company are used and operated in
substantial compliance and in conformity in all material respects with all
applicable laws, leases, contracts, commitments, licenses and permits. With
respect to all buildings which are owned or leased by the Company, except for
restrictions under applicable zoning laws and ordinances, no condition, law or
regulation precludes or restricts the use of such properties for the purposes
for which they are used.
2.10 Material Contracts. Except as set forth in Schedule 2.10 of the
Disclosure Schedule, the Company does not have nor is it bound by (a) any
agreement, contract or commitment relating to the employment of any person by
the Company, or any bonus, commission, severance or termination pay, deferred
compensation, pension, profit sharing, stock option, employee stock purchase,
retirement or other employee benefit plan, (b) any agreement, indenture or other
instrument which contains restrictions with respect to payment of dividends or
any other distribution in respect of its capital stock, (c) any agreement,
contract or commitment relating to capital expenditures in excess of $10,000,
(d) any loan or advance to, or investment in, any other person other than cash
advances in the ordinary course of business consistent with past practice, or
any agreement, contract or commitment relating to the making of any such loan,
advance or investment except for cash advances in the ordinary course of
business consistent with past practice, (e) any debt obligation for borrowed
money or any guarantee or other contingent liability in respect of any
indebtedness or obligation of any other person (other than the endorsement of
negotiable instruments for collection and other similar transactions in the
ordinary course of business), (f) any management, distributorship, sales,
service (personal or otherwise), consulting or any other similar type of
contract, (g) any agreement, contract or commitment limiting the freedom of the
Company to engage in any line of business or to compete with any other person or
in any area, (h) any other agreement, contract or commitment which contains an
existing obligation of the Company to pay $25,000 or more and is not cancelable
without penalty within 30 days, (i) any outstanding powers of attorney or
proxies granted to any person for any purpose whatsoever, (j) any contract or
oral or written agreement for the acquisition of any other person, (k) any
agreement as to which the United States Government, any state, local or
municipal government or any foreign government or any agency or instrumentality
of any of the foregoing is a party, exclusive of any such agreement which
contains solely the provisions set forth in a form contract used by the Company
in its ordinary course of business, which forms have been previously made
available to Buyer, or (l) any proposed contract or agreement which upon
acceptance of a customer or third party would create a binding obligation upon
the Company and which would not be cancelable without penalty within thirty (30)
days and would involve a commitment to pay $25,000 or more annually (all such
oral or written agreements, contracts, arrangements and commitments are
hereinafter referred to as the "Material Contracts"). True, complete and correct
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copies of all such written contracts, commitments, agreements or arrangements
described on Schedule 2.10 of the Disclosure Schedule will have been made
available to Buyer prior to Closing. To the best knowledge of Principals,
Schedule 2.10 of the Disclosure Schedule contains a complete list of all such
oral contracts, agreements, commitments or arrangements and identifies which of
such contracts are oral in nature. Except as set forth on Schedule 2.10 of the
Disclosure Schedule, under the Material Contracts, there are no defaults on the
part of the Company or events which, with notice or lapse of time or both, would
constitute defaults on the part of the Company, which defaults, individually or
in the aggregate, would have a material adverse effect on the assets,
liabilities, business, results of operation or financial condition of the
Company taken as a whole. No Principal or the Company has received any notice
from the other party to such Material Contracts of the termination or threatened
termination thereof and no Principal has knowledge of the occurrence of any
event which would allow such other party to terminate such Material Contract
except as otherwise disclosed in the Disclosure Schedule. Except as set forth on
Schedule 2.10 of the Disclosure Schedule or any other Schedule hereto, no
indebtedness of the Company will be accelerated by its terms, or result from the
consummation of the transactions contemplated hereby.
Schedule 2.10 of the Disclosure Schedule contains a complete list of
all agreements providing for the payment of severance pay to employees of the
Company (the "Termination Benefits Agreements"). Except as expressly indicated
on Schedule 2.10 of the Disclosure Schedule, no event has occurred under any of
the Termination Benefits Agreements which alone or upon the giving of notice or
the passage of time or both would obligate the Company to make any payment under
any of the Termination Benefits Agreements.
2.11 Major Customer Contracts. Schedule 2.11 of the Disclosure Schedule
identifies the twenty customer agreements that yielded the greatest amount of
revenues to the Company for the month of February, 1998 (the "Major Customer
Contracts"). With respect to the Major Customer Contracts:
(a) The Company is the party that provides the services under each of
the Major Customer Contracts and, except as set forth in Schedule 2.11 of the
Disclosure Schedule, no Major Customer Contract contains provisions to the
effect that it will be subject to termination or renegotiation as a result of
the transactions contemplated hereby;
(b) Prior to Closing Principals will have made available to Buyer
correct and complete copies of all of the Major Customer Contracts and all
amendments thereto and all extensions and renewals thereof;
(c) Except as set forth on Schedule 2.11 of the Disclosure Schedule, no
notice of termination of a Major Customer Contract has been received by the
Company, and no such customer has indicated in writing its intention to
terminate a Major Customer Contract;
(d) There are no credits, monies or the like in excess of $1,000 due to
any customer who is a party to a Major Customer Contract other than pursuant to
the terms of the Major Customer Contracts;
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(e) Except as set forth on Schedule 2.11 of the Disclosure Schedule,
the Company has not received any written notice of any warranty or indemnity
claims by any customer under a Major Customer Contract which has not been
settled to the satisfaction of the customer claimant;
(f) Except as set forth on Schedule 2.11 of the Disclosure Schedule,
the Company has not received any written notice of default from any customer
under any of the Major Customer Contracts; and
(g) Except as set forth in Schedule 2.11 of the Disclosure Schedule,
the Company has not received any notice of the filing by or against any customer
who is a party to a Major Customer Contract of a petition in bankruptcy,
assignment for the benefit of creditors, a petition seeking reorganization,
composition, liquidation, dissolution or similar arrangement.
2.12 Leases. Schedule 2.12 of the Disclosure Schedule sets forth an
accurate list of (a) all written leases under which the Company is a lessee or
lessor of real property or office space and (b) all other leases to which the
Company is a party (as lessee) involving annual rental payments in excess of
$12,000. All rents and additional rent due to date on such leases have been paid
and in each case, the lessee has been in peaceable possession since the
commencement of the original term of such lease or arrangement and is not in
default thereunder. Except as set forth on Schedule 2.12 of the Disclosure
Schedule, there is not, with respect to leases referred to in clauses (a) and
(b) above, any existing default, or an event of default, or event which, with or
without notice or lapse of time or both, would constitute a default or an event
of default, on the part of the Company.
2.13 Proprietary Rights; Computer Programs, Databases and Software.
Schedule 2.13 of the Disclosure Schedule contains a complete list of all
trademarks, trade names, assumed names, service marks, logos, patents, patent
applications (both United States and foreign), copyrights and copyright
registrations, and any applications for registration and registrations therefor
presently owned or held by the Company or with respect to which the Company owns
or holds any license or other direct or indirect interest (collectively, the
"Proprietary Rights"); and no other material Proprietary Rights are used in or,
to the knowledge of Principals, are necessary for the conduct of the business of
the Company as such business is presently conducted. Unless otherwise indicated
in such Schedule 2.13 of the Disclosure Schedule, the Company owns sufficient
right, title and interest in and to the material Proprietary Rights for the
conduct of its business. To the knowledge of Principals, no material Proprietary
Rights used by the Company conflict with or infringe the rights of any other
person. No claims have been asserted by any person with respect to the
ownership, validity, license or use of the Proprietary Rights and no Principal
knows of any basis for such claim. The Company has taken reasonable measures
which it believes to be appropriate to maintain and protect the Proprietary
Rights. The Company has the right to use all material Proprietary Rights, to
provide and sell the services and products provided and sold by it, and to
conduct its business as heretofore conducted, and, except as set forth on
Schedule 2.13 of the Disclosure Schedule, the consummation of the transactions
contemplated hereby and by the Stock Purchase Agreement will not alter or impair
any such rights. Except as set forth on Schedule 2.13 of the Disclosure
Schedule, no person is known to be infringing on or violating the Proprietary
Rights used by the Company.
(b) Prior to the Closing, copies of the license agreements relating to
all computer programs, databases and software used by the Company shall have
been made available to Buyer. The Company owns, leases or licenses and has the
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right to use computer programs, databases and software which are sufficient and
adequate to operate the business of the Company as it is presently being
conducted. Except as set forth on Schedule 2.13 of the Disclosure Schedule, all
such computer programs, databases and software and the source codes thereof have
been maintained only at the Company's offices at 11400 Rupp Drive, Burnsville,
Minnesota. Except as set forth in Schedule 2.13 of the Disclosure Schedule, the
Company has not sold, licensed, leased or otherwise transferred or granted any
interest or rights to any of its computer programs, databases or software to any
other person.
2.14 Litigation. Schedule 2.14 of the Disclosure Schedule sets forth a
complete list and an accurate description of all claims, actions, suits,
proceedings and (to the knowledge of Principals) investigations pending or, to
the knowledge of Principals, threatened, by or against or involving the Company
or its business and, in the case of collection claims which have been asserted,
those involving claims in excess of $3,000. Based solely on the advice of its
counsel with respect to probable outcomes, but without in any manner
guaranteeing those outcomes, Principals do not believe that any such pending or
threatened claims, actions, suits, proceedings or investigations, if adversely
determined, would, individually or in the aggregate, materially adversely affect
the business, financial condition, results of operations or prospects of the
Company taken as a whole or the transactions contemplated hereby and by the
Stock Purchase Agreement. The Principals do not know of any reasonable basis for
any other such claim, action, suit, proceeding or investigation. The Company is
not subject to any judgment, order or decree entered in any lawsuit or
proceeding which may have a material adverse effect on any of its operations,
business practices or on its ability to acquire any property or conduct business
in any area.
2.15 Employee Benefit Matters. (a) Except as disclosed on Schedule
2.15(a) of the Disclosure Schedule hereto and as described in subparagraph (b)
(i) below, neither the Company nor any member of the Control Group (within the
meaning of section 414(b) of the Internal Revenue Code of 1986, as amended (the
"Code") maintains, contributes to, or has any current obligation to, for, on
behalf of or with respect to current or former employees of the Company, any
employee benefit plan (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), multiemployer plan (as
defined in ERISA Section 3(37)), stock purchase plan, stock option plan or
deferred compensation agreement, plan or funding arrangement (collectively
"Employee Plans").
(b) (i) The only employee welfare benefit plans (as defined in ERISA
Section 3(1)) maintained by the Company are set forth on Schedule 2.15(b) of the
Disclosure Schedule (collectively "Company Plans"). Copies of the Company Plans
have been furnished to Buyer.
(ii) For each Company Plan:
(A) each such Company Plan which is intended to meet the requirements
for tax-favored treatment under Subchapter B of Chapter 1 of the Code meets such
requirements in all material respects;
(B) there is no disqualified benefit (as such term is defined in Code
Section 4976(b)) which would subject Sellers, the Company or Buyer to a tax
under Code Section 4976(a);
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(C) each and every such Company Plan which is a group health plan (as
such term is defined in Code Section 162 (i)(3)) complies and has complied with
the applicable requirements of Code Section 162(k), Title XXII of the Public
Health Service Act and the applicable provisions of the Social Security Act in
all material respects; and
(D) each such Company Plan (including any such plan covering former
employees of the Company) may be amended or terminated by the Company or Buyer
on or at any time after the Closing Date.
2.16 Governmental Authorizations and Regulations. The Company has all
material licenses, franchises, permits and other governmental authorizations
necessary to the conduct of its business, as presently conducted, and the same
are in full force and effect. The business of the Company is being conducted in
compliance in all material respects with all applicable laws, ordinances, rules
and regulations of all governmental authorities relating to its properties or
applicable to its business and in compliance in all material respects with all
applicable licenses, franchises, permits and other governmental authorizations.
Except as set forth on Schedule 2.16 of the Disclosure Schedule, the Company has
not received any notice of any alleged violation of any of the foregoing.
2.17 Labor Matters. Except as set forth in Schedule 2.17 of the
Disclosure Schedule, (i) the Company is in compliance in all material respects
with all applicable laws respecting health and occupational safety, employment
and employment practices, terms and conditions of employment and wages and hours
(including, without limitation, the Federal Immigration Reform and Control Act
of 1986), (ii) there is no unfair labor practice complaint against the Company
pending or threatened before the National Labor Relations Board, (iii) there are
no proceedings pending or threatened before the National Labor Relations Board
with respect to the Company, (iv) there are no discrimination charges (relating
to sex, age, religion, race, color, national origin, ethnicity, handicap or
veteran status or any other basis protected by relevant law) pending before any
federal, state or local agency or authority against the Company or any of its
employees, (v) no grievance which might have a material adverse effect upon the
Company is currently pending, (vi) the Company is not bound by any collective
bargaining agreement and there is no collective bargaining agreement currently
being negotiated by the Company and (vii) the Company has not experienced any
material labor difficulty during the past three years.
2.18 Insurance. The Company maintains insurance coverage which
Principals believe to be sufficient for compliance with all requirements of law
and of all agreements to which the Company is a party and Principals believe
such insurance provides adequate insurance coverage for the business of the
Company. With respect to all policies, all premiums currently payable or
previously due and payable with respect to all periods up to and including the
date hereto have been paid and no notice of cancellation or termination has been
received with respect to any such policy. Such policies will remain in full
force and effect through the respective dates set forth in such policies without
the payment of additional premiums, unless called for in its original terms.
2.19 Tax Matters. (a) Except as set forth in Schedule 2.19 of the
Disclosure Schedule, the Company and its subsidiaries have filed within the time
and in the manner prescribed by law all Federal, state, local and foreign tax
returns and tax reports which are required on or before the date hereof to be
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filed by, or with respect to, them. Such returns and reports accurately reflect
all liability for taxes of the Company and its subsidiaries for the periods
covered thereby. All Federal, state, local and foreign income, profits,
franchise, sales, use, occupancy, excise, withholding, payroll, employment and
other taxes and assessments (including interest and penalties) payable by, or
due from, the Company or its subsidiaries have been fully paid or adequately
disclosed and provided for in the Financial Statements of the Company.
(b) The Company has not filed any election or caused any deemed
election under Section 338 of the Code.
(c) Except as set forth in Schedule 2.19 of the Disclosure Schedule,
(i) neither the Company nor any of its subsidiaries is delinquent in the payment
of any Taxes (as defined in Section 8.10(f) hereof), and (ii) no extensions of
time have been granted to the Company or any of its subsidiaries to file any
return required by applicable law to be filed by it prior to the date hereof,
which have expired without such return having been filed.
(d) The federal income tax returns of the Company (or returns of any
consolidated group which include the Company) have not been examined by the
Internal Revenue Service (the "IRS"). No foreign income tax return of the
Company or any of its subsidiaries has been examined by the tax authority having
jurisdiction thereover.
(e) The Company has not participated (nor will the Company participate
prior to the Closing) in or cooperate with an international boycott within the
meaning of Section 999 of the Code.
(f) Except as set forth in Schedule 2.19 of the Disclosure Schedule,
all transactions which could give rise to a substantial understatement of
federal income tax (within the meaning of Section 6661 of the Code) were
adequately disclosed on the returns required in accordance with Section
6661(b)(2)(8) of the Code.
2.20 Transactions with Affiliates. Except as expressly provided in this
Agreement or as set forth in Schedule 2.20 of the Disclosure Schedule, the
Company does not owe any amount or have any liability (contingent or otherwise),
contract, commitment, arrangement or obligation to or with Sellers or any
persons known by any Principal to be affiliates of any Seller. Except as set
forth on Schedule 2.20 of the Disclosure Schedule, no Principal owns, directly
or indirectly, any interest that will survive the Closing in, or is a director
or employee of, or consultant to, any organization that is a competitor in the
United States, supplier, licensor, customer, creditor or debtor of the Company.
No Seller or Principal or persons known by any Principal to be affiliates of any
Seller have any material interest in any significant property, real or personal,
tangible or intangible, of the Company.
2.21 Accounts Receivable. Except as set forth on Schedule 2.21 of the
Disclosure Schedule, the accounts receivable reflected on the January 31, 1998
balance sheet contained in the Financial Statements and all accounts receivable
arising between January 31, 1998 and the date hereof arose from bona fide
transactions in the ordinary course of business. Except as set forth on Schedule
2.21 of the Disclosure Schedule, no account has been assigned or pledged to any
other person, firm or corporation and no defense or setoff to any such account
has been asserted by the account obligor.
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2.22 Environmental Matters. Except as set forth in Schedule 2.22 of the
Disclosure Schedule:
(a) The Company is in material compliance with, and has not done
anything to be in material violation of, the terms and conditions of all
environmental permits, licenses, and other authorizations required under all
applicable federal, state and local laws relating to the environment, or the
premises owned, leased or occupied by them.
(b) To the knowledge of Principals, there are no conditions at, on,
under or related to, the real property listed in Schedule 2.09 of the Disclosure
Schedule as being owned by the Company (collectively, the "Premises") which
presently poses a significant hazard to human health or the environment. There
has been no production, use, treatment, storage in underground tanks, pits, or
surface impoundments, transportation or disposal by the Company of any Hazardous
Substance, as hereinafter defined, on the Premises, nor any release or
threatened release by the Company of any Hazardous Substance, pollutant or
contaminant into or upon or over the Premises or into or upon ground or surface
water at or within 2,000 feet of the boundaries of the Premises in such form or
quantities so as to create any material liability for the Company. To the
knowledge of Principals, except as set forth in Schedule 2.22 of the Disclosure
Schedule, there are no asbestos or asbestos-containing materials incorporated
into the buildings or interior improvements that are part of the Premises or
other assets to be indirectly transferred pursuant to this Agreement. For
purposes of this Agreement, "Hazardous Substance" shall mean, any hazardous or
toxic substance, material or waste which is regulated by any local governmental
authority, or any State or the United States Government.
(c) Principals have delivered to Buyer copies of all engineering and
environmental studies, such as site analyses and core sampling, environmental
reports, test results, notices, or other similar information, pertaining to the
Premises that the Company has in its possession, or to which it is entitled to
possession (the "Environmental Reports") and, except as set forth in Schedule
2.22, the Principals know of no event or occurrence which would cause the
Environmental Reports to no longer be accurate. Buyer, at Buyer's expense, may
cause to be made engineering and environmental studies, such as site analyses
and core sampling, in order to determine the environmental condition of the
Premises.
2.23 Brokers and Finders. No Principal has employed any broker or
finder and no broker or finder is entitled to any brokerage fees, commissions or
finder's fees arising from any act, representation or promise of any of them in
connection with the transactions contemplated hereby.
2.24 Books and Records. The minute books of the Company, as previously
made available to Buyer, constitute the only written records maintained by the
Company of all meetings of and corporate actions or written consents by the
respective stockholders and Boards of Directors of the Company. Except as set
forth in Schedule 2.24 of the Disclosure Schedule, the Company does not have any
of its records, systems, controls, data or information recorded, stored,
maintained, operated or otherwise wholly or partly dependent upon or held by any
means (including any electronic, mechanical or photographic process, whether
computerized or not) which (including all means of access thereto and therefrom)
are not under the exclusive ownership or license and direct control of the
Company.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
As of the date hereof, Buyer represents and warrants to Principals as
follows:
3.01 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
3.02 Authority Relative to this Agreement. Buyer has all necessary
power, capacity and authority (corporate or otherwise) to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Buyer and no other proceedings on the part of Buyer or its
stockholders are necessary to approve and authorize the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
This Agreement has been duly and validly executed and delivered by Buyer and
(assuming the valid execution and delivery of this Agreement by Principals)
constitutes a valid and binding agreement of Buyer, enforceable against Buyer in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors' rights and to general principles of equity.
3.03 Consents and Approvals; No Violation. Neither the execution and
delivery of this Agreement or the Stock Purchase Agreement by Buyer nor the
consummation by Buyer of the transactions contemplated hereby or thereby, nor
compliance by Buyer with any of the provisions hereof or thereof, will (i)
require Buyer to file or register with, notify, or obtain any permit,
authorization, consent, or approval of, any governmental or regulatory authority
except (A) for filings with the FTC and with the Antitrust Division pursuant to
the HSR Act and the rules and regulations thereunder or (B) for those
requirements which become applicable to Buyer as a result of the specific
regulatory status of the Company or as a result of any other facts that
specifically relate to the business activities in which the Company is or
proposes to be engaged; (ii) conflict with or breach any provision of the
Certificate of Incorporation or by-laws of Buyer; (iii) violate or breach any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, any of the terms, covenants
conditions or provisions of any note, bond mortgage, indenture deed of trust,
license, franchise, permit, lease, contract, agreement or other instrument,
commitment or obligation to which Buyer is a party, or by which Buyer or any of
its properties or assets may be bound, except for such breach or default which
would not have a material adverse effect on the transactions contemplated by
this Agreement taken as a whole; or (iv) assuming compliance with all antitrust
laws (including the HSR Act) violate any order, writ, injunction, decree,
judgment, statute, law or ruling of any court or governmental authority
applicable to Buyer or any of its material assets, which violation would have a
material adverse effect on the transactions contemplated by this Agreement taken
as a whole.
3.04 Litigation; Compliance with Law. Buyer is not a party to any
action or proceeding which seeks, or is subject to, any outstanding order, writ,
injunction or decree, which restrains or enjoins consummation of the
transactions contemplated hereby or which otherwise challenges the transactions
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contemplated hereby and (ii) there is no litigation, administrative, arbitral or
other proceeding, or petition or complaint or, to the knowledge of Buyer,
investigation before any court or governmental or regulating authority or body
pending or, to the knowledge of Buyer, threatened against or relating to Buyer
that would materially adversely affect Buyer's ability to perform its
obligations pursuant to this Agreement.
3.05 Brokers and Finders. Buyer has not employed any broker or finder
and no broker or finder is entitled to any brokerage fees, commissions or
finder's fees arising from any act, representations or promise of Buyer, in
connection with the transactions contemplated hereby.
3.06 Purchase for Investment. Buyer will acquire all of the outstanding
stock of the Company to be purchased by it hereunder for its own account for
investment and not with a view toward any resale or distribution thereof. Buyer
understands that the Shares have not been registered under the Securities Act of
1933, as amended, or the securities laws of any states and, accordingly, the
Shares may not be resold by Buyer unless registered under the 1933 Act and
applicable state securities laws, or sold in transactions which are exempt from
registration thereunder.
ARTICLE IV
COVENANTS OF THE PARTIES
4.01 Conduct of Business of the Company. During the period from the
date of this Agreement to the Closing Date, and except as otherwise expressly
provided in this Section 4.01 or Schedule 4.01 of the Disclosure Schedule,
Principals will cause the Company to (i) conduct its business and operations
according to its ordinary course of business consistent with past practice, (ii)
use its reasonable best efforts to preserve intact its business organization and
its relationship with licensors, suppliers, distributors, employees, customers
and others having business relationships with them, except as may otherwise be
agreed by Principals and Buyer, and (iii) use its reasonable best efforts to
maintain the Major Customers Contracts in full force and effect in accordance
with their terms up to the Closing Date. As used in this Article IV and
elsewhere in this Agreement, the term "reasonable best efforts" shall not
require the party using such efforts to make any payment to any other party
which it is not otherwise required to pay. Without limiting the generality of
the foregoing and except as otherwise expressly provided in Schedule 4.01 of the
Disclosure Schedule, prior to the Closing without the prior written consent of
Buyer, Principals will not permit the Company to:
(a) change or amend its Articles of Incorporation or By-laws (or
similar governing documents);
(b) (i) create, incur or assume any debt, liability or obligation,
direct or indirect, whether accrued, absolute, contingent or otherwise, other
than normal trade obligations incurred in the ordinary course of business
consistent with past practice and borrowings by the Company in the ordinary
course under its current lines of credit or (ii) pay any debt, liability or
obligation of any kind other than current liabilities incurred in the ordinary
course of business consistent with past practice and current maturities of
existing long-term debt or (iii) assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person, or make any loans or advances to any person,
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except in the ordinary course of business consistent with past practice;
provided, however, that without the prior written consent of Buyer, the Company
shall not enter into a new agreement to provide services or products to a
reseller of such services or products or to a competitor of Buyer (except in
either case with respect to renewals of agreements with current customers in the
ordinary course) or amend any Major Customer Contract in a material adverse
manner to the Company;
(c) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect of
the capital stock of the Company, or redeem or otherwise acquire any of the
capital stock of the Company or split, combine or otherwise similarly change the
capital stock of the Company or authorize the creation or issuance of or issue
or sell any shares of its capital stock or any securities or obligations
convertible into or exchangeable for, or giving any person any right to acquire
from it, any shares of its capital stock, or agree to take any such action;
(d) (i) change in any manner the rate or terms of compensation or bonus
payable or to become payable to any director, officer or employee or (ii) change
in any manner the rate or terms of any insurance, pension, severance, or other
employee benefit plan, payment or arrangement made to, for or with any
employees;
(e) discharge or satisfy any lien other than in the ordinary course of
business and consistent with past practice, or subject to any Lien any assets or
properties, except for any Liens that would otherwise be permitted under Section
2.09 hereof;
(f) except as otherwise permitted in this Section 4.01, enter into any
agreement or commitment for any borrowing, capital expenditure or capital
financing in excess of $50,000 individually or in the aggregate;
(g) sell, lease, transfer or dispose of any of its properties or
assets, waive or release any rights of material value, or cancel, compromise,
release or assign any indebtedness owed to it or any claims held by it in each
case other than in the ordinary course of business consistent with past
practice;
(h) make any investment of a capital nature either by purchase of stock
or securities, contributions to capital, property transfers or otherwise, or by
the purchase of any material property or assets of any other individual, firm,
corporation or entity, except in the ordinary course of business consistent with
past practice;
(i) except as required by generally accepted accounting principles (A)
utilize accounting principles different from those used in the preparation of
the Financial Statements, (B) change in any manner its method of maintaining its
books or accounts and records from such methods as in effect on the date of the
Financial Statements, or (C) accelerate booking of revenues or the deferral of
expenses, other than as shall be consistent with past practice and in the
ordinary course of business;
(j) take any action to permit any insurance policy naming it as a
beneficiary or a loss payable payee to be canceled or terminated or any of the
coverage thereunder to lapse, unless simultaneously with such termination or
cancellation replacement policies providing substantially the same coverage and
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which are obtainable on substantially the same economic terms are in full force
and effect; provided, however that if the Company shall receive notice of any
such cancellation or termination, it shall so notify Buyer promptly upon receipt
thereof and, if feasible upon the payment of a premium which is not materially
greater than the premium payable under such terminated or canceled policy,
obtain simultaneously with such termination or cancellation such replacement
policies;
(k) enter into any collective bargaining agreement;
(l) settle or compromise any claim, suit or cause of action involving
more than $10,000;
(m) license, transfer, grant, waive, release, permit to lapse or
otherwise fail to preserve any of the material Proprietary Rights, dispose of or
permit to lapse any material license, permit or other form of authorization, or
dispose of any customer list;
(n) terminate, materially amend or fail to perform any of its material
obligations under any Material Contract; or
(o) enter into an agreement to do any of the things described in
clauses (a) through (n) above.
4.02 Current Information. During the period from the date of this
Agreement to the Closing, unless already disclosed in Schedule 4.01 of the
Disclosure Schedule, Principals will promptly notify Buyer in writing of any
significant development not in the ordinary course of business consistent with
past practice or of any material adverse change in the assets, liabilities,
business, financial condition, prospects or results of operation of the Company
and of any governmental complaints, investigations or hearings of which they or
the Company have been advised involving the Company, or the institution or
threat of the institution of any litigation or proceedings involving the Company
of which they or the Company have been advised.
4.03 Access to Information. Between the date of this Agreement and the
Closing Date, Principals will cause the Company to (i) afford Buyer and its
designated representatives full access to the premises, books and records of the
Company, and (ii) cause the Company's officers, and use its reasonable best
efforts to cause the Company's advisors (including, without limitation, their
auditors, attorneys and other advisors) to furnish Buyer and its designated
representatives (including Buyer's auditors, accountants, attorneys and
representatives) with financial and operating data and other information with
respect to the business and properties of the Company for the purpose of
permitting Buyer to make such investigation of the business, properties,
financial and legal condition of the Company as Buyer deems necessary or
desirable to familiarize itself therewith. Any information delivered to Buyer
hereunder shall be subject to that certain Confidentiality Agreement between the
Company and Buyer dated as of December 30, 1997.
4.04 Expenses. Whether or not the transactions contemplated hereby are
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby will be paid by the respective party
that incurred such cost or expense (it being understood, however, that all
reasonable legal fees and expenses so incurred by Principals shall be paid by
Company.
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4.05 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement and except as otherwise provided herein, all of the parties
hereto will use their reasonable best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement and the Stock Purchase
Agreement. In case at any time after the Closing any further action is necessary
or desirable to carry out the purposes of this Agreement or the Stock Purchase
Agreement or to put Buyer in possession of all of the Shares of the Company or
the Company in possession of all of its assets, each party to this Agreement
will, or will cause its affiliates as the case may be, to take all such
necessary action including, without limitation, the execution and delivery of
such further instruments and documents as may reasonably be requested by the
parties hereto for such purposes or otherwise to complete or perfect the
transactions contemplated by this Agreement and the Stock Purchase Agreement.
4.06 Consents. Each of the parties hereto will use its reasonable best
efforts to obtain the written consents of all persons and governmental
authorities required to be obtained by each such party and necessary to the
consummation of the transactions contemplated by this Agreement and the Stock
Purchase Agreement. In addition, Principals shall cause the Company to use its
reasonable best efforts to obtain the written consent of all persons to the
material contracts shown on Schedule 2.05 of the Disclosure Schedule as
requiring consent to the transactions contemplated by this Agreement and the
Stock Purchase Agreement, except those contracts with Norwest Bank Minnesota,
National Association and the Small Business Administration Certified Development
Company Program "504" Notes.
4.07 Filings. (a) Buyer, Principals and Sellers will promptly file with
the FTC and the Antitrust Division pursuant to the HSR Act all requisite
documents and notifications in connection with the transactions contemplated by
this Agreement and the Stock Purchase Agreement. Buyer and each Principal will
coordinate and cooperate with each other in exchanging such information and
providing such reasonable assistance as the others may require to comply with
the HSR Act. Buyer acknowledges and agrees that it is responsible for the filing
fee required under the HSR Act.
(b) Buyer will, and Principals will cause the Company to, promptly file
with the FCC all requisite applications in connection with the transfer of
control of all FCC-licensed satellite earth station facilities and experimental
FCC authorizations currently held by the Company. In addition, Buyer will, and
Principals will cause the Company to, promptly file with the FCC all requisite
applications in connection with the transfer of control of all FCC equipment
authorizations currently held by the Company pursuant to Section 2.935 of the
FCC Rules, 47 C.F.R. Sec. 2.935 and an application for international
communications services pursuant to Section 214 of the Communications Act, as
amended, 47 U.S.C. Sec. 214. With regard to the foregoing FCC filings, Buyer
will, and Principals will cause the Company to, coordinate and cooperate with
each other in exchanging such information and providing such reasonable
assistance as the other may require to comply with the FCC Rules. Buyer
acknowledges and agrees that it is responsible for the FCC filing fees required
for these filings pursuant to the FCC Rules.
4.08 Disclosure Supplements. From time to time prior to the Closing,
Principals will promptly supplement or amend ("Disclosure Supplements") any
Schedules referred to in this Agreement with respect to any matter hereafter
arising which, if existing or occurring at or prior to the date of this
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Agreement, Principals determine would have been required to be set forth or
described in a Schedule or which is necessary to correct any information in a
Schedule or in any representation or warranty of Principals which has been
rendered inaccurate thereby. The representations and warranties of Principals
shall be amended by the Disclosure Supplements in all respects and for all
purposes other than for the purposes of determining satisfaction of the
conditions to Closing set forth in Article V.
4.09 Public Announcements. Between the date of this Agreement and the
earlier of the Closing Date or the termination of this Agreement pursuant to
Section 7.01 hereof, Principals and Buyer will consult with each other before
any of them or the Company issues any press releases or otherwise makes any
public statements (including statements made to employees of the Company) with
respect to this Agreement and the Stock Purchase Agreement and the transactions
contemplated hereby and thereby.
4.10 Transfer Taxes. All transfer taxes (including all stock transfer
taxes, if any) incurred in connection with this Agreement or the Stock Purchase
Agreement and the transactions contemplated hereby or thereby will be borne by
the respective Sellers, and such Sellers will, at their own expense, file all
necessary tax returns and other documentation with respect to all such transfer
taxes, and, if required by applicable law, the other parties hereto will (and
will cause the Company to) join in the execution of any such tax returns or
other documentation.
4.11 No Solicitation. Between the date of this Agreement and the
earlier of the Closing Date or the termination of this Agreement pursuant to
Section 7.01 hereof, Principals shall not, and Principals shall cause the
Company not to, initiate, solicit, encourage, or participate in, any discussions
with, or provide any information to, any corporation, partnership, person,
entity or group, other than Buyer and its employees and agents, concerning any
merger, consolidation, sale of assets or similar transaction involving the
Company, or any sale of Shares or capital stock of the Company, including
securities convertible into or exchangeable for such securities, by the issuer
(any such transaction being referred to herein as an "Acquisition Proposal").
Principals will suspend any pre-existing discussions involving any Acquisition
Proposal and will immediately advise Buyer if the Company or Principals receive
any Acquisition Proposal from any corporation, partnership, person, entity or
group.
4.12 Access to Customers and Suppliers. Between the date of this
Agreement and the earlier of the Closing Date or the termination of this
Agreement pursuant to Section 7.01 hereof, Principals will cause the Company to
permit a representative of Buyer to accompany a representative of the Company
when they meet with or talk to the officers and employees of the customers and
suppliers of the Company. In addition, Principals will cause the Company to
permit a representative of Buyer to meet with or talk to the officers and
employees of the customers and suppliers of the Company, provided, however, that
the Company shall have a right to have a representative present at such meetings
and discussions.
4.13 Bank Accounts. Principals will cause the Company to deliver to
Buyer at least 3 business days prior to the Closing an accurate and complete
list showing the name and address of each bank in which the Company has an
account or safe deposit box, the number of any such account or any such box and
the names of all persons authorized to draw thereon or to have access thereto.
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4.14 Employees of the Company; Benefits. (a) It is the intent of the
parties that Principals will not be responsible for, and that the Company will
be responsible for, any amounts required by law or policies of general
application, including, but not limited to, the Worker Adjustment and Retraining
Notification Act and any similar state laws that are applicable to the Company,
to be paid as a result of termination or layoff of any employee of the Company.
(b) Effective on the Closing Date, Buyer shall provide or cause the
Company to provide (or continue to provide) to each person who is and remains
employed by the Company after the Closing, including without limitation each
such person on medical, disability, family or other leave of absence immediately
prior to the Closing (collectively, the "Employees"), employee benefit plans
(hereafter, "Buyer's Plans") which are those generally provided from time to
time by Buyer to its employees at substantially the same level of employment.
Nothing in this Section 4.15(c) shall obligate the Buyer or the Company to
continue to maintain any of Buyer's Plans for any specific period of time after
the Closing or to continue employment of such Employees. Buyer may satisfy the
foregoing obligations by causing the Company to continue such plans of the
Company set forth on Schedules 2.15(a) and 2.15(b) effective as of the date
hereof as Buyer desires but only if such plans provide for a comparable level of
benefit as is provided under the applicable Buyer Plan. Buyer also may delay the
transition of the Employees to Buyer's Plans to the next available open
enrollment period or entry date under the applicable Buyer Plan.
(c) For purposes of eligibility, vesting and entitlement to vacation,
if permitted by Buyer's Plans, each Employee shall be given credit under Buyer's
Plans (including without limitation the vacation policy(ies) included within
Buyer's Plans) for such Employee's service with the Company prior to the Closing
Date to the extent such service was credited under the Company's plans effective
immediately prior to the Closing; and, if permitted by Buyer's Plans, each
Employee and covered dependent thereof shall be allowed to participate in each
of Buyer's Plans without regard to preexisting conditions, waiting periods, or
actively at work requirements and, if permitted by Buyer's Plans, will receive
credit toward deductibles and co-payments for expenses under the Company's
medical and dental plans prior to Closing. Each Employee shall be credited under
the vacation policy(ies) included within Buyer's Plans with all vacation accrued
by such Employee prior to the Closing Date under the vacation policy(ies)
included within the Company's plans effective prior to the Closing and not used
by such Employee prior to the Closing Date; provided, however, no Employee shall
be credited with more than two (2) weeks of unused vacation accrued from plan
years preceding the plan year in which Closing occurs. Upon termination after
the Closing of any Employee's employment with the Company, Buyer shall pay or
cause the Company to pay to such Employee the amount of all vacation accrued by
such Employee prior to the Closing Date and not used by such Employee prior to
such termination of employment, excluding unused vacation in excess of two (2)
weeks accrued from plan years preceding the plan year in which Closing occurs.
(d) Following the Closing, Buyer shall cause the Company to create a
pool of $1,800,000 to be distributed by the Chief Executive Officer of the
Company to certain key employees of the Company as fully paid, non-contingent
retention bonuses.
4.15 Employment Agreement. At the Closing, Stephen P. Kavouras and the
Company shall enter into an employment agreement in the form attached hereto as
Exhibit A, dated as of the Closing Date.
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4.16 Non-Competition Agreement. At the Closing, Stephen P. Kavouras and
the Buyer shall enter into a Confidentiality and Non-Competition Agreement in
the form attached hereto as Exhibit B, dated as of the Closing Date.
4.17 Radac Patent Agreement. At or prior to the Closing, Stephen P.
Kavouras shall, at no expense to the Company or Buyer, terminate his rights to
receive any royalties, fees or other payments pursuant to the Agreement for
Title Transfer of Radac Patent dated May 6, 1986, between Stephen P. Kavouras
and the Company, and shall transfer to the Company, in form sufficient for
filing in the U.S. Patent and Trademark Office, all of its right, title and
interest in the Radac patent which is the subject of such agreement.
4.18 1997 Audited Financial Statements. Prior to Closing, Principals
shall cause the Company to deliver to Buyer the audited consolidated balance
sheets of the Company as of December 31, 1997, and the related consolidated
statements of operations and retained earnings and cash flows for the year then
ended, including the notes thereto, together with the unqualified report thereon
of Coopers & Lybrand, L.L.P. (the "1997 Audited Financial Statements").
Principals will jointly and severally represent and warrant to Buyer at Closing,
on the form of certificate attached hereto as Exhibit D, that the 1997 Audited
Financial Statements (i) have been prepared in accordance with the books and
records of the Company, and (ii) present fairly the financial position of the
Company as of December 31, 1997, and the results of operations for the year then
ended, all in conformity with generally accepted accounting principles.
4.19 Tax Matters. Principals shall cause all tax allocation, tax
sharing and similar agreements, if any, to which the Company is or was a party
at any time on or before the Closing Date to be terminated as of the Closing
Date. After the Closing, the Company shall have no obligation for the payment of
any amount pursuant to any such agreement, except as expressly provided for in
the Financial Statements. Principals agree that they will cause the Company to
prepare its fiscal 1997 U.S. federal income tax returns based upon the 1997
Audited Financial Statements. Principals agree that they will not permit the
Company to amend its U.S. federal income tax returns relating to periods prior
to January 1, 1997 in a manner that would adversely affect the Company or Buyer,
without the consent of Buyer.
4.20 Meteognosis S.A.. Prior to Closing, Principals shall cause the
Company to divest itself of any ownership interest in Meteognosis S.A., a Greek
corporation, without incurring any additional material liability with respect to
such investment not reflected on the Financial Statements.
ARTICLE V
CONDITIONS
5.01 Conditions to Each Party's Obligations to Effect the Transactions
Contemplated Hereby. The respective obligations of each party hereto to effect
the transactions contemplated by this Agreement and the Stock Purchase Agreement
shall be subject to the fulfillment at or prior to the Closing of each of the
following conditions:
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(a) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, entered, promulgated or enforced
by any court of competent jurisdiction or governmental authority, nor shall any
action or proceeding brought by any governmental authority or agency be pending,
which (i) prevents, restricts or delays or seeks to prevent, restrict or delay
the consummation of the transactions contemplated by this Agreement or the Stock
Purchase Agreement, or (ii) seeks a material amount of monetary damages in
connection with the consummation of the transactions contemplated by this
Agreement or the Stock Purchase Agreement.
(b) Sellers, Principals and Buyer and any other person (as defined in
the HSR Act) required in connection with the transactions contemplated hereby
and in the Stock Purchase Agreement to file a Notification and Report Form for
Certain Mergers and Acquisitions with the Antitrust Division and the FTC
pursuant to the HSR Act shall have made such filings and all applicable waiting
periods with respect to each such filing (including any extensions thereof)
shall have expired or been terminated.
(c) Buyer and the Company shall have filed with the FCC all requisite
applications in connection with the transfer of control of all FCC-licensed
satellite earth station facilities, experimental FCC authorizations, and
equipment authorizations currently held by the Company pursuant to the FCC
Rules, and each such application shall have been approved by the FCC.
(d) Each condition to closing set forth in the Stock Purchase Agreement
shall have been fulfilled at or prior to Closing, or such condition shall have
been waived by the party whose obligations under such Stock Purchase Agreement
were contingent upon such condition.
(e) Seventy-five percent (75%) of the shares held by non-interested
shareholders of the Company (as defined in Section 280(g) of the Internal
Revenue Code of 1986, as amended) shall have approved the payments to be made to
Stephen P. Kavouras under the Employment Agreement and the Confidentiality and
Non-Competition Agreement.
5.02 Conditions to the Obligations of Principals to Effect the
Transactions Contemplated Hereby. The obligations of Principals to effect the
transactions contemplated by this Agreement and the Stock Purchase Agreement
shall be further subject to the fulfillment at or prior to the Closing of each
of the following conditions, any one or more of which may be waived in whole or
in part by any Principal in writing:
(a) Buyer shall have performed and complied in all material respects
with all agreements, obligations, conditions and covenants contained in this
Agreement and the Stock Purchase Agreement required to be performed and complied
with by it at or prior to the Closing and all representations and warranties of
Buyer contained in this Agreement and the Stock Purchase Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date (as if the Closing Date was the date of this Agreement), and
Principals shall have received certificates to that effect signed by the
President or any Vice President of Buyer together with such other documents,
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instruments and writings required to be delivered by Buyer at or prior to the
Closing pursuant to this Agreement and the Stock Purchase Agreement or otherwise
reasonably required by Buyer in connection herewith or therewith.
(b) Principals shall have received an opinion from counsel to Buyer,
dated the Closing Date, to the effect set forth in Exhibit C hereto.
(c) Buyer shall have delivered to Principals a copy of the Certificate
of Incorporation of Buyer, including all amendments thereto, certified by the
Secretary of State of the State of Delaware and (ii) a certificate from the
Secretary of the State of Delaware to the effect that Buyer is in good standing
in such State.
(d) No actions or proceedings which have a material likelihood of
success shall have been instituted or, to the knowledge of Buyer, threatened by
any governmental body or authority to restrain or prohibit any of the
transactions contemplated hereby.
(e) All material consents, waivers, authorizations, licenses and
approvals, if any, necessary to permit Principals and Sellers to consummate the
transactions contemplated by this Agreement and the Stock Purchase Agreement
shall have been received.
(f) All documents and instruments to be delivered at Closing or
otherwise in connection with the transactions contemplated by this Agreements
and the Stock Purchase Agreement shall be reasonably satisfactory in form and
substance to Principals, Sellers and their counsel.
(g) Buyer and DTN Market Communications Group, Inc. shall have
performed all of their obligations under that certain Agreement Regarding
Purchase of Contract and Contract Rights dated of even date herewith with the
Company required to be performed by them prior to the Closing.
5.03 Conditions to the Obligations of Buyer to Effect the Transactions
Contemplated Hereby. The obligations of Buyer to effect the transactions
contemplated hereby shall be further subject to the fulfillment at or prior to
the Closing of each of the following conditions, any one or more of which may be
waived in whole or in part by Buyer in writing:
(a) Principals and Sellers shall have performed and complied in all
material respects with all agreements, obligations, conditions and covenants
contained in this Agreement and the Stock Purchase Agreement required to be
performed and complied with by them at or prior to the Closing and all
representations and warranties of Principals and Sellers set forth in this
Agreement and the Stock Purchase Agreement shall be true and correct in all
material respects as of the date of this Agreement and as amended by any
Disclosure Supplements as of the Closing Date (as if the Closing Date was the
date of this Agreement), and Buyer shall have received a certificate to that
effect signed by Principals, in the form attached hereto as Exhibits D, together
with such other documents, instruments and writings required to be delivered by
Principals and Sellers or by the Company at or prior to the Closing pursuant to
this Agreement and the Stock Purchase Agreement or otherwise required in
connection herewith or therewith, provided, however, that if the Disclosure
Supplements reveal a material change from the Schedules attached hereto at the
date hereof that is unacceptable to Buyer, Buyer shall not be obligated to
effect the transactions contemplated hereby. The immediately foregoing proviso,
however, shall not apply to changes in the Disclosure Supplements regarding the
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matters set forth in Schedule 5.03(a) of the Disclosure Schedule, as to which
changes Buyer shall not be relieved from its obligations to effect the
transactions contemplated hereby.
(b) Principals shall have delivered to Buyer (i) copies of the
Company's Articles of Incorporation including all amendments thereto certified
by the Secretary of State of the State of Minnesota, (ii) a certificate from the
Secretary of State to the effect that the Company is in good standing and
listing all charter documents of the Company on file, (iii) a certificate from
the Secretary of State or other appropriate official in each state in which the
Company is qualified to do business to the effect that the Company is in good
standing in such state and (iv) certificates as to the tax status of the Company
in the State of Minnesota and each state in which the Company is qualified to do
business.
(c) Prior to the Closing Date, there shall be no material adverse
change in the assets or liabilities, the business or condition, financial or
otherwise, or the results of operations of the Company, from February 28, 1998
and Principals shall have delivered to Buyer the certificate in the form
attached hereto as Exhibit D, dated the Closing Date, to such effect; provided,
however, that this Section 5.03(c) shall not apply to, and no condition to
Closing or right of Buyer to elect not to effect the transactions contemplated
herein shall be created, as a result of any action or occurrence contemplated by
Schedule 5.03(a) of the Disclosure Schedule.
(d) No action or proceedings which have a reasonable likelihood of
success shall have been instituted or, to the knowledge of any Principal,
threatened by any governmental body or authority to restrain or prohibit any of
the transactions contemplated hereby or by the Stock Purchase Agreement.
(e) Each party hereto shall have received all material consents,
waivers, approvals, licenses or other authorizations required from any
governmental or non-governmental entity for the execution, delivery and
performance of this Agreement and the Stock Purchase Agreement by the parties
hereto and thereto.
(f) Buyer shall have received an opinion from Faegre & Benson, LLP,
counsel to Principals, dated the Closing Date, to the effect set forth in
Exhibit E hereto.
(g) No injunction or other court order requiring that any part of the
business or assets of the Company be held separate or divested or that any
business or assets of Buyer or any affiliate of Buyer be divested, or imposing
or involving any conditions on Buyer or its affiliates or the Company, which
could be reasonably expected to have a material adverse effect on the assets,
liabilities, business, financial condition, prospects or results of operations
of either Buyer or any affiliate of Buyer on the one hand, or the Company on the
other hand, shall be in effect and no proceedings shall be pending by or before,
or threatened in writing by or before, any governmental body or court of
competent jurisdiction with respect thereto.
(h) The Company shall not have taken any of the actions set forth in
Section 4.01(a) - (o) to the extent such actions were not permitted under
Section 4.01 and had, individually or in the aggregate, a material adverse
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effect on the assets, liabilities, business, results of operations or financial
condition of the Company, taken as a whole.
(i) Buyer shall have received satisfactory evidence of the resignation
as of the time of Closing of such of the present officers (in their capacity as
corporate officers only) of the Company (other than Stephen P.
Kavouras) as Buyer may request at least 3 business days prior to Closing.
(j) Other than as disclosed in the Disclosure Schedule, there shall not
be in effect at the Closing Date any contractual provisions restricting the
ability of the Company or any affiliate thereof to conduct any business or
compete with any person or restricting the area in which it may conduct any
business.
(k) Buyer and its counsel shall have approved (which approval shall not
be unreasonably withheld) all documents and instruments to be delivered at the
Closing or otherwise in connection with the transactions contemplated by this
Agreement and the Stock Purchase Agreement.
(l) Buyer shall have received the 1997 Audited Financial Statements and
they shall not show a material adverse change in the assets or liabilities, the
business or condition, financial or otherwise, or the results of operations of
the Company when compared to the Unaudited Financial Statements; provided,
however, that this Section 5.03(l) shall not apply to, and no condition to
Closing or right of Buyer to elect not to effect the transactions contemplated
herein shall be created, as a result of any such action or occurrence
contemplated by Schedule 5.03(a).
ARTICLE VI
SURVIVAL AND INDEMNIFICATION
6.01 Survival of Representations, Warranties and Covenants. All
covenants and agreements of any party hereto set forth herein shall survive the
Closing for the period provided for in such covenant or, if not so provided, for
a period of one year. The representations and warranties set forth herein shall
survive the Closing and shall remain in effect for a period of one year from the
Closing Date, provided that (x) any claim for indemnification which is asserted
within the time period set forth in Section 6.02(d) shall survive such one year
period, for the period set forth in such Section, and (y) any claim for
indemnification pursuant to Section 6.02(a)(iii) shall survive indefinitely.
6.02 Post-Closing Indemnification. (a) From and after the Closing Date,
each Principal shall jointly and severally defend, indemnify and hold harmless
Buyer and its subsidiaries (including the Company) and each of their successors,
assigns, officers, directors and employees (the "Buyer Indemnitee Group")
against and in respect of any and all losses, actions, suits, proceedings,
claims, liabilities, damages, causes of action, demands, assessments, judgments,
and investigations and any and all costs and expenses paid to third parties,
including without limitation, reasonable attorneys' fees and expenses
(collectively, "Damages"), suffered by any of them as a result of, or arising
from: (i) except for matters referred to in clauses (ii) and (iii) hereof, any
inaccuracy in or breach of or omission from any of the representations or
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warranties made by Principals in Article II of this Agreement or pursuant hereto
(as amended by the Disclosure Supplements), or any nonfulfillment, partial or
total, of any of the covenants or agreements made by Principals in this
Agreement to the extent not waived by Buyer in writing; (ii) any claim, action,
suit, proceeding or investigation of any kind by WSI Corporation or its
successors or assigns relating to or arising from the relationship between the
Company and EarthWatch, including without limitation any claim, action, suit,
proceeding or investigation by WSI Corporation in connection with that certain
Letter of Intent between the Company and EarthWatch referred to in Schedule 2.14
of the Disclosure Schedule, or agreements entered into between the Company and
EarthWatch pursuant to such Letter of Intent; and (iii) there being outstanding
at the Closing any shares of capital stock of the Company other than those set
forth on Schedule 1 attached to the Stock Purchase Agreement or any right of a
person to purchase or receive any additional shares of capital stock or other
securities of the Company, including without limitation any outstanding
subscriptions, scrip, warrants, commitments, conversion rights, calls, options
or agreements to issue or sell additional securities of the Company.
(b) From and after the Closing Date, Buyer shall defend, indemnify and
hold harmless Principals and their heirs, trustees, successors and assigns
against and in respect of any and all losses, actions, suits, proceedings,
claims, liabilities, damages, causes of action, demands, assessments, judgments,
and investigations and any and all costs and expenses paid to third parties,
including without limitation, reasonable attorneys' fees and expenses, suffered
by any of them as a result of, or arising from, any inaccuracy in or breach of
or omission from any of the representations or warranties made by Buyer in
Article III of this Agreement or pursuant hereto, or any non-fulfillment,
partial or total, of any of the covenants or agreements made by Buyer in this
Agreement to the extent not waived by Principals in writing.
(c) If a claim by a third party is made against an indemnified party,
and if such party intends to seek indemnity with respect thereto under this
Article VI, the indemnified party shall promptly (and in any case within ten
days of such claim being made) notify the indemnifying party of such claim,
provided, however, that the failure to so notify the indemnifying party shall
not discharge the indemnifying party of its obligations hereunder except that
the indemnifying party shall not be liable for default judgments or any amounts
related thereto if the indemnified party shall not have so notified the
indemnifying party. Subject to the following sentence, the indemnifying party
shall have thirty days after receipt of such notice to undertake, conduct and
control, through counsel of its own choosing (which is satisfactory to the
indemnified party) the settlement or defense thereof, and the indemnified party
shall cooperate with it in connection therewith (provided that the indemnifying
party shall permit the indemnified party to participate in such settlement or
defense through counsel chosen by the indemnified party, provided that the fees
and expenses of such counsel shall be borne by the indemnified party) and the
indemnifying party shall promptly reimburse the indemnified party for the full
amount of any loss resulting from such claim and all related expenses as
incurred by the indemnified party within limits of this Article VI.
Notwithstanding anything herein to the contrary, the indemnified party shall
have the right to conduct and control the defense of any such claim in the event
that such claim (including a claim for equitable relief) or the continuation of
such claim could reasonably be expected to materially adversely affect the
business, results of operations, prospects or financial condition of the
indemnified party or any of its affiliates, provided, however, that (i) in such
event the indemnified party's selection of counsel shall be subject to the
approval of the indemnifying party, which approval shall not be unreasonably
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withheld, and (ii) the indemnified party may not settle any claim for an amount
in excess of $25,000 or consent to any settlement which imposes equitable
remedies on the indemnifying party or its affiliates without the prior consent
of the indemnifying party, which consent shall not be unreasonably withheld,
unless the indemnified party agrees to waive any right to indemnity therefor by
the indemnifying party. If the indemnifying party does not notify the
indemnified party within thirty days after the receipt of the indemnified
party's notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof or if the indemnifying party is not reasonably contesting the
claim in good faith, the indemnified party shall have the right to contest,
settle or compromise the claim in the exercise of its reasonable judgment, and
all losses incurred by the indemnified party, including all fees and expenses of
counsel for the indemnified party, shall be paid by the indemnifying party.
(d) Claims for indemnification made pursuant to Section 6.02(a)(i) or
Section 6.02(b) shall be made within a period of one year from the Closing Date.
Notwithstanding anything to the contrary in this Article VI, claims for
indemnification pursuant to Section 6.02(a)(ii) shall be made within five years
from the Closing Date, and claims for indemnification pursuant to Section
6.02(a)(iii) may be made at any time and such indemnification obligation shall
survive indefinitely.
6.03 Limitation on Indemnification. (a) Notwithstanding the provisions
of Section 6.02(a) hereof, Principals shall not be obligated to indemnify and
hold harmless the Buyer Indemnitee Group: (i) with respect to the
indemnification contained in clause (i) of Section 6.02(a), unless and until the
aggregate amount of all claims for which indemnification is sought under such
clause (i) exceeds Eighty Thousand Dollars ($80,000), and then only as to the
amount by which aggregate claims thereunder exceed $80,000; and (ii) with
respect to the indemnification contained in clause (ii) of Section 6.02(a),
unless and until the aggregate amount of all claims for which indemnification is
sought under such clause (ii) exceeds One Million Dollars ($1,000,000), and then
only as to the amount by which aggregate claims thereunder exceed $1,000,000.
Notwithstanding the provisions of Section 6.02(b) hereof, Buyer shall not be
obligated to indemnify and hold harmless Principals until the aggregate of all
claims for which indemnification is sought against Buyer under Section 6.02(b)
of this Agreement and Section 6.02(a) of the Stock Purchase Agreement exceeds,
in the aggregate, Eighty Thousand Dollars ($80,000), and then only as to the
amount by which aggregate claims thereunder exceed $80,000.
(b) There shall be no limitations (either minimum thresholds or maximum
amounts) applicable to the indemnification contained in clause (iii) of Section
6.02(a).
(c) Subject to the last sentence of this Section 6.03(c), the aggregate
liability of Principals with respect to the indemnification contained in clause
(i) of Section 6.02(a), after giving effect to the limitations set forth in
Section 6.03(a) hereof, and Buyer's aggregate liability with respect to the
indemnifications contained in Section 6.02(b) of this Agreement and Section
6.02(a) of the Stock Purchase Agreement, after giving effect to the limitations
set forth in Section 6.03(a) hereof, shall not exceed $2,000,000, and each party
hereto waives (on its own behalf, and on behalf of all indemnified persons named
hereunder benefiting from such party's indemnification) any and all rights,
claims and causes of action that it or such persons may have against the
indemnifying party under such indemnification provisions to the extent such
rights, claims and causes of action would or could result in aggregate liability
of the indemnifying party in excess of $2,000,000. Subject to the last sentence
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of this Section 6.03(c), the aggregate liability of Principals with respect to
the indemnification contained in clause (ii) of Section 6.02(a), after giving
effect to the limitations set forth in Section 6.03(a) hereof, shall not exceed
$1,000,000, and Buyer waives (on its own behalf and on behalf of the Buyer
Indemnitee Group) any and all rights, claims and causes of action that it or the
Buyer Indemnitee Group may have against Principals under such Section
6.02(a)(ii) to the extent such rights, claims and causes of action would or
could result in aggregate liability of Principals in excess of $1,000,000.
Notwithstanding the foregoing provisions of this Section 6.03(c), the aggregate
liability of each Trust with respect to the indemnifications contained in
clauses (i) and (ii) of Section 6.02(a) of this Agreement and Section 6.02(b) of
the Stock Purchase Agreement shall not exceed the amount set forth opposite such
Trust's name in Schedule 1 attached to the Stock Purchase Agreement, being the
purchase price for such Trust's Shares.
(d) Except for liability provided for in Section 7.02(b) hereof and the
remedy of specific performance provided for in Section 8.12 hereof, each party
hereto acknowledges and agrees that his or its sole and exclusive remedy with
respect to any and all claims relating to the subject matter of this Agreement
shall be pursuant to the indemnification provisions set forth in this Article
VI. In furtherance of the foregoing, each party waives, to the fullest extent
permitted under applicable law, any and all rights, claims and causes of action
that it may have against the other party arising under or based upon any
federal, state or local statute, law, ordinance, rule or regulation, or arising
under or based upon common law or otherwise, except to the extent provided in
this Article VI.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.01 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) by the mutual consent of Principals and Buyer; or
(b) by either Buyer or Principals if the Closing shall not have
occurred on or before December 31, 1998 or such later date as may be agreed upon
by Buyer and Principals; or
(c) upon the termination of the Stock Purchase Agreement.
7.02 Procedure and Effect of Termination. In the event of termination
of this Agreement and abandonment of the transactions contemplated hereby by any
or all of the parties pursuant to Section 7.01, written notice thereof shall
forthwith be given to the other parties to this Agreement and this Agreement
shall terminate and the transactions contemplated hereby shall be abandoned,
without further action by any of the parties hereto. If this Agreement is
terminated as provided herein:
(a) the parties hereto will promptly redeliver to the Company,
Principals or Buyer, as the case may be, all documents, work papers and other
materials of any other party relating to the transactions contemplated hereby,
whether obtained before or after the execution hereof; and
(b) no party hereto shall have any liability or further obligation to
any other party to this Agreement pursuant to this Agreement except (i) with
respect to Section 4.04, and (ii) solely with respect to terminations pursuant
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to Section 7.01(b), any party whose material breach of any covenant or agreement
hereunder shall have resulted in the failure of the transactions contemplated by
this Agreement to close, shall be liable for breach of contract or otherwise, to
the extent provided by law (it being understood, however, that any matter set
forth on a Disclosure Supplement hereunder shall not be construed as a breach or
default of this Agreement); provided, however, that this subsection (b) (ii)
shall not be construed to limit the remedies otherwise available with respect to
such defaulting party.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of Buyer and Principals.
8.02 Waiver of Compliance; Consents. Except as otherwise provided in
this Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party or parties
entitled to the benefits thereof only by a written instrument signed by the
party granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
8.02.
8.03 No Third Party Beneficiaries. Except as provided in this
Agreement, nothing in this Agreement shall confer any rights upon any person or
entity which is not a party or a permitted assignee of a party to this
Agreement.
8.04 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered in person, by cable, telegram or telex, telecopy,
courier, express mail delivery service, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
(a) if to Principals, to:
Stephen P. Kavouras
11400 Rupp Drive
Burnsville, Minnesota 55337
Facsimile: 612-882-4447
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with a copy to:
Faegre & Benson, L.L.P.
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Andrew G. Humphrey
Facsimile: 612-336-3026
(b) if to Buyer, to:
Data Transmission Network Corporation
9110 West Dodge Road
Suite 200
Omaha, Nebraska 68114
Attn: Greg T. Sloma, President
Facsimile: 402-390-7188
with a copy to:
Abrahams Kaslow & Cassman
8712 West Dodge Road
Suite 300
Omaha, Nebraska 68114
Attn: R. Craig Fry
Facsimile: 402-392-0816
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
8.05 Assignment. This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties.
8.06 Governing Law; Consent to Jurisdiction. This Agreement shall be
governed by the law of the State of Nebraska as to all matters, including, but
not limited to, matters of validity, construction, effect, performance and
remedies without giving effect to the principles of choice of law thereof.
8.07 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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8.08 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
8.09 Entire Agreement. This Agreement, including the Exhibits hereto
and the agreements (including the Stock Purchase Agreement), documents,
schedules, certificates and instruments referred to herein embodies the entire
agreement and understanding of the parties hereto in respect of the transactions
contemplated by this Agreement. There are no restrictions, promises,
representations, warranties, covenants or undertakings, other than those
expressly set forth or referred to herein or therein. This Agreement supersedes
all prior agreements and understandings between the parties with respect to such
transactions. Notwithstanding the foregoing, the terms of that certain
Confidentiality Agreement between the Company and Buyer dated December 30, 1997
shall continue in effect.
8.10 Certain Definitions.
(a) An "affiliate" of a person shall mean any person which, directly or
indirectly, controls, is controlled by, or is under common control with, such
person.
(b) The term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), as used with respect to any
person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such person, whether
through the ownership of voting securities or by contract or otherwise.
(c) The term "person" shall mean and include an individual, a
partnership, a limited liability company, a joint venture, a corporation, a
trust, an unincorporated organization and a government or any department or
agency thereof.
(d) The term "day" shall mean a calendar day unless otherwise stated.
(e) The term "subsidiary" when used in reference to any other person
shall mean any corporation of which outstanding securities having ordinary
voting power to elect a majority of the Board of Directors of such corporation
are owned directly or indirectly by such other person.
(f) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes, customs
duties, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) upon the Company or its subsidiaries.
(g) Whenever any representation or warranty contained in this Agreement
is qualified by reference to the knowledge, information or belief of a party,
such party confirms that it has made due and diligent inquiry as to the matters
that are the subject of such representation and warranty.
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8.11 Severability. The parties hereto acknowledge that the provisions
of this Agreement are reasonable under the circumstances. Any provision of this
Agreement that 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 provisions in any other
jurisdiction.
8.12 Specific Performance. Each of the parties hereto acknowledges and
agrees that the other parties hereto would be irreparably damaged in the event
any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached. Accordingly, each of the parties
hereto agrees that they each shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
personal and subject matter jurisdiction, in addition to any other remedy to
which such party may be entitled at law or in equity. In the event of any action
or proceeding to enforce the terms and conditions of this Agreement, the
prevailing party shall be entitled to an award of reasonable attorneys' and
expert's fees and costs in addition to such other relief as may be granted.
8.13 Primary Obligation. The obligations and liabilities of Principals
under this Agreement shall be primary and shall be the joint and several
obligation and liability of each Principal. Principals agree that in any right
of action which may accrue to Buyer under this Agreement, Buyer may proceed
against any of the Principals without having commenced any action or having
obtained any judgment and without first attempting to collect or proceed against
any other Principal or any of the Sellers pursuant to the Stock Purchase
Agreement.
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IN WITNESS WHEREOF, Principals and Buyer have signed, or caused this
Agreement to be signed by their respective representatives, as the case may be,
as of the date first above written.
DATA TRANSMISSION NETWORK
CORPORATION
By: /s/ Greg T. Sloma
Greg T. Sloma, President
/s/ Stephen P. Kavouras
Stephen P. Kavouras
STEPHEN P. KAVOURAS REVOCABLE
TRUST UNDER AGREEMENT DATED
SEPTEMBER 13, 1995
By /s/ Stephen P. Kavouras
Stephen P. Kavouras, Trustee
IRREVOCABLE GST TRUST FOR STEPHEN
P. KAVOURAS UNDER AGREEMENT
DATED JULY 29, 1997
By /s/ Stephen P. Kavouras
Stephen P. Kavouras, Trustee
And /s/ Laura Burrow
Laura Burrow, Trustee
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EXHIBIT 23.1
Consent of Independent Accountants
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 report dated April 6, 1998 on our audits of the consolidated financial
statements of Kavouras, Inc. as of December 31, 1997 and 1996 and for the years
ended, which report is included in this Form 8-K/A.
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
September 3, 1998
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EXHIBIT 99.1
News release of Data Transmission Network Corporation dated March 31,
1998.
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Data Transmission Network Corporation (DTN) and Kavouras, Inc. Announce
Agreement In Principle
OMAHA, NEB - Data Transmission Network Corporation (DTN) (NASDAQ: DTLN)
and Kavouras, Inc. (Kavouras) announced today an agreement in principle among
DTN and the principal shareholders of Kavouras for the acquisition by DTN of
their stock in Kavouras. Kavouras is engaged in the development, design,
manufacture, marketing and service of meteorological equipment and provides
meteorological data services to government, aviation, commercial broadcast and
other industries including DTN.
Upon closing of the transaction, DTN will acquire the stock of
Kavouras. Kavouras currently has approximately 600 customers in the aviation,
broadcast, government and other industries receiving meteorological data.
Kavouras recorded revenues of $19,679,000 and $17,562,000 for the years ending
December 31, 1997 and 1996, respectively.
The anticipated terms of the acquisition were not disclosed. The
transaction is subject to conditions of closing, including approval by
regulatory authorities.
Data Transmission Network Corporation (NASDAQ:DTLN) in Omaha, Nebraska,
is an innovative information and communication provider for the agricultural,
automotive, energy, farm implement, financial, mortgage, produce, golf, turf
management, construction, aviation, emergency management and weather-related
industries. DTN is committed to providing comprehensive, timely and affordably
priced information including weather, news, quotes, market analysis and
commentary to more than 160,000 subscribers in US and Canada via all relevant
distribution technologies.
Kavouras, Inc., founded in 1976, is a premier designer and manufacturer
of advanced meteorological technology for critical-need applications throughout
the world. From giant 1,000,000-watt Doppler radar to PC weather workstations,
Kavouras serves aviation, broadcasting, agriculture, power utilities and a
myriad of government agencies and universities with single-source meteorological
hardware and software from their corporate headquarters in Minneapolis,
Minnesota.
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EXHIBIT 99.2
News release of Data Transmission Network Corporation dated July 6,
1998.
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DTN ANNOUNCES CLOSING OF KAVOURAS, INC. STOCK ACQUISITION
OMAHA, NEB - Data Transmission Network Corporation (DTN) (NASDAQ: DTLN)
announced today the closing of the acquisition of Kavouras, Inc., for
$22,650,000 cash.
Kavouras, Inc. has approximately 600 customers in aviation, broadcast,
government and other industries, including DTN, receiving meteorological data.
The company engages in the development, design, manufacture, marketing and
service of single-source meteorological hardware and software for providing
weather data services. Kavouras recorded revenues of $19,679,000 and $17,562,000
for the years ending December 31, 1997, and 1996, respectively.
"Until now, DTN has been focused on the low end of the weather market
while Kavouras has been a provider for the high end market, such as TV
broadcast," stated Greg Sloma, President and Chief Operating Officer of DTN.
"This acquisition or combination allows DTN to target all markets, including the
middle markets, such as services to emergency management in all counties of the
U.S. We are very excited about our growth prospects in the weather industries
due to this acquisition," Sloma said.
Kavouras, Inc., which was founded in 1976, will operate under the name
DTN Kavouras Weather Services and will maintain the current facilities in
Minneapolis, Minnesota.
Data Transmission Network Corporation in Omaha, Nebraska, is an
innovative information and communication provider for a variety of industries
including agriculture, financial services, energy and weather-related industries
such as aviation, broadcast, government, turf management, construction,
emergency management and others. Additional industries served include
automotive, electrical equipment and freight transportation. DTN is committed to
providing comprehensive, time sensitive and affordably priced information
including weather, news, quotes, market analysis and commentary to more than
160,000 subscribers in the U.S. and Canada via all relevant distribution
technologies.
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